HOLIDAY RV SUPERSTORES INC - 10-K Annual Report

Back to GetFilings.com

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

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

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001

OR

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

COMMISSION FILE NUMBER 0-16448
HOLIDAY RV SUPERSTORES, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 59-1834763
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

200 EAST BROWARD BLVD., 33301
SUITE 920, (Zip Code)
FORT LAUDERDALE, FLORIDA
(Address of Principal Executive Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(954) 522-9903

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
(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 a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the common stock held by non-affiliates of
the Registrant on January 10, 2002, based on the closing price of the common
stock on the Nasdaq National Market on that date was approximately $9,346,500.
As of January 10, 2002, Holiday RV Superstores, Inc. had outstanding 9,352,000
shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days of October 31, 2001 in
connection with the Annual Meeting of Stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

HOLIDAY RV SUPERSTORES, INC.

FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001

TABLE OF CONTENTS

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 25
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 25

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 26
Signatures............................................................ 28
Financial Statements.................................................. F-1

i

HOLIDAY RV SUPERSTORES, INC.

PART I

ITEM 1. BUSINESS

GENERAL

Holiday RV Superstores, Inc. is a multi-store chain that sells, finances
and services recreation vehicles, or RVs, and recreation boats. As of January
29, 2002, we operate 11 dealerships in the following locations:

Bakersfield, Las Cruces, New Mexico
California Spartanburg, South Carolina
Roseville, California Wytheville, Virginia
Ocala, Florida Prosperity, West Virginia
Sanford, Florida Ripley, West Virginia
Winter Garden, Florida
Lexington, Kentucky

Our fiscal year begins on the first day of November and ends on the last
day of October. References in this Annual Report on Form 10-K to "Holiday,"
"we," "us" or "our" mean Holiday RV Superstores, Inc. and its consolidated
subsidiaries unless the context specifically requires otherwise.

We were incorporated in Florida in 1978 and reincorporated in Delaware in
February 2000. Our initial public offering was in 1987.

Our principal executive offices are located at 200 East Broward Boulevard,
Suite 920, Ft. Lauderdale, Florida 33301 and our telephone number is (954)
522-9903. Our web site address is www.recusa.com.

RECREATIONAL VEHICLE INDUSTRY

INDUSTRY OUTLOOK

The United States recreation vehicle industry is a $16 billion a year
industry. The RV industry caters to the travel and leisure needs of an estimated
30 million RV enthusiasts by selling and servicing recreation vehicles. The
Recreation Vehicle Industry Association (RVIA) lists the number of new RVs
shipped to dealers as follows:

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

(1) Shipment information for 2001 is not currently available.

According to industry data, the average RV owner is 49, owns a home, is
married, has a household income of $47,000, has no children living at home, and
buys an RV to travel.

One in 10 families in the United States owns an RV, with over nine million
vehicles on the road and an estimated 30 million RV travelers. Projections by
the RVIA indicate that RV ownership will increase 21% from 8.6 million
households in 1997 to an estimated 10.4 million households in 2010. This
projection is based primarily on the large number of "baby boomers" who will
reach their peak earnings and vacation years during this period. The U.S. Census
Bureau confirms the expected growth of this segment of the U.S. population.

In an effort to capitalize on the potential baby boomer opportunity, the RV
industry embarked on a highly publicized national market expansion program
beginning in 1997. This program is aimed at showing the lifestyle appeal of
RV-ing to the baby boomers. We believe the "Go RVing" slogan favorably portrays
the industry as one that offers solitude, family time and the opportunity to
slow down and reconnect with the world.

1

PRINCIPAL PRODUCTS AND SERVICES

Our principal products and services for the last three fiscal years are
listed below, by major revenue source, as a percentage of total revenue.

Revenue from finance and insurance is included in the category entitled
"other, net."

NEW AND USED RVS AND BOATS

The RVs we sell are generally categorized as follows:

Towables

Towables are designed to be towed by a car, van or pickup truck. They
provide temporary housing for recreational, camping or travel use without
requiring permanent on-site hook up. There are four types of towable RVs:

- Folding Camping Trailer

- Truck Camper

- Travel Trailer

- Fifth Wheel Travel Trailer

Motorized RVs

Also known as motor homes, motorized RVs are built on or as part of a
self-propelled motor vehicle chassis. They include the following types:

- Type A -- constructed entirely on a specially designed chassis that
already has the engine and drive components;

- Type B -- van campers are panel-type trucks to which the manufacturer
adds sleeping, kitchen and toilet facilities, fresh water storage, 110
volt hook-up and other items; and

- Type C -- built on an automotive manufactured van frame with an attached
cab section, or on an automotive manufactured cab and chassis. The
manufacturer completes the body section, which contains the living area,
and attaches it to the cab section. For the van conversion, the
manufacturer modifies a completed van chassis aesthetically or
decoratively for transportation and recreational purposes.

Currently, there are many manufacturers of towable and motorized RVs.
Although there are several sources for manufactured conventional vans, only the
following major U.S. manufacturers supply RV manufacturers with chassis that
already contain engine and drive components:

- Workhorse Custom Chassis;

- Ford Motor Company;

- Freightliner Corporation; and

- Spartan Motors Corporation.

Ford Motor Company is the largest supplier of chassis to RV manufacturers.

2

Fuel consumption for motorized RVs has improved substantially over the last
several years. In addition, diesel engines are growing in popularity over
gasoline engines, primarily in the larger bus-type vehicles.

SERVICE, PARTS AND ACCESSORIES

Service remains central to our mission of becoming the RV industry's first
national brand. Recognizing that poor service continues to top the list of
consumer complaints, we are committed to providing reliable, quality service at
all of our retail locations. Service historically provides higher margins than
new and used vehicle and accessory sales.

Our service facilities are fully equipped to handle virtually any type of
RV. We are a factory designated chassis warranty service center for Gillig,
Chevrolet Division of General Motors, Freightliner Motors, Workhorse, and
Spartan Motors. These companies reimburse us for the warranty services we
provide. Our Spartanburg, South Carolina, Las Cruces, New Mexico, Prosperity,
West Virginia and Wytheville, Virginia dealerships are also equipped to repair
all brands of boats and motors that we sell.

Our service facilities are equipped to make engine and drive train repairs,
as well as repairs to refrigerators, ovens and ranges, air conditioning systems,
plumbing and electrical systems of each RV we sell. In addition, we are an
authorized service center for most manufacturers of RV components.

We maintain service agreements with most RV and marine companies. These
service agreements allow us to purchase parts and obtain technical assistance
needed to repair and service the manufacturer's vehicles, boats and equipment.

The parts department of each of our dealerships supports our sales and
service functions. In addition, each retail center stocks accessory items often
purchased by RV owners. Each dealership also maintains a computerized
point-of-purchase inventory control and customer tracking system. Our
Spartanburg, Las Cruces, Prosperity and Wytheville dealerships also stock parts
and accessories for the marine products they sell. All of our locations sell
propane gas and provide sewage dump stations for RV waste evacuation.

FINANCE AND INSURANCE

We help our customers obtain financing by referring them to banks that
finance RV purchases. We also offer service contracts that provide additional
warranty coverage on RVs or some RV parts after the original warranty expires,
and various types of insurance policies, or credit life contracts, that pay a
customer's RV loans if the customer dies or is physically disabled. Our extended
warranty contracts range from one to seven years depending on whether the RV is
new or used. These contracts are also subject to mileage limitations. Our credit
life contracts range from one to seven years, based on the purchaser's age.

GROWTH STRATEGIES

Until recently, our growth strategy focused on consolidation opportunities
in the highly fragmented recreation vehicle industry. Over the last two years,
we acquired seven established dealerships in geographic markets that we did not
already serve and worked to improve their performance and profitability by
implementing our operating strategies. We are currently developing a "rollout"
growth strategy to accomplish our expansion goals and increase our market share.
The primary components of this growth strategy are:

- Roll-out and strategic partnering. We have identified potential
strategic partners with whom we would share a location. In these
locations, we would offer recreation vehicles and our co-location partner
would offer supplies and accessories often associated with RV owners.
These include camping equipment and satellite dishes. In markets with no
suitable partner, we intend to open new dealerships by leasing existing
facilities. In May 2001, we opened our first co-location site with The
Great Outdoors in Ripley, West Virginia. We also leased facilities on the
site of a former car dealership in Sanford, Florida as an RV liquidation
center.

- Improved Store Performance. We are reviewing our current practices and
procedures to identify which are most successful. We intend to apply them
on a uniform basis in all our locations. We are also

3

providing training and creating incentive programs for our employees to
improve their performance. We believe these and other initiatives that we
are implementing will allow our same-store performance to improve each
year by maximizing our revenue generating potential.

- Selective acquisitions. In limited situations where an acquisition may
be appropriate to fill a gap in our geographic markets, we will consider
additional acquisitions. However, we will only consider dealerships that
have been consistently profitable and demonstrate significant untapped
revenue and earnings potential. Currently, we have no acquisition targets
and we do not intend to actively seek any acquisition candidates.

The following objectives are key factors in successfully achieving our goal
to become the leading RV retailer in the industry:

- Implementing our roll-out strategy;

- Completing the integration of our recent acquisitions by identifying and
implementing the best practices and procedures to insure a consistent
customer experience at all of our locations;

- Improving our inventory management process by limiting new product
offerings and allowing each store's general manager the flexibility to
stock merchandise based on that store's market;

- Developing an asset management process that will optimize cash flow and
provide operating funds for new stores by making it possible for our
receivables and inventory turn rates to exceed current industry
standards;

- Decentralizing processes and support functions to reduce the need for a
large corporate staff; and

- Assembling a strong human resources team capable of identifying and
successfully recruiting outstanding candidates for employment and
providing the training and support that allow them to excel.

We believe that the growth strategies we are now developing may prove to be
more cost-effective than our former strategy of growth through acquisitions. We
have found that the startup costs for new locations are far less than those
associated with acquiring an established business. Our new strategy also
eliminates the problems associated with integrating a new business into our
existing operations. However, we cannot assure you that we will successfully
implement this new strategy or that it will yield the anticipated results.

NUMBER OF DEALERSHIPS

The following table provides information about the number of dealerships we
operated over each of the last five fiscal years.

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

(1) Our Clermont, Florida location is currently being rebuilt following a fire
in April 2001. In addition, we closed our Ft. Myers, Florida location as of
December 1, 2001.

MARKETING

In December 1999, we launched a national branding strategy to consolidate
and rebrand the various operating names of our subsidiaries under the trade name
"Recreation USA." We believe this trade name

4

better reflects our corporate identity and solidifies our acquisitions under a
single, recognizable brand that customers will remember.

ADVERTISING AND PROMOTIONS

We advertise year round using newspapers, magazines, direct mail,
billboards, website and yellow pages. We use national consumer magazines to
increase brand awareness and company recognition of our growing network of RV
dealerships. On-lot promotions and off-lot consumer shows, organized by trade
groups and private companies, supplement the advertising program. We participate
in 35 to 40 consumer RV shows and rallies annually, attended by up to 40,000
consumers each. We also promote smaller product shows at RV parks in which we
target existing RV owners in our markets. We also promote off-site product shows
in connection with well-known mass merchandisers. We use the services of
professional advertising and public relations firms to assist in implementing
our advertising, promotion and public relations campaign.

WEB SITE

We maintain a web site at www.RecUSA.com, where consumers can browse
through our new and used inventory, receive a trade-in quote, choose financing
and insurance, and schedule service for their RV or boat. RVs and boats
purchased through our web site can be delivered to any of our locations.
RecUSA.com also features an online parts and accessories catalog offering RV
supplies, camping equipment, housewares, hardware and other accessories, along
with special product and service discounts that are only available over the
Internet.

CUSTOMER BASE

Our customer base demographics may vary from dealership to dealership, but
primarily are as represented in the following tables.(1)

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

(1) Information from THE RV CONSUMER; A DEMOGRAPHIC PROFILE; A University of
Michigan Study, RVIA. The tables summarize findings from the fifth national
survey of RV ownership sponsored by RVIA.

(2) Of the population that falls into this group, this % owns RVs.

No single customer accounted for more than 10% of our revenues for fiscal
2001 or in prior years. Because we do not depend on a few major customers, the
loss of one would not materially adversely effect us.

MANUFACTURERS

We currently sell approximately 90 brands of RVs and recreational boats. We
purchase approximately 20% of our RVs from Fleetwood Enterprises, Inc., 17% from
Winnebago Industries, and 23% from Thor Industries, Inc. We purchase the
remainder of our RVs and boats from other manufacturers including National RV
Holdings, Inc., SMC Corporation, Forest River, Inc., Gulfstream Coach, Inc., and
Tracker Marine, Inc. In our opinion, the loss of any one brand of new RVs would
not materially effect us. Although the loss of all the brands sold by any of the
three largest manufacturers would have an adverse effect on our sales,

5

we believe that such a loss is highly unlikely. Decisions regarding which brands
to sell at each dealership are made on a regional basis, rather than centrally
at our corporate headquarters.

FLOOR PLAN FINANCING

Substantially all new and used vehicles and boats held in inventory are
pledged as security under floor plan contracts with financial institutions.
Under these contracts, the sale of a pledged vehicle to a consumer requires us
to pay the lender the amount, or release price, attributable to that vehicle
under the floor plan contract. Manufacturers have agreements with financial
institutions for new vehicles that provide the lenders limited repurchase
indemnification against any default by us under the floor plan contract. Our
primary floor plan agreement expired in November 2001. We recently negotiated a
forbearance arrangement with the lender. Under that arrangement, our lender
continued to provide funding through January 23, 2002. During that period, the
lender evaluated pro forma financial and cash flow analysis we provided, among
other things. Based on that evaluation, the lender will determine whether to
extend our current forbearance arrangement, enter into a new lending agreement
or demand repayment of the outstanding unpaid balance. As of January 29, 2002,
the lender had not decided which option to pursue.

EMPLOYEE RELATIONS

As of October 31, 2001, 2000 and 1999, we had approximately 319, 351 and
195 full-time employees, respectively. We have no collective bargaining
agreements with labor unions and have never experienced work stoppages. We
consider our employee relations to be good. We maintain internal training
programs at every level and have an internal quality control program and
customer satisfaction feedback system for all of our dealerships. We maintain a
nation-wide recruitment program for sales, service and management personnel.
Support personnel are usually hired from the local labor force. Factory training
programs are available to our employees and we generally take full advantage of
these programs by sending our employees to the manufacturer-supervised schools.
Most full time employees are provided with paid annual vacations, medical and
hospitalization insurance premium reimbursement, sick leave, paid holidays,
stock grants and other fringe benefits. After one year of employment, employees
are eligible to participate in the profit sharing and 401(k) investment plans.

EMPLOYEE STOCK OPTION PROGRAM

In fiscal 2000, our Board of Directors and stockholders approved the 1999
Stock Compensation Program. We have reserved three million shares of common
stock for issuance upon exercise of the options granted under the program. The
program provides for incentive stock options, non-qualified stock options, stock
purchase rights and stock appreciation rights. Our Board of Directors
administers the program. In January 2001, the Board of Directors granted options
to purchase a total of 487,750 shares of common stock to those employees with at
least one continuous year of service to Holiday. During fiscal 2001, we issued
additional options to purchase shares of common stock to newly hired employees.

SEASONALITY

Although the RV business operates year-round in our markets, the industry
in general is seasonal. We have significantly higher sales in the second and
third quarters of our fiscal year, and significantly lower sales in our first
and fourth quarters. During slack seasons at a particular dealership, we reduce
inventory of new and used RVs and introduce other cutbacks in operations, to
reduce the impact of the seasonality on our results of operations. However,
because a substantial portion of our expenses are fixed, our operating income
tends to be lower in the first and fourth quarters of our fiscal year and higher
in the second quarter.

COMPETITION

According to RVIA, there are approximately 3,500 RV dealers and 190 RV
manufacturers in North America. Competition in the sales of new and used RVs is
intense. Some of these retailers have more than one location, although most of
our competitors operate from a single location. We believe we are one of the
most

6

competitive RV dealers in the nation, offering approximately 90 brands of new
RVs and boats supported by a coast-to-coast network of service facilities that
is unique in the industry.

Significant competitive factors in the RV sales and service industry
include vehicle availability, price, service, reliability, quality of service,
and convenience. We believe that we are competitive in all these areas.
Nevertheless, we anticipate that we will continue to face strong competition in
the future.

The RV business depends heavily on the availability and terms of financing
for the retail purchase of its products. Consequently, changes in interest rates
and the tightening or loosening of credit by government agencies and financial
institutions dramatically affects our business. As discussed in more detail in
the Risk Factors section, the Floor Plan Financing paragraph of this section,
and in the Management's Discussion and Analysis of Results of Operations, our
major floor plan contract expired in November 2001 and the lender has not
decided whether it will continue to provide us with financing, or on what terms.
Without sufficient floor plan financing we cannot stock the inventory needed to
compete effectively.

The RV business is also negatively impacted by general economic down-turns
and fuel cost increases.

REGULATION

Compliance with federal, state and local laws and regulations, including
environmental protection laws, has not had, and is not expected to have, a
material effect on capital expenditures, earnings or our competitive position.

INSURANCE COVERAGE

Historically, we have had little difficulty in obtaining insurance coverage
for our dealership operations. We have obtained the insurance annually on a
competitive bid basis, at what we believe are reasonable premium rates. Although
the applicable premium rates have increased slightly, we do not believe that
these increases will have a material adverse effect on our business in the
foreseeable future.

7

ITEM 2. PROPERTIES

FACILITY AND LOCATION

The following table sets forth the location, premise size, and building
square footage for our properties as of October 31, 2001.

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

(1) Currently being rebuilt after fire damage.

(2) Dealership is closed and property is for sale.

(3) Lease expires May 1, 2002 and will not be renewed.

Our leases generally have terms ranging from five to ten years and are
renewable at our option. As current leases expire, we believe that we will be
able to renew them, or to obtain leases for equivalent or better locations in
the same general area.

The land and buildings at our owned locations were subject to mortgages
with aggregate balances of approximately $7 million as of October 31, 2001.

We believe that our facilities are adequate for the foreseeable future for
the business conducted at most locations. In fiscal 2000, our former dealership
in Greer, South Carolina was relocated to a new facility in Spartanburg, South
Carolina. Properties in Bakersfield, California, Las Cruces, New Mexico and
Spartanburg, South Carolina have room for limited expansion. Our property in
Clermont, Florida was damaged in a fire in April 2001. We expect the
reconstruction to be complete during the second quarter of fiscal 2002. We also
intend to sell the properties we own in Inverness, Ocala South and Tampa,
Florida where we have closed dealerships. Further, we do not intend to renew the
lease for our Ft. Myers, Florida dealership which was closed as of December 1,
2001.

8

ITEM 3. LEGAL PROCEEDINGS

We are a party to various legal proceedings arising from the ordinary
course of our operations. We believe, based upon the opinion of our legal
counsel, that none of these proceedings, individually or in the aggregate, will
result in a material adverse effect on our consolidated financial position.

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
RVEE. As of January 10, 2002, there were 420 holders of record of our common
stock.

The table below gives the high and low closing sale prices for our common
stock for each of the quarters in the fiscal years ended October 31, 2001 and
2000, as reported on the Nasdaq National Market.

MARKET PRICE

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock, and we
do not anticipate paying cash dividends in the foreseeable future. Earnings and
other cash resources will continue to be used in the expansion of our business.

RECENT SALES OF UNREGISTERED SECURITIES

In January 2002, we sold 200 units of our securities to two accredited
investors in a private placement in reliance on Rule 506 of Regulation D of the
Securities Act of 1933, as amended. Each unit consisted of 100 shares of Series
A Preferred Stock and a warrant to purchase 5,000 shares of common stock, none
of which are currently exercisable.

9

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical financial data. This
data was derived from our audited Consolidated Financial Statements. The
selected historical financial data is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and our Consolidated Financial
Statements, including the related notes to the financial statements.

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

(1) Includes a $1 million charge representing effect of a change in accounting
principle. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.

(2) Includes 11.5 months of activity for County Line, which we acquired on
November 11, 1999, and eight months of activity for Little Valley, which we
acquired on March 1, 2000. See Note 2 to the financial statements.

(3) Includes 12 months of activity of Hall Enterprises, Inc., which we acquired
on October 31, 2000.

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

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect our current views about future events and
financial performance. The words "believes", "projects," "anticipates,"
"estimates," "expects," "most likely," "intends," and similar expressions,
identify forward-looking statements.

Any forward-looking statement that we make or is made on our behalf is
subject to uncertainties and other factors that could cause actual results to
differ materially from those statements. The uncertainties and other factors
include, but are not limited to, the factors described in the section entitled
"Risk Factors," and elsewhere in this Annual Report on Form 10-K. Although we
have attempted to list the factors we believe to be important to our business,
other factors may also significantly affect our operating results. New factors
emerge from time to time and it is not possible for us to predict all of those
factors, nor can we assess the impact of each factor on the business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from forward-looking statements.

We caution you not to place undue reliance on any forward-looking
statements, because they express our view only as of the date the statements
were made. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

10

GENERAL

We are a multi-store dealership chain that sells, finances and services
RVs, boats and other recreation vehicles. We currently have 12 retail locations,
although our Clermont, Florida dealership was damaged by fire in April 2001 and
is still being reconstructed. We expect the reconstruction to be complete during
the second quarter of fiscal 2002.

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

Our primary focus in fiscal 2000 was on acquiring well-established RV and
marine dealerships with strong leadership roles in key geographic markets with
strong demographics. We then worked to improve their performance and
profitability by implementing our operating strategies. In fiscal 2001, our
primary strategy focused on integrating the acquired dealerships into our
corporate structure, reducing our inventory turnover rates to comply with dollar
limits imposed by our primary floor plan lender, reducing expenditures and
closing unprofitable locations. Our performance in fiscal 2001 reflects a
reevaluation of our business from all aspects. We believe that structuring our
business to fit within the limitations of our capital resources will position us
to perform at higher levels if the demand for recreational products increases at
the anticipated rate. We intend to add new dealerships by leasing suitable
property in key geographic markets and through co-location opportunities with
strategic partners, but only if we have sufficient working capital to sustain
expansion. We will also consider acquisition opportunities within our existing
markets if we believe it will result in operating and marketing efficiencies and
that the acquisition will immediately add profits to operations. While we do not
anticipate closing any of our current dealerships, we intend to closely monitor
the performance of all locations and close any that are unprofitable or whose
performance does not justify continued operations.

All of our acquisitions were accounted for using the purchase method. As a
result, we have not included in our financial statements the results of
operations of the acquired companies prior to the dates we acquired them. Any
goodwill of an acquisition is amortized over a 20-year period.

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

We launched a national branding strategy in December 1999 to consolidate
and rebrand the various operating names of our subsidiaries under the trade name
Recreation USA. We believe the new trade name better reflects our corporate
identity and solidifies our acquisitions under a single, recognizable brand that
will be memorable with customers. However, we believe there is a greater
potential to capitalize on the brand identity. We intend to evaluate strategies
aimed at achieving a greater value with our geographic market diversity.
Implementing these strategies depends on the continued availability of cash to
advertise and promote our brand.

Effective November 1, 2000, we changed our revenue recognition policy
related to commissions we earn for placing retail financing contracts with
indirect lending institutions in connection with customer vehicle and marine
purchases and customer purchases of credit life insurance products to defer
these commissions until the chargeback period has lapsed. This change was made
in accordance with the implementation of the U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). The effect of this change is reported as the cumulative
effect of a change in

11

accounting principle in the year ended October 31, 2001. The net effect reflects
the deferral as of November 1, 2000 of approximately $1 million of revenue net
of chargebacks previously recognized. We recognized the revenue included in the
cumulative effect adjustment during the year ended October 31, 2001. The effects
of this change in accounting principle on net loss and net loss per share for
the year ended October 31, 2001 were decreases of approximately $100,000 and
$0.01 per share, respectively.

RESULTS OF OPERATIONS

We have summarized for the periods presented, certain selected income
statement data as a percentage of total net revenues:

RESULTS OF OPERATIONS FOR FISCAL 2001 COMPARED TO FISCAL 2000

Sales and service revenue decreased 11.8% to $134.3 million in fiscal 2001
from $152.4 million in fiscal 2000. Of this decrease, $33.7 million was
attributable to a 23.2% decrease in same store sales, partially offset by the
effect of acquired stores. Used vehicle sales as a percentage of total vehicle
sales increased to 33.1% in fiscal year 2001 compared to 32.9% in fiscal year
2000. Used vehicle sales result in approximately 2.1% higher gross profits than
new units on average. New RV and marine product sales decreased in fiscal 2001
to $75.9 million, or 56.5% of total RV and marine product sales, from $97.6
million, or 64.0% of total RV and marine product sales in fiscal 2000. Although
new vehicle sales may have been adversely affected by the reduction in available
inventory, management believes that its prior inventory levels were principally
overstocked.

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

- INTERNAL MANAGEMENT INITIATIVES. Management focused on reducing aged and
overstocked inventory by reducing selling prices, lowering inventory at all
locations to increase inventory turnover and restocking inventory based on local
market demand at each dealership. We also focused on changing our product mix to
include less expensive new models, and more used RVs, which have a higher gross
profit. We believe that lower priced used vehicles are more desirable in a weak
economy characterized by declining consumer confidence. In addition, in the last
45 days of fiscal year 2001, we focused on store performance by closing
dealerships we believed were not performing at levels sufficient to justify
their continued operation. We also closed dealerships in markets where we had
multiple locations. We expect to offset most of the loss of revenue

12

from the closed locations with increased revenue and profits from stores
remaining in the same general market of each closed dealership.

- EXTERNAL MARKET CONDITIONS. We believe that declining consumer
confidence and the slower economic environment played a significant role in the
overall decrease in recreation vehicle and marine product revenue for fiscal
year 2001. However, studies show that the long term outlook for RV sales
continues to appear favorable. Based on research conducted for the RVIA in fall
2001, we believe lower gas prices, lower interest rates and the desire for
greater flexibility and control over travel plans in the post-September 11
travel climate will increase the demand for our products. Demographic studies
reflect continued growth in the recreational vehicle prime target market for the
next 30 years. We intend to continue responding to market demand by emphasizing
lower priced vehicles, and offering value added service and warranty programs
while reducing costs.

- FINANCIAL CONSTRAINTS. Our ability to maintain what we believe is a
desirable mix between new and used products has been hampered by reductions in
our available floor plan credit line and the time required to sell aged
inventory, which is not eligible for floor plan funding, and overstocked
inventory in a weak market. In addition, throughout fiscal year 2001, we have
had insufficient capital to satisfy all of our working capital requirements.
This dramatically limits our ability to meet our business objectives and fully
exploit our markets in any economic environment.

Parts and services revenue increased $0.8 million, or 9.0%, to
approximately $10 million in fiscal 2001 from $9.2 million in fiscal 2000. While
same store sales decreased $0.9 million, or 6.8%, this decrease was offset by
acquired or newly opened stores. Although there was a downturn in our overall
business and we were constrained by our limited working capital, we emphasized
our parts and service business which contributed positively to our performance.

Net revenue from finance and insurance products and other sources decreased
$1.5 million, or 30.1%, to $3.5 million from $5 million in the prior fiscal
year. Of this decrease, $2.3 million was attributable to a 53.8% decrease in
same store sales partially offset by net revenue generated from acquired or
newly opened stores. The overall decrease in fiscal 2001 is directly related to
our decrease in new and used RV and marine product sales. Effective November 1,
2000, we changed our revenue recognition policy by adopting "SAB 101," which
defers recognizing revenue on commissions received from placing indirect retail
installment contracts with indirect lenders and fees generated from the sale of
credit life insurance. The cumulative adjustment required to record the
accounting change is separately recorded as a charge before net income in the
consolidated statement of operations. The current year net effect of this change
in the revenue recorded from finance and insurance products was additional
revenue of $0.1 million.

Total gross profit decreased $6.3 million, or 25.4% in fiscal 2001 from
$25.0 million in 2000, primarily due to a 24.9% decrease in same store gross
profit, partially offset by gross profit from the newly acquired dealerships in
fiscal 2000. The decrease in actual dollars and as a percent of revenue was
primarily related to a reduction in overstocked and aged inventory which we
accomplished by reducing retail prices to increase sales of aged units and
through additional inventory reserves based on inventory aging, reassessment of
wholesale market value and salability, historical sales activity and the
condition of the merchandise as of October 31, 2001. These efforts resulted in a
fourth quarter charge of $2.3 million. In addition to marking down inventory,
which we believe created value for our customers, we provided incentives to our
sales force to achieve our inventory objectives. Although these initiatives
impacted gross profit, we successfully reduced new and used RV and marine
product inventories by $24.6 million, or 42.7%.

Parts and services gross profit decreased $0.1 million, or 1.6%, to $4.1
million from $4.2 million in fiscal 2000. Same store gross profit decreased $0.5
million, or 7.9%, partially offset by the effect of the acquired stores. In
addition, all parts and accessory inventory was reviewed and valued based on
sales history, aging, condition of merchandise and applicability to the markets
we service. As a result, our reserve for obsolescence increased by $0.5 million
in fiscal 2001.

Net revenue from finance and insurance and other products contributed 18.6%
of total gross profit in fiscal 2001 compared to 19.9% in fiscal 2000.

13

Selling, general and administrative expenses increased 7.2%, or
approximately $1.8 million, in fiscal 2001 to $26.8 million from $25 million in
fiscal 2000. On a same store basis, selling, general and administrative expenses
decreased $0.3 million, or 1.8%, to $17 million in fiscal 2001 compared to $17.3
million in fiscal 2000. Acquisitions and new store openings represent an
additional expense of $4.3 million in fiscal 2001. All other expenses were $4.2
million. In fiscal 2001, we also recorded an expense of $1.6 million for common
stock issued to a financial consultant as compensation for services. Personnel
related expenses remained essentially unchanged, and represented 54.3% of
expenses in fiscal 2001, compared to 59.3% in fiscal 2000. Total selling,
general and administrative expenses as a percent of revenue increased to 20.2%
from 16.4% due to decreased revenue and increased charges incurred in fiscal
2001.

In the fourth quarter of fiscal 2001, we recorded a charge of $1.6 million
representing impaired goodwill for two closed stores. We concluded that
operating one larger dealership in a geographic market, rather than three
smaller dealerships in the same market, would improve performance in that
market, and positively impact the performance of our dealerships in surrounding
markets.

Loss from operations in fiscal 2001 was $9.8 million, approximately $9.4
million more than the fiscal 2000 loss from operations. This was primarily the
result of the activities described above.

Interest expense decreased to 3.5% to $4.6 million in fiscal 2001 from $5.1
million in fiscal 2000. The decrease was primarily due to reductions in floor
plan financing as a result of decreased inventory levels, despite an increase in
our floor plan interest rates.

We had losses from the sales of assets of $0.1 million compared to a slight
gain in fiscal 2000.

In fiscal year 2001, we recorded a gain of $0.4 million from an insurance
recovery on the Clermont, Florida property damaged in a fire.

Debt conversion expense of $1.5 million was charged in fiscal 2001 in
connection with the conversion of seller notes into shares of our common stock.
Seller notes with a principal balance of approximately $3.2 million were
converted into 912,000 shares of common stock valued at approximately $2.7
million, or $0.5 million less than the carrying value of the debt. Since the
terms of the conversion were the result of a modification of the original
conversion terms that would have called for share issuance at a fixed price of
$7.50 per share, or 430,923 shares, we were required under SFAS No. 84, "Induced
Conversions of Convertible Debt," to record this non-cash expense charge equal
to the fair value of the incremental shares (481,077) issued.

An income tax benefit of $0.1 million was recorded in fiscal 2001. Most all
current year tax benefits created from 2001 loss carrybacks to income years were
offset by a valuation allowance established to reduce previously recognized
deferred tax assets due to uncertainty about their realization. See Note 11 to
the financial statements. In fiscal 2000, we recorded an income tax benefit of
$1.8 million. We received a tax refund of approximately $1.4 million in fiscal
2001 for a carry back of net operating loss.

In fiscal 2001, we recorded a $1 million charge for the cumulative effect
of a change in accounting principle resulting from the change in our revenue
recognition policy from adopting "SAB 101," which defers recognizing revenue on
commissions received from placing indirect retail installment contracts with
indirect lenders and fees generated from the sale of credit life insurance. The
current year effect of this change is reflected in operating income.

RESULTS OF OPERATIONS FOR FISCAL 2000 COMPARED TO FISCAL 1999

Sales and service revenue increased 87% to $152.4 million in fiscal 2000
from $81.4 million in fiscal 1999, primarily due to revenue from the newly
acquired dealerships in fiscal 2000. Of the increase, $66.7 million, or 94%, was
from the newly acquired County Line and Little Valley dealerships. In spite of
the negative impact of higher interest rates, increasing fuel prices and a
declining stock market on customer traffic starting in the first quarter of
fiscal 2000, we were able to increase comparable store (stores owned both
periods) sales by 6%, or $4.3 million. We continue to respond to these market
conditions with a concentrated focus on aggressive promotions, improved product
mix, improved stocking levels, and improved service. On a pro forma

14

comparable basis (all stores for the comparable periods) sales and service
revenue decreased by approximately $338,000 or 0.2%.

We expect revenue to increase significantly in fiscal 2001, primarily due
to our expansion.

We expect our same store sales to fluctuate from the impact of:

- Changes in competition within each market we operate;

- Movement in interest rates;

- General market conditions in the areas in which our stores are located;

- Our acquisition of new dealerships in the same general market of our
existing dealerships; and

- The risk factors set forth below.

Coming off a record-setting 1999, RV industry analysts predicted that sales
would increase 3% to 4% during 2000, yet industry shipments for the first 11
months of the year show the entire sector was down about 5.3 percent.
Motorhomes, which led sales growth during 1999, declined nearly 14 percent.
Higher interest rates, increasing fuel prices and a declining stock market
dampened consumer confidence in 2000.

Although we expect our existing stores to have sales growth and to remain
profitable, we expect most of our sales growth to come from newly added store
locations. However, we may not be able to continue to grow or purchase new store
locations at a sufficiently rapid pace or on terms and conditions favorable to
us.

Gross profit increased 78% to $25.0 million in fiscal 2000 from $14.0
million in 1999, primarily due to gross profit from the newly acquired
dealerships in fiscal 2000. Gross margin decreased to 16.4% from 17.2%,
primarily as a result of our decision to sell inventory at a lower cost in order
to remain competitive. This decrease was offset by increased margins in parts
and services, which increased to 44.9% from 44.1%. This was the result of our
strategy to become the RV industry's first national brand. On a pro forma
comparable basis (all stores for comparable periods), total gross profit
decreased by $1.4 million, or 4.7%.

Selling, general and administrative expenses increased 143%, or $14.7
million in fiscal 2000 to $25.0 million from $10.3 million in fiscal 1999,
primarily due to $10.2 million in SG&A for the newly acquired dealerships.
Approximately $3.2 million of the increase was due to expenses associated with
(1) building an infrastructure for our current and future expansion, (2)
acquisition related expenses and (3) improving stockholder communications.
Expenses to promote the new trade name "Recreation USA" and the relocation of
two dealerships also impacted SG&A. We expect the infrastructure building and
the acquisition related types of expense to continue but these expenses will
have a significantly lower impact in the future on total SG&A as revenue from
acquisitions increases and the integration of acquired businesses are completed.

Loss from operations in fiscal 2000 was $39,000. This was $3.8 million less
than the $3.7 million income from operations earned in fiscal 1999. This was
primarily the result of the activities described above, including costs
associated with expanding our infrastructure, acquisition related expenses and
improving stockholder communications. Operating income as a percent of revenue
decreased to 0.0% from 4.6%.

Interest expense increased 363% to $5.1 million in fiscal 2000 from $1.1
million in fiscal 1999. The increase was primarily due to increased inventory
levels, resulting from acquired dealerships, accounting for approximately 59% of
the total increase. Higher interest rates on floor plan balances, accounted for
25% of the increase, 10% was for interest on acquisition related debt, and 6%
was for mortgage interest.

The federal and state income tax benefit rate was 36% in fiscal 2000
compared to a tax rate of 38% in fiscal 1999. The combined benefit rate varies
from the statutory rate due to increased non-deductible expenses for tax,
primarily goodwill. See note 11 of the notes to the consolidated financial
statements for components of the income taxes and the reconciliation of the
provision for income taxes to the federal statutory rates.

15

LIQUIDITY AND CAPITAL RESOURCES

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

Cash flows from operations. During the fiscal year ended October 31, 2001,
our cash flows decreased primarily due to a $16.6 million net loss. Cash of
$22.9 million was used during the fiscal year to repay our floor plan lenders.
Total inventory was reduced $25.6 million. Repayments to general suppliers and
vendors have been extended with accounts payable increasing $0.9 million. We
also received $1.4 million in cash for an income tax refund that resulted from
our net operating loss carry back. Other current asset balance sheet accounts
were reduced offsetting the reduction in cash flow from the net operating loss.

Cash flows from investing. Investing activities used net cash of $0.5
million as compared to $6.9 million in the previous fiscal year. This decrease
resulted from changing our business strategy in fiscal 2001 from growth through
acquisition to our current focus on integrating the acquired dealerships,
reducing inventories and closing unprofitable locations. In fiscal 2000, we used
$6.2 million to purchase dealerships, and $3.4 million to purchase property,
plant and equipment, primarily for the County Line and Little Valley
dealerships. The prior year also included a sale and leaseback transaction that
provided $2.1 million in cash. Capital expenditures for property and equipment
are expected to be less than $500,000 in fiscal 2002. In fiscal year 2001, we
invested $1 million in restricted cash to support our floor plan agreement with
our primary lender and $0.1 million to support other obligations.

Cash flows from financing. Financing activities provided net cash of $0.9
million as compared to $0.5 million in fiscal 2000. We raised $2 million in
fiscal 2001 through additional short term bridge loans, some of which were
repaid in 2001 and others with repayment terms that have recently been
renegotiated. In fiscal 2000, we received $2.2 million from a real property
mortgage on our Spartanburg, South Carolina dealership and $3.9 million of notes
payable and used $5.8 million to retire notes payable.

Net use of cash from all activities was $2.1 million, which reduced cash
and cash equivalents to $0.1 million from $2.2 million the prior year.

Working capital. Working capital decreased to $(0.8) million from $9.0
million the prior year, primarily due to the net operating loss, an increase in
accounts payable, deferral of revenue recognition and a reduction in inventory
at reduced margins.

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

Principal long term commitments. As of October 31, 2001, our principal
long-term commitments consist of operating leases and notes payable.

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

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

16

In March 2001, we entered into an amended and restated loan and security
agreement with our primary floor plan lender that required the following:

- the reduction of available credit to a maximum of $25,000,000 by May 1,
2001;

- the maintenance of certain financial covenants including tangible net
worth and working capital and debt to tangible net worth ratios; and

- collateral of $3.5 million in the form of a certificate of deposit to be
pledged by March 26, 2001.

In April 2001, we completed further negotiations with our primary lender to
amend several of the terms of the March 2001 amended and restated loan and
security agreement. The first amendment to the amended and restated loan and
security agreement reduced the certificate of deposit pledge to $1 million and
added collateral consisting of mortgages on all of our unencumbered real estate.
The $1 million certificate of deposit was established in July 2001 and is
classified as restricted cash at October 31, 2001. The interest rate for
advances on eligible new and used inventory was at prime plus 3.0% and 3.5%,
respectively. The first amendment, which expired October 31, 2001, waived our
failure to meet the financial covenants through April 30, 2001. We did not meet
the financial covenants through October 31, 2001, and are currently negotiating
with our primary floor plan lender to renew the floor plan financing
arrangement. We executed a forbearance and amendment to the expired agreement
that was effective through January 23, 2002 while negotiations continued.

As discussed elsewhere in this Annual Report on Form 10-K, the lender is
now evaluating financial projections and other information we provided, as
requested. On the basis of that evaluation, the lender will decide whether to
continue the floor plan on the same terms as the expired agreement, demand
repayment of the unpaid balance or enter into a new agreement with different
terms. The impact of the lender's decision on our business depends on which
decision it ultimately reaches. For example, if the lender demands immediate
repayment, we will not be able to stock sufficient RV and marine inventory to
sustain our business. We do not believe the lender will take this action, but we
cannot be sure that the terms of a new arrangement would be more favorable than
those under the expired agreement.

We have also negotiated an arrangement with another floor plan provider
that requested payment of the unpaid balance under the floor plan agreement in
late fiscal 2000 because of our poor performance and because it was no longer
providing floor plan financing to RV dealers. We are currently paying off the
outstanding balance, which was $2,422,019 at October 31, 2001, through the sale
of units included in the floor plan and have done so throughout fiscal 2001. We
anticipate repaying past due amounts on a mutually agreed schedule concluding in
June 2002.

After we raise additional capital, we intend to continue negotiating with
our major floor plan lender to increase the amount of floor plan financing
available to us. This will allow additional dealerships to be included under our
major floor plan agreement. However, we may not be able to obtain sufficient
alternative floor plan financing to meet our business plan requirements.

Going Concern. As discussed, there is uncertainty regarding the outcome of
our negotiations with our primary floor plan lender and we may not be able to
obtain sufficient alternative floor plan financing to meet our business needs in
fiscal year 2002. We have also incurred net losses of $16.6 million and $3.2
million in fiscal 2001 and 2000, respectively, and incurred net cash outflows
from operations of approximately $2.4 million and $0.6 million, respectively.
These circumstances raise substantial doubt about our ability to continue as a
going concern. While management believes that operating performance will improve
in fiscal year 2002, we may require additional funding to cover operating
deficits. Management further believes that additional financing will be made
available to support the our liquidity requirements and that certain costs and
expenditures could be reduced further should any needed additional funding not
be available. Failure to generate sufficient revenues, raise additional capital
or continue to restrain discretionary spending could have a material adverse
effect on the Company's ability to continue as a going concern and to achieve
its intended business objectives. (See Note 2 "Summary of Significant Accounting
Policies").

17

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

RECENT EVENTS

Private Placement of Series A Preferred Stock

In January 2002, we entered into a securities purchase agreement under
which we agreed to sell up to 350 units of securities, in a private placement to
accredited investors. Each unit consists of 100 shares of Series A Preferred
Stock and a warrant to purchase 5,000 shares of common stock. The purchase price
is $10,000 per unit for total proceeds of $3.5 million if all the units are
sold. The warrants are exercisable for five years at an exercise price of $0.50
per share, but only if we receive the stockholder approval required under the
applicable Nasdaq rules.

The Series A Preferred Stock is divided into two sub series designated
Sub-Series A-1 and Sub-Series A-2, which are identical, except that only the
Sub-Series A will be convertible into shares of common stock and have voting
rights until we obtain the stockholder approval required to comply with Nasdaq
Marketplace Rates 4350 and 4351. The number of shares of common stock into which
the Sub-Series A-1 Preferred stock is initially convertible is 1,761,400 shares,
which represents approximately 19.9% of our

18

outstanding stock at December 31, 2001. At each closing, purchasers will receive
a pro rata number of shares of Sub-Series A-1 Preferred Stock and Sub-Series A-2
Preferred Stock based on the maximum 35,000 shares being offered. If all of the
Series A Shares offered are not purchased by the anticipated final closing date
of January 31, 2002, the purchasers will be entitled to exchange their shares of
Sub-Series A-2 Preferred Stock for shares of Sub-Series A-1 Preferred Stock on a
pro rata basis until the maximum number of shares of Sub-Series A-1 Convertible
Preferred Stock are issued.

As of January 29, 2002, we had sold 5,033 and 14,967 shares of Sub-Series
A-1 and Sub-Series A-2, respectively, and granted warrants for the purchase of
1,000,000 shares of common stock for total proceeds of $2 million. We received
preliminary stockholder approval from a majority of our stockholders and we
expect to receive formal stockholder approval before February 15, 2002.

If we obtain the required stockholder approval, the Series A Preferred
Stock will be convertible at any time at the holder's option, at the then
applicable conversion rate, adjusted for certain events including the issuance
of common stock for consideration less than the conversion price then in effect.
Each share of Series A Preferred Stock will initially be convertible into 200
shares of common stock if we obtain the necessary stockholder approval.

Dividends of 10% per year accrue daily and are payable quarterly on March
31, June 30, September 30 and December 31 of each year. Dividends accumulate and
compound quarterly if not paid in cash on the dividend payment date. If we are
in default under the terms of the Series A Preferred securities purchase
agreement, the dividend rate will increase to 15% per year.

The Series A Preferred Stock has a liquidation preference of 125% of the
issuance price. Upon a liquidation or sale, holders of the Series A Preferred
Stock will be entitled to a liquidation preference payment of the original
issuance price plus any accrued and unpaid dividends.

If any shares of the Series A Preferred Stock are still outstanding on
December 31, 2007, we must redeem those shares at the issuance price plus all
accrued and unpaid dividends, if funds are legally available to do so. We are
also required to redeem the Series A Preferred Stock at the liquidation
preference price upon a consolidation, merger or reorganization, the sale of
substantially all of our assets, or consummation of a purchase, exchange or
tender offer for more than 50% of our common stock. The holders of the Series A
Preferred Stock may also require us to redeem their shares at the liquidation
preference price if our common stock is not listed on the Nasdaq, American Stock
Exchange or the New York Stock Exchange for 10 business days during any 12-month
period, if we provide notice to any holder that we do not intend to comply with
the conversion request, or if we are in default under the securities agreement
and do not cure the default.

On the date of issuance, through January 28, 2002, the estimated fair
market value of our common stock exceeded the conversion price of the Series A
Preferred Stock. This resulted in a deemed dividend of approximately $2 million.

Series B Preferred

On December 21, 2001, we received $250,000 as the first tranche payment of
a proposed investment in all shares of our Series B Preferred Stock. The terms
are subject to negotiation and completion of definitive documentation and all
authorizations required under applicable law.

Bridge Financing

In January 2002, we agreed to convert into common stock, at a per share
conversion price to be determined, approximately $300,000 of the unpaid balance
plus accrued and unpaid interest on the $500,000 6.75% bridge note and the
$200,000 6.75% demand note from an affiliate of a former director, and a former
officer and director of ours (See Note 5 "Other Debt- Bridge Financing" and Note
14 "Related Party Transactions"). The remaining balance of approximately
$128,000 was assigned by the noteholders to our Chief Executive Officer in
settlement of non-Company obligations between the parties. The Chief Executive
Officer agreed to eliminate the interest charge and to structure a repayment
schedule to fit within our cash flow parameters.

19

In January 2002, we agreed to restructure the $500,000 6.75% bridge note
received in August 2001 (See Note 5 "Other Debt-Bridge Financing") by converting
$250,000 into common stock, at a per share conversion price to be determined.
Payment of the remaining $250,000 balance plus accrued interest is due no later
than December 31, 2003. In addition, the holder agreed to release a junior
security interest in our Tampa, Florida and Las Cruces, New Mexico properties.

Floor Plan Financing

On January 9, 2002, we entered into a forbearance agreement with our
primary floor plan lender to amend and extend the floor plan financing agreement
to January 22, 2002 (See Note 9 "Floor Plan Contracts"). During the forbearance
period, Holiday agreed to additional terms, which allow for the continuation of
the financing while negotiations continue. Our non-compliance with the financial
covenants has not been waived during the forbearance period. There are no
assurances that we will reach agreeable terms with our primary floor plan lender
or obtain sufficient alternative floor plan financing (See Note 2 "Summary of
Significant Accounting Policies").

Sale of Tampa Property

On January 3, 2002, we entered into an agreement to sell our Tampa, Florida
facility for $1,026,000 and a net book value at October 31, 2001 of $633,468.
The purchaser has a 60-day inspection period beginning on that date to perform
standard due diligence inspections of the property and to obtain the necessary
financing to complete the purchase. The purchaser may opt out of the contract
with a full refund of the initial $30,000 deposit during the 60-day inspection
period. Beginning on the day the inspection period ends, the purchaser has 30
days to close the purchase or forfeit the deposit. Since the property is pledged
as collateral and secured by a first mortgage with our primary floor plan
lender, all proceeds will be remitted to the lender for application to the
outstanding floor plan obligation or held as additional restricted cash.

RISK FACTORS

OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DOUBT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.

Our financial statements for the years ended October 31, 2001 and 2000 were
audited by our independent certified public accountants. Their report states
that the financial statements were prepared assuming we will continue as a going
concern although we incurred significant net losses in fiscal 2001 and 2000 and
have net cash outflows from operations that may require additional funding,
which we may not be able to obtain. These circumstances raise substantial doubts
about our ability to continue as a going concern.

OUR PRIMARY FLOOR PLAN FINANCING AGREEMENT HAS EXPIRED AND OUR ABILITY TO
CONTINUE AS A GOING CONCERN DEPENDS ON OBTAINING SUFFICIENT FLOOR PLAN
FINANCING.

If we do not have adequate floor plan financing, we will not be able to
meet our business objectives and we will not generate the cash flow necessary to
sustain our operations. The floor plan financing arrangement with our primary
lender was terminated in January 2001. The new agreement, which had a lower
borrowing limit and higher interest rates, expired in November 2001. We recently
negotiated a forbearance arrangement. Under that arrangement, our lender
continued to provide funding through January 23, 2002. The lender is currently
evaluating the pro forma financials and cash flow analysis provided by us, among
other things, to determine whether to extend our current forbearance
arrangement, enter into a new lending agreement or to demand repayment of the
outstanding unpaid balance. Another provider is no longer providing floor plan
financing to recreation vehicle dealers. If we do not successfully negotiate an
extension to our expired floor plan, comply with all of its terms, or our other
floor plan financing sources do not provide adequate funding, we may have to
reduce our inventory, close or sell retail stores, sell real estate or seek
bankruptcy protection. The lack of sufficient floor plan financing, in addition
to significant net losses, raises substantial doubt about our ability to
continue as a going concern.

20

OUR SUBSTANTIAL INDEBTEDNESS COULD RESTRICT OUR OPERATIONS AND MAKE US MORE
VULNERABLE TO ADVERSE ECONOMIC CONDITIONS.

We have a significant amount of debt. Our growth strategy may require us to
secure significant additional financing. Our future capital requirements will
depend upon the size, timing and structure of future acquisitions or strategic
partnerships and our available working capital. Our large amount of indebtedness
could adversely affect our business because:

- Much of our cash flow from operations may be needed to meet our debt
obligations and would not be available for other uses.

- Our ability to obtain additional financing for working capital, capital
expenditures or other reasons may be limited.

WE ARE VULNERABLE TO FURTHER DOWNTURNS IN OUR OPERATING RESULTS, OR IN ECONOMIC
CONDITIONS OR IF INTEREST RATES INCREASE.

Our ability to make payments on our indebtedness depends on our ability to
generate cash flow in the future. If our cash flow from operations is
insufficient to meet our debt service requirements, we will need to refinance or
obtain additional financing or dispose of assets. In addition, our credit
arrangements generally contain financial and operational covenants and other
restrictions with which we must comply.

OUR FAILURE TO COMPLY WITH FINANCIAL COVENANTS MAY PREVENT US FROM OBTAINING
ADEQUATE FINANCING THAT WE NEED.

We were required to replace our floor plan financing arrangement in January
2001. This reduced our prior borrowing levels, increased our financing costs and
added other financial covenants. We renegotiated some of the terms of the new
arrangement in March 2001. Although as part of that renegotiation the lender
waived our failure to comply with new financial covenants as of April 30, 2001,
we were not able to meet those covenants in 2001 and we may not meet those
covenants in the future. The reduced financing line also forced us to seek other
sources of floor plan financing. Our failure to comply with required financial
and other covenants or to obtain sufficient financing on favorable terms and
conditions could have a material adverse effect on our business, financial
condition, results of operations and prospects since we rely on such financing
to obtain the inventory levels necessary to support our business plan. Adequate
financing may not be available if and when we need it or may not be available on
acceptable terms.

THE UNITS WE RECENTLY SOLD IN A PRIVATE PLACEMENT MAY BE CONVERTIBLE INTO A
NUMBER OF SHARES OF COMMON STOCK THAT WILL SUBSTANTIALLY DILUTE OUR CURRENT
STOCKHOLDERS.

In January 2002, we entered into a securities purchase agreement under
which we agreed to sell up to 350 units for a total purchase price of $3.5
million. Each unit consists of Series A Preferred Stock and a warrant to
purchase common stock. If we obtain the stockholder approval required under
Nasdaq Marketplace Rules 4350 and 4351, each share of Series A Preferred Stock
will be convertible into shares of common stock for a conversion price of $0.50
per share and each warrant will be exercisable for five years for 5,000 shares
of common stock at an exercise price of $0.50 per share. We believe the offering
will be fully subscribed in which case the preferred stock will be convertible
into seven million shares of common stock and the warrants will be exercisable
for 1,750,000 shares of common stock after we receive stockholder approval. The
potential dilutive effect to our current stockholders could have a negative
impact on our earnings per share.

THE SERIES A PREFERRED STOCK HAS ANTI-DILUTION PROVISIONS THAT COULD RESULT IN
FURTHER DILUTION TO OUR CURRENT STOCKHOLDERS.

If we issue shares of stock in the future below the conversion price of the
Series A Preferred Stock, we will be required to issue additional shares to the
holders of Series A Preferred. We must also issue additional shares to the
holders of the Series A Preferred Stock if we sell shares in the future below
the market price of

21

our common stock. This would result in further dilution to our current
stockholders with a further negative impact on our earnings per share.

THE CONVERSION PRICE OF THE SERIES A PREFERRED STOCK WAS BELOW THE FAIR MARKET
VALUE OF OUR COMMON STOCK ON THE DATE OF SALE.

This resulted in a deemed dividend of approximately the amount of funds
raised which will have a negative effect on our earnings per share.

IF WE DO NOT RECEIVE THE STOCKHOLDER APPROVAL REQUIRED BY NASDAQ, THE HOLDERS OF
THE SERIES A PREFERRED STOCK MAY REQUIRE US TO REDEEM THEIR SHARES AT A PREMIUM.

The holders of the Series A Preferred Stock are entitled to a liquidation
preference payment equal to 125% of the purchase price if we do not obtain the
required approval. If this occurs, we would have to find additional sources of
financing to sustain our operations.

OUR SALES COULD DECLINE IF CONSUMERS BUY FEWER LEISURE ITEMS DUE TO GENERAL
ECONOMIC CONDITIONS OR INTEREST RATE INCREASES.

Our sales are affected by general economic conditions, including consumer
confidence, employment rates, prevailing interest rates, inflation, and other
economic conditions affecting consumer attitudes and disposable consumer income
generally. Weakness in the economy and volatility or declines in the stock
market could have an adverse effect on our business if consumers make fewer
discretionary purchases as a result. Increases in consumer interest rates could
cause a drop in sales because most of our customers finance their purchases.
Furthermore, a general increase in commercial interest rates would increase the
rates we pay on our floor plan contracts, which would decrease our operating
income.

THE SEASONALITY OF OUR BUSINESS MAY RESULT IN A NET LOSS.

To avoid a net loss for the year, we must generate sufficient sales during
the quarters ending April 30 and July 31 to offset slower sales in the
off-season. Because of the difference in sales in the warm spring and summer
months versus the cold fall and winter months, if our sales in the months of
February through July are significantly lower than we expect, we may not earn
profits or we may lose money and have a net loss. Our business, and the
recreational vehicle industry in general, is seasonal. Our strongest sales
period begins in January when many recreation vehicle shows are held. Strong
sales demand continues through the summer months. Approximately 30% of our
average annual net sales over the last three years occurred in the quarter
ending April 30. With the exception of our store locations in Florida, our sales
are generally much lower in the quarter ending January 31.

OUR SUCCESS DEPENDS ON HOW WELL WE INTEGRATE OUR RECENTLY ACQUIRED BUSINESSES
INTO OUR CURRENT OPERATIONS.

We recently underwent a period of rapid growth through acquisitions.
Integrating the new business with our existing operations has already imposed
significant difficulties on our ability to manage inventory and staffing
requirements in multiple locations nationwide. We may lose potential sales
opportunities if we cannot accurately predict inventory or staffing requirements
In addition, over-staffing or an overabundance of inventory would increase our
cost of sales and reduce our income from operations. Our growth will impose
substantial added responsibilities on our existing senior management, including
the need to identify, recruit and integrate new senior level managers. This
diversion of management resources may limit our ability to implement or to
effectively oversee our growth and operating strategies.

WE RELY ON SEVERAL KEY MANUFACTURERS FOR ALMOST ALL OF OUR INVENTORY PURCHASES.

Our success depends, to a significant extent, on continued relationships
with two major manufacturers from whom we purchase approximately 43% of our new
products. Cancellation or modification of the dealer agreements with these two
manufacturers could have a material adverse effect on our revenues by limiting
the availability of desirable products. Dealer representation decisions for
manufacturer brands are made at the

22

manufacturers' plants on a brand-by-brand basis, rather than centrally at each
respective manufacturers' corporate headquarters. We currently purchase over 70
brands of RVs and boats from over 15 manufacturers. The loss of a significant
number of brands would reduce our competitiveness by decreasing our potential
sales.

WE MUST RESPOND EFFECTIVELY TO THE COMPETITION WE FACE FROM OTHER RV DEALERS AS
WELL AS BUSINESSES THAT OFFER PRODUCTS TYPICALLY PURCHASED WITH DISCRETIONARY
INCOME.

We compete primarily on the basis of quality, available products, pricing
and value, and customer service. We will not generate sufficient revenues to
maintain our business unless we convince potential customers to use their
disposable income to purchase our products. To compete effectively, we must be
able to offer quality merchandise and service at prices generally equal to or
lower than those of our competitors, many of which have substantially greater
financial, marketing and other resources than we do. If our resources are not
used to target the appropriate audience for our products, we will not be
successful.

TO ACHIEVE OUR GROWTH STRATEGY WE MUST OBTAIN AND MAINTAIN ADEQUATE FINANCING
AND CAPITAL.

Our growth strategies depend upon our ability to obtain adequate financing
and capital to purchase dealership locations and enter into strategic
partnerships. Financing must be obtained for the floor plan of new and used
vehicles, purchase, or purchase and lease-back, of real property for dealership
operations, acquisition of common stock from selling stockholders, working
capital and other capital needs. If we are unable to obtain adequate financing
on suitable terms, our growth may be slower than expected and our operating
results and financial condition will not be sufficient to achieve profitability.

MUCH OF OUR INCOME IS FROM FINANCING, INSURANCE AND EXTENDED SERVICE CONTRACTS,
WHICH DEPEND ON THIRD-PARTY LENDERS AND INSURANCE COMPANIES.

A substantial part of our gross profit comes from the fees we receive from
banks and other lending companies. We help our customers obtain financing by
referring them to certain banks that have offered to provide financing for RV
purchases. The bank or other lending company pays us a fee for each loan they
provide as a result of our referral. If the lenders we arrange financing through
lend to our customers directly rather than through us, we would not receive a
referral fee. In addition, the lenders we currently refer customers to may
change the criteria or terms they use to make loan decisions, which could reduce
the number of customers that we can refer. Our customers may also use the
Internet or other electronic methods to find financing alternatives. If any of
these events occur, we would lose a significant portion of our income and
profit.

In addition, we generally offer our customers (1) a service contract that
provides additional warranty coverage on their RV or some of its parts after the
manufacturer's original warranty expires, and (2) various types of insurance
policies that will provide money to pay a customer's RV loan if the customer
dies or is physically disabled. We sell these products as a broker for unrelated
companies that specialize in these types of coverage. We receive a fee for each
product that we sell. Agency commission fees account for approximately 19% of
our total gross profit. If our customers obtain these policies directly from the
insurers, our net revenues could decline.

THE NATURE OF OUR BUSINESS EXPOSES US TO LIABILITY FOR PERSONAL INJURY AND
PROPERTY DAMAGE IF ANY OF THE PRODUCTS WE SELL OR SERVICE ARE DEFECTIVE.

The products that we sell, service and custom package have the potential to
inflict significant injury or property damage. Even if the manufacturer causes
the defect, we could be liable on the theory of third party product liability.
We carry insurance for this in addition to the general liability insurance
generally maintained by the manufacturers, but it is possible that a claim would
not be covered or would exceed our policy limits.

23

THE LIMITED NUMBER OF PUBLICLY TRADED SHARES AND THE SEASONALITY OF OUR BUSINESS
MAKE OUR STOCK SUBJECT TO SUBSTANTIAL VOLATILITY, WHICH MAY HINDER OUR ABILITY
TO RAISE ADDITIONAL CAPITAL.

If the value of our common stock is too low, it will be difficult for us to
raise additional capital through the sale of our shares. This would also make it
more difficult to make acquisitions using our common stock.

TURNOVER OF MANAGERIAL PERSONNEL AT SEVERAL OF OUR DEALERSHIPS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR SALES AND PROFITABILITY.

We are highly dependent upon each dealership's management for the on-going
operations of that dealership. All of our revenue and most of our income is from
retail sales and service that are geographically widespread throughout the
continental U.S. This geographic diversity makes it difficult for our top
management to have a presence in all the locations on a regular basis. Turnover
of managerial personnel at any dealership usually has an adverse effect on the
sales and profitability at that location.

SIGNIFICANT CHANGES IN THE PRICING AND AVAILABILITY OF FUEL COULD CAUSE A
DECLINE IN SALES.

Our business is automotive in nature and depends upon ample supplies of
fuel at reasonable costs. Significant increases in the price of gasoline or
decreases in availability could result in fewer consumers purchasing RVs and/or
boats.

OUR OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION, SUPERVISION AND LICENSING
UNDER VARIOUS FEDERAL, STATE, AND LOCAL STATUTES AND ORDINANCES.

The adoption of more stringent statutes and regulations, changes in the
interpretation of existing statutes and regulations or our entrance into
jurisdictions with more stringent regulatory requirements could curtail some of
our operations. It could also deny us the opportunity to operate in certain
locations or restrict products or services offered by us. Various federal, state
and local regulatory agencies, including the Occupational Safety and Health
Administration, the United States Environmental Protection Agency and similar
federal and local agencies, have jurisdiction over the operation of our
dealerships, repair facilities and other operations with respect to matters such
as consumer protection, workers' safety and laws regarding protection of the
environment, including air, water and soil. The failure to maintain all
requisite licenses and permits and comply with all applicable federal, state and
local regulations, requisite licenses and permits could limit our ability to
operate out business.

As with vehicle dealerships generally, and parts and service operations in
particular, our business involves the use, handling, storage and contracting for
recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials, such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline, diesel fuels and
other chemicals.

Accordingly, we are subject to regulation by federal, state and local
authorities establishing requirements for the use, management, handling and
disposal of these materials and health and environmental quality standards. We
are also subject to laws, ordinances and regulations governing investigation and
remediation of contamination at facilities we operate to which we send hazardous
or toxic substances or wastes for treatment, recycling or disposal.
Noncompliance with or changes to these requirements could limit our ability to
operate our business.

Soil contamination has been known to exist at certain properties owned or
leased by us. We have also been required and may in the future be required to
remedy soil contamination or remove aboveground and underground storage tanks
containing hazardous substances or wastes.

Our customers and potential customers are subject to federal, state and
local statutes, ordinances and regulations regarding the ownership of recreation
vehicles and boats. The adoption of more stringent statutes, ordinances and
regulations effecting the consumer ownership of recreation vehicles or boats,
could limit our ability to sell our products.

24

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange. To date, our revenue from operations has exclusively
been denominated in United States dollars. The RV and marine products that we
have sold to date have been priced in United States dollars and all of our sales
in the fiscal years 2001, 2000 and 1999, have been denominated in United States
dollars. In the future, we may acquire RV or boat products that are priced in
currencies other than United States dollars and we may expand sales operations
outside the United States. If either of these events occurs, fluctuations in the
values of the respective currencies in which we purchase or sell could adversely
affect us. Due to the constantly changing currency exposures and the volatility
of currency exchange rates, there can be no assurance that we will not
experience currency losses in the future, nor can we predict the effect of
exchange rate fluctuations upon future operating results. In the event we
conduct transactions in currencies other than the United States dollar, we
intend to carefully evaluate our currency management policies. If we deem it
appropriate, we may consider hedging a portion of any currency exposure in the
future.

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

We have variable floor plan notes payable that subject us to market risk
exposure. At October 31, 2001 we had a maximum of $35.2 million available under
floor plan contracts with $31.0 million outstanding. During fiscal 2001, the
maximum floor plan amount outstanding at any month end was $ 54.2 million and
the average floor plan outstanding for the year ended October 31, 2001 was $39.8
million with weighted average interest rates ranging from 9.20% to 10.60%. A
hypothetical increase or decrease in the floor plan interest of 10% would impact
operations by approximately $300,000. This is based on the assumption that our
inventory and debt levels remain the same.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index included at "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K." The response to Part II, Item 8, is submitted as a
separate section of this form 10-K.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will be in the Proxy Statement for
our annual meeting of stockholders to be filed with the SEC within 120 days
after October 31, 2001 and is incorporated into this Annual Report on Form 10-K
by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be in the Proxy Statement for
our annual meeting of stockholders to be filed with the SEC within 120 days
after October 31, 2001 and is incorporated into this Annual Report on Form 10-K
by reference.

25

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be in the Proxy Statement for
our annual meeting of stockholders to be filed with the SEC within 120 days
after October 31, 2001 and is incorporated into this Annual Report on Form 10-K
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be in the Proxy Statement for
our annual meeting of stockholders to be filed with the SEC within 120 days
after October 31, 2001 and is incorporated into this Annual Report on Form 10-K
by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements -- The financial statements are filed as a
separate section of this Form 10-K.

(a)(2) Financial Statement Schedules

26

SCHEDULE II

HOLIDAY RV SUPERSTORES, INCORPORATED AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999

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

(a) Finance commissions chargeback reserves from business acquisitions.

(b) Finance commissions chargebacks paid.

(c) Effective November 1, 2000, we changed our revenue recognition policy
related to commissions earned for placing retail financing contracts with
indirect lending institutions in connection with customer vehicle and marine
purchases and customer purchases of credit life insurance products to defer
these commissions until the chargeback period has lapsed. While this change
eliminated the need for a reserve for chargebacks on retail financing and
credit life commissions, the Company's methodology for determining
chargeback reserves for their extended warranty and service contracts
supported continued reserves for these contracts.

All other schedules have been omitted as they are either not applicable,
not required or the information is included in the Consolidated Financial
Statements or notes thereto.

"Report of Independent Certified Public Accountants on Financial Statements
Schedule"

To the Board of Directors of Holiday RV Superstores, Inc.

Our audits of the consolidated financial statements referred to in our
report, which includes an explanatory paragraph indicating substantial doubt as
to the Company's ability to continue as a going concern and an explanatory
paragraph indicating a change in the Company's method of accounting for certain
revenues to conform to the U.S. Securities and Exchange Commission Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements.",
dated January 25, 2002, appearing in this Annual Report on Form 10-K, also
included an audit of the financial statement schedule listed in Item 14(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PricewaterhouseCoopers, LLP

Fort Lauderdale, Florida
January 25, 2002

(a)(3) Exhibits -- The Exhibits filed as part of this Form 10-K are listed
on the Index to Exhibits following the financial statements.

(b) Reports on form 8-K

Current Report on Form 8-K dated January 7, 2002 filed with the Securities
and Exchange Commission on January 11, 2002.

27

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
its behalf by the undersigned, thereunto duly authorized.

Dated: January 29, 2002 HOLIDAY RV SUPERSTORES, INC.

By: /s/ MARCUS LEMONIS
----------------------------
Marcus Lemonis
Chairman of the Board, Chief
Executive Officer, and
Director

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

28

HOLIDAY RV SUPERSTORES, INCORPORATED

TABLE OF CONTENTS

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders and Board of Directors of
Holiday RV Superstores, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Holiday RV Superstores, Inc. and its subsidiaries at October 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, in 2001, the Company
changed its method of accounting for certain revenues to conform to the U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements".

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 2 and 9 to the financial statements, the Company does not have a
definitive agreement in place with its primary floor plan lender to cover their
floor plan financing requirements. Additionally, the Company has incurred
significant net losses during the fiscal years ended October 31, 2001 and 2000
and has net cash outflows from operations that may require additional funding.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

PRICEWATERHOUSECOOPERS, LLP
Fort Lauderdale, Florida
January 25, 2002

F-2

HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements

F-3

HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements

F-4

HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999

See accompanying notes to consolidated financial statements
F-5

HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.
F-6

HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

See accompanying notes to consolidated financial statements.
F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999

1. ORGANIZATION AND NATURE OF BUSINESS

Holiday RV Superstores, Inc. and its wholly-owned subsidiaries ("Holiday,"
"The Company", "we," "us" or "our") is a multi-state retail chain of dealerships
engaged in the retail sales, financing, and service of recreation vehicles, or
RVs, and other recreation vehicles under the name "Recreation USA" in the
Southeastern United States, West Virginia, Virginia, Kentucky, New Mexico and
California. Each dealership offers a full line of new and used RVs and each
dealership maintains a parts, service and body repair facility. Recreational
boats are carried at selected dealerships. Holiday also has a subsidiary,
Holiday RV Assurance Corporation, an insurance agency that receives commissions
on the sale of insurance policies to RV owners from a variety of insurance
companies.

The Company's dealerships have historically experienced, and we expect its
dealerships to continue to experience, seasonal fluctuations in revenues with a
larger percentage of revenues typically being realized in the second quarter of
our fiscal year. In addition, our results can be significantly affected by the
timing of acquisitions and the integration of acquired stores into our
operations.

Effective November 11, 1999, the Company acquired all of the outstanding
capital stock of County Line Select Cars, Inc. for a cash price of $5.0 million
and $1.5 million in notes convertible into the Company's common stock (See Note
4 "Acquisitions").

On March 1, 2000, the Company acquired all of the outstanding stock of
Little Valley Auto & RV Sales, Inc. for a cash price of $1.7 million and $1.7
million in a note convertible into the Company's common stock (See Note 4
"Acquisitions").

On October 31, 2000, the Company purchased all of the outstanding stock of
Hall Enterprises, Inc. The total purchase price paid was $1.3 million and
consisted of 300,000 shares of the Company's common stock (See Note 4
"Acquisitions").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles Of Consolidation: The consolidated financial statements include
the accounts of Holiday RV Superstores, Inc. and its wholly-owned subsidiaries,
which include Holiday RV Rental/Leasing, Inc., Holiday RV Superstores of South
Carolina, Inc., Holiday RV Superstores West, Inc., Holiday RV Superstores of New
Mexico, Inc., Holiday RV Assurance Corporation, County Line Select Cars, Inc.,
Little Valley Auto & RV Sales, Inc., and Hall Enterprises, Incorporated. All
intercompany accounts and transactions have been eliminated in consolidation.

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

As more fully discussed in Note 9 "Floor Plan Contracts and Note 17
"Subsequent Events", the Company's primary floor plan agreement entered into in
fiscal year 2001 expired on November 30, 2001. Currently the Company is
financing its new and used marine and vehicle inventory at eight of its
locations under a forbearance agreement that amended and extended the primary
floor plan agreement through January 23, 2002. The Company's non-compliance with
the financial covenants has not been waived. These circumstances raise
substantial doubt about the Company's ability to continue as a going concern.
The primary floor plan lender will assess the Company's ability to continue to
comply with its operational and administrative requirements, the Company's
ability to raise additional capital and the Company's ability to meet its fiscal
year 2002 financial plans. A satisfactory outcome of this process will result in
a new primary floor plan agreement with recast financial covenants or a
continuation of the forbearance period until all negotiations are final. While
the Company has retained the ability to floor plan its inventory, failure to
come to

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

terms with their primary lender and/or obtain sufficient floor plan financing
could have a material adverse effect on the business and the Company's ability
to continue as a going concern.

Additionally, the Company incurred a net loss of $16.6 million in fiscal
2001 and incurred net cash outflows from operations of approximately $2.5
million in fiscal 2001. Beginning in the second quarter fiscal 2001, management
focused on inventory management by reducing inventory levels to allow the
Company to effectively and profitably operate within the stocking levels
available under the April 2000 amended primary floor plan agreement. The
inventory initiative resulted in a 42.7% reduction in the year over year
inventory levels (See Note 6 "Inventories"). In addition, the short term
performance and the long term potential for each retail location were reviewed
together with each dealership's management team. As a result, three
underperforming or dealerships competing in the same markets were closed and the
market consolidated into other Company dealerships. A fourth dealership was
closed in December 2001. Management believes that with the restructuring of its
dealerships and the focus on managing its inventory to optimum levels and turns,
the continuation of rigid expense control, the infusion of additional capital
(See Note 17 "Subsequent Events") and the continued support of its primary floor
plan lender under more favorable terms, improved revenues, profits and cash
flows from operations will result in fiscal year 2002. While Management believes
that performance will improve in fiscal year 2002, the Company may be required
to obtain additional outside funding to fund operating deficits. Management
further believes that additional financing will be made available to support the
Company's liquidity requirements and that certain costs and expenditures could
be reduced further should any needed additional funding not be available.
Failure to generate sufficient revenues, raise additional capital or continue to
restrain discretionary spending could have a material adverse effect on the
Company's ability to continue as a going concern and to achieve its intended
business objectives.

Cash And Cash Equivalents: Holiday considers all highly liquid debt
instruments with a maturity of three months or less at the time of purchase to
be cash equivalents. Cash and cash equivalents consist of checking accounts,
money market funds and overnight repurchase agreements.

Inventories. Inventories are valued at the lower of cost or market. New
and used vehicles are accounted for using specific identification. Cost of parts
and accessory inventories is determined by the first-in, first-out (FIFO)
method.

Property And Equipment: Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of the assets by the
straight-line method for financial reporting purposes. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the assets or the term of the lease, whichever is shorter. The
estimated useful lives of the property and equipment range from 3 to 31 years.
Maintenance and repairs are charged to expense as incurred. The carrying amount
and accumulated depreciation of assets which are sold or retired are removed
from the accounts in the year of disposal and any resulting gain or loss is
included in the results of operations.

Intangible Assets: Intangible assets include costs in excess of
identifiable assets acquired (goodwill) and costs allocable to the estimated
fair value of a covenant not to compete arrangement. Goodwill is being amortized
using the straight-line method over 20 years. The covenant not to compete was
amortized over its contractual life using the straight-line method and has been
fully amortized as of October 31, 2001.

Accounting for the Impairment of Long-Lived Assets. The Company
periodically evaluates the potential impairment of its long-lived assets,
including property and equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Events or circumstances considered include, but are not limited
to, recent operating losses, projected cash flows and management's plans for
future operations. Upon the occurrence of a certain event or change in
circumstances, the Company evaluates the potential impairment of any asset based
on estimated future undiscounted cash flows. If an impairment exists, the
Company will measure the amount of such impairment based on the present value of
the estimated cash flows over the remaining life of the asset using a discount
rate commensurate with the risks involved. Cash flow estimates are made at the
retail location level and include the interest charges associated with the
location's floor plan financing.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes: Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes resulting from temporary differences. The temporary
differences result from differences in the carrying value of assets and
liabilities for tax and financial reporting purposes. The deferred tax assets
and liabilities represent the future tax consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.

Revenue Recognition and Cumulative Effect of Change in Accounting
Principle: Retail sales and related costs of vehicles, parts and service are
recognized in operations upon delivery of products or services to customers or,
in the case of RVs, when the title passes to the customer.

Prior to November 1, 2000, commissions earned by the Company for placing
retail financing contracts with indirect lending institutions in connection with
customer vehicle and marine purchases and customer purchases of credit life
insurance products was recognized when the related vehicle or marine sale was
recognized. Pursuant to dealer agreements negotiated with the indirect retail
lending institutions and credit life insurance companies, the Company is charged
back for all or a portion of these commissions should the customer terminate or
default on the related contract during a stipulate period beginning at the
contract date. After the passage of the stipulated period, all commissions
received are not subject to charge back. The Company established a reserve for
possible chargebacks based on historical experience for the repayment of
commissions to the indirect lenders and credit life insurance.

Effective November 1, 2000, the Company changed its revenue recognition
policy related to commissions earned by the Company for placing retail financing
contracts with indirect lending institutions in connection with customer vehicle
and marine purchases and customer purchases of credit life insurance products to
defer these commissions until the chargeback period has lapsed. This change was
made in accordance with the implementation of the U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). The effect of this change is reported as the cumulative
effect of a change in accounting principle in the year ended October 31, 2001.
The net effect reflects the deferral as of November 1, 2000 of approximately
$1.0 million of revenue net of chargebacks previously recognized. The Company
recognized the revenue included in the cumulative effect adjustment during the
year ended October 31, 2001. The effects of this change in accounting principle
on net loss and net loss per share for the year ended October 31, 2001 were
decreases of approximately $100,000 and $0.01 per share respectively.

Commissions earned on extended warranty and service contracts sold on
behalf of third-party administrators are generally recognized at the later of
customer acceptance of the contract terms as evidenced by contract execution, or
when the related vehicle or marine sale is recognized. The Company is charged
back for a portion of these commissions should the customer terminate or default
on the contract prior to its scheduled maturity. The chargeback reserve, which
is not material to the financial statements taken as a whole as of October 31,
2001, 2000 and 1999 is based on the Company's experience for repayments or
defaults on these contracts.

Stock-Based Compensation: Holiday accounts for stock option grants and
other forms of employee stock-based compensation in accordance with the
requirements of Accounting Principles Board Opinion No. 25, Accounting For Stock
Issued To Employees ("APB 25"), and related interpretations. APB 25 requires
compensation cost for stock-based compensation plans to be recognized based on
the difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price. Holiday provides the disclosure
requirements of Statement of Financial Accounting Standards No. 123, Accounting
For Stock Based Compensation ("SFAS 123") and related interpretations.
Stock-based awards to non-employees are accounted for under the provisions of
SFAS 123.

Loss Per Common Share: Basic earnings (loss) per common share is
calculated by dividing net income (loss) by the weighted average number of
shares outstanding. Diluted earnings (loss) per common share is

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based upon the weighted average number of shares outstanding, plus the effects
of potentially dilutive common shares consisting of stock options and warrants.
For the years ended October 31, 2001 and 2000, options to purchase 752,166 and
430,923 shares of common stock, respectively, and warrants to purchase 407,000
and 382,000 shares of common stock, respectively, were excluded from the
calculation of loss per share since their inclusion would be antidilutive (See
Note 10 "Stock Options and Warrants").

A reconciliation of the weighted average number of shares outstanding used
in the computation of basic and diluted earnings (loss) per share is as follows:

Advertising: Advertising costs, included in selling, general and
administrative expenses, are expensed as incurred. Advertising costs were
approximately $2,680,000, $2,679,000 and $1,046,000 for the years ended October
31, 2001, 2000 and 1999, respectively.

Fair Value Of Financial Instruments: The carrying amounts of financial
instruments including cash and cash equivalents, accounts receivable and
payable, accrued and other current liabilities and current maturities of
long-term debt approximate fair value due to their short maturity. Based on
borrowing rates currently available to the Company for loans with similar terms,
the carrying value of notes payable and capital lease obligations approximate
fair value.

Use Of 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 date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reclassifications: Certain prior year amounts have been reclassified from
previous presentations to conform to 2001 presentation.

Recent Accounting Pronouncements: In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141,
"Business Combinations" (SFAS 141) and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS No.
141 requires business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and broadens the criteria for
recording intangible assets separate from goodwill. Recorded goodwill and
intangibles will be evaluated against that new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-amortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. SFAS 142 is
required to be

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

applied starting with fiscal years beginning after December 15, 2001, with early
application permitted in certain circumstances.

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

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

3. SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes the Company's non-cash investing and
financing transactions:

4. ACQUISITIONS

On November 11, 1999 the Company acquired 100% of the issued and
outstanding stock of County Line Select Cars, Inc., a recreational vehicle
dealership with five Florida locations. The total purchase price paid to the
County Line shareholders was $6.5 million, consisting of $5.0 million cash and
$1.5 million in notes convertible into the Company's common stock. The
acquisition has been accounted for under the purchase method of accounting,
which resulted in the recognition of approximately $4.8 million in goodwill, to
be amortized over 20 years on a straight-line basis. Operations of County Line
are included in the accompanying consolidated statement of operations beginning
November 12, 1999. On January 11, 2000, the Company acquired all of the land and
buildings related to the operations of County Line Select Cars, Inc. from County
Line's former shareholders. The total purchase price was $5.0 million, with the
sellers providing first mortgage financing for the entire purchase. The mortgage
has a 10-year term at an interest rate of 9.5% per annum, with principal and
interest payable monthly based on a 20-year amortization.

The performance of the County Line dealerships in fiscal 2001 and the
effect of each on the contiguous markets three of the dealerships compete in
resulted in the Company's decision to close two dealerships in October, 2001.
The overall performance in the market was unacceptable to the Company and the
Company's new focus is to create one large dealership to service the entire area
as compared to the three dealerships, two of which were smaller operations.
Management concluded that , given these actions, the goodwill associated

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

with the two closed locations of approximately $ 1.6 million was impaired and
should be written off. The Company considers a number of factors to be its
primary indicators of potential impairment. With the Company's overall branding
philosophy under the Recreation USA name, the assignment of goodwill during the
acquisition phase of the Company's growth was location specific and derived
based on past performance of the individual acquired dealerships.

All inventory, furniture and equipment were transferred from the closed
dealerships to other Company dealerships for sale or placed into operation at
their current carrying value. The Company intends to sell the real estate of the
closed dealerships and expects to receive, at a minimum, the carrying value for
these assets.

On March 1, 2000, the Company acquired 100% of the issued and outstanding
stock of Little Valley Auto & RV Sales, Inc. ("Little Valley"), Prosperity, West
Virginia. Little Valley also sold marine products, motorcycles and all terrain
vehicles. The total purchase price paid to the Little Valley shareholders was
$3.4 million, consisting of $1.7 million cash and $1.7 million in a note
convertible into Holiday common stock. The acquisition has been accounted for
under the purchase method of accounting, which resulted in the recognition of
approximately $1.7 million in goodwill, to be amortized over 20 years on a
straight-line basis. Operations of Little Valley are included in the
accompanying consolidated statement of operations beginning March 1, 2000.

On October 31, 2000 the Company acquired 100% of the issued and outstanding
stock of Hall's Enterprises, Inc. ("Hall"), Lexington, Kentucky, a recreational
vehicle dealership in Lexington, Kentucky. The total purchase price paid to
Hall's shareholders was approximately $1.3 million, paid with Company's common
stock valued at $4.26 per share based on the average of the stock's trading
value for the five days before and five days after the acquisition was
announced. The acquisition has been accounted for under the purchase accounting
method, and, accordingly the results of operations of Hall have been included in
the Company's consolidated financial statements from October 31, 2000. The
excess purchase price over the fair value of the net identifiable assets
acquired of approximately $1.3 million has been recorded as goodwill, to be
amortized over 20 years on a straight line basis. The Company may be required to
pay additional contingent consideration of up to 100,000 shares of the Company's
common stock if certain pre-tax earnings levels are achieved in fiscal 2001 and
2002. Pre-tax earnings levels for fiscal 2001 were not achieved. The additional
payments, if any, will be accounted for as additional goodwill.

On March 17, 2000 the Company entered into a lease with and acquired from
Luke Potter Winnebago inventory and selected operating assets, in connection
with the relocation of its Orlando, Florida dealership.

ACQUISITION DEBT

In connection with the acquisition of County Line Select Cars, Inc.,
Holiday issued two $750,000 notes to the former shareholders of County Line. The
notes had a three-year term and were issued at an interest rate of 8.25% per
annum. Payments of interest only were due quarterly, with the full principal
balance due no later than three years from issuance. The notes were convertible,
at the option of the holder, into common stock of Holiday at a fixed conversion
price per share, at any time after two years from the date of issuance.

In connection with the acquisition of Little Valley Auto & RV Sales, Inc.,
Holiday issued a note to the former shareholders of Little Valley in the amount
of $1.73 million. The note had a three-year term and was issued at an interest
rate of 7.5% per annum. Payments of interest only were due quarterly, with the
full principal balance due no later than three years from issuance. The note was
convertible, at the option of the holder, into common stock of Holiday at a
fixed conversion price per share, at anytime after two years from the date of
issuance.

In April 2001, the former shareholders of County Line Select Cars, Inc. and
Little Valley Auto & RV Sales, Inc. agreed to convert their seller notes into
shares of the Company's common stock. The Company is in the process of
registering such shares. Seller notes with principal balances of $3,231,920 were
exchanged for 912,000 shares of the Company's common stock valued at $2,688,486
based on the closing market price on the

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dates of conversion as reported by the Nasdaq National Market. Since the terms
of the conversion modified the original conversion terms that would have called
for shares to be issued at a fixed conversion price of $7.50 per share resulting
in 430,923 shares, the Company was required to record a conversion expense equal
to the fair value of the incremental shares (481,077) issued, or $1,523,545
including merchandise credits and other consideration of $102,256.

The Company borrowed $1.6 million in 2000 from Doerge Capital Management in
connection with the Little Valley acquisition. The interest rate was 15.0% per
annum. In connection with the loan, Holiday issued to the lender, warrants to
purchase 22,000 shares of Holiday common stock at the then market price. The
warrants have a five-year term and vest in one year. Approximately $29,000 in
value has been ascribed to the warrants using the Black-Scholes pricing model
and the value has been recognized as consulting expense by the Company.
Principal and interest were due 90 days from funding. The loan has been repaid
in full by the Company. A member of the Company's Board of Directors at the time
is president of Doerge Capital Management.

On May 11, 2000, the Company borrowed $1.0 million from an officer of the
Company, principally to repay acquisition-related debt. The interest rate was
6.75% per annum. The Company paid $36,000 in loan fees to the lender and issued
warrants to purchase 10,000 shares of common stock of the Company at then market
price. The loan principal and interest was paid in full by the Company in August
2000.

5. OTHER DEBT

BRIDGE FINANCING

In December 2000 the Company received $1,000,000 in bridge financing
advanced by a third party at an annual interest rate of 15%. The Company has
made no interest or principal repayments, but granted warrants to purchase
25,000 shares of common stock at $4.02 per share, 110% of the average market
price for the 21 trading days prior to closing. These warrants were valued at
approximately $25,000 and charged to interest expense during the quarter ended
July 31, 2001 based on a Black-Scholes option pricing model with the following
assumptions: (1) average discount rate of 4.9%, (2) volatility of 30% and (3) a
warrant life of five years. In addition the Company provided the unlimited use
of a Class A RV charging the cost of the unit of $127,000 to advertising
expense. The loan is currently due on demand but expected to be renegotiated.

In January 2001 the Company received $500,000 in bridge financing from an
affiliate of a former director and a former officer/director of the Company (See
Note 14 "Related Party Transactions"). The note bears an interest rate of 6.75%
with interest and principal due at maturity. The outstanding principal balance
at October 31, 2001 was $340,000. Subject to final agreement of terms the
Company and the holders agreed to restructure the loan and a second demand loan,
described below under "Other Notes", by converting all but $128,000 of the
remaining unpaid balance of both loans to the Company's common stock (See Note
14 "Related Party Transactions" and Note 17 "Subsequent Events").

In August 2001, the Company received $500,000 in bridge financing from an
unrelated third party. The loan bears an interest rate of 10% with interest
payable on the last business day of each month until maturity, October 31, 2001,
with the principal balance due at maturity. In addition, the Company has granted
the right to the lender to a second mortgage on certain dealership properties
collateralized by a first mortgage of its primary lender. The Company also
granted 25,000 warrants to purchase the Company's common stock at $3.16 per
share, the market closing price on the date of the grant. The warrants expire on
the fifth anniversary date of the grant. The warrants were valued at
approximately $26,000 based on a Black-Scholes option pricing model with the
following assumptions: (1) average discount rate 3.75%, (2) volatility of 30%
and (3) a warrant life of five years. Subsequent to October 31, 2001, the holder
agreed to restructure the loan converting $250,000 to the Company's common
stock, eliminating the security interest in the dealership properties and
extending the maturity of the balance to December 31, 2003 with no additional
charges or penalties to the Company (See Note 17 "Subsequent Events").

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 2001, the Company obtained 65,000 shares of the Company's free
trading common stock from an affiliate of a former director and a former
officer/director of the Company to combine with a $20,000 cash settlement of all
claims under an Amended Employment Agreement with its former Chief Financial
Officer (See Note 14 "Related Party Transactions"). In connection with the share
settlement of this obligation on behalf of the Company, the Company's debt to
this affiliate was increased by $200,000 based on the trading value of the
65,000 shares at that at that time. As of October 31, 2001 the unpaid balance of
this advance was $67,000. Subsequent to October 31, 2001, the holders agreed to
combine the liabilities of both loans by converting all but $128,000 of the
combined liability to common stock (See 14 "Related Party Transactions" and Note
17 "Subsequent Events").

BANK DEBT

The Company has various term notes outstanding with banks with an aggregate
principal balance of $2,377,000 at October 31, 2001. Each have monthly payments
of interest or principal and interest and mature at various times through May
2005. The notes are collateralized by real property or by other assets of the
Company.

Future principal maturities of term loans and mortgage debt from
acquisitions (See Note 4 "Acquisitions") as of October 31, 2001 are as follows:

6. INVENTORIES

Inventories are summarized as follows:

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

Depreciation expense for the years ended October 31, 2001, 2000 and 1999
are $695,449, $484,691 and $248,960, respectively.

8. SALE-LEASEBACK

On July 27, 2000, the Company sold its Bakersfield, California dealership
facility for $2.1 million, which was $486,000 over its carrying value at the
time of the sale. Concurrently with the sale, Holiday entered into a lease
arrangement for the dealership facility with the purchaser for an annual lease
payment of $233,400 through 2010. The gain from the sale is being recognized
over the term of the lease.

9. FLOORPLAN CONTRACTS

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

In March 2001, the Company entered into an amended and restated loan and
security agreement that required the reduction of available credit to a maximum
of $25,000,000 by May 1, 2001, the maintenance of certain financial covenants
including tangible net worth, working capital and debt to tangible net worth and
required collateral of $3.5 million in the form of a certificate of deposit to
be pledged by March 26, 2001.

In April 2001, the Company completed further negotiations with its primary
lender to amend several of the terms of its March 2001 amended and restated loan
and security agreement. The first amendment to the amended and restated loan and
security agreement modifies the collateral required by reducing the pledge of a
certificate of deposit to $1.0 million and adding collateral consisting of
mortgages on all unencumbered real estate. The $1.0 million certificate of
deposit was established in July 2001 and is classified as restricted cash at
October 31, 2001. Advances for eligible new and used inventory will bear
interest at prime plus 3.0% and 3.5% respectively. The first amendment waived
the Company's failure to meet the financial covenants through April 30, 2001.
The agreement expired October 31, 2001. The Company did not meet the financial
covenants through October 31, 2001 and is currently negotiating with the primary
floor plan lender to renew its floor plan financing arrangement. The Company
executed a forbearance and amendment to the expired agreement through January
23, 2002 and negotiations with the floor plan lender continue. (See Note 17
"Subsequent Events").

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has negotiated an arrangement with one of its floor plan
providers that requested to be paid down in February 2001 because of the
Company's less than acceptable performance under its floor plan agreement and
because the provider subsequently exited the business of providing floor plan
financing to RV dealers. The Company is currently paying off the outstanding
balance at October 31, 2001 of $2,422,019 as units are sold and repaying past
due amounts on a mutually agreed schedule. The Company anticipates concluding
the pay down by June 2002.

After the Company completes its expected capital raising (See Note 17
"Subsequent Events"), negotiations will continue with the other major floor plan
lender to increase the amount of floor plan financing available to, in turn,
allow for additional dealerships to be included under the other major floor plan
agreement. There can be no assurance that the Company will come to terms with
its other major lender to obtain sufficient alternative floor plan financing to
meet its business plan requirements.

Maximum borrowings available under the contracts were $35.2 million as of
October 31, 2001. The following summarizes certain information about the
borrowings under the floor plan contracts:

10. STOCK OPTIONS AND WARRANTS

The Company's 1999 Stock Option Plan ("Plan") provides for the issuance of
up to 500,000 shares of common stock to regular full-time employees. The Plan
allows for the issuance of either non-qualified or incentive stock options. The
option exercise price shall be no less than 100% of the fair market value per
share of common stock on the date of grant, except that such price must be at
least 110% of the fair market value for employees who own more than 10% of the
outstanding shares of the Company. In the case of non-qualified options, the
exercise price shall generally be the fair market value, although the
Compensation Committee of the Board of Directors may grant options with exercise
prices less than fair market value. The options are exercisable, as determined
by the Committee, over a period of time, but not more than ten years from the
date of grant, and will be subject to such other terms and conditions as the
Committee may determine.

During fiscal year 2000, the Company's 1999 Stock Compensation Program (the
"Stock Compensation Program") was approved by the Company's shareholders. The
Stock Compensation Program shall be administrated by the Company's Board of
Directors, and provides for the issuance of up to 3,000,000 shares of common
stock to employees and non-employees. Awards under the Stock Compensation
Program shall be issued under the general provisions of the Stock Option Program
and are exercisable, as determined by the Company's Board of Directors, over a
period of time, but not more than ten years from the date of grant. Options
granted under the Plan may be incentive stock options or non-qualified stock
options. Stock purchase rights and stock appreciation rights may also be granted
under the Plan. The exercise price of incentive stock options and non-qualified
options shall be no less than 100% and 85%, respectively, of the fair market
values of the Company's common stock on the grant date.

At the Company's January 18, 2001 Board of Director's meeting, the
Directors approved the grant of employee stock options to purchase shares of the
Company's common stock to all employees employed on that date with one year of
continuous employment with the Company. Options to purchase 487,750 shares of
common stock were awarded in connection with this action. These options vest
over two years, have a term of 10 years, and an exercise price of $4.00 per
share based on the fair market value of the Company's common stock at January
18, 2001. The Directors also approved the granting additional future options
under this program to employees employed at January 18, 2001 as they reach one
year of continuous employment.

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity of the Company's stock option
plans:

At October 31, 2001, the 1,256,250 options outstanding under all stock
option plans are summarized in the following table:

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

(1) Average remaining contractual life in years

On April 13, 2000, the Company entered into a financial consulting and
investment agreement with Schneider Securities, Inc. for a term of one year.
Compensation for these services consists of $20,000 payable upon execution of
the agreement and $60,000 in installments over the remaining term of the
agreement. In addition, the Company issued to Schneider warrants to purchase up
to 350,000 shares of common stock as follows: 150,000 shares at $5.00 per share;
100,000 shares at $7.50 per share; and 100,000 shares at $10.00 per share. The
warrants have a one-year vesting period and a term of five years. Approximately
$360,000 has been ascribed to the warrants under the Black-Scholes option
pricing model valuation with the following assumptions: (1) an average discount
rate of 5.5%, (2) volatility of 31% and (3) an option life of five years. The
value was recognized as consulting expense by the Company over the warrants
vesting period. None of these warrants have been exercised as of October 31,
2001.

In December 2000 and August 2001, the Company issued 25,000 warrants each
under bridge financings (see Note 5 "Other Debt -- Bridge Financing").

Certain employee stock options were granted in fiscal 2000 at an exercise
price below fair value of the common shares on the date of grant. The Company
will recognize expense for the intrinsic value of

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $122,000 in connection with this grant. Approximately $73,000 of
expense was recognized in fiscal 2000 with the remaining amount recognized over
the remaining vesting period in 2001.

Had compensation expense been determined based upon the fair value of the
options at their grant dates in accordance with SFAS 123, the net loss and net
loss per share for fiscal 2001 and 2000 would have been increased by
approximately $696,000 and $.21 and $1,491,000 and $.20, respectively. Because
options vest over several years and additional option grants are expected to be
made in future years, the above proforma results are not representative of the
proforma results for future years. The weighted average fair value of the
options granted in fiscal 2001 and 2000 were $2.32 per share and $1.30 per
share, respectively.

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:

11. INCOME TAXES

The components of income taxes (benefit) are as follows:

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of deferred tax assets and liabilities consist of the
following:

The Company has established a valuation allowance for the full amount of
its net deferred tax assets since it has not determined that it is more likely
than not that the net deferred tax asset is realizable, based upon the Company's
recent earnings history.

The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:

At October 31, 2001 the Company had a federal net operating loss
carryforward of approximately $7,044,000 available to reduce future taxable
income which expires . Under the provisions of the Internal
Revenue Code, certain substantial changes in the Company's ownership may result
in a limitation on the amount of the net operating loss carry forwards which can
be used in future years.

12. EMPLOYEE BENEFIT PLANS

The Company has a Profit-Sharing and Employee Investment Plan, which covers
substantially all employees meeting certain minimum age and service
requirements. Employee contributions to the investment plan may, at the
Company's discretion, be matched 25% up to a maximum employee contribution of 6%
of the employee's compensation. Also, at the Company's discretion, a
profit-sharing contribution may be made. Company contributions to the plan,
included in selling, general and administrative expenses, were approximately
$69,000, $58,000 and $113,000 for the years ended October 31, 2001, 2000 and
1999, respectively.

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee Stock Purchase Plan: Employees of the Company who are employed
for at least five consecutive months in any calendar year, are employed at least
twenty hours per week, and own less than 5% of the common stock, may purchase
common stock at a 15% discount of fair market value.

13. CAPITAL AND OPERATING LEASE COMMITMENTS

Capital Lease: The Company leases computer equipment under agreements,
which are classified as capital leases. Upon expiration of each of the leases,
the Company will have an option to purchase the computer equipment for a nominal
amount. The equipment is included in property and equipment in the amount of
approximately $243,000 and $250,000 net of accumulated amortization of $449,167
and $410,439 at October 31, 2001 and 2000, respectively.

Operating Lease: The Company conducts its operations from leased
facilities including land and buildings in Winter Garden and Fort Myers,
Florida; Roseville and Bakersfield, California; Prosperity, West Virginia;
Wytheville, Virginia and Lexington, Kentucky. The leases expire on various dates
through 2010, with most including renewal options. The Company closed the
dealership occupying the Fort Myers facility in December 2001 and will vacate
that location when the lease expires on May 1, 2002.

As of October 31, 2001, the future minimum lease payments under
non-cancelable capital and operating leases with initial or remaining terms of
one year or more are as follows:

The Company's rental expense under operating leases for the fiscal years
ended October 31, 2001, 2000 and 1999 was $1,369,043, $652,683 and $531,468
respectively.

14. RELATED PARTY TRANSACTIONS

During the fiscal year ended October 31, 1999, the Company leased
facilities from its principal stockholder prior to June 30, 1999, and a trust
whose beneficiaries were the heirs of one of the former principal stockholders.
The Company paid an aggregate of $203,000 to these related parties in 1999.
During fiscal 2000, the Company leased facilities from an officer of the Company
for an aggregate of $147,000. There were no rents paid to related parties during
the fiscal year ended October 31, 2001.

In January 2001, the Company received $500,000 in bridge financing from an
affiliate of a former director and a former officer/director of the Company (See
Note 5 "Other Debt -- Bridge Financing "and Note 17 "Subsequent Events").

On January 15, 2001 the Company's chief financial officer resigned. The
employment agreement provided for a termination payout of approximately $220,000
which was accrued and expensed at that time. In

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

June 2001 an affiliate of the former chairman and director, settled a portion of
the Company's obligation with the former CFO by giving him 65,000 shares of the
Company's stock. The Company issued an unsecured note for $200,000 representing
the market value of the shares. The Company partially offset the liability by
transferring to the holder vehicles and marine inventory at the book carrying
value. The unpaid balance at October 31, 2001 is $67,000 (See Note 5 "Other
Debt -- Other Notes" and Note 17 "Subsequent Events").

15. COMMITMENTS AND CONTINGENCIES

Concentration Of Credit Risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company places its funds with high
credit quality institutions. At times, the monies may be in excess of the FDIC
or other insurance limits. With regard to receivables, the Company routinely
assesses the financial strength and collectibility of its customers and, as a
consequence, believes that its accounts receivable risk is limited.

The Company relies on several manufacturers as suppliers for its product
lines. Approximately 43%, 47% and 49% of the Company's new vehicle sales for the
years ended October 31, 2001, 2000 and 1999, respectively, consists of vehicles
purchased from the same two manufacturers. In the opinion of management, the
loss of any one brand of new RV would not materially affect the Company.
However, the loss of all brands sold by either of the two largest manufacturers
would have a material effect on the company's sales. Management believes that
the loss of all brands from either of these two manufacturers to be highly
unlikely.

Consulting Agreements: On June 30, 1999, the Company entered into two
separate consulting agreements with the former principal shareholders to assist
the company in corporate administration activities. These consulting agreements
were for a two-year period expiring June 30, 2001. During the term of these
agreements, Holiday was required to pay each consultant a total of $130,000 in
fees, payable in monthly installments. In addition, each consultant was granted
options to purchase 40,000 shares of common stock at an exercise price of $3.21
per share (See Note 10 "Stock Options and Warrants"). The options have a five-
year term. The Company recognized consulting expense of approximately $118,000
over the vesting period based upon the Black Scholes option pricing model
valuation of these options.

On August 1, 2001, the Company entered into a two-year consulting agreement
with an individual to assist in guiding the Company in several financial areas
principally focused on overall financial planning and the development of a
recast business plan. The consultant and the Company agreed that the Company's
Board of Directors may, at its option, appoint the consultant to serve as a
director of the Company during the agreement term and may further appoint, at
its option, the consultant to either Vice Chairman or Chairman of the Board of
Directors. As compensation for the consultant agreeing to provide and providing
services to be rendered, the Company was to issue 500,000 restricted shares of
the Company's common stock and an option to purchase an additional 400,000
shares of common stock at an exercise price of $3.16, the market closing price
as of the agreement date. The options were to vest 25,000 shares per month
beginning September 1, 2001, and continue to vest 25,000 shares per month until
fully vested. The Company could terminate the agreement at any time for any
reason with 30 days written notice. Early termination and achievement of certain
performance criteria could accelerate option vesting. The consultant agreed to a
one year trading lock-up beginning from the agreement date for all shares issued
or issuable during the lock-up period.

The original agreement was not approved by the Company's Board of Directors
and therefore did not become effective and, accordingly no shares or options
were issued. Subsequent to October 31, 2001, the Consultant and the Company
mutually agreed to cancel the obligations of both parties under the August 1,
2001 agreement and enter into a new agreement effective October 31, 2001 to
essentially provide financial advisory services and serve on the Company's Board
of Directors if asked to do so. Compensation for the services were paid through
the issuance of 500,000 shares of the Company's common stock valued at the
market close on October 31, 2001 at $1.25 per share. The new agreement was
approved by the Company's Board of Directors and the shares were issued by the
Company on January 3, 2002. At October 31, 2001 the Company has shown these
500,000 as issuable and recorded a charge of $650,000 to consulting expense.

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 3, 2001, the Company signed a non-exclusive engagement letter,
subject to due diligence, with a financial advisor and agent in connection with
a private placement of equity securities of the Company. The engagement letter
contemplates raising approximately $6 million in gross proceeds from the private
sale of the Company's common stock. The financial advisor will receive a
transaction fee of 10% of the gross proceeds received, if any, by the Company
from investors introduced to the Company by the financial advisor, which will be
deducted at closing. In addition, the Company will grant the financial advisor
warrants to purchase common stock equal to 10% of the common stock the financial
advisor sells. The warrants will expire five years from the closing date and
will be exercisable at the same per share price the common stock is sold to the
private sale investors. Other fees and expenses incurred by the financial
advisor related to the engagement will be billed periodically to the Company.
The Company raised additional capital subsequent to October 31, 2001 (See Note
17 "Subsequent Events") in which the financial advisor did not participate and,
accordingly, the Company has no obligation to pay fees to the financial advisor
under this agreement as of October 31, 2001.

Third-Party Financing: The Company uses indirect lenders consisting of
third-party banks and/or finance companies to assist its customers in locating
financing for vehicle purchases. The Company refers customer to one or more of
these indirect lending sources and earns a commission if the third-party lender
consummates a loan contract with the customer. These contracts represent
third-party financing, and the Company provides no underwriting or credit
approval services for the lender. The Company's commissions are typically based
upon the difference between the interest rate the customer pays under the
contract with the lender and an interest rate designated by the lender. At no
time does the Company service or guarantee the collection of these loans or
receivables. The Company could be charged back the commission by the lender if
the loan is terminated for any reason in a specified period of time, limited to
the first six months of the term. Effective November 1, 2000, the Company
changed its revenue recognition policy related to commissions earned by the
Company for placing retail financing contracts with indirect lending
institutions in connection with customer vehicle and marine and customer
purchases of credit life insurance products to defer these commissions until the
chargeback period has lapsed. This change made in accordance with the
implementation of the U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). The
effect of this change is reported as the cumulative effect of a change in
accounting principle in the year ended October 31, 2001 (See Note 2 "Summary of
Significant Accounting Policies").

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results for the fiscal
years ended October 31, 2001 and October 31, 2000.

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective November 1, 2000, the Company changed its revenue recognition
policy related to commissions earned by the Company for placing retail financing
contracts with indirect lending institutions in connection with customer vehicle
and marine purchases and customer purchases of credit life insurance products to
defer these commissions until the chargeback period has lapsed. This change was
made in accordance with the implementation of the U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") (See Note 2 "Summary of Significant Accounting
Policies"). The quarters ended January 31, 2001, April 30, 2001 and July 31,
2001 have been restated to reflect the adoption of SAB 101.

The fourth quarter of fiscal 2001 reflects a $1,580,000 charge to
consulting expense related to a stock issuable for services (See Note 15
"Commitments and Contingencies").

The fourth quarter of fiscal 2001 reflects a $1,573,000 charge for goodwill
impairment based on an annual evaluation and events in the quarter (See Note 4
"Acquisitions").

The fourth quarter of fiscal 2001 reflects provisions of $2,257,000 for
additional reserves on vehicles, marine products and parts and accessory
inventory based on inventory aging, reassessment of wholesale market value and
salability, historical sales activity and the condition of the merchandise.

The second quarter of fiscal 2001 reflects a debt conversion expense charge
of $1,440,000 (See Note 4 "Acquisitions"). An additional $83,000 was expensed in
the fourth quarter of fiscal 2001.

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

(a) Calculated independently for each period, and consequently, the sum of the
quarters may differ from annual amount.

17. SUBSEQUENT EVENTS

SERIES A PREFERRED

On January 3, 2002 the Company's Board of Directors authorized the issuance
of up to 35,000 shares of Series A Preferred Stock par value of $.01 per share,
of which 8,807 are designated Sub-Series A-1 Convertible Preferred Stock and
26,193 are designated Sub Series A-2 Stock. The shares are being sold in units
consisting of 100 shares of Series A Preferred Stock and warrants to purchase
5,000 shares of common stock for a purchase price of $10,000 per unit
aggregating $3,500,000 if all the units are sold. Upon approval by the
stockholders required under the applicable Nasdaq rules, the warrants are
exercisable for a term of five

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) years from the date of issuance at an exercise price of $.50 per share. The
Series A-1 shares are convertible into common stock at a conversion value of
$.50 per share.

The Company has limited the number of shares of Sub-Series A-1 Convertible
Preferred stock, as would be convertible into 1,761,400 shares of common stock,
which represents approximately 19.9% of the Company's outstanding stock at
December 31, 2001. At each closing the purchaser will receive a pro rata number
of Sub-Series A-1 Convertible Preferred Stock and Sub-Series A-2 Preferred stock
based on the maximum 35,000 shares being offered not exceed the limit the
Company has set on the Sub-Series A-1 Convertible Preferred Stock. If after the
final closing, which is to occur on or before January 31, 2002 unless that date
is extended by mutual consent, the Company has not issued all of the Series A
Shares, the purchasers will be entitled to exchange the Sub-Series A-2 Preferred
Stock for the Sub-Series A-1 Convertible Preferred Stock on a pro rata basis
until the maximum number of Sub-Series A-1 Convertible Preferred Stock are
issued.

Through January 25, 2002, the Company has sold 5,033 and 14,967 shares of
Sub-Series A-1 and Sub-Series A-2, respectively, and granted warrants for the
purchase of 1,000,000 shares of common stock for total proceeds, net of offering
costs, of $2,000,000.

Both Series have the same preferences, rights, qualifications, limitations
and restrictions except that, until the Company obtains stockholder approval as
required by Nasdaq Market Place Rules 4350 and 4351, the Sub-Series A-2
Preferred Stock is non-convertible and non-voting. Preliminary stockholder
approval has been obtained and formal approval is expected by February 15, 2002.

After the required stockholder approval is obtained, the Series A Preferred
Stock is convertible at any time at the holder's option, at the then applicable
conversion rate (200-1 at the date of issuance) adjusted for certain events
including the issuance of common stock for consideration less than the
conversion price then in effect.

Dividends of 10% per year accrue daily and are payable quarterly on March
31, June 30, September 30 and December 31 of each year. Dividends accumulate and
compound quarterly if not paid in cash on the dividend payment date. If the
Company is in default under the terms of the Series A Preferred Purchase
Agreement, the dividend rate will increase to 15% per year.

The Series A Preferred Stock has a liquidation preference of 125% of the
issuance price. On a liquidation or sale of the Company, holders of the Series A
Preferred Stock will be entitled to a liquidation preference payment of the
original issuance price plus any accrued and unpaid dividends.

If any shares of the Series A Preferred Stock are still outstanding on
December 31, 2007, the Company must redeem those shares at the issuance price
plus all accrued and unpaid dividends, if legally able to do so. The Company is
also required to redeem the Series A Preferred Stock at the liquidation
preference price upon a consolidation, merger or reorganization, the sale of
substantially all of its assets, or consummation of a purchase, exchange or
tender offer for more than 50% of the Company's common stock. The holders of the
Series A Preferred Stock may also require redemption of their shares at the
liquidation preference price if the Company fails to have its common stock
listed on the Nasdaq, American Stock Exchange on the New York Stock Exchange for
ten (10) business days during a 12 month period; provides notice to any holder
of Series A Preferred Stock that it does not intend to comply with the
conversion request; or is in default of its obligations under the agreements
with the purchaser and does not cure the default.

The Series A Preferred Stock will be classified as redeemable preferred
stock in the mezzanine section of the Company's balance sheet.

Because on the date of issuance of such shares through January 25, 2002,
the estimated fair market value of the company's common stock exceed the
conversion price, the company will treat as a preferred stock dividend an amount
of approximately $2,000,000 related to these transactions.

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SERIES B PREFERRED

On December 21, 2001, the Company received $250,000 as the first tranche
payment on a proposed investment in Series B Preferred Stock of the Company,
whose terms are subject to negotiation and completion of definitive
documentation and all authorizations required under applicable law.

BRIDGE FINANCING

In January 2002, the Company agreed to convert into common stock, at a per
share conversion price to be determined, approximately $300,000 of the unpaid
balance plus accrued and unpaid interest on the $500,000 6.75% bridge financing
and the $200,000 6.75% demand loan from an affiliate of a former director and a
former officer/director of the Company (See Note 5 "Other Debt -- Bridge
Financing" and Note 14 "Related Party Transactions"). The remaining balance of
approximately $128,000 has been assigned by the holders to the Company's CEO in
settlement of non-Company obligations between the parties. The CEO agreed to
eliminate the interest charge and to structure a repayment schedule to fit
within the cash flow parameters of the Company.

In January 2002 the Company agreed to restructure the $500,000 6.75% bridge
financing received in August 2001 (See Note 5 "Other Debt -- Bridge Financing")
by converting $250,000 into common stock, at a per share conversion price to be
determined. Payment of the remaining $250,000 balance plus accrued interest will
be due no later than December 31, 2003. In addition the holder agreed to release
the junior security interest in the Tampa, Florida and Las Cruces, New Mexico
properties.

FLOOR PLAN FINANCING

On January 9, 2002 the Company agreed with its primary floor plan lender to
enter into a forbearance agreement to amend and extend the floor plan financing
agreement to January 23, 2002 (See Note 9 "Floor Plan Contracts"). The Company's
non-compliance with the financial covenants was not waived during the
forbearance period. There are no assurances that the Company will come to
agreeable terms with their primary floor plan lender or obtain sufficient
alternative floor plan financing (See Note 2 "Summary of Significant Accounting
Policies").

SALE OF TAMPA PROPERTY

On January 3, 2002, the Company entered into a contract to sell its Tampa
Florida facility for $1,026,000 subject to buyer due diligence and satisfactory
financing to complete the purchase.

F-26

INDEX TO EXHIBITS

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

* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the applicable rules of the Securities
Exchange Act.

(1) Incorporated by reference to the Exhibits to the Registration Statement on
Form S-18 filed by the Registrant on September 14, 1987, and which became
effective on October 27, 1987 (File No. 33-17190-A).

(2) Incorporated by reference to the Exhibits to the Registration Statement on
Form 8-A filed by Registrant on December 22, 1987, and which became
effective December 28, 1987 (File No. 0-16448).

(3) Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 28, 1988.

(4) Incorporated by reference to the Exhibits to the Annual Report on Form 8-K
filed by the Registrant on February 27, 1990.

(5) Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 27, 1992.

(6) Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 26, 1995.

(7) Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the registrant on January 27, 1998.

(8) Incorporated by reference to the Exhibits to the Report on Form 8-K/A filed
by the Registrant on January 25, 2000.

(9) Incorporated by reference to the Exhibits to the Report on Form 8-K/A filed
by the Registrant on May 15, 2000.

(10) Incorporated by reference to the Exhibits to the Report on Form 8-K filed
by the Registrant on November 14, 2000.

(11) Incorporated by reference to the Exhibits to the Annual Report on Form 10-K
filed by the Registrant on January 15, 2001.