UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
Form 10-QSB
-----------
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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Commission File No. 0-3858
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INTERNATIONAL LEISURE HOSTS, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Wyoming 86-0224163
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3207 S. Hardy Drive
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Tempe, AZ 85282
- ------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code (602) 829-7600
----------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock as of the close of the latest practicable date. There were 694,577 shares
of $.01 par value common stock outstanding as of June 30, 1998.
Page 1 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Summarized Financial Information
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June March
30, 1998 31, 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 438,281 $ 212,593
Accounts receivable 9,550 23,300
Accounts receivable from related party 82,800
Income tax refund receivable 61,471 23,471
Merchandise inventories 157,171 50,394
Prepaid expenses and other 27,010 10,491
Deferred income taxes 19,603 19,603
----------- -----------
Total current assets 713,086 422,652
----------- -----------
PROPERTY AND EQUIPMENT:
Buildings and improvements 5,017,059 5,017,059
Equipment 1,496,253 1,421,234
Leasehold improvements 325,600 325,600
Construction in progress 148,091 48,145
----------- -----------
Total property and equipment 6,987,003 6,812,038
Less accumulated depreciation and amortization 1,915,026 1,845,325
----------- -----------
Property and equipment - net 5,071,977 4,966,713
----------- -----------
DEPOSITS 4,402 3,402
----------- -----------
TOTAL $ 5,789,465 $ 5,392,767
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade $ 280,009 $ 70,570
Related party 34,208 17,929
Note payable under line of credit from related party 1,105,000 1,105,000
Accrued liabilities 115,672 61,323
Advance deposits 312,113 113,093
----------- -----------
Total current liabilities 1,847,002 1,367,915
DEFERRED INCOME TAXES 196,589 196,589
----------- -----------
Total liabilities 2,043,591 1,564,504
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 100,000 shares:
issued none
Common stock, $.01 par value - authorized 2,000,000 shares:
issued, 718,373 shares 7,184 7,184
Additional paid-in capital 656,426 656,426
Retained earnings 3,160,176 3,242,565
Common stock in treasury - at cost, 23,796 shares (77,912) (77,912)
----------- -----------
Total shareholders' equity 3,745,874 3,828,263
----------- -----------
TOTAL $ 5,789,465 $ 5,392,767
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 2 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended
June 30
--------------------------
1998 1997
---- ----
REVENUES:
Sales of merchandise $ 329,674 $ 344,757
Room, cabin and trailer space rentals 321,550 347,258
Other income 33,981 66,564
--------- ---------
Total revenues 685,205 758,579
--------- ---------
COSTS AND EXPENSES:
Operating 463,097 612,739
Cost of merchandise 185,332 221,936
General and administrative 52,104 36,989
Depreciation and amortization 82,283 84,741
Interest expense 22,778 22,086
--------- ---------
Total costs and expenses 805,594 978,491
--------- ---------
Income (loss) before income tax (120,389) (219,912)
Provision (benefit) for income taxes (38,000) (81,000)
--------- ---------
NET INCOME (LOSS) ($ 82,389) ($138,912)
========= =========
NET INCOME (LOSS)
PER COMMON SHARE $ (0.12) $ (0.20)
========= =========
See notes to consolidated financial statements
Page 3 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1998 718,373 $7,184 $656,426 $3,242,565 ($77,912)
Net income (loss) (82,389)
----------------------------------------------------------------------
BALANCE, JUNE 30, 1998 718,373 $7,184 $656,426 $3,160,176 ($77,912)
======= ====== ======== ========== =========
</TABLE>
See notes to consolidated financial statements
Page 4 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ($ 82,389) ($138,912)
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 82,283 84,741
Gain on disposal of property and equipment (7,210) (8,059)
Changes in assets and liabilities:
Accounts receivable 13,750 15,242
Accounts receivable related party 82,800 9,800
Merchandise inventories (106,777) (76,302)
Income tax receivable (38,000) (81,000)
Prepaid expenses and other (17,519) (16,209)
Accounts payable trade 209,439 187,506
Accounts payable related party 16,279
Accrued liabilities 54,351 34,727
Advance deposits 199,021 208,510
--------- ---------
Net cash provided by operating activities 406,028 220,044
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (187,550) (131,109)
Proceeds from disposal of property and equipment 7,210 28,536
Cash and accounts payable segregated for construction
of replacement property 53,188
--------- ---------
Net cash used in investing activities (180,340) (49,385)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from Bank Line of Credit 60,000
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 225,688 230,659
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 212,593 48,258
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 438,281 $ 278,917
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 24,794 $ 22,086
========= =========
</TABLE>
See notes to consolidated financial statements
Page 5 of 13
<PAGE>
INTERNATIONAL LEISURE HOSTS, LTD.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Period Ending June 30, 1998 and 1997
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been made and are of a
normal recurring nature. Operating results for the three months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1999. The enclosed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended March
31, 1998.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
International Leisure Hosts, Ltd. (the "Company") operates in one business
segment, the ownership and operation of Flagg Ranch, a full-service resort motel
and trailer park located in the John D. Rockefeller Jr. Memorial Parkway,
approximately four miles north of Grand Teton National Park and two miles south
of the southern entrance to Yellowstone National Park.
Significant accounting policies are as follows:
a. Merchandise inventories are stated at the lower of aggregate cost
(first-in, first-out basis) or market.
b. Property and equipment are stated at cost. Depreciation is computed
primarily by an accelerated method over the estimated useful lives,
which range from 5 years to 40 years, for such assets. Leasehold
improvements are amortized using the straight-line method over the
lesser of the estimated useful life of the related asset or the term of
the lease.
c. Income taxes have been accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. Deferred income taxes have been provided for the temporary
differences between financial statement and income tax reporting on
certain transactions.
d. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
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.
e. Net income (loss) per common share - In 1998, the company adopted and
retroactively applied SFAS No. 128, Earnings per Share, which had no
effect on the computation or presentation of earnings
Page 6 of 13
<PAGE>
per share data. Net income (loss) per common share is computed by
dividing net income by the weighted average number of common shares
outstanding. The weighted average number of common shares outstanding
was 694,577 for the three months ended June 30, 1998 and 1997.
f. Statements of Cash Flows - For purposes of the consolidated statements
of cash flows, cash and cash equivalents represent cash in banks, money
market funds, and certificates of deposit with initial maturities of
three months or less.
g. Estimated Fair Value of Financial Instruments - The Company has
estimated the fair value of its financial instruments using available
market data. However, considerable judgment is required in interpreting
market data to develop estimates of fair value. The use of different
market assumptions or methodologies may have a material effect on the
estimates of fair values. The carrying values of cash, receivables,
lines of credit, accounts payable, accrued expenses, and long-term debt
approximate fair values due to the short-term maturities or market
rates of interest.
h. New Accounting Pronouncements - In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income, which is effective for financial
statements for fiscal years beginning after December 15, 1997 and
established standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The Company does not believe
the adoption of SFAS No. 130 will have a material impact on its
financial statement presentation or related disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments
of an Enterprise and Related Information, which is effective for fiscal
years beginning after December 15, 1997 and establishes standards for
the way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company operates in
one business segment and does not believe that the adoption of SFAS No.
131 will have a material impact on its financial statements or related
disclosures.
2. COMMITMENTS AND CONTINGENCIES
The Company receives its operating authorization from the National Park Service
("NPS"). The NPS Contract (the "Contract") which became effective on January 1,
1990, will expire on December 31, 2009. Under the terms of the Contract, prior
to December 31, 1999, the Company is required to move its existing 54-unit
riverside motel from its current location to the high ground above the river, to
provide for new employee housing and make certain other improvements. The
Company has chosen to meet these requirements by moving the riverside motel and
converting it into employee housing, plus building additional employee support
facilities, which is scheduled to begin in summer 1998 with expected completion
in summer 1999. The cost to do this is estimated to be between $1,200,000 and
$2,100,000 depending on the number of employee housing units and the extent of
additional improvements required by the NPS. If the Company builds new lodging
units to replace the 54-unit riverside motel, the additional cost to build these
units will be between $1,000,000 and $1,200,000. This would result in a total
cost of relocation and new construction combined of between $2,200,000 and
$3,300,000. The Company has not made a decision at this time regarding replacing
the riverside motel with new lodging units.
Page 7 of 13
<PAGE>
The fee expense, which has been recorded as operating expense, to the NPS under
the Contract is calculated at 2% of gross receipts (as defined), subject to
review and possible adjustment every five years. For the three months ended June
30, 1998 and 1997, this fee amounted to $13,000 and $14,130, respectively.
Flagg Ranch faces competition from hotels, camping areas and trailer facilities
in Yellowstone and Grand Teton National Parks, as well as from a large number of
hotels and motels in Wyoming, Montana and Idaho, offering some facilities which
are similar to those offered by Flagg Ranch. In addition, the business of Flagg
Ranch is susceptible to weather conditions and unfavorable trends in the economy
as a whole. Business could be significantly affected depending upon actions
which might be taken by the NPS if cutbacks are made to their budget. If the NPS
decides to close Yellowstone National Park for the winter months, then Flagg
Ranch would have to discontinue its winter operations. NPS budget cutbacks could
also negatively impact the length of the summer season and the number of
visitors to the Parks and have a corresponding negative impact on Flagg Ranch
revenues.
On May 20, 1997, the Fund for Animals, Biodiversity Legal Foundation et. al.
filed a lawsuit against the NPS challenging the action of the NPS regarding
winter use of Yellowstone and Grand Teton National Parks. The plaintiffs have
asked the Federal Court to stop winter activities, primarily snowmobiling and
related snow grooming, until environmental impacts are documented. A settlement
agreement was reached that requires the NPS to prepare an environmental impact
statement ("EIS") over the next three years, during which time period the parks
will continue activities under the existing winter visitor-use plan. If the NPS
is required to suspend or terminate winter activities in Yellowstone National
Park, Flagg Ranch would have to suspend or discontinue its winter operations.
3. TRANSACTIONS WITH AFFILIATED COMPANIES AND RELATED PARTIES
General and administrative expenses for the three months ended June 30, 1998 and
1997 include management fees and administrative expenses paid to related parties
of approximately $32,000 and $20,000, respectively. All related parties referred
to in these financial statements were family members of Elizabeth A. Nicoli who
were the majority owners of the Company for the three months ended June 30,
1997. Related parties during the three months ended June 30, 1998 are the
Company's majority owner, Robert Walker or his affiliated companies.
During October 1997, the Company incurred borrowings under a line of credit from
a related party (see note 4 below). Interest paid pursuant to these borrowings
for the three months ended June 30, 1998 totaled $24,794.
4. NOTE PAYABLE UNDER LINE OF CREDIT
During October 1997, the Company entered into a line of credit agreement
("Agreement") with an affiliated company expiring September 30, 1998, which
provides for secured borrowings of up to $1,200,000 at an interest rate of prime
plus .5 percent. Borrowings under the Agreement are collateralized by the assets
and improvements of Flagg Ranch. The Company has borrowed $1,105,000 on this
line of credit as of June 30, 1998.
Page 8 of 13
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The statements contained in this Report regarding management's anticipation of
the Company's facility completion schedules, quality of facilities, fulfillment
of National Park Service requirements, consumer response to marketing efforts,
ability to offset inflation and adequacy of financing, constitute "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Management's anticipation is based upon assumptions
regarding levels of competition, acceptance of facilities by consumers,
favorable weather conditions, ability to complete facility construction, the
market in which the Company operates, the stability of the economy and stability
of the regulatory environment. Any of these assumptions could prove inaccurate,
and therefore there can be no assurance that the forward-looking information
will prove to be accurate.
The Company's net loss for the first quarter ended June 30, 1998 was $82,000
($.12 per share). This compares to a net loss of $139,000 ($.20 per share) for
the quarter ended June 30, 1997. The $57,000 decrease in loss was due primarily
to reductions in operating costs. Changes to the Company's revenues and expenses
for the quarters ended June 30, 1998 and June 30, 1997 are summarized below. All
references to years represent quarters ending June 30 of the stated year.
Flagg Ranch, the principal business of the Company, is operated as a seasonal
resort. The two seasons coincide with the opening and closing dates of
Yellowstone and Grand Teton National Parks. The summer season runs from
approximately May 15 through October 15 and the winter season runs from late
December through mid-March. Therefore, the first quarter ending June 30, 1998
consists of only forty-five days of operations.
Revenues
- --------
Total revenues for 1998 decreased by $73,000 or 10% from 1997. Of this decrease,
$38,000 was from motel and cabin rentals, $13,000 from food services, $21,000
from float trip revenue, $12,000 from horse rental revenue, $12,000 in gasoline
sales, and $2,000 in grocery store sales. Increases of $13,000 in RV park
rentals, $10,000 in Gift shop sales, and $2,000 in miscellaneous income offset
the above decreases. The primary reason for the decrease in motel and cabin
rentals is due to the conversion of the riverside motel from available rental
units to employee dormitories. This represents an approximate 37% decrease in
available rental units from last year. This decrease also caused the decreases
in revenues from float trips, horse rentals, gasoline sales and grocery store
sales. The primary reason for the increase in RV park rentals was a increase in
the number of recreational vehicle sites available for rent to the public. On a
temporary basis, approximately twenty-five recreational vehicle sites were being
utilized by construction workers and employees during the construction of new
facilities at Flagg Ranch during 1997.
Expenses
- --------
The ratio of cost of merchandise sold to sales of merchandise was 56% in 1998 as
well as 1997. Operating expenses decreased by $150,000 or 24% in 1998 as
compared to 1997. The ratio of operating expenses to total revenue decreased to
68% in 1998 from 80% in 1997. The primary decrease in operating expenses was
Page 9 of 13
<PAGE>
a $124,000 decrease in labor costs. This was primarily attributable to cutbacks
made in the labor force at the beginning of the year. In addition, the labor
costs decreased due to the reduced number of lodging units. Other decreases in
operating expenses included $39,000 related to river float trips and horseback
riding operations and $8,000 in office supplies. Increases in a number of other
expenses totaling about $21,000 offset these decreases.
Inflation
- ---------
The Company expects that it will be able to offset increased costs and expenses,
principally labor, caused by inflation, by increasing prices on its services
with minimal effect on operations.
Liquidity and Capital Resources
- -------------------------------
During the last fiscal year the company began a project to relocate the
riverside motel and other buildings located along the Snake river to higher
ground for use as employee dormitories as well as the construction of new
employee RV spaces and other ancillary buildings. During the quarter ended June
30, 1998, the Company incurred costs of approximately $100,000 related to the
above construction projects. In addition the Company has purchased new vehicles
and other construction equipment at a cost of $87,000. As a result, the working
capital decreased to a negative $1,134,000 at June 30, 1998 from a negative
$945,000 at March 31, 1998.
The Company may incur additional costs of between $1,200,000 and $2,100,000
prior to December 31, 1999 to relocate employee housing units as required under
the NPS Contract.
The Company intends to fund these improvements through existing cash funds and
cash generated from operations, plus additional borrowings from lenders. Cash
generated from operations was $432,000, $430,000, and $139,000 for the fiscal
years ended 1998, 1997 and 1996, respectively. Cash generated from operations
for the quarter ended June 30, 1998 and 1997 was $406,000 and $220,000,
respectively. The construction funds will have to be obtained from outside
sources to the extent they exceed cash generated from operations. There is no
guarantee that the Company will be able to procure financing on favorable terms.
Page 10 of 13
<PAGE>
PART II - OTHER INFORMATION
ITEM I. Legal Proceedings
- ------- -----------------
None.
ITEM 2. Changes in Securities
- ------- ---------------------
None.
ITEM 3. Defaults upon Senior Securities
- ------- -------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Securities Holders
- ------- -----------------------------------------------------
None.
ITEM 5. Other Materially Important Events
- ------- ---------------------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
<TABLE>
<S> <C> <C>
(a) 1. Financial Statements Page
The following consolidated financial statements of International Leisure Hosts, Ltd. are included in
Part I, Item 1:
Consolidated Balance Sheets - June 30, 1998
and March 31, 1998 2
Consolidated Statements of Income - 3 months ended
June 30, 1998, 1997 3
Consolidated Statements of Shareholders' Equity -
3 months ended June 30, 1998 4
Consolidated Statements of Cash Flows-
3 months ended June 30, 1998, 1997 5
Notes to consolidated financial statements 6
</TABLE>
Page 11 of 13
<PAGE>
3. The following exhibits are incorporated by reference as
indicated:
3.1 By-Laws-Adopted June 22, 1992 Filed with Form 10-K dated March
31, 1992
3.2 Articles of Incorporation-filed with Form 10-K dated March 31,
1986, pages 32-41
10.1 United States Department of the Interior National Park Service
Contract-filed with Form 10-Q dated December 31, 1989
Page 12 of 13
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
INTERNATIONAL LEISURE HOSTS, LTD.
---------------------------------
(REGISTRANT)
DATE: August 7, 1998 BY: ROBERT L. WALKER
--------------- ---------------------------------
Robert L. Walker
President
DATE: August 7, 1998 BY: MICHAEL P. PERIKLY
---------------- ----------------------------------
Michael P. Perikly
Principal Financial Officer and
Chief Accounting Officer
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 438,281
<SECURITIES> 0
<RECEIVABLES> 9,550
<ALLOWANCES> 0
<INVENTORY> 157,171
<CURRENT-ASSETS> 713,086
<PP&E> 6,987,003
<DEPRECIATION> 1,915,026
<TOTAL-ASSETS> 5,789,465
<CURRENT-LIABILITIES> 1,847,002
<BONDS> 0
0
0
<COMMON> 7,184
<OTHER-SE> 3,738,690
<TOTAL-LIABILITY-AND-EQUITY> 5,789,465
<SALES> 1,579,214
<TOTAL-REVENUES> 685,205
<CGS> 185,332
<TOTAL-COSTS> 805,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,778
<INCOME-PRETAX> (120,389)
<INCOME-TAX> (38,000)
<INCOME-CONTINUING> (82,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,389)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
