Quality Resorts of America, Inc.
11357A Pyrites Way, Suite 3
Rancho Cordova, CA 95670
February 14, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q for the second quarter ended
December 31, 1995.
Sincerely,
QUALITY RESORTS OF AMERICA, INC.
Susan Bienias
Susan Bienias
Chief Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Second Quarter Ended Commission File No. 0-14035
December 31, 1995
QUALITY RESORTS OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
California 68-0046021
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11357A Pyrites Way, Suite 3
Rancho Cordova, CA 95670
(Address of principal executive (Zip Code)
office)
Registrant's telephone number, including area code: (916)853-9812
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.
(1) Yes X No
(2) Yes __X No _______
The number of shares outstanding of the Registrant's only class of
common stock, as of December 31, 1995 was 3,284,818.
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<TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR SIX MONTH PERIOD ENDING
DECEMBER 31, 1995 AND 1994
(Unaudited)
Dec 31, June 30,
1995 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 70,804 $ 16,913
Current maturities of membership
contracts receivable, net 440,651 290,576
Current Maturities of Notes
Receivable 809,066 62,297
Interest and dues receivable 126,007 126,007
Due from Officers and Employees 24,692 13,228
Other current assets 299,147 215,714
__________ __________
Total Current Assets 1,770,367 724,735
Membership contracts, net 1,762,608 1,807,284
Operating Resorts, net 1,969,681 1,969,681
Property held for development, net 517,765 536,765
Operating equipment, net 197,506 183,406
Notes Receivable -0- 747,990
Other assets 72,009 57,135
__________ ___________
TOTAL ASSETS $ 6,289,936 $ 6,026,996
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 259,022 199,371
Accrued Expenses and other current
liabilities 336,405 268,053
Due to Officers -0- 59,863
Current Portion of Deferred Income 197,314 191,244
Current maturities long-term debt 847,112 651,818
__________ __________
Total Current Liabilities 1,639,853 1,370,349
Long-term debt 3,996,589 4,177,876
Deferred income 601,659 660,735
__________ __________
Total Liabilities 6,238,101 6,208,960
</TABLE>
<PAGE>
<TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR SIX MONTH PERIOD ENDING
DECEMBER 31, 1995 AND 1994
(Unaudited)
Continued
<S> <C> <C>
Stockholders' Equity
Preferred stock, 5,000,000 shares
authorized; none issued
Common stock, no par value,
20,000,000 shares authorized;
3,284,818 shares outstanding 2,514,969 2,514,969
Retained earnings (deficit) (2,463,134) (2,696,933)
__________ __________
Total Stockholders' Equity 51,835 ( 181,964)
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $ 6,289,936 $ 6,026,996
=========== ===========
</TABLE>
<PAGE>
<TABLE>
QUALITY RESORTS OF AMERICA, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR SIX MONTH PERIOD ENDING
DECEMBER 31, 1995 AND 1994
(Unaudited)
December 31,
1995 1994
---------- ----------
Revenues
<S> <C> <C>
Membership Sales $1,166,721 $ 549,213
Resort Operations 835,301 818,702
Interest Income 162,971 147,440
Other Income 3,318 74,462
__________ ________
Total Revenue $2,168,311 1,589,817
Expenses
Sales & Marketing 570,804 326,783
Resort Operations 502,824 517,035
General & Administrative 477,343 439,782
Allowance for Doubtful Accounts 91,063 19,440
Interest Expense 325,641 306,982
_________ ________
Total Expenses 1,967,676 1,610,022
Income (Loss) from Operations 200,635 ( 20,205)
Other income (expense):
Nonrecurring Items 35,564 10,689
___________ __________
Income (loss) before provision
for income taxes 236,199 ( 9,516)
Provision for income taxes(credits) 2,400 2,400
______ _______
Net income (loss) $ 233,799 ($ 11,916)
====== =======
Net income (loss) per share .04 .00
=== ===
Average number of shares outstanding
during the periods: 3,284,818
</TABLE>
<PAGE>
<TABLE>
QUALITY RESORTS OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASH FLOW
FOR SIX MONTH PERIOD ENDING
DECEMBER 31, 1995 AND 1994
(Unaudited)
December December
1995 1994
____________ _______________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 233,799 $ ( 11,916)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 33,902 42,030
Provision for losses on
contracts and interest receivable 91,063 19,440
(Gain) Loss on Sales of Assets -0- 2,300
Deferred Income ( 53,006) ( 18,607)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase Contracts Receivable ( 220,002) ( 67,140)
(Increase)Decrease Interest and
Dues receivable 23,540 ( 17,957)
Increase Prepaid Expenses &
Other Assets ( 109,771) ( 207,236)
Increase(Decrease) Accounts Payable 59,652 ( 25,386)
Increase(Decrease) Accrued Expenses 8,489 ( 47,998)
__________ __________
NET CASH USED IN OPERATING ACTIVITIES 67,666 ( 332,470)
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal Repayment of Notes Receivable 1,221 918
Sale of Fixed Assets -0- 2,700
Additions to property and equipment ( 29,002) ( 25,629)
__________ __________
NET CASH FLOW FROM INVESTING ACTIVITIES ( 27,781) ( 22,011)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowing 37,437 340,304
Principal repayments on debts ( 23,431) ( 56,335)
Settlement of Debts ( 12,972)
----------- ------------
NET CASH FROM FINANCING ACTIVITIES 14,006 270,997
NET INCREASE (DECREASE) IN CASH 53,891 ( 83,484)
CASH, beginning of period 16,913 189,282
__________ __________
CASH, end of period $ 70,804 $ 105,798
========== ==========
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - General
The condensed consolidated balance sheet and the condensed consolidated
statement of operations as of June 30, 1995, have been audited, while the
balance sheet and statement of operations for the periods ended December
31, 1995, and December 31, 1994, are unaudited. In the opinion of
management, all adjustments (which include any normal recurring
adjustments) necessary to present fairly the financial position and results
of operations for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The results of
operations for the six-month periods ended December 31, 1995, and 1994 are
not necessarily indicative of the operating results for the full year.
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Overview
The Company's revenues are derived primarily from membership sales and
resort operations. Membership sales generally consist of membership in
Quality Resorts of America, Inc. (QRA), with prices ranging from $1,995 to
$3,995, and membership in its wholly owned subsidiary, Club Rainbow
Vacations, Inc. (CRV), with prices ranging from $4,995 to $6,995. For the
fiscal year ended June 30, 1995, the Company sold 560 new memberships, of
which 104 canceled (18.6 percent), compared to fiscal year ended 1994, in
which the Company sold 513 new memberships with cancellations of 97 (18.9
percent). Resort operations consist of income from maintenance dues,
rental units, store sales, and storage income.
Results of Operations
The following table sets forth for the six months ended December 31,
1995, and December 31, 1994, the percentage of total sales represented by
items included in the Company's Statements of Operations.
<TABLE>
Dec 1995 Jun 1995 Dec 1994
<S> <C> <C> <C>
Revenues:
Membership Sales 54% 53% 35%
Resort Operations 38% 39% 51%
Interest Income 8% 8% 9%
Other Income 0% 0% 5%
_____ _____ _____
Total Revenues 100% 100% 100%
Expenses:
Sales and Marketing 27% 29% 21%
Resort Operations 23% 27% 32%
General and Administrative 22% 22% 28%
Provision for Bad Debt 4% 3% 1%
Interest 15% 17% 19%
_____ _____ _____
Total Expenses ( 91%) ( 97%) ( 101%)
Earnings(Loss) before Income
Tax and Extraordinary Items 9% 3% 1%
Income Tax Provision 0% 0% 0%
Extraordinary Items 2% 0% 0%
Net Income(Loss) 11% 3% 1%
===== ===== =====
</TABLE>
The Company's strategy for growth is: i) to open offsite sales offices
in Southern California to expand its marketing area to areas outside of the
Resorts' marketing areas; and ii) to extend the number of resorts available
to its members by affiliating with other resorts not owned by the Company,
and establishing sales offices at these resorts.
<PAGE>
Membership Sales
For the six-month period ended December 31, 1995, membership sales
increased from the same period of the prior year by $618,000 (112 percent),
from $549,000 to $1,167,000. This increase is partially attributed to an
upgrade product being offered to current members that have not upgraded in
the past. This upgrade offers family usage for a period of four years, a
resale program that becomes effective after a four year period, extended
stays at the Resorts, and a condominium package. For the six months ended
December 31, 1995, 67 members purchased upgrades for a total of $171,000.
Upgrades were not offered to members during the first quarter ending
December 31, 1994. New membership sales increased by $416,000 (69
percent), from $605,000 in 1994 to $1,020,000 in 1995, to 294 new members.
The Company has contracted with Affiliated Resorts, Inc. (a company
owned by Robert R. Brindle, the Company's Board Chairman) to sell CRV
memberships at offsite locations. An offsite office has been established
at Golden Pond Resort (GPR, owned by Affiliated Resorts, Inc.), located in
the Greater Palm Springs area. All current and new CRV members are allowed
specific usage, without charge, of this resort. Affiliated Resorts, Inc.,
(ARI) is responsible for all sales costs. In exchange, the Company pays
ARI 50 percent sales commission on sales and 40 percent of sales for CRV
usage of the resort.
Marketing expenses increased to $571,000 (49 percent of sales) in 1995
compared to $327,000 (60 percent of sales) in 1994, an increase of
$244,000. The increase in expense is due to the increase in sales.
Commission expense increased from $154,000 (28 percent of sales)
in 1994, to $294,000 (25 percent of sales) in 1995, an increase of
$140,000. Other sales expenses increase from $172,000 (31 percent of
sales) to $277,000 (24 percent of sales). The increase of other expenses
is primarily attributed to an increase in expenditures in the generation
of tours.
Resort Operations
Revenues generated from Resort Operations increased slightly by
$18,000 (2 percent) over the same period in 1994. Expenses decreased
slightly to $503,000 in 1995 compared to $517,000 in 1994.
General and Administrative Expense
General and administrative expense increased from $440,000 in 1994 to
$477,000 in 1995 (an increase of 8 percent). This is attributed to an
increase in professional services in the amount of $22,000.
Extraordinary Items
The Company obtained approval from the State of California Department
of Forestry to harvest timber from 110 acres at Redwood Trails Resort in
Northern California. Income in the amount of $106,000 was generated from
the harvesting of timber at a cost of $71,000. The harvesting has been
suspended for the winter and will resume in the spring. The plan also
calls for the replanting of the area harvested.
<PAGE>
Liquidity and Capital Resources
The Company experiences its most significant demand for working
capital between May and October. During these months, operating and sales
expenses increase significantly. Because this time represents the peak
usage of the campgrounds, it requires hiring seasonal workers and
increasing maintenance and operating expenses. These months are also the
months of the most active sales efforts, and, accordingly, sales expenses
increase significantly as well.
The Company's operations require a significant investment in resort
properties and improvements before a substantial level of revenues can be
expected from the sale of memberships. The operating cost of the Resorts
is not fully borne by the members until a certain portion of the
memberships are sold, necessitating the Company to bear the shortfall.
Membership sales are seasonal in nature, with the majority of such sales
occurring during the spring and summer months.
The Company was approved for a Small Business Administration Disaster
Loan in July 1995, for repairs to Klamath Cove Resort, which sustained
damage from winter storms. The loan is a three year loan at 8 percent
interest. The loan was approved for the amount of $281,000, secured by
personal guarantees from Robert R. Brindle and Robert M. Brindle, and by
a trust deed on River Grove Resort. The Company's estimation of damages
amounted to a much lower amount and the loan amount has been reduced to
$90,000. The Company has received $25,000 of the loan amount for work
completed to date.
The note receivable from the sale of Westside Resort has been
reclassified to current maturities as it is due to be paid off by November
1, 1996, by the terms of the sale of the property. The note is in
default. The Company foreclosed and the sale date was set for December 5,
1995. The mortgagees filed for protection in the bankruptcy courts on
December 4, 1995. The plan they have submitted to the bankruptcy court
calls for a sale of the property to close by March 15, 1996. If the sale
does not occur, a liquidation agent will be given the authority to sell the
property. If the property is not sold within nine months, the foreclosure
will be allowed. The Company is filing a motion to dismiss the bankruptcy.
Current maturities of long term debt have increased by $195,000,
primarily due to the maturity of secured loans on Klamath Cove Resort in
the amount of $560,000, and the renewal of secured loans on Lighthouse
Marina Resort and Redwood Trails in the amount of $430,000. These notes
are secured by individual deeds of trust at interest rates between 12
percent and 15 percent, interest only payments, maturing in August 1996.
Management anticipates that the notes will be renewed for an additional
terms, or will be paid off. However, there can be no assurance that a
significant number will roll over their notes for an additional term.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUALITY RESORTS OF AMERICA, INC.
Dated: February 14, 1996 Susan Bienias
Susan Bienias
Chief Financial Officer
<TABLE> <S> <C>
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</TABLE>
