Quality Resorts of America, Inc.
11357A Pyrites Way, Suite 3
Rancho Cordova, CA 95670
August 12, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the rquirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-QSB for the third quarter ended
March 31, 1996.
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 Third Quarter Ended Commission File No. 0-14035
March 31, 1996
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 March 31, 1996 was 3,284,818.
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<TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR NINE MONTH PERIOD ENDING
MARCH 31, 1996
(Unaudited)
Mar 31, June 30,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 105,209 $ 16,913
Current maturities of membership
contracts receivable, net 461,431 290,576
Current Maturities of Notes
Receivable 808,432 62,297
Interest and dues receivable 128,229 126,007
Due from Officers and Employees 36,862 13,228
Other current assets 342,178 215,714
__________ _________
Total Current Assets 1,882,341 724,735
Membership contracts, net 1,845,724 1,807,284
Operating Resorts, net 1,969,681 1,969,681
Property held for development, net 513,716 536,765
Operating equipment, net 202,156 183,406
Notes Receivable -0- 747,990
Other assets 76,218 57,135
__________ ________
TOTAL ASSETS $ 6,489,836 6,026,996
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 272,851 199,371
Accrued Expenses and other current
liabilities 347,876 268,053
Due to Officers -0- 59,863
Current Portion of Deferred Income 200,616 191,244
Current maturities long-term debt 840,041 651,818
__________ _________
Total Current Liabilities 1,661,384 1,370,349
Long-term debt 4,011,377 4,177,876
Deferred income 574,078 660,735
__________ ________
Total Liabilities 6,246,839 6,208,960
</TABLE>
<PAGE>
<TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FOR NINE MONTH PERIOD ENDING
MARCH 31, 1996
(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) (2,271,972) (2,696,933)
__________ __________
Total Stockholders' Equity 242,997 ( 181,964)
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $ 6,489,836 $ 6,026,996
=========== ==========
</TABLE>
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<TABLE>
QUALITY RESORTS OF AMERICA, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR NINE MONTH PERIOD ENDING
MARCH 31, 1996
(Unaudited)
March 31,
1996 1995
---------- -------
<S> <C> <C>
Revenues
Membership Sales $1,838,169 846,650
Resort Operations 1,260,759 1,185,158
Interest Income 241,001 218,958
Other Income 8,763 75,187
__________ ________
Total Revenue $3,348,692 2,325,953
Expenses
Sales & Marketing 889,034 558,031
Resort Operations 712,841 707,409
General & Administrative 731,205 642,661
Allowance for Doubtful Accounts 143,313 26,209
Interest Expense 478,314 483,572
_________ ________
Total Expenses 2,954,707 2,417,882
Income (Loss) from Operations 393,985 (91,928)
Other income (expense):
Nonrecurring Items 33,376 10,689
___________ __________
Income (loss) before provision
for income taxes 427,361 (81,239)
Provision for income taxes(credits) 2,400 2,400
______ _______
Net income (loss) $ 424,961 ($ 83,639)
====== =======
Net income (loss) per share .13 ( .03)
=== ===
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 NINE MONTH PERIOD ENDING
MARCH 31, 1996 AND 1995
(Unaudited)
March March
1996 1995
__________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 424,961 ( 83,639)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 52,760 63,150
Provision for losses on
contracts and interest receivable 143,313 26,209
Deferred Income ( 77,285) ( 23,040)
(Gain) Loss on Sales of Assets -0- 2,300
Settlement of Long Term Debts ( 12,972)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase Contracts Receivable ( 352,608) ( 11,371)
(Increase)Decrease Interest and
Dues receivable ( 2,222) (101,767)
Increase Prepaid Expenses &
Other Assets ( 169,180) ( 96,042)
Increase(Decrease) Accounts Payable 73,480 42,250
Increase(Decrease) Accrued Expenses 19,960 ( 93,814)
__________ __________
NET CASH USED IN OPERATING ACTIVITIES 113,179 (288,736)
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal Repayment of Notes Receivable 1,855 1,679
Sale of Fixed Assets -0- 2,700
Additions to property and equipment ( 48,462) ( 30,357)
__________ _________
NET CASH FLOW FROM INVESTING ACTIVITIES ( 46,607) ( 25,978)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowing 67,437 364,725
Principal repayments on debts ( 45,713) (159,173)
Settlement of Debts
----------- ----------
NET CASH FROM FINANCING ACTIVITIES 21,724 205,552
NET INCREASE (DECREASE) IN CASH 88,296 (109,162)
CASH, beginning of period 16,913 189,282
__________ __________
CASH, end of period $ 105,209 $ 80,120
========== =========
</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 March 31, 1996, and March 31, 1995, 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 nine-month periods ended March 31,
1996, and 1995 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 nine months ended March
31, 1996, and March 31, 1995, the percentage of total sales
represented by items included in the Company's Statements of
Operations.
<TABLE>
Mar 1996 Jun 1995 Mar 1995
<S> <C> <C> <C>
Revenues:
Membership Sales 55% 53% 36%
Resort Operations 38% 39% 51%
Interest Income 7% 8% 10%
Other Income 0% 0% 3%
_____ _____ _____
Total Revenues 100% 100% 100%
Expenses:
Sales and Marketing 27% 29% 24%
Resort Operations 21% 27% 30%
General and Administrative 22% 22% 28%
Provision for Bad Debt 4% 3% 1%
Interest 14% 17% 21%
_____ _____ _____
Total Expenses 88% ( 97%) ( 104%)
Earnings(Loss) before Income
Tax and Extraordinary Items 12% 3% ( 4%)
Income Tax Provision 0% 0% 0%
Extraordinary Items 1% 0% 0%
Net Income(Loss) 13% 3% ( 4%)
===== ===== =====
</TABLE>
The Company's strategy for growth is: i) to open offsite sales
offices 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 nine-month period ended March 31, 1996, membership
sales increased from the same period of the prior year by $991,000
(117 percent), from $849,000 to $1,838,000. 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 nine months ended March
31, 1996, 152 members purchased upgrades for a total of $387,000.
New membership sales increased by $591,000 (66 percent), from
$894,000 in 1995 to $1,485,000 in 1996.
The Company has contracted with Affiliated Resorts, Inc.
(ARI, a company owned by Robert R. Brindle, the Company's Board
Chairman) to sell CRV memberships at offsite locations. An offsite
office was established at Golden Pond Resort (GPR, owned by
Affiliated Resorts, Inc.), located in the Greater Palm Springs
area. For the nine-month period ended March 31, 1996, ARI
generated sales in the amount of $221,000. Affiliated Resorts,
Inc., 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 member usage of GPR.
Marketing expenses increased to $889,000 (48 percent of
sales) in 1996 compared to $558,000 (66 percent of sales) in 1995,
an increase of $331,000. The increase in expense is due to the
increase in sales. Commission expense increased from $255,000 (30
percent of sales) in 1995, to $490,000 (27 percent of sales) in
1996, an increase of $235,000. Other sales expenses increased from
$303,000 (36 percent of sales) to $399,000 (22 percent of sales).
The increase of other expenses is primarily attributed to an
increase in expenditures in the generation of tours, such as
telemarketing payroll related expense, telephone expense, purchase
of leads, and exhibits and shows.
Resort Operations
Revenues generated from Resort Operations increased
by $76,000 (6 percent) over the same period in 1995. Maintenance
dues increased by $42,000 and income from park activities increased
$34,000. Expenses increased slightly to $713,000 in 1996 compared
to $707,000 in 1995.
General and Administrative Expense
General and administrative expense increased from $643,000
in 1995 to $731,000 in 1996 (an increase of 14 percent). This is
attributed in part to an increase in collection services in the
amount of $24,000. Postage and office supply expense increase by
$20,000 over the prior year as the Company had completed the
transfer of the member billing from an outside service to its own
system in the summer of 1995. Payroll and payroll expense increase
by $50,000 due to increase in personnel.
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 in the Fall of 1995 from the harvesting of
timber at a cost of $71,000. The harvesting was suspended for the
winter with plans to 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 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 $55,000 of the loan amount for work completed to date.
The permitting process is expected to be completed in August, 1996,
to allow for the completion of repairs.
The note receivable from the sale of Westside Resort has been
reclassified to current maturities as it was due to be paid off by
November 1, 1996 under the terms of the sale of the property.
The note was in default and the Company foreclosed. The sale date
was set for December 5, 1995. However, the mortgagees filed for
protection in the bankruptcy courts on December 4, 1995. The plan
they approved by the bankruptcy court calls for a contract for the
sale of the property be submitted to the court by September 19,
1996, with the close of escrow by December 31, 1996. If the sale
does not occur, the mortgagees have seven days to cure the default.
If the default is not cured, the foreclosure will be allowed to
proceed.
Current maturities of long term debt decreased by $489,000
due to the renewal of the secured loans on Klamath Cove Resort.
These notes are secured by individual deeds of trust at interest
rates between 12 percent and 15 percent, interest only payments,
primarily maturing in August 2001.
<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: August 1, 1996 Susan Bienias
Susan Bienias
Chief Financial Officer
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<ALLOWANCES> 892
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</TABLE>
