SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
===============
FORM 10-KSB
(Mark One) ===============
X ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Fiscal Year ended June 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________
Commission File No. 0-14035
QUALITY RESORTS OF AMERICA, INC.
------------------------------------------------------
(Name of small business issuer in its charter)
California 68-0046021
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11707 Fair Oaks Blvd, Suite 210
Fair Oaks, CA 95628
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (916) 967-9812
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. x
State issuer's revenues for its most recent fiscal year $4,328,523.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 15, 1996, was not available.
The number of shares outstanding of the Registrant's only class of common
stock, as of June 30, 1996, was 3,284,818.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated
part of this Form 10K: NONE
ITEM 101 - BUSINESS DESCRIPTION
The Company operates four membership-based destination resort
campgrounds located in Northern California. The Company's business was
started in 1979 as a partnership consisting of members of the Brindle family.
That entity transferred its assets to Redwood Trails, Inc., which subsequently
transferred them to Advanced Resort Systems, Inc. The Company was formed in
September, 1984, and, in a triangular merger effected in February, 1985,
Advanced Resort Systems, Inc., and Redwood Trails, Inc., merged into Quality
Resorts of California, Inc., a wholly-owned subsidiary of the Company.
The resort campground industry emerged in the early 1970's in the Pacific
Northwest as a result of the increased nationwide popularity of recreational
vehicles (such as motor homes, travel trailers, campers and pop-up tents), and
the decreasing availability of public campground facilities. In the state of
California, camping is a $2 billion-a-year industry. Each year, according to a
1994 study, 8.6 million people spend a cumulative 81 million nights in
facilities from side-of-the-road pull-offs to amenity-laden commercial or
membership resorts. California campers are described as primarily middle
income families (76 percent have incomes above $40,000 per year) and well
educated (84 percent have at least some college). About one half have
dependant children. Only 2.3 percent of adult campers are in their 20s, with
the majority (about three-fourths) in the 30-59 range, and a quarter aged 60
and older.
While public campgrounds outnumber commercial ones by a 2-to-1 margin,
commercial resorts get slightly more visitors overall. Resorts feature family-
oriented activities in the setting of individual campsites, recreational
facilities and scenic open spaces. The typical resort campground offers
individual campsites with utility hookups, clubhouse, arcade, rest rooms with
hot showers, laundry facilities, a convenience store, recreational amenities
with organized activities, playground, and full-time security.
The Company has been marketing to the general public, primarily in
Northern California, the right to use the Resorts through memberships. The
membership entitles the member the usage of any of the Company's Resorts,
subject to the rules and regulations set for each Resort. Management believes
that the memberships provide a quality family vacation at an affordable price.
Members typically pay an initial membership fee, currently $1,995 to $6,995,
payable in full at the time of purchase, or by a cash down payment, with the
balance payable in monthly installments over a maximum period of 120 months.
Interest is charged on membership contracts receivable which are due beyond
one year and averages 15%. For a nominal additional fee, members have the
right, under a reciprocal arrangement with Camp Coast to Coast, Inc., and/or
Resort Parks International, to camp at over 600 other resorts located throughout
the United States, Canada, and Mexico. Additionally, members may join Club
Rainbow Vacations, Inc., (CRV) a wholly-owned subsidiary of the Company, and
have access to certain condominiums throughout the world, discounts on travel,
cruises, golf, hotels, and free vacations at the Company's Resorts.
After a membership is purchased, it may not be transferred for a two-year
period. Thereafter, it may be transferred a total of three times, unless
otherwise provided. The transferred membership expires on the death or
cancellation of the third transferee. To date, the number of transfers of
memberships has been minimal. The number of memberships that will cancel
prior to utilizing the transfer privilege is estimated to be 18%.
Current memberships do not convey any ownership interest in the Company
or its Resorts, the right to use a specific campsite (other than fifteen Pioneer
memberships that have sites at Redwood Trails) or the right to determine
future Resort improvements or operations. Except for certain Redwood Trails
members who are allowed a 30-day visit in that park only, the duration of any
one visit has normally been restricted to 7 consecutive days at River Grove, 15
consecutive days at Lighthouse Marina and Redwood Trails, and 4 consecutive
days at Klamath Cove. A member has typically been permitted to visit a Resort
an unlimited number of times so long as visits are separated by an absence from
the Resort system of one week or longer.
Annual dues constitute a major source of revenue, with the current rate for
new members set at $288 per year. Members dues are frozen at their current
rate upon reaching the age of 65. Dues levels may be adjusted annually on a
cumulative basis to the percentage increase in the local Consumer Price Index,
or 3%, whichever is more. Upon transfer of membership, the dues level
accelerates to the current level for the new member. Starting in 1990, the
Company offered the first 1,000 of its existing members the opportunity to pay
their dues for life (transferrable to one subsequent owner of the membership)
by paying $1,440 (subsequently increased to $2,495). To date, 874 members have
taken advantage of this offer.
Although the Company may develop additional Resorts in the future,
prospective members are cautioned to base their decision to purchase a
membership on the facilities in existence at the time of joining.
Marketing Memberships
In the past, the major market for the Company has been in the Northern
California area with sales staff located at the Resorts. Offsite sales offices
are an opportunity for the Company to make gains in sales on a year round basis
and to sell in markets that are not accessible to the Resorts' sales staff. The
Company has operated offsite offices in the past, primarily in offering an
upgrade product to existing members and selling to orphaned members from
other resorts.
Membership sales continue throughout the year at Lighthouse Marina.
Because of weather conditions, sales activities slow significantly at Redwood
Trails, River Grove and Klamath Cove during the winter months.
A new market has emerged as an extension of resorts that have either gone
out of business, stopped operating as a membership resort, or has ceased their
affiliation with Camp Coast to Coast. This has proven to be a lucrative
market, estimated to be 20,000 orphaned or dissatisfied members in California,
Nevada and Arizona.
A program has been offered to members to upgrade their membership to a
Club Rainbow membership (CRV). This upgrade offers them Resort Parks
International, immediate-family memberships for $350, extended stays and free
rentals at the Resorts, and access to independent affiliated resorts. During
the year ended June 30, 1996, 200 members upgraded their memberships, with
total revenues from these upgrades amounting to $521,000.
Memberships are marketed under the trade name QRA and the slogan
"Vacations for LIFE!"
Competition
The Company markets its Resorts as family-oriented membership-based
campgrounds featuring recreational activities and other amenities. A number of
organizations compete directly with the Company by marketing memberships in
multiple Resort networks. Additional competition comes from single-park
organizations and public campgrounds. Some competition offers their members
reciprocal use of multiple Resort locations through affiliations with other
Resort owners, such as Camp Coast to Coast. The Company believes that the
membership fees, the location of Resorts and the amenities and services offered
at such Resorts are important elements in determining the Company's competition
in the industry.
The Company's main competition, multiple-park membership Resort networks,
have locations spread over the United States, but do not cover the Northern
California area sufficiently. The Company's selection of four unique water-
oriented Resorts in the Northern California area has given it a strong position
in this market area. Management believes that by having a concentration of
Resorts in Northern California, its membership is distinctive from the
competition. Also, by belonging to a reciprocal system, the Company feels that
it accommodates its members' desire to have Resorts available outside of the
Northern California area.
Single-park membership Resorts do not have the ability to offer the variety
that many campers desire. Therefore, it is felt that the Company has a product
that meets its target market without significant competition from this type of
Resort business.
Recreational campsites open to the public charge approximately $15 to $22
per night. Management believes that its Resorts are distinguishable from such
private and public facilities because of the additional amenities, increased
security and family-oriented activities that the Company offers.
Government Regulations and Environmental Laws
The development and operation of Resorts require discretionary permits or
approvals issued by government agencies, pursuant to Title 25 of the California
Administrative Code, administered by the Department of Housing and Community
Development, and environmental laws. These agencies include the California
Coastal Commission, local planning and health departments, the California
Department of Housing and Community Development, the Department of Fish and
Game, the U. S. Army Corps of Engineers, and the California Regional Water
Quality Control Board. Approvals from these agencies are frequently conditioned
upon the applicant taking all steps necessary to ensure the project provides
adequate scenic and environmental protection, water quality controls, public
access to adjacent public lands, adequate waste discharge systems and that it
will meet building code standards. While management believes the Company is in
full compliance in all material respects with the current requirements of
governmental authorities, it is unable to predict the effect of future laws or
regulations administered by federal, state and local authorities exercising
jurisdiction over its development activities. To minimize regulatory costs,
delays and other problems, the Company intends to only acquire existing
campgrounds. It is felt that this will enable the Company to accelerate the
offer and sale of memberships for additional Company-owned Resorts, thus
obtaining a more rapid return on its initial investment.
The California Legislature enacted Assembly Bill No. 1578 in September 1983
and Senate Bill No. 2203 in September, 1990. Each of these bills regulates the
sale and resale of membership camping contracts similar to the company's
membership agreement. The legislation requires membership camping operators,
such as the Company, to disclose to purchasers of memberships information
about membership rights and restrictions, the Company's experience in the
outdoor membership resort industry and the significant facilities of each
Resort. Also, it specifies certain disclosures that needs to be contained in
both the incentive offer made as part of an advertising plan and the subsequent
contract. In addition, it specifies that each purchaser of a membership has the
right to cancel the membership agreement within three days after the date of
purchase if the purchaser has inspected a Resort prior to signing the
agreement, or within ten days after the date of purchase if no such inspection
has been made. Further, it specifies the escrow conditions for deposits and the
disclosures needed for membership resale brokers. Finally, it covers the
requirements for withdrawal and transfer of membership campgrounds.
Management believes that the Company is in compliance with this legislation.
Credit sales of memberships are regulated by federal and state consumer
credit laws, including truth-in-lending and similar laws requiring disclosure of
finance charges, and usury or retail installment sales laws limiting the amount
of finance charges. The Company periodically revises its membership contract to
reflect the finance charge information required by various disclosure laws. In
addition, management believe that the interest rates currently charged on the
unpaid balance of installment contracts are within the maximum finance charge
permitted in each jurisdiction in which memberships are sold.
Employees
On June 30, 1996, the Company had 41 full-time and 17 part-time employees,
exclusive of sales related personnel. Due to the seasonal nature of the
Company's business, the Company has a greater number of employees during the
summer months. The Company's sales staff consists of 10 people, which are paid
on a commission-only basis.
ITEM 102 - DESCRIPTION OF PROPERTIES
Redwood Trails
The Redwood Trails Resort was acquired by the Company's founders in 1979
and is located on the Pacific Ocean 40 miles north of Eureka, California,
approximately 280 miles north of San Francisco and 50 miles south of the Oregon
border. It is near Redwood National Park, and 1-1/2 miles from the Pacific
Ocean. The Company owns 191 acres bordering U. S. Highway 101, approximately
111 acres of which are ranch and pastureland and the remaining 80 acres used
for Resort purposes.
There is a small stocked lake available to the members for fishing. This
lake is stocked from the rearing ponds located on the property and from fish
purchased from the California Department of Fish and Game, the Humboldt State
University and private hatcheries. Fishing is also available in the ocean as
well as on the south and east sides of the Resort where small mountain streams
contain steelhead and rainbow trout. The pasturelands are the occasional scene
of a herd of grazing wild elk.
The Resort is located in a wooded setting and contains hiking and horseback
riding trails. It also has a one-room schoolhouse used as a museum and gift
store. An old barn has been restored and is now used as a sales office, food
service area and general store. The general store is open to members and the
general public.
The Resort currently contains 111 campsites, and 35 tentsites with a use
permit for an additional 59 full hookup public campsites. Most of the campsites
have electricity, water and sewer connections. Fifteen campsites are reserved
for Pioneer members (members who paid an additional fee) who have extended
stay privileges. Amenities also include outdoor sports areas, a fish cleaning
station, spa, sauna, horseshoe pits, children's play area, laundry and shower
facilities, cable TV, recreational vehicle storage, picnic pavilion, TV room,
arcade, and a propane dispenser. There are 4 trailers and a double-wide mobile
home available for rent.
The Company refinanced the back portion of the Resort in May, 1992, for
$395,000. This loan was made to the Company from 28 individual members,
payable at 12% to 14% interest-only for 36 months. The notes matured in May,
1995, and were renewed for an additional one to five years by the original
investors or sold to new investors. These notes are secured by deeds of trust.
In December, 1992, the Company refinanced the front portion of the Resort which
was raised from 76 members and totalled $1,200,000, payable at 12% to 15%
interest-only for 36 months. These notes matured in December, 1995, but have
been renewed for an additional one to five year term. These notes are also
secured with deeds of trust.
The Company is developing a public park with 59 RV spaces at the front of
the Resort. As part of the Coastal Commission's agreement to allow this
expansion, the Company agreed to improve the roadways and bridge into the
Resort. Estimated cost of the public park is $150,000. Improving the existing
roadways is estimated at $60,000. The bridge has been completed for a total of
$26,000.
Annual realty taxes are charged at a rate of 1% of assessed value, plus
special district taxes. Property taxes amounted to $10,576 for fiscal year
ended June 30, 1996.
Lighthouse Marina
The Lighthouse Marina Resort is located on 22 acres near Isleton, California,
on the Mokulumne River. Acquired in 1983, it is located approximately 70 miles
northeast of San Francisco in the Sacramento Delta area. The Delta contains
over 1,000 miles of waterways and is a popular vacation area. The Resort
currently has 46 tentsites and 215 campsites, of which 135 have water,
electricity and sewer facilities, and 80 have water and electricity only. It
also features a swimming pool, spa, a volleyball court, children's play area,
horseshoe and shuffleboard areas, fire pit, a TV room, and an arcade. The
Resort also has laundry and shower facilities, a store, a propane dispenser,
fire pit, a restaurant, and recreational vehicle storage. There are 8
trailers, 4 modulars, 2 single-wide and 2 double-wide trailers for rent.
The clubhouse contains kitchen facilities and showers.
There are also open and covered boat slips, open and covered dry storage,
boat launching, docks, and other marine facilities. Lighthouse Marina
maintains one houseboat and two patio boats that it rents to members. The
marina and a restaurant are located across the road from the main Resort
facilities. The restaurant is leased and operated by an unrelated party.
The Company refinanced the Resort in July, 1992, and received a discount of
$104,770 in paying off the previous financing. This loan was made to the
Company from 79 members for a total of $1,250,000, payable at 12% to 15%
interest-only for 36 months, and secured by deeds of trust. These loans
matured in August 1995, and have been renewed for an additional one to five
year term.
The realty taxes are charged at a rate of 1% of assessed value, plus various
bonds, with annual taxes for the resort amounting to $17,606 for fiscal year
ended June 30, 1996.
River Grove
River Grove is a small Resort located on 10 acres amid redwoods, bounded on
one side by the San Lorenzo River, and within one-half mile of Henry Cowell
State Park. Located 60 miles southwest of San Francisco, near the seaside town
of Santa Cruz, California, the Resort contains 30 tentsites and 104 campsites.
Most of the campsites contain water, electricity and sewer connections.
Amenities at the resort include a play area, arcade, general store, clubhouse,
spa, laundry and shower facilities, cable TV, horseshoe pits, shuffleboard,
basketball court, TV room, a propane dispenser, campfire pit, and a clubhouse
with kitchen facilities.
River Grove was purchased in September, 1983, with the note payable being
held by the previous owner. The principal balance, as of June 30, 1995, was
$809,813, and payable at 12% interest, with monthly payments of principal and
interest of $12,310. Interest payments were made during fiscal year 1996 in the
amount of $61,099 with an additional amount of $38,739 in interest accrued but
unpaid. The principal balance as of June 30, 1996, was $809,813. The note will
mature in April, 2008.
The annual realty taxes are charged at a rate of 1% of assessed value, plus
special levies. The annual taxes amounted to $17,360 for fiscal year ended June
30, 1996.
Klamath Cove
Klamath Cove Resort was acquired in June, 1993. It is located on 2-1/2 acres
at the mouth of the Klamath River on the Pacific Ocean, three miles west of
Highway 101, and about 20 miles north of Redwood Trails. It is adjacent to the
Redwood National Park. The Klamath River has been well known for its great
salmon fishing. The resort has 3 tentsites and 75 campsites. All remaining
campsites have water, electricity, and sewer connections. It features a
clubhouse, laundry and shower facilities, and fire pit.
The park sustained damage to the boat ramp, docks and 15 sites during the
winter storms of 1995. The Company secured a Small Business Administration
Disaster Loan in the amount of $90,000 at 8% interest for repairs and
replacement of the docks and equipment, and for the repair and replacement of
damaged real estate. The loan is for a three year period, with payments of
$3,157 beginning December, 1995. The Company has received advances of $55,000
to date. The loan balance as of June 30, 1996 was $35,029. The docks and boat
ramp have been replaced. The repair and replacement of the damaged real
estate has been delayed until all permits have been received. The Company has
received permits from the County of Del Norte, North Coastal Regional Water
Quality Board, California Fish and Game, and the State Lands Commission. The
Company is waiting for permits from The Corps of Engineers and the California
Coastal Commission. The loan is secured by River Grove Resort and by personal
guarantees from Robert M. Brindle, President, and Robert R. Brindle, Chairman
of the Board.
Klamath Cove was purchased with a note payable to seller in the amount of
$260,000 at 9.25% interest. In August, 1993, the Company refinanced the
mortgage, through 41 members for a total of $585,000, payable at 12% to 15%
interest-only, maturing August, 1996, and secured by deeds of trust. The
Company received a discount of $17,500 in paying off the original mortgage.
These notes have been renewed for an additional term of one to five years.
The annual realty taxes are charged at a rate of 1% of assessed value, plus
various assessments. The annual taxes amounted to $2,188 for the fiscal year
ended June 30, 1995.
Refinancing of Resorts
The Company is attempting to refinance the debt on its resorts through
conventional sources. The Company hopes to lower its interest expense by
refinancing at lower interest rates. The Company is seeking a loan for
approximately $4,500,000, the proceeds of which will be used to pay off the
existing mortgages on its four resort properties. Management is confident that
it can proceed with this refinance, based on an appraisal, requested by the
Company, which estimates the value of the four resort properties at $8,200,000.
Investment Policies for Acquisition of Additional Resorts
The Company is looking to extend the number of resorts available to its
members without having to purchase additional resort properties, saving the
major capital funds required for a purchase. The Company expects to be able to
accomplish this type of expansion by affiliating with other resorts, thereby
allowing the members access to resorts not owned by the Company.
Depreciation of the Resorts
The land, site, buildings, and other improvements have been amortized in the
past based on the number of memberships sold. To determine the appropriate
number of memberships available for sale at a given Resort, the Company utilizes
historical data based on available occupancy rates of each resort. The Company
has concluded that, to achieve optimum use of Resorts without overcrowding or
turning away members, an average of 15 memberships may be sold for most
campsites. Based on these ratios of memberships to campsites, management
estimates that the total existing capacity of the system at June 30, 1996, is
11,854 members. At June 30, 1996, the Company had 7,400 memberships in force.
Utilization statistics and membership entitlements are reviewed on a regular
basis and revision of total planned memberships available for sale will be made
if necessary.
Depreciation of operating equipment is provided on the straight-line method
over the assets' respective useful lives, ranging from three to thirty years.
Insurance Coverage of the Properties
In the opinion of the Company, all properties are adequately covered by
insurance.
ITEM 103 - LEGAL PROCEEDINGS
There are no significant legal matters pending involving the company or its
officers as of June 30, 1996. All pending legal matters are the result of
normal resort operations.
ITEM 201 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in over-the-counter markets.
However, there has been no activity. As of June 30, 1996, the Company had
approximately 815 shareholders of record.
The Company has not paid cash dividends to date. The Company does not
anticipate paying any cash dividends on its common stock in the near future.
Stock Options
In March, 1985, shareholders of the Company approved an Incentive Stock
Option Plan ("Plan") pursuant to which options to acquire up to 267,397 shares
of Common Stock may be granted to officers and key employees of the Company.
Options granted under the Plan are intended to qualify as "Incentive Stock
Options" as defined in Section 422A of the Internal Revenue Code of 1954, as
amended. The Plan provides that options must be exercised within ten years
from the date of the grant, or within five years as to ten percent
shareholders. Options expire following termination of employment. The exercise
price of the optioned common stock must be equal to or greater than its fair
market value on the date option is granted as determined by a committee composed
of directors who administer the Plan. At June 30, 1995, no options were
remaining, as the Plan expired in March, 1995.
In July, 1992, a stock option was granted to Gabriel Saia, mortgagor of the
River Grove Resort, to purchase 25,000 shares of Common Stock at $1.00 per
share.
ITEM 202 - DESCRIPTION OF SECURITIES
Common or Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock, but none
have been issued. In January, 1995, the Company submitted a prospectus for
the issuance of 45,000 shares of a Class A cumulative convertible ten percent
preferred stock , through a public offering, to the Securities Exchange
Commission and the California State Department of Corporations. However, this
application was withdrawn by the Company and no preferred stock has been
issued.
The Company has authorized 20,000,000 shares of common stock at no par
value. At June 30, 1994, 3,305,418 shares were issued and outstanding. During
the fiscal year ended June 30, 1995, 20,600 shares were returned to the Company
in exchange for upgraded memberships, at a value of $4,090. At June 30, 1996,
3,284,818 shares were issued and outstanding.
ITEM 303 - MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Overview
The Company's revenues are derived primarily from membership sales,
membership dues, and resort operations. Membership sales consist of the sale
of memberships in Quality Resorts of America, Inc., with prices ranging from
$1,995 to $3,995, and the sale of memberships in Club Rainbow Vacations, Inc.,
with prices ranging from $4,995 to $6,995. For fiscal year 1995, the Company
sold 675 new memberships, of which 115 cancelled (17.0%), compared to fiscal
year 1995, with 560 sales and 104 cancellations (18.6%). Resort operations
income consists primarily from rental units, store sales, and storage income.
Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 1995 1994 1993 1992
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Net Operating
Income 4,422 3,831 4,798 3,583 2,175
Income (Loss) from
Operations 298 94 307 32 (427)
Total Assets 6,399 6,027 5,825 5,236 4,274
Long Term Debt 4,678 4,178 4,133 3,837 3,240
Income (Loss)
Per Share .09 .03 .09 .01 (.13)
</TABLE>
Results of Operations
The Company's strategy for growth is two fold: i) to open offsite sales
offices to sell memberships to orphaned or dissatisfied members of other
resorts; 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. There is no assurance, however, that the Company
will be successful in achieving its growth strategies or that sales or profits
will increase from the implementation of these strategies.
Membership Sales
In July, 1994, the Company opened an offsite sales office located next to
the corporate offices in Rancho Cordova, California, which closed in November,
1994. The Company contracted with Affiliated Resorts, Inc. (a company in which
Robert R. Brindle, the Company's Board Chairman, owns approximately 60%) to
open an offsite office at Golden Pond Resort (a resort owned by Affiliated
Resorts) and other sites in Southern California. An offsite office in Orange
County was opened in April, 1995 and closed in August, 1995.
Membership sales includes several items including new membership sales,
upgrade membership sales, cash discounts and deferred income. Sales of new
memberships in the fiscal year ended June 30, 1996, increased by 16 percent to
$1,897,000, with sales to 675 new members, compared to new sales in year ended
1995 of $1,636,000 to 560 new members. The Company continued to offer to
existing members an upgrade package. This generated income of $521,000 from
196 existing members. Total marketing costs were 48% of sales, compared to 54%
in 1995. Commission expense (which is included in the total marketing costs)
for the year ended 1996, was $635,000 (27% of sales compared to 28% in 1995).
Resort Operations
Revenues generated from Resort Operations increased to $1,630,000 in 1996
from $1,464,000 in 1995. This increase is due primarily to a increase in dues
income of $123,000.
Resort operating costs were $959,000 in 1996 (59% of revenues), and
$1,005,000 in 1995 (69%), a decrease of $46,000. The decrease in costs is due
primarily in the reduction of repairs and maintenance from $42,000 in 1995 to
$8,000 in 1996.
Income from rental units increased from $133,000 in 1995 to $151,000 in
1996.
General and Administrative Expense
General and administrative expense increased from $837,000 in 1995, to
$916,000 in 1996, an increase of $79,000. Payroll expenses increased from
$352,000 to $426,000 in 1996, an increase of $73,000. Professional fees
decreased $27,000, from $207,000 in 1995 to $179,000 in 1996. Collection fees
increased $22,000, from $78,000 in 1995 to $100,000 in 1996.
Interest Income and Expense
Interest income from contracts receivable increased $13,000, from
$213,000 for year ended 1995 to $226,000 in 1996, due to the increase in
contracts receivable. Interest payments on the note receivable on the sale of
Westside Resort began in January, 1992, resulting in interest income of $84,000
for year end 1995, and $81,000 for year end 1996, a decrease of $3,000 due to
the paydown of principal.
Interest expense decreased slightly from $644,000 in 1995 to $643,000 in
1996.
Provisions for Bad Debt
Provisions for bad debt are accrued for contracts receivables that are
90+ days past due. The expense for year end 1996 was $451,000 and $153,000 in
1995. During the fiscal year 1996, $230,000 in contracts receivable were
written off to bad debts. In 1994, 20.3% of contracts receivable were
delinquent, 11.9% in 1995 and 19.2% in 1996.
OTHER INCOME
Extinguishment of Debt
The Company realized a gain from extinguishment of debt in the amount of
$8,241. No income taxes were attributed to this extinguishment of debt due to
the Company's loss carryforwards.
Other Income
The Company received a judgement against a former sales group in the
amount of $214,000. The Company has set up a reserve against this judgement
amount as the Company feels the collectable portion to be $50,000.
The Company was granted a permit to log certain trees on its Redwood
Trails property. Total income from this operation was $106,000 with expenses of
$73,000, resulting in net income of $33,376.
Deferred Income and Prepaid Expense
In 1990, the Company offered the first 1,000 of its existing members the
opportunity to pay their dues for life by paying $1,440. This was subsequently
increased to its current level of $2,495. The income from these lifetime dues
are recorded as a liability and amortized to dues income over a ten year
period. The Company has determined from historical data that a membership
lifetime averages five years. The lifetime dues are transferrable to one
subsequent owner of the membership and, therefore, amortized over ten years.
Lifetime dues paid during fiscal year 1996 totalled $3,990, and amortized
income from lifetime dues totalled $124,000 in 1996.
The Company offers free vacations to new Club Rainbow members. A
certain portion of the income from the sale of the memberships is deferred to
cover the cost of these free vacations. The cost of the vacations are analyzed
on a periodic basis to ensure the proper amount of income being deferred. The
Company has determined that the current vacation giveaways equal an average
of 6.4% of Club Rainbow new sales income. The deferred income is amortized to
income over a period of seven years, the length of time in which the vacations
must be used. In fiscal year 1996, $71,000 was deferred and $73,000 was
amortized to income.
The Company entered into an agreement with Affiliated Resorts (a company
in which the Company's Chairman of the Board, Robert R. Brindle, owns
approximately 60%) to sell Club Rainbow Vacation memberships at Golden Pond
Resort (a resort owned by Affiliated Resorts) and other Southern California
offsite offices. The Company has agreed to pay Affiliated 40% of the sales
amounts generated by Affiliated in exchange for allowing existing and new Club
Rainbow Vacations members the right to use Affiliated Resorts. The Company
records these payments as prepaid usage and amortizes it to expense over the
life of the agreement, which is five years. During the fiscal year ended June
30, 1996, $95,000 was added to prepaid usage and $38,000 was expensed.
Income Taxes
Effective July 1, 1993, the Company retroactively changed its method of
accounting for income taxes to conform to the requirements of Financial
Accounting Standards Board No. 109, Accounting for Income Taxes. As of June
30 1996, there was a $1,645,197 in net operating loss carryforward available to
offset future taxable income, which is scheduled to expire in 2006.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. The Company will adopt Statement 121 in the first quarter of
year end 1997 and, based on current circumstances, does not believe the effect
of adoption will be material.
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.
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 has no material commitments for capital
expenditures to finance the Company's strategy for growth at this time.
The ratio of current assets to current liabilities was 1.63 compared to
(.53) at the end of 1995. The change is due to the renewal of the notes
payable and the maturation of the note receivable. The Company's operations
have consumed substantial working capital developing and maintaining resorts,
and carrying membership contracts receivable. The working capital deficiency
has steadily improved from a deficiency in 1990 of $3,136,000 to a deficiency
in 1993 of $484,000, and of $266,000 in 1994. In 1995, however, the working
capital deficiency increased to $646,000 due to long term debt that had become
due within the next year. This long term debt has been renewed for additional
terms of one to five years. Working capital for year end 1996 was a positive
$676,000.
The Company's operating activities generated a positive cash flow in the
amount of $132,000, which is an improvement from the prior year's deficit of
$282,000. This increase of cash flow was generated by net income of $298,000
after depreciation and amortization of $64,000, provision for losses on
receivables of $451,000, amortization of deferred income of $122,000, and an
increase in accounts payable and accrued liabilities of $189,000. These
increases were offset by extinguishment of debts of $6,000, increases in
receivables of $482,000, and prepaid expenses and other assets of $241,000.
Capital expenditures in 1996 were $82,000 compared to $48,000 in 1995.
Capital expenditures in 1996 included $24,000 for replacement of the docks at
Klamath Cove, and $22,000 in the development of plans for the public park at
Redwood Trails. The docks were funded by a Small Business Administration
Disaster Loan and other purchases were funded from operating activities.
Cash from financing activities was provided from a loan from the Small
Business Administration in the amount of $55,000 and from a loan of $10,000
secured by contracts receivable.
For the fiscal year ended June 30, 1996, cash increased by $79,000 as a
result of the activities described above.
ITEM 304 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
The Company has engaged the same accounting firm since 1990 to examine
and report on its financial statements. There are no disagreements between the
Company and its auditor.
ITEM 310 - FINANCIAL STATEMENTS
<PAGE>
WILLIAM E. EHARDT
CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Quality Resorts of America, Inc.
Fair Oaks, California
I have audited the accompanying consolidated balance sheet of Quality Resorts
of America, Inc. (a California corporation), and subsidiaries as of June 30,
1996 and 1995, and the related statements of income, stockholders'
equity/(deficit), and cash flow for the fiscal years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Quality Resorts of America, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the results of its
operations, stockholders' equity/(deficit), and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ William E Ehardt
San Francisco, California
FEBRUARY 11, 1997
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION> June 30,
1996 1995
-------------------------------
<S> <C> <C>
Current assets:
Cash $ 96,333 $ 16,913
Current Portion of Membership Contracts
Receivable, net of Allowance
for Doubtful Accounts and
Cancellations of $55,609, and
$56,901, respectively 235,618 290,576
Current Portion of Notes Receivable 807,781 62,297
Interest and Dues Receivable, net of Allowance 143,473 126,007
for Doubtful Accounts
Due from Officers/Employees 75,908 13,228
Prepaid Expenses and other current assets 384,024 215,714
--------- ---------
Total Current Assets 1,743,155 724,735
Membership Contracts Receivable, net of current
Portion, Allowance for Doubtful Accounts
of $449,926, and $227,604 respectively 1,893,849 1,807,284
Resort Parks
Land 1,564,077 1,564,077
Site, Building and other improvements 2,898,072 2,893,065
----------- ----------
4,462,149 4,457,142
Less: Accumulated amortization of costs
applicable to Membership sales 2,487,461 2,487,461
----------- ----------
1,974,688 1,969,681
Property Held for Development, less Accumulated
Depreciation of $656,085, and
$604,089, respectively 514,848 536,765
Operating Equipment, less Accumulated
Depreciation of $975,153,
and $941,351, respectively 205,519 183,406
Notes Receivable, secured by trust deed, net
of current portion ---- 747,990
Other Assets 67,264 57,135
------------ ----------
Total Assets $ 6,399,305 $ 6,026,996
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION> June 30,
1996 1995
-----------------------------
<S> <C> <C>
Current liabilities:
Accounts payable 380,829 199,371
Accrued expenses and other current liabilities 257,502 268,053
Due to Officers/Employees 78,050 59,863
Current portion of deferred income 191,814 191,244
Current portion of long-term debt 159,098 651,818
----------- ----------
Total Current Liabilities 1,067,293 1,370,349
Long-term debt, net of current portion 4,678,116 4,177,876
Deferred Income 537,868 660,735
----------- -----------
Total Liabilities 6,283,277 6,208,960
Stockholders' Equity (Deficit)
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) (2,398,941) ( 2,696,933)
------------ ------------
Total Stockholders' Equity (Deficit) 116,028 ( 181,964)
------------ ------------
Total Liabilities & Equity $ 6,399,305 $ 6,026,996
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For Fiscal Years Ending June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
REVENUES
Membership sales $ 2,383,578 $ 2,053,423
Membership dues and resort operations 1,630,164 1,463,949
Interest income 307,199 299,085
Other income 100,580 14,389
------------ -----------
Total Revenues 4,421,521 3,830,846
EXPENSES
Sales and marketing 1,152,741 1,095,720
Resort operations 959,023 1,004,922
General and administrative expenses 915,881 836,752
Provision for bad debt 450,657 152,503
Interest 642,827 644,380
----------- -----------
Total Expenses 4,121,129 3,734,277
----------- -----------
Earnings Before Income Taxes 300,392 96,569
Income Tax Provision 2,400 2,400
----------- -----------
Net Income $ 297,992 $ 94,169
=========== ===========
Net Earnings per share $ .09 $ .03
==== ====
Weighted Average Shares Outstanding 3,284,818 3,284,818
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For Fiscal Year Ending June 30, 1996
<TABLE>
<CAPTION>
COMMON RETAINED TOTAL
STOCK EARNINGS EQUITY
SHARES NET (DEFICIT ) (DEFICIT)
<S> <C> <C> <C> <C>
Balance June 30, 1993 3,305,418 $ 2,519,059 $( 3,369,132) $( 850,073)
Net Income 578,030 578,030
----------- ----------- ----------- -----------
Balance June 30, 1994 3,305,418 $ 2,519,059 $( 2,791,102) $( 272,043)
Purchase of Treasury Stock,
at cost ( 20,600) ( 4,090) ( 4,090)
Net Income 94,169 94,169
----------- ----------- ----------- -----------
Balance June 30, 1995 3,284,818 $ 2,514,969 $(2,696,933) $( 181,964)
Net Income 297,992 297,992
----------- ----------- ----------- -----------
Balance June 30, 1996 3,284,818 $ 2,514,969 $(2,398,941) $ 116,028
=========== =========== =========== ===========
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASH FLOW
For Fiscal Years Ending June 30, 1996 and 1995
<TABLE>
<CAPTION>
June 30,
1996 1995
<S> <C> <C>
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 297,992 $ 94,169
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 64,457 84,480
Provision for losses on contracts and
interest receivable 450,657 152,503
(Gain) Loss on Sales of Assets (1,380) 2,300
Deferred Income ( 122,297) ( 163,254)
Settlement of Obligations ( 5,978) ( 19,986)
Changes in operating assets and liabilities:
Increase Contracts Receivable ( 482,265) ( 479,806)
Increase Interest and Dues receivable ( 17,466) ( 13,970)
Increase Prepaid Expenses and Other Assets (241,120) ( 26,250)
Increase in Accounts Payable 181,458 77,937
Increase (Decrease) Accrued expenses 7,636 9,397
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES 131,694 (282,480)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Notes Receivables --- (34,999)
Principal Repayment of Notes Receivables 2,506 2,267
Sale of Fixed Assets 13,408 2,700
Additions to property and equipment ( 81,686) ( 48,070)
---------- -----------
NET CASH FLOW FROM INVESTING ACTIVITIES ( 65,772) ( 78,102)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowing 67,437 399,726
Principal repayments on debts ( 53,939) ( 207,423)
-------- --------
NET CASH FROM FINANCING ACTIVITIES 13,498 188,213
NET INCREASE (DECREASE) IN CASH 79,420 (172,369)
CASH, beginning of year 16,913 189,282
--------- ----------
CASH, end of year $ 96,333 $ 16,913
========= ==========
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1996 and 1995
1. The Company
Quality Resorts of America, Inc. (QRA or the Company) is engaged in the
business of marketing memberships in camping and recreational vehicle
resorts parks (resorts) acquired, improved and operated by the Company.
The Company sells "camping" memberships, and certain upgrades, primarily
to individuals who own recreational vehicles. Membership entitles the
member to the use of resort properties operated by the Company. Members
are required to pay annual dues to keep their membership active. The
Company operates four properties and has upgraded them to membership
resorts by making certain improvements considered necessary. In certain
instances, further development of resorts and related properties may
require the Company to obtain waivers or modifications of restrictions
from government authorities. 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 bear the shortfall. Membership sales are seasonal in nature,
with the majority of such sales occurring during the spring and summer
months.
The Company's common stock is traded in over-the-counter markets.
However, there has been no activity. As of June 30, 1996, the Company had
approximately 815 shareholders of record.
The Board of Directors of the Company is comprised of three related
individuals who, between themselves, control 54% (fifty-four percent) of
the outstanding shares of common stock of the Company.
2. Summary of Significant Accounting Policies:
Consolidation and Basis of Presentation
The financial statements include the activities of the various legal
entities, including the Company and its wholly owned subsidiaries:
Quality Resorts of California, Inc. (QRC), West Coast Real Estate Corp.,
and Club Rainbow Vacations, Inc. (CRV). All significant intercompany
balances and transactions have been eliminated. In accordance with a plan
of reorganization and merger, dated September, 1984, QRA became the
successor corporation to, and is continuing the operations of, the former
corporations Advanced Resort Systems (ARS) and Redwood Trails, Inc. (RT).
Financial Statement Presentation
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
Revenue Recognition
The Company's primary source of revenue is the sale of memberships. This
conveys to the member the right to use all resorts within the existing
resort system, but does not constitute ownership of land or equity in the
Company. Memberships are sold for cash or on installment contracts.
Membership sales are recorded in full upon receipt of the minimum down
payment, execution of the membership agreement and expiration of a three-
day (or in the case of a sale made at an off-site location, ten day)
right-of-recision period. All direct marketing costs, plus a provision
for doubtful accounts and contract cancellations, are charged against
income. Interest income is accrued to income as earned. An allowance for
doubtful accounts is maintained by the Company.
Members are assessed annual dues which are used for resort maintenance
and operations. Membership agreements provide for annual adjustment of
dues by a percentage not to exceed the annual increase in the Consumer
Price Index. Under certain conditions, the Company may waive increases
in dues or defer their payment. Certain members have paid their dues in
advance for their lifetime (See Note 8).
Operating Resorts
Resort properties are carried at cost, plus improvements made, in order
to offer membership sales. The costs of land and improvements made are
charged to cost of membership sales based on the relationship of
memberships sold to total anticipated memberships available for sale at
each resort. The Company generally plans to sell an average of 15
memberships for each campsite at a resort. Utilization statistics and
membership entitlements are reviewed on a regular basis and revisions of
total planned memberships available for sale are made as necessary.
During the years ended June 30, 1996 and 1995, no amortization of the
carrying values of the resorts was recorded, due to a slight decline in
the total number of memberships.
As of June 30, 1996, the Company had approximately 7,400 members, which
represented 52.4% of the total memberships available for sale at the
Company's operating resorts.
Income Taxes
The Company has implemented the requirements of Financial Accounting
Standards Board No. 109, Accounting for Income Taxes. Under the
provisions of SFAS 109, an entity recognizes deferred tax assets and
liabilities for future tax consequences of events that have already been
recognized in the Company's financial statements or tax returns. The
measurement of deferred tax assets and liabilities is based on provisions
of the enacted tax law; the effects of future changes in tax laws or rates
are not anticipated. As of July 1, 1993, there was a $1,799,885 net
operating loss carryforward available to offset future taxable income,
which is scheduled to expire in 2006.
Per Share Amounts
Net income or loss per share is computed by dividing the net income by
the weighted average number of common shares outstanding during the year.
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.
3. Membership Contracts Receivable
Membership contract receivables bear interest at rates which average
between 12 and 14 percent. They are written with initial terms of twelve
to one-hundred twenty months. The Company has no obligation under the
contracts to make any refunds or provide further services to members in
the event a membership is canceled for nonpayment of contract obligations,
including nonpayment of annual dues. A reserve for uncollectible
contracts is maintained by the Company, and is adjusted to include
contracts, and related interest income receivable, where the member is
more than 90 days delinquent.
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts
June 30,
1996 1995
<S> <C> <C>
Beginning balance $ 284,505 $ 438,995
Provision for bad debt 450,657 152,503
Contracts charged off ( 229,627) ( 306,993)
---------- -----------
Ending balance $ 505,535 $ 284,505
Current portion $ 55,609 $ 56,901
Non-current portion 449,926 227,604
</TABLE>
Also, a reserve for contract financing is provided on the assumption that
a portion of the contract portfolio will be discounted and sold, to meet
working capital requirements. This reserve amount is reported by the
Company as an accrued expense. At June 30, 1996 this accrual for
potential discounts on contracts sold was $ 24,751. During the year ended
June 30, 1995, the Company sold contracts receivable with a face value of
$ 281,085 at a discount of 16.5% to yield $ 234,704 in cash, less a buyer
hold-back. No contracts were sold by the Company during the year ended
June 30, 1995. At June 30, 1996 the Company had $ 9,637 on deposit with
the purchaser of these contracts, to compensate the purchaser for
uncollectible contracts.
Aggregate annual principal maturities on membership contracts receivable
at June 30, 1996 are as follows:
Due within one year $ 291,227
Due on or before 6/1998 315,695
Due on or before 6/1999 321,602
Due on or before 6/2000 320,492
Due after 6/2000 1,385,986
-----------
Total $ 2,635,002
Less: Reserve for doubtful accounts ( 505,535)
-----------
Total $ 2,129,467
============
Approximately $472,366 of contracts receivable are pledged as collateral
for debts.
4. Property Held for Development
Property held for development consists of land, improvements and amenities
which are contiguous to an operating resort, and are generally made
available for the benefit of members of the resort system as open space.
Certain parcels may be sold or developed by the Company for other
commercial purposes. These assets are carried at cost, including
capitalized carrying costs. Improvements and amenities are depreciated
over their estimated useful lives on a straight-line basis until such time
that the Company includes the property within the scope of its membership
marketing program, thereby increasing the number of campsites and
memberships available for sale. When this occurs, the property is
reclassified to resort parks (land, improvements, etc.) at its then net
book value.
5. Operating Equipment
Operating equipment is reported at cost. Depreciation of operating
equipment is provided on the straight-line method over the assets'
respective useful lives. Depreciation expense for the years ended
June 30, 1996 and 1995, are $64,457 and $84,480, respectively.
6. Notes Receivable
Included within this category is a note, secured by a second deed of
trust, arising from the sale of the Westside Resort in October, 1991.
This note, in the amount of $807,781 plus accrued interest and
reimbursable legal fees, was paid in full prior to the date of this
report.
7. Long-term Debt
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
12 %, collateralized by an
all-inclusive deed of
trust on parcels 1, 2, 4
and 5 of the River Grove
Resort, due in monthly
payments of $12,310,
principal and interest.
Note is due in April 2008. 809,813 809,813
Various notes payable
under court-ordered
stipulations requiring
monthly payments over
terms of five years or
less. Interest at 10%.
Monthly payments total $ 1,500. 8,622 17,173
Various amortized notes
payable, secured by
member contracts
receivable. The interest
rates vary from 14% to
18%, and the maturities
average 60 months.
Monthly payments total
$6,618
principal and interest. 472,366 476,072
Various long-term
contracts, secured by
operating equipment.
The interest rates vary
from 10.75% to 16.5%.
Monthly
payments total $2,164. 38,961 55,272
Note from private lender
at 18% interest, monthly
payments $1,867 interest
and principal, maturing
July 1997. 33,423 26,386
Secured by 79 individual
deeds of trust on
Lighthouse Marina Resort,
at interest rates between
12% and 15%, interest
only payments of $14,220
due monthly, maturing at
various future dates
through 2002. 1,250,000 1,250,000
Secured by 28 individual
deeds of trust on
Redwood Trails Resort at
interest rate of 12-14%
interest only payments of
$ 4,406 due monthly,
maturing at various
future dates through
2002. 395,000 395,000
Secured by 71 individual
deeds of trust on parcel
#3 Redwood Trails Resort,
at interest rate of 12-
15%, interest only
payments of $13,800 due
monthly, maturing at
various future dates
through 2001. 1,200,000 1,200,000
Mortgage note payable
secured by 41 deeds of
trust on Klamath Cove
Resort. Interest rate of
12-15% with interest only
payments of $6,800 due
monthly. Balance due at
various dates through
2001. 585,000 585,000
Unsecured loan from SBA
8% interest for three
years, monthly payments
of $3,157. 35,029 0
Other long-term notes payable 9,000 14,978
---------- -----------
Total long-term debt 4,837,214 4,829,694
Less: short-term portion ( 159,098) ( 651,818)
---------- -----------
$ 4,678,116 $ 4,177,876
=========== ============
</TABLE>
Aggregate annual maturities on mortgage notes payable and equipment
contracts are as follows:
Due on or before 6/1997 $ 159,098
Due on or before 6/1998 697,747
Due on or before 6/1999 234,192
Due on or before 6/2000 455,872
Due after 6/2000 3,290,305
------------
Total $ 4,837,214
===========
8. Deferred Credits
During fiscal year ending June 30, 1990, the Company instituted a dues
prepayment program, whereby members could prepay their membership dues for
life, and the life of one transferee. The resulting revenue was deferred,
and is amortized to income over a period of ten years.
Further, the Company offers incentives, in the form of free vacations to
certain new members, including the free or discounted use of certain
facilities owned by the Company and others. When a membership is sold, a
portion of the gross revenues is deferred. These amounts are amortized to
income over future periods to offset the cost of these benefits offered,
or to recognize the revenue that could be earned from the facility, if not
for the use by the member. This deferred income is amortized to revenue
over the period of time the member may utilize these incentives.
<TABLE>
<CAPTION>
June 30,
1996 1995
<S> <C> <C>
Prepaid Lifetime Dues
Beginning of the year $ 636,263 $ 760,373
Lifetime dues collected 3,990 2,495
Amortized to income 124,308 126,605
---------- ----------
End of the year 515,945 636,263
Deferred Vacations
Beginning of the year 215,716 254,861
Income deferred 70,613 75,345
Amortized to income 72,592 114,490
---------- ----------
End of the year 213,737 215,716
---------- ----------
Deferred Income $ 729,682 $ 851,979
========== ==========
Current portion $ 191,814 $ 191,244
Non-current portion 537,868 660,735
</TABLE>
9. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due and deferred
taxes. Deferred taxes are recognized for differences between the basis
of assets and liabilities for financial statement and income tax purposes.
The differences relate primarily to net operating loss carryforwards. 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. The Company has made no
provision for federal income tax, as it expects to be able to fully
utilize tax credits generated by prior year net operating losses. The
Company is required to pay a minimum income tax to the California
Franchise Tax Board for itself and its subsidiaries ($2,400 per year).
The net deferred tax assets (liabilities) in the accompanying balance
sheets include the following components:
<TABLE>
<CAPTION>
June 30,
1996 1995
<S> <C> <C>
Total deferred tax liabilities $ 0 $ 0
Total deferred tax assets 1,762,217 1,799,885
Tax benefit utilized ( 117,020) ( 37,668)
Total valuation allowance (1,645,197) (1,762,217)
------------ ----------
Net deferred tax assets (liabilities) $ 0 $ 0
============ ===========
</TABLE>
10. Contingent Liabilities
As mentioned in Note 6 - Notes Receivable, the Company sold a property
that was secured by a first deed of trust in the amount of $276,626, due
August 5, 1995, for which the Company remains primarily obligated. The
buyer of the property did not formally assume this loan when it purchased
the property from the Company. However, the buyer was to make all
payments due on this note and has received favorable modifications of the
terms of the note from the lender. The management of the Company is
confident that this note will be paid in full by the buyer; and failing
that, that foreclosure proceedings initiated by the lender will yield
collateral sufficient to repay this obligation, and any related costs.
The holder of this first mortgage is a shareholder of the Company, and
owns or controls 241,667 shares, or 7.36% of the outstanding stock of the
Company.
11. Related Party Transactions
Robert R. Brindle
Since fiscal year 1991, the Company has contracted with Robert R. Brindle
(RRB), QRA's Chairman of the Board, to perform consulting services, and
was paid $55,000 in fiscal year 1995, and was due $100,000 in fiscal year
1996. RRB was paid $2,565 for personal guarantees on various loans for
the Company. At June 30, 1996, the Company owed RRB $61,562 in accrued
consulting fees.
In February, 1994, Affiliated Resorts, Inc., a company in which RRB owns
approximately 60%, purchased Golden Pond RV Resort in southern California.
An agreement was entered into between QRA and Affiliated that allows
Affiliated to sell a special type of membership marketed through Club
Rainbow Vacation (CRV), a wholly-owned subsidiary of the Company, at
Golden Pond Resort and other locations. In exchange, existing CRV
members will receive limited access to the Golden Pond Resort, and QRA
will receive 10% of gross sales of memberships and all dues from new
memberships. Affiliated is paid 50% commission on gross sales, and is
further compensated an additional 40% of gross sales to compensate
Affiliated for the use of it's resort by existing CRV members. At
June 30, 1996, Affiliated owed the Company $79,431.
The Company has received payments on contracts owned by RRB and
Affiliated. The total amount received by the Company and not paid to RRB
totalled $9,069 and $11,188 to Affiliated.
RRB was advanced $19,500 in 1994. In June 1994, RRB loaned the Company
$75,000 at 12% interest secured by contracts receivable. The loan was
subsequently paid back in September 1994. RRB loaned the Company $72,000
in December 1994, which was paid back with contracts receivable in
October, 1995.
The net amount owed to RRB at fiscal year end 1996 is $70,631.
Robert M. Brindle, President
Robert M. Brindle (RMB), President and son of Robert R. Brindle, was paid
$100,030 in salary, $15,789 for accrued vacation and $2,565 for personal
guarantees on various loans for the Company for the fiscal year 1996.
The personal guarantee fee and accrued vacation was applied to RMB's
advance account. RMB has opened two credit card accounts in his name
with credit limits totalling $35,000 for use by the Company. Personal
charges on these accounts charged to RMB totalled $12,961. Arcade
equipment owned by RMB has been installed at Lighthouse Marina and River
Grove Resorts. RMB receives 50% of the income generated by this
equipment. The balance due to RMB as of June 30, 1996, was $3,972.
Brankov Construction Co.
Brankov Construction Co., is owned by Susan Brankov (the sister of
President, Robert M. Brindle) and her husband. Brankov Construction
performed construction services for the Company and was paid $2,446 in the
fiscal year ended 1996. In addition, Susan Brankov was paid $12,707 in
sales commissions. In fiscal year ended 1996, the Company owed Susan
Brankov $3,444.
Damon Brindle
Damon Brindle (DLB) son of the President, Robert M. Brindle, manages the
collections of delinquent accounts and was paid $40,847 in salary and
$44,032 in commissions on these collections. He was also paid commissions
on sales in the amount of $15,446. As of June 30, 1996, he owed the
Company $6,728 for advances on commissions.
12. Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
The Company will adopt Statement 121 in the first quarter of year end
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
13. Legal Actions
In the normal course of business, the Company is at all times subject to
various pending and threatened legal actions, some of which the relief or
damages sought are material to the financial statements. After reviewing
pending and threatened actions with counsel, management considers the
outcome of such actions will not have a material adverse effect on the
results of operations of the Company.
14. Flood Damage
During January 1997, the Company experienced extensive damage at its
Klamath Cove Resort as a result of flooding. Buildings and structures
damaged or destroyed by flooding are covered by flood insurance. At this
time, management is unable to estimate the loss, if any, as a result of
this incident. Revenues from resort operations will be limited, until the
resort is brought back to full operations. Revenues at this resort were
approximately $16,000 during the year ended June 30, 1996; management
feels the effect of the lost earnings will not be material to the
profitability of the Company.
ITEM 401 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive Officers and Directors.
The names, ages and positions of the directors and executive officers of
the Company are set forth below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert R. Brindle 76 Chairman of the Board of
Directors
Robert M. Brindle 51 President, Chief Executive and
Operating Officer, and Director
Theodore V. Morgan 45 Vice President
Susan Bienias 47 Secretary, Treasurer and Chief
Financial Officer
Luella V. Brindle 75 Director
</TABLE>
Robert R. Brindle, a co-founder of the Company, has served as the
Chairman of the Board of Directors of the Company and its predecessors from the
inception in 1979 through October, 1988, and then again commencing in April,
1989. Mr. Brindle is owner of approximately 60% of Affiliated Resorts which
owns Golden Pond Resort. Mr. Brindle is the father of Robert M. Brindle
and the husband of Luella V. Brindle, both major shareholders of the Company.
Robert M. Brindle, a co-founder of the Company and son of Robert R.
Brindle, has been the President and Chief Operating Officer and Chief Executive
Officer of the Company and its predecessors since the inception.
Theodore V. Morgan has been Vice President of the Company since 1990,
and has been employed by the Company since 1985.
Susan Bienias has been Secretary and Treasurer of the Company, since her
employment by the Company in 1992. Ms. Bienias has been Chief Financial Officer
since July, 1994. For ten years prior to her employment with the Company, Ms.
Bienias was the controller for a large manufacturing company.
Luella V. Brindle, wife of Robert R. Brindle, has been a director since
November of 1989.
ITEM 402 - EXECUTIVE COMPENSATION
During the fiscal year ended June 30, 1995, the following executive
officer received earnings of $100,000 or more:
<TABLE>
<CAPTION>
NAME AND POSITION YEAR SALARY
<S> <C> <C>
Robert R. Brindle, Chairman 1994 $ 52,000
of the Board 1995 $ 55,000
1996 $102,565
Robert M. Brindle, President & 1994 $100,000
Chief Executive and Operating 1995 $100,025
Officer 1996 $118,384
</TABLE>
Directors, who are not officers, may be reimbursed for actual expenses
and are authorized to be paid a fee of $500 in connection with each meeting
attended. However, such fees have been waived in the past.
ITEM 403 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth, as of June 30, 1996, certain information
concerning the Company's common stock owned by (i) all persons known by the
Company to be the beneficial owners of five percent or more of the outstanding
common stock, (ii) each director, and (iii) all directors and officers as a
group.
<TABLE>
<CAPTION>
Percent of Class (1)
Amount and Nature of As of
Name and Address Beneficial Ownership June 30, 1996
<S> <C> <C>
Brindle, Robert R. and Luella V.
P. O. Box 620870
Orangevale, CA 95662 718,700 (2) 21.88%
Brindle, Robert M. and Christie
P. O. Box 620870
Orangevale, CA 95662 690,468 (3) 21.02%
Henley Management Company
P. O. Box 1287
Northbrook, IL 60065 241,667 7.36%
Brankov, Susan
P. O. Box 620870
Orangevale, CA 95662 175,000 5.33%
D & B Briscoe Revocable Trust
P. O. Box 14050
Palm Desert, CA 92260 166,667 (5) 5.07%
Theodore V. Morgan
P. O. Box 620870
Orangevale, CA 95662 10,100 (4) .31%
All directors and officers as a group (6); 53.55%
</TABLE>
(1) Calculated on the basis of total outstanding shares.
(2) Represents 200,100 shares held in the name of Robert R. Brindle, 15,000
shares held in the name of Robert R. and Luella V. Brindle, 336,933
shares held in the name of Luella V. Brindle as her separate property,
and 166,667 shares owned by Donald Briscoe with irrevocable proxy to vote
these shares granted to Robert R. Brindle. This proxy is to remain in
effect until the shares are sold, exchanged or otherwise disposed.
(3) Represents shares held jointly by Robert M. Brindle and Christie M.
Brindle and shares held in trust for their children.
(4) Represents less than one percent of the outstanding common stock.
(5) Represents shares as to which individual has no voting rights, the voting
rights of which are retained by another in which the individual claims
beneficial interest.
(6) Shares held by the Brindle family as a group total 1,607,251 and
represent 48.93 percent of the total shares of the Company.
ITEM 404 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert R. Brindle
Since fiscal year 1991, the Company has contracted with Robert R.
Brindle (RRB), QRA's Chairman of the Board, to perform consulting services, and
earned $55,000 in fiscal year 1995, and $100,000 in fiscal year 1996. RRB was
paid $2,565 for personal guarantees on various loans for the company. At June
30, 1996, the Company owed RRB a balance of $61,562 in accrued consulting fees.
In February, 1994, Affiliated Resorts, Inc, a company in which RRB owns
approximately 60%, purchased Golden Pond RV Resort in southern California.
An agreement was entered into between QRA and Affiliated that allows Affiliated
to sell a special type of membership marketed through Club Rainbow Vacations
(CRV), a wholly-owned subsidiary of the Company, at Golden Pond Resort and other
locations. In exchange, existing CRV members will receive limited access
to the Golden Pond Resort, and QRA will receive 10% of gross sales of
memberships and all dues from these new memberships. Affiliated is paid 50%
commission on gross sales, and 40% for CRV member usage of Golden Pond.
Affiliated is paid by retaining payments received at time of sales and by the
Company assigning the contracts receivables generated from these sales to
Affiliated. At June 30, 1996, Affiliated owed the Company $79,431.
The Company has received payments on contracts owned by RRB and
Affiliated. The total amount received by the Company and not paid to RRB
totalled $9,069 and $11,188 to Affiliated.
RRB was advanced $19,500 in 1994. In June, 1994, RRB loaned the Company
$75,000 at 12% interest secured by contracts receivable. The loan was
subsequently paid back in September, 1994. RRB loaned the Company $72,000 in
December, 1994, which was paid back with contracts receivable in October, 1995.
The net amount owed to RRB and Affiliated at fiscal year end 1996 was
$2,391.
Robert M. Brindle
Robert M. Brindle (RMB), President and son of Robert R. Brindle, was
paid $100,030 in salary, $15,789 for accrued vacations and $2,565 for personal
guarantees on various loans for the Company for the fiscal year 1996. The
personal guarantee fee and accrued vacation was applied to RMB's advance
account. RMB has opened two credit card accounts in his name with credit limits
totalling $35,000 for use by the Company. Personal charges on these accounts
charged to RMB totalled $12,961. Arcade equipment owned by RMB has been
installed at Lighthouse Marina and River Grove Resorts. RMB receives 50% of the
income generated by this equipment. The balance due to RMB as of June 30, 1996,
was $3,972.
Brankov Construction
Brankov Construction Co., is owned by Susan Brankov (the sister of
President, Robert M. Brindle) and her husband. Brankov Construction performs
construction services for the Company and was paid $2,446 in the fiscal year
ended 1996. In addition, Susan Brankov was paid $12,707 in sales commissions.
As of June 30, 1996, the Company owed Susan Brankov $3,444.
Damon Brindle
Damon Brindle (DLB) son of the President, Robert M. Brindle, manages the
collections of delinquent accounts and was paid $40,847 in salary and $44,032 in
commissions on these collections. DLB collected $68,000 in cash from delinquent
accounts and sets up delinquent contracts on EFT (electronic fund transfers).
The current value of contracts on EFT is $465,000, with payments of $16,200 per
month. He was also paid commissions on sales of $520,000 in the amount of
$21,068. As of June 30, 1996, he owed the Company $6,728 for advances on
commissions.
ITEM 405 - COMPLIANCE WITH SECTIONS 16(a) OF THE EXCHANGE ACT
None
ITEM 501 - FRONT OF REGISTRATION STATEMENT AND OUTSIDE FRONT COVER OF PROSPECTUS
None
ITEM 502 - INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF PROSPECTUS
None
ITEM 503 - SUMMARY INFORMATION AND RISK FACTORS
None
ITEM 504 - USE OF PROCEEDS
None
ITEM 505 - DETERMINATION OF OFFERING PRICE
None
ITEM 506 - DILUTION
None
ITEM 507 - SELLING SECURITY HOLDERS
None
ITEM 508 - PLAN OF DISTRIBUTION
None
ITEM 509 - INTEREST OF NAMED EXPERTS AND COUNSEL
None
ITEM 510 - DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
None
ITEM 511 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
None
ITEM 512 - UNDERTAKINGS
None
ITEM 601 - EXHIBITS
None
ITEM 701 - RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 702 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QUALITY RESORTS OF AMERICA, INC.
Date: FEBRUARY 13, 1997 /s/ Robert R. Brindle
Robert R. Brindle, Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date: FEBRUARY 13, 1997 /s/ Robert R. Brindle
Robert R. Brindle, Chairman
of the Board of Directors
Date: FEBRUARY 13, 1997 /s/ Robert M. Brindle
Robert M. Brindle, President,
Chief Executive Officer, Chief
Operating Officer and Director
Date: FEBRUARY 13, 1997 /s/ Susan Bienias
Susan Bienias, Secretary,
Treasurer, Chief Financial
Officer
Date: FEBRUARY 13, 1997 /s/ Luella V. Brindle
Luella V. Brindle, Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 3588
<ALLOWANCES> 507
<INVENTORY> 0
<CURRENT-ASSETS> 1743
<PP&E> 6814
<DEPRECIATION> 4119
<TOTAL-ASSETS> 6399
<CURRENT-LIABILITIES> 1067
<BONDS> 0
<COMMON> 2515
0
0
<OTHER-SE> (2399)
<TOTAL-LIABILITY-AND-EQUITY> 6399
<SALES> 2384
<TOTAL-REVENUES> 4422
<CGS> 1153
<TOTAL-COSTS> 3028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 451
<INTEREST-EXPENSE> 643
<INCOME-PRETAX> 300
<INCOME-TAX> 2
<INCOME-CONTINUING> 298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
