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, 1997
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)
11707 Fair Oaks Blvd, Suite 210
Fair Oaks, CA 95628
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (916)967-9812
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, 1997 was 3,284,818.
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QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
For Nine Months Ended MARCH 31, 1997
and Year Ended JUNE 30, 1996
<CAPTION>
Mar 31, June 30,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 498,171 $ 96,333
Current maturities of membership
contracts receivable, net 244,847 235,618
Current Maturities of Notes
Receivable 0 807,781
Interest and dues receivable 140,963 143,473
Due from Officers and Employees 106,127 75,908
Other current assets 393,133 384,024
__________ __________
Total Current Assets 1,383,241 1,743,155
Membership contracts, net 1,981,033 1,893,849
Operating Resorts, net 1,805,521 1,974,688
Property held for development, net 497,506 514,848
Operating equipment, net 186,006 205,519
Other assets 76,750 67,264
___________ ___________
TOTAL ASSETS $ 5,930,057 $ 6,399,305
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 133,397 380,829
Accrued Expenses and other current
liabilities 216,256 257,502
Due to Officers 0 78,050
Current Portion of Deferred Income 278,664 191,814
Current maturities long-term debt 720,570 159,098
__________ __________
Total Current Liabilities 1,348,887 1,067,293
Long-term debt 4,067,936 4,678,116
Deferred income 498,480 537,868
__________ __________
Total Liabilities 5,915,303 6,283,277
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<TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
For Nine Months Ended MARCH 31, 1997
and Year Ended JUNE 30, 1996
(continued)
<CAPTION>
<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) (2,500,215) (2,398,941)
__________ __________
Total Stockholders' Equity 14,754 116,028
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $ 5,930,057 $ 6,399,305
=========== ===========
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QUALITY RESORTS OF AMERICA, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR NINE MONTH PERIODS ENDING
MARCH 31, 1997 AND 1996
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Mar 1997 Mar 1996 Mar 1997 Mar 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues
Membership Sales $ 267,527 $ 671,447 $1,050,003 $1,838,169
Resort Operations 365,947 425,458 1,215,319 1,260,759
Interest Income 67,549 78,030 228,806 241,001
Other Income 8,671 3,258 9,568 42,139
---------- ---------- ---------- ----------
Total Revenue 709,694 1,178,193 2,503,696 3,382,068
Expenses
Sales & Marketing 189,384 318,229 586,829 889,034
Resort Operations 218,877 210,017 720,580 712,841
General & Administrative 201,247 253,862 630,592 731,205
Allowance for Bad Debts 24,730 52,250 105,768 143,313
Interest Expense 151,955 152,673 501,145 478,314
---------- ---------- ---------- ----------
Total Expenses 786,193 987,031 2,544,914 2,954,707
Income (Loss) from
Operations ( 76,499) 191,162 ( 41,218) 427,361
Non-recurring Items
Flood Loss ( 57,657) 0 ( 57,657)
Provision for Income Taxes 0 0 2,400 2,400
---------- ---------- ---------- ----------
Net Income (Loss) ($134,156) $191,162 ($101,275) $424,961
========== ========== ========== ==========
Net Income (Loss) per Share (04) 06 (03) 13
=== === === ===
Average number of shares outstanding
during the periods: 3,284,818
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QUALITY RESORTS OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For Nine Months Ended
March 31, 1997 and 1996
<CAPTION>
March March
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ($101,275) $ 424,961
Adjustments to reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 57,657 52,760
Provision for Losses on Contracts and
Interest Receivable 105,768 143,313
(Gain) Loss on Sales of Assets 60,075 0
Deferred Income 47,462 ( 77,285)
Changes in Operating Assets and
Liabilities:
Increase in Contracts Receivable ( 202,181) ( 352,608)
(Increase) Decrease in Interest and
Dues Receivable 2,510 ( 2,222)
(Increase) Decrease in Prepaid
Expenses and Other Assets ( 48,813) ( 169,180)
Increase (Decrease) in Accounts Payable ( 247,432) 73,480
Increase (Decrease) in Accrued Expenses ( 119,294) 19,960
NET CASH FROM OPERATING ACTIVITIES ( 445,523) 113,179
CASH FLOW FROM INVESTING ACTIVITIES:
Principal Repayment of Notes
Receivables 807,781 1,855
Sale of Fixed Assets 166,875 0
Additions to Property and Equipment ( 78,586) ( 48,462)
NET CASH FROM INVESTING ACTIVITIES 896,070 ( 46,607)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 49,421 67,437
Principal repayments on debts ( 98,130) ( 45,713)
NET CASH FROM FINANCING ACTIVITIES ( 48,709) 21,724
NET INCREASE (DECREASE) IN CASH 401,838 88,296
CASH, beginning of period 96,333 16,913
CASH, end of period $ 498,171 $ 105,209
=========== ===========
</TABLE>
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QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - General
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form10-Q and Article 10 Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Results
of operations for the nine-month periods ended March 31, 1997, and 1996
are not necessarily indicative of the operating results that may be
expected for the year ended June 30, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Registrant Company and Subsidiaries' annual report of Form 10-KSB for
the year ended June 30, 1996.
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT 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, 1996 the Company sold 675 new memberships
compared to fiscal year ended 1995 in which the Company sold 560 new
memberships. The Company has also offered to its existing membership an
upgrade package, with 196 members upgrading during 1996 compared to 154 in
1995. Resort operations consist of income from maintenance dues, rental
units, store sales, and storage income.
Membership Sales
For the nine-month period ended March 31, 1997, membership sales
decreased from the prior period by $788,000 (43%), from $1,838,000 to
$1,050,000. During the first nine-month period ended March 31, 1996, 152
members purchased upgrades for a total of $387,000. During the first nine-
month period ended March 31, 1997, upgrade sales decreased to $3,700, as
the upgrade sales program has been temporarily suspended to allow the sales
group to sell orphaned or dissatisfied members of other resorts. New
membership sales decreased by $429,000 (29%), due in part to the severe
weather and flooding conditions in Northern California. Sales typically
drop during the second quarter and resume again in March due to the winter
holiday seasons and weather conditions.
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 has been
established at Golden Pond Resort (GPR, owned by ARI), located in the
Greater Palm Springs area. All current and new CRV members are allowed
specific usage, without charge, of this resort. ARI, is responsible for
all sales costs. In exchange, the Company pays ARI 50% sales commission
on sales and 40% of sales for CRV members' usage of the resort.
Marketing expenses increased from 48 percent of membership sales
($889,000 in 1996) to 56 percent ($586,000 in 1997, a decrease of
$302,000). Commission expense decreased from $490,000 (26% of sales) in
1996, to $291,000 (28% of sales) in 1997 (a decrease of $199,000), which
is attributed to the reduction in sales. Other sales expenses decreased
from $399,000 (22% of sales) to $296,000 (28 percent of sales).
Resort Operations
Income from Resort Operations consists of maintenance dues, rental
units, store sales and storage income.
Revenues generated from Resort Operations decreased by $ 45,000 (4
percent) over the same period in 1996. This decrease is primarily
attributed to a decrease in resort operations income (rental units and
store income). Expenses remained virtually the same ($713,000 in 1996
compared to $718,000 in 1997).
General and Administrative Expense
General and administrative expense decreased from $734,000 in 1996 to
$633,000 in 1997, a decrease of $101,000, primarily due to a decrease in
legal fees.
Liquidity and Capital Resources
In December, 1996, the Company received $950,000, payment in full on
a note receivable due from the sale of Westside Resort. This amount
included $807,000 in principal, $71,000 in accrued interest, and, $72,000
for legal and foreclosure expenses incurred contesting the bankruptcies
filed by the mortgagees. The Company used $400,000 of these funds to pay
off debt. The remainder has been invested in money market accounts and has
been earmarked for the development of the public park at Redwood Trails
Resort and/or the repayment of loans secured by deeds of trust. Cash flows
from operations decreased from $113,000 for the nine-month period ending
March 31, 1996, compared to ($445,000) in 1997. This decrease is due to
the repayment of debt from the note receivable funds received.
Current maturities of long term debt increased by $561,000 since June
30, 1996 primarily due to the maturity of loans secured by contracts
receivable and certain loans secured by deeds of trust on the resorts.
Management anticipates that these notes will roll over for an additional
three years, or will be paid off. However, there can be no assurance that
a significant number will roll over their notes for an additional term.
In January 1997, the Company experienced extensive damage at its
Klamath Cove Resort as a result of flooding. Buildings and structures
destroyed by flooding were covered by flood insurance. The Company
experienced a loss of buildings and equipment in the amount of $205,902,
with $147,189 recovered from insurance coverage, netting a loss of $58,713.
The Company has applied to the Small Business Administration for
disaster assistance to relocate Klamath Cove Resort and pay off the trust
deed holders. The Company believes, because of the problems incurred in
obtaining permits from the flood damage sustained in January 1995, that it
is unlikely that the Company will be able to obtain permits to rebuild at
Klamath Cove. The Company is in negotiations for the possibility of the
sale of the property to a Federal or State agency. The Company is
continuing to pay the interest payments to the trust deed holders. The
Company believes that with the flood insurance proceeds, the proceeds from
the possible sale of the property, or the SBA loan, the Company will be
able to pay off the trust deed holders.
Revenues generated at this resort were approximately $16,000 during
year ended June 30, 1996; management feels the effect of lost earnings will
not have a significant impact on the profitability of the Company.
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: May 15, 1997 /Susan Bienias
Susan Bienias
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 498
<SECURITIES> 0
<RECEIVABLES> 2951
<ALLOWANCES> 584
<INVENTORY> 0
<CURRENT-ASSETS> 499
<PP&E> 6620
<DEPRECIATION> 4131
<TOTAL-ASSETS> 5930
<CURRENT-LIABILITIES> 1349
<BONDS> 0
0
0
<COMMON> 2515
<OTHER-SE> (2500)
<TOTAL-LIABILITY-AND-EQUITY> 5930
<SALES> 1050
<TOTAL-REVENUES> 2504
<CGS> 587
<TOTAL-COSTS> 1938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106
<INTEREST-EXPENSE> 501
<INCOME-PRETAX> (41)
<INCOME-TAX> 2
<INCOME-CONTINUING> (43)
<DISCONTINUED> 0
<EXTRAORDINARY> (58)
<CHANGES> 0
<NET-INCOME> (101)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
