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 First Quarter Ended Commission File No. 0-14035
December 31, 1996
QUALITY RESORTS OF AMERICA, INC.
______________________________________________________
(Exact name of Registrant as specified in its charter)
California 68-0046021
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 December 31, 1996 was 3,284,818.
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
For Six Months Ended DECEMBER 31, 1996
and Year Ended JUNE 30, 1996
<TABLE>
<CAPTION>
Dec 31, June 30,
1996 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 567,222 $ 96,333
Current maturities of membership
contracts receivable, net 248,011 235,618
Current Maturities of Notes
Receivable 0 807,781
Interest and dues receivable 142,764 143,473
Due from Officers and Employees 48,432 75,908
Other current assets 354,543 384,024
__________ __________
Total Current Assets 1,113,850 1,743,155
Membership contracts, net 2,006,637 1,893,849
Operating Resorts, net 1,982,158 1,974,688
Property held for development, net 506,889 514,848
Operating equipment, net 196,108 205,519
Other assets 87,904 67,264
___________ ___________
TOTAL ASSETS $ 6,140,666 $ 6,399,305
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 156,005 380,829
Accrued Expenses and other current
liabilities 212,316 257,502
Due to Officers 0 78,050
Current Portion of Deferred Income 217,584 191,814
Current maturities long-term debt 631,444 159,098
__________ __________
Total Current Liabilities 1,217,349 1,067,293
Long-term debt 4,175,822 4,678,116
Deferred income 598,585 537,868
__________ __________
Total Liabilities 5,991,776 6,283,277
</TABLE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
For Six Months Ended DECEMBER 31, 1996
and Year Ended JUNE 30, 1996
(continued)
<TABLE>
<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) (2,366,059) (2,398,941)
__________ __________
Total Stockholders' Equity 148,910 116,028
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $ 6,140,666 $ 6,399,305
=========== ===========
</TABLE>
QUALITY RESORTS OF AMERICA, INC.AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR SIX MONTH PERIODS ENDING
DECEMBER 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec 1996 Dec 1995 Dec 1996 Dec 1995
--------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues
Membership Sales $ 281,101 $ 476,253 $ 782,476 $1,166,721
Resort Operations 377,227 401,519 849,371 835,301
Interest Income 76,541 73,751 161,256 162,971
Other Income 683 41,912 899 38,882
---------- ---------- ---------- ----------
Total Revenue $ 735,552 $ 993,435 $1,794,002 $2,203,875
Expenses
Sales & Marketing 148,969 233,645 397,444 570,804
Resort Operations 205,565 201,318 501,702 502,824
General & Administrative 194,885 241,684 429,345 477,343
Allowance for Bad Debts 28,990 35,689 81,038 91,063
Interest Expense 173,520 171,004 349,191 325,641
---------- ---------- ---------- ----------
Total Expenses $ 751,929 $ 883,340 $1,758,720 $1,967,676
Income (Loss) from
Operations ( 16,377) 110,095 35,282 236,199
Provision for Income Taxes 0 0 2,400 2,400
---------- ---------- ---------- ----------
Net Income (Loss) ($ 16,377) $ 110,095 $ 32,882 $ 233,799
========== ========== ========== ==========
Net Income (Loss) per Share (0) 03 01 04
=== === === ===
Average number of shares outstanding
during the periods: 3,284,818
</TABLE>
QUALITY RESORTS OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
For Six Months Ended
December 31, 1996 and 1995
<TABLE>
<CAPTION>
December December
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 32,882 $ 233,799
Adjustments to reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 38,658 33,902
Provision for Losses on Contracts and
Interest Receivable 81,038 91,063
(Gain) Loss on Sales of Assets 0 0
Deferred Income 86,487 ( 53,006)
Settlement of Obligations 0 0
Changes in Operating Assets and
Liabilities:
Increase in Contracts Receivable ( 206,219) ( 220,002)
(Increase) Decrease in Interest and
Dues Receivable 709 23,540
(Increase) Decrease in Prepaid
Expenses and Other Assets 36,318 ( 109,771)
Increase (Decrease) in Accounts Payable ( 224,824) 59,652
Increase (Decrease) in Accrued Expenses ( 123,236) 8,489
NET CASH FROM OPERATING ACTIVITIES ( 278,187) 67,666
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to Notes Receivables 0 0
Principal Repayment of Notes
Receivables 807,781 1,221
Sale of Fixed Assets 9,168 0
Additions to Property and Equipment ( 37,955) ( 29,002)
NET CASH FROM INVESTING ACTIVITIES 779,024 ( 27,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 35,000 37,437
Principal repayments on debts ( 64,948) ( 23,431)
NET CASH FROM FINANCING ACTIVITIES ( 29,948) 14,006
NET INCREASE (DECREASE) IN CASH 470,889 53,891
CASH, beginning of period 96,333 16,913
CASH, end of period $ 567,222 $ 70,804
=========== ===========
</TABLE>
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 six-month periods ended December 31, 1996, and 1995
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.
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 six-month period ended December 31, 1996, membership sales
decreased from the prior period by $385,000 (33%), from $1,167,000 to
$782,000. During the first six-month period ended December 31, 1995, 67
members purchased upgrades for a total of $171,000. During the first six-
month period ended December 31, 1996, upgrade sales decreased to $2,700,
as the upgrade sales program was temporarily suspended to allow the sales
group to sell orphaned or dissatisfied members of other resorts. New
membership sales decreased by $232,000 (23%), due in part to the severe
weather and flooding conditions in Northern California. Sales typically
drop during the second quarter due to the Thanksgiving and Christmas
holiday seasons. Management also curtailed spending on marketing due to
the normal decrease of cash flow during these months.
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 usage of the resort.
Marketing expenses increased from 49 percent of membership sales
($571,000 in 1995) to 51 percent ($397,000 in 1996, a decrease of
$174,000). Commission expense decreased from $294,000 (25% of sales) in
1995, to $193,000 (24% of sales) in 1996 (a decrease of $101,000), which
is attributed to the reduction in sales. Other sales expenses decreased
from $277,000 (24% of sales) to $204,000 (26 percent of sales).
Resort Operations
Revenues generated from Resort Operations increased by $ 14,000 (2
percent) over the same period in 1995. This increase is primarily
attributed to an increase in dues income. Expenses remained virtually the
same ($502,000 in 1996 compared to $503,000 in 1995).
General and Administrative Expense
General and administrative expense decreased from $477,000 in 1995 to
$429,000 in 1996, 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 $68,000 for the six-month period ending
December 31, 1995, compared to ($278,000) in 1996 due to the repayment of
debt from these funds.
Current maturities of long term debt increased by $472,000 since June
30, 1996 primarily due to the maturity of loans secured by contracts
receivable and certain loans secured by deeds of trust on Lighthouse Marina
Resort. 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
damaged or destroyed by flooding are covered by flood insurance. The
Company has applied to the Small Business Administration for disaster
assistance to relocate the park. 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 Resort. 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 reduction of operational costs of the park, and the proceeds
from the possible sale of the property, 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUALITY RESORTS OF AMERICA, INC.
Dated: March 18, 1997 /Susan Bienias
Susan Bienias
Chief Financial Officer
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