SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-KSB
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ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Fiscal Year ended June 30, 1997
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
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: $3,770,562.
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, 1997, was not available.
As of June 30, 1997 the number of shares outstanding of the Registrant's
common stock was 3,284,818, and 269,893 shares of Class A preferred stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated
part of this Form 10K: NONE
<PAGE>
ITEM 1 - BUSINESS
OVERVIEW
Quality Resorts of America, Inc., a California corporation, 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 Company's
executive offices are located at 11707 Fair Oaks Blvd, Suite 210, Fair Oaks,
CA 95628, and its phone number is (916)967-9812.
The membership campground industry emerged in the early 1970s 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 because of overcrowding of public campground
facilities. In the state of California, camping is a $2 billion-a-year industry.
California campers are described primarily as middle income families and well
educated. About one half have dependant children. The majority (about
three-fourths) of these campers are in the 30-59 range, and one-fourth aged 60
and older.
The Company operates four membership-based resorts located in Northern
California. Members using the resorts may bring their own recreational
vehicles, tents or other sleeping equipment, or rent travel trailers or modular
units located at the resorts. The resorts are open year-round although usage is
greatly reduced in the winter months. At each resort, managers, and staff
provide security, maintenance, and recreational programs that vary by location.
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 a
new member set at $300 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. The Company offers
existing members the opportunity to pay their dues for life (transferable to one
subsequent owner of the membership) by paying $2,995.
The Company derives other operating income at the resorts from rental units,
convenience stores, laundry facilities, video game equipment, and storage of
recreational vehicles.
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.
CURRENT BUSINESS STRATEGY
The Company's strategy for growth and to make a major improvement in its
financial statement is to start an expansion program with the help of a REIT to
expand into a multi-park California system. The Company will lease back and
manage these resorts after the REIT has purchased them. This will allow the
Company to expand its park system without the need of raising new capital. This
would also give the Company members the use of these new parks under a special
program. 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.
MARKETING MEMBERSHIPS
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 $2,995 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 contract receivables that are due beyond one
year with the interest rate averaging 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 5%.
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 present 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 and
River Grove 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, 1997, upgrade sales began in March 1997, with 82 members upgrading
their memberships, with total revenues from these upgrades amounting to
$204,000.
COMPETITION
Today there are approximately 46,000 campgrounds in the United States. Of
those, approximately 500 are membership resorts. While most campers use
national or state parks, membership resorts feature family-oriented activities
in the setting of individual campsites, recreational facilities and scenic open
spaces that are of higher quality than found in public campgrounds. The
typical resort offers utility hookups, clubhouse, arcade, rest rooms with hot
showers, laundry facilities, a convenience store, recreational amenities with
organized activities, playground, and full-time security.
A number of organizations compete directly with the Company by marketing
memberships in multiple Resort networks. Additional competition comes from
single-park organizations. 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.
EMPLOYEES
On June 30, 1997, the Company had 32 full-time, 27 part-time employees, and a
sales staff consisting of 11 people, which are paid on a commission-only basis.
Due to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months.
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.
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 a membership 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 resorts. Management believes that the
Company is in compliance with this legislation.
The State of California also has a nondisturbance statute that places
limitations on the ability of the owners of campground to sell or close, or a
lien-holder to foreclose a lien on a campground. These statutes permit sale,
closure, or foreclosure if the holders of related memberships receive access to
a comparable campground.
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 laws. In addition,
management believes 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.
ITEM 2 - DESCRIPTION OF PROPERTIES
OFFICES
The Company leases office space at 11707 Fair Oaks Blvd, Suite 210, Fair Oaks,
California 95628.
REDWOOD TRAILS RESORT
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, of which
approximately 111 acres 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 tent-sites with a use
permit for 59 additional 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 doublewide 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 totaled $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.
Annual realty taxes are charged at a rate of 1% of assessed value, plus
special district taxes. Property taxes amounted to $11,002 for fiscal year
ended June 30, 1997.
LIGHTHOUSE MARINA RESORT
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 tent-sites 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 doublewide 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, 1997.
RIVER GROVE RESORT
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 tent-sites and 104 campsites.
Most of the campsites have 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, 1997, was $796,437,
and payable at 12% interest, with monthly payments of principal and interest of
$12,310. Interest payments were made during fiscal year 1997 in the amount of
$98,789. 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 $17,576 for fiscal year ended
June 30, 1997.
KLAMATH COVE RESORT
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.
Klamath Cover Resort sustained flood damage during the winter storms of 1995,
to the boat ramp, docks and 15 sites. The Company secured a three-year 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 was paid in full in February 1997.
Subsequently, in January 1997, the remaining park was washed away by flooding.
The Company again applied to the Small Business Administration for a disaster
loan to relocate this resort. The loan was approved in July 1997. The loan is
in the amount of $1,108,100 at an interest rate of 4% per annum with installment
payments, including principal and interest, in the amount of $5,713, payable
over 27 years. Proceeds from the loan include the refinancing of the outstanding
loans against the property. The park is being relocated to the front portion of
Redwood Trails that the Company has been developing as a public park with 56 RV
spaces. The loan is secured by deeds of trust on Klamath Cove Resort, River
Grove Resort and Redwood Trails Public Park properties.
After the park was washed away, Del Norte County reduced the assessed value
of the property to $1,000, and the annual taxes amount to $10.
INVESTMENT POLICIES FOR ACQUISITION OF ADDITIONAL RESORTS
The Company believes that there is a great opportunity if it allies itself
with a new affiliated company called RV Resorts, REIT. This company should have
the financial strength to buy existing resorts and expand into a ten-park
California chain. These resorts would be leased back by the Company under a net
lease back agreement. This should also give the Company's members the use of
these new parks under a new special program.
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, 1997 is
13,292 members. At June 30, 1997, the Company had 7,497 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 3 - LEGAL PROCEEDINGS
There are no significant legal matters pending involving the company or its
officers as of June 30, 1997. All pending legal matters are the result of
normal resort operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY 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, 1997, the Company had approximately
815 shareholders of record.
The Company has authorized 5,000,000 shares of preferred stock. In June
1997, 269,893 shares of unregistered cumulative convertible thirteen percent
preferred stock was issued to three exempt investors in exchange for notes
payable owed in the amount of $401,000, and in exchange for a note receivable
and a deed of trust on Golden Pond Resort (owned by Affiliated Resorts of which
Robert R. Brindle, the Company's Chairman of the Board, is the majority
stockholder) in the amount of $385,600.
The Company has authorized 20,000,000 shares of common stock at no par value.
At June 30, 1997, 3,284,818 shares were issued and outstanding.
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 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, with no expiration date on the option.
ITEM 6 - MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies and plans for periods after June 30, 1997. All
of these statements are forward-looking statements made pursuant to the safe
harbor provisions of Section 21 (E) of the Securities Exchange Act of 1934, as
amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies and plans for future periods may differ
materially due to several factors. These may including but are not limited to
the Company's continued ability to control costs and implement its sales and
marketing plan, the actual use of the resorts by members, the Company's success
in collecting its contracts receivable, and other factors.
CHANGES IN ACCOUNTING METHOD
Subsequent to year end, the Company was notified by the Securities and
Exchange Commission (SEC) that the SEC now requires revenue from the sale of
campground memberships that do not convey a deeded interest in real estate, be
recognized on a straight line basis over the expected life of the membership.
This method differs from the historical method used by the Company since
inception. Accordingly, the consolidated financial statements included in this
report have been restated from those originally reported to reflect this change.
The deferral of sales revenues and expenses resulting from this change in
accounting method had no impact on the Company's liquidity or cash flows.
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 $2,995
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 1997, the Company sold
514 new memberships, of which 93 cancelled (18%), compared to fiscal year 1996,
with 675 sales and 115 cancellations (20%). Resort operations income consists
primarily from rental units, store sales, and storage income.
CURRENT BUSINESS STRATEGY
The Company's strategy for growth and to make a major improvement in its
financial statement is to start an expansion program with the help of a REIT and
expand into a ten-park California chain. The Company will lease back and manage
these resorts after the REIT has purchased them. This will allow the Company
to expand its park system without the need of raising new with capital. This
would also give the Company members the use of these new parks under a special
program. 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.
SELECTED FINANCIAL DATA
Fiscal Year Ended June 30,
1997 1996 1995 1994 1993
(Restated)(Restated)(Unrestated)(Unrestated)(Unrestated)
In thousands, except for per share data)
Net Operating
Income 3,771 3,902 3,831 4,798 3,573
Income (Loss) from
Operations (262) (78) 94 307 32
Total Assets 6,945 7,528 6,027 5,825 5,236
Long Term Debt 3,979 4,678 4,133 3,837 3,240
Income (Loss)
Per Share (.09) (.02) .03 .09 .01
RESULTS OF OPERATIONS
MEMBERSHIP SALES
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, 1997, decreased by 25 percent to
$1,392,000, with sales to 421 new members, compared to new sales in year ended
1996 of $1,897,000 to 675 new members. This decrease in sales is attributed to
the inclement weather and severe flooding experienced in California during the
winter months. The Company continued to offer to existing members an upgrade
package. This generated income of $204,000 from 82 existing members. Income
from deferred sales was $273,000. Total marketing costs were 59% of sales,
compared to 48% in 1996. Commission expense (which is included in the total
marketing costs) for the year ended 1997, was $468,000 (30% of sales compared
to 27% in 1996).
RESORT OPERATIONS
Revenues generated from Resort Operations increased to $1,641,000 in 1997
from $1,630,000 in 1996. This increase is due primarily to an increase in dues
income of $70,000, which was offset by a decrease in rental income and store
income. These decreases are attributed to the flooding in Northern California
during the winter of 1997.
Resort operating costs were $964,000 in 1997 (59% of revenues), and
$959,000 in 1996 (59%), an increase of $5,000.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense decreased from $916,000 in 1996, to
$829,000 in 1997, a decrease of $87,000. Payroll expenses decreased from
$426,000 to $390,000 in 1997 a decrease of $36,000. Collection expenses
decreased $17,000, from $100,000 in 1996 to $83,000 in 1997.
INTEREST INCOME AND EXPENSE
Interest income from contracts receivable increased $24,000, from $226,000
for year ended 1996 to $250,000 in 1997. Interest payments received from the
note receivable on the sale of Westside Resort began in January, 1992, resulting
in interest income of $81,000 for year end 1996, and $14,000 for year end 1997,
a decrease of $67,000 due to the note being sold in December 1996.
Interest expense increased from $643,000 in 1996 to $685,000 in 1997, an
increase of $42,000 due to interest and penalty fees for late payments of
payroll taxes.
PROVISIONS FOR BAD DEBTS
Provisions for bad debt are accrued for contracts receivables that are 90+
days past due. The expense for year-end 1997 was $551,000 and $451,000 in 1996.
During the fiscal year 1997, $371,000 in contracts receivable were written off
to bad debts. In 1996, 19.2% of contracts receivable were delinquent and 26.0%
in 1997.
EXTINGUISHMENT OF DEBT
The Company realized a gain from extinguishment of debt in the amount of
$4,921. 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 in 1996 was $106,000 with expenses
of $73,000, resulting in net income of $33,376. There was no logging income or
expenses for year ended 1997.
DEFERRED INCOME AND PREPAID EXPENSES
Beginning in 1990, the Company offered its existing members the opportunity
to pay their dues for life by paying a one-time fee. This was subsequently
increased to its current level of $2,995. The lifetime dues are transferable to
one subsequent owner of the membership. Income from lifetime dues are recorded
as a liability and amortized to dues income over ten years. Lifetime dues
received during fiscal year 1997 totaled $166,820, and amortized income totaled
$136,814.
The Company offers free vacations to new Club Rainbow members. In the
past, a certain portion of the income from the sale of these memberships was
deferred to cover the cost of these free vacations. The deferred income was
then amortized to income over a period of seven years. This accounting method
was discontinued due to the SEC's ruling requiring the Company to recognize
revenue from the sales of memberships over the expected life of the membership.
As a result, in 1997, the Company recognized $273.000 in income from prior
year's membership sales and $80,000 in additional selling and marketing expense
from prior years. The restated financial statements for 1996 reflect a
reduction of $519,000 in revenues and a reduction of $141,000 in sales and
marketing expense.
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 Golden Pond Resort. 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, 1997, $82,000 was added to prepaid usage and $65,000 was expensed.
EXTRAORDINARY ITEMS
FLOOD LOSS
In January 1997, Klamath Cove Resort was destroyed by flooding. The buildings,
contents and docks were covered by flood insurance. The Company sustained a
loss of property amounting to $207,778 of which it received $145,827 in
insurance proceeds. The loss to the Company was $61,523.
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
1997, there was a $1,524,445 in net operating loss carryforwards 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 adopted 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
resorts, 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 certain portions 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.
On June 30, 1997 the Company had $414,000 in cash, an increase of $318,000
from the 1996 balance of $96,000. The Company's principal sources of operating
cash are from maintenance dues and principal and interest payments. In 1997,
cash receipts from maintenance dues totaled $1,137,000 and $584,000 from
principal and interest payments. In addition the Company received $950,000 from
the sale of the Westside note, and $83,000 from new financing. Principal uses
of operating cash for 1997 included $140,000 principal repayment on mortgages
and other notes, $108,000 in capital expenditures, $827,000 in resort
operations, $808,000 in general and administrative expenses (which includes
corporate customer services), $685,000 in interest payments and $923,000 in
sales and marketing expenses.
ITEM 7 - 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 8 - 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, 1997 and 1996, 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, 1997 and 1996, 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.
__________________________
San Francisco, California
January 23, 1998
45 Hoffman Avenue, San Francisco, CA 94114
(415)824-2012 Fax (415)695-1244
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND 1996
<TABLE>
June 30,
1997 1996
(Restated)
<S> <C> <C>
Current Assets:
Cash $ 414,373 $ 96,333
Current Portion of Membership Contracts
Receivable, Net of Allowance for
Doubtful Accounts and Cancellations
of $94,256, and $55,609, respectively 256,150 235,618
Current Portion of Notes Receivable 0 807,781
Interest and Dues Receivable, net of Allowance
for Doubtful Accounts 102,323 143,473
Due from Officers/Employees 140,508 75,908
Current Portion of Deferred Selling Expense 930,294 871,536
Prepaid Expenses and Other Current Assets 337,223 384,024
Total Current Assets 2,180,871 2,614,673
Membership Contracts Receivable, net of Current
Portion and Allowance for Doubtful Accounts
of $579,002, and $449,926 respectively 1,690,175 1,893,849
Resort Parks
Land 1,393,932 1,564,077
Site, Building and Other Improvements 2,893,065 2,898,072
4,286,997 4,462,149
Less: Accumulated Amortization of costs
applicable to Membership Sales 2,487,461 2,487,461
1,799,536 1,974,688
Property Held for Development, less Accumulated
Depreciation of $708,885, and
$604,089, respectively 494,164 514,848
Operating Equipment, less Accumulated
Depreciation of $941,973,
and $941,351, respectively 212,306 205,519
Deferred Membership Selling Expense 118,001 257,097
Notes Receivable, secured by trust deed 385,600 0
Other Assets 64,750 67,264
Total Assets $ 6,945,403 $7,527,938
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 and 1996
<TABLE>
June 30,
1997 1996
(Restated)
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 162,450 $ 380,829
Accrued Expenses and Other
Current Liabilities 198,203 257,502
Due to Officers/Employees 14,714 78,050
Current Portion of Deferred Revenue 1,836,300 1,739,207
Current Portion of Long-term Debt 400,352 159,098
Total Current Liabilities 2,612,019 2,614,686
Long-term debt, net of Current Portion 3,978,873 4,678,116
Deferred Revenue, net of Current Portion 1,752,002 2,092,636
Total Liabilities 8,342,894 9,385,438
Stockholders' Equity (Deficit)
Preferred Stock, 5,000,000 shares
authorized, 269,893 shares outstanding 809,679 0
Common Stock, no par value,
20,000,000 shares authorized;
3,284,818 shares outstanding 2,514,969 2,514,969
Retained Earnings (deficit) ( 4,722,139) (4,372,469)
Total Stockholders' Equity (Deficit) ( 1,397,491) (1,857,500)
Total Liabilities & Equity $ 6,945,403 $7,527,938
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For Fiscal Years Ending June 30, 1997 and 1996
<TABLE>
June 30,
1997 1996
(Restated)
<S> <C> <C>
REVENUES
Membership Sales $ 1,838,356 $ 1,864,337
Membership Dues and Resort Operations 1,641,272 1,630,164
Interest Income 275,318 307,199
Other Income 15,616 100,580
Total Revenues 3,770,562 3,902,280
EXPENSES
Sales and Marketing 1,003,816 1,012,172
Resort Operations 963,989 959,023
General and Administrative expenses 829,023 915,881
Provision for Bad Debt 551,306 450,657
Interest Expense 685,095 642,827
Total Expenses 4,033,229 3,980,560
(Loss) Before Income Taxes and
Extraordinary items ( 262,667) ( 78,280)
Extraordinary item - Flood Loss ( 61,523) 0
Income Tax Provision ( 2,400) ( 2,400)
Net Loss $( 326,590) $( 80,680)
Net (Loss) per share $( .09) $( .02)
Weighted Average Shares Outstanding 3,554,711 3,284,818
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASH FLOW'S
For Fiscal Years Ending June 30, 1997 and 1996
<TABLE>
June 30,
1997 1996
Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $( 326,590) $( 80,732)
Adjustments to reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 75,865 64,457
Provision for Losses on Contracts and
Interest Receivable 551,306 450,657
(Gain) Loss on Sales of Assets 61,523 ( 1,380)
Increase / (Decrease) in Deferred Income ( 163,203) 256,427
Settlement of Obligations ( 5,978)
Changes in Operating Assets and Liabilities:
Increase in Contracts Receivable ( 368,164) ( 482,265)
(Increase)/Decrease in Interest and
Dues Receivable 41,150 ( 17,466)
Increase in Prepaid Expenses and Other Assets ( 78,603) ( 241,120)
Increase/(Decrease) in Accounts Payable ( 218,379) 181,458
Increase/(Decrease) in Accrued Expenses ( 59,318) 7,636
NET CASH USED IN OPERATING ACTIVITIES ( 484,413) 131,694
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Notes Receivables ( 385,600) 0
Principal Repayment of Notes Receivables 807,781 2,506
Sale of Fixed Assets 9,198 13,408
Insurance Recovery 150,365 0
Additions to Property and Equipment ( 107,902) ( 81,686)
NET CASH FLOW FROM INVESTING ACTIVITIES 473,842 ( 65,772)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowing 83,253 67,437
Settlement of Debts ( 525) 0
Dividends Paid ( 23,079) 0
Preferred Stock Issued 809,679 0
Principal repayments on debts ( 540,717) ( 53,939)
NET CASH FROM FINANCING ACTIVITIES 328,611 13,498
NET INCREASE IN CASH 318,040 79,420
CASH, beginning of year 96,333 16,913
CASH, end of year $ 414,373 $ 96,333
</TABLE>
<PAGE>
QUALITY RESORTS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For Fiscal Year Ending June 30, 1997
<TABLE>
RETAINED TOTAL
COMMON STOCK PREFERRED STOCK EARNINGS EQUITY
SHARES AMOUNT SHARES AMOUNT (DEFICIT) (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
Balance June 30,1994
(Restated) 3,305,418 $2,519,059 $(4,385,958) $(1,866,899)
Purchase of Treasury Stock, at cost
( 20,600) ( 4,090) ( 4,090)
Net Income 1995
94,169 94,169
Balance June 30,1995
(Restated) 3,284,818 2,514,969 (4,291,789) (1,776,820)
(Restated)
Net Loss 1996 (Restated) ( 80,680) ( 80,680)
Balance June 30,1996
(Restated) 3,284,818 2,514,969 (4,372,469) (1,857,500)
Preferred Stock Issued 269,893 809,679 809,679
Dividends Paid ( 23,079) ( 23,079)
Net Loss ( 326,590) ( 326,590)
Balance June30,1997
$ 3,284,818 $2,514,969 269,893 $809,679 $(4,722,139)$(1,397,491)
</TABLE>
<PAGE>
<PAGE>
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 three 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, 1997, the Company had
approximately 815 shareholders of record.
The Board of Directors of the Company is comprised of seven related
individuals who, between themselves, control 49.9% (forty-nine point nine
percent) of the outstanding shares of stock of the Company. And own 54%
(fifty-four percent) of the voting rights of the stock of the Company.
The Company has authorized 5,000,000 shares of preferred stock. In June
1997, 269,893 shares of unregistered cumulative convertible thirteen
percent preferred stock were issued.
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 1996 financial statements have been reclassified to
conform to the 1997 presentation.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121") 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. SFAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted SFAS 121
in the first quarter of fiscal 1997, and the adoption did not have a
material impact on the Company's operations or financial position.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. The Company adopted
this statement, which is effective for transactions occurring after
December 31, 1996, in its consolidated financial statements for the year
ended June 30, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 establishes standards for computing and presenting earnings
per share and applies to entities with publicly held common stock. This
statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is
not permitted. The Company does not anticipate that the adoption of this
standard will have a material impact on the Company's financial statements.
Restatement
Subsequent to year-end, the staff of the Securities & Exchange Commission
(SEC) informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships on a straight-
line basis over the expected life of the memberships sold. The staff of
the SEC has indicated that it will require all membership-based campground
registrants selling similar memberships to change to this method of
accounting. Previously, the Company recorded membership sales 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.
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. 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. However, as discussed above, the staff of the SEC has required
the Company to change its accounting method to recognize sales revenue from
the sale of campground memberships on a straight-line basis over the
expected life of the memberships sold. In addition, costs directly related
to the sale of such campground memberships are deferred and recognized as
selling expenses on a straight-line basis over the expected life of the
memberships sold.
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 9).
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, 1997 and 1996, 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, 1997, 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 June 30, 1997, there was a $1,524,445 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 and common share-equivalents
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.
Allowance for Doubtful Accounts
<TABLE>
June 30,
1997 1996
<S> <C> <C>
Beginning balance $ 505,535 $ 284,505
Provision for bad debt 551,306 450,657
Contracts charged off ( 383,583) ( 229,627)
Ending balance $ 673,258 $ 505,535
Current portion $ 94,256 $ 55,609
Non-current portion 579,002 449,926
</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, 1997 this accrual for potential
discounts on contracts sold was $ 24,751. During the year ended June 30,
1996, 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, 1997.
At June 30, 1997 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, 1997 are as follows:
<TABLE>
<S> <C>
Due within one year $ 350,406
Due on or before 6/1999 363,944
Due on or before 6/2000 365,255
Due on or before 6/2001 369,839
Due after 6/2001 1,170,139
Total $ 2,619,583
Less: Reserve for doubtful accounts ( 673,258)
Total $ 1,946,325
</TABLE>
Approximately $192,215 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,
1997 and 1996, are $75,865 and $64,457, respectively.
6. Deferred Membership Selling Expense
Cost directly related to the sale of such campground memberships are
deferred and recognized as selling expenses on a straight-line basis over
the expected life of the memberships sold.
<TABLE>
June 30
1997 1996
<S> <C> <C>
Beginning of the year $ 1,128,633 $ 988,064
Deferred 791,199 988,064
Recognized ( 871,536) ( 847,495)
End of the year $ 1,048,295 $ 1,128,633
Current portion 930,294 871,536
Non-current portion 118,001 257,097
</TABLE>
7. 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. Further, the
Company holds a note, secure by a deed of trust, for $385,600. The maker
of the note is Affiliated Resorts, a company 60% owned by Robert R.
Brindle, QRA's Chairman of the Board. The note earns interest at 13%
and is due on Feburary 1, 1999.
8. Long-term Debt
1997 1996
<TABLE>
<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 $11,618,
principal and interest.
Note is due in April 2008. 796,437 809,813
Various notes payable under
court-ordered stipulations
requiring monthly payments
over terms of five years or
less. Interest at 10%.
Monthly payments total
$ 500. 4,655 8,622
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 $1,997
principal and interest. 191,593 472,366
Various long-term contracts,
secured by operating equipment.
The interest rates vary from
8.5% to 12.5%. Monthly payments
total $1,092 39,117 38,961
Note from private lender at 18%
interest, monthly payments $1,867
interest and principal, maturing
December 1999. 33,423 33,423
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 $ 4,400
due monthly, maturing at various
future dates through 2002. 294,000 395,000
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. 570,000 585,000
Unsecured loan from SBA 8% interest
for three years, monthly payments
of $3,157. 0 35,029
Other long-term notes payable 0 9,000
Total long-term debt 4,379,225 4,837,214
Less: short-term portion ( 400,352) ( 159,098)
$ 3,978,873 $ 4,678,116
</TABLE>
Aggregate annual maturities on mortgage notes payable and equipment
contracts are as follows:
<TABLE>
<S> <C>
Due on or before 6/1998 $ 400,352
Due on or before 6/1999 247,443
Due on or before 6/2000 397,177
Due on or before 6/2001 1,726,671
Due after 6/2001 1,607,582
Total $ 4,379,225
</TABLE>
9. 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, as mentioned under restatement above, the Company recognizes the
revenue from membership sales over the expected life of those memberships.
Membership sales revenues are deferred and then amortized into income over
that time period.
<TABLE>
June 30,
1997 1996
Prepaid Lifetime Dues
<S> <C> <C>
Beginning of the year $ 515,945 $ 636,263
Lifetime dues collected 166,420 3,990
Amortized to income ( 136,814) ( 124,308)
End of the year 545,551 515,945
Deferred Membership Sales Revenue
Beginning of the year $ 3,315,898 $ 2,798,636
Income deferred 1,341,608 2,041,371
Amortized to income ( 1,614,755)( 1,524,109)
End of the year 3,042,751 3,315,898
Deferred Income $ 3,588,302 $ 3,831,843
Current portion $ 1,836,300 $ 1,739,207
Non-current portion 1,752,002 2,092,636
</TABLE>
10. 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>
June 30,
1997 1996
<S> <C> <C>
Total deferred tax liabilities $ 0 $ 0
Total deferred tax assets 1,879,237 1,762,217
Tax benefit 326,590 117,020
Total valuation allowance ( 2,205,827) ( 1,879,237)
Net deferred tax assets (liabilities) $ 0 $ 0
</TABLE>
11. Contingent Liabilities
As mentioned in Note 6 - Notes Receivable, the Company sold 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.
12. 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
earned $102,565 in fiscal year 1996 and $100,000 in fiscal year 1997. At
June 30, 1997, the Company owed RRB $2,778 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, 1997, Affiliated owed the
Company $126,397.
The Company has received payments on contracts owned by RRB and Affiliated.
The total amount received by the Company and not paid to RRB totaled $613
and $11,324 to Affiliated.
On June 30, 1997 the Company exchanged Class A Preferred Stock for a
$385,600 note receivable secured by a deed of trust on Golden Pond Resort
owned by Affiliated Resorts. The note is payable at 13% per annum and due
on February 1, 1999 (See Note 7).
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 the Company by RRB and Affiliated at fiscal year end
1997 was $497,283.
Robert M. Brindle
Robert M. Brindle (RMB), President and son of Robert R. Brindle, was paid
$100,000 in salary, $13,667 for accrued vacation for the fiscal year 1997.
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 totaling $35,000 for use by the Company. Personal charges on these
accounts charged to RMB totaled $8,526. 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 from RMB as
of June 30, 1997, was $4,405.
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 $42,684 in salary and
$59,548 in commissions on these collections. He was also paid commissions
on sales of $204,200 in the amount of $13,677. DLB traded timeshare time to
the Company for use by its members totaling $7,728. As of June 30, 1997, he
owed the Company $3,663 for advances on commissions.
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 1996, 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. Revenues from resort
operations will be limited, until the resort is brought back to full
operations. Again, in January 1997, Klamath Cove Resort was further damaged
by flooding. 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. The Company
recognized the portion of the loss not covered by insurance in the amount of
$61,523.
<PAGE>
PART III
ITEM 9 - 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>
Name Age Position
<S> <C> <C>
Robert R. Brindle 77 Chairman of the Board of
Directors
Robert M. Brindle 52 President, Chief Executive and
Operating Officer, and Director
Susan Bienias 48 Secretary, Treasurer and Chief
Financial Officer
Luella V. Brindle 76 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.
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 10 - EXECUTIVE COMPENSATION
During the fiscal year ended June 30, 1995, the following executive
officer received earnings of $100,000 or more:
<TABLE>
<S> <C> <C>
NAME AND POSITION YEAR SALARY
Robert R. Brindle, Chairman 1995 $ 55,000
of the Board 1996 $102,565
1997 $100,000
Robert M. Brindle, President & 1995 $100,025
Chief Executive and Operating 1996 $118,384
Officer 1997 $113,667
</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 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth, as of June 30, 1997, 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>
Percent of Class (1)
Amount and Nature of As of
Name and Address Beneficial Ownership June 30, 1997
<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 (4) 5.07%
All directors and officers as a group (5); 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 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.
(5) 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 12 - 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
$102,565 in fiscal year 1996, and $100,000 in fiscal year 1997. At June 30,
1997, the Company owed RRB a balance of $2,778 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,
1997, Affiliated owed the Company $126,397.
The Company has received payments on contracts owned by RRB and
Affiliated. The total amount received by the Company and not paid to RRB totaled
$613 and $11,324 to Affiliated.
On June 30, 1997 the Company exchanged Class A Preferred Stock for a
$385,600 note receivable secured by a deed of trust on Golden Pond Resort owned
by Affiliated Resorts. The note is payable at 13% per annum and due on February
1, 1999.
The net amount owed to the Company by RRB and Affiliated at fiscal year
end 1997 was $497,283.
ROBERT M. BRINDLE
Robert M. Brindle (RMB), President and son of Robert R. Brindle, was paid
$100,000 in salary, and $13,667 for accrued vacations for the fiscal year 1997.
RMB has opened two credit card accounts in his name with credit limits totaling
$35,000 for use by the Company. Personal charges on these accounts charged to
RMB totaled $8,526. 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 alance due from RMB as of June 30, 1997, was
$4,405.
DAMON BRINDLE
Damon Brindle (DLB) son of the President, Robert M. Brindle, manages the
collections of delinquent accounts and was paid $42,684 in salary and $59,548 in
commissions on these collections. He was also paid commissions on sales of
$204,200 in the amount of $13,677. DLB traded timeshare time to the Company for
use by its members totaling $7728. As of June 30, 1997, he owed the Company
$3,663 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: March 13, 1998. /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: March 13, 1998. /Robert R. Brindle
Robert R. Brindle, Chairman
of the Board of Directors
Date: March 13, 1998. /Robert M. Brindle
Robert M. Brindle, President,
Chief Executive Officer, Chief
Operating Officer and Director
Date: March 13, 1998. /Susan Bienias
Susan Bienias, Secretary,
Treasurer, Chief Financial
Officer
Date: March 13, 1998. /Luella V. Brindle
Luella V. Brindle, Director
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1997
[PERIOD-END] JUN-30-1997
[CASH] 414
[SECURITIES] 000
[RECEIVABLES] 3,246
[ALLOWANCES] 1,197
[INVENTORY] 000
[CURRENT-ASSETS] 1,408
[PP&E] 5,490
[DEPRECIATION] 3,196
[TOTAL-ASSETS] 6,945
[CURRENT-LIABILITIES] 2,612
[PREFERRED] 810
[COMMON] 2,515
[OTHER-SE] (4,722)
[TOTAL-LIABILITY-AND-EQUITY] 6,945
[SALES] 1,838
[TOTAL-REVENUES] 3,771
[CGS] 1,004
[TOTAL-COSTS] 1,968
[OTHER-EXPENSES] 829
[LOSS-PROVISION] 551
[INTEREST-EXPENSE] 685
[INCOME-PRETAX] (263)
[INCOME-TAX] 2
[INCOME-CONTINUING] 000
[DISCONTINUED] 000
[EXTRAORDINARY] 62
[CHANGES] 000
[NET-INCOME] (327)
[EPS-PRIMARY] (.090)
[EPS-DILUTED] (.090)
</TABLE>
