UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

~~[X]~~ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, ~~2001~~2002

~~[ ]~~o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period of ~~_________~~________ to ~~_________~~________

Commission File Number 1-14645

THOUSAND TRAILS, INC.

Delaware	75-2138671
(State or other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
2711 LBJ Freeway, Suite 200, Dallas, Texas	75234
(Address of Principal Executive Office)	(Zip Code)
Registrant’s Telephone Number, Including Area Code:		(972) 243-2228
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of exchange on which registered
Common Stock, par value $.01 per share	American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:	None

(Exact Name of Registrant as Specified in Its Charter)


Delaware		75-2138671

(State or other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
























3801 Parkwood Boulevard, Suite 100, Frisco, Texas		75034

(Address of Principal Executive Office)		(Zip Code)
























Registrant’s Telephone Number, Including Area Code:		(214) 618-7200

Securities registered pursuant to Section 12(b) of the Act:


		Name of exchange on
Title of each class		which registered

Common Stock, par value $.01 per share		American Stock Exchange












Securities registered pursuant to Section 12(g) of the Act:		None

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.

Yes ~~[X]~~ No [ ]o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ]o

At September 2126, ~~2001~~2002, the latest practicable date, the aggregate market value of voting common stock of the Registrant held by nonaffiliates was $1716.12 million.

At September 2126, ~~2001~~2002, there were 86,~~170~~923,~~390~~017 shares of Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III (Items 10-13) is incorporated by reference from the Registrant’s definitive Proxy Statement for the Registrant’s ~~2001~~2002 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission (the “SEC”) pursuant to Regulation 14A.

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TABLE OF CONTENTS

Part I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Shareholders
	Item 4. Submission of Matters to a Vote of Security Holders
Part II
	Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
		REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Shareholders’ Equity
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
		Schedule II - Valuation and Qualifying Accounts
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
Part IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EX 10.1 - Loan Agreement dated July 1, 2001
CERTIFICATIONS
EX-10.32 - Sample Form of Membership Contract
EX-10.26 Indemnification Agreement
EX-11.1 - Computation of Per Share Earnings
EX-10.28 Adoption Agreement dated July 1, 2002
EX-22.1 - Subsidiaries of the Registrant
EX-10.35 Sample of current Membership Contract
EX-23.1 - Consent of Arthur Andersen LLP
EX-11.1 Statement Re: Computation of Earnings
EX-23.1 Consent of Grant Thornton LLP

INDEX TO
ANNUAL REPORT ON FORM 10-K

		Page
Part I	~~Part I~~
Item 1.	Business	4
Item 2.	Properties	1311
Item 3.	Legal Proceedings	1715
Item 4.	Submission of Matters to a Vote of ~~Shareholders~~Security Holders	1715
Part II	~~Part II~~
Item 5.	Market for Registrant’s Common Equity and Related ~~Shareholder~~Stockholder Matters	1816
Item 6.	Selected Financial Data	2017
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2118
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	3633
Item 8.	Financial Statements and Supplementary Data	3734
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	6964
Part III	~~Part III~~
Item 10.	Directors and Executive Officers of the Registrant	7065
Item 11.	Executive Compensation	7065
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7065
Item 13.	Certain Relationships and Related Transactions	7065
	Part IV
Item 14.	Controls and Procedures	65
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	71
Part IV
Signatures		76
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	66
Signatures		72
Certifications		73

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Part I

Item 1. Business

OVERVIEW

~~General.~~ Thousand Trails, Inc., a Delaware corporation, and its subsidiaries (the “Company”) own and operate a system of 59 membership-based campgrounds ~~located~~ located in 17 states and British Columbia, Canada, serving ~~117~~112,000 members as of June 30, ~~2001~~2002. Through its subsidiaries, the Company also provides a reciprocal use program for members of approximately ~~300~~280 recreational facilities and manages 240 ~~241~~ public campgrounds for the United States ~~(“U.S”)~~ Forest Service. and other entities. The Company’s principal executive office is located at ~~2711~~3801 ~~LBJ~~Parkwood ~~Freeway~~Boulevard, Suite ~~200~~100, ~~Dallas~~PO Box 2529, ~~Texas~~Frisco, ~~75234~~Texas 75034; its telephone number is (~~972~~214) ~~243~~ 618-~~2228;~~7200, and its home page on the Internet is www.thousandtrails.com.

The Company entered the membership campground business in 1991 with the acquisition of 100% of the capital stock of National American Corporation, a Nevada corporation (collectively with its subsidiaries, “NACO”) and 69% of the capital stock of Thousand Trails, Inc., a Washington corporation (“Trails”). The Company subsequently increased its ownership in Trails to 100% and merged Trails into the Company. In December 1999, the Company acquired 100% of the capital stock of Leisure Time Resorts of America, Inc., a Washington corporation (“Leisure Time”). The Company and Leisure Time were incorporated in 1984, NACO was incorporated in 1967, and Trails was incorporated in 1969. ~~In 1996, the Company, then known as USTrails Inc., reincorporated in the state~~ ~~of Delaware and changed its name to Thousand Trails, Inc.~~

~~Current~~CAMPGROUND ~~Business Strategy. The Company’s current business strategy is to~~OPERATIONS ~~improve its campground operations and stabilize its campground membership base~~ through increased sales and marketing efforts and the acquisition of members through the purchase of other membership campground operations. The Company believes there is a viable market for campground memberships and that it has a significant opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds. The Company has also acquired members through the purchase of Leisure Time and believes it may be possible to acquire additional members through the purchase of other membership campground operations, many of whom are experiencing financial difficulties.

~~Over~~Campgrounds. ~~the~~The ~~past several years, the~~ Company’s ~~membership~~and ~~base~~its ~~has~~subsidiaries ~~been~~own ~~declining, although~~and ~~the~~operate ~~Company~~a ~~has~~network ~~been successful in slowing the rate~~ of ~~this decline.~~59 Inmembership-based ~~response to this attrition, the Company has downsized its business by closing and disposing of~~ campgrounds ~~and~~located ~~decreasing~~in ~~campground~~17 ~~operating~~states ~~costs~~ and ~~general~~British ~~and~~Columbia, ~~administrative expenses~~Canada. The Company ~~intends~~owns toand ~~continue~~operates ~~to keep~~a ~~the~~network ~~size~~ of ~~its~~32 ~~campground~~of ~~system~~these incampgrounds anunder ~~appropriate relation to~~ the ~~size~~ ofThousand ~~its~~Trails ~~membership base. In this regard~~logo, ifNACO ~~the~~owns ~~membership~~and ~~continues~~operates ~~to decline,~~a ornetwork ~~other opportunities arise consistent with the needs~~ of ~~the~~20 ~~members, the Company may close and dispose~~ of ~~additional~~ these campgrounds ~~and~~under ~~it will seek to decrease other expenses. At~~ the ~~same~~NACO ~~time~~logo, ~~the~~and ~~Company~~Leisure ~~has~~Time ~~expanded~~owns ~~its sales~~ and ~~marketing~~operates ~~efforts with~~ a ~~view to stopping the membership decline. The~~network ~~Company~~of ~~has~~7 ~~also~~of ~~acquired~~these ~~members~~campgrounds ~~through~~under the ~~purchase of~~ Leisure Time ~~and~~logo. ~~it intends~~The to59 ~~explore~~campgrounds contain ~~the~~a ~~possible~~total ~~acquisition~~ of ~~additional~~approximately ~~members~~9,900 ~~through~~acres ~~the purchase~~and of17,900 ~~other membership campground organizations~~campsites. ~~The Company believes~~ ~~that the ultimate size of its~~

Members using the campgrounds may bring their own recreational vehicles (“RVs”), tents or other sleeping equipment, rent travel trailers or cabins located at the campgrounds or visit for the day. As of June 30, 2002, there were 70,000 campground members in the Thousand Trails system, 29,000 campground members in the NACO system, and 13,000 campground members in the Leisure Time system. Approximately 44% of the NACO members and approximately 70% of the Thousand Trails members possess the right to use the campgrounds in both networks. Similarly, approximately 22% of the Leisure Time members possess the right to use the campgrounds in either the Thousand Trails or NACO system. The largest percentage of campground members resides in California (approximately 32%). Large numbers of campground members also reside in Washington and Oregon (approximately 27%), and Texas (approximately 10%).

Memberships provide the member’s family access to the Company’s network of campgrounds, but do not convey a deeded interest in the campgrounds with the exception of six campgrounds in which members received deeded undivided interests in the campground. A member also does

Page 4

~~campground~~not ~~system~~possess ~~and~~ the ~~amounts~~right ~~realized~~to ~~from~~use ~~future~~a specific ~~asset~~campsite, ~~sales~~trailer ~~will~~or ~~depend principally~~cabin, ~~upon~~or the ~~degree~~right to ~~which~~control ~~the~~further development ~~Company~~or ~~can~~operation ~~successfully~~of ~~implement this~~a ~~strategy~~campground.

~~CAMPGROUND~~In ~~OPERATIONS~~the six campgrounds in which members have received deeded undivided interests, the Company retains the entire fee interest in the common amenities, such as the lodge, recreational facilities and other buildings, and an undivided interest in the campsites to the extent the interest has not been sold to the members.

~~Campgrounds.~~Depending ~~The~~upon ~~Company~~member ~~and~~usage, ~~its~~the ~~subsidiaries~~campgrounds ~~own~~are ~~and~~open ~~operate~~year-round aor ~~network~~on ~~of 59~~a ~~membership-based~~seasonal ~~campgrounds located in 17 states and British Columbia, Canada~~basis. The ~~Company owns and operates a network of 32 of these~~ campgrounds ~~under~~feature ~~the Thousand~~campsites ~~Trails~~with ~~logo~~electrical, ~~NACO~~water ~~owns~~ and ~~operates a network of 20 of these~~, ~~campgrounds~~in ~~under~~some ~~the NACO logo~~cases, ~~and~~sewer ~~Leisure~~connections ~~Time~~for ~~owns~~RVs, restroom and ~~operates~~shower ~~a network~~facilities, ofrental 7trailers ofor ~~these~~cabins ~~campgrounds~~and ~~under~~other ~~the~~recreation ~~Leisure Time logo~~amenities. ~~The~~At 59each ~~campgrounds~~campground, ~~contain~~ a ~~total~~manager ofand ~~approximately~~staff 9provide security,~~900~~ ~~acres~~maintenance and ~~18,100~~recreational ~~campsites~~programs that vary by location.

~~Members~~The ~~using~~Company ~~the~~derives ~~campgrounds may bring their own recreational vehicles (“RVs”), tents or~~ other ~~sleeping~~campground ~~equipment,~~revenue ~~rent~~from ~~travel~~renting ~~trailers~~campsites orto ~~cabins~~members ~~located at the campgrounds or visit~~ for ~~the~~extended ~~day.~~vacations Asand offrom ~~June 30,~~renting ~~2001~~trailers, ~~there were~~cabins ~~approximately 70,000 campground members in the Thousand Trails system, 32,000 campground members in the NACO system,~~ and ~~15,000~~sports ~~campground members in~~equipment ~~the~~to ~~Leisure Time system~~members. ~~Approximately~~The ~~43%~~Company ofalso ~~the~~sells ~~NACO~~food ~~members~~ and ~~approximately~~ ~~65%~~other ofitems ~~the~~to ~~Thousand Trails~~ members ~~possess~~from convenience ~~the~~stores ~~right~~located toat ~~use~~ the ~~campgrounds~~ ~~in both networks. Similarly~~campgrounds, ~~approximately~~provides ~~19% of the Leisure Time~~ members ~~possess~~access ~~the right~~ to ~~use the campgrounds in either the Thousand Trails~~ orlaundry ~~NACO~~facilities ~~system.~~and ~~The~~game ~~largest~~machines ~~percentage~~and ofcharges ~~campground~~ members ~~reside~~a ~~in California~~fee ~~(approximately~~for ~~32%).~~storing ~~Large numbers of campground members also~~RVs ~~reside~~and inproviding ~~Washington,~~food ~~Oregon, and Texas~~service.

~~Memberships~~Existing ~~provide~~Membership. At June 30, 2002, the ~~member~~Company had 112,000 campground members. The majority of these members have been members for over 10 years. The Company’s ~~family~~membership ~~access~~base tohas declined over the past decade, although the Company’s ~~network~~has been successful in slowing the rate of this attrition. While the ~~campgrounds,~~acquisition ~~but~~of doLeisure ~~not~~Time ~~convey~~increased athe ~~deeded~~size ~~interest~~of inthe membership base, the Company ~~campgrounds~~expects ~~with~~that, notwithstanding new sales, the membership base will ~~exception~~continue to decline at the rate of ~~six~~approximately ~~campgrounds~~4% inper ~~which~~year. ~~members~~The ~~received~~Company attributes ~~deeded~~this ~~undivided~~attrition principally to its aging membership base, of whom ~~interests~~approximately in46% ~~the~~are ~~campground~~senior citizens. AMoreover, ~~member~~the ~~also~~Company ~~does~~estimates ~~not~~that the ~~possess~~memberships sold in recent fiscal years will have an expected life that is shorter than the ~~right~~expected tolife ~~use~~of athe memberships previously sold by the ~~specific~~Company. ~~campsite,~~To ~~trailer,~~stop orthe ~~cabin~~continuing decline in its membership base, the Company must increase its campground membership sales over current levels or acquire members through the ~~right~~purchase toof ~~control~~other ~~further~~membership campground organizations, such ~~development~~as orthe ~~operation~~acquisition of aLeisure ~~campground~~Time.

InMembership Sales. The Company’s membership sales declined significantly in the early ~~six~~1990’s ~~campgrounds~~when the Company decreased its sales and marketing efforts as a result of increasing marketing costs and other factors. Over the past several years, the Company has been rebuilding its sales and marketing organization with a view to stopping the decline in ~~which~~its ~~members~~membership ~~have~~base. ~~received~~In ~~deeded~~an ~~undivided~~effort to ~~interests~~improve its membership sales, the Company ~~retains~~has been working to increase the number ~~entire~~of ~~fee~~prospects ~~interest~~that inattend its sales presentations. In this regard, the Company ~~common~~entered ~~amenities~~into a joint marketing arrangement with Fleetwood Industries, ~~such~~Inc. as(“Fleetwood”), the ~~lodge~~largest manufacturer of RVs. Under the current marketing arrangement, ~~recreational~~purchasers ~~facilities~~of Fleetwood RVs are invited to visit one of the Company’s campgrounds for a three day/two night stay. Purchasers of new Fleetwood RVs accounted for approximately 7% of new sales in fiscal 2002, approximately ~~and~~12% ~~other~~of ~~buildings~~new sales in fiscal 2001, and an ~~undivided~~approximately ~~interest~~10% of new sales in ~~the~~fiscal ~~campsites~~2000. toThe ~~the~~Company ~~extent~~has entered into a similar marketing arrangement with a major RV insurance company. In addition, the ~~interest~~Company has ~~not~~entered ~~been~~into a marketing arrangement with a large RV dealer in ~~sold~~Florida, under which purchasers of RVs receive a temporary membership and are invited to visit one of the ~~members~~Company’s campgrounds. The Company has also entered into sales agreements with several other companies in an effort to increase sales.

Depending upon member usage, the campgrounds are open year-round or on a seasonal basis. The campgrounds feature campsites with electrical, water, and in some cases, sewer connections for RVs, restroom and shower facilities, rental trailers or cabins, and other recreation amenities. At each campground, a manager and staff provide security, maintenance, and recreational programs that vary by location.

The Company derives other campground revenue from renting campsites to members for extended vacations and from renting trailers, cabins, and sports equipment to members. The Company also sells food and other items to members from convenience stores located at the campgrounds, provides members access to laundry facilities and game machines, and charges members a fee for storing RVs and providing food service.

Existing Membership. At June 30, 2001, the Company had 117,000 campground members. The majority of these members have been members for over 10 years. The Company’s membership

Page 5

~~base~~The ~~has~~Company’s ~~declined~~current ~~over~~membership ~~the~~products ~~past~~offer ~~five~~the ~~fiscal~~consumer ~~years,~~a ~~although~~choice ~~the~~of membership ~~Company~~options ~~has been~~that ~~successful~~depend inprincipally ~~slowing~~on the ~~rate~~number of ~~this~~campgrounds ~~attrition. While~~ the ~~acquisition~~ ofpurchaser ~~Leisure~~is ~~Time~~able ~~increased~~to ~~the~~use. ~~size~~The ofaverage ~~the~~ membership ~~base,~~sales ~~the~~price ~~Company~~was ~~expects that~~$3,342 ~~notwithstanding~~in fiscal ~~new~~2002, ~~sales~~$2,815 ~~the~~in ~~membership~~fiscal ~~base~~2001 ~~will~~and ~~continue~~$2,435 toin ~~decline~~fiscal 2000. The Company atrequires ~~the~~a ~~rate~~down payment of ~~approximately~~at 2%least ~~per~~$495 ~~year.~~and ~~The~~will ~~Company~~finance ~~attributes~~the ~~this~~balance for ~~attrition~~periods ~~principally~~of up to ~~its~~48 months. ~~aging~~In ~~membership~~addition ~~base,~~to ofthe ~~whom~~sales ~~approximately~~price, ~~50%~~the memberships ~~are~~require ~~senior~~payment ~~citizens.~~of ~~Moreover~~annual dues, ~~the~~which ~~Company~~for ~~estimates~~fiscal ~~that~~2002 ~~the~~averaged ~~memberships~~$400 ~~sold~~on new insales. ~~recent~~In fiscal ~~years~~2002 ~~will~~and ~~have~~2001, anthe ~~expected~~Company ~~life~~originated ~~that~~3,900 isnew ~~shorter than the~~membership ~~expected~~contracts, ~~life~~compared ofwith ~~the~~3,600 ~~memberships~~new ~~previously~~membership ~~sold~~contracts byin ~~the~~fiscal ~~Company~~2000. ToIn fiscal ~~stop~~2002, the ~~continuing~~ ~~decline~~Company inalso ~~its~~originated 1,100 new membership ~~base~~contracts through sales agreements with other companies, ~~the~~compared ~~Company~~with ~~must~~700 ~~increase~~and ~~its~~100 contracts in ~~campground~~fiscal ~~membership~~2001 ~~sales~~and ~~over~~2000, ~~current~~respectively. ~~levels~~The oraverage ~~acquire~~sales ~~members~~price ~~through~~was ~~the purchase~~$357 ofin ~~other~~fiscal 2002, ~~membership~~$408 ~~campground~~in ~~organizations,~~fiscal ~~such~~2001 asand ~~the~~$295 ~~acquisition of~~in ~~Leisure~~fiscal ~~Time~~2000.

~~Membership~~In ~~Sales.~~addition ~~The~~to ~~Company’s~~the ~~membership~~sale ~~sales~~of ~~declined~~new ~~significantly~~memberships indiscussed ~~the early~~above, ~~1990’s~~since ~~when~~fiscal 2000, the Company ~~decreased~~has ~~its~~also ~~sales~~marketed ~~and~~membership ~~marketing~~upgrades ~~efforts~~to asits aexisting members, ~~result~~which ofhas ~~increasing~~provided ~~marketing~~a ~~costs~~short-term ~~and~~increase ~~other~~in ~~factors.~~membership ~~Over~~sales ~~the~~revenues. ~~past five~~In ~~years~~fiscal 2002, the Company ~~has~~originated ~~been~~contracts ~~rebuilding~~totaling ~~its~~$12.9 million ~~sales~~in membership ~~and~~upgrades, ~~marketing~~compared ~~organization~~ with a$9.0 million ~~view~~and to$5.1 million ~~stopping the decline~~ in ~~its~~fiscal ~~membership~~2001 and ~~base~~2000, respectively. In anfiscal ~~effort~~2002, ~~to improve~~the ~~its~~Company originated 4,300 membership ~~sales~~upgrades, ~~the~~compared ~~Company~~with ~~has~~3,000 ~~been~~and ~~working~~1,700 tomembership ~~increase~~upgrades ~~the~~in ~~number~~fiscal of2001 ~~prospects~~and ~~that~~2000, ~~attend its sales presentations~~respectively. InThe ~~this~~average ~~regard,~~price of the membership ~~Company~~upgrade ~~entered~~was ~~into~~$2,995 ain ~~joint~~all ~~marketing~~three ~~arrangement~~years. ~~with~~During ~~Fleetwood~~fiscal ~~Industries~~2001, ~~Inc.~~ ~~(“Fleetwood”),~~ the ~~largest~~Company ~~manufacturer~~also began ofoffering ~~RVs.~~existing ~~Under~~Thousand ~~this~~Trails ~~marketing arrangement,~~and ~~purchasers~~NACO ofmembers ~~Fleetwood~~access ~~RVs~~to ~~receive~~Leisure aTime campgrounds ~~temporary~~for ~~membership~~a ~~and~~fee. ~~are invited~~In tofiscal ~~visit~~2002, ~~one of~~ the Company’s ~~campgrounds.~~originated ~~Purchasers~~700 ofcontracts ~~new Fleetwood~~at ~~RVs~~an ~~accounted~~average ~~for~~price ~~approximately~~of ~~12%~~$244, ofcompared ~~sales~~with in6,800 ~~fiscal~~contracts ~~2001~~at ~~and~~an ~~approximately 10%~~average price of $235 ~~sales~~ in fiscal ~~2000~~2001. ~~and~~During ~~1999.~~the ~~The~~last ~~Company~~quarter ~~has~~of ~~entered~~fiscal ~~into~~2001, athe ~~similar~~Company began ~~marketing~~offering ~~arrangement~~existing ~~with~~Leisure aTime ~~major~~members RVaccess ~~insurance~~to ~~company~~Thousand Trails and NACO campgrounds for a ~~large~~fee, RVwhich ~~dealer~~ resulted in ~~Florida~~2,000 ~~and~~contracts itat ~~plans~~an toaverage ~~seek~~price ~~other~~of $337 ~~similar~~in ~~alliances.~~fiscal ~~The~~2002, ~~Company~~and ~~has~~300 ~~also entered~~contracts ~~into~~at ~~reciprocal~~an ~~sales~~average ~~agreements~~price ~~with~~of ~~several~~$1,999 ~~other companies~~ in anfiscal ~~effort to increase sales~~2001.

The Company’s ~~current~~has ~~membership products offer~~ the ~~consumer~~capacity ~~a choice of membership options that depend principally on the number of campgrounds the purchaser is able~~ to ~~use.~~sell ~~Membership~~approximately ~~sales prices range from $3~~67,~~995~~000 toadditional ~~$6,995.~~new ~~The~~campground ~~Company currently requires a down payment of at least $495 and will finance the balance for periods of up to 48 months. In addition to the sales price, the~~ memberships ~~require payment of annual dues, which averaged $378 on new sales~~ in ~~fiscal~~the ~~2001. During fiscal 2001~~future, ~~2000~~assuming ~~and 1999,~~ the ~~Company~~sale ~~sold approximately~~of ~~4,500,~~ten ~~3,700, and 4,200 new~~ memberships, ~~respectively. The~~for ~~average~~each ~~sales~~existing ~~price was $2,549 in fiscal 2001, $2,298 in fiscal 2000, and $1,254 in fiscal 1999~~campsite. ~~During fiscal 2001, approximately 400 of the new~~ ~~membership contracts resulted from the reciprocal sales agreements discussed~~ ~~above, compared with approximately 125 contracts in fiscal 2000.~~

In addition to the sale of new memberships discussed above, since fiscal 2000, the Company has also marketed membership upgrades to its existing members, which has provided a short-term increase in membership sales revenues. In fiscal 2001, the Company sold approximately 800 membership upgrades to existing members of Leisure Time at an average price of $2,995, compared with approximately 1,700 upgrades at an average price of $2,895 during fiscal 2000. During fiscal 2001, the Company began marketing similar membership upgrades to the existing members of Thousand Trails and NACO and sold approximately 2,200 upgrades at an average price of $2,995. During fiscal 2001, the Company also began offering existing Thousand Trails and NACO members access to Leisure Time campgrounds for a fee, which resulted in approximately 6,800 contracts at an average price of $235. During the last quarter of fiscal 2001, the Company began offering existing Leisure Time members access to Thousand Trails and NACO campgrounds for a fee, which resulted in approximately 300 contracts at an average price of $1,999.

Page 6

The Company has the capacity to sell approximately 64,000 additional new campground memberships in the future, assuming the sale of ten memberships for each existing campsite. Further downsizing of the Company’s business would reduce this capacity.

Most memberships are transferable with payment of a transfer fee to the Company. The membership contracts, however, prohibit the sale of a membership for a profit.

Marketing. The Company believes that camping is a popular and growing activity in the United States. The Company believes this is reflected in sales of RVs and camping equipment as well as campground use. Moreover, the Company believes the aging of the baby boomers will have a positive effect on sales of RVs and camping equipment, and lead to more family camping.

While most campers use national or state parks, the Company believes it has a significant opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds. The Company believes that many campers are “amenity” campers, whose needs match the benefits provided by the Company’s campgrounds, such as pools, lodges, sport courts, and recreational activities. The Company believes that the needs of amenity campers are not being met by ~~underfunded~~under-funded national and state campgrounds. In addition, the Company believes that it can differentiate its campgrounds and services from other campgrounds by emphasizing the quality of its facilities and the benefits and services available at its campgrounds.

~~Dues.~~Page ~~The Company’s campground members, including members who own a deeded~~6 ~~undivided interest in a campground, pay annual dues ranging generally from $50~~ ~~to $800. The annual dues collected from campground members constitute general~~ revenue of the Company. The Company uses the dues to fund its operating expenses, including corporate expenses and the maintenance and operation of the campgrounds. However, the membership agreements do not require the Company to use the dues for any specific purpose.

TheTable average annual dues paid by the Company’s campground members were $360 for fiscal 2001, $355 for fiscal 2000, and $357 for fiscal 1999. The increase in average annual dues paid in fiscal 2001 resulted primarily from the annual increase in dues implemented by the Company in accordance with the terms of the membership agreements. In addition, the Company’s new members generally pay annual dues at a higher level than the older members retiring from the system. The decrease in average annual dues in fiscal 2000 resulted primarily from the acquisition of Leisure Time’s members who paid lower average annual dues than the Company’s other members. Contents

Dues. The ~~membership agreements generally permit the~~ Company ~~to increase annually the amount of each member~~’s ~~dues~~campground bymembers, ~~either~~including ~~(i) the~~members ~~percentage~~who ~~increase~~own ina ~~the~~deeded ~~consumer~~undivided ~~price~~interest ~~index~~in ~~(“CPI”)~~a orcampground, ~~(ii) the~~pay ~~greater~~annual ofdues ~~10%~~ranging orgenerally ~~the percentage~~from ~~increase~~approximately in$50 ~~the~~to ~~CPI~~$800. The ~~Company,~~annual ~~however, may not increase the~~ dues ~~on existing~~collected ~~contracts~~from ofcampground ~~senior citizens and disabled~~ members constitute ~~who~~general ~~notify~~revenue ~~the Company~~ of ~~their~~the ~~age~~Company. orThe ~~disability~~Company ~~and~~uses ~~request~~the ~~that their~~ dues beto ~~frozen. At~~fund ~~the~~its ~~present~~operating ~~time~~expenses, ~~approximately~~including ~~37%~~corporate ofexpenses and the ~~members~~maintenance ~~have requested that their~~and ~~dues~~operation ~~be frozen because~~ of ~~their~~the ~~age or disability~~campgrounds. ~~The~~However, ~~Company estimates that approximately 50% of~~ the ~~campground~~membership ~~members~~agreements ~~are~~do ~~senior citizens eligible to~~not ~~request~~require ~~that~~the ~~their dues be frozen. The~~ Company ~~is unable~~ to ~~estimate when~~use orthe ~~if a significant number of these members will request that their~~ dues be ~~frozen~~for inany ~~the~~specific ~~future~~purpose.

The average annual dues paid by the Company’s campground members were $369 for fiscal 2002, $360 for fiscal 2001 and $355 for fiscal 2000. The increase in average annual dues resulted primarily from the annual increase in dues implemented by the Company in accordance with the terms of the membership agreements. In addition, the Company’s new members generally pay annual dues at a higher level than the older members retiring from the system.

The membership agreements generally permit the Company to increase annually the amount of each member’s dues by either (i) the percentage increase in the consumer price index (“CPI”) or (ii) the greater of 10% or the percentage increase in the CPI. The Company, however, may not increase the dues on existing contracts of senior citizens and disabled members who notify the Company of their age or disability and request that their dues be frozen. At the present time, approximately 36% of the members have requested that their dues be frozen because of their age or disability. The Company estimates that approximately 46% of the campground members are senior citizens eligible to request that their dues be frozen. The Company is unable to estimate when or if a significant number of these members will request that their dues be frozen in the future.

Maintenance and Improvements. The Company makes annual capital and maintenance expenditures to maintain and improve the campgrounds. During fiscal 2002, the Company spent $5.7 million on major maintenance, repairs and capital improvements at the campgrounds and anticipates that it will spend an additional $5.2 million on such items in fiscal 2003. The Company may be required to spend greater amounts on such items in future years as the facilities age.

In addition to capital improvements at the campgrounds, during fiscal 2002, the Company spent approximately $3.6 million to upgrade its computer, communication and reservation systems. The Company anticipates spending an additional $1.5 million in fiscal 2003 to complete these improvements.

Resort Parks International. Members whose membership includes use of a Leisure Time or NACO campground may join a reciprocal program operated by Resort Parks International, Inc. (“RPI”), a wholly owned subsidiary of the Company. The RPI program offers members reciprocal use of approximately 280 participating recreational facilities. Members of these participating facilities pay a fee to RPI that entitles them to use any of the participating facilities, subject to the limitation that they cannot use an RPI facility located within 125 miles of their home facility. As of June 30, 2002, there were approximately 64,000 RPI members, of which approximately 42,000 were members of campgrounds not affiliated with the Company.

Campground Management. Thousand Trails Management Services, Inc. (“Trails Management”), a wholly owned subsidiary of the Company, manages 240 public campgrounds for the United States Forest Service and other entities containing a total of approximately 6,100 campsites. Pursuant to its management contracts, Trails Management incurs the expenses of

Page 7

~~Maintenance~~operating ~~and~~the ~~Improvements. The Company makes annual capital and maintenance~~campgrounds ~~expenditures to maintain~~ and ~~improve~~receives the ~~campgrounds.~~related ~~During fiscal 2001~~revenues, ~~the Company~~net ~~spent~~of ~~$6.0 million~~a onfee ~~major~~paid ~~maintenance,~~to ~~repairs, and capital improvements at~~ the ~~campgrounds and anticipates that it will spend an additional $5~~U.~~9 million on such items in fiscal 2002~~S. ~~The~~Forest ~~Company may be~~Service ~~required~~or toother ~~spend~~entity. ~~greater~~These ~~amounts~~management oncontracts ~~such~~typically ~~items~~have infive-year ~~future years as the facilities age~~terms.

In addition to the planned expenditures at the campgrounds, during fiscal 2002, the Company intends to spend approximately $2.0 million to upgrade its computer system.

Resort Parks International. Members whose membership includes use of a Leisure Time or NACO campground may join a reciprocal program operated by Resort Parks International, Inc. (“RPI”), a wholly owned subsidiary of the Company. The RPI program offers members reciprocal use of approximately 300 participating recreational facilities. Members of these participating facilities pay a fee to RPI that entitles them to use any of the participating facilities, subject to the limitation that they cannot use an RPI facility located within 125 miles of their home facility. As of June 30, 2001, there were approximately 62,000 RPI members, of which approximately 43,000 were members of campgrounds not affiliated with the Company.

Campground Management. Thousand Trails Management Services, Inc. (“Trails Management”), a wholly owned subsidiary of the Company, manages 241 public campgrounds for the U.S. Forest Service and other entities containing a total of approximately 6,100 campsites. Pursuant to its management contracts, Trails Management incurs the expenses of operating the campgrounds and receives the related revenues, net of a fee paid to the U.S. Forest Service or other entity. These management contracts typically have five-year terms.

SEGMENT FINANCIAL INFORMATION

Segment financial information for the campground, reciprocal use and campground management operations is set forth in Note 1716 to the consolidated financial statements included in Item 8.

ASSET SALES

During fiscal ~~2001~~2002, ~~2000,~~2001 and ~~1999~~2000, the Company sold certain of its real estate assets and received proceeds of $1.76 million, $~~74,000,~~1.7 million and $~~2.2 million~~74,000, respectively. In each of fiscal 2002 and 2001, the ~~Company~~primary asset sold ~~one~~was a campground ~~for~~not ~~proceeds~~related ~~of $1.4 million,~~to ~~and in fiscal 1999,~~ the Company’s ~~sold~~current acampground ~~large tract of undeveloped land for proceeds of $2~~operations.~~0 million.~~ Over the next several years, the Company intends to dispose of the remaining assets that it holds for sale, the campgrounds that were closed following the acquisition of Leisure Time, any campgrounds that are closed in the future ~~if the Company downsizes~~ and ~~other~~ other undeveloped, excess acreage associated with the campgrounds. The sale of campgrounds requires addressing the rights of members associated with such campgrounds. The impact of these rights is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales. In addition, although the Company has successfully sold assets during the past several years, no assurance exists that the Company will be able to locate a buyer for any of the remaining assets or that sales on acceptable terms can be effected.

CONTRACTS RECEIVABLE

The Company sells campground memberships on the installment basis creating contracts receivable. Interest accrues on the unpaid balance of the contracts receivable at fixed rates, which vary depending upon the size of the down payment and the length of the contract. The contracts receivable bear interest at rates ranging generally from 5% to 19.5%, with a weighted average stated interest rate of 14% as of June 30, 2002. Monthly installment payments range generally from $49 to $156 over the term of the contracts receivable, which can be up to 48 months. As of June 30, 2002, the Company’s portfolio of contracts receivable had an aggregate principal balance of $11.8 million and an average remaining term of 31 months.

The Company’s portfolio of contracts receivable increased by $1.9 million in fiscal 2002 and $2.2 million in fiscal 2001 due primarily to an increase in the number of financed sales, and by $4.3 million in fiscal 2000 due primarily to the acquisition of Leisure Time. During fiscal 2002 and 2001, the Company financed the sale of approximately 32% and 33%, respectively, of new campground memberships. The portfolio of contracts receivable may grow in the future if sales volume continues to increase and new members elect to finance their purchase; otherwise, the portfolio of contracts receivable will decline as collections are made.

At June 30, 2002, 95% of the campground members had paid for their memberships in full, compared with 96% at June 30, 2001.

Page 8

CONTRACTS RECEIVABLE

The Company sells campground memberships on the installment basis creating contracts receivable. Interest accrues on the unpaid balance of the contracts receivable at fixed rates, which vary depending upon the size of the down payment and the length of the contract. The contracts receivable bear interest at rates ranging generally from 5.5% to 19.5%, with a weighted average stated interest rate of 14% as of June 30, 2001. Monthly installment payments range generally from $20 to $243 over the term of the contracts receivable, which can be up to ten years. The terms of the newer contracts receivable, however, have averaged three years or less. As of June 30, 2001, the Company’s portfolio of contracts receivable had an aggregate principal balance of $9.9 million and an average remaining term of 35 months.

After declining for several years, the Company’s portfolio of contracts receivable increased by $2.2 million in fiscal 2001 due primarily to an increase in the number of financed sales, and by $4.3 million in fiscal 2000 due primarily to the acquisition of Leisure Time. During fiscal 2001 and 2000, the Company financed the sale of approximately 33% and 35%, respectively, of new campground memberships. The portfolio of contracts receivable may grow in the future if sales volume continues to increase and new members elect to finance their purchase; otherwise, the portfolio of contracts receivable will decline as collections are made.

At June 30, 2001, 96% of the campground members had paid for their memberships in full, compared with 97% at June 30, 2000.

SEASONALITY

The Company experiences its most significant demand for working capital between May and October of each year, which coincides with the highest level of operating expenses. During the summer, operating expenses increase significantly because the peak usage of the campgrounds requires seasonal workers and increased maintenance and operating expenses. In addition, the majority of the Company’s sales and marketing efforts occur during the spring and summer. On the other hand, most dues collection activity for campground members occurs during the months of November through April, which is a period of relatively lower expenses.

GOVERNMENT REGULATION

To operate its campgrounds, the Company must comply with zoning ordinances, master plans for shoreline use and environmental statutes. The Company has complied in all material respects with the discretionary permits and approvals regulating its existing operations.

In addition, to construct improvements at its campgrounds, the Company has usually been required to obtain permits that are typically non-discretionary and routinely issued such as building and sanitary sewage permits. The Company has generally resolved problems concerning the issuance of such permits through design, operating or engineering solutions negotiated with local government officials.

The Company’s campgrounds are also subject to a variety of federal and state environmental statutes and regulations. Environmental issues may exist at some of the campgrounds concerning underground storage tanks, sewage treatment plants and septic systems, and waste disposal. Management believes that these issues will not have a material adverse impact on the Company’s operations or financial position, as the Company has conducted environmental testing to identify and correct a number of these problems, and has removed substantially all underground storage tanks. The Company does not possess insurance or indemnification agreements with respect to any environmental liability that it may incur.

Most of the states in which the Company does business have laws regulating campground membership sales. These laws generally require comprehensive disclosure to prospective purchasers, and give purchasers the right to rescind their purchase for three-to-five days after the date of sale. Some states have laws requiring the Company to register with a state agency and obtain a permit to market. The Company is subject to changes, from time to time, in the application or interpretation of such laws that can affect its business or the rights of its members.

In some states, including California, Oregon and Washington, laws place limitations on the ability of the owner of a campground to close the campground unless the members at the campground receive access to a comparable campground. In these states, members from campgrounds that have been closed by the Company were reassigned to other campgrounds located in the same general area as the closed campgrounds. The impact of the rights of members under these laws is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales.

The government authorities regulating the Company’s activities have broad discretionary power to enforce and interpret the statutes and regulations that they administer, including the power to

Page 9

~~disposal.~~enjoin ~~Management~~or ~~believes~~suspend ~~that~~sales ~~these~~activities, require ~~issues~~or ~~will~~restrict ~~not~~construction ~~have~~of aadditional ~~material adverse~~facilities ~~impact~~and onrevoke ~~the~~licenses and ~~Company’s~~permits ~~operations~~relating orto ~~financial~~business ~~position,~~activities. asThe ~~the~~ Company ~~has~~monitors ~~conducted~~its ~~environmental~~sales and ~~testing~~marketing toprograms ~~identify~~ and ~~correct~~debt acollection ~~number~~activities ~~of these~~to ~~problems,~~control ~~and~~practices ~~has~~that might ~~removed~~violate ~~substantially~~consumer ~~all~~protection ~~underground~~laws ~~storage~~and ~~tanks. The~~regulations ~~Company~~or ~~does~~give ~~not~~rise ~~possess~~to ~~insurance~~consumer complaints. orThe ~~indemnification~~Company ~~agreements~~believes ~~with respect~~that toit ~~any~~has ~~environmental~~complied ~~liability~~in ~~that~~all itmaterial ~~may~~respects with ~~incur~~these laws.

In some states, including California, Oregon and Washington, laws place limitations on the ability of the owner of a campground to close the campground unless the members at the campground receive access to a comparable campground. In these states, members from campgrounds that have been closed by the Company were reassigned to other campgrounds located in the same general area as the closed campgrounds. The impact of the rights of members under these laws is uncertain and could adversely affect the implementation of, and the benefits or recoveries that may be available from, additional downsizing of the Company’s business.

The government authorities regulating the Company’s activities have broad discretionary power to enforce and interpret the statutes and regulations that they administer, including the power to enjoin or suspend sales activities, require or restrict construction of additional facilities and revoke licenses and permits relating to business activities. The Company monitors its sales and marketing programs and debt collection activities to control practices that might violate consumer protection laws and regulations or give rise to consumer complaints. The Company believes that it has conducted its sales and marketing programs and debt collection activities in substantial compliance with all applicable federal and state laws and regulations.

Certain consumer rights and defenses that vary from jurisdiction to jurisdiction may affect the Company’s portfolio of contracts receivable. Examples of such laws include state and federal consumer credit and truth-in-lending laws requiring the disclosure of finance charges, and usury and retail installment sales laws regulating permissible finance charges. The Company believes that it has complied in all material respects with these laws.

In certain states, as a result of government regulations and provisions in certain of the membership agreements, the Company is prohibited from selling more than 10 memberships per campsite. At the present time, these restrictions do not preclude the Company from selling memberships in any state. However, these restrictions may limit the Company’s ability to downsize by closing campgrounds and reassigning members to other campgrounds. In addition, membership agreements or understandings, or governmental interpretations thereof, may limit the Company’s ability to expand or modify the type of business activities conducted at the campgrounds.

In a decision to which the Company was not a party, the Mississippi Supreme Court ruled that the Mississippi Timeshare Rules apply to the sale of campground memberships in Mississippi. The Company has discussed the ramifications of these rules with the Mississippi state agency responsible for the administration of these rules. The Company does not believe that the agency

Page 10

will require the Company to rescind any sales of campground memberships because of the decision; however, the agency has the power to do so. The Company has sold $15.9 million of campground memberships in Mississippi.

COMPETITION

Based on an internally conducted analysis, the Company estimates that there are approximately 15,000 privately owned campgrounds in the United States today, of which approximately 500 are membership campgrounds. The balance of the campgrounds are generally open to the public and usually charge fees based on the length of stay. The 500 membership campgrounds have approximately 400,000 members, of which ~~117~~112,000 are the Company’s members. This information was derived from a review of publicly available directories of campgrounds, including those of the Company’s competitors. During this analysis, the Company identified duplicative directory entries and compiled an estimate of the total number of campgrounds and members.

Several companies compete directly with the Company’s campground operations. For example, Resorts USA, Inc., which does business as Outdoor World, sells memberships to its system of 14 campgrounds, Travel America, Inc. sells memberships to its system of 38 campgrounds and Western Horizons RV Resorts, Inc. sells memberships to its system of 18 campgrounds. Other companies or individuals operate the balance of the membership campgrounds. The Company’s direct competitors generally offer their members reciprocal use of other campgrounds through affiliations, such as RPI, or Coast to Coast Resorts. ~~Over~~or ~~the~~Resorts ~~past several years, many~~ of ~~the~~ ~~Company’s direct competitors have experienced financial difficulties, and several have filed for bankruptcy~~Distinction.

The vast majority of the campgrounds in the United States are operated for the public by federal, state and local governments. Although these public campgrounds are used by most campers, in recent years, many of the public campgrounds have experienced overcrowding and increased user fees. The Company’s campgrounds also compete indirectly with timeshare resorts and other types of recreational land developments that do not involve camping.

The Company’s campground operations compete on the basis of location and the quality of facilities and services offered at the campgrounds. The Company believes it has a significant ~~opportunity to compete for campers interested in~~ ~~higher quality facilities and higher level of service than is typically~~ ~~available at public campgrounds or competing private campgrounds. (see “Marketing”).~~

~~Trails~~Page ~~Management competes directly with approximately five other companies in~~10 ~~bidding for contracts to manage public campgrounds for the U.S. Forest Service~~ ~~and other entities. Trails Management currently has contracts to manage 241 of~~ ~~the approximately 3,000 campgrounds operated for the U.S. Forest Service and other entities by private companies.~~

RPI’s primary competitors are Coast to Coast Resorts and Resorts of Distinction. Coast to Coast Resorts, the largest reciprocal use system, has approximately 360 affiliated campgrounds and more than 178,000 members. Resorts of Distinction, a reciprocal use system owned by its affiliated campgrounds, has approximately 50 affiliated campgrounds and 25,000 members. Both RPI and Coast to Coast Resorts operate vacation clubs offering travel and lodging discounts and services to their members.

Page 11

opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds (see “Marketing”).

Trails Management competes directly with approximately five other companies in bidding for contracts to manage public campgrounds for the U.S. Forest Service and other entities. Trails Management currently has contracts to manage 240 of the approximately 3,000 campgrounds operated for the U.S. Forest Service and other entities by private companies. The contracts are awarded through a public bidding process, and the successful bidder is generally selected on the basis of price and past performance on other contracts.

RPI’s primary competitors are Coast to Coast Resorts and Resorts of Distinction. Coast to Coast Resorts, the largest reciprocal use system, has approximately 360 affiliated campgrounds and approximately 178,000 members. Resorts of Distinction, a reciprocal use system owned by its affiliated campgrounds, has approximately 50 affiliated campgrounds and approximately 25,000 members. Both RPI and Coast to Coast Resorts operate vacation clubs offering travel and lodging discounts and services to their members. RPI competes for affiliated campgrounds and members on the basis of the number, location and quality of the campgrounds in its reciprocal system.

EMPLOYEES

As of June 30, ~~2001~~2002, the Company had ~~860~~852 full-time employees, ~~135~~179 part-time employees and 1,~~400~~362 seasonal employees. Due to the seasonal nature of the Company’s business, the Company has a greater number of employees during the summer months. The Company does not have any collective bargaining agreements with its employees and considers its relations with employees to be satisfactory.

Item 2. Properties

Offices. The Company leases office space at 3801 Parkwood Boulevard, Suite 100, Frisco, Texas 75034. NACO leases office space at 2325 Highway 90, Gautier, Mississippi 39553. RPI leases office space at 2901 Cherry Avenue, Signal Hill, California 90755.

Campgrounds. The Company currently operates 59 campgrounds in 17 states and British Columbia, Canada. The locations of these campgrounds are shown on the map on page 12. The amenities presently available at each campground are listed on the chart beginning on page 13. The Company owns 58 of these campgrounds and leases the LaConner campground and portions of the Lake Tawakoni and Snowflower campgrounds. The Company owns the campgrounds free and clear of any monetary liens or encumbrances. The Company has sold undivided interests to members at six of the campgrounds. Of the 59 campgrounds, 36 operate all year, 11 operate year-round but provide only limited services during the off-season, and 11 operate seasonally only. One campground is temporarily closed due to flood damage.

Page 11

Thousand Trails, Inc.

CAMPGROUND RESORTS

(Map>

w Thousand Trails

« NACO

© Leisure Time


British Columbia	California	Texas	North Carolina

w Cultus Lake	w Lake of the Springs	w Medina Lake	w Forest Lake




	w Morgan Hill	w Lake Conroe




Washington	w San Benito	w Colorado River	New Jersey

w LaConner	w Soledad Canyon	w Lake Whitney	« Chestnut Lakes




w Mount Vernon	w Idyllwild	w Lake Texoma




w Chehalis	w Pio Pico	w Lake Tawakoni	Mississippi

w Leavenworth	w Oakzanita Springs	« Bay Landing*	« Indian Point




« Birch Bay	w Palm Springs




« Little Diamond	« Lake Minden	Michigan	South Carolina

« Long Beach	« Russian River	w Saint Clair	« Carolina Landing*




© Thunderbird	« Snowflower




© Cascade	« Turtle Beach	Indiana	Tennessee

© Oceana	« Yosemite Lakes	w Horseshoe Lakes	« Natchez Trace*




© Crescent Bar	« Windsor	« Indian Lakes*	« Cherokee Landing*




© Paradise	« Rancho Oso




	« Wilderness Lakes	Ohio	Virginia

Oregon		w Wilmington	wLynchburg
w Bend	Nevada	w Kenissee Lake	w Chesapeake Bay

w Pacific City	w Las Vegas		« Virginia Landing*




« South Jetty		Pennsylvania

© Seaside	Arizona	w Hershey	Florida

© Whaler’s Rest	w Verde Valley		w Orlando

Some members of these six campgrounds own a deeded, undivided interest in campsites at their campground.

Page 12

Item 2. Properties


*Campground*
*Facilities and*									*Family Center/*
*Amenities*	*Acreage*		*RV Sites*		*Tent Sites*		*Adult Lodge*		*Pavilion*		*Pool*		*Tennis Court*		*Athletic Court*		*Vehicle Storage*

*Thousand Trails*




Bend		93		300		10		1		1		2		2		1		1




Chehalis		306		278				1		1		2		2		2		1




Chesapeake Bay		280		373		19		1		1		2		1		1		1




Colorado River		217		128				1		1		1		1		5		1




Cultus Lake		14		185		12		1		1		1		2		2		1




Forest Lake		305		294		12		1		1		2		2		1		1




Hershey		196		301				1		1		1		1		1		1




Horseshoe Lakes		202		118						1		1		2		1		1




Idyllwild		181		287		38		1		1		1				3		1




Kenisee Lake		179		110		18				1		1				1		1




LaConner		106		313				1		1						2		1




Lake Conroe		130		353				1		1		1		2		2		2




Lake Of The Springs		176		541		12		1		1		1		1		2		1




Lake Tawakoni		300		318		1		1		1		2				1		1




Lake Texoma		198		264		2		1		1		2				2		2




Lake Whitney		253		244		3		1		1		2		1		1		1




Las Vegas		11		217		2				1		1				2		1




Leavenworth		279		275				1		1		1		4		2		1




Lynchburg		150		223				1		1		1		2		6		1




Medina Lake		260		387				1		1		1				1		1




Morgan Hill		62		317		28		1		1		1		1		1		1




Mount Vernon		185		248		3		1		1		1				1		1




Oakzanita Springs		118		121		30		1		1		1				1		1




Orlando		269		697				1		1		2		2				1




Pacific City		105		305		1		1		1		1				2		1




Palm Springs		28		392				1		1		1				1		1




Pio Pico		182		453		12		1		1		2				5		3




San Benito		200		517		51		1		1		2				1		1




Soledad Canyon		230		809		9		1		1		2		2		3		1




Saint Clair		110		110		8		1		1		1						1




Verde Valley		300		333		6				2		1				1		2




Wilmington		109		125				1		1		1		1		2		1

~~Offices.~~[Additional ~~The~~columns ~~Company leases office space at 2711 LBJ Freeway, Suite 200,~~below] ~~Dallas, Texas 75234. NACO leases office space at 2325 Highway 90, Gautier, Mississippi 39553. RPI leases office space at 3711 Long Beach Blvd., Suite 110, Long Beach, California 90807.~~

~~Campgrounds.~~[Continued ~~The~~from ~~Company~~above ~~currently operates 59 campgrounds in 17 states and British Columbia~~table, ~~Canada.~~first ~~The~~column(s) ~~locations of these campgrounds are shown on the~~repeated] ~~map on page 14. The amenities presently available at each campground are~~ ~~listed on the chart beginning on page 15. The Company owns 58 of these~~ campgrounds and leases the LaConner campground and portions of the Lake Tawakoni and Snowflower campgrounds. The Company owns the campgrounds free and clear of any monetary liens or encumbrances. The Company has sold undivided interests to members at six of the campgrounds. Of the 59 campgrounds, 36 operate all year, 11 operate year-round but provide only limited services during the off-season, and 11 operate seasonally only. One campground is temporarily closed due to flood damage.

Other. The Company owns various parcels of undeveloped real estate (not related to its campground operations) that it intends to sell over time.


*Campground*
*Facilities and*	*Restrooms/*		*Trailers (Seasonal*										*Boat Launch/*				*Cabins/*
*Amenities*	*Showers*		*Availability)*		*Children’s Play Area*		*Trading Post*		*Miniature Golf*		*Spa*		*Marina*		*Laundry Facility*		*Lodging*

*Thousand Trails*




Bend		6		17		2		1		1						1		7




Chehalis		8		9		1		1		1		1				1		1




Chesapeake Bay		4		18		3		1		1		1		1		1		18




Colorado River		2		8		2		1		1		1		1		1




Cultus Lake		4		4		2		1								1




Forest Lake		3				2		1		1		2				2		18




Hershey		3		24		2				1		1				2




Horseshoe Lakes		2		10		10				1						1




Idyllwild		6		28		3		1		1						3		2




Kenisee Lake		2		4		2				1		1				1




LaConner		6		13		3		1		1		1		1		1		17




Lake Conroe		5		23		1		1		1		1		1		2




Lake Of The Springs		12		36		3		1		1				1		1		6




Lake Tawakoni		5		19		2		1		1		2		1		1




Lake Texoma		6		5		2		1		1		2		1		1		18




Lake Whitney		5		14		2		1		1		1				1




Las Vegas		3		11		1		1				1				3




Leavenworth		8		4		2		1		1						2		8




Lynchburg		5		5		2		1		1		1				1




Medina Lake		4		34		3		1		1		1		1		1




Morgan Hill		7		23		3		1		1						1




Mount Vernon		6		6		2		1		1		1				1		3




Oakzanita Springs		2		11		3		1		1		1				1




Orlando		7		22		2		1		1		1		1		5		4




Pacific City		5		18		2		1		1						1		4




Palm Springs		4		19				1				1				3		5




Pio Pico		8		22		3		1		1		2				2




San Benito		7		24		4		1		1		1				1




Soledad Canyon		14		53		7		1		1		1				2




Saint Clair		3		13		2		1		1						1		2




Verde Valley		3		16		3		1		1		1				1




Wilmington		2		3		1		1		1		1				1

Page 13


*Campground*
*Facilities and*									*Family Center/*
*Amenities*	*Acreage*		*RV Sites*		*Tent Sites*		*Adult Lodge*		*Pavilion*		*Pool*		*Tennis Court*		*Athletic Court*		*Vehicle Storage*

*National American Corporation (NACO)*




Bay Landing		305		257		30		1		2		1				1		1




Birch Bay		30		215		8		1		1		1




Carolina Landing		119		193		7				1		2		2		1		1




Cherokee Landing		55		294						1		1		1		1		1




Chestnut Lake		31		179				1		1		1						1




Indian Lakes		545		1202				1		1		1		2		1		1




Indian Point		11		157				1		1		2						1




Lake Minden		97		162		161				1						1		1




Little Diamond		200		541		100		1		4		1				1		1




Long Beach		17		120		20				1		1						1




Natchez Trace		623		521						1		2		1		1		1




Rancho Oso		310		118		50		1		1		2		1				1




Russian River		42		125		30				1




Snowflower		720		248		10				1		1				1		1




South Jetty		60		162		10		1		1		1						1




Turtle Beach		39		72														1




Virginia Landing		839		210				1		1		1						1




Wilderness Lakes		74		523		5		1		1		2		1		1		1




Windsor		17		95		25				1		1						1




Yosemite Lakes		387		379		131		1		1						1		1




*Leisure Time Resorts*




Cascade		20		164		24		1		1		3		1		2		1




Crescent Bar		24		110		15				1		1		1		1		1




Oceana		28		100						1




Paradise		60		208		149				2		3		1		1




Seaside		90		252						2		1		1		1		1




Thunderbird		35		98		27				1		3




Whaler’s Rest		23		179		4				2		1		1		1

[Additional columns below]

[Continued from above table, first column(s) repeated]


*Campground*
*Facilities and*	*Restrooms/*		*Trailers (Seasonal*										*Boat Launch/*				*Cabins/*
*Amenities*	*Showers*		*Availability)*		*Children’s Play Area*		*Trading Post*		*Miniature Golf*		*Spa*		*Marina*		*Laundry Facility*		*Lodging*

*National American Corporation (NACO)*




Bay Landing		2				1		1		1		1		1		1		34




Birch Bay		3		11		1		1								1




Carolina Landing		4				1		1		1						1		18




Cherokee Landing		2				1		1		1						1		20




Chestnut Lake		1		10		1		1		1						1




Indian Lakes		4				3		1		1				1		3		54




Indian Point		2		3		1		1		1				1		1		16




Lake Minden		3		13		1		1								1




Little Diamond		5		4		3		1				2		1		1		1




Long Beach		2		6		2		1				1				1




Natchez Trace		4				3		1		1				1		2		58




Rancho Oso		3		23		1		1				1				2		15




Russian River		4		10		1		1								1




Snowflower		11		14												1		4




South Jetty		5		15		1		1				2				1		3




Turtle Beach		2				1		1						1		1




Virginia Landing		3				2		1		1				1		1		19




Wilderness Lakes		8		34		2		1		1		3				4




Windsor		1		7		1										1




Yosemite Lakes		8		16		1		1		1		1				2		44




*Leisure Time Resorts*




Cascade		2		14		1		1		1		1




Crescent Bar		1		9		1				2		1		1		1




Oceana		2		14		1




Paradise		2		32		1		1		1		1




Seaside		4		32		1		1								1




Thunderbird		2		4		1		1		1		1		1




Whaler’s Rest		3		16		1		1				1				1

Page 14

Page 15

Page 16

Item 3. Legal Proceedings

The Company is involved in certain claims and litigation arising in the normal course of business. Management believes that the eventual outcome of these claims and litigation will not have a material adverse impact on the Company’s financial position, operations or cash flows.

Item 4. Submission of Matters to a Vote of ~~Shareholders~~Security Holders

None.

Page 1715

Part II

Item 5. Market for Registrant’s Common Equity and Related ~~Shareholder~~Stockholder Matters

Market and Trading. The Company’s common stock (the “Common Stock”) is publicly traded on the American Stock Exchange under the symbol TRV. Historically, the Common Stock has not traded every day and the trading volume has often been small. The following table sets forth, for the fiscal periods indicated, the high and low sales prices as reported on the American Stock Exchange.

(Line Graph)

2001

2000

2002

2001

High

Low

High

Low

First Quarter

46.~~875~~300

45.~~500~~240

4.875

4.~~250~~500

Second Quarter

57.~~125~~200

45.~~625~~200

5.~~000~~125

4.~~375~~625

Third Quarter

610.~~100~~990

46.~~800~~600

56.~~125~~100

4.~~625~~800

Fourth Quarter

611.~~300~~700

57.~~100~~520

46.~~875~~300

45.~~375~~100

As of September 2126, ~~2001~~2002, the Company’s Common Stock was held by 3834 holders of record. Moreover, security position listings available to the Company listed approximately ~~470~~425 beneficial holders of Common Stock.

Absence of Dividends. Since inception, the Company has not paid any dividends and, at the present time, it has no plans to pay dividends.

~~Page~~Tender 18Offer. On May 30, 2002, the Company completed a tender offer and purchased 1,144,876 shares of Common Stock for $8.41 per share. The Company funded the repurchase with existing cash and short-term investments. The purchased shares are held as Treasury stock.

Page 16

Transfer Restrictions. The Company’s Common Stock is subject to transfer restrictions designed to avoid an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These transfer restrictions are designed to help assure that the Company’s net operating loss carryforwards (“NOLs”), which are estimated to total $7.9 million at June 30, 2001, will continue to be available to offset future taxable income. Section 382 of the Code limits the use of NOLs and other tax benefits by a company that has undergone an ownership change.

Such restrictions are set forth in Article IX of the Company’s Restated Certificate of Incorporation. Article IX generally restricts, until June 30, 2011 (or earlier in certain events), direct or indirect transfer of Common Stock that would without the approval of the Board of Directors of the Company (i) increase to more than 4.75% the percentage ownership of Common Stock of any person who at any time during the preceding three-year period did not own more than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock owned by any person that during the preceding three-year period owned more than 4.75% of the Common Stock or by any group of persons treated as a “5 Percent Shareholder” (as defined in the Code but substituting “4.75%” for “5 Percent”), or (iii) cause an “ownership change” of the Company. Article IX provides that any direct or indirect transfer of Common Stock in violation of Article IX is void ab initio as to the purported transferee, and the purported transferee will not be recognized as the owner of shares acquired in violation of Article IX for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of Common Stock. Any shares purportedly acquired in violation of Article IX will be transferred to a trustee who will be required to sell them.

Generally, the transfer restrictions contain several exceptions. For example, the restrictions will not prevent a transfer if, in the determination of the Board of Directors of the Company, the transfer does not result in any greater aggregate increase in Common Stock ownership by 5% shareholders. Also, the restrictions will not prevent a transfer if the purported transferee obtains the approval of the Board of Directors of the Company, which approval shall be granted or withheld in the sole and absolute discretion of the Board of Directors, after considering all facts and circumstances including, but not limited to, future events deemed by the Board of Directors to be relevant. Finally, the transfer restrictions only apply with respect to the amount of Common Stock purportedly transferred in excess of the threshold established in the transfer restrictions.

The transfer restrictions (i) may have the effect of impeding the attempt of a person or entity to acquire a significant or controlling interest in the Company, (ii) may render it more difficult to effect a merger or similar transaction even if such transaction is favored by a majority of the shareholders and (iii) may serve to make a change in management more difficult. The purpose of the transfer restrictions is to preserve tax benefits, however, not to insulate the Company or management from change. The Company believes the tax benefits of the transfer restrictions outweigh any anti-takeover effect they may have.

The application of these transfer restrictions to any particular shareholder will depend on the shareholder’s ownership of Common Stock, determined after applying numerous attribution rules prescribed by the Code and related regulations, and will also depend on the history of trading of the Common Stock.

Page 19

Item 6. Selected Financial Data

(dollars in thousands, except per share amounts and statistical data)

			For the year ended June 30,
			2001		2000(1)		1999		1998		1997
			2002		2001		2000(1)		1999		1998
Statement of Operations Data
	Total revenue		$	7989,~~396~~185	$	7079,~~771~~396	$	6770,~~925~~771	$	7567,~~509~~925	$	7775,~~181~~509
	Membership dues			4039,~~080~~856		3740,~~495~~080		3637,~~455~~495		3736,~~330~~455		3937,~~945~~330
	Other campground revenue			1718,~~849~~505		1617,~~731~~849		1516,~~585~~731		1415,~~204~~585		1614,~~812~~204
	Membership contracts originated			2227,~~903~~434		1322,~~912~~903		513,~~480~~912		35,~~867~~480		3,~~362~~867
	Membership sales revenue			916,~~540~~616		59,~~564~~540		35,~~959~~564		3,~~227~~959		23,~~894~~227
	Interest income			12,~~951~~383		1,~~509~~951		21,~~008~~509		2,~~635~~008		32,~~726~~635
	Interest expense and amortization			~~1,013~~32		1,~~427~~013		21,~~957~~427		42,~~599~~957		94,~~084~~599
	Income (loss) from operations before taxes and minority interest			6,429		5,458		7,915		15,716		7,169
	Income from operations before taxes			13,145		6,429		5,458		7,915		15,716
	Net income			48,~~276~~326		94,~~249~~276		59,~~571~~249		245,~~879~~571		624,~~799~~879
	Dividends paid(2)			—		—		—		—		—
	Dividends paid (2)			—		—		—		—		—
	Dividends per common share(2)			—		—		—		—		—
	Dividends per common share (2)			—		—		—		—		—
	Income per share data – basic:
	Income per share – basic:
		Net income		1.5204		1.1652		1.7316		3.3673		3.9436
		Weighted average number of shares		8,~~107~~012		78,~~981~~107		7,~~630~~981		7,~~407~~630		7,~~223~~407
	Income per share data – diluted:
	Income per share – diluted:
		Net income		.5097		1.0850		1.6608		2.9666		2.8896
		Weighted average number of shares		8,~~598~~585		8,~~594~~598		8,~~475~~594		8,~~398~~475		78,~~704~~398
Balance Sheet Data (at end of year):
	Cash and cash equivalents			94,~~016~~180		29,~~420~~016		2,~~197~~420		132,~~631~~197		113,~~343~~631
	Receivables, net			7,588		5,775		2,184		4,181		7,517
	Marketable securities			5,343		—		—		—		—
	Campground properties			47,191		48,150		36,941		37,991		42,764
	Receivables, net			9,638		7,588		5,775		2,184		4,181
	Properties at unrelated resorts			70		70		75		1,092		1,530
	Campground properties			48,640		47,191		48,150		36,941		37,991
		Total assets		83,949		74,515		56,804		74,262		63,302
	Properties at unrelated resorts			—		70		70		75		1,092
	PIK Notes, including deferred gain(3)			—		—		—		32,973		29,393
		Total assets		92,240		83,949		74,515		56,804		74,262
	Borrowings under Credit Agreement(3)			—		9,614		10,887		—		14,097
	PIK Notes, including deferred gain(3)			—		—		—		—		32,973
	Long-term debt(3)			—		7,043		8,787		32,973		38,230
	Borrowings under Credit Agreement(3)			—		—		9,614		10,887		—
		Shareholders’ equity (deficit)		22,435		18,109		9,648		2,754		(22,168	)
	Long-term debt(3)			—		—		7,043		8,787		32,973
		Shareholders’ equity		20,663		22,435		18,109		9,648		2,754
Statistical Data (at end of year):
	Number of operating campgrounds			59		6359		5363		53		5553
	Number of campsites			1817,~~100~~900		1918,~~000~~100		1719,~~700~~000		17,700		1817,~~400~~700
	Number of members			~~117~~112,000		~~119~~117,000		~~106~~119,000		~~111~~106,000		~~120~~111,000
	Average annual dues per member		$	~~360~~369	$	~~355~~360	$	~~357~~355	$	~~351~~357	$	~~344~~351
	Average cost per camper night		$	1920.3341	$	1819.7233	$	1718.6272	$	1817.2362	$	18.1323

(1)		The historical Selected Financial Data for fiscal 2000 ~~and 2001~~ includes the operating results of Leisure Time from December 16, 1999, the date of acquisition.
(2)		Since inception, the Company has not paid any dividends and, at the present time, it has no plans to pay dividends.
(3)		Long-term debt includes only the long-term portions of the 12% Senior Subordinated Pay-In-Kind Notes Due 2003 (“PIK Notes”) and the Credit Agreement with Foothill Capital Corporation.

Page 2017

Item 7. Management’s Discussion and Analysis of Financial Condition and
Results 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, plans and conditions for periods after June 30, ~~2001~~2002. 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, plans, and conditions for ~~future~~ future periods may differ materially due to several factors, including but not ~~limited~~ limited to the Company’s ability to control costs, campground market conditions ~~and~~ and other factors affecting the Company’s sales and marketing plan, the actual ~~rate~~ rate of decline in the campground membership base, the actual use of the ~~campgrounds~~ campgrounds by members and guests, the ~~effects on members and guests of the~~ Company’s ~~efforts to downsize its business, the Company’s~~ success in collecting its contracts receivable and selling assets, the Company’s success in acquiring ~~members~~ members through the purchase of other membership campground operations and the ~~other~~ other factors affecting the Company’s operations described in this report.

LIQUIDITY AND CAPITAL RESOURCES

Current Business Strategy. The Company’s current business strategy is to improve its campground operations and stabilize its campground membership base through increased sales and marketing efforts and the acquisition of members through the purchase of other membership campground operations. The Company believes there is a viable market for campground memberships and that it has a significant opportunity to compete for campers interested in higher quality facilities and a higher level of service than is typically available at public campgrounds or competing private campgrounds. ~~The Company has also acquired~~ ~~members through the purchase of Leisure Time, and it believes it may be~~ ~~possible to acquire additional members through the purchase of other membership campground operations, many of whom are experiencing financial difficulties.~~

Over the past ~~several years~~decade, the Company’s membership base has been declining, although the Company has been successful in slowing the rate of this decline. In response to this attrition, the Company has downsized its business by closing and disposing of campgrounds and decreasing campground operating costs and general and administrative expenses. The Company intends to continue to keep the size of its campground system in an appropriate relation to the size of its membership base. In this regard, if the membership base continues to decline, or other opportunities arise consistent with the needs of the members, the Company may close and dispose of additional campgrounds and it will seek to decrease other expenses. At the same time, the Company has expanded its sales and marketing efforts with a view to stopping the membership decline. The Company has also acquired members through the purchase of Leisure Time, and it intends to explore the possible acquisition of additional members through the purchase of other membership campground organizations. ~~The~~However, at this time, the Company ~~believes~~has not identified any realistic acquisition candidates. The Company believes that the ultimate size of its campground system and the amounts realized from future asset sales will depend principally upon the degree to which the Company can successfully implement this strategy.

~~Page~~Tender 21Offer. In April 2002, the Company made a tender offer to all of its stockholders for up to 1,500,000 shares of Common Stock at a purchase price of $8.41 per share, payable in cash. In June 2002, the Company purchased 1,144,876 shares of Common Stock, which represented all of the shares tendered, for a total purchase price of $9.6 million. The Company funded the stock

Page 18

~~Acquisition~~repurchases ofwith ~~Leisure~~its ~~Time.~~existing Oncash ~~December 16, 1999, the Company acquired all of the outstanding capital stock of Leisure Time, which currently owns~~ and ~~operates~~ ~~seven~~short-term ~~membership campgrounds in Washington and Oregon serving approximately 15,000 members~~investments. ~~Leisure~~The ~~Time operates a separate system of~~purchased ~~campgrounds~~shares ~~from~~are ~~the~~held ~~Company’s~~as ~~other~~Treasury ~~membership-based campground systems~~stock.

InCash. ~~February~~On ~~2001~~June 30, 2002, the Company ~~completed~~had ~~its~~$4.2 million ~~consolidation~~ of ~~Leisure~~cash ~~Time’s~~and cash ~~operations~~equivalents, bya ~~closing~~decrease ~~one~~of ~~NACO~~$4.8 million ~~campground~~during ~~and~~fiscal ~~three Leisure Time campgrounds in the Northwest~~2002. The ~~Company closed these campgrounds to eliminate excess~~decrease ~~inventory~~resulted inprimarily ~~the Northwest resulting~~ from the ~~acquisition.~~Company’s ~~Members~~decision atto ~~the closed~~invest ~~campgrounds~~cash ~~were offered use of substitute campgrounds~~ in ~~the same~~marketable ~~general~~securities ~~area~~to ~~with~~increase ~~equal or better amenities. In April 2001,~~ the ~~Company~~amount ~~sold one~~ of ~~the~~interest ~~closed~~earned ~~campgrounds to an unrelated third party for $1.4 million. The Company recorded a gain of $250,000~~ on the ~~sale~~invested funds.

~~The~~During ~~operating~~the ~~results~~year ofended ~~Leisure~~June 30, ~~Time~~2002, ~~are included in~~ the Company’s operating ~~results of~~activities ~~the~~provided ~~Company~~$14.1 million ~~commencing~~of ~~December 16~~cash, ~~1999.~~its ~~The~~investing ~~acquisition~~activities ~~has~~used ~~been~~$8.4 million ~~accretive~~of tocash ~~earnings~~and inits ~~the~~financing ~~current~~activities ~~fiscal~~used ~~year~~$10.6 million asof ~~the~~cash. The Company’s investing ~~has~~activities ~~reduced~~consisted ~~expenses~~of ~~by consolidating~~net ~~administrative~~purchases ~~functions,~~of ~~closing~~$5.3 million ~~campgrounds~~of ~~and implementing~~marketable ~~other~~securities, ~~cost~~expenditures ~~saving~~of ~~measures~~$3.6 million ~~However,~~to ~~because~~upgrade ~~Leisure~~the ~~Time~~Company’s ~~members~~computer, communication and reservation systems, and capital expenditures of $1.1 million at the campgrounds, ~~are~~partially ~~similar~~offset toby $1.6 million in proceeds from the sale of assets. The Company’s, ~~the~~financing ~~increase~~activities inconsisted ~~members~~primarily ~~resulting~~of $88,000 of proceeds from the ~~acquisition~~exercise isof ~~not~~employee ~~expected~~stock tooptions, ~~affect~~payments of $10.6 million for the ~~overall~~purchase ~~rate~~of at1,277,376 ~~which~~shares of Common Stock, primarily in connection with the tender offer described above, and $78,000 in payments on ~~Company’s~~notes ~~membership~~payable, ~~base~~which isare ~~declining~~included in other liabilities in the accompanying financial statements.

~~Cash.~~With Onrespect ~~June 30,~~to ~~2001,~~ the Company’s ~~had~~operating ~~approximately~~activities, ~~$9.0 million~~for offiscal ~~cash~~2002, ~~and~~the ~~cash~~principal ~~equivalents,~~sources anof ~~increase~~operating ofcash were $666.62 million ~~during~~from ~~fiscal~~operations, ~~2001~~$7. ~~During the~~0 ~~year~~million ~~ended~~in ~~June 30,~~principal ~~2001,~~and ~~the~~interest ~~Company’s~~collections ~~operating~~on ~~activities~~contracts ~~produced~~receivable ~~$17.7~~and ~~million~~invested of cash, ~~its~~and ~~investing activities used~~ $12.57 million offrom ~~cash~~sales ~~and~~of ~~its financing~~campground ~~activities used $9~~memberships.~~6 million~~ Principal uses of operating cash. ~~The~~for ~~Company’s~~fiscal ~~investing activities~~2002 ~~consisted~~were of $343.35 million in ~~capital expenditures at the~~operating ~~campgrounds~~expenses, ~~partially offset by~~ $117.7 million in ~~proceeds~~membership ~~from~~origination ~~the~~costs ~~sale~~and ~~of assets.~~marketing ~~The Company’s financing activities consisted primarily of a~~ expenses, $911.6 7 million ~~reduction~~ in ~~outstanding~~administrative ~~debt~~expenses ~~under the Credit Agreement~~ (asincluding ~~amended, the~~general ~~“Credit Agreement”) between the Company~~ and ~~Foothill Capital Corporation~~administrative ~~(“Foothill”),~~expenses and ~~the~~corporate ~~purchase~~member ofservices 23costs),~~500~~ ~~shares~~$2.3 million ofin ~~Common Stock for $116,000,~~insurance ~~partially~~premiums ~~offset~~and by $~~170,000~~2.8 million in ~~proceeds~~income ~~from the exercise of employee stock options~~taxes.

~~With~~During ~~respect to~~ the ~~Company’s~~year ~~operating~~ended ~~activities~~June 30, ~~for fiscal~~ 2001, the ~~principal~~ ~~sources~~Company’s of operating ~~cash~~activities provided ~~were~~ $6917.87 million ~~from~~of ~~operations~~cash, its investing activities used $61.5 million inof cash ~~principal~~ and ~~interest~~its ~~collections~~financing onactivities ~~contracts~~used ~~receivable and invested cash, and~~ $~~15.~~9.6 million ~~from~~of ~~sales~~cash. ofDuring ~~campground~~the ~~memberships.~~year ~~Principal~~ended ~~uses~~June 30, of2000, ~~operating~~the ~~cash~~Company’s ~~for~~operating ~~fiscal~~activities ~~2001~~provided ~~were~~ $4414.31 million in ~~operating~~of ~~expenses~~cash, its investing activities used $119.60 million inof ~~administrative~~cash, ~~expenses~~and ~~(including~~its ~~general~~financing ~~and~~activities ~~administrative~~used ~~expenses~~$4.9 million ~~and~~of ~~corporate~~cash. ~~member~~In ~~services~~fiscal ~~costs)~~2001 and 2000, ~~$14.4 million~~the Company’s inmaterial ~~membership~~investing ~~origination~~and ~~costs~~financing ~~and~~activities ~~marketing~~related ~~expenses,~~primarily ~~$3.0 million~~to incapital ~~insurance~~expenditures ~~premiums~~at ~~and~~the ~~$622~~campgrounds,~~000~~ inthe ~~income~~acquisition ~~taxes~~of Leisure Time and repayment of debt.

~~Through~~The ~~the~~Company ~~normal~~expects ~~course~~that ofits ~~operations,~~capital inexpenditures ~~March~~will ~~2001,~~be ~~the~~lower ~~Company~~in ~~repaid~~fiscal ~~all~~2003, ~~outstanding~~compared ~~borrowings under the Credit Agreement~~ with ~~Foothill,~~fiscal ~~and it terminated the Credit Agreement on June 30~~2002, ~~2001.~~because ~~Shortly thereafter,~~ the Company ~~established~~spent a total of $153.06 million ~~revolving, secured line of credit (“Line of~~in ~~Credit”)~~fiscal ~~with~~2002 ~~Union~~to ~~Bank~~upgrade ofits ~~California~~computer, ~~N.A.~~communication ~~(“Union~~and ~~Bank”).~~reservation ~~As of the date of~~systems. ~~this~~The ~~report, the~~ Company ~~had~~anticipates nospending ~~outstanding~~$1.5 million ~~borrowings~~in ~~under~~fiscal ~~the~~2003 ~~Line~~to ofcomplete these ~~Credit~~improvements.

~~Page~~During 22the year ended June 30, 2002 and through the date of this report, the Company had no outstanding borrowings under its Line of Credit with Union Bank. At its current level of operations, the Company believes its cash reserves will increase during fiscal 2003. The amount of cash the Company is able to accumulate will depend on a number of factors including its ability to control costs, its success in collecting its contracts receivable and selling assets and the other factors affecting the Company’s operations described in this report. Based upon its current business plan, the Company believes that future cash flows provided from operations, asset sales

Page 19

~~During the year ended June 30, 2000, the Company’s operating activities produced $14.1 million of cash, its investing activities used $9.0 million of cash~~ and ~~its financing activities used~~borrowings ~~$4.9 million~~available ofunder ~~cash. In fiscal 2000,~~ the ~~Company’s~~Line ~~material investing and financing activities related primarily to capital expenditures, the acquisition~~ of ~~Leisure~~Credit ~~Time~~will ~~and~~be ~~repayment~~adequate offor ~~debt. During~~ the ~~year ended June 30, 1999, the~~ Company’s operating ~~activities produced $11.8 million of cash, its~~ ~~investing activities used $0.7 million of cash,~~ and ~~its~~other ~~financing activities used $22.6 million of~~ cash. In fiscal 1999, the Company’s material investing and financing activities related primarily to capital expenditures, partially offset by the proceeds from assets sales, and the redemption of the PIK Notes and related borrowings under the Credit Agreement with Foothillrequirements.

Contracts ~~The~~Receivable. ~~Company~~As ~~expects~~of ~~that~~June 30, ~~its capital expenditures will increase in fiscal~~ 2002, ~~compared with fiscal 2001, because~~ the Company ~~will make~~on a ~~one-time~~consolidated ~~expenditure of~~ basis owned $211.08 million ~~to upgrade its computer system. However, since the Company has repaid all~~ of ~~its~~contracts ~~outstanding~~receivable ~~debt,~~related ~~the Company believes its cash reserves will continue~~ to ~~increase during fiscal 2002. The amount of cash~~ the ~~Company~~sale ~~is able to accumulate will depend on a number~~ of ~~factors~~ ~~including its ability to control costs, its success in collecting its~~campground ~~contracts~~memberships ~~receivable~~(see ~~and~~“Contracts ~~selling~~Receivable” ~~assets, and the other factors affecting the Company’s operations described~~ in ~~this report~~Item 1). ~~Based upon its current business~~ ~~plan, the Company believes that future cash flows provided from operations,~~ ~~asset sales and borrowings available under the Line of Credit will be adequate for the Company’s operating and other cash requirements.~~

~~Contracts~~Allowance ~~Receivable.~~for AsDoubtful Accounts The Company’s allowance for doubtful accounts was 19% of gross contracts receivable at June 30, ~~2001~~2002, ~~the~~compared ~~Company~~with on23% aand ~~consolidated~~25% ~~basis~~of gross contracts ~~owned $9.9~~receivable at June ~~million~~30, 2001 and 2000, respectively. The cancellation rate as a percentage of average contracts receivable ~~related~~was to6% ~~the~~for ~~sale~~fiscal of2002, ~~campground~~compared ~~memberships~~with ~~(see~~5% ~~“Contracts~~for ~~Receivable”~~fiscal in2001 ~~Item 1)~~and 2000. ~~Because~~In offiscal ~~low~~2002, ~~interest rates~~the ~~available~~Company inreduced the allowance ~~marketplace~~for ~~during~~doubtful ~~fiscal~~accounts ~~2000~~on ~~and~~its ~~1999,~~contracts ~~some~~receivable ~~members~~by $400,000 because ~~chose~~the toCompany ~~prepay~~experienced ~~their~~lower ~~accounts,~~contract ~~and~~losses than anticipated. In fiscal 2000, the Company ~~received~~reduced ~~principal~~the ~~payments~~allowance of for doubtful accounts by $~~673~~435,000 on contracts receivable generated from membership sales at Thousand Trails and NACO ~~$723,000,~~campgrounds ~~respectively,~~because inthe ~~excess~~Company ofexperienced ~~scheduled~~lower ~~payments.~~contract losses than ~~Depending~~anticipated ~~upon~~on ~~market~~these ~~conditions~~contracts. However, in fiscal 2000, the Company ~~may~~increased the ~~continue~~allowance tofor ~~experience~~doubtful ~~such~~accounts by $184,000 on contracts receivable ~~prepayments~~generated infrom membership sales at Leisure Time’s campgrounds because the collection ~~future~~history for these contracts receivable was uncertain at that time.

~~Allowance for Doubtful Accounts~~ The ~~Company’s~~ allowance for doubtful accounts ~~was~~is ~~23%~~an estimate of ~~gross~~the contracts ~~receivable~~ atreceivable ~~June 30,~~that ~~2001,~~will ~~compared~~cancel ~~with~~in ~~25%~~the future and ~~30%~~is ofdetermined ~~gross~~based ~~contracts~~on ~~receivable at June~~historical ~~30,~~cancellation ~~2000~~rates and ~~1999,~~other ~~respectively.~~factors ~~The~~deemed ~~cancellation~~relevant ~~rate~~to asthe aanalysis. ~~percentage of~~In ~~average~~fiscal ~~contracts~~2002, ~~receivable~~the Company’s cancellation rate was 6%, compared with 5% ~~for~~in fiscal 2001 and 2000, ~~compared~~an ~~with~~increase ~~8% for~~the ~~fiscal~~Company ~~1999.~~did Innot ~~fiscal~~consider ~~2000~~material. ~~and~~In ~~1999~~contrast, the ~~Company~~5% ~~experienced~~cancellation ~~lower contract~~rate ~~losses~~in ~~than~~fiscal ~~anticipated~~2000 onwas ~~contracts~~a ~~receivable~~significant ~~generated~~decrease from ~~membership~~ ~~sales~~the at8% rate ~~Thousand~~in ~~Trails~~fiscal ~~and~~1999. ~~NACO~~As ~~campgrounds~~a ~~and~~result, asin afiscal ~~result~~2000, the Company reduced the allowance for doubtful accounts. ~~relating~~In tomaking ~~these~~this ~~contracts~~reduction, the Company applied bythe ~~$435,000~~cancellation ~~and~~rate ~~$886,000,~~at ~~respectively.~~year-end ~~However,~~to ~~because~~the maturities of ~~uncertainty~~the then-outstanding ~~surrounding~~portfolio and considered the ~~collection~~uncertainties ofassociated ~~Leisure~~with ~~Time’s~~its ~~contracts~~business. ~~receivable~~Using the same methodology and considering the same factors deemed relevant to the analysis, the Company ~~increased~~ ~~Leisure~~reduced ~~Time’s~~the allowance ~~for~~to ~~doubtful~~23% ~~accounts~~of bythe ~~$184,000~~portfolio in fiscal ~~2000~~2001 and 19% in fiscal 2002. The reduction in fiscal 2002 reflects the continuing benefit of the lower cancellation rates.

The Company believes the allowance for doubtful accounts is anadequate. ~~estimate of the contracts receivable~~However, ~~that will cancel in~~ the ~~future~~allowance and ~~is determined based on historical cancellation rates and other factors deemed relevant to~~ the ~~analysis.~~rate ~~In fiscal~~at ~~1999,~~which the Company’s ~~cancellation~~provides ~~rate~~for ~~was~~future ~~approximately~~losses ~~8% (consistent~~on ~~with~~its ~~the~~contracts ~~prior~~receivable ~~three~~could ~~fiscal~~be ~~years).~~increased ~~The~~or ~~cancellation~~decreased ~~rate improved to 5%~~ in ~~fiscal~~ ~~2000 and 2001. The Company reduced~~ the ~~allowance~~future ~~for~~based ~~doubtful accounts~~on ~~in fiscal 2000 and 1999 after applying~~ the ~~cancellation~~Company’s ~~rate~~actual atcollection ~~year-end to the~~experience. ~~maturities of the then-outstanding portfolio~~

~~Page~~Change 23in Receivables The net balance of contracts receivable increased by approximately $1.9 million during fiscal 2002, primarily as a result of an increase in financed sales, partially offset by $4.6 million in cash collections.

Campground Properties. The Company’s campground properties consist of land, buildings and other equipment used in administration and operations as well as assets held for sale. Campground properties increased by $1.5 million in fiscal 2002 due primarily to $4.7 million of capital expenditures, partially offset by the sale of one campground and $3.0 million of depreciation on property and equipment.

Page 20

~~and~~In ~~taking~~fiscal ~~into~~2001, ~~account~~ the ~~uncertainties~~Company ~~associated~~closed ~~with~~four ~~its~~campgrounds ~~business.~~in ~~During these~~connection ~~years,~~with the ~~contracts receivable portfolio also declined faster than~~ ~~projected~~consolidation ~~primarily~~of ~~because~~Leisure ~~collections~~Time’s ~~each~~operations ~~year~~and ~~exceeded~~reclassified ~~estimates~~$2.6 million ~~As a~~from ~~result,~~campground ~~using~~land ~~the~~and ~~same~~buildings ~~methodology~~ and ~~considering~~equipment ~~the same factors deemed relevant~~ to ~~the~~assets ~~analysis,~~held ~~the~~for ~~Company reduced the allowance to approximately 30% of the portfolio in fiscal 1999, 25% in fiscal 2000, and 23% in fiscal 2001~~sale.

The Company ~~does~~makes ~~not~~annual ~~presently~~capital ~~anticipate~~and ~~any~~maintenance ~~further~~expenditures ~~adjustments~~ to ~~the~~maintain and ~~allowance~~improve ~~for~~the ~~doubtful~~campgrounds. ~~accounts~~During onfiscal 2002, the ~~contracts~~Company ~~receivable~~spent $5.7 million ~~However~~on major maintenance, ~~the allowance~~repairs and ~~the~~improvements ~~rate~~ at ~~which~~ the campgrounds. The Company anticipates ~~provides~~that ~~for~~it ~~future~~will ~~losses~~spend an additional $5.2 million on ~~its~~such items in ~~contracts~~fiscal ~~receivable~~2003, ~~could~~which will be ~~increased~~funded orby ~~decreased~~existing incash ~~the~~and ~~future~~cash ~~based~~provided ~~on the~~by operations. The Company’s ~~actual~~may ~~collection~~be ~~experience~~required to spend greater amounts in future years as the facilities age.

Other Allowances In connection with the purchase of NACO and Trails, the Company recorded an allowance for interest discount to increase to 14.75%, the weighted average yield on the contracts receivable then owned by NACO and Trails. The allowance for interest discount was amortized using the effective interest method over the respective terms of the contracts, and was fully amortized in fiscal 2000. Additionally, in connection with the purchase of NACO and Trails, the Company recorded an allowance for future collection costs, which was amortized as a reduction of general and administrative expenses based on cash collected on the related portfolio, and was fully amortized in fiscal 2000. The Company also purchased contracts receivable from certain third parties and recorded a valuation allowance to record the contracts receivable at the purchase price. This valuation allowance was amortized as an increase to interest income over the respective term of the contracts, and was fully amortized in fiscal 2000.

Change in Receivables The net balance of contracts receivable increased by approximately $1.8 million during fiscal 2001, primarily as a result of an increase in financed sales, partially offset by $4.5 million in cash collections.

Campground Properties. The Company’s campground properties consist of land, buildings and other equipment used in administration and operations as well as assets held for sale. Campground properties decreased by $1.1 million in fiscal 2001 due primarily to the sale of one campground and $2.7 million of depreciation on property and equipment, partially offset by $2.3 million of capital expenditures.

As discussed above, in fiscal 2001, the Company closed four campgrounds in connection with the consolidation of Leisure Time’s operations and reclassified $2.6 million from campground land and buildings and equipment to assets held for sale.

The Company makes annual capital and maintenance expenditures to maintain and improve the campgrounds. During fiscal 2001, the Company spent $6.0 million on major maintenance, repairs and improvements at the campgrounds. The Company anticipates that it will spend an additional $5.9 million on such items in fiscal 2002, which will be funded by existing cash and cash provided by operations. The Company may be required to spend greater amounts in future years as the facilities age.

During the periods presented, the Company also owned lot inventory, buildings and equipment and land held for sale at certain resorts not related to the campground operations. Over the past several years, the Company has sold substantially all of the assets it owns at these resorts.

~~Page~~At 24June 30, 2001, the Company had a recorded liability of $1.9 million for amounts necessary to complete improvements at a resort not related to the campground operations in accordance with disclosures made to lot purchasers at the resort pursuant to a registration with the U.S. Department of Housing and Urban Development (“HUD”). In fiscal 2002, the Company sold the remaining lots, roadways and related areas at the resort associated with such liability and withdrew its HUD registration. As a result, the Company reduced the $1.9 million liability for accrued construction costs to $500,000 and reclassified the remaining liability as a reserve for the contingent liability. The decrease in the liability was classified as a reduction of general and administrative expenses.

~~Table~~Other ofAssets. ~~Contents~~Other current assets increased by $2.1 million during fiscal 2002, due primarily to a $2.2 million increase in accounts receivable, partially offset by a $63,000 decrease in inventory. Accounts receivable increased primarily because, at June 30, 2002, the Company had not received the proceeds from an asset sale that closed during June 2002.

At June 30, 2001, the Company had a $1.9 million liability for obligations created by reports that it filed with the Department of Housing and Urban Development (“HUD”) at one resort not related to the campground operations, which remain substantially incomplete. A person who purchased a lot when a HUD report was in effect may allege that the failure to make timely improvements constitutes a breach of his or her agreement with the Company and could seek damages from the Company or rescission of the lot purchase. Approximately 45 persons purchased lots from the Company when HUD reports in effect described improvements that the Company has not yet constructed. An insignificant number of persons have asserted claims against the Company for the failure to make these improvements.

Other Assets. Other current assets decreased by $103,000 during fiscal 2001. The decrease was due primarily to a $184,000 decrease in accounts receivable, $56,000 decrease in dues receivable and a $16,000 decrease in inventory levels, partially offset by a $135,000 increase in prepaid expenses, consisting of marketing and insurance costs.

Other assets increased by $131,000 in fiscal 2001 due primarily to an increase in workers compensation deposits.

Borrowings.

Line of Credit with Union Bank
On July 1, 2001, the Company established a $15.0 million Line of Credit with Union Bank. Borrowings under the Line of Credit carry an interest rate of prime minus 0.75%. The Company may borrow, repay and reborrow under the Line of Credit from time to time, provided, however, that for at least one day during each twelve-month period, the principal amount outstanding under the Line of Credit must be not more than $5.0 million. All borrowings under the Line of Credit will mature on July 1, 2003. The Company anticipates using the Line of Credit for general working capital purposes, although it is permitted under the terms of the Line of Credit to use up to $5.0 million for acquisitions from time to time. The Company currently has no borrowings outstanding under the Line of Credit.

The Company’s ability to borrow under the Line of Credit for working capital purposes is subject to continued compliance by the Company with the financial covenants and other requirements of the Line of Credit, including certain covenants respecting minimum tangible net worth, minimum adjusted EBITDA (as defined) and minimum total debt to adjusted EBITDA. The Line of Credit prohibits the Company from borrowing from other sources.

Page 21

The Company has granted liens on substantially all of its assets, other than its real estate, to secure its obligations under the Line of Credit. In addition, the Company’s principal subsidiaries have guaranteed the Company’s obligations under the Line of Credit and have granted liens on substantially all of their assets, other than their real estate, to secure their guarantees.

Credit Agreement with Foothill Through the normal course of operations, in March 2001, the Company repaid all outstanding borrowings under its Credit Agreement with Foothill Capital Corporation, and it terminated the Credit Agreement on June 30, 2001. During the periods presented, borrowings under ~~the~~this Credit Agreement accrued interest at prime plus .25% per annum, subject to a minimum interest rate of 7% per annum.

~~Page~~Deferred 25Revenues and Expenses. Deferred revenues of $59.2 million and $47.8 million at June 30, 2002 and 2001, respectively, include $15.4 million and $15.5 million, respectively, of membership dues collections relating to future periods, $41.4 million and $30.2 million, respectively, of campground membership sales revenues to be recognized in future periods, and $2.4 million and $2.2 million, respectively, of other deferred revenues related primarily to RPI’s and Trails Management’s operations, and deferred subscription revenue from the Company’s member magazine. Deferred membership selling expenses of $12.4 million and $8.9 million at June 30, 2002 and 2001, respectively, represent incremental direct selling costs to be recognized in future periods.

General Liability Insurance. From July 1, 1998 through June 30, 2002, the Company had insurance covering general liability losses up to an annual limit of $27.0 million, with no self-insured deductible. Prior to this date, the Company’s insurance program covered general liability losses up to an annual limit of $26.8 million, but required the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.0 million. The Company has provided a liability for estimated claims related to uninsured general liability risks based on actuarial estimates. At June 30, 2002 and 2001, the Company’s recorded liability for estimated losses related to uninsured general liability claims totaled $567,000 and $577,000, respectively.

The Company’s insurance renews on an annual basis, effective July 1 each year. On July 1, 2002, to reduce the impact of rising insurance costs, the Company obtained insurance covering general liability losses up to an annual limit of $27.0 million, which requires the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.8 million. With the revised insurance coverage, the Company expects to experience greater uninsured general liability losses in fiscal 2003 than it recorded in prior years.

Employee Health Insurance. The Company provides medical and dental benefits for its employees under employee benefit plans (collectively, the “Plans”) that are funded primarily through employer and employee contributions. The Company has purchased stop loss insurance that protects the Plans against claims in excess of set policy amounts. The Company has provided a liability for estimated uninsured claims of $558,000 and $709,000 at June 30, 2002 and 2001, respectively. This liability is based on actuarial estimates of amounts needed to fund expected uninsured claims, as well as premium payments and administrative costs of the Plans.

Workers’ Compensation Insurance. From July 1, 1998 through June 30, 2002, the Company had insurance covering workers’ compensation claims with no self-insured deductible. Prior to this date, the Company’s insurance program required the Company to pay up to $250,000 per

Page 22

~~PIK~~occurrence ~~Note~~and ~~Redemption~~to deposit funds with the insurance company to pay claims in excess of the estimated claims that Inwere ~~December~~covered ~~1998,~~by the amounts originally paid by the Company. ~~redeemed~~These ~~all~~deposits were ~~$34~~generally expensed in the years the deposits were made because the Company anticipated that the deposits would be used to cover claims.~~8 million~~ ~~principal~~In ~~amount~~fiscal of2001, the Company increased its ~~12%~~reserves ~~Senior~~for ~~Subordinated~~workers' ~~Pay-in-Kind~~compensation ~~Notes~~claims ~~Due~~by ~~2003~~$160,000 because ~~(“PIK~~the ~~Notes”)~~Company estimated that it would be required to pay additional ~~outstanding~~amounts ~~and~~in ~~paid~~future ~~$1.7 million~~periods ofto ~~accrued~~cover ~~interest~~claims not covered by the deposits originally made by the Company.

~~Deferred~~The ~~Revenues~~Company’s ~~and~~insurance ~~Expenses.~~renews ~~Deferred~~on ~~revenues~~an ofannual ~~$47.8 million~~basis, ~~and~~effective ~~$34.~~July 1 ~~million~~ ateach ~~June~~year. On July 301, ~~2001 and 2000~~2002, ~~respectively,~~to ~~include~~reduce ~~$15.5 million~~the impact of ~~membership~~ ~~dues~~rising ~~collections~~insurance ~~relating to future periods~~costs, ~~$30.2 million~~the ~~and $16.8~~Company ~~million,~~obtained ~~respectively,~~insurance ofcovering ~~campground~~workers’ ~~membership~~compensation ~~sales~~claims ~~revenues~~which requires the Company to bepay ~~recognized in~~the ~~future~~first ~~periods~~$250,000 ~~and~~per ~~$2.2 million~~occurrence and ~~$1.8 million,~~to ~~respectively,~~deposit offunds ~~other~~with the ~~deferred~~insurance ~~revenues~~company ~~related~~to ~~primarily~~pay toclaims ~~RPI’s~~in ~~operations~~excess ~~and~~of ~~Trails~~the ~~Management.~~estimated claims that are ~~Deferred~~covered ~~membership~~by ~~selling~~the ~~expenses~~amounts oforiginally ~~$8.9 million~~paid ~~and~~by $5the Company.~~2 million~~ ~~at June 30,~~With ~~2001~~the ~~and~~revised insurance ~~2000~~coverage, ~~respectively,~~the ~~represent~~Company ~~incremental~~expects ~~direct~~to ~~selling~~experience greater uninsured ~~costs~~workers’ tocompensation beclaims ~~recognized~~in fiscal 2003 than it recorded in ~~future~~prior ~~periods~~years.

~~General~~Recently ~~Liability~~Issued ~~Insurance~~Accounting Pronouncements. ~~Commencing~~The ~~July~~Financial Accounting Standards Board has issued SFAS No. 1,141 ~~1998~~and SFAS No. 142, ~~the~~“Business ~~Company~~Combinations” ~~obtained~~and ~~insurance~~“Goodwill ~~covering~~and ~~general~~Other ~~liability~~Intangible ~~losses~~Assets,” uprespectively. toSFAS an141 ~~annual~~supersedes Accounting ~~limit~~Principles ofBoard ~~$27~~Opinion No.~~0 million,~~ 16 ~~with~~and noeliminates ~~self~~pooling-~~insured~~of-interests accounting ~~deductible~~on a prospective basis. ~~Prior~~It toalso ~~this~~provides ~~date,~~guidance ~~the~~on ~~Company’s~~purchase ~~insurance~~accounting ~~program~~related ~~covered~~to ~~general~~the ~~liability~~recognition ~~losses~~of upintangible toassets anand ~~annual~~accounting ~~limit of~~for ~~$26~~negative goodwill.~~8 million,~~ ~~but~~SFAS ~~required~~No. 142 changes the ~~Company~~accounting tofor ~~pay~~goodwill ~~the~~from ~~first $250,000 per~~an ~~occurrence,~~amortization ~~with~~method to an ~~annual~~impairment-only ~~aggregate~~method. ~~exposure~~SFAS ~~of $2~~No.0 ~~million.~~141 ~~The~~and ~~Company~~SFAS ~~has~~No. ~~provided~~142 aare ~~liability~~effective for ~~estimated~~all ~~known~~business ~~and~~combinations ~~unknown~~completed after ~~claims~~June 30, ~~related~~2001. ~~to uninsured~~Companies ~~general~~are ~~liability~~required ~~risks~~to ~~based~~adopt onSFAS ~~actuarial estimates~~No. 142 Atfor ~~June~~fiscal years beginning after December 3015, 2001. ~~and~~The ~~2000,~~Company believes the ~~Company’s~~adoption ~~recorded~~of SFAS ~~liability~~No. 141 ~~for~~and ~~estimated~~SFAS ~~losses~~No. 142 ~~related~~will ~~to uninsured~~not ~~general~~have ~~liability~~a ~~claims~~material ~~totaled~~effect ~~$577,000~~on ~~and~~its ~~$650,000,~~results ~~respectively~~of operations or financial position in fiscal 2003.

~~Employee~~The ~~Health~~Financial ~~Insurance.~~Accounting ~~The~~Standards ~~Company~~Board ~~provides~~has ~~medical~~also ~~and~~issued ~~dental~~SFAS ~~benefits~~No. 144, “Accounting for ~~its~~the ~~employees~~Impairment ~~under~~of ~~employee~~Long-Lived ~~benefit plans (collectively~~Assets,” ~~the~~which ~~“Plans”)~~requires ~~that~~a single ~~are~~accounting ~~funded~~model ~~primarily~~to ~~through~~be ~~employer~~used ~~and~~for ~~employee~~long-lived ~~contributions.~~assets ~~The~~to ~~Company has~~be ~~purchased~~sold ~~stop~~and ~~loss~~broadens ~~insurance~~the presentation ~~that~~of ~~protects~~discontinued ~~the~~operations ~~Plans~~to ~~against~~include ~~claims~~a ~~in excess~~“component of ~~set~~an ~~policy~~entity” rather ~~amounts.~~than ~~The~~a ~~Company~~segment ~~has~~of ~~provided~~ a ~~liability~~business. ~~for estimated~~A ~~uninsured~~component ~~claims~~ of ~~$709,000~~an entity comprises operations and ~~$817,000~~cash atflows ~~June 30,~~that ~~2001~~can ~~and~~be ~~2000~~clearly distinguished, operationally and ~~respectively.~~for ~~This~~financial ~~liability~~reporting ispurposes. ~~based~~The onCompany ~~actuarial~~believes ~~estimates~~the adoption of ~~amounts needed~~SFAS toNo. 144 ~~fund~~on ~~expected~~July 1, ~~uninsured~~2002 ~~claims,~~will asnot ~~well~~have asa ~~premium~~material ~~payments~~effect ~~and administrative~~on ~~costs~~its results of operations ~~the~~or ~~Plans~~financial position.

Workers’ Compensation Insurance. Commencing July 1, 1998, the Company obtained insurance covering workers’ compensation claims with no self-insured deductible. Prior to this date, the Company’s insurance program required the Company to pay up to $250,000 per occurrence and to deposit funds with the insurance company to pay claims in excess of the estimated claims that were covered by the amounts originally paid by the Company. These deposits were generally expensed in the years the deposits were made because the Company anticipated that the deposits would be used to cover claims. In fiscal 2001 and 2000, the Company increased its reserves for workers compensation claims by $160,000 and $138,000, respectively, because the Company estimates that it will be required to pay additional amounts in future periods to cover claims not covered by the deposits originally made by the Company.

Recently Issued Accounting Pronouncements. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivatives and Similar Financial Instruments for Hedging Activities,” in fiscal 2001. However, the adoption of SFAS No. 133 did not have a material impact on the Company’s financial position because the Company does not currently use derivative instruments. In June 2001, the Financial Accounting Standards Board

Page 26

issued SFAS No. 141 and SFAS No. 142, “Business Combinations” and “Goodwill and Other Intangible Assets,” respectively. SFAS 141 supercedes Accounting Principles Board Opinion No. 16 and eliminates pooling-of-interests accounting on a prospective basis. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only method. SFAS No. 141 and SFAS No. 142 are effective for all business combinations completed after June 30, 2001. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. The Company does not believe that SFAS No. 141 and SFAS No. 142 will have a material effect on their results of operations or financial position for the current period.

Market Risk. Item 305 of Regulation S-K requires disclosure of material risks, as defined in Item 305, related to market risk sensitive financial instruments. As defined, the Company currently has market risk sensitive instruments related to interest rates.

The Company has exposure to changing interest rates on its marketable securities, which consist of shares in a mutual fund that invests a majority of its assets in adjustable rate mortgage securities issued or guaranteed by the U.S. government, with the remaining assets invested in U.S. government obligations. At June 30, 2002, the Company’s investment in marketable securities totaled $5.3 million. The Company does not have significant exposure to changing interest rates on invested cash because the Company invests available cash in certificates of deposit and investment grade commercial paper that have maturities of three months or less. The interest rate market risk implicit in these investments at any given time is low, as the investments mature within three months.

~~The~~Page ~~Company had $9.9 million of contracts receivable at June 30, 2001, which~~23 ~~have a weighted average stated interest rate of 14% and an average remaining~~ ~~term of 35 months. The Company does not have significant exposure to changing~~ ~~interest rates related to the contracts receivable because the interest rate on the contracts receivable are fixed.~~

The Company had $11.8 million of contracts receivable at June 30, 2002, which have a weighted average stated interest rate of 14% and an average remaining term of 31 months. The Company does not have significant exposure to changing interest rates related to the contracts receivable because the interest rate on the contracts receivable are fixed.

The Company has not undertaken any actions to cover interest rate market risk and is not a party to any interest rate market risk management activities.

The Company also receives revenues from its Canadian subsidiary and exchanges them into U.S. Dollars at exchange rates that fluctuate with market conditions; however, such revenues are not material to the Company’s operations.

Interest Rate Sensitivity. A hypothetical ten percent change in market interest rates over the next year would not materially impact the Company’s earnings or cash flow. A hypothetical ten percent change in market interest rates would not have a material effect on the fair value of the Company’s contracts receivable or its short-term cash investments.

The Company currently has no outstanding borrowing under its Line of Credit with Union Bank. If, however, it becomes necessary for the Company to borrow under its Line of Credit, the Company’s sensitivity to changes in interest rates would increase because borrowings under the Line of Credit bear interest at prime minus .75%.

Page 27

RESULTS OF OPERATIONS

The following discussion and analysis are based on the historical results of operations of the Company for the years ended June 30, ~~2001~~2002, ~~2000,~~2001 and ~~1999~~2000. The financial information set forth below should be read in conjunction with the Company’s consolidated financial statements included in Item 8.

Net Income. The Company reported net income of $48.3 million or $.5097 per diluted share on revenues of $7988.48 million for the year ended June 30, ~~2001~~2002. This compares with net income of $94.23 million or $1.0850 per diluted share on revenues of $7079.84 million for the year ended June 30, ~~2000~~2001, and net income of $59.62 million or $1.6608 per diluted share on revenues of $6770.98 million for the year ended June 30, ~~1999~~2000.

Income before taxes was $13.1 million for fiscal 2002, compared with $6.4 million for fiscal 2001, an increase of $6.8 million. The increase in the current period was due primarily to a $699,000 contribution from the Company’s sales operations in fiscal 2002, compared with a loss of $52.53 million in fiscal 2001, a net increase of $3.4 million. The Company’s interest expense also decreased $981,000 in fiscal ~~2000~~2002, compared with fiscal 2001, as a result of the repayment of borrowings under the Credit Agreement with Foothill. ~~Net~~In addition, ~~income~~gains ~~for~~on asset sales increased $886,000 during fiscal 2002, compared with fiscal 2001, and general and administrative expenses decreased $934,000 in fiscal 2002, compared with fiscal 2001, primarily as a result of the non-recurring adjustments described below (see “General and Administrative Expenses”). Income before taxes was $5.5 million in fiscal 2000 and included a net deferred income tax benefit of $5.8 million, partially offset by a $1.4 million tax provision, resulting from the elimination of the valuation allowance for the Company’s net deferred tax assets.

Page 24

The Company’s revenues increased by $9.4 million in fiscal 2002, compared with fiscal 2001, due primarily to increases in membership sales revenue, fees from campgrounds managed by Trails Management, the Company’s property management subsidiary, and asset sales. Membership sales revenue was higher because the Company sold a similar number of new memberships at a higher average sales price and a greater number of membership upgrades to its existing members. Increases in campground operating costs, selling and marketing expenses and Trails Management expenses during fiscal 2002 were partially offset by lower general and administrative costs and interest expense as discussed above.

The Company’s revenues increased by $8.6 million in fiscal 2001, compared with fiscal 2000, due primarily to increases in membership sales revenue, dues revenue and other campground revenue, partially offset by a decrease in other income. Increases in campground operating costs and selling and marketing expenses during fiscal 2001 were partially offset by a decrease in interest expense, as a result of decreased debt levels.

The ~~Company’s~~table ~~revenues~~on ~~increased~~the byfollowing ~~$2.8 million~~page inshows ~~fiscal~~separately ~~2000, compared with fiscal 1999, due primarily to increased dues revenue from~~ the ~~acquisition~~results of ~~Leisure~~ ~~Time’s~~the ~~members and increased membership sales revenue. Revenues~~campground ~~increased in fiscal 2000~~operations, ~~compared~~Trails ~~with~~Management’s ~~fiscal~~operations ~~1999, even though gains from asset sales were $1.1 million lower~~ and ~~interest~~RPI’s ~~income was $559~~operations,~~000~~ ~~lower~~without inany ~~fiscal~~allocation ~~2000.~~of ~~Due~~corporate ~~to reductions in debt levels~~expenses, ~~the~~as ~~Company’s~~well ~~interest~~as ~~costs were~~corporate ~~also~~expenses ~~lower~~and ~~by $1.5 million in fiscal 2000. However, the unfavorable~~other ~~impact from the net deferral of sales~~ revenues and expenses ~~was $4.2 million higher~~ in ~~fiscal~~the ~~2000~~aggregate, ~~reflecting~~for ~~an increase in~~ the ~~level~~years ofended ~~sales activity~~June 30, ~~and~~ ~~campground operating expenses were $3.3 million higher due to the acquisition of Leisure Time’s campgrounds. In addition~~2002, ~~net income for fiscal~~2001 ~~2000~~and ~~included the income tax benefit discussed above~~2000.

~~The~~Page ~~table on the following page shows separately the results of the campground~~25 ~~operations, Trails Management’s operations and RPI’s operations, without any~~ ~~allocation of corporate expenses, as well as corporate expenses and other~~ ~~revenues and expenses in the aggregate, for the years ended June 30, 2001, 2000~~ ~~and 1999.~~

Page 28

Thousand Trails, Inc. and Subsidiaries
Summary of Operating Results
(Dollars in thousands)

		Year ended June 30,
		2001			2000			1999
		2002			2001			2000
Campground Operations
	Membership dues	$	4039,~~080~~856		$	3740,~~495~~080		$	3637,~~455~~495
	Campground revenues		1718,~~849~~505			1617,~~731~~849			1516,~~585~~731
	Cost of campground revenues		(87,~~793~~958	)		(8,~~095~~793	)		(78,~~401~~095	)
	Operating expenses		(3536,~~184~~102	)		(3235,~~158~~184	)		(2932,~~998~~158	)
Contribution from campground operations			1314,~~952~~301			13,~~973~~952			1413,~~641~~973
Sales
	Membership contracts originated		2227,~~903~~434			1322,~~912~~903			513,~~480~~912
	Change in deferred revenue		(1311,~~363~~218	)		(813,~~348~~363	)		(18,~~521~~348	)
	Membership sales revenue		916,~~540~~216			59,~~564~~540			35,~~959~~564
	Membership origination costs		(913,~~905~~024	)		(79,~~614~~905	)		(47,~~152~~614	)
	Change in deferred origination costs		3,~~739~~434			3,~~112~~739			~~440~~3,112
	Marketing expenses		(5,~~650~~927	)		(45,~~026~~650	)		(24,~~046~~026	)
Loss on sales			(2,276	)		(2,964	)		(1,799	)
Contribution (loss) on sales			699			(2,276	)		(2,964	)
Trails Management
	Revenues		34,~~082~~419			23,~~508~~082			2,~~271~~508
	Expenses		(34,~~332~~482	)		(23,~~545~~332	)		(2,~~135~~545	)
(Loss) Contribution from Trails Management			(250	)		(37	)		136
Loss from Trails Management			(63	)		(250	)		(37	)
Resort Parks International
	Revenues		3,~~713~~584			3,~~706~~713			3,~~576~~706
	Expenses		(1,~~820~~729	)		(1,~~844~~820	)		(1,~~963~~844	)
Contribution from RPI			1,~~893~~855			1,~~862~~893			1,~~613~~862
	Other income		2,~~616~~442			2,~~880~~616			2,~~739~~880
	Corporate member services		(1,~~233~~378	)		(1,~~333~~233	)		(1,~~253~~333	)
	General and administrative expense		(98,~~776~~842	)		(9,~~634~~776	)		(9,~~431~~634	)
	Other		~~168~~97			~~374~~168			~~227~~374
			(8,225	)		(7,713	)		(7,718	)
			(7,681	)		(8,225	)		(7,713	)
Income before interest income and expense, gain on asset sales and taxes			59,~~094~~111			5,~~121~~094			65,~~873~~121
	Interest income		12,~~951~~383			1,~~509~~951			21,~~008~~509
	Interest expense		(~~1,013~~32	)		(1,~~427~~013	)		(21,~~957~~427	)
	Gain on asset sales		~~397~~1,283			4397			~~1,105~~4
	Reduction in allowance for doubtful accounts		—400			~~251~~—			~~886~~251
Income before taxes		$	613,~~429~~145		$	56,~~458~~429		$	75,~~915~~458

Page 2926

Operating Income. ~~During~~For ~~each of~~ the ~~years~~year ended June 30, ~~2001 and 2000~~2002, the Company’s ~~achieved a positive~~ contribution from operations ofwas $59.1 million, compared with $65.91 million infor the ~~year~~ years ended June 30, ~~1999.~~2001 ~~Despite~~and ~~a decrease~~2000. inIn ~~contributions~~fiscal ~~from campground operations~~2002, ~~Trails~~the ~~Management,~~increase ~~and other~~in ~~income,~~ operating income resulted ~~remained~~primarily ~~stable~~from inincreases ~~fiscal 2001 because of the decrease~~ in the ~~negative~~ contribution from the Company’s sales and campground operations~~. Operating~~ ~~income~~and ~~declined~~a decrease in general and administrative expenses. In fiscal ~~2000~~2001, ~~primarily~~operating ~~because~~income ofremained ~~declines~~stable despite a decrease in the contributions from campground operations, ~~and~~ Trails Management and ~~a higher~~other income, because of the decrease in the loss from ~~sales~~the Company’s sales operations. For this purpose, the contribution from operations is defined as income before interest income and expense, gain on asset sales, reduction in the allowance for doubtful accounts, nonrecurring income and expenses and taxes. See the table on the previous page for the elements of the ~~contribution~~ contribution from operations and the Company’s income before taxes for the ~~historical~~ historical periods presented.

Campground Operations. The Company’s operations are highly seasonal. The Company receives the majority of the dues revenue from its members during the winter, which are recognized as income ratably during the year. However, the Company incurs a higher level of operating expenses during the summer. In addition, a majority of the Company’s sales and marketing efforts occur during the summer.

The operating results of Leisure Time are included in the operating results of the Company for the entire fiscal 2002 and 2001, compared with only six and one-half months (from December 16, 1999) for fiscal 2000.

Campground dues revenue was $4039.19 million for the year ended June 30, ~~2001~~2002, compared with $3740.51 million and $3637.5 million for the years ended June 30, ~~2000~~2001 and ~~1999~~2000, respectively. ~~The~~Campground dues decreased by $~~2.6 million~~224,000 ~~(7%)~~in fiscal 2002 because the effect of the annual dues increase inonly partially offset the loss of campground members during the year. Campground dues ~~revenue~~increased inby $2.6 million in fiscal 2001 ~~was~~ due primarily to the addition of $4.7 million in dues paid by the members of Leisure Time, compared with $1.9 million in fiscal 2000, and the effect of the annual dues increase, partially offset by the loss of campground members during the year. ~~In fiscal~~ ~~2000, Leisure Time members paid $1.9 million in dues.~~

Other campground revenues were $1718.85 million for the year ended June 30, ~~2001~~2002, compared with $1617.78 million and $1516.67 million for the years ended June 30, ~~2000~~2001 and ~~1999~~2000, respectively. The $~~1.1 million~~656,000 (74%) increase in other campground revenues in fiscal ~~2001~~2002 resulted primarily from ~~$860,000~~an ofincrease ~~revenue from Leisure Time’s campgrounds, compared with $290,000~~ in ~~fiscal~~usage ~~2000,~~ and a ~~greater~~extended ~~emphasis~~stay onfees, ~~ancillary~~RV ~~revenue~~storage atfees ~~all~~and ~~campgrounds~~merchandise sales. The $1.1 million (7%) increase in other campground revenues in fiscal ~~2000~~2001 resulted ~~primarily~~ primarily from ~~the~~$860,000 of revenue from Leisure Time’s campgrounds, ~~and~~compared with an$290,000 ~~increase~~ in ~~revenue from~~fiscal ~~the~~2000, ~~extended~~and ~~stay~~a ~~program~~greater atemphasis ~~certain~~on ancillary revenue at all campgrounds. The related expenses ~~were~~ were $8.80 million, $8.18 million and $78.41 million for fiscal ~~2001~~2002, ~~2000~~2001 and ~~1999,~~ 2000, respectively. The ~~increase~~decline in related expenses in fiscal ~~2001~~2002 was due ~~primarily~~ primarily to ~~$379,000~~a decrease in ~~expenses~~the ~~related~~cost toof ~~Leisure~~operating ~~Time~~the Company’s ~~campgrounds~~trailers, ~~compared~~ ~~with~~and ~~$176,000~~lower maintenance ~~in the prior year,~~ and ~~increases in the cost of~~ labor ~~and~~ ~~operating supplies~~costs. The increase in related expenses in fiscal ~~2000~~ 2001 was due primarily to ~~the~~$379,000 in expenses related to Leisure Time’s campgrounds, compared with $176,000 in the prior year, and anincreases ~~increase~~ in the cost of labor ~~costs~~and operating supplies.

Campground operating expenses were $3536.21 million for the year ended June 30, ~~2001~~2002, compared with $3235.2 million and $3032.02 million for the years ended June 30, ~~2000~~ 2001 and ~~1999~~2000, respectively. The increase in campground operating expenses in fiscal 2002 was due primarily to increases in depreciation and the cost of utilities. The $3.0 million (9%) increase in campground operating expenses in fiscal 2001 was due in part to operating expenses of $3.4 million relating to Leisure ~~Time’s~~ ~~campgrounds, compared with~~ ~~$1.5 million in the prior year. The increase in the current year was also due in part to~~

Page 27

Time’s campgrounds, compared with $1.5 million in the prior year. The increase in fiscal 2001 was also due in part to a $693,000 (12%) increase in utility costs at the Company’s other campgrounds, principally in Southern California where such costs increased $379,000, which accounts for 55% of the total increase in utility costs. Labor costs at the Company’s other campgrounds increased $255,000 during fiscal 2001, primarily due to wage increases.

In February 2001, the Company completed its consolidation of Leisure Time’s operations and closed four campgrounds. The Company intends to continue to keep the size of its campground system in an appropriate relation to the size of its membership base. In this regard, if the membership base continues to decline, or other opportunities arise consistent with the needs of the members, the Company may close and dispose of additional campgrounds and it will seek to decrease other expenses. Although the Company believes that the anticipated changes should result in lower future operating expenses, no assurance can be given that such changes will not reduce revenues by an amount in excess of the expense reductions.

For the year ended June 30, 2002, the Company originated membership contracts of $27.4 million, compared with $22.9 million and $13.9 million for the years ended June 30, 2001 and 2000, respectively. In fiscal 2002, the Company sold approximately the same number of new memberships at a higher average price and a greater number of membership upgrades to its existing members, compared with the prior year. In fiscal 2001, the Company sold a greater number of new memberships at a higher average price and a greater number of membership upgrades to its existing members, compared with fiscal 2000.

In fiscal 2002, the Company originated 3,900 new membership contracts at an average price of $3,342, compared with 3,900 new membership contracts at an average price of $2,815, and 3,600 new membership contracts at an average price of $2,435 in fiscal 2001 and 2000, respectively. In fiscal 2002, the Company also originated 1,100 new membership contracts through sales agreements with other companies, compared with 700 and 100 contracts in fiscal 2001 and 2000, respectively.

The Company also originated 4,300 upgrade contracts in fiscal 2002, compared with 3,000 upgrade contracts in fiscal 2001 and 1,700 upgrade contracts in fiscal 2000. The average price of the membership upgrade was $2,995 in all three fiscal years. In February 2001, the Company began offering existing Thousand Trails and NACO members access to the Leisure Time campgrounds for a fee. In fiscal 2002, the Company originated 730 contracts at an average price of $244, compared with 6,800 contracts at an average price of $235 in fiscal 2001. In April 2001, the Company began offering existing Leisure Time members access to the Thousand Trails and NACO campgrounds for a fee, which resulted in 2,000 contracts at an average price of $337 and 300 contracts at an average price of $1,999 in fiscal 2002 and 2001, respectively.

The Company recognizes revenue from the sale of campground memberships that do not convey a deeded interest in real estate, net of any related allowances, on a straight-line basis over the expected life of the memberships sold. For the years ended June 30, 2002, 2001 and 2000, the Company recognized campground membership sales revenue of $16.2 million, $9.5 million and $5.6 million, respectively. Membership sales revenue includes revenues of $13.4 million, $7.2 million and $3.9 million, respectively, that were deferred in prior periods. Moreover, for fiscal 2002, 2001 and 2000, the Company deferred revenues of $24.5 million, $20.6 million and $12.3 million, respectively, which will be recognized in future periods. In fiscal 2002, the Company

Page 28

recognized $1.5 million in sales revenue related to Leisure Time, compared with $2.2 million and $619,000 in fiscal 2001 and 2000, respectively.

Selling expenses directly related to the sale of campground memberships, substantially all of which are sales commissions, are deferred and recognized as expenses on a straight-line basis over the expected life of the memberships sold. All other selling and marketing costs are recognized as expenses in the period incurred. For the years ended June 30, 2002, 2001 and 2000, the Company recognized selling expenses of $9.6 million, $6.2 million and $4.5 million, respectively. These amounts include expenses of $4.2 million, $2.1 million and $998,000, respectively, that were deferred in prior periods. Moreover, for fiscal 2002, 2001 and 2000, the Company deferred expenses of $7.7 million, $5.9 million and $4.1 million, respectively, which will be recognized in future periods. In fiscal 2002, the Company recognized selling and marketing expenses of $591,000 related to Leisure Time, compared with $983,000 and $865,000 in fiscal 2001 and 2000, respectively.

In fiscal 2002, sales revenues exceeded selling and marketing expenses by $699,000, compared with fiscal 2001 and 2000, when selling and marketing expenses exceeded sales revenues by $2.3 million and $3.0 million, respectively. During fiscal 2002, the percentage of revenue deferred from new membership sales decreased, compared with the prior years, because the Company originated a greater number of membership contracts with a shorter expected life due to the sale of a greater number of upgrades. In fiscal 2001 and 2000, selling and marketing expenses exceeded sale revenues primarily because the Company deferred more sales revenues than selling expenses.

The Company incurs significant selling and marketing expenses to originate new membership contracts, and the majority of these expenses must be expensed in the current period, while the related sales revenues are generally deferred and recognized on a straight-line basis over the expected life of the memberships sold. As a result, the Company generally incurs a loss from the sale of new membership contracts. In contrast, the Company incurs substantially less selling and marketing expenses to originate upgrade contracts, and these expenses (substantially all of which are sales commissions) are generally deferred and recognized on a straight-line basis over the expected life of the memberships sold, as are the related sales revenue. As a result, the Company generally has a positive contribution from the sale of upgrade contracts, which offsets the loss from the sale of new membership contracts. Consequently, the Company expects that sales revenue will continue to exceed selling and marketing expenses in fiscal 2003, and until the positive impact from the sale of upgrade contracts decreases.

The Company’s selling and marketing efforts during the past three fiscal years have not produced the level of sales needed to stop the continuing decline in the Company’s membership base, although the Company has been successful in slowing the rate of this decline. If the Company is not able to increase its campground membership sales over current levels or acquire members through the purchase of other membership campground operations similar to the acquisition of Leisure Time, the membership base will continue to decline, which will decrease the Company’s revenues. Decreases in revenues that are not offset by sufficient expense reductions could have a material adverse impact on the Company’s business and results of operations.

Page 29

Trails Management. Trails Management, a wholly owned subsidiary of the Company, manages 240 public campgrounds for the U.S. Forest Service and other entities. For the year ended June 30, 2002, these operations produced a net loss of $63,000 on revenues of $4.4 million. This compares with a net loss of $250,000 on revenues of $3.1 million for the year ended June 30, 2001, and a net loss of $37,000 on revenues of $2.5 million for the year ended June 30, 2000. The increase in revenues in fiscal 2002 was due primarily to a full year’s revenue from new contracts entered into during the second quarter of fiscal 2001, which increased by 72 the number of campgrounds managed. The increase in revenues in fiscal 2001 was due primarily to higher usage of the campgrounds, in addition to the new contract entered into during the second quarter. However, increases in expenses, principally start up costs associated with the new contracts, labor and utilities, more than offset the increases in revenues, resulting in losses in the years presented. The Company is working to reduce these expenses and achieve a positive contribution from the operations of Trails Management.

Resort Parks International. RPI, a wholly owned subsidiary of the Company, charges its members a fee for a membership that entitles them to use any of the recreational facilities participating in RPI’s reciprocal use system, subject to certain limitations. For the year ended June 30, 2002, RPI’s operations produced a net contribution of $1.9 million on revenues of $3.6 million, compared with a net contribution of $1.9 million on revenues of $3.7 million for the years ended June 30, 2001 and 2000.

In fiscal 2002, total revenues decreased primarily as a result of decreases in new membership sales and membership renewals, which were partially offset by increases in revenue from the sale of directories. At the same time, communication and marketing expenses decreased, partially offsetting the decrease in revenues, and keeping net income constant between fiscal 2002 and 2001. In fiscal 2001, revenue from new membership sales and the sale of directories increased, compared with the prior year, but these increases were offset by decreases in revenue from membership renewals, while expenses remained constant between fiscal 2001 and 2000.

Other Income. Other income generally consists of transfer fees received when existing memberships are transferred in the secondary market without assistance from the Company, collections of written–off contracts and delinquent dues, subscription fees received from members who subscribe to the Company’s member magazine, fees charged to members for making more than five operator-assisted reservations in a given year and fees received from third parties for billing and collection services.

Other income was $2.4 million for the year ended June 30, 2002, compared with $2.6 million for the year ended June 30, 2001, and $2.9 million for the year ended June 30, 2000. The decrease in other income in fiscal 2002 was due primarily to a $154,000 decrease in the collection of written–off contracts and delinquent dues, partially offset by an increase in subscription revenue from the Company’s member magazine. The decrease in other income in fiscal 2001 was due primarily to a $312,000 decrease in fees received from third parties for billing and collection services after a primary customer terminated its contract with the Company in September 2000, and a $408,000 decrease in other miscellaneous income, which in fiscal 2000 included $183,000 from the settlement of a property insurance claim. These decreases were partially offset by an increase in the collection of delinquent dues. Leisure Time contributed $193,000 in other income in fiscal 2002, compared with $248,000 and $86,000 in fiscal 2001 and 2000, respectively.

Page 30

aGeneral ~~$693,000~~and ~~(12%)~~Administrative ~~increase~~Expenses. inGeneral ~~utility~~and ~~costs~~administrative atexpenses were $9.0 million for the ~~Company’s~~year ~~other~~ended ~~campgrounds~~June 30, ~~principally~~ in2002, ~~Southern~~compared ~~California~~with ~~where~~$9.8 million ~~such~~for the ~~costs~~year ~~increased~~ended ~~$379~~June 30,~~000~~ 2001, ~~which accounts~~and $9.6 million for ~~55% of~~ the ~~total~~year ~~increase~~ended ~~in utility costs~~June 30, 2000. ~~Labor~~In ~~costs~~fiscal at2002, ~~the Company’s~~general ~~other~~and ~~campgrounds~~administrative ~~increased~~expenses decreased by $~~255~~934,000, ~~during~~compared ~~the~~with ~~current~~fiscal ~~year~~2001, ~~primarily~~ due primarily to ~~wage~~several ~~increases.~~non-recurring adjustments, ~~The~~and ~~$2.2 million~~despite ~~(7%)~~increases ~~increase~~ in ~~campground~~labor costs, computer software ~~operating~~maintenance ~~expenses~~costs inand ~~fiscal~~credit ~~2000~~card ~~resulted~~discount ~~primarily~~fees. ~~from~~Without the ~~additional~~non-recurring ~~operating~~adjustments, ~~expenses~~general ~~relating~~and toadministrative ~~Leisure~~expenses ~~Time’s~~would ~~campgrounds~~have ~~and~~been anapproximately $500,000 ~~increase~~higher in ~~maintenance~~ ~~expenses~~fiscal 2002 than the previous year.

AsIn ~~discussed above, in~~ fiscal ~~2001~~2002, the Company ~~completed~~reduced ~~its~~a ~~consolidation~~$1.9 million ofliability for accrued ~~Leisure~~construction ~~Time’s~~costs ~~operations~~at ~~and~~a ~~closed~~resort ~~four~~not ~~campgrounds.~~related ~~The~~to ~~Company~~the ~~intends~~campground operations to ~~continue~~$500,000 toand ~~keep~~reclassified the ~~size~~remaining ofliability ~~its~~as ~~campground~~a ~~system~~reserve infor anthe contingent ~~appropriate~~liability. ~~relation to~~The decrease in the ~~size~~liability was classified as a reduction of ~~its~~general ~~membership~~and ~~base~~administrative expenses (see “Liquidity and Capital Resources – Campground Properties”). In ~~this regard~~addition, ifin ~~the~~fiscal ~~membership~~2002, ~~base~~the Company ~~continues~~reduced toby ~~decline~~$376,000 ora ~~other~~liability ~~opportunities~~established ~~arise~~in ~~consistent~~prior ~~with~~years ~~the~~for ~~needs~~benefits ofpayable ~~the~~under ~~members,~~a retirement plan because the Company ~~may~~determined ~~close~~that ~~and~~the ~~dispose~~liability exceeded ofthe ~~additional~~estimated ~~campgrounds~~future ~~and~~payments. itThe decrease in the liability was ~~will~~classified ~~seek~~as toa ~~decrease~~reduction ~~other~~of general and administrative expenses. ~~Although~~In fiscal 2002, the Company ~~believes~~also ~~that~~expensed ~~the~~$500,000 of software implementation costs which ~~anticipated~~did ~~changes~~not ~~should~~qualify ~~result~~for incapitalization ~~lower~~under ~~future~~Statement ~~operating~~of ~~expenses,~~Position noNo. 98-1 ~~assurance~~“Accounting ~~can~~for bethe ~~given~~Costs ~~that~~of ~~such~~Computer ~~changes~~Software ~~will~~Developed ~~not~~or ~~reduce~~Obtained ~~revenues~~for Internal byUse.” anBecause ~~amount~~of these non-recurring adjustments in fiscal 2002, the Company expects general and administrative expenses to increase in ~~excess~~fiscal of2003 to a level higher than the ~~expense~~prior ~~reductions~~two years.

~~For~~In ~~the~~fiscal ~~year ended June 30,~~ 2001, ~~the~~general ~~Company~~and ~~originated~~administrative ~~membership~~expenses ~~contracts of $22.9 million~~increased, compared with ~~$13.9 million and $5.5 million in the years ended~~ ~~June 30,~~fiscal 2000, ~~and~~due ~~1999,~~primarily ~~respectively.~~to Inincreases ~~fiscal~~in ~~2001,~~labor ~~the~~costs ~~Company~~and ~~sold~~credit acard ~~greater~~processing ~~number~~fees, ofpartially ~~new~~offset ~~membership~~by ~~contracts~~decreases atin athird-party ~~higher~~legal ~~average price per~~fees. ~~contract~~General and aadministrative ~~greater~~expenses ~~number~~directly ofrelated ~~membership upgrades~~ to ~~its~~Leisure ~~existing~~Time ~~members,~~were ~~compared~~$48,000 ~~with~~in ~~the~~fiscal ~~prior years. In the current year~~2002, ~~the~~compared ~~Company~~with ~~completed the upgrade program offered to Leisure Time’s existing members~~$127,000 and ~~began~~$268,000 ~~marketing a~~in ~~similar~~fiscal ~~product~~2001 ~~to the existing members of Thousand Trails~~ and 2000, ~~NACO~~respectively.

~~For~~General ~~the~~and ~~year~~administrative ~~ended~~expenses ~~June 30,~~include ~~2001,~~costs ~~the~~related ~~Company~~to ~~originated~~collecting ~~approximately 4,500~~the ~~new membership~~ contracts atreceivable anand ~~average~~membership ~~price~~dues of $2.1 million,~~549,~~ ~~compared with approximately~~ $2.3~~,700~~ million ~~new~~and ~~membership contracts at an average price of~~ $2~~,298, and~~.2 ~~approximately~~million ~~4,200 new membership contracts at an average price of $1,254,~~ for the years ended June 30, ~~2000~~2002, 2001 and ~~1999~~2000, respectively. ~~The Company also~~In ~~originated~~fiscal ~~approximately 3~~2002,~~000~~ ~~upgrade~~these ~~contracts~~collection atcosts andecreased ~~average~~as ~~price~~a result of ~~$2,995~~ decreases in ~~fiscal 2001, compared with approximately 1,700 upgrade contracts at an~~labor ~~average~~costs ~~price~~and ofmaintenance ~~$2,895~~and incommunications ~~fiscal 2000~~expenses. In ~~February~~fiscal ~~2001~~2000, ~~the Company began~~these ~~offering~~collection ~~existing~~costs ~~Thousand~~were ~~Trails~~reduced ~~and~~by ~~NACO~~$98,000 ~~members~~as ~~access~~a toresult of the ~~Leisure~~amortization ~~Time~~of the ~~campgrounds~~allowance for acollection ~~fee,~~costs ~~which~~related ~~resulted~~to inthe ~~approximately 6,800~~ contracts atreceivable. anThis ~~average~~allowance ~~price~~was offully ~~$235~~amortized inat ~~the~~June 30, ~~current year~~2000. ~~In April~~Collection ~~2001,~~costs ~~the~~related ~~Company began offering existing~~ to Leisure Time’s ~~members~~contracts ~~access~~receivable ~~to the~~were ~~Thousand~~$252,000 ~~Trails~~in ~~and~~fiscal ~~NACO campgrounds for a fee~~2002, ~~which~~compared ~~resulted in~~with ~~approximately~~$287,000 ~~300~~and ~~contracts at an average price of~~ $1139,~~999~~000 in ~~the~~fiscal ~~current~~2001 ~~year~~and 2000, respectively.

The Company’s ~~recognizes~~insurance ~~revenue~~renews ~~from~~on ~~the~~an ~~sale~~annual ofbasis, ~~campground~~effective ~~memberships~~July ~~that~~1 doeach year. ~~not~~On ~~convey a deeded interest in real estate~~July 1, ~~net of any related allowances~~2002, ~~on a~~to ~~straight-line~~reduce ~~basis over~~ the ~~expected~~impact ~~life~~ of ~~the~~rising ~~memberships~~insurance ~~sold.~~costs, ~~For~~ the Company ~~years~~obtained ~~ended~~insurance ~~June 30,~~covering ~~2001,~~general ~~2000~~liability ~~and 1999~~losses, ~~the~~auto ~~Company~~liability ~~recognized~~losses ~~campground~~and ~~membership~~workers’ ~~sales~~compensation ~~revenue~~claims ofwhich ~~$9.5 million,~~requires ~~$5.6 million~~the ~~and~~Company ~~$4.0 million, respectively.~~to ~~Membership~~pay ~~sales~~the ~~revenue includes revenues of $7.2 million,~~first $~~3.9 million and $3.1 million~~250,000 ~~respectively,~~per ~~that were deferred in prior periods~~occurrence. ~~Moreover,~~With ~~for~~the ~~fiscal~~revised ~~2001,~~insurance ~~2000 and 1999~~program, the Company ~~deferred~~ ~~revenues~~expects ofto ~~$20.6 million,~~experience ~~$12.3 million~~greater ~~and~~uninsured ~~$4.6 million,~~general ~~respectively~~liability losses, ~~which~~auto ~~will~~liability belosses ~~recognized~~and inworkers’ ~~future~~compensation ~~periods.~~claims ~~In the current year, the Company recognized $2.2 million~~ in ~~sales~~fiscal ~~revenue~~2003 ~~related~~than ~~to Leisure Time, compared with~~it ~~$619,000~~recorded in ~~the~~ prior ~~year~~years.

Corporate Member Services. Corporate member services include the reservation and member support services, as well as the costs incurred to produce the Company’s member magazine. These costs were $1.4 million for the year ended June 30, 2002, compared with $1.2 million for the year ended June 30, 2001, and $1.3 million for the year ended June 30, 2000. The increase in expenses in fiscal 2002 was due primarily to higher labor costs, partially offset by a decrease in

Page 31

~~Selling~~communication expenses directly related to the sale of campground memberships, substantially all of which are sales commissions, are deferred and recognized as expenses on a straight-line basis over the expected life of the memberships sold. ~~All~~The ~~other~~decrease ~~selling~~in ~~and marketing costs are recognized as~~ expenses in ~~the period~~fiscal ~~incurred. For the years ended June 30,~~ 2001, ~~2000~~was ~~and 1999, the Company~~due ~~recognized~~primarily ~~selling~~to ~~expenses~~a ofdecrease ~~$6.2 million,~~in ~~$4.5 million~~labor and ~~$3.7 million, respectively.~~communications ~~These amounts include~~ expenses ~~of $2.1 million~~, ~~$998,000~~partially ~~and~~offset ~~$730,000,~~by ~~respectively,~~an ~~that~~increase ~~were deferred~~ in ~~prior~~production ~~periods. Moreover, for fiscal 2001, 2000~~ and ~~1999,~~postage ~~the~~costs ~~Company~~for ~~deferred expenses of $5.9 million, $4.1 million and $1.2 million, respectively, which will be recognized in future periods. In fiscal 2001,~~ the Company’s ~~recognized selling and marketing expenses~~member ~~of $983,000 related to Leisure Time, compared with $865,000 in fiscal 2000~~magazine.

~~Although~~Interest ~~the~~Income ~~Company’s~~and ~~sales~~Expense. ~~results~~Interest ~~are~~income ~~improving,~~increased ~~selling~~to ~~and~~$2.4 million ~~marketing~~for the ~~expenses~~year ~~exceeded~~ended June 30, ~~sale~~2002, ~~revenues~~compared bywith $2.30 million, ~~$3.0~~for the year ended June ~~million~~30, ~~and~~2001, and $1.85 million, for the ~~years~~year ended June 30, 2000. The increases in fiscal 2002 and 2001, ~~2000~~were due primarily to increases in interest earned on the Company’s growing portfolio of contracts receivable and ~~1999,~~invested ~~respectively~~cash. ~~These~~Interest ~~expenses~~income ~~exceeded~~for ~~sales~~fiscal ~~revenue~~2000 ~~primarily~~includes ~~because~~amortization of the ~~Company~~interest ~~deferred~~discount ~~more~~and ~~sales~~valuation ~~revenue~~allowances ~~than~~related ~~selling~~to ~~expenses.~~the Incontracts ~~addition~~receivable of $229,000. inThe ~~fiscal~~interest discount ~~1999~~and valuation allowances were fully amortized at June 30, ~~these~~2000. ~~expenses~~The ~~exceeded~~Company’s ~~sales~~portfolio ~~revenue~~of contracts receivable increased with the acquisition of Leisure Time, and has continued to grow as a result of the increase in membership ~~part~~sales, ~~because~~approximately 32% of which were sold on an installment basis in fiscal 2002. The Company expects the ~~relatively~~interest ~~low~~earned ~~volume~~on its portfolio of contracts ~~sales~~receivable ~~did~~and invested cash to increase in fiscal 2003, compared ~~not~~with ~~cover~~historical ~~fixed~~levels, ~~costs~~as the portfolio continues to grow and the Company accumulates cash.

~~The~~Interest ~~Company’s~~expense ~~selling~~decreased ~~and~~to ~~marketing~~$32,000 ~~efforts~~for ~~require~~the ~~significant~~year ~~expense~~ended June 30, ~~the~~2002, from ~~majority~~$1.0 million offor ~~which~~the ~~must~~year beended ~~expensed~~June 30, in2001, ~~the~~and ~~current~~$1.4 million ~~period,~~for ~~while~~ the ~~related~~year ~~sales~~ended ~~revenues~~June 30, ~~are~~2000. ~~generally~~The ~~deferred~~decreases ~~and~~in ~~recognized~~interest onexpense ain ~~straight-line~~fiscal ~~basis over~~2002 ~~the~~and ~~expected~~2001 were ~~life~~due ofprimarily ~~the~~to ~~memberships~~repayments, ~~sold.~~in AsMarch ~~a consequence~~2001, of the Company’s borrowings ~~expects~~under ~~that~~ its ~~selling~~Credit ~~and~~Agreement ~~marketing~~with ~~expenses~~Foothill. ~~will~~Interest ~~continue~~expense tofor ~~exceed~~fiscal ~~its~~2001 ~~campground~~includes ~~membership~~a ~~sale~~$150,000 ~~revenues.~~fee ~~This~~resulting ~~disparity~~from ~~will~~early ~~increase~~termination asof the Company’s Credit ~~grows~~Agreement ~~campground~~with ~~membership sales~~Foothill.

The Company’s ~~selling~~reduced ~~and~~its ~~marketing~~outstanding ~~efforts~~debt ~~during~~by ~~the~~$9.6 million ~~past~~during ~~three~~ fiscal ~~years~~2001, ~~have~~and ~~not~~by ~~produced~~$1.3 million ~~the~~during ~~level~~fiscal of2000. ~~sales~~At ~~needed~~June 30, ~~to stop the continuing decline in the Company’s membership base~~2002, ~~although~~ the Company ~~has~~had ~~been successful in~~no ~~slowing~~outstanding ~~the rate of this decline~~borrowings. IfInterest ~~the~~expense ~~Company~~ is ~~not~~expected ~~able~~ to ~~increase~~remain ~~its campground~~minimal ~~membership~~in ~~sales over current levels or acquire members through~~ the ~~purchase~~future ofas ~~other membership campground operations similar to~~ the ~~acquisition of~~Company ~~Leisure~~funds ~~Time,~~its ~~the membership base will continue~~ day-to-day ~~decline,~~activities ~~which~~with ~~will decrease~~cash ~~the Company’s revenues. Decreases in revenues that are not offset by~~from ~~sufficient expense reductions could have a material adverse impact on the Company’s business and results of~~ operations.

~~Trails~~Gains ~~Management~~on Asset Sales. ~~Trails~~During ~~Management,~~the ayears ~~wholly~~ended ~~owned~~June 30, ~~subsidiary~~2002, of2001 and 2000, the Company, ~~manages~~sold ~~241~~certain ~~public~~of ~~campgrounds~~its ~~for~~real ~~the~~estate ~~U.S.~~assets ~~Forest Service~~ and ~~other entities.~~recognized ~~For~~related ~~the~~gains ~~year ended~~of ~~June~~$1.3 30million, ~~2001~~$397,000 ~~these~~and ~~operations~~$4,000, ~~produced~~respectively. aIn ~~net~~fiscal ~~loss of $250~~2002,~~000~~ onthe ~~revenues of~~Company ~~$3.1 million.~~sold ~~This~~a ~~compares~~campground ~~with~~not arelated ~~net~~to ~~loss~~its ofcurrent ~~$37,000~~operations onfor ~~revenues~~proceeds of $21.54 million ~~for the year ended June 30~~, ~~2000,~~ and recorded a ~~net~~gain ~~contribution~~ of $~~136,000 on revenues of $2~~1.31 million ~~for~~ on the ~~year ended June 30, 1999~~sale. ~~The~~In ~~increase in revenues in~~ fiscal 2001, ~~was~~the ~~due~~Company ~~primarily~~sold toa ~~higher~~campground ~~usage~~not ofrelated ~~the~~to ~~campgrounds,~~its incurrent ~~addition~~operations tofor aproceeds ~~new contract~~of ~~entered~~$1.4 million, ~~into~~and ~~during~~recorded ~~the~~a ~~second~~gain ~~quarter~~ of ~~fiscal 2001~~$250,000 ~~which~~on ~~increased by 72~~ the ~~number of campgrounds managed~~sale. ~~The~~Over ~~increase~~the innext several ~~revenues~~years, inthe ~~fiscal~~Company ~~2000~~intends ~~was due primarily~~ to ~~new~~dispose ~~contracts~~of ~~entered~~the ~~into~~remaining assets that ~~year,~~it holds ~~which~~for ~~increased~~sale, the ~~number~~ of campgrounds ~~managed.~~that ~~However,~~were ~~increases~~closed infollowing ~~expenses, principally start up costs associated with~~ the ~~new~~acquisition ~~contracts~~of Leisure Time, ~~labor~~any ~~and~~campgrounds ~~utilities,~~that ~~more than~~are ~~offset~~closed in the ~~increases~~future inand ~~revenues~~other undeveloped, ~~resulting~~excess inacreage ~~losses~~associated inwith ~~fiscal~~the ~~2001 and 2000~~campgrounds.

Reduction in the Allowance for Doubtful Accounts. In fiscal 2002 and 2000, the Company reduced the allowance for doubtful accounts on the contracts receivable by $400,000 and $251,000, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years (see “Liquidity and Capital Resources – Contracts Receivable”).

Page 32

~~Resort~~Income ~~Parks International~~Taxes. ~~RPI,~~The aCompany ~~wholly~~accounts ~~owned~~for ~~subsidiary~~income oftaxes ~~the~~in ~~Company, charges~~accordance ~~its~~with ~~members~~SFAS aNo. 109, ~~fee~~“Accounting for aIncome ~~membership~~Taxes”. ~~that~~This ~~entitles~~standard ~~them~~requires, toamong ~~use~~other ~~any~~things, recognition of ~~the recreational~~future ~~facilities~~tax ~~participating~~benefits, inmeasured ~~RPI’s~~by ~~reciprocal~~enacted ~~use~~tax ~~system~~rates, ~~subject~~attributable to ~~certain~~deductible ~~limitations.~~temporary ~~For~~differences ~~the~~between ~~years~~financial ~~ended~~statement ~~June 30, 2001~~ and ~~2000,~~income ~~RPI’s~~tax ~~operations~~bases ~~produced a net contribution~~ of ~~$1.9 million~~assets onand ~~revenues~~liabilities ofand ~~$3.7 million.~~to ~~This~~tax ~~compares with a~~ net ~~contribution~~operating ofloss ~~$1.6 million on revenues of~~carryforwards ~~$3.6 million~~(“NOLs”), ~~for~~to the ~~year~~extent ~~ended~~that ~~June 30,~~realization ~~1999. Revenue from new membership sales and sales~~ of ~~directories~~such ~~increased~~benefits inis ~~fiscal~~more ~~2001,~~likely ~~but these increases~~than ~~were offset by decreases in revenue from membership renewals, while expenses remained constant between the two periods~~not.

The ~~slight increase in RPI~~Company’s ~~contribution~~current inprovision ~~fiscal~~for ~~2000,~~income ~~compared~~taxes ~~with~~was ~~1999~~$3.1 million, $891,000 and ~~resulted~~$621,000 ~~primarily~~for ~~from~~the ~~lower~~years ~~operating~~ended ~~expenses~~June 30, ~~which~~2002, ~~were~~2001 ~~attributable~~and to2000, respectively. The ~~lower~~provisions ~~communication~~include ~~costs~~amounts for regular federal corporation income tax and alternative aminimum ~~decrease~~tax as well as state income taxes in the ~~cost~~various states where the Company conducts its business. For the years ended June 30, 2001 and 2000, with the exception of ~~operating~~the ~~supplies~~alternative minimum tax amounts, the Company ~~partially~~did ~~offset~~not byhave anfederal ~~increase~~income intaxes ~~labor~~payable ~~costs.~~on ~~RPI~~a isconsolidated ~~working~~basis due to ~~introduce~~its ~~new~~NOLs, ~~products~~which tototaled ~~increase~~$7.9 million ~~its~~at ~~revenues~~June 30, 2001. For the year ended June 30, 2002, the NOL carryfoward was fully utilized and ~~maintain~~regular ~~its~~corporate ~~contribution~~income ~~margin;~~tax ~~however~~was paid on the excess taxable income. Prior to net operating loss deductions, the ~~there~~Company ishad notaxable ~~assurance~~income ~~that~~of ~~these~~$15.8 million ~~efforts~~in fiscal 2002, $13.0 million ~~will~~in befiscal ~~successful~~2001 and $7.0 million in fiscal 2000.

~~Other~~The ~~Income.~~tax ~~Other~~provisions ~~income~~for ~~generally~~the ~~consists~~years ofended ~~transfer~~June 30, ~~fees~~2002 ~~received~~and ~~when~~2001 also include a ~~existing~~net ~~memberships~~deferred ~~are~~tax ~~transferred~~provision inof ~~the~~$1.7 million ~~secondary~~and ~~market~~$1.3 million, ~~without~~respectively. ~~assistance~~The ~~from~~tax provision for the ~~Company,~~year ~~collections~~ended ofJune 30, ~~written–off~~2000 ~~contracts~~includes ~~and~~a ~~delinquent~~$5.8 million ~~dues,~~deferred ~~subscription~~income ~~fees~~tax ~~received~~benefit resulting from ~~members~~the ~~who~~reversal ~~subscribe~~of tothe valuation allowance for the Company’s ~~member~~net deferred tax assets and a net deferred tax provision of $1.4 ~~magazine~~million. The reversal of the valuation allowance had no effect on income tax payments, ~~fees~~but ~~charged~~did toresult ~~members~~in ~~for~~higher ~~making~~tax ~~more~~provisions ~~than~~in ~~five~~fiscal ~~operator-assisted~~2001 and ~~reservations~~2002 when the related deferred tax assets were realized. The Company eliminated the valuation allowance in afiscal ~~given~~2000 ~~year,~~because ~~lot~~it ~~sales~~expected ~~and~~to generate ~~fees~~sufficient ~~received~~taxable ~~from~~income ~~third~~during ~~parties~~the carryforward period to realize ~~for~~the ~~billing~~net deferred tax assets. In fiscal 2001 and ~~collection~~2002, ~~services~~the Company generated sufficient taxable income to fully realize these tax benefits.

~~Other income was $2~~Inflation.~~6 million~~ ~~for~~During the ~~year~~past ~~ended~~three ~~June 30,~~fiscal ~~2001~~years, ~~compared~~the ~~with $2.9 million~~Company’s ~~for~~results ~~the~~have ~~year~~not been ~~ended~~affected ~~June 30,~~materially ~~2000,~~by ~~and $2~~inflation.~~7 million~~ ~~for the year ended June 30~~However, ~~1999.~~should ~~The~~the ~~decrease~~rate inof ~~other~~inflation increase ~~income~~ in ~~fiscal~~the ~~2001 was due primarily to a $312~~future,~~000~~ ~~decrease~~or inshould ~~fees~~utility ~~received~~costs ~~from~~or ~~third~~insurance ~~parties~~related ~~for~~costs ~~billing~~increase ~~and~~significantly, ~~collection services after a primary customer terminated its contract with~~ the Company’s inexpenses ~~September~~are ~~2000,~~likely ~~and~~to aincrease ~~$408,000~~at ~~decrease in other~~a ~~miscellaneous~~greater ~~income,~~rate ~~which~~than init ~~fiscal~~can ~~2000~~increase ~~included $183,000 from~~ the ~~settlement~~ ofannual adues ~~property~~paid ~~insurance~~by ~~claim.~~campground ~~These~~members because ~~decreases~~the ~~were~~Company ~~partially offset~~can bynot an increase in the ~~collection~~dues ofon ~~delinquent~~existing ~~dues.~~contracts ~~The~~of ~~increase in~~senior ~~other~~citizens ~~income~~and ~~during~~disabled ~~fiscal~~members ~~2000~~who ~~was~~notify ~~due~~the ~~primarily~~Company toof antheir ~~increase~~age inor ~~transfer~~disability ~~fees~~ and ~~servicing~~request ~~fees,~~that ~~partially~~their ~~offset~~dues bybe afrozen. ~~decrease~~At in the ~~collection~~present ~~of written-off~~time, ~~contracts~~approximately ~~and~~36% of ~~delinquent~~the ~~dues.~~members ~~Leisure~~have ~~Time~~requested ~~contributed~~that ~~$248,000 in~~their ~~other~~dues ~~income~~be infrozen ~~fiscal~~because ~~2001,~~of ~~compared~~their ~~with~~age ~~$86,000 in fiscal 2000~~or disability.

~~General and Administrative Expenses. General and administrative expenses were $9.8~~Item ~~million for the year ended June 30, 2001, compared with $9~~7A.~~6 million~~ ~~for the~~Quantitative ~~year ended June 30, 2000,~~ and ~~$9.4 million~~Qualitative ~~for~~Disclosures ~~the~~About ~~year~~Market ~~ended June 30,~~Risk ~~1999. General and administrative expenses increased in fiscal 2001 due~~ ~~primarily to increases in labor costs and credit card processing fees,~~ partially offset by decreases in third-party legal fees. General and administrative expenses increased in fiscal 2000 due primarily to increases in labor costs, rental expense, credit card processing fees and approximately $77,000 in expenses related to the acquisition of Leisure Time that could not be capitalized as part of the cost of acquisition. These increases were partially offset by decreases in third-party legal fees, professional expenses and depreciation. General and administrative expenses directly related to Leisure Time were $127,000 in fiscal 2001, compared with $268,000 in fiscal 2000.

~~General~~The ~~and~~Company ~~administrative~~does ~~expenses~~not currently have any derivative financial instruments, which include ~~costs~~futures, ~~related~~forwards, tointerest ~~collecting~~rate swaps, option contracts and other financial instruments with similar characteristics. However, the Company does ~~contracts~~have ~~receivable~~other ~~and~~financial ~~membership~~instruments ~~dues~~containing ofmarket $2risk.3 Management believes that the market risk associated with the Company’s financial instruments as of June ~~million~~30, $22002 is not significant.2 The information required by Item ~~million~~305 of Regulation S-K is contained in Item 7 – “Management’s Discussion and ~~$2.1~~Analysis ~~million~~of ~~for~~Financial Condition and Results of Operations” under the ~~years~~headings ~~ended~~“Market Risk” and “Interest Rate Sensitivity.”

Page 33

~~June~~Item ~~30, 2001, 2000 and 1999, respectively~~8. InFinancial ~~fiscal~~Statements ~~2000~~ and ~~1999,~~Supplementary ~~these~~Data ~~collection costs were reduced by $98,000 and $136,000, respectively, as a~~ ~~result of the amortization of the allowance for collection costs related to the~~ contracts receivable (see “Liquidity and Capital Resources – Contracts Receivable”). Collection costs related to Leisure Time’s contracts receivable were $287,000 in fiscal 2001, compared with $139,000 in fiscal 2000. The Company anticipates that its overall collection costs will continue to increase if the contracts receivable portfolio continues to grow, resulting from an increase in financed new sales.

~~Corporate~~Consolidated ~~Member~~Financial ~~Services.~~Statements ~~Corporate member services include the reservation~~Index ~~and member support services performed at the corporate office, as well as the~~ costs incurred to produce the Company’s member magazine. These costs declined to $1.2 million for the year ended June 30, 2001, from $1.3 million for the years ended June 30, 2000, and 1999. The decrease in expenses in fiscal 2001 was due primarily to a decrease in labor and communications expenses, partially offset by an increase in production and postage costs for the Company’s member magazine.

Interest Income and Expense. Interest income increased to $2.0 million for the year ended June 30, 2001, compared with $1.5 million for the year ended June 30, 2000, and $2.0 million for the year ended June 30, 1999. The increase in fiscal 2001 was due primarily to increases in interest earned on the Company’s growing portfolio of contracts receivable and invested cash. The decrease in fiscal 2000 was due primarily to decreases in interest earned on the Company’s portfolio of contracts receivable, which declined during that year prior to the acquisition of Leisure Time. Also included in interest income is amortization of the allowance for interest discount and valuation allowance related to the contracts receivable, of which $229,000 was amortized during fiscal 2000, and $181,000 was amortized during fiscal 1999 (see “Liquidity and Capital Resources – Contracts Receivable”). The interest discount and valuation allowances were fully amortized at June 30, 2000. The Company’s portfolio of contracts receivable increased with the acquisition of Leisure Time, and has continued to grow as a result of the increase in membership sales, approximately 33% of which are sold on an installment basis. As a result, the interest earned on the Company’s portfolio of contracts receivable is expected to increase compared with historical levels.


Reports of Independent Certified Public Accountants		35




Consolidated Balance Sheets – June 30, 2002 and 2001		38




Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000		39




Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2002, 2001 and 2000		40




Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000		41




Notes to Consolidated Financial Statements		43




Financial Statement Schedule:




	Schedule II – Valuation and Qualifying Accounts	63

~~Interest~~All ~~expense~~other ~~decreased~~schedules toare ~~$1.0 million~~omitted ~~for~~because ~~the~~they ~~year~~are ~~ended~~not ~~June 30,~~applicable ~~2001, from~~or ~~$1.4 million for~~ the ~~year ended June 30, 2000, and $3.0 million for the~~required ~~year~~information ~~ended~~is ~~June 30,~~shown ~~1999. The decreases~~ in ~~interest~~the ~~expense~~consolidated infinancial ~~fiscal~~statements ~~2001~~or ~~and 2000~~notes ~~were due primarily to decreases in debt levels from year to year~~hereto. ~~Interest expense for fiscal 2001 includes a $150,000 fee resulting from early~~ ~~termination of the Company’s Credit Agreement with Foothill.~~

Interest expense for the year ended June 30, 1999, includes amortization of the deferred gain related to the PIK Notes, which reduced interest expense by $150,000.

The Company reduced its outstanding debt by $9.6 million during fiscal 2001, $1.3 million during fiscal 2000, and by $23.8 million during fiscal 1999. At June 30, 2001, the Company had no outstanding borrowings. Interest expense is expected to decline in the future as the Company funds its day-to-day activities with cash from operations. However, the Company’s ability to fund its operations with internally generated cash will be limited if new members elect to finance the purchase of their memberships in significant amounts. In addition, the Company would likely borrow under the Line of Credit if it acquires new members through the purchase of other membership campground operations, similar to the acquisition of Leisure Time.

Page 34

~~Gains~~REPORT onOF ~~Asset~~INDEPENDENT ~~Sales.~~PUBLIC ~~During the years ended June 30, 2001, 2000 and 1999, the~~ACCOUNTANTS ~~Company sold certain of its real estate assets and recognized related gains of~~ ~~$397,000, $4,000 and $1.1 million, respectively. In fiscal 2001, the Company~~ sold one campground for proceeds of $1.4 million, and recorded a gain of $250,000 on the sale. In fiscal 1999, the Company sold a large tract of undeveloped land for proceeds of $2.0 million, and recorded a gain of $993,000 on the sale. Over the next several years, the Company intends to dispose of the remaining assets that it holds for sale, the campgrounds that were closed following the acquisition of Leisure Time, any campgrounds that are closed in the future if the Company downsizes and other undeveloped, excess acreage associated with the campgrounds. The sale of campgrounds requires addressing the rights of members associated with such campgrounds. The impact of these rights is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from asset sales. In addition, although the Company has successfully sold assets during the past three years, no assurance exists that the Company will be able to locate a buyer for any of the remaining assets or that sales on acceptable terms can be effected.

~~Reduction~~Shareholders ~~in the Allowance for Doubtful Accounts. In fiscal 2000~~ and ~~1999,~~Board ~~the Company~~of ~~reduced the allowance for doubtful accounts on the contracts receivable~~Directors byThousand ~~$251~~Trails,~~000~~ ~~and $886,000, respectively~~Inc. ~~The adjustments were made because the Company experienced lower contract losses than anticipated in these years (see “Liquidity~~ and ~~Capital Resources –Contracts Receivable”).~~Subsidiaries

~~Income~~We ~~Taxes.~~have ~~The~~audited ~~Company~~the ~~accounts~~accompanying ~~for~~consolidated ~~income~~balance ~~taxes~~sheet inof ~~accordance~~Thousand ~~with~~Trails, Inc. ~~SFAS~~and ~~No.~~Subsidiaries as of June 30, 2002, and the related consolidated ~~109~~statements of operations, ~~“Accounting~~shareholders’ equity, and cash flows for ~~Income~~the ~~Taxes”~~year then ended. ~~This~~These ~~standard~~financial ~~requires,~~statements ~~among~~are ~~other things,~~the ~~recognition~~responsibility of ~~future~~the ~~tax~~Company’s management. ~~benefits,~~Our ~~measured~~responsibility byis ~~enacted~~to ~~tax~~express ~~rates,~~an opinion on these financial ~~attributable~~statements tobased ~~deductible~~on ~~temporary~~our ~~differences~~audit. ~~between~~The financial ~~statement~~statements of Thousand Trails, Inc. and ~~income~~Subsidiaries ~~tax~~as ~~bases~~ of ~~assets~~June 30, 2001 and ~~liabilities~~for ~~and~~each toof ~~tax~~the ~~net~~two ~~operating~~years ~~loss~~in the ~~carryforwards~~period ~~(“NOLs”)~~ended June 30, to2001, ~~the~~were ~~extent~~audited ~~that~~by ~~realization~~other ofauditors ~~such~~who ~~benefits~~ceased operations isand ~~more~~whose report dated September 5, 2001, expressed an unqualified ~~likely~~opinion ~~than~~on ~~not~~those statements.

~~The~~We ~~Company’s~~conducted ~~current~~our ~~provision~~audit ~~for~~in ~~income~~accordance ~~taxes~~with ~~was~~auditing ~~$891,000,~~standards ~~$621,000~~generally ~~and~~accepted ~~$40,000~~in ~~for~~ the ~~years~~United ~~ended~~States ~~June 30,~~of ~~2001, 2000 and 1999, respectively~~America. ~~The provisions~~Those ~~for~~standards ~~fiscal~~require ~~2001~~that ~~and~~we ~~2000~~plan ~~include amounts for federal alternative~~and ~~minimum~~perform ~~taxes~~the asaudit ~~well~~to asobtain ~~state~~reasonable ~~income~~assurance ~~taxes~~about inwhether the ~~various~~financial statements ~~states~~are ~~where~~free ~~the Company~~of ~~conducts~~material ~~its business~~misstatement. ~~The~~An ~~provision~~audit ~~for~~includes ~~fiscal~~examining, ~~1999 relates primarily~~on toa ~~state~~test ~~income~~basis, ~~taxes.~~evidence ~~With~~supporting the ~~exception~~amounts ofand ~~the~~disclosures ~~alternative~~in ~~minimum tax amounts,~~ the ~~Company does not have federal income taxes payable on a~~financial ~~consolidated~~statements. ~~basis~~An ~~due~~audit toalso ~~its~~includes ~~NOLs,~~assessing ~~which~~the ~~are~~accounting ~~estimated~~principles ~~to total $7.9 million~~used ~~at June 30, 2001,~~ and ~~expire~~significant inestimates ~~years~~made ~~2010~~by tomanagement, ~~2014.~~as ~~Prior~~well toas ~~net~~evaluating ~~operating loss deductions,~~ the ~~Company~~overall financial ~~had~~statement ~~taxable income of $13~~presentation.~~0 million~~ inWe ~~fiscal~~believe ~~2001 and~~that ~~$7.0 million~~our inaudit ~~fiscal~~provides ~~2000, and~~ a reasonable ~~taxable~~basis ~~loss~~for ofour $2opinion.~~1 million in fiscal~~ ~~1999.~~

~~The~~In ~~tax~~our ~~provision~~opinion, ~~for~~ the ~~year~~consolidated ~~ended~~financial ~~June 30,~~statements ~~2001~~referred ~~also~~to ~~includes~~above ~~a net deferred~~present ~~tax~~fairly, ~~provision~~in ofall ~~$1.3 million.~~material ~~The~~respects, ~~tax~~the ~~provision~~financial ~~for~~position ~~the~~of ~~year~~Thousand ~~ended June 30~~Trails, ~~2000 includes a $5~~Inc.~~8 million~~ ~~deferred~~and ~~income~~Subsidiaries ~~tax~~as ~~benefit resulting from the reversal~~ of ~~the~~June 30, ~~valuation~~2002, ~~allowance~~and ~~for~~ the ~~Company’s~~results ~~net~~of ~~deferred~~their ~~tax assets~~operations ~~(see Note 10 to the consolidated financial statements included in Item 8)~~ and ~~a net~~their ~~deferred~~cash ~~tax~~flows ~~provision of $1.4 million. The tax provision~~ for the year ~~ended~~ ~~June 30,~~then ~~1999,~~ended ~~also includes a net deferred tax provision of $2.3 million, which consists of $2.7 million~~ in ~~deferred~~conformity ~~income~~with ~~tax expense and a~~accounting ~~$401,000~~principles ~~deferred~~generally ~~income~~accepted ~~tax benefit resulting from a reduction~~ in the ~~valuation~~ ~~allowance~~United ~~for~~States ~~the~~of ~~Company’s net deferred tax assets~~America. ~~The adjustments~~ ~~to the valuation allowance will have no effect on current or future income tax~~ ~~payments, but will~~

GRANT THORNTON LLP

Dallas, Texas
September 5, 2002

Page 35

~~result~~REPORT inOF ~~higher~~INDEPENDENT ~~future~~CERTIFIED ~~tax~~PUBLIC ~~provisions in the periods the related deferred tax~~ACCOUNTANTS ~~assets are realized. The Company reduced the valuation allowance in fiscal~~ ~~1999 and eliminated the valuation allowance in fiscal 2000 because it expects~~ to generate sufficient taxable income during the carryforward period to realize the net deferred tax assets. No increases in current levels of income are required to do so. Although the Company has experienced a declining membership base, it does not expect the net effect of such a decline to prevent the realization of the net deferred tax assets over such period.

~~Inflation.~~Shareholders ~~During~~and ~~the~~Board ~~past~~of ~~three fiscal years, the Company’s results have not~~Directors ~~been~~Thousand ~~affected materially by inflation. However~~Trails, ~~in fiscal 2001, the Company’s results were affected adversely by rising utility costs at the Company’s campgrounds, principally in Southern California~~Inc. Should the rate of inflation increase in the future, or should utility costs continue to rise, the Company’s expenses are likely to increase at a greater rate than it can increase the annual dues paid by campground members because the Company cannot increase the dues on existing contracts of senior citizens and ~~disabled members who notify~~Subsidiaries ~~the Company of their age or disability and request that their dues be frozen.~~ ~~At the present time, approximately 37% of the members have requested that their dues be frozen because of their age or disability (see “Campground Operations – Dues”).~~

~~Item~~In connection with our audit of the consolidated financial statements of Thousand Trails, Inc. and Subsidiaries referred to in our report dated September 7A5, 2002, which is included in Part IV of this Form 10-K, we have also audited Schedule II for the period ended June 30, 2002. ~~Quantitative~~The periods ended June 30, 2001 and ~~Qualitative~~2000 ~~Disclosures~~were ~~About~~audited ~~Market~~by ~~Risk~~other auditors who ceased operations and whose report dated September 5, 2001, expressed an unqualified opinion on this schedule. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.

~~The~~GRANT ~~Company~~THORNTON ~~does not currently have any derivative financial instruments, which~~LLP ~~include futures, forwards, interest rate swaps, option contracts and other~~ financial instruments with similar characteristics. However, the Company does have other financial instruments containing market risk. Management believes that the market risk associated with the Company’s financial instruments as of June 30, 2001 is not significant. The information required by Item 305 of Regulation S-K is contained in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Market Risk” and “Interest Rate Sensitivity.”

Dallas, Texas
September 5, 2002

Page 36

~~Item~~This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Thousand Trails, Inc.’s Annual Report on Form 810-K for the year ended June 30, 2001. ~~Financial~~This ~~Statements~~audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. The consolidated balance sheet as of June 30, 2000, the consolidated statements of operations, stockholders’ equity and ~~Supplementary~~cash ~~Data~~flows for the year ended June 30, 1999 and the information in the schedule for 1999 referred to in this report have not been included in the accompanying financial statements or schedule.

Consolidated Financial Statements Index
Report of Independent Public Accountants		38
Consolidated Balance Sheets – June 30, 2001 and 2000		39
Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999		40
Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2001, 2000 and 1999		41
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999		42
Notes to Consolidated Financial Statements		44
Financial Statement Schedule:
	Schedule II – Valuation and Qualifying Accounts	68

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes hereto.

Page 37

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Thousand Trails, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Thousand Trails, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thousand Trails, Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP Dallas, Texas, September 5, 2001

~~Dallas,~~Page ~~Texas,~~37 ~~September 5, 2001~~

Page 38

Thousand Trails, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)

					June 30,	~~June 30,~~
						2001				2000
Assets					2002				2001
				Assets
Current Assets
Current Assets
	Cash and cash equivalents				$	4,180			$	9,016
	Cash and cash equivalents					$	9,016			$	2,420
	Marketable securities – available for sale					5,343				—
	Current portion of receivables, net of allowance of $1.0 million and $.9 million, respectively						2,096				1,668
	Current portion of receivables, net of allowance of $1.0 million					1,230				2,096
	Current portion of deferred membership selling expenses						2,886				1,387
	Current portion of deferred membership origination costs					5,013				2,886
	Current portion of net deferred tax assets					6,106	~~6,885~~			6,885	~~3,780~~
	Inventories					1,158	~~1,221~~			1,221	~~1,237~~
	Other current assets					2,889	~~765~~			765	~~868~~
		Total Current Assets				25,919	~~22,869~~			22,869	~~11,360~~
	Restricted cash					646	~~646~~			646	~~1,320~~
	Receivables, net of allowances and discount of $1.3 million and $1.0 million, respectively						5,492				4,107
	Receivables, net of allowances of $1.6 million and $1.3 million, respectively					8,408				5,492
	Campground land					20,696	~~20,696~~			20,696	~~22,981~~
	Buildings and equipment, net of accumulated
	Buildings and equipment, net of accumulated depreciation of $24.5 million and $21.8 million, respectively					22,781				21,256
	depreciation of $21.8 million and $20.1 million, respectively						21,256				22,396
	Assets held for sale					5,402				5,600
	Assets held for sale						5,600				2,965
	Deferred membership origination costs, less current portion					7,337				6,030
	Deferred membership selling expenses						6,030				3,790
	Net deferred tax assets					296				995
	Net deferred tax assets						995				5,362
	Other assets					755				365
	Other assets						365				234
Total Assets					$	92,240			$	83,949
Total Assets						$	83,949			$	74,515
			Liabilities and Shareholders’ Equity
				Liabilities and Shareholders’ Equity
Current Liabilities
Current Liabilities
	Accounts payable				$	2,665			$	2,775
	Accounts payable					$	2,775			$	1,904
	Other accrued liabilities					8,108				8,021
	Accrued interest						—				103
	Accrued construction cost					—				1,888
	Other accrued liabilities						8,021				7,498
	Current portion of deferred revenue					34,212				27,668
	Current portion of long-term debt						—				2,571
		Total Current Liabilities				44,985				40,352
	Accrued construction cost						1,888				1,888
	Deferred revenue, less current portion					24,984				20,158
	Current portion of deferred revenue						27,668				21,977
	Other liabilities					1,608				1,004
		Total Current Liabilities					40,352				35,941
		Total Liabilities				71,577				61,514
	Long-term debt						—				7,043
Commitments and Contingencies Shareholders’ Equity
	Deferred revenue						20,158				12,106
	Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued or outstanding Common stock, $.01 par value, 15,000,000 shares authorized, 8,401,697 and 8,373,828 shares issued and outstanding, respectively					84				84
	Other liabilities						1,004				1,316
	Additional paid-in capital					22,596				22,112
		Total Liabilities					61,514				56,406
	Retained earnings					9,688				1,362
Commitments and Contingencies Shareholders’ Equity
	Accumulated other comprehensive loss					(132	)			(141	)
	Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued or outstanding
	Treasury stock, 1,484,081 and 206,705 shares, respectively					(11,573	)			(982	)
	Common stock, $.01 par value, 15,000,000 shares authorized, 8,167,123 and 7,980,592 shares issued and outstanding, respectively, after deducting 206,705 and 190,736 shares held in Treasury, respectively						82				80
		Total Shareholders’ Equity				20,663				22,435
	Additional paid-in capital						21,132				21,080
Total Liabilities and Shareholders’ Equity					$	92,240			$	83,949
	Retained earnings (accumulated deficit)						1,362				(2,914	)
	Accumulated other comprehensive loss						(141	)			(137	)
		Total Shareholders’ Equity					22,435				18,109
Total Liabilities and Shareholders’ Equity						$	83,949			$	74,515

The accompanying notes are an integral part of these consolidated financial statements.

Page 3938

Thousand Trails, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars and shares in thousands, except per share amounts)

For the years ended June 30,

2001

2000

1999

2002

2001

2000

Revenues

Membership contracts originated

2227,~~903~~434

1322,~~912~~903

513,~~480~~912

Change in deferred revenue

(13,363

)

(8,348

)

(1,521

)

Increase in deferred revenue

(11,218

)

(13,363

)

(8,348

)

Membership sales revenue

916,~~540~~216

59,~~564~~540

35,~~959~~564

Membership dues

4039,~~080~~856

3740,~~495~~080

3637,~~455~~495

Other campground revenue

1718,~~849~~505

1617,~~731~~849

1516,~~585~~731

Trails Management revenue

34,~~082~~419

23,~~508~~082

2,~~271~~508

RPI membership fees

3,~~713~~584

3,~~706~~713

3,~~576~~706

Interest income

12,~~951~~383

1,~~509~~951

21,~~008~~509

Gain on asset sales

~~397~~1,283

4397

~~1,105~~4

Other income

2,~~784~~539

32,~~254~~784

23,~~966~~254

Total Revenues

7988,~~396~~785

7079,~~771~~396

6770,~~925~~771

Expenses

Campground operating expenses

4344,~~977~~060

4043,~~253~~977

3740,~~399~~253

Membership origination costs

913,~~905~~024

79,~~614~~905

47,~~152~~614

Change in deferred origination costs

(3,~~739~~434

)

(3,~~112~~739

)

(~~440~~3,112

)

Marketing expenses

5,~~650~~927

45,~~026~~650

24,~~046~~026

Trails Management expenses

34,~~332~~482

23,~~545~~332

2,~~135~~545

RPI membership expenses

1,~~820~~729

1,~~844~~820

1,~~963~~844

Corporate member services

1,~~233~~378

1,~~333~~233

1,~~253~~333

Interest expense and amortization

~~1,013~~32

1,~~427~~013

21,~~957~~427

General and administrative expenses

98,~~776~~842

9,~~634~~776

9,~~431~~634

Reduction in allowance for doubtful accounts

—(400

)

~~(251~~—

)

(~~886~~251

)

Total Expenses

7275,~~967~~640

6572,~~313~~967

6065,~~010~~313

Income Before Income Taxes

613,~~429~~145

56,~~458~~429

75,~~915~~458

Income Taxes —

Income tax provision – current

(~~891~~3,102

)

(~~621~~891

)

(40621

)

Income tax (provision) benefit – deferred

(1,~~262~~717

)

4(1,~~412~~262

)

(24,~~304~~412

)

Net Income

48,~~276~~326

94,~~249~~276

59,~~571~~249

Net Income per Share — Basic

1.5204

1.1652

1.7316

Net Income per Share — Diluted

.5097

1.0850

1.6608

Shares Used to Calculate Net Income Per Share:

Basic

8,~~107~~012

78,~~981~~107

7,~~630~~981

Diluted

8,~~598~~585

8,~~594~~598

8,~~475~~594

The accompanying notes are an integral part of these consolidated financial statements.

Page 4039

Thousand Trails, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(Dollars in thousands)

	Common Stock									Retained			Accumulated
										Retained			Accumulated
							Additional			Earnings			Other
							Additional			Earnings			Other
	Number of						Paid-In			(Accumulated			Comprehensive			Treasury
	Number of						Paid-In			(Accumulated			Comprehensive
	Shares			Amount			Capital			Deficit)			Loss			Stock			Total
	Shares			Amount			Capital			Deficit)			Loss			Total
Balance, July 1, 1999		8,096,128		$	81		$	21,883			($12,163	)		($139	)		($14	)	$	9,648
Balance, June 30, 1998		7,437,083		$	74		$	20,551		$	(17,734	)	$	(137	)	$	2,754
Issuance of common shares		74,364			1			61			—			—						62
Issuance of common shares		662,245			7			1,332			—			—			1,339
Purchase of treasury stock		(189,900	)		—			—			—			—			(852	)		(852	)
Purchase of treasury stock		(3,200	)					(14	)								(14	)
Other comprehensive income		—			—			—			—			2			—			2
Other comprehensive loss		—			—			—			—			(2	)		(2	)
Net income		—			—			—			9,249			—			—			9,249
Net income		—			—			—			5,571			—			5,571
Comprehensive income		—			—			—			—			—			—			9,251
Comprehensive income		—			—			—			—			—			5,569
Balance, June 30, 2000		7,980,592			82			21,944			(2,914	)		(137	)		(866	)		18,109
Balance, June 30, 1999		8,096,128			81			21,869			(12,163	)		(139	)		9,648
Issuance of common shares		210,031			2			168			—			—			—			170
Issuance of common shares		74,364			1			61			—			—			62
Purchase of treasury stock		(23,500	)		—			—			—			—			(116	)		(116	)
Purchase of treasury stock		(189,900	)		(2	)		(850	)		—			—			(852	)
Other comprehensive loss		—			—			—			—			(4	)		—			(4	)
Other comprehensive loss		—			—			—			—			2			2
Net income		—			—			—			4,276			—			—			4,276
Net income		—			—			—			9,249			—			9,249
Comprehensive income		—			—			—			—			—			—			4,272
Comprehensive income		—			—			—			—			—			9,251
Balance, June 30, 2001		8,167,123			84			22,112			1,362			(141	)		(982	)		22,435
Balance, June 30, 2000		7,980,592			80			21,080			(2,914	)		(137	)		18,109
Issuance of common shares		27,869			—			88			—			—			—			88
Issuance of common shares		210,031			2			168			—			—			170
Purchase of treasury stock		(1,277,376	)		—			—			—			—			(10,591	)		(10,591	)
Purchase of treasury stock		(23,500	)		—			(116	)		—			—			(116	)
Tax benefit of stock options exercised		—			—			396			—			—			—			396
Other comprehensive income		—			—			—			—			(49	)		(4—	)		9
Net income		—			—			—			48,~~276~~326			—			~~4,276~~—			8,326
Comprehensive income		—			—			—			—			—			~~4,272~~—			8,335
Balance, June 30, 2001		8,167,123		$	82		$	21,132		$	1,362		$	(141	)	$	22,435
Balance, June 30, 2002		6,917,616		$	84		$	22,596		$	9,688			($132	)		($11,573	)	$	20,663

The accompanying notes are an integral part of these consolidated financial statements.

Page 4140

Thousand Trails, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)

		For the years ended June 30,
		2001			2000			1999
		2002			2001			2000
	CASH FLOWS FROM OPERATING ACTIVITIES:
	Collections of principal on receivables	$	4,~~508~~605		$	34,~~562~~508		$	43,~~167~~562
	Interest received		12,~~951~~383			1,~~387~~951			1,~~909~~387
	Interest paid		(~~1,013~~32	)		(1,~~427~~013	)		(21,~~988~~427	)
	General and administrative and corporate member services costs		(11,~~631~~711	)		(11,~~640~~631	)		(1011,~~233~~640	)
	Cash collected from operations, including deferred revenue		6966,~~761~~239			6569,~~502~~761			6165,~~590~~502
	Cash from sales of memberships		1518,~~902~~577			1015,~~747~~902			410,~~424~~747
	Expenditures for campground operations		(4443,~~338~~510	)		(4144,~~387~~338	)		(3841,~~269~~387	)
	Expenditures for sales and marketing		(1417,~~430~~714	)		(1014,~~661~~430	)		(610,~~151~~661	)
	Expenditures for insurance premiums		(32,~~013~~267	)		(23,~~083~~013	)		(2,~~038~~083	)
	Payment of income taxes		(~~622~~2,836	)		(~~212~~622	)		(~~507~~212	)
	Other, net		674			265			(69	)
	Tax benefit of stock option deduction		396			—			—
	Net cash provided by operating activities		17,749			14,053			11,835
	Other, net		—			674			265
	Net cash provided by operating activities		14,130			17,749			14,053
	CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures		(34,~~253~~653	)		(13,~~322~~253	)		(21,~~935~~322	)
	Acquisition of Leisure Time		—			~~(7,727~~—	)		—(7,727	)
	Proceeds from asset sales		1,738			74			2,246
	Net purchase of marketable securities		(5,343	)		—			—
	Net cash used in investing activities		(1,515	)		(8,975	)		(689	)
	Proceeds from asset sales		1,611			1,738			74
	Net cash used in investing activities		(8,385	)		(1,515	)		(8,975	)
	CASH FLOWS FROM FINANCING ACTIVITIES:
	Net (repayments) borrowings under Credit Agreement		(9,614	)		(1,273	)		10,887
	Net repayments under Credit Agreement		—			(9,614	)		(1,273	)
	Redemption of PIK Notes		—			—			(34,792	)
	Payment of notes		(78	)		(78	)		(2,792	)
	Payment of notes		(78	)		(2,792	)		—
	Purchase of treasury stock		(10,591	)		(116	)		(852	)
	Purchase of treasury stock		(116	)		(852	)		(14	)
	Issuance of common stock		88			170			62
	Issuance of common stock		170			62			1,339
	Net cash used in financing activities		(10,581	)		(9,638	)		(4,855	)
	Net cash used in financing activities		(9,638	)		(4,855	)		(22,580	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(4,836	)		6,596			223
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			6,596			223			(11,434	)
	CASH AND CASH EQUIVALENTS
	Beginning of period		29,~~420~~016			2,~~197~~420			132,~~631~~197
	End of period	$	94,~~016~~180		$	29,~~420~~016		$	2,~~197~~420

— continued —

Page 4241

Thousand Trails, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)

		For the years ended June 30,
		2001			2000			1999
		2002			2001			2000
Reconciliation of net income to net cash provided by operating activities:
	Net Income	$	48,~~276~~326		$	94,~~249~~276		$	59,~~571~~249
Adjustments to reconcile net income to net cash provided by operating activities —
	Depreciation		2,~~703~~997			2,~~662~~703			2,~~604~~662
	Bad debt provision		~~933~~967			~~904~~933			~~187~~904
	Amortization of interest yield, collection costs and valuation allowance		—			~~(229~~—	)		(~~316~~229	)
	Amortization of PIK Note deferred gain		—			—			(150	)
	Increase in deferred sales revenue		11,218			13,364			8,348
	Increase in deferred sales revenue		13,364			8,348			1,522
	Increase in deferred membership origination costs		(3,433	)		(3,739	)		(3,112	)
	Increase in deferred membership origination costs		(3,739	)		(3,112	)		(441	)
	Gain on asset sales		(1,282	)		(397	)		(3	)
	Gain on asset sales		(397	)		(3	)		(1,105	)
	Reduction of bad debt allowance, net		(400	)		—			(251	)
	Reduction of bad debt allowances, net		—			(251	)		(886	)
	Reduction of deferred tax valuation allowance		—			—			(5,807	)
	Reduction of deferred tax valuation allowance		—			(5,807	)		—
	Increase in deferred income tax provision		1,478			1,262			1,394
	Increase in deferred income tax provision		1,262			1,394			2,304
	Decrease in restricted cash		—			674			265
	Decrease (increase) in restricted cash		674			265			(69	)
	Increase in receivables		(2,617	)		(2,745	)		(1,283	)
	(Increase) decrease in receivables		(2,745	)		(1,283	)		2,929
	(Increase) decrease in other assets		(2,451	)		(13	)		2,182
	(Increase) decrease in other assets		(13	)		2,182			139
	Increase (decrease) in accounts payable		(110	)		871			(194	)
	Increase (decrease) in accounts payable		871			(194	)		(371	)
	Decrease in accrued interest		—			(103	)		(7	)
	(Decrease) increase in accrued interest		(103	)		(7	)		274
	Increase (decrease) in other liabilities		(968	)		668			(66	)
	Increase (decrease) in other liabilities		668			(66	)		(365	)
	Other, net		405			(5	)		1
	Other, net		(5	)		1			8
	Total adjustments		5,804			13,473			4,804
	Total adjustments		13,473			4,804			6,264
	Net cash provided by operating activities	$	14,130		$	17,749		$	14,053
	Net cash provided by operating activities	$	17,749		$	14,053		$	11,835

The accompanying notes are an integral part of these consolidated financial statements.

Page 4342

Thousand Trails, Inc. and Subsidiaries Notes to Consolidated Financial Statements June 30, ~~2001~~2002

NOTE 1 — NATURE OF OPERATIONS

Thousand Trails, Inc., a Delaware corporation, and its subsidiaries (collectively, the “Company”) own and operate 59 membership-based campgrounds located in 17 states and British Columbia, Canada. In addition, the Company provides a reciprocal use program for members of approximately ~~300~~280 recreational facilities and manages ~~241~~240 public campgrounds for the U.S. Forest Service and other entities. Operating revenues consist primarily of membership sales, membership dues received from campground members, fee revenue from members of the reciprocal use program, management fees from the campground management operations and guest fees and revenues received from the campground and other operations.

The accompanying consolidated financial statements include the accounts of Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast Financial Services, Inc., National American Corporation and its subsidiaries (“NACO”), Resort Parks International, Inc. (“RPI”), Thousand Trails (Canada), Inc., Thousand Trails Management Services, Inc. (“Trails Management”) and, commencing December 16, 1999, Leisure Time Resorts of America, Inc. (“Leisure Time”). See Note 3 – Business Combination.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition The Company sells campground memberships pursuant to membership contracts that give purchasers the right to use one or more of the Company’s campgrounds, but do not convey a deeded interest in the campgrounds. Until 1990, the Company also sold campground memberships that gave purchasers an undivided fractional interest in one of six campgrounds. A membership requires the payment of an upfront membership fee and permits the member’s family to use one or more of the Company’s campgrounds for an initial period, subject to renewal each year upon payment of annual dues. Previously, the Company sold residential lots at certain resorts not related to the campground operations.

The Company ~~has~~sells ~~offered financing on~~ campground memberships ~~for~~pursuant ato ~~period~~membership ofcontracts upthat ~~to 48 months~~give ~~with~~purchasers athe ~~down~~right ~~payment~~to ofuse atone ~~least~~or ~~25%~~more of the ~~sales~~Company’s ~~price.~~campgrounds, ~~Beginning in~~but ~~January~~do ~~1999,~~not ~~the~~convey ~~minimum~~a ~~down~~deeded ~~payment~~interest ~~was~~in ~~changed~~the tocampgrounds. ~~$495,~~A ~~regardless~~membership ofrequires ~~sales~~the ~~price.~~payment ~~The~~of ~~Company~~an ~~has~~upfront ~~also~~membership ~~offered~~fee ~~financing~~and onpermits the ~~sale~~member’s family to use one or more of ~~lots~~the Company’s campgrounds for ~~periods up~~an toinitial ~~five~~period, ~~years~~subject ~~with~~to arenewal each ~~down~~year upon payment of atannual ~~least~~dues. ~~10%~~Upfront ofmembership ~~the~~fees ~~sales~~are ~~price.~~deferred ~~However,~~and ~~during~~recognized ~~the~~on ~~periods~~a ~~presented,~~straight-line basis over the ~~majority~~expected lives of the ~~Company’s campground~~ memberships, ~~were~~which ~~not~~range ~~financed~~from ~~for~~four ~~more~~to ~~than~~seven ~~three~~ years,. ~~and~~Costs ~~all~~directly ~~sales~~related to the sale of ~~lots were~~such memberships are deferred and recognized as selling expenses on a ~~cash~~straight-line ~~terms~~basis over the expected lives of the memberships.

~~Sales~~The ~~revenue~~Company ~~from~~offers ~~the~~financing ~~sale~~on ~~of lots and~~ campground memberships ~~that~~for ~~convey~~ a ~~deeded~~ ~~interest~~period ~~in real estate is recognized upon execution~~ of aup ~~sales~~to ~~contract~~48 ~~and~~months ~~receipt~~with of a down payment of at least ~~10%~~$495, regardless of ~~the~~ sales price. ~~Sales~~ ~~revenue~~However, ~~from~~during the ~~sale~~periods ofpresented, ~~campground~~the ~~memberships~~majority ~~that~~of dothe ~~not~~Company’s ~~convey a deeded~~campground ~~interest~~memberships inwere ~~real~~not ~~estate,~~financed ~~net~~for ofmore ~~any~~than ~~related~~three ~~allowances, is recognized on a~~years.

~~Page~~Until 441990, the Company also sold campground memberships that gave purchasers an undivided fractional interest in one of six campgrounds. In addition, in prior years, the Company sold residential lots at certain resorts not related to the campground operations. Sales revenue from the sale of lots and campground memberships that convey a deeded interest in real estate is recognized upon execution of a sales contract and receipt of a down payment of at least 10% of the sales price.

Page 43

~~straight-line~~The ~~basis~~annual ~~over~~dues ~~the~~paid ~~expected~~by ~~life~~campground ofmembers ~~the~~are ~~memberships~~used ~~sold.~~to Infund the Company’s ~~addition~~operating expenses, ~~costs~~including ~~directly~~corporate ~~related~~expenses toand the ~~sale~~maintenance and operation of ~~such~~the ~~campground~~campgrounds. ~~memberships~~Annual dues are deferred and recognized as revenue ~~selling~~ratably ~~expenses on a straight-line basis~~ over the ~~expected~~ ~~life~~period ofservices ~~the~~are ~~memberships sold~~provided.

The annual dues paid by campground members are used to fund the Company’s operating expenses, including corporate expenses and the maintenance and operation of the campgrounds. The membership contracts generally permit the Company to increase annually the amount of each member’s dues by either (i) the percentage increase in the consumer price index (“CPI”) or (ii) the greater of 10% or the percentage increase in the CPI. The Company, however, may not increase the dues on existing contracts of senior citizens and disabled members who notify the Company of their age or disability and request that their dues be frozen. At the present time, approximately 37% of the members have requested that their dues be frozen because of their age or disability. The Company estimates that approximately 50% of the campground members are senior citizens eligible to request that their dues be frozen. The Company is unable to estimate when or if a significant number of these members will request that their dues be frozen in the future. Annual dues are recognized as revenue ratably over 12 months as services are provided, and are recorded net of an allowance to provide for uncollectible amounts. Dues paid in advance are deferred as unearned revenue.

Trails Management manages public campgrounds for the U.S. Forest Service and other entities. Pursuant to its management contracts, Trails Management incurs the expenses of operating the campgrounds and receives the related revenues, net of a fee paid to the U.S. Forest Service or other entity. Revenues primarily consist of fees paid by visitors to the campgrounds. Fees paid in advance are deferred as unearned revenue.

RPI offers its members reciprocal use of approximately ~~300~~280 participating recreational facilities. Members of these participating facilities pay a fee to RPI that entitles them to use any of the participating facilities, subject to certain limitations. RPI provides the member a directory of participating facilities and a membership card. Participating facilities allow RPI members access for an additional fee, which is not shared with RPI. RPI membership fees are recognized as revenue when the directory and membership card are sent to the member. Fees paid in advance for multiple-year memberships are deferred as unearned revenue.

Cash and Cash Equivalents ~~The Company considers demand accounts and short-term investments with maturities of three months or less when purchased to be cash equivalents.~~

~~Restricted~~The ~~Cash Restricted~~Company ~~cash~~considers ~~generally~~demand ~~consists~~accounts ofand ~~deposits~~short-term toinvestments ~~collateralize performance~~with ~~bonds~~maturities ~~and~~of ~~letters~~three ofmonths ~~credit~~or inless ~~the~~when ~~ordinary~~purchased ~~course~~to ofbe ~~business~~cash equivalents.

~~Receivables Before~~Marketable ~~the Company acquired certain subsidiaries in 1991, the Company purchased~~Securities ~~contracts receivable from them and recorded the contracts receivables at the~~ selling company’s carrying value. In connection with the Company’s acquisition of these subsidiaries, the Company recorded the contracts receivable then owned by the subsidiaries at their fair value, which was net of an allowance for interest discount to increase the weighted average yield on the contracts to 14.75%, the current market yield at the time of acquisition. The allowance for interest discount was amortized using the effective interest method over the respective terms of the

Marketable securities, which are classified as available for sale, consist of shares of a mutual fund that invests a majority of its assets in adjustable rate mortgage securities issued or guaranteed by the U.S. government, with the remaining assets invested in U.S. government obligations. Unrealized gains and losses are included in other comprehensive income.

Restricted Cash

Restricted cash generally consists of deposits to collateralize performance bonds and letters of credit in the ordinary course of business.

Receivables

Before the Company acquired certain subsidiaries in 1991, the Company purchased contracts receivable from them and recorded the contracts receivables at the selling company’s carrying value. In connection with the Company’s acquisition of these subsidiaries, the Company recorded the contracts receivable then owned by the subsidiaries at their fair value, which was net of an allowance for interest discount to increase the weighted average yield on the contracts to 14.75%, the current market yield at the time of acquisition. The allowance for interest discount was amortized using the effective interest method over the respective terms of the contracts, and was fully amortized at June 30, 2000. In addition, the Company recorded an allowance for future collection costs associated with the collection of the contracts receivable portfolio. This allowance was amortized as a reduction of general and administrative expense based on cash collected on the related portfolio, and was fully amortized at June 30, 2000. The Company also recorded a valuation allowance in connection with purchases of contracts receivable from third parties, to record the contracts receivable at the purchase price. The

Page 44

valuation allowance was amortized over the respective terms of the contracts as an increase to interest income, and was fully amortized at June 30, 2000.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful contracts receivable. The allowance is based on management’s estimate of contract cancellations considering the Company’s historical cancellation rates as well as other factors deemed relevant to the analysis. The allowance is reviewed on a periodic basis with changes in management’s estimates recognized in the period known. The Company presently believes that the allowance for doubtful accounts is adequate. However, if cancellations occur at a different rate than is presently anticipated, it may be necessary for the Company to revise its estimates and increase or decrease the allowance, which would affect the Company’s operating results and financial condition.

Campground Land and Assets Held for Sale

Campground land and assets held for sale are recorded at the lower of cost or estimated net realizable value. The Company classifies assets as held for sale at the time a determination is made to dispose of the campground, the related land and other fixed assets. Assets held for sale are no longer depreciated.

Buildings, Equipment and Depreciation

Buildings and equipment are recorded at cost. The costs of betterments and improvements which extend the useful life of the asset are capitalized whereas the costs of maintenance and repairs which do not extend the useful life of the asset are expensed in the period incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which range from three to thirty years.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees using the intrinsic value method. Accordingly, compensation cost for employee stock options is measured as the excess, if any, of the quoted market price of the Company’s common stock at date of grant over the exercise price.

Earnings Per Share

The Company computes basic earnings per share based on the weighted average number of common shares outstanding. The Company computes diluted earnings per share based on the weighted average number of shares outstanding, plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued.

Valuation of Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If the total of the expected future cash flows is less than the carrying amount of the asset, a loss is recognized based on the amount by which the carrying value exceeds the asset’s fair market value.

Page 45

~~contracts,~~Use ~~and was fully amortized at June 30, 2000. In addition, the Company recorded an allowance for future collection costs associated with the collection~~ of ~~the contracts receivable portfolio. This allowance was amortized~~Estimates ~~as a reduction of general and administrative expense based on cash collected on~~ the related portfolio, and was fully amortized at June 30, 2000. The Company also recorded a valuation allowance in connection with purchases of contracts receivable from third parties, to record the contracts receivable at the purchase price. The valuation allowance was amortized over the respective terms of the contracts as an increase to interest income, and was fully amortized at June 30, 2000. In connection with the acquisition of Leisure Time, the Company recorded the contracts receivable owned by Leisure Time at their face value, less an allowance for doubtful accounts.

~~Interest~~The ~~income~~accompanying isconsolidated ~~recognized~~financial onstatements ~~purchased~~were ~~contracts~~prepared ~~receivable~~in ~~based~~conformity with ~~upon~~accounting principles generally accepted in the United States (“GAAP”). ~~effective~~The ~~yield~~preparation atof ~~which~~financial ~~they~~statements ~~were~~in ~~purchased~~conformity with GAAP requires management to make estimates and onassumptions ~~other~~that ~~contracts~~affect ~~receivable~~the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at ~~their~~the ~~stated~~date ~~rates~~of ~~based~~the onfinancial statements and the ~~outstanding~~reported ~~principal~~amounts ~~balances~~of revenues and expenses during the reporting period. Actual results could differ from these estimates.

~~Allowance~~Recently ~~for~~Issued ~~Doubtful~~Accounting ~~Accounts~~Pronouncements The Company provides an allowance for future cancellations of contracts receivable. The allowance is based on management’s estimate of future contract cancellations considering the Company’s historical cancellation rates as well as other factors deemed relevant to the analysis. The allowance is reviewed on a periodic basis with changes in management’s estimates recognized in the period known. The Company presently believes that the allowance for doubtful accounts is adequate. However, if cancellations occur at a different rate than is presently anticipated, it may be necessary for the Company to revise its estimates and increase or decrease the allowance, which would affect the Company’s operating results and financial condition.

~~Campground~~The ~~Land~~Financial ~~and~~Accounting ~~Assets~~Standards ~~Held~~Board ~~for~~has ~~Sale~~issued SFAS No. 141, “Business ~~Campground~~Combinations,” ~~land~~which supercedes Accounting Principles Board Opinion No. 16 and eliminates ~~assets~~pooling-of-interests ~~held~~accounting ~~for~~on ~~sale~~a isprospective ~~recorded~~basis. atIt also provides guidance on purchase accounting related to the ~~lower~~recognition of ~~cost~~intangible orassets ~~estimated~~and ~~net~~accounting ~~realizable~~for ~~value~~negative goodwill. ~~The~~In ~~Company~~June ~~classifies~~2001, ~~assets~~the asFinancial ~~held~~Accounting ~~for~~Standards ~~sale~~Board atissued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No.142 changes the ~~time~~accounting afor ~~determination~~goodwill isfrom ~~made~~an amortization method to ~~dispose~~an ofimpairment-only method. Companies are required to ~~certain~~adopt ~~campground~~SFAS ~~properties~~No. 142 ~~and~~for fiscal years beginning after December 15, 2001. The Company believes the ~~related~~adoption ~~land~~of SFAS No. 141 and ~~other~~SFAS ~~fixed~~No. 142 ~~assets~~will not have a material effect on its results of operations or financial position in fiscal 2003.

~~Buildings,~~The ~~Equipment~~Financial ~~and~~Accounting ~~Depreciation Buildings~~Standards ~~and~~Board ~~equipment~~has ~~are~~also ~~recorded~~issued atSFAS ~~cost~~No. 144, “Accounting ~~The~~for ~~costs~~the Impairment of ~~betterments~~Long-Lived ~~and improvements~~Assets,” which ~~extend~~requires ~~the~~a ~~useful~~single accounting ~~life~~model ofto ~~the~~be ~~asset~~used ~~are~~for ~~capitalized~~long-lived ~~whereas the~~assets ~~costs~~to ofbe ~~maintenance~~sold and ~~repairs~~broadens ~~which~~the presentation doof ~~not~~discontinued ~~extend~~operations ~~the~~to ~~useful~~include ~~life~~a “component of ~~the~~an entity” ~~asset~~rather ~~are~~than ~~expensed~~a insegment ~~the~~of ~~period~~a ~~incurred~~business. ~~Depreciation~~A iscomponent ~~recorded~~of ~~using~~an ~~the~~entity comprises ~~straight-line~~operations ~~method~~and ~~over~~cash ~~the~~flows ~~estimated~~that ~~useful~~can ~~lives~~be ofclearly distinguished, operationally and for financial reporting purposes. The Company believes the ~~assets~~adoption ~~which~~of ~~range~~SFAS ~~from~~No. 144 ~~three~~on toJuly 1, ~~thirty~~2002 ~~years~~will not have a material effect on its results of operations or financial position.

~~Income Taxes~~Reclassifications ~~The Company recognized certain revenues and expenses in periods which differ for tax and financial reporting purposes.~~

~~Principles~~Certain ofreclassifications ~~Consolidation All significant intercompany transactions and balances~~ have been ~~eliminated~~made ~~in the~~to ~~accompanying~~prior ~~consolidated~~period ~~financial~~information ~~statements~~to asconform to ~~of and for~~ the ~~years ended~~current ~~June 30,~~period ~~2001, 2000 and 1999~~presentation.

Page 46

Use of Estimates The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP 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 these estimates.

Recently Issued Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivatives and Similar Financial Instruments for Hedging Activities,” in fiscal 2001. However, the adoption of SFAS No. 133 did not have a material impact on the Company’s financial position because the Company does not currently use derivative instruments. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141 and SFAS No. 142, “Business Combinations” and “Goodwill and Other Intangible Assets,” respectively. SFAS 141 supercedes Accounting Principles Board Opinion No. 16 and eliminates pooling-of-interests accounting on a prospective basis. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only method. SFAS No. 141 and SFAS No. 142 are effective for all business combinations completed after June 30, 2001. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. The Company does not believe that SFAS No. 141 and SFAS No. 142 will have a material effect on their results of operations or financial position for the current period.

Reclassifications Certain reclassifications have been made to prior period information to conform to the current period presentation.

NOTE 3 — BUSINESS COMBINATION

On December 16, 1999, the Company acquired all of the outstanding capital stock of Leisure Time for $7.7 million in cash. In addition, the Company paid in full all of the outstanding real estate debt on Leisure Time’s campgrounds, which totaled approximately $2.3 million.

The acquisition of Leisure Time was accounted for as a purchase transaction; accordingly, operating results for Leisure Time are reported from the date of acquisition. No goodwill was recorded on the acquisition because the purchase price did not exceed the estimated values of the identifiable assets received less liabilities assumed.

Leisure Time currently owns and operates seven membership campgrounds in Washington and Oregon serving approximately 1513,000 members. The Company closed three Leisure Time campgrounds in February 2001. Leisure Time operates a separate system of campgrounds from the Company’s other membership-based campground systems.

Page 46

NOTE 4 — COMPREHENSIVE INCOME

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, as well as net income reported on the income statement. The Company lists items of other comprehensive income by their nature in its financial statements and presents the accumulated balance of such items separately from retained earnings and additional paid-in capital in the equity section of its consolidated balance sheet.

Currently, the Company’s items of other comprehensive income consist of its foreign currency translation and unrealized gains on marketable securities held as available for sale. The Company translates the balance sheet of its Canadian subsidiary into U.S. dollars at exchange rates in effect at the balance sheet date. Profit and loss accounts are translated monthly at exchange rates in effect at that time. At June 30, 2002 and 2001, the Company’s foreign currency translation was $142,000 and $141,000, respectively. Unrealized gains on marketable securities are calculated as the difference between the carrying amount and the fair market value of the Company’s marketable securities. At June 30, 2002, the Company’s unrealized gains on marketable securities totaled $10,000. The Company did not have marketable securities available for sale at June 30, 2001.

The following table provides statements of comprehensive income for the years ended June 30, 2002 and 2001 (dollars in thousands):


		For the year ended June 30,

		2002			2001

Net Income		$	8,326		$	4,276




Other Comprehensive Income:




	Foreign Currency Translation Adjustment		(1	)		(4	)




	Unrealized Gain on Marketable Securities		10			—

Comprehensive Income		$	8,335		$	4,272

Page 47

income statement. The Company lists items of other comprehensive income by their nature in its financial statements and presents the accumulated balance of such items separately from retained earnings and additional paid-in capital in the equity section of its consolidated balance sheet.

Currently, the Company’s only item of other comprehensive income is its foreign currency translation adjustment. The Company translates the balance sheet of its Canadian subsidiary into U.S. dollars at exchange rates in effect at the balance sheet date. Profit and loss accounts are translated monthly at exchange rates in effect at that time. There is no tax effect on items of other comprehensive income.

The following table provides statements of comprehensive income for the years ended June 30, 2001 and 2000 (dollars in thousands):

		For the year ended June 30,
		2001			2000
Net Income		$	4,276		$	9,249
Other Comprehensive Income:
	Foreign Currency Translation Adjustment		(4	)		2
Comprehensive Income		$	4,272		$	9,251

NOTE 5 — NET INCOME PER SHARE

The table below sets forth the information necessary to compute basic and diluted net income per share for the years ended June 30, ~~2001~~2002, ~~2000~~2001 and ~~1999~~2000, including a summary of the components of the numerators and denominators of the basic and diluted net income per share computations for the periods presented (dollars and shares in thousands, except per share amounts):

	For the year ended June 30,
	2001		2000		1999
	2002		2001		2000
Net Income	$	48,~~276~~326	$	94,~~249~~276	$	59,~~571~~249
Weighted Average Number of Shares – Basic		8,~~107~~012		78,~~981~~107		7,~~630~~981
Dilutive Options		~~491~~573		~~613~~491		~~824~~613
Dilutive Warrants		—		—		21
Weighted Average Number of Shares – Diluted		8,585		8,598		8,594
Weighted Average Number of Shares – Diluted		8,598		8,594		8,475
Net Income Per Share – Basic	$	1.04	$	.52	$	1.16
Net Income Per Share – Basic	$	.52	$	1.16	$	.73
Net Income Per Share – Diluted	$	.97	$	.50	$	1.08
Net Income Per Share – Diluted	$	.50	$	1.08	$	.66

Since inception, the Company has not paid any dividends and, at the present time, it has no plans to pay dividends.

Page 48

NOTE 6 — RECEIVABLES

Contracts Receivable

The components of contracts receivable as of June 30, ~~2001~~2002 and ~~2000~~2001, are summarized as follows (dollars in thousands):

		June 30,
		2001			2000
		2002			2001
Contracts receivable
Memberships/undivided interests	~~Memberships/undivided interests~~	$	911,~~803~~747		$	79,~~656~~803
Lots	~~Lots~~		9—			259
			9,812			7,681
			11,747			9,812
Allowance for doubtful accounts			(2,~~289~~188	)		(12,~~928~~289	)
			7,523			5,753
			9,559			7,523
Interest receivable			6579			2265
		$	79,~~588~~638		$	57,~~775~~588

Contracts Receivable Contracts receivable bear interest at rates ranging generally from 5.5% to 19.5%, with a weighted average stated rate of 14% and 13% at June 30, 2001 and 2000, respectively. The obligor’s weighted average equity in the contracts receivable at June 30, 2001 and 2000, was 50% and 57%, respectively. As of June 30, 2001, 96% of the campground members and 99% of purchasers of lots had paid for their membership or lot in full.

~~The~~Contracts ~~Company~~receivable ~~has~~bear nointerest ~~obligation~~at torates ~~refund~~ranging ~~moneys~~generally ~~received~~from or5% to ~~provide further~~19.5%, ~~services~~with ~~to purchasers in the event~~ a ~~contract~~weighted isaverage ~~canceled~~stated ~~for~~rate ~~the purchaser’s nonperformance~~ of ~~contractual~~14% ~~obligations.~~at ~~Contracts~~June 30, ~~receivable~~2002 ~~related to undivided interests~~ and ~~lot sales are secured by deeds of trust on the related real estate~~2001. ~~The Company does not require campground members to provide~~ ~~collateral or other security for related contracts receivable.~~

~~Allowance~~Page ~~for Doubtful Accounts~~48 ~~In fiscal 2000 and 1999, the Company reduced the allowance for doubtful~~ ~~accounts on the contracts receivable by $251,000 and $886,000, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years.~~

TheTable allowance for doubtful accounts is an estimate of the contracts receivable that will cancel in the future and is determined based on historical cancellation rates and other factors deemed relevant to the analysis. The Company does not presently anticipate any further adjustments to the allowance for doubtful accounts on the contracts receivable. However, the allowance and the rate at which the Company provides for future losses on its contracts receivable could be increased or decreased in the future based on the Company’s actual collection experience. Contents

~~Allowance~~At ~~for Interest Discount Amortization of the allowance for interest discount totaled $98,000 and $136,000 for the years ended~~ June 30, ~~2000 and 1999~~2002, ~~respectively,~~scheduled ~~which increased~~future ~~interest~~receipts ~~income.~~on ~~This~~contracts ~~allowance~~receivable ~~was~~are ~~fully~~as follows ~~amortized~~(dollars atin ~~June 30, 2000.~~thousands):


		Memberships and
		Undivided Interests

2003		$	2,063




2004			3,907




2005			3,446




2006			1,838




2007			470




Thereafter			102

	Total	$	11,826

The largest percentage of campground members (approximately 32%) reside in California and, as of June 30, 2002, contracts receivable from members who purchased memberships in California totaled approximately $4.4 million. A large percentage of members (approximately 27%) also reside in Washington and Oregon and, as of June 30, 2002, contracts receivable from members who purchased memberships in Washington and Oregon totaled $2.8 million and $1.1 million, respectively.

Allowance for Doubtful Accounts

In fiscal 2002 and 2000, the Company reduced the allowance for doubtful accounts on the contracts receivable by $400,000 and $251,000, respectively. These adjustments were made because the Company experienced lower contract losses than anticipated in these years.

The allowance for doubtful accounts is an estimate of anticipated losses and is determined based on historical cancellation rates and other factors deemed relevant to the analysis. The Company believes the allowance is adequate. However, the allowance and the rate at which the Company provides for losses on its contracts receivable could be increased or decreased in the future based on the Company’s actual collection experience.

Allowance for Interest Discount

Amortization of the allowance for interest discount totaled $98,000 for the year ended June 30, 2000, which increased interest income. This allowance was fully amortized at June 30, 2000.

Allowance for Collection Costs

Amortization of the allowance for collection costs totaled $98,000 for the year ended June 30, 2000, which decreased general and administrative expense. This allowance was fully amortized at June 30, 2000.

Valuation Allowance

Amortization of the valuation allowance totaled $33,000 for the year ended June 30, 2000, which increased interest income. This allowance was fully amortized at June 30, 2000.

Page 49

Allowance for Collection Costs Amortization of the allowance for collection costs totaled $98,000 and $136,000 for the years ended June 30, 2000 and 1999, respectively, which decreased general and administrative expense. This allowance was fully amortized at June 30, 2000.

Valuation Allowance Amortization of the valuation allowance totaled $33,000 and $45,000 for the years ended June 30, 2000 and 1999, respectively, which increased interest income. This allowance was fully amortized at June 30, 2000.

At June 30, 2001, scheduled future receipts on contracts receivable are as follows (dollars in thousands):

		Memberships and
		Undivided Interests		Lots		Total
2002		$	3,093	$	6	$	3,099
2003			2,821		1		2,822
2004			2,220		1		2,221
2005			1,143		1		1,144
2006			365		—		365
Thereafter			226		—		226
	Total	$	9,868	$	9	$	9,877

The Company operates 59 campgrounds located in 17 states and British Columbia, Canada. The largest percentage of campground members (approximately 32%) reside in California and, as of June 30, 2001, contracts receivable from members who purchased memberships in California totaled approximately $2.8 million. A large percentage of members (approximately 28%) also reside in Washington and Oregon and, as of June 30, 2001, contracts receivable from members who purchased memberships in Washington and Oregon totaled $2.8 million and $1.3 million, respectively.

NOTE 7 — CAMPGROUND PROPERTIES

Campground properties consisted of the following as of June 30, ~~2001~~2002 and ~~2000~~2001 (dollars in thousands):

	June 30,
	2001			2000
	2002			2001
Assets held for sale	$	5,~~530~~402		$	25,~~895~~530
Campground land at campgrounds where right-to-use memberships are sold		18,603			2018,~~888~~603
Campground land at campgrounds where undivided interest were sold		2,093			2,093
Campground land at campgrounds where undivided interests were sold		2,093			2,093
Property and equipment		4146,~~344~~035			41,~~982~~344
Construction in progress		~~1,194~~684			~~146~~1,194
Accumulated depreciation		(2124,~~573~~177	)		(1921,~~854~~573	)
	$	4748,~~191~~640		$	4847,~~150~~191

NOTE 8 — DEFERRED REVENUE AND MEMBERSHIP ORIGINATION COSTS

Deferred revenue was comprised of the following as of June 30, 2002 and 2001 (dollars in thousands):


	June 30,

	2002		2001

Campground membership sales	$	41,393	$	30,175




Campground membership dues		15,436		15,466




Other		2,367		2,185

	$	59,196	$	47,826

Components of the change in deferred membership origination costs and deferred membership sales revenue are as follows (dollars in thousands):


		For the years ended June 30,

		2002			2001			2000

Deferred membership origination costs, beginning of year		$	8,916		$	5,177		$	2,065




	Deferred		7,656			5,880			4,110




	Recognized		(4,222	)		(2,141	)		(998	)

	Increase in deferral		3,434			3,739			3,112

Deferred membership origination costs, end of year			12,350			8,916		$	5,177

Deferred membership sales revenue, beginning of year			30,175			16,812		$	8,464




	Membership contracts originated		27,434			22,903			13,912




	Less provision for doubtful accounts		(967	)		(781	)		(709	)

	Membership contracts originated, net		26,467			22,122			13,203




	Membership revenue recognized		(15,249	)		(8,759	)		(4,855	)

	Increase in deferral		11,218			13,363			8,348




Deferred membership sales revenue, end of year		$	41,393		$	30,175		$	16,812

Page 50

The Company sells campground memberships that give members the right to use one or more of the Company’s campgrounds but do not convey a deeded interest in the campgrounds. Until 1990, the Company also sold campground memberships that gave members a deeded undivided interest in one of six campgrounds. At the six campgrounds where undivided interests were sold, the Company is not required to seek the consent of the campground members to sell or encumber the Company’s interest in the campgrounds.

As of June 30, 2001 and 2000, the Company owned the following property at resorts not related to the campground operations (dollars in thousands):

	June 30,
	2001		2000
Land held for sale	$	70	$	70

NOTE 8 — DEFERRED REVENUE AND DEFERRED SELLING EXPENSES

Deferred revenue was comprised of the following as of June 30, 2001 and 2000 (dollars in thousands):

	June 30,
	2001		2000
Deferred revenue -
Campground membership sales	$	30,175	$	16,812
Campground membership dues		15,466		15,466
Other		2,185		1,805
	$	47,826	$	34,083

Components of the change in deferred membership selling expenses and deferred membership sales revenue are as follows (dollars in thousands):

		For the years ended June 30,
		2001			2000			1999
Deferred membership selling expenses, beginning of year		$	5,177		$	2,065		$	1,625
	Deferred		5,880			4,110			1,170
	Recognized		(2,141	)		(998	)		(730	)
	Increase in deferral		3,739			3,112			440
Deferred membership selling expenses, end of year			8,916		$	5,177		$	2,065
Deferred membership sales revenue, beginning of year			16,812		$	8,464		$	6,943
	Membership contracts originated		22,903			13,912			5,480
	Less provision for doubtful accounts		(781	)		(709	)		—
	Membership contracts originated, net		22,122			13,203			5,480
	Membership revenue recognized		(8,759	)		(4,855	)		(3,959	)
	Increase in deferral		13,363			8,348			1,521
Deferred membership sales revenue, end of year		$	30,175		$	16,812		$	8,464

Page 51

NOTE 9 — LONG-TERM DEBT

Line of Credit with Union Bank

On July 1, 2001, the Company established a $15.0 million revolving, secured line of credit (“Line of Credit”) with Union Bank of California, N.A. (“Union Bank”). Borrowings under the Line of Credit carry an interest rate of prime minus 0.75%. The Company may borrow, repay and reborrow under the Line of Credit from time to time, provided, however, that for at least one day during each twelve-month period, the principal amount outstanding under the Line of Credit must be not more than $5.0 million. All borrowings under the Line of Credit will mature on July 1, 2003. The Company anticipates using the Line of Credit for general working capital purposes, although it is permitted under the terms of the Line of Credit to use up to $5.0 million for acquisitions from time to time. The Company currently has no borrowings outstanding under the Line of Credit.

Credit Agreement with Foothill

Through the normal course of operations, in March 2001, the Company repaid all outstanding borrowings under the Credit Agreement (as amended, the “Credit Agreement”) between the Company and Foothill Capital Corporation (“Foothill”), and it terminated the Credit Agreement on June 30, 2001. During the periods presented, borrowings under the Credit Agreement accrued interest at prime plus .25% per annum, subject to a minimum interest rate of 7% per annum.

PIK Note Redemption

In December 1998, the Company redeemed all $34.8 million principal amount of 12% Senior Subordinated Pay-in-Kind Notes Due 2003 (“PIK Notes”) outstanding and paid $1.7 million of accrued interest.

Page 52

Balance Sheet Presentation

Balance sheet presentation of the current and long-term components of the Company’s outstanding debt as of June 30, 2001 and 2000, is reflected below (dollars in thousands):

	2001		2000
Current portion of long-term debt:
Borrowings under Credit Agreement	$	—	$	2,571
Long-term debt:
Borrowings under Credit Agreement		—		7,043
Total debt	$	—	$	9,614

NOTE 10 — INCOME TAXES

The Company and its subsidiaries have entered into tax sharing agreements, pursuant to which they file federal income tax returns on a consolidated basis and allocate tax benefits and liabilities as provided in the agreements. The agreements provide generally that a subsidiary will reimburse or be reimbursed by the Company in an amount equal to 100% of any tax amounts that would have been due or refundable, calculated as if the subsidiary were a stand-alone taxpayer.

Page 51

The differences, expressed as a percentage of pretax income, between statutory and effective federal income tax rates are as follows:

	For the years ended June 30,
	2001			2000			1999
	2002			2001			2000
Federal statutory tax rate		34.0	%		34.0	%		34.0	%
Provision for state income taxes		12.14			51.31			—5.3
Nonqualified stock options		(2.0	)		(2.7	)		—
Other		.3			(1.6	)		(2.2	)
Other permanent differences		.4			.5			.3
Change in deferred tax valuation		—			—			(106.5	)
Change in deferred tax valuation		—			(106.5	)		(4.7	)
		36.7	%		33.5	%		(69.4	%)
		33.5	%		(69.4	)%		29.6	%

At June 30, ~~2001~~2002, the Company had ~~estimated~~fully utilized all net operating tax loss carryforwards (“NOLs”) originating in prior years. At June 30, 2002, the Company had an alternative minimum tax credit carryforward of approximately $71.97 million, ~~expiring~~available into ~~years~~offset ~~2010~~regular ~~through~~corporate ~~2014,~~income astax in excess of the ~~follows~~alternative ~~(dollars~~minimum tax in ~~thousands):~~future years.

Year ending		Amount
June 30,		expiring
	2010	$	140
	2011		5,655
	2014		2,069
		$	7,864

The components of deferred income taxes as of June 30, 2002 and 2001, were as follows (dollars in thousands):

The NOLs available for future utilization were generated by a combination of operating losses and interest expense. Since 1995, the Company has instituted a number of cost-cutting moves, including closing and disposing of campgrounds and decreasing campground operating costs and


	2002			2001

Deferred Tax Assets – Federal




Net operating loss carryforwards (NOLs)	$	0		$	2,675




Membership sales		9,874			7,228




Alternative minimum tax credit carryover		1,692			1,868




Accrued liabilities		1,179			1,719




Restructuring costs		1,338			1,338




Deferred revenue		455			450




Receivables		841			842




Other		181			235

		15,560			16,355

Deferred Tax Liabilities – Federal




Property basis differences		(6,268	)		(6,032	)




Installment Sales		(3,355	)		(2,603	)

		(9,623	)		(8,635	)

Deferred Tax Asset – State		465			160

Net deferred tax assets	$	6,402		$	7,880

~~Page~~The 53Company periodically assesses the realizability of its deferred tax assets and considers whether it is more likely than not that the tax benefits will be realized. At June 30, 2000, the Company reversed the remaining valuation allowance because management believed it was more likely than not that the Company would generate sufficient taxable income during the carryforward period to realize the net deferred tax assets. In fiscal 2001 and 2002, the Company generated sufficient taxable income to fully realize these tax benefits.

Page 52

general and administrative expenses. In addition, the Company has reduced its debt load and related interest expense. The Company has generated book income before taxes of at least $5.4 million in each of the last three years. In assessing the likelihood of utilization of existing NOLs, management considered the Company’s historical results and the current operating environment.

A reconciliation of the Company’s income before taxes for financial statement purposes to taxable income (loss) for the three years ended June 30, 2001 is as follows (dollars in thousands):

		For the year ended June 30,
		2001			2000			1999
Income before taxes for financial statement purposes		$	6,429		$	5,458		$	7,915
Temporary differences related to:
	Sales of membership contracts		7,048			1,800			1,079
	Interest expense related to PIK Notes		—			—			(10,313	)
	Contracts receivable		(479	)		1,127			966
	Gain on sale of assets		885			39			(131	)
	Other		(591	)		(1,093	)		(1,659	)
Total temporary differences			6,863			1,873			(10,058	)
Permanent difference related to:
	Non-qualified stock options		(381	)		(447	)		—
	Other		69			74			74
Total permanent differences			(312	)		(373	)		74
Taxable income		$	12,980		$	6,958		$	(2,069	)

Temporary differences for each of the years presented are primarily related to revenue recognition on membership contracts, interest expense deductions, gains on collections of the contracts receivable portfolio and gains on asset sales.

For financial statement purposes, the Company recognizes revenue from the sale of membership contracts, and expenses directly related to the sale, over the expected life of the membership. For tax purposes, in fiscal year 1999, the revenue and directly related expenses were recognized in the year of sale. In fiscal 2001 and 2000, for tax purposes, the Company elected to recognize revenue from the sale of membership contracts using the installment method, whereby revenue is recognized as cash is collected. The temporary difference related to the sale of membership contracts increased taxable income by $7.0 million, $1.8 million, and $1.1 million in the years ended June 30, 2001, 2000, and 1999, respectively.

Deductions for interest expense related to the PIK Notes were deferred for tax purposes until the PIK Notes were redeemed in December 1998. The temporary difference related to interest expense on the PIK Notes decreased taxable income by $10.3 million in the year ended June 30, 1999.

The tax basis in the contract receivable portfolio is different than the basis for financial statement purposes, primarily as a result of elections made for tax purposes and a difference in the timing of deductions for bad debt expense. The temporary difference related to basis differences in the

Page 54

contract receivable portfolio decreased taxable income by $479,000 in the year ended June 30, 2001, and increased taxable income by $1.1 million and $966,000 in the years ended June 30, 2000, and 1999, respectively.

The tax basis in the Company’s property, plant and equipment is different than the basis for financial statement purposes due to the timing of depreciation expense deductions, elections made for tax purposes and write-downs of assets used in the operation of resorts not related to the campground operations. As a result, when assets are sold, the gain or loss for tax purposes is different than the gain or loss for book purposes. The temporary difference related to basis differences in assets sold increased taxable income by $885,000 and $39,000 in the years ended June 30, 2001 and 2000, respectively, and decreased taxable income by $131,000 in the year ended June 30, 1999.

Other temporary differences, which primarily relate to the timing of payments for accrued expenses, reduced taxable income by $591,000, $1.1 million and $1.7 million in the years ended June 30, 2001, 2000 and 1999, respectively.

Permanent differences consist primarily of taxable expenses created by the exercise of non-qualified stock options and a reduction in taxable expenses related to non-deductible meals and entertainment expenses. The permanent difference related to non-qualified stock options decreased taxable income by $381,000 and $447,000 in the years ended June 30, 2001 and 2000, respectively. The permanent difference related to non-deductible meals and entertainment expenses increased taxable income by $69,000 in the year ended June 30, 2001, and $74,000 in the years ended June 30, 2000 and 1999, respectively.

The components of deferred income taxes as of June 30, 2001 and 2000, were as follows (dollars in thousands):

	2001			2000
Deferred Tax Assets – Federal
Net operating loss carryforwards (NOLs)	$	2,675		$	7,104
Membership sales		7,228			3,956
Alternative minimum tax credit carryover		1,868			1,563
Unpaid expenses		1,719			1,729
Restructuring costs		1,338			1,397
Deferred revenue		450			423
Bad debt provision		842			1,102
Other		235			333
		16,355			17,607
Deferred Tax Liabilities – Federal
Property basis differences		(6,032	)		(6,480	)
Purchase discount amortization		—			(46	)
Installment sales		(2,603	)		(1,733	)
		(8,635	)		(8,259	)
Deferred Tax Asset (Liability) – State		160			(206	)
Net deferred tax assets	$	7,880		$	9,142

Prior to fiscal 1998, the Company provided a valuation allowance for the amount by which deferred tax assets exceeded deferred tax liabilities. However, the Company periodically

Page 55

assesses the realizability of its deferred tax assets and considers whether it is more likely than not that the tax benefits will be realized. The ultimate realization of the deferred tax assets is dependent upon the Company having future taxable income during the periods in which the NOLs may be utilized and other deferred tax assets become deductible.

At the end of fiscal 1998, management’s assessment, which considered scheduled reversals of deferred tax assets and liabilities, projected future taxable income, and the carryforward periods of the Company’s NOLs, was that it is more likely than not that the Company would realize the benefits of a significant portion of the net deferred tax assets. As a result, at June 30, 1998, the Company reduced the valuation allowance by $10.0 million, resulting in net deferred tax assets after valuation allowance of $10.0 million. In fiscal 1999 the Company reduced the valuation allowance by $401,000, as a result of the current tax deduction provided by the redemption of the PIK Notes. Prior to the redemption, the Company deferred deducting the interest expense on the PIK Notes for tax purposes because interest was paid by issuing additional PIK Notes. The valuation allowance associated with the PIK Note interest deduction was reduced after the redemption because the Company determined that it is more likely than not that it would realize the tax benefits of those deductions. At June 30, 2000, the Company reversed the remaining $5.8 million of the valuation allowance because management believes that it is more likely than not that the Company will generate sufficient taxable income to realize the net deferred tax assets based upon the current estimates of future taxable income. The ultimate realization of these income tax benefits will require aggregate taxable income of approximately $20.9 million during the carryforward period, $13.0 million of which should be realized for the year ended June 30, 2001. The Company will not have to increase current levels of income to generate this aggregate taxable income over such period. Although the Company has experienced a declining membership base, it does not expect the net effect of such decline to prevent the realization of the net deferred tax assets.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Commitments

Lease Commitments The Company leases equipment and facilities under noncancelable operating leases with terms in excess of one year. At June 30, 2001, the Company’s future obligations under noncancelable operating leases were as follows (dollars in thousands):

Year ending
June 30,		Amount
	2002	$	650,298
	2003		277,728
	2004		135,804
	2005		122,143
	2006		108,312

The Company leases equipment and facilities under noncancelable operating leases with terms in excess of one year. At June 30, 2002, the Company’s future obligations under noncancelable operating leases were as follows (dollars in thousands):

Accrued Construction Costs The Company had recorded liabilities of $1.9 million at both June 30, 2001 and 2000, for amounts necessary to complete improvements provided in a registration statement filed with the U.S. Department of Housing and Urban Development at a resort not related to the campground


Year ending
June 30,	Amount

2003	$	517




2004		413




2005		413




2006		399




2007		388

~~Page~~Accrued 56Construction Costs

~~Table~~At June 30, 2001, the Company had a recorded liability of ~~Contents~~$1.9 million for amounts necessary to complete improvements at a resort not related to the campground operations in accordance with disclosures made to lot purchasers at the resort pursuant to a registration with the U.S. Department of Housing and Urban Development (“HUD”). In fiscal 2002, the Company sold the remaining lots, roadways and related areas at the resort associated with such liability and withdrew its HUD registration. As a result, the Company reduced the $1.9 million liability for accrued construction costs to $500,000 and reclassified the remaining liability as a reserve for the contingent liability. The decrease in the liability was classified as a reduction of general and administrative expenses in the accompanying consolidated statement of operations.

operations. The costs of such improvements are based upon engineering estimates and are classified as a current liability in the accompanying consolidated balance sheets.

Contingencies

General Liability Insurance Commencing July 1, 1998, the Company obtained insurance covering general liability losses up to an annual limit of $27.0 million, with no self-insured deductible. Prior to this date, the Company’s insurance covered general liability losses up to an annual limit of $26.8 million, but required the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.0 million. The Company has provided a liability for estimated known and unknown claims related to uninsured general liability risks based on actuarial estimates. As of June 30, 2001 and 2000, the Company’s recorded liability for estimated losses related to uninsured general liability claims totaled $577,000 and $650,000, respectively, which is included in other liabilities in the accompanying consolidated balance sheets.

~~Employee~~From ~~Health~~July 1, ~~Insurance~~1998 through June 30, 2002, the Company had insurance covering general liability losses up to an annual limit of $27.0 million, with no self-insured deductible. Prior to this date, the Company’s insurance covered general liability losses up to an annual limit of $26.8 million, but required the Company to pay the first $250,000 per occurrence, with an annual aggregate exposure of $2.0 million. The Company has ~~employee~~provided ~~benefit~~a ~~plans~~liability ~~that~~for ~~are~~estimated claims ~~funded~~related ~~primarily~~to ~~through~~uninsured general liability risks based on actuarial ~~employer~~estimates. As of June 30, 2002 and ~~employee~~2001, ~~contributions~~the ~~(see~~Company’s ~~Note~~recorded ~~16)~~liability for estimated losses related to uninsured general liability claims totaled $567,000 and $577,000, respectively, which is included in other liabilities in the accompanying consolidated balance sheets.

~~Workers’~~Employee ~~Compensation~~Health Insurance Commencing July 1, 1998, the Company obtained insurance covering workers’ compensation claims with no self-insured deductible. Prior to this date, the Company’s insurance program required the Company to pay up to $250,000 per occurrence and to deposit funds with the insurance company to pay claims in excess of the estimated claims that were covered by the amounts originally paid by the Company. These deposits were generally expensed in the years the deposits were made because the Company anticipated that the deposits would be used to cover claims. In fiscal 2001 and 2000, the Company increased its reserves for workers compensation claims by $160,000 and $138,000, respectively, because the Company estimates that it will be required to pay additional amounts in future periods to cover claims not covered by the deposits originally made by the Company.

~~Declining Membership Base~~ The Company ~~derives a significant portion of its ongoing operating revenue from its campground members (93% in fiscal 2001). The Company’s membership base~~ has ~~declined~~ ~~over~~employee ~~the~~benefit ~~past~~plans ~~five fiscal years, although the Company has been successful in slowing the rate of this attrition. While the acquisition of Leisure Time increased the size of the membership base, the Company expects~~ that, notwithstanding new sales, the membership base will continue to decline at the rate of approximately 2% per year. The Company attributes this attrition principally to its aging membership base, of whom approximately 50% are ~~senior~~funded ~~citizens.~~primarily Moreover, the Company estimates that the memberships sold in recent fiscal years will have an expected life that is shorter than the expected life of the memberships previously sold by the Company. To stop the continuing decline in its membership base, the Company must increase its campground membership sales over current levels or acquire members through ~~the~~ ~~purchase~~employer ofand ~~other~~employee ~~membership~~contributions ~~campground~~(see ~~organizations,~~Note ~~similar to the acquisition of Leisure Time~~15).

~~Environmental~~Page ~~Issues~~53 ~~Certain environmental issues may exist at some of the Company’s campgrounds~~ ~~concerning underground storage tanks, sewage treatment plants and septic systems, and waste disposal.~~

Page 57

~~Management has reviewed these issues and believes that they will not have a material adverse impact on the Company~~Workers’s ~~operations~~Compensation ~~or financial position.~~Insurance

~~Litigation~~From July 1, 1998 through June 30, 2002, the Company had insurance covering workers’ compensation claims with no self-insured deductible. Prior to this ~~The~~date, the Company’s isinsurance ~~involved~~program inrequired ~~certain~~the ~~claims~~Company to pay up to $250,000 per occurrence and ~~litigation~~to ~~arising~~deposit infunds with the ~~normal~~insurance company to pay ~~course~~claims in excess of ~~business~~the estimated claims covered by the amounts originally paid by the Company. ~~Management~~These ~~believes~~deposits ~~that~~were generally expensed in the ~~eventual~~years ~~outcome~~the deposits ofwere ~~these~~made because the Company anticipated that the deposits would be used to cover claims. ~~and~~In ~~litigation~~fiscal ~~will~~2001, ~~not~~the ~~have~~Company aincreased ~~material~~its ~~adverse~~reserves ~~impact~~for onworkers' compensation claims by $160,000 because the Company’s estimated that it would be required to ~~operations~~pay oradditional ~~financial~~amounts ~~position~~in future periods to cover claims not covered by the deposits originally made by the Company.

Environmental Issues

Certain environmental issues may exist at some of the Company’s campgrounds concerning underground storage tanks, sewage treatment plants and septic systems, and waste disposal. Management has reviewed these issues and believes that they will not have a material adverse impact on the Company’s operations or financial position.

Litigation

NOTE 12 — SHAREHOLDERS’ EQUITY

The Company had shares of Common Stock outstanding as follows:

June 30, 1998		7,437,083
	Issuances	662,245
	Repurchases	(3,200	)
June 30, 1999		8,096,128
	Issuances	74,364
	Repurchases	(189,900	)
June 30, 2000		7,980,592
	Issuances	210,031
	Repurchases	(23,500	)
June 30, 2001		8,167,123
	Issuances	27,869
	Repurchases	(1,277,376	)
June 30, 2002		6,917,616

Transfer of Common Stock is subject to restrictions designed to avoid an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Such restrictions are set forth in Article IX of the Company’s Restated Certificate of Incorporation. Article IX generally restricts, until June 30, 2011 (or earlier in certain events), direct or indirect transfer of Common Stock that would without the approval of the Board of Directors of the Company (i) increase to more than 4.75% the percentage ownership of Common Stock of any person who at any time during the preceding three-year period did not own more ~~that~~than 4.75% of the Common Stock, (ii) increase the percentage of Common Stock owned by any person that during the preceding three-year period owned more than 4.75% of the Common Stock, or by any group of persons treated as a “5 Percent Shareholder” (as defined in the Code but substituting “4.75%” for “5 Percent”), or (iii) cause an “ownership change” of the Company. Article IX provides that any direct or indirect transfer of Common Stock in violation of Article IX is void ab initio as to the purported transferee, and the purported transferee will not be recognized as the owner of shares acquired in violation of Article IX for any purpose, including ~~for purposes of voting and receiving dividends or other distributions~~ ~~in respect of Common Stock. Any shares purportedly acquired in violation of~~ ~~Article IX will be transferred to a trustee who will be required to sell them.~~

~~The~~Page ~~Company’s Restated Certificate of Incorporation provides for the issuance~~54 ~~of 15,000,000 shares of Common Stock, par value of $.01 per share. In~~ ~~addition, the Company’s Restated Certificate of Incorporation provides for the~~ ~~issuance of 1,500,000 shares of preferred stock, par value $.01 per share, none of which have been issued to date.~~

The Company has granted stock options to the Company’s CEO and other key employees and non-employee directors (see Note 15).

Page 58

~~Since~~for ~~inception,~~purposes ~~the~~of ~~Company~~voting ~~has~~and ~~not~~receiving ~~paid~~dividends ~~any~~or ~~dividends~~other ~~and,~~distributions atin respect ~~the~~of ~~present~~Common Stock. Any shares purportedly acquired in violation of ~~time,~~Article IX itwill ~~has~~be notransferred ~~plans~~to a trustee who will be required to ~~pay~~sell ~~dividends~~them.

~~NOTE~~The 13Company —has ~~SUPPLEMENTAL~~granted ~~CASH~~stock ~~FLOW~~options ~~INFORMATION~~to the Company’s CEO and other key employees and non-employee directors (see Note 14).

~~Supplemental~~On ~~disclosures~~May 30, of2002, ~~non-cash~~the ~~investing~~Company ~~and~~completed ~~financing~~a ~~activities required~~tender byoffer ~~SFAS No. 95~~and ~~“Statement~~purchased 1,144,876 shares of ~~Cash~~its ~~Flows”~~common ~~are~~stock ~~presented below~~ for ~~the~~$8.41 ~~years~~per ~~ended~~share. ~~June 30,~~The ~~2001,~~shares ~~2000~~are ~~and~~being ~~1999~~held ~~(dollars~~as treasury ~~in thousands):~~stock.

	For the year ended June 30,
	2001		2000		1999
Non-cash payment of PIK Note interest (see Note 9)
PIK Notes issued in lieu of cash interest payment	$	—	$	—	$	1,969

NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

~~NOTE~~The 14estimated —fair ~~DISCLOSURES~~values ~~ABOUT~~of ~~FAIR~~the ~~VALUE~~Company’s OFfinancial ~~FINANCIAL~~instruments ~~INSTRUMENTS~~as of June 30, 2002 and 2001, as well as their carrying amounts as reported in the accompanying consolidated balance sheets, are as follows (dollars in thousands):

The estimated fair values of the Company’s financial instruments as of June 30, 2001 and 2000, as well as their carrying amounts as reported in the accompanying consolidated balance sheets, are as follows (dollars in thousands):


	June 30, 2002					June 30, 2001

	Carrying Amount			Fair Value		Carrying Amount			Fair Value

Financial Assets:




Cash and cash equivalents	$	4,275		$	4,275	$	9,016		$	9,016
Marketable securities		5,343			5,353		—			—




Restricted cash		646			646		646			646




Contracts receivable		11,826					9,877




Less: allowances		(2,188	)				(2,289	)

		9,638			10,400		7,588			7,775

	June 30, 2001					June 30, 2000
	Carrying					Carrying
	Amount			Fair Value		Amount			Fair Value
Financial Assets:
Cash and cash equivalents	$	9,016		$	9,016	$	2,420		$	2,420
Restricted cash		646			646		1,320			1,320
Contracts receivable		9,877					7,703
Less: allowances and discount		(2,289	)				(1,928	)
		7,588			7,775		5,775			5,800
Financial Liabilities:
Borrowings under Credit Agreement		—			—		9,614			9,614

The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial instruments as of June 30, 2002 and 2001, for which it is practical to estimate that value.

~~The~~Cash ~~following methods~~ and ~~assumptions~~Cash ~~were~~Equivalents ~~used to estimate the fair value of each class of the Company’s financial instruments as of June 30, 2001~~ and ~~2000, for~~Restricted ~~which it is practical to estimate that value.~~Cash

~~Cash and Cash Equivalents and Restricted Cash~~ The carrying amount approximates fair value because of the short maturity of these instruments.

~~Borrowings~~Marketable ~~Under Credit Agreement~~Securities ~~The carrying amount approximates fair value because the borrowings under the Credit Agreement bear a market rate of interest.~~

~~Contracts Receivable~~ The fair value of ~~contracts~~marketable ~~receivable~~securities ~~was~~is ~~estimated by discounting~~ the ~~future cash~~carrying ~~flows~~value ~~using~~of the ~~current rates at which the~~ Company ~~estimates a similar~~’s ~~loan~~marketable ~~portfolio~~securities ~~would~~plus beunrealized ~~purchased~~gains ~~by a willing third party, after considering risk factors regarding collectibility~~ and ~~future~~less ~~collection~~unrealized ~~costs~~losses.

~~Page~~Contracts 59Receivable

The fair value of contracts receivable was estimated by discounting the future cash flows using the current rates at which the Company estimates a similar loan portfolio would be purchased by a willing third party, after considering risk factors regarding collectibility and future collection costs.

Significant estimates and present value calculations were used by the Company for purposes of this disclosure. Changes in assumptions or estimation methodologies may have a material effect

Page 55

~~Significant estimates and present value calculations were used by the Company for purposes of this disclosure. Changes in assumptions or estimation methodologies may have a material effect~~ on these estimated fair values. Additionally, lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated values.

The Company did not have any financial instruments as of the balance sheet dates presented that were held for trading purposes.

NOTE 1514 — STOCK OPTIONS AND WARRANTS

Stock Options

CEO Options At their annual meeting in November 1996, the shareholders of the Company approved the grant to the Company’s CEO of options to purchase 664,495 shares of Common Stock at $0.69 per share. These options are 100% vested and are exercisable for a period of ten years while the CEO is in the employ of the Company, subject to certain exceptions. The exercise of the options, however, is subject to restrictions designed to prevent an “ownership change” for federal tax purposes (see Note 12). As of the date of this report, 444,927 of these options have been exercised.

~~Subsequent~~At totheir ~~year-end~~annual meeting in November 1996, the shareholders of the Company approved ~~granted~~the ~~its~~grant ~~CEO~~to ~~600,000~~the ~~additional~~Company’s CEO of options ~~under~~ ~~the 2001~~to ~~Stock~~purchase ~~Option~~664,495 ~~and~~shares of ~~Restricted~~Common Stock ~~Purchase~~at ~~Plan~~$0.69 ~~The~~per share. These options ~~were~~are 100% vested and are ~~approved~~exercisable byfor a period of ten years while the ~~Board~~CEO is in the employ of ~~Directors~~the Company, ~~and~~subject ~~will~~to becertain ~~voted~~exceptions. ~~upon~~As byof the ~~shareholders~~date of this report, 444,927 atof ~~their~~these ~~annual~~options ~~meeting~~have been exercised.

1991 Employee Plan Effective December 31, 1991, the Company adopted the 1991 Employee Stock Incentive Plan (the “1991 Employee Plan”) to enable the Company and its subsidiaries to attract, retain and motivate their officers, employees and directors. Awards under the 1991 Employee Plan may take various forms, including (i) shares of Common Stock, (ii) options to acquire shares of Common Stock (“Options”), (iii) securities convertible into shares of Common Stock, (iv) stock appreciation rights, (v) phantom stock or (vi) performance units. Options granted under the 1991 Employee Plan may be (i) incentive stock options (“ISOs”), which have certain tax benefits and restrictions, or (ii) non-qualified stock options (“Non-qualified Options”), which do not have any tax benefits and have few restrictions.

~~The~~Effective ~~Compensation~~December 31, ~~Committee or~~1991, inthe ~~certain~~Company ~~circumstances,~~adopted the ~~Board~~1991 ofEmployee ~~Directors~~Stock ~~may~~Incentive ~~grant~~Plan ~~awards~~(the “1991 Employee Plan”) to enable the Company and its subsidiaries to attract, retain and motivate their officers, employees and directors. The Company has granted options to acquire shares of Common Stock (“Options”) under the 1991 Employee Plan, ~~until~~which ~~December~~are either (i) 30incentive stock options (“ISOs”), ~~2001~~which have certain tax benefits and restrictions, or (ii) non-qualified stock options (“Non-qualified Options”), which do not have any tax benefits and have few restrictions. The ~~recipient~~ ofexercise anprice ~~award~~of ~~duly~~the Options granted onunder orthe ~~prior~~1991 Employee Plan was equal to ~~such~~the fair market value of the Common Stock on the date ~~may~~of ~~thereafter~~grant. The Options granted under the 1991 Employee ~~exercise~~Plan ormay ~~settle~~be itexercised in accordance with ~~its~~their terms, although ~~the~~Thousand ~~Company may~~Trails may not issue any shares of Common Stock pursuant to any award after December 30, 2011.

The ~~Board~~Company reserved 291,780 shares of ~~Directors~~Common ~~may~~Stock ~~amend~~for orissuance ~~terminate~~under the 1991 Employee Plan. atAt ~~any time~~June 30, ~~and~~2002, inoptions ~~any~~for ~~manner~~156,081 ~~provided~~shares ~~that~~were ~~(i) an amendment or termination may not~~outstanding ~~affect~~under anthe ~~award~~1991 ~~previously~~Employee ~~granted~~Plan ~~without~~and ~~the~~options ~~recipient’s~~for ~~consent~~135,699 ~~and~~shares ~~(ii) an amendment~~had ~~will~~been ~~not~~exercised. All beoutstanding ~~effective~~options ~~until~~under the ~~shareholders~~1991 ~~approve~~Employee itPlan ifare ~~any national~~fully ~~securities~~vested ~~exchange~~and orhave a ~~securities~~term ~~association~~of ~~that~~ten ~~lists~~years ~~any~~from of the ~~Company’s~~ ~~securities~~date ~~requires~~of ~~shareholder approval or if Rule 16b-3 requires shareholder approval~~grant.

~~Page~~1993 60Employee Plan

On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted Stock Purchase Plan (the “1993 Employee Plan”) in order to enable the Company and it subsidiaries to attract, retain and motivate their officers and employees. Awards under the 1993 Employee Plan are restricted to (i) awards of the right to purchase shares of Common Stock (“Stock Awards”), or (ii) awards of Options, which may be either ISOs or Non-qualified Options. The purchase price for any Stock Awards and the exercise price for any Non-qualified Options may be less than the fair market value of the Common Stock on the date of grant. The exercise price of any ISOs may not be less than the fair market value of the Common Stock on the date of grant.

The Company reserved 285,919 shares of Common Stock for issuance under the 1993 Employee Plan. As of June 30, 2002, options for 120,419 shares were outstanding under the 1993 Employee Plan and options for 163,000 shares had been exercised. All outstanding options

Page 56

~~The Company reserved 291,780 shares of Common Stock for issuance~~ under the ~~1991 Employee~~1993 ~~Plan. To date, options for 164,281 shares are outstanding under the 1991~~ Employee Plan ~~and options for 127,499 shares have been exercised. 159,281 of the outstanding options~~ are fully vested and ~~the remaining 5,000 options will vest in May 2002. The options~~ have a term of ten years from the date of grant.

~~1993~~1999 Employee Plan On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted Stock Purchase Plan (the “1993 Employee Plan”) in order to enable the Company and it subsidiaries to attract, retain and motivate their officers and employees. Awards under the 1993 Employee Plan are restricted to (i) awards of the right to purchase shares of Common Stock (“Stock Awards”), or (ii) awards of Options, which may be either ISOs or Non-qualified Options. The purchase price for any Stock Awards and the exercise price for any Non-qualified Options may be less than the fair market value of the Common Stock on the date of grant. The exercise price of any ISOs may not be less than the fair market value of the Common Stock on the date of grant.

~~The~~On ~~Compensation~~November 18, ~~Committee or~~1999, the Company adopted the 1999 Stock Option and Restricted Stock Purchase Plan (the “1999 Employee Plan”) in ~~certain~~order ~~circumstances,~~to enable the ~~Board~~Company and ofit ~~Directors~~subsidiaries to attract, retain, and motivate their officers, employees ~~may~~and ~~grant~~directors. ~~awards~~Awards under the ~~1993~~1999 Employee Plan ~~until~~are ~~October~~restricted to (i) 20Stock Awards, ~~2003~~or (ii) awards of Options, which may be either ISOs or Non-qualified Options. The purchase price for any Stock Awards and the exercise price for ~~termination~~any Non-qualified Options may be less than the fair market value of the ~~1993~~Common Stock ~~Employee~~on ~~Plan,~~the ~~however,~~date ~~will~~of ~~not~~grant. ~~alter~~The orexercise ~~impair~~price of any ISOs may not be less ~~rights~~than orthe ~~obligations~~fair ~~under~~market ~~any~~value ~~award~~of ~~previously~~the ~~granted~~Common ~~under~~Stock on the ~~plan~~date of grant.

The ~~Board~~Company reserved 140,000 shares of ~~Directors~~Common ~~may~~Stock ~~amend~~for orissuance ~~terminate~~under the ~~1993~~ 1999 Employee Plan. atAs ~~any time~~of ~~and~~June 30, ~~in any manner~~2002, ~~provided~~options ~~that~~for ~~(i) an~~122,500 ~~amendment~~shares ~~or termination may not~~were ~~affect~~outstanding anunder ~~award previously granted without~~ the ~~recipient’s~~1999 ~~consent~~Employee Plan, ~~(ii) an amendment~~and ~~will~~options ~~not~~for be2,500 ~~effective~~shares ~~until~~had ~~the~~been exercised. ~~shareholders~~The ~~approve~~options ithave ifa ~~any national~~term ~~securities~~of ~~exchange~~10 years orfrom ~~securities~~the ~~association~~date ~~that~~of ~~lists~~grant. ~~any~~All of ~~the~~ ~~Company’s~~the ~~securities~~outstanding ~~requires~~options ~~shareholder~~vest ~~approval~~at orthe ifrate ~~Rule 16b-3~~of ~~requires shareholder~~33 ~~approval~~1/3% ~~and~~per ~~(iii) the~~year ~~shareholders~~commencing ~~must approve any amendment~~one ~~decreasing~~year from the ~~minimum~~date ~~exercise~~of ~~price~~grant, ~~specified~~except infor ~~the~~12,500 ~~plan~~which ~~for~~are ~~any~~fully ~~ISO granted thereunder~~vested.

~~The~~2001 ~~Company reserved 285,919 shares of Common Stock for issuance under the 1993~~ Employee Plan~~. To date, options for 130,419 shares are outstanding under the~~ ~~1993 Employee Plan and options for 153,000 shares have been exercised. 126,254~~ ~~of the outstanding options are fully vested and the remaining 4,165 options will vest in May 2002. The options have a term of ten years from the date of grant.~~

~~1999 Employee Plan~~ On ~~November~~September 1817, ~~1999~~2001, the Company adopted the ~~1999~~2001 Stock Option and Restricted Stock Purchase Plan (the “~~1999~~2001 Employee Plan”). The 2001 Employee Plan was created in order to enable the Company and itits subsidiaries to attract, retain, and motivate their officers, employees and directors. Awards under the ~~1999~~ 2001 Employee Plan are restricted to (i) Stock Awards, or (ii) awards of Options, which may be either ISOs or Non-qualified Options. The purchase price for any Stock Awards and the exercise price for any Non-qualified Options may be less than the fair market value of the Common Stock on the date of grant. The exercise price of any ISOs may not be less than the fair market value of the Common Stock on the date of grant.

The ~~Compensation~~Company ~~Committee~~reserved or650,000 inshares ~~certain~~of ~~circumstances,~~Common ~~the~~Stock ~~Board~~for ofissuance ~~Directors~~under the 2001 ~~may~~Employee ~~grant~~Plan. ~~awards~~At June 30, 2002, options for 625,000 shares were outstanding under the ~~1999~~2001 Employee Plan, ~~until~~and ~~September 27,~~no ~~2009~~options had been exercised. The options ~~termination~~have a term of ~~the~~10 years ~~1999~~from ~~Employee~~the ~~Plan,~~date ~~however,~~of ~~will~~grant. ~~not~~All ~~alter~~of orthe ~~impair~~outstanding ~~any~~options ~~rights~~vest orat ~~obligations~~the ~~under~~rate ~~any~~of ~~award~~33 ~~previously~~1/3% ~~granted~~per ~~under~~year, commencing one year from the ~~plan~~date of grant.

~~Page~~Director 61Plan

On December 2, 1993, the Company adopted the 1993 Director Stock Option Plan (the “Director Plan”), which provides for the grant of Non-qualified Options to non-employee directors of the Company. The Company reserved 50,000 shares of Common Stock for issuance under the Director Plan. As of June 30, 2002, options for 39,000 shares were outstanding under the Director Plan, all of which were vested, and options for 11,000 shares had been exercised. The options have a term of ten years from the date of grant.

Page 57

~~The~~value ~~Board~~is ofthe ~~Directors~~average ~~may~~trading ~~amend~~price orof ~~terminate~~ the ~~1999~~Common ~~Employee~~Stock ~~Plan~~during atthe ~~any~~period ~~time~~beginning ~~and in any manner, provided that (i)~~45 andays ~~amendment~~before ~~or termination may not affect an award previously granted without~~ the ~~recipient’s~~date ~~consent, (ii) an amendment will not be effective until the shareholders approve it if any national securities exchange or securities association that lists any~~ of ~~the Company’s~~grant ~~securities requires shareholder approval~~ and ~~(iii)~~ending 15 ~~the~~days ~~shareholders must~~before ~~approve any amendment decreasing~~ the ~~minimum exercise price specified in~~date ~~the~~of ~~plan for any ISO granted thereunder~~grant.

~~The~~SFAS ~~Company reserved 140,000 shares of Common Stock for issuance under the 1999 Employee Plan~~No. 123 ~~To date, options for 50,000 shares are outstanding under the~~Disclosures ~~1999 Employee Plan, none of which have been exercised. 15,000 of the~~ ~~outstanding options are fully vested and the remaining 35,000 options will vest at the rate of 33 1/3% beginning December 2002. The options have a term of ten years from the date of grant.~~

~~Director~~SFAS ~~Plan On December~~No. 2,123 ~~1993,~~defines ~~the~~a ~~Company~~fair ~~adopted~~value ~~the~~method ~~1993~~of ~~Director~~accounting ~~Stock~~for ~~Option~~employee ~~Plan~~stock ~~(the~~options ~~“Director Plan”),~~ which provides for ~~the~~compensation ~~grant~~cost ofto ~~Non-qualified~~be ~~Options~~charged to ~~non-employee~~ ~~directors~~results of operations at the ~~Company~~grant date. The Company ~~reserved~~has ~~50,000~~adopted ~~shares~~the ofdisclosure-only ~~Common~~provisions ~~Stock~~of ~~for~~SFAS ~~issuance~~No. 123 ~~under~~and follows the ~~Director~~accounting ~~Plan~~treatment prescribed by Accounting Pronouncement Bulletin Opinion No. 25 To(“APB ~~date,~~25”) ~~options~~in accounting for stock 40options issued to its employees and directors. Accordingly,~~000~~ no ~~shares~~compensation ~~are~~cost ~~outstanding~~was ~~under~~recognized in connection with the ~~Director~~grant ~~Plan,~~of ~~all~~options during the periods presented. Had compensation cost for the stock options issued been based on the fair value of ~~which~~the ~~are~~options ~~vested~~at the grant dates, ~~and~~consistent with SFAS ~~options~~No. 123, the Company’s net income and net income per diluted share for 10the years ended June 30,~~000~~ ~~shares~~2002, 2001 and 2000, would have been ~~exercised~~$8.0 million ~~The~~or ~~options~~$.94 per ~~have~~diluted ashare, ~~term~~$4.2 million ofor ~~ten years~~$.49 ~~from~~per ~~the~~diluted ~~date~~share ofand ~~grant~~$9.2 million or $1.08 per diluted share, respectively.

The Director Plan was a “formula plan,” pursuant to which each non-employee director automatically received a grant of Non-qualified Options to purchase 5,000 shares of Common Stock on the day immediately after each annual meeting of the shareholders at which directors are elected, beginning with the annual meeting held in December 1993. If on any such day, the number of shares of Common stock remaining available for issuance under the Director Plan was insufficient for the grant of the total number of Non-qualified Options to which all participants would otherwise be entitled, each participant received Non-qualified Options to purchase a proportionate number of the available number of remaining shares. The exercise price of each Non-qualified Option is equal to the fair market value on the date of grant of such Option as determined under the Director Plan. Generally, the Director Plan specifies that such fair market value is the average trading price of the Common Stock during the period beginning 45 days before the date of grant and ending 15 days before the date of grant.

SFAS No. 123 Disclosures SFAS No. 123 defines a fair value method of accounting for employee stock options which provides for compensation cost to be charged to results of operations at the grant date. The Company has adopted the disclosure-only provisions of SFAS No. 123 and follows the accounting treatment prescribed by Accounting Pronouncement Bulletin Opinion No. 25 (“APB 25”) in accounting for stock options issued to its employees and directors. Accordingly, no compensation cost was recognized in connection with the grant of options during the periods presented. Had compensation cost for the stock options issued been based on the fair value of the options at the grant dates, consistent with SFAS No. 123, the Company’s net income and net income per diluted share for the years ended June 30, 2001, 2000 and 1999, would have been $4.2 million or $.49 per diluted share, $9.2 million or $1.08 per diluted share and $5.5 million or $.65 per diluted share, respectively.

Page 62

Pro forma results under SFAS No. 123 for the years presented are not likely to be representative of future pro forma results because, for example, additional awards may be made in future years.

Set forth below is a summary of awards of stock options made by the Company during the years ended June 30, ~~2001~~2002, ~~2000,~~2001 and ~~1999~~2000, and awards outstanding as of the end of those years:

	2001									2000						1999
	2002						2001						2000
				Weighted			~~Weighted~~			Weighted			~~Weighted~~			Weighted			~~Weighted~~
				Average			~~Average~~			Average			~~Average~~			Average			~~Average~~
				Exercise			~~Exercise~~			Exercise			~~Exercise~~			Exercise			~~Exercise~~
	Shares			Price			~~Price~~Shares			~~Shares~~Price			~~Price~~Shares			~~Shares~~Price			~~Price~~
Options outstanding, beginning of year		604,268		$	~~756,768~~1.50		$	~~1.07~~756,768		$	~~831,268~~1.07		$	~~1.05~~831,268		$	1~~,191,495~~.05		$	~~.78~~
Options granted		700,000		$	~~50,000~~5.93		$	~~4.75~~50,000		$	—4.75			—			~~55,200~~—		$	~~4.15~~
Options cancelled		—			—			—			~~(2,500~~—	)	$	~~4.25~~(2,500	)	$	~~(5,000~~4.25	)	$	~~.63~~
Options exercised		(21,700	)	$	~~(202,500~~2.59	)	$	~~.69~~(202,500	)	$	~~(72,000~~.69	)	$	.(72,000	)	$	~~(410,427~~.72	)	$	~~.71~~
Options outstanding, end of year		1,282,568		$	~~604,268~~3.90		$	~~1.50~~604,268		$	~~756,768~~1.50		$	~~1.07~~756,768		$	~~831,268~~1.07		$	~~1.05~~
Options exercisable, end of year		559,235		$	~~560,101~~1.32		$	~~1.25~~560,101		$	~~738,435~~1.25		$	~~.99~~738,435		$	~~801,268~~.99		$	~~.83~~
Shares available for grant, end of year		42,500			~~92,500~~n/a			~~n/a~~92,500			~~142,500~~n/a			~~n/a~~142,500			—n/a			~~n/a~~

The weighted-average fair value of stock options granted during the years ended June 30, ~~2001~~2002 and ~~1999~~2001 was $ 1.8164 and $1.7481, respectively. No options were granted during the year ended June 30, 2000. For the years ended June 30, ~~2001~~2002 and ~~1999~~2001, the value of each option grant was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted–average assumptions: (1) a risk-free interest rate of 43.283% and 54.8228%, respectively, (2) an expected life of ~~four~~three years and ~~three~~four years, respectively, and (3) expected volatility of ~~41.46~~35% and 5241.5846%, respectively~~, and (4) no dividend yield, as the Company has not paid any dividends since inception~~.

~~The~~Page ~~following table summarizes information about the Company’s stock options~~58 ~~outstanding as of June 30, 2001:~~

			Options Outstanding					Options Exercisable
					Weighted	Weighted					Weighted
			Number		Average	Average		Number			Average
			Outstanding		Remaining	Exercise		Exercisable			Exercise
Range of Prices			at 6/30/01		Contractual Life	Price		at 6/30/01			Price
Option Plans:
	$.59 - $1.08			257,000	4.87 years	$	.77		257,000		$	.77
	$3.71 - $4.25			77,700	7.39 years	$	4.08		68,533		$	4.05
		$4.75		50,000	9.46 years	$	4.75		15,000		$	4.75
CEO Options:
	$.69			219,568	5.08 years	$	.69		219,568	1	$	.69
				604,268	5.65 years	$	1.50		560,101		$	1.25

Page 63

~~Warrants~~The following table summarizes information about the Company’s stock options outstanding as of June 30, 2002:

During fiscal 1999, the holders thereof exercised warrants to acquire 244,308 shares of Common Stock at $4.24 per share, and — warrants to acquire 7,510 shares of Common Stock at $1.625 per share.


		Options Outstanding					Options Exercisable

				Weighted	Weighted				Weighted
		Number		Average	Average		Number		Average
		Outstanding		Remaining	Exercise		Exercisable		Exercise
Range of Prices		at 6/30/02		Contractual Life	Price		at 6/30/02		Price

Option Plans:




	$.59-$1.08		247,000	3.86 years	$	.77		247,000	$	.77




	$3.71-$4.25		68,500	6.44 years	$	4.09		68,500	$	4.09




	$4.75		47,500	8.46 years	$	4.75		24,167	$	4.75




	$5.93–$5.95		700,000	9.27 years	$	5.93		—		—




CEO Options:




	$.69		219,568	4.08 years	$	.69		219,568	$	.69

			1,282,568	7.16 years	$	3.90		559,235	$	1.32

NOTE 1615 — EMPLOYEE BENEFIT PLANS

Flexible Benefits Plan Trust Fund Effective July 1, 1992, the Company established a trust (the “Trust”) to fund the Company’s employee benefit plans (collectively, the “Plans”). The Plans include the Company’s medical plan, dental plan, disability plan, life insurance plan, and accidental death and dismemberment plan and any other employee welfare benefit plan permissible under Section 3(1) of the Employee Retirement Income Security Act of 1974. The Company has adopted a flexible benefits plan established pursuant to Section 125 of the Code to furnish eligible employees with a choice of receiving cash or certain statutory taxable or non-taxable benefits under the plan.

~~The~~Effective ~~medical~~July 1, ~~and~~1992, ~~dental benefits provided to~~ the Company’s ~~employees~~established ~~under~~a trust (the ~~Plans~~ ~~are~~“Trust”) ~~funded~~to ~~primarily~~fund the ~~through~~Company’s ~~employer and~~ employee ~~contributions~~benefit toplans (collectively, the ~~Trust~~ “Plans”). InThe ~~addition,~~Plans include the Company’s ~~has~~medical ~~purchased~~plan, ~~stop~~dental ~~loss~~plan, ~~insurance~~disability ~~which~~plan, life ~~protects~~insurance ~~the~~plan, ~~Plans~~and ~~against~~accidental ~~claims~~death inand ~~excess~~dismemberment ofplan ~~set~~and ~~policy~~any ~~amounts. The Company~~other ~~has~~employee ~~provided~~welfare abenefit ~~liability~~plan ~~for~~permissible ~~estimated~~under ~~future~~Section 3(1) ~~claims~~ of ~~$709,000~~the ~~and $817,000~~Employee atRetirement ~~June 30,~~Income ~~2001~~Security ~~and~~Act ~~2000,~~of ~~respectively,~~1974. ~~which~~The isCompany ~~included~~has inadopted ~~other~~a ~~liabilities~~flexible inbenefits ~~the~~plan ~~accompanying~~established ~~consolidated~~pursuant ~~balance~~to ~~sheets.~~Section 125 ~~This~~of ~~liability~~the isCode ~~based~~to onfurnish ~~actuarial~~eligible ~~estimates~~employees ofwith ~~amounts~~a ~~needed~~choice toof ~~fund~~receiving ~~expected~~cash ~~claims,~~or ascertain ~~well~~statutory astaxable ~~premium~~or ~~payments~~non-taxable ~~and~~benefits ~~administrative~~under ~~costs of~~ the ~~Plans~~plan.

The ~~Company~~medical ~~from~~and ~~time-to-time~~dental ~~makes~~benefits ~~contributions~~provided to the ~~Trust,~~Company’s ~~which~~employees ~~are~~under the ~~irrevocable.~~Plans ~~Trust~~are ~~assets~~funded ~~may~~primarily ~~not~~through ~~revert~~employer toand oremployee ~~inure~~contributions to the Trust. ~~benefit~~In ofaddition, the Company. ~~Neither~~has purchased stop loss insurance which protects the Plans against claims in excess of set policy amounts. The Company has provided a liability for estimated claims of $391,000 ~~administrator~~and $709,000 ~~nor~~at ~~trustee~~June 30, 2002 and 2001, respectively, which is ~~responsible~~included ~~for~~ in other liabilities in the accompanying ~~adequacy~~consolidated balance sheets. This liability is based on actuarial estimates of amounts needed to fund expected claims, as well as premium payments and administrative costs of the ~~Trust~~Plans.

~~While~~The ~~the~~Company ~~trustee~~from ~~has~~time-to-time ~~virtual~~makes ~~plenary~~contributions ~~authority~~ to ~~manage~~the ~~and~~Trust, ~~invest~~which ~~trust~~are ~~assets,~~irrevocable. ~~the~~Trust ~~trustee~~assets ismay ~~required~~not revert to ~~use~~or ~~trust~~inure ~~assets~~to ~~and~~the ~~income~~benefit ~~exclusively~~of tothe ~~provide~~Company. ~~benefits~~Neither ~~under~~ the ~~Plans~~Company ~~and~~nor tothe ~~defray~~trustee ~~reasonable~~is ~~expenses~~responsible offor the adequacy ~~administering~~of the ~~Plans~~Trust.

Employee Savings Trust Effective July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees Savings Trust (the “401(k) Plan”) for the purpose of establishing a contributory employee savings plan exempt under Section 401(k) of the Code. An eligible employee participating in this plan may contribute up to 15% of his or her annual salary, subject to certain limitations. In addition, the Company may make discretionary matching contributions as determined annually by the Company. The Company made matching contributions totaling approximately $150,000 for the year ended June 30, 2001, and has committed to make matching contributions for the calendar year ended December 31, 2001, in an amount equal to 45% of the voluntary contributions made by each participant, up to 4% of the participant’s annual compensation (or a maximum of 1.8% of the participant’s annual compensation). Employer contributions are subject to a seven-year vesting schedule.

~~Page~~Effective 64July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees Savings Trust (the “401(k) Plan”) for the purpose of establishing a contributory employee savings plan exempt under Section 401(k) of the Code. An eligible employee participating in this plan may contribute up to 50% of his or her annual salary, subject to certain limitations. In addition, the Company may make discretionary matching contributions as determined annually by the Company. The Company made matching contributions totaling approximately $170,000 for the year ended June 30, 2002, and has committed to make matching contributions for the calendar year ending

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Non-Qualified Deferred Compensation Plan Effective April 23, 1998, the Company established the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan (the “Non-Qualified Plan”) for the purpose of establishing a deferred compensation plan for certain “highly compensated” employees of the Company. An eligible employee participating in this plan may contribute up to 10% of his or her annual salary subject to certain limitations. In addition, the Company may make discretionary matching contributions determined solely at the discretion of the Company. The Company made matching contributions of approximately $15,000 for the year ended June 30, 2001, and has committed to make matching contributions for the calendar year ended December 31, ~~2001~~2002, in an amount equal to 45% of the ~~combined~~ voluntary contributions ~~to the Non-Qualified Plan and 401(k) Plan~~ made by each participant, up to 4% of the participant’s annual compensation (or a maximum of 1.8% of the ~~participants~~participant’s annual compensation). ~~Employer contributions are~~ ~~fully vested at the time the contributions are made.~~

~~Employee Stock Purchase Plan Effective August 1, 1999, the Company adopted the Thousand Trails, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”) to give employees and non~~Non-~~employee~~Qualified ~~directors~~Deferred ofCompensation ~~the Company an opportunity to purchase Common Stock through payroll deductions. Under the terms of the Stock Purchase~~ Plan, ~~participants may defer between 1% and 10% of their annual compensation, which~~ is used to purchase shares of Common Stock on a semi-annual basis. The purchase price paid by participants is 85% of the closing price of the Common Stock as reported by the American Stock Exchange on the date of purchase. The Company pays the other 15% of the purchase price, plus commissions, and the other costs of administering the Stock Purchase Plan. During the years ended June 30, 2001 and 2000, employees purchased 7,531 and 2,364 shares of Common Stock. Pursuant to APB No. 25, the Company did not record any expense in connection with this plan.

~~NOTE~~Effective 17April 23, —1998, ~~SEGMENT~~the ~~REPORTING~~Company established the Thousand Trails, Inc. Non-Qualified Deferred Compensation Plan (the “Non-Qualified Plan”) for the purpose of establishing a deferred compensation plan for certain “highly compensated” employees of the Company. An eligible employee participating in this plan may contribute up to 10% of his or her annual salary subject to certain limitations. In addition, the Company may make discretionary matching contributions determined solely at the discretion of the Company. The Company made matching contributions of approximately $16,000 for the year ended June 30, 2002, and has committed to make matching contributions for the calendar year ending December 31, 2002, in an amount equal to 45% of the combined voluntary contributions to the Non-Qualified Plan and 401(k) Plan made by each participant, up to 4% of the participant’s annual compensation (or a maximum of 1.8% of the participants annual compensation).

Employee Stock Purchase Plan

Effective August 1, 1999, the Company adopted the Thousand Trails, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”) to give employees and non-employee directors of the Company an opportunity to purchase Common Stock through payroll deductions. Under the terms of the Stock Purchase Plan, participants may defer between 1% and 10% of their annual compensation, which is used to purchase shares of Common Stock on a semi-annual basis. The purchase price paid by participants is 85% of the closing price of the Common Stock as reported by the American Stock Exchange on the date of purchase. The Company pays the other 15% of the purchase price, plus commissions, and the other costs of administering the Stock Purchase Plan. During the years ended June 30, 2002 and 2001, employees purchased 6,169 and 7,531 shares of Common Stock. Pursuant to APB No. 25, the Company did not record any expense in connection with this plan.

NOTE 16 — SEGMENT REPORTING

The Company has three reportable segments: campgrounds, RPI, and Trails Management. The campground segment generates a majority of the Company’s operating revenues. Each segment is differentiated by the products or services it offers.

The campground segment consists of 59 membership-based campgrounds in 17 states and British Columbia, Canada. Operations within the campground segment include (i) the sale of memberships entitling the member to use campground facilities, (ii) the sale of undivided interests related to fee simple sales of interests in campground facilities, and (iii) net revenues earned from operations at the campgrounds. ~~Separate information regarding Canadian campground operations is~~ ~~not presented as revenues and identifiable assets related to the Canadian~~ ~~operations are less than 10% of the related consolidated amounts for the periods presented.~~

~~Page~~RPI 65sells memberships that allow members to use any of the approximately 280 recreational facilities participating in RPI’s reciprocal use system, subject to certain limitations. Operating revenue consists of annual membership fees paid by members.

Trails Management manages 240 public campgrounds for the U.S. Forest Service and other entities. Operating revenue consists of the campsite usage fees paid by customers staying at the public campgrounds.

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RPI sells memberships that allow members to use any of the approximately 300 recreational facilities participating in RPI’s reciprocal use system, subject to certain limitations. Operating revenue consists of annual membership fees paid by members.

Trails Management manages 241 public campgrounds for the U.S. Forest Service and other entities. Operating revenue consists of the campsite usage fees paid by customers staying at the public campgrounds.

The Company evaluates performance based upon the income before income taxes for each business segment. Identifiable assets are those assets used exclusively in the operations of each business segment.

Year ended June 30, 2002

Trails

Corporate

Campgrounds

RPI

Management

and Other

Consolidated

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Filing Compare · THOUSAND TRAILS INC /DE/