UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street
Washington, D.C. 20549
Form 10-QSB
-----------
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
-------------
Commission File No. 0-3858
----------
INTERNATIONAL LEISURE HOSTS, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Wyoming 86-0224163
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3207 S. Hardy Drive
- --------------------------------
Tempe, AZ 85282
- -------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
office)
Issuer's telephone number, including area code (480) 829-7600
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock as of the close of the latest practicable date. There were 694,407 shares
of $.01 par value common stock outstanding as of June 30, 2003.
Page 1 of 19
PART I - FINANCIAL INFORMATION
ITEM 1 - Summarized Financial Information
INTERNATIONAL LEISURE HOSTS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
June March
30, 2003 31, 2003
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 377,622 $ 73,263
Accounts receivable 148 29,878
Prepaid income tax 64,590 36,090
Deferred tax asset 44,035 44,035
Merchandise inventories 189,865 72,230
Prepaid expenses and other 41,127 27,059
----------- -----------
Total current assets 717,387 282,555
----------- -----------
PROPERTY AND EQUIPMENT:
Buildings and improvements 7,525,591 7,525,591
Equipment 1,387,871 1,668,896
Leasehold improvements 325,600 325,600
----------- -----------
Total property and equipment 9,239,062 9,520,087
Less accumulated depreciation and amortization 3,060,272 3,245,804
----------- -----------
Property and equipment - net 6,178,790 6,274,283
----------- -----------
TOTAL $ 6,896,167 $ 6,556,838
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable under line of credit from related party $ 575,000 $ 585,000
Note payable under line of credit 500,000 500,000
Accounts payable:
Trade 208,362 49,326
Related party -- 22,123
Accrued liabilities 97,674 42,318
Advance deposits 326,423 114,014
----------- -----------
Total current liabilities 1,707,459 1,312,781
DEFERRED INCOME TAXES 150,184 150,184
----------- -----------
Total liabilities 1,857,643 1,462,965
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 100,000 shares: none issued
Common stock, $.01 par value - authorized 2,000,000 shares: issued 718,373 shares 7,184 7,184
Additional paid-in capital 656,426 656,426
Retained earnings 4,453,886 4,509,225
----------- -----------
5,117,496 5,172,835
Less common stock in treasury - at cost, 23,966 shares (78,962) (78,962)
----------- -----------
Shareholders' equity - net 5,038,534 5,093,873
----------- -----------
TOTAL $ 6,896,167 $ 6,556,838
=========== ===========
See notes to condensed consolidated financial statements
Page 2 of 19
INTERNATIONAL LEISURE HOSTS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months ended
June 30,
--------------------------
2003 2002
---- ----
REVENUES:
Sales of merchandise $ 307,542 $ 335,539
Room, cabin and trailer space rentals 385,441 354,407
Other rentals and income 49,949 39,396
Gain on asset disposals 27,314 --
Interest 100 165
--------- ---------
Total revenues 770,346 729,507
--------- ---------
COSTS AND EXPENSES:
Cost of merchandise 176,679 205,840
Operating 472,841 426,337
General and administrative 44,103 42,753
General and administrative - related party 73,734 73,074
Loss on asset disposals -- 29,323
Depreciation and amortization 72,450 82,044
Interest 6,206 2,065
Interest - related party 8,173 9,185
--------- ---------
Total costs and expenses 854,186 870,621
--------- ---------
Loss before income taxes (83,840) (141,114)
Benefit for income taxes (28,500) (47,000)
--------- ---------
NET LOSS ($ 55,340) ($ 94,114)
========= =========
NET LOSS
PER COMMON SHARE ($ 0.08) ($ 0.14)
========= =========
See notes to unaudited condensed consolidated financial statements
Page 3 of 19
INTERNATIONAL LEISURE HOSTS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended June 30,
---------------------------
2003 2002
---- ----
OPERATING ACTIVITIES:
Net loss ($ 55,340) ($ 94,114)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 72,450 82,044
Net (gain) loss on asset disposals (27,314) 29,323
Changes in assets and liabilities:
Accounts receivable 29,730 26,211
Income tax refund receivable (28,500) (47,000)
Merchandise inventories (117,635) (119,813)
Prepaid expenses and other (14,067) (12,184)
Accounts payable - trade 159,036 199,638
Accounts payable - related party (22,123) (5,000)
Accrued liabilities 55,356 51,240
Advance deposits 212,409 197,113
--------- ---------
Net cash provided by operating activities 264,002 307,458
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (20,293) (59,498)
Proceeds from sale of property and equipment 70,650 45,817
--------- ---------
Net cash provided by (used in) investing activities 50,357 (13,681)
--------- ---------
FINANCING ACTIVITIES:
Loan proceeds from related party -- 40,000
Loan payments to related party (10,000) --
--------- ---------
Net cash (used in) provided by financing activities (10,000) 40,000
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 304,359 333,777
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 73,263 49,664
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 377,622 $ 383,441
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest $ 14,379 $ 16,061
========= =========
See notes to unaudited condensed consolidated financial statements
Page 4 of 19
INTERNATIONAL LEISURE HOSTS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS For the Three Month Periods Ended
June 30, 2003 and 2002
(UNAUDITED)
The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and notes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments and reclassifications considered necessary for a fair and comparable
presentation have been made and are of a normal recurring nature. Operating
results for the three months ended June 30, 2003 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2004. The
enclosed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10- KSB for the year ended March 31, 2003.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
International Leisure Hosts, Ltd. (the "Company") operates in one business
segment, the ownership and operation of Flagg Ranch Resort ("Flagg Ranch"), a
full-service resort motel and trailer park located in the John D. Rockefeller
Jr. Memorial Parkway, approximately four miles north of Grand Teton National
Park and two miles south of the southern entrance to Yellowstone National Park.
Significant Accounting Policies - The Company prepares its financial statements
in accordance with accounting principles generally accepted in the United States
of America. A summary of significant accounting policies is as follows:
a. Basis of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiary after elimination of all
significant intercompany transactions and accounts.
b. Revenue Recognition - The Company recognizes lodging revenue at the
completion of a room night and for other ancillary revenue as the
services are provided.
c. Cash and cash equivalents - Cash and cash equivalents represent cash in
banks, money market funds, and certificates of deposit with initial
maturities of three months or less.
d. Merchandise inventories are stated at the lower of aggregate cost
(first-in, first-out basis) or market.
e. Property and equipment are stated at cost. Depreciation is computed by
straight-line and accelerated methods over the estimated useful lives,
which range from 5 to 40 years. Leasehold improvements are amortized
using the straight-line method over the lesser of the estimated useful
life of the related asset or the term of the lease.
Page 5 of 19
The Company reviews the carrying value of its long-lived assets for
possible impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable in accordance
with the provisions of Statement of Financial Accounting Standard
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Impairment losses, if any, are recorded as a
component of earnings from operations.
f. Income taxes - Income taxes are accounted for under the provisions of
SFAS No. 109, "Accounting for Income Taxes." SFAS 109 requires
recognition of deferred tax assets and liabilities for the estimated
future tax consequences of events attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which the differences
are expected to be recovered or settled. Net deferred tax assets are
reduced through the establishment of a valuation allowance at such time
as, based upon available evidence, it is more likely than not that the
deferred tax assets will not be realized. The Company believes that
there is sufficient positive evidence to support the conclusion not to
record a valuation allowance.
g. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
h. Net Income per Common Share - Basic net income per common share is
computed by dividing net income by the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding was 694,407 for both 2003 and 2002. Diluted net income per
share reflects potential dilution that could occur from common shares
issuable through stock options, warrants or other convertible
securities; however, the Company has no dilutive securities.
i. Estimated Fair Value of Financial Instruments - The Company has
estimated the fair value of its financial instruments using available
market data. However, considerable judgment is required in interpreting
market data to develop estimates of fair value. The use of different
market assumptions or methodologies may have a material effect on the
estimates of fair values. The carrying values of cash, receivables,
lines of credit, accounts payable, and accrued expenses approximate
fair values due to the short-term maturities or market rates of
interest.
j. New Accounting Pronouncements - In November 2002, the FASB issued
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation addresses the disclosures
to be made by a guarantor in its financial statements and its
obligations under guarantees. The Interpretation also clarifies the
requirements related to the recognition of a liability by the guarantor
at the inception of a guarantee. Initial recognition of a liability
shall be applied only on a prospective basis to guarantees issued or
modified after December 31, 2002. This interpretation did not have a
material impact on the Company.
Page 6 of 19
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-- Transition and Disclosure". This Statement
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. Specifically, SFAS No. 148 prohibits companies
from utilizing the prospective method of transition, the only method
offered under the original SFAS No. 123, in fiscal years beginning
after December 15, 2003. However, the statement permits two additional
transition methods for companies that adopt the fair value method of
accounting for stock-based compensation, which include the modified
prospective and retroactive restatement methods. Under the prospective
method, expense is recognized for all employee awards granted,
modified, or settled after the beginning of the fiscal year in which
the recognition provisions are first applied. The modified prospective
method recognizes stock-based employee compensation cost from the
beginning of the fiscal year in which the provisions are first applied,
as if the fair value method had been used to account for all employee
awards granted, modified, or settled in fiscal years beginning after
December 15, 1994. Under the retroactive restatement method, all
periods presented are restated to reflect stock-based employee
compensation cost under the fair value method for all employee awards
granted, modified, or settled in fiscal years beginning after December
15, 1994. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results using a prescribed specific tabular format and
requiring disclosure in the "Summary of Significant Accounting
Policies" or its equivalent. The Company is currently evaluating the
impact if it were to adopt the fair value method of accounting for
stock-based employee compensation under all three methods.
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" (SFAS 149). SFAS 149 is effective
for the Company for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003.
SFAS 149 amends and clarifies financial accounting and report for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133.
The Company has not yet determined if the adoption of SFAS 149 will
have a material impact on its financial position or results of
operation.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS 150). SFAS 150 is
effective for the Company for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
SFAS 150 requires that an issuer classify a financial instrument within
its scope as a liability or in some circumstances an asset that was
previously classified as equity. This standard will not have any effect
on the Company.
2. COMMITMENTS AND CONTINGENCIES
The Company receives its operating authorization from the National Park Service
("NPS"). The NPS Contract (the "Contract") which became effective on January 1,
1990, will expire on December 31, 2009. Under the terms of the Contract, prior
to December 31, 2002, the Company was required to move its existing
Page 7 of 19
54-unit riverside motel from its current location to the high ground above the
Snake River, to provide for new employee housing and make certain other
improvements. The Company has met these requirements by moving the riverside
motel and converting it into employee housing, plus building additional employee
support facilities.
The extensive capital investments which were required by the Company's current
Contract, were made based on the Park providing road access in the winter and
full winter services (i.e. snowmobile rentals) for the duration of the Contract.
These services are necessary to allow the Company to recover its substantial
investment and provide a reasonable opportunity to realize a profit consistent
with the Contract and applicable law.
The Contract fee to the NPS is calculated at 2 percent of gross receipts (as
defined), subject to review and possible adjustment every five years. For the
three months ended June 30, 2003 and 2002, this fee amounted to $14,050 and
$13,693, respectively, which has been recorded as operating expense.
Flagg Ranch faces competition from hotels, camping areas and trailer facilities
in Yellowstone and Grand Teton National Parks, as well as from a large number of
hotels and motels in Wyoming, Montana and Idaho, offering some facilities which
are similar to those offered by Flagg Ranch. In addition, the business of Flagg
Ranch is susceptible to weather conditions and unfavorable trends in the economy
as a whole. Business could be significantly affected depending upon actions
which might be taken by the NPS if cutbacks are made to their budget. On March
24, 2003, the National Park Service approved the Record of Decision on the Final
Supplement Environmental Impact Statement for the Winter Use Plans for
Yellowstone and Grand Teton National Parks and the John D. Rockefeller, Jr.
Memorial Parkway.
Beginning in the winter of 2003-2004, the National Park Service will implement
this Record of Decision although certain provisions will not apply until
implementing regulations are promulgated. This Record of Decision adopts
alternative 4 of the alternatives considered for winter use management
alternatives for Yellowstone and Grand Teton National Parks.
Under alternative 4, the use of snowmobiles in the parks and on the John D.
Rockefeller, Jr. Memorial Parkway will be permitted provided all machines meet
best available technology (BAT) standards for sound and air emissions. All
snowmobile users will be required to be accompanied by National Park Service
approved guides.
Since the NPS' adoption of the Record of Decision, the NPS has informed the
Company that the Company's allocation of snowmobile trips into Yellowstone
National Park will be severely restricted. Before the Record of Decision, the
NPS had authorized the Company to rent a maximum of 85 snowmobiles for use in
Yellowstone National Park. Under the new Record of Decision, the NPS will allow
the Company an entrance allocation of only 20 snowmobiles per day with NPS
guides provided the snowmobiles use the best available technology.
The Company believes this limited entrance allocation will severely impact the
Company's financial viability of operation during the winter season.
Page 8 of 19
Proprietary rights to certain facility improvements constructed by the Company
(including the new lodge and new cabin units) have been granted to the Company
under the terms of the Contract; however, the NPS may terminate the Contract and
purchase the Company's improvements, upon a determination that the public
interest requires Federal Government ownership of the improvements. In such
event, the Federal Government is required to pay a price for said improvements
equal to the cost of reconstruction less depreciation. If, however the Contract
is terminated by the Federal Government for default by the Company for
unsatisfactory performance as defined in the Contract, then the Federal
Government is required to pay a price equal to the tax basis of the
improvements. At the end of the Contract, if the Company is not the successful
bidder on a new contract for the property, then the Federal Government is
required to purchase from the Company the improvements (including the new lodge
and new cabin units) made to the property at a price equal to the cost of
reconstruction less depreciation.
The Company has recently entered into preliminary discussions with the NPS to
amend the terms of the Contract and accelerate the termination date from
December 31, 2009 to October 31, 2003. If this occurs the NPS would then select
an interim operator to operate the resort until such time as a prospectus is
issued, a bidding process takes place and a permanent operator is selected. The
interim operator will be required to pay to the Company a fee equal to its
annual depreciation plus an amount equal to the book value of its fixed assets
times the current prime lending rate. While there is no assurance that the
discussions will be successful, if a prospectus is issued it is not the
Company's intention to enter a bid for the operation of Flagg Ranch. The
successor concessioner, and/or the Federal Government will be required to
purchase from the Company the improvements made to the property at a price equal
to the cost of reconstruction less physical depreciation as well as the personal
property at its fair value.
At the Company's Annual Meeting held on January 21, 2003, the Company's
Shareholders ratified and adopted the 2002 Stock Option Plan. The 2002 Stock
Option Plan allows the Compensation Committee of the Board of Directors to grant
stock options to officers, directors and employees of the Company. The Company
has 100,000 stock options available for issuance. The Company has not issued any
stock options under the 2002 Stock Option Plan. Under the 2002 Stock Option
Plan, options are granted at a price equal to the fair market value of the
Company's common stock on the date of grant.
During the quarter ended June 30, 2003, the Company's President was eligible for
a bonus, based on reduction in the debt of the corporation. A bonus of $100,000
is payable when the debt of the Company has been reduced to $500,000. An
additional bonus of $100,000 is payable when the debt of the Company has been
eliminated. As the Company's debt has not decreased to the above levels, no
bonus was earned or paid in the current quarter.
3. TRANSACTIONS WITH RELATED PARTIES
General and administrative - related party expenses for the three months ended
June 30, 2003 and 2002 represent management fees and administrative expenses
paid to related parties and totaled $73,734 and $73,074, respectively. These
amounts are broken out in further detail below. Related parties during the three
months ended June 30, 2003 and 2002 include entities owned by the Company's
current majority owner, Robert Walker, or family members, and a company owned by
the Company's current President, Michael P. Perikly.
Page 9 of 19
For the three months ended June 30, 2003 and 2002, the Company charged to
operations $42,984 and $42,324, respectively, for management services to PNI,
Inc. and Walker Consulting, Inc., companies owned by the Company's majority
owner, Robert L. Walker.
For the three months ended June 30, 2003 and 2002, the Company charged to
operations $15,750 each period for management services to KCH Enterprises, Inc.,
a company owned by the Company's current President, Michael P. Perikly.
For the three months ended June 30, 2003 and 2002, the Company charged to
operations $15,000 each period for building rent to RLW & BJW Enterprises,
L.L.C., a company owned by the Company's current majority owner, Robert L.
Walker.
The Company incurred borrowings under line of credit agreements with related
parties (Note 4). Interest incurred for the three months ended June 30, 2003 and
2002 was $8,173 and $13,112, respectively. For fiscal year 2002, the Company
capitalized $3,927 of interest from related party agreements.
4. NOTES PAYABLE UNDER LINES OF CREDIT
The Company has a line of credit agreement ("Agreement") with an affiliated
company expiring September 30, 2003, which provides for collateralized
borrowings of up to $1,500,000 at an interest rate of prime plus .875 percent.
Borrowings under the Agreement are collateralized by the assets and improvements
of Flagg Ranch. The Company has borrowed $575,000 on this line of credit as of
June 30, 2003. The terms of the Agreement contain, among other provisions,
requirements for maintaining minimum cash flows (as defined in the Agreement)
and place limitations on the Company's ability to make loans. As of June 30,
2003, the Company was not in compliance with the minimum cash flow requirement.
Management of the affiliated company has executed a waiver of compliance with
the loan covenants.
The Company has a line of credit agreement with Jackson State Bank ("JSB
Agreement") expiring September 12, 2003, which provides for collateralized
borrowings of up to $500,000 at an interest rate of prime plus .875 percent.
Borrowings under the JSB Agreement are collateralized by the assets and
improvements of Flagg Ranch. The Company has borrowed $500,000 on the JSB
Agreement as of June 30, 2003. Interest incurred for the three months ended June
30, 2003 and 2002 was $6,206 and $2,948, respectively. For fiscal year 2002, the
Company capitalized $883 of interest from the bank line of credit agreement.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The statements contained in this Report regarding the Company's quality of
facilities, consumer response to marketing efforts, ability to offset inflation
and adequacy of financing, constitute "forward looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Management's
anticipation is based upon assumptions regarding acceptance of facilities by
consumers, favorable weather conditions, the market in which the Company
operates, the stability of the economy and stability of the regulatory
environment. Any of these assumptions could prove inaccurate, and therefore
there can be no assurance that the forward-looking information will prove to be
accurate.
Page 10 of 19
The Company's net loss for the first quarter ended June 30, 2003 was $55,000
($.08 per share). This compares to a net loss of $94,000 ($.14 per share) for
the quarter ended June 30, 2002. Changes in the Company's revenues and expenses
for the quarters ended June 30, 2003 and 2002 are summarized below. All
references to years, represent the quarter ended June 30 of the stated year.
Flagg Ranch, the principal business of the Company, is operated as a seasonal
resort. The two seasons coincide with the opening and closing dates of
Yellowstone and Grand Teton National Parks. The summer season runs from
approximately May 23 through September 30 and the winter season runs from late
December through early March, therefore, the first quarter ended June 30,2003
consists of only thirty-nine days of operations.
The Company has recently entered into preliminary discussions with the NPS to
amend the terms of the Contract and accelerate the termination date from
December 31, 2009 to October 31, 2003. If this occurs the NPS would then select
an interim operator to operate the resort until such time as a prospectus is
issued, a bidding process takes place and a permanent operator is selected. The
interim operator will be required to pay to the Company a fee equal to its
annual depreciation plus an amount equal to the book value of its fixed assets
times the current prime lending rate. While there is no assurance that the
discussions will be successful, if a prospectus is issued it is not the
Company's intention to enter a bid for the operation of Flagg Ranch. The
successor concessioner, and/or the Federal Government will be required to
purchase from the Company the improvements made to the property at a price equal
to the cost of reconstruction less physical depreciation as well as the personal
property at its fair value.
Revenues
- --------
Total revenues for 2003 increased by $41,000 or 5.6% from 2002. Of this
increase, $24,000 was from cabin rentals, $7,000 from RV park rentals, $2,000
from grocery store sales, $1,000 from guided fishing trip revenue, $14,000 from
float trip revenue and $27,000 from gain on sale of assets. Decreases of $21,000
in food and beverage sales, $6,000 in gift shop sales, $3,000 in gasoline sales,
$1,000 in trail ride revenue and $3,000 in other revenue partially offset the
above increases.
Expenses
- --------
The ratio of cost of merchandise sold to sales of merchandise was 57% and 61%,
respectively, for 2003 and 2002. Cost of merchandise decreased in 2003 over 2002
due to higher margins on gasoline sales. The ratio of operating expenses to
total revenue was 61% and 58%, respectively, in 2003 and 2002. Operating
expenses increased by $46,000 in 2003 as compared to 2002. Of this increase,
$21,000 was in labor, $10,000 in utilities, $15,000 in operating supplies,
$6,000 in snowmobile parts, $2,000 in printing, $8,000 in credit card fees,
$1,000 in postage and freight, $1,000 in licenses and fees, $7,000 in insurance
and $4,000 in other items. Offsetting theses increases were decreases of $7,000
in office supplies, $8,000 in repairs and maintenance, $10,000 in advertising,
$3,000 in telephone and $1,000 in property taxes. General and administrative
expenses increased $1,000 or 3.2% in 2003 as compared to 2002. General and
administrative expenses - related party increased by $1,000 or 0.9% in 2003 as
compared to 2002.
The Company had a gain on sale of assets of $27,000 for 2003 versus a loss of
$29,000 in 2002.
Page 11 of 19
Inflation
- ---------
The Company expects that it will be able to offset increases in costs and
expenses, caused by inflation, by increasing prices on its services with minimal
effect on operations.
Liquidity and Capital Resources
- -------------------------------
Working capital deficit decreased to $990,000 at June 30, 2003 from $1,030,000
at March 31, 2003. Current assets increased by $435,000 primarily due to
increases in cash and merchandise inventories. Current liabilities increased by
$395,000 primarily due to increases in accounts payable and customer deposits.
The Company has a line of credit agreement ("Agreement") with an affiliated
company expiring September 30, 2003, which provides for collateralized
borrowings of up to $1,500,000 at an interest rate of prime plus .875 percent.
Borrowings under the Agreement are collateralized by the assets and improvements
of Flagg Ranch. The Company has borrowed $575,000 on this line of credit as of
June 30, 2003. The terms of the Agreement contain, among other provisions,
requirements for maintaining minimum cash flows (as defined in the Agreement)
and place limitations on the Company's ability to make loans. As of June 30,
2003, the Company was not in compliance with the minimum cash flow requirement.
Management of the affiliated company has executed a waiver of compliance with
the loan covenants.
The Company has a line of credit agreement with Jackson State Bank ("JSB
Agreement") expiring September 12, 2003, which provides for collateralized
borrowings of up to $500,000 at an interest rate of prime plus .875 percent.
Borrowings under the JSB Agreement are collateralized by the assets and
improvements of Flagg Ranch. The Company has borrowed $500,000 on the JSB
Agreement as of June 30, 2003.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
(GAAP). During preparation of these financial statements, we are required to
make estimates and judgements that affect the reported amounts of assets,
liabilities revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to inventories, fixed assets, income taxes, contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances. The results
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
We recognize sales when evidence of a sale exists; that is, for lodging revenue
at the end of each day; for other retail sales, when the actual sale occurs and
possession of the product is transferred to the customer.
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are
Page 12 of 19
capitalized, and minor replacements, maintenance and repairs are charged to
expense as incurred. Depreciation is provided over the estimated useful lives of
the related assets using the straight-line method for financial statement
purposes. The Company uses other depreciation methods (generally accelerated)
for tax purposes where appropriate.
We write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by us,
additional inventory write-downs may be required.
We estimate our actual current tax exposure together with the temporary
differences that have resulted from the differing treatment of items dictated by
GAAP versus U.S. tax laws. These temporary differences result in deferred tax
assets and liabilities.
ITEM 3. Controls and Procedures
Under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of disclosure controls and procedures has been evaluated
within 90 days of the filing date of this quarterly report, and, based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these controls and procedures are effective. There were no
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of that evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports
filed or submitted under the Securities Exchange Act of 1934 ("Exchange Act") is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Page 13 of 19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Securities Holders
None
..
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) 1. Financial Statements Page
The following financial statements of International Leisure Hosts, Ltd. are
included in Part I, Item 1:
Condensed Consolidated Balance Sheets - June 30, 2003
(Unaudited) and March 31, 2003 2
Condensed Consolidated Statements of Operations
(Unaudited) - Three months ended June 30, 2003 and
2002 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three months ended June 30, 2003 and
2002 4
Notes to Condensed Consolidated Financial Statements 5
3. The following exhibits are incorporated by reference
as indicated:
3.1 By-Laws-Adopted June 22, 1992 filed with Form 10-K
dated March 31, 1992
3.2 Articles of Incorporation-filed with Form 10-K dated
March 31, 1986, pages 32-41
10.1 United States Department of the Interior National
Park Service Contract-filed with Form 10-Q dated
December 31, 1989
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Page 14 of 19
99.3 Chief Executive Officer - 302 Certification
99.4 Chief Financial Officer - 302 Certification
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
INTERNATIONAL LEISURE HOSTS, LTD.
(REGISTRANT)
/s/ ROBERT L. WALKER
------------------------------------------
DATE: August 4, 2003 BY: ROBERT L. WALKER
Chairman and Chief Executive Officer
/s/ MICHAEL P. PERIKLY
------------------------------------------
DATE: August 4, 2003 BY: MICHAEL P. PERIKLY
President and Principal Financial Officer
Page 15 of 19