OVERVIEW

Quality Resorts of America, Inc., a California corporation, started in 1979 as a partnership consisting of members of the Brindle family. That entity transferred its assets to Redwood Trails, Inc., which subsequently transferred them to Advanced Resort Systems, Inc. The Company was formed in September, 1984, and, in a triangular merger effected in February, 1985, Advanced Resort Systems, Inc., and Redwood Trails, Inc., merged into Quality Resorts of California, Inc., a wholly-owned subsidiary of the Company. The Company's executive offices are located at 11707 Fair Oaks Blvd, Suite 210, Fair Oaks, CA 95628, and its phone number is (916)967-9812.

The membership campground industry emerged in the early 1970s in the Pacific Northwest as a result of the increased nationwide popularity of recreational vehicles (such as motor homes, travel trailers, campers and pop-up tents), and the decreasing availability because of overcrowding of public campground facilities. In the state of California, camping is a $2 billion-a-year industry. California campers are described primarily as middle income families and well educated. About one half have dependant children. The majority (about three-fourths) of these campers are in the 30-59 range, and one-fourth aged 60 and older.

The Company operates four membership-based resorts located in Northern California. Members using the resorts may bring their own recreational vehicles, tents or other sleeping equipment, or rent travel trailers or modular units located at the resorts. The resorts are open year-round although usage is greatly reduced in the winter months. At each resort, managers, and staff provide security, maintenance, and recreational programs that vary by location.

Current memberships do not convey any ownership interest in the Company or its Resorts, the right to use a specific campsite (other than fifteen Pioneer memberships that have sites at Redwood Trails) or the right to determine future Resort improvements or operations. Except for certain Redwood Trails members who are allowed a 30-day visit in that park only, the duration of any one visit has normally been restricted to 7 consecutive days at River Grove, 15 consecutive days at Lighthouse Marina and Redwood Trails, and 4 consecutive days at Klamath Cove. A member has typically been permitted to visit a Resort an unlimited number of times so long as visits are separated by an absence from the Resort system of one week or longer.

Annual dues constitute a major source of revenue, with the current rate for a new member set at $300 per year. Members' dues are frozen at their current rate upon reaching the age of 65. Dues levels may be adjusted annually on a cumulative basis to the percentage increase in the local Consumer Price Index, or 3%, whichever is more. Upon transfer of membership, the dues level accelerates to the current level for the new member. The Company offers existing members the opportunity to pay their dues for life (transferable to one subsequent owner of the membership) by paying $2,995.

The Company derives other operating income at the resorts from rental units, convenience stores, laundry facilities, video game equipment, and storage of recreational vehicles.

Although the Company may develop additional Resorts in the future, prospective members are cautioned to base their decision to purchase a membership on the facilities in existence at the time of joining.

CURRENT BUSINESS STRATEGY

The Company's strategy for growth and to make a major improvement in its financial statement is to start an expansion program with the help of a REIT to expand into a multi-park California system. The Company will lease back and manage these resorts after the REIT has purchased them. This will allow the Company to expand its park system without the need of raising new capital. This would also give the Company members the use of these new parks under a special program. There is no assurance, however, that the Company will be successful in achieving its growth strategies or that sales or profits will increase from the implementation of these strategies.

MARKETING MEMBERSHIPS

The Company has been marketing to the general public, primarily in Northern California, the right to use the Resorts through memberships. The membership entitles the member the usage of any of the Company's Resorts, subject to the rules and regulations set for each Resort. Management believes that the memberships provide a quality family vacation at an affordable price.

Members typically pay an initial membership fee, currently $2,995 to $6,995, payable in full at the time of purchase, or by a cash down payment, with the balance payable in monthly installments over a maximum period of 120 months. Interest is charged on membership contract receivables that are due beyond one year with the interest rate averaging 15%. For a nominal additional fee, members have the right, under a reciprocal arrangement with Camp Coast to Coast, Inc., and/or Resort Parks International, to camp at over 600 other resorts located throughout the United States, Canada, and Mexico. Additionally, members may join Club Rainbow Vacations, Inc., (CRV) a wholly owned subsidiary of the Company, and have access to certain condominiums throughout the world, discounts on travel, cruises, golf, hotels, and free vacations at the Company's Resorts.

After a membership is purchased, it may not be transferred for a two-year period. Thereafter, it may be transferred a total of three times, unless otherwise provided. The transferred membership expires on the death or cancellation of the third transferee. To date, the number of transfers of memberships has been minimal. The number of memberships that will cancel prior to utilizing the transfer privilege is estimated to be 5%.

In the past, the major market for the Company has been in the Northern California area with sales staff located at the Resorts. Offsite sales offices are an opportunity for the Company to make gains in sales on a year round basis and to sell in markets that are not accessible to the Resorts' sales staff. The Company has operated offsite offices in the past, primarily in offering an upgrade product to present members and selling to orphaned members from other resorts.

Membership sales continue throughout the year at Lighthouse Marina. Because of weather conditions, sales activities slow significantly at Redwood Trails and River Grove during the winter months.

A new market has emerged as an extension of resorts that have either gone out of business, stopped operating as a membership resort, or has ceased their affiliation with Camp Coast to Coast. This has proven to be a lucrative market, estimated to be 20,000 orphaned or dissatisfied members in California, Nevada and Arizona.

A program has been offered to members to upgrade their membership to a Club Rainbow membership (CRV). This upgrade offers them Resort Parks International, immediate-family memberships for $350, extended stays and free rentals at the Resorts, and access to independent affiliated resorts. During the year ended June 30, 1997, upgrade sales began in March 1997, with 82 members upgrading their memberships, with total revenues from these upgrades amounting to $204,000.

COMPETITION

Today there are approximately 46,000 campgrounds in the United States. Of those, approximately 500 are membership resorts. While most campers use national or state parks, membership resorts feature family-oriented activities in the setting of individual campsites, recreational facilities and scenic open spaces that are of higher quality than found in public campgrounds. The typical resort offers utility hookups, clubhouse, arcade, rest rooms with hot showers, laundry facilities, a convenience store, recreational amenities with organized activities, playground, and full-time security.

A number of organizations compete directly with the Company by marketing memberships in multiple Resort networks. Additional competition comes from single-park organizations. Some competition offers their members reciprocal use of multiple Resort locations through affiliations with other Resort owners, such as Camp Coast to Coast. The Company believes that the membership fees, the location of Resorts and the amenities and services offered at such Resorts are important elements in determining the Company's competition in the industry.

The Company's main competition, multiple-park membership Resort networks, have locations spread over the United States, but do not cover the Northern California area sufficiently. The Company's selection of four unique water- oriented Resorts in the Northern California area has given it a strong position in this market area. Management believes that by having a concentration of Resorts in Northern California, its membership is distinctive from the competition. Also, by belonging to a reciprocal system, the Company feels that it accommodates its members' desire to have Resorts available outside of the Northern California area.

Single-park membership Resorts do not have the ability to offer the variety that many campers desire. Therefore, it is felt that the Company has a product that meets its target market without significant competition from this type of Resort business.

Recreational campsites open to the public charge approximately $15 to $22 per night. Management believes that its Resorts are distinguishable from such private and public facilities because of the additional amenities, increased security and family-oriented activities that the Company offers.

EMPLOYEES

On June 30, 1997, the Company had 32 full-time, 27 part-time employees, and a sales staff consisting of 11 people, which are paid on a commission-only basis. Due to the seasonal nature of the Company's business, the Company has a greater number of employees during the summer months.

GOVERNMENT REGULATIONS AND ENVIRONMENTAL LAWS

The development and operation of Resorts require discretionary permits or approvals issued by government agencies, pursuant to Title 25 of the California Administrative Code, administered by the Department of Housing and Community Development, and environmental laws. These agencies include the California Coastal Commission, local planning and health departments, the California Department of Housing and Community Development, the Department of Fish and Game, the U. S. Army Corps of Engineers, and the California Regional Water Quality Control Board. Approvals from these agencies are frequently conditioned upon the applicant taking all steps necessary to ensure the project provides adequate scenic and environmental protection, water quality controls, public access to adjacent public lands, adequate waste discharge systems and that it will meet building code standards. While management believes the Company is in full compliance in all material respects with the current requirements of governmental authorities, it is unable to predict the effect of future laws or regulations administered by federal, state and local authorities exercising jurisdiction over its development activities.

The California Legislature enacted Assembly Bill No. 1578 in September 1983 and Senate Bill No. 2203 in September 1990. Each of these bills regulates the sale and resale of membership camping contracts similar to the company's membership agreement. The legislation requires membership camping operators, such as the Company, to disclose to purchasers of a membership information about membership rights and restrictions, the Company's experience in the outdoor membership resort industry and the significant facilities of each Resort. Also, it specifies certain disclosures that needs to be contained in both the incentive offer made as part of an advertising plan and the subsequent contract. In addition, it specifies that each purchaser of a membership has the right to cancel the membership agreement within three days after the date of purchase, if the purchaser has inspected a Resort prior to signing the agreement (or within ten days after the date of purchase if no such inspection has been made). Further, it specifies the escrow conditions for deposits and the disclosures needed for membership resale brokers. Finally, it covers the requirements for withdrawal and transfer of membership resorts. Management believes that the Company is in compliance with this legislation.

The State of California also has a nondisturbance statute that places limitations on the ability of the owners of campground to sell or close, or a lien-holder to foreclose a lien on a campground. These statutes permit sale, closure, or foreclosure if the holders of related memberships receive access to a comparable campground. Credit sales of memberships are regulated by federal and state consumer credit laws, including truth-in-lending and similar laws requiring disclosure of finance charges, and usury or retail installment sales laws limiting the amount of finance charges. The Company periodically revises its membership contract to reflect the finance charge information required by various laws. In addition, management believes that the interest rates currently charged on the unpaid balance of installment contracts are within the maximum finance charge permitted in each jurisdiction in which memberships are sold.