##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

For the quarterly period ended March 31, 2003

OR

[   ] 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.

(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 Blvd., Suite 100, Frisco, TX                     |  | 75034                            
|                                                              
|(Address of Principal Executive Office)                        |  | (Zip Code)                       
|                                                               |  |                                  
|Registrants Telephone Number, Including Area Code:            |  | (214) 618-7200                   
|                                                               |  |                                  

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  [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes  [   ]  No  [X]

The number of shares of Common Stock, par value $.01, issued and outstanding as
of May 9, 2003, was 6,973,943.





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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | Consolidated Balance Sheets                   
|                                                   |                                                                                               | Consolidated Statements of Operations         
|                                                   |                                                                                               | Consolidated Statements of Operations         
|                                                   |                                                                                               | Consolidated Statement of Shareholders Equity
|                                                   |                                                                                               | Consolidated Statements of Cash Flows         
|                                                   |                                                                                               | Notes to Consolidated Financial Statements    
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                   | Item 4. Controls and Procedures                                                              
|Part II. OTHER INFORMATION                        
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                        
|CERTIFICATIONS                                    
|Index to the Exhibits                             
|EX-10.1 Second Amendment to Loan Agreement        
|EX-10.2 Letter Confirming Settlement-Stock Options
|EX-11.1 Computation of Per Share Earnings         
|EX-99.1 Certification of Chief Executive Officer  
|EX-99.2 Certification of Chief Financial Officer  



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##### Table of Contents



Thousand Trails, Inc.

Index

|                               |  |                                                                                                    |  |      | 
|------------------------------ |  | -------------------------------------------------------------------------------------------------- |  | ---- | 
|                               |  |                                                                                                    |  | Page
|PART I.  FINANCIAL INFORMATION |  |                                                                                                    | 
|Item 1.                        |  | Financial Statements                                                                               |  |      | 
|                               |  | Consolidated Balance Sheets as of March 31, 2003
and June 30, 2002                                 |  | 3    | 
|                               |  | Consolidated Statements of Operations for the nine months ended
March 31, 2003 and March 31, 2002  |  | 4    | 
|                               |  | Consolidated Statements of Operations for the three months ended
March 31, 2003 and March 31, 2002 |  | 5    | 
|                               |  | Consolidated Statement of Shareholders Equity for the nine months
ended March 31, 2003            |  | 6    | 
|                               |  | Consolidated Statements of Cash Flows for the nine months ended
March 31, 2003 and March 31, 2002  |  | 7    | 
|                               |  | Notes to Consolidated Financial Statements                                                         |  | 9    | 
|Item 2.                        |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations              |  | 15   | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 27   | 
|Item 4.                        |  | Controls and Procedures                                                                            |  | 27   | 
|PART II.  OTHER INFORMATION    |  |                                                                                                    | 
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                   |  | 28   | 
|Signatures                     |  | 29                                                                                                 | 
|Certifications                 |  | 30                                                                                                 | 

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




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

|                                           |                                                                                                                 |                            |         |         |        |           |        |          |        |  |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------ | --------- | ------ | -------- | ------ |  |  | 
|                                           |                                                                                                                 |                            |         |         |        | March 31, |        | June 30,
|                                           |                                                                                                                 | 2003                       |         | 2002   
|                                           |                                                                                                                 |                            |         |        
|                                           |                                                                                                                 | (Unaudited)                |         |         |        |          
|Assets                                     |                                                                                                                 |                            |         |         |        |           |        |         
|Current Assets                             |                                                                                                                 |                            |         |         |        |           |        |         
|                                           | Cash and cash equivalents                                                                                       |                            | $       | 3,319   |        |           | $      | 4,180    |       
|                                           | Marketable securities  available for sale                                                                      |                            |         | 17,536  |        |           |        | 5,343    |       
|                                           | Current portion of receivables, net of allowances of $.8 million and $1.0
million respectively                  |                            |         | 4,024   |        |           |        | 3,238    |       
|                                           | Current portion of deferred membership origination costs                                                        |                            |         | 6,032   |        |           |        | 5,013    |       
|                                           | Deferred tax assets-current                                                                                     |                            |         | 5,327   |        |           |        | 6,106    |       
|                                           | Inventories                                                                                                     |                            |         | 1,123   |        |           |        | 1,158    |       
|                                           | Other current assets                                                                                            |                            |         | 1,222   |        |           |        | 2,889    |       
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|                                           |                                                                                                                 | Total Current Assets       |         |         | 38,583 |           |        |          | 27,927 | 
|                                           | Restricted cash                                                                                                 |                            |         | 646     |        |           |        | 646      |       
|                                           | Receivables, net of allowances of $1.3 million and $1.2 million, respectively                                   |                            |         | 6,685   |        |           |        | 6,400    |       
|                                           | Campground land                                                                                                 |                            |         | 20,696  |        |           |        | 20,696   |       
|                                           | Buildings and equipment, net of accumulated depreciation of
$25.3 million and $24.5 million, respectively       |                            |         | 22,274  |        |           |        | 22,781   |       
|                                           | Assets held for sale                                                                                            |                            |         | 4,605   |        |           |        | 5,402    |       
|                                           | Deferred membership origination costs, less current portion                                                     |                            |         | 6,990   |        |           |        | 7,337    |       
|                                           | Deferred tax assets-noncurrent                                                                                  |                            |         | 806     |        |           |        | 296      |       
|                                           | Other assets                                                                                                    |                            |         | 657     |        |           |        | 755      |       
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|Total Assets                               |                                                                                                                 | $                          | 101,942 |         |        | $         | 92,240 |         
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|Liabilities and Shareholders Equity       |                                                                                                                 |                            |         |         |        |           |        |         
|Current Liabilities                        |                                                                                                                 |                            |         |         |        |           |        |         
|                                           | Accounts payable                                                                                                |                            | $       | 1,475   |        |           | $      | 2,665    |       
|                                           | Accrued liabilities                                                                                             |                            |         | 7,030   |        |           |        | 8,108    |       
|                                           | Current portion of deferred revenue                                                                             |                            |         | 39,856  |        |           |        | 34,212   |       
|                                           | Other current liabilities                                                                                       |                            |         | 145     |        |           |        | 364      |       
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|                                           |                                                                                                                 | Total Current Liabilities  |         |         | 48,506 |           |        |          | 45,349 | 
|                                           | Deferred revenue, less current portion                                                                          |                            |         | 24,414  |        |           |        | 24,984   |       
|                                           | Other liabilities                                                                                               |                            |         | 1,323   |        |           |        | 1,244    |       
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|                                           |                                                                                                                 | Total Liabilities          |         |         | 74,243 |           |        |          | 71,577 | 
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|Commitments and Contingencies              |                                                                                                                 |                            |         |         |        |           |        |         
|Shareholders Equity                       |                                                                                                                 |                            |         |         |        |           |        |         
|                                           | Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued                                      
|                                           | Common stock, $.01 par value, 15,000,000 shares authorized, 8,474,395 and
8,395,528 shares issued, respectively |                            |         | 85      |        |           |        | 84       |       
|                                           | Additional paid-in capital                                                                                      |                            |         | 22,640  |        |           |        | 22,596   |       
|                                           | Retained earnings                                                                                               |                            |         | 16,721  |        |           |        | 9,688    |       
|                                           | Accumulated other comprehensive loss                                                                            |                            |         | (248    | )      |           |        | (132     | )     
|                                           | Treasury stock, 1,500,452 and 1,477,912 shares, respectively                                                    |                            |         | (11,499 | )      |           |        | (11,573  | )     
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|                                           |                                                                                                                 | Total Shareholders Equity |         |         | 27,699 |           |        |          | 20,663 | 
|                                           |                                                                                                                 |                            |         |         |        |           |        |         
|Total Liabilities and Shareholders Equity |                                                                                                                 | $                          | 101,942 |         |        | $         | 92,240 |         
|                                           |                                                                                                                 |                            |         |         |        |           |        |         

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

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

|                                               |                                      |                          |                |        |                                     |        |        |        |        |        | 
|---------------------------------------------- | ------------------------------------ | ------------------------ | -------------- | ------ | ----------------------------------- | ------ | ------ | ------ | ------ | ------ | 
|                                               |                                      |                          |                |        | For the nine months ended March 31,
|                                               |                                      |                          |                |        |                                    
|                                               |                                      |                          |                |        | 2003                                |        | 2002  
|                                               |                                      |                          |                |        |                                     |        |       
|Revenues                                       |                                      |                          |                |        |                                     |        |        |       
|                                               | Membership contracts originated      |                          | $              | 19,102 |                                     |        | $      | 19,234 |       
|                                               | Change in deferred revenue           |                          |                | (2,808 | )                                   |        |        | (7,326 | )     
|                                               |                                      |                          |                |        |                                     |        |        |       
|                                               |                                      | Membership sales revenue |                |        | 16,294                              |        |        |        | 11,908 |       
|                                               | Membership dues                      |                          |                | 30,061 |                                     |        |        | 29,994 |       
|                                               | Other campground revenue             |                          |                | 12,721 |                                     |        |        | 13,350 |       
|                                               | Trails Management revenue            |                          |                | 3,287  |                                     |        |        | 3,417  |       
|                                               | RPI membership fees                  |                          |                | 2,500  |                                     |        |        | 2,689  |       
|                                               | Interest income                      |                          |                | 2,073  |                                     |        |        | 1,662  |       
|                                               | Gain on asset sales                  |                          |                | 186    |                                     |        |        | 144    |       
|                                               | Other income                         |                          |                | 1,855  |                                     |        |        | 1,815  |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|                                               |                                      |                          | Total Revenues |        |                                     | 68,977 |        |        |        | 64,979 | 
|                                               |                                      |                          |                |        |                                     |        |        |       
|Expenses                                       |                                      |                          |                |        |                                     |        |        |       
|                                               | Campground operating expenses        |                          |                | 32,306 |                                     |        |        | 31,689 |       
|                                               | Membership origination costs         |                          |                | 8,933  |                                     |        |        | 9,173  |       
|                                               | Change in deferred origination costs |                          |                | (673   | )                                   |        |        | (2,397 | )     
|                                               | Marketing expenses                   |                          |                | 4,124  |                                     |        |        | 4,229  |       
|                                               | Trails Management expenses           |                          |                | 2,987  |                                     |        |        | 3,132  |       
|                                               | RPI membership expenses              |                          |                | 1,282  |                                     |        |        | 1,325  |       
|                                               | Corporate member services            |                          |                | 986    |                                     |        |        | 1,028  |       
|                                               | Interest expense                     |                          |                | 13     |                                     |        |        | 27     |       
|                                               | General and administrative expenses  |                          |                | 7,574  |                                     |        |        | 7,545  |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|                                               |                                      |                          | Total Expenses |        |                                     | 57,532 |        |        |        | 55,751 | 
|                                               |                                      |                          |                |        |                                     |        |        |       
|Income Before Income Taxes                     |                                      |                          | 11,445         |        |                                     |        | 9,228  |       
|Income
Taxes                                  |                                      |                          |                |        |                                     |        |        |       
|                                               | Income tax provision  current       |                          |                | (4,143 | )                                   |        |        | (2,168 | )     
|                                               | Income tax provision  deferred      |                          |                | (269   | )                                   |        |        | (1,031 | )     
|                                               |                                      |                          |                |        |                                     |        |        |       
|                                               |                                      |                          | (4,412         | )      |                                     |        | (3,199 | )     
|Net Income                                     |                                      | $                        | 7,033          |        |                                     | $      | 6,029  |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|Net Income per Share  Basic                   |                                      | $                        | 1.01           |        |                                     | $      | .74    |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|Net Income per Share  Diluted                 |                                      | $                        | .92            |        |                                     | $      | .70    |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                     |        |        |       
|                                               | Basic                                |                          |                | 6,946  |                                     |        |        | 8,129  |       
|                                               |                                      |                          |                |        |                                     |        |        |       
|                                               | Diluted                              |                          |                | 7,650  |                                     |        |        | 8,638  |       
|                                               |                                      |                          |                |        |                                     |        |        |       

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

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

|                                               |                                      |                          |                |        |                                      |        |        |        |       |        | 
|---------------------------------------------- | ------------------------------------ | ------------------------ | -------------- | ------ | ------------------------------------ | ------ | ------ | ------ | ----- | ------ | 
|                                               |                                      |                          |                |        | For the three months ended March 31,
|                                               |                                      |                          |                |        |                                     
|                                               |                                      |                          |                |        | 2003                                 |        | 2002  
|                                               |                                      |                          |                |        |                                      |        |       
|Revenues                                       |                                      |                          |                |        |                                      |        |        |       
|                                               | Membership contracts originated      |                          | $              | 5,121  |                                      |        | $      | 6,297  |      
|                                               | Change in deferred revenue           |                          |                | 565    |                                      |        |        | (1,952 | )    
|                                               |                                      |                          |                |        |                                      |        |        |       
|                                               |                                      | Membership sales revenue |                |        | 5,686                                |        |        |        | 4,345 |       
|                                               | Membership dues                      |                          |                | 9,920  |                                      |        |        | 9,921  |      
|                                               | Other campground revenue             |                          |                | 3,083  |                                      |        |        | 3,264  |      
|                                               | Trails Management revenue            |                          |                | 35     |                                      |        |        | 1      |      
|                                               | RPI membership fees                  |                          |                | 953    |                                      |        |        | 1,003  |      
|                                               | Interest income                      |                          |                | 805    |                                      |        |        | 632    |      
|                                               | Gain (loss) on asset sales           |                          |                | 184    |                                      |        |        | (11    | )    
|                                               | Other income                         |                          |                | 622    |                                      |        |        | 578    |      
|                                               |                                      |                          |                |        |                                      |        |        |       
|                                               |                                      |                          | Total Revenues |        |                                      | 21,288 |        |        |       | 19,733 | 
|                                               |                                      |                          |                |        |                                      |        |        |       
|Expenses                                       |                                      |                          |                |        |                                      |        |        |       
|                                               | Campground operating expenses        |                          |                | 9,438  |                                      |        |        | 9,252  |      
|                                               | Membership origination costs         |                          |                | 2,591  |                                      |        |        | 3,028  |      
|                                               | Change in deferred origination costs |                          |                | 209    |                                      |        |        | (692   | )    
|                                               | Marketing expenses                   |                          |                | 1,025  |                                      |        |        | 1,167  |      
|                                               | Trails Management expenses           |                          |                | 95     |                                      |        |        | 149    |      
|                                               | RPI membership expenses              |                          |                | 481    |                                      |        |        | 426    |      
|                                               | Corporate member services            |                          |                | 304    |                                      |        |        | 294    |      
|                                               | Interest expense                     |                          |                | 7      |                                      |        |        | 4      |      
|                                               | General and administrative expenses  |                          |                | 2,357  |                                      |        |        | 2,827  |      
|                                               |                                      |                          |                |        |                                      |        |        |       
|                                               |                                      |                          | Total Expenses |        |                                      | 16,507 |        |        |       | 16,455 | 
|                                               |                                      |                          |                |        |                                      |        |        |       
|Income Before Income Taxes                     |                                      |                          | 4,781          |        |                                      |        | 3,278  |       
|Income
Taxes                                  |                                      |                          |                |        |                                      |        |        |       
|                                               | Income
tax provision  current       |                          |                | (1,311 | )                                    |        |        | (623   | )    
|                                               | Income tax provision  deferred      |                          |                | (533   | )                                    |        |        | (490   | )    
|                                               |                                      |                          |                |        |                                      |        |        |       
|                                               |                                      |                          | (1,844         | )      |                                      |        | (1,113 | )     
|Net Income                                     |                                      | $                        | 2,937          |        |                                      | $      | 2,165  |       
|                                               |                                      |                          |                |        |                                      |        |        |       
|Net Income per Share  Basic                   |                                      | $                        | .42            |        |                                      | $      | .27    |       
|                                               |                                      |                          |                |        |                                      |        |        |       
|Net Income per Share  Diluted                 |                                      | $                        | .38            |        |                                      | $      | .25    |       
|                                               |                                      |                          |                |        |                                      |        |        |       
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                      |        |        |       
|                                               | Basic                                |                          |                | 6,972  |                                      |        |        | 8,062  |      
|                                               |                                      |                          |                |        |                                      |        |        |       
|                                               | Diluted                              |                          |                | 7,641  |                                      |        |        | 8,699  |      
|                                               |                                      |                          |                |        |                                      |        |        |       

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

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Thousand Trails, Inc. and Subsidiaries
Consolidated Statement of Shareholders Equity
For the Nine Months Ended March 31, 2003
(Dollars in thousands)
(Unaudited)

|                                                    |  |               |       |              |  |         |    |          |  |            |        |               |  |          |        |       |  |             |      |   |  |    |        |   |  |   |        |  
|--------------------------------------------------- |  | ------------- | ----- | ------------ |  | ------- | -- | -------- |  | ---------- | ------ | ------------- |  | -------- | ------ | ----- |  | ----------- | ---- | - |  | -- | ------ | - |  | - | ------ | -
|                                                    |  |               |       |              |  |         |    |          |  |            |        |               |  |          |        |       |  | Accumulated |      |   |  |    |        |   |  |  
|                                                    |  |               |       |              |  |         |    |          |  | Additional |        |               |  |          |        | Other |  |             |      |   |  |    |        |  
|                                                    |  | Comprehensive |       |              |  |         |    | Paid-In  |  | Retained   |        | Comprehensive |  | Treasury |        |       |  |            
|                                                    |  | Income        |       | Common Stock |  | Capital |    | Earnings |  | Loss       |        | Stock         |  | Total   
|                                                    |  |               |       |              |  |         |    |          |  |            |        |               |  |         
|Balance, July 1, 2002                               |  |               |      |              |  | $       | 84 |          |  | $          | 22,523 |               |  | $        | 9,688  |       |  | ($          | 132  | ) |  | ($ | 11,500 | ) |  | $ | 20,663 |  
|Issuance of common stock                            |  |               |      |              |  |         | 1  |          |  |            | 117    |               |  |          |       |       |  |             |     |   |  |    | 57     |   |  |   | 175    |  
|Purchase of treasury stock                          |  |               |      |              |  |         |   |          |  |            |       |               |  |          |       |       |  |             |     |   |  |    | (56    | ) |  |   | (56    | )
|Net income for the nine
months ended March 31,
2003 |  |               | 7,033 |              |  |         |   |          |  |            |       |               |  |          | 7,033  |       |  |             |     |   |  |    |       |   |  |   | 7,033  |  
|Other comprehensive loss                            |  |               | (116  | )            |  |         |   |          |  |            |       |               |  |          |       |       |  |             | (116 | ) |  |    |       |   |  |   | (116   | )
|                                                    |  |               |       |              |  |         |    |          |  |            |        |               |  |          |        |       |  |             |      |   |  |    |        |   |  |   |        |  
|Balance, March 31, 2003                             |  | $             | 6,917 |              |  | $       | 85 |          |  | $          | 22,640 |               |  | $        | 16,721 |       |  | ($          | 248  | ) |  | ($ | 11,499 | ) |  | $ | 27,699 |  
|                                                    |  |               |       |              |  |         |    |          |  |            |        |               |  |          |        |       |  |             |      |   |  |    |        |   |  |   |        |  

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

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

|                                          |                                                                |  |                                     |         |      |  |         |         |  
|----------------------------------------- | -------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- |  | ------- | ------- | -
|                                          |                                                                |  | For the nine months ended March 31,
|                                          |                                                                |  |                                    
|                                          |                                                                |  | 2003                                |         | 2002
|                                          |                                                                |  |                                     |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES:     |                                                                |  |                                     |         |      |  |         |        
|                                          | Collections of principal on receivables                        |  | $                                   | 5,431   |      |  | $       | 4,098   |  
|                                          | Interest received                                              |  |                                     | 2,073   |      |  |         | 1,661   |  
|                                          | Interest paid                                                  |  |                                     | (13     | )    |  |         | (28     | )
|                                          | General and administrative and corporate member services costs |  |                                     | (8,734  | )    |  |         | (9,128  | )
|                                          | Cash collected from operations, including deferred revenue     |  |                                     | 53,351  |      |  |         | 54,630  |  
|                                          | Cash from sales of memberships                                 |  |                                     | 12,661  |      |  |         | 13,467  |  
|                                          | Expenditures for property operations                           |  |                                     | (33,490 | )    |  |         | (34,295 | )
|                                          | Expenditures for sales and marketing                           |  |                                     | (12,937 | )    |  |         | (12,964 | )
|                                          | Expenditures for insurance premiums                            |  |                                     | (1,754  | )    |  |         | (1,905  | )
|                                          | Payment of income taxes                                        |  |                                     | (4,362  | )    |  |         | (2,162  | )
|                                          |                                                                |  |                                     |         |      |  |         |        
|Net cash provided by operating activities |                                                                |  | 12,226                              |         |      |  | 13,374  |        
|                                          |                                                                |  |                                     |         |      |  |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:     |                                                                |  |                                     |         |      |  |         |        
|                                          | Purchase of marketable securities                              |  |                                     | (12,193 | )    |  |         | (11,700 | )
|                                          | Capital expenditures                                           |  |                                     | (2,035  | )    |  |         | (4,711  | )
|                                          | Proceeds from asset sales                                      |  |                                     | 1,070   |      |  |         | 404     |  
|                                          |                                                                |  |                                     |         |      |  |         |        
|Net cash used in investing activities     |                                                                |  | (13,158                             | )       |      |  | (16,007 | )      
|                                          |                                                                |  |                                     |         |      |  |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:     |                                                                |  |                                     |         |      |  |         |        
|                                          | Purchase of treasury stock                                     |  |                                     | (56     | )    |  |         | (764    | )
|                                          | Payment of notes                                               |  |                                     | (48     | )    |  |         | (54     | )
|                                          | Issuance of common stock                                       |  |                                     | 175     |      |  |         | 58      |  
|                                          |                                                                |  |                                     |         |      |  |         |        
|Net cash used in financing activities     |                                                                |  | 71                                  |         |      |  | (760    | )      
|                                          |                                                                |  |                                     |         |      |  |         |        
|DECREASE IN CASH AND CASH EQUIVALENTS     |                                                                |  | (861                                | )       |      |  | (3,393  | )      
|CASH AND CASH EQUIVALENTS                 |                                                                |  |                                     |         |      |  |         |        
|                                          | Beginning of period                                            |  |                                     | 4,180   |      |  |         | 9,016   |  
|                                          |                                                                |  |                                     |         |      |  |         |        
|                                          | End of period                                                  |  | $                                   | 3,319   |      |  | $       | 5,623   |  
|                                          |                                                                |  |                                     |         |      |  |         |        

continued 

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

|                                                                                   |                                                   |   |                                     |        |      |   |        |        |  
|---------------------------------------------------------------------------------- | ------------------------------------------------- | - | ----------------------------------- | ------ | ---- | - | ------ | ------ | -
|                                                                                   |                                                   |   | For the nine months ended March 31,
|                                                                                   |                                                   |   |                                    
|                                                                                   |                                                   |   | 2003                                |        | 2002
|                                                                                   |                                                   |   |                                     |        |     
|Reconciliation of net income to net cash provided by
operating activities:         |                                                   |   |                                     |        |      |   |        |       
|Net Income                                                                         |                                                   | $ | 7,033                               |        |      | $ | 6,029  |       
|Adjustments to reconcile net income to net cash
provided by operating activities  |                                                   |   |                                     |        |      |   |        |       
|                                                                                   | Depreciation                                      |   |                                     | 2,455  |      |   |        | 2,188  |  
|                                                                                   | Bad debt provision                                |   |                                     | 446    |      |   |        | 633    |  
|                                                                                   | Increase in deferred sales revenue                |   |                                     | 2,808  |      |   |        | 7,326  |  
|                                                                                   | Increase in deferred membership origination costs |   |                                     | (673   | )    |   |        | (2,397 | )
|                                                                                   | Gain on asset sales                               |   |                                     | (186   | )    |   |        | (144   | )
|                                                                                   | Increase in deferred income tax provision         |   |                                     | 269    |      |   |        | 1,031  |  
|                                                                                   | Increase in receivables                           |   |                                     | (1,517 | )    |   |        | (1,669 | )
|                                                                                   | Decrease in other assets                          |   |                                     | 2,162  |      |   |        | 337    |  
|                                                                                   | Decrease in accounts payable                      |   |                                     | (1,190 | )    |   |        | (1,342 | )
|                                                                                   | Increase in deferred dues                         |   |                                     | 2,537  |      |   |        | 2,099  |  
|                                                                                   | Decrease in other liabilities                     |   |                                     | (1,802 | )    |   |        | (716   | )
|                                                                                   | Other, net                                        |   |                                     | (116   | )    |   |        | (1     | )
|                                                                                   |                                                   |   |                                     |        |      |   |        |       
|Total adjustments                                                                  |                                                   |   | 5,193                               |        |      |   | 7,345  |       
|                                                                                   |                                                   |   |                                     |        |      |   |        |       
|Net cash provided by operating activities                                          |                                                   | $ | 12,226                              |        |      | $ | 13,374 |       
|                                                                                   |                                                   |   |                                     |        |      |   |        |       

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

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Thousand Trails, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)

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 280 recreational
facilities and manages 194 public campgrounds for the U.S. Forest Service and
other entities. Operating revenues consist primarily of membership sales,
membership dues received from campground members, revenues from the campground
operations, fee revenue from members of the reciprocal use program, and
management fees from the campground management operations.

The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc., Leisure Time Resorts of America, Inc. (Leisure
Time), National American Corporation and its subsidiaries (NACO), Resort
Parks International, Inc. (RPI), Thousand Trails (Canada), Inc., and Thousand
Trails Management Services, Inc. (Trails Management).

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these financial statements do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The interim financial
information is unaudited, but in the opinion of management, it reflects all
adjustments necessary to present fairly, in all material respects, the
consolidated financial position and results of operations of the Company as of
the dates and for the periods presented. All such adjustments are of a normal
recurring nature.

This Quarterly Report on Form 10-Q should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended June 30, 2002, filed
with the Securities and Exchange Commission (the SEC) on September 30, 2002.

All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the nine and
three month periods ended March 31, 2003 and 2002, and in the consolidated
balance sheets as of June 30, 2002 and March 31, 2003.

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

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NOTE 2  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 that time.
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.

The following table provides statements of comprehensive income for the nine
and three months ended March 31, 2003 and 2002 (dollars in thousands):

|                                         |  |                           |       |                            |  |      |       |      |  |   |       |   |  |   |       | 
|---------------------------------------- |  | ------------------------- | ----- | -------------------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | 
|                                         |  | For the nine months ended |       | For the three months ended
|                                         |  | March 31,                 |       | March 31,                 
|                                         |  |                           |       |                           
|                                         |  | 2003                      |       | 2002                       |  | 2003 |       | 2002
|                                         |  |                           |       |                            |  |      |       |     
|                                         |  | (Unaudited)               |       | (Unaudited)               
|Net income                               |  | $                         | 7,033 |                            |  | $    | 6,029 |      |  | $ | 2,937 |   |  | $ | 2,165 | 
|Other comprehensive income:              |  |                           |       |                            |  |      |       |      |  |   |       |   |  |   |       | 
|Unrealized loss on
marketable securities |  |                           | (118  | )                          |  |      |      |      |  |   | (65   | ) |  |   |      | 
|Foreign currency
translation adjustment  |  |                           | 2     |                            |  |      | (1    | )    |  |   | 2     |   |  |   |      | 
|                                         |  |                           |       |                            |  |      |       |      |  |   |       |   |  |   |       | 
|Comprehensive income                     |  | $                         | 6,917 |                            |  | $    | 6,028 |      |  | $ | 2,884 |   |  | $ | 2,165 | 
|                                         |  |                           |       |                            |  |      |       |      |  |   |       |   |  |   |       | 

NOTE 3  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 campgrounds 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 in campground facilities, and
(iii) net revenues earned from operations at the campgrounds.

RPI sells 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 194 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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The Company evaluates performance based upon the income before income taxes for
each business segment.

|                                  |  |                                  |        |     |  |            |       |           |  |              |       |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | -------------------------------- | ------ | --- |  | ---------- | ----- | --------- |  | ------------ | ----- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Nine months ended March 31, 2003
|                                  |  |                                 
|                                  |  |                                  |        |     |  |            |       |           |  | Trails       |       | Corporate |  |   |        |  
|                                  |  | Campgrounds                      |        | RPI |  | Management |       | and Other |  | Consolidated
|                                  |  |                                  |        |     |  |            |       |           |  |             
|Operating revenues                |  | $                                | 42,782 |     |  | $          | 2,500 |           |  | $            | 3,287 |           |  | $ | 17     |   |  | $ | 48,586 | 
|Membership sales
revenue          |  |                                  | 16,294 |     |  |            |      |           |  |              |      |           |  |   |       |   |  |   | 16,294 | 
|Income (loss)
before income taxes |  |                                  | 14,386 |     |  |            | 1,218 |           |  |              | 300   |           |  |   | (4,459 | ) |  |   | 11,445 | 

|                                  |  |                                  |        |     |  |            |       |           |  |              |       |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | -------------------------------- | ------ | --- |  | ---------- | ----- | --------- |  | ------------ | ----- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Nine months ended March 31, 2002
|                                  |  |                                 
|                                  |  |                                  |        |     |  |            |       |           |  | Trails       |       | Corporate |  |   |        |  
|                                  |  | Campgrounds                      |        | RPI |  | Management |       | and Other |  | Consolidated
|                                  |  |                                  |        |     |  |            |       |           |  |             
|Operating revenues                |  | $                                | 43,344 |     |  | $          | 2,689 |           |  | $            | 3,417 |           |  | $ | 62     |   |  | $ | 49,512 | 
|Membership sales
revenue          |  |                                  | 11,908 |     |  |            |      |           |  |              |      |           |  |   |       |   |  |   | 11,908 | 
|Income (loss)
before income taxes |  |                                  | 12,558 |     |  |            | 1,364 |           |  |              | 285   |           |  |   | (4,979 | ) |  |   | 9,228  | 

|                                  |  |                                   |        |     |  |            |     |           |  |              |     |           |  |  |        |   |  |   |        | 
|--------------------------------- |  | --------------------------------- | ------ | --- |  | ---------- | --- | --------- |  | ------------ | --- | --------- |  |  | ------ | - |  | - | ------ | 
|                                  |  | Three months ended March 31, 2003
|                                  |  |                                  
|                                  |  |                                   |        |     |  |            |     |           |  | Trails       |     | Corporate |  |  |        |  
|                                  |  | Campgrounds                       |        | RPI |  | Management |     | and Other |  | Consolidated
|                                  |  |                                   |        |     |  |            |     |           |  |             
|Operating revenues                |  | $                                 | 13,003 |     |  | $          | 953 |           |  | $            | 35  |           |  |  | ($2    | ) |  | $ | 13,989 | 
|Membership sales
revenue          |  |                                   | 5,686  |     |  |            |    |           |  |              |    |           |  |  |       |   |  |   | 5,686  | 
|Income (loss)
before income taxes |  |                                   | 5,426  |     |  |            | 472 |           |  |              | (60 | )         |  |  | (1,057 | ) |  |   | 4,781  | 

|                                  |  |                                   |        |     |  |            |       |           |  |              |      |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | --------------------------------- | ------ | --- |  | ---------- | ----- | --------- |  | ------------ | ---- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Three months ended March 31, 2002
|                                  |  |                                  
|                                  |  |                                   |        |     |  |            |       |           |  | Trails       |      | Corporate |  |   |        |  
|                                  |  | Campgrounds                       |        | RPI |  | Management |       | and Other |  | Consolidated
|                                  |  |                                   |        |     |  |            |       |           |  |             
|Operating revenues                |  | $                                 | 13,185 |     |  | $          | 1,003 |           |  | $            | 1    |           |  | $ | 18     |   |  | $ | 14,207 | 
|Membership sales
revenue          |  |                                   | 4,345  |     |  |            |      |           |  |              |     |           |  |   |       |   |  |   | 4,345  | 
|Income (loss)
before income taxes |  |                                   | 4,775  |     |  |            | 577   |           |  |              | (148 | )         |  |   | (1,926 | ) |  |   | 3,278  | 

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NOTE 4  STOCK BASED COMPENSATION

The Company follows the accounting treatment prescribed by APB Opinion No. 25
in accounting for stock options issued to its employees and directors.
Accordingly, no compensation expense was recognized in connection with the
grant of options during the periods presented, as all options granted had an
exercise price equal to the market value of the underlying stock on the date of
grant. The following table illustrates the effect on net earnings and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 (dollars and shares in thousands, except per share amounts):

|                                                                                                         |  |                           |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------------------------------------------- |  | ------------------------- | ----- | -------------------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                                                                         |  | For the nine months ended |       | For the three months ended
|                                                                                                         |  | March 31,                 |       | March 31,                 
|                                                                                                         |  |                           |       |                           
|                                                                                                         |  | 2003                      |       | 2002                       |  | 2003 |       | 2002
|                                                                                                         |  |                           |       |                            |  |      |       |     
|                                                                                                         |  | (Unaudited)               |       | (Unaudited)               
|                                                                                                         |  |                           |       |                            | 
|Net income as reported                                                                                   |  | $                         | 7,033 |                            |  | $    | 6,029 |      |  | $ | 2,937 |  |  | $ | 2,165 | 
|Deduct: Total stock-based
employee compensation under
fair value based method, net
of related tax effect |  |                           | 189   |                            |  |      | 192   |      |  |   | 63    |  |  |   | 67    | 
|                                                                                                         |  |                           |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|Pro forma                                                                                                |  | $                         | 6,844 |                            |  | $    | 5,837 |      |  | $ | 2,874 |  |  | $ | 2,098 | 
|                                                                                                         |  |                           |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|Net income per share  basic                                                                             |  |                           |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|As reported                                                                                              |  | $                         | 1.01  |                            |  | $    | .74   |      |  | $ | .42   |  |  | $ | .27   | 
|Pro forma                                                                                                |  | $                         | .99   |                            |  | $    | .72   |      |  | $ | .41   |  |  | $ | .26   | 
|Net income per share  diluted                                                                           | 
|As reported                                                                                              |  | $                         | .92   |                            |  | $    | .70   |      |  | $ | .38   |  |  | $ | .25   | 
|Pro forma                                                                                                |  | $                         | .90   |                            |  | $    | .68   |      |  | $ | .37   |  |  | $ | .24   | 

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 nine and three months ended March 31, 2003
and 2002, 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 nine months ended |     | For the three months ended
|                                            |                  |   | March 31,                 |     | March 31,                 
|                                            |                  |   |                           |     |                           
|                                            |                  |   | 2003                      |     | 2002                       |   | 2003  |     | 2002
|                                            |                  |   |                           |     |                            |   |       |     |     
|                                            |                  |   | (Unaudited)               |     | (Unaudited)               
|                                            |                  |   |                           |     |                           
|Net Income                                  |                  | $ | 7,033                     |     |                            | $ | 6,029 |     |      | $ | 2,937 |     |  | $ | 2,165 |    
|                                            |                  |   |                           |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Weighted Average Number of Shares  Basic   |                  |   | 6,946                     |     |                            |   | 8,129 |     |      |   | 6,972 |     |  |   | 8,062 |    
|                                            | Dilutive Options |   |                           | 704 |                            |   |       | 509 |      |   |       | 669 |  |   |       | 637 | 
|                                            |                  |   |                           |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Weighted Average Number of Shares  Diluted |                  |   | 7,650                     |     |                            |   | 8,638 |     |      |   | 7,641 |     |  |   | 8,699 |    
|                                            |                  |   |                           |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Net Income Per Share  Basic                |                  | $ | 1.01                      |     |                            | $ | .74   |     |      | $ | .42   |     |  | $ | .27   |    
|                                            |                  |   |                           |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Net Income Per Share  Diluted              |                  | $ | .92                       |     |                            | $ | .70   |     |      | $ | .38   |     |  | $ | .25   |    
|                                            |                  |   |                           |     |                            |   |       |     |      |   |       |     |  |   |       |    

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NOTE 6  LONG TERM DEBT

Line of Credit with Union Bank
The Company has 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. 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. On
April 29, 2003, the Company and Union Bank amended the Line of Credit (a) to
modify the financial covenants respecting minimum tangible net worth and
minimum adjusted EBITDA (as defined) and (b) to extend the maturity date from
July 1, 2003 to December 31, 2004.

On March 31, 2003, the Company had no outstanding borrowings under the Line of
Credit. The Companys availability under the Line of Credit has been reduced
by $1.1 million as a result of the issuance of a letter of credit to secure
obligations that may arise in the future under the Companys insurance program.

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.

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.

NOTE 7  CONTINGENCIES

General Liability Insurance
The Companys general liability insurance requires 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 March 31, 2003 and June 30, 2002, the Companys recorded liability for
estimated losses related to uninsured general liability claims totaled
approximately $692,000 and $567,000, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets. In the quarter
ended March 31, 2003, the Company reduced its liability for uninsured general
liability and workers compensation claims by a total of $225,000 based on an
analysis of claims incurred this year.

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.

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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
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
operations or financial position.

NOTE 8  SUBSEQUENT EVENT

On April 30, 2003, the Company announced that it has entered into a definitive
merger agreement providing for the acquisition of the Company by affiliates of
the private equity firm Kohlberg & Company, LLC (Kohlberg). The merger
agreement calls for each holder of the Companys common stock to receive $14.50
per share in cash, subject to adjustment as described below.

Completion of the transaction is subject to funding of required financing, a
minimum working capital condition and other customary closing conditions
including approval of the Companys stockholders. The merger agreement also
provides for an adjustment to the merger consideration if the Companys working
capital significantly decreases below anticipated levels prior to closing.
William J. Shaw and Carl Marks Strategic Investments, L.P., who hold
approximately 62% of the outstanding shares of common stock, have agreed to
vote in favor of the merger as long as the merger agreement is in effect. The
Company will file proxy materials with the Securities and Exchange Commission
(SEC) for a special meeting of stockholders to vote on the proposed merger.
It is anticipated that the special meeting will be held in late July or early
August 2003, with the exact timing dependent on the completion of necessary
filings. Affiliates of Kohlberg have committed equity financing and Kohlberg
has received debt financing commitments in connection with the transaction,
subject the execution of definitive loan agreements and the satisfaction of the
conditions specified in the commitment letters.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in the Companys Annual Report on Form 10-K for the year ended June
30, 2002, filed with the SEC on September 30, 2002.

All capitalized terms used herein have the same meaning as those defined in
Item 1  Financial Statements.

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 March
31, 2003. All of these statements are forward-looking statements made pursuant
to the safe harbor provisions of Section 21E 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 periods may differ materially due to several factors, including but not
limited to the Companys ability to control costs, campground market conditions
and other factors affecting the Companys sales and marketing plan, the actual
rate of decline in the membership base, the actual use of the campgrounds by
members and guests, the Companys success in collecting its contracts
receivable and selling assets, the Companys success in acquiring members
through the purchase of other membership campground operations and the other
factors affecting the Companys operations described in this report and other
reports filed by the Company with the SEC.

LIQUIDITY AND CAPITAL RESOURCES

Merger Agreement with affiliates of Kohlberg & Company.On April 30, 2003, the
Company announced that it has entered into a definitive merger agreement
providing for the acquisition of the Company by affiliates of the private
equity firm Kohlberg & Company, LLC (Kohlberg). The merger agreement calls
for each holder of the Companys common stock to receive $14.50 per share in
cash. Completion of the transaction is subject to funding of required
financing, a minimum working capital condition and other customary closing
conditions including approval of the Companys stockholders. The merger
agreement provides for an adjustment to the merger consideration if the
Companys working capital (as defined) significantly decreases below
anticipated levels prior to closing and allows Kohlberg or the Company to
terminate the agreement if such working capital is less than a minimum amount.
If Kohlberg or the Company terminates the agreement for this reason, the
Company would be required to reimburse Kohlbergs expenses related to the
transaction. The merger agreement also provides the Company with other
termination rights should it receive an acquisition proposal that the Board of
Directors determines is a superior proposal; however, exercise of such rights
could require the Company to pay a $4 million fee, as well as reimburse
Kohlbergs expenses.

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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.

Over the past 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. However, at this time,
the Company 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.

Cash.On March 31, 2003, the Company had $3.9 million of cash and cash
equivalents, a decrease of $861,000 from June 30, 2002. The Company has
elected to invest its cash in marketable securities to increase the amount of
interest earned on the invested funds.

During the nine months ended March 31, 2003, the Companys operating activities
provided $12.2 million of cash, its investing activities used $13.2 million of
cash, and its financing activities provided $71,000 of cash. The Companys
investing activities consisted of purchases of $12.2 million in marketable
securities and $2.0 in capital expenditures, partially offset by $1.1 million
in proceeds from asset sales. The Companys financing activities consisted of
$175,000 of proceeds from the exercise of employee stock options and sales of
shares through the Companys employee stock purchase plan, partially offset by
$48,000 in payments on notes payable.

With respect to the Companys operating activities, for the nine months ended
March 31, 2003, the principal sources of operating cash were $53.4 million from
operations, $7.5 million in principal and interest collections on contracts
receivable, and $12.7 million from sales of campground memberships. Principal
uses of operating cash for the nine months ended March 31, 2003, were $33.5
million in operating expenses, $12.9 million in membership origination costs
and marketing expenses, $8.7 million in administrative expenses (including
general and administrative expenses and corporate member services costs), $1.8
million in insurance premiums, and $4.4 million in income taxes.

During the nine months ended March 31, 2002, the Companys operating activities
provided $13.4 million of cash, its investing activities used $16.0 million of
cash, and its financing activities used $760,000 of cash. The Companys
investing activities consisted of purchases of

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$11.7 million in marketable securities and capital expenditures of $4.7
million, partially offset by $404,000 in proceeds from the sales of assets.
The Companys financing activities consisted of $58,000 of proceeds from the
exercise of employee stock options, payments of $764,000 for the purchase of
125,800 shares of the Companys common stock, and $54,000 in payments on notes
payable.

During the nine months ended March 31, 2003 and through the date of this
report, the Company has had no outstanding borrowings under its Line of Credit
with Union Bank. On April 29, 2003, the Company and Union Bank amended the
Line of Credit (a) to modify the financial covenants respecting minimum
tangible net worth and minimum adjusted EBITDA (as defined) and (b) to extend
the maturity date from July 1, 2003 to December 31, 2004. 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.

Material Changes in Financial Condition

Total assets increased by $9.7 million during the nine months ended March 31,
2003. Marketable securities available for sale increased $12.1 million,
contracts receivable increased by $1.1 million as $6.5 million of new
receivables from financed sales exceeded the $5.4 million of cash collections
on the existing portfolio, and deferred membership origination costs increased
$672,000. Cash decreased by $861,000 as discussed above. Other current assets
decreased by $1.7 million due primarily to the collection of a receivable
arising from a sale of assets. Assets held for sale decreased by $797,000 due
to the sale of excess acreage at one of the Companys campgrounds. Deferred
tax assets decreased by $269,000 as a result of deferred tax expense recognized
in the current period.

Total liabilities increased by $2.7 million during the nine months ended March
31, 2003, primarily as a result of increases in deferred sales revenue and
deferred dues, partially offset by decreases in accounts payable and other
accrued liabilities. Deferred sales revenue increased by $2.8 million due to
new membership sales contracts originated, and deferred dues increased by $2.5
million because dues collected during the period exceeded dues revenue
recognized. Accounts payable decreased by $1.2 million due to the timing of
payments, and other accrued liabilities decreased by $1.1 million due primarily
to payments of accrued wages and benefits.

Market Risk and Interest Rate Sensitivity.The Company is exposed to changes
in interest rates primarily as a result of its investment in marketable
securities, financing of membership sales, and borrowings under its Line of
Credit with Union Bank. The Companys objective is to limit the impact of
interest rate changes on earnings and cash flows and to reduce overall
borrowing costs. However, the Company does not engage in interest rate market
risk management activities.

The Company has an investment in marketable securities, which consists 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. Changes in interest
rates may affect the fair value of the mutual fund shares as well as the amount
of interest received. However, the risks associated with this investment are
mitigated because the fund seeks to minimize portfolio volatility by limiting
the duration of its investments to that of a six-month to one-year U.S.
Treasury security. At March 31, 2003, the

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Companys investment in this mutual fund totaled $17.5 million, and it recorded
an unrealized loss of $118,000 on this investment during the nine months then
ended. The Company invests the balance of its available cash in money market
funds that provide relatively low rates of return and, thus, have little
exposure to changes in interest rates.

The Company finances a portion of its membership sales creating contracts
receivable. At March 31, 2003, the Company had $12.8 million of contracts
receivable which had a weighted average interest rate of 14% and an average
remaining term of 28 months. The Company is not exposed to changes in interest
rates related to the collection of its contracts receivable because the
interest rates on the contracts receivable are fixed. Changes in interest
rates could affect the value of the Companys contracts receivable; however,
the Company generally holds such contracts receivable to maturity.

The Company currently has no outstanding borrowings under its revolving Line of
Credit with Union Bank. Under the Line of Credit, the Company could borrow
$13.9 million for working capital purposes, which would accrue interest at a
rate that fluctuates with changes in the prime rate. Changes in interest rates
on borrowings under the Line of Credit would increase or decrease the Companys
interest expense on these borrowings.

The Company 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.

The Company does not use financial instruments for trading purposes.

The Company believes that a hypothetical ten percent change in market interest
rates over the next year would not materially impact the Companys earnings or
cash flow. In addition, the Company believes that a hypothetical ten percent
change in market interest rates would not have a material effect on the fair
value of the Companys marketable securities, contracts receivable or
short-term cash investments.

RESULTS OF OPERATIONS

The following discussion and analysis are based on the historical results of
operations of the Company for the nine months ended March 31, 2003 and 2002.
The financial information set forth below should be read in conjunction with
the Companys consolidated financial statements included in Item 1.

Nine Months Ended March 31, 2003 and 2002

Net Income.The Company reported net income of $7.0 million or $.92 per
diluted share on revenues of $69.0 million for the nine months ended March 31,
2003. This compares with net income of $6.0 million or $.70 per diluted share
on revenues of $65.0 million for the same period last year.

The Companys revenues grew in the current period due primarily to increased
membership sales revenue. In the current period, membership sales revenue was
higher because the net change in deferred revenue was a negative $2.8 million,
compared with a negative $7.3 million in the same

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period last year. Expenses were also higher in the current period due to
increased sales and marketing efforts and higher campground operating expenses.

The table set forth below shows separately the results of the campground
operations, membership sales, Trails Management, and RPI, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the nine months ended March 31,
2003 and 2002.

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

|                                        |                                      |                          |        |                   |        |      |        |         |        | 
|--------------------------------------- | ------------------------------------ | ------------------------ | ------ | ----------------- | ------ | ---- | ------ | ------- | ------ | 
|                                        |                                      |                          |        | Nine Months Ended
|                                        |                                      |                          |        | March 31,        
|                                        |                                      |                          |        |                  
|                                        |                                      |                          |        | 2003              |        | 2002
|                                        |                                      |                          |        |                   |        |     
|Campground Operations                   |                                      |                          |        |                   |        |      |        |        
|                                        | Membership dues                      |                          | $      | 30,061            |        |      | $      | 29,994  |       
|                                        | Campground revenues                  |                          |        | 12,721            |        |      |        | 13,350  |       
|                                        | Cost of campground revenues          |                          |        | (5,500            | )      |      |        | (5,753  | )     
|                                        | Operating expenses                   |                          |        | (26,806           | )      |      |        | (25,936 | )     
|                                        |                                      |                          |        |                   |        |      |        |        
|Contribution from campground operations |                                      |                          | 10,476 |                   |        |      | 11,655 |        
|                                        |                                      |                          |        |                   |        |      |        |        
|Membership Sales                        |                                      |                          |        |                   |        |      |        |        
|                                        | Membership contracts originated      |                          |        | 19,102            |        |      |        | 19,234  |       
|                                        | Change in deferred revenue           |                          |        | (2,808            | )      |      |        | (7,326  | )     
|                                        |                                      |                          |        |                   |        |      |        |        
|                                        |                                      | Membership sales revenue |        |                   | 16,294 |      |        |         | 11,908 | 
|                                        | Membership origination costs         |                          |        | (8,933            | )      |      |        | (9,173  | )     
|                                        | Change in deferred origination costs |                          |        | 673               |        |      |        | 2,397   |       
|                                        | Marketing expenses                   |                          |        | (4,124            | )      |      |        | (4,229  | )     
|                                        |                                      |                          |        |                   |        |      |        |        
|Contribution from sales                 |                                      |                          | 3,910  |                   |        |      | 903    |        
|                                        |                                      |                          |        |                   |        |      |        |        
|Trails Management                       |                                      |                          |        |                   |        |      |        |        
|                                        | Revenues                             |                          |        | 3,287             |        |      |        | 3,417   |       
|                                        | Expenses                             |                          |        | (2,987            | )      |      |        | (3,132  | )     
|                                        |                                      |                          |        |                   |        |      |        |        
|Contribution from Trails Management     |                                      |                          | 300    |                   |        |      | 285    |        
|                                        |                                      |                          |        |                   |        |      |        |        
|Resort Parks International              |                                      |                          |        |                   |        |      |        |        
|                                        | Revenues                             |                          |        | 2,500             |        |      |        | 2,689   |       
|                                        | Expenses                             |                          |        | (1,282            | )      |      |        | (1,325  | )     
|                                        |                                      |                          |        |                   |        |      |        |        
|Contribution from RPI                   |                                      |                          | 1,218  |                   |        |      | 1,364  |        
|                                        |                                      |                          |        |                   |        |      |        |        
|                                        | Other income                         |                          |        | 1,838             |        |      |        | 1,753   |       
|                                        | Corporate member services            |                          |        | (986              | )      |      |        | (1,028  | )     
|                                        | General and administrative expense   |                          |        | (7,574            | )      |      |        | (7,545  | )     
|                                        | Other                                |                          |        | 17                |        |      |        | 62      |       
|                                        | Interest income                      |                          |        | 2,073             |        |      |        | 1,662   |       
|                                        | Interest expense                     |                          |        | (13               | )      |      |        | (27     | )     
|                                        | Gain on asset sales                  |                          |        | 186               |        |      |        | 144     |       
|                                        |                                      |                          |        |                   |        |      |        |        
|Income before taxes                     |                                      | $                        | 11,445 |                   |        | $    | 9,228  |        
|                                        |                                      |                          |        |                   |        |      |        |        

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Income before taxes.For the nine months ended March 31, 2003, income before
taxes was $11.5 million, compared with $9.2 million for the same period last
year. Income before taxes increased in the current period due primarily to a
$3.0 million improvement in the contribution from sales. In addition, interest
income increased $411,000 during the current period. These increases were
partially offset by a $1.2 million decrease in the contribution from campground
operations. See the table on the previous page for the elements of income
before taxes for the 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 is 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.

Campground membership dues revenue was $30.0 million for both the nine months
ended
March 31, 2003 and 2002. Dues revenue remained constant because the effect of
the annual dues increase offset the net loss of campground members during the
year.

Other campground revenues were $12.7 million for the nine months ended March
31, 2003, compared with $13.3 million for the same period last year. The
related expenses were
$5.5 million for the nine months ended March 31, 2003, compared with $5.8
million for the same period last year. Campground revenues decreased due
primarily to decreases in revenues from cabin and trailer rentals, guest fees,
food services programs and sales of merchandise. These decreases were
partially offset by an increase in utility usage fees implemented to help
control utility costs at the campgrounds. These revenues declined in part
because of a decrease in usage of the campgrounds during the current period.
The decline in the related expenses was due primarily to decreases in the cost
of operating the Companys rental trailers and the cost of goods sold,
partially offset by an increase in utilities and maintenance expense.

Campground operating expenses were $26.8 million for the nine months ended
March 31, 2003, compared with $25.9 million for the same period last year. The
increase in the current period was due primarily to a $359,000 increase in
employee benefit costs resulting from rising healthcare costs. In addition,
the Company incurred higher utility, communication, depreciation, maintenance,
and property and liability insurance costs, which were partially offset by a
decrease in administrative expenses associated with operating the campgrounds.

The Company intends 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 such changes would 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 nine months ended March 31, 2003, the Company originated membership
contracts of $19.1 million, compared with $19.2 million for the same period
last year. In the current period, the Company originated a greater number of
new membership contracts at a higher average price, but fewer upgrade contacts,
compared with the prior period. The number of upgrade contract originations
declined because the Company discontinued a test it conducted in fiscal

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2002 that involved selling upgrades in the Eastern United States in addition to
its current sales efforts in the Western United States. For the nine months
ended March 31, 2003, the Company originated approximately 2,700 new membership
contracts at an average sales price of $3,536, compared with approximately
2,600 new membership contracts at an average sales price of $3,136 in the prior
period, resulting in a $1.4 million increase in new membership contracts
originated. However, in the current period, the Company originated
approximately 3,000 contracts in the upgrade program, compared with 3,200 in
the same period last year, resulting in an $850,000 decrease in upgrade
contracts originated. In addition, during the nine months ended March 31,
2002, the Company offered existing members access to its other campground
systems for a fee, which contributed $457,000 to contracts originated in the
prior period. This program was discontinued in fiscal 2002. During the nine
months ended March 31, 2003, the Company also originated approximately 790
contracts through sales agreements with other companies, compared with
approximately 820 contracts during the same period last year.

The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold. For the nine months ended March 31,
2003 and 2002, the Company recognized campground membership sales revenues of
$16.3 million and $11.9 million, respectively. Membership sales revenue
includes revenues of $14.5 million and $9.5 million, respectively, which were
deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $17.3 million and $16.8 million, respectively, which will
be recognized in future periods.

The net change in deferred sales revenue was $2.8 million for the nine months
ended March 31, 2003, compared with $7.3 million for the same period last year.
In fiscal 2001, the Company experienced a large increase in membership
contracts originated, due primarily to the success of its upgrade programs. In
fiscal 2002, contracts originations increased over fiscal 2001, but to a lesser
degree. In fiscal 2003, contracts originations declined slightly from fiscal
2002. As a result, revenue recognized from prior periods is beginning to
decrease the impact of the deferral of revenue in the current period. As long
as the rate of growth of membership contract originations is slower in the
current period than in prior periods, or declines, the impact of the deferral
on the Companys sales revenue will be lower in the current period as the
recognition of revenues deferred in prior periods begins to outweigh revenue
deferred in the current period.

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 nine months ended March 31, 2003 and 2002, the
Company recognized selling expenses of $8.3 million and $6.7 million,
respectively. These amounts include expenses of $4.4 million and $2.9 million,
respectively, which were deferred in prior periods. Moreover, for these same
periods, the Company deferred expenses of $5.1 million and $5.3 million,
respectively, which will be recognized in future periods.

For the nine months ended March 31, 2003, the Companys contribution from sales
was $3.9 million, compared with $903,000 for the same period last year. 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

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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.

The Companys selling and marketing efforts 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 the
current levels or acquire members through the purchase of other membership
campground operations, the membership base may continue to decline, which could
decrease the Companys revenues, if not offset by dues increases or expense
reductions.

Trails Management.Trails Management, a wholly owned subsidiary of the
Company, currently manages 194 public campgrounds for the U.S. Forest Service
and other entities. For the nine months ended March 31, 2003, these operations
produced a net contribution of $300,000 on revenues of $3.3 million, compared
with a net contribution of $285,000 on revenues of
$3.4 million for the same period last year. While Trails Management receives
most of its revenues and incurs most of its expenses during the first fiscal
quarter, it continues to incur certain fixed costs during the remainder of the
fiscal year, which will reduce its contribution for the full fiscal year.

Resort Parks International.RPI charges its members a fee for a membership
that entitles them to use any of the campgrounds participating in RPIs
reciprocal use system, subject to certain limitations. For the nine months
ended March 31, 2003, RPIs operations produced a net contribution of $1.2
million on revenues of $2.5 million, compared with a net contribution of $1.4
million on revenues of $2.7 million for the same period last year. The
decrease in contribution in the current period was due primarily to a decrease
in revenues from new memberships, which was only partially offset by a decrease
in expenses.

Interest Income and Expense.Interest income increased to $2.1 million for the
nine months ended March 31, 2003, from $1.7 million for the same period last
year. The increase in interest income in the current period was due primarily
to an increase in interest earned on the Companys growing portfolio of
contracts receivable. The Companys portfolio of contracts receivable
increased over the past year as a result of an increase in financed sales.
Approximately 37% of membership sales were financed in the current period. The
Company expects the interest earned on its portfolio of contracts receivable
and invested cash to increase during the balance of fiscal 2003, compared with
historical levels, as the portfolio continues to grow and the Company
accumulates cash.

Interest expense decreased to $13,000 for the nine months ended March 31, 2003,
from $27,000 for the same period last year.

Gain on Asset Sales.The Company recognized a gain of $186,000 on asset sales
for the nine months ended March 31, 2003, compared with $144,000 for the same
period last year. The decrease in the current period was due to the timing of
asset sales. Over the next several years, the Company intends to dispose of
the remaining assets it holds for sale.

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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, and fees received from third parties for billing and collection
services. Other income was $1.8 million for both the nine months ended March
31, 2003 and 2002.

Other Expenses.Administrative expenses, including corporate member service
costs and general and administrative expenses, were $8.6 million for both the
nine months ended
March 31, 2003 and 2002. During the nine months ended March 31, 2003, the
Company experienced increases in maintenance costs and depreciation on the
Companys new computer and communication systems, and recorded compensation
expense of $224,000 on the purchase of 29,200 shares of its common stock from a
director of the Company. These expenses were offset by the elimination of a
$180,000 reserve relating to contracts receivable no longer outstanding, a
reduction in accrued bonuses, and a decrease in rent expense and third party
legal fees.

Income Taxes.The Companys current provision for income taxes was $4.1
million for the nine months ended March 31, 2003, compared with $2.2 million
for the same period last year. The current provision for the nine months ended
March 31, 2003, includes amounts for regular federal corporation income tax as
well as state income taxes in the various states where the Company conducts its
business. For the nine months ended March 31, 2002, the Company did not have
federal income taxes payable on a consolidated basis, with the exception of
federal alternative minimum taxes, due to its net operating tax loss
carryforwards. The Company fully utilized its tax loss carryforwards in fiscal
2002. As a result, the Company anticipates that its current provision for
income taxes will be higher for the balance of fiscal 2003 than it was in prior
periods.

The Company recorded a deferred tax provision of $269,000 for the nine months
ended
March 31, 2003, compared with $1.0 million for the same period last year. The
Company will continue to adjust its deferred taxes in future periods, and
believes that the realization of its net deferred tax benefit is more likely
than not. The deferred tax provision will not affect current or future income
tax payments.

Three Months Ended March 31, 2003 and 2002

Net Income.The Company reported net income of $2.9 million or $.38 per
diluted share on revenues of $21.3 million for the three months ended March 31,
2003. This compares with net income of $2.2 million or $.25 per diluted share
on revenues of $19.7 million for the same period last year.

The Companys revenues grew in the current quarter due primarily to increased
membership sales revenue. In the current quarter, membership sales revenue was
higher because the net change in deferred revenue was a positive $565,000,
compared with a negative $1.9 million in the same quarter last year. Expenses
were also higher in the current quarter due primarily to increased costs to
operate the campgrounds, primarily as a result of higher costs for utilities
and insurance. General and administrative costs were lower in the quarter due
primarily to reductions in rent, employee benefit costs and legal expenses.

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The table set forth below shows separately the results of the campground
operations, membership sales, Trails Management, and RPI, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the three months ended March 31,
2003 and 2002.

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

|                                        |                                      |                          |       |                    |       |      |       |        |       | 
|--------------------------------------- | ------------------------------------ | ------------------------ | ----- | ------------------ | ----- | ---- | ----- | ------ | ----- | 
|                                        |                                      |                          |       | Three Months Ended
|                                        |                                      |                          |       | March 31,         
|                                        |                                      |                          |       |                   
|                                        |                                      |                          |       | 2003               |       | 2002
|                                        |                                      |                          |       |                    |       |     
|Campground Operations                   |                                      |                          |       |                    |       |      |       |       
|                                        | Membership dues                      |                          | $     | 9,920              |       |      | $     | 9,921  |      
|                                        | Campground revenues                  |                          |       | 3,083              |       |      |       | 3,264  |      
|                                        | Cost of campground revenues          |                          |       | (1,359             | )     |      |       | (1,455 | )    
|                                        | Operating expenses                   |                          |       | (8,079             | )     |      |       | (7,797 | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|Contribution from campground operations |                                      |                          | 3,565 |                    |       |      | 3,933 |       
|                                        |                                      |                          |       |                    |       |      |       |       
|Membership Sales                        |                                      |                          |       |                    |       |      |       |       
|                                        | Membership contracts originated      |                          |       | 5,121              |       |      |       | 6,297  |      
|                                        | Change in deferred revenue           |                          |       | 565                |       |      |       | (1,952 | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|                                        |                                      | Membership sales revenue |       |                    | 5,686 |      |       |        | 4,345 | 
|                                        | Membership origination costs         |                          |       | (2,591             | )     |      |       | (3,028 | )    
|                                        | Change in deferred origination costs |                          |       | (209               | )     |      |       | 692    |      
|                                        | Marketing expenses                   |                          |       | (1,025             | )     |      |       | (1,167 | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|Contribution from sales                 |                                      |                          | 1,861 |                    |       |      | 842   |       
|                                        |                                      |                          |       |                    |       |      |       |       
|Trails Management                       |                                      |                          |       |                    |       |      |       |       
|                                        | Revenues                             |                          |       | 35                 |       |      |       | 1      |      
|                                        | Expenses                             |                          |       | (95                | )     |      |       | (149   | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|Loss from Trails Management             |                                      |                          | (60   | )                  |       |      | (148  | )     
|                                        |                                      |                          |       |                    |       |      |       |       
|Resort Parks International              |                                      |                          |       |                    |       |      |       |       
|                                        | Revenues                             |                          |       | 953                |       |      |       | 1,003  |      
|                                        | Expenses                             |                          |       | (481               | )     |      |       | (426   | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|Contribution from RPI                   |                                      |                          | 472   |                    |       |      | 577   |       
|                                        |                                      |                          |       |                    |       |      |       |       
|                                        | Other income                         |                          |       | 624                |       |      |       | 560    |      
|                                        | Corporate member services            |                          |       | (304               | )     |      |       | (294   | )    
|                                        | General and administrative expense   |                          |       | (2,357             | )     |      |       | (2,827 | )    
|                                        | Other                                |                          |       | (2                 | )     |      |       | 18     |      
|                                        | Interest income                      |                          |       | 805                |       |      |       | 632    |      
|                                        | Interest expense                     |                          |       | (7                 | )     |      |       | (4     | )    
|                                        | Gain (loss) on asset sales           |                          |       | 184                |       |      |       | (11    | )    
|                                        |                                      |                          |       |                    |       |      |       |       
|Income before taxes                     |                                      | $                        | 4,781 |                    |       | $    | 3,278 |       
|                                        |                                      |                          |       |                    |       |      |       |       

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Income before taxes.For the three months ended March 31, 2003, income
before taxes was $4.8 million, compared with $3.3 million for the same period
last year. Income before taxes increased in the current period due primarily
to a $1.0 million improvement in the contribution from sales and a $470,000
decrease in general and administrative expenses, partially offset by decreases
in the contributions from campground operations, Trails Management, and RPI.
In addition, interest income and asset sales increased by $173,000 and
$195,000, respectively. See the table on the previous page for the elements of
income before taxes for the periods presented.

Campground Operations.Campground membership dues revenue was $9.9 million for
both the three months ended March 31, 2003 and 2002. Dues revenue remained
constant because the effect of the annual dues increase offset the loss of
campground members during the year.

Other campground revenues were $3.1 million for the three months ended March
31, 2003, compared with $3.3 million for the same period last year. The
related expenses were
$1.4 million for the three months ended March 31, 2003, compared with $1.5
million for the same period last year. Other campground revenues decreased
primarily due to decreases in revenues from cabin and trailer rentals and sales
of merchandise, partially offset by an increase in utility usage fees. These
revenues may have declined in part because of a decrease in usage of the
campgrounds during the current period. The decline in the related expenses was
due primarily to decreases in the cost of operating the Companys rental
trailers and the cost of goods sold, partially offset by an increase in
utilities and maintenance expense.

Campground operating expenses were $8.1 million for the three months ended
March 31, 2003, compared with $7.8 million for the same period last year. The
increase in campground operating expenses in the current period was due
primarily to increases in property and liability insurance costs, utilities,
and employee benefit costs resulting from rising healthcare costs.

For the three months ended March 31, 2003, the Company originated membership
contracts of $5.1 million, compared with $6.3 million in the same period last
year. In the current period, the Company originated a greater number of new
membership contracts at a higher average price, but fewer upgrade contacts,
compared with the prior period. The number of upgrade contract originations
declined because the Company discontinued a test it conducted in fiscal 2002
that involved selling upgrades in the Eastern United States in addition to its
current sales efforts in the Western United States. For the three months ended
March 31, 2003, the Company originated approximately 680 new membership
contracts at an average sales price of $3,134, compared with approximately 600
new membership contracts at an average sales price of $2,834, resulting in a
$430,000 increase in new membership contracts originated. However, in the
current period, the Company originated approximately 840 upgrade contracts,
compared with approximately 1,280 upgrade contracts in the same period last
year, resulting in a $1.3 million decrease in upgrade contracts originated.
During the three months ended March 31, 2003, the Company also originated
approximately 270 contracts through sales agreements with other companies,
compared with approximately 350 contracts during the same period last year.

For the three months ended March 31, 2003 and 2002, the Company recognized
campground membership sales revenues of $5.7 million and $4.3 million,
respectively. Membership sales revenue includes revenues of $5.2 million and
$3.5 million, respectively, that were deferred in prior periods. Moreover,
during these same periods, the Company deferred revenues of
$4.6 million and $5.5 million, respectively, which will be recognized in future
periods.

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For the three months ended March 31, 2003 and 2002, the Company recognized
selling expenses of $2.8 million and $2.3 million, respectively. These amounts
include expenses of $1.6 million and $1.1 million, respectively, that were
deferred in prior periods. Moreover, for these same periods, the Company
deferred expenses of $1.4 million and $1.8 million, respectively, which will be
recognized in future periods.

For the three months ended March 31, 2003, the Companys contribution from
sales was $1.9 million, compared with $842,000 for the same period last year.
The contribution from sales increased because the net change in deferred
revenue was a positive $565,000 in the current period, compared with a negative
$1.9 million in the same period last year, reflecting the decline in membership
contract originations this year compared with prior years.

Trails Management.For the three months ended March 31, 2003, the operations
of Trails Management produced a loss of $60,000, compared with a loss of
$148,000 for the same period last year. The campground management operations
generally incur a loss during the third fiscal quarter due to fixed expenses
and the seasonal closure of the campgrounds.

Resort Parks International.For the three months ended March 31, 2003, RPIs
operations produced a net contribution of $472,000 on revenues of $953,000,
compared with a net contribution of $577,000 on revenues of $1.0 million for
the same period last year. The decrease in contribution during the current
period was due primarily to a decrease in revenues from new membership sales
and an increase in expenses.

Interest Income and Expense.Interest income increased to $805,000 for the
three months ended March 31, 2003, from $632,000 for the same period last year.
The increase in the current period was due primarily to an increase in the
interest earned on the Companys growing portfolio of contracts receivable.

Interest expense was $7,000 for the three months ended March 31, 2003, compared
with $4,000 for the same period last year.

Gain on Asset Sales.For the three months ended March 31, 2003, the Company
recognized a gain of $184,000 on the asset sales, compared with a loss of
$11,000 during the same period last year. The increase in the current period
was due to the timing of asset sales.

Other Income.Other income was $624,000 for the three months ended March 31,
2003, compared with $560,000 for the same period last year. The increase in
the current period was due primarily to an increase in transfer fees and other
miscellaneous income, partially offset by decreases in the collection of
written-off contracts and delinquent dues.

Other Expenses.Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.7 million for the three
months ended
March 31, 2003, compared with $3.1 million for the same period last year. The
decrease in the current period was due primarily to reductions in rent,
employee benefit costs and legal expenses, partially offset by increases in
maintenance expense and depreciation on the Companys computer and
communication systems.

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Income Taxes.The Companys current provision for income taxes was $1.3
million for the three months ended March 31, 2003, compared with $623,000 for
the same period last year. The Company recorded a deferred tax provision of
$533,000 for the three months ended
March 31, 2003, compared with $490,000 for the same period last year.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Companys
financial instruments as of March 31, 2003 is not significant. The information
required by Item 305 of Regulation S-K is contained in
Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations under
the heading Market Risk and Interest Rate Sensitivity.




Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure controls and procedures
are effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in
the Companys periodic SEC filings. The Company has not made any significant
changes in its disclosure controls and procedures or in other factors that
could significantly affect its disclosure controls and procedures subsequent to
the date of the evaluation described above.

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Part II. OTHER INFORMATION




Item 6.     Exhibits and Reports on Form 8-K

Exhibits

The following documents are filed as exhibits to this report.

|        |  |                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|2.1     |  | Agreement and Plan of Merger, dated as of April 29, 2003,
among Thousand Trails, Inc., KTTI Holding Company, Inc.,
and KTTI Acquisition Company, Inc. (schedules and exhibits
omitted) (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed by the Company
with the SEC on May 1, 2003, File No. 1-14645).
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|10.1    |  | Second Amendment dated April 29, 2003, to the Loan
Agreement between the Company and Union Bank of California,
N.A.                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|10.2    |  | Letter from William J. Shaw to the Company confirming the
settlement of outstanding stock options for cash in
connection with a cash merger (and schedule of
substantially identical letters).                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|11.1    |  | Statement re: Computation of Per Share Earnings.                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by the Companys Chief Executive Officer.(1)                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|99.2    |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by the Companys Chief Financial Officer.(1)                                                                                                                                                                               

(1)  These certifications pursuant to 18 U.S.C. Section 1350 by the Companys
Chief Executive Officer, furnished as Exhibit 99.1, and by the Companys Chief
Financial Officer, furnished as Exhibit 99.2, to this Quarterly Report on Form
10-Q, will not be deemed to be filed with the SEC or incorporated by reference
into any filing by the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such certifications by reference.

Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during the quarter
ended
March 31, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.

|                   |  |                       |  |                                                      
|------------------ |  | --------------------- |  | -----------------------------------------------------
|                   |  | Thousand Trails, Inc.
|                   |  |                       |  |                                                      
|Date: May 14, 2003 |  | By:                   |  | /s/ William J. Shaw                                  
|                   |  |                       |  |                                                      
|                   |  |                       |  | William J. Shaw
President and Chief Executive Officer
|                   |  |                       |  |                                                      
|Date: May 14, 2003 |  | By:                   |  | /s/ Bryan D. Reed                                    
|                   |  |                       |  |                                                      
|                   |  |                       |  | Bryan D. Reed
Chief Financial and Accounting Officer 

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CERTIFICATIONS

I, William J. Shaw, certify that:



|                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     
I have reviewed this quarterly report on Form 10-Q of Thousand Trails,
Inc.                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                     
|2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
|                                                                                                                                                                                                                                                                                                                                     
|3.     
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.                  
|                                                                                                                                                                                                                                                                                                                                     
|4.     
The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:                                                                                                      
|                                                                                                                                                                                                                                                                                                                                     
|a)     
Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;                              
|                                                                                                                                                                                                                                                                                                                                     
|b)     
Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                     
|c)     
Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                     
|5.     
The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):                                                                            
|                                                                                                                                                                                                                                                                                                                                     
|a)     
All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                               
|                                                                                                                                                                                                                                                                                                                                     
|b)     
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                     
|6.     
The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could                                                                                                                                    

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|significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |     |  |                                          
|------------------ |  | --- |  | -----------------------------------------
|Date: May 14, 2003 |  | By: |  | /s/ William J. Shaw                      
|                   |  |     |  |                                          
|                   |  |     |  | William J. Shaw
  Chief Executive Officer

I, Bryan D. Reed, certify that:

|                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.     
I have reviewed this quarterly report on Form 10-Q of Thousand Trails,
Inc.                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                      
|2.     
Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
|                                                                                                                                                                                                                                                                                                                                      
|3.     
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.                   
|                                                                                                                                                                                                                                                                                                                                      
|4.     
The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                      
|                                                                                                                                                                                                                                                                                                                                      
|a)     
Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;                               
|                                                                                                                                                                                                                                                                                                                                      
|b)     
Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                      
|c)     
Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                      
|5.     
The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):                                                                             
|                                                                                                                                                                                                                                                                                                                                      
|a)     
All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                
|                                                                                                                                                                                                                                                                                                                                      
|b)     
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                                                        

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|6.     
The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |     |  |                                                     
|------------------ |  | --- |  | ----------------------------------------------------
|Date: May 14, 2003 |  | By: |  | /s/ Bryan D. Reed                                   
|                   |  |     |  |                                                     
|                   |  |     |  | Bryan D. Reed
Chief Financial and Accounting Officer

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Index to the Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                  
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|2.1     |  | Agreement and Plan of Merger, dated as of April 29, 2003,
among Thousand Trails, Inc., KTTI Holding Company, Inc.,
and KTTI Acquisition Company, Inc. (schedules and exhibits
omitted) (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed by the Company
with the SEC on May 1, 2003, File No. 1-14645).
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|10.1    |  | Second Amendment dated April 29, 2003, to the Loan
Agreement between the Company and Union Bank of California,
N.A.                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|10.2    |  | Letter from William J. Shaw to the Company confirming the
settlement of outstanding stock options for cash in
connection with a cash merger (and schedule of
substantially identical letters).                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|11.1    |  | Statement re: Computation of Per Share Earnings.                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by the Companys Chief Executive Officer.(1)                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                  
|99.2    |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by the Companys Chief Financial Officer.(1)                                                                                                                                                                               

(1)  These certifications pursuant to 18 U.S.C. Section 1350 by the Companys
Chief Executive Officer, furnished as Exhibit 99.1, and by the Companys Chief
Financial Officer, furnished as Exhibit 99.2, to this Quarterly Report on Form
10-Q, will not be deemed to be filed with the SEC or incorporated by reference
into any filing by the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such certifications by reference.

Page 33