##### 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 December 31, 2001

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.

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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 75-2138671                       
|                                                               |  |                                  
|(State or Other Jurisdiction
of Incorporation or Organization) |  | (IRS Employer Identification No.)
|                                                              
|2711 LBJ Freeway, Suite 200, Dallas, Texas                     |  | 75234                            
|                                                               |  |                                  
|(Address of Principal Executive Office)                        |  | (Zip Code)                       
|                                                              
|Registrants Telephone Number, Including Area Code:            |  | (972) 243-2228                   
|                                                               |  |                                  

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 [   ]

The number of shares of Common Stock, par value $.01, issued and outstanding as
of February 12, 2002, was 8,062,492.





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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                           
|Part II. OTHER INFORMATION                   
|                                              | Item 4. Submission of Matters to a Vote of Security-Holders                                  
|                                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|EX-11.1 Statement Re: Computation of Earnings



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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 December 31, 2001
and June 30, 2000                                    |  | 3   
|        |  |                       |  | Consolidated Statements of Operations for the six months ended
December 31, 2001 and December 31, 2000   |  | 4   
|        |  |                       |  | Consolidated Statements of Operations for the three months ended
December 31, 2001 and December 31, 2000 |  | 5   
|        |  |                       |  | Consolidated Statement of Shareholders Equity for the six months
ended December 31, 2001                |  | 6   
|        |  |                       |  | Consolidated Statements of Cash Flows for the six months ended
December 31, 2001 and December 31, 2000   |  | 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                                               |  | 28  
|PART II |  | OTHER INFORMATION     |  |                                                                                                         
|        |  | Item 4.               |  | Submission of
Matters to a Vote of Security-Holders                                                      |  | 29  
|        |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                         |  | 29  

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |        |          |  |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------ | ------ | ------------ | ------ | ------ | -------- |  |  | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        | December 31, |        |        | June 30, | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        | 2001         |        |        | 2001     | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |        |          | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        | (Unaudited)  |        |        |          |  | 
|                                           |                                                                                                                                                                                                            |                            |                                      | Assets |        |              |        |        |          |  |  | 
|Current Assets                             |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |       
|                                           | Cash and cash equivalents                                                                                                                                                                                  |                            | $                                    | 9,426  |        |              | $      | 9,016  |         
|                                           | Current portion of receivables, net of allowance of $1.1
million and $1.0 million, respectively                                                                                                            |                            |                                      | 2,466  |        |              |        | 2,096  |         
|                                           | Current portion of deferred membership selling expenses                                                                                                                                                    |                            |                                      | 3,855  |        |              |        | 2,886  |         
|                                           | Current portion of net deferred tax assets                                                                                                                                                                 |                            |                                      | 6,134  |        |              |        | 6,885  |         
|                                           | Inventories                                                                                                                                                                                                |                            |                                      | 1,011  |        |              |        | 1,221  |         
|                                           | Other current assets                                                                                                                                                                                       |                            |                                      | 647    |        |              |        | 765    |         
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|                                           |                                                                                                                                                                                                            | Total Current Assets       |                                      |        | 23,539 |              |        |        | 22,869   | 
|                                           | Restricted cash                                                                                                                                                                                            |                            |                                      | 646    |        |              |        | 646    |         
|                                           | Receivables, net of allowances and discount of $1.4
million and $1.3 million, respectively                                                                                                                 |                            |                                      | 5,698  |        |              |        | 5,492  |         
|                                           | Campground land                                                                                                                                                                                            |                            |                                      | 20,696 |        |              |        | 20,696 |         
|                                           | Buildings and equipment, net of accumulated depreciation of
$23.2 million and $21.8 million, respectively                                                                                                  |                            |                                      | 22,384 |        |              |        | 21,256 |         
|                                           | Assets held for sale                                                                                                                                                                                       |                            |                                      | 5,530  |        |              |        | 5,600  |         
|                                           | Deferred membership selling expenses                                                                                                                                                                       |                            |                                      | 6,766  |        |              |        | 6,030  |         
|                                           | Net deferred tax assets                                                                                                                                                                                    |                            |                                      | 1,205  |        |              |        | 995    |         
|                                           | Other assets                                                                                                                                                                                               |                            |                                      | 365    |        |              |        | 365    |         
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|Total Assets                               |                                                                                                                                                                                                            | $                          | 86,829                               |        |        | $            | 83,949 |       
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|                                           |                                                                                                                                                                                                            |                            | Liabilities and Shareholders Equity |        |        |              |        |        |          |  | 
|Current Liabilities                        |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |       
|                                           | Accounts payable                                                                                                                                                                                           |                            | $                                    | 1,636  |        |              | $      | 2,775  |         
|                                           | Other accrued liabilities                                                                                                                                                                                  |                            |                                      | 6,679  |        |              |        | 8,021  |         
|                                           | Accrued construction cost                                                                                                                                                                                  |                            |                                      | 1,888  |        |              |        | 1,888  |         
|                                           | Current portion of deferred revenue                                                                                                                                                                        |                            |                                      | 27,404 |        |              |        | 27,668 |         
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|                                           |                                                                                                                                                                                                            | Total Current Liabilities  |                                      |        | 37,607 |              |        |        | 40,352   | 
|                                           | Deferred revenue                                                                                                                                                                                           |                            |                                      | 22,604 |        |              |        | 20,158 |         
|                                           | Other liabilities                                                                                                                                                                                          |                            |                                      | 1,012  |        |              |        | 1,004  |         
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|                                           |                                                                                                                                                                                                            | Total Liabilities          |                                      |        | 61,223 |              |        |        | 61,514   | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|Commitments and Contingencies              |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |       
|Shareholders Equity                       |                                                                                                                                                                                                            |                            |                                      |        |        |              |        |       
|                                           | Preferred stock, $.01 par value, 1,500,000 shares
authorized, none issued or outstanding                                                                                                                   |                            |                                      |        |        |              |        |        |         
|                                           | Common stock, $.01 par value, 15,000,000 shares
authorized, 8,059,590 and 8,167,123 shares issued and
outstanding, respectively, after deducting 327,505 and
206,705 shares held in Treasury, respectively |                            |                                      | 81     |        |              |        | 82     |         
|                                           | Additional paid-in capital                                                                                                                                                                                 |                            |                                      | 20,441 |        |              |        | 21,132 |         
|                                           | Retained earnings                                                                                                                                                                                          |                            |                                      | 5,226  |        |              |        | 1,362  |         
|                                           | Accumulated other comprehensive loss                                                                                                                                                                       |                            |                                      | (142   | )      |              |        | (141   | )       
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|                                           |                                                                                                                                                                                                            | Total Shareholders Equity |                                      |        | 25,606 |              |        |        | 22,435   | 
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             
|Total Liabilities and Shareholders Equity |                                                                                                                                                                                                            | $                          | 86,829                               |        |        | $            | 83,949 |       
|                                           |                                                                                                                                                                                                            |                            |                                      |        |        |             

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 six months ended December 31, |       
|                                               |                                      |                          |                |        |                                       |       
|                                               |                                      |                          |                |        | 2001                                  |        |        | 2000   |      
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Revenues                                       |                                      |                          |                |        |                                       |        |        |       
|                                               | Membership contracts originated      |                          | $              | 12,937 |                                       |        | $      | 9,583  |      
|                                               | Change in deferred revenue           |                          |                | (5,374 | )                                     |        |        | (5,189 | )    
|                                               |                                      |                          |                |        |                                       |       
|                                               |                                      | Membership sales revenue |                |        | 7,563                                 |        |        |        | 4,394 |       
|                                               | Membership dues                      |                          |                | 20,073 |                                       |        |        | 20,136 |      
|                                               | Other campground revenue             |                          |                | 10,086 |                                       |        |        | 9,727  |      
|                                               | Trails Management revenue            |                          |                | 3,416  |                                       |        |        | 1,989  |      
|                                               | RPI membership fees                  |                          |                | 1,686  |                                       |        |        | 1,674  |      
|                                               | Interest income                      |                          |                | 1,030  |                                       |        |        | 844    |      
|                                               | Gain on asset sales                  |                          |                | 155    |                                       |        |        | 154    |      
|                                               | Other income                         |                          |                | 1,237  |                                       |        |        | 1,476  |      
|                                               |                                      |                          |                |        |                                       |       
|                                               |                                      |                          | Total Revenues |        |                                       | 45,246 |        |        |       | 40,394 | 
|                                               |                                      |                          |                |        |                                       |       
|Expenses                                       |                                      |                          |                |        |                                       |        |        |       
|                                               | Campground operating expenses        |                          |                | 22,459 |                                       |        |        | 22,229 |      
|                                               | Membership origination costs         |                          |                | 6,123  |                                       |        |        | 4,629  |      
|                                               | Change in deferred origination costs |                          |                | (1,705 | )                                     |        |        | (1,691 | )    
|                                               | Marketing expenses                   |                          |                | 3,062  |                                       |        |        | 2,648  |      
|                                               | Trails Management expenses           |                          |                | 2,983  |                                       |        |        | 1,791  |      
|                                               | RPI membership expenses              |                          |                | 899    |                                       |        |        | 891    |      
|                                               | Corporate member services            |                          |                | 734    |                                       |        |        | 676    |      
|                                               | Interest expense and amortization    |                          |                | 23     |                                       |        |        | 670    |      
|                                               | General and administrative expenses  |                          |                | 4,718  |                                       |        |        | 4,587  |      
|                                               |                                      |                          |                |        |                                       |       
|                                               |                                      |                          | Total Expenses |        |                                       | 39,296 |        |        |       | 36,430 | 
|                                               |                                      |                          |                |        |                                       |       
|Income Before Income Taxes                     |                                      |                          | 5,950          |        |                                       |        | 3,964  |       
|Income Taxes                                  |                                      |                          |                |        |                                       |        |        |       
|                                               | Income tax provision  current       |                          |                | (1,545 | )                                     |        |        | (470   | )    
|                                               | Income tax provision  deferred      |                          |                | (541   | )                                     |        |        | (1,115 | )    
|                                               |                                      |                          |                |        |                                       |       
|                                               |                                      |                          | (2,086         | )      |                                       |        | (1,585 | )     
|Net Income                                     |                                      | $                        | 3,864          |        |                                       | $      | 2,379  |       
|                                               |                                      |                          |                |        |                                       |       
|Net Income per Share  Basic                   |                                      | $                        | .47            |        |                                       | $      | .29    |       
|                                               |                                      |                          |                |        |                                       |       
|Net Income per Share  Diluted                 |                                      | $                        | .45            |        |                                       | $      | .28    |       
|                                               |                                      |                          |                |        |                                       |       
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                       |        |        |       
|                                               | Basic                                |                          |                | 8,163  |                                       |        |        | 8,047  |      
|                                               |                                      |                          |                |        |                                       |       
|                                               | Diluted                              |                          |                | 8,608  |                                       |        |        | 8,578  |      
|                                               |                                      |                          |                |        |                                       |       

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 December 31, |       
|                                               |                                      |                          |                |        |                                         |       
|                                               |                                      |                          |                |        | 2001                                    |        |       | 2000   |      
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Revenues                                       |                                      |                          |                |        |                                         |        |       |       
|                                               | Membership contracts originated      |                          | $              | 5,669  |                                         |        | $     | 3,425  |      
|                                               | Change in deferred revenue           |                          |                | (1,792 | )                                       |        |       | (1,371 | )    
|                                               |                                      |                          |                |        |                                         |       
|                                               |                                      | Membership sales revenue |                |        | 3,877                                   |        |       |        | 2,054 |       
|                                               | Membership dues                      |                          |                | 10,002 |                                         |        |       | 10,050 |      
|                                               | Other campground revenue             |                          |                | 3,286  |                                         |        |       | 3,103  |      
|                                               | Trails Management revenue            |                          |                | 113    |                                         |        |       | 59     |      
|                                               | RPI membership fees                  |                          |                | 798    |                                         |        |       | 762    |      
|                                               | Interest income                      |                          |                | 506    |                                         |        |       | 426    |      
|                                               | Gain on asset sales                  |                          |                | 173    |                                         |        |       | 4      |      
|                                               | Other income                         |                          |                | 556    |                                         |        |       | 626    |      
|                                               |                                      |                          |                |        |                                         |       
|                                               |                                      |                          | Total Revenues |        |                                         | 19,311 |       |        |       | 17,084 | 
|                                               |                                      |                          |                |        |                                         |       
|Expenses                                       |                                      |                          |                |        |                                         |        |       |       
|                                               | Campground operating expenses        |                          |                | 9,449  |                                         |        |       | 9,429  |      
|                                               | Membership origination costs         |                          |                | 2,954  |                                         |        |       | 1,775  |      
|                                               | Change in deferred origination costs |                          |                | (627   | )                                       |        |       | (468   | )    
|                                               | Marketing expenses                   |                          |                | 1,340  |                                         |        |       | 1,154  |      
|                                               | Trails Management expenses           |                          |                | 281    |                                         |        |       | 294    |      
|                                               | RPI membership expenses              |                          |                | 504    |                                         |        |       | 455    |      
|                                               | Corporate member services            |                          |                | 432    |                                         |        |       | 315    |      
|                                               | Interest expense and amortization    |                          |                | 18     |                                         |        |       | 334    |      
|                                               | General and administrative expenses  |                          |                | 2,325  |                                         |        |       | 2,294  |      
|                                               |                                      |                          |                |        |                                         |       
|                                               |                                      |                          | Total Expenses |        |                                         | 16,676 |       |        |       | 15,582 | 
|                                               |                                      |                          |                |        |                                         |       
|Income Before Income Taxes                     |                                      |                          | 2,635          |        |                                         |        | 1,502 |       
|Income Taxes                                  |                                      |                          |                |        |                                         |        |       |       
|                                               | Income tax provision  current       |                          |                | (786   | )                                       |        |       | (296   | )    
|                                               | Income tax provision  deferred      |                          |                | (138   | )                                       |        |       | (297   | )    
|                                               |                                      |                          |                |        |                                         |       
|                                               |                                      |                          | (924           | )      |                                         |        | (593  | )     
|Net Income                                     |                                      | $                        | 1,711          |        |                                         | $      | 909   |       
|                                               |                                      |                          |                |        |                                         |       
|Net Income per Share  Basic                   |                                      | $                        | .21            |        |                                         | $      | .11   |       
|                                               |                                      |                          |                |        |                                         |       
|Net Income per Share  Diluted                 |                                      | $                        | .20            |        |                                         | $      | .11   |       
|                                               |                                      |                          |                |        |                                         |       
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                         |        |       |       
|                                               | Basic                                |                          |                | 8,155  |                                         |        |       | 8,084  |      
|                                               |                                      |                          |                |        |                                         |       
|                                               | Diluted                              |                          |                | 8,597  |                                         |        |       | 8,585  |      
|                                               |                                      |                          |                |        |                                         |       

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 Six Months Ended December 31, 2001
(Dollars in thousands)
(Unaudited)

|                                                      |  |               |       |   |        |   |    |         |  |            |          |   |  |               |       |  |       |             |      |   |  |   |        |  
|----------------------------------------------------- |  | ------------- | ----- | - | ------ | - | -- | ------- |  | ---------- | -------- | - |  | ------------- | ----- |  | ----- | ----------- | ---- | - |  | - | ------ | -
|                                                      |  |               |       |   |        |   |    |         |  |            |          |   |  |               |       |  |       | Accumulated |      |   |  |   |       
|                                                      |  |               |       |   |        |   |    |         |  | Additional |          |   |  |               |       |  | Other |             |      |   |  |  
|                                                      |  | Comprehensive |       |   | Common |   |    | Paid in |  |            | Retained |   |  | Comprehensive |       |  |       |             |     
|                                                      |  | Income        |       |   | Stock  |   |    | Capital |  |            | Earnings |   |  | Loss          |       |  | Total |            
|                                                      |  |               |       |   |        |   |    |         |  |            |          |   |  |               |       |  |       |            
|Balance, June 30, 2001                                |  |               |      |   |        | $ | 82 |         |  | $          | 21,132   |   |  | $             | 1,362 |  |       | $           | (141 | ) |  | $ | 22,435 |  
|Issuance of common stock                              |  |               |      |   |        |   |   |         |  |            | 22       |   |  |               |      |  |       |             |     |   |  |   | 22     |  
|Purchase of treasury stock                            |  |               |      |   |        |   | (1 | )       |  |            | (713     | ) |  |               |      |  |       |             |     |   |  |   | (714   | )
|Net income for the six months
ended December 31, 2001 |  |               | 3,864 |   |        |   |   |         |  |            |         |   |  |               | 3,864 |  |       |             |     |   |  |   | 3,864  |  
|Other comprehensive loss                              |  |               | (1    | ) |        |   |   |         |  |            |         |   |  |               |      |  |       |             | (1   | ) |  |   | (1     | )
|                                                      |  |               |       |   |        |   |    |         |  |            |          |   |  |               |       |  |       |            
|Balance, December 31, 2001                            |  | $             | 3,863 |   |        | $ | 81 |         |  | $          | 20,441   |   |  | $             | 5,226 |  |       | $           | (142 | ) |  | $ | 25,606 |  
|                                                      |  |               |       |   |        |   |    |         |  |            |          |   |  |               |       |  |       |            

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 six months ended December 31, |        
|                                                 |                                                                |  |                                       |        
|                                                 |                                                                |  | 2001                                  |         |   | 2000 |       
|                                                 |                                                                |  |                                       |         |   |      |       
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                                |  |                                       |         |   |      |        |        
|                                                 | Collections of principal on receivables                        |  | $                                     | 2,664   |   |      | $      | 2,162   |  
|                                                 | Interest received                                              |  |                                       | 1,030   |   |      |        | 804     |  
|                                                 | Interest paid                                                  |  |                                       | (23     | ) |      |        | (670    | )
|                                                 | General and administrative and corporate member services costs |  |                                       | (6,283  | ) |      |        | (5,874  | )
|                                                 | Cash collected from operations, including deferred revenue     |  |                                       | 33,273  |   |      |        | 32,842  |  
|                                                 | Cash from sales of memberships                                 |  |                                       | 9,263   |   |      |        | 5,983   |  
|                                                 | Expenditures for property operations                           |  |                                       | (24,481 | ) |      |        | (23,779 | )
|                                                 | Expenditures for sales and marketing                           |  |                                       | (9,170  | ) |      |        | (6,934  | )
|                                                 | Expenditures for insurance premiums                            |  |                                       | (1,300  | ) |      |        | (1,648  | )
|                                                 | Payment of income taxes                                        |  |                                       | (1,495  | ) |      |        | (429    | )
|                                                 | Other, net                                                     |  |                                       |        |   |      |        | (457    | )
|                                                 |                                                                |  |                                       |         |   |     
|Net cash provided by operating activities        |                                                                |  | 3,478                                 |         |   |      | 2,000  |        
|                                                 |                                                                |  |                                       |         |   |     
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                                |  |                                       |         |   |      |        |        
|                                                 | Capital expenditures                                           |  |                                       | (2,722  | ) |      |        | (966    | )
|                                                 | Proceeds from asset sales                                      |  |                                       | 384     |   |      |        | 191     |  
|                                                 |                                                                |  |                                       |         |   |     
|Net cash used in investing activities            |                                                                |  | (2,338                                | )       |   |      | (775   | )      
|                                                 |                                                                |  |                                       |         |   |     
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                                |  |                                       |         |   |      |        |        
|                                                 | Net borrowings under Credit Agreement                          |  |                                       |        |   |      |        | (2,022  | )
|                                                 | Purchase of treasury stock                                     |  |                                       | (714    | ) |      |        | (11     | )
|                                                 | Payment of notes                                               |  |                                       | (38     | ) |      |        | (34     | )
|                                                 | Issuance of common stock                                       |  |                                       | 22      |   |      |        | 85      |  
|                                                 |                                                                |  |                                       |         |   |     
|Net cash used in financing activities            |                                                                |  | (730                                  | )       |   |      | (1,982 | )      
|                                                 |                                                                |  |                                       |         |   |     
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                |  | 410                                   |         |   |      | (757   | )      
|CASH AND CASH EQUIVALENTS                        |                                                                |  |                                       |         |   |      |        |        
|                                                 | Beginning of period                                            |  |                                       | 9,016   |   |      |        | 2,420   |  
|                                                 |                                                                |  |                                       |         |   |     
|                                                 | End of period                                                  |  | $                                     | 9,426   |   |      | $      | 1,663   |  
|                                                 |                                                                |  |                                       |         |   |     

continued 

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

|                                                                                   |                                                 |   |                                       |        |   |      |       |        |  
|---------------------------------------------------------------------------------- | ----------------------------------------------- | - | ------------------------------------- | ------ | - | ---- | ----- | ------ | -
|                                                                                   |                                                 |   | For the six months ended December 31, |       
|                                                                                   |                                                 |   |                                       |       
|                                                                                   |                                                 |   | 2001                                  |        |   | 2000 |      
|                                                                                   |                                                 |   |                                       |        |   |      |      
|Reconciliation of net income to net cash provided by
operating activities:         |                                                 |   |                                       |        |   |      |       |       
|Net Income                                                                         |                                                 | $ | 3,864                                 |        |   | $    | 2,379 |       
|                                                                                   |                                                 |   |                                       |        |   |     
|Adjustments to reconcile net income to net cash
provided by operating activities  |                                                 |   |                                       |        |   |      |       |       
|                                                                                   | Depreciation                                    |   |                                       | 1,435  |   |      |       | 1,360  |  
|                                                                                   | Bad debt provision                              |   |                                       | 504    |   |      |       | 473    |  
|                                                                                   | Change in deferred sales revenue                |   |                                       | 5,374  |   |      |       | 5,189  |  
|                                                                                   | Change in deferred membership origination costs |   |                                       | (1,705 | ) |      |       | (1,691 | )
|                                                                                   | Gain on asset sales                             |   |                                       | (155   | ) |      |       | (154   | )
|                                                                                   | Deferred income tax provision                   |   |                                       | 541    |   |      |       | 1,115  |  
|                                                                                   | Increase in restricted cash                     |   |                                       |       |   |      |       | (457   | )
|                                                                                   | Increase in receivables                         |   |                                       | (1,080 | ) |      |       | (1,590 | )
|                                                                                   | Decrease in other assets                        |   |                                       | 328    |   |      |       | 93     |  
|                                                                                   | Decrease in accounts payable                    |   |                                       | (1,139 | ) |      |       | (615   | )
|                                                                                   | Decrease in accrued interest                    |   |                                       |       |   |      |       | (15    | )
|                                                                                   | Decrease in deferred dues                       |   |                                       | (2,833 | ) |      |       | (2,610 | )
|                                                                                   | Decrease in other liabilities                   |   |                                       | (1,655 | ) |      |       | (1,475 | )
|                                                                                   | Other, net                                      |   |                                       | (1     | ) |      |       | (2     | )
|                                                                                   |                                                 |   |                                       |        |   |     
|Total adjustments                                                                  |                                                 |   | (386                                  | )      |   |      | (379  | )     
|                                                                                   |                                                 |   |                                       |        |   |     
|Net cash provided by operating activities                                          |                                                 | $ | 3,478                                 |        |   | $    | 2,000 |       
|                                                                                   |                                                 |   |                                       |        |   |     

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
December 31, 2001
(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 300 recreational
facilities and manages 241 public campgrounds for the U.S. Forest Service and
other entities. Operating revenues consist primarily of membership sales,
membership dues received from campground members, fee revenue from members of
the reciprocal use program, management fees from the campground management
operations, and guest fees and revenues received from the campground and other
operations.

The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: Coast
Financial Services, Inc., 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, 2001, filed
with the Securities and Exchange Commission (the SEC) on September 26, 2001.

All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the six and
three month periods ended December 31, 2001 and 2000, and in the consolidated
balance sheets as of June 30, 2001 and December 31, 2001.

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

The following table provides statements of comprehensive income for the six and
three months ended December 31, 2001 and 2000 (dollars in thousands):

|                                        |  |                          |       |   |                            |   |       |      |  |   |       |  |  |   |     |  
|--------------------------------------- |  | ------------------------ | ----- | - | -------------------------- | - | ----- | ---- |  | - | ----- |  |  | - | --- | -
|                                        |  | For the six months ended |       |   | For the three months ended |  
|                                        |  | December 31,             |       |   | December 31,               |  
|                                        |  |                          |       |   |                            |  
|                                        |  | 2001                     |       |   | 2000                       |   |       | 2001 |  |   | 2000  | 
|                                        |  |                          |       |   |                            |   |       |      |  |   |       | 
|                                        |  | (Unaudited)              |       |   | (Unaudited)                |  
|                                        |  |                          |       |   |                            |  
|Net Income                              |  | $                        | 3,864 |   |                            | $ | 2,379 |      |  | $ | 1,711 |  |  | $ | 909 |  
|Foreign Currency
Translation Adjustment |  |                          | (1    | ) |                            |   | (2    | )    |  |   |      |  |  |   | (1  | )
|                                        |  |                          |       |   |                            |   |       |      |  |   |       | 
|Comprehensive Income                    |  | $                        | 3,863 |   |                            | $ | 2,377 |      |  | $ | 1,711 |  |  | $ | 908 |  
|                                        |  |                          |       |   |                            |   |       |      |  |   |       | 

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 related to fee simple sales of
interests in campground facilities, and (iii) net revenues earned from
operations at the campgrounds. Separate information regarding Canadian
campground operations is not presented as revenues and identifiable assets
related to the Canadian operations are less than 10% of the related
consolidated amounts for the periods presented.

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

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

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

|                                  |  |                                    |        |  |     |   |       |            |  |        |           |  |           |              |        |   |  |   |        | 
|--------------------------------- |  | ---------------------------------- | ------ |  | --- | - | ----- | ---------- |  | ------ | --------- |  | --------- | ------------ | ------ | - |  | - | ------ | 
|                                  |  | Six months ended December 31, 2001 |       
|                                  |  |                                    |       
|                                  |  |                                    |        |  |     |   |       |            |  | Trails |           |  | Corporate |              |        |   |  |  
|                                  |  | Campgrounds                        |        |  | RPI |   |       | Management |  |        | and Other |  |           | Consolidated |       
|                                  |  |                                    |        |  |     |   |       |            |  |        |           |  |           |              |       
|Operating revenues                |  | $                                  | 30,159 |  |     | $ | 1,686 |            |  | $      | 3,416     |  |           | $            | 44     |   |  | $ | 35,305 | 
|Membership sales
revenue          |  |                                    | 7,563  |  |     |   |      |            |  |        |          |  |           |              |       |   |  |   | 7,563  | 
|Income (loss)
before income taxes |  |                                    | 7,783  |  |     |   | 787   |            |  |        | 433       |  |           |              | (3,053 | ) |  |   | 5,950  | 

|                                  |  |                                    |        |  |     |   |       |            |  |        |           |  |           |              |        |   |  |   |        | 
|--------------------------------- |  | ---------------------------------- | ------ |  | --- | - | ----- | ---------- |  | ------ | --------- |  | --------- | ------------ | ------ | - |  | - | ------ | 
|                                  |  | Six months ended December 31, 2000 |       
|                                  |  |                                    |       
|                                  |  |                                    |        |  |     |   |       |            |  | Trails |           |  | Corporate |              |        |   |  |  
|                                  |  | Campgrounds                        |        |  | RPI |   |       | Management |  |        | and Other |  |           | Consolidated |       
|                                  |  |                                    |        |  |     |   |       |            |  |        |           |  |           |              |       
|Operating revenues                |  | $                                  | 29,863 |  |     | $ | 1,674 |            |  | $      | 1,989     |  |           | $            | 101    |   |  | $ | 33,627 | 
|Membership sales
revenue          |  |                                    | 4,394  |  |     |   |      |            |  |        |          |  |           |              |       |   |  |   | 4,394  | 
|Income (loss)
before income taxes |  |                                    | 6,442  |  |     |   | 783   |            |  |        | 198       |  |           |              | (3,459 | ) |  |   | 3,964  | 

|                                  |  |                                      |        |  |     |   |     |            |  |        |           |   |           |              |        |   |  |   |        | 
|--------------------------------- |  | ------------------------------------ | ------ |  | --- | - | --- | ---------- |  | ------ | --------- | - | --------- | ------------ | ------ | - |  | - | ------ | 
|                                  |  | Three months ended December 31, 2001 |       
|                                  |  |                                      |       
|                                  |  |                                      |        |  |     |   |     |            |  | Trails |           |   | Corporate |              |        |   |  |  
|                                  |  | Campgrounds                          |        |  | RPI |   |     | Management |  |        | and Other |   |           | Consolidated |       
|                                  |  |                                      |        |  |     |   |     |            |  |        |           |   |           |              |       
|Operating revenues                |  | $                                    | 13,288 |  |     | $ | 798 |            |  | $      | 113       |   |           | $            | 18     |   |  | $ | 14,217 | 
|Membership sales
revenue          |  |                                      | 3,877  |  |     |   |    |            |  |        |          |   |           |              |       |   |  |   | 3,877  | 
|Income (loss)
before income taxes |  |                                      | 4,049  |  |     |   | 294 |            |  |        | (168      | ) |           |              | (1,540 | ) |  |   | 2,635  | 

|                                  |  |                                      |        |  |     |   |     |            |  |        |           |   |           |              |        |   |  |   |        | 
|--------------------------------- |  | ------------------------------------ | ------ |  | --- | - | --- | ---------- |  | ------ | --------- | - | --------- | ------------ | ------ | - |  | - | ------ | 
|                                  |  | Three months ended December 31, 2000 |       
|                                  |  |                                      |       
|                                  |  |                                      |        |  |     |   |     |            |  | Trails |           |   | Corporate |              |        |   |  |  
|                                  |  | Campgrounds                          |        |  | RPI |   |     | Management |  |        | and Other |   |           | Consolidated |       
|                                  |  |                                      |        |  |     |   |     |            |  |        |           |   |           |              |       
|Operating revenues                |  | $                                    | 13,153 |  |     | $ | 762 |            |  | $      | 59        |   |           | $            | 49     |   |  | $ | 14,023 | 
|Membership sales
revenue          |  |                                      | 2,054  |  |     |   |    |            |  |        |          |   |           |              |       |   |  |   | 2,054  | 
|Income (loss)
before income taxes |  |                                      | 3,317  |  |     |   | 307 |            |  |        | (235      | ) |           |              | (1,887 | ) |  |   | 1,502  | 

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NOTE 4  NET INCOME PER SHARE

The table below sets forth the information necessary to compute basic and
diluted net income per share for the six and three months ended December 31,
2001 and 2000, including a summary of the components of the numerators and
denominators of the basic and diluted net income per share computations for the
periods presented (dollars and shares in thousands, except per share amounts):

|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |      |  |   |       |     | 
|------------------------------------------- | ---------------- | - | ------------------------ | --- |  | -------------------------- | ----- | --- | ---- | - | ----- | ---- |  | - | ----- | --- | 
|                                            |                  |   | For the six months ended |     |  | For the three months ended |      
|                                            |                  |   | December 31,             |     |  | December 31,               |      
|                                            |                  |   |                          |     |  |                            |      
|                                            |                  |   | 2001                     |     |  | 2000                       |       |     | 2001 |   |       | 2000 | 
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |      | 
|                                            |                  |   | (Unaudited)              |     |  | (Unaudited)                |      
|                                            |                  |   |                          |     |  |                            |      
|Net Income                                  |                  | $ | 3,864                    |     |  | $                          | 2,379 |     |      | $ | 1,711 |      |  | $ | 909   |    
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |     
|Weighted Average Number of Shares  Basic   |                  |   | 8,163                    |     |  |                            | 8,047 |     |      |   | 8,155 |      |  |   | 8,084 |    
|                                            | Dilutive Options |   |                          | 445 |  |                            |       | 531 |      |   |       | 442  |  |   |       | 501 | 
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |     
|Weighted Average Number of Shares  Diluted |                  |   | 8,608                    |     |  |                            | 8,578 |     |      |   | 8,597 |      |  |   | 8,585 |    
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |     
|Net Income Per Share  Basic                |                  | $ | .47                      |     |  | $                          | .29   |     |      | $ | .21   |      |  | $ | .11   |    
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |     
|Net Income Per Share  Diluted              |                  | $ | .45                      |     |  | $                          | .28   |     |      | $ | .20   |      |  | $ | .11   |    
|                                            |                  |   |                          |     |  |                            |       |     |      |   |       |     

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

NOTE 5  LONG TERM DEBT

Line of Credit with Union Bank

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

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 Company is required at
all times to maintain a minimum tangible net worth (as defined) of $18.0
million. The Line of Credit prohibits the Company from borrowing from other
sources.

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

Credit Agreement with Foothill

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

NOTE 6  CONTINGENCIES

General Liability InsuranceCommencing July 1, 1998, the Company obtained insurance covering general
liability losses up to an annual limit of $27.0 million, with no self-insured
deductible. Prior to this date, the Companys insurance covered general
liability losses up to an annual limit of $26.8 million, but required the
Company to pay the first $250,000 per occurrence, with an annual aggregate
exposure of $2.0 million. The Company has provided a liability for estimated
known and unknown claims related to uninsured general liability risks based on
actuarial estimates. As of December 31, 2001 and June 30, 2001, the Companys
recorded liability for estimated losses related to uninsured general liability
claims totaled approximately $572,000 and $638,000, respectively, which is
included in other liabilities in the accompanying consolidated balance sheets.

Declining Membership BaseThe Company derives a significant portion of its ongoing operating revenue from
its campground members (93% in fiscal 2001). The Companys membership base has
declined over the past five fiscal years, although the Company has been
successful in slowing the rate of this attrition. While the acquisition of
Leisure Time increased the size of the membership base, the Company expects
that, notwithstanding new sales, the membership base will continue to decline
at the rate of approximately 2% per year. The Company attributes this
attrition principally to its aging membership base, of whom approximately 50%
are senior citizens. To stop the continuing decline in the Companys
membership base, the Company must increase its campground membership sales over
current levels or acquire members through the purchase of other membership
campground organizations, similar to the acquisition of Leisure Time.

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

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LitigationThe 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.

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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, 2001, filed with the SEC on September 26, 2001.

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 December
31, 2001. All of these statements are forward-looking statements made pursuant
to the safe harbor provisions of Section 21(E) of the Securities Exchange Act
of 1934, as amended. These statements are not historical and involve risks and
uncertainties. The Companys actual financial condition, results of
operations, cash flows, and business strategies, plans, and conditions for
future periods may differ materially due to several factors, including but not
limited to the Companys ability to control costs, 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.

LIQUIDITY AND CAPITAL RESOURCES

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

Over the past several years, 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

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Time, and it intends to explore the possible acquisition of additional members
through the purchase of other membership campground organizations. 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 December 31, 2001, the Company had $9.4 million of cash and cash
equivalents, an increase of $410,000 from June 30, 2001. During the six months
ended December 31, 2001, the Companys operating activities provided $3.5
million of cash, its investing activities used
$2.3 million of cash, and its financing activities used $730,000 of cash. The
Companys investing activities consisted of $1.5 million in expenditures to
upgrade the Companys computer and communication systems and $1.2 million in
capital expenditures at the campgrounds, partially offset by $384,000 in
proceeds from the sale of assets. The Companys financing activities consisted
of $22,000 of proceeds from the exercise of employee stock options, a payment
of $714,000 for the purchase of 120,800 shares of common stock, and $38,000 in
payments on notes payable, which are included in other liabilities in the
accompanying financial statements.

With respect to the Companys operating activities, for the six months ended
December 31, 2001, the principal sources of operating cash were $33.3 million
from operations, $3.7 million in principal and interest collections on
contracts receivable, and $9.3 million from sales of campground memberships.
Principal uses of operating cash for the six months ended
December 31, 2001, were $24.5 million in operating expenses, $6.3 million in
administrative expenses (including general and administrative expenses and
corporate member services costs),
$9.2 million in membership origination costs and marketing expenses, $1.3
million in insurance premiums, and $1.5 million in income taxes.

During the six months ended December 31, 2000, the Companys operating
activities provided $2.0 million of cash, its investing activities used
$775,000 of cash, and its financing activities used $2.0 million of cash.
During fiscal 2001, the Companys material investing and financing activities
related primarily to capital expenditures at the campgrounds, proceeds from
asset sales, and net repayments under the Credit Agreement with Foothill.

The Company experiences lower cash flow from operating activities during the
second quarter of its fiscal year because of the seasonal nature of its
operations. The Company receives the majority of the dues revenue from its
members during the winter, while incurring a higher level of operating expenses
during the summer. In addition, a majority of the Companys sales and
marketing efforts occur during the summer.

The Company expects that its capital expenditures will be higher in fiscal
2002, compared with fiscal 2001, because the Company is spending a total of
$3.2 million to upgrade its computer and communication systems, including $1.5
million spent in the current period. However, since the Company has repaid all
of its outstanding debt, the Company believes its cash reserves will increase
during the balance of fiscal 2002. The amount of cash the Company is able to
accumulate will depend on a number of factors including its ability to control
costs, its success in collecting its contracts receivable and selling assets,
and the other factors affecting the Companys operations described in this
report.

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During the six months ended December 31, 2001 and through the date of this
report, the Company has had no outstanding borrowings under its Line of Credit
with Union Bank. 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 $2.9 million during the six months ended December 31,
2001. Cash increased by $410,000 as discussed above. Contracts receivable
increased by $576,000 due primarily to an increase in the percentage of
financed sales. Cash collections of $2.7 million on the existing contracts
receivable were offset by new financed sales. Approximately 29% of sales were
financed in the current period. Buildings and equipment increased by $1.1
million due primarily to expenditures to upgrade the Companys computer system
and capital expenditures made at certain campgrounds, partially offset by
depreciation. Other current assets decreased by $118,000 due primarily to
decreases in prepaid insurance, other prepaid expenses, and accounts receivable
from advertisers in the Companys member magazine, partially offset by
increases in prepaid property tax. Deferred tax assets decreased by $541,000
in the current period as a result of deferred tax expense recognized in the
current period.

Total liabilities decreased by $291,000 during the six months ended December
31, 2001, primarily as a result of decreases in accounts payable, deferred dues
revenue, and other accrued liabilities, partially offset by an increase in
deferred revenue related to membership sales. Deferred dues decreased by $2.8
million because dues revenue recognized during the period exceeded dues
collected. Accounts payable decreased by $1.1 million due to the timing of
payments and other accrued liabilities decreased by $1.3 million due primarily
to payments of accrued wages and benefits. Deferred sales revenue increased by
$5.4 million due to increases in membership sales contracts originated.

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

The Company does not have significant exposure to changing interest rates on
invested cash because the Company invests available cash in certificates of
deposit and investment grade commercial paper that have maturities of three
months or less. The interest rate market risk implicit in these investments at
any given time is low, as the investments mature within three months.

The Company had $10.7 million of contracts receivable at December 31, 2001,
which have a weighted average stated interest rate of 14% and an average
remaining term of 32 months. The Company does not have significant exposure to
changing interest rates related to the contracts receivable because the
interest rates on the contracts receivable are fixed.

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

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

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

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

RESULTS OF OPERATIONS

The following discussion and analysis are based on the historical results of
operations of the Company for the six months ended December 31, 2001 and 2000.
The financial information set forth below should be read in conjunction with
the Companys consolidated financial statements included in Item 1.

Six Months Ended December 31, 2001 and 2000

Net Income.The Company reported net income of $3.9 million or $.45 per
diluted share on revenues of $45.2 million for the six months ended December
31, 2001. This compares with net income of $2.4 million or $.28 per diluted
share on revenues of $40.4 million for the same period last year.

The Companys revenues grew in the current period due primarily to increased
membership sales revenue and increased fees from additional campgrounds managed
by Trails Management, the Companys property management subsidiary. Membership
sales revenue was higher because of higher average new sales prices and an
upgrade program. Expenses were also higher in the current period due to
increased sales and marketing efforts and operation of the additional
campgrounds managed by Trails Management, partially offset by a reduction in
interest expense. Because the Company repaid its loan with Foothill Capital in
March 2001, interest expense in the current period was $647,000 lower than in
the prior period.

The table set forth on the following page shows separately the results of the
campground operations, 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 six months ended December 31, 2001 and 2000.

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

|                                                                         |                                      |                          |       |                  |       |   |        |         |       | 
|------------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ----- | ---------------- | ----- | - | ------ | ------- | ----- | 
|                                                                         |                                      |                          |       | Six Months Ended |      
|                                                                         |                                      |                          |       | December 31,     |      
|                                                                         |                                      |                          |       |                  |      
|                                                                         |                                      |                          |       | 2001             |       |   | 2000   |        
|                                                                         |                                      |                          |       |                  |       |   |        |        
|Campground Operations                                                    |                                      |                          |       |                  |       |   |        |        
|                                                                         | Membership dues                      |                          | $     | 20,073           |       |   | $      | 20,136  |      
|                                                                         | Campground revenues                  |                          |       | 10,086           |       |   |        | 9,727   |      
|                                                                         | Cost of campground revenues          |                          |       | (4,320           | )     |   |        | (4,417  | )    
|                                                                         | Operating expenses                   |                          |       | (18,139          | )     |   |        | (17,812 | )    
|                                                                         |                                      |                          |       |                  |       |  
|Contribution from campground operations                                  |                                      |                          | 7,700 |                  |       |   | 7,634  |        
|                                                                         |                                      |                          |       |                  |       |  
|Sales                                                                    |                                      |                          |       |                  |       |   |        |        
|                                                                         | Membership contracts originated      |                          |       | 12,937           |       |   |        | 9,583   |      
|                                                                         | Change in deferred revenue           |                          |       | (5,374           | )     |   |        | (5,189  | )    
|                                                                         |                                      |                          |       |                  |       |  
|                                                                         |                                      | Membership sales revenue |       |                  | 7,563 |   |        |         | 4,394 | 
|                                                                         | Membership origination costs         |                          |       | (6,123           | )     |   |        | (4,629  | )    
|                                                                         | Change in deferred origination costs |                          |       | 1,705            |       |   |        | 1,691   |      
|                                                                         | Marketing expenses                   |                          |       | (3,062           | )     |   |        | (2,648  | )    
|                                                                         |                                      |                          |       |                  |       |  
|Contribution (loss) on sales                                             |                                      |                          | 83    |                  |       |   | (1,192 | )      
|                                                                         |                                      |                          |       |                  |       |  
|Trails Management                                                        |                                      |                          |       |                  |       |   |        |        
|                                                                         | Revenues                             |                          |       | 3,416            |       |   |        | 1,989   |      
|                                                                         | Expenses                             |                          |       | (2,983           | )     |   |        | (1,791  | )    
|                                                                         |                                      |                          |       |                  |       |  
|Contribution from Trails Management                                      |                                      |                          | 433   |                  |       |   | 198    |        
|                                                                         |                                      |                          |       |                  |       |  
|Resort Parks International                                               |                                      |                          |       |                  |       |   |        |        
|                                                                         | Revenues                             |                          |       | 1,686            |       |   |        | 1,674   |      
|                                                                         | Expenses                             |                          |       | (899             | )     |   |        | (891    | )    
|                                                                         |                                      |                          |       |                  |       |  
|Contribution from RPI                                                    |                                      |                          | 787   |                  |       |   | 783    |        
|                                                                         |                                      |                          |       |                  |       |  
|                                                                         | Other income                         |                          |       | 1,193            |       |   |        | 1,375   |      
|                                                                         | Corporate member services            |                          |       | (734             | )     |   |        | (676    | )    
|                                                                         | General and administrative expense   |                          |       | (4,718           | )     |   |        | (4,587  | )    
|                                                                         | Other                                |                          |       | 44               |       |   |        | 101     |      
|                                                                         |                                      |                          |       |                  |       |  
|Income before interest income and expense,
gain on asset sales and taxes |                                      |                          | 4,788 |                  |       |   | 3,636  |        
|                                                                         |                                      |                          |       |                  |       |  
|                                                                         | Interest income                      |                          |       | 1,030            |       |   |        | 844     |      
|                                                                         | Interest expense                     |                          |       | (23              | )     |   |        | (670    | )    
|                                                                         | Gain on asset sales                  |                          |       | 155              |       |   |        | 154     |      
|                                                                         |                                      |                          |       |                  |       |  
|Income before taxes                                                      |                                      | $                        | 5,950 |                  |       | $ | 3,964  |        
|                                                                         |                                      |                          |       |                  |       |  

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Operating Income.During the six months ended December 31, 2001, the Companys
contribution from operations was $4.8 million, compared with $3.6 million in
the same period last year. The increase was due primarily to an improvement in
the results from the Companys sales operations, which produced a positive
contribution of $83,000 in the current period, compared with a negative
contribution of $1.2 million in the same period last year. In addition, the
contribution from campground operations and Trails Management increased in the
current period. However, these improvements were partially offset by a
decrease in other income and an increase in general and administrative expenses
in the current period. For this purpose, the contribution from operations is
defined as income before interest income and expense, gains on asset sales, and
taxes. See the table on the previous page for the elements of the contribution
from operations and the Companys operating 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 are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Companys sales and marketing efforts occur during
the summer.

Campground membership dues revenue was $20.1 million for both the six months
ended
December 31, 2001 and 2000. Dues revenue remained constant because the effect
of the annual dues increase was offset by the net loss of campground members
during the year.

Other campground revenues were $10.1 million for the six months ended December
31, 2001, compared with $9.7 million for the same period last year. The
related expenses were
$4.3 million for the six months ended December 31, 2001, compared with $4.4
million for the same period last year. Despite a decrease in the number of
campgrounds in operation during the current period due to the closures
discussed below, campground revenues increased due primarily to an increase in
revenue from the Companys extended stay program at certain campgrounds. The
slight decline in the related expenses was due primarily to decreases in
maintenance expense and the cost of operating the Companys rental trailers,
partially offset by an increase in labor costs.

Campground operating expenses were $18.1 million for the six months ended
December 31, 2001, compared with $17.8 million for the same period last year.
The increase in campground operating expenses in the current period was due
primarily to a $292,000 increase in utility costs at the Companys campgrounds,
principally in California and Texas where such costs increased $260,000, which
accounted for 89% of the increase. In addition, the Company recorded higher
depreciation and workers compensation expense during the current period.

In February 2001, the Company completed its consolidation of Leisure Times
operations and closed four 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 the anticipated
changes should result in lower future operating expenses, no assurance can be
given that such changes will not reduce revenues by an amount in excess of the
expense reductions.

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For the six months ended December 31, 2001, the Company originated membership
contracts of $12.9 million, compared with $9.6 million in the same period last
year. The increase in the current period resulted primarily from an increase
in the average sales price of new membership contracts originated as well as an
increase in the number of contracts originated in an upgrade program involving
the Companys existing members. During the six months ended
December 31, 2001, the Company originated approximately 2,200 new membership
contracts at an average sales price of $3,040, compared with approximately
2,300 new membership contracts at an average sales price of $2,548 during the
prior period. In the current period, the Company also originated contracts
totaling $5.7 million from the upgrade program, compared with $3.8 million in
the same period last year. During the six months ended December 31, 2001 and
2000, approximately 1,900 and 1,300 contracts, respectively, were originated
from the upgrade program at an average sales price of $2,995.

During the current period, the Company offered existing Thousand Trails and
NACO members access to the Leisure Time campgrounds for a fee, which resulted
in approximately 730 contracts at an average price of $244. This program
concluded during the first quarter of fiscal 2002. The Company also offered
Leisure Time members access to the Thousand Trails and NACO campgrounds for a
fee, which resulted in approximately 300 contracts at an average price of $702.

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 six months ended December 31,
2001 and 2000, the Company recognized campground membership sales revenues of
$7.6 million and $4.4 million, respectively. Membership sales revenue includes
revenues of $5.9 million and $3.0 million, respectively, that were deferred in
prior periods. Moreover, during these same periods, the Company deferred
revenues of $11.3 million and $8.2 million, respectively, which will be
recognized in future periods.

Selling expenses directly related to the sale of campground memberships 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 six months ended
December 31, 2001 and 2000, the Company recognized selling expenses of
$4.4 million and $2.9 million, respectively. These amounts include expenses of
$1.8 million and $910,000, respectively, that were deferred in prior periods.
Moreover, for these same periods, the Company deferred expenses of $3.5 million
and $2.6 million, respectively, which will be recognized in future periods.

During the six months ended December 31, 2001, sales revenues exceeded selling
and marketing expenses by $83,000, compared with the same period last year,
when selling and marketing expenses exceeded sales revenues by $1.2 million.
Although the negative impact of the sales deferral was $171,000 greater in the
current period, the percentage of revenue deferred from new membership sales
decreased, compared with prior periods, because the Company originated a
greater number of membership contracts with a shorter expected life due to the
sale of a greater number of upgrades. In addition, fewer membership contracts
were originated at Leisure Time campgrounds in the current period, which
resulted in the recognition of more revenue that was deferred in prior periods
than the Company deferred in the current period. During the six months ended
December 31, 2000, selling and marketing expenses exceeded sales revenues
because the Company deferred more sales revenues than selling expenses.

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The Companys selling and marketing efforts require significant expense, the
majority of which 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 consequence, the Company
expects that its selling and marketing expenses will generally exceed its
campground membership sales revenue.

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 similar to the acquisition of Leisure Time, the
membership base will decline in the future, which will decrease the Companys
revenues. Decreases in revenues that are not offset by sufficient expense
reductions could have a material adverse impact on the Companys business and
results of operations.

Trails Management.Trails Management, a wholly owned subsidiary of the
Company, currently manages 241 public campgrounds for the U.S. Forest Service
and other entities. For the six months ended December 31, 2001, these
operations produced a net contribution of $433,000 on revenues of $3.4 million,
compared with a net contribution of $198,000 on revenues of
$2.0 million for the same period last year. The increase in revenues between
periods was due primarily to additional revenue from contracts entered into
during the second quarter of fiscal 2001, which increased the number of
campgrounds managed. Trails Management receives most of its revenues and
incurs most of its expenses during the first fiscal quarter. During the
balance of fiscal 2002, Trails Managements revenues will decline
significantly, while it will continue to incur certain fixed costs, 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 six months
ended December 31, 2001, RPIs operations produced a net contribution of
$787,000 on revenues of $1.7 million, compared with a net contribution of
$783,000 on revenues of $1.7 million for the same period last year. RPI is
working to introduce new products to increase its revenues and maintain its
contribution margin; however, there is no assurance that these efforts will be
successful.

Interest Income and Expense.Interest income increased to $1.0 million for the
six months ended December 31, 2001, from $844,000 for the same period last
year. The increase in interest income in the current period was due primarily
to an increase in the interest earned on the Companys portfolio of contracts
receivable. The Companys portfolio of contracts receivable increased with the
acquisition of Leisure Time, and has continued to grow as a result of the
increase in membership sales, approximately 29% of which were sold on an
installment basis in the current period. As a result, the interest earned on
the Companys portfolio of contracts receivable is expected to increase
compared with historical levels.

Interest expense was $23,000 for the six months ended December 31, 2001,
compared with $670,000 for the same period last year. This decrease in the
current period was due to the Companys repayment, in March 2001, of all
borrowings under the Credit Agreement with Foothill.

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Gain on Asset Sales.The Company recognized a gain of $155,000 on asset sales
for the six months ended December 31, 2001, compared with $154,000 for the same
period last year. Over the next several years, the Company intends to dispose
of the remaining assets it holds for sale, including the campgrounds that were
closed following the acquisition of Leisure Time, any campgrounds that are
closed in the future, and other undeveloped, excess acreage associated with the
campgrounds. The sale of campgrounds requires addressing the rights of members
associated with such campgrounds. The impact of these rights is uncertain and
could adversely affect the availability or timing of sale opportunities or the
ability of the Company to realize recoveries from asset sales. In addition,
although the Company has successfully sold assets during the past several
years, no assurance exists that the Company will be able to locate a buyer for
any of the remaining assets or that sales on acceptable terms can be made.

Other Income.Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections of written-off contracts and delinquent dues,
subscription fees received from members who subscribe to the Companys member
magazine, fees charged members for making more than five operator-assisted
reservations in a given year, and fees received from third parties for billing
and collection services. Other income was $1.2 million for the six months
ended December 31, 2001, compared with $1.4 million for the same period last
year. The decrease in the current period was due primarily to a decrease 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 $5.5 million for the six
months ended
December 31, 2001, compared with $5.3 million for the same period last year.
The increase in the current period was due primarily to higher labor costs,
bank service charges and third-party legal fees.

Income Taxes.The Companys current provision for income taxes was $1.5
million for the six months ended December 31, 2001, compared with $470,000 for
the same period last year. The current provisions for these periods include
amounts for federal alternative minimum taxes and state income taxes payable in
the various states where the Company conducts its operations. With the
exception of federal alternative minimum taxes, the Company does not have
federal income taxes payable on a consolidated basis due to its net operating
tax loss carryforwards, which totaled $7.9 million at June 30, 2001. The
Company expects to fully utilize its existing tax loss carryforwards during
fiscal 2002.

The Company recorded a deferred tax provision of $541,000 for the six months
ended December 31, 2001, compared with $1.1 million for the same period last
year. The Company will continue to record a deferred tax provision in future
periods as the related deferred tax assets are realized. The deferred tax
provision will not affect current or future income tax payments.

Three Months Ended December 31, 2001 and 2000

Net Income.The Company reported net income of $1.7 million or $.20 per
diluted share on revenues of $19.3 million for the three months ended December
31, 2001. This compares with net income of $909,000 or $.11 per diluted share
on revenues of $17.1 million for the same period last year.

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The Companys revenues increased in the current period due primarily to
increased membership sales revenue. Expenses were also higher in the current
period as a result of increased sales and marketing efforts.

The table set forth on the following page shows separately the results of the
campground operations, 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 December 31, 2001 and
2000.

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

|                                                                         |                                      |                          |       |                    |       |   |       |        |       | 
|------------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ----- | ------------------ | ----- | - | ----- | ------ | ----- | 
|                                                                         |                                      |                          |       | Three Months Ended |      
|                                                                         |                                      |                          |       | December 31,       |      
|                                                                         |                                      |                          |       |                    |      
|                                                                         |                                      |                          |       | 2001               |       |   | 2000  |       
|                                                                         |                                      |                          |       |                    |       |   |       |       
|Campground Operations                                                    |                                      |                          |       |                    |       |   |       |       
|                                                                         | Membership dues                      |                          | $     | 10,002             |       |   | $     | 10,050 |      
|                                                                         | Campground revenues                  |                          |       | 3,286              |       |   |       | 3,103  |      
|                                                                         | Cost of campground revenues          |                          |       | (1,564             | )     |   |       | (1,575 | )    
|                                                                         | Operating expenses                   |                          |       | (7,885             | )     |   |       | (7,854 | )    
|                                                                         |                                      |                          |       |                    |       |  
|Contribution from campground operations                                  |                                      |                          | 3,839 |                    |       |   | 3,724 |       
|                                                                         |                                      |                          |       |                    |       |  
|Sales                                                                    |                                      |                          |       |                    |       |   |       |       
|                                                                         | Membership contracts originated      |                          |       | 5,669              |       |   |       | 3,425  |      
|                                                                         | Change in deferred revenue           |                          |       | (1,792             | )     |   |       | (1,371 | )    
|                                                                         |                                      |                          |       |                    |       |  
|                                                                         |                                      | Membership sales revenue |       |                    | 3,877 |   |       |        | 2,054 | 
|                                                                         | Membership origination costs         |                          |       | (2,954             | )     |   |       | (1,775 | )    
|                                                                         | Change in deferred origination costs |                          |       | 627                |       |   |       | 468    |      
|                                                                         | Marketing expenses                   |                          |       | (1,340             | )     |   |       | (1,154 | )    
|                                                                         |                                      |                          |       |                    |       |  
|Gain (loss) on sales                                                     |                                      |                          | 210   |                    |       |   | (407  | )     
|                                                                         |                                      |                          |       |                    |       |  
|Trails Management                                                        |                                      |                          |       |                    |       |   |       |       
|                                                                         | Revenues                             |                          |       | 113                |       |   |       | 59     |      
|                                                                         | Expenses                             |                          |       | (281               | )     |   |       | (294   | )    
|                                                                         |                                      |                          |       |                    |       |  
|Contribution from Trails Management                                      |                                      |                          | (168  | )                  |       |   | (235  | )     
|                                                                         |                                      |                          |       |                    |       |  
|Resort Parks International                                               |                                      |                          |       |                    |       |   |       |       
|                                                                         | Revenues                             |                          |       | 798                |       |   |       | 762    |      
|                                                                         | Expenses                             |                          |       | (504               | )     |   |       | (455   | )    
|                                                                         |                                      |                          |       |                    |       |  
|Contribution from RPI                                                    |                                      |                          | 294   |                    |       |   | 307   |       
|                                                                         |                                      |                          |       |                    |       |  
|                                                                         | Other income                         |                          |       | 538                |       |   |       | 577    |      
|                                                                         | Corporate member services            |                          |       | (432               | )     |   |       | (315   | )    
|                                                                         | General and administrative expense   |                          |       | (2,325             | )     |   |       | (2,294 | )    
|                                                                         | Other                                |                          |       | 18                 |       |   |       | 49     |      
|                                                                         |                                      |                          |       |                    |       |  
|Income before interest income and expense,
gain on asset sales and taxes |                                      |                          | 1,974 |                    |       |   | 1,406 |       
|                                                                         |                                      |                          |       |                    |       |  
|                                                                         | Interest income                      |                          |       | 506                |       |   |       | 426    |      
|                                                                         | Interest expense                     |                          |       | (18                | )     |   |       | (334   | )    
|                                                                         | Gain on asset sales                  |                          |       | 173                |       |   |       | 4      |      
|                                                                         |                                      |                          |       |                    |       |  
|Income before taxes                                                      |                                      | $                        | 2,635 |                    |       | $ | 1,502 |       
|                                                                         |                                      |                          |       |                    |       |  

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Operating Income.During the three months ended December 31, 2001, the
Companys contribution from operations was $2.0 million, compared with $1.4
million in the same period last year. Operating income increased in the
current period due primarily to an improvement in the results from the
Companys sales operations, which produced a positive contribution in the
current period, compared with a negative contribution in the same period last
year. For this purpose, the contribution from operations is defined as income
before interest income and expense, gains on asset sales, and taxes. See the
table on the previous page for the elements of the contribution from operations
and the Companys operating income before taxes for the periods presented.

Campground Operations.Campground membership dues revenue was $10.0 million
for the three months ended December 31, 2001, compared with $10.1 million for
the same period last year. The decrease in dues revenue in the current period
was due primarily to an increase in the bad debt provision for membership dues.

Other campground revenues were $3.3 million for the three months ended December
31, 2001, compared with $3.1 million for the same period last year. The
related expenses were
$1.6 million for both the three months ended December 31, 2001 and 2000.
Despite a decrease in the number of campgrounds in operation during the current
period due to the closures discussed above, campground revenues increased due
primarily to an increase in revenue from the Companys extended stay program at
certain campgrounds.

Campground operating expenses were $7.9 million for both the three months ended
December 31, 2001, and 2000. Increases in utility and maintenance expenses
during the current period were offset by decreases in labor and cost of
supplies.

For the three months ended December 31, 2001, the Company originated membership
contracts of $5.7 million, compared with $3.4 million in the same period last
year. In the current period, the Company originated approximately 600 new
membership contracts at an average sales price of $4,277, compared with
approximately 650 new membership contracts at an average sales price of $2,808
in the same period last year. In addition, during the three months ended
December 31, 2001 and 2000, approximately 760 and 1,000 contracts,
respectively, were originated from the upgrade program, at an average sales
price of $2,995.

During the current period, the Company offered existing Leisure Time members
access to Thousand Trails campgrounds for a fee, which resulted in
approximately 200 contracts at an average price of $253.

For the three months ended December 31, 2001 and 2000, the Company recognized
campground membership sales revenues of $3.9 million and $2.1 million,
respectively. Membership sales revenue includes revenues of $3.2 million and
$1.6 million, respectively, that were deferred in prior periods. Moreover,
during these same periods, the Company deferred revenues of
$5.0 million and $3.0 million, respectively, which will be recognized in future
periods.

For the three months ended December 31, 2001 and 2000, the Company recognized
selling expenses of $2.3 million and $1.3 million, respectively. These amounts
include expenses of $966,000 and $490,000, respectively, that were deferred in
prior periods. Moreover, for these same periods, the Company deferred expenses
of $1.6 million and $959,000, respectively, which will be recognized in future
periods.

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During the three months ended December 31, 2001, sales revenues exceeded
selling and marketing expenses by $210,000, compared with the same period last
year, when selling and marketing expenses exceeded sales revenues by $407,000.
Although the negative impact of the sales deferral was $198,000 greater in the
current period, the percentage of revenue deferred from new membership sales
decreased, compared with prior periods, because the Company originated a
greater number of membership contracts with a shorter expected life due to the
sale of a greater number of upgrades. During the three months ended December
31, 2000, selling and marketing expenses exceeded sales revenues because the
Company deferred more sales revenues than selling expenses.

Trails Management.For the three months ended December 31, 2001, the
operations of Trails Management produced a loss of $168,000 on revenues of
$113,000, compared with a loss of $235,000 on revenues of $59,000 for the same
period last year. The campground management operations generally incur a loss
during the second fiscal quarter due to fixed expenses and the seasonal closure
of the campgrounds. In addition, the prior period expenses include $38,000 in
legal fees related to a personal injury claim in which Trails Management was
found not liable for damages.

Resort Parks International.For the three months ended December 31, 2001,
RPIs operations produced a net contribution of $294,000 on revenues of
$798,000, compared with a net contribution of $307,000 on revenues of $762,000
for the same period last year. Although revenues increased during the current
period, labor, marketing and operating costs increased at a greater rate.

Interest Income and Expense.Interest income increased to $506,000 for the
three months ended December 31, 2001, from $426,000 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 invested cash, in addition to an increase
in the interest earned on the Companys portfolio of contracts receivable.

Interest expense decreased to $18,000 for the three months ended December 31,
2001, from $334,000 for the same period last year. This decrease in the
current period was due to the Companys repayment, in March 2001, of all
borrowings under the Credit Agreement with Foothill.

Gain on Asset Sales.The Company recognized a gain of $173,000 on asset sales
for the three months ended December 31, 2001, compared with $4,000 for the same
period last year. The increase in the current period was due to the timing of
asset sales.

Other Income.Other income was $538,000 for the three months ended December
31, 2001, compared with $577,000 for the same period last year. The decrease
in the current period was due primarily to a decrease 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 $2.8 million for the three
months ended
December 31, 2001, compared with $2.6 million for the same period last year.
The increase in the current period was due primarily to higher labor and other
operating costs that were partially offset by decreases in third-party legal
fees.

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Income Taxes.The Companys current provision for income taxes was $786,000
for the three months ended December 31, 2001, compared with $296,000 for the
same period last year. The Company recorded a deferred tax provision of
$138,000 for the three months ended December 31, 2001, compared with $297,000
for the same period last year.

Inflation.During the past several fiscal years, the Companys results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Companys expenses are likely to increase at a
greater rate than it can increase the annual dues paid by campground members
because the Company can not increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 37%
of the members have requested that their dues be frozen because of their age or
disability.




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 December 31, 2001 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.

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Part II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security-Holders

On November 8, 2001, the Company held its annual meeting of shareholders. As
of the record date for the meeting, the Company had 8,170,390 shares of common
stock outstanding, of which 7,744,897 shares were represented at the meeting in
person or by proxy. The shareholders took the following actions at the
meeting.



|1. |  | The shareholders elected the six members of the Board of Directors of the
Company who will serve until the next annual meeting of shareholders and
until their successors are elected and qualified. The six directors and
the votes cast for and withheld for each were as follows:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  |  |           |           |  |                |  |       | 
|----------------- |  | --------- | --------- |  | -------------- |  | ----- | 
|Name              |  | Votes For |           |  | Votes Withheld | 
|                  |  |           |           |  |                | 
|Andrew M. Boas    |  |           | 7,743,602 |  |                |  | 1,295 | 
|William P. Kovacs |  |           | 7,743,602 |  |                |  | 1,295 | 
|Donald R. Leopold |  |           | 7,743,602 |  |                |  | 1,295 | 
|H. Sean Mathis    |  |           | 7,743,602 |  |                |  | 1,295 | 
|Douglas K. Nelson |  |           | 7,743,602 |  |                |  | 1,295 | 
|William J. Shaw   |  |           | 7,743,602 |  |                |  | 1,295 | 



|2. |  | The shareholders approved the Companys 2001 Stock Option and
Restricted Stock Purchase Plan and the grant to William J. Shaw, the
Companys Chief Executive Officer, of options to purchase 600,000
shares of the Companys common stock at an exercise price of $5.93 per
share. The votes cast for, votes cast against, and the abstentions
were as follows:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|          |  |               |         |  |             |  |        | 
|--------- |  | ------------- | ------- |  | ----------- |  | ------ | 
|Votes For |  | Votes Against |         |  | Abstentions | 
|          |  |               |         |  |             | 
|7,208,248 |  |               | 519,196 |  |             |  | 17,453 | 



|3. |  | The shareholders ratified the appointment of Arthur Andersen LLP as
the Companys independent auditor for the fiscal year ended June 30,
2002. The votes cast for, votes cast against, and the abstentions were
as follows:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|          |  |               |       |  |             |  |       | 
|--------- |  | ------------- | ----- |  | ----------- |  | ----- | 
|Votes For |  | Votes Against |       |  | Abstentions | 
|          |  |               |       |  |             | 
|7,740,189 |  |               | 1,036 |  |             |  | 3,672 | 




Item 6. Exhibits and Reports on Form 8-K

Exhibits

The following documents are filed as exhibits to this report.

|        |  |                                                  |  |  |  | 
|------- |  | ------------------------------------------------ |  |  |  | 
|Exhibit |  |                                                  |  |  |  | 
|Number  |  | Description                                      |  |  |  | 
|        |  |                                                  |  |  |  | 
|11.1    |  | Statement re: Computation of Per Share Earnings.

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Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during the quarter
ended
December 31, 2001.

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SIGNATURE

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: February 12, 2002 | By:                   | /s/ William J. ShawWilliam J. Shaw
President and Chief Executive Officer
|                       
|Date: February 12, 2002 | By:                   | /s/ Bryan D. ReedBryan D. Reed
Chief Financial and Accounting Officer   

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Index to the Exhibits

|        |  |                                                  |  |  |  | 
|------- |  | ------------------------------------------------ |  |  |  | 
|Exhibit |  |                                                  |  |  |  | 
|Number  |  | Description                                      |  |  |  | 
|        |  |                                                  |  |  |  | 
|11.1    |  | Statement re: Computation of Per Share Earnings.