##### 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, 2002

OR

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

For the transition period of      to

Commission File Number 1-14645

THOUSAND TRAILS, INC.

---

|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 75-2138671                       
|                                                               |  |                                  
|(State or Other Jurisdiction
of Incorporation or Organization) |  | (IRS Employer Identification No.)

|                                              |  |           
|--------------------------------------------- |  | ----------
|3801 Parkwood Blvd., Suite 100, Frisco, Texas |  | 75034     
|                                              |  |           
|(Address of Principal Executive Office)       |  | (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

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

The number of shares of Common Stock, par value $.01, issued and outstanding as
of February 10, 2003, was 6,965,017.





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TABLE OF CONTENTS



|                                          |                                                                                               |                                                |  |  |  |  |  | 
|----------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION            
|                                          | Item 1. Financial Statements                                                                 
|                                          |                                                                                               | Consolidated Balance Sheets                   
|                                          |                                                                                               | Consolidated Statements of Operations         
|                                          |                                                                                               | Consolidated Statements of Operations         
|                                          |                                                                                               | Consolidated Statement of Shareholders Equity
|                                          |                                                                                               | Consolidated Statements of Cash Flows         
|                                          |                                                                                               | Notes to Consolidated Financial Statements    
|                                          | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                          | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                          | Item 4. Controls and Procedures                                                              
|Part II. OTHER INFORMATION               
|                                          | Item 4. Submission of Matters to a Vote of Security-Holders                                  
|                                          | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                
|CERTIFICATIONS                           
|EXHIBIT INDEX                            
|EX-11.1 Computation of Per Share 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, 2002
and June 30, 2002                                    |  |      | 3 | 
|                              |                                                                                               | Consolidated Statements of Operations for the six months ended
December 31, 2002 and December 31, 2001   |  |      | 4 | 
|                              |                                                                                               | Consolidated Statements of Operations for the three months ended
December 31, 2002 and December 31, 2001 |  |      | 5 | 
|                              |                                                                                               | Consolidated Statement of Shareholders Equity for the six months
ended December 31, 2002                |  |      | 6 | 
|                              |                                                                                               | Consolidated Statements of Cash Flows for the six months ended
December 31, 2002 and December 31, 2001   |  |      | 7 | 
|                              |                                                                                               | Notes to Consolidated Financial Statements                                                               |  |      | 9 | 
|                              | Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                                                                          |  | 14   |  
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                          |  | 27   |  
|                              | Item 4. Controls and Procedures                                                               |                                                                                                          |  | 27   |  
|PART II. OTHER INFORMATION    |                                                                                               |                                                                                                          |  |     
|                              | Item 4. Submission of Matters to a Vote of Security-Holders                                   |                                                                                                          |  | 27   |  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                          |  | 28   |  
|                              | Signatures                                                                                    |                                                                                                          |  | 29   |  
|                              | Certifications                                                                                |                                                                                                          |  | 30   |  

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##### Table of Contents









PART I. FINANCIAL INFORMATION

Item 1. Financial Statements




Thousand Trails, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |        |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------- | ------------ | - | -------- | ------- | ------ |  | 
|                                           |                                                                                                                 |                            |                                      |         | December 31, |   | June 30,
|                                           |                                                                                                                 |                            |                                      |         | 2002         |   | 2002    
|                                           |                                                                                                                 |                            |                                      |         |              |   |         
|                                           |                                                                                                                 |                            |                                      |         | (Unaudited)  |   |          |         |       
|Assets                                     |                                                                                                                 |                            |                                      |         |              |   |          |        
|Current Assets                             |                                                                                                                 |                            |                                      |         |              |   |          |        
|                                           | Cash and cash equivalents                                                                                       |                            | $                                    | 3,934   |              |   | $        | 4,180   |       
|                                           | Marketable securities  available for sale                                                                      |                            |                                      | 6,658   |              |   |          | 5,343   |       
|                                           | Current portion of receivables, net of allowances of $0.8 million and $1.0
million respectively                 |                            |                                      | 3,939   |              |   |          | 3,238   |       
|                                           | Current portion of deferred membership origination costs                                                        |                            |                                      | 5,783   |              |   |          | 5,013   |       
|                                           | Current portion of net deferred tax assets                                                                      |                            |                                      | 5,870   |              |   |          | 6,106   |       
|                                           | Inventories                                                                                                     |                            |                                      | 1,197   |              |   |          | 1,158   |       
|                                           | Other current assets                                                                                            |                            |                                      | 958     |              |   |          | 2,889   |       
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|                                           |                                                                                                                 | Total Current Assets       |                                      |         | 28,339       |   |          |         | 27,927 | 
|                                           | Restricted cash                                                                                                 |                            |                                      | 646     |              |   |          | 646     |       
|                                           | Receivables, net of allowances of $1.4 million and $1.2 million, respectively                                   |                            |                                      | 7,096   |              |   |          | 6,400   |       
|                                           | Campground land                                                                                                 |                            |                                      | 20,696  |              |   |          | 20,696  |       
|                                           | Buildings and equipment, net of accumulated depreciation of
$24.6 million and $24.5 million, respectively       |                            |                                      | 22,697  |              |   |          | 22,781  |       
|                                           | Assets held for sale                                                                                            |                            |                                      | 5,402   |              |   |          | 5,402   |       
|                                           | Deferred membership origination costs, less current portion                                                     |                            |                                      | 7,449   |              |   |          | 7,337   |       
|                                           | Net deferred tax assets                                                                                         |                            |                                      | 795     |              |   |          | 296     |       
|                                           | Other assets                                                                                                    |                            |                                      | 295     |              |   |          | 755     |       
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|Total Assets                               |                                                                                                                 | $                          | 93,415                               |         |              | $ | 92,240   |        
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|                                           |                                                                                                                 |                            | Liabilities and Shareholders Equity |         |              |   |          |         |        |  | 
|Current Liabilities                        |                                                                                                                 |                            |                                      |         |              |   |          |        
|                                           | Accounts payable                                                                                                |                            | $                                    | 1,527   |              |   | $        | 2,665   |       
|                                           | Other accrued liabilities                                                                                       |                            |                                      | 6,335   |              |   |          | 8,108   |       
|                                           | Current portion of deferred revenue                                                                             |                            |                                      | 33,524  |              |   |          | 34,212  |       
|                                           | Other current liabilities                                                                                       |                            |                                      | 166     |              |   |          | 364     |       
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|                                           |                                                                                                                 | Total Current Liabilities  |                                      |         | 41,552       |   |          |         | 45,349 | 
|                                           | Deferred revenue, less current portion                                                                          |                            |                                      | 25,795  |              |   |          | 24,984  |       
|                                           | Other liabilities                                                                                               |                            |                                      | 1,304   |              |   |          | 1,244   |       
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|                                           |                                                                                                                 | Total Liabilities          |                                      |         | 68,651       |   |          |         | 71,577 | 
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|Commitments and Contingencies              |                                                                                                                 |                            |                                      |         |              |   |          |        
|Shareholders Equity                       |                                                                                                                 |                            |                                      |         |              |   |          |        
|                                           | Preferred stock, $.01 par value, 1,500,000 shares authorized, none issued                                       |                            |                                      |         |              |   |          |         |       
|                                           | Common stock, $.01 par value, 15,000,000 shares authorized, 8,470,228 and
8,395,528 shares issued, respectively |                            |                                      | 85      |              |   |          | 84      |       
|                                           | Additional paid-in capital                                                                                      |                            |                                      | 22,708  |              |   |          | 22,596  |       
|                                           | Retained earnings                                                                                               |                            |                                      | 13,784  |              |   |          | 9,688   |       
|                                           | Accumulated other comprehensive loss                                                                            |                            |                                      | (185    | )            |   |          | (132    | )     
|                                           | Treasury stock, 1,505,211 and 1,477,912 shares, respectively                                                    |                            |                                      | (11,628 | )            |   |          | (11,573 | )     
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|                                           |                                                                                                                 | Total Shareholders Equity |                                      |         | 24,764       |   |          |         | 20,663 | 
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       
|Total Liabilities and Shareholders Equity |                                                                                                                 | $                          | 93,415                               |         |              | $ | 92,240   |        
|                                           |                                                                                                                 |                            |                                      |         |              |   |          |         |       

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

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

|                                               |                                      |                          |                |        |                                       |        |        |        |       |        | 
|---------------------------------------------- | ------------------------------------ | ------------------------ | -------------- | ------ | ------------------------------------- | ------ | ------ | ------ | ----- | ------ | 
|                                               |                                      |                          |                |        | For the six months ended December 31,
|                                               |                                      |                          |                |        |                                      
|                                               |                                      |                          |                |        | 2002                                  |        | 2001  
|                                               |                                      |                          |                |        |                                       |        |       
|Revenues                                       |                                      |                          |                |        |                                       |        |        |       
|                                               | Membership contracts originated      |                          | $              | 13,981 |                                       |        | $      | 12,937 |      
|                                               | Change in deferred revenue           |                          |                | (3,373 | )                                     |        |        | (5,374 | )    
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|                                               |                                      | Membership sales revenue |                |        | 10,608                                |        |        |        | 7,563 |       
|                                               | Membership dues                      |                          |                | 20,141 |                                       |        |        | 20,073 |      
|                                               | Other campground revenue             |                          |                | 9,638  |                                       |        |        | 10,086 |      
|                                               | Trails Management revenue            |                          |                | 3,252  |                                       |        |        | 3,416  |      
|                                               | RPI membership fees                  |                          |                | 1,547  |                                       |        |        | 1,686  |      
|                                               | Interest income                      |                          |                | 1,268  |                                       |        |        | 1,030  |      
|                                               | Gain on asset sales                  |                          |                | 2      |                                       |        |        | 155    |      
|                                               | Other income                         |                          |                | 1,233  |                                       |        |        | 1,237  |      
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|                                               |                                      |                          | Total Revenues |        |                                       | 47,689 |        |        |       | 45,246 | 
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Expenses                                       |                                      |                          |                |        |                                       |        |        |       
|                                               | Campground operating expenses        |                          |                | 22,868 |                                       |        |        | 22,459 |      
|                                               | Membership origination costs         |                          |                | 6,342  |                                       |        |        | 6,123  |      
|                                               | Change in deferred origination costs |                          |                | (882   | )                                     |        |        | (1,705 | )    
|                                               | Marketing expenses                   |                          |                | 3,099  |                                       |        |        | 3,062  |      
|                                               | Trails Management expenses           |                          |                | 2,892  |                                       |        |        | 2,983  |      
|                                               | RPI membership expenses              |                          |                | 801    |                                       |        |        | 899    |      
|                                               | Corporate member services            |                          |                | 682    |                                       |        |        | 734    |      
|                                               | Interest expense and amortization    |                          |                | 6      |                                       |        |        | 23     |      
|                                               | General and administrative expenses  |                          |                | 5,217  |                                       |        |        | 4,718  |      
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|                                               |                                      |                          | Total Expenses |        |                                       | 41,025 |        |        |       | 39,296 | 
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Income Before Income Taxes                     |                                      |                          | 6,664          |        |                                       |        | 5,950  |       
|Income Taxes                                  |                                      |                          |                |        |                                       |        |        |       
|                                               | Income tax provision  current       |                          |                | (2,832 | )                                     |        |        | (1,545 | )    
|                                               | Income tax provision  deferred      |                          |                | 264    |                                       |        |        | (541   | )    
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|                                               |                                      |                          | (2,568         | )      |                                       |        | (2,086 | )     
|Net Income                                     |                                      | $                        | 4,096          |        |                                       | $      | 3,864  |       
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Net Income per Share  Basic                   |                                      | $                        | .59            |        |                                       | $      | .47    |       
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Net Income per Share  Diluted                 |                                      | $                        | .54            |        |                                       | $      | .45    |       
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                       |        |        |       
|                                               | Basic                                |                          |                | 6,933  |                                       |        |        | 8,163  |      
|                                               |                                      |                          |                |        |                                       |        |        |        |      
|                                               | Diluted                              |                          |                | 7,655  |                                       |        |        | 8,608  |      
|                                               |                                      |                          |                |        |                                       |        |        |        |      

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,
|                                               |                                      |                          |                |        |                                        
|                                               |                                      |                          |                |        | 2002                                    |        | 2001 
|                                               |                                      |                          |                |        |                                         |        |      
|Revenues                                       |                                      |                          |                |        |                                         |        |       |       
|                                               | Membership contracts originated      |                          | $              | 6,249  |                                         |        | $     | 5,669  |      
|                                               | Change in deferred revenue           |                          |                | (947   | )                                       |        |       | (1,792 | )    
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|                                               |                                      | Membership sales revenue |                |        | 5,302                                   |        |       |        | 3,877 |       
|                                               | Membership dues                      |                          |                | 10,034 |                                         |        |       | 10,002 |      
|                                               | Other campground revenue             |                          |                | 3,133  |                                         |        |       | 3,286  |      
|                                               | Trails Management revenue            |                          |                | 80     |                                         |        |       | 113    |      
|                                               | RPI membership fees                  |                          |                | 605    |                                         |        |       | 798    |      
|                                               | Interest income                      |                          |                | 658    |                                         |        |       | 506    |      
|                                               | Gain on asset sales                  |                          |                | 6      |                                         |        |       | 173    |      
|                                               | Other income                         |                          |                | 535    |                                         |        |       | 556    |      
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|                                               |                                      |                          | Total Revenues |        |                                         | 20,353 |       |        |       | 19,311 | 
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Expenses                                       |                                      |                          |                |        |                                         |        |       |       
|                                               | Campground operating expenses        |                          |                | 9,669  |                                         |        |       | 9,449  |      
|                                               | Membership origination costs         |                          |                | 2,837  |                                         |        |       | 2,954  |      
|                                               | Change in deferred origination costs |                          |                | (261   | )                                       |        |       | (627   | )    
|                                               | Marketing expenses                   |                          |                | 1,458  |                                         |        |       | 1,340  |      
|                                               | Trails Management expenses           |                          |                | 363    |                                         |        |       | 281    |      
|                                               | RPI membership expenses              |                          |                | 387    |                                         |        |       | 504    |      
|                                               | Corporate member services            |                          |                | 307    |                                         |        |       | 432    |      
|                                               | Interest expense and amortization    |                          |                | 4      |                                         |        |       | 18     |      
|                                               | General and administrative expenses  |                          |                | 2,681  |                                         |        |       | 2,325  |      
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|                                               |                                      |                          | Total Expenses |        |                                         | 17,445 |       |        |       | 16,676 | 
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Income Before Income Taxes                     |                                      |                          | 2,908          |        |                                         |        | 2,635 |       
|Income Taxes                                  |                                      |                          |                |        |                                         |        |       |       
|                                               | Income tax provision  current       |                          |                | (1,398 | )                                       |        |       | (786   | )    
|                                               | Income tax provision  deferred      |                          |                | 278    |                                         |        |       | (138   | )    
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|                                               |                                      |                          | (1,120         | )      |                                         |        | (924  | )     
|Net Income                                     |                                      | $                        | 1,788          |        |                                         | $      | 1,711 |       
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Net Income per Share  Basic                   |                                      | $                        | .26            |        |                                         | $      | .21   |       
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Net Income per Share  Diluted                 |                                      | $                        | .23            |        |                                         | $      | .20   |       
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|Shares Used to Calculate Net Income Per Share: |                                      |                          |                |        |                                         |        |       |       
|                                               | Basic                                |                          |                | 6,946  |                                         |        |       | 8,155  |      
|                                               |                                      |                          |                |        |                                         |        |       |        |      
|                                               | Diluted                              |                          |                | 7,627  |                                         |        |       | 8,597  |      
|                                               |                                      |                          |                |        |                                         |        |       |        |      

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, 2002
(Dollars in thousands)
(Unaudited)

|                                                      |  |               |       |        |  |         |    |          |  |               |        |          |  |       |        |       |  |             |      |   |  |   |         |   |  |   |        |  
|----------------------------------------------------- |  | ------------- | ----- | ------ |  | ------- | -- | -------- |  | ------------- | ------ | -------- |  | ----- | ------ | ----- |  | ----------- | ---- | - |  | - | ------- | - |  | - | ------ | -
|                                                      |  |               |       |        |  |         |    |          |  |               |        |          |  |       |        |       |  | Accumulated |      |   |  |   |         |   |  |  
|                                                      |  |               |       |        |  |         |    |          |  | Additional    |        |          |  |       |        | Other |  |             |      |   |  |   |         |  
|                                                      |  | Comprehensive |       | Common |  | Paid-In |    | Retained |  | Comprehensive |        | Treasury
|                                                      |  | Income        |       | Stock  |  | Capital |    | Earnings |  | Loss          |        | Stock    |  | Total
|                                                      |  |               |       |        |  |         |    |          |  |               |        |          |  |      
|Balance, July 1, 2002                                 |  |               |      |        |  | $       | 84 |          |  | $             | 22,596 |          |  | $     | 9,688  |       |  | $           | (132 | ) |  | $ | (11,573 | ) |  | $ | 20,663 |  
|Issuance of common stock                              |  |               |      |        |  |         | 1  |          |  |               | 112    |          |  |       |       |       |  |             |     |   |  |   |        |   |  |   | 113    |  
|Purchase of treasury stock                            |  |               |      |        |  |         |   |          |  |               |       |          |  |       |       |       |  |             |     |   |  |   | (55     | ) |  |   | (55    | )
|Net income for the six
months ended December 31,
2002 |  |               | 4,096 |        |  |         |   |          |  |               |       |          |  |       | 4,096  |       |  |             |     |   |  |   |        |   |  |   | 4,096  |  
|Other comprehensive loss                              |  |               | (53   | )      |  |         |   |          |  |               |       |          |  |       |       |       |  |             | (53  | ) |  |   |        |   |  |   | (53    | )
|                                                      |  |               |       |        |  |         |    |          |  |               |        |          |  |       |        |       |  |             |      |   |  |   |         |   |  |   |        |  
|Balance, December 31, 2002                            |  | $             | 4,043 |        |  | $       | 85 |          |  | $             | 22,708 |          |  | $     | 13,784 |       |  | $           | (185 | ) |  | $ | (11,628 | ) |  | $ | 24,764 |  
|                                                      |  |               |       |        |  |         |    |          |  |               |        |          |  |       |        |       |  |             |      |   |  |   |         |   |  |   |        |  

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,
|                                                    |                                                                |  |                                      
|                                                    |                                                                |  | 2002                                  |         | 2001
|                                                    |                                                                |  |                                       |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES:               |                                                                |  |                                       |         |      |  |        |        
|                                                    | Collections of principal on receivables                        |  | $                                     | 3,470   |      |  | $      | 2,664   |  
|                                                    | Interest received                                              |  |                                       | 1,268   |      |  |        | 1,030   |  
|                                                    | Interest paid                                                  |  |                                       | (6      | )    |  |        | (23     | )
|                                                    | General and administrative and corporate member services costs |  |                                       | (6,270  | )    |  |        | (6,283  | )
|                                                    | Cash collected from operations, including deferred revenue     |  |                                       | 32,458  |      |  |        | 33,273  |  
|                                                    | Cash from sales of memberships                                 |  |                                       | 10,435  |      |  |        | 9,263   |  
|                                                    | Expenditures for property operations                           |  |                                       | (24,996 | )    |  |        | (24,481 | )
|                                                    | Expenditures for sales and marketing                           |  |                                       | (9,552  | )    |  |        | (9,170  | )
|                                                    | Expenditures for insurance premiums                            |  |                                       | (1,208  | )    |  |        | (1,300  | )
|                                                    | Payment of income taxes                                        |  |                                       | (3,031  | )    |  |        | (1,495  | )
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|Net cash provided by operating activities           |                                                                |  | 2,568                                 |         |      |  | 3,478  |        
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:               |                                                                |  |                                       |         |      |  |        |        
|                                                    | Net purchase of marketable securities                          |  |                                       | (1,315  | )    |  |        |        |  
|                                                    | Capital expenditures                                           |  |                                       | (1,582  | )    |  |        | (2,722  | )
|                                                    | Proceeds from asset sales                                      |  |                                       | 55      |      |  |        | 384     |  
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|Net cash used in investing activities               |                                                                |  | (2,842                                | )       |      |  | (2,338 | )      
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:               |                                                                |  |                                       |         |      |  |        |        
|                                                    | Purchase of treasury stock                                     |  |                                       | (55     | )    |  |        | (714    | )
|                                                    | Payment of notes                                               |  |                                       | (30     | )    |  |        | (38     | )
|                                                    | Issuance of common stock                                       |  |                                       | 113     |      |  |        | 22      |  
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|Net cash provided by (used in) financing activities |                                                                |  | 28                                    |         |      |  | (730   | )      
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    |                                                                |  | (246                                  | )       |      |  | 410    |        
|CASH AND CASH EQUIVALENTS                           |                                                                |  |                                       |         |      |  |        |        
|                                                    | Beginning of period                                            |  |                                       | 4,180   |      |  |        | 9,016   |  
|                                                    |                                                                |  |                                       |         |      |  |        |         |  
|                                                    | End of period                                                  |  | $                                     | 3,934   |      |  | $      | 9,426   |  
|                                                    |                                                                |  |                                       |         |      |  |        |         |  

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,
|                                                                                   |                                                 |   |                                      
|                                                                                   |                                                 |   | 2002                                  |        | 2001
|                                                                                   |                                                 |   |                                       |        |     
|Reconciliation of net income to net cash provided by
operating activities:         |                                                 |   |                                       |        |      |   |       |       
|Net Income                                                                         |                                                 | $ | 4,096                                 |        |      | $ | 3,864 |       
|                                                                                   |                                                 |   |                                       |        |      |   |       |       
|Adjustments to reconcile net income to net cash
provided by operating activities  |                                                 |   |                                       |        |      |   |       |       
|                                                                                   | Depreciation                                    |   |                                       | 1,613  |      |   |       | 1,435  |  
|                                                                                   | Bad debt provision                              |   |                                       | 342    |      |   |       | 504    |  
|                                                                                   | Change in deferred sales revenue                |   |                                       | 3,373  |      |   |       | 5,374  |  
|                                                                                   | Change in deferred membership origination costs |   |                                       | (882   | )    |   |       | (1,705 | )
|                                                                                   | Gain on asset sales                             |   |                                       | (2     | )    |   |       | (155   | )
|                                                                                   | Deferred income tax provision                   |   |                                       | (264   | )    |   |       | 541    |  
|                                                                                   | Increase in receivables                         |   |                                       | (1,739 | )    |   |       | (1,080 | )
|                                                                                   | Decrease in other assets                        |   |                                       | 2,353  |      |   |       | 328    |  
|                                                                                   | Decrease in accounts payable                    |   |                                       | (1,138 | )    |   |       | (1,139 | )
|                                                                                   | Decrease in deferred dues                       |   |                                       | (2,862 | )    |   |       | (2,833 | )
|                                                                                   | Decrease in other liabilities                   |   |                                       | (2,269 | )    |   |       | (1,655 | )
|                                                                                   | Other, net                                      |   |                                       | (53    | )    |   |       | (1     | )
|                                                                                   |                                                 |   |                                       |        |      |   |       |       
|Total adjustments                                                                  |                                                 |   | (1,528                                | )      |      |   | (386  | )     
|                                                                                   |                                                 |   |                                       |        |      |   |       |       
|Net cash provided by operating activities                                          |                                                 | $ | 2,568                                 |        |      | $ | 3,478 |       
|                                                                                   |                                                 |   |                                       |        |      |   |       |       

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, 2002

(Unaudited)

NOTE 1  NATURE OF OPERATIONS

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

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

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

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

All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the six and
three month periods ended December 31, 2002 and 2001, and in the consolidated
balance sheets as of December 31, 2002 and June 30, 2002.

Reclassification

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

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NOTE 2  COMPREHENSIVE INCOME

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

Currently, the Companys items of other comprehensive income consist of its
foreign currency translation and unrealized gains on marketable securities held
as available for sale. The Company translates the balance sheet of its
Canadian subsidiary into U.S. dollars at exchange rates in effect at the
balance sheet date. Profit and loss accounts are translated monthly at
exchange rates in effect at that time. Unrealized gains on marketable
securities are calculated as the difference between the carrying amount and the
fair market value of the Companys marketable securities.

The following table provides statements of comprehensive income for the six and
three months ended December 31, 2002 and 2001 (dollars in thousands):

|                                         |  |                          |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ------------------------ | ----- | -------------------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                         |  | For the six months ended |       | For the three months ended
|                                         |  | December 31,             |       | December 31,              
|                                         |  |                          |       |                           
|                                         |  | 2002                     |       | 2001                       |  | 2002 |       | 2001
|                                         |  |                          |       |                            |  |      |       |     
|                                         |  | (Unaudited)              |       | (Unaudited)               
|Net Income                               |  | $                        | 4,096 |                            |  | $    | 3,864 |      |  | $ | 1,788 |  |  | $ | 1,711 | 
|Other Comprehensive Income:              |  |                          |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|Unrealized loss on marketable securities |  |                          | (53   | )                          |  |      |      |      |  |   |      |  |  |   |      | 
|Foreign currency translation Adjustment  |  |                          |      |                            |  |      | (1    | )    |  |   |      |  |  |   |      | 
|                                         |  |                          |       |                            |  |      |       |      |  |   |       |  |  |   |       | 
|Comprehensive Income                     |  | $                        | 4,043 |                            |  | $    | 3,863 |      |  | $ | 1,788 |  |  | $ | 1,711 | 
|                                         |  |                          |       |                            |  |      |       |      |  |   |       |  |  |   |       | 

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.

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

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

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

|                                  |  |                                    |        |     |  |            |       |           |  |              |       |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | ---------------------------------- | ------ | --- |  | ---------- | ----- | --------- |  | ------------ | ----- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Six months ended December 31, 2002
|                                  |  |                                   
|                                  |  |                                    |        |     |  |            |       |           |  | Trails       |       | Corporate |  |   |        |  
|                                  |  | Campgrounds                        |        | RPI |  | Management |       | and Other |  | Consolidated
|                                  |  |                                    |        |     |  |            |       |           |  |             
|Operating revenues                |  | $                                  | 29,779 |     |  | $          | 1,547 |           |  | $            | 3,252 |           |  | $ | 19     |   |  | $ | 34,597 | 
|Membership sales
revenue          |  |                                    | 10,608 |     |  |            |      |           |  |              |      |           |  |   |       |   |  |   | 10,608 | 
|Income (loss)
before income taxes |  |                                    | 8,960  |     |  |            | 746   |           |  |              | 360   |           |  |   | (3,402 | ) |  |   | 6,664  | 

|                                  |  |                                    |        |     |  |            |       |           |  |              |       |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | ---------------------------------- | ------ | --- |  | ---------- | ----- | --------- |  | ------------ | ----- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | 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  | 

|                                  |  |                                      |        |     |  |            |     |           |  |              |      |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | ------------------------------------ | ------ | --- |  | ---------- | --- | --------- |  | ------------ | ---- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | Three months ended December 31, 2002
|                                  |  |                                     
|                                  |  |                                      |        |     |  |            |     |           |  | Trails       |      | Corporate |  |   |        |  
|                                  |  | Campgrounds                          |        | RPI |  | Management |     | and Other |  | Consolidated
|                                  |  |                                      |        |     |  |            |     |           |  |             
|Operating revenues                |  | $                                    | 13,167 |     |  | $          | 605 |           |  | $            | 80   |           |  | $ | (3     | ) |  | $ | 13,849 | 
|Membership sales
revenue          |  |                                      | 5,302  |     |  |            |    |           |  |              |     |           |  |   |       |   |  |   | 5,302  | 
|Income (loss)
before income taxes |  |                                      | 4,766  |     |  |            | 218 |           |  |              | (283 | )         |  |   | (1,793 | ) |  |   | 2,908  | 

|                                  |  |                                      |        |     |  |            |     |           |  |              |      |           |  |   |        |   |  |   |        | 
|--------------------------------- |  | ------------------------------------ | ------ | --- |  | ---------- | --- | --------- |  | ------------ | ---- | --------- |  | - | ------ | - |  | - | ------ | 
|                                  |  | 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  | 

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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,
2002 and 2001, 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,              
|                                            |                  |   |                          |     |                           
|                                            |                  |   | 2002                     |     | 2001                       |   | 2002  |     | 2001
|                                            |                  |   |                          |     |                            |   |       |     |     
|                                            |                  |   | (Unaudited)              |     | (Unaudited)               
|Net Income                                  |                  | $ | 4,096                    |     |                            | $ | 3,864 |     |      | $ | 1,788 |     |  | $ | 1,711 |    
|                                            |                  |   |                          |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Weighted Average Number of Shares  Basic   |                  |   | 6,933                    |     |                            |   | 8,163 |     |      |   | 6,946 |     |  |   | 8,155 |    
|                                            | Dilutive Options |   |                          | 722 |                            |   |       | 445 |      |   |       | 681 |  |   |       | 442 | 
|                                            |                  |   |                          |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Weighted Average Number of Shares 
Diluted |                  |   | 7,655                    |     |                            |   | 8,608 |     |      |   | 7,627 |     |  |   | 8,597 |    
|                                            |                  |   |                          |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Net Income Per Share  Basic                |                  | $ | .59                      |     |                            | $ | .47   |     |      | $ | .26   |     |  | $ | .21   |    
|                                            |                  |   |                          |     |                            |   |       |     |      |   |       |     |  |   |       |    
|Net Income Per Share  Diluted              |                  | $ | .54                      |     |                            | $ | .45   |     |      | $ | .23   |     |  | $ | .20   |    
|                                            |                  |   |                          |     |                            |   |       |     |      |   |       |     |  |   |       |    

NOTE 5  LONG TERM DEBT

Line of Credit with Union Bank

The Company has a $15.0 million revolving, secured line of credit (Line of
Credit) with Union Bank of California, N.A. (Union Bank). Borrowings under
the Line of Credit carry an interest rate of prime minus 0.75%. The Company
may borrow, repay and reborrow under the Line of Credit from time to time,
provided, however, that for at least one day during each twelve-month period,
the principal amount outstanding under the Line of Credit must be not more than
$5.0 million. 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.

On December 31, 2002, the Company had no outstanding borrowings under the Line
of Credit. The Companys availability under the Line of Credit has been
reduced by $1.1 million as a result of the issuance of a letter of credit to
secure obligations that may arise in the future under the Companys insurance
program.

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

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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.

NOTE 6  CONTINGENCIES

General Liability Insurance

The Companys general liability insurance requires the Company to pay the first
$250,000 per occurrence, with an annual aggregate exposure of $2.0 million.
The Company has provided a liability for estimated known and unknown claims
related to uninsured general liability risks based on actuarial estimates. As
of December 31, 2002 and June 30, 2002, the Companys recorded liability for
estimated losses related to uninsured general liability claims totaled
approximately $655,000 and $567,000, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets.

Environmental Issues

Certain 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.

Litigation

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

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

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

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

In this Managements Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows and business strategies, plans and conditions for periods after December
31, 2002. All of these statements are forward-looking statements made pursuant
to the safe harbor provisions of Section 21 (E) of the Securities Exchange Act
of 1934, as amended. These statements are not historical and involve risks and
uncertainties. The Companys actual financial condition, results of
operations, cash flows and business strategies, plans and conditions for future
periods may differ materially due to several factors, including but not limited
to the Companys ability to control costs, campground market conditions and
other factors affecting the Companys sales and marketing plan, the actual rate
of decline in the campground membership base, the actual use of the campgrounds
by members and guests, the Companys success in collecting its contracts
receivable and selling assets, the Companys success in acquiring members
through the purchase of other membership campground operations and the other
factors affecting the Companys operations described in this report and other
reports filed by the Company with the SEC.

LIQUIDITY AND CAPITAL RESOURCES

Current Business Strategy.The Companys current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts and the acquisition of members
through the purchase of other membership campground operations. The Company
believes there is a viable market for campground memberships and that it has a
significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds.

Over the past decade, the Companys membership base has been declining,
although the Company has been successful in slowing the rate of this decline.
In response to this attrition, the Company has downsized its business by
closing and disposing of campgrounds and decreasing campground operating costs
and general and administrative expenses. The Company intends to continue to
keep the size of its campground system in an appropriate relation to the size
of its membership base. In this regard, if the membership base continues to
decline, or other opportunities arise consistent with the needs of the members,
the Company may close and dispose of additional campgrounds and it will seek to
decrease other expenses. At the same time, the Company has expanded its sales
and marketing efforts with a view to stopping the membership decline. The
Company has also acquired members through the purchase of Leisure Time, and it
intends to explore the possible acquisition of additional members through the
purchase of other membership campground organizations. However, at this time,
the Company

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has not identified any realistic acquisition candidates. The Company believes
that the ultimate size of its campground system and the amounts realized from
future asset sales will depend principally upon the degree to which the Company
can successfully implement this strategy.

Cash.On December 31, 2002, the Company had $3.9 million of cash and cash
equivalents, a decrease of $246,000 from June 30, 2002. During the six months
ended December 31, 2002, the Companys operating activities provided $2.6
million of cash, its investing activities used
$2.8 million of cash, and its financing activities provided $28,000 of cash.
The Companys investing activities consisted of net purchases of $1.3 million
in marketable securities and $1.6 million in capital expenditures, partially
offset by $55,000 in proceeds from asset sales. The Companys financing
activities consisted of $113,000 of proceeds from the exercise of employee
stock options and sales of shares through the Companys employee stock purchase
plan, partially offset by $30,000 in payments on notes payable.

With respect to the Companys operating activities, for the six months ended
December 31, 2002, the principal sources of operating cash were $32.5 million
from operations, $4.7 million in principal and interest collections on
contracts receivable and invested cash, and $10.4 million from sales of
campground memberships. Principal uses of operating cash for the six months
ended December 31, 2002, were $25.0 million in operating expenses, $6.3 million
in administrative expenses (including general and administrative expenses and
corporate member services costs), $9.6 million in membership origination costs
and marketing expenses, $1.2 million in insurance premiums, and $3.0 million in
income taxes. The Companys income tax payments were $1.5 million higher in
the current period than in the same period last year because the Company had
fully utilized its tax loss carryforwards by the end of fiscal 2002.
Similarly, the Company expects its income tax payments for the balance of
fiscal 2003 will be higher than the amounts it paid for the same period last
year.

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.

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.

As of the date of this report, the Company had no outstanding borrowings under
its Line of Credit, and it had the ability to borrow an additional $13.9
million for working capital purposes. The Companys availability under its
Line of Credit has been reduced by $1.1 million as a result of the issuance of
a letter of credit to secure obligations that may arise in the future under the
Companys insurance program. At its current level of operations, the Company
believes its cash reserves will increase during the balance of fiscal 2003.
The amount of cash the Company is able to accumulate will depend on a number of
factors including its ability to control costs, its

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success in collecting its contracts receivable and selling assets, and the
other factors affecting the Companys operations described in this report.
Based upon its current business plan, the Company believes that future cash
flows provided from operations, asset sales 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 $1.2
million during the six months ended December 31, 2002. Marketable securities
available for sale increased $1.3 million, contracts receivable increased by
$1.4 million due primarily to an increase in the percentage of financed sales,
and deferred membership origination costs increased $882,000. Cash decreased
by $246,000 as discussed above. Other current assets decreased by $1.9 million
due primarily to the collection of a receivable arising from a sale of assets
and a decrease in accounts receivable from advertisers in the Companys member
magazine, partially offset by increases in prepaid property taxes and
insurance. Deferred tax assets increased by $264,000 in the current period as
a result of a deferred tax benefit recognized in the current period.

Total liabilities decreased by $2.9 million during the six months ended
December 31, 2002, 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 $2.9 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 $1.8 million due
primarily to payments of accrued wages and benefits. Deferred sales revenue
increased by $3.4 million due to an increase in membership contracts originated
over historical rates.

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

The Company has an investment in marketable securities, which consists of
shares in a mutual fund that invests a majority of its assets in adjustable
rate mortgage securities issued or guaranteed by the U.S. government, with the
remaining assets invested in U.S. government obligations. Changes in interest
rates may affect the fair value of the mutual fund shares as well as the amount
of interest received. However, the risks associated with this investment are
mitigated because the fund seeks to minimize portfolio volatility by limiting
the duration of its investments to that of a six-month to one-year U.S.
Treasury security. At December 31, 2002, the Companys investment in this
mutual fund totaled $6.7 million, and it recorded an unrealized loss of $53,000
on this investment during the six months then ended. The Company invests the
balance of its available cash in money market funds that provide relatively low
rates of return and, thus, have little exposure to changes in interest rates.

The Company finances a portion of its membership sales creating contracts
receivable. At December 31, 2002, the Company had $13.3 million of contracts
receivable which have a weighted average interest rate of 14% and an average
remaining term of 29 months. The Company is not exposed to changes in interest
rates related to the collection of its contracts receivable because the
interest rates on the contracts receivable are fixed. Changes in interest

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rates could affect the value of the Companys contracts receivable; however,
the Company generally holds such contracts receivable to maturity.

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

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

The Company does not use financial instruments for trading purposes.

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

RESULTS OF OPERATIONS

The following discussion and analysis are based on the historical results of
operations of the Company for the six months ended December 31, 2002 and 2001.
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, 2002 and 2001

Net Income.The Company reported net income of $4.1 million or $.54 per
diluted share on revenues of $47.7 million for the six months ended December
31, 2002. This compares with net income of $3.9 million or $.45 per diluted
share on revenues of $45.2 million for the same period last year.

The Companys revenues grew $2.4 million in the current period due primarily to
increased membership sales revenue and interest income. Membership sales
revenue was higher in the current period 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 higher costs for insurance and
employee benefits.

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, 2002 and 2001.

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

|                                                                         |                                      |                          |       |                  |        |      |       |         |       | 
|------------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ----- | ---------------- | ------ | ---- | ----- | ------- | ----- | 
|                                                                         |                                      |                          |       | Six Months Ended
|                                                                         |                                      |                          |       | December 31,    
|                                                                         |                                      |                          |       |                 
|                                                                         |                                      |                          |       | 2002             |        | 2001
|                                                                         |                                      |                          |       |                  |        |     
|Campground Operations                                                    |                                      |                          |       |                  |        |      |       |        
|                                                                         | Membership dues                      |                          | $     | 20,141           |        |      | $     | 20,073  |      
|                                                                         | Campground revenues                  |                          |       | 9,638            |        |      |       | 10,086  |      
|                                                                         | Cost of campground revenues          |                          |       | (4,141           | )      |      |       | (4,320  | )    
|                                                                         | Operating expenses                   |                          |       | (18,727          | )      |      |       | (18,139 | )    
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Contribution from campground operations                                  |                                      |                          | 6,911 |                  |        |      | 7,700 |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Sales                                                                    |                                      |                          |       |                  |        |      |       |        
|                                                                         | Membership contracts originated      |                          |       | 13,981           |        |      |       | 12,937  |      
|                                                                         | Change in deferred revenue           |                          |       | (3,373           | )      |      |       | (5,374  | )    
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|                                                                         |                                      | Membership sales revenue |       |                  | 10,608 |      |       |         | 7,563 | 
|                                                                         | Membership origination costs         |                          |       | (6,342           | )      |      |       | (6,123  | )    
|                                                                         | Change in deferred origination costs |                          |       | 882              |        |      |       | 1,705   |      
|                                                                         | Marketing expenses                   |                          |       | (3,099           | )      |      |       | (3,062  | )    
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Contribution from sales                                                  |                                      |                          | 2,049 |                  |        |      | 83    |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Trails Management                                                        |                                      |                          |       |                  |        |      |       |        
|                                                                         | Revenues                             |                          |       | 3,252            |        |      |       | 3,416   |      
|                                                                         | Expenses                             |                          |       | (2,892           | )      |      |       | (2,983  | )    
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Contribution from Trails Management                                      |                                      |                          | 360   |                  |        |      | 433   |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Resort Parks International                                               |                                      |                          |       |                  |        |      |       |        
|                                                                         | Revenues                             |                          |       | 1,547            |        |      |       | 1,686   |      
|                                                                         | Expenses                             |                          |       | (801             | )      |      |       | (899    | )    
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Contribution from RPI                                                    |                                      |                          | 746   |                  |        |      | 787   |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|                                                                         | Other income                         |                          |       | 1,214            |        |      |       | 1,193   |      
|                                                                         | Corporate member services            |                          |       | (682             | )      |      |       | (734    | )    
|                                                                         | General and administrative expense   |                          |       | (5,217           | )      |      |       | (4,718  | )    
|                                                                         | Other                                |                          |       | 19               |        |      |       | 44      |      
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Income before interest income and expense,
gain on asset sales and taxes |                                      |                          | 5,400 |                  |        |      | 4,788 |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|                                                                         | Interest income                      |                          |       | 1268             |        |      |       | 1,030   |      
|                                                                         | Interest expense                     |                          |       | (6               | )      |      |       | (23     | )    
|                                                                         | Gain on asset sales                  |                          |       | 2                |        |      |       | 155     |      
|                                                                         |                                      |                          |       |                  |        |      |       |         |      
|Income before taxes                                                      |                                      | $                        | 6,664 |                  |        | $    | 5,950 |        
|                                                                         |                                      |                          |       |                  |        |      |       |         |      

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Operating Income.For the six months ended December 31, 2002, the Companys
contribution from operations was $5.4 million, compared with $4.8 million for
the same period last year. The increase in operating income resulted primarily
from a $1.9 million increase in the contribution from the Companys sales
operations, partially offset by decreases in the contributions from campground
operations, Trails Management, and RPI, and an increase in general and
administrative expenses. 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, 2002 and 2001. Dues revenue remained constant because the effect
of the annual dues increase offset the net loss of campground members during
the year.

Other campground revenues were $9.6 million for the six months ended December
31, 2002, compared with $10.1 million for the same period last year. The
related expenses were
$4.1 million for the six months ended December 31, 2002, compared with $4.3
million for the same period last year. Campground revenues decreased due
primarily to decreases in revenues from guest fees, food service programs, and
cabin and trailer rentals, partially offset by an increase in utility usage
fees implemented to help control utility costs at the Companys campgrounds.
These revenues may have declined in part because of a decrease in usage of the
campgrounds during the current period. The slight decline in the related
expenses was due primarily to decreases in maintenance expenses and the cost of
operating the Companys rental trailers.

Campground operating expenses were $18.7 million for the six months ended
December 31, 2002, compared with $18.1 million for the same period last year.
The increase in campground operating expenses in the current period was due
primarily to a $318,000 increase in employee benefit costs resulting from
rising healthcare costs. In addition, the Company incurred higher
communication and property and liability insurance costs, which were partially
offset by decreases in maintenance expenses as well as administrative expenses
associated with operating the campgrounds.

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

For the six months ended December 31, 2002, the Company originated membership
contracts of $14.0 million, compared with $12.9 million for the same period
last year. In the current period,

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the Company originated the same number of new membership contracts at a higher
average price and a greater number of membership upgrades to its existing
members, compared with the prior period. In the six months ended December 31,
2002, the Company originated approximately 2,000 new membership contracts at an
average sales price of $3,466, compared with approximately 2,000 new membership
contracts at an average sales price of $3,085 in the prior period. In the
current period, the Company also originated approximately 2,000 upgrade
contracts at an average sales price of $2,995, compared with approximately
1,900 upgrade contracts at the same average sales price in the same period last
year.

In the six months ended December 31, 2001, 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.
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,
2002 and 2001, the Company recognized campground membership sales revenues of
$10.6 million and $7.6 million, respectively. Membership sales revenue
includes revenues of $9.3 million and $5.9 million, respectively, that were
deferred in prior periods. Moreover, during these same periods, the Company
deferred revenues of $12.7 million and $11.3 million, respectively, which will
be recognized in future periods.

The net change in deferred revenue was $3.4 million this year, compared with
$5.4 million last year. In fiscal 2001, the Company experienced a large
increase in membership contracts originated, due primarily to the success of
its upgrade programs. In fiscal 2002 and 2003 contract originations have
continued to increase, but at a slower rate. As a result, revenue recognized
from prior periods is beginning to decrease the impact of the deferral of
revenue in the current period. As long as the rate of growth of membership
contract originations is slower in the current period than in prior periods,
the impact of the deferral on the Companys sales revenue will be lower in the
current period as the recognition of revenues deferred in prior periods begins
to outweigh revenue deferred in the current period.

Selling expenses directly related to the sale of campground memberships,
substantially all of which are sales commissions, are deferred and recognized
as expenses on a straight-line basis over the expected life of the memberships
sold. All other selling and marketing costs are recognized as expenses in the
period incurred. For the six months ended December 31, 2002 and 2001, the
Company recognized selling expenses of $5.5 million and $4.4 million,
respectively. These amounts include expenses of $2.8 million and $1.8 million,
respectively, that were deferred in prior periods. Moreover, for these same
periods, the Company deferred expenses of $3.7 million and $3.5 million,
respectively, which will be recognized in future periods.

In the period ended December 31, 2002, the Companys sales revenues exceeded
selling and marketing expenses by $2.0 million, compared with $83,000 during
the same period last year. The Company incurs significant selling and
marketing expenses to originate new membership contracts, and the majority of
these expenses must be expensed in the current period, while the related sales
revenues are generally deferred and recognized on a straight-line basis over
the expected life of the memberships sold. As a result, the Company generally
incurs a loss from the

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

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

Trails Management.Trails Management, a wholly owned subsidiary of the
Company, currently manages 240 public campgrounds for the U.S. Forest Service
and other entities. For the six months ended December 31, 2002, these
operations produced a net contribution of $360,000 on revenues of $3.3 million,
compared with a net contribution of $433,000 on revenues of
$3.4 million for the same period last year. The decrease in contribution in
the current period was due primarily to a decrease in usage fees, which was
only partially offset by a decrease in expenses. Trails Management receives
most of its revenues and incurs most of its expenses during the first fiscal
quarter. During the balance of fiscal 2003, 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, 2002, RPIs operations produced a net contribution of
$746,000 on revenues of $1.5 million, compared with a net contribution of
$787,000 on revenues of $1.7 million for the same period last year. The
decrease in contribution in the current period was due primarily to a decrease
in revenues from new memberships, which was only partially offset by a decrease
in expenses.

Interest Income and Expense.Interest income increased to $1.3 million for the
six months ended December 31, 2002, from $1.0 million 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 growing portfolio of
contracts receivable and invested cash. The Companys portfolio of contracts
receivable increased over the past year as a result of the increase in
membership sales, approximately 38% of which are sold on an installment basis.
The Company expects the interest earned on its portfolio of contracts
receivable and invested cash to increase during the balance of fiscal 2003,
compared with historical levels, as the portfolio continues to grow and the
Company accumulates cash.

Interest expense decreased to $6,000 for the six months ended December 31,
2002, from $23,000 for the same period last year.

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Gain on Asset Sales.The Company recognized a gain of $2,000 on asset sales
for the six months ended December 31, 2002, compared with $155,000 for the same
period last year. The decrease in the current period was due to the timing of
asset sales. Over the next several years, the Company intends to dispose of
the remaining assets it holds for sale.

Other Income.Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections of written-off contracts and delinquent dues,
subscription fees received from members who subscribe to the Companys member
magazine, and fees received from third parties for billing and collection
services. Other income remained constant at $1.2 million for both the six
months ended December 31, 2002 and 2001. In the current period, decreases in
collections of written-off contracts and delinquent dues were offset by
increases in transfer fees and subscription fees to the Companys member
magazine.

Other Expenses.Administrative expenses, including corporate member service
costs and general and administrative expenses, were $5.9 million for the six
months ended
December 31, 2002, compared with $5.5 million for the same period last year.
Expenses increased in the current period due primarily to increases in
maintenance costs and depreciation on the Companys new computer and
communications systems, higher labor and employee benefit costs, and increased
third-party legal fees. In addition, the Company recognized compensation
expense of $224,000 on the purchase of 29,200 shares of its common stock from a
director of the Company. These increases were partially offset by the
elimination of a $180,000 reserve relating to contracts receivable that are no
longer outstanding.

Income Taxes.The Companys current provision for income taxes was $2.8
million for the six months ended December 31, 2002, compared with $1.5 million
for the same period last year. The current provision for the six months ended
December 31, 2002 includes amounts for regular federal corporation income tax
as well as state income taxes in the various states where the Company conducts
its business. For the six months ended December 31, 2001, the Company did not
have federal income taxes payable on a consolidated basis, with the exception
of federal alternative minimum taxes, due to its net operating tax loss
carryforwards. The Company fully utilized its tax loss carryforwards in fiscal
2002. As a result, the Company anticipates that its current provision for
income taxes will be higher for the balance of fiscal 2003 than it was in prior
periods.

The Company recorded a deferred tax benefit of $264,000 for the six months
ended
December 31, 2002, compared with a deferred tax provision of $541,000 for the
same period last year. The deferred tax benefit in the current period was the
result of timing differences related to the Companys deferral of revenue and
expenses from the origination of membership contracts. The Company will
continue to adjust its deferred taxes in future periods, and believes that the
realization of the deferred tax benefit is more likely than not. The deferred
tax provision will not affect current or future income tax payments.

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Three Months Ended December 31, 2002 and 2001

Net Income.The Company reported net income of $1.8 million or $.23 per
diluted share on revenues of $20.4 million for the three months ended December
31, 2002. This compares with net income of $1.7 million or $.20 per diluted
share on revenues of $19.3 million for the same period last year.

The Companys revenues increased in the current period due primarily to
increased membership sales revenue. Expenses were also higher in the current
period due to increased sales and marketing efforts and higher costs for
insurance and employee benefits.

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, 2002 and
2001.

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

|                                                                         |                                      |                          |       |                    |       |      |       |        |       | 
|------------------------------------------------------------------------ | ------------------------------------ | ------------------------ | ----- | ------------------ | ----- | ---- | ----- | ------ | ----- | 
|                                                                         |                                      |                          |       | Three Months Ended
|                                                                         |                                      |                          |       | December 31,      
|                                                                         |                                      |                          |       |                   
|                                                                         |                                      |                          |       | 2002               |       | 2001
|                                                                         |                                      |                          |       |                    |       |     
|Campground Operations                                                    |                                      |                          |       |                    |       |      |       |       
|                                                                         | Membership dues                      |                          | $     | 10,034             |       |      | $     | 10,002 |      
|                                                                         | Campground revenues                  |                          |       | 3,133              |       |      |       | 3,286  |      
|                                                                         | Cost of campground revenues          |                          |       | (1,526             | )     |      |       | (1,564 | )    
|                                                                         | Operating expenses                   |                          |       | (8,143             | )     |      |       | (7,885 | )    
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Contribution from campground operations                                  |                                      |                          | 3,498 |                    |       |      | 3,839 |       
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Sales                                                                    |                                      |                          |       |                    |       |      |       |       
|                                                                         | Membership contracts originated      |                          |       | 6,249              |       |      |       | 5,669  |      
|                                                                         | Change in deferred revenue           |                          |       | (947               | )     |      |       | (1,792 | )    
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|                                                                         |                                      | Membership sales revenue |       |                    | 5,302 |      |       |        | 3,877 | 
|                                                                         | Membership origination costs         |                          |       | (2,837             | )     |      |       | (2,954 | )    
|                                                                         | Change in deferred origination costs |                          |       | 261                |       |      |       | 627    |      
|                                                                         | Marketing expenses                   |                          |       | (1,458             | )     |      |       | (1,340 | )    
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Contribution from sales                                                  |                                      |                          | 1,268 |                    |       |      | 210   |       
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Trails Management                                                        |                                      |                          |       |                    |       |      |       |       
|                                                                         | Revenues                             |                          |       | 80                 |       |      |       | 113    |      
|                                                                         | Expenses                             |                          |       | (363               | )     |      |       | (281   | )    
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Contribution from Trails Management                                      |                                      |                          | (283  | )                  |       |      | (168  | )     
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Resort Parks International                                               |                                      |                          |       |                    |       |      |       |       
|                                                                         | Revenues                             |                          |       | 605                |       |      |       | 798    |      
|                                                                         | Expenses                             |                          |       | (387               | )     |      |       | (504   | )    
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Contribution from RPI                                                    |                                      |                          | 218   |                    |       |      | 294   |       
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|                                                                         | Other income                         |                          |       | 538                |       |      |       | 538    |      
|                                                                         | Corporate member services            |                          |       | (307               | )     |      |       | (432   | )    
|                                                                         | General and administrative expense   |                          |       | (2,681             | )     |      |       | (2,325 | )    
|                                                                         | Other                                |                          |       | (3                 | )     |      |       | 18     |      
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Income before interest income and expense,
gain on asset sales and taxes |                                      |                          | 2,248 |                    |       |      | 1,974 |       
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|                                                                         | Interest income                      |                          |       | 658                |       |      |       | 506    |      
|                                                                         | Interest expense                     |                          |       | (4                 | )     |      |       | (18    | )    
|                                                                         | Gain on asset sales                  |                          |       | 6                  |       |      |       | 173    |      
|                                                                         |                                      |                          |       |                    |       |      |       |        |      
|Income before taxes                                                      |                                      | $                        | 2,908 |                    |       | $    | 2,635 |       
|                                                                         |                                      |                          |       |                    |       |      |       |        |      

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Operating Income.For the three months ended December 31, 2002, the Companys
contribution from operations was $2.2 million, compared with $2.0 million for
the same period last year. The increase in operating income resulted primarily
from a $1.1 million increase in the contribution from the Companys sales
operations, partially offset by decreases in the contributions from campground
operations, Trails Management, and RPI, and an increase in general and
administrative expenses. 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 both the three months ended December 31, 2002 and 2001. Dues revenue
remained constant because the effect of the annual dues increase offset the net
loss of campground members during the year.

Other campground revenues were $3.1 million for the three months ended December
31, 2002, compared with $3.3 million for the same period last year. The
related expenses were $1.5 million for the three months ended December 31,
2002, compared with $1.6 million for the same period last year. Other
campground revenues decreased due primarily to decreases in revenues from food
service programs and usage fees. These revenues may have declined in part
because of a decrease in usage of the campgrounds during the current period.
The slight decline in the related expenses was due primarily to decreases in
the cost of goods sold from the Companys food service programs and costs of
operating the Companys rental trailers.

Campground operating expenses were $8.1 million for the three months ended
December 31, 2002, compared with $7.9 million for same period last year.
Increases in communications, utility and depreciation expenses, and employee
benefit costs, in the current period were only partially offset by decreases in
maintenance and workers compensation expense.

For the three months ended December 31, 2002, the Company originated membership
contracts of $6.2 million, compared with $5.7 million for the same period last
year. In the current period, the Company originated approximately 750 new
membership contracts at an average sales price of $3,324, compared with
approximately 690 new membership contracts at an average sales price of $3,095
in the same period last year. For both the three months ended December 31,
2002 and 2001, the Company originated approximately 1,100 upgrade contracts at
an average sales price of $2,995, and approximately 230 new contracts through
sales agreements with other companies.

In the three months ended December 31, 2001, 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, 2002 and 2001, the Company recognized
campground membership sales revenues of $5.3 million and $3.9 million,
respectively. Membership sales revenue includes revenues of $4.9 million and
$3.2 million, respectively, that were deferred in prior periods. Moreover, for
these same periods, the Company deferred revenues of
$5.8 million and $5.0 million, respectively, which will be recognized in future
periods.

For the three months ended December 31, 2002 and 2001, the Company recognized
selling expenses of $2.6 million and $2.3 million, respectively. These amounts
include expenses of $1.5

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million and $966,000, respectively, that were deferred in prior periods.
Moreover, for these same periods, the Company deferred expenses of $1.7 million
and $1.6 million, respectively, which will be recognized in future periods.

For the three months ended December 31, 2002, sales revenues exceeded selling
and marketing expenses by $1.3 million, compared with $210,000 for the same
period last year. The increase in the contribution from sales was due
primarily to a decline in the net change in deferred revenue, which was
$947,000 this year, compared with $1.8 million last year, reflecting the slower
rate of growth of membership contract originations this year compared with
prior years.

Trails Management.For the three months ended December 31, 2002, the
operations of Trails Management produced a loss of $283,000 on revenues of
$80,000, compared with a loss of $168,000 on revenues of $113,000 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.

Resort Parks International.For the three months ended December 31, 2002,
RPIs operations produced a net contribution of $218,000 on revenues of
$605,000, compared with a net contribution of $294,000 on revenues of $798,000
for the same period last year. The decrease in contribution in the current
period was due primarily to a decrease in revenues from new memberships, which
was only partially offset by a decrease in expenses.

Interest Income and Expense.Interest income increased to $658,000 for the
three months ended December 31, 2002, from $506,000 for the same period last
year. The increase in the current period was due primarily to an increase in
the interest earned on the Companys growing portfolio of contracts receivable
and invested cash.

Interest expense decreased to $4,000 for the three months ended December 31,
2002, from $18,000 for the same period last year.

Gain on Asset Sales.The Company recognized a gain of $6,000 on asset sales
for the three months ended December 31, 2002, compared with $173,000 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 both the three months ended
December 31, 2002 and 2001. In the current period, decreases in collections of
written-off contracts and delinquent dues were offset by increases in transfer
fees and subscription fees to the Companys member magazine.

Other Expenses.Administrative expenses, including corporate member service
costs and general and administrative expenses, were $3.0 million for the three
months ended
December 31, 2002, compared with $2.8 million for the same period last year.
Expenses increased in the current period due primarily to increases in
maintenance costs and depreciation on the Companys new computer and
communications systems, higher labor and employee benefit costs, and increased
third-party legal fees.

Income Taxes.The Companys current provision for income taxes was $1.4
million for the three months ended December 31, 2002, compared with $786,000
for the same period last year.

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The Company recorded a deferred tax benefit of $278,000 for the three months
ended December 31, 2002, compared with a deferred tax provision of $138,000 for
the same period last year.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company currently does not have any derivative financial instruments.
However, the Company does have other financial instruments that contain market
risk. Management believes that the market risk associated with the Companys
financial instruments as of December 31, 2002 is not material. The information
required by Item 305 of Regulation S-K is contained in Item 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations under
the heading Market Risk and Interest Rate Sensitivity.




Item 4. Controls and Procedures

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




Part II. OTHER INFORMATION




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

On November 14, 2002, the Company held its annual meeting of shareholders. As
of the record date for the meeting, the Company had 6,923,017 shares of common
stock outstanding, of which 6,867,714 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
|                  |  |           |           |               
|Arthur H. Baer    |  |           | 6,674,152 |                |  |  | 925 | 
|Andrew M. Boas    |  |           | 6,674,152 |                |  |  | 925 | 
|William P. Kovacs |  |           | 6,674,152 |                |  |  | 925 | 
|Donald R. Leopold |  |           | 6,674,152 |                |  |  | 925 | 
|H. Sean Mathis    |  |           | 6,674,152 |                |  |  | 925 | 
|William J. Shaw   |  |           | 6,674,152 |                |  |  | 925 | 

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|2. |  | The shareholders ratified the appointment of Grant Thornton LLP as the
Companys independent auditor for the fiscal year ended June 30, 2003.
The votes cast for, votes cast against, and the abstentions were as
follows:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|          |  |               |     |             |  |  |       | 
|--------- |  | ------------- | --- | ----------- |  |  | ----- | 
|Votes For |  | Votes Against |     | Abstentions
|          |  |               |     |            
|6,670,527 |  |               | 883 |             |  |  | 3,667 | 




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.

Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 2002.

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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 10, 2003 |  | By:                   |  | /s/ William J. ShawWilliam J. Shaw
President and Chief Executive Officer
|     
|Date: |  | February 10, 2003 |  | By:                   |  | /s/ Bryan D. ReedBryan D. Reed
Chief Financial and Accounting Officer   

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CERTIFICATIONS

I, William J. Shaw, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Thousand Trails, Inc.

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could

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

|      |  |                   |  |     |  |                                                           
|----- |  | ----------------- |  | --- |  | ----------------------------------------------------------
|Date: |  | February 10, 2003 |  | By: |  | /s/ William J. ShawWilliam J. Shaw
Chief Executive Officer

I, Bryan D. Reed, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Thousand Trails, Inc.

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

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

|      |  |                   |  |     |  |                                                                      
|----- |  | ----------------- |  | --- |  | ---------------------------------------------------------------------
|Date: |  | February 10, 2003 |  | By: |  | /s/ Bryan D. ReedBryan D. Reed
Chief Financial and Accounting Officer

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EXHIBIT INDEX

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