# High Country Club Net Asset Test



## travelguy (Jul 11, 2007)

From High Country Club today:

July 11, 2007

*RE: HIGH COUNTRY CLUB COMPLETES ANNUAL NET ASSET TEST*

Dear High Country Club Member;

I am pleased to announce that High Country Club has completed its annual Net Asset Test. Our Net Asset Test is designed to confirm that the Club’s assets are sufficient to meet its obligations, including the Membership Deposit Obligation in accordance with the terms and conditions of the Club’s Membership Agreement.

*The Net Asset Test is calculated using:*

Cash and cash equivalents, plus market value of real estate (if less than 24 months from the purchase date, cost may be used), plus deposits or other instruments for the acquisition of real estate, less secured debt = Net Assets Available to Satisfy Membership Deposit Obligations.

As of December 31, 2006, the Club’s Net Assets Available to Satisfy Membership Deposit Obligations exceeds its Membership Deposit Obligation.

Further proof of the Club’s compliance with the Net Asset Test is evidenced by the Agreed Upon Procedures report, which was prepared by its independent accountants, BKD, LLP. 

The Net Asset Test will be performed by the club annually on December 31st, and future results of the Net Asset Test will be reported by April 30th of the following year.

High Country Club also completed the audit of its 2006 financial statements on which they received an unqualified opinion from its independent accountants, BKD, LLP.

Thank you again for your continued support of High Country Club.

Christian V. Kirschner
President & CEO​High Country Club Investments, LLC


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## saluki (Jul 11, 2007)

travelguy said:


> High Country Club also completed the audit of its 2006 financial statements on which they received an unqualified opinion from its independent accountants, BKD, LLP.



They received an unqualified opinion? What was the opinion? What does this mean?


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## travelguy (Jul 11, 2007)

*Unqualified Opinion*



saluki said:


> They received an unqualified opinion? What was the opinion? What does this mean?



Auditor's opinion of a financial statement, given without any reservations. Such an opinion basically states that the auditor feels the company followed all accounting rules appropriately and that the financial reports are an accurate representation of the company's financial condition. opposite of qualified opinion.


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## Steamboat Bill (Jul 11, 2007)

I also got the news today. HCC (I believe) is the first DC to actually perform this audit and pass. We will see what Helium Report reports.


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## Elsway (Jul 12, 2007)

Steamboat Bill said:


> I also got the news today. HCC (I believe) is the first DC to actually perform this audit and pass. We will see what Helium Report reports.



Quintess:

_Quintess, The Leading Residences of the World has completed its 2006 year-end audit with its independent Big-4 CPA firm. In addition, these auditors have completed the first quarterly analysis of the Club's member deposit liability coverage. As Quintess, LRW enters into the second half of the year, membership growth is consistent and strong thanks to strong member referrals; the Club now has more than 60 homes in 30 destinations available to members; new partnerships are taking off, as demonstrated by the recent Sentient Jet partnership; and we have entered into exciting new home development contracts, made possible through the Quintess, LRW Future Fund 1. All in all, the Club is financially secure and strong, and taking additional steps to ensure that security going forward. 

2006 Annual Audit
2006 was a significant year of transactions for the Company with both the merger between Club Holdings and Monogram Holdings, and the partnership with The Leading Hotels of the World, Ltd. These two transactions significantly increased the complexity of the effort required to complete our year-end audit. We are pleased that the 2006 financial audit is now complete. 

December 31, 2006 Agreed-Upon Procedures Engagement
The Company engaged its auditors to analyze the Club's membership liability coverage and they have delivered the first of our quarterly agreed-upon procedures letters. This letter essentially answers the members' question: “If the Club ceased operations, how much of my deposit would I expect to get back?” Quintess, LRW is delighted to report that we are in excess of 110% on our contractual membership deposit liability coverage. Management believes that the Club is leading the industry in establishing the best practices for financial transparency. 

Corporate Governance
Quintess, LRW has a 10-person Board, which we expect to increase to eleven members after our Series B Preferred round of investment is complete. The Company established both an Audit Committee and a Compensation Committee that report to our Board of Directors. The Board receives in-depth weekly status reports, works closely with management, and plays an integral part in developing the Company's strategic plans and operating budgets. On a monthly basis the Board meets to review financial and operating performance. 

The Board and the Management team take our obligation to be financially transparent as a cornerstone of our business practices in representing the interests of our members and shareholders. Members can expect to receive regular communications regarding the processes and procedures we have in place to protect their interests. We appreciate the faith and confidence our members have placed in us as stewards not only of their money, but of the most precious moments in their lives. 

Sincerely, 




Pete Estler
CEO, Quintess, The Leading Residences of the World _


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## Steamboat Bill (Jul 12, 2007)

I am glad to see the Destination Club industry take this important step towards assuring members that they are financially solid.


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## pwrshift (Jul 13, 2007)

I guess ARDA will clean it up totally.  

Brian


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## PerryM (Jul 14, 2007)

*So....*



travelguy said:


> From High Country Club today:
> 
> July 11, 2007
> 
> ...




Ok, I don't pretend to be a CPA - what does the above mean to me - someone who is considering a DC but has great concerns with the unsecured personal loan that HCC's membership fee represents (and all the rest of the DC industry).


Since it's not from the CPA firm does it have any validity or is it more salesreps BS that they can use in the sales pitch?  I'm not being negative here just trying to be realistic.  To me, if a CPA won't affix their accreditations to the report it's just BS.

If the tables were turned, and HCC was to loan me money, like the membership fee, would they be satisfied with the same type of information the CPA firm got from HCC?  If HCC would want something more then it seems to me just a whitewash.


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## travelguy (Jul 14, 2007)

Perry,



PerryM said:


> Ok, I don't pretend to be a CPA - what does the above mean to me - someone who is considering a DC but has great concerns with the unsecured personal loan that HCC's membership fee represents (and all the rest of the DC industry).



This means that the CPA has certified, in accordance with AICPA standards, that High Country Club has net cash and RE assets that exceed the refundable members deposit.

To me as a HCC Member, it means that I have great financial security for my deposit and continue to LOVE my travels to HCC properties.  I suspect this will mean something else to you....



> Since it's not from the CPA firm does it have any validity or is it more salesreps BS that they can use in the sales pitch?  I'm not being negative here just trying to be realistic.  To me, if a CPA won't affix their accreditations to the report it's just BS.



Umm .... it sure does sound like you're being a little negative here.  

But wait!  There's more!  There are the usual statements of procedures and opinions from the accountants.  They are too large to attach with the TUG 100K limits so I didn't attach them to my OP.  You can download the actual documents from the CPA here: http://www.highcountryclub.com/pdf/hcc_aup_06.pdf .  So, as you can see, it's not BS since a CPA has affixed their accreditation to the report!

No need to defame the HCC salespeople.  I've yet to hear of any actual BS that they have given to anyone (unlike some timeshare salespeople you may have encountered).



> If the tables were turned, and HCC was to loan me money, like the membership fee, would they be satisfied with the same type of information the CPA firm got from HCC?  If HCC would want something more then it seems to me just a whitewash.



Yes.  I'll just say that gazillions of dollars are traded in the markets around the world each minute based on similar (or less) assurances by companies and CPAs.   I and many other TUG members are comfortable with this assurance and continue to enjoy the fruits of High Country Club membership.  Others will have to make that determination on their own.  Above all, I would encourage anyone considering ANY investment in timeshares or Destination Clubs to do their own due diligence and become comfortable before buying.


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## travelguy (Jul 14, 2007)

*Enter Big Brother .....*



pwrshift said:


> I guess ARDA will clean it up totally.
> 
> Brian



I remember that Howard Nusbaum, President of ARDA, was calling for "transparency, regulatory oversight and financial assurances" for all non-timeshare type "Vacation Clubs" as he calls them.

Since we now have financial transparency and financial assurances in the case of High Country Club, this leaves only regulatory oversight.


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## PerryM (Jul 14, 2007)

Sounds like the DC industry has a leader in HCC to become more transparent and have an independent CPA firm vouch for their numbers.

This is good news - I'm satisfied that the first step has been taken.  How long before ALL the DC players follow?

P.S.
I would assume that HCC will take over the leadership of the DC's association that is working on these problems/solutions.  If they are the first they should lead.


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## Steamboat Bill (Jul 14, 2007)

PerryM said:


> Sounds like the DC industry has a leader in HCC to become more transparent and have an independent CPA firm vouch for their numbers.
> 
> This is good news - I'm satisfied that the first step has been taken.  How long before ALL the DC players follow?



I just wanted to see that quote again.

I also agree with Doug that dealing with HCC (or any destination club) is a completly different experience. They are professional and low key wher timeshare sales reps are quite sleazy.


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## PerryM (Jul 14, 2007)

Back in 2000 we bought my mom a 1 BR unit in a retirement village - plus an eye watering monthly fee that will suck the air out of your lungs.  She's doing just fine and we are very pleased.

However, back then the $115k I had to cough up to "Buy" the 1BR had a guarantee to it - get back 90% of the amount when we no longer needed the unit.  (Sounds familiar doesn't it).

I asked for some proof that the place was viable and was given a stern warning "There are many waiting to get into this place - if you can't sign the documents now the unit will be "sold" within the hour to someone else".

I had no choice back then, I do now for our usage of a DC.  I'm glad to see one firm might actually understand the reluctance to sign on the dotted line.


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## m61376 (Jul 16, 2007)

travelguy said:


> This means that the CPA has certified, in accordance with AICPA standards, that High Country Club has net cash and RE assets that exceed the refundable members deposit.


Please don't get annoyed with me for this question- it is not a criticism but I am just trying to sort this whole thing out in my mind: I am a little confused as to what this actually means, since the refundable members deposit is really nil as far as HCC's obligations are concerned, isn't it (except for the trial membership deposits recently being offerred)? Isn't the whole idea of a 2 in/1 out stipulation effectively protecting HCC from having to have any assets that cover the refundable deposit, because a member cannot receive an 80% refund unless/until 2 other new members join.

Are they attesting that they have enough cash on hand and RE equity to cover everyone's 80% refundable deposit, even though according to contract terms they don't have to offer a refund unless 2 new people join after a member requests to leave?


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## NeilGoBlue (Jul 16, 2007)

PerryM said:


> Ok, I don't pretend to be a CPA - what does the above mean to me - someone who is considering a DC but has great concerns with the unsecured personal loan that HCC's membership fee represents (and all the rest of the DC industry).



Perry,

I totally understand your point in the above statement, but I think it does a disservice to new reader to lump all DCs together.  I don't think Bellehavens or Crescendo would fit into your statement of "all the rest of the DC industry"


Neil


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## PerryM (Jul 16, 2007)

NeilGoBlue said:


> Perry,
> 
> I totally understand your point in the above statement, but I think it does a disservice to new reader to lump all DCs together.  I don't think Bellehavens or Crescendo would fit into your statement of "all the rest of the DC industry"
> 
> ...



True! ....


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## travelguy (Jul 16, 2007)

m61376 said:


> Please don't get annoyed with me for this question- it is not a criticism but I am just trying to sort this whole thing out in my mind: I am a little confused as to what this actually means, since the refundable members deposit is really nil as far as HCC's obligations are concerned, isn't it (except for the trial membership deposits recently being offerred)? Isn't the whole idea of a 2 in/1 out stipulation effectively protecting HCC from having to have any assets that cover the refundable deposit, because a member cannot receive an 80% refund unless/until 2 other new members join.
> 
> Are they attesting that they have enough cash on hand and RE equity to cover everyone's 80% refundable deposit, even though according to contract terms they don't have to offer a refund unless 2 new people join after a member requests to leave?



This is a good question.  Let me preface this by saying that I'm way too lazy to dig out my High Country Club membership contract so the following info is from memory.  Also, this is a simplified version of the financial aspects of a DC and I've taken some creative license to make it more understandable.  (Posters, don't kill me for keeping it real!)

*NET ASSET TEST *-  The Net Asset Test is an indicator of HCC's ability to refund member's deposits.   The test shows that HCC has net assets available to make those refunds.  The independent accountants have audited HCC's bank accounts, debts, membership rolls, property purchase documents, property appraisals, etc. and determined that the HCC has enough cash and assets that can be liquidated at real market value, after the secured debts have been paid, to pay the refundable portion (80%) of ALL members’ deposits.  Note that the member's deposits are refunded BEFORE the investors get paid.  In theory, this gives HCC members the peace-of-mind to know that HCC has proven that their deposits are still being used for their club.  In practicality, this test is also a self-regulatory step that the DCs are taking to avoid potential excessive governmental regulation ... but I won't get into that here.  

*2 IN / 1 OUT STIPULATION *- This is a standard policy with most DCs due to the open-ended refund policy for member deposits.  Keep in mind that the members’ deposits have been invested in properties for the member’s benefit and the deposits are not held in cash.  The 2 in / 1 out policy is in place to prevent a run of member deposits refunds forcing a DC into a quick liquidation of assets.  This is analogous to the "curbs" in the stock market that only let the market fall so much and then halt trading to give traders a time-out to access the situation.  Also note that the DC is still obligated to refund the membership deposits within one year of the request (I believe) regardless of the ratio of in/out memberships.  If necessary, this give the DC time for a controlled liquidation of assets that results in higher asset values OR time to raise additional investment capital to comply with membership deposit refund requests.  This policy also protects members that want to continue membership by not forcing the DC to immediately liquefy usable property assets to refund membership deposits.  The 2 In / 1 out policy assures that HCC always has positive membership deposit cash flow to support ongoing operations and property purchases.  The reality is that HCC has had only 3 members ask for refunds for personal reasons, not because of club dissatisfaction, and has more new members each month than it would take to cover the 2 in/ 1 out for total deposit refund to date. 

Having discussed HCCs ability to refund the Members Deposits if needed, I'll say that I personally think that there is WAY too much made about the ability of a DC to refund a members deposit as an indicator of the "risk" involved in the investment of DC membership. I believe that the focus on this has been because of the unique type of business that is a DC.  Most consumers are familiar with only two types of business transactions, purchasing and investing.  A DC membership is really neither.  It's more like renting the use of luxury travel properties where the ongoing rent is greatly discounted because of a large, front loaded deposit.  Because of this unique business model, potential members become worried about the status of their deposit.  Maybe a better way to look at a DC membership is to compare it to a RTU (right-to-use) timeshare except that the number of properties keeps growing, the accommodations and services are MUCH better, you get 80% of your money back whenever you want and the right-to-use does not end!  

*THE BUSINESS PLAN* - I believe the biz plan of a DC is far more important than its ability to refund Members Deposits.  A large number of members requesting deposit refunds is a symptom of a failing DC.  Therefore, if the DC biz plan is good and the members are happy, there should not be a run on the membership deposits.  The reason that purchasing into some DCs has been affordable for the average consumer (like us Tuggers) is because of the infancy of the business.  As the DC business matures, I believe that market will price itself beyond the range of most timeshare owners.  Therefore, the timing is great to buy into a DC ... IF you are comfortable with the biz plan.  I won't get into DC biz plan specifics here as that would make this long post much longer.  Suffice it to say, that several of us who are HCC members on TUG have reviewed the HCC biz plan in detail before becoming members and we have also reviewed and compared the updated biz plan, cash flow projections and financials on an ongoing basis and decided to become HCC members.  One of the great things about HCC is their market leading financial transparency.  This allows members and potential members to do their own due diligence and make intelligent purchasing decisions without the pressure associated with most timeshare purchases.

*HCC's CURRENT NET ASSET STATUS* - HCC is committed to an independent audit of the Net Asset Test at the beginning of each year.  It's important to note that those of us who have been following HCCs financial progress through the first half of the year know that the Net Asset ratio for HCC should actually be BETTER now than it was when the first audit was performed.

*HCC TRIAL MEMBERSHIP* - The current offer for HCC Trial Membership includes a 100% Refundable Membership after one year with a low $20,000 deposit.  With the security of knowing that HCC meets the Net Asset Test and a 100% refundable deposit, this should be a no-brainer!  But that's just my opinion...


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## whatmough (Jul 16, 2007)

*No brainer*

Doug,

You are almost right - an offer to refund *even 80%* of the deposit is a no brainer given the level of accomodations and service provided through HCC vis a vis the typical timeshare.   How many timeshare owners would love to have the developer agree to buy their unit at 80% of the initial cost should they wish to sell, even if they had to wait for the developer to sell two new units?  Probably very close to 100%.
That would make HCC's trial offer to TUG members of a 100% return without regard to the 2 in / 1 out rule several steps better than a no brainer!


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## Bourne (Jul 16, 2007)

A quick addition... 

HCC's 2 in 1 out stipulation is based on membership type/nights. i.e. For an Affiliate member/Associate to opt out, HCC has to sell *only one* Private/Group membership.


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## m61376 (Jul 20, 2007)

Doug- Thanks for the explanation. Perhaps I'm being obtuse here, but I am still a little confused  ...are you saying then that HCC is obligated to refund 80% of your initial deposit within a year, even in the unlikely event there aren't enough new members for the 2 in/1 out? From my conversations with Heath and Dan that was never mentioned.

Are you saying that, for example, a dozen people all of a sudden wanted out and the market took a downturn so that there were few new members during the year, HCC would be obligated, if necessary, to sell some assets to refund 80% of the buy-in price of the dozen people requesting it within a 12 month timeframe?


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## travelguy (Jul 21, 2007)

m61376 said:


> Doug- Thanks for the explanation. Perhaps I'm being obtuse here, but I am still a little confused  ...are you saying then that HCC is obligated to refund 80% of your initial deposit within a year, even in the unlikely event there aren't enough new members for the 2 in/1 out? From my conversations with Heath and Dan that was never mentioned.
> 
> Are you saying that, for example, a dozen people all of a sudden wanted out and the market took a downturn so that there were few new members during the year, HCC would be obligated, if necessary, to sell some assets to refund 80% of the buy-in price of the dozen people requesting it within a 12 month timeframe?



I believe this is correct but it's just from memory.  Heath and Dan can give you the correct info.


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## m61376 (Jul 23, 2007)

travelguy said:


> I believe this is correct but it's just from memory.  Heath and Dan can give you the correct info.



Interesting...if that's truly the case, then they should present it that way, because that is not what I was told when I spoke with them. I am not saying that's not the way it is, just that they did not convey that when I inquired about it and just emphasized the 2 in/1 out.


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