Time-share operator files for bankruptcy

Thursday, July 10, 2003 | 11:30 a.m.

The developers of a Las Vegas time-share complex told the Securities and Exchange Commission weeks ago that high default rates in consumer loans could result in the company filing for bankruptcy protection.

Late Wednesday morning, the warning became reality when Mego Financial Corp., which operates the 489-unit Leisure Resorts Las Vegas time-share resort on 18.5 acres just east of the Imperial Palace hotel-casino, filed a Chapter 11 bankruptcy petition, meaning it intends to continue to operate while it reorganizes its finances.

The company also submitted a filing to the SEC Wednesday reporting the bankruptcy filing. The SEC filing said the company plans to announce details of debtor-in-possession financing plans by the end of the week.

The filing came after more than two months filled with indications that the company's finances were melting down.

According to the petition submitted to the U.S. Bankruptcy Court in Reno Wednesday, Mego reported assets of $455,179, which doesn't include investments in wholly owned subsidiaries, and debts of $39.3 million. More than 1,000 creditors are listed in the filing.

The filing also said there are 9.8 million outstanding shares of common stock in the company distributed among 2,078 shareholders.

The company said it plans to operate as a debtor-in-possession and that customers and employees would see little difference in day-to-day operations.

"After reviewing all available options, management concluded that a filing was necessary to preserve the assets and values of Leisure Industries' operations and to protect the interest of its key constituencies, namely our employees, suppliers, customers and creditors," spokesman Steven Stern said in a statement.

"As far as the company's customers are concerned, we will continue to provide them with world-class time-share facilities and associated services delivered without interruption and on schedule," he said. "Moreover, we have worked at maintaining close relationships with our vendors and we expect continued support from this group as we move forward in the days and months ahead."

Corporate executives could not be reached for further comment.

In addition to the Las Vegas property, Leisure Industries operates time shares in Reno as well as in Arizona, California, New Jersey, Colorado, Florida and Hawaii. The company also has a land-sales division in Pahrump.

Indications that debt was overwhelming Leisure Industries surfaced in SEC filings in May and June when company audit reports were made public.

In May, the company told the SEC that it had become financially unstable after disclosing that executives had underestimated the magnitude of consumer defaults on loans the company held. Former Chief Executive Officer Floyd Kephart said at the time that filing for bankruptcy protection was an option the company was considering.

In addition, the company was named in a lawsuit in May seeking the company's eviction from its corporate headquarters at 1645 Village Center Circle. Howard Hughes Properties LP, the landlord, sought the eviction in a suit filed in Clark County District Court. At the time, the company said it was negotiating a settlement with Howard Hughes Properties.

Next, Mego was delisted from the Nasdaq exchange at the end of May and now trades on the OTC Bulletin Board as a "Pink Sheets" stock. The stock currently is trading at 1 cent a share, down 10 cents from Wednesday's closing price.

Then, according to an audit report disclosed to the SEC in June, the company wrote more than $6.4 million in bad checks and fell behind in its payroll tax and retirement withholdings between Oct. 31 and April 11.

In mid-June, Kephart resigned as chairman and chief executive officer, agreeing to stay with the company until the end of the month so that a successor could be named. Michael Greco, formerly chief executive of MortgageRamp Inc., took on the CEO role when Kephart left.