UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-3
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
(Fee Required)
For the fiscal year ended December 31, 1994
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities Act of
1934 (No Fee Required)
For the transition period from to
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Commission File Number 33-16122
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ILX INCORPORATED
ARIZONA 86-0564171
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2777 East Camelback Road, Phoenix, AZ 85016
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Registrant's telephone number, including area code (602)957-2777
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Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Class on which registered
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Common Stock, without par value Over the Counter
Preferred Stock, $10 par value
Securities registered pursuant to Section 12 (g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of the latest practicable date.
Class Outstanding at February 28, 1995
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Common Stock, without par value 12,406,215 shares
Preferred Stock, $10 par value 420,728 shares
At February 28, 1995, the aggregate market value of Registrant's common shares
held by non-affiliates, based upon the closing bid price at which such stock was
sold as reported by the National Association of Securities Dealers, was
approximately $4.8 million.
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 26, 1995 are incorporated in Parts II and III as
set forth in said Parts.
<PAGE>
ILX INCORPORATED
1994 Form 10-K/A-3 Annual Report
Table of Contents
Part I
Page
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Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for the Registrant's Common Equity and 9
Related Stockholder Matters
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on 14
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial 21
Owners and Management
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and 25
Reports on Form 8-K
PART I
Item 1. Business
ILX Incorporated ("ILX" or the "Company") is an Arizona corporation formed in
October, 1986 for the purpose of developing, operating, financing and marketing
interval ownership interests in resort properties and engaging in other
leisure-oriented business activities. In November 1993, the Company acquired
interests in unimproved real estate through its acquisition of Genesis
Investment Group, Inc. and during 1994, ILX expanded its operations to include
marketing of skin and hair care products.
Resorts. ILX sells timeshare interests in resorts located in Arizona,
Colorado, Florida, Indiana and Mexico. Generally, ILX either owns an interest in
the resort itself, or it owns a designated number of timeshare interests in a
resort and has a corresponding right to sell those timeshare interests to third
parties.
ILX owns an interest in the following resorts: Los Abrigados in Sedona,
Arizona, Golden Eagle Resort in Estes Park, Colorado, and Varsity Clubs of
America -- South Bend Chapter in Mishawaka, Indiana. The properties owned by ILX
or its subsidiaries are operated as hotels to the extent of unused or unsold
timeshare inventory.
In addition, ILX owns a designated number of timeshare interests in the
following resorts and has a right to sell those timeshare interests to third
party purchasers: Ventura Resort in Boca Raton, Florida and Costa Vida Vallarta
Resort in Puerto Vallarta, Mexico.
Except for the Costa Vida Vallarta Resort, described below, timeshare
purchasers acquire deed and title to an undivided fractional interest in a unit
or type of unit, which entitles the purchaser to use a unit at the selected
resort and to use the resort's common areas during a designated time period.
Each of the above referenced resorts is affiliated with a
not-for-profit organization, the members of which are the purchasers of
timeshare interests in each such resort. These not-for-profit organizations have
certain recorded governing documents that contain restrictions concerning the
use of the resort property.
With respect to those resort properties owned by ILX or its
subsidiaries, a portion of the price paid to ILX by a purchaser of a timeshare
interest in those resorts must be paid by ILX to the holder(s) of the underlying
mortgage(s) on the property in order to release such timeshare interest from the
lender's underlying encumbrance. This "release fee" ensures that the timeshare
purchaser can acquire clear title to his or her timeshare interest.
ILX began marketing timeshare interests in the Ventura Resort in Boca
Raton, Florida in 1987. The Ventura Resort is located across from Boca Beach in
Boca Raton, Florida. ILX is authorized by the states of Arizona and Florida to
sell timeshare interests in Ventura Resort in those states. ILX had
approximately 22 weeks available for sale at December 31, 1994.
In 1986, ILX purchased, and in 1987 began operations at, the Golden
Eagle Resort, which is located in the town of Estes Park, Colorado, within three
miles of the Rocky Mountain National Park. ILX plans to offer a minimum of 1,785
timeshare weeks in the Golden Eagle Resort. Arizona, Colorado and Indiana have
authorized ILX to sell timeshare interests in Golden Eagle Resort in those
states. ILX had approximately 702 weeks available for sale in completed suites
at December 31, 1994.
In September, 1988, ILX acquired an ownership interest in the Los
Abrigados resort in Sedona, Arizona through BIS-ILE Associates ("BIS-ILE"), a
partnership that was formed to acquire and market the property and in which ILX
held an interest as a general partner. See ILE Sedona Incorporated below.
Marketing of timeshare interests in the Los Abrigados resort began in
February, 1989. ILX, directly and through its wholly owned subsidiary, ILE
Sedona Incorporated, has served as managing general partner of BIS-ILE and its
successor, Los Abrigados Partners Limited Partnership, an Arizona limited
partnership ("LAP"), since inception. A total of 9,100 timeshare weeks may be
sold in Los Abrigados. Arizona, Colorado, Indiana, Iowa and Nevada have
authorized ILX to sell timeshare interests in Los Abrigados in those states. At
December 31, 1994, ILX had approximately 4,158 weeks available for sale, and
options to purchase 344 weeks had been extended to potential buyers. Also,
Genesis Investment Group, Inc., a wholly owned subsidiary of ILX, holds an
option to purchase 667 additional timeshare weeks for $2,100 each in Los
Abrigados, which timeshare weeks will be made available for sale upon exercise
of the option.
The Costa Vida Vallarta Resort is a beach front resort located in
Puerto Vallarta, Mexico. During 1993 and 1994, ILX acquired timeshare weeks in
the resort that provide a right to occupy a specific week and unit in the resort
and to use the common areas of the resort (during the week of occupancy) through
and including the year 2009. Arizona, Colorado and Indiana have authorized ILX
to sell timeshare interests in the Costa Vida Vallarta Resort in those states.
ILX had approximately 85 timeshare interests available for sale as of December
31, 1994.
The Company markets timeshare interests in Los Abrigados, the Golden
Eagle Resort and the Costa Vida Vallarta Resort from its Sedona Sales Office
located at Los Abrigados and its Phoenix Sales Office located at the Company's
headquarters. There are several other timeshare resorts in Sedona and elsewhere
in Arizona which draw upon the same metropolitan Phoenix customers the Company
does for both its Sedona and Phoenix sales offices. To date the Company has been
able to successfully compete to attract such customers to attend its timeshare
presentations. The Company markets its Golden Eagle interests exclusively from
its Arizona and Indiana sales offices, and does not, therefore, compete directly
with Colorado timeshare resorts.
The Company's wholly owned subsidiary, Varsity Clubs of America
("VCA"), was formed to capitalize on a perceived niche market: The potential
demand for high quality accommodations near prominent colleges and universities
with nationally recognized athletic programs. Large universities host a variety
of sporting, recreational, academic and cultural events that create a
substantial and relatively constant influx of participants, attendees and
spectators. The Varisty Clubs concept is a lodging alternative targeted to
appeal to university alumni, baseketball or football season ticket holders,
parents of university students and corporate sponsors of university functions,
among others. The Varsity Clubs concept is designed to address the specific
needs of these individuals and entities by creating specialty timeshare hotels
that have a flexible ownership structure, enabling the purchase of anything from
a single day (such as the first home football game) to an entire football
season. Each Varsity Clubs facility will operate as a hotel to the extent of
unsold unused timeshare inventory.
During late 1994, ILX, through VCA, commenced construction of its first
Varsity Clubs of America in Mishawaka, Indiana, near the University of Notre
Dame. ILX is pre-selling ownership interests in the property, which is expected
to be complete in June 1995. Customers purchase deed and title to a floating
number of night's use of a unit and unlimited use of the common areas of the
resort. Purchasers may also receive the right to utilize the facility on
specified dates, such as dates of home football games, for which they pay a
premium. The Company intends to operate the resort as a commercial lodging
facility to the extent of unsold intervals. At December 31, 1994, contracts to
purchase approximately 274 nights had been accepted by VCA. To the Company's
knowledge, no other timeshare properties exist proximate to the University of
Notre Dame. In addition, the Company believes the hotel will compete favorably
for commercial guests because of its superior facilities and amenities relative
to other lodging accommodations in the area.
VCA intends to develop additional lodging accommodations near other
university campuses and to market the facilities, including interval ownership
interests, to alumni, sports enthusiasts, sponsors of major universities and
parents of students. VCA's current plans anticipate acquisition of two or three
additional sites and commencement of construction on each during 1995 and early
1996, with a target of 15 sites over the next 5 years. Due to the existence of
larger and better financed competitors in the lodging industry, ILX's management
believes that VCA's ability to capitalize on this perceived market niche
depends, in part, on the successful implementation of a reasonably aggressive
development strategy.
ILX extends financing, not to exceed 90% of the purchase price of the
ownership interval, to qualified purchasers of timeshare interests in the
Company's various resorts. ILX sells with recourse a portion of the consumer
obligations, borrows against a portion, and carries the balance. On occasion,
ILX reacquires an interval from a customer who defaults on his obligation.
Intervals are not reacquired unless ILX has exhausted its collection attempts
(which include a series of telephone calls and letters and reporting to national
credit bureaus) and has determined the obligation to be uncollectible. Such
reacquired ownership interests are held for resale.
ILX's interval ownership plans compete both with other interval
ownership plans as well as hotels, motels, condominium developments and second
homes. ILX considers its competitive environment to include not only the areas
surrounding its properties but also other vacation destination alternatives.
ILX's competitive posture is based on the distinction of its products, the
desirability of the locations of its properties, the quality of the amenities
ancillary to the interval ownership weeks, the value received for the price and
the availability of a variety of destination locations. ILX plans to continue
exploring options for the development and marketing of new resort facilities.
ILE Sedona Incorporated. In September, 1988, ILX acquired, through its wholly
owned subsidiary, ILE Sedona Incorporated ("ILES"), a 40% interest in BIS-ILE,
the owner in fee simple Los Abrigados resort. During 1989, ILX acquired
additional interests that increased its ownership in BIS-ILE. On January 8,
1990, BIS-ILE filed a petition for relief with the United States Bankruptcy
Court for the District of Arizona, under Chapter 11 of the Bankruptcy Code. At
that time, ILX owned 55.875% of BIS-ILE. Sales of vacation ownership interests
in Los Abrigados had ceased on January 8, 1990, pending completion of the
Chapter 11 filing. During 1990, while BIS-ILE prepared its plan of
reorganization, and in anticipation of that plan, ILX increased its interest in
BIS-ILE to 89.999%. On August 26, 1991, the Bankruptcy Court approved BIS-ILE's
amended plan of reorganization and sales of vacation ownership interests in Los
Abrigados resumed on September 20, 1991, following the successful
reorganization. On September 10, 1991, Los Abrigados Partners Limited
Partnership, an Arizona limited partnership ("LAP") became the successor in
interest to BIS-ILE. ILX, directly and through ILES, owns a total of 78.5% of
LAP, which now owns Los Abrigados. ILES serves as LAP's managing general
partner. LAP has contracted with ILX to manage the resort and to market fee
simple interval ownership interests in the resort through the sale of membership
interests in the Sedona Vacation Club.
Red Rock Collection. In July 1994, ILX, through its wholly owned
subsidiary, Red Rock Collection Incorporated ("RRC"), commenced sales of a
complete line of spa and salon formulated products for face, body, bath and hair
care. The products are produced by outside laboratories according to RRC's
specifications and raw materials are readily available. RRC is marketing its
products through network and direct marketing to consumers. RRC products are
used as in-room amenities in ILX's resort hotels and, commencing in 1995, are
being offered as marketing premiums to generate potential interval ownership
customers. In addition, RRC intends to enter the salon market in the second
quarter of 1995. RRC is also exploring opportunities to offer RRC formulated
amenities to outside resorts and hotels.
Genesis. ILX, through its wholly owned subsidiary Genesis Investment
Group, Inc. ("Genesis"), holds for the purpose of liquidation ownership
interests in real estate, (both fee and lien), most of which is unimproved. ILX
acquired Genesis in November 1993 through the merger of ILX's wholly owned
subsidiary and Genesis. Pursuant to the terms of the merger, holders of Genesis
common stock received the right to receive five shares of ILX common stock and
three shares of ILX Series C Convertible Preferred stock for every ten shares of
Genesis common stock. (At the time of the merger, the Genesis shareholders were
entitled to receive a maximum of 305,964 shares of the ILX Series C Convertible
Preferred stock and 509,940 shares of ILX common stock.) Since the merger,
Genesis has continued to liquidate its real estate holdings and has acquired an
option to purchase 667 timeshare intervals in the Los Abrigados resort.
Other. ILX employs approximately 450 people.
Item 2. Properties
Los Abrigados Resort
Los Abrigados resort is located in Sedona, Arizona, approximately 110 miles
northwest of Phoenix. The resort consists of a main building which houses the
lobby and registration area, executive offices, meeting space, a health spa and
athletic club, food and beverage facilities and support areas. The hotel
contains 174 suites in 22 one and two story free-standing structures. In
addition, a two bedroom historic homesite which has been renovated to include a
spa and other luxury features is also located on the property and has been
marketed by the Company. The resort has an outdoor swimming pool, tennis courts
and other recreational amenities and is situated on approximately 19 acres of
land.
The Company offers membership interests to customers in the form of deed and
title which provide the right to occupy the resort for a designated amount of
time each year in perpetuity. A total of 9,100 interval ownership memberships
may be sold, of which approximately 4,158 were available for sale at December
31, 1994. One to two year options to purchase approximately 344 of these
available memberships have been extended to potential buyers on terms
substantially the same as those offered to current purchasers.
The Company holds fee simple title to the property, which is encumbered by a
first deed of trust securing loans in the principal amount of $1,660,000, and by
two subordinate deeds of trust of equal priority securing repurchase obligations
relating to borrowings against consumer notes receivable of approximately
$424,000 and sales of consumer notes receivable with recourse in the amount of
approximately $14.3 million at December 31, 1994.
Golden Eagle Resort
The Golden Eagle Resort, located within the corporate limits of the Town of
Estes Park, Colorado and within three miles of the Rocky Mountain National Park,
contains a resort lodge which overlooks the Estes Valley and is bounded
generally by undeveloped forested mountainside land. Approximately four acres of
land are owned along with a four-story wood-frame main lodge that was
constructed in 1914. The lodge property contains 27 guest rooms, a restaurant,
bar, library and outdoor swimming pool, as well as two other free standing
buildings containing six guest rooms and support facilities. Space is available
to construct eleven to fifteen additional suites in the lodge and adjacent
buildings and the Company also owns a residence in a duplex adjacent to the
property which may be marketed.
The Company offers deed and title interests which provide the right to occupy a
specific unit for a specific week each year in perpetuity and plans to offer a
minimum of approximately 1,785 such interval ownership weeks, exclusive of the
adjacent condominium. Approximately 702 interests in completed suites are
available for sale at December 31, 1994. The Company offers certain purchasers
of Golden Eagle interests the option to convert their ownership to other ILX
owned properties at a designated time for a pre-determined amount. Golden Eagle
interests received from converting owners are offered for resale.
The Company holds fee simple title to the property which is encumbered by a
first deed of trust securing a loan in the principal amount of $639,916 and by a
second deed of trust securing repurchase obligations relating to borrowings
against consumer notes receivable in the principal amount of $626,265 and sales
of consumer notes receivable sold with recourse in the approximate amount of
$943,000 at December 31, 1994.
Kohl's Ranch Lodge
On June 1, 1995, ILX acquired ownership of Kohl's Ranch Lodge ("Kohl's Ranch").
Kohl's Ranch is a 10.5 acre property located 17 miles northeast of Payson,
Arizona. It is bordered on the eastern side by Tonto Creek and is surrounded by
Tonto National Forest. The main lodge of Kohl's Ranch contains 41 guest rooms
and a variety of common area amentities. Kohl's Ranch also includes eight (8) 1-
and 2-bedroom cabins along Tonto Creek, a triplex cabin with two 1-bedroom
units and one efficiency unit, and a free standing building that contains sales
offices and food and beverage facilities.
On June 14, 1995, the Arizona Department of Real Estate approved ILX's
application to sell timeshare interests in Kohl's Ranch. Timeshare sales
commenced in July, 1995. As of June 30, 1995, ILX had 2,704 timeshare weeks
available for sale. In addition to the sale of timeshare interests, ILX intends
to continue operating Kohl's Ranch as a lodge-hotel. ILX has begun refurbishing
Kohl's Ranch and intends to maintain its authentic ranch atmosphere and decor.
ILX anticipates commencing construction of six new duplex cabins on the property
in the spring of 1996, thus adding twelve 2-bedroom cabins, for a total of 64
units and 3,328 timeshare weeks available for sale. The Company holds fee simple
title to the property which at June 30, 1995, is encumbered by a first position
note and deed of trust in the amount of $929,250 and a second position note and
mortgage in the amount of $367,750.
Interval Ownership Interests in Costa Vida and Ventura Resorts
At December 31, 1994, the Company owned and held for sale 22 interval ownership
interests in the Ventura Resort in Boca Raton, Florida, 115 interval ownership
interests in the Costa Vida Resort in Puerto Vallarta, Mexico, and 85 interval
ownership interests in other resort properties worldwide. These intervals are
owned free and clear by the Company at December 31, 1994.
Varsity Clubs of America - Notre Dame
Varsity Clubs of America - Notre Dame is under construction in Mishawaka,
Indiana at December 31, 1994. The resort is situated on approximately four acres
of land and will consist of a three story main building which houses 60 one and
two-bedroom suites, the lobby, gift shop, meeting space, member lounge, health
club, and food and beverage facilities and a separate one story building which
contains a three bedroom suite and a one bedroom suite.
The Company offers membership interests to customers in the form of deed and
title which provide the right to occupy the resort for a designated amount of
time each year in perpetuity. Memberships are offered in one day intervals.
Approximately 22,568 one day intervals will be offered for sale. Sales contracts
have been accepted in advance of completion for approximately 274 one day
intervals at December 31, 1994.
The Company holds the fee simple title to the property, which is encumbered by a
first mortgage securing construction financing in the amount of $400,784 at
December 31, 1994.
Varsity Clubs of America - Arizona
The site for the second Varsity Clubs facility was acquired in July 1995 and is
located in Tucson, Arizona, approximately 2.3 miles from the University of
Arizona. Construction of the Arizona facility is expected to commence in the
fall of 1995. In July, 1995, the Company received a written commitment for
construction financing for the Arizona facility in the amount of $6 million,
which is expected to be sufficient to build and furnish the property. In
addition, the commitment includes up to $20 million in financing for eligible
notes received from the sale of timeshare interests in the Arizona facility. The
property is held in fee simple title and is encumbered by a first deed of trust
in the amount of $701,400 at July 31, 1995.
Red Rock Collection Building
The Company holds in fee simple title an 8400 square foot building in Phoenix,
Arizona which houses the Red Rock Collection office and warehouse facilities.
The building is encumbered by a deed of trust in the amount of $225,000 at
December 31, 1994.
Land
The Company owns various parcels of unimproved real estate in Arizona through
its wholly owned subsidiary Genesis and is presently marketing these properties.
At December 31, 1994, the real estate held for sale less encumbrances was
recorded at $1,673,168. It is the Company's intention to liquidate this land in
the next twelve to twenty four months.
Company Headquarters
The Company leases its corporate headquarters in Phoenix, Arizona under a five
year lease through April 30, 1998. The terms of the lease provide the Company
with the option to extend the lease for three additional one year periods and
with a right of first refusal to purchase the building. The landlord has the
right to cancel the lease upon one year notice and payment of a $20,000
cancellation fee in the event the building is sold. Such cancellation may not
occur prior to May 1, 1997.
Other
In the opinion of management, the Company's properties are adequately covered by
insurance.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded over-the-counter under the National
Association of Securities Dealers (NASD) trading symbol ILEX. The following
table sets forth the high and low bid and ask prices for the stock for each full
quarterly period during 1994 and 1993. The following over-the-counter market
quotations reflect inter-dealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
Bid Ask
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Quarter Ended High Low High Low
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December 31, 1994 .................. 1.63 1.13 1.75 1.31
September 30, 1994 ................. 1.75 1.50 1.94 1.56
June 30, 1994 ...................... 2.00 1.13 2.13 1.31
March 31, 1994 ..................... 1.75 1.19 2.00 1.25
December 31, 1993 .................. 2.00 1.50 2.13 1.56
September 30, 1993 ................. 1.88 1.06 2.13 1.25
June 30, 1993 ...................... 1.50 .63 1.63 .81
March 31, 1993 ..................... 1.25 .50 1.38 .66
On February 28, 1995, the number of holders of the Company's common stock was
approximately 1300. No dividends have been declared by the Company since
inception and dividends are not anticipated in the foreseeable future.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Year ended December 31,
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1994 1993 (1) 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Revenue ................................ $ 29,950,669 $ 20,459,379 $ 18,856,660 $ 6,095,859 $ 2,352,734
Net income (loss) ...................... 2,148,287 2,076,231 1,325,874 (307,051) (1,602,093)
Net income (loss) per
common and equivalent share ............ .17 .18 .12 (.04) (.28)
Total assets ........................... 28,403,404 24,906,969 15,748,315 15,026,975 5,528,943
Notes payable .......................... 6,882,445 5,408,898 4,865,107 5,577,229 2,550,758
Total shareholders'
equity ............................... 12,957,129 10,541,495 6,477,838 5,095,895 1,562,096
(1) The 1993 data includes the effects of the acquisition of Genesis effective November 1, 1993.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Fiscal Year 1992 to 1993
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Sales of timeshare interests of $12,263,619 in 1993 were 10.1% greater than
sales of $11,136,950 in 1992. The increase in sales from 1992 to 1993 reflects
an increased sales volume at both the Sedona Sales Office and the Phoenix Sales
Office. While sales prices for annual ownership interests increased slightly,
the average sales price declined in 1993 from 1992 due to the introduction in
1993 of a bi-annual ownership program which provides alternate year usage at Los
Abrigados and which sells for a lower price than annual usage. The ability to
offer the annual product as well as the lower priced bi-annual product has
increased closing rates (which are the number of sales divided by number of
tours) and therefore sales revenue in 1993.
Included in 1992 sales of timeshare interests is $971,900 from a bulk sale of
667 weekly intervals in Los Abrigados resort which occurred in 1992. Additional
revenue from this bulk sale was deferred until 1994, as further discussed in the
comparison of Fiscal Year 1993 to 1994.
1993 sales of land of $123,500 and the associated cost of land sold of $113,613
reflect sales of unimproved real property acquired in the November 1993 Genesis
acquisition.
Costs of timeshare interests sold of $4,911,976 in 1992 and $5,007,131 in 1993
have decreased as a percentage of sales of timeshare interests from 1992 to 1993
because of the introduction of bi-annual ownership interests. Bi-annual
interests sell for more than half of the price of annual interests and therefore
have a lower product cost as a percentage of selling price than annual
interests. Advertising and promotion expenses in 1993 of $3,168,562 and in 1992
of $2,900,258 were comparable as a percentage of revenue with 15.5% in 1993 and
15.4% in 1992.
The increase in resort operating revenue from $7,179,710 in 1992 to $8,072,260
in 1993 reflects largely an increase in average daily rate for resort guests at
Los Abrigados and increased usage of resort services. Traditional resort guest
occupancy levels were consistent between 1993 and 1992 in spite of increasing
usage of the property by tour guests and owners. Cost of resort operations as a
percentage of resort operating revenue decreased from 87.9% in 1992 to 86.2% in
1993 as fixed costs were spread over greater revenues.
General and administrative expenses of $1,339,962 in 1992 and $1,510,448 in 1993
are comparable as a percentage of total revenue, with 7.1% in 1992 and 7.4% in
1993.
The provision for doubtful accounts is provided primarily for sales of timeshare
interests. The provisions of $629,510 in 1992 and $666,690 in 1993 as a
percentage of sales are comparable, with 5.7% in 1992 and 5.4% in 1993.
The increase in interest income from $169,600 in 1992 to $359,908 in 1993
reflects increased consumer paper retained by the Company.
The decrease in interest expense from $643,023 in 1992 to $599,238 in 1993
reflects fluctuations in principal balances outstanding on notes payable and
differences in interest rates and terms among notes.
In 1993 and 1992 the income tax benefit of $100,000 each year resulted from
decreases in the valuation allowance as a result of the ability to utilize loss
carryforwards and built in losses arising principally from the Los Abrigados
resort, based on accelerated profitability of the property. The valuation
allowance had been established to reflect the uncertainty of the utilization of
deferred tax assets. In 1993, an additional deferred tax asset was recorded to
reflect the future tax benefit of the Genesis net operating loss carryforwards
and a valuation allowance was recorded to offset the full amount of the asset.
The increase in minority interests from $587,826 in 1992 to $814,520 in 1993
reflects the increased profitability of Los Abrigados Limited Partnership
("LAP"), the partnership which owns the Los Abrigados resort.
Fiscal Year 1993 to 1994
- ------------------------
Sales of timeshare interest of $18,713,970 in 1994 were 52.6% higher than sales
of $12,263,619 in 1993. The increase in sales from 1993 to 1994 reflects
improved closing rates in the Sedona Sales Office and, in the 3rd quarter of
1994, the expansion of the Sedona Sales Office to accommodate a greater number
of tours. In addition, sales from the Phoenix Sales Office increased following
the Company's assumption of this operation, as discussed below.
Included in 1994 sales of timeshare interests is $428,100 in revenue from a bulk
sale of 667 weekly intervals in Los Abrigados resort which occurred in 1992. The
1994 revenue had been deferred pending collection of the $900,000 note
receivable arising from the sale which was collected in March 1994.
Advertising and promotion as a percentage of sales increased from 15.5% in 1993
to 19.8% in 1994 due to the acquisition of the Phoenix Sales Office, net of
increased closing rates at the Sedona Sales Office. Effective January 31, 1994,
the Company acquired the assets of the organization which had performed the
sales and marketing for the Phoenix Sales Office and the Company assumed those
sales and marketing operations. Prior to that date, the Company paid a flat
percentage of sales to the outside organization which operated in facilities it
leased from the Company and that percentage of sales was included in cost of
timeshare interests sold. After the acquisition, the Company began recording the
costs of generating tours to and operations of the Phoenix Sales Office as
advertising and promotion expenses. Commissions and other compensation paid to
sales staff are recorded as costs of timeshare interests sold. The effect has
been an increase in advertising and promotion expense and a corresponding
decrease in cost of timeshare interests sold as a percentage of sales of
timeshare interests in 1994. Costs of timeshare interests sold as a percentage
of sales of timeshare interests have decreased from 40.8% in 1993 to 35.2% in
1994.
The increase in resort operating revenue from $8,072,260 in 1993 to $8,764,558
in 1994 reflects increased total resort occupancy and average daily rate from
resort guests, and increased utilization of food and beverage outlets. The
improvements in resort occupancy are a result of the increasing usage of the
resort by prospective timeshare purchasers and timeshare owners, net of the
decreasing availability of rooms for resort guests. The cost of resort
operations as a percentage of resort operating revenue has increased to 89.1% in
1994 from 86.3% in 1993 because prospective purchasers and timeshare owners (an
increasing portion of occupancy) pay substantially reduced rates for their room
usage and because the variable cost of providing food and beverage is greater as
a percentage of corresponding revenue than the variable cost as a percentage of
revenue of providing rooms to resort guests. Total occupancy is expected to
continue to increase consistent with sales to timeshare purchasers. Demand for
food, beverage, spa and other services is anticipated to increase
correspondingly. The Company has been modifying and expanding its food and
beverage outlets and further changes will be complete in the second quarter of
1995 to capitalize on the revenue opportunities available from owners, tours and
resort guests.
Sales of land and the associated cost of land sold reflect sales of unimproved
real property acquired in the November 1993 Genesis acquisition. 1993 sales of
$123,500 and the associated cost of sales of $113,618 reflect sales of
subdivided lots. 1994 sales of $2,237,166 and the associated cost of sales of
$1,796,974 represent sales of the remainder of the subdivided lots and the sale
of a large, unimproved parcel.
Sales of consumers products and the related cost of consumer products reflect
the commencement of Red Rock Collection sales in the third quarter of 1994.
Amortization of approximately $929,000 in deferred Red Rock Collection costs is
included in general and administrative expense in 1994.
General and administrative expenses increased as a percentage of revenue from
7.4% in 1993 to 10.7% in 1994 because of the amortization of deferred Red Rock
Collection costs described above and because of the recognition of other Red
Rock general and administrative costs. Excluding both Red Rock Collection
revenues and expenses, general and administrative expenses as a percentage of
revenue declined to 5.8% in 1994 from 7.4% in 1993.
The decrease in the 1994 doubtful accounts provision to 4.1% as compared to 5.4%
in 1993 as a percentage of sales of timeshare interests reflects collection
experience more favorable than expectations.
The increase in interest income from $359,908 in 1993 to $402,596 in 1994
reflects increased consumer paper retained by the Company.
The increase in interest expense fron $599,238 in 1993 to $661,141 in 1994
reflects greater balances outstanding on notes payable and differences in
interest rates and terms among notes.
Income tax benefits increased from $100,000 in 1993 to $161,799 in 1994. In both
1993 and 1994 tax benefits resulted from decreases in the valuation allowance as
a result of the ability to utilize loss carryforwards and built in losses
arising principally from the Los Abrigados resort. The valuation allowance had
been established to reflect the uncertainty of the utilization of the deferred
tax assets.
As previously discussed, in 1993 an additional tax asset was recorded to reflect
the future tax benefit ot the Genesis net operating loss carryforwards and a
valuation allowance was recorded to offset the full amount of the asset. This
valuation allowance was reduced in 1994 due to improvements in the Arizona real
estate market and the development of tax strategies from which management
concluded that a portion of the net operating loss carryforwards will more
likely than not be utilized.
The increase in minority interests from $814,520 in 1993 to $1,440,034 in 1994
reflects continued increased profitability of LAP net of a decrease in the
minority interest ownership of LAP effective July 1, 1994, of 7.5%. In addition,
1994 minority interests include approximately $236,000 in partnerships in which
the Company's Genesis subsidiary is a partner.
During the third quarter of 1994, the Company opened a sales office adjacent to
the site of its first Varsity Clubs of America near the University of Notre Dame
in Indiana. Construction commenced in the fourth quarter of 1994 and completion
is expected in June 1995. Sales and marketing expenses of approximately $283,000
for promoting sales of Varsity Clubs of America-Notre Dame have been expended
during 1994 and are included in advertising and promotion. Revenue generated by
these marketing effects, however, has been deferred pending substantial
completion of the facility. Deferred revenue of $513,000, net of associated
costs of sales of $148,000, is included in deferred revenue at December 31,
1994. The Notre Dame Sales Office also offers timeshare interests in the
Company's other resorts. Sales of intervals in other resorts of approximately
$319,000 are included in 1994 sales of timeshare interests.
Liquidity and Capital Resources
The Company's liquidity needs principally arise from the necessity of financing
notes received from sales of timeshare interests. In that regard, the Company
has $18 million in lines of credit issued by financing companies under which
conforming notes (notes that meet the credit criteria, term and interest rate
specified by the lender) from sales of interval interests in Los Abrigados and
the Golden Eagle Resort can be sold to lenders on a recourse basis. At December
31, 1994, approximately $12 million is available under the lines. In addition,
the Company has a financing commitment whereby the Company may borrow up to $2.5
million against non-conforming notes through September 1998. Approximately $1.3
million was available under this commitment at December 31, 1994.
The Company also has a $10 million financing commitment whereby the Company may
sell eligible notes received from sales of timeshare interests in Varsity Clubs
of America - Notre Dame on a recourse basis through February 1996. The
commitment may be extended for an additional eighteen month period and an
additional $10 million at the option of the financing company.
This commitment was unused at December 31, 1994.
The Company will continue to retain certain non-conforming notes which have one
to two year terms or which do not otherwise meet existing financing criteria,
and finance these notes either through internal funds or through borrowings from
affiliates secured by the non-conforming notes. The Company will pursue
additional credit facilities to finance conforming and non-conforming notes as
the need for such financing arises.
The Company has a $500,000 line of credit from one financial institution and a
$400,000 line of credit from another, both available for working capital. At
December 31, 1994, $150,000 was available on the lines.
In October 1994, the Company entered into financing arrangements to borrow $2
million from the first deed of trust holder on the Los Abrigados resort and
simultaneously repay the then outstanding $1,079,000 principal on the first deed
of trust. The net additional financing of $921,000 was utilized for expansion of
food and beverage facilities at Los Abrigados and to purchase the Class A
partners' minority interest in LAP held by non-affiliates. In conjunction with
the refinancing, the deed of trust holder had an appraisal performed by a Member
of the Appraisal Institute (MAI) of the property which valued the resort at
$18,800,000 at July 31, 1994. From the appraisal date through December 31, 1994,
664 timeshare intervals were sold.
During 1994, the Company acquired the land for Varsity Clubs of America - Notre
Dame for approximately $691,000 cash and secured $5 million in construction
financing to build and furnish the facility. Approximately $401,000 has been
drawn on the construction commitment at December 31, 1994. The Company believes
the $5 million in construction financing will be sufficient to complete the
facility.
The Company optioned additional Varsity Clubs of America sites during 1994 and
expects to finance such land acquisitions through seller financing or through
financial institutions, secured by the land acquired. The Company may seek
equity and/or debt financing for the construction of facilities and future
sites.
In July 1994, the Company acquired for $10,000 an option through October 1, 1994
to purchase 15.37 acres of undeveloped property in Sedona, Arizona for $4.5
million. The option may be extended through July 1, 1995, for monthly payments
totaling $260,000, all of which may be applied to the purchase price. In
September 1994, the Company entered into a 50/50 joint venture agreement for the
project with a development company and assigned the option agreement to the
joint venture. During the option period, the joint venture intends to
investigate the feasibility of developing a resort and retail complex on the
site. The joint venture is currently negotiating a reduction in the monthly
option payment. The Company's investment in the joint venture at December 31,
1994, is approximately $40,000.
In March 1995, the Company borrowed an additional $1,010,000 from The Steele
Foundation, Inc., the first mortgage holder on the Golden Eagle Resort. The
Company intends to use these funds for further expansion of food and beverage
facilities, refurbishment of suites and the construction of additional
administrative facilities at Los Abrigados resort.
In March 1995, the Company entered into an agreement, subject to a sixty day
right of cancellation, to acquire the Kohl's Ranch, a ten acre rustic resort
near Payson, Arizona for $1,650,000. The purchase price will consist of a
$50,000 cash down payment, assumption of the existing deed of trust of
approximately $950,000, seller financing of approximately $350,000, and the
issuance of 150,000 shares of ILX restricted common stock valued at $2 per
share. The Company intends to secure additional financing from the first deed of
trust holder for a portion of the cost of improvements and renovation and
intends to finance the balance of approximately $400,000 either through other
financing sources or from working capital. The Company plans to offer interval
ownership interests in the property.
Cash provided by operating activities increased from $1,723,454 in 1992 to
$2,307,986 in 1993 due to increased net income in 1993, because of greater
additions to resort property held for timeshare sales in 1993, because of
greater proceeds from sales of notes receivable in 1993 and because both the
income portion of a bulk sale and the deferred income portion were included in
net cash provided by operating activities in 1992. Cash provided by operating
activities increased from $2,307,986 in 1993 to $3,169,370 in 1994 due to
greater proceeds from sales of notes receivable, net of increased additions to
resort property under development for Varsity Clubs of America-Notre Dame.
Cash flows from investing activities changed from cash provided by investing
activities of $79,045 in 1992 to cash used in investing activities of $1,301,986
in 1993 due to greater investment in plant and equipment for the leasehold
improvements to the corporate headquarters in 1993 and due to the investment in
deferred Red Rock Collection costs in 1993. Cash used in investing activities of
$1,301,986 and $1,305,936 in 1994 are comparable but reflect the acquisition of
the minority interest in LAP in 1994 and greater increases in Red Rock
Collection deferred assets in 1993 than 1994.
The change from cash used in financing activities of $1,449,458 in 1992 to cash
provided by financing activities of $338,185 in 1993 is due to greater proceeds
from notes payable in 1993 and the issuance of minority interests in Red Rock
Collection in 1993. The change from cash provided by financing activities of
$338,185 in 1993 to cash used in financing activities of $287,954 in 1994
reflects greater principal payments on notes payable, net of increased
borrowings.
Although no assurances can be made, based on the prior success of the Company in
obtaining necessary financings for operations and for expansion, the Company
believes that with its existing financing commitments, its cashflow from
operations and the contemplated financings discussed above the Company will have
adequate capital resources for at least the next twelve to twenty-four months.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data required by Item 8
are set forth in Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Certain information concerning the Directors as of February
28, 1995, is set forth below. Except as set forth herein, none of them are
officers or directors of any other publicly-owned corporation or entity.
Director Number Percentage
Name Age Since of Shares of Total
- ---- --- ---- --------- --------
Edward J. Martori 42 1993 6,006,632 (1) 48.42%
Joseph P. Martori 53 1986 6,054,292 (1) 48.80%
Ronald D. Nitzberg 63 1986 213,031 (2) 1.71%(2)(5)
Nancy J. Stone 37 1989 289,586 (3)(4) 2.30%(3)(4)(5)
Alan J. Tucker 48 1992 197,000 (3) 1.58%(3)(5)
(1) See notes to principal shareholders listing.
(2) Including options to purchase 20,000 shares from the Company
at $1.625 per share.
(3) Including options to purchase 25,000 shares from the Company
and 50,000 shares from Martori Enterprises Incorporated at
$1.625 per share.
(4) Including options of Michael W. Stone, her husband, to
purchase 87,500 shares from the Company at $1.625 per share.
(5) The person's options to purchase shares are treated as
exercised with respect to that person and are included in
both the numerator and denominator.
Edward J. Martori has been a director of the Company since
December 1993. He has been employed as President of Martori Enterprises
Incorporated, a principal shareholder of the Company, since 1987. He is a cousin
of Joseph P. Martori.
Joseph P. Martori is a founder of the Company and has been a
director since its inception. He has been Chairman of the Board of Directors
since September 1991, and President since January 1, 1994. From 1985 until
January 1994, he was a member of the Phoenix, Arizona law firm of Brown & Bain,
P.A., where he was the Chairman of the Corporate, Real Estate and Banking
Department. Brown & Bain, P.A. currently serves as legal counsel for the
Company. He is a cousin of Edward J. Martori.
Ronald D. Nitzberg is a founder of the Company and has been a
director since its inception. He was the Company's President and chief executive
officer from inception until May 1988. He was Chairman of the Board of Directors
of the Company from June 1988 through March 1989. Since May 1988, Mr. Nitzberg
has been a consultant to the timeshare industry and was Executive Vice President
of Debbie Reynolds Resort, Inc., a Nevada corporation, from 1993 until March
1995.
Nancy J. Stone has been a director of the Company since April
1989, Executive Vice President since July 1993, and was President of the Company
from January 1990 until April 1992. From 1992 until June 1993 she was on the
faculty of North Central College in Naperville, Illinois. From April 1987 until
December 1989, she served as the Company's Vice President of Finance and
Secretary. She is certified as a public accountant in the States of Arizona and
Illinois.
Alan J. Tucker has been a director of the Company since
February 1992, and Executive Vice President since September 1991. He was Vice
President from January 1990 until August 1991, and has been Project Director of
Sedona Vacation Club timeshare sales since March 1989.
EXECUTIVE MANAGEMENT
The following table sets forth certain information concerning the
Company's executive officers. None of the executive officers are directors or
officers of any other publicly owned corporation or entity.
Name Age Postion/Term
- ---- --- ------------
Joseph P. Martori 53 President November 1993 to Present
Nancy J. Stone 37 Executive Vice President July 1993 to
Present
Alan J. Tucker 48 Executive Vice President September 1991
to Present, Vice President January 1990
to August 1991
Luis C. Acosta 43 President of Varsity Clubs of America
Incorporated November 1993 to Present
Michael W. Stone 40 President of Red Rock Collection
Incorporated July 1993 to Present
George C. Wallach 58 Executive Vice President February 1995
to Present
Edward S. Zielinski 43 Senior Vice President Janauary 1994 to
Present, Vice President December 1992 to
December 1993
Joseph P. Martori is a founder of the Company and has been a
director since its inception. He has been Chairman of the Board of Directors
since September 1991, and President since January 1, 1994. From 1985 until
January 1994, he was a member of the Phoenix, Arizona law firm of Brown & Bain,
P.A., where he was the Chairman of the Corporate, Real Estate and Banking
Department. Brown & Bain, P.A. currently serves as legal counsel for the
Company.
Nancy J. Stone has been a director of the Company since April
1989, Executive Vice President and Chief Financial Officer since July 1993, and
was President of the Company from January 1990 until April 1992. From 1992 until
June 1993, she was on the faculty of North Central College in Naperville,
Illinois. From April 1987 until December 1989, she served as the Company's Vice
President of Finance and Secretary. She is certified as a public accountant in
the States of Arizona and Illinois. Ms. Stone is the wife of Michael W. Stone,
President of Red Rock Collection Incorporated.
Alan J. Tucker has been a director of the Company since
February 1992, and Executive Vice President since September 1991. He was Vice
President from January 1990 until August 1991, and has been Project Director of
Sedona Vacation Club timeshare sales since March 1989.
Luis C. Acosta has been President and Chief Operating Officer
of Varsity Clubs of America Incorporated since November 1993. From January 1993
until November 1993, he was President of Destination Guild, a Nebraska
corporation, which develops and manages resort hotels. From 1990 to 1993, he was
Vice President of Development for Hilton Hotels Corporation, which develops,
owns and operates hotels, resorts and casinos. From 1985 to 1990, he was Vice
President of Development and Senior Vice President of Development for Ramada,
Inc., a Delaware corporation engaged in the development and management of
hotels, resorts and casinos.
Michael W. Stone has been President of Red Rock Collection
Incorporated since July 1993. From 1992 to 1993, he was Vice President of S.L.
Cooper and Associates, a Virginia based company, engaged in distribution of
filing and material handling equipment, and was responsible for new product
development and introduction, distribution and sales. From 1987 to 1992, he was
National Sales Manager of Richards-Wilcox, an Aurora, Illinois division of White
Consolidated Industries, engaged in manufacturing and sales of office and
material handling equipment. Mr. Stone is the husband of Nancy J. Stone,
Executive Vice President and Chief Financial Officer of ILX Incorporated.
George C. Wallach has been Executive Vice President since
February 1995. From February 1986 until January 1995, he was a member and
director of the Phoenix, Arizona law firm of Brown and Bain, P.A., specializing
in real estate and business transactions.
Edward S. Zielinski has been Senior Vice President since
January 1994, Vice President and General Manager of Los Abrigados resort since
December 1992, and Executive Assistant Manager of Los Abrigados resort since
November 1988.
Item 11. Executive Compensation
The following table sets forth compensation paid by the
Company for the years 1992-1994 to the principal executive officer and executive
officers that received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation Compensation(2)
Annual Compensation Awards All Other
-------------------------------- ---------------------- ---------------
Securities Underlying
Year Salary Bonus Stock Options (#)
---- ------ ----- ----------------------
<S> <C> <C> <C> <C> <C>
Joseph P. Martori
President and Principal 1994 $200,875 - - -
Executive Officer 1993 $ 30,709 - - -
1992 - - - -
Alan J. Tucker
Executive Vice President 1994 $148,667 $ 30,000 25,000 (1) -
1993 $ 75,000 $105,737 - -
1992 $ 75,000 $100,468 - -
Luis C. Acosta
President of Varsity 1994 $114,231 - - -
Clubs of America 1993 $ 9,615 - -
Incorporated 1992 - - -
(1) Excludes options to purchase 50,000 shares from Martori
Enterprises Incorporated for $1.625 per share.
(2) Excludes Profit Sharing Plan contributions on behalf of the
executive officer. During 1994 the Company adopted a Profit
Sharing Plan and declared a 1994 contribution which will be
funded in 1995. The allocation of the 1994 contribution among
participants has not yet been made. No executive officer is
expected to be allocated more than $2,500 for the 1994 plan
year.
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information on stock option
grants to executive officers of the Company during 1994 under the Company's 1992
Incentive Stock Option Plan. No stock appreciation rights were granted in 1994.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------------------- ----------------------
Number of
Securities % of Total
Underlying Options Market Price
Options Granted to Exercise on Date of
Granted Employees Price Grant Expiration 5% 10%
Name (#) in FiscalYear ($/Share) ($/Share) Date ($) ($)
- -------------- --- -------------- --------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Alan J.
Tucker 25,000 8.12% $1.625 $1.375 3/28/2004 $15,368 $48,535
</TABLE>
<TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END
OPTION VALUES
The following table sets forth information regarding option exercises by
executive officers during 1994 and unexercised options held by executive
officers at December 31, 1994.
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Fiscal
Year-End (#) Year-End ($)
----------------- -----------------
Shares
Acquired on Value Exercisable (E) Exercisable (E)
Name Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
---- ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Alan J. Tucker 0 $0 0(E) $0
25,000(U) $0
</TABLE>
OTHER COMPENSATION
The Company's policy is to pay a fee per Board of Directors
meeting attended by directors who are not employees of the Company, and
reimburse all directors for actual expenses incurred in connection with
attending meetings of the Board of Directors. The 1994 directors' fees were $250
per meeting. The Directors agreed to waive all meeting fees earned in 1994.
Commencing in 1995, the fee per Board of Directors meeting attended by a
non-employee director will be $1,000.
During 1994, non-employee director Ronald Nitzberg was granted
an option to purchase 20,000 shares of common stock at the price of $1.625 per
share. The market price on the date of grant was $1.375 and the options will
expire in 2004 or six months from the date Mr. Nitzberg ceases to be a director,
whichever is earlier. The options were granted as compensation for consulting
services provided in 1993 and 1994.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee and the Stock Option Committee of the Board
of Directors has furnished the following report on executive compensation:
It is the Company's policy to compensate its executives in a
manner which aligns their interests with the long-term interests of the
Company's shareholders. Through its compensation policies the Company
also seeks to attract and retain senior executives and reward
executives for their collective and individual contribution to the
leadership and short-term and long-term growth and profitability of the
Company. The Company compensates its executives through a mixture of
base salary, discretionary bonuses, and discretionary stock option
grants. The principal component of executive compensation to date has
been base salary.
Base Salary. Each Company executive receives a base salary which is
intended to be competitive with similarly situated executives in
companies of a similar size and nature. In setting base salaries for
1994, the Compensation Committee considered the executive's position
relative to other executives, overall responsibility, the achievement
of past performance objectives, and compensation information gleaned
informally with respect to similar companies.
The salary of the Company's Chief Executive Officer was set
through negotiations with the Board of Directors at an annual rate of
$200,000 plus annual cost of living increases. Accordingly, in November
1994, Mr. Martori's salary was increased to $205,000. Mr. Martori's
future salary will be subject to review by and negotiation with the
Company's Board of Directors based upon achievement of subjective and
objective performance factors, with the final salary determination to
reflect a subjective judgement of the Board of Directors.
Discretionary Options. From time to time, the Company has granted stock
options to executives to recognize significant performance and to
encourage them to take an equity stake in the Company. In making past
option awards, the Compensation Committee has reviewed the overall
performance of the executives and the Company has awarded options on a
discretionary basis, based upon a largely subjective determination.
During 1994, 167,500 stock options were granted to Executive Officers.
Bonuses. From time to time, the Company has granted bonuses to
executive officers who, in the discretion of the Company's Compensation
Committee, have performed in a manner meriting recognition above and
beyond their base salary. In addition, during 1993, the Company
instituted a performance bonus for one of its principal executives with
responsibility for the Company's Varsity Clubs Program, which
performance bonus will be tied to the achievement of certain defined
key objectives. Specifically, a bonus of between $30,000 and $50,000
will be granted upon the opening of each Varsity Clubs site and, in
addition, on an annual basis, a bonus of ten percent of the net income
of Varsity Clubs of America Incorporated will be granted and payable in
cash or, at the employee's option, in common stock at a price tied to
the price of the stock on the first business day of the preceding
calendar year. No such bonus has been earned or paid to date. The
Compensation committee may, in the future, consider the use of similar
performance-based bonuses for other executives.
Profit Sharing Plan. In 1994 the Company adopted a Profit Sharing Plan
for the benefit of all employees, including executive officers. A
contribution of $75,000 was declared for the 1994 fiscal year and will
be funded in 1995. Allocation among the participants of the amount to
be contributed has not yet occurred. The allocation is not expected to
exceed $2,500 for any executive officer.
Compliance with Section 162(m) of Internal Revenue Code. Section 162(m)
of the Internal Revenue Code limits the corporate deduction for
compensation paid to the Named Officers identified in the Company's
proxy statement to $1,000,000 per year, unless certain requirements are
met. The Compensation Committee has reviewed the impact of this new Tax
Code provision on the current compensation package for executives. No
executives will exceed the applicable limit. The Compensation Committee
will continue to review the impact of this Tax Code Section and make
appropriate recommendations to shareholders in the future.
Compensation Committee Interlocks and Insider Participation
Mr. Joseph P. Martori is a member of the Compensation Committee and
Stock Option Committee and Ms. Nancy J. Stone is a member of the Stock
Option Committee. Mr. Martori and Ms. Stone are officers of the
Company.
This report is made by Edward J. Martori, Joseph P. Martori, Ronald D. Nitzberg,
and Nancy J. Stone.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND SIC CODE INDEX
The data below compares the cumulative total return of the Company's
common stock with the NASDAQ market index and the SIC code 701 index (hotels and
motels) from January 1, 1990 to December 31, 1994. The Company has selected SIC
code 701 based on its belief that it is the most applicable comparison, based
upon the absence of data regarding publicly owned timeshare companies which
derive substantial revenues from hotel/motel operations.
Comparison of Five Year Cumulative Total Return
of Company, Industry Index and Broad Market
Company 1989 1990 1991 1992 1993 1994
------- ---- ---- ---- ---- ---- ----
ILX Incorporated 100 11.76 117.64 129.40 288.22 211.74
Industry Index 100 51.25 59.50 84.85 165.78 145.48
Broad Market 100 81.12 104.14 105.16 126.14 132.44
Item 12. Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons own more than five percent of the
outstanding voting securities of the Company as of February 28, 1995:
Amount and
Nature of
Title Name and Address of Beneficial Percentage
of Class Beneficial Owner(1) Ownership of Class
- ------- ------------------- --------- --------
Common Edward J. Martori 6,006,632 (4) 48.42%
Common Joseph P. Martori 6,054,292 (2) (3) 48.80%
Common Martori Enterprises 6,056,474 (5) 48.82%
Incorporated
Common Alan R. Mishkin 2,551,845 20.57%
Common All Officers/Directors 6,697,101 (6) 53.18%(6)(7)
(1) Unless otherwise indicated, the business address for all listed
shareholders is c/o the Company, 2777 East Camelback Road, Phoenix, Arizona
85016.
(2) Including 5,010 shares owned by Christina Ann Martori, daughter of
Joseph P. Martori, under trust dated February 20, 1978, and 4,000 shares held by
Joseph P. Martori as custodian for his daughter, Arianne Terres Martori.
(3) Including 40,832 shares of Common Stock owned by Wedbush Securities
Inc., Custodian of IRA Contributory Plan for Joseph P. Martori, and 6,004,450
shares owned by Martori Enterprises Incorporated. Joseph P. Martori is a
shareholder in Martori Enterprises Incorporated and a cousin of Edward J.
Martori.
(4) Including 6,004,450 shares owned by Martori Enterprises
Incorporated. Edward J. Martori is a shareholder in Martori Enterprises
Incorporated and a cousin of Joseph P. Martori.
(5) Including 2,182 shares of Common Stock owned by Edward J. Martori,
49,842 shares owned by Joseph P. Martori (notes (2) and (3)) and 6,004,450 owned
by Martori Enterprises Incorporated.
(6) Shares deemed to be beneficially owned by more than one officer
and/or director were only counted once.
(7) Options for 187,500 shares held by directors and officers are
treated as exercised and are included in both the numerator and the denominator.
Effective December 31, 1994, Martori Enterprises Incorporated
acquired 1,144,546 shares held by Wm. Robert Burns and Paige Burns. The
management of the Company is not aware of any other change in control of the
Company which has taken place since the beginning of the last fiscal year, nor
of any contractual arrangements or pledges of securities the operation of the
terms of which may at a subsequent date result in a change in control of the
Company. Except as set forth above, management is not aware of any other person
or group of persons that owns in excess of 5% of the Company's outstanding
common stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as to the
securities of the Company beneficially owned by (i) each director and nominee,
(ii) each named executive officer and (iii) all directors and officers as a
group.
<TABLE>
<CAPTION>
Amount and Nature
Title of Name of Beneficial of Beneficial Ownership Percentage
Class Owner of Common Shares of Class
- -------- ------------------ ----------------------- ----------
<S> <C> <C> <C>
Common Edward J. Martori 6,006,631(1) 48.42%
Common Joseph P. Martori 6,054,292(1)(2)(3) 48.80%
Common Ronald J. Nitzberg 213,031(4) 1.71%(9)
Common Nancy J. Stone 289,586(5)(6) 2.30%(9)
Common Alan J. Tucker 197,000(5) 1.58%(9)
Common Luis C. Acosta 9,900 .08%
Common Michael W. Stone 289,586(7) 2.30%(9)
Common George C. Wallach 1,000 .01%
Common Edward S. Zielinski 20,110(8) .16%(9)
Common Directors and Officers as a group 6,697,101(11) 53.18%(10)(11)
(1) Including 6,004,450 shares owned by Martori Enterprises Incorporated.
Edward J. Martori is a shareholder in Martori Enterprises Incorporated
and a cousin of Joseph P. Martori.
(2) Including 5,010 shares owned by Christina Ann Martori, daughter of
Joseph P. Martori, under trust dated February 20, 1978, and 4,000
shares held by Joseph P. Martori custodian for his daughter, Arianne
Terres Martori.
(3) Including 40,832 shares of common stock owned by Wedbush Morgan
Securities Inc., Custodian of IRA Contributory Plan for Joseph P.
Martori, and 6,004,450 shares owned by Martori Enterprises
Incorporated and a cousin of Edward J. Martori.
(4) Including options to purchase 20,000 shares from the Company at $1.625
per share.
(5) Including options to purchase 25,000 shares from the Company and
50,000 shares from Martori Enterprises Incorporated at $1.625 per
share.
(6) Including options of Michael W. Stone, her husband, to purchase 87,500
shares from the Company at $1.625 per share.
(7) Including options to purchase 87,500 shares from the Company at $1.625
per share and shares held beneficially by his wife, Nancy J. Stone.
(8) Including options to purchase 30,000 shares from the Company at $1.625
per share.
(9) The officers' and directors' options to purchase shares from the
Company are treated as exercised with respect to that officer or
director and are included in both the numerator and the denominator.
(10) Options to purchase from the Company 187,500 shares by directors and
officers are treated as exercised and are included in both the
numerator and the denominator.
(11) Shares deemed to be beneficially owned by more than one officer and/or
director were only counted once.
</TABLE>
Item 13. Certain Relationships and Related Transactions
The following is a summary of transactions entered into on
behalf of the Company or its subsidiaries since January 1, 1994, in which the
amount involved exceeded $60,000 and in which officers, directors, nominees
and/or greater than 5% beneficial owners of the Company's common stock had, or
will have, a direct or indirect material interest.
On September 9, 1991, the Company entered into a guarantee fee
agreement with Arthur J. Martori, then an affiliate, and Alan R. Mishkin, who
guaranteed a loan to Los Abrigados Limited Partnership ("LAP") in the amount of
$5,000,000 from The Valley National Bank of Arizona. The affiliates earned a
guarantee fee of $780,000, payable quarterly at the rate of $100 for each Los
Abrigados timeshare interest sold. During 1994, LAP paid $93,564 related to this
fee. Also, in conjunction with the September 9, 1991 transaction, the affiliates
were assigned $185,000 of amounts held back by financial institutions as
collateral on the sale of consumer notes receivable. During 1994, the Company
paid $48,760 related to these holdbacks. Effective November 11, 1993, Martori
Enterprises Incorporated acquired all of Arthur J. Martori's interest in ILX and
its subsidiaries, including his interests in guarantee fees and holdbacks, and
his interests in notes receivable, described below. Joseph P. Martori and Edward
J. Martori are shareholders of Martori Enterprises Incorporated.
Certain affiliates of the Company held a 6% interest in LAP as
Class A limited partners (Edward J. Martori 5%, Martori Enterprises Incorporated
.5%, Wedbush Morgan Securities IRA for Joseph P. Martori .25% and Joseph P.
Martori, Trustee .25%). Class A partners Edward J. Martori and Martori
Enterprises Incorporated were entitled to receive a 13.5% preferred return and
Class A partners Joseph P. Martori as Trustee and Wedbush Morgan Securities for
the benefit of Joseph P. Martori were entitled to receive a 22% preferred
return. During fiscal 1994, payments of $103,000 were made to the above
described Class A partners.
In October 1994, the Company acquired all of the Class A
partnership interests in LAP for $1,587,000, effective July 1, 1994. The
interests held by Martori Enterprises Incorporated, Edward J. Martori, Joseph P.
Martori as Trustee and Wedbush Morgan Securities for the benefit of Joseph P.
Martori were acquired in exchange for notes totaling $1,215,750 and cash of
$6,000. During fiscal year 1994, no principal or interest payments were made on
the notes to the affiliated Class A partners.
Martori Enterprises Incorporated and Alan R. Mishkin hold a
21.5% interest in LAP as Class B limited partners. The Class B Partners are
entitled to 13.5% interest on their original Class B LAP capital contributions
of $250,000 each. During fiscal year 1994, payments of $36,259 were made to the
Class B partners.
The Company leases from affiliates 41 timeshare interests in
the Stonehouse at the Los Abrigados resort under a September 1, 1991, license
agreement which provides for a payment of $250 per calendar quarter per
Stonehouse interval for the five year period commencing October 1, 1991. During
1994, lease payments totaling $41,000 were made to Martori Enterprises
Incorporated, Alan R. Mishkin, Wm. Robert Burns and certain affiliates of Wm.
Robert Burns.
On September 10, 1991, the Company entered into a management
agreement with LAP whereby the Company was appointed the exclusive managing and
operating agent for the resort and for the timeshare sales office located at the
resort. The Company was also appointed as the exclusive agent for the marketing
of timeshare interests of LAP. The agreement provides for fees of $25,000 per
month for a term of five years with automatically renewable five-year terms.
Management fees in the amount of $300,000 were earned by the Company during the
1994 fiscal year.
In August 1992, the Company issued to Martori Enterprises
Incorporated, as agent for Edward J. Martori, Martori Enterprises Incorporated,
Arthur J. Martori and Alan R. Mishkin, a $770,000 promissory note bearing
interest at 14%, collateralized by $810,630 in notes receivable. The promissory
note was issued to reduce Class A limited partners' capital contributions by
$500,000, Class A priority returns by $149,954, Class B accrued interest by
$73,772 and loan guarantee fees by $46,274. Principal payments of $188,381 and
interest payments of $61,046 were made during the 1994 fiscal year.
In May 1993, the Company borrowed $150,000 from Martori
Enterprises Incorporated. The note bears interest at 16%, has a term of four
years and was collateralized by approximately $199,000 in notes receivable.
During fiscal 1994, principal payments of $30,512 and interest payments of
$18,439 were paid on the note.
In June 1993, the Company borrowed $100,000 form Martori
Enterprises Incorporated. The note bears interest at 16%, has a term of three
years and was collateralized by furniture and equipment. Principal payments of
$50,008 and interest payments of $8,749 were made on the note during fiscal year
1994.
In July 1993, the Company issued 102,000 shares of restricted
common stock, valued at $1 per share, to Alan R. Mishkin in consideration for
accrued and future guarantee fees and Class B interest. The $102,000 was
initially reflected as payment of accrued Class B interest ($11,016) and accrued
and future guarantee fees ($90,984). During 1994, $36,259 originally applied to
future guarantee fees was reclassified as payment of Class B interest.
During fiscal 1994, the Company leased a condominium adjacent
to the Golden Eagle Resort from Martori Enterprises Incorporated, Edward J.
Martori and Joseph P. Martori. The Company paid the debt service, property taxes
and operating expenses in exchange for use of the unit. The debt service paid by
the Company in 1994 was $11,126. On December 31, 1994, the Company purchased the
condominium for $104,915, the approximate assessed value as determined by the
county assessor's most recent assessment. The Company paid cash of $32,643 and
assumed the existing mortgage.
In February 1994, the Company acquired the minority interests
in Red Rock Collection Incorporated, an Arizona corporation ("RRC"), held by
Alan R. Mishkin and Martori Enterprises Incorporated for consideration of
123,000 shares of restricted ILX common stock and $300,000 in promissory notes
which bear interest at 10% and are payable over a thirty six month period.
During fiscal year 1994, principal payments of $74,574 and interest payments of
$22,228 were made on the notes.
In September 1994, the Company, through Genesis Investment
Group, Inc., assumed from Martori Enterprises Incorporated an existing option
agreement between Martori Enterprises Incorporated and a non-affiliated company
which owns 667 weeks at Los Abrigados resort. The option agreement provides that
the Company must, if requested, purchase at $2,100 per interval, 25 intervals
per month commencing July 1994, and one-half of the intervals remaining on an
annual basis. The agreement also provides the Company the right to acquire the
intervals for $2100 each, commencing July 1995. No intervals have been acquired
by the Company to date.
The law firm of Brown & Bain, P.A. has served as legal counsel to the
Company since the Company's inception. Joseph P. Martori, Chairman of the
Company's Board of Directors since September 1991, President since November 1,
1993, and director since inception, was the Chairman of the Corporate, Real
Estate and Banking Department of Brown & Bain, P.A. until January 1994. George
C. Wallach, Executive Vice President of the Company since February 1995, was a
partner in Brown & Bain, P.A. until he joined the Company. The Company paid
Brown & Bain, P.A. $159,305 during 1994 for legal services provided in 1994 and
prior years. The Company anticipates that it will retain Brown & Bain, P.A. to
provide legal services during the 1995 fiscal year.
The above-described transactions are believed to be on terms no less
favorable to the Company than those available in arms' length transactions with
unaffiliated third parties. Each transaction has been approved by independent
directors of the Company who are not parties to the transaction.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Consolidated Financial Statements Page or Method of Filing
--------------------------------- ------------------------
(i) Consolidated Financial Statements and Pages 27 through 46
Notes to Consolidated Statements of
the Registrant, including Consolidated
Balance Sheets as of December 31,
1994 and 1993 and Consolidated
Statements of Operations, Shareholders'
Equity and Cash Flows for each of the
three years ended December 31,
1994, 1993 and 1992.
(ii) Report of Deloitte & Touche LLP Page 26
(a) (2) Consolidated Financial Statement
--------------------------------
Schedules
---------
Reserve for possible credit losses Page 48
Schedules other than those mentioned above are omitted because
the conditions requiring their filing do not exist or because
the required information is given in the financial statements,
including the notes thereto.
(a) (3) Exhibits
The Exhibit Index attached to this report is hereby
incorporated by reference.
(b) Reports on Form 8-K
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
ILX Incorporated:
We have audited the accompanying consolidated balance sheets of ILX Incorporated
and subsidiaries (the "Company") as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 10, 1995
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
1994 1993
----------- -----------
Assets
Cash and cash equivalents ..................... $ 3,635,587 $ 2,060,107
Notes receivable, net (Notes 2, 10, 11 and 14). 6,750,896 6,671,626
Resort property held for timeshare sales
(Notes 3 and 10) ......................... 9,407,733 9,749,018
Resort property under development (Note 6)..... 1,735,592 --
Land held for sale (Note 4) ................... 1,673,168 3,113,933
Deferred assets (Notes 5, 6 and 7) ........... 749,999 1,465,769
Property and equipment , net (Note 8) ......... 1,437,227 692,387
Deferred income taxes (Note 9) ................ 1,283,179 397,771
Other assets .................................. 1,730,023 756,358
----------- -----------
$28,403,404 $24,906,969
Liabilities and Shareholders' Equity =========== ===========
Accounts payable .............................. $ 1,581,659 $ 1,800,194
Accrued and other liabilities ................. 1,488,816 944,779
Genesis funds certificates (Note 4) ........... 1,612,457 2,181,016
Due to affiliates (Notes 7, 12, and 16) ....... 984,534 728,876
Deferred income (Notes 2 and 6) ............... 365,195 456,899
Notes payable (Note 10) ....................... 4,881,861 4,356,990
Notes payable to affiliates (Note 11) ......... 2,000,584 1,051,908
----------- -----------
12,915,106 11,520,662
----------- -----------
Minority Interests (Note 12) ................... 2,531,169 2,844,812
----------- -----------
Commitments (Note 13)
Shareholders' Equity (Notes 14 and 15)
Preferred stock, $10 par value;
10,000,000 shares authorized;
430,313 and 438,175 shares issued and
outstanding; liquidation preference of
$4,303,130 and $4,381,750, respectively ..... 1,648,755 1,673,028
Common stock, no par value;
40,000,000 shares authorized; 12,405,325
and 12,083,618 shares issued and outstanding. 8,972,969 8,681,349
Additional paid in capital .................... 30,000 30,000
Retained earnings ............................. 2,305,405 157,118
----------- -----------
12,957,129 10,541,495
----------- -----------
$28,403,404 $24,906,969
=========== ===========
See notes to consolidated financial statements
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales of timeshare interests ................................ $ 18,713,970 $ 12,263,619 $ 11,136,950
Resort operating revenue .................................... 8,764,558 8,072,260 7,719,710
Sales of land ............................................... 2,237,166 123,500 --
Sales of consumer products .................................. 234,975 -- --
----------- ------------ ------------
29,950,669 20,459,379 18,856,660
----------- ------------ ------------
Cost of sales and operating expenses:
Cost of timeshare interests sold............................. 6,592,684 5,007,131 4,911,976
Cost of resort opertions .................................... 7,807,857 6,962,849 6,787,831
Cost of land sold ........................................... 1,796,974 113,618 --
Cost of consumer products .................................. 158,657 -- --
Advertising and promotion ................................... 5,941,761 3,168,562 2,900,258
General and administrative .................................. 3,198,604 1,510,448 1,339,962
Provision for doubtful accounts ............................. 764,065 666,690 629,510
----------- ------------ ------------
26,260,602 17,429,298 16,569,537
----------- ------------ ------------
Operating income ................................................. 3,690,067 3,030,081 2,287,123
Other income (expense):
Interest expense (Note 11) .................................. (666,141) (599,238) (643,023)
Interest income ............................................. 402,596 359,908 169,600
----------- ------------ ------------
(263,545) (239,330) (473,423)
----------- ------------ ------------
Income before income taxes ....................................... 3,426,522 2,790,751 1,813,700
Income tax benefit ............................................... 161,799 100,000 100,000
----------- ------------ ------------
Income before minority interests ................................. 3,588,321 2,890,751 1,913,700
Minority interests ............................................... (1,440,034) (814,520) (587,826)
----------- ------------ ------------
Net income ....................................................... $ 2,148,287 $ 2,076,231 $ 1,325,874
============ ============ ============
Net income per common and
equivalent share ............................................... $ 0.17 $ 0.18 $ 0.12
============ ============ ============
Number of common and equivalent shares ........................... 12,463,246 11,791,786 11,229,991
============ ============ ============
Net income per share assuming
full dilution .................................................. $ 0.17 $ 0.17 $ 0.12
============ ============ ============
Number of fully diluted shares ................................... 12,971,235 12,301,206 11,229,991
============ ============ ============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Retained
Common Stock Additional Preferred Stock Earnings/
------------------------- Paid In ---------------------- Accumulated
Shares Amount Capital Shares Amount Deficit Total
---------- --------- ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1991 10,973,414 $7,240,482 - 357,540 $1,100,400 ($3,244,987) $5,095,895
Net income - - - - - 1,325,874 1,325,874
Issuance of common stock
for acquisition 150,000 84,375 84,375
Other issuance of common
stock 144,684 57,664 - - - - 57,664
Purchase of Series B
preferred stock - - 30,000 (220,000) (220,000) - (190,000)
Exchange of preferred stock
for lodging certificates - - - (4,597) (45,970) - (45,970)
Collection of note receivable
for exercise of warrants - 150,000 - - - - 150,000
---------- --------- ------ -------- ---------- ---------- ----------
Balances, December 31, 1992 11,268,098 7,532,521 30,000 132,943 834,430 (1,919,113) 6,477,838
Net income - - - - - 2,076,231 2,076,231
Issuance of common stock
for acquisition 509,420 842,798 842,798
Other issuance of common
stock 306,100 306,030 - - - - 306,030
Issuance of preferred stock
for acquisition - - - 305,652 842,798 - 842,798
Exchange of preferred stock
for lodging certificates - - - (420) (4,200) - (4,200)
---------- --------- ------ -------- ---------- ---------- ----------
Balances, December 31, 1993 12,083,618 8,681,349 30,000 438,175 1,673,028 157,118 10,541,495
Net Income - - - - - 2,148,287 2,148,287
Issuance of common stock
for acquisition 123,000 123,000 123,000
Other issuance of common
stock 24,616 29,232 - - - - 29,232
Exchange of preferred stock
for common stock 12,100 20,038 - (7,260) (20,038) - -
Exercise of options 162,586 121,135 - - - - 121,135
Exchange of preferred stock
for lodging certificates - - - (245) (2,450) - (2,450)
Exercise of cash options (595) (1,785) - (357) (1,785) - (3,570)
---------- --------- ------ -------- ---------- ---------- ----------
Balances, December 31, 1994 12,405,325 $8,972,969 $30,000 430,313 $1,648,755 $2,305,405 $12,957,129
========== ========== ======== ======== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS DECEMBER 31, 1994, 1993, 1992
<CAPTION>
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 2,148,287 $ 2,076,231 $ 1,325,874
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed minority interest ....................................... 760,306 651,205 310,736
Deferred income taxes ................................................. (885,408) (297,771) (100,000)
Additions to notes receivable ......................................... (10,333,377) (8,182,286) (7,028,138)
Proceeds from sale of notes receivable ................................ 9,490,042 6,406,437 4,533,918
Provision for doubtful accounts ....................................... 764,065 666,690 629,510
Depreciation and amortization ......................................... 1,425,792 352,877 271,327
Amortization of guarantee fees ........................................ 140,550 132,054 47,496
Change in assets and liabilities, net of the
effects from purchase of subsidiary:
(Increase)decrease in resort property held for
timeshare sales .................................................. 870,858 (221,501) 1,110,165
Increase in resort property under development ..................... (1,735,592) -- --
Decrease in land held for sale .................................... 1,440,765 -- --
(Increase) decrease in other assets ............................... (862,965) 226,307 189,500
Increase (decrease) in accounts payable ........................... (218,535) 241,931 (119,253)
Decrease in Genesis funds certificates ............................ (568,559) -- --
Increase in accrued and other liabilities ......................... 569,187 187,762 82,064
Increase in due to affiliates ..................................... 255,658 39,251 42,155
Increase (decrease) in deferred income ............................ (91,704) 28,799 428,100
----------- ----------- ----------
Net cash provided by operating activities .............................. 3,169,370 2,307,986 1,723,454
----------- ----------- ----------
Cash flows from investing activities:
(Increase) decrease in deferred assets ................................ (353,251) (904,173) 106,439
Purchases of plant and equipment ...................................... (581,435) (741,323) (28,529)
Net cash acquired from purchase of subsidiary ......................... -- 343,510 1,135
Net cash paid for Class A minority interest ........................... (371,250) -- --
----------- ----------- ----------
Net cash provided by (used in) investing activities .................... (1,305,936) (1,301,986) 79,045
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from notes payable ........................................... 6,165,996 1,579,056 --
Proceeds from notes payable to affiliates ............................. -- 850,000 --
Principal payments on notes payable ................................... (6,006,073) (1,567,486) (1,127,717)
Principal payments on notes payable to affiliates ..................... (567,074) (820,265) (529,405)
Payments in lieu of issuance of common stock .......................... -- (1,560) --
Payments in lieu of issuance of preferred stock ....................... -- (1,560) --
Proceeds from issuance of common stock ................................ 122,767 -- 207,664
Proceeds from issuance of minority interest in subsidiary ............. -- 300,000 --
Redemption of preferred stock ......................................... (1,785) -- --
Redemption of common stock ............................................ (1,785) -- --
----------- ----------- ----------
Net cash provided by (used in) financing activites ..................... (287,954) 338,185 (1,449,458)
----------- ----------- ----------
Net increase in cash and cash equivalents .............................. 1,575,480 1,344,185 353,041
Cash and cash equivalents at beginning of year ......................... 2,060,107 715,922 362,881
----------- ----------- ----------
Cash and cash equivalents at end of year ............................... $ 3,635,587 $ 2,060,107 $ 715,922
=========== =========== ===========
See notes to consolidated financial statements and supplemental schedules of noncash investing and financing activities
</TABLE>
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities for the year
ended December 31, 1994:
Acquisition of Class A interest:
Increase in notes payable to affiliates ................. $ 1,215,750
Reduction in minority interest .......................... (773,949)
Increase in resort property held for timeshare sales .... (813,051)
-----------
Net cash paid for Class A minority interest ............. $ 371,250
===========
Purchases of plant and equipment
Increase in notes payable ............................... $ 364,948
Increase in plant and equipment ......................... (364,948)
-----------
$ 0
===========
Purchase of minority interest in subsidiary
Increase in other assets ................................ ($ 123,000)
Increase in notes payable to affiliates.................. 300,000
Issuance of common stock ................................ 123,000
Reduction in minority interest .......................... (300,000)
-----------
$ 0
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock ................................ $ 20,038
Reduction in Series C Preferred Stock ................... (20,038)
-----------
$ 0
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights ................ $ 2,450
Reduction in series A Preferred Stock ................... (2,450)
-----------
$ 0
===========
Tax benefit on exercise of stock options
Increase in common stock ................................ $ 27,600
Reduction in taxes payable .............................. (27,600)
-----------
$ 0
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities for the year
ended December 31, 1993:
Purchase of subsidiary:
Acquisition of notes receivable ....................... ($2,644,310)
Acquisition of land held for sale ..................... (2,345,902)
Acquisition of other assets ........................... (261,568)
Assumption of accounts payable ........................ 838,354
Assumption of Genesis funds certificates .............. 2,162,943
Assumption of notes payable ........................... 502,486
Assumption of minority interest ....................... 402,791
Issuance of preferred stock ........................... 844,358
Issuance of common stock .............................. 844,358
-----------
Net cash acquired from
purchase of subsidiary ......................... $ 343,510
===========
Exchange of note for land:
Increase in land held for sale ........................ ($ 768,031)
Decrease in notes receivable .......................... 768,031
-----------
$ 0
===========
Issuance of common stock for reduction of
Class A Priority return:
Issuance of common stock .............................. $ 204,000
Reduction in minority interest ........................ (204,000)
-----------
$ 0
===========
Redemption of common stock to reduce
amounts due to affiliates:
Issuance of common stock .............................. $ 102,000
Reduction in due to affiliates ........................ (102,000)
-----------
$ 0
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights .............. $ 4,200
Reduction in series A Preferred Stock ................. (4,200)
-----------
$ 0
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities for the year
ended December 31, 1992:
Purchase of subsidiary:
Acquisition of other assets ........................... $ (141,706)
Assumption of accounts payable ........................ 16,746
Issuance of common stock .............................. 84,375
Issuance of timeshare interests ....................... 6,720
Reduction in investment in joint venture .............. 35,000
-----------
Net cash acquired from purchase of subsidiary ......... $ 1,135
===========
Repurchase of Series B Preferred Stock:
Issuance of certificates for room nights .............. $ 15,000
Increase in notes payable to affiliate ................ 175,000
Reduction in Series B Preferred Stock ................. (220,000)
Increase in paid in capital ........................... 30,000
-----------
$ -
===========
Issuance of note payable to reduce amounts due to affiliate
minority interest:
Increase in notes payable to affiliate ................ $ 770,000
Reduction in due to affiliates ........................ (270,000)
Reduction in minority interests ....................... (500,000)
-----------
$ -
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights .............. $ 45,970
Reduction in Series A Preferred Stock ................. (45,970)
-----------
$ -
===========
See notes to consolidated financial statements
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
The consolidated financial statements include the accounts of ILX Incorporated
and its wholly-owned and majority owned subsidiaries ("ILX" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation.
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in resort properties and, effective
in the third quarter of 1994, marketing of skin and hair care products.
Net Income per Share
Net income per common share and common equivalent share is based on the weighted
average number of common shares outstanding, including common stock equivalents
which have a dilutive effect. Common stock equivalents consist of Series B
Convertible Preferred Stock, warrants and shares issuable under the stock option
plan (Notes 14 and 15). Net income per common share and common equivalent share
is based on net income adjusted for undeclared dividends on Series C Preferred
Stock. Net income per share assuming full dilution is based on the weighted
average number of common shares outstanding, including common stock equivalents,
and after giving effect to the conversion of Series C Preferred Stock.
Resort Property Held for Timeshare Sales
Resort property held for timeshare sales is recorded at the lower of historical
cost less amounts charged to cost of sales for timeshare sales and depreciation
provided for on the basis of daily rental occupancy, or market. As timeshare
interests are sold, the Company amortizes to cost of sales the average carrying
value of the property plus estimated future additional costs related to
remodeling and construction.
Land Held for Sale
Land held for sale is recorded at the lower of cost or estimated realizable
value, consistent with the Company's intention to liquidate these properties
(Note 4).
Revenue Recognition
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and the Company has been
released of all future obligations for the timeshare interest. Resort operating
revenue represents daily room rentals and revenues from food and other resort
services. Such revenues are recorded as the rooms are rented or the services are
performed.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes ("SFAS No.
109"), which requires an asset and liability approach for financial accounting
and reporting for income taxes. In the first quarter of 1992, the Company
adopted SFAS No. 109, which had no material effect on the consolidated financial
statements.
Statements of Cash Flows
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the years ended December 31, 1994, 1993 and 1992,
the Company paid interest of approximately $716,000, $503,000, and $517,000 and
income taxes of approximately $723,000, $193,000 and $6,000 respectively.
Interest of $30,749 was capitalized during 1994 to resort property under
development.
Reclassifications
The financial statements for prior periods have been reclassified to be
consistent with the 1994 financial statement presentation.
Note 2 - Notes Receivable
Notes receivable consist of the following:
December 31,
------------------------------
1994 1993
------------ ------------
Timeshare receivables ...................... $ 5,243,443 $ 4,954,678
Holdbacks by financial institutions ........ 1,993,965 1,106,716
Genesis mortgage receivables (Note 4) ...... 776,776 1,426,058
Allowance for possible credit losses ....... (1,263,288) (815,826)
------------ ------------
$ 6,750,896 $ 6,671,626
============ ============
Notes generated from the sale of timeshare interests bear interest at annual
rates ranging from 9% to 16% and have terms of five to ten years. In addition,
the Company offers 0% interest and below market interest, and one and two year
financing, to purchasers who pay 50% of the purchase price at the time of sale.
These notes are discounted to yield a consumer market rate. The notes are
collateralized by deeds of trust on the timeshare interests sold. Included in
notes receivable at December 31, 1993, was a note for $900,000 from a California
limited partnership which acquired in December 1992, 667 timeshare interests at
Los Abrigados resort for $500,000 cash and a $900,000 promissory note. Annual
principal payments were not required under the terms of the note receivable and,
therefore, the gross profit of $428,100 on the $900,000 was deferred until
collection in 1994 (Note 14).
The Company has agreements with financial institutions under which the Company
may sell certain of its notes receivable. These agreements provide for sales on
a recourse basis with a percentage of the amount sold held back by the financial
institution as additional collateral. At December 31, 1994 and 1993, the Company
had approximately $15 million and $11 million in outstanding notes receivable
sold on a recourse basis. Portions of the notes receivable are secured by second
deeds of trust on the Los Abrigados resort and the Golden Eagle Resort. Notes
may be sold at discounts to yield the consumer market rate as defined by the
financial institution.
At December 31, 1994, the Company had $13,000,000 in financing commitments
through September 1996, and an additional $5,000,000 through March 1995, to sell
consumer notes receivable generated from sales of timeshare interests at the Los
Abrigados resort and the Golden Eagle Resort. At December 31, 1994,
approximately $ 11 million remained available on the commitments expiring in
September 1996, and approximately $771,000 on the commitment expiring in March
1995. Subsequent to December 31, 1994, an additional $5 million was committed
through September 1996, to replace the $5 million commitment expiring in March
1995. The Company also has financing commitments whereby it may borrow up to
$2.5 million against notes receivable generated from sales of timeshare
interests at the Golden Eagle Resort through September 1998. Approximately $1.3
million remained available on this commitment at December 31, 1994.
In January 1992, the Company sold consumer notes receivable to affiliates of the
Company for proceeds of $368,000, consisting of $156,000 cash and the assignment
of Los Abrigados Limited Partners ("LAP") Class A priority returns, LAP Class B
limited partners interest payments and loan guarantee fees totaling $212,000.
The notes were sold with recourse and the Company recognized a loss of
approximately $60,000 on the sale. At December 31, 1994 and 1993, the Company
had approximately $304,000 and $357,000, respectively, in outstanding notes
receivable sold on a recourse basis related to this sale.
During 1993, the Company borrowed $550,000 from affiliates of the Company,
collateralized by notes receivable with principal balances of approximately
$760,000 at the date of the borrowings. Balances outstanding on the borrowings
totaled $332,724 and $521,105 at December 31, 1994 and 1993, respectively (Note
11).
In May 1994, the Company sold its interest in certain land held for sale for
$825,000 cash and a $950,000 note receivable. The Company then sold the note,
with recourse, at face value. Principal of $750,000 on the note remains
outstanding at December 31, 1994, and is secured by the underlying real estate.
At December 31, 1994, notes receivable in the amount of approximately $240,000
have been contributed to the Company's Series A Preferred Stock sinking fund and
therefore their use is restricted (Note 14).
The reserve for possible credit losses of approximately $1,263,000 and $816,000
at December 31, 1994 and 1993, reflect reserves for both notes sold with
recourse and notes retained.
Note 3 - Resort Property Held for Timeshare Sales
Resort property held for timeshare sales consists of the following projects:
December 31,
-----------------------------
1994 1993
---------- ----------
Los Abrigados Resort ................... $6,846,715 $6,773,148
Golden Eagle Resort .................... 2,443,818 2,829,670
Costa Vida Resort ...................... 68,200 88,200
Ventura Resort ......................... 49,000 58,000
---------- ----------
$9,407,733 $9,749,018
========== ==========
Resort properties are stated net of accumulated depreciation of $878,000 and
$599,000 at December 31, 1994 and 1993, respectively.
In September 1994, the Company acquired for $15,000 an option to purchase 667
previously sold timeshare interests in the Los Abrigados resort. The terms of
the option agreement provide that the seller may sell to the Company up to 25
intervals per month and, in addition, up to one half of the remainder of the 667
intervals per year, for $2100 per interval. The seller must provide the Company
with written notice of its intent to sell 30 days in advance of a monthly sale
and 180 days in advance of an annual sale. The seller has neither provided
notice of its intent to sell nor sold any intervals to the Company through
December 31, 1994. Commencing July 1, 1995, the Company has the option to
purchase from the seller from time to time for a price of $2100 per interval,
groups of 25 or more intervals. The option was acquired from an affiliate.
Note 4 - Genesis Investment Group, Inc.
In March 1993, the Company reached agreement to acquire Genesis Investment
Group, Inc. ("Genesis"), a reorganized company resulting from the restructuring
of the investments originally made by hundreds of individuals and pension plans
and secured by interests in real property located principally in Arizona. As a
result of the reorganization, Genesis became a public company in 1988 holding
ownership interests in real estate (both fee and liens), most of which are
unimproved. On November 1, 1993, a wholly owned subsidiary of ILX consummated
its merger with and into Genesis and, as a result, Genesis, the surviving
corporation, became a wholly owned subsidiary of ILX. Under the terms of the
merger agreement, the Company issued a unit consisting of five shares of ILX
common stock and three shares of Series C Convertible Preferred Stock, with a
par value of $10 per share, for each ten shares of Genesis common stock. Each
three shares of Series C Preferred Stock are convertible after one year, at the
option of the holder, into five shares of ILX common stock. The merger agreement
also provides that Genesis shareholders who would otherwise receive fractional
units in exchange for all or a portion of their Genesis shares shall receive $3
per Genesis share for the fractional portion. Genesis shareholders who hold
fewer than 100 Genesis shares have the option under the merger agreement to
select cash of $3 per Genesis share in lieu of ILX units.
On November 1, 1993, the date of the merger, ILX issued 101,988 units, the
maximum number of whole units that Genesis shareholders are entitled to under
the terms of the merger agreement, consisting of 305,964 shares of Series C
Preferred Stock recorded at $844,358 and 509,940 shares of ILX common stock
recorded at $844,358, and recorded a liability in the amount of $17,262 for
fractional units. As Genesis shareholders who own fewer than 100 shares elect
cash in lieu of units, the ILX Series C Preferred Stock and common stock are
reduced. During 1994, Genesis shareholders elected to receive $3,570 in cash,
and, accordingly, Series C Preferred Stock and common stock were each reduced by
$1,785 (Note 14).
The acquisition has been accounted for as a purchase with the cost allocated to
preferred and common shares based on the assumption that all preferred shares
are converted to common shares.
The balance sheet of Genesis at November 1, 1993, was as follows:
(Unaudited)
----------
Assets
Cash and cash equivalents .............................. $ 343,510
Notes receivable, net .................................. 2,644,310
Land held for sale ..................................... 2,345,902
Other assets ........................................... 261,568
----------
$5,595,290
==========
Liabilities and Shareholder Equity
Accounts payable ....................................... $ 838,354
Genesis funds certificates ............................. 2,162,943
Notes payable .......................................... 502,486
Minority interests ..................................... 402,791
----------
3,906,574
----------
Stockholder equity ..................................... 1,688,716
----------
$5,595,290
==========
The Genesis funds certificates arise from the reorganization of Genesis and
represent non-recourse liabilities. The holders are entitled to receive 50% of
the net proceeds from the sale of certain Genesis properties. Such amounts have
been recorded based upon the estimated realizable values of the related
properties and are increased for sales of property at prices higher than their
carrying values and for collection of mortgage interest and decreased for
payments to the certificate holders and for property expenses paid by Genesis
which reduce the amount payable to the certificate holders.
If the Company and Genesis had been combined as of January 1, 1992, the proforma
results of the combined entity would be as follows:
December 31,
----------------------------
1993 1992
(Unaudited) (Unaudited)
------------ -----------
Total revenues ............................... $ 21,137,079 $19,125,010
------------ -----------
Net income ................................... $ 1,898,500 $1,982,904
------------ -----------
Net income per common and
equivalent share .......................... $ 0.16 $ 0.17
------------ -----------
Net income per share assuming full dilution .. $ 0.15 $ 0.16
------------ -----------
Note 5 - Red Rock Collection
In February 1993, the Company acquired, through a stock subscription offering,
71.4% of the issued and outstanding stock of Red Rock Collection Incorporated,
an Arizona Corporation ("RRC" or "Red Rock Collection"), in exchange for
$700,000 in goods and services to be provided to RRC at Los Abrigados resort. In
February 1994, the Company acquired the $300,000 minority interest in RRC, which
was held by affiliates, in exchange for 123,000 shares of restricted ILX common
stock valued at $1 per share and $300,000 in promissory notes (Notes 11 and 14).
Goodwill of $123,000 was recorded and is included, net of amortization of
$12,300, in other assets at December 31, 1994.
RRC was formed to market an exclusive line of skin and hair care products. Costs
were deferred until July 1994, the date at which sales commenced. Deferred costs
of approximately $929,000 were expensed in 1994.
Note 6 - Resort Property Under Development
Varsity Clubs of America Incorporated ("VCA") a wholly owned subsidiary of ILX,
intends to develop lodging accomodations in areas located near major university
campuses, and to market those lodging accommodations, including interval
ownership interests, to alumni and other sport enthusiasts. During 1994 VCA
acquired its first site near the University of Notre Dame for $690,655 and
commenced construction. Acquisition and construction costs totalling $1,735,592
are included in resort property under development at December 31, 1994. Revenues
of $513,400, net of related selling costs of $148,205, have been deferred at
December 31, 1994, until construction is substantially complete.
The Company has a construction financing commitment for $5 million to complete
the Notre Dame facility, of which $400,784 has been drawn at December 31, 1994
(Note 10).
<TABLE>
Note 7 - Deferred Assets
<CAPTION>
December 31,
1994 1993
------------ -----------
<S> <C> <C>
Deferred assets consist of the following:
Red Rock Collection development costs (Note 5) $ -- $567,589
Varsity Clubs of America loan fees and land deposits 204,383 221,336
Guarantee fees 459,900 600,450
California Department of Real Estate registration costs 85,716 76,394
------------ -----------
$ 749,999 $1,465,769
============ ===========
</TABLE>
As part of the acquisition of Los Abrigados resort, certain affiliates of the
Company guaranteed the underlying mortgage on the resort. As partial
consideration for their guarantee, the affiliates earned a $780,000 fee. The fee
is amortized to expense and is payable to the affiliates at the rate of $100 per
Los Abrigados timeshare interest sold. The unpaid balance of the fee is due on
December 31, 1996. The amount payable on the guarantee fee included in due to
affiliates at December 31, 1994 and 1993, was $536,501 and $604,771.
As additional consideration for the guarantee, the affiliates are entitled to
receive a percentage of certain amounts held back on the sale of notes
receivable by a financial institution as collateral. The amount is to be paid as
the amounts held back are collected from the financial institution. At December
31, 1994 and 1993, notes receivable are shown net of $122,000 and $138,000,
respectively, related to this amount.
The Company has incurred costs to register the Los Abrigados resort for
timeshare sales in the state of California. The costs will be amortized over
their estimated useful life.
Note 8 - Property and Equipment
Property and equipment consists of the following:
December 31,
1994 1993
----------- -----------
Buildings and improvements ............. $ 640,933 $ 19,280
Leasehold improvements ................. 464,141 443,729
Furniture and fixtures ................. 317,573 206,967
Office equipment ....................... 243,960 190,436
Computer equipment ..................... 140,188 --
----------- -----------
1,806,795 860,412
Accumulated depreciation ............... (369,568) (168,025)
----------- -----------
$ 1,437,227 $ 692,387
=========== ===========
Note 9 - Income Taxes
<TABLE>
Deferred income tax assets (liabilities) included in the consolidated balance
sheet consist of the following:
<CAPTION>
December 31,
-----------------------------
1994 1993
----------- ----------
<S> <C> <C>
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables $588,000 $ 278,000
Inventory costs capitalized for tax purposes 36,000 36,000
Tax basis in excess of book on resort property held for
timeshare sales 787,000 980,000
Book recognition of startup costs in excess of tax 354,000 -
Intangible assets capitalized for tax purposes 28,000 31,000
Minority interest allocation in excess of tax 219,000 -
Alternative minimum tax credit 74,000 186,000
Net operating loss carryforwards 1,052,000 1,140,000
Other 4,000 -
----------- ----------
Total deferred tax assets 3,142,000 2,651,000
----------- ----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes (1,018,000) (356,000)
Tax amortization of loan fees in excess of book (80,000) (74,000)
Other -- (107,000)
----------- ----------
Total deferred tax liabilities (1,098,000) (537,000)
----------- ----------
Deferred Taxes 2,044,000 2,114,000
----------- ----------
Valuation allowance (760,000) (1,716,000)
----------- ----------
Deferred Taxes -- Net $ 1,284,000 $ 398,000
=========== ==========
</TABLE>
<TABLE>
A reconciliation of the income tax benefit and the amount that would be computed
using statutory federal and state income tax rates for the years ended December
31, is as follows:
<CAPTION>
1994 1993 1992
------------- ---------------- -----------
<S> <C> <C> <C>
Federal, computed on income before minority
interest and income taxes $1,165,000 $ 949,000 $617,000
Minority interest (490,000) (277,000) (200,000)
State, computed on income after minority interest
and before income taxes 119,000 118,000 74,000
Decrease in valuation allowance (956,000) (890,000) (591,000)
------------ ---------- ----------
Income tax benefit $ (162,000) $(100,000) $(100,000)
============ ========== ==========
</TABLE>
Tax benefits in 1993 and 1992 resulted from decreases in the valuation
allowance, as a result of the ability to utilize net operating loss
carryforwards and built in losses arising principally from Los Abrigados resort.
Reductions in 1992 and 1993 were recorded based upon the accelerated
profitability of this property and the conclusion that the ability to use these
losses was more likely than not. In 1993, a deferred tax asset was recorded to
reflect the future tax benefit of the Genesis net operating loss carryforwards
and a valuation allowance was recorded to offset the full amount of the asset.
Due to the continued profitability of Los Abrigados, the improvement in the
Arizona real estate market and the development of tax strategies, which include
the acquisition by Genesis of timeshare intersts in resort properties that have
historically been sold by the Company on a profitable basis, it was concluded
that it is more likely than not that a portion of the Genesis net operating loss
carryforwards and the remainder of the Los Abrigados tax benefits will be
utilized. Accordingly, the valuation allowance was reduced in 1994.
At December 31, 1994, ILX had federal NOL carryforwards of approximately
$2,640,000 which expire in 2008 and state NOL carryforwards of approximately
$750,000 which expire in 1998. Such losses are limited as to usage because they
arise from built in losses of an acquired company and can only be utilized
through earnings of that subsidiary.
<TABLE>
Note 10 - Notes Payable
Notes payable consist of the following:
<CAPTION>
December 31,
------------
1994 1993
---- ----
<S> <C> <C>
Note payable, collateralized by deed of trust on Los Abrigados resort, interest
at prime plus 1.25% (9.75% at
December 31, 1994), guaranteed by affiliates, due through 1996 .............................. $1,660,000 $2,370,000
Note payable, collateralized by deed of trust on Golden Eagle Resort, notes
receivable, and an assignment of the Company's
general partnership interest in LAP, interest at 12%, due through 1998 ...................... 639,916 921,311
Note payable, collateralized by notes receivable and deed of trust on Golden
Eagle Resort, interest at prime plus 4%
(12.5% at December 31, 1994), due through 1998 .............................................. 626,265 --
Note payable, collateralized by notes receivable and deed of trust on Los
Abrigados resort, interest at prime plus 4%
(12.5% at December 31, 1994), due through 1998 .............................................. 423,700 --
$500,000 revolving line of credit, unsecured, interest at
prime plus 1.5% (10% at December 31, 1994), due 1995 ........................................ 400,000 --
Construction note payable, collateralized by deed of trust on Varsity Clubs
of America - Notre Dame, interest at 13%, due through 1998 .................................. 400,784 --
$400,000 revolving line of credit, unsecured, interest
at prime plus 2% (10.5% at December 31, 1994), due 1995 ..................................... 350,000 --
Note payable, collateralized by RRC building, interest
at 8%, due through 1999 ..................................................................... 225,000 --
Note payable, collateralized by deed of trust, interest
at 6.625%, due through 2001 ................................................................. 72,272 --
Note payable, collateralized by a second position on
notes receivable, interest at 12%, due through 1995 ......................................... 45,448 153,201
Other .......................................................................................... 38,476 47,802
Notes payable repaid during 1994 ............................................................... -- 864,676
---------- ----------
$4,881,861 $4,356,990
========== ==========
</TABLE>
Future maturities of notes payable are as follows:
Year ending
December 31,
-------------
1995 $2,642,508
1996 1,225,814
1997 364,741
1998 573,827
1999 57,686
Thereafter 17,285
----------
$4,881,861
==========
Scheduled future maturities may be prepaid to the extent that payments made of
$1,000 per Los Abrigados timeshare interest sold exceed the scheduled payments
on the loan. Any prepaid amounts will be applied to the scheduled payments in
chronological order of maturity.
<TABLE>
Note 11 - Notes Payable to Affiliates
Notes payable to affiliates consist of the following:
<CAPTION>
December 31,
------------
1994 1993
---------- ----------
<S> <C> <C>
Notes payable, collateralized by LAP partnership
interest, interest at 8%, due through 1998 ...................................... $1,100,000 $ --
Note payable, collateralized by notes receivable,
interest at 14%, due through 1997 ................................................ 332,724 521,105
Notes payable, collateralized by RRC common stock,
interest at 10%, due through 1997 ................................................ 225,426 --
Note payable, collateralized by notes receivable,
interest at 16%, due through 1997 ................................................ 104,719 135,231
Notes payable, collateralized by LAP partnership
interest, interest at 12%, due through 1996 ...................................... 115,750 --
Note payable, unsecured, interest at 10%,
due through 1995 ................................................................. 94,000 94,000
Note payable, collateralized by furniture and equipment,
interest at 16%, due through 1995 ................................................ 27,965 77,973
Notes payable repaid during 1994 ..................................................... -- 223,599
---------- ----------
$2,000,584 $1,051,908
========== ==========
</TABLE>
Future maturities of notes payable to affiliates are as follows:
Year ending
December 31,
------------
1995 $594,934
1996 419,925
1997 143,682
1998 842,043
-----------
$2,000,584
===========
Total interest expense on notes payable to affiliates for the years ended
December 31, 1994, 1993 and 1992 was approximately $141,000, $153,000, and
$170,000.
Note 12 - Minority Interests
Minority interests at December 31, 1994, include interests in LAP, the Arizona
limited partnership which owns and operates the Los Abrigados resort, and
Genesis of $2,440,249 and $90,920, respectively (Note 4).
LAP minority interests consist of LAP's limited partners' capital contributions,
the limited partners' interests in the results of operations and cash
distributions to the limited partners. The Company held a 71% interest in LAP
until July 1, 1994, when it acquired the 7.5% Class A minority interest for
$1,587,000, and as a result, at December 31, 1994, holds a 78.5% interest.
Certain of the Class A partners are affiliates of the Company. Non-affiliates
received $365,250 in cash for their partnership interests and affiliates
received $6,000 cash and $1,215,750 in notes (Note 11). The cost in excess of
the minority interest balance at the date of acquisition was recorded as an
increase in resort property held for timeshare sales in the amount of $813,051.
The 21.5% remaining minority interest at December 31, 1994, is held by the Class
B limited partners whose capital contributions of $500,000 bear interest at
13.5%, payable quarterly.
Income from LAP is allocated; first, to the Class A limited partners until the
cumulative net profits allocated are equal to the cumulative Class A priority
return; then, 76.76% to ILX and 23.24% to the Class B limited partners until the
amounts allocated to the Class B limited partners equal their capital
contributions and; finally, to the partners pro rata in proportion to their
interests in the partnership. Effective July 1, 1994, 21.5% of income is
allocated to the Class B limited partners and 78.5% to ILX.
During 1992, the Company issued to an affiliate, as agent for certain Class A
and B limited partners, a $770,000 promissory note collateralized by $810,630 in
notes receivable. The promissory note was issued to reduce Class A limited
partners' capital contributions by $500,000, Class A priority returns by
$149,954, Class B accrued interest by $73,772 and loan guarantee fees by
$46,274.
Included in due to affiliates at December 31, 1994 and 1993, is approximately
$17,000 and $95,000 in Class A distributions and Class B interest.
A reconciliation of LAP minority interests from 1992 to 1994 is as follows:
Balance December 31, 1992 .................................. $ 1,694,816
Income allocated to Class A ............................. 814,520
and B Partners
Distributions paid or accrued ........................... (168,998)
Issuance of common stock (Note 14) ...................... (204,000)
-----------
Balance December 31, 1993 .................................. 2,136,338
Income allocated to Class A
and B Partners ........................................ 1,204,263
Distributions paid or accrued ........................... (126,403)
Acquisition of Class A Partner interests ................ (773,949)
-----------
Balance December 31, 1994 .................................. $ 2,440,249
===========
Note 13 - Commitments
Future minimum lease payments on noncancelable operating leases are as follows:
Year ending
December 31,
------------
1995 $283,000
1996 144,000
1997 86,000
1998 38,000
1999 18,000
-----------
$ 569,000
===========
Total rent expense for the years ended December 31, 1994, 1993 and 1992, was
approximately $449,000, $316,000 and $139,000.
Note 14 - Shareholders' Equity
Preferred Stock
At December 31, 1994 and 1993, preferred stock includes 77,278 and 77,523 shares
of the Company's Series A Preferred Stock carried at $772,780 and $775,230,
respectively. The Series A Preferred Stock has a par value and liquidation
preference of $10 per share and, commencing July 1, 1996, will be entitled to
annual dividend payments of $.80 per share. Commencing January 1, 1993, on a
quarterly basis, the Company must contribute $100 per timeshare interest sold in
the Los Abrigados resort to a mandatory dividend sinking fund. At December 31,
1994, notes receivable in the amount of approximately $240,000 have been
designated for the sinking fund. Dividends on the Company's common stock are
subordinated to the Series A dividends and to the contributions required by the
sinking fund.
At December 31, 1994 and 1993, preferred stock includes 55,000 shares of the
Company's Series B Convertible Preferred Stock carried at $55,000. The Series B
Convertible Preferred Stock has a $10 par value and a liquidation preference of
$10 per share, which is subordinate to the Series A liquidation preference. The
Series B Convertible Preferred Stock is not entitled to dividends. Commencing
July 1, 1996, the Series B Convertible Preferred Stock may be converted into
common stock on the basis of two shares of common for one share of preferred
stock.
In May 1992, the Company repurchased 220,000 shares of its Series B Convertible
Preferred Stock from an affiliate in exchange for a $175,000 note payable from
the Company and the opportunity to utilize up to a maximum of 500 room nights at
the Los Abrigados resort over a five-year period subject to certain
restrictions. The cost of providing the room nights was valued at $15,000. The
effect of this transaction was to reduce the Series B liquidation preference by
$2,200,000. Principal and interest payments totaling $35,000 were made on the
note payable in August 1992. In conjunction with the payments, the affiliate
purchased ten timeshare interests in the Los Abrigados resort for $35,000 plus
250 of the 500 room nights it had acquired above.
Both the Series A and Series B preferred stock may, at the holder's election, be
exchanged under certain conditions for lodging certificates or, after payment of
$2,100 each, for Los Abrigados timeshare interests. The Company estimates that
the future cash obligations in respect to these in kind redemptions is less than
$170,000.
At December 31, 1994 and 1993, preferred stock includes 298,035 and 305,652
shares of the Company's Series C Convertible Preferred Stock carried at $820,975
and $842,798, respectively (Note 4). The Series C Convertible Preferred Stock
has a $10 par value and is entitled to dividends at the rate of $.60 per share
per annum when declared by the Board of Directors. If dividends are not declared
in any year prior to the fifth anniversary of the merger date (November 1,
1993), such undeclared dividends ("Dividend Arrearage") may be converted to
"Cumulation Shares" at the rate of $6 of Dividend Arrearage per Cumulation
Share. The Series C Preferred Stock and the Cumulation Shares have a liquidation
preference of $10 per share and $6 per share, respectively, and are subordinate
to the liquidation preferences of the Series A and Series B stock. Commencing
November 1, 1994 through October 31, 2004, the Series C Preferred Stock may be
converted to ILX common stock on the basis of five shares of common stock for
three shares of Series C Preferred Stock and one share of ILX common stock for
each $6 in Dividend Arrearages. During 1994, 7,260 Series C convertible shares
were exchanged for 12,100 common shares. In addition, at December 31, 1994, 800
common shares are issuable to such exchanging shareholders for their dividend
arrearage. ILX may redeem the Series C Preferred Stock commencing November 1,
1996, at $10 per share plus payment of all declared but unpaid dividends.
Common Stock
In March 1992, the Company acquired a 50% interest in Varsity Clubs of America
joint venture ("Varsity") in exchange for 150,000 shares of the Company's common
stock valued at $84,375, the assumption of $16,746 of Varsity payables and six
timeshare interests in the Los Abrigados resort valued at $6,720. As a result of
the transaction, the Company, through VCA, owns 100% of Varsity (Note 6).
In March 1992, 4,537,507 shares of common stock, which had been previously
issued as part of the plan of reorganization of BIS-ILE Associates, the
predecessor in interest to the Los Abrigados resort, were contributed back to
the Company by affiliates and were accounted for retroactively as a reverse
stock split.
In 1992, the Company collected a $150,000 note receivable from an affiliate for
the exercise of warrants during 1991.
In March 1993, the Company issued 204,000 shares of restricted common stock,
valued at $1 per share, which was at a premium of $.25 over the approximate
market price at the date of issuance, to two LAP Class A minority partners in
consideration for the reduction of their Class A Priority return from 22% to
13.5%. The minority partners are affiliates of ILX.
In July 1993, the Company issued 102,000 shares of restricted common stock,
valued at $1 per share, which was at a discount of $.50 under the approximate
market price at the date of issuance, to a LAP Class B minority partner in
consideration for accrued and future guarantee fees and Class B interest. The
minority partner is an affiliate of ILX.
In July 1993, the Company issued warrants for 50,000 shares of ILX restricted
common stock exercisable at a price of $1.50 per share, the approximate market
value at date of issuance, in conjunction with the financing of refurbishment at
the Golden Eagle Resort (Note 10). The warrants are exercisable through July 1,
1998.
In February 1994, the Company issued 123,000 shares of restricted common stock,
valued at $1 per share, which was at a discount of a $.56 under the approximate
market price at the date of issuance, to the minority interest shareholders of
RRC (Note 5). The minority interest shareholders are affiliates of the Company.
In March 1994, the Company issued warrants for 100,000 shares of ILX restricted
common stock exercisable at a price of $1.625 per share, the approximate market
value at date of issuance. The warrants were issued in conjunction with the
early collection in March 1994, of a note receivable with a due date of December
31, 1997, in the amount of $900,000 (Note 2).
During 1994, 24,616 shares of restricted common stock valued at $29,232 were
issued in exchange for services provided to the Company. The stock was valued at
the approximate market price on the date of the agreement.
Note 15 - Employee Stock Option Plan
The Company has adopted 1987 and 1992 Stock Option Plans pursuant to which
options (which term as used herein includes both incentive stock options and
non-statutory stock options) may be granted to key employees, including
officers, whether or not they are directors, and non-employee directors and
consultants, who are determined by the Board of Directors to have contributed in
the past, or who may be expected to contribute materially in the future, to the
success of the Company. The exercise price of the options granted pursuant to
the Plan shall be not less than the fair market value of the shares on the date
of grant. All outstanding stock options require the holder to have been a
director or employee of the Company for at least one year before exercising the
option. Options are exercisable over a five year period from date of grant if
the optionee was a ten percent or more shareholder immediately prior to the
granting of the option and over a ten-year period if the optionee was not a ten
percent shareholder. The aggregate number of shares which may be issued under
the Plans shall not exceed 841,376 shares.
Stock option transactions are summarized as follows:
Outstanding at December 31, 1991 ............................. 205,170
Options granted .............................................. 268,750
Options exercised ............................................ (142,584)
--------
Outstanding at December 31, 1992 ............................. 331,336
Options granted .............................................. 56,250
Options canceled ............................................. (225,000)
--------
Outstanding at December 31, 1993 ............................. 162,586
Options exercised ................................... (162,586)
Options granted ..................................... 508,000
Options canceled .................................... (180,000)
--------
Outstanding at December 31, 1994 .................... 328,000
========
The exercise price on the options exercised during 1994 was $.40 per share for
62,586 shares and $.685 for 100,000 shares and on the options exercised during
1992 was $.40 per share. The exercise price for options granted in 1994 ranged
from $1.625 to $2.00 per share, for options granted in 1993 was $.875 per share
and for options granted during 1992 ranged from $.50 to $1.00 per share. The
exercise price for all options outstanding at December 31, 1994, was $1.625 per
share. Options outstanding at December 31, 1994, consist of 82,500 shares which
expire in 1999 and 245,500 shares which expire in 2004.
Note 16 - Related Party Transactions
In addition to the related party transactions described in notes 2, 3, 5, 7, 11,
12 and 14, the Company had the following related party transactions:
The Company leases from affiliates 41 timeshare interests in the Stonehouse at
Los Abrigados at the rate of $1,000 per time share unit per year, through
October 1, 1996, payable on a quarterly basis. The Company paid $41,000 per year
in lease payments to affiliates for the years ended December 31, 1994, 1993 and
1992. In addition, in 1992 and 1993 the Company made lease payments to
affiliates of $52,424 each year for use of the Stonehouse for periods prior to
1992. The affiliates pay maintenance fees to the Company on an annual basis for
their ownership intervals of $375 per interval in 1994 and $345 per interval in
1993 and 1992.
In September 1992, the Company exchanged two timeshare interests in the Los
Abrigados resort for four timeshare interests in the Golden Eagle resort and
four timeshare interests in the Ventura resort with an affiliate.
In March 1993, the Company exchanged two Stonehouse interests and twenty
one-bedroom timeshare interests in the Los Abrigados resort in satisfaction of
$70,000 in principal and accrued and future interest due on a note payable to an
affiliate. In June 1993, the Company upgraded six of the one-bedroom interests
to two-bedroom interests in exchange for an additional $6,000 principal
reduction.
In December 1994, the Company acquired a condominium adjacent to the Golden
Eagle Resort for $104,915, consisting of cash of $32,643 and the assumption of
the underlying mortgage of $72,272. The condominium is used to house the general
manager of the resort. Timeshare intervals in the property may be marketed in
the future.
Note 17 - Subsequent Events
In March 1995, the first deed of trust holder on the Golden Eagle Resort loaned
an additional $1,010,075 against its interest in the property and its assignment
of the Company's general partnership interest in LAP and extended the maturity
through 1998, pursuant to an agreement reached in December 1994. (Note 10).
In March 1995, the Company reached an agreement to acquire the Kohl's Ranch, a
10 acre rustic resort near Payson, Arizona for a purchase price of $1,650,000,
consisting of a $50,000 cash down payment, assumption of an existing mortgage of
approximately $950,000, issuance of a $350,000 note payable to seller and the
issuance of 150,000 shares of ILX restricted common stock valued at $2 per
share. The agreement provides for a 60 day right of cancellation by ILX. The
Company intends to offer timeshare intervals in the property.
<TABLE>
Note 18 - Quarterly Financial Data (Unaudited)
Quarterly financial information is presented in the following summary:
<CAPTION>
1994
----
Three months ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ................................... $6,334,998 $8,025,982 $8,196,292 $7,393,397
Operating income ........................... 1,173,947 1,347,869 1,167,184 1,067
Net income ................................. 721,183 804,682 469,056 153,366
Net income per share ....................... .06 .06 .04 .01
</TABLE>
<TABLE>
<CAPTION>
1993
----
Three months ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ................................... $4,024,809 $4,811,495 $5,598,382 $6,024,693
Operating income ........................... 414,482 786,180 781,936 1,047,483
Net income ................................. 255,824 494,690 470,932 854,785
Net income per share ....................... .02 .04 .04 .07
</TABLE>
The 1993 net income per share does not equal the summation of the quarters due
to rounding or weighting of average shares.
The reduced net income in the third quarter 1994 is due to recognition of income
taxes of $241,818.
The reduced operating income in the fourth quarter 1994 is due to amortization
of RRC deferred costs and recognition of VCA marketing costs (Notes 5 and 6).
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly authorized, on the
28th day of March, 1995.
ILX Incorporated
(Registrant)
By /s/Joseph P. Martori
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/Joseph P. Martori
- ------------------------- President, and Chairman As of March 28, 1995
Joseph P. Martori of the Board
/s/Nancy J. Stone
- ------------------------- Executive Vice President, As of March 28, 1995
Nancy J. Stone Chief Financial Officer
and Director
/s/Denise L. Janda
- ------------------------- Controller As of March 28, 1995
Denise L. Janda
/s/Edward J. Martori
- ------------------------- Director As of March 28, 1995
Edward J. Martori
- ------------------------- Director As of March 28, 1995
Alan J. Tucker
/s/Ronald D. Nitzberg
- ------------------------- Director As of March 28, 1995
Ronald D. Nitzberg
<PAGE>
<TABLE>
ILX INCORPORATED
SCHEDULE IX
RESERVE FOR POSSIBLE CREDIT LOSSES
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
<CAPTION>
Charged
Balance a Charged to to Other Balance at
Beginning Costs and Accounts- Deductions- end of
of Period Expenses Describe Describe (a) Period
----------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reserve for possible ............ 1994 $ 816,000 764,000 28,000(b) 345,000 $1,263,000
credit losses =========== ========== ========== ============= ===========
Reserve for possible ............ 1993 $ 692,000 667,000 543,000 $ 816,000
credit losses =========== ========== ============= ===========
Reserve for possible ............ 1992 $ 895,000 630,000 833,000 $ 692,000
credit losses =========== ========== ========== ============= ===========
(a) Deductions represent the write-off of notes deemed uncollectible.
(b) Recoveries of prior year write-offs.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ILX Incorporated
Financial Data Schedule
December 31, 1994
Article 5 of Regulation S-X
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATED EXTRACTED FROM THE
REGISTRANT'S 1994 CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 3635587
<SECURITIES> 0
<RECEIVABLES> 8014184
<ALLOWANCES> 1263288
<INVENTORY> 12816493
<CURRENT-ASSETS> 23202976
<PP&E> 1806795
<DEPRECIATION> 369568
<TOTAL-ASSETS> 28403404
<CURRENT-LIABILITIES> 3070475
<BONDS> 6882445
<COMMON> 8972969
0
1648755
<OTHER-SE> 30000
<TOTAL-LIABILITY-AND-EQUITY> 28403804
<SALES> 21186111
<TOTAL-REVENUES> 29950669
<CGS> 8548315
<TOTAL-COSTS> 22297933
<OTHER-EXPENSES> 3198604
<LOSS-PROVISION> 764065
<INTEREST-EXPENSE> 661141
<INCOME-PRETAX> 3426522
<INCOME-TAX> (161799)
<INCOME-CONTINUING> 2148287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2148287
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
