SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1995 Commission File Number 33-16122
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ILX INCORPORATED
----------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2777 East Camelback Road, Phoenix, AZ 85016
-------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-957-2777
-----------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
- ------------------------------- ---------------------------------
Common Stock, without par value 12,587,739 shares
Preferred Stock, $10 par value 412,517 shares
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 2,030,209 $ 3,635,587
Notes receivable, net 8,392,462 6,750,896
Resort property held for timeshare sales 18,042,711 9,407,733
Resort property under development 1,045,515 1,735,592
Land held for sale 1,672,168 1,673,168
Deferred assets 834,198 749,999
Property and equipment, net 1,360,473 1,437,227
Deferred income taxes 1,486,846 1,283,179
Other assets 2,129,279 1,730,023
------------ ------------
$ 36,993,861 $ 28,403,404
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 1,775,538 $ 1,581,659
Accrued and other liabilities 2,649,870 1,488,816
Income taxes payable 103,553 --
Genesis funds certificates 1,366,379 1,612,457
Due to affiliates 478,512 984,534
Deferred income 1,643 365,195
Notes payable 10,621,700 4,881,861
Notes payable to affiliates 2,438,757 2,000,584
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19,435,952 12,915,106
------------ ------------
Minority interests 2,876,855 2,531,169
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Shareholders' Equity
Preferred stock, $10 par value;
10,000,000 shares authorized;
412,517 and 430,313 shares issued
and outstanding; liquidation
preference of $4,125,170 and $4,303,130, respectively 1,523,476 1,648,755
Common stock, no par value;
40,000,000 shares authorized;
12,587,739 issued and 12,567,739 outstanding
at September 30, 1995 and 12,405,325 shares
issued and outstanding at December 31, 1994 9,309,501 8,972,969
Treasury stock, at cost, 20,000 shares (25,032) --
Additional paid in capital 30,160 30,000
Retained earnings 3,842,949 2,305,405
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14,681,054 12,957,129
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$ 36,993,861 $ 28,403,404
============ ============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sales of timeshare interests $ 5,930,648 $ 5,828,785 $ 16,548,152 $ 14,094,357
Resort operating revenue 2,321,423 2,156,286 6,358,548 6,193,016
Sales of land -- 125,960 -- 2,184,638
Sales of consumer products 158,537 85,261 437,175 85,261
------------- ------------- ------------- -------------
8,410,608 8,196,292 23,343,875 22,557,272
------------- ------------- ------------- -------------
Cost of sales and operating expenses
Cost of timeshare interests sold 2,286,937 2,076,327 6,089,296 4,862,089
Cost of resort operations 2,729,194 1,954,948 6,569,344 5,596,774
Cost of land sold -- 106,520 -- 1,741,477
Cost of consumer products 120,989 41,733 293,359 41,733
Advertising and promotion 1,804,247 1,612,740 4,819,673 3,983,606
General and administrative 795,356 894,947 2,281,762 1,833,899
Provision for doubtful accounts 347,598 341,893 950,917 808,694
------------- ------------- ------------- -------------
8,084,321 7,029,108 21,004,351 18,868,272
------------- ------------- ------------- -------------
Operating income 326,287 1,167,184 2,339,524 3,689,000
Other income (expense)
Interest expense (380,611) (166,298) (836,850) (466,109)
Interest income 161,562 90,217 446,511 232,288
------------- ------------- ------------- -------------
Income before minority interests 107,238 1,091,103 1,949,185 3,455,179
and income taxes
Minority interest 948 (380,229) (345,686) (1,218,440)
Income taxes 384,727 (241,818) (63,399) (241,818)
------------- ------------- ------------- -------------
Net income $ 492,913 $ 469,056 $ 1,540,100 $ 1,994,921
============= ============= ============= =============
Net income per common and
equivalent share $ 0.04 $ 0.04 $ 0.12 $ 0.16
============= ============= ============= =============
Number of common and equivalent
shares 13,009,355 12,487,878 12,699,419 12,455,004
============= ============= ============= =============
Net income per share assuming
full dilution $ 0.04 $ 0.04 $ 0.12 $ 0.15
============= ============= ============= =============
Number of fully diluted shares 13,493,935 12,996,703 13,187,992 12,964,125
============= ============= ============= =============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
September 30,
------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,540,100 $ 1,994,921
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Undistributed minority interest 345,686 538,712
Additions to notes receivable (9,018,079) (6,848,448)
Proceeds from sale of notes receivable 6,425,596 6,842,216
Provision for doubtful accounts 950,917 808,694
Depreciation and amortization 491,086 489,310
Increase in deferred income taxes (203,667) (364,909)
Amortization of guarantee fees 79,100 104,950
Change in assets and liabilities:
(Increase) decrease in resort property held for timeshare sales (5,655,558) 463,525
Increase in resort property under development (344,115) (55,825)
Decrease in land held for sale 1,000 1,401,600
Increase in other assets (408,206) (1,111,796)
Increase (decrease) in accounts payable 193,879 (452,013)
Increase in accrued and other liabilities 1,056,124 409,309
Increase in income taxes payable 103,553 45,488
Decrease in Genesis funds certificates (246,078) (560,683)
Decrease in due to affiliates (506,022) (157,033)
Decrease in deferred income (363,552) (456,899)
------------- -------------
Net cash (used in) provided by operating activities (5,558,236) 3,091,119
------------- -------------
Cash flows from investing activities:
Increase in deferred assets (163,299) (843,304)
Purchases of plant and equipment (112,210) (754,273)
------------- -------------
Net cash used in investing activities (275,509) (1,597,577)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable to affiliates 900,000 --
Principal payments on notes payable to affiliates (461,827) (502,888)
Proceeds from notes payable 7,715,212 1,254,666
Principal payments on notes payable (3,973,773) (2,840,927)
Proceeds from issuance of common stock 74,181 93,535
Acquisition of treasury stock (25,032) --
Redemption of preferred stock (185) (4,235)
Redemption of common stock (185) (1,786)
Preferred stock dividend payments (24) --
------------- -------------
Net cash provided by (used in) financing activities 4,228,367 (2,001,635)
------------- -------------
Net decrease in cash and cash equivalents (1,605,378) (508,093)
Cash and cash equivalents at beginning of period 3,635,587 2,060,107
------------- -------------
Cash and cash equivalents at end of period $ 2,030,209 $ 1,552,014
============= =============
See notes to consolidated financial statements
</TABLE>
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
- ---------------------------------------------------
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.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three and nine month periods ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements.
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.
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. Revenue from
sales of timeshare interests in Varsity Clubs of America-Notre Dame were
recognized by the percentage of completion method as development and
construction proceeded and as the costs of development and profit could be
reasonably estimated through August 15, 1995, when the property was complete.
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.
Statements of Cash Flows
- ------------------------
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the three and nine month periods ended September
30, 1995 and 1994, the Company paid interest and income taxes and capitalized
interest to resort property held for sale and under development as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
Interest $341,944 $156,598 $924,602 $394,054
Income taxes $ 2,786 $255,237 $136,286 $561,287
Interest Capitalized $ 89,577 $ 9,254 $216,380 $ 20,801
Reclassifications
- -----------------
The financial statements for prior periods have been reclassified to be
consistent with the 1995 financial statement presentation.
Note 2 - Income Taxes
The deferred tax asset valuation allowance decreased by $428,000 and $578,000
for the three and nine month periods ending September 30, 1995 and $0 and
$610,000 for the three and nine month periods ending September 30, 1994 to
reflect management's estimate of the future benefit to be provided from the
utilization of Genesis's net operating loss carryovers in 1995 and Los Abrigados
tax benefits in 1994. The valuation allowance is periodically reduced as
management develops new tax planning strategies to ensure that the Company will
benefit from the loss carryovers and other tax benefits. The decrease in the
valuation allowance reflects management's estimate that the loss carryovers and
tax benefits will more likely than not be utilized.
Note 3 - Notes Payable
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
date through 1998.
During the first six months of 1995, the Company borrowed $4,068,049 on its $5
million construction financing commitment for the Varsity Clubs of America-Notre
Dame facility and paid $644,190 in release payments, bringing the balance
outstanding on the loan to $3,824,643 at September 30, 1995.
Note 4 - Notes Payable to Affiliates
In July 1995, the Company borrowed $900,000 from affiliates, secured by 320
timeshare interests in the Los Abrigados resort. The note bears interest at
13.5%, with interest due monthly and the principal due in full in July 1998.
Note 5 - Shareholders' Equity
During the first nine months of 1995, holders of 7,248 shares of Series C
Preferred Stock exchanged their shares for 12,080 shares of common stock. The
exchanges were recorded as a reduction in preferred stock and an increase in
common stock of $20,004. Shares of stock valued at $2,532 and cash of $24 were
issued in the first nine months of 1995 for the Dividend Arrearage due to the
holders of Series C Preferred Stock who converted their shares in the last
quarter of 1994 and first nine months of 1995.
During the second quarter of 1995, the Company acquired 20,000 shares of its
common stock for $25,032. The acquired shares have been recorded as treasury
stock.
During the first nine months of 1995, the Company granted 18,600 shares of
restricted common stock, valued at $14,806, to employees in exchange for
services provided.
In July 1995, the Company granted options for 25,000 shares each to two
directors in exchange for services to be provided in the future. The exercise
price for the options is $2 per share and the options expire in July 2000.
Effective June 1995, the Company entered into a one year consulting agreement
for investor relations, broker relations and public relations services. In
exchange for the services to be provided, the Company issued 50,000 shares of
restricted common stock and will issue an additional 50,000 shares in January
1996. The shares have been valued at $1.1875 per share and the cost is being
recognized over a one year period. In addition, the Company granted options for
400,000 shares of common stock at $1.25 per share and 100,000 shares of common
stock at $1.625 per share. The options expire in June 1997.
Note 6 - Kohl's Ranch Lodge
In June 1995, the Company acquired the Kohl's Ranch Lodge, a 10 acre rustic
resort near Payson, Arizona for a purchase price of $1,590,000, consisting of a
$50,000 cash down payment, assumption of an existing deed of trust of
approximately $932,250, issuance of a $367,750 second deed of trust to the
seller and the issuance of 120,000 shares of ILX restricted common stock valued
at $2 per share. The Company began offering timeshare intervals in the property
in the third quarter of 1995. The assumed first mortgage bears interest at prime
plus 1 1/4%, with $3,000 principal plus accrued interest payable monthly through
December 1, when the remaining balance will begin being amortized over 36 equal
monthly installments of principal and interest through December 1998. Release
fees of $750 per interval sold are applied to principal. The note payable to the
seller bears interest at 8%, with the first year's interest to be added to
principal on June 1, 1996. Principal of $7,500 plus accrued interest is payable
monthly thereafter through June 2000. Release fees of $300 per interval sold are
applied to principal.
Note 7 - Varsity Clubs of America-Tucson
In July 1995, the Company acquired a two acre site in Tucson, Arizona, near the
University of Arizona, to be the site of its second Varsity Clubs of America.
The land was acquired for $1,002,000, consisting of a $300,600 down payment and
a note payable secured by a deed of trust to the seller of $701,400. The note
bears interest at 9.75%, payable in three equal annual payments of principal and
interest of $280,803 through June 1998.
Note 8 - Bond Offering
In June 1995, the Company signed a letter of intent to offer to the public $10
million in convertible secured bonds through Brookstreet Securities Corporation
("Brookstreet"). Subsequently, the offering was reduced to $3,000,000, with a
$450,000 over allotment option. The bonds will have a five year maturity, bear
interest at 10%, and will be convertible to common stock at prices tied to
market rates, with a minimum price of $2.50 per share. The offering is scheduled
for November 1995.
Note 9 - Other
In September 1995, the Company, through a limited partnership in which a
subsidiary of the Company is an 80% general partner, entered into an agreement
to acquire and develop the "Orangemen Club" at the Hotel Syracuse in Syracuse,
New York. The partnership intends to refurbish a portion of the Hotel Syracuse
into timeshare suites and market interests in these suites, together with the
rights to use certain common areas of the hotel. The partnership has a loan
commitment for $5 million for acquisition and construction financing and $30
million in receivables financing.
<PAGE>
ILX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The increases in sales of timeshare interests from $5,828,785 in the third
quarter of 1994 to $5,930,648 in the third quarter of 1995 and from $14,094,357
for the first three quarters of 1994 to $16,548,152 for the first three quarters
of 1995 reflect 1995 sales of interests in Varsity Clubs of America-Notre Dame
and in the Kohl's Ranch Lodge, net of a decrease in sales made from the Phoenix
Sales Office. Sales of interests in Varsity Clubs of America-Notre Dame were
$1,387,727 for the third quarter and $4,329,074 for the first three quarters of
1995. Year-to-date 1995 Varsity Clubs of America-Notre Dame sales include
approximately $513,000 in sales made in 1994 for which recognition was deferred
until 1995, when it was recognized as a percentage of completion. 95.5% of the
1994 and first half 1995 sales were recognized in the first half of 1995, and
the remaining 4.5% (approximately $139,000) was recognized in the third quarter
of 1995. Sales in the Kohl's Ranch Lodge commenced in the third quarter of 1995
and were approximately $339,000 for the quarter.
The Sedona Sales Office closing rates (number of timeshare sales divided by
number of timeshare tours) increased from 1994 to 1995 for both the third
quarter and year-to-date. Sales in the Sedona Sales Office, including upgrades
by existing customers, increased by approximately $1.1 million from the first
three quarters of 1994 to the same period in 1995. Sales from the Sedona office
decreased by approximately $264,000 from the third quarter of 1994 to the third
quarter of 1995 due to a reduced number of timeshare tours, in part as a result
of the allocation of tours to the new Kohl's Ranch Lodge Sales Office.
On April 1, 1995, the Company closed the Phoenix Sales Office, which had sold
primarily interests in Los Abrigados, in favor of directing all Phoenix area
potential customers to the Sedona Sales Office. The Sedona Sales Office has had
consistently higher closing rates than the Phoenix Sales Office. The Phoenix
Sales Office generated approximately $3.7 million in timeshare sales in the
first nine months of 1994 and approximately $771,000 in 1995, prior to closure
of the office.
Year-to-date September 30, 1994, sales of timeshare interests include the
recognition of $428,100 in deferred revenue from a 1992 bulk sale.
The increases between 1994 and 1995 in cost of timeshare interests sold as a
percentage of sales for both the third quarter and first three quarters reflect
improvements to Los Abrigados and sales of interests in Varsity Clubs of
America-Notre Dame, which have a higher product cost as a percentage of revenue
than interests in Los Abrigados.
The increases in resort operating revenue from $2,156,286 for the third quarter
of 1994 to $2,321,423 for the third quarter of 1995 and from $6,193,016 for the
first three quarters of 1994 to $6,358,548 for the first three quarters of 1995
reflect revenue from Varsity Clubs of America-Notre Dame which opened in mid
August 1995 and revenue from the Kohl's Ranch Lodge which was acquired on June
1, 1995, net of reduced room revenue at the Los Abrigados resort as a result of
the decreasing availability of rooms for traditional resort guests.
Cost of resort operations has increased as a percentage of resort operating
revenue from 1994 to 1995 both for the third quarter and the first three
quarters because of the start up of operations at Kohl's Ranch Lodge and Varsity
Clubs of America-Notre Dame and the decreasing occupancy of traditional resort
guests at Los Abrigados as timeshare owners and prospective purchasers, who pay
substantially reduced rates for their room usage, utilize a greater portion of
the facilities. Kohl's Ranch Lodge is being renovated to provide improvements
necessary for timeshare marketing of the property and, as a result, occupancy
during the third quarter was low.
The 1994 sales of land and associated cost of sales reflect sales of parcels
held by Genesis.
Sales of consumer products increased from $85,261 for the third quarter of 1994
to $158,537 for the third quarter of 1995 and from $85,261 for the first three
quarters of 1994 to $437,175 for the first three quarters of 1995. Sales of Red
Rock Collection products commenced in the third quarter 1994. The increase in
the cost of consumer products as a percentage of sales of consumer products
reflects the shift away from the multi-level marketing of Red Rock Collection
products (high prices and high commissions) to consumer and business sales (at
reduced prices and reduced commissions).
Advertising and promotion expenses relate primarily to sales of timeshare
interests. Advertising and promotion as a percentage of timeshare sales
increased slightly from the first three quarters of 1994 to the first three
quarters of 1995 in part because 1994 included the recognition of $428,100 in
deferred revenue for which there was no associated advertising and promotion.
Advertising and promotion increased as a percentage of sales from the third
quarter of 1994 to the third quarter of 1995 due to the startup of marketing
efforts for the Kohl's Ranch Lodge and increased costs of generating tours to
the Sedona Sales Office.
General and administrative expenses declined in dollars and as a percentage of
sales from the third quarter of 1994 to the third quarter of 1995 due to
operating efficiencies. The increase in general and administrative expense for
the first three quarters of 1995 from the same period in 1994 reflects the
recognition in each of the three quarters of 1995 of Red Rock Collection
operating expenses. Red Rock Collection operating expenses were deferred during
the first six months of 1994, pending commencement of operations in the third
quarter of 1994.
The provision for doubtful accounts arises primarily from sales of timeshare
interests and is comparable as a percentage of sales of timeshare interests
between both the third quarter and first three quarters of 1994 and 1995.
The increases in interest expense between years reflect increased borrowings
against consumer paper, interest on notes payable arising from the acquisition
of the Los Abrigados Partners Limited Partnership ("LAP") Class A limited
partnership interests in the third quarter of 1994, and borrowings for
construction of and improvements to resort property held for sale. The increases
in interest income from 1994 to 1995 are a result of the increased consumer
paper retained by the Company.
The decreases in minority interests from 1994 to 1995 reflect the acquisition of
the LAP Class A limited partnership interests, the decrease in LAP net income in
1995 and the minority interests in the income generated from second quarter 1994
Genesis land sales. The decrease in LAP net income between years is a result of
closure of the Phoenix Sales Office and reduced tours and closing rates prior to
the closure, and reduced profitability from Los Abrigados hotel operations due
to decreased availability of rooms for resort guests.
Income tax expense decreased from a provision of $241,818 in the third quarter
of 1994 to a $384,727 benefit in the third quarter of 1995 and from a provision
of $241,818 for the first three quarters of 1994 to a provision of $63,399 for
the first three quarters of 1995. The decreases arise because of the reduction
in the Genesis deferred tax benefit valuation allowance, due to tax planning
strategies which management believes will more likely than not fully utilize
Genesis NOL carryforwards.
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 $13 million in lines of credit issued by a financing company under which
conforming notes from sales of interval interests in Los Abrigados and the
Golden Eagle Resort can be sold on a recourse basis through September 1996. In
addition, the Company has an open ended arrangement with a finance company which
is expected to provide financing of at least $5 million through 1996. At
September 30, 1995, approximately $9 million is available under the fixed
commitment lines and approximately $3 million is expected to be available on the
open ended line. 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 $900,000 was available under this commitment at
September 30, 1995.
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. Approximately $8.6 million was
available under this commitment at September 30, 1995.
The Company has a financing commitment whereby it may borrow up to $10 million
against eligible notes received from sales of timeshare interests in the Kohl's
Ranch Lodge through September 1997. This commitment was unused at September 30,
1995.
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. $400,000 was available on the lines for
working capital at September 30, 1995.
The Company has optioned property near various college campuses for possible
future Varsity Clubs of America sites 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.
Cash provided by operating activities of $3,091,119 in 1994 decreased to cash
used in operating activities in 1995 of $5,558,236 due to greater additions to
resort property held for timeshare sales for Varsity Clubs of America-Notre Dame
in 1995, because 1994 included the collection of $750,000 on a note receivable
which arose from a 1992 bulk sale and the collection of $1,000,000 on a Genesis
mortgage receivable and because in 1995 more notes receivable from timeshare
sales were retained and used as security for borrowing, rather than sold. In
addition, 1994 cash flows from operating activities included Genesis land sales
of $2,048,678.
Cash used in investing activities decreased from $1,597,577 in 1994 to $275,509
in 1995 because 1994 includes investments in Red Rock Collection deferred assets
and the acquisition of the Red Rock Collection office and warehouse facility.
The change from cash used in financing activities in 1994 of $2,001,635 to cash
provided by financing activities in 1995 of $4,228,367 reflects increased
borrowings in 1995 for construction of Varsity Clubs of America-Notre Dame and
for improvements to the Los Abrigados resort.
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 has used 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 June 1995, the Company acquired the Kohl's Ranch Lodge, a ten acre rustic
resort near Payson, Arizona for $1,590,000, consisting of a $50,000 cash down
payment, assumption of the existing deed of trust of $932,250, seller financing
of $367,750, and the issuance of 120,000 shares of ILX restricted common stock
valued at $2 per share. Construction of additional units and future improvements
may be financed through the existing deed of trust holder, other financing
sources, or from working capital.
In June 1995, the Company signed a letter of intent to offer to the public
$10,000,000 in convertible secured bonds through Brookstreet Securities
Corporation ("Brookstreet"). In October 1995, the terms of the offering were
reduced to provide for $3,000,000, in convertible secured bonds, with a $450,000
overallotment option. The bonds will have a five year maturity, bear interest at
10%, and will be convertible to common stock at prices tied to market rates,
with a minimum price of $2.50 per share. The offering is scheduled for November
1995. The Company intends to use the proceeds of the offering for Varsity Clubs
of America expansion and repayment of high interest debt obligations.
In July 1995, the Company acquired land near the University of Arizona to be the
site of its second Varsity Clubs of America. The Company made a down payment of
$300,600 and the seller is carrying the balance of $701,400. The Company has
received a commitment for construction financing for the facility in the amount
of $6 million, which is expected to be sufficient to build and furnish the
property and a commitment for up to $20 million in financing for eligible notes
received from sales of timeshare interests in the property.
In July 1995, the Company borrowed $900,000 from Joseph P. Martori and Cynthia
J. Polich as Trustees for Cynthia J. Polich and Edward John Martori (an
affiliate), secured by 320 timeshare interests in the Los Abrigados resort. The
Company used these funds for refurbishment at Los Abrigados.
In September 1995, the Company, through a subsidiary, entered into an agreement
to acquire a portion of the Hotel Syracuse in Syracuse, New York and to develop
and market timeshare interests in the property. The Company has a financing
commitment for $5 million in acquisition and development non-recourse financing,
which is expected to be sufficient to acquire and construct the suites, and $30
million in receivables financing through September 1998.
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 cash flow from
operations and the contemplated financings discussed above, the Company will
have adequate resources for at least the next twelve to twenty-four months.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ILX INCORPORATED
(Registrant)
/s/ Joseph P. Martori
----------------------
Joseph P. Martori
Chief Executive Officer
/s/ Nancy J. Stone
------------------
Nancy J. Stone
Executive Vice President/
Chief Financial Officer
/s/ Denise L. Janda
-------------------
Denise L. Janda
Vice President/Controller
Date: November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1995 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,030,209
<SECURITIES> 0
<RECEIVABLES> 11,211,351
<ALLOWANCES> 2,818,889
<INVENTORY> 20,760,394
<CURRENT-ASSETS> 31,183,065
<PP&E> 1,928,396
<DEPRECIATION> 567,923
<TOTAL-ASSETS> 36,993,861
<CURRENT-LIABILITIES> 4,528,961
<BONDS> 13,060,457
<COMMON> 9,284,469
0
1,523,476
<OTHER-SE> 30,160
<TOTAL-LIABILITY-AND-EQUITY> 36,993,861
<SALES> 16,985,327
<TOTAL-REVENUES> 23,343,875
<CGS> 6,382,655
<TOTAL-COSTS> 17,771,672
<OTHER-EXPENSES> 2,281,762
<LOSS-PROVISION> 950,917
<INTEREST-EXPENSE> 836,850
<INCOME-PRETAX> 1,949,185
<INCOME-TAX> 63,399
<INCOME-CONTINUING> 1,540,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,540,100
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
