UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act
of 1934 (No Fee Required)
For the transition period from _______________ to _______________
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)
2111 East Highland Avenue, Suite 210, 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 National Association
Preferred Stock, $10 par value of Securities Dealers
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 January 31, 1997
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Common Stock, without par value 12,994,290 shares
Preferred Stock, $10 par value 392,109 shares
At January 31, 1997, 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 $6.7 million.
Portions of Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 23, 1997, are incorporated in Parts II and III
as set forth in said Parts.
<PAGE>
ILX INCORPORATED
1996 Form 10-K Annual Report
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
PART I----------------------------------------------------------------------------------------------------------------------3
Item 1. Business--------------------------------------------------------------------------------------------------------3
Item 2. Properties------------------------------------------------------------------------------------------------------7
Item 3. Legal Proceedings----------------------------------------------------------------------------------------------10
Item 4. Submission of Matters to a Vote of Security Holders------------------------------------------------------------10
PART II--------------------------------------------------------------------------------------------------------------------11
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters-------------------------------------------11
Item 6. Selected Financial Data-----------------------------------------------------------------------------------------11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations---------------------------11
Item 8. Financial Statements and Supplementary Data---------------------------------------------------------------------18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure----------------------------18
PART III-------------------------------------------------------------------------------------------------------------------19
Item 10. Directors and Executive Officers of the Registrant-------------------------------------------------------------19
Item 11. Executive Compensation-----------------------------------------------------------------------------------------19
Item 12. Security Ownership of Certain Beneficial Owners and Management-------------------------------------------------19
Item 13. Certain Relationships and Related Transactions-----------------------------------------------------------------19
PART IV--------------------------------------------------------------------------------------------------------------------20
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K------------------------------------------------20
</TABLE>
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PART I
Item 1. Business
ILX Incorporated ("ILX" or the "Company") is an Arizona corporation formed in
October 1986. The Company is engaged primarily in the business of developing,
marketing and financing interval ownership interests, often referred to as
"timeshare" interests, in resort properties and operating resort properties as
hotels.
Resorts
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ILX sells timeshare interests in resorts located in Arizona, Colorado, Florida,
Hawaii, Indiana and Mexico. Generally, ILX either owns all or a controlling
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 all or a controlling interest in the following resorts: Los Abrigados
Resort & Spa in Sedona, Arizona, Kohl's Ranch Lodge in Gila County, Arizona,
Golden Eagle Resort in Estes Park, Colorado, Varsity Clubs of America near the
University of Notre Dame in Mishawaka, Indiana and Lomacasi Cottages in Sedona,
Arizona. The properties owned or controlled 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.
ILX also has a marketing agreement with Pahio Vacation Ownership, Inc., which
owns and operates, on the island of Kauai, Hawaii, Pahio at Kauai Beach Villas,
Pahio at Bali Hai Villas, Pahio at The Shearwater and Pahio at Ka'Eo Kai. Under
the marketing agreement, ILX may market and sell, subject to regulatory
approval, timeshare interests in Pahio's four Hawaii resorts. ILX intends to
market the timeshare interests for Pahio at Kauai Beach Villas in Arizona.
Thereafter, ILX may then expand its marketing effort to include timeshare
interests in other Pahio resorts and expand such marketing to other states.
Except for Costa Vida Vallarta Resort, described below, purchasers of timeshare
interests from ILX acquire deed and title to an undivided fractional interest in
the entire resort or to a particular 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. On occasion, ILX reacquires a timeshare
interest through a variety of circumstances including, but not limited to,
customers defaulting on their obligation to pay for their timeshare interests.
In those instances, the reacquired timeshare interests are restored to ILX's
inventory for resale.
Each of the above referenced resorts is affiliated with a not-for-profit
organization, the members of which are the owners (including ILX and its
subsidiaries) 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 and that retain certain
benefits for ILX and its subsidiaries.
With respect to certain of the 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 title to his or her timeshare interest free from monetary
encumbrances.
ILX began marketing timeshare interests in 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 20
weeks available for sale at December 31, 1996.
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In 1986, ILX purchased, and in 1987 began operations at, 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 Golden Eagle Resort. Arizona, Colorado and Indiana have authorized ILX
to sell timeshare interests in Golden Eagle Resort in those states. ILX had
approximately 575 weeks available for sale in completed suites at December 31,
1996.
In September 1988, ILX acquired an ownership interest in Los Abrigados Resort &
Spa 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. In September 1991, Los Abrigados Partners Limited
Partnership, an Arizona limited partnership ("LAP"), became the successor in
interest to BIS-ILE. ILX, directly and through its wholly-owned subsidiary, ILE
Sedona Incorporated ("ILES"), owns a total of 78.5% of LAP, which now owns Los
Abrigados Resort & Spa. ILES serves as LAP's 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 Sedona
Vacation Club.
Marketing of timeshare interests in Los Abrigados Resort & Spa began in February
1989. A total of 9,100 timeshare weeks in constructed units may be sold, of
which approximately 2,790 were available for sale at December 31, 1996. The
Company intends to construct an additional 20 units, thereby adding 1,040
timeshare weeks. At December 31, 1996, Genesis Investment Group, Inc., a
wholly-owned subsidiary of ILX, holds an option to purchase, and is subject to a
put and call option requiring and allowing it to purchase, 392 additional
timeshare weeks for $2,100 each in Los Abrigados Resort & Spa, which timeshare
weeks will be made available for sale upon exercise of the option. At December
31, 1996, options to purchase 641 weeks had been extended to owners of timeshare
interests in Golden Eagle Resort, Kohl's Ranch Lodge and Varsity Clubs of
America - Notre Dame on substantially the same terms offered to current
purchasers. In addition, one to two year options have been extended to certain
owners of alternate year usage at Los Abrigados Resort & Spa that allow the
owners to increase their ownership to every year usage. Such options are at
prices in excess of the current prices. Arizona, Colorado, Indiana, Iowa and
Nevada have authorized ILX to sell timeshare interests in Los Abrigados Resort &
Spa in those states.
The Costa Vida Vallarta Resort is a beach front resort located in Puerto
Vallarta, Mexico. ILX has 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 Costa Vida Vallarta Resort in those states. ILX had 49 timeshare
interests available for sale as of December 31, 1996.
In June 1995, ILX acquired ownership of Kohl's Ranch Lodge ("Kohl's Ranch"), a
10.5 acre property located 17 miles northeast of Payson, Arizona. Kohl's Ranch
timeshare interests have been approved for sale in Arizona, and timeshare sales
began in July 1995. The Company is refurbishing Kohl's Ranch, maintaining its
authentic ranch atmosphere and decor. ILX anticipates constructing six
additional duplex cabins as needed to accommodate timeshare sales, thus adding
twelve 2-bedroom cabins, for a total of 64 units and 3,328 timeshare intervals.
The Company also owns and operates the water company which provides water to
Kohl's Ranch and surrounding area residences. As of December 31, 1996,
approximately 2,175 timeshare weeks were available for sale in completed units.
On March 1, 1996, ILX indirectly became the 75% general partner of The Sedona
Real Estate Limited Partnership #1, an Arizona limited partnership, ("SRELP")
that owns Lomacasi Cottages in Sedona, Arizona, a 19 unit, 5.27 acre property
approximately one mile from Los Abrigados Resort & Spa. ILX intends initially to
use the resort to provide lodging accommodations to prospective timeshare
purchasers attending a presentation at ILX's Sedona Sales Office. ILX may offer
timeshare interests in the property in the future.
In September 1996, ILX acquired approximately one-half acre of improved property
adjacent to Los Abrigados Resort & Spa. ILX intends to make improvements to the
property, to be known as the Inn at Los Abrigados, in the amount of
approximately $300,000 and to offer approximately 468 timeshare interests in the
property commencing in 1997.
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The Company markets timeshare interests in Los Abrigados Resort & Spa, Kohl's
Ranch, Golden Eagle Resort, Varsity Clubs of America - Notre Dame, Pahio at
Kauai Beach Villas and Costa Vida Vallarta Resort from its Sales Offices located
at Los Abrigados Resort & Spa and Kohl's Ranch. There are several other
timeshare resorts in Sedona and elsewhere in Arizona that draw upon the same
metropolitan Phoenix customers the Company does for both its Los Abrigados
Resort & Spa and Kohl's Ranch 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 Incorporated
("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 Varsity Clubs concept is a lodging alternative targeted to
appeal to university alumni, basketball 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. In addition, the Varsity Clubs concept serves the needs of local
residents by offering a variety of on-site club privileges to purchasers, as
well as the ability to exchange their usage at other resorts worldwide. Each
Varsity Clubs facility will operate as a hotel to the extent of unsold or unused
timeshare inventory.
The first Varsity Clubs facility was completed in August 1995 and is located in
Mishawaka, Indiana, approximately 2.8 miles from the University of Notre Dame
("Varsity Clubs of America - Notre Dame"). The Indiana facility is owned, to the
full extent of unsold timeshare interests, by VCASB Partners General Partnership
("VCASB"), which is owned 50% each by ILX and VCA South Bend Incorporated, a
wholly-owned subsidiary of VCA. Arizona, Florida, Illinois, Indiana and
Pennsylvania have authorized VCASB to sell timeshare interests in the Indiana
facility in those states. 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. A
total of 22,568 one night intervals have been constructed and, at December 31,
1996, approximately 16,147 one night intervals were available for sale. The
Company anticipates expanding the facility by constructing an additional 30
suites, thus adding 10,920 one night intervals. To the Company's knowledge, no
other timeshare properties exist proximate to the University of Notre Dame. To
date, Varsity Clubs of America - Notre Dame has been able to compete favorably
for commercial guests because of its superior facilities and amenities relative
to other lodging accommodations in the area.
The site for a 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 1998.
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 near 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 acquisition or development and marketing of new resort facilities.
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Sedona Worldwide Incorporated and Red Rock Collection Incorporated
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Red Rock Collection Incorporated, an Arizona corporation ("Red Rock
Collection"), was a wholly and directly owned subsidiary of ILX. It has, since
July 1994, been engaged in the manufacture and distribution of personal care
products. The complete product line consists of spa and salon formulated
products for face, body, bath and hair care.
Effective January 1, 1997, ILX and Red Rock Collection entered into personal
service agreements (the "Personal Service Agreements") with celebrity Debbie
Reynolds and her son, Todd Fisher. The Personal Service Agreements provide,
among other things, that Ms. Reynolds will endorse the Red Rock Collection line
of face, body, bath and hair care products. Pursuant to the Personal Service
Agreements and related documents, each of Ms. Reynolds and Mr. Fisher are to
receive from ILX 70,000 shares of the 700,000 issued and outstanding shares of
Red Rock Collection common stock.
Also under the Personal Service Agreements, ILX agreed that, within sixty (60)
days from the issuance of such stock to Ms. Reynolds and Mr. Fisher, which
issuance has not yet occurred, ILX would distribute to the existing ILX
shareholders the common stock of Red Rock Collection equal to at least thirty
percent (30%) of the then issued and outstanding Red Rock Collection common
stock. The Personal Service Agreements further provide that (i) ILX shall
undertake promptly to register the common stock of Red Rock Collection with the
Securities and Exchange Commission with a view to listing the stock on the
National Association of Securities Dealers Automatic Quotation System (NASDAQ)
and (ii) either concurrently with such registration or by separate registration,
and upon the advice of its underwriters, Red Rock Collection would undertake a
public offering of between $2 million and $5 million.
In November 1996, ILX activated a wholly-owned subsidiary, Sedona Worldwide
Incorporated ("SWW") (formerly "Red Rock Worldwide Incorporated"). Pursuant to a
Contribution Agreement to be effective as of January 1, 1997, all of the issued
and outstanding shares of Red Rock Collection are to be exchanged for shares of
SWW, at a rate of four shares of SWW for each share of Red Rock Collection. As a
part of that agreement, SWW is to assume Red Rock Collection's obligations under
the Personal Service Agreements and ILX is to undertake the various Red Rock
Collection stock transfers and registrations using SWW stock rather than Red
Rock Collection stock.
Red Rock Collection products primarily have been marketed through resort
properties owned and operated by ILX. This resort-based sales program includes
an upscale amenities line, an in-room gift basket promotion and retail product
sales at ILX resort venues. Red Rock Collection products are also used by ILX
and its subsidiaries as tour promotion incentives. The products are given as
gifts to individuals who attend timeshare tours and presentations. Red Rock
Collection then markets by direct mail to the resort and tour customers who have
received and/or used the Red Rock Collection products. Red Rock Collection is
considering other marketing opportunities, including promotional activities
utilizing Ms. Reynolds.
ILX and SWW intend to offer additional product lines through SWW, including
jewelry, artwork and apparel.
Debbie Reynolds Hotel & Casino
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On October 30, 1996, ILX entered into a definitive agreement with Debbie
Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC") and Debbie Reynolds
Resorts, Inc., a Nevada corporation ("DRC") whereby ILX can acquire, among other
assets, the physical assets constituting the Debbie Reynolds Hotel & Casino in
Las Vegas, Nevada (the "Hotel"). The purchase price for the assets is
$16,800,000 and is payable by issuance to DRHC of $7,500,000 worth of federally
registered shares of ILX's Common Stock valued for purposes of the transaction
at $2.00 per share (totaling 3,750,000 shares), as well as payment of $4,200,000
in cash, which ILX intends to borrow from third-party lenders to whom ILX
believes it will be required to provide recourse mortgages against ILX's assets,
and ILX's assumption of $5,100,000 in mortgage indebtedness, which ILX believes
likely would be recourse to ILX's assets. The Hotel consists of 193 rooms in a
twelve-story structure situated on over six acres. Hotel amenities include the
Debbie Reynolds Hollywood Movie Museum, Debbie's Star Theater, food and beverage
facilities, a pool and a
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spa, and space for a full-service casino. Forty-three of the hotel rooms have
recently been renovated and established as timeshare units, providing the
opportunity to market up to 2,193 timeshare interests in the Hotel, of which
approximately one-half have been sold by the current owners. As part of the
agreement, Debbie Reynolds would continue to perform and make regularly
scheduled appearances at the Hotel. If the transaction is consummated, ILX would
offer timeshare interests, would conduct hotel operations, and would lease to
Debbie Reynolds or her nominee for 99 years facilities that include the
showroom, casino space, museum, gift shop, back bar and certain joint use areas
for an approximate lease fee of $150,000 per month, which is at a rate that DRHC
has indicated would not likely be profitable for DRHC to undertake.
Consummation of the contemplated transaction was and remains contingent upon
approval by the shareholders of DRHC, satisfaction of various conditions by the
sellers, and a due diligence investigation by ILX. To date, DRHC has not sought
the approval of the shareholders, only a small portion of the conditions have
been satisfied by the sellers, and ILX has not completed its due diligence
investigation as a result of the lack of information made available by the
sellers, all of which places an additional degree of substantial uncertainty
upon the likelihood of closing the transaction as originally anticipated. One
condition recently satisfied is that DRHC provided ILX with DRHC's delinquently
filed financial statements for the year ended December 31, 1995 and the first
three quarters of 1996. ILX's preliminary review of these financial statements
revealed lower performance levels than had previously been anticipated for DRHC,
and greater debt owed by DRHC, raising additional issues that ILX must now
explore. Accordingly, ILX's management has determined that, until further due
diligence is performed and the other seller contingencies are satisfied, ILX
will not be able to determine whether or not it will proceed to consummate the
transaction.
Genesis
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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.
Since the merger, Genesis has continued to liquidate its real estate holdings
and is subject to a put and call option allowing and requiring Genesis to
purchase 667 timeshare intervals in Los Abrigados Resort & Spa. Pursuant to such
option, Genesis has acquired 275 timeshare intervals as of December 31, 1996 and
has engaged LAP to market these timeshare interests for resale.
Other
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ILX employs approximately 700 people.
Item 2. Properties
Los Abrigados Resort & Spa
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Los Abrigados Resort & Spa 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 is being
marketed by the Company. The resort has outdoor swimming pools, 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 in
constructed units may be sold, of which approximately 2,790 were available for
sale at December 31, 1996. The Company intends to construct 20 additional
suites, thereby adding 1,040 interval ownership memberships. Also, Genesis holds
an option to purchase 392 additional memberships at $2,100 each. One to two year
options to purchase 641 available memberships have been extended to owners of
timeshare interests in Golden Eagle Resort, Kohl's Ranch and Varsity Clubs of
America - Notre Dame on terms substantially the same as those offered to current
purchasers. Similarly,
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purchasers of bi-annual interests in Los Abrigados Resort & Spa have been
offered one and two year options to expand to annual interests for specified
prices. Such prices exceed current offering prices.
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 $1,572,167, and
by two subordinate deeds of trust of equal priority securing repurchase
obligations relating to borrowings against consumer notes receivable of
approximately $141,000 and sales of consumer notes receivable with recourse in
the amount of approximately $17 million at December 31, 1996. In addition, 220
interests which are not encumbered by the first and second deeds of trust secure
two notes payable to affiliates totaling $430,000 at December 31, 1996.
Golden Eagle Resort
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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 and low density residential 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 additional suites on the property. 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 (including the 102
anticipated intervals described below), exclusive of the adjacent condominium.
Approximately 575 interests in completed suites were available for sale at
December 31, 1996, and the Company intends to construct a minimum of two
additional units, thereby adding 102 available interests. 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 $1,449,990 and by
a second deed of trust securing repurchase obligations relating to borrowings
against consumer notes receivable in the principal amount of $1,068,541 and
sales of consumer notes receivable sold with recourse in the approximate amount
of $707,000 at December 31, 1996.
Kohl's Ranch Lodge
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In June 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 the lobby and
registration area, food and beverage facilities, gift shop, sales offices, and
41 guest rooms. The common areas offer a variety of amenities including a pool,
outdoor spa, exercise room, putting green and sport court. Kohl's Ranch also
includes eight (8) one- and two-bedroom cabins along Tonto Creek, each with a
private outdoor spa, a triplex cabin with two one-bedroom units and one
efficiency unit, and a free standing building that contains food and beverage
facilities and space for additional retail operations. ILX is refurbishing the
cabins, the common areas, and a portion of the lodge rooms, maintaining a ranch
atmosphere and decor. In addition, the Company has constructed a "pet resort" to
house the pets of visiting resort guests. The Company offers certain purchasers
of Kohl's Ranch interests the option to convert their ownership to other
ILX-owned properties at a designated time for a predetermined amount. Kohl's
Ranch interests received from converting owners are offered for resale.
In July 1995, the Company began offering 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 2,704 timeshare
weeks may be sold in existing units and, as of December 31, 1996, ILX had 2,175
timeshare weeks in constructed units available for sale. ILX anticipates
commencing construction of six new duplex cabins on the property as needed to
accommodate timeshare sales, thus adding twelve two-bedroom cabins, for a total
of 64 units and 3,328 timeshare weeks. The Company holds fee simple title to
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the property which at December 31, 1996, is encumbered by a first position note
and deed of trust in the amount of $584,500, a second position note and deed of
trust in the amount of $190,450, and a third position note and deed of trust
securing repurchase obligations relating to borrowings against consumer notes
receivable in the principal amount of $1,787,228.
Interval Ownership Interests in Costa Vida, Ventura and Other Resorts
- ---------------------------------------------------------------------
At December 31, 1996, the Company owned and held for sale 20 interval ownership
interests in Ventura Resort in Boca Raton, Florida, 49 interval ownership
interests in Costa Vida Resort in Puerto Vallarta, Mexico, and 39 interval
ownership interests in other resort properties worldwide. These intervals are
owned free and clear by the Company at December 31, 1996.
Varsity Clubs of America - Notre Dame
- -------------------------------------
Varsity Clubs of America - Notre Dame is located in Mishawaka, Indiana,
approximately 2.8 miles from the University of Notre Dame. The hotel is situated
on approximately four acres of land and consists 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 may be offered for sale in the existing
facility. The Company anticipates constructing 30 more suites in the main
building, thereby increasing by 10,920 the number of intervals which may be
offered for sale. Approximately 16,147 one day intervals in completed suites
were available for sale at December 31, 1996. The Company offers certain
purchasers of Varsity Clubs of America - Notre Dame interests the option to
convert their ownership to other ILX-owned properties at a designated time for a
predetermined amount. Varsity Clubs of America - Notre Dame interests received
from converting owners are offered for resale.
The Company holds fee simple title to the property, which is encumbered by a
first mortgage securing construction financing in the amount of $2,797,733 and
securing sales of consumer notes receivable with recourse in the approximate
amount of $4.7 million at December 31, 1996.
Varsity Clubs of America - Tucson
- ---------------------------------
The site for a 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 1998.
The Company has a commitment, which the Company believes has been breached, for
construction financing for the Arizona facility in the amount of $6 million,
which, if honored, 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. If the commitment is not honored, the Company believes it will be able
to secure financing from alternate sources to construct and furnish the property
and to fund eligible notes receivable. The property is held in fee simple title
and is encumbered pursuant to a contract for sale in the amount of $491,981 and
a second position mortgage in the amount of $300,000 at December 31, 1996.
Lomacasi Cottages
- -----------------
In March 1996, ILX, through a subsidiary, became the 75% general partner of the
partnership that owns Lomacasi Cottages in Sedona, Arizona. Lomacasi Cottages
consists of a main house, which includes registration and meeting areas, and 19
guest units scattered throughout the 5.27 acre site. The hotel is located
approximately one mile from Los Abrigados Resort & Spa and is bordered by Oak
Creek. The Company uses the resort primarily to provide lodging accommodations
for prospective timeshare purchasers for the Sedona Sales Office. ILX may offer
timeshare interests in the property in the future. The property is encumbered by
non-recourse deeds of trust totaling approximately $2,171,000 at December 31,
1996.
9
<PAGE>
The Inn at Los Abrigados
- ------------------------
The Company acquired approximately one-half acre of improved property adjacent
to Los Abrigados Resort & Spa in September 1996 for the purpose of making
improvements to the property and offering approximately 468 timeshare interests
in the property. The property is encumbered by a $564,138 first deed of trust at
December 31, 1996.
Land
- ----
The Company owns interests in various parcels of unimproved real estate in
Arizona through its wholly-owned subsidiary Genesis and is presently marketing
these properties. At December 31, 1996, the real estate held for sale less
encumbrances was recorded at $1,547,493. It is the Company's intention to
liquidate this land in the next twelve to twenty-four months.
Red Rock Collection Building
- ----------------------------
The Red Rock Collection corporate headquarters are located at 3840 North 16th
Street, Phoenix, Arizona. This 8400 square foot building is leased by Red Rock
Collection and houses its executive offices, customer service, accounting,
warehouse and shipping operations, as well as telemarketing offices for ILX's
timeshare sales operations. The facility is leased from an affiliate through
December 31, 1997, with an option to renew the lease for three additional one
year periods through December 31, 2000.
Company Headquarters
- --------------------
The Company leases its corporate headquarters in Phoenix, Arizona under a five
year lease through January 31, 2002. The terms of the lease provide the Company
with the option to extend the lease for one additional five-year period.
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
10
<PAGE>
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 1996 and 1995. 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
--------------- ---------------
Quarter Ended High Low High Low
- ------------------------------------ ---- ---- ---- ----
December 31, 1996 1.50 .97 1.56 1.06
September 30, 1996 1.63 1.19 1.75 1.31
June 30, 1996 1.94 1.13 2.00 1.31
March 31, 1996 1.38 1.00 1.44 1.06
December 31, 1995 2.38 1.19 2.50 1.25
September 30, 1995 2.44 1.81 2.50 1.94
June 30, 1995 1.88 1.13 2.06 1.19
March 31, 1995 1.56 1.13 1.69 1.25
On January 31, 1997, the number of holders of the Company's common stock was
approximately 2,100. No dividends on common stock have been declared by the
Company since inception and none are anticipated in the foreseeable future.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994 1993(1) 1992
---------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenue $32,150,809 $32,706,130 $30,353,265 $20,819,287 $19,026,260
Net income 1,051,116 624,663 2,148,287 2,076,231 1,325,874
Net income per common and equivalent
share .08 .05 .17 .18 .12
Total assets 41,274,905 37,752,513 28,403,404 24,906,969 15,748,315
Notes payable 16,434,383 13,527,857 7,332,261 5,408,898 4,865,107
Total shareholders' equity 15,175,120 13,775,102 12,957,129 10,541,495 6,477,838
</TABLE>
(1) The 1993 data includes the effects of the acquisition of Genesis effective
November 1, 1993.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the Company's financial condition and results of
operations includes certain forward looking statements. When used in this
report, the words "estimate", "projection", "plan" and "anticipates" and similar
terms are intended to identify forward looking statements that relate to the
Company's future performance. Such statements are subject to substantial
uncertainty. Readers are cautioned not to place undue reliance on forward
looking statements set forth below. The Company undertakes no obligation to
publicly release the results of any revisions to any of the forward looking
statements contained herein.
11
<PAGE>
Results of Operations
- ---------------------
Fiscal Year 1995 to 1996
Sales of timeshare interests of $21,353,758 in 1995 were 8.7% greater than sales
of $19,639,194 in 1996. The greater 1995 sales reflect operation until April
1995 of the Phoenix Sales Office, the recognition in 1995 of approximately
$513,000 of Varsity Clubs of America - Notre Dame sales written in 1994 but for
which revenue recognition was deferred pending completion of construction, a
reduction in tours sent to the Sedona Sales Office in 1996, and reduced sales
from the South Bend Sales Office. 1996 sales reflect a full year of operation of
the Kohl's Ranch Sales Office.
On April 1, 1995, the Company closed the Phoenix Sales Office, which had sold
primarily interests in Los Abrigados Resort & Spa. The Company began directing
the customers who would otherwise have attended a Phoenix Sales Office
presentation to the Sedona Sales Office, where closing rates had consistently
exceeded those of the Phoenix Sales Office. The Phoenix Sales Office generated
approximately $771,000 in sales in 1995 prior to closure.
Sales of timeshare interests from the Kohl's Ranch Sales Office commenced in the
third quarter of 1995 and the Company then began directing its Phoenix-based
customers to the Kohl's Ranch Sales Office as well as its Sedona Sales Office.
While the number of customers generated to both offices increased in total,
customers directed to the Sedona Sales Office declined and, accordingly, Sedona
Sales Office sales of timeshare interests decreased by approximately $1.1
million from 1995 to 1996. Absent the reduction in tours, 1996 sales from the
Sedona Sales Office would have exceeded 1995 sales due to increases in prices,
closing rates (number of timeshare sales divided by number of timeshare tours)
and revenue per tour. In addition, a higher proportion of 1996 sales were of
alternate year (rather than every year) usage, yet the average sales price was
comparable between years, reflecting the effect of the increased pricing. During
1995 and 1996, the Company offered for sale from the Sedona Sales Office
interests in Los Abrigados Resort & Spa, Kohl's Ranch and Golden Eagle Resort
and during 1996, Varsity Clubs of America - Notre Dame. The Company is in the
process of expanding its tour generation activities to increase the tour flow to
the Sedona and Kohl's Ranch Sales Offices. Kohl's Ranch Sales Office sales of
timeshare interests were $3,026,989 and $1,122,043 for 1996 and 1995,
respectively.
Upgrades by existing owners and other specialty programs generated approximately
$1.4 million in sales in 1995 and $1.2 million in 1996. 1995 activity included
revenue of approximately $525,000 from a program whereby timeshare owners at Los
Abrigados Resort & Spa were invited to exchange their one- and two-bedroom
suites without kitchens to newly upgraded two-bedroom suites with kitchens.
Sales of timeshare interests in Varsity Clubs of America - Notre Dame were
$5,400,067 and $5,233,023 for 1996 and 1995, respectively. In 1996,
approximately $3.9 million in Varsity Clubs of America - Notre Dame sales were
generated from the South Bend Sales Office, and $1.5 million from the Sedona
Sales Office. The Sedona Sales Office commenced offering interests in Varsity
Clubs of America - Notre Dame in June 1996. All 1995 sales of Varsity Clubs of
America - Notre Dame were made from the South Bend Sales Office. The decrease in
sales from the South Bend Sales Office between years reflects reduced closing
rates and a greater percentage of sales of alternate year (rather than every
year) usage. In late 1996 the Company made changes in its sales management in
the South Bend Sales Office which have resulted in improved closing rates in
early 1997. 1995 sales include 1994 sales of timeshare interests of
approximately $513,000 for which recognition had been deferred in 1994 and then
recognized on the percentage of completion method in 1995 when the property was
substantially complete.
Cost of timeshare interests sold as a percentage of sales of timeshare interests
has decreased from 1995 to 1996, reflecting the increased sales prices at the
Sedona Sales Office in 1996, an adjustment to the estimated cost of Los
Abrigados Resort & Spa interests in 1996, and variations in product mix between
years.
Resort operating revenue of $11,136,591 in 1996 is 25.6% higher than revenue of
$8,868,344 in 1995. The increase in revenue from 1995 to 1996 reflects a full
year's operation of both Varsity Clubs of America - Notre Dame, which opened in
mid-August 1995, and Kohl's Ranch, which was acquired on June 1, 1995, and an
increase in revenue from Los Abrigados Resort & Spa. Los Abrigados Resort & Spa
12
<PAGE>
resort operating revenue increased 7% between years, in spite of increased
timeshare owners and, therefore, reduced availability of rooms for resort guests
who pay substantially higher rates, due to an increase in total occupancy, an
increase in rates (operating dues) charged to timeshare owners, and an increase
in food, beverage and other on-site service utilization.
Occupancy and average daily rate for Varsity Clubs of America - Notre Dame was
higher in 1996 than 1995 due to increased marketing efforts subsequent to the
opening of the property in 1995, and for Kohl's Ranch as a result of the
completion of 1995 room renovations.
The decrease in cost of resort operations as a percentage of resort operating
revenue in 1996 from 1995 reflects lower Los Abrigados Resort & Spa costs as a
percentage of revenue due to increased occupancy, increased timeshare owner
rates, reductions in operating costs and the elimination of certain depreciation
expense, net of the costs of operations for Varsity Clubs of America - Notre
Dame and Kohl's Ranch, which began operations in 1995 and accordingly have lower
occupancy than mature resorts. In addition, the smaller, current size and
reduced amenities offered at Varsity Clubs of America - Notre Dame and Kohl's
Ranch are likely to yield a higher cost of resort operations as a percentage of
resort operating revenue than that of Los Abrigados Resort & Spa.
The decreases in sales of land and other and the related cost of sales from 1995
to 1996 reflect the sale of three large, unimproved parcels of land in 1995 and
the sale of a small parcel of land in 1996 held by Genesis. Sales of land and
other and the associated cost of land sold and other also include in 1995 and
1996 sales of Red Rock Collection products and in 1996 revenue and related costs
from the Kohl's Ranch Water Company for services provided.
The increase in interest income from $627,081 in 1995 to $997,500 in 1996 is a
result of the increased consumer paper retained by the Company as well as
increased balances of invested cash. The Company hypothecates (borrows against)
the majority of its retained paper.
Advertising and promotion as a percentage of sales has increased from 1995 to
1996, reflecting a promotional program in operation in 1996 which offered
certain purchasers from the South Bend Sales Office a vacation experience
(including airfare and car rental) in addition to their timeshare interval.
While the cost of the vacation experience was added to the buyer's purchase
price, it has the effect of increasing promotion costs as a percentage of sales.
This program was discontinued in November 1996. In addition, in 1996, the South
Bend Sales Office experienced a lower closing rate (number of timeshare sales
divided by timeshare tours) and the South Bend, Sedona and Kohl's Ranch Sales
Offices experienced increased costs of generating tours. Furthermore, 1995
revenues include $1,637,112 for the sales of land which had no associated
advertising or promotion expense and Varsity Clubs of America - Notre Dame 1994
timeshare sales of approximately $513,000 which were recognized on the
percentage of completion method in 1995 but for which advertising costs were
recognized in 1994 when incurred.
General and administrative expenses decreased from $4,106,180 in 1995 to
$2,591,525 in 1996 due in part to operating efficiencies in 1996, nonrecurring
expenses in 1995, and recognition of expected benefits in 1996. In 1995,
approximately $400,000 of expenses were recognized relating to a $10 million
convertible bond offering which was abandoned due to the underwriter's inability
to place the bonds. As a result of abandoning the bond offering, proceeds from
which were intended for Varsity Clubs of America expansion, the Company canceled
its options on certain Varsity Clubs of America sites and the costs of the
Varsity Clubs of America sites and associated development costs of approximately
$320,000 were written off because it no longer expected to construct at these
sites within the option periods. The Company believes these sites, or other
suitable sites, may be available at such time as it desires to construct at
these locations and at prices and terms no less favorable than under the
forfeited options. 1996 general and administrative expenses include the
recognition of $291,000 of benefits expected to be realized upon settlement of
accrued liabilities.
The provision for doubtful accounts relates primarily to sales of timeshare
interests. The decrease in the provision for doubtful accounts from 5.8% in 1995
to 3% in 1996 reflects the expected performance of the portfolio of consumer
paper based on prior years' collection experience, both sold and unsold.
13
<PAGE>
The increase in interest expense from $1,265,227 in 1995 to $1,975,110 in 1996
reflects an increase in notes payable, including the note payable for the
construction of Varsity Clubs of America - Notre Dame, which interest had been
capitalized to the cost of the building through completion in August 1995, the
acquisition notes for Kohl's Ranch, Lomacasi Cottages and the Inn at Los
Abrigados, and increased borrowings against consumer notes receivable. The
Company has elected to hypothecate, rather than sell, a greater portion of its
consumer notes because of the favorable installment sales tax treatment
available for hypothecated notes.
Income tax expense increased from a benefit in 1995 to a provision in 1996
because 1995 includes the reduction in the valuation allowance, reflecting
management's estimate of the future benefit to be derived from the utilization
of Genesis net operating loss carryovers, and increased net income in 1996.
Minority interests are comparable between years. However, 1996 reflects an
increase in Los Abrigados Resort & Spa net income between years due to increased
hotel operating income, increased timeshare sales prices and reduced cost of
sales, depreciation, and bad debt provision, and also the minority interest in
operating losses of Lomacasi Cottages commencing March 1, 1996. 1995 minority
interests include the minority interest ownership of the Genesis land parcels
sold in 1995.
Fiscal Year 1994 to 1995
Sales of timeshare interests of $21,353,758 in 1995 were 14.1% higher than sales
of $18,713,970 in 1994. The increase in sales from 1994 to 1995 reflects 1995
sales of interests in both Varsity Clubs of America - Notre Dame and Kohl's
Ranch, net of a decrease in sales made from the Phoenix Sales Office.
Sales of interests in Varsity Clubs of America - Notre Dame recognized in 1995
were $5,233,023, and include approximately $513,000 in sales made in 1994 for
which recognition was deferred until 1995 when construction of the facility was
substantially complete. 1995 sales of timeshare interests include $1,122,043 in
sales of interests in Kohl's Ranch which commenced in July, following
acquisition of the property in June. Sales of interests in Varsity Clubs of
America - Notre Dame and Kohl's Ranch were generated primarily from the sales
offices at the respective properties.
During 1995, the Sedona Sales Office sold primarily interests in Los Abrigados
Resort & Spa and Golden Eagle Resort. Sedona Sales Office closing rates and
efficiency rates (timeshare revenue divided by the number of timeshare tours)
both increased from 1994 to 1995. As a result, sales of timeshare interests by
the Sedona Sales Office (excluding upgrades by existing customers) increased
from 1994 to 1995 by approximately 2% ($298,000) on 11.5% fewer tours. In
addition, upgrades by existing owners and other specialty programs increased by
approximately $451,000 from 1994 to 1995. The reduction in tours to the Sedona
Sales Office is due in part to the allocation of tours to the new Kohl's Ranch
Sales Office.
On April 1, 1995, the Company closed the Phoenix Sales Office which had sold
primarily interests in Los Abrigados Resort & Spa, 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 $4.7 million in timeshare sales
in 1994 and approximately $771,000 in 1995, prior to closure of the office.
1994 sales of timeshare interests include the recognition of $428,100 in
deferred revenue from a 1992 bulk sale.
Cost of timeshare interests as a percentage of sales of timeshare interests
increased slightly from 1994 to 1995, excluding the 1994 bulk sale revenue
recognition for which there was no related cost of sale. The increase reflects
sales of interests in Varsity Clubs of America - Notre Dame which have a higher
product cost than interests in Los Abrigados Resort & Spa.
The increase in resort operating revenue from $8,764,558 in 1994 to $8,868,344
in 1995 reflects revenue from Varsity Clubs of America - Notre Dame which opened
in mid August 1995 and revenue from Kohl's Ranch which was acquired on June 1,
1995. These increases were offset in large part by reduced room revenue at Los
Abrigados Resort & Spa due to increasing usage of the resort by prospective
timeshare purchasers and timeshare owners and decreasing availability of rooms
for resort guests, and the closure of
14
<PAGE>
the Canyon Rose dining room at Los Abrigados Resort & Spa for four months in
1995 for remodeling and repositioning of the restaurant as a steak house and
cigar and billiards room. The cost of resort operations as a percentage of
revenues increased from 1994 to 1995 due to the start up of operations at Kohl's
Ranch and Varsity Clubs of America - Notre Dame and due to decreased occupancy
of traditional resort guests at Los Abrigados Resort & Spa as timeshare owners
and prospective purchasers, who pay substantially reduced rates for their room
usage, utilize a greater portion of the facilities.
Occupancy at Kohl's Ranch was impacted by room renovations during 1995 which
reduced the number of rooms available for rental. Kohl's Ranch resort operating
expenses in 1995 include repairs, landscaping, cleaning and training associated
with start up of the operation. Occupancy at Varsity Clubs of America - Notre
Dame was low in 1995 due to minimal pre-opening marketing of the facility to
groups and individual hotel guests.
Sales of land and other and the associated cost of land sold and other in both
1994 and 1995 reflect the sale of unimproved real property held by Genesis and
sales of Red Rock Collection products. 1994 Genesis sales include the sale of
subdivided lots and a large, unimproved parcel. 1995 Genesis sales include sales
of three large, unimproved parcels. The land held by Genesis was recorded in the
November 1993 acquisition at its estimated fair market value. The spread between
sales of land and the cost of land sold reflects the appreciation of the
particular parcels sold. Cost of land sold as a percentage of sales of land
increased from 1994 to 1995 due to variations in appreciation due to the unique
attributes of each parcel.
The increase in interest income from $402,596 in 1994 to $627,081 in 1995
reflects the increase in consumer paper retained by the Company. The Company
hypothecates the majority of its retained paper.
Advertising and promotion as a percentage of revenue is comparable between years
after excluding sales of land each year and the recognition of the 1992 bulk
timeshare sale in 1994 which have no associated advertising and promotion
expenses.
General and administrative expenses increased from $3,198,604 in 1994 to
$4,106,180 in 1995 because 1995 reflects the expense of approximately $400,000
in bond offering costs, and also the write-off of approximately $320,000 in
costs for Varsity Clubs of America sites and associated development costs. The
Company abandoned its plans for a $10 million convertible bond offering in
December 1995 because of the underwriter's inability to timely place the bonds.
The proceeds of the bond offering were intended to be used for expansion of
Varsity Clubs of America. The Company canceled its options on its Varsity Clubs
of America sites near the University of Iowa, the University of Oklahoma, Auburn
University and Penn State because it no longer expected to construct at these
sites within the option period. The Company believes these sites, or other
suitable sites, may be available at such time as it desires to construct at
these locations and at prices and terms no less favorable than under the
forfeited options, including costs to extend the options beyond their original
expiration date. 1995 general and administrative expenses also reflect the start
up of Varsity Clubs of America - Notre Dame. 1994 general and administrative
expenses include the amortization of deferred Red Rock Collection costs as
described below.
The increase, as a percentage of timeshare sales, of the 1995 doubtful accounts
provision to 5.8% as compared to 4.1% in 1994 reflects the then expected
performance of the paper generated in 1995.
The increase in interest expense from $666,141 in 1994 to $1,265,227 in 1995
reflects an increase in notes payable, including the note payable for the
construction of Varsity Clubs of America - Notre Dame, the Kohl's Ranch
acquisition notes, a full year of interest on the notes arising from the 1994
acquisition of the Los Abrigados Limited Partners Class A partnership interest
and increased borrowings against consumer notes receivable. The Company elected
to finance its Kohl's Ranch consumer notes and a portion of its Golden Eagle
consumer notes by hypothecating the notes, rather than selling the notes,
because of the favorable installment tax treatment available for hypothecated
notes.
Income tax benefits increased from $161,799 in 1994 to $547,216 in 1995. In
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
from Los Abrigados Resort & Spa and from Genesis loss carryforwards. 1995 tax
benefits reflect the elimination of the remaining valuation allowance on the
Genesis net operating loss
15
<PAGE>
carryforwards. The elimination was based on the development of tax strategies
from which management concluded the loss carryforwards would more likely than
not be utilized. A valuation allowance had been established to reflect the
uncertainty of the utilization of Los Abrigados Resort & Spa deferred tax assets
and the Genesis net operating loss carryforwards.
The decrease in minority interests from $1,440,034 in 1994 to $501,246 in 1995
reflects the acquisition of the LAP Class A limited partnership interests
effective July 1994, the decrease in LAP net income in 1995 and differences in
minority interest ownership of the Genesis parcels sold in 1994 and 1995. The
decrease in LAP net income between years is a result of closure of the Phoenix
Sales Office and reduced profitability of Los Abrigados Resort & Spa hotel
operations due to decreased availability of rooms for resort guests.
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 $5 million of credit issued by a financing company under which conforming
notes from sales of interval interests in Los Abrigados Resort & Spa can be sold
on a recourse basis through March 1998. 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 1997. At December 31, 1996, approximately $4.2
million is available under the fixed commitment line and a minimum of $2.4
million is expected to be available on the open ended line. The Company also has
financing commitments whereby the Company may borrow up to $2 million against
non-conforming notes from sales of interval interests in Los Abrigados Resort &
Spa, Golden Eagle Resort, Kohl's Ranch and Varsity Clubs of America - Notre
Dame, and $2.2 million against conforming notes from sales of interval interests
in Golden Eagle Resort through March 1998. Approximately $2.2 million was
available under these commitments at December 31, 1996.
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 September 1, 1997.
Approximately $5.3 million was available under this commitment at December 31,
1996.
The Company has a financing commitment whereby it may borrow up to $10 million
against conforming notes received from sales of timeshare interests in Kohl's
Ranch through August 1997. Approximately $7.9 million was available on this
commitment at December 31, 1996.
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 each from two financial institutions.
At December 31, 1996, the entirety of both lines were available for working
capital.
In February 1996, the Company borrowed an additional $1,760,000 from the first
mortgage holder on Los Abrigados Resort & Spa. The Company used these funds for
improvements to Los Abrigados Resort & Spa and Kohl's Ranch and for working
capital.
Effective March 1, 1996, the Company, through a subsidiary, became the managing
general partner of the limited partnership which owns Lomacasi Cottages in
Sedona, Arizona, a 5.27 acre property approximately one mile from Los Abrigados
Resort & Spa. The Company acquired its partnership interest for a $25,000
capital contribution. The resort was encumbered by non-recourse deeds of trust
on the property totaling approximately $2.2 million at the date of acquisition.
In November 1995, the Company entered into a management agreement with one of
its timeshare lenders whereby the lender committed to advance $3.5 million,
provide strategic planning and consultation with respect to timeshare sales of
3,500 Los Abrigados intervals, and reduce holdback requirements on timeshare
paper purchased by the lender. During 1996, the Company received an additional
$900,000
16
<PAGE>
pursuant to the management agreement, leaving a balance to be advanced at
December 31, 1996 of approximately $1.1 million. However, an affiliate of the
lender filed for bankruptcy protection in 1996, and while the Company has been
informed that said proceedings do not involve the lender with which the Company
conducts business, the lender has failed to fund advances requested by the
Company. It is the Company's position that the management agreement, as
previously amended, has been anticipatorily breached by the lender and its
affiliates. The Company is of the opinion that while further advances under the
management agreement are not likely to occur, the bankruptcy will have no
additional material impact on the Company's ability to obtain timeshare
financing from the lender or alternate sources. Any future payments under the
management agreement received by the Company will be applied to mitigate present
and future damages sustained by the Company by virtue of the breach by the
lender and its affiliates of the management agreement and other loan
transactions between the Company, its subsidiaries and affiliates, and the
lender and its affiliates. The Company will negotiate a settlement with the
lender or pursue legal remedies.
During 1996, the Company borrowed $300,000 on its $6 million construction
financing commitment for the Varsity Clubs of America - Tucson facility.
In September 1996, the Company acquired approximately one-half acre of improved
property adjacent to Los Abrigados Resort & Spa for a $185,862 cash down payment
and a $564,138 first deed of trust. The Company intends to make improvements to
the property and to offer timeshare intervals in the property commencing in
1997.
The change from cash provided by operating activities of $3,169,370 in 1994 to
cash used in operating activities of $3,972,820 in 1995 reflects reduced net
income in 1995, improvements to Los Abrigados Resort & Spa and the completion of
construction of the Varsity Clubs of America - Notre Dame facility in 1995, and
increased notes receivable retained by the Company. The change from cash used in
operating activities of $3,972,820 in 1995 to cash provided by operating
activities of $424,960 in 1996 is due to increased net income and utilization of
deferred tax assets in 1996, and completion of construction of the Varsity Clubs
of America - Notre Dame facility and improvements to Los Abrigados Resort & Spa
in 1995.
Cash flows from investing activities changed from cash used in investing
activities of $1,305,936 in 1994 to cash provided by investing activities of
$113,916 in 1995 due to the acquisition of the minority interest in LAP in 1994,
addition of Red Rock Collection plant and equipment in 1994 and the write-off of
Varsity land deposits in 1995. Cash provided by investing activities of $113,916
in 1995 and $30,473 in 1996 are comparable between years.
Cash flows from financing activities changed from cash used in financing
activities of $287,954 in 1994 to cash provided by financing activities of
$3,969,835 in 1995 due to borrowings for the construction of Varsity Clubs of
America - Notre Dame. The change from cash provided by financing activities of
$3,969,835 in 1995 to cash used in financing activities of $678,904 in 1996
reflects 1995 borrowings for the Varsity Clubs of America - Notre Dame
construction and 1996 cash distributions to LAP minority partners.
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 capital resources for at least the next twelve to twenty-four
months.
Accounting Matters
- ------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning
after December 15, 1995. During 1996, SFAS 121 was adopted and had no
significant impact on the Company's financial position, results of operations,
or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which is effective for the
17
<PAGE>
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. During 1996, the Company chose
the option to continue applying APB Opinion No. 25 to its stock based
compensation awards to employees.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"), which is effective for fiscal years beginning
after December 31, 1996. The Company does not believe the adoption of SFAS 125
will have a significant impact on the Company's financial position, results of
operations, or cash flows.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements 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
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
Item 13. Certain Relationships and Related Transactions
Information in response to this Item is incorporated herein by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the most recent fiscal year covered by this
Form 10-K.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) (1) Consolidated Financial Statements Page or Method of Filing
--------------------------------- ------------------------
<S> <C>
(i) Consolidated Financial Statements and Pages 22 through 43
Notes to Consolidated Statements of
the Registrant, including Consolidated
Balance Sheets as of December 31,
1996 and 1995 and Consolidated
Statements of Operations,
Shareholders' Equity and Cash
Flows for each of the three years
ended December 31, 1996, 1995
and 1994.
(ii)Report of Deloitte & Touche LLP Page 21
</TABLE>
(a) (2) Consolidated Financial Statement Schedules
------------------------------------------
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
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ILX Incorporated
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of ILX Incorporated
and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 25, 1997
21
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,523,047 $ 3,746,518
Notes receivable, net (Notes 2, 6, 10, 11 and 14) 11,745,720 8,785,487
Resort property held for timeshare sales
(Notes 3, 10, and 11) 15,247,587 14,851,856
Resort property under development (Notes 5 and 10) 1,209,706 1,119,080
Land held for sale 1,547,493 1,545,184
Deferred assets (Notes 4 and 6) 313,346 451,496
Property and equipment , net (Note 7) 4,877,467 3,175,420
Deferred income taxes (Note 8) 1,178,653 1,887,021
Other assets 1,631,886 2,190,451
------------ ------------
$ 41,274,905 $ 37,752,513
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 2,310,600 $ 2,313,638
Accrued and other liabilities (Note 9) 3,476,135 3,296,029
Genesis funds certificates 1,182,087 1,366,843
Due to affiliates (Notes 6, 12, and 16) 139,715 440,629
Notes payable (Note 10) 14,867,096 11,689,945
Notes payable to affiliates (Note 11) 1,567,287 1,837,912
------------ ------------
23,542,920 20,944,996
------------ ------------
Minority Interests (Note 12) 2,556,865 3,032,415
------------ ------------
Commitments (Note 13)
Shareholders' Equity (Notes 14 and 15)
Preferred stock, $10 par value;
10,000,000 shares authorized;
392,109 and 411,483 shares issued and
outstanding; liquidation preference of $3,921,090
and $4,114,830, respectively 1,419,243 1,515,134
Common stock, no par value;
40,000,000 shares authorized; 13,024,290
and 12,625,757 shares issued and outstanding 9,788,738 9,322,375
Treasury stock, at cost, 30,000 and 20,000
shares, respectively (36,536) (25,032)
Additional paid in capital 78,300 35,190
Retained earnings 3,925,375 2,927,435
------------ ------------
15,175,120 13,775,102
------------ ------------
$ 41,274,905 $ 37,752,513
============ ============
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Revenues: 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales of timeshare interests $ 19,639,194 $ 21,353,758 $ 18,713,970
Resort operating revenue 11,136,591 8,868,344 8,764,558
Sales of land and other 377,524 1,856,947 2,472,141
Interest income 997,500 627,081 402,596
------------ ------------ ------------
32,150,809 32,706,130 30,353,265
------------ ------------ ------------
Cost of sales and operating expenses:
Cost of timeshare interests sold 6,594,190 7,825,662 6,592,684
Cost of resort operations 10,596,007 9,354,382 7,807,857
Cost of land sold and other 327,220 1,664,971 1,955,631
Advertising and promotion 7,184,738 6,675,598 5,941,761
General and administrative 2,591,525 4,106,180 3,198,604
Provision for doubtful accounts 590,653 1,235,417 764,065
------------ ------------ ------------
27,884,333 30,862,210 26,260,602
------------ ------------ ------------
Operating income 4,266,476 1,843,920 4,092,663
Interest expense (Notes 10 and 11) (1,975,110) (1,265,227) (666,141)
------------ ------------ ------------
Income before income taxes 2,291,366 578,693 3,426,522
Income tax (expense) benefit (678,822) 547,216 161,799
------------ ------------ ------------
Income before minority interests 1,612,544 1,125,909 3,588,321
Minority interests (Note 12) (561,428) (501,246) (1,440,034)
------------ ------------ ------------
Net income $ 1,051,116 $ 624,663 $ 2,148,287
============ ============ ============
Net income per common and
equivalent share $ 0.08 $ 0.05 $ 0.17
============ ============ ============
Number of common and equivalent shares 12,949,285 12,710,837 12,463,246
============ ============ ============
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Preferred Stock
------------------------ Paid In ----------------------
Shares Amount Capital Shares Amount
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 12,083,618 $ 8,681,349 $ 30,000 438,175 $ 1,673,028
Net income
Issuance of common stock for acquisition 123,000 123,000
Other issuance of common stock 24,616 29,232
Exchange of preferred stock
for common stock 12,100 20,038 (7,260) (20,038)
Exercise of options 162,586 121,135
Exchange of preferred stock
for lodging certificates (245) (2,450)
Exercise of cash options (595) (1,785) (357) (1,785)
----------------------------------------------------------
Balances, December 31, 1994 12,405,325 8,972,969 30,000 430,313 1,648,755
Net income
Issuance of common stock for acquisition 120,000 240,000
Other issuance of common stock 86,100 86,212
Exchange of preferred stock
for common stock 12,540 20,766 (7,524) (20,766)
Issuance of cumulative shares for
dividend arrearage 1,857 2,613
Exchange of preferred stock
for lodging certificates 5,190 (11,267) (112,670)
Exercise of cash options (65) (185) (39) (185)
Acquisition of treasury shares
----------------------------------------------------------
Balances, December 31, 1995 12,625,757 9,322,375 35,190 411,483 1,515,134
Net income
Other issuance of common stock 372,500 423,875
Exchange of preferred stock
for common stock 22,525 37,301 (13,515) (37,301)
Issuance of cumulative shares for
dividend arrearage 3,508 5,187
Exchange of preferred stock
for lodging certificates 4,760 (824) (8,240)
Redemption of preferred stock 38,350 (5,035) (50,350)
Payment of dividends
Acquisition of treasury shares
----------------------------------------------------------
Balances, December 31, 1996 13,024,290 $ 9,788,738 $ 78,300 392,109 $ 1,419,243
==========================================================
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
[CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
Reatained
Earnings/ Treasury Stock
Accumulated ----------------------
Deficit Shares Amount Total
-------------------------------------------------
<S> <C> <C>
Balances, December 31, 1993 $ 157,118 $ $10,541,495
Net income 2,148,287 2,148,287
Issuance of common stock for acquisition 123,000
Other issuance of common stock 29,232
Exchange of preferred stock
for common stock
Exercise of options 121,135
Exchange of preferred stock
for lodging certificates (2,450)
Exercise of cash options (3,570)
-------------------------------------------------
Balances, December 31, 1994 2,305,405 12,957,129
Net income 624,663 624,663
Issuance of common stock for acquisition 240,000
Other issuance of common stock 86,212
Exchange of preferred stock
for common stock
Issuance of cumulative shares for
dividend arrearage (2,633) (20)
Exchange of preferred stock
for lodging certificates (107,480)
Exercise of cash options (370)
Acquisition of treasury shares (20,000) (25,032) (25,032)
-------------------------------------------------
Balances, December 31, 1995 2,927,435 (20,000) (25,032) 13,775,102
Net income 1,051,116 1,051,116
Other issuance of common stock 423,875
Exchange of preferred stock
for common stock
Issuance of cumulative shares for
dividend arrearage (5,207) (20)
Exchange of preferred stock
for lodging certificates (3,480)
Redemption of preferred stock (12,000)
Payment of dividends (47,969) (47,969)
Acquisition of treasury shares (10,000) (11,504) (11,504)
-------------------------------------------------
Balances, December 31, 1996 $ 3,925,375 (30,000) $(36,536) $15,175,120
=================================================
</TABLE>
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,051,116 $ 624,663 $ 2,148,287
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Undistributed minority interest 531,370 501,246 760,306
Deferred income taxes 708,368 (603,842) (885,408)
Additions to notes receivable (11,586,822) (12,727,015) (10,333,377)
Proceeds from sale of notes receivable 8,035,936 9,457,007 9,490,042
Provision for doubtful accounts 590,653 1,235,417 764,065
Depreciation and amortization 476,467 696,062 1,425,792
Amortization of guarantee fees 72,100 100,350 140,550
Change in assets and liabilities:
Decrease (increase) in resort property held for timeshare sales 532,072 (4,397,799) 870,858
Increase in resort property under development (90,626) (417,680) (1,735,592)
Increase (decrease) in land held for sale (2,309) 127,984 1,440,765
Decrease (increase) in other assets 356,893 (296,028) (862,965)
(Decrease) increase in accounts payable (3,038) 731,979 (218,535)
Decrease in Genesis funds certificates (184,756) (245,614) (568,559)
Increase in accrued and other liabilities 138,450 2,149,550 569,187
(Decrease) increase in due to affiliates (200,914) (543,905) 255,658
Decrease in deferred income -- (365,195) (91,704)
------------ ------------ ------------
Net cash provided by (used in) operating activities 424,960 (3,972,820) 3,169,370
------------ ------------ ------------
Cash flows from investing activities:
Decrease (increase) in deferred assets 66,050 198,153 (353,251)
Purchases of plant and equipment (35,577) (84,237) (581,435)
Net cash paid for Class A minority interest -- -- (371,250)
------------ ------------ ------------
Net cash provided by (used in) investing activities 30,473 113,916 (1,305,936)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 5,693,139 9,593,122 6,165,996
Proceeds from notes payable to affiliates -- 900,000 --
Principal payments on notes payable (5,416,266) (5,841,405) (6,006,073)
Principal payments on notes payable to affiliates (370,625) (742,672) (567,074)
Distribution to minority partners (937,534) -- --
Proceeds from issuance of common stock 423,875 86,212 122,767
Acquisition of treasury stock and other (11,524) (25,422) (3,570)
Redemption of preferred stock (12,000) -- --
Preferred stock dividend payments (47,969) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (678,904) 3,969,835 (287,954)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (223,471) 110,931 1,575,480
Cash and cash equivalents at beginning of year 3,746,518 3,635,587 2,060,107
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,523,047 $ 3,746,518 $ 3,635,587
============ ============ ============
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities
for the year ended December 31, 1996:
Acquisition of resort property held for timeshare sales:
Increase in notes payable $ 564,138
Increase in resort property held for timeshare sales (750,000)
-----------
Net cash paid for resort property under development $ (185,862)
===========
Purchase of resort property held for timeshare sales:
Increase in notes payable $ 363,665
Increase in resort property held for timeshare sales (363,665)
-----------
$ -
===========
Purchase of majority interest in subsidiary:
Increase in notes payable $ 2,152,475
Increase in accrued and other liabilities 38,176
Increase in property and equipment (2,141,337)
Decrease in minority interests (69,386)
Increase in other assets (4,928)
-----------
Net cash paid for majority interest in subsidiary $ (25,000)
===========
Sale of property and equipment:
Decrease in property and equipment $ 180,000
Decrease in notes payable (180,000)
-----------
$ -
===========
Exchange of due to affiliates for note payable to affiliate:
Increase in notes payable to affiliates $ 100,000
Decrease in due to affiliates (100,000)
-----------
$ -
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock $ 37,301
Reduction in Series C Preferred Stock (37,301)
-----------
$ -
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $ 3,480
Increase in paid in capital 4,760
Reduction in Series A Preferred Stock (8,240)
-----------
$ -
===========
See notes to consolidated financial statements
26
<PAGE>
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of noncash investing and financing activities
for the year ended December 31, 1995:
<TABLE>
<S> <C>
Acquisition of resort property held for timeshare sales:
Increase in notes payable $ 1,300,000
Issuance of common stock 240,000
Increase in other assets (10,000)
Increase in resort property held for timeshare sales (1,580,000)
-----------
Net cash paid for resort property held for timeshare sales $ (50,000)
===========
Purchase of resort property held for timeshare sales:
Increase in notes payable $ 481,397
Increase in resort property held for timeshare sales (481,397)
-----------
$ -
===========
Acquisition of resort property under development:
Increase in notes payable $ 701,400
Increase in resort property under development (1,002,000)
-----------
Net cash paid for resort property under development $ (300,600)
===========
Sale of property and equipment:
Decrease in property and equipment $ 500,000
Increase in other assets (180,000)
Decrease in notes payable (320,000)
-----------
$ -
===========
Purchases of plant and equipment
Increase in notes payable $ 123,753
Increase in property and equipment (123,753)
-----------
$ -
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock $ 20,766
Reduction in Series C Preferred Stock (20,766)
-----------
$ -
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $ 107,480
Increase in paid in capital 5,190
Reduction in Series A Preferred Stock (112,670)
-----------
$ -
===========
</TABLE>
See notes to consolidated financial statements
27
<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)
-----------
$ -
===========
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)
-----------
$ -
===========
Exchange of Series C Preferred Stock for common stock:
Issuance of common stock $ 20,038
Reduction in Series C Preferred Stock (20,038)
-----------
$ -
===========
Redemption of Series A Preferred Stock:
Issuance of certificates for room nights $ 2,450
Reduction in Series A Preferred Stock (2,450)
-----------
$ -
===========
Tax benefit on exercise of stock options
Increase in common stock $ 27,600
Reduction in taxes payable (27,600)
-----------
$ -
===========
See notes to consolidated financial statements
28
<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 located in
Arizona, Colorado, Florida, Indiana and Mexico. Effective in the third quarter
of 1994, the Company expanded its operations to include marketing of skin and
hair care products which are not considered significant to resort operations.
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 declared dividends on Series A Preferred
Stock and undeclared dividends on Series C Preferred Stock.
Resort Property Held for Timeshare Sales
- ----------------------------------------
Resort property held for timeshare sales is recorded at the lower of: (i)
historical cost less amounts charged to cost of sales for timeshare sales and
depreciation, for years prior to 1996, provided for on the basis of daily rental
occupancy; or (ii) 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 fair value less cost to
sell, consistent with the Company's intention to liquidate these properties.
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.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and are depreciated on the
straight-line method over their respective estimated useful lives ranging from 3
to 30 years. Property and equipment under capitalized leases are stated at fair
value as of the date placed in service, and amortized on the straight-line
method over the term of the lease.
29
<PAGE>
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, 1996, 1995 and 1994,
the Company paid interest of approximately $1,745,900, $1,271,000 and $716,000
and income taxes of approximately $17,000, $221,000 and $723,000, respectively.
Interest of $95,269 and $228,000 was capitalized during 1996 and 1995 to resort
property under development.
Accounting Matters
- ------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), which is effective for fiscal years beginning
after December 15, 1995. During 1996, SFAS 121 was adopted and had no
significant impact on the Company's financial position, results of operations,
or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. During 1996, the Company chose the option to continue
applying APB Opinion No. 25 to its stock based compensation awards to employees.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"), which is effective for fiscal years beginning
after December 31, 1996. The Company does not believe the adoption of SFAS 125
will have a significant impact on the Company's financial position, results of
operations, or cash flows.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
- -----------------
The financial statements for prior periods have been reclassified to be
consistent with the 1996 financial statement presentation.
Note 2 - Notes Receivable
Notes receivable consist of the following:
December 31,
----------------------------
1996 1995
------------ ------------
Timeshare receivables $ 10,559,309 $ 7,913,111
Holdbacks by financial institutions 3,481,061 2,736,882
Genesis mortgage receivables 275,347 546,394
Allowance for possible credit losses (2,569,997) (2,410,900)
------------ ------------
$ 11,745,720 $ 8,785,487
============ ============
Notes generated from the sale of timeshare interests bear interest at annual
rates ranging from 11% 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
30
<PAGE>
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.
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, 1996 and 1995, the Company
had approximately $22 million and $20 million in outstanding notes receivable
sold on a recourse basis. Portions of the notes receivable are secured by deeds
of trust on Los Abrigados Resort & Spa, Golden Eagle Resort and Varsity Clubs of
America - Notre Dame. Notes may be sold at discounts to yield the consumer
market rate as defined by the financial institution.
At December 31, 1996, the Company had a $5,000,000 commitment issued by a
financing company through March 1998, and an open ended arrangement expected to
provide at least $5,000,000 through 1997, to sell, on a recourse basis, consumer
notes receivable generated from sales of timeshare interests at Los Abrigados
Resort & Spa. At December 31, 1996, approximately $4.2 million remained
available on the fixed commitment lines and $2.4 million on the open ended
commitment. The Company also has financing commitments whereby it may borrow up
to $2 million against non-conforming notes receivable generated from sales of
timeshare interests in Los Abrigados Resort & Spa, Golden Eagle Resort, Kohl's
Ranch and Varsity Clubs of America - Notre Dame, and $2.2 million against
non-conforming notes from sales of interval interests in Golden Eagle Resort
through March 1998. Approximately $2.2 million was available under these
commitments at December 31, 1996.
The Company 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 September 1997. Approximately
$5.3 million was available under this commitment at December 31, 1996.
The Company also has a financing commitment whereby it may borrow up to $10
million against conforming notes received from sales of timeshare interests in
Kohl's Ranch through August 1997. Approximately $7.9 million was available on
this commitment at December 31, 1996.
At December 31, 1996 and 1995, the Company had approximately $188,000 and
$181,000, respectively, in additional outstanding notes sold on a recourse basis
to related parties.
At December 31, 1996, notes receivable in the amount of approximately $334,000
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 $2,570,000 and
$2,411,000 at December 31, 1996 and 1995, includes approximately $440,000 and
$400,000, respectively, for notes sold with recourse. Total write-offs of notes
deemed uncollectible were $432,000 and $87,000 in 1996 and 1995, respectively.
Note 3 - Resort Property Held for Timeshare Sales
Resort property held for timeshare sales consists of the following projects:
December 31,
-------------------------
1996 1995
----------- -----------
Los Abrigados Resort & Spa $ 4,325,052 $ 3,883,064
The Inn at Los Abrigados 773,911 --
Golden Eagle Resort 2,242,947 2,029,287
Kohl's Ranch Lodge 2,110,012 1,939,879
Varsity Clubs of America - Notre Dame 5,692,165 6,915,206
Costa Vida Resort 40,500 18,420
Ventura Resort 63,000 66,000
----------- -----------
$15,247,587 $14,851,856
=========== ===========
Resort properties are stated net of accumulated depreciation of $906,000 at
December 31, 1996 and 1995.
31
<PAGE>
In September 1994, the Company acquired for $15,000 an option from an affiliate
to purchase 667 previously sold timeshare interests in Los Abrigados Resort &
Spa. The terms of the option agreement provide that the seller may sell to the
Company or the Company may acquire from the seller up to 25 intervals per month
and, in addition, up to one half of the remainder of the 667 intervals per year,
for $2,100 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 Company had purchased 275 intervals under this
option as of December 31, 1996.
In June 1995, the Company acquired Kohl's Ranch Lodge, a ten 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 restricted common stock valued at $2 per share.
The Company has made improvements to the property and commenced timeshare sales
in July 1995.
Varsity Clubs of America Incorporated, a wholly-owned subsidiary of ILX, intends
to develop lodging accommodations in areas located near major university
campuses, and to market those lodging accommodations, including interval
ownership interests, to alumni and other sport enthusiasts. The first Varsity
Clubs of America facility, located near the University of Notre Dame, was
completed in August 1995. Revenues of $513,400, net of related selling costs of
$148,205, were deferred at December 31, 1994 and were recognized in 1995 when
construction was complete.
In September 1995, the Company, through a subsidiary, entered into a
non-recourse 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 obtained a financing commitment from one of its existing lenders for $5
million in acquisition and development non-recourse financing, which, if
fulfilled by the lender, was expected to be sufficient to acquire and construct
the suites, and $30 million in receivables financing through September 1998. An
affiliate of the seller and the lender filed for bankruptcy protection in 1996,
casting uncertainty as to the consummation of the acquisition. (Note 9).
The Company acquired approximately one-half acre of improved property, to be
known as the Inn at Los Abrigados, adjacent to Los Abrigados Resort & Spa, in
September 1996 for a purchase price of $750,000, consisting of a $185,862 cash
down payment and a $564,138 first deed of trust.
Note 4 - Red Rock Collection
Red Rock Collection Incorporated, an Arizona corporation ("Red Rock Collection")
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 18).
Note 5 - Resort Property Under Development
In July 1995, the Company acquired for $1,002,000 a two acre parcel in Tucson,
Arizona, near the University of Arizona, to be the site of a second Varsity
Clubs of America. The Company made a down payment of $300,600 and the seller is
carrying the balance, which was $491,981 at December 31, 1996. Construction of
the facility is expected to commence in 1998. The Company has a commitment for
construction financing in the amount of $6 million, which, if fulfilled by the
lender, is expected to be sufficient to build and furnish the property. $300,000
has been borrowed against this commitment as of December 31, 1996 for payment of
the land acquisition costs. (Note 10).
Note 6 - Deferred Assets
December 31,
-------------------
1996 1995
-------- --------
Deferred assets consist of the following:
Varsity Clubs of America loan fees and land deposits $ 25,946 $ 91,946
Guarantee fees 287,400 359,550
-------- --------
$313,346 $451,496
======== ========
32
<PAGE>
As part of the acquisition of Los Abrigados Resort & Spa, 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 Resort & Spa timeshare interest sold. The balance due to one
affiliate was converted to a note payable in 1996 for full satisfaction of the
balance owed (Notes 11 and 16) and the balance due to the other affiliate is due
in 1997. The amounts payable on the guarantee fee included in due to affiliates
at December 31, 1996 and 1995, are $89,075 and $390,951, respectively.
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, 1996 and 1995, notes receivable are shown net of $44,000 and $118,000,
respectively, related to this amount.
Note 7 - Property and Equipment
Property and equipment consists of the following:
December 31,
-------------------------------
1996 1995
----------- -----------
Land $ 1,658,500 $ --
Buildings and improvements 3,290,834 2,795,746
Leasehold improvements 498,198 500,148
Furniture and fixtures 415,714 440,202
Office equipment 269,129 253,444
Computer equipment 156,611 151,105
Vehicles 26,829 26,829
----------- -----------
6,315,815 4,167,474
Accumulated depreciation (1,438,348) (992,054)
----------- -----------
$ 4,877,467 $ 3,175,420
=========== ===========
In March 1996, the Company, through a subsidiary, became the 75% general partner
of the limited partnership that owns Lomacasi Cottages in Sedona, Arizona, a
5.27 acre property approximately one mile from Los Abrigados Resort & Spa. The
Company acquired its partnership interest for a $25,000 capital contribution.
The property is classified as property and equipment at December 31, 1996. The
balance sheet of the partnership at March 1, 1996 was as follows:
Assets
Cash $ 20,000
Property and equipment 2,116,337
Other assets 9,928
-----------
$ 2,146,265
===========
Liabilities and Partners' Equity
Accounts payable $ 22,862
Accrued and other liabilities 50,164
Notes payable 2,117,625
-----------
2,190,651
-----------
Partners' capital (44,386)
$ 2,146,265
===========
33
<PAGE>
Note 8 - Income Taxes
Deferred income tax assets (liabilities) included in the consolidated balance
sheet consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables $ 871,000 $ 805,000
Inventory costs capitalized for tax purposes 36,000 36,000
Tax basis in excess of book on resort property held for
timeshare sales 494,000 735,000
Book recognition of startup costs in excess of tax 270,000 281,000
Intangible assets capitalized for tax purposes 21,000 24,000
Minority interest allocation in excess of tax 270,000 238,000
Alternative minimum tax credit 121,000 56,000
Net operating loss carryforwards 1,822,000 1,439,000
Other 5,000 3,000
----------- -----------
Total deferred tax assets 3,910,000 3,617,000
----------- -----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes (2,595,000) (1,628,000)
Tax amortization of loan fees in excess of book (136,000) (102,000)
----------- -----------
Total deferred tax liabilities (2,731,000) (1,730,000)
----------- -----------
Deferred Taxes $ 1,179,000 $ 1,887,000
=========== ===========
</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:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Federal, computed on income before minority
interest and income taxes $ 779,000 $ 197,000 $ 1,165,000
Minority interest (191,000) (170,000) (490,000)
State, computed on income after minority interest
and before income taxes 91,000 58,000 119,000
Deferred tax adjustment -- 128,000 --
Decrease in valuation allowance -- (760,000) (956,000)
----------- ----------- -----------
Income tax expense (benefit) $ 679,000 $ (547,000) $ (162,000)
=========== =========== ===========
</TABLE>
In 1994, due to the profitability of Los Abrigados Resort & Spa, the improvement
in the Arizona real estate market and the development of tax strategies, which
include the acquisition by Genesis of timeshare interests in resort properties
that have historically been sold on a profitable basis, it was concluded that
more likely than not a portion of the Genesis net operating loss carryforwards
and the remainder of Los Abrigados Resort & Spa tax benefits would be utilized.
Accordingly, the valuation allowance was reduced in 1994. In 1995, due to the
continued expansion and profitability of timeshare activity it was determined
that the balance of the Genesis NOL's would be utilized and the remaining
valuation allowance was eliminated.
At December 31, 1996, ILX, excluding Genesis, had net operating loss ("NOL")
carryforwards of approximately $2,385,000 which expire in 2001 through 2012. At
December 31, 1996, Genesis had federal NOL carryforwards of approximately
$2,455,000 which expire in 2008 and state NOL carryforwards of $562,000 which
expire in 1998. The Genesis 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 Genesis.
Note 9 - Accrued and Other Liabilities
In November 1995, the Company entered into a management agreement with one of
its timeshare lenders whereby the lender committed to advance $3.5 million,
provide strategic planning and consultation with
34
<PAGE>
respect to timeshare sales of 3,500 Los Abrigados intervals, and reduce holdback
requirements on timeshare paper purchased by the lender. During 1996, the
Company received an additional $900,000 pursuant to the management agreement,
leaving a balance to be advanced at December 31, 1996 of approximately $1.1
million. However, an affiliate of the lender filed for bankruptcy protection in
1996, and while the Company has been informed that said proceedings do not
involve the lender with which the Company conducts business, the lender has
failed to fund advances requested by the Company. It is the Company's position
that the management agreement, as previously amended, has been anticipatorily
breached by the lender and its affiliates. The Company is of the opinion that
while further advances under the management agreement are not likely to occur,
the bankruptcy will have no additional material impact on the Company's ability
to obtain timeshare financing from the lender or alternate sources. Any future
payments under the management agreement received by the Company will be applied
to mitigate present and future damages sustained by the Company by virtue of the
breach by the lender and its affiliates of the management agreement and other
loan transactions between the Company, its subsidiaries and affiliates, and the
lender and its affiliates. The Company will negotiate a settlement with the
lender or pursue legal remedies.
Note 10 - Notes Payable
<TABLE>
<CAPTION>
Notes payable consist of the following: December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Construction note payable, collateralized by deed of trust on Varsity Clubs
of America - Notre Dame, interest at 13%, due through 1998 $ 2,797,733 $ 4,186,869
Note payable, collateralized by notes receivable and deed of trust on Kohl's
Ranch Lodge, interest at prime plus 4%
(12.25% at December 31, 1996), due through 2003 1,787,228 338,849
Note payable, collateralized by second deed of trust on Lomacasi Cottages,
interest at 8% through November 1997, increasing .5% annually through
1999, due through 2010 1,620,658 --
Note payable, collateralized by deed of trust on Los Abrigados Resort & Spa,
interest at prime plus 1.25% (9.5% at
December 31, 1996), due through 1998 1,572,167 805,000
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 1,449,990 1,549,990
Note payable, collateralized by notes receivable and deed of trust on Golden
Eagle Resort, interest at prime plus 4%
(12.25% at December 31, 1996), due through 2002 1,068,541 1,195,716
Note payable, collateralized by deed of trust on Kohl's Ranch Lodge, interest at
prime plus 1.25% (9.5% at December 31, 1996),
due through 1998 584,500 853,500
Note payable, secured by first deed of trust on the Inn at Los Abrigados,
interest at prime plus 4% (12.25% at December 31, 1996),
due through 2000 564,138 --
Note payable, collateralized by first deed of trust on Lomacasi Cottages,
interest at 12.5%, due through 2000 536,184 --
Note payable, collateralized under contract for sale on land in Tucson,
Arizona, interest at 9.75%, due through 1998 491,981 701,400
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Note payable, collateralized by Los Abrigados Resort & Spa consumer notes
receivable, interest at prime plus 5% (13.25% at December 31, 1996),
due through 2003 330,953 --
Construction note payable, secured by Tucson land, interest at 13%,
due in full 36 months from date of the final loan draw 300,000 --
Note payable, collateralized by Kohl's Ranch consumer notes receivable,
interest at prime plus 5% (13.25% at December 31, 1996) due through 2003 265,489 --
Note payable, collateralized by second deed of trust on Kohl's
Ranch Lodge, interest at 8%, due through 2000 190,450 334,800
Note payable, collateralized by notes receivable and deed of trust on Los
Abrigados Resort & Spa, interest at prime plus 4%
(12.25% at December 31, 1996), due through 1998 140,668 246,828
Note payable, collateralized by Varsity Clubs of America - Notre Dame consumer
notes receivable, interest at prime plus 5% (13.25% at
December 31, 1996), due through 2003 135,840 --
Note payable, collateralized by deed of trust, interest
at 7.375%, due through 2001 54,996 63,701
Note payable, interest at 8%, due through 1997 13,959 --
$500,000 revolving line of credit, unsecured, interest
at prime plus 2% (10.25% at December 31, 1996), due 1997 -- 145,000
$500,000 revolving line of credit, unsecured, interest
at prime plus 1.5% (9.75% at December 31, 1996), due 1997 -- --
Obligations under capital leases with interest at 9.5% to 14.7% (Note 17) 906,309 884,498
Other 55,312 42,953
Notes payable repaid during 1996 -- 340,841
----------- -----------
$14,867,096 $11,689,945
</TABLE>
Future maturities of notes payable are as follows:
Year ending
December 31,
-----------
1997 $ 3,669,627
1998 5,207,547
1999 2,897,205
2000 1,338,426
2001 133,633
Thereafter 1,620,658
-----------
$14,867,096
===========
Scheduled future maturities may be prepaid to the extent that payments made of
$1,000 per Los Abrigados Resort & Spa timeshare interest, $2,180 per Varsity
Clubs of America - Notre Dame timeshare interest and $800 per Kohl's Ranch
timeshare interest sold exceed the scheduled payments on the loans. Any prepaid
amounts will be applied to the scheduled payments in chronological order of
maturity.
36
<PAGE>
Note 11 - Notes Payable to Affiliates
Notes payable to affiliates consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Note payable, collateralized by LAP partnership interest, interest
at 8%, due through 1999 $ 909,078 $ 927,868
Notes payable, collateralized by 220 timeshare interests in Los
Abrigados Resort & Spa, interest at 10%, due December 1999 430,000 580,000
Note payable, collateralized by notes receivable, interest at 14%,
due through 1997 128,209 266,218
Note payable, unsecured, interest at 10%, due through 1999 100,000 --
Notes payable repaid during 1996 -- 63,826
---------- ----------
$1,567,287 $1,837,912
========== ==========
</TABLE>
Future maturities of notes payable to affiliates are as follows:
Year ending
December 31,
------------
1997 $ 128,209
1998 --
1999 1,439,078
----------
$1,567,287
==========
Total interest expense on notes payable to affiliates for the years ended
December 31, 1996, 1995 and 1994 was approximately $158,000, $222,000 and
$141,000.
Note 12 - Minority Interests
Minority interests at December 31, 1996, include interests in LAP, the Arizona
limited partnership which owns and operates Los Abrigados Resort & Spa, and
interests in The Sedona Real Estate Limited Partnership #1 ("SRELP"), which owns
Lomacasi Cottages in Sedona, of $2,766,545 and ($209,680), respectively.
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 holds a 78.5% interest in LAP
at December 31, 1996. The 21.5% minority interest at December 31, 1996, is held
by the Class B limited partners whose capital contributions of $500,000 bear
interest at 13.5%, payable quarterly.
Included in due to affiliates at December 31, 1996 and 1995, is approximately
$17,000 in Class B interest.
A reconciliation of LAP minority interests from 1994 to 1996 is as follows:
Balance December 31, 1994 $ 2,440,249
Income allocated to Class B Partners 374,632
-----------
Balance December 31, 1995 2,814,881
Income allocated to Class B Partners 671,664
Distribution to Class B Partners (720,000)
-----------
Balance December 31, 1996 $ 2,766,545
===========
The SRELP minority interest consists of the limited partners' capital
contributions and the limited partners' interests in the results of operations.
37
<PAGE>
Note 13 - Commitments
Future minimum lease payments on noncancelable operating leases are as follows:
Year ending
December 31,
------------
1997 $ 271,193
1998 201,022
1999 189,192
2000 162,808
2001 104,864
------------
$ 929,079
============
Total rent expense for the years ended December 31, 1996, 1995 and 1994, was
approximately $443,000, $490,000 and $449,000.
Note 14 - Shareholders' Equity
Preferred Stock
- ---------------
At December 31, 1996 and 1995, preferred stock includes 60,152 and 66,011 shares
of the Company's Series A Preferred Stock carried at $601,520 and $660,110,
respectively. The Series A Preferred Stock has a par value and liquidation
preference of $10 per share and, commencing July 1, 1996, is entitled to annual
dividend payments of $.80 per share. Dividends of $47,969 were paid in 1996.
Commencing January 1, 1993, on a quarterly basis, the Company must contribute
$100 per timeshare interest sold in Los Abrigados Resort & Spa to a mandatory
dividend sinking fund. At December 31, 1996, notes receivable in the amount of
approximately $334,000 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. The Company purchased 5,035 shares
of Series A Preferred Stock for $12,000 in 1996.
At December 31, 1996 and 1995, 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.
Both the Series A and Series B preferred stock may, at the holder's election, be
exchanged for Los Abrigados Resort & Spa timeshare interests at the rate of
1,000 shares of stock plus $2,100 cash per timeshare interest. Through September
1996, these shares could also have been exchanged for lodging certificates under
certain conditions.
At December 31, 1996 and 1995, preferred stock includes 276,957 and 290,472
shares of the Company's Series C Convertible Preferred Stock carried at $762,723
and $800,024, respectively. 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 Genesis 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 1996, 1995 and 1994, 13,515, 7,524 and
7,260 Series C convertible shares were exchanged for 22,525, 12,540 and 12,100
common shares, respectively. During 1996 and 1995, 3,508 and 1,857 common shares
were issued to exchanging shareholders for their 1996 and 1995 dividend
arrearage,
38
<PAGE>
respectively. 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 February 1994, the Company issued to affiliated minority interest
shareholders 123,000 shares of restricted common stock, valued at $1 per share,
which was at a discount of $.56 under the approximate market price at the date
of issuance, in exchange for their minority interest in Red Rock Collection.
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 and remain unexercised at December 31, 1996.
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.
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 in 1995 and 50,000 shares in 1996. The shares were
valued at $1.1875 per share and the cost was 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. During
1996, options for 250,000 shares were exercised at $1.25. Effective January 1,
1997, the Company entered into a new consulting agreement, for similar services,
through June 1997. In exchange for the services to be provided, the Company
granted options for 500,000 shares of common stock at $1.25 per share
exercisable through June 1997, at an exercise price of $1.25. (Note 18).
In June 1995, the Company issued 120,000 shares of restricted common stock,
valued at $2 per share, which was the approximate market price at the date of
issuance, in conjunction with the acquisition of Kohl's Ranch Lodge (Note 3).
During 1995 and 1994, Genesis shareholders elected to receive $370 and $3,570 in
cash, and accordingly, Series C Preferred Stock and Common Stock were each
reduced by $185 and $1,285, respectively.
During 1996 and 1995, the Company acquired 10,000 and 20,000 shares of its
common stock for $11,504 and $25,037, respectively. The acquired shares have
been recorded as treasury stock.
During 1996 and 1995, the Company granted 72,500 and 36,100 shares of restricted
common stock valued at $52,000 and $26,837, respectively, to employees in
exchange for services provided.
Note 15 - Employee Stock Option Plan
The Company has adopted 1987, 1992 and 1995 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 1,341,376 shares.
39
<PAGE>
Stock option transactions are summarized as follows:
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
Options granted 550,000
Options canceled (5,000)
--------
Outstanding at December 31, 1995 873,000
Options exercised (250,000)
Options canceled (293,000)
--------
Outstanding at December 31, 1996 330,000
========
The exercise price on the options exercised during 1994 was $.40 per share for
62,586 shares and $.685 for 100,000 shares. The exercise price for options
granted in 1995 ranged from $1.25 to $1.625 per share and includes options for
50,000 shares granted to directors, and for options granted in 1994 ranged from
$1.625 to $2.00 per share. The exercise price for options exercised in 1996 was
$1.25 per share for 250,000 shares. The exercise price for options outstanding
at December 31, 1996, ranged from $1.50 to $1.625 per share. Options outstanding
at December 31, 1996, have expiration dates as follows:
Year Ending Options for
December 31, Shares
------------ -----------
1997 3,000
1999 62,500
2000 50,000
2004 214,500
-------
330,000
=======
Note 16 - Related Party Transactions
In addition to the related party transactions described in notes 2, 3, 6, 11,
12, 14 and 15, the Company had the following related party transactions:
The Company leased from affiliates through October 1, 1996, 41 timeshare
interests in the Stonehouse at Los Abrigados Resort & Spa at the rate of $1,000
per timeshare unit per year. The Company paid $30,750, $41,000 and $41,000 per
year in lease payments to affiliates for the years ended December 31, 1996, 1995
and 1994. The affiliates pay maintenance fees to the Company on an annual basis
for their ownership intervals of $714 per interval in 1996, $650 per interval in
1995 and $375 per interval in 1994.
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.
In June 1995, an affiliate of the Company purchased twenty-four (24) one night
intervals in Varsity Clubs of America - Notre Dame for $90,000.
In December 1995, in exchange for modification of the terms of the note payable
to the affiliate, the Company provided the affiliate with an option to convert,
at maturity, the $927,868 note balance into shares of ILX common stock at the
price of $2 per share (Note 11).
In December 1995, in exchange for modification of the terms of note payables to
affiliates, the Company provided the affiliates the option to convert, at
maturity, the $580,000 note balances into shares of ILX common stock at the
price of $2 per share (Note 11).
In December 1995, the Company sold its Red Rock Collection building to an
affiliate for $500,000. The purchase price consisted of a reduction in the
principal balance of the Company's note payable to the
40
<PAGE>
affiliate of $320,000 in December 1995, and, in January 1996, payment by the
affiliate of the $180,000 note secured by a deed of trust on the building. (Note
10). The Company leased back the building for a one year term, with four one
year options to renew through December 2000. Rent of $44,000 was paid in 1996.
In January 1996, an affiliate of the Company agreed to accept a discounted
payment of $60,000 cash and $100,000 in a promissory note as full satisfaction
of a remaining obligation of the Company to such affiliate of $173,225 in
guarantee fees and $44,073 in holdbacks. The note was paid in full in January
1997. (Note 11).
In September 1996, the Company purchased from an affiliate twenty timeshare
intervals in the Stonehouse at Los Abrigados Resort & Spa for $260,000.
Subsequently, the affiliate purchased 52 timeshare intervals in Kohl's Ranch for
$260,000.
Note 17 - Capital Leases
Leased assets included in resort property held for timeshare sales and property
and equipment totaled $1,097,720 and $900,150 (net of accumulated amortization
of $369,880 and $227,527) at December 31, 1996 and 1995, respectively. The
leases expire through 2000. Future minimum lease payments at December 31 are as
follows:
1997 $ 363,799
1998 336,104
1999 272,749
2000 108,934
----------
Total 1,081,586
Less amounts representing interest 175,277
----------
Net minimum lease payments $ 906,309
==========
Note 18 - Subsequent Events
Texas Capital Securities
- ------------------------
Effective January 1997, the Company entered into a one year consulting agreement
for financial and business advisory services, subject to extension on a
month-to-month basis at the option of the Company. In exchange for the services
to be provided, the Company granted options for up to 500,000 shares of common
stock. Options for 250,000 of the shares are exercisable at a price of $1.25 per
share on or before June 30, 1997. If these options are exercised in full,
options for up to 125,000 shares are exercisable at a price of $1.75 per share
on or before September 30, 1997. If these options are also exercised in full,
options for the remaining 125,000 shares are exercisable at a price of $2 per
share on or before December 15, 1997. If the Company extends the consulting
agreement beyond its initial one year term, the December 15, 1997 date will be
extended concurrently.
Investor Resource Services, Inc./Universal Solutions, Inc.
- ----------------------------------------------------------
During 1996, 250,000 in options granted under a 1995 consulting agreement were
exercised at $1.25 per share. Effective January 1, 1997, the Company entered
into a new consulting agreement, for similar services, through June 1997. In
exchange for the services to be provided, the Company granted options for
500,000 shares of common stock at $1.25 per share exercisable through June 1997.
(Note 14).
Pursuant to these agreements, the Company filed a Registration Statement on Form
S-3 on February 27, 1997 and Amendment No. 1 to Form S-3 on March 13, 1997.
41
<PAGE>
Sedona Worldwide and Red Rock Collection Incorporated
- -----------------------------------------------------
Effective January 1, 1997, ILX and Red Rock Collection entered into personal
service agreements (the "Personal Service Agreements") with celebrity Debbie
Reynolds and her son, Todd Fisher. The Personal Service Agreements provide,
among other things, that Ms. Reynolds will endorse the Red Rock Collection line
of face, body, bath and hair care products. Pursuant to the Personal Service
Agreements and related documents, each of Ms. Reynolds and Mr. Fisher are to
receive from ILX 70,000 shares of the 700,000 issued and outstanding shares of
Red Rock Collection common stock as partial consideration thereunder.
Also under the Personal Service Agreements, ILX agreed that, within sixty (60)
days from the issuance of such stock to Ms. Reynolds and Mr. Fisher, which
issuance has not yet occurred, ILX would distribute to the existing ILX
shareholders the common stock of Red Rock Collection equal to thirty percent
(30%) of the then issued and outstanding Red Rock Collection common stock. The
Personal Service Agreements further provide that (i) ILX shall undertake
promptly to register the common stock of Red Rock Collection with the Securities
and Exchange Commission with a view to listing the stock on the National
Association of Securities Dealers Automatic Quotation System (NASDAQ) and (ii)
either concurrently with such registration or by separate registration, and upon
the advice of its underwriters, Red Rock Collection would undertake a public
offering of between $2 million and $5 million.
In November 1996, ILX activated a wholly-owned subsidiary, Sedona Worldwide
Incorporated ("SWW") (formerly "Red Rock Worldwide Incorporated"). Pursuant to a
Contribution Agreement to be effective as of January 1, 1997, all of the issued
and outstanding shares of Red Rock Collection are to be exchanged for shares of
SWW, at a rate of four shares of SWW for each share of Red Rock Collection. As a
part of that agreement, SWW is to assume Red Rock Collection's obligations under
the Personal Service Agreements and ILX is to undertake the various Red Rock
Collection stock transfers and registrations using SWW stock rather than Red
Rock Collection stock.
Red Rock Collection products primarily have been marketed through resort
properties owned and operated by ILX. This resort-based sales program includes
an upscale amenities line, an in-room gift basket promotion and retail product
sales at ILX resort venues. Red Rock Collection products are also used by ILX
and its subsidiaries as tour promotion incentives. The products are given as
gifts to individuals who attend timeshare tours and presentations. Red Rock
Collection then markets by direct mail to the resort and tour customers who have
received and/or used the Red Rock Collection products. Red Rock Collection is
considering other marketing opportunities, including promotional activities
utilizing Ms. Reynolds.
ILX and SWW intend to offer additional product lines through SWW, including
jewelry, artwork and apparel.
Debbie Reynolds Hotel & Casino, Inc.
- ------------------------------------
On October 30, 1996, ILX entered into a definitive agreement with Debbie
Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC") and Debbie Reynolds
Resorts, Inc., a Nevada corporation ("DRC") whereby ILX can acquire, among other
assets, the physical assets constituting the Debbie Reynolds Hotel & Casino in
Las Vegas, Nevada (the "Hotel"). The purchase price for the assets is
$16,800,000 and is payable by issuance to DRHC of $7,500,000 worth of federally
registered shares of ILX's Common Stock valued for purposes of the transaction
at $2.00 per share (totaling 3,750,000 shares), as well as payment of $4,200,000
in cash, which ILX intends to borrow from third-party lenders to whom ILX
believes it will be required to provide recourse mortgages against ILX's assets,
and ILX's assumption of $5,100,000 in mortgage indebtedness, which ILX believes
likely would be recourse to ILX's assets. The Hotel consists of 193 rooms in a
twelve-story structure situated on over six acres. Hotel amenities include the
Debbie Reynolds Hollywood Movie Museum, Debbie's Star Theater, food and beverage
facilities, a pool and a spa, and space for full-service casino. Forty-three of
the hotel rooms have recently been renovated and established as timeshare units,
providing the opportunity to market up to 2,193 timeshare interests in the
Hotel, of which approximately one-half have been sold by the current owners. As
part of the agreement, Debbie Reynolds would continue to perform and make
regularly scheduled appearances at the Hotel. If the transaction is consummated,
ILX would offer timeshare interests, would conduct hotel operations, and would
lease to Debbie Reynolds or her nominee for 99 years facilities that include the
showroom, casino
42
<PAGE>
space, museum, gift shop, back bar and certain joint use areas for an
approximate lease fee of $150,000 per month, which is at a rate that DRHC has
indicated would not likely be profitable for DRHC to undertake.
Consummation of the contemplated transaction is contingent upon approval by the
shareholders of DRHC, satisfaction of various conditions by the sellers, and a
due diligence investigation by ILX.
Note 19 - Quarterly Financial Data (Unaudited)
Quarterly financial information is presented in the following summary:
<TABLE>
<CAPTION>
1996
----
Three months ended
--------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $7,472,586 $8,367,012 $8,472,019 $7,839,192
Operating income 788,308 1,026,305 1,536,058 915,805
Net income 97,548 254,423 498,787 200,358
Net income per share .01 .02 .03 .02
1995
----
Three months ended
--------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Revenues $6,857,839 $ 8,185,738 $ 8,455,525 $ 9,207,028
Operating income 933,672 1,364,513 487,849 (942,114)
Net income 402,565 644,621 492,913 (915,436)
Net income per share .03 .05 .04 (.07)
</TABLE>
The reduced operating income and net income in the fourth quarter of 1995 is due
primarily to write-offs of bond offering costs and VCA land deposits and
associated costs.
Note 20 - Disclosures About Fair Values of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
The carrying value of cash and cash equivalents, notes receivable, accounts
payable, notes payable and notes payable to affiliates are a reasonable estimate
of their fair value.
43
<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, thereunto duly authorized, on the
25th day of March, 1997.
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 Chairman of the Board As of March 25, 1997
- ------------------------
Joseph P. Martori
/s/ Nancy J. Stone President, Chief Financial Officer As of March 25, 1997
- ------------------------
Nancy J. Stone and Director
/s/ Denise L. Janda Vice President and Controller As of March 25, 1997
- ------------------------
Denise L. Janda
/s/ Edward J. Martori Director As of March 25, 1997
- ------------------------
Edward J. Martori
/s/ Ronald D. Nitzberg Director As of March 25, 1997
- ------------------------
Ronald D. Nitzberg
/s/ Steven R. Chanen Director As of March 25, 1997
- ------------------------
Steven R. Chanen
/s/ James W. Myers Director As of March 25, 1997
- ------------------------
James W. Myers
/s/ Edward S. Zielinski Director As of March 25, 1997
- ------------------------
Edward S. Zielinski
/s/ Michael W. Stone Director As of March 25, 1997
- ------------------------
Michael W. Stone
44
<PAGE>
Exhibits
to
1996 Form 10-K
ILX INCORPORATED
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C> <C>
3 (i)-1 Articles of Incorporation of Incorporated by reference to
International Leisure Enterprises Exhibit 3-A of S-1
Incorporated, filed October 8, 1986 No. 33-16122
3 (i)-2 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3-C of 1990 10-K
Enterprises Incorporated, filed August 31, 1987
3 (i)-3 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3(i)-3 of 1994 10-K/A-3
Enterprises Incorporated, filed October 19, 1987
3 (i)-4 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3(i)-4 of 1994 10-K/A-3
Enterprises Incorporated, filed May 3, 1990
3 (i)-5 Articles of Amendment to the Articles Incorporated by reference to
of Incorporation of International Leisure Exh. 3-C(a) of 1993 10-K
Enterprises Incorporated (Changed by
this Amendment to ILX Incorporated),
filed June 28, 1993
3 (ii)-1 Amended and Restated Bylaws of International Incorporated by reference to
Leisure Enterprises Incorporated, dated Exh. 3-D of 1990 10-K
October 26, 1987
4-1 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series A Preferred Stock, Exh. 10-81 of 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991
4-2 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series B Preferred Stock, Exh. 10-82 of 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991
4-3 Certificate of Designation of Series C Preferred Incorporated by reference to
Stock, filed April 30, 1993 Exh. 10-118 of 1993 10-K
10-1 1987 Stock Option Plan Incorporated by reference to
Exh. 10-1 of S-1
No. 33-16122
10-2 1992 Stock Option Plan Incorporated by reference to
Exh. 10-97 of 1992 10-K
<PAGE>
10-3 1995 Stock Option Plan Incorporated by reference to
Exh. 10-4 of 1995 10-K
10-4 Agreement to Purchase Series B Preferred Stock Incorporated by reference to
between Wm. Robert Burns and Paige Phillips Exh. 10-94 of 1992 10-K
Burns and International Leisure Enterprises
Incorporated, dated May 1, 1992
10-5 Agreement and Plan of Merger among ILE Incorporated by reference to
Acquisition Corporation, International Leisure Exh. 10-105 of 1992 10-K
Enterprises Incorporated and Genesis Investment
Group, Inc., dated March 15, 1993
10-6 First Amendment to Agreement and Plan of Incorporated by reference to
Merger between ILE Acquisition Corporation, Exh. 10-105(a) of 1993 10-K
International Leisure Enterprises Incorporated
and Genesis Investment Group Inc., dated
April 22, 1993
10-7 Agreement among ILX Incorporated, Martori Enterprises Incorporated by reference to
Incorporated, Los Abrigados Partners Limited Partnership, Exhibit 10-8 of 1995 10-K
Red Rock Collection Incorporated, Edward John Martori and
Joseph P. Martori as Trustee for Cynthia J. Polich Irrevocable
Trust dated June 1, 1989, dated December 29, 1995
10-8 Lease Agreement between Edward John Martori and Red Incorporated by reference to
Rock Collection Incorporated, dated December 29, 1995 Exhibit 10-10 of 1995 10-K
10-9 Stock Purchase Agreement between Martori Incorporated by reference to
Enterprises Incorporated and ILX Incorporated, Exh. 10-116 of 1993 10-K
dated December 30, 1993
(Red Rock Collection Incorporated)
10-10 Stock Purchase Agreement between Alan R. Incorporated by reference to
Mishkin and Carol Mishkin, and ILX Incorporated, Exh. 10-117 of 1993 10-K
dated December 30, 1993
(Red Rock Collection Incorporated)
10-11 First Amended Certificate of Limited Partnership Incorporated by reference to
and Amended Agreement of Los Abrigados Exh. 10-77 of 1991 10-K
Partners Limited Partnership, dated
September 9, 1991
10-12 Certificate of Amendment of Limited Partnership Incorporated by reference to
for Los Abrigados Partners Limited Partnership, Exh. 10-6 of 1994 10-K/A-3
dated November 11, 1993
10-13 Certificate of Amendment of Limited Partnership Incorporated by reference to
for Los Abrigados Partners Limited Partnership, Exh. 10-7 of 1994 10-K/A-3
dated July 1, 1994
<PAGE>
10-14 First Amendment to Amended Agreement of Incorporated by reference to
Los Abrigados Partners Limited Partnership, Exh. 10-18 of 1995 10-K
dated February 9, 1996
10-15 Purchase and Sale Agreement between Edward Incorporated by reference to
J. Martori, Martori Enterprises Incorporated, Exh. 10-8 of 1994 10-K/A-3
Jerome M. White, Guadalupe Iniguez (as Trustee),
Wedbush Morgan Securities (IRA), and Joseph
P. Martori (as Trustee) and ILX Incorporated,
dated July 1, 1994
10-16 Amendment to Purchase and Sale Agreement Incorporated by reference to
between Edward J. Martori, Martori Enterprises Exh.10-11 of 1994 10-K/A-3
Incorporated, Wedbush Morgan Securities
(IRA), and Joseph P. Martori (as Trustee) and
ILX Incorporated, dated January 3, 1995
10-17 Agreement between BIS-ILE Associates, Arthur Incorporated by reference to
J. Martori and Alan R. Mishkin, dated Exh. 10-72 of 1990 10-K
March 28, 1991
10-18 Supplemental Agreement between BIS-ILE Incorporated by reference to
Associates, Arthur J. Martori and Alan R. Mishkin, Exh. 10-72 (a) of 1990 10-K
dated March 28, 1991
10-19 Guarantee Fee Agreement between Los Abrigados Incorporated by reference to
Partners Limited Partnership and Arthur J. Exh. 10-79 of 1991 10-K
Martori and Alan R. Mishkin, dated
September 9, 1991
10-20 Promissory Note ($900,000) to Cynthia J. Polich Irrevocable Incorporated by reference to
Trust and Edward John Martori by Los Abrigados Partners Exh. 10-1 9/30/95 10-Q/A
Limited Partnership and ILX Incorporated, dated July 27, 1995
10-21 Deed of Trust and Assignment of Rents to Cynthia J. Polich Incorporated by reference to
Irrevocable Trust and Edward John Martori by Los Abrigados Exh. 10-2 9/30/95 10-Q/A
Partners Limited Partnership, dated July 27, 1995
10-22 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and International Leisure Enterprises Exh. 10-91 of 1991 10-K
Incorporated, dated January 13, 1992
10-23 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and Los Abrigados Partners Limited Exh. 10-96 of 1992 10-K
Partnership, dated August 31, 1992
10-24 Financing and Security Agreement between Incorporated by reference to
Martori Enterprises Incorporated and International Exh. 10-109 of 1993 10-K
Leisure Enterprises Incorporated, dated May 15, 1993
<PAGE>
10-25 Secured Promissory Note and Security Agreement Incorporated by reference to
and Financing Statement between Martori Exh. 10-110 of 1993 10-K
Enterprises Incorporated and International
Leisure Enterprises Incorporated, dated
June 11, 1993
10-26 Loan Agreement ($5,000,000) between The Incorporated by reference to
Valley National Bank and Los Abrigados Exh. 10-76 of 1991 10-K
Partners Limited Partnership,
dated September 9, 1991
10-27 Modification Agreement ($5,000,000) between Incorporated by reference to
Bank One, Arizona, NA and Los Abrigados Exh. 10-114 of 1993 10-K
Partners Limited Partnership,
dated October 22, 1993
10-28 Second Modification Agreement ($5,000,000) Incorporated by reference to
between Bank One, Arizona, NA and Los Exh.10-43 of 1994 10-K/A-3
Abrigados Partners Limited Partnership,
dated October 4, 1994 (additional advance
including repayment of prior $750,000 loan)
10-29 Third Modification Agreement ($5,000,000) Incorporated by reference to
between Bank One, Arizona, NA and Los Exh. 10-49 of 1995 10-K
Abrigados Partners Limited Partnership,
dated January 25, 1996 (additional advance)
10-30 Secured Promissory Note ($2,485,000) to Bank Incorporated by reference to
One, Arizona, NA by Los Abrigados Partners Exh. 10-50 of 1995 10-K
Limited Partnership, dated January 25, 1996
10-31 Letter of Commitment between Tammac Financial Incorporated by reference to
Corp. and Los Abrigados Partners Limited Exh.10-52 of 1994 10-K/A-3
Partnership, dated July 20, 1994
10-32 Financing Agreement between Tammac Financial Incorporated by reference to
Corp. and Los Abrigados Partners Limited Exh. 10-88 of 1991 10-K
Partnership, dated September 10, 1991
10-33 Amendment to Commitment Letter, Financing Incorporated by reference to
Agreement and Reaffirmation of Various Loan Exh. 10-88 (a) of 1993 10-K
Documents between Tammac Financial
Corp., Los Abrigados Partners Limited
Partnership and International Leisure Enterprises
Incorporated, dated March 31, 1993
10-34 Third Amendment to Financing Agreement between Incorporated by reference to
Tammac Financial Corp. and Los Abrigados Exh.10-55 of 1994 10-K/A-3
Partners Limited Partnership, dated September 7, 1994
<PAGE>
10-35 Fourth Amendment to Financing Agreement and Reaffirmation Incorporated by reference to
of Loan Documents between Tammac Financial Corp. and Exhibit 10-1 of 9/30/96 10-Q
Los Abrigados Partners Limited Partnership and
ILX Incorporated dated as of September 7, 1996
10-36 Contract of Sale of Membership Agreements and Incorporated by reference to
Installment Purchase Agreements with Recourse Exh. 10-112 of 1993 10-K
between Resort Funding, Inc. and Los Abrigados
Partners Limited Partnership, dated
September 14, 1993
10-37 Management Agreement between Bennett Funding Incorporated by reference to
International, Ltd. and Los Abrigados Partners Limited Exh 10 (c) S-2 No. 33-61477
Partnership, ILE Sedona Incorporated, and ILX Incorporated
dated November 21, 1995 (Los Abrigados Resort)
10-38 Letter of Commitment between Tammac Financial Corp. Incorporated by reference to
and ILX Incorporated, dated June 19, 1995 (Kohl's Ranch) Exh. 10-5 6/30/95 10-Q/A-2
10-39 Loan and Security Agreement between Tammac Financial Incorporated by reference to
Corp. and ILX Incorporated, dated August 25, 1995 Exh. 10-4 9/30/9510-Q/A
(Kohl's Ranch)
10-40 Promissory Note ($10,000,000) to Tammac Financial Corp. Incorporated by reference to
by ILX Incorporated, dated August 25, 1995 (Kohl's Ranch) Exh. 10-3 9/30/95 10-Q/A
10-41 Letter of Commitment between Tammac Financial Incorporated by reference to
Corp. and ILX Incorporated, dated July 20, 1994 Exh.10-57 of 1994 10-K/A-3
(Golden Eagle Resort)
10-42 Loan and Security Agreement between Tammac Incorporated by reference to
Financial Corp. and ILX Incorporated, dated Exh.10-58 of 1994 10-K/A-3
September 7, 1994
(Golden Eagle Resort)
10-43 Amended and Restated Financing Agreement Incorporated by reference to
between Tammac Financial Corp. and ILX Exh.10-60 of 1994 10-K/A-3
Incorporated, dated September 7, 1994
(Golden Eagle Resort)
10-44 First Amendment to Loan and Security Agreement Incorporated by reference to
between Tammac Financial Corp. and Exh. 10-2 of 9/30/96 10-Q
ILX Incorporated dated as of September 7, 1996
(Golden Eagle Resort)
10-45 Amended and Restated Promissory Note Incorporated by reference to
to Tammac Financial Corp. by ILX Incorporated Exh. 10-3 of 9/30/96 10-Q
dated as of September 7, 1996
(Golden Eagle Resort)
<PAGE>
10-46 Letter of Commitment between Bennett Funding Incorporated by reference to
International, Ltd. and VCA South Bend Incorporated, Exh.10-62 of 1994 10-K/A-3
dated August 18, 1994
10-47 Construction Loan Agreement between Bennett Funding Incorporated by reference to
International, Ltd. and VCA South Bend Incorporated, Exh.10-63 of 1994 10-K/A-3
dated October 4, 1994
10-48 Construction Promissory Note ($5,000,000) to Bennett Incorporated by reference to
Funding International, Ltd. by VCA South Bend Exh.10-64 of 1994 10-K/A-3
Incorporated, dated October 4, 1994
10-49 Contract of Sale of Timeshare Receivables with Incorporated by reference to
Recourse between Bennett Funding International, Exh.10-66 of 1994 10-K/A-3
Ltd. and VCA South Bend Incorporated, dated
August 18, 1994
10-50 Agreement for Purchase and Sale of Incorporated by reference to
Debbie Reynolds Hotel & Casino between Exh. 10-4 of 9/30/96 10-Q
Debbie Reynolds Hotel & Casino, Inc. and
Debbie Reynolds Resorts, Inc. and
ILX Incorporated dated October 30, 1996
10-51 Warrant Agreement (50,000 Shares of Common Incorporated by reference to
Stock) between Lawrence S. Held and ILX Exh.10-33 of 1994 10-K/A-3
Incorporated, dated March 31, 1994
10-52 Warrant Agreement (50,000 Shares of Common Incorporated by reference to
Stock) between Jerome M. White and ILX Exh.10-34 of 1994 10-K/A-3
Incorporated, dated March 31, 1994
10-53 Consulting Agreement between Investor Resource Incorporated by reference to
Services, Inc. and ILX Incorporated Exh. 10 of 1/1/97 8-K
dated January 1, 1997
10-54 Consulting Agreement between Incorporated by reference to
Texas Capital Securities and ILX Incorporated Exhs. 10A,B,C of 1/7/97 8-K
dated January 7, 1997
21-1 List of Subsidiaries of ILX Incorporated
27-1 The Registrant's 1996 Financial Data Schedule
</TABLE>
ILX INCORPORATED SUBSIDIARY LIST
Note: All are wholly-owned unless otherwise noted *
Corporate Entities:
AVC Development Incorporated, an Arizona corporation
Genesis Investment Group, Inc., an Arizona corporation
Capital Reserve Fund, Inc.
Harbor Southwest Development, Inc., an Arizona corporation
High Income Fund, Inc., an Arizona corporation
Laveen Properties, Inc., an Arizona corporation
Lomacasi Resort Incorporated, an Arizona corporation
Pilot Service Corp., an Arizona corporation
Short Term Fund, Inc., an Arizona corporation
Syracuse Project Incorporated, an Arizona corporation
Golden Eagle Realty, Inc., a Colorado corporation
Golden Eagle Resort, Inc., an Arizona corporation
ILE Florida, Inc., an Arizona corporation
Southern Vacations, Inc., a Florida corporation
ILE Sedona , an Arizona corporation
Kohl's Ranch Water Company, an Arizona corporation
Red Rock Collection Incorporated, an Arizona corporation
Sedona Worldwide Incorporated, an Arizona corporation
SHI Health Institute Incorporated, an Arizona corporation
Varsity Clubs of America Incorporated, an Arizona corporation
VCA Iowa Incorporated, an Arizona corporation
VCA Management Incorporated, an Arizona corporation
VCA South Bend Incorporated, an Arizona corporation
VCA Tucson Incorporated, an Arizona corporation
Partnerships/Joint Ventures:
*Los Abrigados Partners Limited Partnership, an Arizona limited
partnership
Note: ILE Sedona Incorporated is General Partner (71%); and ILX
Incorporated is Class A Limited Partner(7.5%)
*Orangemen Club Limited Partnership, a New York limited partnership
Note: Syracuse Project Incorporated is General Partner (80%)
*The Sedona Real Estate Limited Partnership #1, an Arizona limited
partnership
Note: Lomacasi Resort Incorporated is General Partner (75%)
VCASB Partners General Partnership, an Arizona general partnership
Note: General partners are VCA South Bend Incorporated (50%) and
ILX Incorporated (50%)
Non-Profit Entities:
Arizona Vacation Club, an Arizona non-profit corporation
Golden Eagle Resort Condominium Association, Inc., a Colorado non-
profit corporation
Kohl's Ranch Owners Association, an Arizona non-profit corporation
Sedona Vacation Club Incorporated, an Arizona non-profit corporation
Varsity Clubs of America--Iowa Chapter, an Arizona non-profit
corporation
Varsity Clubs of America--Norman, Oklahoma, an Arizona non-profit
corporation
Varsity Clubs of America--South Bend Chapter, an Arizona non-profit
corporation
Varsity Clubs of America--Tucson Chapter, an Arizona non-profit
corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS DECEMBER 31, 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 819551
<NAME> ILX Incorporated
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,523,047
<SECURITIES> 0
<RECEIVABLES> 14,315,717
<ALLOWANCES> 2,569,997
<INVENTORY> 18,004,786
<CURRENT-ASSETS> 33,273,553
<PP&E> 6,315,815
<DEPRECIATION> 1,438,348
<TOTAL-ASSETS> 41,274,905
<CURRENT-LIABILITIES> 5,786,735
<BONDS> 16,434,383
0
1,419,243
<COMMON> 9,752,202
<OTHER-SE> 78,300
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</TABLE>
