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
For the fiscal year ended December 31, 1997
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act
of 1934
For the transition period from _______________ to _______________
Commission File Number 001-13855
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ILX RESORTS 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 American Stock
Exchange, Inc.
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, 1998
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Common Stock, without par value 2,589,373 shares
At January 31, 1998, 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, was approximately $9.4 million.
Portions of Registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the end of the most recent fiscal year covered by this Form 10-K are
incorporated in Part III as set forth in said Part.
<PAGE>
ILX RESORTS INCORPORATED
1997 Form 10-K Annual Report
Table of Contents
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<S> <C>
PART I 3
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Items 1 and 2. Business and Properties 3
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II 17
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22
PART III 23
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Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV 24
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
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PART I
This Form 10-K contains certain "forward-looking statements," including
statements regarding, among other items, the Company's growth strategy, industry
and demographic trends, the Company's ability to finance its operations and
anticipated trends in its business. Actual results could differ materially from
these forward-looking statements as a result of a number of factors, including,
but not limited to, the Company's need for additional financing, intense
competition in various aspects of its business, the risks of rapid growth, its
dependence on key personnel and other factors.
Items 1 and 2. Business and Properties
The Company
ILX Resorts Incorporated ("ILX or the "Company") is one of the leading
developers, marketers and operators of timeshare resorts in the western United
States. The Company's principal operations consist of (i) acquiring, developing
and operating timeshare resorts, marketed by the Company as vacation ownership
resorts, (ii) marketing and selling vacation ownership interests in the
timeshare resorts, which typically have entitled the buyers thereof to ownership
of a fully-furnished unit for a one-week period on either an annual or an
alternate year (i.e., biennial) basis ("Vacation Ownership Interests"), and
(iii) providing purchase money financing to the buyers of Vacation Ownership
Interests at its resorts. In addition, the Company receives revenues from the
rental of its unused or unsold inventory of units at its vacation ownership
resorts, and from the sale of food, beverages and other services at such
resorts. The Company's current portfolio of resorts consists of four resorts in
Arizona, one in Indiana, and one in Colorado, and the Company is constructing a
seventh resort in Tucson, Arizona (collectively, the "ILX Resorts"). At December
31, 1997, the ILX Resorts (excluding the Tucson property currently under
construction) represented an aggregate of 391 units and 20,171 sold and unsold
one-week Vacation Ownership Interests. Upon completion of the Tucson property
currently under construction, the Company expects to own an aggregate of 453
units, comprising 23,395 (sold and unsold) one-week Vacation Ownership
Interests. The Company also markets additional interests, which consisted, at
December 31, 1997, of an aggregate of approximately 84 Vacation Ownership
Interests in destination resorts owned by others and located in Florida, Mexico
and elsewhere, and the rights to market Vacation Ownership Interests in four
destination resorts owned by an unaffiliated third party and located on the
island of Kauai, Hawaii (collectively, the "Additional Interests").
The Company was founded in 1986 and commenced implementation of its
current operating and growth strategies in the fourth quarter of 1991. During
the period from December 31, 1991 through December 31, 1997, the Company
increased the number of ILX Resorts from two to seven, and increased its total
inventory of sold and unsold Vacation Ownership Interests from 9,915 weeks to
23,479 weeks (including 3,224 under construction at VCA-Tucson and the 84
Additional Interests). The Company's total revenues increased from $6.1 million
in 1991 to $36.4 million in 1997. During this period, the Company's growth was
fueled principally by the acquisition, redevelopment and expansion of certain
ILX Resorts and the marketing and sale of Vacation Ownership Interests in these
resorts.
The Company believes it was able to purchase the ILX Resorts and the
Additional Interests at relatively attractive prices because of its skill in
locating, identifying and acquiring distressed or underdeveloped resorts and
Vacation Ownership Interests. The Company successfully utilized this strategy in
connection with Los Abrigados in Sedona, Arizona (175 units), the Kohl's Ranch
Lodge in Payson, Arizona (52 units) and, most recently, the Roundhouse Resort in
Pinetop/Lakeside, Arizona (59 existing units owned by current owners of Vacation
Ownership Interests and planned expansion of approximately 100 units).
Utilizing management's development expertise, the Company developed and
implemented the Varsity Clubs concept. This concept entails ground-up
development of urban vacation ownership properties strategically situated in
tourist destinations which are accessible to major population centers near
prominent colleges and universities. The first Varsity Club, VCA-South Bend,
consisting of 62 units, was completed in August 1995 and is located
approximately three miles from the University of Notre Dame in South Bend,
Indiana. Construction of a second Varsity Club, VCA-Tucson, consisting of 62
planned units, located near the University of Arizona in Tucson, Arizona, is
scheduled for completion in April 1998. The scope of the Company's activities
since 1991 have enabled the Company's management team, which has significant
experience in the vacation ownership resort and real estate development
industries, to establish substantial in-house capabilities in areas critical to
the Company's operating and growth strategies, including property identification
and acquisition, property development and rehabilitation, and Vacation Ownership
Interest sales and marketing.
The Company is pursuing a two-pronged operating strategy which focuses
on marketing Vacation Ownership Interests in the Company's convenient access
resorts ("CARs") and in its Varsity Clubs. CARs are typically high-quality
vacation ownership
3
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resorts situated in settings of natural beauty and located within convenient and
inexpensive travelling distance from major population centers (currently Phoenix
and Denver). The Company's CARs are intended to facilitate more frequent
"short-stay" getaways, which the Company believes is an increasingly popular
vacation trend. As of December 31, 1997, the Company operated five CARs
consisting of 329 units and held 5,355 unsold Vacation Ownership Interests in
those CARS. The Company's inventory of CARs has been marketed primarily by ILX
employees at the Company's on-site sales offices located at or near selected ILX
Resorts.
Although purchasers will continue to be able to purchase Vacation
Ownership Interests at any individual ILX Resort or an Additional Interest,
commencing in 1998, the Company's inventory of CARs will also be marketed
through membership interests in its proprietary branded Premiere Vacation Club.
The Premiere Vacation Club will offer purchasers a deeded one-week membership
interest which may be used at any time between certain specified dates at any
one of the ILX Resorts included in the Premiere Vacation Club, or may be split
into multiple stays of shorter duration at any combination of such resorts. In
addition, Premiere Vacation Club membership interests may be exchanged for a
stay at other resorts through the major national exchange networks in which ILX
Owners may participate, such as RCI and II. Substantially all of the Company's
inventory of Vacation Ownership Interests, including those at its Varsity Clubs
and those to be included in the Premiere Vacation Club, qualify as "red time,"
the highest demand classification for purposes of participation in such exchange
networks. The Company believes that its Premiere Vacation Club concept will be
appealing to customers because of its emphasis on flexible use options (e.g.,
floating days, two-day uses and the ability to split a purchased membership
interest), locations within convenient driving distances from major metropolitan
areas and other features (e.g., high quality amenities and food and beverage
discounts at its participating ILX Resorts).
In addition to marketing through its Premiere Vacation Club, the
Company intends to aggressively pursue the expansion of its proprietary branded
Varsity Club concept. The Company will focus on development of additional
Varsity Clubs in areas with a significant base of existing tourism and access to
major population centers, which are located near prominent colleges and
universities in the western United States. The Company completed construction
and commenced operations of its prototype Varsity Club property, VCA-South Bend,
located near the University of Notre Dame, in 1995. Construction of a second
Varsity Club, VCA-Tucson, located near the University of Arizona in Tucson,
Arizona, is expected to be completed in April 1998. The Company intends to
develop its Varsity Club properties at attractive locations for visiting
tourists who may rent accommodations or purchase a Vacation Ownership Interest
from the Company. In connection with the purchase of a Vacation Ownership
Interest, Varsity Clubs offer area residents an urban "city club" experience
with unlimited day-use privileges, as well as the opportunity to participate in
the II Vacation Ownership Interest exchange network. The Company believes that
Varsity Clubs offer features common to a "city club", including a fitness
center, swimming pool, bar, restaurant/ lounge, billiards and large
sitting/welcome room. In addition, the Varsity Clubs concept enables the Company
to enlarge the Company's target list of potential purchasers by utilizing an
identification with the local university to market Vacation Ownership Interests
to alumni, sports season ticket holders, parents of university students and
corporate sponsors of university events, among others, who attend the sporting,
academic and cultural events regularly hosted by various universities, thereby
enlarging the Company's target base of potential purchasers. Varsity Clubs offer
a flexible ownership structure which permits the purchase of Vacation Ownership
Interests consisting of a single day, a collection of single days (such as
selected days during an entire specified sports season) or a traditional
one-week period, in addition to unlimited use of the common areas for "city
club" use. The Company believes that direct marketing to a large target base of
potential purchasers with university affiliations will enable the Company to
achieve premium pricing with respect to those-portions of its inventory which
coincide with high demand for accommodations at prominent university-sponsored
events. The Company also believes that its success in gaining access to alumni
and other target potential purchasers with relationships to the University of
Notre Dame or the University of Arizona may facilitate similar arrangements with
other universities in the areas in which future Varsity Clubs are developed.
During 1997, the Company sold 2,512 annual and biennial Vacation
Ownership Interests at the ILX Resorts, compared to 2,320 and 2,195 during 1996
and 1995, respectively. The average sales price for a Vacation Ownership
Interest (excluding sales of Upgrades) was $10,994 for an annual interest and
$6,506 for a biennial interest, resulting in a weighted average price of $11,963
(each biennial interest is treated as one-half of an annual interest) during the
year ended December 31, 1996 and $11,444 for an annual interest and $6,899 for a
biennial interest, resulting in a weighted average price of $12,656 during the
year ended December 31, 1997. At December 31, 1997, the Company had an existing
inventory of 7,105 unsold Vacation Ownership Interests (including Vacation
Ownership Interests in the CARS, VCA-South Bend and the Additional Interests)
and a master plan, subject to consumer demand, receipt of applicable permits and
other contingencies generally applicable to real estate development, to
construct up to 11,438 (including 3,224 to be constructed at VCA-Tucson)
additional Vacation Ownership Interests through 1999 and thereafter at the
existing ILX Resorts.
4
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The Resorts
The table below sets forth certain information, as of December 31,
1997, with respect to the ILX Resorts. The information set forth below does not
include the Company's planned expansion of the ILX Resorts or development of
additional Varsity Clubs and CARs, except for VCA-Tucson, construction of which
has commenced and for which all governmental permits have been obtained. As
described in Note 9 of the Notes to Consolidated Financial Statements, all of
the Company's resorts are encumbered by one or more deeds of trust.
<TABLE>
<CAPTION>
Size of
Units(2) Resort Amenities
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Restaurant/ Whirlpool/ Swimming Fitness Local
Resorts(l) Location S 1BR 2BR Lounge Spa Pool Center Amenities(3)
- ---------- -------- - --- --- ----------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Convenient Access Resorts
Los Abrigados Resort & Spa Sedona, AZ 158 17 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V
The Inn at Los Abrigados Sedona, AZ 9 1 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V
Kohl's Ranch Lodge Payson, AZ 42 4 6 1/2 Y Y Y B,BB,C,D,
F,FW,G,H,
Sh,TH,V
Roundhouse Resort Pinetop/
Lakeside, AZ 19 30 10 1/1 Y Y Y C,FW,G,
H,MT,SS,
TH
Golden Eagle Resort Estes Park, CO 9 21 3 1/1 Y Y N BL,D,F,
FW,G,H,
__ ___ __ Sh,TH
Total CARs 79 213 37
Varsity Clubs of America
VCA - South Bend South Bend, IN 3 54 5 1/1 Y Y Y B,BB,BL,
D,G,M,
MT,Sh,UC
VCA - Tucson Tucson, AZ 4 46 12 1/1 Y Y Y BL,D,G,M,
MT,Sh,T,
__ ___ __ UC
Total Varsity Clubs 7 100 17
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Total 86 313 54
== === ==
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(1) Information regarding the Additional Interests has not been included in
the following chart, as the Company only owns a number of, or has
rights to market, Vacation Ownership Interests at such resorts and does
not own any of such resorts.
(2) "S" indicates studio unit; "1 BR" indicates one-bedroom unit; "2 BR"
indicates two-bedroom unit. Units with the same number of bedrooms may
vary in size and amenities.
(3) B - Basketball, BB - Bocce Ball, BL - Billiard, C - Casino, D - Dining,
F - Fishing, FW - Four Wheel Tours, G - Golf, H - Horseback Riding, M -
Museums, MT - Movie Theater, Sh - Shopping, SS - Snow Skiing, T -
Tennis, TH - Trail Hiking, UC - University Campus, V - Volleyball.
5
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Description of ILX Resorts
Convenient Access Resorts
Los Abrigados Resort & Spa. Los Abrigados is located in Sedona,
Arizona, approximately 110 miles from Phoenix, Arizona. This resort consists of
175 units situated on approximately 20 acres of lush landscaping and
Spanish-styled plazas, winding walkways and bridges. Los Abrigados offers one-
and two-bedroom units, each with a separate living area, bedroom, mini-kitchen
and balcony or patio. Twenty suites offer a fireplace and whirlpool spa as well.
Nine units offer full kitchenettes. The Los Abrigados resort is designed in
Southwestern decor and surrounded by the dramatic red rocks of Oak Creek Canyon.
This resort has an onsite sales office.
Amenities at the resort include four restaurants and a sports bar,
billiards emporium, library, two pools, tennis courts, sports court, basketball
court, bocce ball courts, fitness center and health spa offering a variety of
personal care services, aerobic and yoga classes, whirlpools, steam and sauna
rooms, hydrotherapy and other personal care facilities. In addition, golf,
horseback riding, jeep, helicopter and hot air balloon rides, and other outdoor
activities are easily accessible. Los Abrigados is both an II Five-Star and RCI
Gold Crown resort.
As of December 31, 1997, Los Abrigados contained 9,100 Vacation
Ownership Interests, of which 2,200 remained available for sale. In addition,
the Company has an option to acquire 107 additional Vacation Ownership Interests
at this resort. The Company believes there exist additional expansion
opportunities at and contiguous to Los Abrigados, however, no contracts, rights
or commitments exist with respect to any of such opportunities.
The Inn at Los Abrigados. The Inn at Los Abrigados is located in
Sedona, Arizona, approximately 110 miles from Phoenix, Arizona. This resort
consists of ten units adjacent to Los Abrigados. The Inn at Los Abrigados
consists of the main Morris House and nine bed and breakfast-style units in
three buildings situated amidst a former apple orchard. The Morris House
includes a multi-level luxury suite sleeping six, and features a sunken living
room, full kitchen with dining area, a loft, two full bathrooms and a private
backyard with patio and barbecue. The bed and breakfast-style units each feature
king beds, a sitting area, microwave, refrigerator, coffee maker, full bath with
shower and balcony or patio. Guests of the Inn at Los Abrigados have charge
privileges at and full use of all Los Abrigados amenities. The Inn at Los
Abrigados is an II Five-Star resort.
The Company acquired the Inn at Los Abrigados in September 1996 at a
purchase price of $750,000 and completed improvements at this resort in the
fourth quarter of 1997. The Company will begin marketing an aggregate of 510
Vacation Ownership Interests at this resort in the first quarter of 1998.
Kohl's Ranch Lodge. Kohl's Ranch is a 10.5 acre property located 17
miles northeast of Payson, Arizona and approximately 105 miles from Phoenix,
Arizona. It is bordered on the eastern side by Tonto Creek and is surrounded by
the Tonto National Forest, which is believed to be the largest stand of
Ponderosa Pines in the world. Kohl's Ranch consists of 52 units. Forty-one of
the units are at the main lodge, 8 units consist of one- and two-bedroom cabins
along Tonto Creek, and three units are part of a triplex cabin. This resort also
has an on-site sales office.
Kohl's Ranch offers a variety of common area amenities including an
outdoor heated pool, outdoor whirlpool spa, exercise room, putting green, bocce
ball court, children's playground and gazebos and sport court. Kohl's Ranch also
includes a freestanding building that contains food and beverage facilities and
space for additional retail and other operations. Each unit at the resort is
equipped with an air conditioner, telephones, color televisions and
mini-kitchenette or full kitchen, and many have a fireplace. In addition, Kohl's
Ranch offers a unique pet resort. Kohl's Ranch is an RCI resort.
As of December 31, 1997, Kohl's Ranch contained 2,704 Vacation
Ownership Interests, of which approximately 1,994 were available for sale. In
addition, the Company has expansion capabilities at Kohl's Ranch for 12
additional creekside cabin units (624 one-week Vacation Ownership Interests),
which it intends to develop in 1998.
Roundhouse Resort. The Company's recently acquired Roundhouse Resort is
located on 9.5 acres in the White Mountains of Northeastern Arizona,
approximately 190 miles from Phoenix, Arizona. Roundhouse Resort currently
consists of 59 units, all of which existed prior to the Company's acquisition of
this resort.
Amenities at the Roundhouse Resort include a restaurant, lounge and
recreation center with indoor pool, racquetball and basketball courts. In
addition, the resort is proximate to golf courses, skiing, horseback riding,
hiking and other outdoor activities.
6
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At an elevation of 7,200 feet, the Roundhouse Resort is set in a location that
offers four seasons, a distinct contrast to Arizona's arid lowlands. Roundhouse
Resort is an RCI resort.
As of December 31, 1997, the Roundhouse Resort contained 2,950 one-week
Vacation Ownership Interests, all of which were sold by the previous owners of
this resort. However, the Company intends to expand this resort through the
construction of up to 100 additional units (representing up to 5,200 Vacation
Ownership Interests) commencing with 40 units (representing 2,080 Vacation
Ownership Interests) in late 1998 or 1999.
Golden Eagle Resort. The Golden Eagle Resort is a four acre property
located in the town of Estes Park, Colorado, within three miles of Rocky
Mountain National Park and approximately 70 miles from Denver, Colorado. This
resort consists of 33 total units and is bounded generally by undeveloped
forested Mountainside land, which offer excellent mountain views from the
resort.
The Golden Eagle Resort is centered around the historic Crag's Lodge, a
four-story wood frame building constructed in the early 1900s, which serves as
the resort's main lodge. Amenities offered at this resort include a restaurant,
bar and library, as well as two other freestanding buildings containing six
guest rooms and support facilities. Each unit at Golden Eagle features a fully
equipped kitchenette, living and dining areas, television and video cassette
player. Additional amenities at this resort include a heated pool and spa as
well as local outdoor attractions. Golden Eagle Resort is an RCI resort.
As of December 31, 1997, the Golden Eagle Resort contained 1,683
one-week Vacation Ownership Interests, of which 651 were available for sale. In
addition, the Company owns one unit in a residential duplex adjacent to the
property, which is not currently available for sales of Vacation Ownership
Interests. The Company intends to construct two additional units at the resort
in 1998 or 1999 which would yield an additional 102 Vacation Ownership
Interests.
Varsity Clubs of America
VCA-South Bend. The Company's first Varsity Clubs facility is an
approximately four acre property located approximately three miles from the
University of Notre Dame and Notre Dame Stadium in South Bend, Indiana, which is
90 miles from Chicago, Illinois. The VCA-South Bend offers a total of 62 units,
consisting of studio, one- and two-bedroom suites.
Each one- and two-bedroom suite at VCA-South Bend includes a king
master bedroom, living room with sofa sleeper, kitchenette and whirlpool spa as
well as color television with premium movie channels. Common areas at the resort
include the Stadium Sports Lounge, featuring a theater-wall television in a
stadium-type setting, fitness center with whirlpool spa, outdoor heated pool,
bocce ball, children's playground, billiards room, library, gift shop, business
center and special events facilities. The Company intends VCA-South Bend to
serve as a prototype, subject to modifications and improvements, for the
expansion of the Company's Varsity Clubs concept to other suitable locations,
with additional modifications made as appropriate to suit local tastes and
preferences. VCA-South Bend is an II Five-Star resort.
As of December 31, 1997, this resort contained 3,224 one-week Vacation
Ownership Interests, of which approximately 1,666 were available for sale. The
Company anticipates expanding this resort during 1998 by constructing an
additional 24 units, thereby adding 1,248 one-week Vacation Ownership Interests.
VCA-Tucson. The two acre site for the second Varsity Club resort,
presently under construction, is in Tucson, Arizona, approximately three miles
from the University of Arizona and approximately 110 miles from Phoenix,
Arizona. Upon completion, this resort will consist of 62 units. This resort is
expected to open in April 1998.
VCA-Tucson was designed in accordance with the VCA-South Bend
prototype, with certain modifications made to improve operating efficiencies and
satisfy local tastes. Each of the planned one- and two-bedroom suites will
feature a king master bedroom, living room with sofa sleeper, kitchenette,
whirlpool spa, as well as color television with premium movie channels.
Amenities at this resort will include a Sports Lounge designed similar to that
at VCA-South Bend, the Twenty-Four Hour Sports Ticker, touchdown breakfast
buffet, Joey Pizza (a popular restaurant theme originally introduced at Los
Abrigados), billiards room, library, gift shop, fitness center, outdoor heated
pool, whirlpool spa, steam room, children's playground, bocce ball court,
business center and special events facilities. VCA-Tucson has been designated an
II Five-Star resort.
Upon its completion, VCA-Tucson will contain approximately 3,224
one-week Vacation Ownership Interests. The Company intends to begin marketing
Vacation Ownership Interests at this resort in the second quarter of 1998.
7
<PAGE>
Additional Interests
In addition to the ILX Resorts, ILX owns or is authorized pursuant to a
marketing agreement to sell a designated number of Vacation Ownership Interests
at additional resorts owned by unaffiliated third parties. At December 31, 1997,
the Company owned ten Vacation Ownership Interests at the Ventura Resort located
in Boca Raton, Florida. Purchasers of Vacation Ownership Interests at Ventura
Resort acquire deed and title to a particular unit, which entitles the purchaser
to use of the unit and to use the resort's common area during a fixed designated
time period. As of December 31, 1997, the Company also owned 38 Vacation
Ownership Interests at the Costa Vida Vallarta Resort, located on a private
beach, just minutes south of Puerto Vallarta, Mexico. Vacation Ownership
Interests in the Costa Vida Vallarta resort consist solely of contractual use
rights which expire in 2009. The Company also owns one to two Vacation Ownership
Interests in each of a number of additional resorts which it holds for resale.
In addition, the Company has entered into a marketing agreement with
Pahio Resorts, which owns and operates the Pahio at Kauai Beach Villas, Pahio at
Bali Hai Villas, Pahio at the Shearwater and Pahio at Ka' Eo Kai, each on the
island of Kauai, Hawaii. Under the marketing agreement, ILX may market and sell,
subject to regulatory approval, Vacation Ownership Interests in Pahio's four
Hawaii resorts. In 1997, the Company marketed on a limited basis Vacation
Ownership Interests for Pahio at Kauai Beach Villas, which have been approved
for sale in Arizona.
Operating Strategies
The Company's operating strategy seeks to emphasize the following
characteristics, which management believes provide ILX with certain competitive
advantages within the vacation ownership industry.
Flexible Vacation Ownership Interest Purchase Options. The Company
believes the flexibility associated with its inventory of Vacation Ownership
Interests provides a uniquely appealing opportunity for ILX Owners. Unlike many
of the Company's competitors, substantially all of the Company's inventory of
Vacation Ownership Interests at the ILX Resorts are intended to be used on dates
specified from time to time by the ILX Owner within a broad range of available
dates and not fixed at the time of purchase. Purchasers of a membership interest
in the Company's proprietary branded Premiere Vacation Club will be entitled to
use their interest at any single CAR or may split up their interest according to
the owner's needs and preferences and used at any number of participating CARS,
as well as thousands of other resorts through the domestic and international
exchange programs in which ILX Owners participate. In addition, Vacation
Ownership Interests at Varsity Clubs may be purchased for highly desirable
single-day uses, a collection of single days (such as designated days during an
entire football or other sports season) or other packages suited to meet each
ILX Owner's preferences.
Customer Satisfaction. The Company believes that its inventory of
highly desirable resorts with extensive amenities combined with flexible
purchase options have resulted in a high level of customer satisfaction. Each of
the ILX Resorts is located in an area with unique tourist attractions and offers
food, beverage and other amenities comparable to full-service commercial lodging
facilities, at discounted prices to ILX Owners. As a result, the Company
believes ILX Owners generally have a high level of satisfaction resulting in
additional purchases and increased goodwill. The Company intends to capitalize
upon this by directing a portion of its marketing efforts towards increasing
sales of Vacation Ownership Interests to ILX Owners.
Enhanced Amenities. Excluding the recently acquired Roundhouse Resort,
each of the ILX Resorts has at least one full-service restaurant and other food
and beverage facilities in addition to a range of other amenities typically
found at high-quality resorts, such as horseback riding, golf, swimming pools
and exercise facilities. The Roundhouse Resort contains a fully equipped
restaurant which the Company intends to commence operating in 1998. The Company
believes that most resorts offering Vacation Ownership Interests have none or
only limited restaurant and other food and beverage facilities. As a result,
management believes ILX Owners appreciate the ability to enjoy traditional
full-service commercial hotel amenities and also maintain the option to use more
economical in-room facilities. See "- The Resorts."
Demonstrated Ability to Acquire and Develop Properties. The Company has
historically been successful at acquiring resorts in settings of natural beauty
at relatively low costs. The Company's acquisition strategy is to identify
underutilized or distressed properties in locations with high tourist appeal and
access to major metropolitan centers. Thereafter, the Company's redevelopment
efforts are primarily targeted at improving the amenities and appointments of
such properties. Recently, the Company has successfully developed its prototype
Varsity Clubs of America resort, VCA-South Bend, and has commenced construction
of VCA-Tucson. Future Varsity Clubs will be designed and constructed in
accordance with the VCA-South Bend prototype, with appropriate modifications and
improvements. The Company believes that its acquisition and development
strategies have resulted in a portfolio of desirable properties with a
relatively low cost of sales margin. See "- Growth Strategy" and Consolidated
Financial Statements.
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Convenient Access Resorts. The Company's CARs are typically located
within a two-hour drive of an ILX Owner's principal residence, which
accommodates a demand for more frequent and convenient "short-stay" vacations
without the costs of airfare. This proximity also facilitates marketing of the
Company's Premiere Vacation Club, which permits members to divide their Vacation
Ownership Interest into shorter stays at any of the Company's CARs included in
the Premiere Vacation Club or exchange their entire interest during any year
through an exchange network. In addition to the use of their Vacation Ownership
Interest, ILX Owners are also entitled to unlimited day-use of the offered
amenities and discounted food, beverage and other services at all ILX Resorts,
thereby facilitating use and enhancing the benefits of ownership by ILX Owners.
Standard Design, Lower Construction and Operating Costs of Varsity
Clubs. The Company's Varsity Clubs concept is based upon its VCA-South Bend
prototype. While each Varsity Club may have aspects uniquely tailored to its
targeted customer base, the Company believes that its standard architectural and
interior designs for Varsity Clubs will significantly reduce associated
development and construction costs. Standardization also allows the Company to
rapidly develop new Varsity Clubs and integrate new resorts in response to
demand. The Company anticipates that new Varsity Clubs can be constructed within
one year from acquisition of the underlying real property.
Premium Locations. The Company believes that the variety and natural
beauty of the surroundings for its CARs enhance their attraction to customers.
Substantially all of the ILX Resorts are located in the Western United States in
part because of the numerous locations in that region which are attractive to
tourists and convenient to major metropolitan areas. Substantially all of the
Company's inventory of Vacation Ownership Interests qualify as "red time," the
highest demand classification for purposes of participation in exchange networks
such as RCI and II. The Company intends to develop additional Varsity Clubs and
Premiere Vacation Club resorts in other Western United States sites which offer
natural settings or other attractions to entice tourists to visit such
locations.
Integrated In-House Operations. Substantially all of the Company's
marketing, sales, development, property management, financing and collections
operations are conducted internally, except certain minimal marketing functions
and those payment and collection activities related to the financing by third
parties of Customer Notes. In addition, the Company operates all of the ILX
Resorts on a centralized basis, with operating and maintenance costs paid from
ILX Owners' dues as well as hotel rental revenues. The Company intends to
integrate all aspects of its operations, excluding those collection activities
related to third-party financing, into its in-house capabilities. The Company
believes that its internal capabilities result in greater control and
consistency of all phases of its operations and result in lower overall costs
than generally associated with outsourcing such operations. Integration also
facilitates the Company's Premiere Vacation Club and the ILX Resorts'
qualification in the RCI and II exchange networks, among others.
Directed Marketing. The Company's marketing strategy with respect to
its Premiere Vacation Club is to target potential customers who have a
demonstrated interest in the location of its ILX Resorts or a likelihood of
frequent travel. As opposed to traditional marketing strategies which often
emphasize telemarketing and direct mail activities focused on promotional
inducements unrelated to travel, the Company's marketing activities primarily
offer travel-related inducements (such as discounted or complimentary vacations
at nearby ILX Resorts). By offering travel-related inducements, the Company
believes it is better able to identify customers who like to travel, which
results in a higher percentage of sales per contacts. In addition, the Company
developed its proprietary Varsity Clubs of America concept to capitalize upon
affinity marketing strategies. The Company believes that a high-quality "city
club" experience combined with the traditional benefits associated with Vacation
Ownership Interests, such as the opportunity to participate in exchange
networks, will appeal to consumers in the local markets of each Varsity Club.
Further, the Varsity Clubs concept is intended to take advantage of a marketing
base of alumni, sports enthusiasts, parents of students, corporate sponsors and
others affiliated with each university next to which a Varsity Club will be
developed. For example, alumni of the University of Arizona, to whom the Company
intends to market Vacation Ownership Interests at its VCA-Tucson, currently
number approximately 180,000, as of December 31, 1997. The Company believes that
these marketing strategies permit it to take advantage of existing affinities,
resulting in a higher rate of closings per customer contacts.
Premiere Vacation Club
Commencing in 1998, the Premiere Vacation Club will offer purchasers
deeded membership interests that may be used in their entirety at one time or
may be divided into shorter stays at a variety of the Company's CARs or may be
exchanged through a participating exchange network. The Company's Premiere
Vacation Club emphasizes (i) CARs which facilitate short-stay vacations with
relatively low cost and time associated with travel to the ILX Resort, (ii)
located near settings of natural beauty, (iii) with high quality amenities and
resort services and (iv) which facilitate flexible use options. The Company
believes that its proprietary branded Premiere Vacation Club will capitalize
upon affinity marketing strategies and increase the goodwill associated with the
ILX
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Resorts. In addition, membership interests in the Premiere Vacation Club will be
marketed at an average higher gross sales price than sales of Vacation Ownership
Interests in a single ILX Resort, which the Company believes will result in
increased revenues. The Company intends to market membership interests in its
Premiere Vacation Club to ILX Owners as well as first-time buyers, thereby
expanding its sales volume without increasing its sales and marketing costs in
the same proportion as generally associated with sales to first-time buyers.
Initially, the Company's Premiere Vacation Club inventory will consist
of Vacation Ownership Interests in the ILX Resorts and the Additional Interests.
Thereafter, new resorts will be added through the Company's aggressive pursuit
of selected acquisition opportunities. To this end, in December 1997, the
Company acquired an undivided interest in the common areas of and all of the
undeveloped and unsold portions of the Roundhouse Resort, an existing 59 unit
resort with five acres of developable land located in Pinetop/Lakeside, Arizona.
By marketing its inventory of Vacation Ownership Interests through the Premiere
Vacation Club, the Company believes it has greater flexibility with respect to
potential acquisition opportunities than generally associated with the sale of
Vacation Ownership Interests in a single vacation resort, to the extent that
small or remote resorts which may be inefficient to market as a single location
resort may enhance the consumer appeal of a membership interest in the Premiere
Vacation Club. With its existing and planned resorts in Arizona, the Company is
seeking to build a critical mass of CARs within driving distance of the Phoenix
and Tucson metropolitan markets which will support the initial introduction of
the Premiere Vacation Club concept. The Company believes that the geographic and
cultural diversity of Arizona make that state particularly appropriate for this
expansion. Thereafter, the Company intends to develop networks of CARs proximate
to other major metropolitan areas in the Western United States.
Varsity Clubs of America
The Company intends to aggressively pursue the expansion of its
proprietary branded Varsity Clubs concept. The Company will focus on development
of additional Varsity Clubs near prominent colleges and universities in the
western United States located in areas with a significant base of existing
tourism and access to major population centers. The Varsity Clubs of America
concept is primarily intended to offer residents in major population centers a
"city club" experience with day-use privileges regularly available, as well as
the opportunity to exchange their Vacation Ownership Interest through the
exchange networks in which ILX Owners participate. The Varsity Clubs concept
also seeks to maximize the appeal of such urban timeshare resorts by
strategically locating each of them proximate to one or more prominent colleges
and universities with nationally recognized athletic, cultural and other events.
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 designed to
address the specific needs of these individuals and entities by creating
specialty vacation ownership resorts that have a flexible ownership structure,
enabling the purchase of anything from a single day, a collection of single days
(such as an entire football or other sports' season) or a traditional one-week
period. Each Varsity Clubs facility will operate as a hotel to the extent of
unsold or unused vacation ownership inventory.
The prototype VCA-South Bend facility is an all-suite, 62 unit lodging
facility that features amenities such as The Stadium (a sports-theme atrium
lounge), a private Member's Lounge, exercise facilities, a swimming pool and
whirlpool spa, complete business services and other facilities popular with the
target market of likely purchasers. The prototype Varsity Clubs facility is
based on a four-acre configuration expandable to as many as 90 units, without
the need to acquire additional real property, and can be built in smaller
configurations if warranted by a particular market or if dictated by the
availability of land.
The first Varsity Clubs facility was completed in August 1995 and is
located approximately three miles from the University of Notre Dame and Notre
Dame Stadium in South Bend, Indiana, and approximately 90 miles from Chicago,
Illinois. Customers purchase deed and title to a floating period's use of a unit
and unlimited day-use privileges at the common areas of the property. Purchasers
may also receive the right to use the facility on specified dates, such as dates
of home football games, for which they pay a premium. A total of 62 units, or
3,224 one-week intervals, have been constructed at VCA-South Bend and, at
December 31, 1997, approximately 1,666 one-week intervals were available for
sale. ILX anticipates expanding the facility in 1998 by constructing an
additional 24 suites, thus adding 1,248 one-week intervals. To date, VCA-South
Bend 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 the second Varsity Clubs facility is located in Tucson,
Arizona, less than three miles from the University of Arizona. This second
Varsity Club will be completed in April 1998 and will offer 62 suites, or 3,224
one-week intervals. VCA-Tucson was designed in accordance with the VCA-South
Bend prototype, with certain modifications made to improve efficiency and
incorporate local design themes. The Company chose Tucson as a site for its
Varsity Clubs concept because of its status as a year-round destination
location, a large residential population base of approximately 750,000, and the
proximity to the University of Arizona, which has an alumni base in excess of
180,000 people as of December 31, 1997. The Company believes that all of these
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factors increase the appeal of VCA-Tucson to prospective buyers as well as
providing increased trading power for purchasers of Vacation Ownership Interests
in the resort for purposes of participation in exchange networks. Construction
of the Tucson resort commenced in late 1997 and the facility is expected to open
in April 1998.
The Company is considering various other sites for development of
additional Varsity Clubs facilities in the next five to seven years. Management
believes there exist numerous sites in the Western United States that are
attractive for the development of additional Varsity Clubs. The Company intends
to expand its Varsity Clubs concept to approximately five of these areas over
the next three years, based upon the VCA-South Bend prototype, with certain
modifications and improvements. The Company also believes that Varsity Clubs
will establish their own brand name recognition as additional facilities are
offered, each with a consistent design and selection of amenities. Varsity Clubs
expansion efforts will initially be primarily focused on metropolitan areas in
the western United States, each located near one or more large universities, but
the Company will assess other potential opportunities as they arise. Ideally,
the Company will seek to place additional Varsity Clubs near universities that
are located in or convenient to popular tourist destination locations in or near
large metropolitan areas, such as Tempe, Arizona; Boulder, Colorado; Las Vegas,
Nevada; Palo Alto, California; Salt Lake City - Provo, Utah; and Seattle,
Washington. The Company will also seek to broaden the affinity marketing base of
its future Varsity Clubs by situating them proximate to more than one prominent
college or university, where appropriate. The Varsity Clubs concept also seeks
to capitalize on affinity marketing strategies through the perceived affiliation
with a nationally recognized university and the "city club" experience which the
Company seeks to associate with the Varsity Clubs of America brand name. The
Company intends to provide purchasers of Vacation Ownership Interests in one
Varsity Club certain benefits at other Varsity Clubs in order to enhance their
appeal to consumers.
Sales and Marketing
Marketing is the process by which the Company attracts potential
customers to visit and tour an ILX Resort or attend a sales presentation. Sales
is the process by which the Company seeks to sell a Vacation Ownership Interest
to a potential customer once he or she arrives for a tour at an ILX Resort or
attends a sales presentation. The Company believes it has the marketing and
sales infrastructure necessary to sell Vacation Ownership Interests on a
competitive basis. All of the Company's sales and substantially all of the
Company's marketing functions are currently performed in-house and the Company
invests significant resources in attracting, training and seeking to retain its
sales and marketing employees. The Company intends to incorporate more of its
marketing operations into its in-house capabilities. The Company believes this
strategy provides it with greater control over these critical functions,
resulting in greater consistency of customer relations and improved customer
satisfaction. In addition, management believes that its practice of hiring
employees to staff its sales and marketing functions, as opposed to using
independent contractors as has been the industry norm, results in a higher
retention rate among its sales force and provides a pool of experienced staff
from which to draw upon as the Company's business expands. The Company expends
substantial resources identifying, attracting and training its sales and
marketing personnel and offers a full package of employment benefits to its
sales and marketing personnel. Management believes that consistency and high
quality in its sales and marketing operations is crucial to its success. The
Company believes that the, package of benefits offered to its sales and
marketing employees is uncommon in the vacation ownership industry and, as a
result, attracts high quality personnel and provides an incentive for their
performance.
Marketing. The Company's marketing activities are devoted primarily
towards (i) hotel guests at the ILX Resorts, (ii) RCI and II exchange program
participants staying at the ILX Resorts, (iii) off-premise contacts with
visitors to the local surroundings of the ILX Resorts and in the metropolitan
areas within driving distances of the ILX Resorts and (iv) direct mail and
telemarketing to residents of metropolitan areas within driving distance of the
ILX Resorts. The Company's marketing strategy seeks to target prospective buyers
who respond favorably to travel-related inducements because the Company believes
such consumers are more likely to travel and therefore have a greater likelihood
of purchasing a Vacation Ownership Interest. The Company identifies potential
purchasers through internally developed marketing techniques, and sells Vacation
Ownership Interests through its four sales offices located at or near ILX
Resorts. The Company primarily targets customers who live within driving
distance of an ILX Resort or who are vacationing at or near an ILX Resort. This
practice allows the Company to invite potential purchasers to experience the ILX
Resorts and avoid the more expensive marketing costs of subsidized airfare and
lodging which are typically associated with the vacation ownership industry. In
addition, the Company believes that its marketing strategy results in a higher
percentage of sales per prospective customer contacts as compared to many of its
competitors because its targeted customer base has a demonstrated interest in
the locale of an ILX Resort and/or a greater likelihood to take vacations.
Similar to branding techniques utilized by some of its competitors, the
Company also seeks to capitalize upon affinity marketing concepts in attracting
prospective buyers to its Varsity Clubs concept by seeking to develop a branded
"city club" experience for flexible use by local residents. In addition,
marketing of Varsity Clubs seeks to focus on alumni, parents of university
students and other persons or entities who have a preexisting affiliation with
or other attraction to the local university. All of the
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Company's marketing activities emphasize the convenience of the ILX Resorts
coupled with the opportunity to participate in exchange networks as well as the
quality and breadth of amenities available at each of the ILX Resorts.
Sales. The Company actively sells its inventory of Vacation Ownership
Interests primarily through a sales staff of approximately 140 employees,
including approximately 100 sales agents at four sales offices, each located at
or near selected ILX Resorts. Prospective first-time purchasers participate in a
tour of the facilities as well as its related amenities, guided by a
salesperson. At the conclusion of the tour, the terms of making a purchase,
including financing alternatives, are explained to the customer. Approximately
20% to 25% of the Company's sales have historically been made on a cash basis.
However, for those customers seeking financing, the Company conducts substantial
credit pre-approval research. The Company's point-of-sale credit pre-approval
process typically includes a review of the customer's credit history. After
final approval of a purchase, which includes verification of employment, the
Company waits until expiration of the applicable statutory waiting period,
generally from three to seven days, prior to recognizing a sale as complete.
In addition to generating sales to first-time buyers, the Company's
sales force seeks to generate sales of additional Vacation Ownership Interests
or Upgrades to ILX Owners. Sales to ILX Owners generally have lower marketing
costs associated with them as these buyers tend to be more familiar with the
nature of purchasing a Vacation Ownership Interest and the amenities offered by
the ILX Resorts. As a result of an increased emphasis upon sales to these
buyers, sales to ILX Owners accounted for 12.5% of Vacation Ownership Interest
sales by the Company during 1997. During 1995 and 1996, sales to ILX Owners
accounted for less than 6% of the Company's total sales. The Company intends to
increase its sales efforts with respect to ILX Owners.
The Company's inventory of Vacation Ownership Interests has
historically consisted of a one-week interval which may be used on an annual or
an alternate-year basis in a specified ILX Resort during a specified range of
dates. ILX Owners may also participate in exchange networks such as RCI and II.
However, commencing in 1998, the Company will offer deeded membership interests
in its Premiere Vacation Club, which permit a member to stay at one or more of
the participating ILX Resorts for up to one week on an annual or alternate-year
basis. A member may divide their stays into shorter vacations at any time
between a specified period of time. The Company believes that the variety and
flexibility of use options associated with its inventory of Vacation Ownership
Interests are uniquely attractive to customers.
Customer Financing
The Company currently provides financing for approximately 75% to 80%
of its Vacation Ownership Interest sales. On financed sales, the Company
receives at least 10% of the aggregate sales price of Vacation Ownership
Interests as a down payment. Financing for the remainder is typically made
available for a term of seven years at a rate of 14% to 16% per annum. At
December 31, 1997, the Company had a portfolio of retained Customer Notes with
an aggregate principal amount of $14.5 million, of which $12.0 million are
serviced by an outside vendor and have a weighted average yield of 13.8% per
annum, which compares favorably to the Company's weighted average cost of
borrowings for such Customer Notes of 12.4% per annum.
The Company believes that providing available financing is essential to
the successful sales and marketing of its Vacation Ownership Interest inventory.
However, the Company seeks to minimize the risks associated with its financing
activities by emphasizing the credit pre-approval process. In addition, the
Company expends significant resources negotiating alternative repayment programs
for past due accounts, so as to minimize its actual losses. Collection
activities with respect to Customer Notes which the Company has hypothecated are
managed internally and serviced by a third-party on behalf of the lenders and
the Company. In addition, the Company occasionally utilizes third party
collection agencies for difficult accounts. Historically, these have represented
only a minimal percentage of the Customer Notes.
Prior to 1995, the Company sold the majority of its Customer Notes and
retained the small remaining portion, most of which were hypothecated. Since
1995, the Company has increased the amount of Customer Notes which it retains,
most of which it hypothecates, and, as a result, at December 31, 1997, the
Company retained Customer Notes in an aggregate principal amount of $14.5
million as compared to $7.9 million at December 31, 1995.
Although the terms of each Customer Note vary, typically such notes are
deemed past due when a scheduled payment is 30 days or more past due. In
addition, a delinquency occurs when an account becomes more than 90 days past
due. The Company seeks to avoid defaults by working closely with the lender or
its collection agent with respect to ILX Owners who become delinquent.
The first collection contact typically occurs within 16 to 30 days of a
payment's due date.
The Company has agreements with financial institutions for total
commitments of $20 million under which the Company may sell certain of its
customer notes receivables. These agreements provide for sales on a recourse
basis with a percentage of the
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amount sold held back by the respective financial institution as additional
collateral. Customer notes receivables may be sold at discounts or premiums to
the principal amount in order to yield the consumer market rate, as defined by
such financial institution. At December 31, 1997, $6.0 million was available to
the Company under these commitments. The Company also has financing commitments
in the aggregate amount of $19.2 million, pursuant to which the Company may
hypothecate Customer Notes which are pledged to the lender as collateral. These
borrowings bear interest at rates from prime plus 3.25% to prime plus 5.0% and
expire at various dates from 1998 through 2000. At December 31, 1997, $13.0
million was available to the Company under these commitments. The Company
currently reserves approximately 3% of gross sales (including cash sales) as an
allowance for doubtful accounts. This reserve represents a percentage decrease
since the Company's inception based upon the Company's actual collections
experience. At December 31, 1995, 1996 and 1997, the aggregate amount of these
reserves were $2.4 million, $2.6 million and $3.0 million, respectively. During
1995, 1996 and 1997, the Company's provision for doubtful accounts exceeded
actual write-offs by $1.1 million, $0.2 million and $0.4 million, respectively.
To the extent that the Company's losses as a result of bad debt exceed its
corresponding reserves, its financial condition and results of operations may be
materially adversely affected.
Other Operations
Resort Operations. The Company also receives revenues from (i) the
rental of its unsold or unused inventory of units at the ILX Resorts, (ii) the
sale of food, beverages and other amenities at such resorts and (iii) the
management and operation of the ILX Resorts. During 1997, the Company received
$10.9 million in net revenues from these operations, consisting of $5.9 million
in room rental revenue, $3.6 million in food and beverage revenue and $1.4
million in other revenue. Of these amounts, Los Abrigados contributed $7.6
million, or 69.7% of the Company's total resort operations revenues in 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Historically, the Company's resort operation activities have not
generated a material portion of the Company's net profits on a consolidated
business. Revenues from resort operations typically vary significantly from one
ILX Resort to another. In addition, changes in revenue received from these
operations have not typically correlated with fluctuations in the Company's
revenues from sales of Vacation Ownership Interests. Management expects this
trend to continue in the future in part because of the emphasis of the Company's
growth strategy on its Varsity Clubs, which have typically generated a lower
percentage of revenues from resort operations than that generated by the
Company's CARS. However, the Company believes that its resort management
activities directly complement the Company's efforts with respect to the
marketing and sales of Vacation Ownership Interests.
Sedona Spa. The Company's operations also include the sale of personal
care products through its wholly-owned subsidiary Sedona Worldwide Incorporated.
The Company's personal care products have historically been marketed under its
proprietary Red Rock Collection brand name through the ILX Resorts. Commencing
in the second quarter of 1998, these products will be marketed under the brand
name "Sedona Spa" and, in connection with such change, certain modifications to
the product line are being implemented. This resort-based sales program includes
an upscale line of personal care amenities, in-room gift basket promotions and
retail product sales at the ILX Resorts. Sedona Spa products are primarily used
by the Company as promotion incentives to potential purchasers who attend the
Company's sales tours and presentations. The Company then uses direct mail to
market Sedona Spa products to resort customers and tour participants who have
previously used the products. Sales of Sedona Spa products are included in
"Income from land and other, net" on the Company's financial statements and, to
date, have not resulted in a material amount of net revenues or profits to the
Company. The Company has not in the past and does not intend in the future to
devote a significant portion of its resources to sales of Sedona Spa products.
Land Sales. Since l993, the Company has also received revenues from the
sale of primarily unimproved real property. These operations originated as a
result of the Company's opportunistic acquisition of its wholly owned
subsidiary, Genesis, in November 1993. The sale of real property is not a core
business function for the Company and, as such, the Company has not historically
and does not intend in the future to devote a material portion of its resources
to these operations. Typically, the Company has sold these assets as subdivided
lots or large unimproved parcels. The Company intends to sell substantially all
of the remaining assets during 1998, although there can be no assurance that it
will be able to sell these assets at attractive prices, if at all, during this
year. Following the sale of these assets, management does not expect to engage
in the sale of real property.
Participation in Exchange Networks
The Company believes that consumers are more likely to purchase from
its inventory of Vacation Ownership Interests as a result of the Company's
participation in the Vacation Ownership Interest exchange networks operated by
RCI and II, the leading exchange network operators. In a 1995 study sponsored by
the Alliance for Timeshare Excellence and ARDA, exchange opportunity was cited
by purchasers of interval interests as one of the most significant factors in
their decision to purchase an interest. Membership in RCI or II allows ILX
Owners to exchange in a particular year their occupancy right in the unit in
which they own a
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Vacation Ownership Interest for an occupancy right at the same time or a
different time in another participating resort, based upon availability and the
payment of a variable exchange fee. A participating ILX Owner may exchange his
or her Vacation Ownership Interest for an occupancy right in another
participating resort by listing the Vacation Ownership Interest as available
with the exchange network operator and by requesting occupancy at another
participating resort, indicating the particular resort or geographic area to
which the owner desires to travel, the size of the unit desired and the period
during which occupancy is desired. The exchange network assigns a rating to each
listed Vacation Ownership Interest, based upon a number of factors, including
the location and size of the unit, the quality of the resort and the period of
the year during which the Vacation Ownership Interest is available, and attempts
to satisfy the exchange request by providing an occupancy right in another
Vacation Ownership Interest with a similar rating. Approximately 85% of the
Vacation Ownership Interests at the ILX Resorts qualify as "red time," the
highest demand classification, thereby increasing the exchange opportunities
available to ILX Owners. If RCI or II is unable to meet the member's initial
request, the network operator may suggest alternative resorts, based on
availability. In addition, ILX's Owner Services Department has established
arrangements with additional resorts and smaller exchange networks through which
it offers exchange opportunities and discounted vacation getaways to ILX Owners.
The Company believes that its direct participation in the exchange process,
coupled with these additional services, provides ILX with a competitive
advantage and tend to increase customer satisfaction. See "- Operating
Strategies" above.
Competition
ILX's Vacation Ownership Interest plans compete both with other
Vacation Ownership Interest plans as well as hotels, motels, condominium
developments and second homes. ILX considers the direct competitors of
individual resorts to also include alternative accommodations, including hotels,
motels, bed-and-breakfasts and small vacation ownership operators located within
the immediate geographic vicinity of such resort. This is particularly true with
respect to its CARs that tend to attract purchasers whose decision to buy a
Vacation Ownership Interest is likely to be influenced by the convenience of the
resort to their principal residence.
The Vacation Ownership Interest industry historically has been highly
fragmented and dominated by a very large number of local and regional resort
developers and operators, each with limited portfolios. More recently, many of
the world's most widely-recognized lodging, hospitality and entertainment
companies have begun to develop and sell vacation ownership interests under
their brand names, including Marriott Ownership Resorts, Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts and
Promus Hotel Corporation. In addition, other publicly-traded companies such as
Signature Resorts, Inc., Fairfield Communities, Inc., Silverleaf Resorts, Inc.,
Trendwest Resorts, Inc. and Vistana, Inc. currently compete or may compete in
the future with the Company. Furthermore, significant competition exists in
other markets in which the Company currently operates or is developing vacation
ownership resorts. Many entities with which the Company competes have
significantly greater access to financial, sales and marketing and other
resources than those of the Company and may be able to grow at a more rapid rate
or more profitably as a result. Management anticipates competition to increase
in the future as a result of consolidation in the vacation ownership industry.
There can be no assurance that the Company will be able to successfully compete
with such companies.
Governmental Regulation
General. The Company's marketing and sales activities and other resort
operations are subject to extensive regulation by the federal government and the
states in which the Company's resorts are located and in which its interval
interests are marketed and sold. Federal legislation to which the Company is or
may be subject includes the Federal Trade Commission Act, the Fair Housing Act,
the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Equal
Credit Opportunity Act, the Interstate Land Sales Full Disclosure Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act and the Civil Rights
Acts of 1964, 1968 and 1991. Many states have adopted legislation as well as
specific laws and regulations regarding the sale of vacation ownership
interests. The laws of most states, including Arizona, require a designated
state authority to approve a detailed offering statement describing the Company
and all material aspects of the resort and sale of vacation ownership interests
at such resort. In addition, the laws of most states in which the Company sells
interests grant the purchaser of a vacation ownership interest the right to
rescind a contract of purchase at any time within a statutory rescission period.
Furthermore, most states have other laws which regulate the Company's
activities, such as real estate licensure laws, travel sales licensure laws,
anti-fraud laws, telemarketing laws, prize, gift and sweepstakes laws, and labor
laws. The Company believes that it is in material compliance with all applicable
federal, state, local and foreign laws and regulations to which it is currently
subject.
Environmental Matters. Under applicable federal, state and local
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate, remediate and remove hazardous or
toxic substances at such property, and may be held liable for property damage
and for investigation, remediation and removal costs incurred by such parties in
connection with the contamination. Such laws typically impose such liability
without regard to whether the owner or operator knew
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of or caused the presence of the contaminants, and the liability under such laws
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. The costs
associated with compliance with such regulations may be substantial, and the
presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow against such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. Finally, the owner or operator of a site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site. In connection
with its ownership and operation of its properties, the Company may be
potentially liable for such costs.
The Company does not always conduct Phase I environmental assessments
at the ILX Resorts, properties under development and properties subject to
acquisition. Because many of the Company's resorts are typically found in remote
locations, it does not consider the risks of environmental liabilities
significant enough to warrant the performance of Phase I assessments at such
locations. Failure to obtain such reports may result in the Company acquiring or
developing unusable property or assuming certain liabilities which could have
been avoided if the Company had the information typically discovered in a Phase
I report. However, when appropriate, the Company has in the past and will in the
future obtain Phase I reports. To date, the Company has obtained environmental
reports with respect to three of the ILX Resorts. In addition, the Company does
conduct significant in-house due diligence prior to the acquisition of any real
property interests. To date, the Company's investigation of its properties have
not revealed any environmental liability that the Company believes would have a
material adverse effect on the Company Is business, assets, financial condition
or results of operations, nor is the Company aware of any such material
environmental liability.
The Company believes that its properties are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances. The Company has not been
notified by any governmental authority or any third party, and is not otherwise
aware, of any material noncompliance, liability or claim relating to hazardous
or toxic substances or petroleum products in connection with any of its present
properties.
Other Regulations. Under various state and federal laws governing
housing and places of public accommodation, the Company is required to meet
certain requirements related to access and use by disabled persons. Although
management believes that the Company's resorts are substantially in compliance
with present requirements of such laws, the Company may incur additional costs
of compliance in connection with the development of new resorts, or conversion
or renovation of ILX Resorts. Additional legislation may impose additional
requirements on owners with respect to access by disabled persons. The aggregate
costs associated with compliance with such regulations are not currently known,
and, while such costs are not expected to have a material effect on the Company,
such costs could be substantial. Limitations or restrictions on the completion
of certain renovations may limit application of the Company's growth strategy in
certain instances or reduce profit margins on the Company's operations.
Employees
As of December 31, 1997, the Company had approximately 760 employees,
of which approximately 525 were employed on a full-time basis (including
approximately 120 employed on a full-time equivalent basis of 28 hours per
week). The Company believes relations with its employees are good and none of
its employees are represented by labor unions.
Insurance
The Company carries comprehensive liability, business interruption,
title, fire and storm insurance with respect to the ILX Resorts, with policy
specifications, insured limits and deductibles customarily carried for similar
properties which the Company believes are adequate. There are, however, certain
types of losses (such as losses caused by floods or acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss could have a material adverse effect on the Company.
15
<PAGE>
Item 3. Legal Proceedings
Although the Company may be subject to litigation from time to time in
the ordinary course of its business, it is not a party to any pending or
threatened legal proceedings that it believes will have a material impact on its
business.
Item 4. Submission of Matters to a Vote of Security Holders
None
16
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table sets forth, for the periods indicated, the range of
high and low sales prices for the Common Stock, after giving retroactive effect
to the one-for-five reverse stock split (the "Reverse Stock Split"), declared
effective by the Company on January 12, 1998. The information is as quoted on
the Nasdaq SmallCap Market. Since February 11, 1998, the Common Stock has been
listed on the American Stock Exchange. As of December 31, 1997, the Common Stock
was held by approximately 1,158 holders of record. No dividends on Common Stock
have been declared by the Company since inception and none are anticipated in
the foreseeable future.
Common Stock
---------------------
High Low
---- ---
Year Ended December 31, 1996
First Quarter $ 6.90 $ 5.00
Second Quarter 9.70 5.65
Third Quarter 8.15 5.95
Fourth Quarter 7.50 4.85
Year Ended December 31, 1997
First Quarter $ 6.88 $ 5.00
Second Quarter 6.88 3.13
Third Quarter 8.44 3.91
Fourth Quarter 8.75 5.15
Item 6. Selected Consolidated Financial Information
The selected consolidated historical financial information set forth
below for the five years ended December 31, 1997 has been derived from the
consolidated financial statements of the Company which have been restated to
give effect to the Reverse Stock Split.
The Selected Consolidated Financial Information should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Revenues $20,696 $27,881 $30,849 $31,581 $36,411
Net income 2,076 2,148 625 1,051 1,668
Net income per share - basic .88 .86 .24 .38 .60
Net income per share - diluted .84 .83 .24 .37 .59
Total assets 24,907 28,403 37,753 41,275 43,722
Notes payable 5,409 7,332 13,528 16,434 22,051
Shareholders' equity 10,541 12,957 13,775 15,175 16,621
</TABLE>
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 Form 10-K, the words "estimate," "projection," "intend," "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 the
forward-looking statements set forth below. The Company undertakes no obligation
to publicly update or revise any of the forward-looking statements contained
herein.
Overview
ILX Resorts Incorporated was formed in 1986 to enter the Vacation
Ownership Interest business. The Company generates revenue primarily from the
sale and financing of Vacation Ownership Interests. The Company also generates
revenue from the rental of its unused or unsold inventory of units at the ILX
Resorts and from the sale of food, beverages or other services at such
17
<PAGE>
resorts. The Company currently owns four resorts in Arizona, one in Indiana, one
in Colorado and the Company is constructing a seventh resort in Tucson, Arizona.
The Company recognizes revenues from the sale of Vacation Ownership
Interests at such time as a minimum of 10% of the purchase price has been
received in cash, the statutory rescission period has expired, the buyer is
committed to continued payments of the remaining purchase price and the
Company's future obligations for the Vacation Ownership Interests have been
released. Resort operating revenues are recorded as the rooms are rented or the
services are performed.
Costs associated with the acquisition and development of Vacation
Ownership Interests, including carrying costs such as interest and taxes are
capitalized and amortized to cost of sales as the respective revenue is
recognized.
Results Of Operations
The following table sets forth certain operating information for the
Company.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 69.2% 62.2% 65.9%
Resort operating revenue 28.8% 34.7% 30.0%
Interest income 2.0% 3.1% 4.1%
------- ------- -------
Total timeshare revenues 100.0% 100.0% 100.0%
======= ======= =======
As a percentage of sales of Vacation Ownership Interests:
Cost of Vacation Ownership Interests sold 16.5% 15.8% 13.4%
Sales and marketing 51.4% 53.4% 57.9%
Provision for doubtful accounts 5.8% 3.0% 2.9%
Contribution margin percentage from sale of Vacation
Ownership Interests (1) 26.3% 27.8% 25.7%
As a percentage of resort operating revenue:
Cost of resort operations 101.3% 95.1% 95.9%
As a percentage of total timeshare revenues:
General and administrative 12.3% 7.3% 8.2%
Depreciation and amortization 2.3% 1.5% 1.3%
Timeshare operating income 5.4% 13.4% 12.9%
Selected operating data:
Vacation Ownership Interests sold (2)(3) 1,877 1,562 1,660
Average sales price per Vacation Ownership Interest sold
(excluding revenues from Upgrades) (2) $ 10,624 $ 11,963 $ 12,656
Average sales price per Vacation Ownership Interest sold
(including revenues from Upgrades) (2) $ 11,377 $ 12,573 $ 14,446
</TABLE>
- --------------------
(1) Defined as: the sum of Vacation Ownership Interest sales less the cost
of Vacation Ownership Interests sold less sales and marketing expenses
less a provision for doubtful accounts, divided by sales of Vacation
Ownership Interests.
(2) Reflects all Vacation Ownership Interests on an annual basis.
(3) Consists of an aggregate of 2,195, 2,320 and 2,512 biennial and annual
Vacation Ownership Interests for the years ended December 31, 1995,
1996 and 1997, respectively.
18
<PAGE>
Comparison of Year Ended December 31, 1996 to December 31, 1997
Sales of Vacation Ownership Interests increased 22.4% or $4.4 million
in 1997 to $24.0 million from $19.6 in 1996. The increase reflects both an
increase in sales prices and an expanded marketing program whereby existing ILX
Owners were offered an opportunity to purchase an Upgrade. Upgrade revenue,
included in sales of Vacation Ownership Interests, increased 200% from $1.0
million in 1996 to $3.0 million in 1997. The average sales price per Vacation
Ownership Interest sold (including Upgrades) increased 14.9% from $12,573 in
1996 to $14,446 in 1997 as a result of increased sales prices and the additional
Upgrade sales. Upgrades generally do not involve the sale of additional Vacation
Ownership Interests (merely their exchange) and, therefore, such Upgrades
increase the average sales price per Vacation Ownership Interest sold.
The number of Vacation Ownership Interests sold increased 6.3% from
1,562 in 1996 to 1,660 in 1997. The average sales price per Vacation Ownership
Interest sold (excluding Upgrades) increased 5.8% from $11,963 in 1996 to
$12,656 in 1997. Sales of Vacation Ownership Interests in 1997 included 1,705
biennial Vacation Ownership Interests (counted as 853 annual Vacation Ownership
Interests) compared to 1,517 biennial Vacation Ownership Interest sales (counted
as 759 annual Vacation Ownership Interests) in 1996. The increase in average
price per Vacation Ownership Interest sold (excluding Upgrades) in 1997 resulted
both from increased prices and from the Company's increased sales of biennial
Vacation Ownership Interests (the sales price of which is more than one-half of
an annual Vacation Ownership Interest sales price).
Resort operating revenues and cost of resort operations are comparable
between the two periods.
The 51.4% increase in interest income from $997,500 in 1996 to
$1,510,208 in 1997 is a result of the increased Customer Notes retained by the
Company and an increase in interest rates charged by the Company on its Customer
Notes, effective July 1997.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales decreased from 15.8% in 1996 to 13.4% in 1997 due to
the increased sales of biennial Vacation Ownership Interests (which have a lower
cost of sales percentage than an annual Vacation Ownership Interest) and a
larger amount of Upgrade sales in 1997.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 57.9% in 1997 compared to 53.4% in 1996 due to (i)
increased costs of generating tours to ILX Resorts in 1997, (ii) increased costs
from the opening of a new sales office in Tempe in 1997, (iii) increased costs
from the opening of a Tucson sales office in 1997 (which is anticipated to
achieve operating efficiency consistent with the Company's standards following
opening of VCA-Tucson), and (iv) recognition in 1996 of benefits from premiums
issued to potential customers in prior periods which expired without redemption.
Increases in costs of generating tours in 1997 is due in part to the trial of
several new marketing strategies which were determined ineffective and were
therefore terminated in July and August 1997. Additionally, the Tempe sales
office was not retained beyond the trial period (April-July 1997) due to high
marketing costs and low closing rates.
The provision for doubtful accounts as a percentage of Vacation
Ownership Interest sales remained comparable between years.
General and administrative expenses increased 30.4% to $3.0 million in
1997 from $2.3 million in 1996. General and administrative expenses increased to
8.2% as a percentage of total timeshare revenues in 1997 from 7.3% in 1996 due
to an increase in payroll expense, professional fees and rent expense.
In December 1997, the Company sold its general partnership interest in
Lomacasi Cottages resulting in a non-recurring gain of $356,000.
The decrease in minority interests from 1996 to 1997 reflects (i) the
buyout by the Company of the LAP minority interest in August 1997 and (ii)
reduced LAP resort income.
Comparison of Year Ended December 31, 1995 to the Year Ended December 31, 1996
Sales of Vacation Ownership Interests decreased by 8.4% or $1.8 million
to $19.6 million in 1996 from $21.4 million in 1995. Part of this decline
reflects operation through April 1995 of a Phoenix sales office (which generated
approximately $771,000 in sales in 1995 prior to closure) and the recognition of
approximately $513,000 in sales of Vacation Ownership Interests in VCA-South
Bend written in 1994 but for which revenue recognition was deferred until
completion of construction in 1995. Upgrade revenue, included in Vacation
Ownership Interest sales, decreased 28.6% from $1.4 million in 1995 to $1.0
million in 1996. The average sales price per Vacation Ownership Interest sold
(including Upgrades) increased 10.5% from $11,377 in 1995 to $12,573 in
19
<PAGE>
1996 as a result of increased sales of biennial Vacation Ownership Interests
which was partially offset by the decline in Upgrade sales.
The number of Vacation Ownership Interests sold decreased 16.8% from
1,877 in 1995 to 1,562 in 1996. The average sales price of Vacation Ownership
Interests sold (excluding Upgrades) increased 12.6% from $10,624 in 1995 to
$11,963 in 1996 due primarily to an increase in the number of biennial Vacation
Ownership Interests sold. Sales of Vacation Ownership Interests in 1996 included
1,517 biennial interests (counted as 759 annual Vacation Ownership Interests)
compared to 636 (counted as 318 annual Vacation Ownership Interests) in 1995.
The increase in 1996 biennial sales was the result of the Company's increased
sales and marketing efforts in this market segment and its ability to charge a
sales price that was significantly greater than one-half of the sales price of
an annual Vacation Ownership Interest. The increased emphasis upon sales of
biennial Vacation Ownership Interests at higher prices and the closure of the
Phoenix sales office resulted in a reduction in sales of annual Vacation
Ownership Interests from 1,559 in 1995 to 803 in 1996.
Resort operating revenue increased 22.5% from $8.9 million in 1995 to
$10.9 million in 1996. The increase reflects a full year of operations in 1996
of both VCA-South Bend, which opened in mid-August 1995, and Kohl's Ranch, which
was acquired on June 1, 1995.
The 59.1% increase in interest income from $627,081 in 1995 to $997,500
in 1996 is a result of the increased amount of Customer Notes retained by the
Company as well as increased balances of invested cash.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales decreased from 16.5% in 1995 to 15.8% in 1996 due to an
increase in the number of biennial sales.
Sales and marketing costs as a percentage of Vacation Ownership
Interests sales increased from 51.4% in 1995 to 53.4% in 1996 due to a
promotional program in 1996 which offered certain purchasers of Vacation
Ownership Interests a vacation experience (including accommodations, airfare and
car rental). While the cost of the vacation experience was added to the purchase
price, it had the effect of increasing sales and marketing costs as a percentage
of sales of Vacation Ownership Interests. Additionally, 1995 included the
recognition of $513,400 of revenue recognized on the percentage of completion
method but for which marketing costs were recognized in 1994 when incurred.
The decrease in the provision for doubtful accounts as a percentage of
sales of Vacation Ownership Interests from 5.8% in 1995 to 3.0% in 1996 reflects
the expected performance of the portfolio of consumer paper based on the
Company's collection experience in the prior years, both sold and unsold.
The decrease in cost of resort operations as a percentage of resort
operating revenue to 95.1% in 1996 from 101.3% in 1995 reflects lower costs of
operations at Los Abrigados as a percentage of revenue due to increased
occupancy, increased ILX Owner rates and reductions in operating costs, net of
the costs of operations for VCA-South Bend and Kohl's Ranch, which began
operations in 1995 and accordingly had lower occupancy than mature resorts.
General and administrative expenses decreased 39.5% from $3.8 million
in 1995 to $2.3 million in 1996 due in part to operating efficiencies in 1996
and unusual expenses in 1995. General and administrative expense decreased to
7.3% as a percentage of total timeshare revenues in 1996 from 12.3% in 1995. In
1995, approximately $400,000 of expenses were recognized relating to a $10.0
million convertible bond offering which was abandoned due to the underwriter's
inability to place the bonds. Proceeds from the failed offering were intended
for Varsity Clubs expansion; however, as a result of abandoning the bond
offering, the Company canceled its options on certain Varsity Clubs sites, and
$320,000 of related costs were written-off because the Company no longer
expected to build at these sites within the option periods.
The increase in interest expense from $1.3 million in 1995 to $2.0
million in 1996 reflects an increase in notes payable, including the note
payable for the construction of VCA-South Bend, which interest had been
capitalized 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.
Income tax expense increased from a benefit in 1995 to a provision in
1996 because 1995 included a reduction in the valuation allowance, reflecting
management's estimate of the future benefit to be derived from the utilization
of Genesis NOL carryovers, and also a result of increased net income in 1996.
20
<PAGE>
Minority interests are comparable between years. However, 1996 reflects
an increase in Los Abrigados net income between years due to increased hotel
operating income, increased Vacation Ownership Interest sales prices and reduced
costs of Vacation Ownership Interests sold, depreciation and bad debt provision.
For 1995, the minority interests include the minority interest ownership of the
Genesis land parcels sold in 1995.
Liquidity and Capital Resources
Sources of Cash
The Company generates cash primarily from the sale of Vacation
Ownership Interests (including Upgrades), the financing of Customer Notes from
such sales and resort operations. During 1995, 1996 and 1997, cash provided by
(used in) operations was $(0.7) million, $4.0 million, and $2.8 million,
respectively. The negative cash flow in 1995 was due primarily to an increase in
resort property held for timeshare sales of $4.4 million resulting from the
completion of construction and opening of VCA-South Bend, which was financed
primarily through borrowings of $4.2 million in 1995. Because the Company uses
significant amounts of cash in the development and marketing of Vacation
Ownership Interests, but collects the cash on the Customer Notes receivable over
a long period of time, borrowing against and/or selling receivables is a
necessary part of its normal operations.
For regular Federal income tax purposes, the Company reports
substantially all of its non-factored financed Vacation Ownership Interest sales
under the installment method. Under the installment method, the Company
recognizes income on sales of Vacation Ownership Interests only when cash is
received by the Company in the form of a down payment, as installment payments
or from proceeds from the sale of the Customer Note. The deferral of income tax
liability conserves cash resources on a current basis. Interest may be imposed,
however, on the amount of tax attributable to the installment payments for the
period beginning on the date of sale and ending on the date the related tax is
paid. If the Company is otherwise not subject to tax in a particular year, no
interest is imposed since the interest is based on the amount of tax paid in
that year. The consolidated financial statements do not contain an accrual for
any interest expense that would be paid on the deferred taxes related to the
installment method, as the interest expense is not estimable.
At December 31, 1997, the Company, excluding Genesis, had NOL
carryforwards of $4.8 million, which expire in 2001 through 2012. At December
31, 1997, Genesis had federal NOL carryforwards of $1.9 million, which are
limited as to usage, because they arise from built-in losses of an acquired
company. In addition, such losses can only be utilized through the earnings of
Genesis and are limited to a maximum of $189,000 per year. To the extent the
entire $189,000 is not utilized in a given year, the difference may be carried
forward to future years. Any unused Genesis NOLs will expire in 2008.
In addition, Section 382 of the Code imposes additional limitations on
the utilization of NOL's by a corporation following various types of ownership
changes which result in more than a 50% change in ownership of a corporation
within a three year period. Such changes may result from new Common Stock
issuances by the Company or changes occurring as a result of filings with the
Securities and Exchange Commission of Schedules 13D and 13G by holders of more
than 5% of the Common Stock, whether involving the acquisition or disposition of
Common Stock. If such a subsequent change occurs, the limitations of Section 382
would apply and may limit or deny the future utilization of the NOL by the
Company, which could result in the Company paying substantial additional federal
and state taxes. See Note 8 of Notes to Consolidated Financial Statements.
Uses of Cash
Investing activities typically reflect a net use of cash because of
capital additions and loans to customers in connection with the Company's
Vacation Ownership Interest sales. Net cash used in investing activities in
1995, 1996 and 1997 was $3.2 million, $3.5 million and $6.5 million,
respectively. Cash used in investing activities increased $3.0 million in 1997
compared to 1996, due to the Company's purchase of the minority interest in LAP
(see Note 11 of Notes to Consolidated Financial Statements) which included a
cash payment of approximately $820,000 and due to the Company's strategy of
hypothecating its Customer Notes rather than selling them.
The Company requires funds to finance the acquisitions of property for
future resort development and to further develop the existing resorts, as well
as to make capital improvements and support current operations. The Company is
currently constructing VCA -- Tucson, Arizona at an aggregate estimated cost of
$7.5 million. Construction of the facility commenced in 1997 and is expected to
be completed in April 1998. The Company has a commitment for construction
financing in the amount of $6.55 million, which is expected to be sufficient to
build and furnish the property. At December 31, 1997, $3.1 million had been
drawn against this commitment.
21
<PAGE>
Customer defaults have a significant impact on cash available to the
Company from financing Customer Notes receivables in that notes which are more
than 60 to 90 days past due are not eligible as collateral. As a result, the
Company in effect must repay borrowings against such notes or buy back such
notes if they were sold with recourse.
Credit Facilities
The Company has agreements with financial institutions for total
commitments aggregating $20.0 million under which the Company may sell certain
of its Customer Notes. 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. Notes may be sold at discounts or premiums to yield the
consumer market rate as defined by the financial institution. At December 31,
1997, approximately $6.0 million was available under these commitments.
The Company also has financing commitments aggregating $19.2 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus 3.25% to prime plus 5.0%
and expire at various dates from 1998 through 2000. At December 31, 1997,
approximately $13.0 million is available under these commitments.
In the future, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the above.
Any debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as management deems prudent. There is no assurance that the Company will
be able to secure additional corporate debt or equity at or beyond current
levels or that the Company will be able to maintain its current level of debt.
The Company believes available borrowing capacity, together with cash
generated from operations, will be sufficient to meet the Company's liquidity,
operating and capital requirements for at least the next 12 months.
Seasonality
The Company's revenues are moderately seasonal with the volume of ILX
Owners, hotel guests and Vacation Ownership Interest exchange participants
typically greatest in the second and third fiscal quarters. As the Company
expands into new markets and geographic locations it may experience increased or
additional seasonality dynamics which may cause the Company's operating results
to fluctuate.
Year 2000 Issues
As with other organizations, some of the Company's computer programs
were originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly with
dates from the year 2000 and beyond. The Company has initiated efforts to remedy
this situation and expects all programs to be corrected and tested prior to the
year 2000. The incremental costs of this project are not expected to have a
material effect of the Company's consolidated financial statements or results of
operations.
Inflation
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its Customer Notes.
Item 8. Financial Statements and Supplementary Data
See the information set forth on Index to Consolidated Financial
Statements appearing on page F-1 of this Report on Form 10-K.
Item 9. Changes in Disagreements with Accountants on Accounting and Financial
Disclosure
None
22
<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.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Consolidated Financial Statements Page or Method of Filing
--------------------------------- ------------------------
(i) Consolidated Financial Statements and Pages F-3 through F-21
Notes to Consolidated Statements of
the Registrant, including Consolidated
Balance Sheets as of December 31,
1997 and 1996 and Consolidated
Statements of Operations,
Shareholders' Equity and Cash
Flows for each of the three years
ended December 31, 1997, 1996
and 1995.
(ii) Report of Deloitte & Touche LLP Page F-2
(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
24
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 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
30th day of March, 1998.
ILX Resorts Incorporated,
an Arizona corporation
(Registrant)
By: /s/ Joseph P. Martori
-------------------------------------
Joseph P. Martori
Chairman of the Board and
Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Joseph P. Martori Chairman of the Board and March 30, 1998
- ---------------------------- Chief Executive Officer
Joseph P. Martori (principal executive officer)
/s/ Jay R. Hoffman Senior Vice President and March 30, 1998
- ---------------------------- Chief Financial Officer
Jay R. Hoffman (principal financial and
accounting officer)
/s/ Nancy J. Stone President, Chief Operating March 30, 1998
- ---------------------------- Officer and Director
Nancy J. Stone
/s/ Edward S. Zielinski Executive Vice President and March 30, 1998
- ---------------------------- Director
Edward S. Zielinski
/s/ Steven R. Chanen Director March 30, 1998
- ----------------------------
Steven R. Chanen
/s/ James W. Myers Director March 30, 1998
- ----------------------------
James W. Myers
/s/ Patrick J. McGroder III Director March 30, 1998
- ----------------------------
Patrick J. McGroder III
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1997 F-3 Consolidated
Statements of Operations for the years ended December 31, 1995,
1996, and 1997 F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1995, 1996, and 1997 F-5 Consolidated Statements of Cash Flows for the
years ended December 31, 1995,
1996, and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders of ILX Resorts Incorporated
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of ILX
Resorts Incorporated (formerly ILX Incorporated) and Subsidiaries (the
"Company") as of December 31, 1996 and 1997 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These consolidated 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 1997 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
March 6, 1998
Phoenix, Arizona
F-2
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 3,523,047 $ 3,226,038
Notes receivable, net (Notes 2, 6, 9 and 13) 11,745,720 15,861,621
Resort property held for Vacation Ownership Interest sales
(Notes 2, 3, 9 and 16) 15,247,587 14,666,658
Resort property under development (Notes 5 and 9) 1,209,706 2,943,936
Land held for sale 1,547,493 1,557,498
Deferred assets (Note 6) 313,346 289,009
Property and equipment , net (Notes 7, 9 and 16) 4,877,467 3,472,899
Deferred income taxes (Note 8) 1,178,653 304,430
Other assets 1,631,886 1,400,224
------------ ------------
TOTAL ASSETS $ 41,274,905 $ 43,722,313
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 2,310,600 $ 2,830,375
Accrued and other liabilities 4,658,222 2,162,894
Due to affiliates (Note 15) 139,715 57,672
Notes payable (Note 9) 14,867,096 19,884,479
Notes payable to affiliates (Notes 10 and 15) 1,567,287 2,166,100
------------ ------------
Total liabilities 23,542,920 27,101,520
------------ ------------
MINORITY INTERESTS (Note 11) 2,556,865 --
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 12 and 17)
SHAREHOLDERS' EQUITY (Notes 13 and 14):
Preferred stock, $10 par value; 10,000,000 shares
authorized; 392,109 and 380,468 shares
issued and outstanding; liquidation preference of
$3,921,090 and $3,804,680, respectively 1,419,243 1,384,891
Common stock, no par value; 30,000,000 shares
authorized; 2,604,858 and 2,692,433 shares
issued (Note 1) 9,788,738 10,267,667
Treasury stock, at cost, 6,000 and 103,060
shares, respectively (36,536) (652,587)
Additional paid in capital 78,300 79,450
Retained earnings 3,925,375 5,541,372
------------ ------------
Total shareholders' equity 15,175,120 16,620,793
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 41,274,905 $ 43,722,313
============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
TIMESHARE REVENUES:
Sales of Vacation Ownership Interests $ 21,353,758 $ 19,639,194 $ 23,980,707
Resort operating revenue 8,868,344 10,944,533 10,919,831
Interest income 627,081 997,500 1,510,208
------------ ------------ ------------
Total timeshare revenues 30,849,183 31,581,227 36,410,746
------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership
Interests sold 3,529,566 3,101,023 3,218,850
Cost of resort operations 8,985,306 10,406,692 10,473,093
Sales and marketing 10,971,694 10,485,847 13,894,731
General and administrative 3,779,194 2,304,373 2,974,835
Provision for doubtful accounts 1,235,417 590,653 702,417
Depreciation and amortization 696,062 476,467 455,185
------------ ------------ ------------
Total cost of sales and
operating expenses 29,197,239 27,365,055 31,719,111
------------ ------------ ------------
Timeshare operating income 1,651,944 4,216,172 4,691,635
Income from land and other net 191,976 50,304 28,514
------------ ------------ ------------
Total operating income 1,843,920 4,266,476 4,720,149
Gain on sale of property (Note 7) -- -- 356,000
Interest expense (Notes 9 and 10) (1,265,227) (1,975,110) (2,084,969)
------------ ------------ ------------
Income before income taxes and
minority interests 578,693 2,291,366 2,991,180
Income tax (expense) benefit (Note 8) 547,216 (678,822) (1,145,000)
------------ ------------ ------------
Income before minority interests 1,125,909 1,612,544 1,846,180
Minority interests (Note 11) (501,246) (561,428) (178,307)
------------ ------------ ------------
NET INCOME $ 624,663 $ 1,051,116 $ 1,667,873
============ ============ ============
NET INCOME PER SHARE (Notes 1 and 4):
Basic $ 0.24 $ 0.38 $ 0.60
============ ============ ============
Diluted $ 0.24 $ 0.37 $ 0.59
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- ---------------------------
Shares Amount Shares Amount
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1995 430,313 $1,648,755 2,481,064 $8,972,969
Net income
Issuance of common stock for acquisition 24,000 240,000
Other issuance of common stock 17,220 86,212
Exchange of preferred stock for common
stock (7,524) (20,766) 2,508 20,766
Issuance of cumulative shares for dividend
arrearage 372 2,613
Exchange of preferred stock for lodging
certificates (11,267) (112,670)
Exercise of cash options (39) (185) (13) (185)
Acquisition of treasury shares
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1995 411,483 1,515,134 2,525,151 9,322,375
Net income
Issuance of common stock 74,500 423,875
Exchange of preferred stock
for common stock (13,515) (37,301) 4,505 37,301
Issuance of cumulative shares for dividend
arrearage 702 5,187
Exchange of preferred stock for lodging
certificates (824) (8,240)
Redemption of preferred stock (5,035) (50,350)
Payment of dividends
Acquisition of treasury shares
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1996 392,109 1,419,243 2,604,858 9,788,738
Net income
Issuance of common stock 83,000 443,681
Exchange of preferred stock for common
stock (11,334) (31,282) 3,778 31,282
Issuance of cumulative shares for dividend
arrearage 797 3,966
Exchange of preferred stock for lodging
certificates (307) (3,070)
Payment of dividends
Acquisition of treasury shares,
net of reissuances
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1997 380,468 $1,384,891 2,692,433 $10,267,667
======= ========== ========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock Additional
----------------------- Paid In Retained
Shares Amount Capital Earnings Total
-------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1995 $30,000 $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 5,190 (107,480)
Exercise of cash options (370)
Acquisition of treasury shares (4,000) ($25,032) (25,032)
------- --------- ------- ---------- -----------
BALANCES, DECEMBER 31, 1995 (4,000) (25,032) 35,190 2,927,435 13,775,102
Net income 1,051,116 1,051,116
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 4,760 (3,480)
Redemption of preferred stock 38,350 (12,000)
Payment of dividends (47,969) (47,969)
Acquisition of treasury shares (2,000) (11,504) (11,504)
------- --------- ------- ---------- -----------
BALANCES, DECEMBER 31, 1996 (6,000) (36,536) 78,300 3,925,375 15,175,120
Net income 1,667,873 1,667,873
Issuance of common stock 443,681
Exchange of preferred stock for common
stock
Issuance of cumulative shares for dividend
arrearage (3,982) (16)
Exchange of preferred stock for lodging
certificates 1,150 (1,920)
Payment of dividends (47,894) (47,894)
Acquisition of treasury shares,
net of reissuances (97,060) (616,051) (616,051)
------- --------- ------- ---------- -----------
BALANCES, DECEMBER 31, 1997 (103,060) ($652,587) $79,450 $5,541,372 $16,620,793
======= ========= ======= ========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 624,663 $ 1,051,116 $ 1,667,873
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain on sale of property -- -- (356,000)
Undistributed minority interest 501,246 531,370 178,307
Deferred income taxes (603,842) 708,368 874,223
Provision for doubtful accounts 1,235,417 590,653 702,417
Depreciation and amortization 696,062 476,467 455,185
Amortization of guarantee fees 100,350 72,100 92,250
Change in assets and liabilities:
Decrease (increase) in resort property held for Vacation Ownership
Interest sales (4,397,799) 532,072 580,929
Increase in resort property under development (417,680) (90,626) (1,734,230)
(Increase) decrease in land held for sale 127,984 (2,309) (10,005)
Decrease (increase) in other assets (296,028) 356,893 235,356
(Decrease) increase in accounts payable 731,979 (3,038) 519,775
Increase (decrease) in accrued and other liabilities 1,903,936 (46,306) (315,105)
Decrease in due to affiliates (543,905) (200,914) (82,043)
Decrease in deferred income (365,195) -- --
----------- ----------- -----------
Net cash provided by (used in) operating activities (702,812) 3,975,846 2,808,932
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, net (3,270,008) (3,550,886) (4,534,235)
Decrease (increase) in deferred assets 198,153 66,050 (67,913)
Purchases of property and equipment, net (84,237) (35,577) (1,057,852)
Net cash paid for minority interest -- -- (820,000)
----------- ----------- -----------
Net cash used in investing activities (3,156,092) (3,520,413) (6,480,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 9,593,122 5,693,139 9,794,082
Proceeds from notes payable to affiliates 900,000 -- --
Principal payments on notes payable (5,841,405) (5,416,266) (6,058,556)
Principal payments on notes payable to affiliates (742,672) (370,625) (271,187)
Distributions to minority partners -- (937,534) (140,000)
Proceeds from issuance of common stock 86,212 423,875 98,193
Acquisition of treasury stock and other (25,422) (11,524) (579)
Redemption of preferred stock -- (12,000) --
Preferred stock dividend payments -- (47,969) (47,894)
----------- ----------- -----------
Net cash provided by (used in) financing activities 3,969,835 (678,904) 3,374,059
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 110,931 (223,471) (297,009)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,635,587 3,746,518 3,523,047
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,746,518 $ 3,523,047 $ 3,226,038
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Notes payable issued to extinguish accrued liabilities $ -- $ -- $ 2,400,000
Notes payable assumed by buyer of property and equipment (320,000) (180,000) (2,143,000)
Notes payable issued or assumed to purchase assets or minority interest 2,606,550 3,080,278 1,975,000
Treasury stock received for sale of property and equipment -- -- (625,000)
Common stock issued to acquire assets or in exchange for indebtedness 240,000 -- 355,000
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
ILX RESORTS 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
Resorts Incorporated, formerly 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 ("Vacation Ownership
Interests") in resort properties located in Arizona, Colorado, Florida, Indiana
and Mexico. The Company's operations also include marketing of skin and hair
care products which are not considered significant to resort operations.
Reverse Stock Split
On January 9, 1998, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to effect a one-for-five reverse stock
split of the Company's issued and outstanding shares of common stock. The
reverse stock split has been retroactively reflected in the accompanying
financial statements.
Resort Property Held for Vacation Ownership Interest Sales
Resort property held for Vacation Ownership Interest sales is recorded
at the lower of historical cost less amounts charged to cost of Vacation
Ownership Interests sold or market. As Vacation Ownership 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 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 Vacation Ownership Interests is recognized in
accordance with Statement of Financial Accounting Standard No. 66, Accounting
for Sales of Real Estate ("SFAS 66"). No sales are recognized until such time as
a minimum of 10% of the purchase price has been received in cash, the statutory
rescission period has expired, the buyer is committed to continued payments of
the remaining purchase price and the Company has been released of all future
obligations for the Vacation Ownership 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, Net
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 the
lesser of fair value or the present value of future minimum lease payments as of
the date placed in service, and amortized on the straight-line method over the
term of the lease.
Consolidated Statements of Cash Flows
Cash equivalents are liquid investments with an original maturity of
three months or less. The following summarizes interest paid, income taxes paid
and capitalized interest to resort property under development:
Year Ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
Interest paid $1,271,000 $1,746,000 $2,222,000
Income taxes paid 221,000 723,000 78,000
Capitalized interest 228,000 95,000 213,000
F-7
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Matters
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which was effective for the Company
beginning January 1, 1996. SFAS 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. The Company did not grant any stock options to
employees in 1996 or 1997. The Company intends to continue to apply APB Option
No. 25 to any future stock options that may be granted 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. During 1997, SFAS 125 was adopted and
had no significant impact on the Company's financial position, results of
operations or cash flows.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which
is effective for financial statements for periods ending after December 15, 1997
and establishes standards for disclosing information about an entity's capital
structure. During 1997, SFAS 129 was adopted and had no significant effect on
the Company's disclosures about its capital structure.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for
financial statements for periods beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company does not believe the adoption
of SFAS 130 will have a material impact on its financial statement presentation
or related disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers.
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 current period financial statement presentation.
F-8
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Notes Receivable, Net
Notes receivable consist of the following:
December 31,
----------------------------
1996 1997
------------ ------------
Vacation Ownership Interest notes receivable $ 10,559,309 $ 14,522,191
Holdbacks by financial institutions 3,481,061 4,091,294
Other receivables 275,347 199,164
Allowance for possible credit losses (2,569,997) (2,951,028)
------------ ------------
$ 11,745,720 $ 15,861,621
============ ============
Notes generated from the sale of Vacation Ownership Interests generally
bear interest at annual rates ranging from 11% to 16% and have terms of five to
ten years. The notes are collateralized by deeds of trust on the Vacation
Ownership Interests sold.
The Company has agreements with financial institutions for total
commitments aggregating $20 million 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. Notes may be sold at discounts to yield the consumer
market rate as defined by the financial institution. At December 31, 1997,
approximately $6.0 million is available under these commitments.
The Company also has financing commitments aggregating $19.2 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at prime plus 3.25% to prime plus 5% and expire
at various dates from 1998 through 2000. At December 31, 1997, approximately
$13.0 million is available under these commitments.
At December 31, 1996 and 1997, the Company had approximately $22
million and $24 million, respectively, 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 ("Los Abrigados"), Golden Eagle Resort and Varsity
Clubs of America-South Bend ("VCA-South Bend").
At December 31, 1996 and 1997, the Company had approximately $188,000
and $173,000, respectively, in additional outstanding notes sold on a recourse
basis to related parties.
At December 31, 1997, notes receivable in the amount of approximately
$302,000 have been contributed to the Company's Series A Preferred Stock sinking
fund and therefore their use is restricted (Note 13).
The following summarizes activity in the allowance for possible credit
losses:
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
Beginning balance $ 1,262,483 $ 2,410,900 $ 2,569,997
Provision for doubtful accounts 1,235,417 590,653 702,417
Amounts written off (87,000) (431,556) (321,386)
----------- ----------- -----------
Ending balance $ 2,410,900 $ 2,569,997 $ 2,951,028
=========== =========== ===========
The Company considers all notes receivable past due in excess of 90
days to be delinquent. At December 31, 1997, $3.2 million in principal, or 8.2%,
of the retained notes and notes previously sold, which are recourse to the
Company, were more than 90 days past due.
At December 31, 1996 and 1997, the above allowance includes $440,000
and $480,000 respectively, for notes sold with recourse.
F-9
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Resort Property Held For Vacation Ownership Interest Sales
Resort property held for Vacation Ownership Interest sales consists of
the following:
December 31,
----------------------------
1996 1997
----------------------------
VCA-- South Bend $ 5,692,165 $ 4,421,308
Los Abrigados 4,325,052 3,826,206
Golden Eagle Resort 2,242,947 2,433,410
Kohl's Ranch Lodge 2,110,012 2,054,609
The Inn at Los Abrigados 773,911 1,168,320
Roundhouse Resort -- 715,305
Ventura Resort 63,000 39,000
Costa Vida Resort 40,500 8,500
----------- -----------
$15,247,587 $14,666,658
=========== ===========
In September 1994, the Company acquired, for $15,000, an option from an
affiliate to purchase 667 Vacation Ownership Interests in Los Abrigados that
were sold in 1992. 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 Vacation
Ownership Interests per month and, in addition, up to one half of the remainder
of the 667 Vacation Ownership Interests per year, for $2,100 per Vacation
Ownership Interest. 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 560 Vacation Ownership Interests
under this option as of December 31, 1997.
Varsity Clubs of America Incorporated ("Varsity Clubs"), 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 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. The Company is currently constructing a second
Varsity Club in Tucson, Arizona (Note 5).
The Company acquired approximately one-half acre of improved property,
to be known as the Inn at Los Abrigados, adjacent to Los Abrigados, 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. The Company made improvements to the
property through late November 1997 when it commenced resort operations.
Vacation Ownership Interest sales are expected to begin in 1998.
In December 1997, the Company acquired the Roundhouse Resort, an
existing 59-unit Vacation Ownership Interest resort with approximately five
acres of developable land located in Pinetop/Lakeside, Arizona. The purchase
price of $700,000 was financed by the issuance of a note payable. The Company
intends to construct additional Vacation Ownership Interests on the property
commencing in 1998.
F-10
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Net Income Per Share
In accordance with SFAS No. 128, "Earnings Per Share," the following
presents the computation of basic and diluted net income per share:
<TABLE>
<CAPTION>
Basic Net Income Per Share
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 624,663 $ 1,051,116 $ 1,667,873
Less: Series A preferred stock dividends -- (47,969) (47,894)
Series C convertible preferred stock cumulation share
dividends (29,047) (29,047) (29,052)
----------- ----------- -----------
Net income available to common stockholders - basic $ 595,616 $ 974,100 $ 1,590,927
=========== =========== ===========
Weighted average shares of common stock outstanding - basic 2,520,165 2,566,132 2,635,418
=========== =========== ===========
Basic net income per share $ 0.24 $ 0.38 $ 0.60
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Diluted Net Income Per Share
Year Ended December 31,
----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 624,663 $ 1,051,116 $ 1,667,873
Less: Series A preferred stock dividends -- (47,969) (47,894)
----------- ----------- -----------
Net income available to common stockholders -- diluted $ 624,663 $ 1,003,147 $ 1,619,979
=========== =========== ===========
Weighted average shares of common stock outstanding 2,520,165 2,566,132 2,635,418
Add: Convertible preferred stock (Series B and Series C)
dilutive effect 119,492 116,827 111,875
----------- ----------- -----------
Weighted average shares of common stock outstanding -- Diluted 2,639,657 2,682,959 2,747,293
=========== =========== ===========
Diluted net income per share $ 0.24 $ 0.37 $ 0.59
=========== =========== ===========
</TABLE>
Stock options to purchase 60,400 shares of common stock at prices
ranging from $7.50 per share to $8.125 per share were outstanding at December
31, 1997 but were not included in the computation of diluted net income per
share because the options' exercise prices were greater than the average market
price of common shares. These options expire at various dates between 1999 and
2004.
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. The Company made a down payment of $300,600 with the remaining
balance of $701,400 financed by a note payable to the seller. Construction of
the facility commenced in 1997 and is expected to be completed in 1998. The
Company has a commitment for construction financing in the amount of $6.55
million (Note 9), which is expected to be sufficient to build and furnish the
property.
Note 6. Deferred Assets
As part of the acquisition of Los Abrigados, 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 was payable to the affiliates at the rate of $100
per Los Abrigados Vacation Ownership Interest sold. At December 31, 1996 and
1997, deferred assets included $287,400 and $195,150, respectively, of guarantee
fees, net of accumulated amortization.
As additional consideration for the guarantee, the affiliates were
entitled to receive a percentage of certain amounts held back on the sale of
notes receivable by a financial institution as collateral. The amount was paid
as the amounts held back were collected from the financial institution.
F-11
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Property and Equipment, Net
Property and equipment consists of the following:
December 31,
-------------------------------
1996 1997
----------- -----------
Land $ 1,658,500 $ 379,704
Buildings and improvements 3,290,834 3,428,956
Leasehold improvements 498,198 5,719
Furniture and fixtures 415,714 498,645
Office equipment 269,129 318,020
Computer equipment 156,611 228,812
Vehicles 26,829 56,279
----------- -----------
6,315,815 4,916,135
Accumulated depreciation (1,438,348) (1,443,236)
----------- -----------
$ 4,877,467 $ 3,472,899
=========== ===========
In March 1996, the Company, through a subsidiary, became the general
partner of the limited partnership that owns Lomacasi Cottages in Sedona,
Arizona, a 5.27-acre property approximately one mile from Los Abrigados. At
December 31, 1996, property and equipment, net of accumulated depreciation,
included $2,162,280 related to Lomacasi Cottages, which served as collateral for
two notes payable aggregating $2,156,842 at December 31, 1996 (Note 9). In
December 1997, the Company sold its general partner interest in Lomacasi
Cottages to a non-affiliated buyer. In connection with the sale, the buyer
assumed the notes payable and the Company received as consideration 100,000
shares of its common stock valued at $625,000 resulting in a gain on the sale of
$356,000.
Note 8. Income Taxes
Deferred income tax assets (liabilities) included in the consolidated
balance sheets consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables $ 871,000 $ 983,000
Tax basis in excess of book on resort property held for Vacation
Ownership Interest sales 494,000 125,000
Deferred startup expenses for tax purposes 270,000 181,000
Intangible assets capitalized for tax purposes 21,000 20,000
Minority interest allocation in excess of tax 270,000 390,000
Alternative minimum tax credit 121,000 247,000
Net operating loss carryforwards 1,822,000 2,546,000
Other 41,000 177,000
----------- -----------
Total deferred tax assets 3,910,000 4,669,000
----------- -----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes (2,595,000) (4,288,000)
Tax amortization of loan fees in excess of book (136,000) (77,000)
----------- -----------
Total deferred tax liabilities (2,731,000) (4,365,000)
----------- -----------
Deferred income taxes $ 1,179,000 $ 304,000
=========== ===========
</TABLE>
F-12
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the income tax expense (benefit) and the amount
that would be computed using statutory federal income tax rates is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal, computed on income before minority
interest and income taxes $ 197,000 $ 779,000 $ 1,017,000
Minority interest (170,000) (191,000) (60,000)
State, computed on income after minority interest
and before income taxes 58,000 91,000 169,000
Deferred tax adjustment 128,000 -- --
Decrease in valuation allowance (760,000) -- --
Other -- -- 19,000
----------- ----------- -----------
Income tax expense (benefit) $ (547,000) $ 679,000 $ 1,145,000
=========== =========== ===========
</TABLE>
The Company reports substantially all Vacation Ownership Interest sales
that it finances on the installment method for Federal income tax purposes.
Under the installment method, the Company does not recognize income on the
financed portion of sales of Vacation Ownership Interests, until the installment
payments on customer receivables are received by the Company or the customer
receivables are sold by the Company. Interest will be imposed, however, on the
amount of tax attributable to the installment payments for the period beginning
on the date of sale and ending on the date the related tax is paid. If the
Company is otherwise not subject to tax in a particular year, no interest is
imposed since the interest is based on the amount of tax paid in that year. The
consolidated financial statements do not contain an accrual for any interest
expense that would be paid on the deferred taxes related to the installment
method. The amount of interest expense is not estimable as of December 31, 1997.
The Company is subject to Alternative Minimum Tax ("AMT") as a result
of the deferred income that results from the installment sales treatment of
timeshare sales for regular tax purposes. The AMT liability creates a deferred
tax asset that can be used to offset any future tax liability from regular
Federal income tax. This deferred tax asset has an unlimited carryover period.
In 1994, due to the profitability of Los Abrigados, the improvement in
the Arizona real estate market and the development of tax strategies, which
include the acquisition by Genesis of Vacation Ownership 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
("NOL") carryforwards and the remainder of Los Abrigados tax benefits would be
utilized. Accordingly, the valuation allowance was reduced in 1994. In 1995, due
to the continued expansion and profitability of Vacation Ownership Interests
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, 1997, the Company, excluding Genesis, had NOL
carryforwards of approximately $4,756,000, which expire in 2001 through 2012. At
December 31, 1997, Genesis had federal NOL carryforwards of approximately
$1,892,000 which are limited as to usage because they arise from built in losses
of an acquired company. In addition, such losses can only be utilized through
the earnings of Genesis and are limited to a maximum of $189,000 per year. To
the extent the entire $189,000 is not utilized in a given year, the difference
may be carried forward to future years. Any unused Genesis NOLs will expire in
2008.
In addition, Section 382 of the Internal Revenue Code imposes
additional limitations on the utilization of NOLs by a corporation following
various types of ownership changes which result in more than a 50% change in
ownership of a corporation within a three year period. Such changes may occur as
a result of new common stock issuances by the Company or changes occurring as a
result of filings with the Securities and Exchange Commissions on Schedule 13D
and 13G by holders of more than 5% of the Common Stock, whether involving the
acquisition or disposition of common stock. If such a subsequent change occurs,
the limitations of Section 382 would apply and may limit or deny the future
utilization of the net operating loss by the Company, which could result in the
Company paying substantial additional federal and state taxes.
F-13
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Construction note payable, collateralized by deed of trust on VCA-Tucson,
interest at 12% plus $100 per annual Tucson Vacation Ownership
Interest sold, due through 2001 $ 300,000 $ 3,111,924
Note payable, collateralized by 200,000 shares of the Company's common
stock pledged by an affiliate, interest at 12%, due through 2002 -- 2,316,746
Note payable, collateralized by consumer notes receivable and deed of trust
on Kohl's Ranch Lodge, interest at prime plus 4% (12.5% at
December 31, 1997), due through 2003 1,787,228 2,052,473
Construction note payable, collateralized by deed of trust on VCA-South
Bend, interest at 13%, due through 1988 2,797,733 1,490,823
Note payable, collateralized by deed of trust on Kohl's Ranch Lodge, interest
at prime plus 4% (12.5% at December 31, 1997), due through 2000 -- 1,362,120
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 1,349,990
Note payable, collateralized by deed of trust on Los Abrigados, interest at
prime plus 1.25% (9.75% at December 31, 1997), due through 1999 1,572,167 1,293,167
Note payable, collateralized by notes receivable and deed of trust on Golden
Eagle Resort, interest at prime plus 4% (12.5% at December 31, 1997),
due through 2002 1,068,541 1,235,673
Note payable, collateralized by first deed of trust on the Inn at Los Abrigados,
interest at prime plus 4% (12.5% at December 31, 1997), due through 2000 564,138 750,000
Note payable, collateralized by deed of trust on Roundhouse Resort, interest at
prime plus 3.5% (12.0% at December 31, 1997), due through 1998 -- 700,000
Obligations under capital leases with interest at 9.5% to 14.7% (Note 16) 906,309 686,760
Note payable, collateralized by LAP partnership interest, interest at 8%, due
through 2002 -- 675,000
Note payable, collateralized by 285 Vacation Ownership Interests in Los
Abrigados, interest at prime plus 4% (12.5% at December 31, 1997), due
through 2000 -- 523,500
Lines of credit aggregating $2,000,000, interest at prime plus 1.5% to prime
plus 2%, due through 1998 -- 500,000
Note payable, collateralized by deed of trust, interest at 8.5%, due through 2002 -- 437,503
Note payable, collateralized by VCA-South Bend consumer notes receivable,
interest at prime plus 3.25% (11.75 at December 31, 1997), due through 2003 135,840 310,278
Note payable, collateralized by Los Abrigados, consumer notes receivable,
interest at prime plus 5% (13.5% at December 31, 1997), due through 2003 330,953 272,201
Note payable, collateralized by Kohl's Ranch consumer notes receivable, interest
at prime plus 5% (13.5% at December 31, 1997), due through 2003 265,489 262,358
Note payable, collateralized by second deed of trust on Kohl's Ranch Lodge,
interest at 8%, due through 2000 190,450 156,526
Note payable, collateralized by 122 Vacation Ownership Interests in Kohl's
Ranch Lodge, interest at 10% due December 1999, convertible to common stock
at $7.50 per share collateralized by Kohl's Ranch Lodge consumer
notes receivable -- 150,000
</TABLE>
F-14
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Note payable, interest at prime plus 3.5% (12.0% at December 31, 1997), due
through 2005 -- 77,842
Note payable, collateralized by consumer notes receivable and deed of trust on
Los Abrigados, interest at prime plus 4% (12.5% at December 31, 1997), due
through 1998 140,668 58,636
Note payable, collateralized by deed of trust, interest at 7.375%, due through
2001 54,996 44,309
Other -- 66,650
Notes payable repaid or extinguished in 1997 3,302,594 --
----------- -----------
$14,867,096 $19,884,479
=========== ===========
</TABLE>
At December 31, 1997, approximately $15.8 million of the Company's
notes payable have scheduled payment terms that may be accelerated based on
established release prices related to future Vacation Ownership Interest sales
or are dependent on the amount of mortgage notes receivable pledged as
collateral. The maturities of these notes are included below based on their
scheduled repayment terms and maturities. Future contractual maturities of notes
payable and capitalized leases at December 31, 1997 are as follows:
1998 $ 6,053,856
1999 1,357,384
2000 2,054,078
2001 3,248,636
2002 4,195,373
Thereafter 2,975,152
------------
$ 19,884,479
============
Note 10. Notes Payable to Affiliates
Notes payable to affiliates consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Note payable, collateralized by LAP partnership interest, interest at 8%,
due through 2002 $ -- $ 1,200,000
Note payable, collateralized by LAP partnership interest, interest at 8%,
due through 1999 909,078 909,078
Other -- 57,022
Notes payable repaid or extinguished in 1997 658,209 --
------------ ------------
$ 1,567,287 $ 2,166,100
============ ============
</TABLE>
Future maturities of notes payable to affiliates at December 31, 1997 are as
follows:
1998 $ 257,022
1999 1,109,078
2000 200,000
2001 200,000
2002 400,000
------------
$ 2,166,100
============
F-15
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total interest expense on notes payable to affiliates for the years
ended December 31, 1995, 1996 and 1997 was approximately $222,000, $158,000 and
$147,000, respectively.
Note 11. Minority Interests
Minority interests consisted primarily of the Company's interests in
LAP, the Arizona limited partnership that owns and operates Los Abrigados.
Through August 1997, the Company held a 78.5% interest in LAP and the 21.5%
minority interest was held by Class B limited partners. In August 1997, the
Company acquired the Class B Limited Partnership Interest in LAP for a purchase
price of $2,920,000 consisting of $820,000 cash, the issuance of 20,000 shares
of the Company's common stock valued at $6.25 per share, and the issuance of
promissory notes in the amounts of $1,300,000 and $675,000 (Notes 9 and 10).
Note 12. Commitments and Contingencies
Operating Leases
Future minimum lease payments on noncancelable operating leases at
December 31, 1997 are as follows:
1998 $ 263,000
1999 206,000
2000 171,000
2001 107,000
2002 9,000
------------
$ 756,000
============
Total rent expense for the years ended December 31, 1995, 1996 and 1997
was approximately $490,000, $443,000 and $532,000, respectively.
Legal Proceedings
Although the Company may be subject to litigation from time to time in
the ordinary course of its business, it is not a party to any pending or
threatened legal proceedings that it believes will have a material impact on its
business.
Note 13. Shareholders' Equity
Preferred Stock
At December 31, 1996 and 1997, preferred stock includes 60,152 and
59,845 shares of the Company's Series A Preferred Stock carried at $601,520 and
$598,450, 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 were paid of
$47,969 in 1996 and $47,894 in 1997. Commencing January 1, 1993, on a quarterly
basis, the Company must contribute $100 per Vacation Ownership Interest sold in
Los Abrigados to a mandatory dividend sinking fund. At December 31, 1997, notes
receivable in the amount of approximately $302,000 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 redeemed 5,035 shares of Series A Preferred Stock for $12,000 in 1996.
At December 31, 1996 and 1997, preferred stock also 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 five
shares of preferred stock.
F-16
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Both the Series A and Series B preferred stock may, at the holder's
election, be exchanged for Los Abrigados Vacation Ownership Interests at the
rate of 1,000 shares of stock plus $2,100 cash per Vacation Ownership Interest.
Through September 1996, these shares could also have been exchanged for lodging
certificates under certain conditions.
At December 31, 1996 and 1997, preferred stock also includes 276,957
and 265,623 shares of the Company's Series C Convertible Preferred Stock carried
at $762,723 and $731,441, 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 one share of common stock for
three shares of Series C Preferred Stock and one share of ILX common stock for
each $30 in Dividend Arrearages. For the years ended December 31, 1995, 1996 and
1997, 7,524, 13,515 and 11,334 Series C Convertible shares were exchanged for
2,508, 4,505 and 3,778 common shares, respectively. For the years ended December
31, 1995, 1996, and 1997, 372, 702 and 797 common shares were issued to
exchanging shareholders for their 1995, 1996 and 1997 dividend arrearage,
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 March 1994, the Company issued warrants for 20,000 shares of ILX
restricted common stock exercisable at a price of $8.125 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. The warrants expired
without being exercised on June 30, 1997.
During 1995, 4,923 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 10,000
shares of restricted common stock in 1995 and 10,000 shares in 1996. The shares
were valued at $5.9375 per share and the cost was recognized over a one-year
period. In addition, during 1995, the Company granted options for 80,000 shares
of common stock at $6.25 per share and 20,000 shares of common stock at $8.125
per share. During 1996, options for 50,000 shares were exercised at $6.25.
In June 1995, the Company issued 24,000 shares of restricted Common
Stock as partial consideration for the acquisition of Kohl's Ranch Lodge.
In June 1997, the Company entered into an agreement with EVEREN
Securities, Inc. ("ESI") for ESI to act as ILX's exclusive financial advisor,
investment bankers and agent with respect to evaluation of alternatives to
position ILX for long-term growth and to enhance shareholder value. In exchange
for the services, ILX issued 12,000 shares of ILX common stock on August 1, 1997
and will issue an additional 12,000 shares in March 1998. The shares issued and
to be issued have been valued at $112,500. In accordance with the terms of the
agreement, ILX has registered with the Securities and Exchange Commission the
shares issued in August and will likewise cause the shares to be issued in
February to be so registered. The parties intend for the agreement to remain in
effect for a minimum of one year.
For the years ended December 31, 1995, 1996 and 1997, the Company
issued 7,220, 14,500 and 17,240 shares of restricted common stock, or Treasury
stock, valued at $26,837, $52,000 and $49,387, respectively, to employees in
exchange for services provided.
Note 14. Employee Stock Option Plans
The Company has 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
F-17
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Plans 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
that may be issued under the Plans shall not exceed 268,275 shares.
Stock option transactions are summarized as follows:
Outstanding at December 31, 1994 65,600
Options granted 110,000
Options canceled (1,000)
-------
Outstanding at December 31, 1995 174,600
Options exercised (50,000)
Options canceled (58,600)
-------
Outstanding at December 31, 1996 66,000
Options canceled (5,600)
-------
Outstanding at December 31, 1997 60,400
=======
The exercise price for options granted in 1995 ranged from $6.25 to
$8.125 per share and includes options for 10,000 shares granted to directors.
The exercise price for options exercised in 1996 was $6.25 per share for 50,000
shares. The exercise price for options outstanding at December 31, 1997 ranged
from $7.50 to $8.125 per share. Options outstanding at December 31, 1997 have
expiration dates as follows:
Year Ending Options for
December 31, Shares
------------ ------
1999 12,500
2000 10,000
2004 37,900
------
60,400
======
Note 15. Related Party Transactions
In addition to the related party transactions described elsewhere in
the financial statements, the Company had the following related party
transactions:
The Company leased from affiliates through October 1, 1996, 41 Vacation
Ownership Interests in the Stonehouse at Los Abrigados at the rate of $1,000 per
Vacation Ownership Interest per year. The Company paid $41,000 and $30,750 per
year in lease payments to affiliates for the years ended December 31, 1995 and
1996. The affiliates paid maintenance fees to the Company on an annual basis for
their ownership intervals of $650 per interval in 1995 and $714 per interval in
1996.
In June 1995, an affiliate of the Company purchased twenty-four (24)
one-night intervals in VCA-South Bend for $90,000.
In December 1995, in exchange for modification of the terms of note
payables to affiliates, the Company provided the affiliates with the option to
convert, at maturity, the $580,000 note balances into shares of ILX common stock
at the price of $10 per share. In July 1997, the Company issued 36,800 shares of
its common stock in exchange for $230,000 of the balance on this note. In
conjunction with the exchange, 100 Vacation Ownership Interests in Los
Abrigados, which collateralized the note, were released.
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 affiliate of $320,000 in
December 1995, and, in January 1996, payment by the affiliate of the $180,000
note collateralized by a deed of trust on the building. The Company leased
F-18
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and $48,000 in 1997.
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.
In September 1996, the Company purchased from an affiliate twenty
Vacation Ownership Interests in the Stonehouse at Los Abrigados for $260,000.
Subsequently, the affiliate purchased 52 Vacation Ownership Interests in Kohl's
Ranch for $260,000.
Note 16. Capital Leases
Leased assets included in resort property held for Vacation Ownership
Interest sales and property and equipment totaled $1,097,720 and $1,132,033 (net
of accumulated amortization of $369,880 and $456,032) at December 31, 1996 and
1997, respectively. The leases expire through 2000. Future minimum lease
payments at December 31, 1997 are as follows:
1998 $ 366,848
1999 306,057
2000 113,246
-----------
Total 786,151
Less: Amounts representing interest (99,391)
-----------
Net minimum lease payments $ 686,760
===========
Note 17. Concentrations of Risk
Credit Risk
The Company is exposed to on-balance sheet credit risk related to its
notes receivable. The Company is exposed to off-balance sheet credit risk
related to loans sold under recourse provisions.
The Company offers financing to the buyers of Vacation Ownership
Interests at the Company's resorts. These buyers make a down payment of at least
10% of the purchase price and deliver a promissory note to the Company for the
balance; the promissory notes generally bear interest at a fixed rate, are
payable over a seven-year period and are collateralized by a first mortgage on
the Vacation Ownership Interest. The Company bears the risk of defaults on these
promissory notes. The Company performs credit evaluations prior to Vacation
Ownership Interest sales. The Vacation Ownership Interests deed of trust serves
as collateral on the note receivable. If a buyer of a Vacation Ownership
Interest defaults, the Company generally must foreclose on the interest and
attempt to resell it; the associated marketing, selling and administrative costs
from the original sale are not recovered; and such costs must be incurred again
to resell the Vacation Ownership Interest.
Interest Rate Risk
Because the Company's indebtedness bears interest at variable rates and
the Company's customer receivables bear interest at fixed rates, increases in
interest rates could cause the rate on the Company's borrowings to exceed the
rate at which the Company provides financing to its customers. The Company does
not engage in interest rate hedging transactions. Therefore, any increase in
interest rates, particularly if sustained, could have a material adverse effect
on the Company's results of operations, cash flows and financial position.
Availability of Funding Sources
The Company funds substantially all of the notes receivable, resort
property held for Vacation Ownership Interest sale and land inventory which it
originates or purchases with sales of consumer notes, borrowings through its
financing facilities and internally generated funds. Borrowings are in turn
repaid with the proceeds received by the Company from sales of notes receivable
F-19
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or from repayments by consumers of such notes receivable. To the extent that the
Company is not successful in maintaining or replacing existing financings, it
would have to curtail its operations or sell assets, thereby having a material
adverse effect on the Company's results of operations, cash flows and financial
condition.
Geographic Concentration
The Company's notes receivable are primarily originated in Arizona and,
to a lesser extent, Indiana. The risk inherent in such concentrations is
dependent upon regional and general economic stability that affects property
values and the financial stability of the borrowers. The Company's resort
property held for Vacation Ownership Interests sales is also concentrated in
these states. The risk inherent in such concentrations is in the continued
popularity of the resort destinations, which affects the marketability of the
Company's products and the collection of notes receivable.
Notes 18. Disclosures about Fair Values of Financial Instruments
SFAS 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates their fair value because of the short maturity of these
instruments.
Notes receivable
The carrying amount reported in the balance sheet for notes receivable
approximates its fair value because the interest rates on the portfolio of notes
receivable approximate current interest rates to be received on similar current
notes receivable.
Notes payable
The carrying amount reported in the balance sheet for notes payable
approximates its fair value because the interest rates on these instruments
approximate current interest rates charged on similar current borrowings.
Notes payable to affiliates
The fair value of the notes payable to affiliates is not determinable
since these financial instruments are not readily marketable and are payable to
affiliates.
Note 19. Subsequent Events
On February 2, 1998, the Company filed with the Securities and Exchange
Commission a Registration Statement related to the proposed public offering by
the Company of shares of its common stock.
F-20
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. 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 $7,401,871 $8,118,675 $8,442,002 $7,618,679
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 - basic .03 .09 .18 .07
Net income per share - diluted .03 .09 .18 .07
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Three Months Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $7,783,805 $8,942,588 $9,997,859 $9,686,494
Operating income 714,647 1,271,352 1,335,128 1,399,022
Net income 106,204 422,823 457,019 681,827
Net income per share - basic .03 .15 .16 .25
Net income per share - diluted .03 .15 .16 .24
</TABLE>
F-21
<PAGE>
Exhibits
to
1997 Form 10-K
ILX RESORTS INCORPORATED
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Numbers or
Numbers Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
1 Form of Underwriting Agreement Incorporated by reference
to Registration Statement
on Form S-1 No. 333-45403
3(i).1 Articles of Incorporation of International Leisure Enterprises Incorporated by reference
Incorporated (filed October 8, 1986) to Registration Statement
on Form S-1 No. 33-16122
3(i).2 Articles of Amendment to the Articles of Incorporation of International Incorporated by reference
Leisure Enterprises Incorporated (filed August 31, 1987) to 1990 10-K
3(i).3 Articles of Amendment to the Articles of Incorporation of International Incorporated by reference
Leisure Enterprises Incorporated (filed October 19, 1987) to 1994 10-K/A-3
3(i).4 Articles of Amendment to the Articles of Incorporation of International Incorporated by reference
Leisure Enterprises Incorporated (filed May 3, 1990) to 1994 10-K/A-3
3(i).5 Articles of Amendment to the Articles of Incorporation of International Incorporated by reference
Leisure Enterprises Incorporated (Name changed by this Amendment to ILX to 1993 10-K
Incorporated), (filed June 28, 1993)
3(i).6 Certificate of Amendment to Articles of Incorporation, filed January 12, Incorporated by reference
1998 to Registration Statement
on Form S-1 No. 333-45403
3(i).7 Articles of Correction, filed January 22, 1998, to correct Certificate Incorporated by reference
of Amendment to Articles of Incorporation, dated January 12, 1998 to Registration Statement
on Form S-1 No. 333-45403
3(i).8 Certificate of Designation, Preferences, Rights, and Limitations of Incorporated by reference
Series A Preferred Stock, $10.00 par value of International Leisure to 1991 10-K
Enterprises Incorporated, filed September 5, 1991
3(i).9 Certificate of Designation, Preferences, Rights, and Limitations of Incorporated by reference
Series B Preferred Stock, $10.00 par value of International Leisure to 1991 10-K
Enterprises Incorporated, filed September 5, 1991
3(ii).10 Certificate of Designation of Series C Preferred Stock, filed April 30, Incorporated by reference
1993 to 1993 10-K
3.(ii) Amended and Restated Bylaws of International Leisure Enterprises Incorporated by reference
Incorporated, dated October 26, 1987 to 1990 10-K
4 Form of Common Stock Certificate Incorporated by reference
to Form 8-A, filed
February 4, 1998
10.1 1992 Stock Option Plan Incorporated by reference
to 1992 10-K
10.2 1995 Stock Option Plan Incorporated by reference
to 1995 10-K
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Numbers or
Numbers Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10.3 Agreement and Plan of Merger among ILE Acquisition Corporation, Incorporated by reference
International Leisure Enterprises Incorporated and Genesis to 1992 10-K
Investment Group, Inc., dated March 15, 1993
10.4 First Amendment to Agreement and Plan of Merger between ILE Incorporated by reference
Acquisition Corporation, International Leisure Enterprises to 1993 10-K
Incorporated and Genesis Investment Group, Inc., dated April 22,
1993
10.5 Agreement among ILX Incorporated, Martori Enterprises Incorporated, Incorporated by reference
Los Abrigados Partners Limited Partnership, Red Rock Collection to 1995 10-K
Incorporated, Edward John Martori and Joseph P. Martori as Trustee
for Cynthia J. Polich Irrevocable Trust dated December 29, 1995
10.6 Lease Agreement between Edward John Martori and Red Rock Collection Incorporated by reference
Incorporated, dated December 29, 1995 to 1995 10-K
10.7 First Amended Certificate of Limited Partnership and Amended Incorporated by reference
Agreement of Los Abrigados Partners Limited Partnership, dated to 1991 10-K
September 9, 1991
10.8 Certificate of Amendment of Limited Partnership for Los Abrigados Incorporated by reference
Partners Limited Partnership, dated November 11, 1993 to 1994 10-K/A-3
10.9 First Amendment to Amended Agreement of Los Abrigados Partners Incorporated by reference
Limited Partnership, dated February 9, 1996 to 1995 10-K
10.10 Deed of Trust and Assignment of Rents to Cynthia J. Polich Incorporated by reference
Irrevocable Trust and Edward John Martori by Los Abrigados Partners to 9/30/95 10-Q/A
Limited Partnership, dated July 27, 1995
10.11 Real Estate Purchase Contract between Indian Wells Partners, Ltd., Incorporated by reference
Los Abrigados Partners Limited Partnership and International Leisure to 1992 10-K
Enterprises Incorporated, dated December 18, 1992
10.12 Option Agreement between Indian Wells Partners, Ltd. and Martori Incorporated by reference
Enterprises Incorporated, dated March 31, 1994 to 1994 10-K/A-3
10.13 Assignment of Option by Martori Enterprises Incorporated to Genesis Incorporated by reference
Investment Group, Inc., dated September 15, 1994 to 1994 10-K/A-3
10.14 Lease Agreement between Indian Wells Partners, Ltd. and Los Incorporated by reference
Abrigados Partners Limited Partnership, dated December 21, 1992 to 1992 10-K
10.15 Second Amendment to Lease Agreement between Indian Wells Partners, Incorporated by reference
Ltd. and Los Abrigados Partners Limited Partnership, dated March 31, to 1994 10-K/A-3
1994
10.16 Contract of Sale of Membership Agreements and Installment Purchase Incorporated by reference
Agreements with Recourse between Resort Funding, Inc. and Los to 1993 10-K
Abrigados Partners Limited Partnership, dated September 14, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Numbers or
Numbers Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10.17 Agreement for Purchase and Sale of Kohl's Ranch between Kohl's Ranch Incorporated by reference
Associates and ILX Incorporated, dated March 10, 1995 (Kohl's Ranch) to 6/30/95 1O-Q/A-2
10.18 First Amended Certificate of Limited Partnership and Amended Incorporated by reference
Agreement of The Sedona Real Estate Limited Partnership #1, dated to 1995 10-K
March 1, 1996 (Lomacasi Resort)
10.19 Letter Agreement dated February 27, 1996 (Lomacasi Resort) Incorporated by reference
to 1995 10-K
10.20 Articles of Limited Partnership between Hotel Syracuse Timeshare Incorporated by reference
Corporation and Syracuse Project Incorporated, dated August 15, 1995 to 9/30/95 10-Q/A
10.21 Agreement of Purchase and Sale of Real Property, Improvements and Incorporated by reference
Associated Personalty between Hotel Syracuse, Inc. and Orangemen to 9/30/95 10-Q/A
Club Limited Partnership, dated September 12, 1995
10.22 Letter of Commitment between Resort Service Company, Inc. and Incorporated by reference
Orangemen Club Limited Partnership, dated August 9, 1995 to 9/30/95 10-Q/A
10.23 Service Agreement between Hotel Syracuse, Inc. and Orangemen Club Incorporated by reference
Limited Partnership, dated September 12, 1995 to 9/30/95 10-Q/A
10.24 Consulting Agreement between Investor Resource Services, Inc. and Incorporated by reference
ILX Incorporated, dated January 1, 1997 to 1/1/97 8-K
10.25 Consulting Agreement between Universal Solutions, Inc. and ILX Incorporated by reference
Incorporated to 1/7/97 8-K
10.26 Secured Promissory Note ($770,000) by Los Abrigados Partners Limited Incorporated by reference
Partnership to Martori Enterprises, Inc. dated August 31, 1992 to Registration Statement
on Form S-1 No. 333-45403
10.27 Assignment of Deeds of Trust to Martori Enterprises Inc. by Los Incorporated by reference
Abrigados Partners Limited Partnership, dated August 31, 1992 to Registration Statement
on Form S-1 No. 333-45403
10.28 Agreement for Transfer of Limited Partnership Interest between ILX, Incorporated by reference
Inc and Martori Enterprises Inc., dated August 8, 1997 to Form 8-K, filed August
22, 1997
10.29 Installment Promissory Note ($1,300,000) by ILX, Inc. to Martori Incorporated by reference
Enterprises Inc., dated August 8, 1997 to Form 8-K, filed August
22, 1997
10.30 Security Agreement between ILX, Inc. and Martori Enterprises Inc., Incorporated by reference
dated August 8, 1997 to Form 8-K, filed August
22, 1997
10.31 Amended and Restated Promissory Note ($909,078) by ILX, Inc. to Incorporated by reference
Edward J. Martori, dated January 1, 1996 to Registration Statement
on Form S-1 No. 333-45403
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Numbers or
Numbers Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10.32 Promissory Note ($250,000) by Los Abrigados Partners Limited Incorporated by reference
Partnership and ILX, Inc. to Joseph P. Martori as Trustee for the to Registration Statement
Cynthia J. Polich Irrevocable Trust, dated January 1, 1996 on Form S-1 No. 333-45403
10.33 Agreement for Transfer of Limited Partnership Interest by ILX, Inc. Incorporated by reference
and Alan R. Mishkin, dated August 29, 1997 to Form 8-K, filed August
22, 1997
10.34 Installment Promissory Note ($675,000) by ILX, Inc. to Alan R. Incorporated by reference
Mishkin dated September 24, 1997 to Form 8-K, filed August
22, 1997
10.35 Security (Pledge) Agreement between ILX, Inc. and Alan R. Mishkin, Incorporated by reference
dated September 24, 1997 to Form 8-K, filed August
22, 1997
10.36 Form of Employment Agreement among ILX Resorts Incorporated and each Incorporated by reference
of Joseph Martori, Nancy Stone and Edward Zielinski to Registration Statement
on Form S-1 No. 333-45403
10.37 Letter Agreement between Texas Capital Securities and ILX Incorporated by reference
Incorporated, dated January 7, 1997 to Registration Statement
on Form S-1 No. 333-45403
10.38 Assumption Agreement among Investor Resource Services, Inc., ILX, Incorporated by reference
Inc., and Martori Enterprises Incorporated, dated January 1, 1997 to Form 8-K, filed May
20, 1997
10.39 Assumption Agreement among Texas Capital Securities, ILX, Inc. and Incorporated by reference
Martori Enterprises, Inc., dated January 7, 1997 to Form 8-K, filed May
20, 1997
10.40 Stock Purchase Agreement between Genesis Investment Group, Inc. and Incorporated by reference
Goodyear 93, L.L.C., dated December 5, 1997 to Registration Statement
on Form S-1 No. 333-45403
10.41 Option Agreement between Texas Capital Securities and ILX Inc., Incorporated by reference
dated January 7, 1997 to Form 8-K, filed
January 7, 1997
10.42 Agreement for Purchase and Sale of Debbie Reynolds Hotel & Casino Incorporated by reference
between Debbie Reynolds Hotel & Casino, Inc. and Debbie Reynolds to 9/30/96 10-Q
Resorts, Inc. and ILX, dated October 30, 1996
10.43 Financing Agreement between Martofi Enterprises Incorporated and Incorporated by reference
International Leisure Enterprises Incorporated, dated January 13, to 1992 10-K
1992
10.44 Financing Agreement between Martori Enterprises Incorporated and Los Incorporated by reference
Abrigados Partners Limited Partnership, dated August 31, 1992 to 1991 10-K
10.45 Secured Promissory Note and Security Agreement and Financing Incorporated by reference
Agreement between Martori Enterprises Incorporated and International to 1993 10-K
Leisure Enterprises Incorporated, dated June 11, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Numbers or
Numbers Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
21 List of Subsidiaries of ILX Resorts Incorporated Incorporated by reference
to Registration Statement
on Form S-1 No. 333-45403
23 Consent of Deloitte & Touche LLP Filed herewith
27.1 Financial Data Schedule - Year Ended December 31, 1997 Filed herewith
27.2 Financial Data Schedule - Nine Months Ended September 30, 1997 Filed herewith
27.3 Financial Data Schedule - Six Months Ended June 30, 1997 Filed herewith
27.4 Financial Data Schedule - Three Months Ended March 31, 1997 Filed herewith
27.5 Financial Data Schedule - Year Ended December 31, 1996 Filed herewith
27.6 Financial Data Schedule - Nine Months Ended September 30, 1996 Filed herewith
27.7 Financial Data Schedule - Six Months Ended June 30, 1996 Filed herewith
27.8 Financial Data Schedule - Three Months Ended March 31, 1996 Filed herewith
27.9 Financial Data Schedule - Year Ended December 31, 1995 Filed herewith
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-22509 and 333-03151 of ILX Resorts Incorporated on Form S-3 of our report
dated March 6, 1998, appearing in this Annual Report on Form 10-K of ILX Resorts
Incorporated for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS DECEMBER 31, 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,226,038
<SECURITIES> 0
<RECEIVABLES> 18,812,649
<ALLOWANCES> 2,951,028
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,916,135
<DEPRECIATION> 1,443,236
<TOTAL-ASSETS> 43,722,313
<CURRENT-LIABILITIES> 0
<BONDS> 22,050,579
0
1,384,891
<COMMON> 10,267,667
<OTHER-SE> 4,968,235
<TOTAL-LIABILITY-AND-EQUITY> 43,722,313
<SALES> 23,980,707
<TOTAL-REVENUES> 36,410,746
<CGS> 3,218,850
<TOTAL-COSTS> 31,719,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 702,417
<INTEREST-EXPENSE> 2,084,969
<INCOME-PRETAX> 2,991,180
<INCOME-TAX> 1,145,000
<INCOME-CONTINUING> 1,667,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,667,873
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,218,261
<SECURITIES> 0
<RECEIVABLES> 18,955,939
<ALLOWANCES> 3,022,521
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,441,022
<DEPRECIATION> 1,258,918
<TOTAL-ASSETS> 43,860,232
<CURRENT-LIABILITIES> 0
<BONDS> 22,360,783
0
1,384,891
<COMMON> 10,275,111
<OTHER-SE> 4,901,908
<TOTAL-LIABILITY-AND-EQUITY> 43,860,232
<SALES> 17,750,423
<TOTAL-REVENUES> 26,724,252
<CGS> 2,369,296
<TOTAL-COSTS> 23,419,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 526,352
<INTEREST-EXPENSE> 1,500,472
<INCOME-PRETAX> 1,820,655
<INCOME-TAX> 656,302
<INCOME-CONTINUING> 986,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 986,046
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS SECOND QUARTER 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,677,805
<SECURITIES> 0
<RECEIVABLES> 17,195,141
<ALLOWANCES> 2,822,804
<INVENTORY> 17,355,063
<CURRENT-ASSETS> 33,405,205
<PP&E> 6,098,113
<DEPRECIATION> 1,286,423
<TOTAL-ASSETS> 41,192,866
<CURRENT-LIABILITIES> 3,394,256
<BONDS> 18,068,689
0
1,397,799
<COMMON> 9,812,727
<OTHER-SE> 79,450
<TOTAL-LIABILITY-AND-EQUITY> 41,192,866
<SALES> 10,937,875
<TOTAL-REVENUES> 16,726,393
<CGS> 1,516,982
<TOTAL-COSTS> 14,749,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 317,593
<INTEREST-EXPENSE> 935,762
<INCOME-PRETAX> 1,050,237
<INCOME-TAX> 352,457
<INCOME-CONTINUING> 529,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529,027
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FIRST QUARTER 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,039,366
<SECURITIES> 0
<RECEIVABLES> 15,713,294
<ALLOWANCES> 2,711,394
<INVENTORY> 17,776,293
<CURRENT-ASSETS> 32,817,559
<PP&E> 5,949,540
<DEPRECIATION> 1,190,814
<TOTAL-ASSETS> 40,909,092
<CURRENT-LIABILITIES> 5,659,649
<BONDS> 16,044,647
0
1,419,243
<COMMON> 9,791,577
<OTHER-SE> 78,300
<TOTAL-LIABILITY-AND-EQUITY> 40,909,092
<SALES> 5,091,296
<TOTAL-REVENUES> 7,783,805
<CGS> 665,654
<TOTAL-COSTS> 7,073,690
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 146,770
<INTEREST-EXPENSE> 463,585
<INCOME-PRETAX> 251,062
<INCOME-TAX> 70,573
<INCOME-CONTINUING> 106,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,204
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<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>
<RESTATED>
<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-01-1996
<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
<TOTAL-LIABILITY-AND-EQUITY> 41,274,905
<SALES> 19,639,194
<TOTAL-REVENUES> 31,581,227
<CGS> 3,101,023
<TOTAL-COSTS> 27,365,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 590,653
<INTEREST-EXPENSE> 1,975,110
<INCOME-PRETAX> 2,291,366
<INCOME-TAX> 678,822
<INCOME-CONTINUING> 1,051,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,051,116
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-01-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,635,346
<SECURITIES> 0
<RECEIVABLES> 14,250,491
<ALLOWANCES> 2,801,024
<INVENTORY> 20,227,328
<CURRENT-ASSETS> 34,312,141
<PP&E> 3,634,040
<DEPRECIATION> 824,719
<TOTAL-ASSETS> 40,796,760
<CURRENT-LIABILITIES> 5,467,094
<BONDS> 16,543,026
0
1,464,941
<COMMON> 9,755,380
<OTHER-SE> 39,950
<TOTAL-LIABILITY-AND-EQUITY> 40,796,760
<SALES> 15,270,596
<TOTAL-REVENUES> 23,962,548
<CGS> 2,311,644
<TOTAL-COSTS> 20,652,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 459,143
<INTEREST-EXPENSE> 1,406,073
<INCOME-PRETAX> 1,944,598
<INCOME-TAX> 607,371
<INCOME-CONTINUING> 850,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 850,758
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS SECOND QUARTER 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,768,445
<SECURITIES> 0
<RECEIVABLES> 13,462,624
<ALLOWANCES> 2,765,005
<INVENTORY> 19,003,867
<CURRENT-ASSETS> 33,469,931
<PP&E> 3,658,516
<DEPRECIATION> 772,212
<TOTAL-ASSETS> 40,458,150
<CURRENT-LIABILITIES> 5,671,835
<BONDS> 16,527,529
0
1,481,869
<COMMON> 9,549,638
<OTHER-SE> 39,430
<TOTAL-LIABILITY-AND-EQUITY> 40,458,150
<SALES> 9,790,443
<TOTAL-REVENUES> 15,520,546
<CGS> 1,641,760
<TOTAL-COSTS> 13,747,674
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 422,733
<INTEREST-EXPENSE> 927,111
<INCOME-PRETAX> 887,502
<INCOME-TAX> 253,365
<INCOME-CONTINUING> 351,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 351,971
<EPS-PRIMARY> .13
<EPS-DILUTED> .12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FIRST QUARTER 1996 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,463,828
<SECURITIES> 0
<RECEIVABLES> 12,172,003
<ALLOWANCES> 2,680,982
<INVENTORY> 19,390,248
<CURRENT-ASSETS> 32,345,097
<PP&E> 2,055,705
<DEPRECIATION> 695,232
<TOTAL-ASSETS> 39,546,039
<CURRENT-LIABILITIES> 3,559,589
<BONDS> 17,945,347
0
1,485,029
<COMMON> 9,424,638
<OTHER-SE> 37,720
<TOTAL-LIABILITY-AND-EQUITY> 39,546,039
<SALES> 4,897,089
<TOTAL-REVENUES> 7,401,871
<CGS> 777,338
<TOTAL-COSTS> 6,639,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 290,180
<INTEREST-EXPENSE> 471,094
<INCOME-PRETAX> 317,214
<INCOME-TAX> 74,496
<INCOME-CONTINUING> 97,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,548
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS DECEMBER 31, 1995 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,746,518
<SECURITIES> 0
<RECEIVABLES> 11,196,387
<ALLOWANCES> 2,410,900
<INVENTORY> 19,856,055
<CURRENT-ASSETS> 37,209,860
<PP&E> 1,454,069
<DEPRECIATION> 618,584
<TOTAL-ASSETS> 37,752,513
<CURRENT-LIABILITIES> 4,106,798
<BONDS> 15,027,857
0
1,515,134
<COMMON> 9,297,343
<OTHER-SE> 35,190
<TOTAL-LIABILITY-AND-EQUITY> 37,752,513
<SALES> 21,353,758
<TOTAL-REVENUES> 30,849,183
<CGS> 3,529,566
<TOTAL-COSTS> 29,197,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,235,417
<INTEREST-EXPENSE> 1,265,227
<INCOME-PRETAX> 578,693
<INCOME-TAX> (547,216)
<INCOME-CONTINUING> 624,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 624,663
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
