SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 1998 Commission File Number 001-13855
-------------- ---------
ILX RESORTS INCORPORATED
------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016
------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-957-2777
---------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
- ------------------------------- -----------------------------
Common Stock, without par value 2,629,473 shares
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,226,038 $ 1,963,655
Notes receivable, net 15,861,621 16,245,912
Resort property held for Vacation Ownership Interest sales 14,666,658 14,269,699
Resort property under development 2,943,936 4,387,727
Land held for sale 1,557,498 1,556,998
Deferred assets 289,009 262,329
Property and equipment, net 3,472,899 3,624,866
Deferred income taxes 304,430 148,430
Other assets 1,400,224 1,919,433
------------ ------------
TOTAL ASSETS $ 43,722,313 $ 44,379,049
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 2,830,375 $ 1,770,031
Accrued and other liabilities 2,220,566 2,066,185
Notes payable 19,884,479 21,342,846
Notes payable to affiliates 2,166,100 2,188,848
------------ ------------
Total liabilities 27,101,520 27,367,910
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value; 10,000,000 shares authorized;
380,468 shares issued and outstanding; liquidation preference of
$ 3,804,680 1,384,891 1,384,891
Common stock, no par value; 30,000,000 shares authorized;
2,692,433 and 2,732,533 shares issued 10,267,667 10,425,188
Treasury stock, at cost, 103,060 shares (652,587) (652,587)
Additional paid in capital 79,450 79,450
Retained earnings 5,541,372 5,774,197
------------ ------------
Total shareholders' equity 16,620,793 17,011,139
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,722,313 $ 44,379,049
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1998
---------- ----------
<S> <C> <C>
TIMESHARE REVENUES:
Sales of Vacation Ownership Interests $5,091,296 $5,560,823
Resort operating revenue 2,427,786 2,518,333
Interest income 264,723 448,007
---------- ----------
Total timeshare revenues 7,783,805 8,527,163
---------- ----------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership Interests sold 665,654 791,442
Cost of resort operations 2,544,586 2,615,140
Sales and marketing 2,809,953 3,331,270
General and administrative 794,274 660,372
Provision for doubtful accounts 146,770 162,269
Depreciation and amortization 112,453 86,618
---------- ----------
Total cost of sales and operating expenses 7,073,690 7,647,111
---------- ----------
Timeshare operating income 710,115 880,052
Income from land and other, net 4,532 14,288
---------- ----------
Total operating income 714,647 894,340
Interest expense 463,585 505,515
---------- ----------
Income before income taxes and minority interests 251,062 388,825
Income tax expense 70,573 156,000
---------- ----------
Income before minority interests 180,489 232,825
Minority interests 74,285 --
---------- ----------
NET INCOME 106,204 232,825
========== ==========
NET INCOME PER SHARE
Basic $ 0.03 $ 0.08
========== ==========
Diluted $ 0.03 $ 0.08
========== ==========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 106,204 $ 232,825
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Undistributed minority interest 74,010 --
Deferred income taxes 34,475 156,000
Provision for doubtful accounts 146,770 162,269
Depreciation and amortization 112,669 86,618
Amortization of guarantee fees 25,350 24,000
Change in assets and liabilities:
Decrease in resort property held for Vacation Ownership Interest sales 253,643 396,959
Increase in resort property under development (21,578) (1,443,791)
(Increase) decrease in land held for sale (3,572) 500
Increase in other assets (251,931) (450,359)
Decrease in accounts payable (340,879) (1,060,344)
Increase (decrease) in accrued and other liabilities 145,213 (30,474)
----------- -----------
Net cash provided by (used in) operating activities 280,374 (1,925,797)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, net (1,402,950) (546,560)
Decrease (increase) in deferred assets (23,466) 2,680
Purchases of plant and equipment, net 12,722 (232,435)
----------- -----------
Net cash used in investing activities (1,413,694) (776,315)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 725,800 3,053,079
Principal payments on notes payable (998,170) (1,594,712)
Principal payments on notes payable to affiliates (117,366) (18,638)
Proceeds from issuance of common stock 39,375 --
----------- -----------
Net cash provided by (used in) financing activities (350,361) 1,439,729
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,483,681) (1,262,383)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,523,047 3,226,038
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,039,366 $ 1,963,655
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three-month period ended March 31, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. The
accompanying financial statements should be read in conjunction with the
Company's most recent audited financial statements.
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.
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.
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.
Three Months Ended March 31,
----------------------------
1997 1998
-------- --------
Interest paid $497,000 $413,000
Income taxes paid -- --
Capitalized interest 45,000 129,000
Accounting Matters
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which was effective for
financial statements for periods beginning after
5
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. SFAS 130 was adopted by
the Company in 1998. There were no items of other comprehensive income, as that
term is defined in SFAS 130, in the three months ended March 31, 1997 or March
31, 1998.
Reclassifications
The financial statements for 1997 have been reclassified to be
consistent with the 1998 presentation.
Note 2. 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:
Basic Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net income $ 106,204 $ 232,825
Less: Series A preferred stock dividends (12,000) (12,000)
Series C convertible preferred stock cumulation share dividends (8,642) (8,323)
----------- -----------
Net income available to common stockholders - basic $ 85,562 $ 212,502
=========== ===========
Weighted average shares of common stock outstanding - basic 2,605,858 2,608,086
=========== ===========
Basic net income per share $ 0.03 $ 0.08
=========== ===========
<CAPTION>
Diluted Net Income Per Share
Three Months Ended March 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net income $ 106,204 $ 232,825
Less: Series A preferred stock dividends (12,000) (12,000)
----------- -----------
Net income available to common stockholders - diluted $ 94,204 $ 220,825
=========== ===========
Weighted average shares of common stock outstanding 2,605,858 2,608,086
Add: Convertible preferred stock (Series B and C) dilutive effect 114,319 110,541
----------- -----------
Weighted average shares of common stock outstanding - diluted 2,720,177 2,718,627
=========== ===========
Diluted net income per share $ 0.03 $ 0.08
=========== ===========
</TABLE>
Stock options and warrants to purchase 67,800 shares of common stock at
prices ranging from $7.50 per share to $8.125 per share were outstanding at
March 31, 1998 but were not included in the computation of diluted net income
per share because the options' and warrants' exercise prices were greater than
the average market price of common shares. These options and warrants expire at
various dates between 1998 and 2004.
Note 3. Shareholders' Equity
During the first quarter of 1998, the Company issued 28,100 shares of
restricted common stock, valued at $82,521, to employees in exchange for
services provided. In February 1998, the Company issued 12,000 shares, valued at
$75,000, to EVEREN Securities, Inc., for investment banking and underwriting
services (see Note 4).
6
<PAGE>
ILX RESORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Subsequent Event
In April 1998, the Company sold, through a public offering, 1,400,000
shares of its common stock at a price of $6.75 per share. Additionally EVEREN
Securities, Inc., the underwriter of the offering, exercised its overallotment
option and purchased an additional 200,000 shares at a price of $6.75 per share,
net of an underwriting discount of 7%. The proceeds, net of commissions and
other offering expenses, totaled approximately $10 million and will be used by
the Company to reduce its indebtedness.
7
<PAGE>
Item II. 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-Q, 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 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 revenue 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.
8
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Results of Operations
The following table sets forth certain operating information for the
Company:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1998
----- -----
<S> <C> <C>
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 65.4% 65.2%
Resort operating revenue 31.2% 29.5%
Interest income 3.4% 5.3%
----- -----
Total timeshare revenues 100.0% 100.0%
===== =====
As a percentage of sales of Vacation Ownership Interests:
Cost of Vacation Ownership Interests sold 13.1% 14.2%
Sales and marketing 55.2% 59.9%
Provision for doubtful accounts 2.9% 2.9%
Contribution margin percentage from sale of Vacation Ownership
Interests (1) 28.8% 23.0%
As a percentage of resort operating revenue:
Cost of resort operations 104.8% 103.8%
As a percentage of total timeshare revenues:
General and administrative 10.2% 7.7%
Depreciation and amortization 1.4% 1.0%
Timeshare operating income 9.1% 10.3%
Selected operating data:
Vacation Ownership Interests sold (2) (3) 327 376
Average sales price per Vacation Ownership Interest sold
(excluding revenues from Upgrades) (2) $ 12,834 $ 12,874
Average sales price per Vacation Ownership Interest sold
(including revenues from Upgrades) (2) $ 15,570 $ 14,789
</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 491 and 572 biennial and annual Vacation
Ownership Interests for the three months ended March 31, 1997 and 1998,
respectively.
Comparison of the Three Months Ended March 31, 1997 to the Three Months Ended
March 31, 1998
Sales of Vacation Ownership Interests increased 9.2% or $469,527 in
1998 to $5,560,823 from $5,091,296 in 1997 primarily as a result of 1998 sales
from the Tucson sales office, which opened in August 1997. The average sales
price per Vacation Ownership Interest sold (excluding revenues from Upgrades)
was comparable between periods.
The number of Vacation Ownership Interests sold increased 15.0% from
327 in 1997 to 376 in 1998 primarily due to 1998 sales from the Tucson sales
office. Sales of Vacation Ownership Interests in 1998 included 392 biennial
Vacation Ownership Interests (counted as 196 annual Vacation Ownership
Interests) compared to 328 biennial Vacation Ownership Interests (counted as 164
annual Vacation Ownership Interests) in 1997.
9
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Upgrade revenue, included in Vacation Ownership Interest sales,
decreased 19.5% from $894,426 in 1997 to $720,013 in 1998 because of a change in
trade-in mix. In 1997 a greater proportion of Upgrades were by owners of Golden
Eagle Vacation Ownership Interests which have a higher trade-in value than the
Company's other properties. 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 average sales price per Vacation Ownership Interest sold (including
Upgrades) decreased from $15,570 in 1997 to $14,789 in 1998 due to higher
Upgrade revenue in 1997 as a result of the trade-in mix, combined with a lower
number of Vacation Ownership Interests sold, over which such additional revenue
is allocated.
Resort operating revenues and cost of resort operations are comparable
between the two periods.
The 69.2% increase in interest income from $264,723 in 1997 to $448,007
in 1998 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 increased from 13.1% in 1997 to 14.2% in 1998 due to an
increase in the percentage of sales derived from Varsity Clubs of America (VCA)
Vacation Ownership Interests, which have a higher cost of sales than the
Company's other resorts.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 59.9% in 1998 from 55.2% in 1997 due to increased costs
in 1998 as a result of the Tucson sales office, which has only been open since
August 1997 and which is anticipated to achieve operating efficiency consistent
with the Company's standards following the opening of VCA - Tucson, and due to
the negative impact on tours to the Sedona and Kohl's Ranch sales offices from
inclement weather during the first quarter of 1998.
The provision for doubtful accounts as a percentage of Vacation
Ownership Interest sales remained comparable between years.
General and administrative expenses decreased 16.9% to $660,372 in 1998
from $794,274 in 1997. General and administrative expenses decreased to 7.7% as
a percentage of total timeshare revenues in 1998 compared to 10.2% in 1997.
These decreases were primarily due to the net write-off of leasehold
improvements associated with the relocation of the Company's corporate
headquarters in the first quarter of 1997 and a reduction in property tax
expense in the first quarter of 1998 related to successful appeals of property
tax assessments.
The 9.0% increase in interest expense from $463,585 in 1997 to $505,515
in 1998 reflects an increase in borrowings against customer notes receivable.
The elimination of minority interests in 1998 is due to the buyout by
the Company of the LAP minority interest in August 1997.
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 1997 and 1998, cash provided by (used
in) operations was $280,374 and $(1,925,797), respectively. The negative cash
flow in 1998 was due primarily to an increase of $1,443,791 in resort property
under development, which was financed through a construction loan. 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.
10
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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 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 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.
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 1997
and 1998 was $1,413,694 and $776,315, respectively.
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 May 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 March 31, 1998, $4.4 million had been drawn
against this commitment.
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 and Capital
The Company has agreements with financial institutions for total
commitments aggregating $15.0 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 March 31, 1998,
approximately $3.9 million was available under these commitments.
The Company also has financing commitments aggregating $7.1 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus
11
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
3.25% to prime plus 5.0% and expire at various dates from 1998 through 2000. At
March 31, 1998, approximately $5.0 million is available under these commitments.
In April 1998, the Company sold, through a public offering, 1,400,000
share of its common stock at a price of $6.75 per share. Additionally EVEREN
Securities, Inc., the underwriter of the offering, exercised its overallotment
option and purchased an additional 200,000 shares at a price of $6.75 per share,
net of an underwriting discount of 7%. The proceeds, net of commissions and
other offering expenses, totaled approximately $10 million and will be used by
the Company to reduce its indebtedness.
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 on 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 or the three months ended March 31, 1998.
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.
12
<PAGE>
Part II
Item I. Legal Proceedings
None
Item II. Changes in Securities and Use of Proceeds
None
Item III. Defaults Upon Senior Securities
None
Item IV. Submission of Matters to a Vote of Security Holders
On January 9, 1998, the Company held a Special Meeting of its
shareholders. At the Special Meeting, the shareholders were asked to vote on the
following proposals:
(i) to effect a one-for-five reverse split of the Company's
outstanding Common Stock (the "Reverse Split Proposal"); and
(ii) to amend the Company's Articles of Incorporation for the
purpose of changing its name to "ILX Resorts Incorporated"
(the "Amendment Proposal").
The voting results as to such proposals were as follows:
<TABLE>
<CAPTION>
ABSTENTIONS
VOTES VOTES AGAINST AND BROKER
PROPOSAL FOR OR WITHHELD NON-VOTES
-------- --- ----------- ---------
<S> <C> <C> <C>
Reverse Split 7,702,459 116,803 16,994
Amendment 7,824,564 4,118 7,574
</TABLE>
Item V. Other Information
None
Item VI. Exhibits and Reports on Form 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
4.1 Certificate of Amendment to Articles of
Incorporation, filed January 12, 1998 *
4.2 Certificate of Correction, filed January 22,
1998, to correct Certificate of Amendment to
Articles of Incorporation, filed January 12,
1998 *
27.0 Financial Data Schedule (filed herewith)
(ii) Reports on Form 8-K
None
* Incorporated by reference to the copy of this document filed as an
exhibit to the Company's Registration Statement on Form S-1 (File No.
333-45403)
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused its quarterly report on Form
10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
ILX RESORTS INCORPORATED
(Registrant)
/s/ Joseph P. Martori
------------------------
Joseph P. Martori
Chief Executive Officer
/s/ Nancy J. Stone
------------------------
Nancy J. Stone
President and Interim
Chief Financial Officer
Date: As of May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FIRST QUARTER 1998 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,963,655
<SECURITIES> 0
<RECEIVABLES> 16,245,912
<ALLOWANCES> 3,046,803
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,148,570
<DEPRECIATION> 1,523,704
<TOTAL-ASSETS> 44,379,049
<CURRENT-LIABILITIES> 0
<BONDS> 23,531,694
0
1,384,891
<COMMON> 10,425,188
<OTHER-SE> 5,201,060
<TOTAL-LIABILITY-AND-EQUITY> 44,379,049
<SALES> 5,560,823
<TOTAL-REVENUES> 8,527,163
<CGS> 791,442
<TOTAL-COSTS> 7,647,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 162,269
<INTEREST-EXPENSE> 505,515
<INCOME-PRETAX> 388,825
<INCOME-TAX> 156,000
<INCOME-CONTINUING> 232,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,825
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
