SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1996 Commission File Number 33-16122
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ILX INCORPORATED
----------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0564171
- ------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2777 East Camelback Road, Phoenix, AZ 85016
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(Address of principal executive offices)
602-957-2777
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Registrant's telephone number, including area code
Former name, former address, and former fiscal year, if changed since last
report:
N/A
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- ------------------------------- ---------------------------------
Common Stock, without par value 12,999,426 shares
Preferred Stock, $10 par value 394,727 shares
1
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Assets
Cash and cash equivalents $ 2,635,346 $ 3,746,518
Notes receivable, net 11,449,467 8,785,487
Resort property held for timeshare sales 17,495,486 17,191,791
Resort property under development 1,184,349 1,119,080
Land held for sale 1,547,493 1,545,184
Deferred assets 329,146 451,496
Property and equipment, net 2,809,321 835,485
Deferred income taxes 1,151,871 1,887,021
Other assets 2,194,281 2,190,451
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$ 40,796,760 $ 37,752,513
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 2,171,881 $ 2,313,638
Accrued and other liabilities 3,295,213 3,293,160
Genesis funds certificates 1,191,672 1,366,843
Due to affiliates 99,766 440,629
Deferred income 26,461 2,869
Notes payable 14,944,464 11,689,945
Notes payable to affiliates 1,598,562 1,837,912
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23,328,019 20,944,996
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Minority Interests 2,482,287 3,032,415
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Shareholders' Equity
Preferred stock, $10 par value; 10,000,000 shares authorized; 394,727 and
411,483 shares issued and outstanding; liquidation preference of $3,947,270
and $4,114,830, respectively
1,464,941 1,515,134
Common stock, no par value: 40,000,000 shares authorized; 13,019,426 and
12,625,757 shares issued and outstanding
9,780,412 9,322,375
Treasury stock, at cost, 20,000 shares (25,032) (25,032)
Additional paid in capital 39,950 35,190
Retained earnings 3,726,183 2,927,435
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14,986,454 13,775,102
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$ 40,796,760 $ 37,752,513
============ ============
See notes to consolidated financial statements
2
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
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1996 1995 1996 1995
---- ---- ---- ----
Revenues
Sales of timeshare interests $ 5,480,153 $ 5,930,648 $ 15,270,596 $ 16,548,152
Resort operating revenue 2,713,317 2,321,423 7,996,778 6,358,548
Sales of land and other 30,017 41,892 331,615 145,891
Interest income 248,532 161,562 712,628 446,511
---------------- ---------------- ---------------- ----------------
8,472,019 8,455,525 24,311,617 23,499,102
---------------- ---------------- ---------------- ----------------
Cost of sales and operating expenses
Cost of timeshare interests sold 1,566,106 2,286,937 4,960,098 6,089,296
Cost of resort operations 2,598,017 2,729,194 7,924,836 6,569,344
Cost of land sold and other 31,160 37,180 291,017 83,813
Advertising and promotion 1,980,278 1,771,411 5,168,565 4,737,935
General and administrative 723,990 795,356 2,157,287 2,281,762
Provision for doubtful accounts 36,410 347,598 459,143 950,917
---------------- ---------------- ---------------- ----------------
6,935,961 7,967,676 20,960,946 20,713,067
---------------- ---------------- ---------------- ----------------
Operating income 1,536,058 487,849 3,350,671 2,786,035
Interest expense 478,962 380,611 1,406,073 836,850
Income before minority interests and
income taxes 1,057,096 107,238 1,944,598 1,949,185
Minority interests (204,303) 948 (486,469) (345,686)
Income taxes (354,006) 384,727 (607,371) (63,399)
----------------- ---------------- ----------------- -----------------
Net income $ 498,787 $ 492,913 $ 850,758 $ 1,540,100
================ ================ ================ ================
Net income per common and equivalent share $ 0.03 $ 0.04 $ 0.06 $ 0.12
================ ================ ================ ================
Number of common and equivalent shares 13,013,372 13,009,355 12,890,033 12,699,419
================ ================ ================ ================
Net income per share assuming full dilution $ 0.03 $ 0.04 $ 0.06 $ 0.12
================ ================ ================ ================
Number of fully diluted shares 13,479,302 13,493,935 13,364,166 13,187,992
================ ================ ================ ================
See notes to consolidated financial statements
3
ILX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
--------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 850,758 $ 1,540,100
Adjustments to reconcile net income to net cash used in operating activities:
Undistributed minority interest 239,258 345,686
Additions to notes receivable (9,204,197) (9,018,079)
Proceeds from sales of notes receivable 6,081,074 6,425,596
Provision for doubtful accounts 459,143 950,917
Depreciation and amortization 543,643 491,086
Increase in deferred income taxes 735,150 (203,667)
Amortization of guarantee fees 56,300 79,100
Change in assets and liabilities:
Decrease (increase) in resort property held for timeshare sales 304,567 (5,655,558)
Additions to resort property under development (65,269) (344,115)
(Increase) decrease in land held for sale (2,309) 1,000
Increase in other assets (198,852) (408,206)
(Increase) decrease in accounts payable (141,757) 193,879
(Decrease) increase in accrued and other liabilities (39,433) 1,141,607
Increase in income taxes payable -- 103,553
Decrease in Genesis funds certificates (175,171) (246,078)
Decrease in due to affiliates (240,863) (506,022)
Increase (decrease) in deferred income 23,592 (363,552)
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Net cash used in operating activities (774,366) (5,472,753)
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Cash flows from investing activities:
Decrease (increase) in deferred assets 66,050 (163,299)
Purchases of plant and equipment (61,651) (112,210)
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Net cash provided by (used in) investing activities 4,399 (275,509)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 4,526,139 7,715,212
Principal payments on notes payable (4,171,898) (4,059,256)
Proceeds from notes payable to affiliates -- 900,000
Principal payments on notes payable to affiliates (339,350) (461,827)
Distributions to minority partners (720,000) --
Proceeds from issuance of common stock 423,875 74,181
Acquisition of treasury stock -- (25,032)
Redemption of preferred stock (12,000) (185)
Redemption of common stock -- (185)
Preferred stock dividend payments (47,971) (24)
----------- -----------
Net cash (used in) provided by financing activities (341,205) 4,142,884
----------- -----------
Net decrease in cash and cash equivalents (1,111,172) (1,605,378)
Cash and cash equivalents at beginning of period 3,746,518 3,635,587
----------- -----------
Cash and cash equivalents at end of period $ 2,635,346 $ 2,030,209
=========== ===========
See notes to consolidated financial statements
4
ILX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation and Business Activities
- ---------------------------------------------------
The Company's significant business activities include developing, operating,
marketing and financing ownership interests in resort properties located in
Arizona, Colorado, Florida, Indiana and Mexico. Effective in the third quarter
of 1994, the Company expanded its operations to include marketing of skin and
hair care products which are not considered significant to resort operations.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three and nine month periods ended September 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements.
The consolidated financial statements include the accounts of ILX Incorporated
and its wholly-owned and majority-owned subsidiaries ("ILX" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition
- -------------------
Revenue from sales of timeshare interests is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized until such time as a minimum of
10% of the purchase price has been received in cash, the buyer is committed to
continued payments of the remaining purchase price and the Company has been
released of all future obligations for the timeshare interest. Revenue from
sales of timeshare interests in Varsity Clubs of America - Notre Dame was
recognized by the percentage of completion method as development and
construction proceeded and as the costs of development and profit could be
reasonably estimated through August 15, 1995, when the property was completed.
Resort operating revenue represents daily room rentals and revenues from food
and other resort services. Such revenues are recorded as the rooms are rented or
the services are performed.
Statements of Cash Flows
- ------------------------
Cash equivalents are highly liquid investments with an original maturity of
three months or less. During the three and nine month periods ended September
30, 1996 and 1995, the Company paid interest and income taxes and capitalized
interest to resort property under development as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Interest $ 497,975 $ 341,944 $ 1,376,891 $ 924,602
Income Taxes $ 2,000 $ 2,786 $ 2,000 $ 136,286
Interest Capitalized $ 19,859 $ 89,577 $ 53,958 $ 216,380
5
Reclassifications
- -----------------
The financial statements for prior periods have been reclassified to be
consistent with the 1996 financial statement presentation.
Note 2 - Notes Payable
In February 1996, the Company borrowed an additional $1,760,000 from the first
mortgage holder on the Los Abrigados resort and extended the maturity date to
September 1998.
The mortgage on the Red Rock Collection building was repaid in January 1996 by
the affiliate who purchased the building in 1995. In this non-cash transaction
to the Company, both the note payable and the related receivable were reduced by
$180,000.
During the second quarter of 1996, the Company made its first borrowing of
$300,000 on its $6 million, 13% interest rate, construction financing commitment
for the Varsity Clubs of America - Tucson facility.
During the first nine months of 1996, the Company borrowed $1,850,782 against
consumer notes receivable.
Property and equipment of $339,924 was leased in the second quarter of 1996 and
a vehicle was financed for $23,741 in the third quarter of 1996.
Note 3 - Notes Payable to Affiliates
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 bears interest at 10%, with
interest due quarterly and the principal due in full in December 1999.
Note 4 - Shareholders' Equity
During the first nine months of 1996, holders of 10,914 shares of Series C
Preferred Stock exchanged their shares for 18,190 shares of common stock. The
exchanges were recorded as a reduction in preferred stock and an increase in
common stock of $30,123. Shares of stock valued at $4,039 and cash of $20 were
issued in the first nine months of 1996 for the Dividend Arrearage due to the
holders of Series C Preferred Stock who converted their shares in the first nine
months of 1996.
During the first nine months of 1996, holders of 807 shares of Series A
Preferred Stock exchanged their shares for lodging certificates at Los Abrigados
and Kohl's Ranch. Preferred stock was reduced by $8,070, which is the
liquidation and par value of the shares surrendered and additional paid in
capital was increased by $4,760, which is the difference between the par value
of the preferred stock and the liability recorded related to the lodging
certificates.
In January 1996, 5,035 shares of Series A Preferred Stock were redeemed for
$12,000.
During the first quarter of 1996, the Company issued 72,500 shares of restricted
common stock, valued at $52,000, to employees in exchange for services provided.
In accordance with consulting agreements entered into in 1995, 50,000 shares of
restricted common stock, valued at $1.1875 per share, were issued in the first
quarter of 1996. In the second and third quarters of 1996, options for 100,000
and 150,000, respectively, of the total 500,000 option shares of restricted
common stock granted under the consulting agreements were exercised at $1.25 per
share. All such restricted shares were subsequently registered with the
Securities and Exchange Commission.
6
Note 5 - Lomacasi Cottages
In March 1996, the Company, through a subsidiary, became the managing general
partner of the limited partnership which owns Lomacasi Cottages in Sedona,
Arizona, a 5.27 acre property approximately one mile from the Los Abrigados
resort. The Company acquired its partnership interest for a $25,000 capital
contribution and took the property subject to existing non-recourse deeds of
trust on the property and accrued liabilities. The balance sheet of the
partnership at March 1, 1996, was as follows:
Assets
Cash $ 20,000
Property and equipment 2,116,337
Other assets 9,928
-----------
$ 2,146,265
===========
Liabilities and Partners' Equity
Accounts payable $ 22,862
Accrued and other liabilities 15,315
Notes payable 2,152,474
-----------
2,190,651
-----------
Partners' capital (44,386)
-----------
$ 2,146,265
===========
The first mortgage of $549,625 bears interest at 12.5% with principal and
interest payable in monthly installments of $6,779 through November 2000. The
$1,534,849 note payable, secured by a second deed of trust, bears interest at 8%
through December 1996 and increases .5% annually through December 1999 when it
becomes fixed at 9.5%. Interest is accrued and added to principal through
December 1996 and, thereafter, is payable monthly with principal due November
2010. A note payable of $68,000, secured by a deed of trust, bears interest at
8% with principal and interest payments of $4,779 due monthly through May 1997
(interest payments are deducted from the capital account of a limited partner).
The Company is using the resort to provide lodging accommodations to prospective
timeshare purchasers at the Company's Sedona Sales Office. The Company may offer
timeshare interests in the resort in the future. Until such time, the resort is
classified as property and equipment.
Note 6 - Acquisition of Additional Resort Property Held for Sale
In September 1996, the Company acquired approximately one-half acre of improved
property adjacent to the Los Abrigados resort 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 intends to make improvements to the property in the amount of
approximately $300,000 and to offer approximately 468 timeshare intervals in the
property commencing in 1997. The first deed of trust bears interest at prime
plus 4% with interest payable monthly and principal payable through release fees
as intervals are sold.
Note 7 - Other
During the first quarter of 1996, the Company received an additional $700,000
pursuant to a management agreement with one of its timeshare lenders. At
September 30, 1996, approximately $1.2 million remains available under this
agreement; however, an affiliate of the lender filed for bankruptcy protection
in 1996. While the Company has been informed that said proceedings do not
involve the lender with which the Company conducts business, the lender has
failed to fund advances requested by the Company. It is the Company's position
that the management agreement, as previously amended, has been anticipatorily
breached by the lender and its affiliates. The Company is of the opinion that
while further advances under the management agreement may not occur, the
bankruptcy will have no additional material impact on the Company's ability to
obtain timeshare financing from the lender or alternate sources. Any future
payments under the management agreement received by the Company will be applied
to mitigate present and future damages sustained by the Company by virtue of the
breach by the lender and its affiliates of the management agreement and other
loan transactions between the Company, its subsidiaries and affiliates, and the
lender and its affiliates. The balance outstanding
7
under the agreement of $2,185,519 at September 30, 1996 and $1,500,000 at
December 31, 1995, is included in accrued and other liabilities.
Note 8 - Subsequent Event
On October 30, 1996, the Company entered into a definitive agreement with Debbie
Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC") and Debbie Reynolds
Resorts, Inc., a Nevada corporation, whereby the Company will acquire all the
assets constituting the Debbie Reynolds Hotel & Casino in Las Vegas, Nevada. The
purchase price of $16,800,000 includes 3,750,000 federally registered shares of
the Company's common stock valued for purposes of the transaction at $2.00 per
share, as well as $4,200,000 in cash and $5,100,000 in assumption of mortgage
indebtedness. The transaction is contingent upon approval by the shareholders of
DRHC, a standard due diligence investigation by the Company, and satisfaction of
various other conditions. The hotel consists of 193 rooms in a twelve story
structure situated on over six acres.
8
ILX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Sales of timeshare interests for the three and nine months ended September 30,
1995 were greater than the same periods in 1996 due to the inclusion of 1994
sales of timeshare interests in Varsity Clubs of America - Notre Dame in 1995,
due to the operation of the Phoenix Sales Office in the first quarter of 1995,
and due to a program to sell upgraded intervals to existing timeshare owners of
Los Abrigados resort in 1995. 1996 sales include sales of timeshare interests in
Kohl's Ranch, which commenced in the third quarter of 1995, and second and third
quarter 1996 sales reflect reduced sales at the Sedona Sales Office.
1995 Varsity Clubs of America - Notre Dame sales of timeshare interests include
1994 sales of timeshare interests of approximately $23,000 for the third quarter
and $513,000 for the nine months ended September 30, 1995. Recognition had been
deferred in 1994 and recognized on the percentage of completion in 1995 when the
property was substantially complete. 1995 sales of timeshare interests from the
Varsity Clubs of America - Notre Dame Sales Office excluding these 1994 sales
exceeded 1996 sales by approximately $700,000 due to higher average prices and
higher closing rates in 1995. In response to lower 1996 closing rates, the
Company modified its sales approach in October 1996 and expects improvement in
both closing rate and average price in the fourth quarter.
On April 1, 1995, the Company closed the Phoenix Sales Office, which had sold
primarily interests in Los Abrigados, and began directing the customers who
would otherwise have attended a Phoenix Sales Office presentation to the Sedona
Sales Office, where closing rates had consistently exceeded those of the Phoenix
Sales Office. The Phoenix Sales Office generated approximately $771,000 in the
first quarter of 1995.
During the first quarter of 1995, the Company converted eight of its one-bedroom
business suites at Los Abrigados resort to two-bedroom suites with kitchens, and
invited its existing timeshare owners to exchange their one and two-bedroom
suites without kitchens to these upgraded units. Revenue of approximately
$525,000 from these upgrades is included in the first six months of 1995.
Sales of timeshare interests from the Kohl's Ranch Sales Office commenced in the
third quarter of 1995 and the Company then began directing its Phoenix-based
customers to the Kohl's Ranch Sales Office as well as its Sedona Sales Office.
While the number of customers generated to both offices increased in total,
customers directed to the Sedona Sales Office declined and, accordingly, Sedona
Sales Office sales of timeshare interests decreased by approximately $466,000
and $838,000 for the three and nine months ended September 30, 1996,
respectively. Kohl's Ranch Sales Office sales of timeshare interests were
approximately $803,000 and $2,400,000 for the same periods, respectively. Kohl's
Ranch sales were approximately $339,000 for the third quarter of 1995.
The decrease in cost of timeshare interests sold as a percentage of sales
between years reflects an adjustment to the estimated cost of Los Abrigados
interests in 1996.
The increases in resort operating revenue for both the third quarter and nine
months ended September 30, 1996, from the same periods in 1995 reflect revenue
from Varsity Clubs of America - Notre Dame which opened in mid-August 1995,
revenue from Kohl's Ranch, which was acquired on June 1, 1995 and an increase in
revenue from Los Abrigados resort as a result of an increase in occupancy and in
average daily rate.
The decrease in cost of resort operations as a percentage of resort operating
revenue in 1996 from 1995 reflects a change in estimated depreciation expense
and lower Los Abrigados costs as a percentage of revenue due to increased
occupancy and average daily rate and reductions in operating costs, net of the
costs of operations for Varsity Clubs of America - Notre Dame and Kohl's Ranch,
which began operations in 1995 and accordingly have lower occupancy than mature
resorts. In addition, the smaller, current size and reduced amenities offered at
these properties is likely to yield a higher cost of resort operations as a
percentage of resort operating revenue than that of the Los Abrigados resort.
9
The increase in sales of land and other and the related cost of sales for the
nine months ended September 30, 1996, reflects the sale of a parcel of land held
by Genesis. Sales are comparable for the three month period ended September 30,
1996 and 1995. Sales of land and other and the associated cost of land sold and
other also include in 1995 and 1996 sales of Red Rock Collection products and in
1996 revenue and related costs from the Kohl's Ranch Water Company for services
provided.
The increase in interest income from 1995 to 1996 is a result of the increased
consumer paper retained by the Company as well as increased balances of invested
cash.
Advertising and promotion as a percentage of sales increased for both the third
quarter and first three quarters of 1996 from the same periods in 1995,
reflecting a promotional program in operation until November 1996 which offered
certain purchasers from the Varsity Clubs of America - Notre Dame Sales Office a
vacation experience (including airfare and car rental) in addition to their
timeshare interval. While the cost of the vacation experience was added to the
buyer's purchase price, it has the effect of increasing promotion costs as a
percentage of sales. In addition, in 1996, the Varsity Clubs of America - Notre
Dame Sales Office experienced a lower closing rate (number of timeshare sales
divided by timeshare tours) and the Varsity Clubs of America - Notre Dame and
Sedona Sales Offices experienced increased costs of generating tours.
General and administrative expenses are comparable between years for both the
third quarter and nine months ended September 30, 1996 and 1995.
The decreases in the provision for doubtful accounts for the third quarter and
nine months ended September 30, 1996 from the same periods in 1995 reflect the
expected performance of the portfolio of consumer paper, both sold and unsold.
The increase in interest expense for both the third quarter and nine months
ended September 30, 1996 from the same periods in 1995 reflects an increase in
notes payable, including the note payable for the construction of Varsity Clubs
of America - Notre Dame, the Kohl's Ranch and Lomacasi Cottages acquisition
notes and increased borrowings against consumer notes receivable.
The increases in minority interests for both the third quarter and nine months
ended September 30, 1996 reflect increases in Los Abrigados resort net income
between years due to adjustments in the estimated cost of sales of timeshare
intervals and estimated depreciation expense, the reduced provision for doubtful
accounts and increased hotel operating income, net of the minority interest in
operating losses of Lomacasi resort commencing March 1, 1996.
Income tax expense increased from a benefit for both the third quarter and first
three quarters of 1995 to a provision for both the third quarter and first three
quarters of 1996 because 1995 reflects the reduction in the valuation allowance
reflecting management's estimate of the future benefit to be derived from the
utilization of Genesis net operating loss carryovers and because 1996 includes
gross receipts tax on revenue generated in Indiana.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs principally arise from the necessity of financing
notes received from sales of timeshare interests. In that regard, the Company
has $5 million of credit issued by a financing company under which conforming
notes from sales of interval interests in Los Abrigados can be sold on a
recourse basis through March 1998. In addition, the Company has an open ended
arrangement with a finance company which is expected to provide financing of at
least $5 million through 1996. At September 30, 1996, approximately $4.8 million
is available under the fixed commitment line and approximately $2.3 million is
expected to be available on the open ended line. The Company also has financing
commitments whereby the Company may borrow up to $2 million against
non-conforming notes from sales of interval interests in Los Abrigados, Golden
Eagle Resort and Kohl's Ranch, and $2.2 million against non-conforming notes
from sales of interval interests in the Golden Eagle Resort through March 1998.
Approximately $2.6 million was available under these commitments at September
30, 1996.
10
The Company also has a $10 million financing commitment whereby the Company may
sell eligible notes received from sales of timeshare interests in Varsity Clubs
of America - Notre Dame on a recourse basis through September 1, 1997.
Approximately $5.9 million was available under this commitment at September 30,
1996.
The Company has a financing commitment whereby it may borrow up to $10 million
against conforming notes received from sales of timeshare interests in Kohl's
Ranch through August 1997. Approximately $8.3 million was available on this
commitment at September 30, 1996.
The Company will continue to retain certain non-conforming notes which have one
to two year terms or which do not otherwise meet existing financing criteria,
and finance these notes either through internal funds or through borrowings from
affiliates secured by the non-conforming notes. The Company will pursue
additional credit facilities to finance conforming and non-conforming notes as
the need for such financing arises.
The Company has a $500,000 line of credit from one financial institution and a
$400,000 line of credit from another. $700,000 was available for working capital
under the lines at September 30, 1996.
In February 1996, the Company borrowed an additional $1,760,000 from the first
mortgage holder on the Los Abrigados resort. The Company used these funds for
improvements to the Los Abrigados resort and Kohl's Ranch and for working
capital.
Effective March 1, 1996, the Company, through a subsidiary, became the managing
general partner of the limited partnership which owns Lomacasi Cottages in
Sedona, Arizona, a 5.27 acre property approximately one mile from the Los
Abrigados resort. The Company acquired its partnership interest for a $25,000
capital contribution. The resort is encumbered by non-recourse deeds of trust on
the property totaling approximately $2.2 million. The Company is using the
resort to provide lodging accommodations to prospective timeshare purchasers at
the Company's Sedona Sales Office, thereby creating more availability of rooms
for resort guests at the Los Abrigados resort. The Company may offer timeshare
interests in the resort in the future.
During the first quarter of 1996, the Company received an additional $700,000
pursuant to a management agreement with one of its timeshare lenders. At
September 30, 1996, approximately $1.2 million remains available under this
agreement; however, an affiliate of the lender filed for bankruptcy protection
in 1996. While the Company has been informed that said proceedings do not
involve the lender with which the Company conducts business, the lender has
failed to fund advances requested by the Company. It is the Company's position
that the management agreement, as previously amended, has been anticipatorily
breached by the lender and its affiliates. The Company is of the opinion that
while further advances under the management agreement may not occur, the
bankruptcy will have no additional material impact on the Company's ability to
obtain timeshare financing from the lender or alternate sources. Any future
payments under the management agreement received by the Company will be applied
to mitigate present and future damages sustained by the Company by virtue of the
breach by the lender and its affiliates of the management agreement and other
loan transactions between the Company, its subsidiaries and affiliates, and the
lender and its affiliates.
During the second quarter of 1996, the Company made its first borrowing of
$300,000 on its $6 million, 13% interest rate, construction financing commitment
for the Varsity Clubs of America - Tucson facility.
In September 1996, the Company acquired approximately one-half acre of improved
property adjacent to the Los Abrigados resort for a $185,862 cash down payment
and a $564,138 first deed of trust. The Company intends to make improvements to
the property and to offer timeshare intervals in the property commencing in
1997.
Cash used in operating activities decreased from $5,472,753 in 1995 to $774,366
in 1996 because 1995 included additions to resort property held for timeshare
sales for Varsity Clubs of America - Notre Dame and improvements to Los
Abrigados.
The change from cash used in investing activities in 1995 of $275,509 to cash
provided by investing activities in 1996 of $4,399 reflects investments in
Varsity Clubs of America deferred assets in 1995 and the cancellation of the
Company's options on its Varsity Clubs of America sites near Penn State and
Auburn University in 1996.
Cash provided by financing activities of $4,142,884 in 1995 decreased to cash
used in financing activities in 1996 of $341,205 because 1995 reflects increased
borrowings for construction of Varsity Clubs of America - Notre
11
Dame and for improvements to the Los Abrigados resort, and 1996 reflects cash
distributions to LAP minority partners.
Although no assurances can be made, based on the prior success of the Company in
obtaining necessary financings for operations and for expansion, the Company
believes that with its existing financing commitments, its cash flow from
operations and the contemplated financings discussed above the Company will have
adequate capital resources for at least the next twelve to twenty-four months.
12
Item 5. Other Information
On October 30, 1996, the Company entered into a definitive agreement with Debbie
Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC") (OTC: DEBI) and
Debbie Reynolds Resorts, Inc., a Nevada corporation ("DRC"), whereby the Company
will acquire all the assets constituting the Debbie Reynolds Hotel & Casino in
Las Vegas, Nevada (the "Hotel"). The purchase price of $16,800,000 includes
3,750,000 federally registered shares of the Company's common stock valued for
purposes of the transaction at $2.00 per share, as well as $4,200,000 in cash
and $5,100,000 in assumption of mortgage indebtedness. The transaction is
contingent upon approval by the shareholders of DRHC, a standard due diligence
investigation by the Company, and satisfaction of various other conditions. The
Hotel consists of 193 rooms in a twelve story structure situated on over six
acres. Hotel amenities include the Debbie Reynolds Hollywood Movie Museum,
Debbie's Star Theater, space for a planned full-service casino, food and
beverage facilities, a pool and a spa. Forty-three of the hotel rooms have
recently been renovated and established as timeshare units. As part of the
agreement, Debbie Reynolds will continue to perform and make regularly scheduled
appearances at the Hotel.
13
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
(a) The Exhibit Index attached to this report is hereby incorporated by
reference.
Reports on Form 8-K
- -------------------
(b) On August 5, 1996, a report on Form 8-K was filed with the Securities
and Exchange Commission, which disclosed the following:
Item 5. Other Events.
Effective June 2, 1995, ILX Incorporated (" ILX ") entered into
Consulting Agreements with Investor Resource Services, Inc., a Florida
corporation, (" IRC ") and Universal Solutions, Inc., a Colorado
corporation, (" Universal ") pursuant to which IRC and Universal agreed
to provide certain investor relations, broker relations and public
relations services to ILX. The Consulting Agreements are Exhibits to
ILX's Form S-2 Registration Statement No. 33-61477. Under the terms of
the Consulting Agreements, as amended in the related Option Agreements
(which are attached as Exhibits to ILX's Form S-3 Registration
Statement No. 333-03151), each of IRC and Universal received from ILX a
total of 50,000 shares of ILX Common Stock (the " Shares ") plus
options to purchase an additional 250,000 shares of ILX Common Stock at
$1.25 per share (the " Option Shares "). ILX agreed that the Shares and
the Option Shares may be registered pursuant to the terms of the
Consulting Agreements.
The term of the Option Agreements originally was to terminate 30
days after the effective date of any registration described under
Section 7(b) of the Consulting Agreements (a " Registration ") or June
1, 1997, whichever occurred first. Pursuant to a letter agreement dated
June 10, 1996 (the " Letter Agreement "), a copy of which was attached
as Exhibit A to ILX's Current Report dated June 14, 1996 on Form 8K,
ILX agreed to extend the term of the Option Agreements so that those
Option Agreements would terminate 90 days after the effective date of
any such Registration or June 1, 1997, whichever occurs earlier.
Pursuant to a letter agreement dated August 5, 1996 (the " Second
Letter Agreement "), a copy of which is attached as Exhibit A hereto,
ILX agreed to extend the term of the Option Agreements so that those
Option Agreements would terminate 120 days after the effective date of
any such Registration or June 1, 1997, whichever occurs earlier. In
consideration for the extension, IRC and Universal agreed to exercise,
collectively and on or before August 15, 1996, options for 100,000 of
the Option Shares at a price of $1.25 per Option Share.
The above descriptions of the Consulting Agreements, the Option
Agreements, the Letter Agreement and the Second Letter Agreement are
qualified in their entirety by reference to the Consulting Agreements,
the Option Agreements, the Letter Agreement and the Second Letter
Agreement.
Item 7. Financial Statements and Exhibits.
The Exhibits required by Item 601 of Regulation S-K have been
supplied as follows:
Exhibit Numbers Description of Exhibit Page No.
-----------------------------------------------------------------------
10 IRS/Universal Second Letter Agreement 4
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ILX INCORPORATED
(Registrant)
/s/ Joseph P. Martori
------------------------------
Joseph P. Martori
Chief Executive Officer
/s/ Nancy J. Stone
------------------------------
Nancy J. Stone
President/
Chief Financial Officer
/s/ Denise L. Janda
------------------------------
Denise L. Janda
Vice President/Controller
Date: As of November 12, 1996
15
EXHIBIT INDEX
No. Description
- ---- -----------
10-1 Fourth Amendment to Financing Agreement and Reaffirmation of Loan
Documents between Tammac Financial Corp. and Los Abrigados Partners
Limited Partnership and ILX Incorporated dated as of September 7, 1996.
10-2 First Amendment to Loan and Security Agreement between Tammac Financial
Corp. and ILX Incorporated dated as of September 7, 1996.
10-3 Amended and Restated Promissory Note to Tammac Financial Corp. by ILX
Incorporated dated as of September 7, 1996.
10-4 Agreement for Purchase and Sale of Debbie Reynolds Hotel & Casino
between Debbie Reynolds Hotel & Casino, Inc. and Debbie Reynolds
Resorts, Inc. and ILX Incorporated dated October 30, 1996.