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, 2001
[ ] 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
ILX RESORTS INCORPORATED
ARIZONA 86-0564171
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2111 EAST HIGHLAND AVENUE, SUITE 210, PHOENIX, AZ 85016
Registrant's telephone number, including area code (602) 957-2777
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 [ ]
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 MARCH 22, 2002
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Common Stock, without par value 2,907,201 shares
At March 22, 2002, the aggregate market value of Registrant's common shares held
by non-affiliates, based upon the closing price at such date, was approximately
$6.7 million.
Portions of Registrant's definitive Proxy Statement relating to the 2002 Annual
Meeting of Shareholders have been incorporated by reference into Part III, Items
10, 11, 12 and 13.
ILX RESORTS INCORPORATED
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I 3
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ITEMS 1 AND 2. BUSINESS AND PROPERTIES 3
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
PART II 19
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 19
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 25
PART III 26
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 26
ITEM 11. EXECUTIVE COMPENSATION 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
PART IV 26
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 26
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 discussed in the Company's public
filings with the Securities and Exchange Commission. Readers are cautioned not
to place undue reliance on such forward-looking statements and no assurances can
be given that such statements will be achieved. The Company undertakes no
obligation to publicly update or revise any of the forward-looking statements
contained herein.
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 six resorts in
Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico, and land
adjacent to an existing resort for which the Company holds development rights
(the Roundhouse Resort) (collectively, the "ILX Resorts"). Two of the resorts in
Arizona are not at this time registered with the Arizona Department of Real
Estate nor being marketed for sale as Vacation Ownership Interests, and one of
the two resorts is operated under a long-term lease arrangement.
At December 31, 2001, the ILX Resorts represented an aggregate of 404 units
and 23,168 sold and unsold one-week Vacation Ownership Interests, including
1,500 one-week 25-year right-to-use Sea of Cortez Premiere Vacation Club
Vacation Ownership Interests in San Carlos, Mexico, 103 weeks in the Roundhouse
Resort in Pinetop/Lakeside, Arizona and 600 weeks in the Carriage House in Las
Vegas, Nevada, which have been annexed to Premiere Vacation Club. The 23,168
sold and unsold Vacation Ownership Interests exclude the two Arizona resorts not
currently registered or marketed as Vacation Ownership Interests. The Company
also markets additional interests, which consisted, at December 31, 2001, of an
aggregate of approximately 292 Vacation Ownership Interests in destination
resorts owned by others and located in Arizona, Nevada, Florida, California and
elsewhere (collectively, the "Additional Interests"), including 210 in the
Carriage House which have not been annexed to Premiere Vacation Club.
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, 2001, the Company increased the
number of ILX Resorts from two to nine (excluding the Roundhouse Resort and the
Carriage House), and increased its total inventory of sold and unsold Vacation
Ownership Interests from 9,915 weeks to 23,460 weeks (including the Sea of
Cortez Premiere Vacation Club, the Roundhouse Resort and the Carriage House
Vacation Ownership Interests, and the Additional Interests). The Company's total
revenues increased from $6.1 million in 1991 to $48.3 million in 2001. During
this period, the Company's growth was fueled principally by the acquisition,
redevelopment and expansion of certain ILX Resorts and the marketing, sale and
financing 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 the
acquisition of the Los Abrigados Resort & Spa in Sedona, Arizona (175 units),
the Kohl's Ranch Lodge in Payson, Arizona (64 units), the Bell Rock Inn in the
Village of Oak Creek near Sedona, Arizona (96 units), the development rights to
build additional units adjacent to the existing Roundhouse Resort in
Pinetop/Lakeside, Arizona, the 1,500 Vacation Ownership Interests in San Carlos,
Mexico, and 810 vacation ownership interests at the Carriage House in Las Vegas,
Nevada.
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 that are accessible to major population centers near
prominent colleges and universities. The first Varsity Clubs, 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. The second Varsity Clubs, VCA-Tucson, consisting of 60 units, was
completed in July 1998 and is located approximately three miles from the
University of Arizona in Tucson, Arizona. The scope of the Company's activities
3
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 resorts situated in settings of natural beauty or other
special locations and within convenient and inexpensive traveling distance from
major population centers (currently Phoenix, Tucson, Las Vegas 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. To the
extent Varsity Clubs resorts are located proximate to major population centers,
such resorts may also be CARs. As of December 31, 2001, the Company operated
eight resorts consisting of 569 units and held 6,893 unsold Vacation Ownership
Interests in those resorts, inclusive of unsold interests in Premiere Vacation
Club. A third party operates the Sea of Cortez Premiere Vacation Club. 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 and,
commencing in the first quarter of 2002, an offsite sales office in Las Vegas,
Nevada.
Historically the Company had primarily marketed Vacation Ownership
Interests in individual ILX Resorts. Commencing in June 1998, the Company began
marketing much of its inventory of CARs through membership interests in its
proprietary branded Premiere Vacation Club. Premiere Vacation Club offers
purchasers a deeded one-week membership interest that may be used at any time
between certain specified dates at any one of the destinations included in
Premiere Vacation Club, or may be split into multiple stays of shorter duration
at any combination of such resorts. Vacation Ownership Interests in individual
ILX Resorts and in Premiere Vacation Club may be exchanged for stays at other
resorts through the major national exchange networks in which ILX owners may
participate, such as Resort Condominiums International ("RCI") and Interval
International ("II"). The majority of the Company's inventory of Vacation
Ownership Interests, including those at its Varsity Clubs and those included in
Premiere Vacation Club, qualify as "red time," the highest demand classification
for purposes of participation in such exchange networks. The Company designed
Premiere Vacation Club to respond to customer preferences for 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 Premiere Vacation Club, the Company
intends to pursue the expansion of its proprietary branded Varsity Clubs
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 Clubs property, VCA-South Bend, located near
the University of Notre Dame, in 1995 and its second Varsity Clubs, VCA-Tucson,
located near the University of Arizona in Tucson, Arizona, in July 1998. The
Company intends to develop its Varsity Clubs 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 that 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 targeted 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.
In July 2001, the Company acquired a 50 year leasehold interest in a
44-acre parcel located proximate to the Las Vegas Airport, University of
Nevada-Las Vegas ("UNLV") and the "Strip" in Las Vegas, Nevada. The Company
intends to develop the property, to be known as Premiere Park, into a mixed use
development, including a vacation ownership sales office, museums, restaurants,
golf, retail and other ancillary uses. The parcel presently includes a 25,000
square foot building which contains a vacation ownership sales office operated
by the Company, provides club facilities for the UNLV golf team, and the
remainder is projected for a golf related use. In addition to the existing
4
building, the Company intends to lease the remaining developable space on the 44
acre site, to be built by tenants to specifications approved by the Company.
During 2001, the Company sold 2,692 annual and biennial Vacation Ownership
Interests at the ILX Resorts, compared to 2,575 and 2,387 during 2000 and 1999,
respectively. The average sales price for a Vacation Ownership Interest
(excluding sales of Upgrades) was $13,110 for an annual interest and $7,512 for
a biennial interest, resulting in a weighted average price of $14,118 (each
biennial interest is treated as one-half of an annual interest) during the year
ended December 31, 2001 and $13,017 for an annual interest and $7,280 for a
biennial interest, resulting in a weighted average price of $13,859 during the
year ended December 31, 2000. Upgrades are sales to existing owners of Vacation
Ownership Interests in the ILX Resorts and may consist of purchases of
additional Vacation Ownership Interests or the exchange of their Vacation
Ownership Interest for a higher demand season; a larger unit; a different ILX
Resort; or for Premiere Vacation Club; for which the customer pays an additional
fee. At December 31, 2001, the Company had an existing inventory of 7,185 unsold
Vacation Ownership Interests (including 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 7,954 additional Vacation Ownership Interests through 2002 and thereafter at
the existing ILX Resorts, including conversion of the 96 units at the Bell Rock
Inn to 4,992 Vacation Ownership Interests.
5
THE RESORTS
The table below sets forth certain information, as of December 31, 2001,
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. As described in Note 8 of the Notes to
Consolidated Financial Statements, all of the Company's resorts except the
Historic Crag's Lodge at the Golden Eagle Resort and the Los Abrigados Lodge(5)
are encumbered by one or more deeds of trust.
SIZE OF
UNITS(2) RESORT AMENITIES
--------- -----------------------------------------------------------
RESTAURANT/ WHIRLPOOL/ SWIMMING FITNESS LOCAL
RESORTS (1) LOCATION S 1BR 2BR LOUNGE SPA POOL CENTER AMENITIES(3)
- ----------- -------- --- --- --- ------ --- ---- ------ ------------
CONVENIENT ACCESS RESORTS
Los Abrigados Resort Sedona, AZ 158 17 4/1 Y Y-2 Y B,BB,BL,
& Spa 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 18 1/1 Y Y Y B,BB,C,D,
F,FW,G,H,
Sh,TH,V
The Historic Crag's Lodge Estes Park, CO 9 21 3 1/1 Y Y N BL,D,F,FW,
at the Golden Eagle Resort G,H,MT,
Sh,TH
Sea of Cortez Premiere San Carlos, 8 6 16 4/2 Y Y Y BL,BO,D,F,
Vacation Club Mexico G,H,Sh,T,
--- --- --- V,W
TOTAL CARS CURRENTLY BEING MARKETED
AS VACATION OWNERSHIP INTERESTS 68 189 55
Bell Rock Inn (4) Village of 94 2 1/1 Y Y-2 N B,BB,BL,
Oak Creek, AZ D,F,FW,G,
H,MT,Sh,
T,TH,V
Los Abrigados Lodge (4)(5) Sedona, AZ 39 1/0 N Y N B,BB,BL,
--- --- --- D,F,FW,G,
H,MT,Sh,
T,TH,V
TOTAL CARS 201 191 55
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 44 12 1/1 Y Y Y BL,D,G,M,
--- --- --- MT,Sh,T,TH
UC
TOTAL VARSITY CLUBS (6) 7 98 17
--- --- ---
Total 208 289 72
=== === ===
- ----------
(1) Information regarding the Additional Interests and the Vacation Ownership
Interests in the Carriage House and the Roundhouse Resort 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 - Billiards, BO - Boating, 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, W -
Watersports.
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(4) The Bell Rock Inn and Los Abrigados Lodge are not currently registered nor
marketed for sale as Vacation Ownership Interests. The Company intends to
register the Bell Rock Inn with the Arizona Department of Real Estate in
2002.
(5) Los Abrigados Lodge is operated under a long-term lease arrangement that is
explained in more detail below.
(6) To the extent Varsity Clubs are proximate to major metropolitan areas, such
resorts can also be considered CARs, but have not been so designated in the
chart.
DESCRIPTION OF ILX RESORTS
CONVENIENT ACCESS RESORTS
LOS ABRIGADOS RESORT & SPA. 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 feature full kitchenettes. Los Abrigados is
designed in southwestern decor and is surrounded by the dramatic red rocks of
Oak Creek Canyon. This resort has an on-site sales office.
Amenities at the resort include four restaurants and a sports bar,
billiards emporium, library, two pools, outdoor whirlpool spa, tennis courts,
sports court, basketball court, bocce ball courts, simulated golf, miniature
golf, fitness center and health spa offering a variety of personal care
services, aerobic and yoga classes, indoor 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 an II Five-Star resort.
As of December 31, 2001, Los Abrigados contained 9,100 Vacation Ownership
Interests, of which approximately 233 remained available for sale (excluding
2,381 Vacation Ownership Interests owned by Premiere Vacation Club). The Company
believes there exist additional expansion opportunities at and contiguous to Los
Abrigados including eight units on the present site (representing 416 Vacation
Ownership Interests). The Company is currently constructing the eight units with
a projected completion in 2002.
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 includes the main
Morris House and nine bed and breakfast-style units in three buildings situated
amidst a former apple orchard. The Morris House is 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.
As of December 31, 2001, the Inn at Los Abrigados contained 520 Vacation
Ownership Interests, of which approximately 154 remained available for sale
(excluding 265 Vacation Ownership Interests owned by Premiere Vacation Club).
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 64 units. Forty-one of the units are at the
main lodge, 20 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, gazebos and sport court. Each unit at the resort
offers a mini-kitchenette or full kitchen, and many have a fireplace. In
addition, Kohl's Ranch offers a unique pet resort facility. Kohl's Ranch is an
RCI resort.
As of December 31, 2001, Kohl's Ranch contained 3,328 Vacation Ownership
Interests, of which approximately 156 were available for sale (excluding 2,490
Vacation Ownership Interests owned by Premiere Vacation Club). The Company plans
to add an additional two units, which would yield 104 Vacation Ownership
Interests, in 2002.
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ROUNDHOUSE RESORT. In December 1997, the Company acquired the development
rights to the Roundhouse Resort, a fully sold out 59-unit timeshare resort
located on 9.5 acres in the White Mountains of northeastern Arizona,
approximately 190 miles from Phoenix, Arizona. The resort is an RCI resort and
is proximate to golf courses, skiing, horseback riding and other outdoor
activities. 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.
During 2000, the Company entered into an agreement with the Roundhouse
Homeowners' Association ("RHA") to deed the property containing the existing 59
units and certain common area amenities to the RHA, for which the RHA will be
solely responsible for the ownership, operation and financing. The Company has
sole ownership of the remaining property and accordingly, may develop such
property without the constraints that would exist without this separation.
The Company plans to construct approximately 22 new units at the Roundhouse
Resort in 2002, and to annex this additional inventory into Premiere Vacation
Club. Construction may occur in phases, with only minimal common area amenities
necessary. The Company has not yet selected the exchange company with which it
will affiliate new units.
As of December 31, 2001, the Company holds 158 Vacation Ownership Interests
in the Roundhouse Resort, 103 of which are held by Premiere Vacation Club and 55
of which are Additional Interests that the Company plans to annex to Premiere
Vacation Club in the future.
THE HISTORIC CRAG'S LODGE AT THE GOLDEN EAGLE RESORT. The Historic Crag's
Lodge at the Golden Eagle Resort ("Golden Eagle") 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 units and is bounded generally by undeveloped forested
mountainside land, which provides excellent mountain views from the resort.
Golden Eagle is centered around the historic Crag's Lodge, a four-story
wood frame building constructed in the early 1900s, which is listed on the
National Registry of Historic Places by the United States Department of the
Interior, and 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 is an RCI
resort.
As of December 31, 2001, Golden Eagle contained 1,716 one-week Vacation
Ownership Interests, of which 258 were available for sale (excluding 691
Vacation Ownership Interests owned by Premiere Vacation Club). The Company
intends to construct a minimum of two additional units in the future, which
would yield an additional 102 Vacation Ownership Interests.
BELL ROCK INN. In December 2000, the Company acquired the Bell Rock Inn, an
existing resort in the Village of Oak Creek, Arizona. The property is located
approximately six miles south of Los Abrigados Resort & Spa and consists of 96
lodging units, most of which include a fireplace and mini-kitchen facilities.
The Bell Rock Inn has a full service restaurant and lounge, with a large outdoor
dining patio, two heated pools, two whirlpool spas, outdoor fireplaces and
banquet/meeting space. The Company is currently operating the property as a
traditional resort, including providing accommodations for customers invited to
attend a vacation ownership presentation at the Company's Sedona sales office.
The Company intends to initially register 96 studio Vacation Ownership Interests
in the Bell Rock Inn to Premiere Vacation Club. The Bell Rock Inn will be an II
resort.
LOS ABRIGADOS LODGE. In September 2000, the Company entered into an
agreement to lease an existing motel in Sedona, Arizona, commencing October 1,
2000 and terminating on December 31, 2021. The lease contains a provision in
which the lease term may be automatically extended for consecutive one-year
periods after December 31, 2021 up to December 31, 2038 if the lease has not
been terminated prior to December 31, 2021. The lessor was required to remodel
and refurbish the existing project, previously known as the Canyon Portal Motel,
as well as construct additional units at the complex. The Company renamed the
property the "Los Abrigados Lodge." The property is used for hotel
accommodations, including accommodations for customers invited to attend a
vacation ownership presentation at the Company's Sedona sales office. As of
December 31, 2001, this resort contains 39 units. These units are not offered
for sale as Vacation Ownership Interests.
VARSITY CLUBS OF AMERICA
VCA-SOUTH BEND. The Company's first Varsity Clubs facility is an
approximately four acre property located three miles from the University of
Notre Dame and Notre Dame Stadium in South Bend, Indiana, which is 90 miles from
Chicago, Illinois. VCA-South Bend offers 62 units, consisting of studio, one-
and two-bedroom suites. This resort has a small on-site sales operation.
8
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, which offers a variety of food and beverages and
features a theater-wall television in a stadium-type setting, fitness center
with whirlpool spa, indoor/outdoor heated pool, bocce ball, children's
playground, billiards room, putting green, 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, 2001, this resort contained 3,224 one-week Vacation
Ownership Interests, of which 507 were available for sale (excluding 695
Vacation Ownership Interests owned by Premiere Vacation Club). Expansion
capability exists for an additional 24 units (1,248 one-week Vacation Ownership
Interests). The Company is currently evaluating the possibility of such
expansion during the next 24 months.
VCA-TUCSON. The second Varsity Clubs resort is a two-acre property located
in Tucson, Arizona, approximately three miles from the University of Arizona and
110 miles from Phoenix, Arizona. VCA-Tucson offers 60 units, consisting of
studio, one- and two-bedroom suites. This resort has an on-site sales office.
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 suites includes 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 include a Sports Lounge
designed similar to that at VCA-South Bend, the Twenty-Four Hour Sports Ticker,
Joey Pizza (a restaurant theme originally introduced at Los Abrigados),
billiards room, putting green, 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 is an II Five-Star
resort.
At December 31, 2001, this resort contained 3,120 one-week Vacation
Ownership Interests, of which 521 were available for sale (excluding 2,275
Vacation Ownership Interests owned by Premiere Vacation Club).
SEA OF CORTEZ PREMIERE VACATION CLUB
Sea of Cortez Premiere Vacation Club is an ocean front property on the Sea
of Cortez in San Carlos, Sonora, Mexico. The Company, through Premiere Vacation
Club, has acquired 1,500 one-week 25-year right-to-use Vacation Ownership
Interests in 30 studio, one- and two- bedroom units in the Sea of Cortez
Premiere Vacation Club. The Company has the option to extend the right-to-use
period for an additional 25-year period provided it is not in default under the
right-to-use agreement. The option is exercisable by the Company during the last
five years of the initial term, at terms to be negotiated by the parties at that
date. The Company markets such Vacation Ownership Interests exclusively through
Premiere Vacation Club.
Sea of Cortez Premiere Vacation Club was completed in July 2001. Each unit
has an ocean view. The Premiere Vacation Club has a swimming pool, outdoor
restaurant and lounge, volleyball court and beach access, a separate living
area, bedroom(s), full kitchen and balcony or patio. Amenities of the adjacent
San Carlos Plaza Resort are also available to Premiere Vacation Club owners.
Such amenities include two outdoor swimming pools, whirlpool spa, fitness
center, three restaurants, several lounges, gift shops and water sports
equipment.
During 1999, the Company annexed the 1,500 San Carlos Vacation Ownership
Interests into Premiere Vacation Club. Sea of Cortez Premiere Vacation Club is
an II Five Star resort. This resort has a small on-site sales office and offers
Vacation Ownership Interests in Premiere Vacation Club.
THE CARRIAGE HOUSE
In June 2001, the Company acquired 600 Vacation Ownership Interests in the
Carriage House in Las Vegas, Nevada. These weeks were annexed into Premiere
Vacation Club. The Company continues to acquire additional Vacation Ownership
Interests that it plans to annex into Premiere Vacation Club in the future.
The Carriage House is a non-gaming suite hotel located one block off the
"Strip" in Las Vegas. The property contains a heated pool, whirlpool, tennis
court and basketball court. The Carriage House is both an II and RCI resort. The
Company is currently planning to open a Joey Bistro restaurant on the top floor
of the hotel. The Company operates a small on-site Carriage House sales
operation which markets to owners, exchange guests and other guests of the
hotel.
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PREMIERE VACATION CLUB
In January 1998, the Company recorded in Maricopa County, Arizona its
proprietary Premiere Vacation Club Membership Plan and in May 1998 annexed a
total of 5,000 Vacation Ownership Interests into the Club and received
Department of Real Estate approval in the State of Arizona to commence selling
Vacation Ownership Interests in Premiere Vacation Club. During 1999 and 2001,
the Company annexed additional units and as of December 31, 2001, Premiere
Vacation Club included a total of 11,000 Vacation Ownership Interests. The
11,000 Vacation Ownership Interests annexed into the Club consist of 2,381
Vacation Ownership Interests in Los Abrigados, 265 Vacation Ownership Interests
in the Inn at Los Abrigados, 2,490 Vacation Ownership Interests in Kohl's Ranch
Lodge, 691 Vacation Ownership Interests in Golden Eagle, 1,500 Vacation
Ownership Interests in the Sea of Cortez Premiere Vacation Club, 695 Vacation
Ownership Interests in VCA-South Bend, 2,275 Vacation Ownership Interests in
VCA-Tucson, 103 Vacation Ownership Interests in the Roundhouse Resort and 600
Vacation Ownership Interests in the Carriage House.
At December 31, 2001, 5,065 of the 11,000 Premiere Vacation Club Vacation
Ownership Interests were available for sale. Premiere Vacation Club is
affiliated with II and is offered for sale at each of the Company's sales
offices.
ADDITIONAL INTERESTS
In addition to the ILX Resorts, ILX owns a designated number of Vacation
Ownership Interests at additional resorts owned by unaffiliated third parties.
At December 31, 2001, the Company owned, in addition to the 103 Vacation
Ownership Interests in the Roundhouse Resort that have been annexed into
Premiere Vacation Club as disclosed above, an additional 55 deeded Vacation
Ownership Interests in the Roundhouse Resort, which it intends to annex into
Premiere Vacation Club in the future; in addition to the 600 Vacation Ownership
Interests that have been annexed into Premiere Vacation Club as disclosed above,
an additional 210 Vacation Ownership Interests in the Carriage House, which it
intends to annex into Premiere Vacation Club in the future; and eleven deeded
Vacation Ownership Interests in the Ventura Resort in Boca Raton, Florida, six
deeded Vacation Ownership Interests in a resort in Palm Springs, California and
one to two Vacation Ownership Interests in each of a number of additional
resorts that it holds for resale.
PHOENIX SALES OFFICE
On May 31, 2001, the Company closed its offsite sales office in Phoenix,
Arizona. While off-site sales operations typically operate at lower closing
rates than on-site sales offices at which the touring guests take part in the
resort experience, an off-site sales office located proximate to a customer base
can provide more convenient access and therefore a broader audience as well as a
lower per tour cost. The cost effectiveness of tour generation to the Phoenix
office did not justify the lower efficiencies of this off-site sales office.
SEDONA STATION
In December 2000, the Company acquired the Sedona Station, a recently
constructed 5,200 square foot art gallery, situated immediately adjacent to the
entrance of Los Abrigados Resort & Spa in Sedona, Arizona. In January 2001, the
Company completed renovation of Sedona Station into a sales center. The
acquisition and conversion of this property enabled the Company to both increase
the size of the Sedona sales operation and to construct additional lodging units
at Los Abrigados Resort in the space previously utilized for the Sedona sales
center. Such units are expected to be completed in 2002.
LAS VEGAS LEASEHOLD INTEREST
In July 2001, the Company acquired a 50 year leasehold interest in a
44-acre parcel located proximate to the Las Vegas Airport, University of
Nevada-Las Vegas ("UNLV") and the "Strip" in Las Vegas, Nevada. The Company
intends to develop a property, to be known as Premiere Park, into a mixed use
development, including a vacation ownership sales office, museums, restaurants,
golf, retail and other ancillary uses. The parcel presently includes a 25,000
square foot building which contains a vacation ownership sales office operated
by the Company, provides club facilities for the UNLV golf team, and the
remainder is projected for a golf related use. In addition to the existing
building, the Company intends to lease the remaining developable space on the 44
acre site, to be built by tenants to specifications approved by the Company.
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.
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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 Vacation Ownership
Interest in the Company's proprietary branded Premiere Vacation Club are
entitled to use their Vacation Ownership Interest at any resort in Premiere
Vacation Club or may split up their Vacation Ownership Interest according to the
owner's needs and preferences and it may be used at any number of participating
resorts, 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. Each of the ILX Resorts (except the Los Abrigados
Lodge, which does not offer Vacation Ownership Interests and has a limited
service restaurant) 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 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. The Company has successfully developed its prototype Varsity
Clubs of America resort, VCA-South Bend, and a second Varsity Clubs facility,
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.
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
and difficulties of air travel. 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 properties
included in Premiere Vacation Club (including the VCAs) 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 their individual ILX Resort or, in the case of Premiere Vacation
Club members, at any ILX Resort included in Premiere Vacation Club, 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 will also allow 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. The vast majority 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 that offer
natural settings or other attractions to entice tourists to visit such
locations.
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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 processing of customer payments and certain collection activities related to
promissory notes given by ILX owners as partial payment for a Vacation Ownership
Interest ("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 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. Such 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 or at non-affiliated hotels in popular destinations in the
western United States and Mexico). 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 contact. 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 Clubs.
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 Clubs will be
developed. For example, alumni of the University of Arizona, to whom the Company
is marketing Vacation Ownership Interests at its VCA-Tucson, currently number
approximately 180,000. 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
Sales of Vacation Ownership Interests in Premiere Vacation Club commenced
in June 1998. Purchasers are offered deeded membership interests that provide
rights to accomodations which may be used each use year in their entirety at one
time or may be divided into shorter stays at one or a variety of the Company's
resorts or may be exchanged through a participating exchange network. The
Company's Premiere Vacation Club emphasizes CARs (i) that 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) that 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 Resorts. In addition, membership interests in Premiere
Vacation Club are marketed at an average higher gross sales price than sales of
Vacation Ownership Interests in a single ILX Resort. The Company also markets
membership interests in its Premiere Vacation Club to existing ILX owners,
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 consisted of
Vacation Ownership Interests in the ILX Resorts. New resorts are expected to be
added through the Company's pursuit of selected acquisition opportunities, as
occurred with the addition of the 1,500 one-week 25-year right-to-use Vacation
Ownership Interests in Sea of Cortez Premiere Vacation Club in San Carlos,
Mexico and 600 Vacation Ownership Interests in the Carriage House in Las Vegas.
By marketing its inventory of Vacation Ownership Interests through 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 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 to 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. In January 2002,
the Company opened a sales office in Las Vegas to market Premiere Vacation Club
to both tourists and local residents of Las Vegas. Further capitalizing on the
flexibility of Premiere Vacation Club, in 1999, the Company entered into an
agreement with a Scottsdale, Arizona resort whereby Maricopa County-based
Premiere Vacation Club members may utilize the resort's facilities on a day use
basis, thereby enhancing the benefits of ownership in Premiere Vacation Club.
12
VARSITY CLUBS OF AMERICA
The Company intends to 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-themed atrium
lounge serving a variety of food and beverages and featuring a theater-wall
television), 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 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,
2001, 507 one-week intervals were available for sale (excluding 695 Vacation
Ownership Interests owned by Premiere Vacation Club) and expansion capacity
exists for up to an additional 24 units (1,248 one-week Vacation Ownership
Interests). 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 second Varsity Clubs facility is located in Tucson, Arizona, less than
three miles from the University of Arizona. This second Varsity Clubs was
completed in July 1998 and offers 60 suites, or 3,120 one-week intervals. At
December 31, 2001, 521 one-week intervals were available for sale (excluding
2,275 Vacation Ownership Interests owned by Premiere Vacation Club). 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 a current alumni base in excess of 180,000 people. The Company believes that
all of these factors increase the appeal of VCA-Tucson to prospective buyers as
well as provide increased trading power for purchasers of Vacation Ownership
Interests in the resort for purposes of participation in exchange networks. The
VCA-Tucson on-site sales office offers customers both Premiere Vacation Club and
VCA-Tucson Vacation Ownership Interests. Premiere Vacation Club Interests
provide the buyer with local city club privileges, access to all resorts in
Premiere Vacation Club, as well as a variety of additional benefits.
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 up to three of these areas in the next
five 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.
13
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 the majority 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 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 toward
(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) telemarketing,
electronic and other contact with 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 five sales
offices located at ILX Resorts and beginning in January 2002, from an offsite
sales office in Las Vegas, Nevada. For its on-site sales offices, as well as its
Las Vegas office, the Company primarily targets customers who live within
driving distance of the ILX Resort or who are vacationing at or near the 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. The Company also targets local residents to its
Las Vegas offsite sales office by offering these prospective customers travel
incentives in exchange for their attendance at the sales presentation. The
Company believes that prospective customers who respond to such travel offers
have strong sales potential because of the attractiveness of the convenient
access of the ILX Resorts to their homes, and because of their interest in
travel.
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 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 100 employees at
December 31, 2001, including approximately 66 sales agents at the sales offices
located at selected ILX Resorts. Prospective first-time purchasers at the ILX
Resorts sales office participate in a tour of the facilities as well as its
related amenities, guided by a salesperson. In the Las Vegas offsite sales
office, the "tour" of the facilities consists of a photo tour of the ILX Resorts
and viewing of a video on vacation ownership. This sales office will also
contain a model unit beginning in the second half of 2002. At the conclusion of
the tour, the terms of making a purchase, including financing alternatives, are
explained to the customer. Approximately 20% of the Company's sales have
historically been made on a cash basis. However, for those customers seeking
financing, the Company conducts credit pre-approval research. The Company's
point-of-sale credit pre-approval process typically includes a review of the
customer's credit history, and may include 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. Sales to ILX owners accounted for 10.7% of Vacation Ownership Interest
14
sales by the Company during 2001. During 2000 and 1999, sales to ILX owners
accounted for 10.6% and 9.2% of the Company's total sales, respectively.
Prior to June 1998, the Company's inventory of Vacation Ownership Interests
had historically consisted of a one-week interval that could be used on an
annual or an alternate-year basis in a specified ILX Resort during a specified
range of dates. ILX owners could also participate in exchange networks such as
RCI and II. Commencing in June 1998, the Company began offering 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. Premiere Vacation Club members may divide their
stays into shorter vacations at any time between a specified period of time,
enjoy unlimited day use and discounted goods and services at any ILX Resort, as
well as a variety of other benefits. 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 80% to 85% 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. The Company typically makes financing for the remainder available
to the buyer for a term of seven years at a fixed rate of interest, which is
currently approximately 15.9% to 17.9% per annum. The Company also offers
reduced rates of interest on shorter financing terms and with a 50% down payment
requirement. At December 31, 2001, the Company had a portfolio of retained
Customer Notes with an aggregate principal amount of $31.1 million, of which
$24.3 million were serviced by an outside vendor and had a weighted average
yield of 15.34% per annum, which compared favorably to the Company's weighted
average cost of borrowings for such Customer Notes of 6.28% 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 that 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 utilizes third party collection agencies
for difficult accounts.
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 that it retains,
most of which it hypothecates, and, as a result, at December 31, 2001, the
Company retained Customer Notes in an aggregate principal amount of $31.1
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 and
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.
At December 31, 2001, the Company has an agreement with a financial
institution for a commitment of $40 million under which the Company may sell
certain of its Customer Notes. The agreement provides for sales on a recourse
basis with a percentage of the amount sold held back by the financial
institution as additional collateral. Customer Notes may be sold at discounts or
premiums to the principal amount in order to yield the consumer market rate, as
defined by the financial institution. At December 31, 2001, $21.9 million of the
$40 million commitment was available to the Company. In 2000, the Company had
been informed that this financial institution was ceasing the portion of its
activities that includes financing of Customer Notes. In 2002, the financial
institution was purchased and it has since affirmed its intent to finance
Customer Notes on an ongoing basis. The Company also has a financing commitment
in the aggregate amount of $30.0 million, pursuant to which the Company may
hypothecate Customer Notes that are pledged to the lender as collateral. This
borrowing bears interest at prime plus 1.5%, has a draw period which expires in
2002, and a maturity date of 2007. At December 31, 2001, $12.4 million was
available to the Company under this commitment. The Company currently reserves
approximately 4.5% of gross sales (including cash sales) as an allowance for
doubtful accounts. At December 31, 1999, 2000 and 2001, the aggregate amount of
these reserves was $3.3 million, $3.2 million and $3.5 million, respectively.
During 1999 and 2000, the Company's actual write-offs exceeded the provision for
doubtful accounts by $0.1 million. In 2001, the Company's provision for doubtful
accounts exceeded actual write-offs by $0.3 million. The Company generally
writes off receivables only at such time as it accepts back a deed to the
underlying property and determines the remainder uncollectible or as required
for tax purposes. The timing of such write-offs is neither indicative of the
date delinquency commenced nor of the date the likelihood of noncollectibility
was determined. 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.
15
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 2001, the Company received $17.6 million in
net revenues from these operations, consisting of $11.6 million in room rental
revenue, $4.1 million in food and beverage revenue and $1.9 million in other
revenue. Of these amounts, Los Abrigados contributed $8.8 million, or 50% of the
Company's total resort operations revenues in 2001. 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 as resort occupancy by owners of Vacation Ownership Interests, who
pay a lower rate through their dues than the rate charged traditional resort
guests, increases; the Company acquires or builds new resorts that are in
different phases of the sales life cycle and therefore have different use
patterns between vacation owners and resort guests than the existing portfolio
of resorts; and because future resorts may have different rate structures,
reflective of their location and amenities, than existing resorts. 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. Prior to December 31, 1999, the Company's operations included
the sale of personal care products through its majority-owned subsidiary Sedona
Worldwide Incorporated ("SWI"). Effective December 31, 1999, the Company spun
off its entire ownership interest in SWI to the shareholders of ILX Resorts
common stock through a prorata distribution of the 3,360,000 common shares of
SWI held by the Company (representing 80% of the then total common shares of
SWI).
The SWI personal care products had historically been marketed under its
proprietary Red Rock Collection brand name through the ILX Resorts. Commencing
in the second quarter of 1998, these products were marketed under the brand name
"Sedona Spa" and, in connection with such change, certain modifications to the
product line were implemented. Sedona Spa products have, and continue to be,
utilized at the ILX Resorts as in-room amenities and are also offered for retail
sale in the resort gift shops and at the Sedona Spa at Los Abrigados. Sedona Spa
products are also used by the Company as promotion incentives to potential
purchasers who attend the Company's sales tours and presentations. SWI uses
direct mail to market Sedona Spa products to resort customers and tour
participants who have previously used the products. Pursuant to an agreement to
provide SWI financing to fund working capital shortfalls through November 30,
2001, the Company had advanced SWI $108,000 as of December 31, 2001. On January
2, 2002 the Company entered into a General Bill Of Sale, Assignment and
Assumption Agreement with SWI whereby the Company assumed all of the assets and
liabilities of SWI in full satisfaction of this advance. The Company anticipates
continuing to utilize Sedona Spa products for in-room amenities, promotional
incentives and in its retail outlets.
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 acquisition of its wholly owned subsidiary, Genesis
Investment Group, Inc. ("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 the next twenty-four
months, although there can be no assurance that it will be able to sell these
assets at attractive prices, if at all, during this time. Following the sale of
these assets, management does not expect to regularly engage in the sale of real
property.
RESALE OPERATIONS. In June 1998, the Company acquired a 51% interest and in
June 2001, the 49% remaining minority interest, in Timeshare Resale Brokers,
Inc. ("TRBI"), an Arizona company engaged in the resale of Vacation Ownership
Interests on behalf of consumers and others, for which it earns a commission
upon sale. The operation is based in Sedona, Arizona.
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
16
the Alliance for Timeshare Excellence and the American Resort Development
Association, 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 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 89% 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. ILX also offers certain
interested purchasers enrollment in a cruise exchange program in which the
customer may exchange his Vacation Ownership Interest for or receive discounts
on cruises worldwide. Exchanges and discounts through this program are offered
on a variety of cruise lines to a broad selection of destinations. In addition,
ILX's Centralized 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
tends to increase customer satisfaction.
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,
Starwood Hotels & Resorts Worldwide Inc. and Promus Hotel Corporation. In
addition, other publicly traded companies such as Fairfield Communities, Inc.,
Silverleaf Resorts, Inc., Trendwest Resorts, Inc., and Bluegreen Corporation
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. In recent years there has
been significant consolidation in the industry and in addition several entities
have encountered challenges in 2000 and 2001 resulting in their attempts to
reorganize through either consolidation or bankruptcy. 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 Vacation
Ownership 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
Vacation Ownership 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.
17
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 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 investigations of its properties have
not revealed any environmental liability that the Company believes would have a
material adverse effect on the Company, its 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. Future 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, 2001, the Company had approximately 816 employees, of
which approximately 661 were employed on a full-time basis (including
approximately 155 employed on a full-time equivalent basis of 20 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
18
on any mortgage indebtedness or other obligations related to the property. Any
such loss could have a material adverse effect on the Company.
CORPORATE HEADQUARTERS
The Company leased 5,444 square feet for its corporate offices in Phoenix,
Arizona, under a lease that expired on January 31, 2002 and an additional 2,833
square feet in the same building which it utilized for its Phoenix offsite sales
office until its closing in May 2001. Beginning February 1, 2002 the Company
amended the lease to include 8,437 square feet of contiguous space for its
corporate offices under a lease that expires on January 31, 2006.
ITEM 3. LEGAL PROCEEDINGS
Litigation has arisen in the normal course of the Company's business, none
of which is deemed to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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. The information is as reported
by the American Stock Exchange which listed the Common Stock of the Company on
February 11, 1998. Prior to February 11, 1998, it had been traded on the Nasdaq
SmallCap Market. As of December 31, 2001, the Common Stock was held by
approximately 1,062 holders of record. No dividends on the Common Stock have
been declared by the Company since inception and none are anticipated in the
foreseeable future. Dividends on Common Stock are subordinate to dividends
payable on the Company's Series A and Series C Preferred Stock.
COMMON STOCK
----------------
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 2000
First Quarter $2.38 $1.38
Second Quarter 2.44 1.50
Third Quarter 2.25 1.63
Fourth Quarter 2.13 1.63
YEAR ENDED DECEMBER 31, 2001
First Quarter 3.65 1.81
Second Quarter 4.25 2.20
Third Quarter 8.25 3.80
Fourth Quarter 7.65 4.20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated historical financial information set forth below
for the five years ended December 31, 2001 has been derived from the
consolidated financial statements of the Company, which have been restated to
give effect to the one-for-five reverse stock split (the "Reverse Stock Split"),
declared effective by the Company on January 12, 1998.
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."
19
DECEMBER 31,
-----------------------------------------------------------
1997 1998 1999 2000 2001
------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $36,411 $36,858 $40,439 $43,053 $48,309
Net income 1,668 62 703 1,533 2,032
Net income per share - basic .60 .00 .16 .40 .62
Net income per share - diluted .59 .00 .16 .39 .61
Total assets 43,722 51,997 57,389 65,545 74,125
Notes payable 22,051 23,002 28,121 33,851 41,619
Shareholders' equity 16,621 25,764 25,239 25,835 25,785
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,"
"EXPECTS," "MAY," "SHOULD," 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 six resorts in Arizona, developable land adjacent to an
existing resort in Arizona, one resort in Indiana, one resort in Colorado, 1,500
Vacation Ownership Interests in a resort in San Carlos, Mexico and 810 Vacation
Ownership Interests in a resort in Las Vegas.
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.
YEAR ENDED DECEMBER 31,
-----------------------------
1999 2000 2001
----- ----- -----
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 58.6% 60.8% 58.2%
Resort operating revenue 33.0% 32.0% 36.3%
Interest income 8.4% 7.2% 5.5%
----- ----- -----
Total timeshare revenues 100.0% 100.0% 100.0%
===== ===== =====
As a percentage of sales of Vacation Ownership Interests:
Cost of Vacation Ownership Interests sold 13.3% 14.6% 17.0%
Sales and marketing 65.1% 56.3% 57.0%
Provision for doubtful accounts 3.4% 4.3% 4.4%
Contribution margin percentage from sale of Vacation
Ownership Interests (1) 18.3% 24.8% 21.6%
As a percentage of resort operating revenue:
Cost of resort operations 93.7% 93.0% 83.4%
As a percentage of total timeshare revenues:
General and administrative 10.8% 10.8% 10.3%
Depreciation and amortization 1.3% 1.4% 1.7%
Timeshare operating income 9.0% 12.3% 12.1%
20
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
------- ------- -------
Selected operating data:
Vacation Ownership Interests sold (2)(3) 1,545 1,665 1,756
Average sales price per Vacation Ownership Interest sold
(excluding revenues from Upgrades) (2) $13,453 $13,859 $14,118
Average sales price per Vacation Ownership Interest sold
(including revenues from Upgrades) (2) $15,183 $15,411 $15,720
- ----------
(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 2,387, 2,575 and 2,692 biennial and annual
Vacation Ownership Interests for the years ended December 31, 1999, 2000
and 2001, respectively.
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO DECEMBER 31, 2001
Sales of Vacation Ownership Interests increased 7.4% or $1.9 million in
2001 to $28.1 million from $26.2 million in 2000, reflecting an increase in
sales from the Sedona sales office and increased Upgrades, net of a decrease in
sales from the Kohl's Ranch, VCA-South Bend and VCA-Tucson sales offices. The
increase in sales from the Sedona sales office is a result of an increase in the
number of tours from the marketing venues in Sedona. The decrease in sales from
the Kohl's Ranch sales office reflects a reduction in the number of tours to
this office. The reduced tour flow reflects primarily a reduction in the number
of non-owner guests at the resort due to cessation of certain on-site
activities. Non-owner visitors to the resort are offered the opportunity to
attend a sales presentation either during their visit, or at a later date. The
decrease in sales from the VCA-South Bend sales office reflects the reduction in
the third quarter of 2000 from a full scale sales office to a small sales staff
that both generates its own tours and sells to such prospects for a percentage
of sales. The decrease in sales from the VCA-Tucson sales office is due to a
decrease in tours provided by the major tour vendor to this office. Upgrade
revenue increased 8.9% to $2.8 million in 2001 from $2.6 million in 2000,
reflecting continuation of marketing efforts to existing owners. The average
sales price per Vacation Ownership Interest sold (excluding Upgrades) increased
1.9% to $14,118 in 2001 compared to $13,859 in 2000 and the average sales price
per Vacation Ownership Interest sold including Upgrades increased 2.0% to
$15,720 in 2001 from $15,411 in 2000.
The number of Vacation Ownership Interests sold increased 5.5% to 1,756 in
2001 from 1,665 in 2000. Sales of Vacation Ownership Interests in 2001 included
1,873 biennial Vacation Ownership Interests (counted as 936.5 annual Vacation
Ownership Interests) and 819 annual Vacation Ownership Interests compared to
1,821 biennial Vacation Ownership Interests (counted as 910.5 annual Vacation
Ownership Interests) and 754 annual Vacation Ownership Interests in 2000.
Resort operating revenues increased 27.2% or $3.8 million from $13.8
million in 2000 to $17.6 million in 2001, largely reflecting the addition of
resort inventory in late 2000, with the acquisition of the Bell Rock Inn and Los
Abrigados Lodge in the fourth quarter of 2000 as well as the addition of twelve
new cabins as Kohl's Ranch Lodge. The cost of resort operations increased at a
lesser percentage than the increase in revenues with a 14.1% or $1.8 million
increase to $14.6 million in 2001 from $12.8 million in 2000. Cost of resort
operations as a percentage of resort operating revenue decreased to 83.4% in
2001 from 93.0% in 2000, as a result of increased revenue, including an increase
in rates from vacation interval owners in 2001, increased occupancy, and
improved operating efficiencies at Kohl's Ranch Lodge. Certain of these benefits
are not expected to recur on a regular basis and cost of resort operation as a
percentage of resort operating revenue is expected in the future to be
comparable to prior years.
Interest income decreased by 14.1% to $2.7 million in 2001 from $3.1
million in 2000, reflecting greater early pay-offs of Customer Notes in 2001 and
a decrease in the percentage of Customer Notes sold, for which the Company
recognizes the interest premium upon sale of the note.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales increased to 17.0% in 2001 from 14.6% in 2000,
reflecting variations in product mix, an increase in cost of sales recognized on
Upgrades, and improvements made to resort properties.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 57.0% in 2001 compared to 56.3% in 2000, reflecting the
net effect of a lower cost per tour offset by decreased closing rates at the
Sedona sales office in 2001.
21
The provision for doubtful accounts as a percentage of Vacation Ownership
Interest sales increased to 4.4% of sales of Vacation Ownership Interests in
2001 from 4.3% in 2000, reflecting the Company's decision to increase the
provision on new sales in the second quarter of 2000.
General and administrative expenses increased 7.7% to $5.0 million in 2001
from $4.6 million in 2000, corresponding to revenue growth between years.
General and administrative expenses decreased between years as a percentage of
total timeshare revenues from 10.8% in 2000 to 10.3% in 2001.
Interest expense decreased 4.0% from $2.7 million in 2000 to $2.6 million
in 2001, reflecting the combined net effect of greater borrowings in 2001 and
lower borrowing rates. During 2001, the Company continued to retain and borrow
against, rather than sell, more of its Customer Notes. The Company borrows
against such notes at variable rates tied to prime and, accordingly, during 2001
a greater percentage of the Company's indebtedness is at lower, variable rates
and a lesser percentage at higher fixed rates than in prior years. The increase
in Notes Payable at December 31, 2001 compared to December 31, 2000 includes the
creation of $4,900,000 in indebtedness to acquire the leasehold interest in Las
Vegas, Nevada, for which minimal interest was incurred during 2001.
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 2000
Sales of Vacation Ownership Interests increased 10.4% or $2.5 million in
2000 to $26.2 million from $23.7 million in 1999, reflecting an increase in
sales from the Sedona sales office, addition of the Phoenix offsite sales office
and increased Upgrades, net of a decrease in sales from both the VCA-South Bend
and VCA-Tucson sales offices. The increase in sales from the Sedona sales office
is a result of an increase in the number of tours and an improved closing rate
(sales as a percentage of tours). The decrease in sales from the VCA-South Bend
sales office reflects the reduction in the third quarter of 1999 from a full
scale sales office to a small sales staff that both generates its own tours and
sells to such prospects for a percentage of sales. The decrease in sales from
the VCA-Tucson sales office is due to a decrease in tour flow, in part as a
result of reducing the operation from seven days to five days a week to gain
certain operating efficiencies. Upgrade revenue increased 18.2% to $2.6 million
in 2000 from $2.2 million in 1999, reflecting expansion of marketing efforts to
existing owners. The average sales price per Vacation Ownership Interest sold
(excluding Upgrades) increased 3.0% to $13,859 in 2000 from $13,453 in 1999. The
average sales price per Vacation Ownership Interest sold including Upgrades
increased by a slightly lower rate between years to $15,411 in 2000 from $15,183
in 1999 in spite of the increase in Upgrade revenue, because of the greater
number of sales (excluding Upgrades) in 2000.
The number of Vacation Ownership Interests sold increased 7.8% to 1,665 in
2000 from 1,545 in 1999. Sales of Vacation Ownership Interests in 2000 included
1,821 biennial Vacation Ownership Interests (counted as 910.5 annual Vacation
Ownership Interests) and 754 annual Vacation Ownership Interests compared to
1,685 biennial Vacation Ownership Interests (counted as 843 annual Vacation
Ownership Interests) and 702 annual Vacation Ownership Interests in 1999.
Resort operating revenues increased 3.3% or $0.4 million from $13.4 million
in 1999 to $13.8 million in 2000, reflecting a slight increase in both revenue
from vacation interval owners and hotel room rentals. While the cost of resort
operations increased 2.5% or $0.3 million to $12.8 million in 2000 from $12.5
million in 1999, due primarily to inflation, cost of resort operations as a
percentage of resort operating revenue improved modestly to 93.0% in 2000 from
93.7% in 1999.
Interest income decreased by 8.6% to $3.1 million in 2000 from $3.4 million
in 1999, reflecting greater early pay-offs of Customer Notes in 2000.
Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales increased to 14.6% in 2000 from 13.3% in 1999,
reflecting variations in product mix, an increase in cost of sales recognized on
Upgrades, and improvements made to resort properties.
Sales and marketing as a percentage of sales of Vacation Ownership
Interests decreased to 56.3% in 2000 compared to 65.1% in 1999, reflecting
generation of a greater number of tours and increased closing rates at the
Sedona sales office in 2000, and reduction of less efficient tour generation
methods to the VCA-South Bend sales office beginning in the third quarter of
1999 and to the Kohl's Ranch sales office beginning in the first quarter of
2000.
The provision for doubtful accounts as a percentage of Vacation Ownership
Interest sales increased to 4.3% of sales of Vacation Ownership Interests in
2000 from 3.4% in 1999, reflecting the Company's decision to increase the
provision on new sales in the second quarter of 2000.
General and administrative expenses increased 5.7% to $4.6 million in 2000
from $4.4 million in 1999, corresponding to revenue growth between years.
General and administrative expenses were comparable between years as a
percentage of total timeshare revenues at 10.8% in both 1999 and 2000.
22
Interest expense decreased 5.1% from $2.8 million in 1999 to $2.7 million
in 2000, reflecting the combined net effect of greater borrowings in 2000 and
lower borrowing rates. During 2000, the Company continued to retain and borrow
against, rather than sell, more of its Customer Notes. The Company borrows
against such notes at variable rates tied to prime and, accordingly, during 2000
a greater percentage of the Company's indebtedness is at lower, variable rates
and a lesser percentage at higher fixed rates than in prior years. The increase
in Notes Payable at December 31, 2000 compared to December 31, 1999 includes the
assumption of $4,472,900 in indebtedness to acquire the Bell Rock Inn in late
December 2000, for which minimal interest was incurred during 2000.
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. 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 necessary to provide sufficient cash to
fund its normal operations.
The fluctuations in cash provided by financing activities from $3.7 million
in 1999 and $0.4 million in 2001 to cash used in financing activities of $0.1
million in 2000, reflect increased net borrowings on notes payable related to
construction costs in Las Vegas, Nevada and the financing of the Sedona Station
in 2001, net of the increase in treasury stock purchases during 2001 as compared
to 2000 and 1999. In addition, 1999 net cash provided by financing activities
reflects greater borrowings against retained Customer Notes receivable , net of
repayment of indebtedness with a portion of the proceeds of the offering.
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 the Company receives cash
either in the form of a down payment, as an installment payment 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, 2001, the Company, excluding its Genesis subsidiary, had
net operating loss ("NOL") carryforwards of approximately $5.2 million, which
expire in 2002 through 2020. At December 31, 2001, Genesis had federal NOL
carryforwards of approximately $2.1 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. See Note 7 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 1999, 2000
and 2001 was $5.3 million, $6.6 million and $5.9 million, respectively. The
decrease in cash used in investing activities in 2001 reflects the cash portion
of the purchase of the Bell Rock Inn and of Sedona Station in 2000.
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. Cash provided by
operating activities was $6.4 million in 2001 as compared to $6.2 million in
2000 and as compared to $1.3 million in 1999. The increased cash provided by
operating activities in 2000 and 2001 reflects greater net income, and the
greater associated deferred income taxes and provision for doubtful accounts.
Variations between years also reflect that during 1999, the Company advanced
funds toward
23
the cost of construction of the San Carlos Vacation Ownership Interests, a
portion of which was repaid to the Company during 2000 and 2001. The increase in
other assets in 2001 was due to the cost incurred to acquire the leasehold
interest in Las Vegas, Nevada which will be amortized over the life of the
lease. The decrease in accrued and other liabilities was due to timing
differences in collection of receivables from the ILX Resorts Homeowner
Associations. The decrease in resort property held for vacation ownership
interest sales reflects the increase in sales of vacation ownership interests
over 2000.
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.
On April 9, 1999 (effective January 1, 1999), the Company formed the ILX
Resorts Incorporated Employee Stock Ownership Plan and Trust (the "ESOP"). The
intent of the ESOP is to provide a retirement program for employees that aligns
their interests with those of the Company. During 1999, the Company declared,
and funded in cash, contributions of $250,000 to the ESOP. In August 1999, the
ESOP entered into an agreement with Litchfield Financial Corporation for a
$500,000 line of credit, which was secured by the Company's stock purchased with
the funds and guaranteed by the Company. During 2000 and 2001, the Company
contributed $250,000 each year to the ESOP and such funds were used by the ESOP
to repay the line of credit.
During 1999, the ESOP purchased a total of 375,300 shares of the Company's
common stock in the open market and during 2000, the Company issued to the ESOP
100,000 shares of restricted common stock. During the year ended December 31,
2001, the Company issued 20,000 shares of restricted common stock to the ESOP.
At December 31, 2000, 257,400 of the shares owned by the ESOP and purchased with
borrowed funds remained collateral for the $250,000 principal outstanding on the
ESOP line of credit. These shares had not been released to participant accounts,
although 128,700 of these shares were committed to be released at that date and
were released in early 2001. At December 31, 2000, the unallocated shares are
reflected at cost as a contra equity account, Guaranteed ESOP Obligation. At
December 31, 2001, all previously unallocated shares have been released to
participant accounts.
The ESOP may purchase additional shares for future year contributions
through loans made directly to the ESOP and guaranteed by the Company. Such
borrowings are not expected to exceed $1,000,000.
CREDIT FACILITIES AND CAPITAL
At December 31, 2001, the Company has an agreement with a financial
institution for a commitment of $40 million under which the Company may sell
certain of its Customer Notes. The agreement provides for sales on a recourse
basis with a percentage of the amount sold held back by the financial
institution as additional collateral. Customer Notes may be sold at discounts or
premiums to the principal amount in order to yield the consumer market rate, as
defined by the financial institution. If a customer pays off a note prior to
maturity of the note, the financial institution may recover from the Company the
unearned interest premium, if any. At December 31, 2001, $21.9 million of the
$40 million commitment was available to the Company.
The Company also has a financing commitment aggregating $30.0 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus 1.5%. The $30 million
commitment expires in 2002. At December 31, 2001, approximately $12.4 million is
available under this commitment.
In July 1999, the Company entered into an agreement with an affiliate to
purchase sixty Vacation Ownership Interests for the price of $500,000. The
Vacation Ownership Interests consist of four ILX Premiere Vacation Club Platinum
memberships, fifty ILX Premiere Vacation Club Gold memberships and six VCA-South
Bend Alumni House extended football weekend memberships. The Company issued a
promissory note for the purchase price, which bears interest at 8%. The note is
recorded as a Note payable to affiliates. The agreement also modified the terms
of a previously existing Note payable to a related affiliate. As of December 31,
2001, the balance on this note is $300,000.
In December 1999, the Company completed the spin-off of its 80% ownership
interest in SWI to the shareholders of ILX. In conjunction with the spin-off,
the Company agreed to provide up to $200,000 of working capital financing to SWI
through November 30, 2001 at an interest rate of prime plus 3%, with interest
payable monthly, and a maturity date of December 31, 2001. Pursuant to the
agreement, the Company had advanced SWI $108,000 as of December 31, 2001. On
January 2, 2002, the Company entered into a General Bill of Sale, Assignment and
Assumption Agreement with SWI whereby the Company assumed all of the assets and
liabilities of SWI.
24
In December 1999, the Company guaranteed a $1,000,000 operating line of
credit for the Sedona Vacation Club, the owners' association of the members who
own Vacation Ownership Interests in Los Abrigados. Sedona Vacation Club used the
proceeds for renovations at Los Abrigados and is repaying the principal and
interest from collections it receives from a special assessment of its owners
for this purpose and from current and future year owner reserve payments. The
line of credit bears interest at prime plus 2.5% and is due through 2002. As of
December 31, 2001, approximately $248,000 was outstanding on this line.
In February 2000, the Company borrowed $600,000 for the purpose of using
the funds to purchase treasury stock. In 2001, the note was modified and the
Company borrowed an additional $500,000 for the same purpose. The note payable
bears interest at 12% and is due through 2004. At December 31, 2001,
approximately $714,000 was outstanding on the note. During 2001, the Company
purchased 543,200 shares of its Common Stock for $2,379,428.
In December 2000, the Company acquired for $1,010,000 cash the Sedona
Station adjacent to Los Abrigados to be the site of its new Sedona sales center.
In March 2002, the Company borrowed $808,000, which is secured by the property
and bears interest at a fixed rate of 8.625%. The debt is payable in equal
monthly payments of principal and interest over a ten-year term, ending April
2011.
In December 2000, the Company acquired the Bell Rock Inn in the Village of
Oak Creek, Arizona, for a purchase price of $4,972,997, including assumption of
the existing mortgage balance of $4,472,997. The mortgage bears interest at
7.49%, and is payable in equal monthly payments of principal and interest
through 2023.
In January 2001, the Company refinanced the construction note payable on
VCA-Tucson. In August 2001, the note was amended to provide for the borrowing of
an additional $1,000,000. The terms include extension of the maturity date to
June 2004, modification of the interest rate to prime plus 1% from a 12% fixed
rate, and a change in the principal payments and release provisions to include a
$134,000 minimum monthly principal payment.
In October 2001, the Company amended an outstanding construction loan to
secure an additional $5.2 million in construction financing for current and
planned projects.
In the future, the Company may negotiate additional credit facilities,
including leases, 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.
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 AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 2002 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 2002 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 2002 Annual Meeting of Shareholders
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 2002 Annual Meeting of Shareholders
and is incorporated herein by reference.
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) Report of Hansen, Barnett & Maxwell, Page F-2
a professional corporation
(ii) 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,
2001 and 2000 and Consolidated
Statements of Operations,
Shareholders' Equity and Cash
Flows for each of the three years
ended December 31, 2001, 2000
and 1999.
(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
26
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 29th day of
March, 2002.
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Joseph P. Martori Chairman of the Board and March 29, 2002
- --------------------------- Chief Executive Officer
Joseph P. Martori (principal executive officer)
/s/ Nancy J. Stone President, Chief Operating March 29, 2002
- --------------------------- Officer and Director
Nancy J. Stone
/s/ Margaret M. Eardley Executive Vice President and March 29, 2002
- --------------------------- Chief Financial Officer
Margaret M. Eardley (principal financial officer)
/s/ Taryn L. Chmielewski Vice President and Chief March 29, 2002
- --------------------------- Accounting Officer
Taryn L. Chmielewski
/s/ Edward S. Zielinski Executive Vice President and March 29, 2002
- --------------------------- Director
Edward S. Zielinski
/s/ Joseph P. Martori, II Senior Vice President and March 29, 2002
- --------------------------- Director
Joseph P. Martori, II
/s/ Steven R. Chanen Director March 29, 2002
- ---------------------------
Steven R. Chanen
/s/ James W. Myers Director March 29, 2002
- ---------------------------
James W. Myers
/s/ Patrick J. McGroder III Director March 29, 2002
- ---------------------------
Patrick J. McGroder III
/s/ Steven A. White Director March 29, 2002
- ---------------------------
Steven A. White
27
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 2000 and 2001 F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001 F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 F-6
Notes to Consolidated Financial Statements F-7
F-1
[LETTERHEAD OF HANSEN, BARNETT & MAXWELL]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders of ILX Resorts Incorporated
We have audited the accompanying consolidated balance sheets of ILX Resorts
Incorporated and Subsidiaries (the Company) as of December 31, 2000 and 2001 and
the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 2001.
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 2000 and 2001 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 15, 2002
F-2
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
----------------------------
2000 2001
------------ ------------
Cash and cash equivalents $ 2,518,122 $ 3,548,058
Notes receivable, net (Notes 2 and 8) 26,619,853 30,365,225
Resort property held for Vacation Ownership Interest sales
(Notes 2, 3, 8 and 16) 21,663,793 20,270,872
Resort property under development 5,263,737 5,116,227
Land held for sale 1,667,298 830,686
Deferred assets (Note 5) 170,440 131,794
Property and equipment, net (Notes 6, 8 and 16) 5,141,378 6,189,082
Other assets 2,500,155 7,672,891
------------ ------------
TOTAL ASSETS $ 65,544,776 $ 74,124,835
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 1,220,787 $ 1,488,456
Accrued and other liabilities 3,126,940 2,354,911
Income taxes payable (Note 7) -- 689,923
Due to affiliates (Note 9) -- 24,022
Notes payable (Note 8) 32,851,068 40,619,303
Notes payable to affiliates (Notes 9 and 16) 1,000,000 1,000,000
Deferred income taxes (Note 7) 1,510,535 2,163,207
------------ ------------
Total liabilities 39,709,330 48,339,822
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 11 and 18)
SHAREHOLDERS' EQUITY (Notes 12, 13 and 14):
Preferred stock, $10 par value; 10,000,000 shares authorized;
291,553 and 284,816 shares issued and outstanding;
liquidation preference of $2,915,530 and $2,848,160 1,138,566 1,117,025
Common stock, no par value; 30,000,000 shares authorized;
4,105,192 and 4,132,702 shares issued (Note 1) 18,333,333 18,405,576
Treasury stock, at cost, 657,500 and 1,200,700 shares, respectively (1,308,655) (3,688,083)
Additional paid in capital 225,742 269,869
Guaranteed ESOP obligation (Note 13) (250,000) --
Retained earnings 7,696,460 9,680,626
------------ ------------
Total shareholders' equity 25,835,446 25,785,013
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 65,544,776 $ 74,124,835
============ ============
See notes to consolidated financial statements
F-3
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 2000 2001
------------ ------------ ------------
TIMESHARE REVENUES:
Sales of Vacation Ownership Interests $ 23,708,616 $ 26,169,022 $ 28,105,558
Resort operating revenue 13,350,658 13,797,418 17,550,095
Interest income 3,379,626 3,087,403 2,652,868
------------ ------------ ------------
Total timeshare revenues 40,438,900 43,053,843 48,308,521
------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership
Interests sold 3,148,840 3,810,323 4,788,270
Cost of resort operations 12,512,259 12,825,576 14,639,246
Sales and marketing 15,431,476 14,741,036 16,027,410
General and administrative 4,381,522 4,630,201 4,985,957
Provision for doubtful accounts 796,548 1,116,813 1,230,974
Depreciation and amortization 532,114 614,882 813,565
------------ ------------ ------------
Total cost of sales and
operating expenses 36,802,759 37,738,831 42,485,422
------------ ------------ ------------
Timeshare operating income 3,636,141 5,315,012 5,823,099
Income from land and other, net 403,676 6,340 136,140
------------ ------------ ------------
Total operating income 4,039,817 5,321,352 5,959,239
Interest expense (Notes 8 and 9) (2,836,049) (2,692,516) (2,585,030)
------------ ------------ ------------
Income before income taxes and minority interests 1,203,768 2,628,836 3,374,209
Income tax expense (Note 7) (473,570) (1,025,176) (1,342,595)
------------ ------------ ------------
Income before minority interests 730,198 1,603,660 2,031,614
Minority interests (Note 10) (27,049) (70,422) --
------------ ------------ ------------
NET INCOME $ 703,149 $ 1,533,238 $ 2,031,614
============ ============ ============
NET INCOME PER SHARE (Notes 1 and 4):
Basic $ 0.16 $ 0.40 $ 0.62
============ ============ ============
Diluted $ 0.16 $ 0.39 $ 0.61
============ ============ ============
See notes to consolidated financial statements
F-4
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK TREASURY STOCK
----------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------ ---------- -----------
BALANCES, DECEMBER 31, 1998 380,468 $ 1,384,891 4,332,533 $ 19,818,183 (339,640) $(1,273,843)
Net income
Issuance of common stock 89,850 94,926
Exchange of preferred stock for
common stock (74,490) (205,592) 24,830 205,592
Payment of dividends
Acquisition of treasury shares (186,400) (368,383)
Retirement of outstanding treasury shares (526,040) (1,642,226) 526,040 1,642,226
Distribution of Sedona Worldwide
Incorporated (406,635)
Guaranteed ESOP obligation
-------- ----------- ---------- ------------ ---------- -----------
BALANCES, DECEMBER 31, 1999 305,978 1,179,298 3,921,173 18,069,840
Net income
Issuance of common stock 71,600 64,066
Contribution of common stock to
ESOP Plan 100,000 146,094
Issuance of cumulation shares for
dividend arrearage 7,653 13,871
Exchange of preferred stock for
common stock (14,298) (39,462) 4,766 39,462
Exchange of preferred stock for
lodging certificates (127) (1,270)
Acquisition of treasury shares (657,500) (1,308,655)
Payment of dividends
Reduction in guaranteed ESOP contribution
Cost of ESOP shares released
-------- ----------- ---------- ------------ ---------- -----------
BALANCES, DECEMBER 31, 2000 291,553 1,138,566 4,105,192 18,333,333 (657,500) (1,308,655)
Net income
Issuance of common stock 4,100 4,210
Contribution of common stock to
ESOP and Profit Sharing Plans 21,300 50,562
Exchange of preferred stock for
common stock (6,330) (17,471) 2,110 17,471
Exchange of preferred stock for
lodging certificates (407) (4,070)
Acquisition of treasury shares (543,200) (2,379,428)
Payment of dividends
Reduction in guaranteed ESOP contribution
Cost of ESOP shares released
-------- ----------- ---------- ------------ ---------- -----------
BALANCES, DECEMBER 31, 2001 284,816 1,117,025 4,132,702 18,405,576 (1,200,700) (3,688,083)
======== =========== ========== ============ ========== ===========
ADDITIONAL GUARANTEED
PAID IN ESOP RETAINED
CAPITAL OBLIGATION EARNINGS TOTAL
---------- --------- ----------- ------------
BALANCES, DECEMBER 31, 1998 279,450 $ -- $ 5,555,639 $ 25,764,320
Net income 703,149 703,149
Issuance of common stock 94,926
Exchange of preferred stock for
common stock
Payment of dividends (48,207) (48,207)
Acquisition of treasury shares (368,383)
Retirement of outstanding treasury shares
Distribution of Sedona Worldwide
Incorporated (406,635)
Guaranteed ESOP obligation (500,000) (500,000)
---------- --------- ----------- ------------
BALANCES, DECEMBER 31, 1999 279,450 (500,000) 6,210,581 25,239,169
Net income 1,533,238 1,533,238
Issuance of common stock 64,066
Contribution of common stock to
ESOP Plan 146,094
Issuance of cumulation shares for
dividend arrearage (13,871)
Exchange of preferred stock for
common stock
Exchange of preferred stock for
lodging certificates 1,025 (245)
Acquisition of treasury shares (1,308,655)
Payment of dividends (47,359) (47,359)
Reduction in guaranteed ESOP contribution 250,000 250,000
Cost of ESOP shares released (40,862) (40,862)
---------- --------- ----------- ------------
BALANCES, DECEMBER 31, 2000 225,742 (250,000) 7,696,460 25,835,446
Net income 2,031,614 2,031,614
Issuance of common stock 4,210
Contribution of common stock to
ESOP and Profit Sharing Plans 50,562
Exchange of preferred stock for
common stock 0
Exchange of preferred stock for
lodging certificates 3,265 (805)
Acquisition of treasury shares (2,379,428)
Payment of dividends (47,448) (47,448)
Reduction in guaranteed ESOP contribution 250,000 250,000
Cost of ESOP shares released 40,862 40,862
---------- --------- ----------- ------------
BALANCES, DECEMBER 31, 2001 269,869 0 9,680,626 25,785,013
========== ========= =========== ============
See notes to consolidated financial statements
F-5
ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 2000 2001
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 703,149 $ 1,533,238 $ 2,031,614
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on the sale of property -- -- (88,947)
Undistributed minority interest 27,049 (23,778) --
Income tax expense 473,570 1,025,176 1,342,595
Provision for doubtful accounts 796,548 1,116,813 1,230,974
Depreciation and amortization 532,114 614,882 813,565
Amortization of guarantee fees 6,700 1,750 38,646
Contribution of common stock to ESOP and Profit
Sharing Plans -- 146,094 50,562
Common stock issued to employees for services 94,926 64,066 4,210
Change in assets and liabilities:
Decrease (increase) in resort property held for Vacation
Ownership Interest sales (408,650) 79,082 1,392,921
Decrease in resort property under development 139,147 92,345 147,510
Increase in land held for sale (2,874) (70,539) (76,356)
(Increase) decrease in other assets (1,624,447) 607,702 (489,141)
Increase (decrease) in accounts payable (263,072) 297,771 267,669
(Decrease) increase in accrued and other liabilities 864,788 766,107 (245,057)
Increase (decrease) in due to affiliates (10,131) (26,282) 24,022
------------ ------------ ------------
Net cash provided by operating activities 1,328,817 6,224,427 6,444,787
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, net (4,382,535) (4,591,283) (4,305,957)
Decrease (increase) in deferred assets (94,792) 55,743 --
Purchases of property and equipment, net (779,670) (2,042,995) (1,549,448)
------------ ------------ ------------
Net cash used in investing activities (5,256,997) (6,578,535) (5,855,405)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 17,544,988 16,994,924 21,993,373
Principal payments on notes payable (13,131,485) (15,637,800) (19,125,138)
Principal payments on notes payable to affiliates (294,078) (100,000) --
Acquisition of treasury stock and other (368,383) (1,308,900) (2,380,233)
Preferred stock dividend payments (48,207) (47,359) (47,448)
------------ ------------ ------------
Net cash (used in) provided by financing activities 3,702,835 (99,135) 440,554
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (225,345) (453,243) 1,029,936
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,196,710 2,971,365 2,518,122
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,971,365 $ 2,518,122 $ 3,548,058
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Notes payable issued or assumed to purchase assets or
minority interest 500,000 4,472,997 4,900,000
Notes payable to acquire shares for ESOP 500,000 -- --
See notes to consolidated financial statements
F-6
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,
Nevada and Mexico. Until December 31, 1999, the Company's operations also
included marketing of skin and hair care products through its then majority
owned subsidiary Sedona Worldwide Incorporated ("SWI"). This activity was not
considered significant to resort operations (Note 11).
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 marketed. 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. The Company evaluates, at each balance
sheet date, whether events and circumstances have occurred which indicate
possible impairment. The Company uses an estimate of future undiscounted net
cash flows from the related asset or group of assets over their remaining life
in measuring whether the assets are recoverable. As of December 31, 2001, the
Company does not consider any of its long-lived assets to be impaired.
SEGMENT REPORTING
The Company has a single segment in the timeshare resort industry. Revenue
from products and services are reflected on the income statement under Sales of
Vacation Ownership Interests and Resort Operating Revenue.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash equivalents are liquid investments with an original maturity of three
months or less. At December 31, 2001 and 2000, the Company had cash in excess of
federally insured limits. The following summarizes interest paid and capitalized
interest to resort property under development:
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 2000 2001
---------- ---------- ----------
Interest paid $2,830,000 $2,726,000 $2,563,000
Capitalized interest -- 86,000 --
F-7
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The standard also provides specific guidance for accounting for derivatives
designated as hedging instruments. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of Statement No. 133" ("SFAS
No. 137"), which delayed the effective date of SFAS No. 133 for the Company
until 2001. There were no derivative instruments or hedging activities in the
years ended December 31, 1999, 2000, or 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. These
reclassifications had no effect on net income.
NOTE 2. NOTES RECEIVABLE, NET
Notes receivable consist of the following:
DECEMBER 31,
----------------------------
2000 2001
------------ ------------
Vacation Ownership Interest notes receivable $ 26,567,543 $ 31,105,657
Holdbacks by financial institutions 3,153,871 2,119,652
Other receivables 121,950 673,399
Allowance for possible credit losses (3,223,511) (3,533,483)
------------ ------------
$ 26,619,853 $ 30,365,225
============ ============
Notes generated from the sale of Vacation Ownership Interests generally
bear interest at annual rates ranging from 13% to 17.9% and have terms of five
to ten years. The notes are collateralized by deeds of trust on the Vacation
Ownership Interests sold.
At December 31, 2001, the Company has an agreement with a financial
institution for a commitment of $40 million under which the Company may sell
certain of its Customer Notes. The agreement provides for sales on a recourse
basis with a percentage of the amount sold held back by the financial
institution as additional collateral. Customer Notes may be sold at discounts or
premiums to the principal amount in order to yield the consumer market rate, as
defined by the financial institution. At December 31, 2001, $21.9 million of the
$40 million commitment was available to the Company.
The Company also has a financing commitment aggregating $30.0 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at prime plus 1.5%. The $30 million commitment
expires in 2002. At December 31, 2001, approximately $12.4 million is available
under this commitment.
At December 31, 2000 and 2001, the Company had approximately $18 million
and $11 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"), Varsity Clubs of America-South
Bend ("VCA-South Bend") and Varsity Clubs of America-Tucson ("VCA-Tucson").
For the twelve months ended December 31, 1999, 2000 and 2001, the Company
sold with recourse approximately $8 million, $10 million and $2 million of notes
receivable generated from sales of Vacation Ownership Interests in the
respective years. The Company elected to hypothecate, rather than sell with
recourse, the majority of its Customer Notes during 2001 because of uncertainty
regarding the ability and intent of the financial institution which purchases
such Customer Notes.
F-8
At December 31, 2001, notes receivable in the amount of approximately
$242,000 have been contributed to the Company's Series A Preferred Stock sinking
fund and therefore their use is restricted (Note 12).
The following summarizes activity in the allowance for possible credit
losses:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Beginning balance $ 3,474,318 $ 3,332,550 $ 3,223,511
Provision for doubtful accounts 796,548 1,116,813 1,230,974
Amounts written off (938,316) (1,225,852) (921,002)
----------- ----------- -----------
Ending balance $ 3,332,550 $ 3,223,511 $ 3,533,483
=========== =========== ===========
The Company considers all notes receivable past due in excess of 90 days to
be delinquent. Typically, uncollectible accounts are not written off until the
underlying inventory is recovered via acceptance of a deed back or foreclosure,
the timing of which is determined by the Company. During 1999, the Company
deeded back in a bulk transaction Vacation Ownership Interests in Sedona
Vacation Club of 146 delinquent owners. These accounts had become delinquent
over a several year period. The Company subsequently annexed those recovered
weeks to Premiere Vacation Club. At December 31, 2001, $7.9 million in principal
or $5.7 million net of the historical costs of the underlying property that
would be recovered in the event of noncollectibility, or 17.6% and 12.8%,
respectively, of the retained notes and notes previously sold, which are
recourse to the Company, were more than 90 days past due.
At December 31, 2000 and 2001, the above allowance includes $360,000 and
$225,000 respectively, for notes sold with recourse.
NOTE 3. RESORT PROPERTY HELD FOR VACATION OWNERSHIP INTEREST SALES
Resort property held for Vacation Ownership Interest sales consists of the
following:
DECEMBER 31,
-----------------------------
2000 2001
----------- -----------
Premiere Vacation Club $ 9,751,062 $13,165,636
VCA-Tucson 3,526,100 1,682,189
VCA-South Bend 2,346,190 2,374,229
Golden Eagle Resort 1,443,990 1,233,999
Los Abrigados 1,170,430 385,353
Roundhouse Resort 748,755 749,255
Kohl's Ranch Lodge 2,266,514 323,759
The Inn at Los Abrigados 365,167 310,867
Other 45,585 45,585
----------- -----------
$21,663,793 $20,270,872
=========== ===========
In January 1999, the Company recorded in Maricopa County, Arizona its
proprietary Premiere Vacation Club Membership Plan and in May 1999 annexed a
total of 5,000 Vacation Ownership Interests into the Club and received
Department of Real Estate approval in the State of Arizona to commence selling
Vacation Ownership Interests in Premiere Vacation Club. During 1999 and 2001,
the Company annexed additional units and as of December 31, 2001, Premiere
Vacation Club included a total of 11,000 Vacation Ownership Interests. The
11,000 Vacation Ownership Interests annexed into the Club consisted of 2,381
Vacation Ownership Interests in Los Abrigados, 265 Vacation Ownership Interests
in the Inn at Los Abrigados, 2,490 Vacation Ownership Interests in Kohl's Ranch
Lodge, 691 Vacation Ownership Interests in the Golden Eagle Resort, 1,500
Vacation Ownership Interests in the Treasures of the Sea of Cortez Beach Club
(consisting of 25-year right-to-use Vacation Ownership Interests in San Carlos,
Mexico), 695 Vacation Ownership Interests in VCA-South Bend, 2,275 Vacation
Ownership Interests in VCA-Tucson, 103 Vacation Ownership Interests in the
Roundhouse Resort and 600 Vacation Ownership Interests in the Carriage House.
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:
F-9
BASIC NET INCOME PER SHARE
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Net income $ 703,149 $ 1,533,238 $ 2,031,614
Less: Series A preferred stock dividends (48,207) (47,359) (47,448)
----------- ----------- -----------
Net income available to common stockholders - basic $ 654,942 $ 1,485,879 $ 1,984,166
=========== =========== ===========
Weighted average shares of common stock outstanding - basic 3,996,206 3,692,536 3,190,014
=========== =========== ===========
Basic net income per share $ 0.16 $ 0.40 $ 0.62
=========== =========== ===========
DILUTED NET INCOME PER SHARE
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Net income $ 703,149 $ 1,533,238 $ 2,031,614
Less: Series A preferred stock dividends (48,207) (47,359) (47,448)
----------- ----------- -----------
Net income available to common stockholders-- diluted 654,942 1,485,879 1,984,166
----------- ----------- -----------
Weighted average shares of common stock outstanding 3,996,206 3,692,536 3,190,014
Add: Convertible preferred stock (Series B and Series C)
dilutive effect 97,956 82,551 79,779
Stock options dilutive effect -- -- 8,464
----------- ----------- -----------
Weighted average shares of common stock outstanding --
diluted 4,094,162 3,775,087 3,278,257
=========== =========== ===========
Diluted net income per share $ 0.16 $ 0.39 $ 0.61
=========== =========== ===========
Stock options to purchase 85,700 shares of common stock at prices ranging
from $4.60 per share to $8.125 per share were outstanding at December 31, 2001
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 2002 and 2006.
Series C Convertible Preferred Stock dividends are not required, nor were
they declared, subsequent to November 1, 1999.
NOTE 5. 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, which
is amortized to expense at the rate of $100 per Los Abrigados Vacation Ownership
Interest sold. At December 31, 2000 and 2001, deferred assets included $145,785
and $107,139, respectively, of guarantee fees, net of accumulated amortization.
NOTE 6. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
DECEMBER 31,
---------------------------
2000 2001
----------- -----------
Land $ 406,680 $ 403,961
Buildings and improvements 5,228,416 5,682,989
Leasehold improvements 136,602 304,136
Furniture and fixtures 787,522 1,385,341
Office equipment 436,839 636,156
Computer equipment 719,791 850,551
Vehicles 103,939 122,422
----------- -----------
7,819,789 9,385,556
Accumulated depreciation (2,678,411) (3,196,474)
----------- -----------
$ 5,141,378 $ 6,189,082
=========== ===========
In December 2000, the Company also acquired a 5,200 square foot art gallery
adjacent to Los Abrigados, known as the Sedona Station, for a cost of
$1,010,000. In January 2001, the Company completed renovation of Sedona Station
into a sales center, thereby increasing the capacity of the Sedona sales office
and making the previous Sedona sales office on the grounds of Los Abrigados
available for construction of additional units.
F-10
NOTE 7. INCOME TAXES
Deferred income tax assets (liabilities) included in the consolidated
balance sheets consist of the following:
DECEMBER 31,
--------------------------
2000 2001
----------- -----------
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables $ 1,224,000 $ 1,341,000
Tax basis in excess of book on resort property held for
Vacation Ownership Interest sales 165,000 142,000
Alternative minimum tax credit 56,000 746,000
Net operating loss carryforwards 3,053,000 2,165,000
Other 139,000 173,000
----------- -----------
Total deferred tax assets 4,637,000 4,567,000
----------- -----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes (5,769,000) (6,295,000)
Tax depreciation in excess of book (379,000) (435,000)
----------- -----------
Total deferred tax liabilities (6,148,000) (6,730,000)
----------- -----------
Net deferred tax liability $(1,511,000) $(2,163,000)
=========== ===========
The provision for income taxes consists of the following:
DECEMBER 31,
------------------------------------
1999 2000 2001
---------- ---------- ----------
Current-federal alternative minimum tax $ -- $ -- $ 689,923
Deferred 473,570 1,025,176 652,672
---------- ---------- ----------
Total $ 473,570 $1,025,176 $1,342,595
========== ========== ==========
A reconciliation of the income tax expense (benefit) and the amount that
would be computed using statutory federal income tax rates is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
---------- ---------- ----------
Federal, computed on income before minority
interest and income taxes $ 409,281 $ 869,854 $1,147,231
Minority interest (9,197) -- --
State, computed on income after minority
interest and before income taxes 39,724 97,117 128,085
Other 33,762 58,205 67,279
---------- ---------- ----------
Income tax expense $ 473,570 $1,025,176 $1,342,595
========== ========== ==========
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, 2001.
The Company is subject to Alternative Minimum Tax ("AMT") as a result of
the deferred income that results from the installment sales treatment of
Vacation Ownership Interest 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.
During 2000, the Company reevaluated its valuation allowance and concluded
that based on future revenues, all NOLs will be utilized before expiration.
At December 31, 2001, the Company, excluding its Genesis subsidiary, had
NOL carryforwards of approximately $5.2 million, which expire in 2002 through
2020. At December 31, 2001, Genesis had federal NOL carryforwards of
approximately $2.1 million, which are limited as to usage because they arise
from built in losses of an acquired company. In addition, such losses can only
F-11
be utilized through the earnings of Genesis and are limited to a maximum of
$189,178 per year. To the extent the entire $189,178 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.
NOTE 8. NOTES PAYABLE
Notes payable consist of the following:
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
Note payable, collateralized by consumer notes receivable, interest at
prime plus 1.5% (6.25% at December 31, 2001) due through 2007 $14,395,255 $17,582,161
Note payable, collateralized by deed of trust on lender's leashold interest
in real property, interest at 6% to 12%, due through 2011 -- 4,900,000
Note payable, collateralized by deed of trust on Bell Rock Inn, interest at
7.49%, due through 2023 4,472,997 4,392,127
Construction note payable, collateralized by deed of trust on VCA-Tucson,
interest at prime plus 1.0% (5.75% at December 31, 2001) plus $5,360 per
annual VCA-Tucson Vacation Ownership Interest sold, due through 2004 4,261,815 4,065,596
Construction note payable, collateralized by deed of trust on Kohl's Ranch
Lodge, interest at prime plus 2.5% (7.25% at December 31, 2001), due
through 2003 2,090,320 2,173,515
Lines of credit aggregating $2,000,000, interest at prime plus 1.5% to prime
plus 1.75% (6.25% to 6.50% at December 31, 2001), collateralized by 10%
partnership interest in Los Abrigados Partners Limited Partnership
("LAP"), due through 2002 1,200,000 1,399,150
Note payable, collateralized by deed of trust on VCA-South Bend, interest at
10%, due through 2003 1,135,828 983,358
Note payable, collateralized by deed of trust on Sedona Station, interest at
8.625%, due through 2011 -- 798,382
Note payable, collateralized by deed of trust on Los Abrigados, interest at
prime plus 2.5% (7.25% at December 31, 2001), due through 2003 944,716 918,842
Note payable, collateralized by deed of trust on Los Abrigados, the Inn at Los
Abrigados and Premiere Vacation Club, interest at prime plus 2.5%
(7.25% at December 31, 2001) 659,627 --
Obligations under capital leases with interest at 8.3% to 15% (Note 17) 592,760 224,998
Note payable, collateralized by LAP partnership interest, interest at 8%,
due through 2002 525,666 467,719
Note payable, collateralized by consumer notes receivable, interest at prime
plus 3% (7.75% at December 31, 2001), due through 2006 440,022 370,492
Note payable, collateralized by cash or stock of the Company purchased
through Wedbush Morgan Securities, interest at 12%, due through 2004 419,539 714,301
Note payable, collateralized by deed of trust, interest at 8.5%,
due through 2002 377,757 358,908
Note payable, collateralized by an assignment of the Company's general
partnership interest in LAP, interest at 10%, due through 2003 300,000 200,000
F-12
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
Note payable by Employee Stock Ownership Plan and guaranteed by the Company,
collateralized by Company stock purchased by the Plan, interest at prime
plus 2.5% (7.25% at December 31, 2001), due through 2001 250,000 --
Note payable, collateralized by deed of trust, interest at 8.5%, due through
2003 221,756 211,565
Note payable, collateralized by deed of trust on manager residence at Kohl's
Ranch, interest at 7.75%, due through 2007 -- 92,000
Note payable, collateralized by LAP partnership interest, interest at prime plus
1.5% (6.25% at December 31, 2001), due through 2002 200,000 100,000
Notes payable, collateralized by computer and telephone equipment, interest
at 7% to 9%, due through 2005 198,814 626,264
Note payable, collateralized by furniture, fixtures and equipment at VCA-
South Bend, interest at 9.5%, due through 2001 82,439 --
Other 81,757 39,925
----------- -----------
$32,851,068 $40,619,303
=========== ===========
At December 31, 2001, approximately $21.0 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, 2001 are as follows:
2002 $ 7,316,591
2003 7,110,939
2004 5,358,091
2005 4,319,979
2006 4,257,536
Thereafter 12,256,167
-----------
$40,619,303
===========
NOTE 9. NOTES PAYABLE TO AFFILIATES
Notes payable to affiliates consist of the following:
DECEMBER 31,
------------------------
2000 2001
---------- ----------
Note payable, collateralized by LAP partnership
interest, interest at 10%, due through 2003 $ 700,000 $ 700,000
Notes payable, collateralized by LAP partnership
interest, interest at 8%, due through 2002 300,000 300,000
---------- ----------
$1,000,000 $1,000,000
========== ==========
Future maturities of notes payable to affiliates at December 31, 2001 are as
follows:
2002 $ 300,000
2003 700,000
-----------
$ 1,000,000
===========
Total interest expense on notes payable to affiliates for the years ended
December 31, 1999, 2000 and 2001 was approximately $89,000, $107,000 and
$95,000, respectively. Interest payable to affiliates at December 31, 2000 and
2001 was approximately $0 and $24,000, respectively.
NOTE 10. MINORITY INTERESTS
In June 1998, the Company acquired a 51% interest and in June 2000 the
remaining 49% minority interest in Timeshare Resale Brokers, Inc. ("TRBI"), an
Arizona company engaged in the resale of Vacation Ownership Interests on behalf
of consumers and others, for which it earns a commission upon sale. The
operation is based in Sedona, Arizona. To date the operations of TRBI have not
been material to the Company.
F-13
NOTE 11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Operating leases are used to lease office space, equipment and vehicles.
Future minimum lease payments on noncancelable operating leases at December 31,
2001 are as follows:
2002 $ 1,256,000
2003 1,133,000
2004 1,069,000
2005 975,000
2006 749,000
Thereafter 10,969,000
-----------
$16,151,000
===========
Total rent expense for the years ended December 31, 1999, 2000 and 2001 was
approximately $498,000, $897,000 and $1,516,000 respectively.
LEGAL PROCEEDINGS
Litigation has arisen in the normal course of the Company's business, none
of which is deemed to be material.
OTHER
In December 1999, the Company completed the spin-off of its 80% ownership
interest in SWI to the shareholders of ILX. In conjunction with the spin-off the
Company agreed to provide up to $200,000 of working capital financing to SWI
through November 30, 2001. During 2000, the Company advanced the full $200,000
at an interest rate of prime plus 3%, and at December 31, 2001 the balance of
the note receivable was $108,000. On January 2, 2002 the Company entered into a
Bill of Sale Assignment and Assumption agreement with SWI whereby the Company
assumed all of the assets and liabilities of SWI in full satisfaction of the
note. The purchase is not deemed material.
In December 1999, the Company guaranteed a $1,000,000 operating line of
credit for Sedona Vacation Club, the proceeds of which were used for renovations
at Los Abrigados. Sedona Vacation Club intends to repay the interest and
principal on the loan from proceeds from a special assessment of its owners and
from their reserve payments for the year 2000 and future years. The line of
credit bears interest at prime plus 2.5% and is due through 2002. At December
31, 2001, approximately $248,000 was outstanding on the line.
In July 2001, the Company acquired a 50 year leasehold interest in a
44-acre parcel located proximate to the Las Vegas Airport, University of
Nevada-Las Vegas ("UNLV") and the "Strip" in Las Vegas, Nevada for $5.0 million.
The Company intends to develop the property, to be known as Premiere Park, into
a mixed use development, including a vacation ownership sales office, museums,
restaurants, golf, retail and other ancillary uses. The parcel presently
includes a 25,000 square foot building which contains a vacation ownership sales
office operated by the Company, provides club facilities for the UNLV golf team,
and the remainder is projected for a golf related use. In addition to the
existing building, the Company intends to lease the remaining developable space
on the 44-acre site, to be built by tenants to specifications approved by the
Company. Costs to acquire the leasehold interest will be amortized over the life
of the lease.
In September 2000, the Company entered into an agreement to lease an
existing motel in Sedona, Arizona, commencing October 1, 2000 and terminating on
December 31, 2021. The lease contains a provision in which the lease term may be
automatically extended for consecutive one-year periods after December 31, 2021
up to December 31, 2038 if the lease has not been terminated prior to December
31, 2021. The lessor was required to remodel and refurbish the existing project,
previously known as the Canyon Portal Motel, as well as construct additional
units at the complex. The Company has renamed the property the "Los Abrigados
Lodge." The renovations and construction were completed in 2001, and the
property is being used for hotel accommodations, including accommodations for
customers invited to attend a vacation ownership presentation at the Sedona
sales office. Lease payments for the Los Abrigados Lodge in the amount of
$731,288 per year through 2021 are included in the above table of future minimum
lease payments on noncancelable operating leases.
In October 2001, the Company adopted a stock compensation program for
certain of its employees, primarily those earning $50,000 or more per year.
Under the program, employees received a portion of compensation they would
otherwise have earned in cash during the fourth quarter of 2001 in shares of
stock of the Company at a prescribed formula. This program was extended to the
first quarter of 2002, with shares issuable in the second quarter of 2002. The
total number of shares issued to employees under the program in January 2002 was
31,647 shares valued at $6.90 per share.
F-14
NOTE 12. SHAREHOLDERS' EQUITY
PREFERRED STOCK
At December 31, 2000 and 2001, preferred stock includes 59,718 and 59,311
shares of the Company's Series A Preferred Stock carried at $597,180 and
$593,110, respectively. The Series A Preferred Stock has a par value and
liquidation preference of $10 per share and, commencing July 1, 1996, is
entitled to annual dividend payments of $.80 per share. Dividends were paid of
$48,207, $47,359 and $47,448 in 1999, 2000 and 2001, respectively. 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, 2001, notes receivable in the amount of
approximately $242,000 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.
At December 31, 2000 and 2001, 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.
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.
During 2001, Series A shares could also have been exchanged for lodging
certificates under certain conditions, and 407 shares were exchanged under this
program during the year.
At December 31, 2000 and 2001, preferred stock also includes 176,835 and
170,505 shares of the Company's Series C Convertible Preferred Stock carried at
$486,386 and $468,915. 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 were not declared in any year
prior to the fifth anniversary of the Genesis merger date (November 1, 1993),
such undeclared dividends ("Dividend Arrearage") could have been 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, 1999, 2000 and
2001, the Company recorded the exchange of 74,490, 14,298 and 6,330 Series C
Convertible shares for 24,830, 4,766 and 2,110 common shares, 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
For the years ended December 31, 1999, 2000 and 2001, the Company issued
89,850, 71,600 and 4,100 shares of restricted common stock, valued at $94,926,
$64,066 and $4,210, respectively, to employees in exchange for services
provided.
During 1999, 2000 and 2001, the Company purchased 186,400, 657,500 and
543,200 shares of its Common Stock for $368,383, $1,308,655 and $2,379,428.
In December 1999, the Company retired 526,040 shares of treasury stock
valued at $1,642,226.
In December 1999, the Company spun off its 80% ownership interest in SWI
through a prorata distribution to the common shareholders of ILX of the
3,360,000 common shares of SWI held by the Company. The spin-off was recorded as
a reduction in common stock of $406,635. In conjunction with the spin-off, the
Company agreed to provide up to $200,000 of working capital financing to SWI
through November 30, 2001 (see Note 11).
NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN
On April 9, 1999 (effective January 1, 1999), the Company formed the ILX
Resorts Incorporated Employee Stock Ownership Plan and Trust (the "ESOP"). The
intent of the ESOP is to provide a retirement program for all eligible employees
which aligns their interests with those of the Company. Generally, all employees
who have completed one year of service, have attained the age of 21 and complete
1,000 hours of service during the plan year are eligible to participate in the
ESOP. During the twelve months ended December 31, 1999, the Company declared,
and funded in cash, contributions of $250,000 to the ESOP and recorded this
amount as compensation expense.
F-15
In August 1999, the ESOP entered into an agreement with Litchfield
Financial Corporation for a $500,000 line of credit, which was secured by stock
purchased with the funds and guaranteed by the Company. The ESOP borrowed the
full $500,000 in 1999 and the Company paid a total of $43,047 in fees in 1999 on
behalf of the ESOP related to the line of credit, consisting of $10,000 in loan
fees, $16,231 in legal fees and interest of $16,816. In 2000 and 2001, the
Company also paid interest on the line of credit of $34,029 and $13,979,
respectively. The line of credit was fully repayed in 2001.
During the years ended December 31, 2000 and 2001, the Company contributed
$250,000 each year to the ESOP and such funds were used by the ESOP to repay the
line of credit. In accordance with SOP 93-6, Employer's Accounting for Employee
Stock Option Plan, the difference of $40,862 each year between the fair market
value of the leveraged shares at the time of the debt repayment in 2000 and 2001
and their actual cost when the shares were purchased in 1999, was charged to
Paid in Capital. During the year ended December 31, 2000, the Company also
issued to the ESOP 100,000 shares of restricted common stock valued at $146,094.
During the year ended December 31, 2001, the Company issued to the ESOP 20,000
shares of restricted common stock valued at $41,905.
During the years ended December 31, 1999 and 2000, the ESOP purchased a
total of 375,300 shares of the Company's common stock in the open market.
Inclusive of the 100,000 restricted shares of common stock issued by the Company
to the ESOP in 2000 and the 20,000 restricted shares of common stock issued by
the Company to the ESOP in 2001, at December 31, 2001, the ESOP held 495,300
shares and $2,043 in cash. Of the 495,300 shares held by the ESOP, 257,400 were
purchased with borrowed funds. Of the 257,400 shares purchased with borrowed
funds, one half (or 128,700 shares) had been committed to be released to
participant accounts as of December 31, 2000, and were subsequently released.
The unallocated shares were collateral for the outstanding principal on the line
of credit. At December 31, 2000, the unallocated shares were reflected at cost
as a contra equity account, Guaranteed ESOP Obligation. As of December 31, 2001
all previously unallocated shares have been released to participant accounts.
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 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 200,000 shares. The number of shares available for grant under the Plans
at December 31, 2000 and December 31, 2001 was 64,300 and 9,300, respectively.
Stock option transactions are summarized as follows:
Exercise Price Weighted Average
Options Range Exercise Price
------- ----- --------------
Outstanding at December 31, 1998 153,200 $6.25-8.125 7.11
Options granted 10,000 3.25 3.25
Options canceled (17,500) 3.25-8.125 6.73
--------
Outstanding at December 31, 1999 145,700 3.25-8.125 5.00
Options issued 100,000 4.00 4.00
Options canceled (110,000) 6.25-6.75 6.70
--------
Outstanding at December 31, 2000 135,700 3.25-8.125 4.91
Options granted 55,000 4.60-6.82 6.21
Options canceled (0) -- --
--------
Outstanding at December 31, 2001 190,700 $3.25-8.125 5.28
========
Exercisable at December 31, 2001 175,700 $3.25-8.125 5.34
========
Weighted-average fair value of
options granted during year
ended December 31, 2000 .68
========
Weighted-average fair value of
options granted during year
ended December 31, 2001 2.96
========
F-16
The exercise price for options outstanding at December 31, 2001 ranged from
$3.25 to $8.125 per share. Options outstanding at December 31, 2001 have
expiration dates as follows:
YEAR ENDING OPTIONS FOR
DECEMBER 31, SHARES
------------ ------
2002 110,000
2003 10,000
2004 45,700
2005 10,000
2006 15,000
-------
190,700
=======
The weighted average remaining contractual life for options outstanding as
of December 31, 2000 and 2001 was 1.35 years and 1.86 years respectively.
The Company applies APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its Plan. Accordingly,
no compensation cost has been recognized for stock options granted under the
Plan. Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the alternative
method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's
net income and income per share would have decreased to the proforma amounts
indicated below. The weighted average assumptions used to estimate the fair
value of each option grant, using the Black-Scholes option-pricing model, are
also presented:
DECEMBER 31,
-----------------------------
2000 2001
----------- -----------
Net Income
As reported $ 1,533,238 $ 2,031,614
Proforma 1,465,238 1,900,122
Basic and Diluted Income per share
As reported-basic $ 0.40 $ 0.62
As reported-diluted 0.39 0.61
Proforma-basic 0.38 0.58
Proforma-diluted 0.38 0.57
Weighted-Average Assumptions:
Dividend yield $ -- $ --
Expected volatility 67.1% 67.6%
Risk-free interest rate 6.4% 4.0%
Expected life of options, in years 2.54 3.45
NOTE 15. PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan in which
substantially all employees are eligible to participate. The Company contributes
a discretionary amount to the plan as determined by the Board of Directors. The
Company declared contributions of $50,000 for each of the years ended December
31, 1999, 2000 and 2001. The contribution for 2001 was a cash contribution of
$41,342 and 1,300 shares of common stock valued at $8,658.
NOTE 16. RELATED PARTY TRANSACTIONS
In addition to the related party transactions described elsewhere in the
financial statements, the Company had the following related party transactions:
In December 1995, the Company sold the building that houses its Phoenix
telemarketing operations, the Sedona Spa warehouse and administrative offices
and certain other ILX administrative offices, 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 the building through SWI for
an initial one-year term, with four one-year options to renew through December
2001. Rent of $48,000 per year was paid in each of 1999, 2000 and 2001.
Effective January 1, 2001, the Company entered into a new agreement between ILX
and the affiliate to lease the building for a two-year term with three one-year
options to renew at the rate of $48,000 per year.
F-17
In July 1999, the Company entered into an agreement with an affiliate to
purchase sixty Vacation Ownership Interests for the price of $500,000, which is
approximately equal to the affiliate's historical cost. The Vacation Ownership
Interests consist of four Premiere Vacation Club Platinum memberships, fifty
Premiere Vacation Club Gold memberships and six VCA-South Bend Alumni House
extended football weekend memberships. The Company issued a promissory note for
the purchase price, which bears interest at 8%. The note is recorded as a note
payable to affiliates (Note 9). The agreement also modified the terms of a
previously existing note payable to a related affiliate.
NOTE 17. CAPITAL LEASES
Leased assets included in resort property held for Vacation Ownership
Interest sales and property and equipment totaled $2,768,636 and $693,015 (net
of accumulated amortization of $2,175,876 and $468,017) at December 31, 2000 and
2001, respectively. The leases expire through 2004. Future minimum lease
payments at December 31, 2001 are as follows:
2002 $ 184,789
2003 40,538
2004 17,768
---------
Total 243,095
Less: Amounts representing interest (18,097)
---------
Net minimum lease payments $ 224,998
=========
NOTE 18. 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 and the Vacation Ownership Interest deed of trust serves as
collateral on the note receivable. If a buyer of a Vacation Ownership Interest
defaults, the Company generally recovers the Vacation Ownership Interest by
receiving a deed back from the owner or through foreclosure. The Company may
resell the Vacation Ownership Interest; however, 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 sales 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
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. 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
Interest sales is also concentrated in Arizona. The risk inherent in such
F-18
concentration is in the continued popularity of the resort destinations, which
affects the marketability of the Company's products and the collection of notes
receivable.
NOTE 19. 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 20. SUBSEQUENT EVENT
On January 2, 2002 the Company entered into a General Bill of Sale,
Assignment and Assumption Agreement with SWI whereby the Company assumed all of
the assets and liabilities of SWI. The purchase is not deemed material.
NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information is presented in the following summary.
1999
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
Revenues $ 8,778,645 $10,410,889 $11,005,069 $10,244,297
Operating income 687,948 1,360,225 1,080,611 911,033
Net income 4,877 392,677 224,276 81,319
Net income per share - basic .00 .10 .05 .02
Net income per share - diluted .00 .09 .05 .02
2000
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
Revenues $10,011,021 11,007,427 $10,819,149 11,216,246
Operating income 1,179,376 1,765,813 1,310,833 1,065,330
Net income 265,096 633,562 382,849 260,731
Net income per share - basic .06 .17 .10 .07
Net income per share - diluted .06 .16 .10 .07
2001
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
Revenues $11,258,970 $13,157,219 $12,299,426 $11,592,906
Operating income 1,384,871 1,893,886 1,479,797 1,200,685
Net income 381,509 763,495 518,583 368,027
Net income per share - basic .11 .23 .16 .12
Net income per share - diluted .11 .22 .16 .12
The 1999 net income per share does not equal the summation of the quarters
due to rounding and the weighting of average shares.
F-20
NOTE 22. SIGNIFICANT FOURTH QUARTER ADJUSTMENT
There were no material fourth quarter adjustments or accounting changes.
F-20
EXHIBITS
TO
2001 FORM 10-K
ILX RESORTS INCORPORATED
EXHIBIT INDEX
EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
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 to Registration
Incorporated (filed October 8, 1986) Statement on Form S-1 No. 33-16122
3(i).2 Articles of Amendment to the Articles of Incorporation of Incorporated by reference to 1990 10-K
International Leisure Enterprises Incorporated (filed August 31,
1987)
3(i).3 Articles of Amendment to the Articles of Incorporation of Incorporated by reference to 1994 10-K/A-3
International Leisure Enterprises Incorporated (filed October 19,
1987)
3(i).4 Articles of Amendment to the Articles of Incorporation of Incorporated by reference to 1994 10-K/A-3
International Leisure Enterprises Incorporated (filed May 3,
1990)
3(i).5 Articles of Amendment to the Articles of Incorporation of Incorporated by reference to 1993 10-K
International Leisure Enterprises Incorporated (Name changed by
this Amendment to ILX Incorporated), (filed June 28, 1993)
3(i).6 Certificate of Amendment to Articles of Incorporation, filed Incorporated by reference to Registration
January 12, 1998 Statement on Form S-1 No. 333-45403
3(i).7 Articles of Correction, filed January 12, 1998, to correct Incorporated by reference to Registration
Certificate of Amendment to Articles of Incorporation, dated Statement on Form S-1 No. 333-45403
January 12, 1998
3(i).8 Certificate of Designation, Preferences, Rights, and Limitations Incorporated by reference to 1991 10-K
of Series A Preferred Stock, $10.00 par value of International
Leisure Enterprises Incorporated, filed September 5, 1991
3(i).9 Certificate of Designation, Preferences, Rights, and Limitations Incorporated by reference to 1991 10-K
of Series B Preferred Stock, $10.00 par value of International
Leisure Enterprises Incorporated, filed September 5, 1991
3(ii).10 Certificate of Designation of Series C Preferred Stock, filed Incorporated by reference to 1993 10-K
April 30, 1993
3.(ii) Amended and Restated Bylaws of International Leisure Enterprises Incorporated by reference to 1990 10-K
Incorporated, dated October 26, 1987
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
EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
10.3 Agreement and Plan of Merger among ILE Acquisition Corporation, Incorporated by reference to 1992 10-K
International Leisure Enterprises Incorporated and Genesis
Investment Group, Inc., dated March 15, 1993
10.4 First Amendment to Agreement and Plan of Merger between ILE Incorporated by reference to 1993 10-K
Acquisition Corporation, International Leisure Enterprises
Incorporated and Genesis Investment Group, Inc., dated April 22,
1993
10.5 Lease Agreement between Edward John Martori and Red Rock Incorporated by reference to 1995 10-K
Collection Incorporated, dated December 29, 1995
10.6 Lease Agreement between Edward John Martori and ILX Resorts Incorporated by reference to 1999 10-K
Incorporated dated January 1, 2000
10.7 First Amended Certificate of Limited Partnership and Amended Incorporated by reference to 1991 10-K
Agreement of Los Abrigados Partners Limited Partnership, dated
September 9, 1991
10.8 Certificate of Amendment of Limited Partnership for Los Abrigados Incorporated by reference to 1994 10-K/A-3
Partners Limited Partnership, dated November 11, 1993
10.9 First Amendment to Amended Agreement of Los Abrigados Partners Incorporated by reference to 1995 10-K
Limited Partnership, dated February 9, 1996
10.10 Installment Promissory Note ($1,300,000) by ILX Incorporated to Incorporated by reference to Form 8-K,
Martori Enterprises Inc., dated August 8, 1997 filed August 22, 1997
10.11 Security Agreement between ILX Incorporated and Martori Incorporated by reference to Form 8-K,
Enterprises Inc., dated August 8, 1997 filed August 22, 1997
10.12 Amended and Restated Promissory Note ($909,078) by ILX Incorporated by reference to Registration
Incorporated to Edward J. Martori, dated January 1, 1996 Statement on Form S-1 No. 333-45403
10.13 Agreement to Modify Amended and Restated Promissory Note Incorporated by reference to 9/30/99 10-Q
($909,078) by ILX Resorts Incorporated to Edward J. Martori dated
January 1, 1996 and the sale by Martori Enterprises Incorporated
to ILX Resorts Incorporated and/or its nominee of certain
vacation ownership interests in ILX Premiere Vacation Club and
VCA South Bend Incorporated
10.14 Agreement for Transfer of Limited Partnership Interest by ILX Incorporated by reference to Form 8-K,
Incorporated and Alan R. Mishkin, dated August 29, 1997 filed August 22, 1997
10.15 Installment Promissory Note ($675,000) by ILX Incorporated to Incorporated by reference to Form 8-K,
Alan R. Mishkin dated September 24, 1997 filed August 22, 1997
10.16 Security (Pledge) Agreement between ILX Incorporated and Alan R. Incorporated by reference to Form 8-K,
Mishkin, dated September 24, 1997 filed August 22, 1997
10.17 Form of Employment Agreement among ILX Resorts Incorporated and Incorporated by reference to Registration
each of Joseph Martori, Nancy Stone and Edward Zielinski Statement on Form S-1 No. 333-45403
10.18 Secured Line of Credit Lending Agreement between Litchfield Incorporated by reference to 6/30/98 10-Q
Financial Corporation and ILX Resorts Incorporated, Los Abrigados
Partners Limited Partnership and Premiere Development
Incorporated dated as of June 12, 1998
EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
10.19 Secured Line of Credit Promissory Note between Litchfield Incorporated by reference to 6/30/98 10-Q
Financial Corporation and ILX Resorts Incorporated, Los Abrigados
Partners Limited Partnership and Premiere Development
Incorporated dated as of June 12, 1998
10.20 Business Agreement among ILX Resorts Incorporated, Premiere Incorporated by reference to 6/30/98 10-Q
Vacation Club and Premiere Development Incorporated and Treasures
of the Sea of Cortez, Promotura de Inversion Turistica,
Immobiliaria y Hotelera Los Algodones and Immobiliaria Cerro
Pelon dated as of June 8, 1998
10.21 Amended and Restated Secured Line of Credit Lending Agreement Incorporated by reference to 9/30/98 10-Q
between ILX Resorts Incorporated, Los Abrigados Partners Limited
Partnership, ILE Sedona Incorporated, VCA Tucson Incorporated,
VCA South Bend Incorporated, Premiere Development Incorporated
and Litchfield Financial Corporation dated as of September 17,
1998
10.22 Agreement for Sale and Transfer of Promissory Note between ILX Incorporated by reference to 9/30/98 10-Q
Resorts Incorporated and Martori Enterprises Incorporated dated
as of September 29, 1998
10.23 Contract of Sale of Timeshare Receivables with Recourse between Incorporated by reference to 1998 10-K
Resort Funding, Inc. and Premiere Development Incorporated dated
as of March 19, 1999
10.24 Guaranty Agreement between ILX Resorts Incorporated and Resort Incorporated by reference to 1998 10-K
Funding, Inc. dated as of March 19, 1999
10.25 Rider to Contract between Resort Funding, Inc. and Premiere Incorporated by reference to 1998 10-K
Development Incorporated dated March 24, 1999 to supplement the
Contract of Sale of Timeshare Receivables with Recourse dated as
of March 19, 1999
10.26 Credit Agreement between Patrick J. McGroder, III, Nancy J. Incorporated by reference to 9/30/99 10-Q
Stone, and James W. Myers, Trustees for the ILX Resorts
Incorporated Employee Stock Ownership Plan and Trust and
Litchfield Financial Corporation dated as of August 12, 1999
10.27 Sedona Worldwide Incorporated Form 10-SB Incorporated by reference to SWI's Form 10-SB
on Form 10SB12G No. 000-25025, filed
November 4, 1998
10.28 Sedona Worldwide Incorporated Amendment No. 1 to Form 10-SB Incorporated by reference to SWI's Amendment
No. 1 to Form 10-SB on Form 1012G/A No.
000-25025, filed July 2, 1999
10.29 Sedona Worldwide Incorporated Amendment No. 2 to Form 10-SB Incorporated by reference to SWI's Amendment
No. 2 to Form 10-SB on Form 10SB12G/A No.
000-25025, filed November 12, 1999
EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
10.30 Sedona Worldwide Incorporated Amendment No. 3 to Form 10-SB Incorporated by reference to SWI's Amendment
No. 3 to Form 10-SB on Form 1012G/A No.
000-25025, filed December 8, 1999
10.31 Letter agreement, dated as of October 28, 1999, among ILX Resorts Incorporated by reference to 1999 10-K
Incorporated and Sedona Worldwide Incorporated
10.32 Modification Agreement between ILX Resorts Incorporated and Filed herewith
Sedona Worldwide Incorporated, dated January 1, 2001
10.33 Schedule 14C Definitive Information Statement pursuant to Section Incorporated by reference to Schedule 14C on
14(c) of the Securities Exchange Act of 1934 for Sedona Worldwide Form No. DEF 14C No. 001-13855, filed
Incorporated January 3, 2000
10.34 Promissory Note ($600,000) by ILX Resorts Incorporated to The Incorporated by reference to 1999 10-K
Steele Foundation, Inc. dated February 23, 2000
10.35 Installment Promissory Note ($500,000) by ILX Resorts Incorporated by reference to 1999 10-K
Incorporated to Martori Enterprises Incorporated dated August 1,
1999
10.36 Purchase and Sale Agreement between ILX Resorts Incorporated and Incorporated by reference to 9/30/2000 10-Q
Las Vegas Golf Center, LLC, dated August 16, 2000
10.37 First Amendment in Total between the County of Clark, a political Incorporated by reference to 9/30/2000 10-K
subdivision of the State of Nevada, and ILX Resorts Incorporated,
dated November 15, 2000
10.38 Assignment and Assumption of Lease between ILX Resorts Incorporated by reference to 9/30/2000 10-K
Incorporated and VCA Nevada Incorporated, dated January 12, 2001
10.39 First Amendment to Purchase and Sale Agreement between ILX Incorporated by reference to 9/30/2000 10-K
Resorts Incorporated and Las Vegas Golf Center, LLC, dated
February 15, 2001
10.40 Purchase and Sale Agreement between ILX Resorts Incorporated and Incorporated by reference to 9/30/2001 10-Q
John L. Fox, M.D., dated October 23, 2000
10.41 Secured Promissory Note ($4,900,000) by VCA Nevada Incorporated Incorporated by reference to 9/30/2001 10-Q
to Las Vegas Golf Center, L.L.C., dated July 31, 2001
10.42 First Modification Agreement dated September 13, 2001 between ILX Incorporated by reference to 9/30/2001 10-Q
Resorts Incorporated and The Steele Foundation, Inc.
10.43 Amendment to Loan Documents between ILX Resorts Incorporated, Los Filed herewith
Abrigados Partners Limited Partnership and Premiere Development
Incorporated dated October 31, 2001
10.44 General Bill of Sale, Assignment and Assumption Agreement between Filed herewith
ILX Resorts Incorporated and Sedona Worldwide Incorporated dated
January 2, 2002
21 List of Subsidiaries of ILX Resorts Incorporated Filed herewith