Attached files
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
The Quarter Ended March 31,
2010
|
Commission
File Number 001-13855
|
ILX
RESORTS INCORPORATED
(Debtor
and Debtor-In-Possession as of March 2, 2009)
(Exact
name of registrant as specified in its charter)
ARIZONA
|
86-0564171
|
|
(State
or other jurisdiction of
|
(IRS
Employer Identification Number)
|
|
incorporation
or organization)
|
2111 East Highland Avenue,
Suite 200, Phoenix, Arizona 85016
(Address
of principal executive offices)
Registrant's
telephone number, including area code 602-957-2777
_____________________________________________
Former
name, former address, and former fiscal year, if changed since last
report.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Indicate
by check mark whether the registrant is a shell
company. Yes o No
x
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 31,
2010
|
|
Common
Stock, without par value
|
3,631,877
shares
|
ITEM
1. FINANCIAL STATEMENTS
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-In-Possession as of March 2, 2009)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December
31,
|
March
30,
|
|||||||
2009
|
2010
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 3,939,522 | $ | 5,413,347 | ||||
Notes
receivable, net of allowance for uncollectible notes of $5,740,554
and $5,823,755, respectively
|
15,628,902 | 15,557,413 | ||||||
Resort
property held for Vacation Ownership Interest sales
|
23,835,999 | 23,530,179 | ||||||
Resort
property under development
|
1,274,613 | 1,274,613 | ||||||
Land
held for sale
|
605,302 | 605,302 | ||||||
Property
and equipment, net
|
20,095,348 | 19,933,213 | ||||||
Income
tax receivable
|
1,496,274 | 1,496,274 | ||||||
Deferred
tax asset
|
1,717,076 | 1,981,407 | ||||||
Other
assets
|
2,524,368 | 2,221,642 | ||||||
TOTAL
ASSETS
|
$ | 71,117,404 | $ | 72,013,390 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
LIABILITIES
|
||||||||
Liabilities
not subject to compromise:
|
||||||||
Accounts
payable
|
$ | 813,017 | $ | 1,075,024 | ||||
Accrued
expenses and other liabilities
|
2,480,290 | 3,016,499 | ||||||
Notes
payable
|
33,779,437 | 33,615,828 | ||||||
Liabilities
subject to compromise
|
5,972,518 | 6,639,517 | ||||||
TOTAL
LIABILITIES
|
43,045,262 | 44,346,868 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
SHAREHOLDERS'
EQUITY
|
||||||||
ILX
Resorts Incorporated shareholders' equity:
|
||||||||
Preferred
stock, $10 par value; 10,000,000 shares authorized; 117,722 shares
issued and outstanding; liquidation preference
of $1,177,220
|
746,665 | 746,665 | ||||||
Common
stock, no par value; 30,000,000 shares authorized; 5,578,259 and
5,574,259 shares issued and outstanding
|
29,280,759 | 29,280,759 | ||||||
Treasury
stock, at cost, 1,942,382 shares
|
(10,005,915 | ) | (10,005,915 | ) | ||||
Additional
paid-in capital
|
59,435 | 59,435 | ||||||
Deferred
compensation
|
(4,996 | ) | (2,172 | ) | ||||
Retained
earnings
|
6,064,636 | 5,668,139 | ||||||
Total
ILX Resorts Incorporated shareholders' equity
|
26,140,584 | 25,746,911 | ||||||
Non
controlling interest in subsidiary
|
1,931,558 | 1,919,611 | ||||||
TOTAL
SHAREHOLDERS' EQUITY
|
28,072,142 | 27,666,522 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 71,117,404 | $ | 72,013,390 | ||||
See notes
to condensed consolidated financial statements
2
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-In-Possession as of March 2, 2009)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three
months ended March 31,
|
||||||||
2009
|
2010
|
|||||||
REVENUES:
|
||||||||
Sales
of Vacation Ownership Interests
|
$ | 3,057,076 | $ | 2,508,745 | ||||
Estimated
uncollectible revenue
|
(172,160 | ) | (140,819 | ) | ||||
Resort
operating revenue
|
4,299,416 | 4,058,220 | ||||||
Interest
and finance income
|
509,349 | 403,940 | ||||||
Total
revenues
|
7,693,681 | 6,830,086 | ||||||
COST
OF SALES AND OPERATING EXPENSES:
|
||||||||
Cost
of Vacation Ownership Interests sold
|
389,927 | 316,321 | ||||||
Cost
of resort operations
|
3,656,458 | 3,341,790 | ||||||
Sales
and marketing
|
2,622,642 | 1,709,153 | ||||||
General
and administrative
|
1,291,081 | 1,095,719 | ||||||
Depreciation
and amortization
|
278,310 | 219,095 | ||||||
Total
cost of sales and operating expenses
|
8,238,418 | 6,682,078 | ||||||
Timeshare
and resort operating (loss) income
|
(544,737 | ) | 148,008 | |||||
Income
from land and other, net (including Related Party)
|
13,327 | 8,041 | ||||||
Total
operating (loss) income
|
(531,410 | ) | 156,049 | |||||
Interest
expense
|
(663,251 | ) | (688,061 | ) | ||||
REORGANIZATION
ITEMS:
|
||||||||
Loss
on disposal of facilities and other
|
(391,433 | ) | (27,328 | ) | ||||
Professional
fees
|
(150,000 | ) | (113,435 | ) | ||||
Loss
before income taxes and noncontrolling interest in
subsidiary
|
(1,736,094 | ) | (672,775 | ) | ||||
Income
tax benefit
|
689,385 | 264,331 | ||||||
Net
loss
|
(1,046,709 | ) | (408,444 | ) | ||||
Net
loss attritutable to noncontrolling interest in subsidiary
|
12,632 | 11,947 | ||||||
Net
loss attritutable to ILX Resorts Incorporated
|
$ | (1,034,077 | ) | $ | (396,497 | ) | ||
NET
LOSS PER SHARE
|
||||||||
Total
Basic net loss per share
|
$ | (0.28 | ) | $ | (0.11 | ) | ||
Total
Diluted net loss per share
|
$ | (0.28 | ) | $ | (0.11 | ) |
See notes
to condensed consolidated financial statements
3
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-In-Possession as of March 2, 2009)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three
months ended March 31,
|
||||||||
2009
|
2010
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (1,046,709 | ) | $ | (408,444 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Loss
on sale of property and equipment
|
9,840 | 2,841 | ||||||
Reorganization
loss on disposal of facilities and other
|
391,433 | 27,328 | ||||||
Reorganization
professional fees
|
150,000 | 113,435 | ||||||
Income
tax benefit
|
(689,385 | ) | (264,331 | ) | ||||
Estimated
uncollectible revenue
|
172,160 | 140,819 | ||||||
Depreciation
and amortization
|
278,310 | 219,095 | ||||||
Amortization
of deferred compensation
|
4,762 | 2,824 | ||||||
Change
in assets and liabilities:
|
||||||||
Decrease
(increase) in notes receivable, net
|
501,802 | (69,330 | ) | |||||
Decrease
in resort property held for Vacation Ownership Interest
sales
|
353,655 | 305,820 | ||||||
Increase
in resort property under development
|
(5,168 | ) | - | |||||
Increase
in land held for sale
|
(8,614 | ) | - | |||||
(Increase)
decrease in other assets
|
(608,537 | ) | 166,252 | |||||
Increase
in accounts payable
|
625,982 | 907,690 | ||||||
Increase
in accrued and other liabilities
|
301,097 | 539,000 | ||||||
Net
cash provided by operating activities
|
430,628 | 1,682,999 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment
|
(82,716 | ) | (45,565 | ) | ||||
Net
cash used in investing activities
|
(82,716 | ) | (45,565 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from notes payable
|
603,450 | 12,434 | ||||||
Principal
payments on notes payable
|
(1,854,960 | ) | (176,043 | ) | ||||
Net
cash used in financing activities
|
(1,251,510 | ) | (163,609 | ) | ||||
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
(903,598 | ) | 1,473,825 | |||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
2,145,601 | 3,939,522 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 1,242,003 | $ | 5,413,347 |
See notes
to condensed consolidated financial statements
4
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1. Chapter 11 Reorganization
On March
2, 2009 (the “Petition Date”), ILX Resorts Incorporated (“ILX” or the “Company”)
and fifteen of its subsidiaries and limited liability companies (“the Debtors”)
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code (“the Bankruptcy Code”) in the United States Bankruptcy
Court for the District of Arizona (“the Bankruptcy Court”). The cases
are being jointly administered under Case Number
2:09-BK-03594-RTB. The Company cannot provide any assurance as to
what values, if any, will be ascribed in the bankruptcy proceedings to various
pre-petition liabilities, common stock and other securities. Accordingly,
caution should be exercised with respect to existing and future investments in
any of these liabilities or securities. Trading of the Company’s common stock on
the NYSE AMEX exchange was suspended on March 2, 2009 and the stock was
subsequently delisted on March 13, 2009.
Reporting
Requirements
As a
result of its bankruptcy filing, the Company is periodically required to file
various documents with and provide certain information to, the Bankruptcy Court,
including statements of financial affairs, schedules of assets and liabilities
and monthly operating reports in forms prescribed by federal bankruptcy law, as
well as certain financial information on an unconsolidated basis. Such materials
are prepared according to requirements of federal bankruptcy
law. While they accurately provide then-current information required
under federal bankruptcy law, they are nonetheless unconsolidated, unaudited and
are prepared in a format different from that used in the Company’s consolidated
financial statements filed under the securities laws. Accordingly,
the Company believes that the substance and format do not allow meaningful
comparison with its regular publicly disclosed consolidated financial
statements. Moreover, the materials filed with the Bankruptcy Court
are not prepared for the purpose of providing a basis for an investment decision
relating to the Company’s securities, or for comparison with other financial
information filed with the Securities and Exchange Commission.
Reasons
for Bankruptcy
The
Debtor’s Chapter 11 filings were due to prevailing economic conditions and
unanticipated reductions in credit facilities caused by instability in the
credit markets.
Motions
The
Bankruptcy Court has approved various motions for relief designed to allow the
Company to continue normal operations. The Bankruptcy Court’s orders
authorize the Debtors, among other things, in their discretion to: a) pay
certain pre-petition and post-petition employee wages, salaries and benefits and
other employee obligations, b) pay vendors in the ordinary course for goods and
services received from and after the Petition Date, c) continue maintenance of
existing bank accounts and existing cash management systems, and d) use certain
cash collateral.
Under the
Bankruptcy Code, the Company may assume or reject certain unexpired leases
subject to the Bankruptcy Court’s approval and certain other
conditions. As of the filing date of this report, the Debtors have
filed motions to reject seven operating leases; all of which have been
granted. Various other filings have been made with respect to
utilities, third party servicing firms, professional firm engagements and
contract approvals.
Notifications
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. The Debtors’ Chapter 11
filing automatically enjoined, or stayed, the continuation of any judicial or
administrative proceeding or other actions against the Debtors or their property
to recover on, collect or secure a claim arising prior to the Petition
Date. Vendors are being paid for goods and services provided after
the Petition Date in the ordinary course of business. The deadline
for the filing of proofs of claims against the Debtors was September 15,
2009.
5
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Proofs
of Claim
As
permitted under the bankruptcy process, certain of the Debtors’ creditors filed
proofs of claim with the Bankruptcy Court. The total amount of the
claims that were filed far exceed the Company’s estimate of ultimate
liability. The Debtors believe some of these claims are invalid
because they are duplicative, have been amended or superseded by later filed
claims, are based on contingencies that have not occurred, or are inaccurate or
not valid. Differences in amounts between claims filed by creditors
and liabilities shown in our records are being investigated and will be resolved
in connection with our claims resolution process. There can be no
assurances at this time that the Company will not continue to record adjustments
related to the ultimate amount of claims allowed.
Executory
Contracts and Determination of Allowed Claims
Under the
Bankruptcy Code, the Debtors may assume or reject certain executory contracts
and unexpired leases. Claims may arise as a result of rejecting any
executory contract or unexpired lease. As mentioned above, the
Debtors have rejected seven operating leases. The condensed
consolidated financial statements do not include the effects of any claims from
the rejection of these as the Company cannot estimate the amount that will be
allowed by the Bankruptcy Court.
Plan
of Reorganization
The
Debtors had the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and an additional 60 days to obtain necessary acceptances
of the plan. Due to ongoing discussions with the Company’s primary lender, a
motion to extend exclusivity for an additional 45 days was filed and approved in
June 2009. A second motion to extend exclusivity was granted, the
Debtors filed a plan of reorganization and disclosure statement on August 28,
2009 and in September the Court extended the Debtors exclusive right to obtain
necessary acceptances of the plan to December 1, 2009. The Debtor filed an
Amended Joint Plan of Reorganization (“the Plan”) and First Amended Joint
Disclosure Statement (“the Disclosure Statement”) on October 2,
2009. Also on October 2, 2009, the Bankruptcy Court entered its order
approving the Disclosure Statement and establishing the solicitation and voting
procedures for the Debtors’ Plan. The creditors and equity holders’
votes for or against, and any objections to the Debtors’ Plan were required to
be filed on or before November 2, 2009. The confirmation hearing on
the Debtors’ Plan was scheduled for November 10 and 12, 2009. The
Company’s primary lender filed a Motion for Relief From Automatic Stay Regarding
Debtors’ Real and Personal Property on August 15, 2009. The hearing
on this motion was scheduled to be held in conjunction with the Plan
confirmation hearing on November 10 and 12, 2009. The Debtors and
their primary lender asked for an extension on November 12, 2009 until January
7, 2010 in order to work together on a mutually acceptable plan of
reorganization. In January 2010, the Debtors and their primary lender
reached an agreement and are now working together on a Joint Plan of
Reorganization (“Joint Plan”) in which most of the Debtors assets will be sold
to a third party.
A plan of
reorganization will be deemed accepted by holders of claims against and equity
interests in the Debtors if (1) at least one-half in number and two-thirds in
dollar amount of claims actually voting in each impaired class of claims have
voted to accept the plan and (2) at least two-thirds in amount of equity
interests actually voting in each impaired class of equity interests has voted
to accept the plan.
Under the
priority classification established by the Bankruptcy Code, unless creditors
agree otherwise, pre and post petition liabilities must be satisfied in full
before stockholders are entitled to receive any distribution under a plan of
reorganization. While the Joint Plan anticipates some payment to all
creditors and payment by the primary lender to holders of outstanding common
stock of ILX Resorts Incorporated, the ultimate treatment of creditors and
stockholders will not be determined until confirmation of a plan of
reorganization. No assurance can be given as to what values, if any,
will be ascribed in the Chapter 11 cases to each of these groups or what types
or amounts of distributions, if any, they would receive. A plan of
reorganization
could result in holders of the Debtors’ liabilities and/or securities, including
common stock, receiving no distribution on account of their interests and
cancellation of their holdings.
6
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There can
be no assurance at this time that the Company will be able to sell most of its
assets to a third party or that it can restructure as a going concern, that the
Joint Plan or Plan will be confirmed by the Bankruptcy Court, or that any will
be implemented successfully.
Reorganization
Costs
The
Debtors have incurred and will continue to incur significant costs associated
with their reorganization. The amount of these costs, which are being
expensed as incurred, have affected and are expected to continue to
significantly affect the Debtors’ liquidity and results of
operations. See Note 3 “Reorganization Items” for additional
information.
Risks
and Uncertainties
The
Debtors’ proposed Joint Plan contemplates a sale of most assets to a third party
and does not contemplate that the Company will continue as a going
concern. If the proposed sale does not occur, the ability of the
Company, both during and after the Chapter 11 case, to continue as a going
concern is dependent upon, among other things, a) the ability of the Company to
successfully achieve required cost savings to complete its restructuring; b) the
ability of the Company to maintain adequate liquidity; c) the ability of the
Company to generate cash from operations; d) the ability of the Company to
collect customer note balances; e) the ability of the Company to confirm a plan
of reorganization under the Bankruptcy Code and f) the Company’s ability to
achieve and maintain profitability. Uncertainty as to the outcome of
these factors raises substantial doubt about the Company’s ability to continue
as a going concern. A confirmed plan could materially change the
amounts currently disclosed in the condensed consolidated financial
statements.
Note
2. Summary of Significant Accounting Policies
Principles
of Consolidation and Business Activities
The
condensed consolidated financial statements include the accounts of ILX Resorts
Incorporated, and its wholly owned subsidiaries (“ILX” or the
“Company”). All significant intercompany transactions and balances
have been eliminated in consolidation. As is required by FASB ASC
810, the Company clearly presents ownership interests in subsidiaries held by
parties other than the Company in the consolidated statement of shareholders’
equity separate from the Company’s equity (Note 6). The Company also
presents the amount of consolidated net loss attributable to the parent and to
the noncontrolling interest separately on the condensed consolidated statement
of operations.
The
accompanying condensed consolidated balance sheet as of December 31, 2009, which
has been derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three-month period
ended March 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010. The accompanying
financial statements should be read in conjunction with the Company’s most
recent audited financial statements.
7
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
Company’s significant business activities include developing, operating,
marketing and financing ownership interests (“Vacation Ownership Interests”) in
resort properties located in Arizona, Colorado, Indiana, Nevada and
Mexico.
FASB
Accounting Standards Codification
In June
2009, the FASB issued FASB Accounting Standards Codification (“FASB ASC”) 105,
Generally Accepted Accounting
Principles, which establishes the FASB ASC as the sole source of
authoritative generally accepted accounting principles. Pursuant to
the provisions of FASB ASC 105, the Company has updated references to generally
accepted accounting principles in its financial statements. The
adoption of FASB ASC 105 did not impact the Company’s financial position or
results of operations.
Revenue
Recognition
Revenue
from sales of Vacation Ownership Interests is recognized in accordance with FASB
ASC 978, Real Estate - Time-Sharing Activities. No sales are
recognized until such time as a minimum of 10% of the purchase price and any
incentives given at the time of sale 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, revenues from food, beverages and other
amenities, and the management and operation of the ILX Resorts (inclusive of
homeowner’s dues). Such revenues are recorded as the rooms are rented
or the services are performed.
Condensed
Consolidated Statements of Cash Flows
Cash
equivalents are liquid investments with an original maturity of three months or
less. The following summarizes interest paid (excluding capitalized
interest), income taxes paid and interest capitalized.
Three
Months Ended March 31,
|
||||||||
2009
|
2010
|
|||||||
Interest
paid
|
$ | 313,572 | $ | 25,168 | ||||
Income
taxes paid
|
- | - | ||||||
Interest
capitalized
|
81,496 | - |
Stock
Based Compensation
The
Company records stock based compensation in accordance with the provisions of
FASB ASC 718. FASB ASC 718 addresses the accounting for share-based payments to
employees, including grants of employee stock options. Under the standard, the
Company is required to account for such transactions using a fair-value method
and recognize the expense in the condensed consolidated statement of
operations.
Reclassification
The
financial statements for the prior period have been reclassified to be
consistent with the current period financial statement
presentation. The reclassification had no effect on net
income.
8
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
3. Reorganization Items
FASB ASC 852 requires separate
disclosure of reorganization items on both the statement of operations and the
statement of cash flows. The Debtors’ reorganization items on the
condensed consolidated statements of operations consist of the
following:
Three
Months Ended March 31,
|
||||||||
2009
|
2010
|
|||||||
Loss
on disposal of facilities and other
|
$ | 391,433 | $ | 27,328 | ||||
Professional
fees
|
150,000 | 113,435 | ||||||
$ | 541,433 | $ | 140,763 |
The loss on disposal of facilities and
other includes the write-off of leasehold improvements related to the rejection
of seven unexpired leases as discussed in Note 1 and trustee
fees. Professional fees related to the reorganization are fees paid
to legal and expert counsel.
The Debtors’ reorganization items on
the condensed consolidated statements of cash flows consist of the
following:
Three
Months Ended March 31,
|
||||||||
2009
|
2010
|
|||||||
Loss
on disposal of facilities and other
|
$ | 391,433 | $ | 27,328 | ||||
Professional
fees
|
150,000 | 113,435 | ||||||
Change
in accounts payable
|
1,953,207 | 664,208 | ||||||
Change
in accrued & other liabilities
|
502,158 | 2,791 | ||||||
Notes
payable
|
1,412,789 | - |
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. Historically, the Company
borrowed against and/or sold receivables to provide sufficient cash to fund its
operations. The Company is currently unable to borrow under any
facility, but does have the use of cash collateral generated by customer
payments under a motion granted by the Bankruptcy Court (see Note 1). Cash
collateral received during the three-month periods ended March 31, 2010 and 2009
was $1,574,992 and $503,131, respectively and, in exchange the Company has
pledged all new Customer Notes during that period.
Note
4. Liabilities Subject to Compromise
Liabilities
subject to compromise (“LSTC”) refers to both secured and unsecured obligations
that will likely be accounted for under a confirmed plan of
reorganization. Actions to enforce or effect payment of pre-petition
liabilities are stayed. FASB ASC 852 requires pre-petition
liabilities that are subject to compromise to be reported at amounts expected to
be allowed, even if they may be settled for lesser amounts. These
liabilities represent the estimated amount expected to be allowed on known or
potential claims to be resolved through the Chapter 11 proceedings and remain
subject to future adjustments arising from negotiated settlements, actions of
the Bankruptcy Court, rejection of executory contracts and unexpired leases, the
determination as to the value of collateral, proofs of claim, or other
events. LSTC also includes certain items that may be assumed under
the confirmed
plan of reorganization and as such may be subsequently reclassified to
liabilities not subject to compromise. The Company has not included
secured debt that is fully secured as LSTC nor any post petition obligations for
rejected leases, but these obligations could be transferred or added to LSTC
based on treatment in the final approved plan of reorganization. All
post petition interest on notes payable is accrued at contract rate without
regard to default or other rate payable in the event of delinquency and included
in accounts payable and notes payable LSTC. The determination of how
liabilities will be treated cannot be made until the Bankruptcy Court approves a
plan of reorganization. Liabilities subject to compromise consist of
the following:
9
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December
31,
|
March
31,
|
|||||||
2009
|
2010
|
|||||||
Accounts
payable
|
$ | 3,787,175 | $ | 4,451,383 | ||||
Accrued
& other liabilities
|
772,554 | 775,345 | ||||||
Notes
payable
|
1,412,789 | 1,412,789 | ||||||
Total
liabilities subject to compromise
|
$ | 5,972,518 | $ | 6,639,517 |
Note 5. Basic and Diluted Net
Loss Per Share
In accordance with FASB ASC 260,
“Earnings Per Share,” the following presents the computation of basic and
diluted net loss per share:
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2009
|
2010
|
|||||||
Net
loss attributable to ILX Resorts Incorporated
|
$ | (1,034,077 | ) | $ | (396,497 | ) | ||
Basic
and Diluted Net Loss Available to Common Shareholders
|
$ | (1,034,077 | ) | $ | (396,497 | ) | ||
Basic
Weighted-Average Common Shares Outstanding
|
3,636,900 | 3,631,877 | ||||||
Diluted
Weighted-Average Common Shares Outstanding
|
3,636,900 | 3,631,877 | ||||||
Basic
Net Loss Per Common Share
|
$ | (0.28 | ) | $ | (0.11 | ) | ||
Diluted
Net Loss Per Common Share
|
$ | (0.28 | ) | $ | (0.11 | ) |
Stock
options to purchase 25,000 shares of common stock at a price of $9.90 per share
were outstanding at March 31, 2009, but were not included in the computation of
diluted net loss per share because their effect would be
anti-dilutive. These options expired in December
2009.
10
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
6. Shareholders’ Equity
A summary
of the composition of shareholders’ equity as of March 31, 2010 and 2009, and
the changes during the three months then ended is presented in the following
table:
Total
ILX Resorts
|
||||||||||||
Incorporated
|
Noncontrolling
|
Total
|
||||||||||
shareholders'
equity
|
interest
|
shareholders'
equity
|
||||||||||
Balance
at December 31, 2009
|
$ | 26,140,584 | $ | 1,931,558 | $ | 28,072,142 | ||||||
Amortization
of deferred compensation
|
2,824 | 2,824 | ||||||||||
Net
loss
|
(396,497 | ) | (11,947 | ) | (408,444 | ) | ||||||
Balance
at March 31, 2010
|
$ | 25,746,911 | $ | 1,919,611 | $ | 27,666,522 | ||||||
Total
ILX Resorts
|
||||||||||||
Incorporated
|
Noncontrolling
|
Total
|
||||||||||
shareholders'
equity
|
interest
|
shareholders'
equity
|
||||||||||
Balance
at December 31, 2008
|
$ | 27,940,374 | $ | 1,981,390 | $ | 29,921,764 | ||||||
Amortization
of deferred compensation
|
4,762 | 4,762 | ||||||||||
Net
loss
|
(1,034,077 | ) | (12,632 | ) | (1,046,709 | ) | ||||||
Balance
at March 31, 2009
|
$ | 26,911,059 | $ | 1,968,758 | $ | 28,879,817 |
Also,
during the three months ended March 31, 2009, the Company reversed deferred
compensation of $16,624, representing 2,000 shares issued in January 2006 due to
the termination of a Stock Bonus Plan participant prior to vesting in the
shares.
Note
7. Share Based Compensation
Stock
Bonus Plan
The
Company’s Stock Bonus Plan was created to advance the interests of the Company
and its shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business to
acquire and retain a proprietary interest in the Company by ownership of its
stock.
A summary
of the non-vested stock under the Stock Bonus Plan at March 31, 2010
follows:
Non-Vested
Shares
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
Non-vested
at December 31, 2009
|
32,500 | $7.11 | ||||||
Stock
Granted
|
- | - | ||||||
Stock
Vested
|
(29,500 | ) | $7.54 | |||||
Stock
Forfeited
|
- | - | ||||||
Non-vested
at March 31, 2010
|
3,000 | $2.90 |
Unamortized
deferred compensation of $2,172 will be amortized over the weighted average
remaining term of 0.79 years. As discussed in Note 1, the Company is
currently in Chapter 11 and its common stock was delisted in March
2009. Therefore, the Company cannot currently ascribe a value to the
non-vested stock under the Stock Bonus Plan.
11
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8.
Related Party Transactions
The
Company, together with James Bruno Enterprises LLC (Bruno), formed ILX-Bruno LLC
(“ILX-Bruno”) in August 2005 to purchase and develop three parcels approximating
22 acres of land in Sedona, Arizona from the Forest Service of the Department of
Agriculture and an unrelated party (approximately one acre). The
Company entered into an Operating Agreement with Bruno, as a member of
ILX-Bruno, in which the Company was named as the manager of
ILX-Bruno. The Company held an 85.0% interest in ILX-Bruno as of
March 31, 2010. ILX-Bruno is included in the Company’s condensed
consolidated financial statements as of March 31, 2010 with Bruno’s capital
contributions net of operating losses included as noncontrolling interest in
subsidiary on the accompanying condensed consolidated balance
sheet. ILX-Bruno is one of the entities that filed a voluntary
petition under Chapter 11 of the Bankruptcy Code.
In April
2008, Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and
Premiere Vacation Club homeowners’ association (“PVC”) entered into loan
agreements to borrow up to $350,000 and $900,000, respectively, at an interest
rate of 6.15% to finance renovations and the purchase of certain
equipment. The borrowings have a maturity date of March 31,
2011. ILX Resorts Incorporated has guaranteed the borrowings,
including interest, for both SVC and PVC and has entered into a Guarantee Fee
Agreement with SVC and PVC under which it received a guarantee fee of 1% of the
maximum principal amount under the loan agreements. The amounts
outstanding under the loan agreements as of March 31, 2010 are $416,667 and all
payments are current.
Note
9. Commitments and Contingencies
Legal
Proceedings
As discussed in Note 1, the Company and
certain of its subsidiaries and limited liability companies are debtors in
possession in the Chapter 11 case.
Other
litigation has arisen in the normal course of the Company’s business, none of
which is deemed to be material.
12
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion of the
Company’s financial condition and results of operations includes certain
forward-looking statements. When used in this Form 10-Q, the words
“estimate,” “projection,” “intend,” “anticipates,” “expects,” “may,” “should”
and similar terms are intended to identify forward-looking statements that
relate to the Company’s future performance. 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, its
dependence on key personnel, general economic conditions, government and
regulatory actions, the impact of our announcement of our voluntary filing under
Chapter 11 of the United States Bankruptcy Code and subsequent announcements
related to the proceedings, the ability to continue as a going concern, the
ability to obtain court approval of our motions in the Chapter 11 proceedings,
our ability to develop, pursue, confirm and consummate one or more plans of
reorganization with respect to the Chapter 11 cases, the ability to complete a
sale of most of our assets to a third party, the impact on the collectiblity of
receivables and homeowner dues of extended Chapter 11 proceedings, our ability
to obtain and maintain normal terms with vendors and service providers and other
factors discussed in this document and in the Company’s public filings with the
Securities and Exchange Commission. 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 (“ILX” or the “Company”) is one of the leading developers,
marketers and operators of timeshare resorts in the western United States and
Mexico. 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., bienniel) 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 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 seven
resorts in Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico,
land in Puerto Penãsco (Rocky Point), Mexico and land in Sedona, Arizona
(collectively, the “ILX Resorts”). The Company also owns 2,241
Vacation Ownership Interests in a resort in Las Vegas, Nevada, 2,233 of which
have been annexed into Premiere Vacation Club, 194 Vacation Ownership Interests
in a resort in Pinetop, Arizona, all of which have been annexed into Premiere
Vacation Club and 176 Vacation Ownership Interests in a resort in Phoenix,
Arizona, 174 of which have been annexed into Premiere Vacation
Club. On March 2, 2009, the Company and certain of its subsidiaries
and limited liability companies filed for relief under Chapter 11 of the United
States Bankruptcy Court for the District of Arizona as discussed under Note 1 in
this Report on Form 10-Q. The Company anticipates filing a Joint Plan
with its primary lender whereby most of its assets would be sold to a third
party.
Significant
Accounting Policies
Principles
of Consolidation and Business Activities
The
condensed consolidated financial statements include the accounts of ILX Resorts
Incorporated, and its wholly owned subsidiaries (“ILX” or the
“Company”). All significant intercompany transactions and balances
have been eliminated in consolidation. As is required by FASB ASC
810, the Company clearly presents ownership interests in subsidiaries held by
parties other than the Company in the consolidated statement of shareholders’
equity separate from the Company’s equity (Note 6). The Company also
presents the amount of consolidated net loss attributable to the parent and to
the noncontrolling interest separately on the condensed consolidated statement
of operations.
13
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The
accompanying condensed consolidated balance sheet as of December 31, 2009, which
has been derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Registration S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three-month period
ended March 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010. The accompanying
financial statements should be read in conjunction with the Company’s most
recent audited financial statements.
The
Company’s significant business activities include developing, operating,
marketing and financing ownership interests (“Vacation Ownership Interests”) in
resort properties located in Arizona, Colorado, Indiana Nevada and
Mexico.
FASB
Accounting Standards Codification
In June
2009, the FASB issued FASB Accounting Standards Codification (“FASB ASC”) 105,
Generally Accepted Accounting
Principles, which establishes the FASB ASC as the sole source of
authoritative generally accepted accounting principles. Pursuant to
the provisions of FASB ASC 105, the Company has updated references to generally
accepted accounting principles in its financial statements. The
adoption of FASB ASC 105 did not impact the Company’s financial position or
results of operations.
Revenue
Recognition
Revenue
from sales of Vacation Ownership Interests is recognized in accordance with FASB
ASC 978, Real Estate - Time-Sharing Activities. No sales are
recognized until such time as a minimum of 10% of the purchase price and any
incentives given at the time of sale 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, revenues from food, beverages and other
amenities, and the management and operation of the ILX Resorts (inclusive of
homeowner’s dues). Such revenues are recorded as the rooms are rented
or the services are performed.
Recent
Accounting Pronouncements
In April
2009, the FASB issued a new staff position, to require an entity to
provide disclosures about fair value of financial instruments in interim
financial information. The staff position also amends a previous
accounting standard to require those disclosures about the fair value of
financial instruments in summarized financial information at interim reporting
periods. Under the new staff position, the Company will be required
to include disclosures about the fair value of its financial instruments
whenever it issues financial information for interim reporting
periods. In addition, the Company will be required to disclose in the
body or in the accompanying notes of its summarized financial information for
interim reporting periods and in its financial statements for annual reporting
periods, the fair value of all financial instruments for which it is practicable
to estimate that value, whether recognized or not recognized in the statement of
financial position. The staff position was effective for periods
ending after June 15, 2009 and the adoption of this standard did not have a
material impact on the Company’s financial position or results of
operations.
In May
2009, the FASB issued a new standard which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available
to be issued. The new standard was effective for interim and annual
periods ending after June 15, 2009. The adoption of this standard did
not have a material effect on the Company’s financial position or results of
operations.
14
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In June
2009, the FASB issued a new standard which was adopted to improve financial
reporting by enterprises involved with variable interest entities. The new standard is
effective for annual reporting periods beginning after November 15,
2009. Earlier adoption is prohibited. The adoption of this
standard is not expected to have a material effect on the Company’s financial
position or results of operations.
In
February 2010, the FASB issued Accounting Standards Update (ASU) 2010-09, to
address potential practice issues associated with FASB ASC Topic 855 (Statement
165). The ASU eliminates the requirement for SEC filers to disclose the date
through which subsequent events have been evaluated in originally issued and
reissued financial statements. This change was immediately
effective.
15
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Results
of Operations
The following table sets forth certain
operating information for the Company:
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2009
|
2010
|
|||||||
As
a percentage of total revenues:
|
||||||||
Sales
of Vacation Ownership Interests
|
39.7 | % | 36.7 | % | ||||
Estimated
uncollectible revenue
|
(2.2 | %) | (2.0 | %) | ||||
Resort
operating revenue
|
55.9 | % | 59.4 | % | ||||
Interest
and finance income
|
6.6 | % | 5.9 | % | ||||
Total
revenues
|
100.0 | % | 100.0 | % | ||||
As
a percentage of sales of Vacation Ownership Interests(1):
|
||||||||
Cost
of Vacation Ownership Interests sold
|
13.5 | % | 13.4 | % | ||||
Sales
and marketing
|
90.9 | % | 72.2 | % | ||||
Contribution
margin percentage from sale of Vacation
|
||||||||
Ownership
Interests (2)
|
(4.4 | %) | 14.5 | % | ||||
As
a percentage of resort operating revenue:
|
||||||||
Cost
of resort operations
|
85.0 | % | 82.3 | % | ||||
As
a percentage of total revenues(1):
|
||||||||
General
and administrative
|
16.8 | % | 16.0 | % | ||||
Depreciation
and amortization
|
3.6 | % | 3.2 | % | ||||
Total
operating (loss) income
|
(6.9 | %) | 2.3 | % | ||||
Selected
operating data:
|
||||||||
Vacation
Ownership Interests sold (3)
(4)
|
160 | 130 | ||||||
Average
sales price per Vacation Ownership Interest
|
||||||||
sold
(excluding revenues from Upgrades) (4)
|
$ | 14,743 | $ | 14,197 | ||||
Average
sales price per Vacation Ownership Interest
|
||||||||
sold
(including revenues from Upgrades) (4)
|
$ | 18,457 | $ | 18,775 |
(1)
Sales of Vacation Ownership Interests and total revenues includes the
reduction for estimated uncollectible revenue.
(2)
Defined as: the sum of Vacation Ownership Interest sales less the cost of
Vacation Ownership Interests sold less sales and marketing expenses less
estimated uncollectible revenue divided by sales of Vacation Ownership Interests
less estimated uncollectible revenue.
(3)
Reflects all Vacation Club Ownership Interests on an annual
basis.
(4)
Consists of an aggregate of 230 and 174 biennial and annual Vacation Ownership
Interests for the three months ended March 31, 2009 and 2010,
respectively. Excludes the number of conversions and
upgrades.
Comparison
of the Three Months Ended March 31, 2009 to the Three Months Ended March 31,
2010
Sales of
Vacation Ownership Interests decreased 17.9% or $548,331 to $2,508,745 for the
three months ended March 31, 2010, from $3,057,076 for the same period in
2009. The decrease reflects a reduction in scale of sales
operations. As part of a comprehensive expense reduction program, the
Company closed three of its sales offices in January 2009, and continues to
operate two sales offices in Sedona and Tucson at a reduced
scale. The decreased revenue includes a reduction in tours to the
Sedona and Tucson sales office during the Chapter
11 proceedings, as well as decreased average sales prices discussed below offset
by higher closing rates at both the Sedona and Tucson sales
offices.
16
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The
average sales price per Vacation Ownership Interest sold (excluding revenues
from Upgrades) decreased 3.7% or $546 to $14,197 for the three months ended
March 31, 2010 from $14,743 for the same period in 2009. The decrease
in average sales price is due to a change in the product mix sold and special
promotional pricing following the Company’s Chapter 11 filing. The
number of Vacation Ownership Interests sold decreased 18.8% from 160 in the
three months ended March 31, 2009 to 130 for the same period in 2010 primarily
due to the reduced scale and resultant reduction in tours to the Sedona and
Tucson sales offices discussed above. The three months ended March
31, 2010 included 88 biennial Vacation Ownership Interests (counted as 44 annual
Vacation Ownership Interests) compared to 141 biennial Vacation Ownership
Interests (counted as 70.5 annual Vacation Ownership Interests) in the same
period in 2009.
Upgrade
revenue, included in Vacation Ownership Interest sales, was consistent at
$595,105 and $592,270 for the three months ended March 31, 2010 and 2009,
respectively. Upgrades often do not involve the sale of additional
Vacation Ownership Interests (merely their exchange) and, therefore, such
Upgrades increase the average sales price per Vacation Ownership Interest
sold. The average sales price per Vacation Ownership Interest sold
(including upgrades) increased 1.7% or $318 to $18,775 for the three months
ended March 31, 2010 from $18,457 in 2009. This increase is due to
the impact of level Upgrade revenue between years while the number of sales of
new Vacation Ownership Interests excluding Upgrades and the average sales price
per Vacation Ownership Interest sold (excluding Upgrades) declined.
Resort
operating revenue decreased 5.6% to $4,058,220 for the three months ended March
31, 2010, from $4,299,416 for the same period in 2009. The decrease
for the three months ended March 31, 2010 reflects the closure of the Los
Abrigados Lodge in March 2009, decreased occupancy at certain of the Company’s
Arizona resorts and decreased average daily rate at certain of the Company’s
Arizona and South Bend resorts. Cost of resort operations as a
percentage of resort operating revenue decreased from 85.0% to 82.3% for the
three months ended March 31, 2010 reflecting expense reduction measures put in
place in the first quarter 2009 as well as the closure of the Los Abrigados
Lodge in March 2009. The Los Abrigados Lodge operated under a long
term lease agreement that was rejected as part of the Chapter 11 proceedings and
was mainly used to house tour guests and had minimal revenue from other
sources.
Interest
and finance income decreased 20.7% to $403,940 for the three months ended March
31, 2010 from $509,349 for the same period in 2009, reflecting decreased
Customer Note balances and special interest rates on certain products following
the Chapter 11 filing.
Cost of
Vacation Ownership Interests sold as a percentage of Vacation Ownership Interest
sales was consistent at 13.4% and 13.5% for the three months ended March 31,
2010 and 2009, respectively.
Sales and
marketing as a percentage of sales of Vacation Ownership Interests decreased to
72.2% for the three months ended March 31, 2010 from 90.9% for the same period
in 2009, reflecting increased closing rates, lower marketing costs per tour and
reduced sales office expenses. The significant reduction between the
three months ended March 31, 2010 and the comparable period in 2009 reflects the
rejection of leases in March 2009 for less effective marketing venues and other
cost cutting strategies.
General
and administrative expenses decreased to 16.0% of total revenue for the first
quarter ended March 31, 2010, from 16.8% for the same period in
2009. The percentage decrease reflects a decrease in salaries and
related benefits as a result of a reduction in force and comprehensive salary
reductions in January 2009 as well as a decrease in rent and other expenses
resulting from the rejection of a lease as part of the Bankruptcy filing as
discussed in Note 1.
Income
from land and other, net was consistent at $8,041 and $13,327 for the three
months ended March 31, 2010 and 2009, respectively.
17
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Interest
expense increased 3.7% to $688,061 for the three months ended March 31, 2010
from $663,251 for the same period in 2009, reflecting reduced capitalized
interest net of lower outstanding balances.
Reorganization
items include loss on disposal of facilities and other and professional
fees. The loss on disposal of facilities and other in the three
months ended March 31, 2009 includes the write-off of lease acquisition costs,
deposits, leasehold improvements and other items related to the rejection of
seven unexpired leases as well as trustee fees. The loss on disposal
of facilities and other in the three months ended March 31, 2010 includes the
write-off of leasehold improvements and trustee fees. Professional
fees are expenses for legal and expert counsel.
Liquidity
and Capital Resources
Sources
of Cash
The
Company generates cash primarily from the sale of Vacation Ownership Interests
(including Upgrades), from the financing of Customer Notes from such sales and
from 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 Company’s credit facility
expired in December 2009. The Company was unable to borrow under its
facility after its Chapter 11 filing, but does have the use of cash collateral
generated by customer payments under a motion granted by the Bankruptcy
Court.
For the
three months ended March 31, 2010 and 2009 cash provided by operations was
$1,682,999 and $430,628, respectively. The increase in cash provided
by operations reflects a reduction in net loss and resultant smaller income tax
benefit, an increase in accounts payable due to non payment of pre-petition
amounts and accrued interest on notes payable, a decrease in other assets due to
the timing of the 2009 partial payment of third party homeowners’ dues which
were paid directly by the PVC in 2010. These are offset by an increase in notes
receivable and a decrease in the reorganization loss on disposal of facilities
and other due to the write-off of lease related expenses when the leases were
rejected in March 2009.
For
regular federal income tax purposes, the Company reports substantially all of
its non-factored financed Vacation Ownership Interest sales under the
installment method. Under the installment method, the Company
recognizes income on sales of Vacation Ownership Interests only when cash is
received by the Company in the form of a down payment, as 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 condensed 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, 2009, the Company had federal net operating loss, or "NOL,"
carryforwards of approximately $5.2 million and a state NOL carryforward of
approximately $12.0 million. These NOL carryforwards expire in
2028.
In
addition, Section 382 of the Internal Revenue Code imposes limitations on the
utilization of NOLs by a corporation following various types of ownership
changes that result in more than a 50% change in ownership of the 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 SEC on Schedules 13D and 13G by holders of more than 5% of the Company’s
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 Company’s ability to use the NOLs in the future, which could require the
Company to pay additional federal and state taxes.
18
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Uses
of Cash
Investing
activities typically reflect a net use of cash because of capital
additions. Net cash used in investing activities was $45,565 and
$82,716 for the three months ended March 31, 2010 and 2009,
respectively. The decrease in net cash used in investing activities
in 2010 is due to reduced capital expenditures.
Net cash
used in financing activities was $163,609 and $1,251,510 in the three months
ended March 31, 2010 and 2009, respectively. The decrease in cash
used in financing activities is due to the post petition use of cash collateral
for operations rather than for debt service, net of the post petition
discontinuation of advances against new consumer notes.
Although
the Company is not currently obligated to replace delinquent Customer Notes due
to the Chapter 11 stay, historically customer defaults have had a significant
impact on cash available to the Company from financing Customer Notes receivable
and continue to effect the Company’s cash flow to the extent customer payments
are not collected as scheduled.
Credit
Facilities and Capital
The
Company had a financing commitment aggregating $20 million whereby the Company
borrowed against notes receivable pledged as collateral. These
borrowings bear interest at a rate of prime plus 1.5%. The $20
million commitment had a borrowing period which expired in December 2009 and the
maturity is in January 2013. The Company was not able to borrow on
this facility after its March 2, 2009 filing under Chapter 11 of the United
States Bankruptcy Code.
At March
31, 2010 and 2009, the Company had approximately $3.7 million and $6.1 million,
respectively, in outstanding notes receivable sold on a recourse
basis.
On March
1, 2009 a Loan and Security Agreement in the original amount of $5.0 million
with Textron Financial Corporation (the “Lender”) was terminated. The
loan’s original maturity date was December 31, 2008 but was extended to February
28, 2009 by two separate letter agreements. The outstanding principal
balance on the loan was $4,577,874 as of March 1, 2009. The Company
and the Lender were unable to reach a mutually acceptable longer term extension
of the loan. The loan is secured by an assignment of a Promissory
Note to the Company and a Deed of Trust from an affiliated limited liability
company securing approximately 14 acres of land in Sedona, Arizona.
The
Company is not in compliance with certain of its loan covenants which include
Debt Service Coverage Ratios and a Tangible Net Worth ratio. In
addition, the March 2009 Chapter 11 filing constitutes an event of default under
the Company’s loan agreements.
Under the
contemplated Joint Plan, material additional credit facilities are not
anticipated to be required. Under the Plan or otherwise, as part of
its reorganization, 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 and the Bankruptcy
Court 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.
19
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The
Company continues to assess its liquidity position due to its reorganization
status, the scarcity of capital and uncertainty of the credit markets, current
economic conditions, sales challenges as a result of the foregoing and the
expenses associated with the Chapter 11 Bankruptcy proceedings.
Off-Balance
Sheet Arrangements
In April
2008, SVC and PVC entered into loan agreements to borrow up to $350,000 and
$900,000, respectively, at an interest rate of 6.15% to finance renovations and
the purchase of certain equipment for resort operations. The
borrowings have a maturity date of March 31, 2011. The Company has
guaranteed the borrowings, including interest, for both SVC and PVC and has
entered into a Guarantee Fee Agreement with SVC and PVC under which it received
a guarantee fee of 1.0% of the maximum principal amount under the loan
agreements. The amounts outstanding under the loan agreements as of
March 31, 2010 were $416,667 and all payments are current.
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. Also impacting revenues are
inclement weather, floods, forest fires, gasoline prices and other unforeseen
natural disasters. 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 two most recent
fiscal years or the three months ended March 31, 2010. However, to
the extent inflationary trends affect 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
3. Quantitative and Qualitative Disclosures about Market Risk
Not
applicable
Item
4T. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
The
Company has established disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) to ensure that material information relating to the Company is made known
to the officers who certify the Company’s financial reports and to other members
of senior management and the Board of Directors. These disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports that are filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's (“SEC”) rules and forms. Under the
supervision and with the participation of management, including the principal
executive officer and principal financial officer an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of March 31, 2010 was completed based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation, the principal
executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures are functioning
effectively.
20
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
(b) Changes
in Internal Control over Financial Reporting
There was
no change in the Company’s internal control over financial reporting during the
Company’s most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Part
II
Item
1.
|
Legal
Proceedings
|
As
discussed in Note 1, the Company and certain of its subsidiaries and limited
liability companies are debtors in possession in the Chapter 11
case.
Other
litigation has arisen in the normal course of the Company’s business, none of
which is deemed to be material.
Item
1A.
|
Risk
Factors
|
Not
applicable
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None
Item
3.
|
Defaults
Upon Senior Securities
|
As a
result of the Chapter 11 filing, the Company is in default on substantially all
of its debt obligations.
Item
5.
|
Other
Information
|
None
Item
6.
|
Exhibits
|
|
(i)
|
Exhibits
|
Exhibit
No.
|
Description
|
31
|
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
|
32
|
CERTIFICATION
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
|
21
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused its
quarterly report on Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.
ILX
RESORTS INCORPORATED
(Registrant)
/s/
Joseph P. Martori
|
Joseph
P. Martori
|
Chief
Executive Officer
|
/s/
Nancy J. Stone
|
Nancy
J. Stone
|
Vice
Chairman & President
|
/s/
Margaret M. Eardley
|
Margaret
M. Eardley
|
Executive
Vice President & Chief Financial
Officer
|
/s/
Taryn L. Chmielewski
|
Taryn
L. Chmielewski
|
Vice
President & Corporate
Controller
|
Date: As
of May 13, 2010
22