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EX-31 - CERTIFICATION PURSUANT TO 18 U.S.C. ? 1350, AS ADOPTED - ILX RESORTS INC | ilx10q093009ex31.htm |
EX-32 - CERTIFICATION PURSUANT TO 18 U.S.C. ? 1350, AS ADOPTED - ILX RESORTS INC | ilx10q093009ex32.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
The Quarter Ended September 30,
2009
|
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
the number of shares outstanding of each of the Registrant’s classes of stock,
as of the latest practicable date.
Class
|
Outstanding at
September 30, 2009
|
|
Common
Stock, without par value
|
3,635,877
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,
|
September
30,
|
|||||||
2008
|
2009
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 2,145,601 | $ | 1,553,187 | ||||
Notes
receivable, net of allowance for uncollectible notes
|
||||||||
of $2,766,951 and $3,492,672, respectively
|
19,297,008 | 18,945,057 | ||||||
Resort
property held for Vacation Ownership Interest sales
|
23,997,073 | 22,782,762 | ||||||
Resort
property under development
|
1,269,445 | 1,274,613 | ||||||
Land
held for sale
|
586,681 | 596,765 | ||||||
Property
and equipment, net
|
21,007,739 | 20,283,437 | ||||||
Income
tax receivable
|
31,892 | 31,892 | ||||||
Deferred
tax asset
|
1,978,332 | 2,392,834 | ||||||
Other
assets
|
2,492,211 | 4,236,053 | ||||||
TOTAL
ASSETS
|
$ | 72,805,982 | $ | 72,096,600 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
LIABILITIES:
|
||||||||
Liabilities not subject to compromise:
|
||||||||
Accounts
payable
|
$ | 1,847,903 | $ | 523,523 | ||||
Accrued
expenses and other liabilities
|
3,864,210 | 2,987,753 | ||||||
Notes
payable
|
37,172,105 | 33,974,563 | ||||||
Liabilities subject to compromise
|
- | 5,301,192 | ||||||
TOTAL
LIABILITIES
|
42,884,218 | 42,787,031 | ||||||
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;
|
||||||||
5,580,259 and
5,578,259 shares issued and outstanding
|
29,322,887 | 29,306,263 | ||||||
Treasury stock, at cost, 1,942,382 shares
|
(10,005,915 | ) | (10,005,915 | ) | ||||
Additional paid-in capital
|
59,435 | 59,435 | ||||||
Deferred compensation
|
(91,503 | ) | (27,347 | ) | ||||
Retained earnings
|
7,908,805 | 7,287,052 | ||||||
Total ILX Resorts Incorporated shareholders' equity
|
27,940,374 | 27,366,153 | ||||||
Non
controlling interest in subsidiary
|
1,981,390 | 1,943,416 | ||||||
TOTAL
SHAREHOLDERS' EQUITY
|
29,921,764 | 29,309,569 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 72,805,982 | $ | 72,096,600 |
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 September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
REVENUES:
|
||||||||||||||||
Sales of Vacation Ownership Interests
|
$ | 4,936,013 | $ | 2,994,711 | $ | 15,657,867 | $ | 10,088,035 | ||||||||
Estimated uncollectible revenue
|
(14,765,160 | ) | (168,010 | ) | (15,234,768 | ) | (567,087 | ) | ||||||||
Resort operating revenue
|
5,188,714 | 4,834,042 | 15,292,829 | 14,084,298 | ||||||||||||
Interest and finance income
|
522,259 | 470,518 | 2,040,871 | 1,445,195 | ||||||||||||
Total revenues
|
(4,118,174 | ) | 8,131,261 | 17,756,799 | 25,050,441 | |||||||||||
COST
OF SALES AND OPERATING EXPENSES:
|
||||||||||||||||
Cost of Vacation Ownership Interests (recovered) sold
|
(2,641,944 | ) | 371,928 | (1,242,527 | ) | 1,283,393 | ||||||||||
Cost of resort operations
|
4,589,281 | 3,680,290 | 13,553,999 | 10,959,899 | ||||||||||||
Sales and marketing
|
3,626,697 | 1,800,387 | 11,404,765 | 6,645,583 | ||||||||||||
General and administrative
|
1,694,664 | 1,121,539 | 4,904,364 | 3,610,345 | ||||||||||||
Depreciation and amortization
|
274,120 | 256,065 | 882,575 | 791,557 | ||||||||||||
Total cost of sales and operating expenses
|
7,542,818 | 7,230,209 | 29,503,176 | 23,290,777 | ||||||||||||
Timeshare
and resort operating income (loss)
|
(11,660,992 | ) | 901,052 | (11,746,377 | ) | 1,759,664 | ||||||||||
Income
from land and other, net (including Related Party)
|
9,115 | 6,190 | 55,293 | 29,512 | ||||||||||||
Total
operating income (loss)
|
(11,651,877 | ) | 907,242 | (11,691,084 | ) | 1,789,176 | ||||||||||
Interest
expense
|
(663,184 | ) | (706,434 | ) | (1,972,901 | ) | (2,072,387 | ) | ||||||||
REORGANIZATION
ITEMS:
|
||||||||||||||||
Loss on disposal of facilities and other
|
- | (18,507 | ) | - | (421,983 | ) | ||||||||||
Professional fees
|
- | (153,010 | ) | - | (369,035 | ) | ||||||||||
Income
(loss) before income taxes and noncontrolling interest in
subsidiary
|
(12,315,061 | ) | 29,291 | (13,663,985 | ) | (1,074,229 | ) | |||||||||
Income
tax benefit (expense)
|
4,960,508 | (16,751 | ) | 5,489,872 | 414,502 | |||||||||||
Net
income (loss)
|
(7,354,553 | ) | 12,540 | (8,174,113 | ) | (659,727 | ) | |||||||||
Net
loss attritutable to noncontrolling interest in subsidiary
|
13,050 | 12,588 | 38,565 | 37,974 | ||||||||||||
Net
income (loss) attritutable to ILX Resorts Incorporated
|
$ | (7,341,503 | ) | $ | 25,128 | $ | (8,135,548 | ) | $ | (621,753 | ) | |||||
NET
INCOME (LOSS) PER SHARE
|
||||||||||||||||
Total Basic net income (loss) per share
|
$ | (2.01 | ) | $ | - | $ | (2.24 | ) | $ | (0.18 | ) | |||||
Total Diluted net income (loss) per share
|
$ | (2.01 | ) | $ | - | $ | (2.24 | ) | $ | (0.18 | ) |
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)
Nine
months ended September 30,
|
||||||||
2008
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$ | (8,174,113 | ) | $ | (659,727 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating
activities:
|
||||||||
|
||||||||
Loss on
sale of property and equipment
|
683 | 9,106 | ||||||
Reorganization
loss on disposal of facilities and other
|
- | 421,983 | ||||||
Reorganization
professional fees
|
- | 369,035 | ||||||
Income
tax benefit
|
(5,489,872 | ) | (414,502 | ) | ||||
Estimated
uncollectible revenue
|
15,234,768 | 567,087 | ||||||
Depreciation
and amortization
|
882,575 | 791,557 | ||||||
Amortization of
deferred compensation
|
132,916 | 47,532 | ||||||
Change
in assets and liabilities:
|
||||||||
Decrease (increase) in notes receivable, net
|
273,926 | (215,136 | ) | |||||
(Increase) decrease in resort property held for Vacation
Ownership
|
||||||||
Interest sales
|
(5,942,093 | ) | 1,214,311 | |||||
Decrease (increase) in resort property under development
|
3,390,420 | (5,168 | ) | |||||
Increase in land held for sale
|
(1,170 | ) | (10,084 | ) | ||||
Increase in other assets
|
(195,038 | ) | (2,491,582 | ) | ||||
(Decrease) increase in accounts payable
|
(46,710 | ) | 1,778,923 | |||||
Increase (decrease) in accrued and other liabilities
|
182,945 | (97,071 | ) | |||||
Decrease in deferred income taxes
|
(4,320 | ) | - | |||||
Decrease in income taxes payable
|
(44,232 | ) | - | |||||
Net
cash provided by operating activities
|
200,685 | 1,306,264 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(877,120 | ) | (115,019 | ) | ||||
Proceeds from sale of property and equipment
|
- | 1,094 | ||||||
Assumption of First Piggy LLC membership interests
|
33,263 | - | ||||||
Net
cash used in investing activities
|
(843,857 | ) | (113,925 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from notes payable
|
9,188,944 | 631,352 | ||||||
Principal payments on notes payable
|
(8,616,693 | ) | (2,416,105 | ) | ||||
Principal payment on note payable to affiliate
|
(300,000 | ) | - | |||||
Preferred stock dividends
|
(46,788 | ) | - | |||||
Acquisition of treasury stock
|
(26,953 | ) | - | |||||
Net
cash provided by (used in) financing activities
|
198,510 | (1,784,753 | ) | |||||
DECREASE
IN CASH AND CASH EQUIVALENTS
|
(444,662 | ) | (592,414 | ) | ||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
3,332,922 | 2,145,601 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 2,888,260 | $ | 1,553,187 | ||||
SUPPLEMENTAL
DISCLOSURE OF NONCASH
|
||||||||
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Deferred compensation resulting from unvested common stock
issuance
|
$ | 4,048 | $ | - | ||||
Common
stock issued to repay portion of note payable to affiliate
|
300,000 | - |
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 recent 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 through November 30, 2009.
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 have 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 must be submitted
on or before November 2, 2009. The confirmation hearing on the
Debtors’ Plan is 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 is currently scheduled to be held in conjunction with the Plan
confirmation hearing on November 10 and 12, 2009. Assuming the
Debtors’ Plan is confirmed at the November hearing, the Debtors expect to
consummate the plan and emerge from Chapter 11 in December 2009.
A plan of
reorganization will be deemed accepted by holders of claims against and equity
interest 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. 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.
There can
be no assurance at this time that the Company will be able to restructure as a
going concern or that the Plan will be confirmed by the Bankruptcy Court, or
that the Plan 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.
6
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Risks
and Uncertainties
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. The confirmed Plan could materially change the amounts
currently disclosed in the condensed consolidated financial
statements.
Liquidity
and Going Concern Matters
The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. This assumes a
continuation of operations and the realization of assets and liabilities in the
ordinary course of business. The condensed consolidated financial
statements do not include any adjustments that might result if the Company were
forced to discontinue operations or if the realizable value of assets is
permanently diminished as a result of the effect of uncertainty during the
bankruptcy proceedings. The Company has liquidity needs in the
operation of its business which are eased by the use of cash collateral
discussed above. In order to address liquidity concerns, the Company
has made expense reductions and scaled back its sales and marketing
operations. It has also rejected certain lease agreements as
discussed above.
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.
The accompanying condensed consolidated
balance sheet as of December 31, 2008, 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 nine-month period ended
September 30, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. 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 for the period ended
September 30, 2009. The adoption of FASB ASC 105 did not impact the
Company’s financial position or results of operations.
7
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
Interest
paid
|
$ | 663,184 | $ | 29,768 | $ | 1,976,978 | $ | 375,064 | ||||||||
Income
taxes paid
|
4,320 | - | 48,552 | - | ||||||||||||
Interest
capitalized
|
245,778 | - | 778,714 | 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 September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
Loss
on disposal of facilities and other
|
$ | - | $ | 18,507 | $ | - | $ | 421,983 | ||||||||
Professional
fees
|
- | 153,010 | - | 369,035 | ||||||||||||
$ | - | $ | 171,517 | $ | - | $ | 791,018 |
The loss on disposal of facilities and
other includes the write-off of lease acquisition costs, deposits, leasehold
improvements and other items 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 and are estimated
by the Debtors and will be reconciled when actual invoices are
received.
The Debtors’
reorganization items on the condensed consolidated statements of cash flows
consist of the following:
Nine
Months Ended September 30,
|
||||||||
2008
|
2009
|
|||||||
Loss
on disposal of facilities and other
|
$ | - | $ | 421,983 | ||||
Professional
fees
|
- | 369,035 | ||||||
Change
in accounts payable
|
- | 3,109,017 | ||||||
Change
in accrued & other liabilities
|
- | 779,386 | ||||||
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 its 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 nine month
period ended September 30, 2009 was $3,824,613.
9
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
4. Liabilities Subject to Compromise
Liabilities
subject to compromise (“LSTC”) refer to both secured and unsecured obligations
that will likely be accounted for under a 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 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:
December
31,
|
September
30,
|
|||||||
2008
|
2009
|
|||||||
Accounts
payable
|
$ | - | $ | 3,109,017 | ||||
Accrued
& other liabilities
|
- | 779,386 | ||||||
Notes
payable
|
- | 1,412,789 | ||||||
Total
liabilities subject to compromise
|
$ | - | $ | 5,301,192 | ||||
Note 5. Basic and Diluted Net Income
(Loss) Per Share
In
accordance with FASB ASC 260, “Earnings Per Share,” the following presents the
computation of basic and diluted net income (loss) per share:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2009
|
2008
|
2009
|
|||||||||||||
Net
(loss) income attributable to ILX Resorts Incorporated
|
$ | (7,341,503 | ) | $ | 25,128 | $ | (8,135,548 | ) | $ | (621,753 | ) | |||||
Less:
Series A preferred stock dividends
|
(11,697 | ) | (11,697 | ) | (35,091 | ) | (35,091 | ) | ||||||||
Basic
and Diluted Net (Loss) Income Available to Common
Shareholders
|
$ | (7,353,200 | ) | $ | 13,431 | $ | (8,170,639 | ) | $ | (656,844 | ) | |||||
Basic
Weighted-Average Common Shares Outstanding
|
3,652,820 | 3,635,877 | 3,642,941 | 3,636,214 | ||||||||||||
Diluted
Weighted-Average Common Shares Outstanding
|
3,652,820 | 3,635,877 | 3,642,941 | 3,636,214 | ||||||||||||
Basic
Net (Loss) Income Per Common Share
|
$ | (2.01 | ) | $ | - | $ | (2.24 | ) | $ | (0.18 | ) | |||||
Diluted
Net (Loss) Income Per Common Share
|
$ | (2.01 | ) | $ | - | $ | (2.24 | ) | $ | (0.18 | ) |
Stock
options to purchase 25,000 shares of common stock at a price of $9.90 per share
were outstanding at September 30, 2009 and 2008, but were not included in the
computation of diluted net income per share because their effect would be
anti-dilutive. These options expire 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 September 30, 2009 and 2008,
and the changes during the nine months then ended is presented in the following
table:
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
|
47,532 | 47,532 | ||||||||||
Net
loss
|
(621,753 | ) | (37,974 | ) | (659,727 | ) | ||||||
Balance
at September 30, 2009
|
$ | 27,366,153 | $ | 1,943,416 | $ | 29,309,569 | ||||||
Total
ILX Resorts
|
||||||||||||
Incorporated
|
Noncontrolling
|
Total
|
||||||||||
shareholders'
equity
|
interest
|
shareholders'
equity
|
||||||||||
Balance
at December 31, 2007
|
$ | 36,163,572 | $ | 2,032,716 | $ | 38,196,288 | ||||||
Share-based
compensation
|
300,000 | 300,000 | ||||||||||
Amortization
of deferred compensation
|
132,916 | 132,916 | ||||||||||
Series
A dividend payment
|
(46,788 | ) | (46,788 | ) | ||||||||
Distribution
to First Piggy LLC members
|
33,263 | 33,263 | ||||||||||
Acquisition
of treasury shares
|
(26,953 | ) | (26,953 | ) | ||||||||
Net
loss
|
(8,135,548 | ) | (38,565 | ) | (8,174,113 | ) | ||||||
Balance
at September 30, 2008
|
$ | 28,420,462 | $ | 1,994,151 | $ | 30,414,613 | ||||||
Also,
during the nine months ended September 30, 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
Employee
Stock Options
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) could have been granted through
2005 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 to the success of the
Company. The exercise price of the options granted pursuant to the
Plans could 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. Incentive stock 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. No further grants may
be made under the Plans.
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.
11
ILX
RESORTS INCORPORATED AND SUBSIDIARIES
(Debtor
and Debtor-in-Possession as of March 2, 2009)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A
summary of the non-vested stock under the Stock Bonus Plan at September 30, 2009
follows:
Non-Vested
Shares
|
Weighted
Average
Grant
Date Fair Value
|
|||||||
Non-vested
at December 31, 2008
|
70,000 | $ | 7.61 | |||||
Stock
Granted
|
- | - | ||||||
Stock
Vested
|
(31,500 | ) | 8.23 | |||||
Stock
Forfeited
|
(2,000 | ) | 8.31 | |||||
Non-vested
at September 30, 2009
|
36,500 | $ | 7.03 | |||||
Unamortized deferred compensation of
$27,347 will be amortized over the weighted average remaining term of 0.48
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.
Note
8. Related Party Transactions
In prior
years the Company’s wholly owned subsidiary, Genesis Investment Group, Inc.
(“Genesis”), sold Vacation Ownership Interests to Premiere Vacation Club
homeowners’ association, an Arizona nonprofit corporation
(“PVC”). PVC purchased the intervals at $2,415 per interval, the same
price at which it has historically acquired intervals in arms-length
negotiations with unaffiliated third parties. PVC is owned by the
holders of its vacation ownership interests, including the
Company. At September 30, 2009, deeds of trust for 604 of the
Vacation Ownership Interests secure outstanding indebtedness from PVC to Genesis
of $1,347,245 which is included in notes receivable. Genesis is one
of the subsidiaries that filed a voluntary petition under Chapter 11 of the
Bankruptcy Code.
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
September 30, 2009. ILX-Bruno is included in the Company’s condensed
consolidated financial statements as of September 30, 2009 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 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 September 30, 2009 are
$833,333 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, the risks of
rapid growth, 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, 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 impact on the collectability 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.
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.
The
accompanying condensed consolidated balance sheet as of December 31, 2008, 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 nine-month period ended September
30, 2009 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2009. The accompanying financial
statements should be read in conjunction with the Company’s most recent audited
financial statements.
13
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
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 for the period ended
September 30, 2009. 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
September 2006, the FASB issued a new accounting standard which establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. The new
standard was effective for the Company as of January 1, 2008. In
February 2008, the FASB issued a new standard which extended the effective date
to fiscal years beginning after November 15, 2008. Adoption of this
standard did not cause a material change in financial position or results of
operations.
In December 2007, the FASB issued a new
standard which requires an acquirer to measure the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in the acquiree at
their fair values on the acquisition date, with goodwill being the excess value
over the net identifiable assets acquired. The FASB also issued a
second new standard which seeks to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. These two new standards were
effective for fiscal years beginning on or after December 15,
2008. The adoption of these standards did not have a material effect
on the Company’s financial position or results of
operations.
In
December 2007, the FASB issued a new standard which defines collaborative
arrangements and establishes reporting requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangement and third parties. The new standard also establishes the appropriate
income statement presentation and classification for joint operating activities
and payments between participants, as well as the sufficiency of the disclosures
related to these arrangements. The new standard was effective for fiscal years
beginning after December 15, 2008. The adoption of this standard did not
have a material effect on the Company’s financial position or results of
operations.
In
February 2008, the FASB issued a new staff position requiring an initial
transfer of a financial asset and a repurchase financing that was entered into
contemporaneously or in contemplation of the initial transfer to be evaluated as
a linked transaction unless certain criteria are met, including that the
transferred asset must be readily obtainable in the marketplace. The staff
position was effective for fiscal years beginning after November 15, 2008, and
was to be applied to new transactions entered into after the date of adoption.
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 March
2008, the FASB issued a new standard requiring enhanced disclosures about an
entity’s derivative and hedging activities. The new standard was
effective for fiscal years beginning on or after November 15, 2008. The adoption
of this standard did not have a material effect on the Company’s financial
position or results of operations.
In June
2008, the FASB issued a new staff position clarifying that all outstanding
unvested share-based payment awards that contain rights to nonforfeitable
dividends participate in undistributed earnings with common shareholders. Awards
of this nature are considered participating securities and the two-class method
of computing basic and diluted earnings per share must be applied. The staff
position was effective for fiscal years beginning after December 15, 2008. The
adoption of this standard did not have a material effect on the Company’s
financial position or results of operations.
In
December 2008, the FASB issued a new staff position and interpretation to
require public entities to provide additional disclosures about transfers of
financial assets and their involvement with variable interest entities. The new
staff position and interpretation were effective for the first interim or annual
reporting period ending after December 15, 2008. The adoption of these standards
did not have a material effect on the Company’s financial position or results of
operations.
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 is 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.
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.
Results
of Operations
Non-GAAP
Financial Measures
The
following table of certain operating information for the Company is presented
with information both inclusive and exclusive of an adjustment to increase the
allowance for uncollectible notes and write-off certain Customer Notes in the
third quarter of 2008. See a discussion below of the allowance
adjustment. In presenting these comparative operating results, the
Company has included a column which excludes the effect of the allowance
adjustment as the Company believes this information is reflective of the
Company’s operations for the three and nine months ended September 30,
2008. The following comparison of the three and nine months ended
September 30, 2008 with the three and nine months ended September 30, 2009 is
based on the results prior to the allowance adjustment.
15
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The following
table sets forth certain operating information for the Company:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||||||||||
2008
|
2008
|
2008
|
2008
|
|||||||||||||||||||||||||||||
Prior
to
|
Allowance
|
Prior
to
|
Allowance
|
|||||||||||||||||||||||||||||
Adjustment
|
Adjustment
|
2008
|
2009
|
Adjustment
|
Adjustment
|
2008
|
2009
|
|||||||||||||||||||||||||
As
a percentage of total revenues:
|
||||||||||||||||||||||||||||||||
Sales
of Vacation Ownership Interests
|
47.3 | % | (119.8 | )% | 36.8 | % | 48.5 | % | 88.2 | % | 40.3 | % | ||||||||||||||||||||
Estimated
uncollectible revenue
|
(2.0 | )% | 360.5 | % | 358.5 | % | (2.1 | )% | (2.1 | )% | (83.7 | )% | (85.8 | )% | (2.3 | )% | ||||||||||||||||
Resort
operating revenue
|
49.7 | % | (126.0 | )% | 59.5 | % | 47.3 | % | 86.1 | % | 56.2 | % | ||||||||||||||||||||
Interest
and finance income
|
5.0 | % | (12.7 | )% | 5.8 | % | 6.3 | % | 11.5 | % | 5.8 | % | ||||||||||||||||||||
Total
revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||
As
a percentage of sales of Vacation Ownership Interests(1):
|
||||||||||||||||||||||||||||||||
Cost
of Vacation Ownership Interests sold (recovered)
|
13.6 | % | (34.1 | )% | (26.9 | )% | 13.2 | % | 13.6 | % | (296.1 | )% | (293.7 | )% | 13.5 | % | ||||||||||||||||
Sales
and marketing
|
76.8 | % | 36.9 | % | 63.7 | % | 76.2 | % | (2695.5 | )% | 69.8 | % | ||||||||||||||||||||
Contribution
margin percentage from sale of Vacation
|
||||||||||||||||||||||||||||||||
Ownership
Interests (2)
|
9.6 | % | (110.0 | )% | 23.2 | % | 10.2 | % | (2301.9 | )% | 16.7 | % | ||||||||||||||||||||
As
a percentage of resort operating revenue:
|
||||||||||||||||||||||||||||||||
Cost
of resort operations
|
88.4 | % | 88.4 | % | 76.1 | % | 88.6 | % | 88.6 | % | 77.8 | % | ||||||||||||||||||||
As
a percentage of total revenues(1):
|
||||||||||||||||||||||||||||||||
General
and administrative
|
16.2 | % | 41.1 | % | 13.8 | % | 15.2 | % | 27.6 | % | 14.4 | % | ||||||||||||||||||||
Depreciation
and amortization
|
2.6 | % | 6.7 | % | 3.1 | % | 2.7 | % | 5.0 | % | 3.2 | % | ||||||||||||||||||||
Total
operating income (loss)
|
(3.7 | )% | (282.9 | )% | 11.2 | % | (2.4 | )% | (65.8 | )% | 7.1 | % | ||||||||||||||||||||
Selected
operating data:
|
||||||||||||||||||||||||||||||||
Vacation
Ownership Interests sold (3)
(4)
|
207 | 207 | 157 | 678 | 678 | 549 | ||||||||||||||||||||||||||
Average
sales price per Vacation Ownership Interest sold (excluding revenues from
Upgrades) (4)
|
$ | 16,845 | $ | 16,845 | $ | 14,436 | $ | 17,157 | $ | 17,157 | $ | 14,353 | ||||||||||||||||||||
Average
sales price per Vacation Ownership Interest sold (including
revenues from Upgrades) (4)
|
$ | 23,281 | $ | 23,281 | $ | 18,449 | $ | 22,526 | $ | 22,526 | $ | 17,784 |
(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 329 and 228 biennial and annual Vacation Ownership
Interests for the three months ended September 30, 2008 and 2009, respectively
and 1,059 and 772 biennial and annual Vacation Ownership Interests for the nine
months ended September 30, 2008 and 2009, respectively. Excludes the
number of conversions and upgrades.
16
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Comparison
of the Three and Nine Months Ended September 30, 2008 to the Three and Nine
Months Ended September 30, 2009
During
the third quarter of 2008, the Company recorded an increase in its estimated
uncollectible revenue of $14,549,432 million and a reduction in cost of Vacation
Ownership Interests owned in the amount of $3,281,615, the “allowance
adjustment”, to record the reduction in its expectation of collectability of
both past due and current performing Customer Notes and consumer notes sold with
recourse and the recovered Vacation Ownership Interests as a
result. In conjunction with these entries the Company wrote off
Customer Notes in excess of 90 days delinquent in the amount of $16,420,471,
increased resort property held for sale by $3,281,615 and recognized an income
tax benefit of $4,507,127. The reduction in expectation of
collectability was based upon the then recent economic, financial and credit
conditions.
Sales of
Vacation Ownership Interests decreased 40.1% or $1,893,584 to $2,826,701 for the
three months ended September 30, 2009, from $4,720,285 for the same period in
2008 and decreased 36.4% or $5,451,583 to $9,520,948 for the nine months ended
September 30, 2009 from $14,972,531 for the same period in 2008. 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 is the
result of the closures, 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 and lower closing rates at the Tucson sales office due to
general economic conditions and the impact of the Chapter 11 filing by the
Company.
The
average sales price per Vacation Ownership Interest sold (excluding revenues
from Upgrades) decreased 14.3% or $2,409 to $14,436 for the three months ended
September 30, 2009 from $16,845 for the same period in 2008 and decreased 16.3%
or $2,804 to $14,353 for the nine months ended September 30, 2009 from $17,157
for the same period in 2008. 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 24.2% from 207 in the three months ended
September 30, 2008 to 157 for the same period in 2009 and decreased 19.0% from
678 for the nine months ended September 30, 2008 to 549 for the same period in
2009 primarily due to the closure of the three sales offices and decreased
closing rates at the Tucson sales office discussed above. The three
and nine months ended September 30, 2009 included 143 and 446 biennial Vacation
Ownership Interests (counted as 71.5 and 223 annual Vacation Ownership
Interests) compared to 245 and 763 biennial Vacation Ownership Interests
(counted as 122.5 and 381.5 annual Vacation Ownership Interests) in the same
period in 2008.
Upgrade
revenue, included in Vacation Ownership Interest sales, decreased 52.7% to
$627,956 for the three months ended September 30, 2009 from $1,328,976 for the
same period in 2008 and decreased 48.2% to $1,883,817 for the nine months ended
September 30, 2009 from $3,637,212 for the same period in 2008. The
decrease in 2009 reflects decreased marketing efforts to existing owners in
Sedona and Tucson. 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) decreased 20.8% or $4,832 to $18,449 for the three months
ended September 30, 2009 from $23,281 in 2008 and decreased 21.1% or $4,742 to
$17,784 for the nine months ended September 30, 2009 from $22,526 in
2008. These decreases are due to the combination of the decrease in
average sales price per Vacation Ownership Interest sold (excluding Upgrades)
described above and the reduction in Upgrade revenue.
17
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Resort
operating revenue decreased 6.8% to $4,834,042 for the three months ended
September 30, 2009, from $5,188,714 for the same period in 2008 and decreased
7.9% to $14,084,298 for the nine months ended September 30, 2009 from
$15,292,829 for the same period in 2008. The decrease for the three
and nine months ended September 30, 2009 reflects the closure of the Los
Abrigados Lodge, decreased occupancy at the Company’s 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 88.4% to 76.1% for the three months ended
September 30, 2009 and decreased from 88.6% to 77.8% for the nine months ended
September 30, 2009 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. Further, both resort operating revenue and cost of resort
operations were negatively impacted in the third quarter 2009 by the effects of
natural disasters and calamity at several of the Company’s resorts including
flooding, a hurricane and a gas leak.
Interest and finance income decreased 9.9% to $470,518 for the
three months ended September 30, 2009 from $522,259 for the same period in 2008
and decreased 29.2% to $1,445,195 for the nine months ended September 30, 2009
from $2,040,871 for the same period in 2008, reflecting decreased Customer Note
balances, a reduction in notes sold due to the expiration of the agreement in
June 2008 with a financial institution to sell Customer Notes, a greater portion
of Customer Notes being zero-interest one year maturities 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 13.6% and 13.2% for the three months ended September 30,
2009 and 2008 and 13.6% and 13.5% for the nine months ended September 30, 2009
and 2008, respectively.
Sales and
marketing as a percentage of sales of Vacation Ownership Interests decreased to
63.7% for the three months ended September 30, 2009 from 76.8% for the same
period in 2008 and decreased to 69.8% for the nine months ended September 30,
2009 from 76.2% for the same period in 2008, reflecting lower marketing costs
per tour and reduced sales office expenses. The significant reduction
between the three and nine months ended September 30, 2008 and the comparable
periods in 2009 reflects the rejection of leases for less effective marketing
venues and other cost cutting strategies.
General
and administrative expenses decreased to 13.8% of total revenue for the third
quarter ended September 30, 2009, from 16.2% for the same period in 2008 and
decreased to 14.4% for the nine months ended September 30, 2009 from 15.2% for
the same period in 2008. The percentage decreases reflect reductions
in professional fees related to the Greens of Las Vegas lawsuit settled in 2008
and employee benefit plans, 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 decreased to $6,190 and $29,512 for the three and nine
months ended September 30, 2009, respectively from $9,115 and $55,293 for the
same periods in 2008. Income from land and other, net for the nine
months ended September 30, 2008 included a gain of $30,295 on the sale of
vacation ownership interests to PVC by Genesis.
Interest
expense increased 6.5% to $706,434 for the three months ended September 30, 2009
from $663,184 for the same period in 2008 and increased 5.0% to $2,072,387 for
the nine months ended September 30, 2009 from $1,972,901 for the same period in
2008, reflecting reductions in rate on variable rate borrowing and lower
outstanding balances, net of reduced capitalized interest.
Reorganization
items include loss on disposal of facilities and other and professional
fees. The loss on disposal of facilities and other 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. Professional fees are expenses for legal and expert
counsel.
18
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
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 is currently unable
to borrow under its facility, but does have the use of cash collateral generated
by customer payments under a motion granted by the Bankruptcy
Court.
For the
nine months ended September 30, 2009 and 2008 cash provided by operations was
$1,306,264 and $200,685, respectively. The increase in cash provided
by operations reflects a reduction in net loss and resultant smaller income tax
benefit, a net decrease in resort property under development and resort property
held for Vacation Ownership Interest sales due to greater additions in 2008 for
the expansion of Premiere Vacation Club at Bell Rock and the Winner’s Circle
suites at Los Abrigados, and an increase in accounts payable due to non payment
of pre-petition amounts. These are offset by a reduction in estimated
uncollectible revenue due to the 2008 increased allowance and write-off of
uncollectible Customer Notes receivable, an increase in notes receivable and an
increase in other assets for a cash reserve retained by the Company’s credit
card processor and due to timing differences in amounts related to homeowner’s
associations.
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 net operating loss, or "NOL," carryforwards
of $13.2 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.
Uses
of Cash
Investing
activities typically reflect a net use of cash because of capital
additions. Net cash used in investing activities was $113,925 and
$843,857 for the nine months ended September 30, 2009 and 2008,
respectively. The decrease in net cash used in investing activities
in 2009 is due to reduced ILX-Bruno capital expenditures for projects in
Sedona.
Net cash
used in financing activities in the nine months ended September 30, 2009 was
$1,784,753 as compared to net cash provided by financing activities of $198,510
for the nine months ended September 30, 2008. The decrease in cash
provided by financing activities is due to the post petition discontinuation of
advances against new consumer notes, net of the repayment in 2008 of a note
payable to affiliates and the post petition use of cash collateral for
operations rather than for debt service.
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.
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.
19
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Credit
Facilities and Capital
The
Company has 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 has a borrowing period which expires in December 2009 and the
maturity is in January 2013. At September 30, 2009, approximately
$8.7 million was available under this commitment. However, the Company may
not currently borrow on this facility due to its March 2, 2009 filing under
Chapter 11 of the United States Bankruptcy Code.
At
September 30, 2009 and 2008, the Company had approximately $5.0 million and $7.7
million, respectively, in outstanding notes receivable sold on a recourse
basis. A small portion of the notes receivable are secured by
customer deeds of trust on Los Abrigados Resort & Spa and
VCA–Tucson.
In
January 2009, the Company amended an existing line of credit to reduce the
borrowing limit to $750,000 and change the interest rate to libor plus 3.84%,
but not less than 4.25%, from prime plus 1.0%.
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.
As part
of its reorganization, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the
above. Any debt incurred or issued by the Company may be secured or
unsecured, may bear interest at fixed or variable rates of interest, and may be
subject to such terms as management deems prudent and Bankruptcy Court
approval. 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 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, the Sedona Vacation Club Incorporated homeowners’ association (“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
September 30, 2009 were $833,333 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.
20
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Inflation
Inflation
and changing prices have not had a material impact on the Company’s revenues,
operating income and net income during any of the Company’s three most recent
fiscal years or the nine months ended September 30, 2009. 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
The
Company currently derives a portion of income from the spread between the
interest rates charged to customers and the interest rates at which it borrows
against customer notes. The Company’s indebtedness bears interest at
variable rates while the retained customer notes bear interest at fixed
rates. As a result, increases in interest rates could cause interest
expense to exceed interest income on the Company’s portfolio of retained
customer notes. The Company does not currently engage in interest
rate hedging transactions. Therefore, any change in the prime
interest rate could have a material effect on results of operations, liquidity
and financial position. If there were a one-percentage point change
in the prevailing prime rate at September 30, 2009, then based on the $17.9
million balance of variable rate debt at September 30, 2009, interest expense
would increase or decrease by approximately $179,000 (before income taxes) per
annum.
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 September 30, 2009 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.
(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.
21
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Item
1A.
|
Risk
Factors
|
The
description of the risk factor labeled WE MAY NOT BE ABLE TO FINANCE OUR GROWTH
which was disclosed in the Company’s Form 10-K for the year ended December 31,
2008 should be revised and read as follows:
We intend
to selectively acquire and develop new vacation ownership resorts and may
continue to expand our existing resorts. Our long term plans may include
development of some or all of the land we currently own, which includes land in
Sedona, adjacent to our Los Abrigados Resort and land in Puerto Penasco (“Rocky
Point”) Mexico. Acquiring and/or developing new resorts, or expansion
of existing resorts will place substantial demands on our liquidity and capital
resources, as well as on our personnel and administrative capabilities. Risks
associated with our development and construction activities include, but are not
limited to, the following:
|
·
|
construction
costs or delays may exceed original estimates, which could make the
development or expansion uneconomical or
unprofitable;
|
|
·
|
sales
of Vacation Ownership Interests or other revenue from newly completed
facilities may not be sufficient to make the resort or development
profitable;
|
|
·
|
financing
may not be available on terms favorable for development of a project, if
at all,
|
|
·
|
financing
may not be available on terms favorable for the continued sales of
Vacation Ownership Interests, if at all;
and
|
|
·
|
carrying
costs, including the cost of capital, may make holding land for future
development unsustainable.
|
We cannot
provide assurance that adequate financing for this or other future development
projects will be available on terms and conditions favorable to our company, if
at all. Our ability to obtain needed financing and to repay any
indebtedness at maturity may depend on refinancing or future sales of debt or
equity, which may not be available on terms favorable to our company, if at all.
Factors that could affect our access to the capital markets, or the cost of such
capital, include the following:
|
·
|
condition
of the capital markets,
|
|
·
|
changes
in interest rates,
|
|
·
|
general
economic conditions,
|
|
·
|
the
threat of war or terrorist
activities,
|
|
·
|
our
voluntary filing under Chapter 11 of the United States Bankruptcy
Code
|
|
·
|
the
perception in the capital markets of the vacation ownership industry, our
business, and our business
prospects,
|
|
·
|
our
results of operations, and
|
|
·
|
the
amount of debt we have outstanding and our financial
condition.
|
22
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The description of the risk factor labeled OUR STOCK IS NOT LISTED ON A PUBLIC EXCHANGE, WHICH MAY NEGATIVELY IMPACT ITS LIQUIDITY AND PRICE which was disclosed in the Company’s Form 10-K for the year ended December 31, 2008 should be revised to read as follows:
As a
result of our filing under Chapter 11 of the United States Bankruptcy Code,
trading in our common stock was halted on March 2, 2009 and the stock was
delisted from NYSE AMEX on March 13, 2009. Although we sought a
market maker to enable our common stock to be quoted on the automated Pink Quote
system, we were not successful in doing so. Because our stock is not
quoted on an exchange or interdealer quotation system, market transparency is
diminished and execution of orders is more difficult, which may negatively
impact the price of our stock.
The
description of the risk factor labeled WE MAY NOT SUCCESSFULLY EMERGE FROM
CHAPTER 11 which was disclosed in the Company’s Form 10-K for the year ended
December 31, 2008 should be revised to read as follows:
On March
2, 2009 we filed a voluntary petition for protection from creditors under
Chapter 11 of the United States Bankruptcy Code. We filed certain
motions to extend exclusivity and filed a Plan and Disclosure Statement in
August 2009 that were further revised in October 2009. A plan
confirmation hearing is scheduled for November 10 and 12, 2009. There can be no
assurance that we will be successful in obtaining plan confirmation or of the
effect of such a plan, if confirmed, on the value of the stock. If
our plan is not confirmed, we could risk conversion to a Chapter 7 filing or
dismissal, which could adversely affect the value of our stock.
There are
no other material changes from risk factors as previously disclosed in the
Company’s Form 10-K for the year ended December 31, 2008.
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. The Company also did not make its annual
dividend payment of $46,788 to Series A Preferred Stock
Shareholders.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
The Plan
and Disclosure Statement were submitted to the shareholders in October
2009. 1,720,028 shares voted in favor of the Plan, no shareholders
voted against the Plan.
Item
5.
|
Other
Information
|
|
None
|
23
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
|
24
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 November 9, 2009
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