UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
For the quarterly period ended March 31, 2013
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-172772

______________________________________

DIAMOND RESORTS CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________

Maryland		95-4582157
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
10600 West Charleston BoulevardLas Vegas, Nevada		89135
(Address of principal executive offices)		(Zip code)
(702) 684-8000
(Registrant's telephone number including area code)
______________________________________

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). (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller ~~Reporting~~reporting ~~Company~~company o (Do not check if a smaller reporting company)

Indicate by check mark whether the ~~Registrant~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES x NO

There is no public trading market for the common stock of Diamond Resorts Corporation. As of ~~November~~May 147, ~~2012~~2013, there were 100 outstanding shares of the common stock, par value $0.01 per share, of Diamond Resorts Corporation.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011 (audited)	3
Condensed Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012 (unaudited)	4
Condensed Consolidated Statements of Member Capital (Deficit) for the nine months ended September 30, 2012 and 2011 (unaudited)	5
Condensed Consolidated Statements of Member Capital (Deficit) for the three months ended March 31, 2013 and 2012 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	6
Notes to the Condensed Consolidated Financial Statements	8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5645
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7869
ITEM 4. CONTROLS AND PROCEDURES	7969
PART II - OTHER INFORMATION	70
ITEM 1. LEGAL PROCEEDINGS	7970
ITEM 1A. RISK FACTORS	80
ITEM 6. EXHIBITS	71
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	80
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	80
ITEM 4. MINE SAFETY DISCLOSURES	80
ITEM 5. OTHER INFORMATION	81
ITEM 6. EXHIBITS	83
SIGNATURES

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~September~~March 3031, ~~2012~~2013 and December 31, ~~2011~~ 2012

(In thousands, except share data)

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
	(Unaudited)			~~(Audited)~~
ASSETS
Assets:
Cash and cash equivalents	$	1826,~~247~~204		$	1921,~~897~~061
Cash in escrow and restricted cash	3856,~~767~~381			3342,~~988~~311
Mortgages and contracts receivable, net of allowance of $80,780 and $84,098, respectively	298,449			283,302
Mortgages and contracts receivable, net of allowance of $84,907 and $83,784, respectively	320,967			312,932
Due from related parties, net	1322,~~217~~978			2822,~~265~~995
Other receivables, net	2435,~~708~~737			3546,~~053~~049
Income tax receivable	~~1,902~~29			~~629~~927
Prepaid expenses and other assets, net	71122,~~957~~766			5358,~~477~~024
Unsold Vacation Interests, net	~~330~~300,~~088~~488			~~256~~315,~~805~~867
Property and equipment, net	5455,~~741~~055			4855,~~177~~120
Assets held for sale	4,~~212~~886			5,~~517~~224
Intangible assets, net	~~105~~108,~~959~~312			68112,~~109~~498
Total assets	$	~~962~~1,~~247~~053,803		$	~~833~~993,~~219~~008
LIABILITIES AND MEMBER CAPITAL (DEFICIT)
Liabilities and Member Capital (Deficit):
Accounts payable	$	1413,~~821~~524		$	1215,~~353~~719
Due to related parties, net	9896,~~441~~799			5564,~~522~~204
Accrued liabilities	80100,~~781~~020			70106,~~326~~451
Income taxes payable	~~2,856~~855			~~3,491~~701
Deferred revenues	62108,~~351~~443			7093,~~774~~833
Senior Secured Notes, net of unamortized original issue discount of $8,757 and $9,454, respectively	416,243			415,546
Senior Secured Notes, net of unamortized original issue discount of $8,253 and $8,509, respectively	416,747			416,491
Securitization notes and Funding Facilities, net of unamortized original issue discount of $833 and $1,054, respectively	251,684			250,895
Securitization notes and Funding Facilities, net of unamortized original issue discount of $673 and $753, respectively	278,928			256,302
Notes payable	~~125~~137,~~315~~545			71137,~~514~~906
Total liabilities	1,~~052~~152,~~492~~861			~~950~~1,~~421~~091,607
Commitments and contingencies
Member capital (deficit):
Member capital (authorized and issued 1,387.8 common units, no par value)	152,212			152,247
Member capital (authorized and issued 1,387.8 Class A common units, no par value and authorized 112.2 and issued 103.8 Class B common units, no par value)	155,568			155,568
Accumulated deficit	(~~225~~235,~~686~~161		)	(~~251~~237,~~077~~434		)
Accumulated other comprehensive loss	(1619,~~771~~465		)	(1816,~~372~~733		)
Total member capital (deficit)	(9099,~~245~~058		)	(~~117~~98,~~202~~599		)
Total liabilities and member capital (deficit)	$	~~962~~1,~~247~~053,803		$	~~833~~993,~~219~~008

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~ 2012

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2012			2011			2012			2011
	2013			2012
Revenues:
Vacation Interest sales	$	89,594		$	60,228		$	218,857		$	154,631
Management and member services	$	31,587		$	27,280
Provision for uncollectible Vacation Interest sales revenue	(6,276		)	(4,516		)	(16,093		)	(11,259		)
Consolidated resort operations	8,620			8,534
Vacation Interest, net	83,318			55,712			202,764			143,372
Vacation Interest sales, net of provision of $6,672 and $4,115, respectively	91,668			54,572
Management and member services	29,999			25,992			85,574			73,495
Interest	13,255			13,656
Consolidated resort operations	8,361			7,601			25,522			21,789
Other	8,322			4,908
Interest	12,886			14,650			39,054			34,280
Total revenues	153,452			108,950
Other	8,148			3,495			20,192			15,833
Costs and Expenses:
Total revenues	142,712			107,450			373,106			288,769
Management and member services	9,779			8,275
Costs and Expenses:
Consolidated resort operations	7,722			7,082
Vacation Interest cost of sales	1617,~~778~~846			18,~~854~~231			~~17,175~~			~~(3,760~~		)
Advertising, sales and marketing	4950,~~554~~359			34,~~488~~819			~~124,591~~			~~96,121~~
Vacation Interest carrying cost, net	8,~~226~~237			49,~~156~~272			~~26,674~~			~~20,063~~
Management and member services	8,862			6,719			25,597			18,534
Loan portfolio	2,505			2,351
Consolidated resort operations	7,314			6,620			22,620			19,894
Other operating	368			1,158
Loan portfolio	2,446			2,172			7,180			6,328
General and administrative	22,800			20,760
Other operating	2,454			1,023			5,419			2,503
Depreciation and amortization	6,254			3,805
General and administrative	27,976			21,074			70,937			58,797
Interest expense	24,842			21,931
Depreciation and amortization	5,205			3,853			13,379			10,165
Impairments and other write-offs	79			(11		)
Interest expense	24,808			22,102			69,958			60,382
Gain on disposal of assets	(50		)	(72		)
Impairments and other write-offs	401			693			390			1,016
Gain on bargain purchase from business combinations	—			(51		)
Gain on disposal of assets	(122		)	(76		)	(218		)	(448		)
Total costs and expenses	150,741			117,550
Adjustment (gain) on bargain purchase from business combinations	115			(34,183		)	(22,634		)	(34,183		)
Income (loss) before provision for income taxes	2,711			(8,600		)
Total costs and expenses	154,017			70,495			361,068			255,412
Provision for income taxes	438			975
(Loss) income before provision (benefit) for income taxes	(11,305		)	36,955			12,038			33,357
Net income (loss)	2,273			(9,575		)
Provision (benefit) for income taxes	340			(646		)	(13,353		)	(64		)
Other comprehensive (loss) income:
Net (loss) income	(11,645		)	37,601			25,391			33,421
Currency translation adjustments, net of tax of $0	(2,744		)	1,991
Other comprehensive income (loss):
Other	12			25
Currency translation adjustments, net of tax of $0	1,287			(2,516		)	1,592			(151		)
Total other comprehensive (loss) income, net of tax	(2,732		)	2,016
Other	11			(33		)	9			(33		)
Comprehensive loss	$	(459	)	$	(7,559	)
Total other comprehensive income (loss), net of tax	1,298			(2,549		)	1,601			(184		)
Comprehensive (loss) income	$	(10,347	)	$	35,052		$	26,992		$	33,237

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF MEMBER CAPITAL (DEFICIT)

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~ 2012

($ in thousands)

(Unaudited)

	Temporary Member Capital					Permanent Member Capital
	Member Capital
	Preferred RedeemableUnits					CommonUnits			MemberCapital				AccumulatedDeficit				AccumulatedOtherComprehensiveIncome (Loss)			TotalMemberCapital(Deficit)
	CommonUnits					AccumulatedDeficit				AccumulatedOtherComprehensiveIncome (Loss)				TotalMemberCapital(Deficit)
	Shares		Amount			~~Shares~~
Balance at December 31, 2010	1,000.0		$	84,502		1,090.0			$	7,335			$	(201,338	)		$	(17,746	)	$	(211,749	)
Balance as of January 1, 2012	1,387.8		$	152,247		$	(251,077	)		$	(18,372	)		$	(117,202	)
Issuance of common and preferred units	133.3		10,151			332.5			149,404											149,404
Costs related to issuance of common and preferred units	—		(8		)	—				—				(8		)
Repurchase of a portion of outstanding warrants									(159		)		(16,439		)					(16,598		)
Net loss for the three months ended March 31, 2012	—		—			(9,575		)		—				(9,575		)
Repurchase of redeemable preferred units	(1,133.3	)	(103,065		)								(18,540		)					(18,540		)
Other comprehensive income:
Repurchase of common units						(34.7	)		212				(16,564		)					(16,352		)
Currency translation adjustments, net of tax of $0	—		—			—				1,991				1,991
Costs related to issuance of preferred units									(4,498		)		(87		)					(4,585		)
Other	—		—			—				25				25
Priority returns and redemption premiums			8,412										(8,412		)					(8,412		)
Balance as of March 31, 2012	1,387.8		$	152,239		$	(260,652	)		$	(16,356	)		$	(124,769	)
Net income for the nine months ended September 30, 2011													33,421							33,421
Balance at January 1, 2013	1,491.6		$	155,568		$	(237,434	)		$	(16,733	)		$	(98,599	)
Currency translation adjustments, net of tax of $0																	(151		)	(151		)
Net income for the three months ended March 31, 2013						2,273								2,273
Other																	(33		)	(33		)
Other comprehensive (loss) income:
Balance at September 30, 2011	—		$	—		1,387.8			$	152,294			$	(227,959	)		$	(17,930	)	$	(93,595	)
Currency translation adjustments, net of tax of $0										(2,744		)		(2,744		)
Balance at December 31, 2011	—		—			1,387.8			$	152,247			$	(251,077	)		$	(18,372	)	$	(117,202	)
Other										12				12
Costs related to issuance of common and preferred units									(35		)									(35		)
Balance as of March 31, 2013	1,491.6		$	155,568		$	(235,161	)		$	(19,465	)		$	(99,058	)
Net income for the nine months ended September 30, 2012													25,391							25,391
Currency translation adjustments, net of tax of $0																	1,592			1,592
Other																	9			9
Balance at September 30, 2012	—		$	—		1,387.8			$	152,212			$	(225,686	)		$	(16,771	)	$	(90,245	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012

(In thousands)

(Unaudited)

	2012			2011
	2013			2012
Operating activities:
Net income	$	25,391		$	33,421
Net income (loss)	$	2,273		$	(9,575	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for uncollectible Vacation Interest sales revenue	166,~~093~~672			114,~~259~~115
Amortization of capitalized financing costs and original issue discounts	41,~~742~~874			41,~~744~~506
Amortization of capitalized loan origination costs and portfolio discounts	1,670			2,001
Amortization of capitalized loan origination costs and net portfolio discounts (premiums)	1,230			(248		)
Depreciation and amortization	136,~~379~~254			103,~~165~~805
Impairments and other write-offs	~~390~~79			~~1,016~~(11		)
Gain on disposal of assets	(~~218~~50		)	(~~448~~72		)
Gain on bargain purchase from business combinations	~~(22,634~~—		)	(~~34,183~~51		)
Deferred income taxes	(13,612		)	—
Loss (gain) on foreign currency exchange	61			(29		)
(Gain) loss on foreign currency exchange	(98		)	13
Gain on mortgage repurchase	—			(11		)
Gain on mortgage repurchase	(26		)	(158		)
Gain on insurance settlement	(2,203		)	—
Unrealized gain on derivative instruments	—			(79		)
Gain on insurance settlement	—			(3,535		)
Changes in operating assets and liabilities excluding acquisitions:
Mortgages and contracts receivable	(3116,~~121~~058		)	~~3,723~~(634		)
Due from related parties, net	182,~~308~~089			(4,~~557~~589		)
Other receivables, net	1312,~~380~~193			1612,~~274~~226
Prepaid expenses and other assets, net	(1864,~~672~~407		)	(1460,~~204~~054		)
Unsold Vacation Interests, net	~~(34~~13,~~274~~210		)	~~(30~~1,~~829~~454		)
Accounts payable	2(1,~~312~~884		)	~~3,160~~(220		)
Due to related parties, net	4835,~~796~~552			3650,~~072~~472
Accrued liabilities	12(3,~~441~~051		)	(105,~~629~~533		)
Income taxes receivable and payable	(2,046		)	(889		)
Income taxes payable	1,089			435
Deferred revenues	(815,~~862~~415		)	~~(24~~18,~~754~~537		)
Net cash provided by (used in) operating activities	25,339			(2,417		)
Net cash provided by operating activities	10,338			20,701
Investing activities:
Property and equipment capital expenditures	(112,~~273~~524		)	(51,~~124~~885		)
Purchase of assets in connection with the Tempus Resorts Acquisition, net of $0 and $2,515 cash acquired, respectively	—			(102,398		)
Proceeds from sale of assets	—			219
Purchase of assets in connection with the PMR Acquisition, net of $0 and $0 cash acquired, respectively	(51,635		)	—
Net cash used in investing activities	$	(2,524	)	$	(1,666	)
Disbursement of Tempus Note Receivable	—			(3,493		)
Proceeds from sale of assets	497			1,949
Net cash used in investing activities	$	(62,411	)	$	(109,066	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS —Continued

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~ 2012

(In thousands)

(Unaudited)

	2012			2011
	2013			2012
Financing activities:
Changes in cash in escrow and restricted cash	$	(414,~~753~~189	)	$	~~543~~(8,765	)
Proceeds from issuance of securitization notes and Funding Facilities	82127,~~864~~680			~~181~~30,~~164~~607
Proceeds from issuance of notes payable	651,~~262~~319			~~44,678~~65
Payments on securitization notes and Funding Facilities	(82105,~~295~~151		)	(~~105~~35,~~250~~765		)
Payments on notes payable	(239,~~345~~816		)	(137,~~658~~088		)
Payments of debt issuance costs	(21,~~594~~974		)	(~~4,415~~24		)
Proceeds from issuance of common and preferred units	—			146,651
Payments of costs related to issuance of common and preferred units	—			(8		)
Repurchase of a portion of outstanding warrants	—			(16,598		)
Net cash used in financing activities	(2,131		)	(20,978		)
Repurchase of a portion of outstanding common units	—			(16,352		)
Net increase (decrease) in cash and cash equivalents	5,683			(1,943		)
Repurchase of redeemable preferred units	—			(108,701		)
Effect of changes in exchange rates on cash and cash equivalents	(540		)	237
Payments of costs related to issuance of common and preferred units	(35		)	(4,585		)
Cash and cash equivalents, beginning of period	21,061			19,897
Net cash provided by financing activities	35,104			103,477
Cash and cash equivalents, end of period	$	26,204		$	18,191
Net decrease in cash and cash equivalents	(1,968		)	(8,006		)
Effect of changes in exchange rates on cash and cash equivalents	318			61
Cash and cash equivalents, beginning of period	19,897			27,329
Cash and cash equivalents, end of period	$	18,247		$	19,384

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	7232,~~099~~689		$	6732,~~222~~054
Cash paid for taxes, net of tax refunds	$	2,337		$	684
(Cash tax refunds, net of cash paid for taxes) cash paid for taxes, net of cash tax refunds	$	(656	)	$	549
Purchase of assets in connection with the PMR Acquisition and the Tempus Resorts Acquisition, respectively:
Fair value of assets acquired based on a preliminary report	$	89,760		$	146,974
Gain on bargain purchase recognized	(22,765		)	(34,183		)
Cash paid	(51,635		)	(104,915		)
Deferred tax liability	(13,612		)	—
Liabilities assumed	$	1,748		$	7,876
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Priority returns and redemption premiums on preferred units	$	—		$	8,412
Insurance premiums financed through issuance of notes payable	$	5,914		$	6,043
Insurance premiums financed through issuance of notes payable	$	7,573		$	6,141
Unsold Vacation Interests, net reclassified to assets held for sale	$	—		$	18
Assets held for sale reclassified to unsold Vacation Interests	$	1,353		$	2,994
Assets held for sale reclassified to other intangibles	$	192		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Background, Business and Basis of Presentation

Business and Background

Diamond Resorts Corporation ("DRC") is the issuer of the 12.0% senior secured notes due 2018 ("Senior Secured Notes") and is the Registrant. All financial information in this report is of Diamond Resorts Parent, LLC ("DRP"), the parent of DRC and the parent guarantor under the Senior Secured Notes. DRP is a Nevada limited liability company created on March 28, 2007. DRP, together with its wholly-owned subsidiaries, is hereafter referred to as "Diamond Resorts" or the "Company." On April 26, 2007, a third-party investor contributed $62.4 million cash and Cloobeck Diamond Parent, LLC ("CDP"), the Company’s majority ~~equity holder~~equityholder, contributed $7.1 million of net assets based on historical book values in exchange for common and preferred units. The third-party investor was issued common and preferred units with a liquidation preference as well as a priority return of 17.0% per annum, compounded quarterly, payable upon certain events. The preferred units did not provide to the holder any participation or conversion rights. The common and preferred members’ liability is limited to their respective capital contributions. The capitalization of the Company occurred on April 27, 2007 simultaneously with the acquisition of and merger with Sunterra Corporation ("Sunterra" or the "Predecessor Company") and cancellation of Sunterra’s outstanding common stock for $16.00 per share ("the Merger"). In July 2011, DRP completed an equity recapitalization transaction, pursuant to which it repurchased all of its preferred units and issued and redeemed common units in a series of private placement transactions.

InThe ~~July~~Company ~~2011,~~operates ~~DRP~~in ~~completed~~the hospitality and vacation ownership industry, with an ~~equity~~ownership ~~recapitalization~~base ~~transaction~~of more than 490,000 ~~pursuant~~owner-families, toor ~~which~~members, itand ~~repurchased~~a ~~all~~worldwide network of ~~its~~295 ~~preferred~~destinations ~~units~~located in 32 countries throughout the continental United States ("U.S."), Hawaii, Canada, Mexico, the Caribbean, Central America, South America, Europe, Asia, Australia and ~~issued~~Africa. The Company’s resort network includes 80 Diamond Resorts branded properties that are managed by the Company. In addition, the Company's network includes 211 affiliated resorts and ~~redeemed~~hotels ~~common~~and ~~units~~four incruise itineraries, which do not carry the Company's brand and are not managed by the Company, but are a ~~series~~part of ~~private~~the ~~placement~~Company's ~~transactions~~network and are available for its members to use as vacation destinations. ~~See~~As ~~Note~~referenced ~~19—Common~~in these financial statements, Diamond Resorts International® and ~~Preferred~~THE ~~Units~~Club® ~~for~~are ~~further~~trademarks ~~details~~of the Company.

The Company operates in the vacation ownership industry, with an ownership base of more than 490,000 owner-families and a network of 269 destinations located in 29 countries throughout the continental United States, Hawaii, Canada, Mexico, the Caribbean, Europe, Asia, Australia and Africa. The Company’s ~~resort~~operations ~~network~~consist ~~includes~~of 79two ~~Diamond~~interrelated ~~Resorts~~businesses: ~~International~~(i) hospitality ~~branded~~ and ~~managed~~management ~~properties~~services; and ~~185~~(ii) marketing ~~resort~~ and ~~hotel~~sales ~~affiliates~~of ~~and~~Vacation ~~five~~Ownership ~~cruise~~Interests ~~itineraries,~~("VOIs" ~~which~~or ~~are~~"Vacation aInterests") ~~part of the Company's network~~ and consumer ~~available~~financing for ~~its~~purchasers ~~members to use as vacation destinations, although the Company does not manage them. As referenced in these financial statements, Diamond Resorts International® and THE Club® are trademarks~~ of the Company.’s VOIs.

Hospitality and Management Services. The Company’s ~~operations~~manages ~~consist~~80 ofbranded ~~three~~resort ~~interrelated~~properties, ~~businesses:~~which ~~(i) hospitality~~are ~~and~~located ~~management~~in ~~services;~~the ~~(ii) marketing~~continental U.S., Hawaii, Mexico, the Caribbean and ~~sales~~Europe, ofas ~~Vacation~~well ~~Ownership~~as ~~Interests~~the seven multi-resort trusts (the "~~VOIs~~Collections"). orAs ~~"Vacation~~the ~~Interests");~~manager of the Company’s branded resorts and ~~(iii) consumer~~the ~~financing~~Collections, it provides rental services, billing services, account collections, accounting and treasury functions, and communications and information technology services. In addition, for ~~purchasers~~branded ofresorts, the Company’s ~~Vacation~~provides ~~Interests~~an online reservation system and customer service contact center, operates the front desks, furnishes housekeeping, maintenance and human resources services and operates amenities such as golf courses, food and beverage venues and retail shops.

•As ~~Hospitality~~an ~~and~~integral ~~Management~~part ~~Services.~~of ~~The~~the Company's ~~manages~~hospitality 79and ~~branded~~management ~~resort properties~~services, ~~which~~it ~~are~~has ~~located~~entered ininto ~~the~~inventory ~~continental~~recovery ~~United~~agreements ~~States,~~with ~~Hawaii,~~substantially ~~Mexico,~~all of the ~~Caribbean~~homeowners ~~and~~associations ~~Europe. The Company also manages six multi-resort trusts or similar arrangements~~ (~~the~~ "~~Collections~~HOAs"). ~~Each~~for ~~Collection~~its ~~holds~~managed ~~real~~resorts ~~estate or right-to-use interests~~ in ~~the~~North ~~Company’s~~America, ~~resort~~together ~~properties~~with ~~underlying~~similar ~~the~~arrangements ~~Vacation~~with ~~Interests~~all ~~that~~of the ~~Company~~Collections ~~sells.~~and Asa ~~manager~~majority of the ~~Company’s~~European ~~branded~~managed resorts ~~and Collections~~, whereby it ~~provides~~recovers ~~billing~~VOIs ~~services,~~from ~~account~~members ~~collections,~~who ~~accounting~~fail ~~and~~to ~~treasury~~pay ~~functions,~~their ~~and~~annual ~~communications~~maintenance ~~and~~fee ~~information~~or ~~technology~~assessments ~~services.~~due ~~In addition~~to, ~~for~~among ~~branded~~other ~~resorts~~things, ~~the~~death ~~Company~~or ~~provides~~divorce anor ~~online~~other ~~reservation~~life-cycle ~~system~~events ~~and~~or ~~customer~~lifestyle ~~service~~changes. ~~contact~~Because ~~center, operates~~ the ~~front~~cost ~~desks,~~of ~~activity~~operating ~~desks~~the ~~and~~managed ~~amenities~~resorts ~~such~~is asspread ~~golf~~across ~~courses,~~the ~~spas,~~Company's ~~food~~member ~~and beverage venues and retail shops~~base, ~~and~~by ~~furnishes~~recovering ~~housekeeping,~~VOIs ~~maintenance~~from ~~and~~members ~~human~~who ~~resources services. Management contracts typically~~ have anfailed ~~initial term of three~~ to ~~five~~pay ~~years~~their ~~with~~annual ~~automatic~~maintenance ~~renewals~~fee ~~and~~or ~~are structured on a cost-plus basis~~assessments, ~~thereby providing~~ the Company ~~with~~reduces abad ~~recurring~~debt ~~and~~expense ~~stable~~at ~~revenue~~the ~~stream.~~HOA ~~For three resorts~~ and ~~one~~ Collection, ~~the~~level ~~Company~~(which ~~delegates~~is ~~certain management functions to~~ a ~~third-party~~component ~~management~~of ~~company. In addition,~~ the ~~Company~~management ~~earns recurring~~ fees bybilled ~~operating~~to ~~THE Club, the points-based exchange and member services platform that enables~~ members toby ~~vacation~~each atresort's ~~any~~HOA ofor ~~the~~Collection ~~269~~association), ~~destinations~~supporting in the ~~Company’s~~financial ~~network~~well-being ~~and offers a variety~~ of ~~other~~those ~~member~~HOAs ~~benefits. These items are included in management~~ and ~~member~~Collections ~~services revenue~~ and ~~expense~~providing in the ~~accompanying~~Company ~~condensed~~with ~~consolidated~~additional ~~statements~~VOIs offor ~~operations~~future ~~and comprehensive income (loss)~~sales.

InHOAs. ~~addition~~Each of the Diamond Resorts-branded resorts, other than certain resorts in the ~~Company~~European ~~serves~~Collection, asis typically operated through an HOA, which is administered by a board of directors. Directors are elected by the ~~homeowners’~~owners ~~association~~of intervals at the resort ("which may include one or more of the Collections) and may also include representatives appointed by the Company as the developer of the resort. As a result, the Company is entitled to voting rights with respect to directors of a given HOA" by virtue of (i) its ~~for~~ownership of intervals at the related resort, (ii) its control of the Collections that hold intervals at the resort and/or (iii) its status as the developer of the resort. The board of directors of each HOA hires a management company to provide the services described above, which in the case of all Diamond Resorts-branded resorts, is the Company. The Company functions as an HOA for two resorts in St. Maarten and ~~earns~~collects maintenance fees and ~~incurs~~pays operating expenses at these two resorts. ~~These~~ ~~two resorts are consolidated in the accompanying condensed consolidated financial statements.~~

At certain resorts, the Company also owns and operates golf courses, food and beverage venues, spas, a campground and a marina, whereby it earns incidental revenue and incurs operating expense.

• Marketing and Sales of Vacation Interests. The Company markets and sells Vacation Interests in its resort network. Sales prospects are generated by utilizing a variety of marketing programs. Currently, the Company

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~~sells~~The ~~Vacation~~management ~~Interests~~fees ~~only~~earned inby the ~~form~~Company with respect to a resort are based on a cost-plus structure and are calculated based on the direct and indirect costs (including an allocation of ~~points,~~a ~~which~~substantial ~~can~~portion beof ~~utilized~~the ~~for~~Company's ~~vacations~~overhead ~~for~~related ~~varying~~to ~~lengths~~the provision of ~~stay~~management atservices) ~~any~~incurred by the HOA of the applicable resort. inUnder ~~its~~the ~~network~~current resort management agreements, the Company receives management fees generally ranging from 10.0% ~~The~~to 15.0% of the other costs of operating the applicable resort. Unlike typical commercial lodging management contracts, the management fees earned by the Company are not impacted by changes in a resort's ~~Vacation~~average ~~Interests~~daily ~~generally~~rate ~~have~~or ~~either~~occupancy ~~use~~level. ~~rights~~Instead, ~~into~~the ~~perpetuity~~board orof ~~that~~directors ~~primarily~~of ~~expire~~the HOA for each resort engages in ~~2054~~an asannual isbudgeting process in which the ~~case~~board inof directors of the ~~European~~HOA ~~collection.~~estimates ~~The~~the ~~Company~~costs ~~also~~the ~~sells~~HOA awill ~~shorter~~incur ~~term~~for ~~vacation~~the ~~product~~coming ~~(exercisable~~year. ~~annually~~In ~~over~~evaluating athe ~~term~~anticipated costs of 36the ~~months)~~HOA, ~~sells~~the aboard ~~sampler~~of ~~program~~directors inof ~~North~~the ~~America~~HOA considers the operational needs of the resort, the services and amenities that ~~allows~~will ~~purchasers~~be provided at or to ~~utilize~~the ~~points~~applicable ~~during~~resort anand ~~18-month~~other ~~trial~~costs ~~period~~of the HOA, some of which are impacted significantly by the location of the resort, size and ~~offers~~type ~~exchange~~of ~~programs~~the ~~into~~resort. Included in the anticipated operating costs of each HOA are its ~~resort~~management ~~network~~fees, which generally range from 10.0% to ~~consumers~~15.0% ~~owning~~of ~~intervals~~the other anticipated operating costs of the HOA. InThe board of directors of each HOA discusses the ~~past~~various considerations and approves the annual budget, which determines the annual maintenance fees charged to each owner. One of the management services the Company ~~also~~provides ~~sold~~to ~~Vacation~~the ~~Interests~~HOA inis the ~~form~~billing and collection of ~~deeded~~annual ~~intervals~~maintenance fees on the HOA's behalf. Annual maintenance fees for a given year are generally billed during the previous November, ~~which~~due ~~provide~~by January and deposited in a segregated or restricted account that the ~~right~~Company tomanages ~~vacation~~on atbehalf of the HOA. As a ~~particular~~result, ~~resort~~a substantial majority of the fees for February through December of each year are collected from owners in advance. Funds are released to the Company from these accounts on a ~~specified~~monthly ~~length~~basis for the payment of ~~time~~management fees as it provides management services.

•The ~~Consumer~~Company's ~~Financing~~HOA management contracts typically have initial terms of ~~Vacation~~three ~~Interests~~to five years, with automatic one-year renewals. ~~The~~These ~~Company~~contracts ~~provides~~can ~~loans~~generally toonly ~~eligible~~be ~~customers~~terminated ~~who~~by ~~purchase~~the ~~Vacation~~HOA ~~Interests~~upon ina ~~North~~vote ~~America~~of ~~and~~the ~~choose~~owners (which may include one or more of the Collections) prior to ~~finance~~each ~~their~~renewal ~~purchase~~period, other than in some limited circumstances involving cause. ~~These~~In ~~loans~~the case of the resorts the Company manages that are ~~collateralized~~part byof the ~~underlying~~European ~~Vacation~~Collection ~~Interests~~(as defined below), generally the management agreements have either indefinite terms or long remaining terms (i.e., over 40 years) and ~~bear~~can ~~interest~~only atbe terminated for an uncured breach by the manager or a ~~fixed~~winding ~~rate~~up of the European Collection. ~~The~~No HOA has terminated or elected not to renew any of the Company’'s ~~consumer~~management ~~finance~~contracts ~~servicing~~during ~~operations~~the ~~include~~past ~~underwriting,~~five ~~collection~~years. ~~and~~The ~~servicing~~Company ofgenerally has the right to terminate its ~~consumer~~HOA ~~loan~~management ~~portfolio~~contracts at any time upon notice to the HOA but has terminated only one immaterial HOA management contract during the past five years.

Collections. The Collections currently consist of the following:


•	the Diamond Resorts U.S. Collection (the “U.S. Collection”), which includes interests in resorts located in Arizona, California, Florida, Missouri, New Mexico, Nevada, South Carolina, Tennessee, Virginia and St. Maarten;


•	the Diamond Resorts Hawaii Collection (the “Hawaii Collection”), which includes interests in resorts located in Arizona, Hawaii and Nevada;


•	the Diamond Resorts California Collection (the “California Collection”), which includes interests in resorts located in Arizona, California and Nevada;


•	the Diamond Resorts European Collection (the “European Collection”), which includes interests in resorts located in Austria, England, France, Italy, Norway, Portugal, Scotland, Spain Balearics, Spain Costa and Spain Canaries;


•	the Premiere Vacation Collection (“PVC”), which includes interests in resorts added to the Company's network in connection with the ILX Acquisition (See "Basis of Presentation" for the definition of the ILX Acquisition) located in Arizona, Colorado, Indiana, Nevada and Mexico;


•	the Monarch Grand Vacation Collection (“MGVC”), which includes interests in resorts added to the Company's network in connection with the PMR Acquisition (See "Basis of Presentation" for the definition of the PMR Acquisition) located in California, Nevada, Utah and Mexico; and


•	the Mediterranean Collection, which includes interests in resorts added to the Company's network in connection with the Aegean Blue Acquisition (See “Basis of Presentation” for the definition of the Aegean Blue Acquisition) located in the Greek Islands of Crete and Rhodes.

Each of the Collections is operated through a Collection association, which is administered by a board of directors. With the exception of PVC, which allows the developer to appoint the board of directors until 90.0% of all membership interests are sold, directors are elected by the points holders within the applicable Collection. The Company owns a significant number of points in each of the Collections, which it holds as inventory. The board of directors of each Collection hires a company to provide management services to the Collection, which in each case is the Company.

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As with the Company's HOA management contracts, management fees charged to the Collections in the U.S. are based on a cost-plus structure and are calculated based on the direct and indirect costs (including an allocation of the Company's overhead related to the provision of management services) incurred by the Collection. Under the Company's current Collection management agreements, it receives management fees of 15.0% of the costs of the applicable Collection (except with respect to the management agreement with MGVC, under which the Company receives a management fee of 10.0% of the costs of MGVC). The management fees are included in the budgets prepared by each Collection association, which determines the annual maintenance fee charged to each owner. One of the management services the Company provides to the Collections is the billing and collection of annual maintenance fees on the Collection's behalf. Annual maintenance fees for a given year are generally billed during the previous November, due by January and deposited in a segregated or restricted account that the Company maintains on behalf of each Collection. As a result, a substantial majority of the fees for February through December of each year are collected from owners in advance. Funds are released to the Company from these accounts on a monthly basis for the payment of management fees as it provides the management services.

Apart from the management contract for the European Collection, the Company's Collection management contracts generally have initial terms of three to five years, with automatic one to five year renewals and can generally only be terminated by the Collection upon a vote of the Collection's members prior to each renewal period, other than in some limited circumstances involving cause. No Collection has terminated any of the Company's management contracts during the past five years. Apart from the management contract for the European Collection, the Company generally has the right to terminate its Collection management contracts at any time upon notice to the Collection. The management contract for the European Collection has an indefinite term, can only be terminated by the European Collection for an uncured breach by the manager or a winding up of the European Collection, and may not be terminated by the manager.

THE Club. Another key component of the Company's hospitality and management services business is THE Club, through which the Company operates a proprietary reservation system that enables its members to use their points to stay at any of the Company's branded and affiliated resorts. THE Club also offers its members a wide range of other benefits, such as the opportunity to purchase various products and services (such as consumer electronics, home appliances and insurance products) from third parties at discounted prices, for which the Company earns commissions. Dues payments for THE Club are billed and collected together with the annual maintenance fees billed to the Company's members who are also members of THE Club.

Sales and Financing of VOIs. The Company markets and sells VOIs that provide access to its network of 80 Diamond Resorts-branded and 211 affiliated resorts and hotels and four cruise itineraries. Since late 2007, the Company has marketed and sold VOIs primarily in the form of points.

The VOI inventory that the Company reacquires pursuant to its inventory recovery agreements provides a low-cost, recurring supply of VOIs that it can sell to its current and prospective members. The VOI inventory is also supplemented by VOIs recovered from members who default on their consumer loans and by inventory acquired through recent strategic transactions.

The Company closes its VOI sales primarily through sales presentations referred to as tours. These tours occur at sales centers and include a tour of the resort properties, as well as an in-depth explanation of the points-based VOI system and the value proposition it offers the Company's members. The tours are designed to provide guests with an in-depth overview of the company and its resort network, as well as a customized presentation to explain how the Company's products and services can meet their vacationing needs.

The Company provides loans to eligible customers who purchase VOIs through its U.S. and Mexican sales centers and choose to finance their purchase. These loans are collateralized by the underlying VOI, generally bear interest at a fixed rate, have a typical term of 10 years and are generally made available to consumers who make a down payment within established credit guidelines. The Company's minimum required down payment is 10.0%.

The Company underwrites each loan application to assess the prospective buyer's ability to pay through the credit evaluation score methodology developed by the Fair Isaac Corporation ("FICO") based on credit files compiled and maintained by Experian (for U.S. residents) and Equifax (for Canadian residents). In underwriting each loan, the Company reviews a completed credit application and the credit bureau report and/or the applicant's performance history with the Company, including any delinquency on existing loans with the Company, and considers in specified circumstances, among other factors, whether the applicant has been involved in bankruptcy proceedings within the previous 12 months and any judgments or liens, including civil judgments and tax liens, against the applicant.

The Company's consumer finance servicing division includes underwriting, collection and servicing of its consumer loan portfolio. Loan collections and delinquencies are managed by utilizing current technology to minimize account delinquencies and maximize cash flow. The Company generally sells or securitizes a substantial portion of the consumer loans it generates

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued

from its customers through conduit and securitization financings. The Company also acts as servicer for consumer loan portfolios, including those sold or securitized through conduit or securitization financings, for which it receives a fee.

Through arrangements with three financial institutions in the United Kingdom, the Company brokers financing for qualified customers who purchase points through its European sales centers.

Basis of Presentation

The following is a list of entities included in the accompanying condensed consolidated financial statements:

AKGI St. Maarten, NV and subsidiaries

Citrus Insurance Company, Inc.

Diamond Resorts (Group Holdings) Plc and subsidiaries

Diamond Resorts Centralized Services Company

Diamond Resorts Corporation

Diamond Resorts Developer and Sales Holding Company and subsidiaries

Diamond Resorts Finance Holding Company and subsidiaries

Diamond Resorts Holdings, LLC

Diamond Resorts Issuer 2008, LLC

Diamond Resorts Management and Exchange Holding Company and subsidiaries

Diamond Resorts Owner Trust 2009-1

Diamond Resorts Owner Trust 2011-1

Diamond Resorts Owner Trust 2013-1

Diamond Resorts Polo Development, LLC

Diamond Resorts Services, LLC

DPM Acquisition, LLC and subsidiaries ("DPMA")

DRI Quorum 2010, LLC ("DRI Quorum") and subsidiaries

FLRX, Inc. and subsidiaries

George Acquisition Subsidiary, Inc.

ILX Acquisition, Inc. ("ILXA") and subsidiaries

Sunterra Owner Trust 2004-1

Tempus Acquisition, LLC and subsidiaries

Some of the above entities, which include corporations, limited liability companies and partnerships, have several subsidiaries.

On ~~July~~August 131, ~~2011~~2010, the Company ~~completed~~acquired ~~the~~from ~~acquisition~~ILX ofResorts Incorporated and its affiliates (collectively, "ILX") certain ~~assets~~resort ofmanagement ~~Tempus~~agreements, ~~Resorts~~unsold ~~International~~VOIs and the rights to recover and resell such interests, ~~Ltd.~~a portfolio of consumer loans and certain ofreal ~~its~~property ~~affiliates~~and other assets (the ~~"Tempus~~“ILX ~~Resorts~~ Acquisition"”) through ~~Mystic~~its ~~Dunes,~~wholly-owned ~~LLC~~subsidiary ILXA for an aggregate cash purchase price of $30.7 million. In addition, aILXA ~~wholly-owned~~assumed ~~unrestricted~~$4.0 ~~subsidiary~~million in liabilities as part of ~~Tempus~~the purchase price. The ILX Acquisition, ~~LLC~~added ten additional resorts to the Company's resort network. The ILX Acquisition was financed through the ILXA Inventory Loan and the ILXA Receivables Loan. See Note 2015—~~Business~~ ~~Combinations~~Borrowings for definitions and further ~~details~~detail on ~~this~~these ~~acquisition~~borrowings.

On ~~May~~July 211, ~~2012~~2011, the Company ~~completed~~acquired ~~the~~from ~~acquisition~~Tempus ofResorts International, Ltd. and its subsidiaries certain ~~assets~~management ofagreements, ~~Pacific~~unsold ~~Monarch~~VOIs ~~Resorts~~and the rights to recover and resell such interests, ~~Inc.~~the ~~("PMR")~~seller's consumer loan portfolio and certain ofreal ~~its~~property ~~affiliates~~and other assets (the "~~PMR~~Tempus Resorts Acquisition") through ~~DPMA~~Mystic Dunes, LLC, a wholly-owned ~~unrestricted~~ subsidiary of Tempus Acquisition, LLC, for an aggregate cash purchase price of $104.9 million. The Tempus Resorts Acquisition added two resorts to the Company's owner resort network. In order to fund the Tempus Resorts Acquisition, Tempus Acquisition, LLC entered into the Tempus Acquisition Loan, Tempus Receivables Loan and the Tempus Inventory Loan. See Note 2015—~~Business~~ ~~Combinations~~Borrowings for definitions and further ~~details~~detail on ~~this~~these ~~acquisition~~borrowings.

On ~~October~~May 521, 2012, the Company completed the acquisition of ~~all~~certain assets of ~~the~~Pacific ~~issued~~Monarch ~~and~~Resorts, ~~outstanding~~Inc. ~~shares~~and certain of ~~Aegean~~its ~~Blue~~affiliates ~~Holdings, Plc~~ (the "~~Aegean~~PMR ~~Blue~~ Acquisition") through ~~Diamond Resorts AB Acquisition Ltd~~DPMA, a wholly-owned ~~unrestricted~~special-purpose subsidiary of ~~Diamond~~the ~~Resorts~~Company, ~~(Group~~whereby ~~Holdings)~~DPMA ~~Plc~~acquired four management contracts, unsold VOIs and the rights to recover and resell such interests, a portfolio of consumer loans and certain real property and other assets for approximately $51.6 million in cash, plus the assumption of specified liabilities related to the acquired assets. The PMR Acquisition added nine locations to the Company's resort network. In order to fund the PMR Acquisition, DPMA entered into the PMR Acquisition Loan, which is collateralized by substantially all of the assets of DPMA. See Note 2515—~~Subsequent~~Borrowings ~~Events~~ for definitions and further ~~details~~detail on this ~~acquisition~~borrowing.

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~~management~~On October 5, ~~all~~2012, ~~adjustments~~the ~~considered~~Company ~~necessary~~completed ~~for~~the aacquisition ~~fair~~of ~~presentation~~all ~~have~~of ~~been~~the ~~included~~issued and ~~are~~outstanding shares of Aegean Blue Holdings, Plc (the "Aegean Blue Acquisition") through Diamond Resorts AB Acquisition Ltd, a ~~normal~~wholly-owned ~~and~~special-purpose ~~recurring~~subsidiary ~~nature~~of Diamond Resorts (Group Holdings) Plc. ~~The~~Pursuant ~~accompanying~~to ~~condensed~~the ~~consolidated~~Aegean ~~financial~~Blue ~~statements~~Acquisition, ~~should~~AB beAcquisition ~~reviewed~~Company, inLtd ~~conjunction~~acquired ~~with~~certain management contracts, unsold VOIs and the ~~Company's~~rights ~~annual~~to ~~consolidated~~recover ~~financial~~and ~~statements~~resell ~~included~~such interests and certain other assets for approximately $6.5 million in ~~the~~cash, ~~Annual~~amounts ~~Report~~that onmay ~~Form~~become 10payable pursuant to an earn-Kout ~~for~~clause (which the ~~year~~Company ~~ended~~recorded ~~December~~as ~~31,~~a ~~2011~~contingent liability) and the Company's assumption of specified liabilities related to the acquired assets. ~~Operating~~The ~~results~~Aegean ~~for~~Blue Acquisition added five resorts located on the ~~three~~Greek Islands of Rhodes and ~~nine~~Crete ~~months~~to ~~ended~~the ~~September 30,~~Company's ~~2012~~resort ~~are~~network. ~~not~~Tempus ~~necessarily~~Acquisition ~~indicative~~LLC borrowed $6.6 million under the term loan portion of Tempus Acquisition Loan to fund the ~~results~~Aegean ~~that~~Blue ~~may~~Acquisition. beSee ~~expected~~Note 15—Borrowings for ~~the~~definitions ~~year~~and ~~ending~~further ~~December~~detail ~~31,~~on ~~2012~~this borrowing.

On January 29, 2013, DRC and Diamond Resorts Holdings, LLC entered into a memorandum of understanding with Island One, Inc. (“Island One”), Crescent One, LLC (“Crescent”) and the holder of their respective equity interests. Island One and Crescent operate a vacation ownership, hospitality and resort management business that emerged from Chapter 11 bankruptcy in July 2011. Since their emergence, the Company has provided sales and marketing services and HOA management oversight services to Island One. Pursuant to the memorandum of understanding, the Company has agreed to enter into definitive documents to (i) operate the business of Island One and Crescent prior to the closing of the potential acquisition transaction, and (ii) upon a change of control of the Company or other specified transaction, and subject to other terms and conditions in the definitive documents, purchase all of the equity interests in Island One and Crescent, thereby acquiring management contracts, unsold VOIs, a portfolio of consumer loans and other assets owned by Island One and Crescent, which would add nine additional resorts to the Company's resort network.

The accompanying condensed consolidated financial statements of Diamond Resorts Parent, LLC and its subsidiaries, have been prepared in accordance with accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted, although the Company believes that the disclosures are adequate to ensure the information presented is not misleading. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. The accompanying condensed consolidated financial statements should be reviewed in conjunction with the Company's annual consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

Reclassifications

The Company recorded a $1.0.5 million reclassification between ~~due~~loan ~~from~~portfolio ~~related~~expense ~~parties, net~~ and ~~due~~other tooperating ~~related~~expense ~~parties,~~for ~~net in~~ the ~~accompanying~~three ~~condensed~~months ~~consolidated~~ended ~~balance sheet as of December~~ March 31, ~~2011~~2012 asin ~~compared to~~ the ~~amounts~~accompanying ~~reported~~condensed inconsolidated ~~the~~statements ~~Company's~~of ~~Annual~~operations ~~Report~~and oncomprehensive ~~Form~~income ~~10-K~~(loss) in order to ~~conform~~more toclosely ~~the~~align ~~changes~~credit ~~made~~card toexpense ~~the related party netting process in accordance~~ with ~~ASC~~the ~~210-20,~~placement ~~“Balance~~of ~~Sheet~~the -corresponding ~~Offsetting~~revenue.”

In addition, the Company recorded a $1.6 million reclassification between loan portfolio expense and management and member services as of the nine months ended September 30, 2011, in the accompanying condensed consolidated statements of operations and comprehensive income (loss) in order to more closely align credit card expense with the placement of the corresponding revenue.


Note 2	— Summary of Significant Accounting Policies

Significant accounting policies are those policies that, in management's view, are most important in the portrayal of the Company's financial condition and results of operations. The methods, estimates and judgments that the Company uses in applying its accounting policies have a significant impact on the results that it reports in the financial statements. Some of these critical accounting policies require the Company to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Those critical accounting policies and estimates that require the most significant judgment are discussed further below.

Principles of Consolidation—The accompanying condensed consolidated financial statements include all subsidiaries of the Company. All significant intercompany transactions and balances have been eliminated from the accompanying condensed consolidated financial statements.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, ~~and~~ liabilities, revenues and ~~disclosure~~expenses. ofOn ~~contingent~~an ~~assets~~ongoing ~~and~~basis, ~~liabilities at~~ the ~~date~~Company ofevaluates ~~the~~its ~~financial~~estimates ~~statements~~ and ~~the~~assumptions, ~~reported~~including ~~amounts~~those ofrelated ~~revenues~~to ~~and~~revenue, ~~expenses~~bad ~~during~~debts ~~the~~and ~~reporting~~income ~~period~~taxes. ~~Significant~~These estimates ~~were~~are ~~used~~based byon ~~the~~historical ~~Company~~experience toand ~~estimate~~on ~~the~~various ~~fair~~other ~~value~~assumptions ofthat ~~the~~management ~~assets~~believes ~~acquired~~are ~~and~~reasonable ~~liabilities~~under ~~assumed in~~ the ~~PMR~~circumstances. ~~Acquisition~~The ~~during~~results of the ~~periods~~Company's ~~presented.~~analysis ~~These~~form ~~estimates~~the ~~included~~basis ~~projections~~for ofmaking ~~future~~assumptions ~~cash~~about ~~flows~~the ~~derived~~carrying ~~from~~values ~~sales~~ of ~~Vacation~~assets ~~Interests, mortgages~~ and ~~contracts~~liabilities ~~receivable,~~that ~~management~~are ~~services~~not ~~revenue~~readily ~~and~~apparent ~~rental~~from ~~income~~other sources. ~~Additionally,~~Actual ~~the~~results ~~Company~~may ~~made~~differ ~~significant~~from these estimates ofunder ~~costs~~different ~~associated~~assumptions ~~with~~or ~~such~~conditions, ~~projected~~and ~~revenues~~the ~~including~~impact ~~but~~of ~~not~~such ~~limited~~differences tomay ~~loan~~be ~~defaults,~~material ~~recoveries~~to ~~and~~the ~~discount~~Company's ~~rates~~consolidated financial statements.

In preparation of its condensed consolidated financial statements, the Company also made significant estimates which include: (1) allowance for loan and contract losses, and provision for uncollectible Vacation Interest sales revenue; (2) useful lives of property and equipment; (3) estimated useful lives of intangible assets acquired; (4) estimated costs to build or acquire any additional Vacation Interests, estimated total revenues expected to be earned on a project, related estimated provision for uncollectible Vacation Interest sales revenue and sales incentives, estimated projected future cost and volume of recoveries of Vacation Interests, estimated sales price per point and estimated number of points sold used to allocate certain unsold Vacation Interests to Vacation Interest cost of sales under the relative sales value method; and (5) the valuation allowance recorded against deferred tax assets. It is at least reasonably possible that a material change in one or more of these estimates may occur in the near term and that such change may materially affect actual results.12

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued

Significant estimates were used by the Company to estimate the fair value of the assets acquired and liabilities assumed in the ILX Acquisition, the Tempus Resorts Acquisition, the PMR Acquisition and the Aegean Blue Acquisition during the periods presented. These estimates included projections of future cash flows derived from sales of VOIs, mortgages and contracts receivable, member relationship lists, management services revenue and rental income. Additionally, the Company made significant estimates of costs associated with such projected revenues including but not limited to loan defaults, recoveries and discount rates. The Company also made significant estimates which include: (i) allowance for loan and contract losses and provision for uncollectible Vacation Interest sales revenue; (ii) estimated useful lives of property and equipment; (iii) estimated useful lives of intangible assets acquired; (iv) estimated costs to build or acquire any additional Vacation Interests, estimated total revenues expected to be earned on a project, related estimated provision for uncollectible Vacation Interest sales revenue and sales incentives, estimated projected future cost and volume of recoveries of VOIs, estimated sales price per point and estimated number of points sold used to allocate certain unsold Vacation Interests to Vacation Interest cost of sales under the relative sales value method; and (v) the valuation allowance recorded against deferred tax assets. It is at least reasonably possible that a material change in one or more of these estimates may occur in the near term and that such change may materially affect actual results.

Vacation Interest sales, net of provision consists of the following for the three months ended March 31, 2013 and 2012 (in thousands):



	Three Months Ended March 31,
	2013			2012
Vacation Interest Sales	$	98,340		$	58,687
Provision for uncollectible Vacation Interest sales revenue	(6,672		)	(4,115		)
Vacation Interest sales, net of provision	$	91,668		$	54,572

See Note 2- Summary of Significant Accounting Policies set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for further detail on the Company's significant accounting policies.

Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements issued that affect the Company since the Company's Annual Report on Form 10-K for the year ended December 31, ~~2011~~2012 was filed with the SEC.


Note 3	— Concentrations of Risk

Credit Risk—The Company is exposed to on-balance sheet credit risk related to its mortgages and contracts receivable. The Company offers financing to the buyers of ~~Vacation~~VOIs ~~Interests~~ at the Company’s resorts. The Company bears the risk of defaults on promissory notes delivered to it by buyers of ~~Vacation Interests~~VOIs. If a buyer of ~~Vacation~~VOIs ~~Interests~~ defaults, the Company generally ~~must~~attempts ~~attempt~~ to resell such ~~Vacation~~VOIs ~~Interests~~ by exercise of a power of sale. The associated marketing, selling, and administrative costs from the original sale are not recovered, and such costs must be incurred again to resell the ~~Vacation Interests~~VOIs. Although in many cases the Company may have recourse against a buyer of ~~Vacation~~VOIs ~~Interests~~ for the unpaid price, certain states have laws that limit the Company’s ability to recover personal judgments against customers who have defaulted on their loans. Accordingly, the Company has generally not pursued this remedy.

10The Company maintains cash, cash equivalents, cash in escrow, and restricted cash with various financial institutions. These financial institutions are located throughout Europe, North America and the Caribbean. A significant portion of the unrestricted cash is maintained with a select few banks and is, accordingly, subject to credit risk. Periodic evaluations of the relative credit standing of financial institutions maintaining the deposits are performed to evaluate and mitigate, if necessary, any credit risk.

Availability of Funding Sources—The Company has historically funded mortgages and contracts receivable and unsold Vacation Interests with borrowings through its financing facilities, sales of mortgages and contracts receivable and internally generated funds. Borrowings are in turn repaid with the proceeds received by the Company from repayments of such mortgages and contracts receivable. To the extent that the Company is not successful in maintaining or replacing existing financings, it would have to curtail its sales and marketing operations or sell assets, thereby resulting in a material adverse effect on the Company’s results of operations, cash flows and financial condition.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~The~~ Geographic Concentration—Currently, portions of the Company's ~~maintains~~consumer ~~cash,~~loan ~~cash~~portfolio ~~equivalents,~~are ~~cash~~concentrated in ~~escrow,~~certain ~~and~~geographic ~~restricted~~regions ~~cash~~within ~~with~~the ~~various~~U.S. ~~financial~~As ~~institutions.~~of ~~These~~March 31, ~~financial~~2013, ~~institutions~~the ~~are~~Company's ~~located~~loans ~~throughout~~to ~~Europe~~California, Arizona, New York and ~~North~~Florida ~~America~~residents constituted 25.8%, A9.3%, ~~significant~~5.2% ~~portion~~and 5.1%, respectively, of the ~~unrestricted~~consumer ~~cash~~loan isportfolio. ~~maintained~~The ~~with~~deterioration aof ~~select~~the ~~few~~economic ~~banks~~condition and isfinancial well-being of the regions in which the Company has significant loan concentrations such as California, ~~accordingly~~Arizona, ~~subject~~New toYork ~~credit~~or ~~risk~~Florida, could adversely affect its consumer loan portfolio, business and results of operations. ~~Periodic~~No ~~evaluations~~other state or foreign country concentration accounted for in excess of 5.0% of the ~~relative~~portfolio. The credit ~~standing~~risk ofinherent ~~financial~~in ~~institutions~~such ~~maintaining~~concentrations ~~the~~is ~~deposits~~dependent ~~are~~upon ~~performed~~regional toand ~~evaluate~~general ~~and~~economic ~~mitigate~~stability, ifwhich ~~necessary,~~affects ~~any~~property ~~credit~~values ~~risk~~and the financial well-being of the borrowers.

~~Availability~~Interest ofRate ~~Funding Sources~~Risk—~~The~~ ~~Company~~Since ~~has~~the ~~historically~~Company’s ~~funded~~indebtedness ~~mortgages~~bears ~~and~~interest ~~contracts~~at ~~receivable~~variable ~~and unsold Vacation Interests with borrowings through its financing facilities~~rates, ~~sales~~any ofincrease ~~mortgages and contracts receivable and internally generated funds. Borrowings are~~ in ~~turn~~interest ~~repaid~~rates ~~with~~beyond ~~the~~amounts ~~proceeds~~covered ~~received~~under by the Company’s ~~from~~interest ~~repayments~~rate ofcap ~~such~~agreements, ~~mortgages~~particularly ~~and~~if ~~contracts receivable. To the extent that the Company is not successful in maintaining or replacing existing financings~~sustained, itcould ~~would~~ have ~~to curtail its sales and marketing operations or sell assets, thereby resulting in~~ a material adverse effect on the Company’s results of operations, cash flows, and financial ~~condition~~position.

~~Geographic~~The ~~Concentration—Currently,~~Company ~~portions~~derives ofnet ~~our~~interest ~~consumer~~income ~~loan~~from ~~portfolio~~its ~~are~~financing ~~concentrated~~activities inbecause ~~certain geographic regions within~~ the ~~United~~interest ~~States.~~rates Asit ofcharges ~~September 30,~~its ~~2012,~~customers ~~our~~who ~~loans~~finance tothe ~~California,~~purchase ~~Arizona, New York and Florida residents constituted 22.2%, 9.5%, 5.8% and 5.6%, respectively,~~ of ~~our~~their ~~consumer~~VOIs ~~loan~~exceed ~~portfolio.~~the ~~The~~interest ~~deterioration~~rates of the ~~economic~~Company ~~condition~~pays ~~and~~to ~~financial~~its ~~well-being~~lenders. ofSince the ~~regions in which the~~ Company’s ~~has~~customer ~~significant~~receivables ~~loan~~generally ~~concentrations~~bear ~~such~~interest asat ~~California,~~fixed ~~Arizona~~rates, ~~New~~increases ~~York or Florida, could adversely affect our consumer loan portfolio, our business and our results of operations. No other state or foreign country concentration accounted for~~ in ~~excess~~interest ofrates ~~5.0%~~will oferode the ~~portfolio.~~spread ~~The credit risk inherent~~ in ~~such~~interest ~~concentrations~~rates isthat ~~dependent upon regional and general economic stability, which affects property values and~~ the ~~financial~~Company ~~well-~~has ~~being~~historically ~~of the borrowers~~obtained.

~~Interest~~In ~~Rate~~July 2010, ~~Risk— Since~~ the Company’s ~~indebtedness~~entered ~~bears~~into an interest atrate ~~variable~~cap ~~rates,~~agreement ~~any~~("2010 ~~increase~~Cap inAgreement") to manage its exposure to interest ~~rates~~rate ~~beyond~~increases. ~~amounts~~During ~~covered~~the ~~under~~year ended December 31, 2012, the Company’s entered into a series of interest rate cap, ~~particularly~~agreements ifto ~~sustained~~further limit its exposure to interest rate increases (collectively, ~~could~~"2012 ~~have~~Cap aAgreements"). ~~material~~The ~~adverse~~following ~~effect~~table onpresents ~~the~~certain ~~Company’s~~information ~~results~~regarding ofthe ~~operations,~~2010 ~~cash~~Cap ~~flows~~Agreement and ~~financial~~the ~~position.~~2012 Cap Agreements:

The Company derives net interest income from its financing activities because the interest rates it charges its customers who finance the purchase of their Vacation Interests exceed the interest rates the Company pays to its lenders. Since the Company’s customer receivables bear interest at fixed rates, increases in interest rates will erode the spread in interest rates that the Company has historically obtained.



	Cap Effective Date	Termination Date	Strike Rate	Interest Rate Type	Notional Amount

July 2010 cap agreement	July 30, 2010	July 20, 2013	5.5%	1-month LIBOR	$30.0	million
June 2012 cap agreement	July 20, 2012	July 20, 2013	5.5%	1-month LIBOR	$5.0	million
July 2012 cap agreement	July 20, 2012	July 20, 2013	5.5%	1-month LIBOR	$10.0	million
September 2012 cap agreement	September 4, 2012	July 20, 2013	5.5%	1-month LIBOR	$10.0	million
October 2012 cap agreement	October 22, 2012	July 20, 2013	5.5%	1-month LIBOR	$10.0	million
December 2012 cap agreement	December 28, 2012	July 20, 2013	5.5%	1-month LIBOR	$2.5	million

InAs ~~July 2010,~~of ~~the Company entered into an interest rate cap agreement ("2010 Cap") to manage its exposure to interest rate increases. The 2010 Cap terminates on July~~March 2031, 2013, ~~and~~the ~~bears~~fair avalue ~~strike~~of ~~rate~~these ofderivative ~~5.5%~~assets ~~and~~was acalculated ~~one-month~~to ~~LIBOR~~be $0 based on avaluation ~~notional~~reports ~~amount~~provided ofby ~~$30~~counterparties.~~0 million.~~

~~During~~As ~~the~~of ~~nine months ended September 30~~March 31, ~~2012~~2013, the Company ~~entered~~had ~~into~~$23.6 amillion ~~series~~outstanding ofunder ~~interest~~its ~~rate~~2008 ~~cap~~Conduit ~~agreements~~Facility to(see ~~further~~Note ~~limit~~15—Borrowings ~~its~~for ~~exposure~~the todefinition ~~interest~~of ~~rate~~the ~~increases~~2008 ~~(collectively,~~Conduit ~~"2012 Caps"~~Facility). ~~The~~This ~~following~~outstanding ~~table~~balance ~~presents~~was ~~certain~~covered ~~information~~by ~~regarding~~ the ~~2012~~2010 ~~Caps:~~Cap Agreement. See Note 18— Fair Value Measurements for further details.

	Cap Effective Date	Termination Date	Strike Rate	Interest Rate Type	Notional Amount
June 2012 Cap	July 20, 2012	July 20, 2013	5.5%	1-month LIBOR	5.0	million
July 2012 Cap	July 20, 2012	July 20, 2013	5.5%	1-month LIBOR	10.0	million
September 2012 Cap	September 4, 2012	July 20, 2013	5.5%	1-month LIBOR	10.0	million

As of September 30, 2012, the fair value of these derivative assets was calculated to be $0 based on the discounted cash flow model.

At September 30, 2012, the Company had $55.2 million outstanding under its 2008 Conduit Facility (see Note 15—Borrowings for the definition of the 2008 Conduit Facility). This outstanding balance was covered by the 2010 Cap and the 2012 Caps. See Note 18—Fair Value Measurements for further details.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued


Note 4	— Cash in Escrow and Restricted Cash

Cash in escrow and restricted cash ~~for~~as of the ~~periods~~dates presented below consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
Securitization and Funding Facilities collection and reserve cash	$	15,052	$	15,002
Collected on behalf of HOAs and other	$	20,735	$	11,617
Collected on behalf of HOAs and other	8,908		8,837
Securitization and Funding Facilities collection and reserve cash	16,956		15,416
Escrow	79,~~637~~176		38,~~855~~134
Rental trust	6,062		4,779
Rental Trust	8,572		6,040
Bonds and deposits	~~1,108~~942		1,~~515~~104
Total cash in escrow and restricted cash	$	3856,~~767~~381	$	3342,~~988~~311


Note 5	— Mortgages and Contracts Receivable and Allowance for Loan and Contract Losses

The Company provides financing to purchasers of ~~Vacation~~VOIs ~~Interests~~ at North American sales centers that are collateralized by their ~~Vacation Interests~~VOIs. Eligibility for this financing is determined based on the customers’ ~~Fair Isaac Corporation ("~~FICO") credit scores. AtAs ~~September~~of March 3031, ~~2012~~2013, the mortgages and contracts receivable bore interest at fixed rates between 0.0% and 21.5%. The term of the mortgages and contracts receivable are from one year to fifteen years and may be prepaid at any time without penalty. The weighted average interest rate of outstanding mortgages and contracts receivable was 15.8% and 15.9% at September 30, 2012 and December 31, 2011, respectively. Mortgages and contracts receivable in excess of 90 days past due at September 30, 2012 and December 31, 2011 were 2.6% and 3.9%, respectively, of gross mortgages and contracts receivable.

Mortgages and contracts receivable originated by the Company are recorded net of deferred loan and contract origination costs, and the related allowance for loan and contract losses. Loan and contract origination costs incurred in connection with providing financing for Vacation Interests are capitalized and amortized over the estimated life of the mortgages or contracts receivable based on historical prepayments as a decrease to interest revenue using the effective interest method. Amortization of deferred loan and contract origination costs charged to interest revenue was $0.9 million and $0.7 million for the three months ended September 30, 2012 and 2011, respectively, and $2.4 million and $2.0 million for the nine months ended September 30, 2012 and 2011, respectively.14

The Company recorded a $3.3 million discount on the mortgage pool acquired on April 27, 2007 in connection with the Merger, which discount is being amortized over the life of the related acquired mortgage pool. At September 30, 2012 and December 31, 2011, the net unamortized discount on this acquired mortgage pool was $0.4 million and $0.5 million, respectively. During both the three months ended September 30, 2012 and 2011, amortization of $0.1 million was recorded as an increase to interest revenue. During the nine months ended September 30, 2012 and 2011, amortization of $0.1 million and $0.3 million, respectively, was recorded as an increase to interest revenue.

The Company recorded a $7.5 million premium at July 1, 2011 on the purchased Mystic Dunes mortgage pool, which was reduced to $0.8 million based on the final appraisal and is being amortized over the life of the related acquired mortgage pool. At September 30, 2012, the net unamortized premium was $0.4 million. During the three months ended September 30, 2012 and 2011, amortization of $0.1 million and $0.2 million, respectively, was recorded as a decrease to interest revenue. During the nine months ended September 30, 2012 and 2011, amortization of $0.3 million and $0.2 million, respectively, was recorded as a decrease to interest revenue.

The Company recorded a $0.1 million premium at May 21, 2012 on the purchased Pacific Monarch Resorts mortgage pool and is being amortized over the life of the related acquired mortgage pool. At September 30, 2012, the net unamortized premium was $0.1 million. During the three and nine months ended September 30, 2012, amortization of $0.01 million and $0.03 million, respectively, was recorded as a decrease to interest revenue.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~Mortgages~~ and contracts receivable, ~~net~~are ~~for~~from ~~the~~one ~~periods~~year ~~presented~~to ~~below~~fifteen ~~consisted~~years and may be prepaid at any time without penalty. The weighted average interest rate of ~~the~~outstanding ~~following~~mortgages ~~(in~~and ~~thousands):~~contracts receivable was 15.7% as of March 31, 2013 and December 31, 2012.

	September 30, 2012			December 31, 2011
Mortgages and contracts receivable, acquired — the Merger	$	34,124		$	44,638
Mortgages and contracts receivable, contributed	1,713			3,226
Mortgages and contracts receivable, originated	262,649			223,522
Mortgages and contracts receivable, purchased (unrestricted subsidiaries)	71,704			92,261
Mortgages and contracts receivable, originated (unrestricted subsidiaries)	1,497			1,039
Mortgages and contracts receivable, gross	371,687			364,686
Allowance for loan and contract losses	(55,551		)	(50,519		)
Allowance for loan and contract losses (unrestricted subsidiaries)	(25,229		)	(33,579		)
Total allowance for loan and contract loses	(80,780		)	(84,098		)
Deferred profit on Vacation Interest transactions	(6,504		)	(5,756		)
Deferred loan and contract origination costs, net of accumulated amortization	4,044			2,826
Inventory value of defaulted mortgages that were previously contributed and acquired	9,888			6,454
Premium on mortgages and contracts receivable, net of accumulated amortization	495			(321		)
Discount on mortgages and contracts receivable, net of accumulated amortization	(381		)	(489		)
Mortgages and contracts receivable, net	$	298,449		$	283,302

The Company charges off mortgages and contracts receivable upon the earliest of (i) the initiation of cancellation or foreclosure proceedings; or (ii) the customer's account becoming over 180 days delinquent. Once a customer has made six timely payments following the event leading to the charge-off, the charge-off is reversed. A default in a customer's initial payment results in a rescission of the sale. All collection and foreclosure costs are expensed as incurred. Mortgages and contracts receivable between 90 and 180 days past due as of March 31, 2013 and December 31, 2012 were 2.8% and 2.6% respectively, of gross mortgages and contracts receivable.

AtMortgages ~~September 30,~~and ~~2012~~contracts receivable originated by the Company are recorded net of deferred loan and ~~December 31,~~contract ~~2011~~origination costs, ~~$330.7~~and ~~million~~the related allowance for loan and ~~$333~~contract losses.0 ~~million,~~Loan ~~respectively,~~and ofcontract origination costs incurred in connection with providing financing for VOIs are capitalized and amortized over the ~~gross~~estimated ~~amount~~life of the mortgages ~~and~~or contracts receivable ~~were~~based ~~collateralized~~on ~~against~~historical ~~the~~prepayments ~~Company’s~~as ~~various~~a ~~debt~~decrease ~~instruments~~to ~~included~~interest inrevenue ~~"Securitization~~using ~~notes~~the ~~and~~effective ~~Funding~~interest ~~Facilities"~~method. ~~caption~~Amortization inof ~~the~~deferred ~~accompanying~~loan ~~condensed~~and ~~consolidated~~contract ~~balance~~origination ~~sheets~~costs charged to interest revenue was $1.2 ~~See~~million ~~Note~~and ~~15—Borrowings~~$0.7 million for ~~further~~the ~~detail~~three months ended March 31, 2013 and 2012, respectively.

~~Deferred~~The ~~profit~~Company onrecorded ~~Vacation~~a ~~Interest~~$3.3 ~~transactions~~million ~~represents~~discount on the ~~revenues~~mortgage ~~less~~pool ~~the~~acquired ~~related~~on ~~direct~~April 27, ~~costs~~2007 ~~(sales~~in ~~commissions,~~connection ~~sales~~with ~~incentives~~the Merger, ~~cost~~which ofdiscount ~~sales~~is ~~and~~being ~~allowance~~amortized ~~for~~over ~~loan~~the ~~losses)~~life of the related toacquired ~~sales~~mortgage ~~that~~pool. doAs ~~not~~of ~~qualify~~March 31, ~~for~~2013 ~~revenue~~and ~~recognition~~December 31, ~~under~~2012, the ~~provisions~~net ofunamortized ~~ASC~~discount ~~978,~~on ~~"Real~~this ~~Estate-Time-Sharing~~acquired ~~Activities."~~mortgage ~~See~~pool ~~Note~~was ~~2—Summary~~$0.3 ofmillion ~~Significant~~and ~~Accounting~~$0.3 ~~Policies~~million, respectively. ~~set~~No ~~forth~~amortization inwas ~~the~~recorded ~~Company's~~during ~~Annual~~the ~~Report~~three onmonths ~~Form~~ended ~~10-K~~March 31, ~~for~~2013. During the ~~year~~three months ended ~~December~~ March 31, ~~2011~~2012, ~~for~~amortization ~~description~~ of ~~revenue~~$0.04 ~~recognition~~million ~~criteria~~was recorded as an increase to interest revenue.

The Company recorded a $0.8 million premium on the purchased Mystic Dunes mortgage pool that was part of the Tempus Resorts Acquisition and is being amortized over the life of the related acquired mortgage pool. As of March 31, 2013 and December 31, 2012, the net unamortized premium was $0.4 million and $0.5 million, respectively. During the three months ended March 31, 2013, amortization of $0.05 million was recorded as a decrease to interest revenue. During the three months ended March 31, 2012, amortization of $0.9 million was recorded as an increase to interest revenue.

The Company recorded a $0.1 million premium on May 21, 2012 on the purchased Pacific Monarch Resorts mortgage pool and is being amortized over the life of the related acquired mortgage pool. As of March 31, 2013 and December 31, 2012, the net unamortized premium was $0.1 million. During the three months ended March 31, 2013 and March 31, 2012, no amortization was recorded as a decrease to interest revenue.

Mortgages and contracts receivable, net as of the dates presented below consisted of the following (in thousands):



	March 31, 2013			December 31, 2012
Mortgages and contracts receivable, acquired — the Merger	$	27,393		$	30,721
Mortgages and contracts receivable, contributed	1,034			1,337
Mortgages and contracts receivable, originated	305,817			290,264
Mortgages and contracts receivable, purchased	58,967			64,932
Mortgages and contracts receivable, gross	393,211			387,254
Allowance for loan and contract losses	(84,907		)	(83,784		)
Deferred profit on Vacation Interest transactions	(3,533		)	(6,113		)
Deferred loan and contract origination costs, net of accumulated amortization	5,084			4,810
Inventory value of defaulted mortgages that were previously contributed or acquired	10,907			10,512
Premium on mortgages and contracts receivable, net of accumulated amortization	516			564
Discount on mortgages and contracts receivable, net of accumulated amortization	(311		)	(311		)
Mortgages and contracts receivable, net	$	320,967		$	312,932

As of March 31, 2013 and December 31, 2012, $347.8 million and $340.4 million, respectively, of the gross amount of mortgages and contracts receivable were collateralized against the Company’s various debt instruments included in "Securitization notes and Funding Facilities" caption in the accompanying condensed consolidated balance sheets. See Note 15—Borrowings for further detail.

Deferred profit on Vacation Interest transactions represents the revenues less the related direct costs (sales commissions, sales incentives, cost of sales and allowance for loan losses) related to sales that do not qualify for revenue recognition under the provisions of Accounting Standards Codification ("ASC") 978, "Real Estate - Time-Sharing

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued

Activities ("ASC 978")." See Note 2— Summary of Significant Accounting Policies set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for description of revenue recognition criteria.

Inventory value of defaulted mortgages that were previously contributed and acquired represents the inventory underlying mortgages that have defaulted. Upon recovery of the inventory, the value is transferred to unsold Vacation Interest, net.

Activity in the allowance for loan and contract losses associated with mortgages and contracts receivable ~~for~~as of the ~~periods~~dates presented below isconsisted asof ~~follows~~the following (in thousands):

	Three Months Ended September 30, 2012			Three Months Ended September 30, 2011				Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
	Three Months Ended March 31,
Balance, beginning of period	$	80,901		$	51,356			$	84,098		$	55,151
	2013			2012
Provision for purchased portfolios (unrestricted subsidiaries)	(430		)	33,674				3,174			35,334
Balance, beginning of period	$	83,784		$	94,478
Provision for uncollectible Vacation Interest sales revenue	6,~~982~~476			4,~~534~~115				~~18,344~~			~~11,174~~
Provision for uncollectible Vacation Interest sales revenue (unrestricted subsidiaries)	(282		)	100				(1,067		)	183
Adjustment for purchased portfolios	—			(10,380		)	(a)
Mortgages and contracts receivable charged off	(46,~~991~~403		)	(610,~~539~~070		)		~~(16,606~~		)	~~(19,205~~		)
Mortgages and contracts receivable charged off (unrestricted subsidiaries)	(2,892		)	(4,075		)		(13,431		)	(5,571		)
Recoveries	1,073			3,980
Recoveries	1,479			2,147				6,249			4,118
Effect of translation rate	(23		)	14
Effect of translation rate	13			(11		)		19			2
Balance, end of period	$	84,907		$	82,137
Balance, end of period	$	80,780		$	81,186			$	80,780		$	81,186

13_____________

(a) The Company adjusted the components of mortgages and contracts receivable, net, based on the final appraisal related to the Tempus Resorts Acquisition in accordance with ASC 978. In connection with the preparation of the final appraisal and purchase accounting, the Company further reviewed and analyzed the historic static pool recovery data. Based on this further review and analysis, the static pool model created in connection with the Tempus Resort Acquisition and the resulting final distribution of the fair market value in accordance with ASC 978 was completed during the quarter ended March 31, 2012. This redistribution resulted in an adjustment that reduced the charge-offs reflected in the allowance for loan and contract losses by $10.4 million, decreased the inventory value of defaulted mortgages that were previously acquired by $3.7 million and reduced the premium on mortgages and contracts receivable by $6.7 million. This adjustment did not have any impact on the fair value or the total mortgages and contracts receivable, net reported in the accompanying condensed consolidated balance sheets as of March 31, 2013 and December 31, 2012.

The provision for uncollectible Vacation Interest sales revenue in the allowance schedule above does not include ASC 978 adjustments related to deferred revenue or adjustments for the rescission period required under applicable law. The ASC 978 adjustments increased the provision for uncollectible Vacation Interest sales revenue by $0.5 million and $0.1 million for the three months ended March 31, 2013 and 2012, respectively. The adjustments for the rescission period offset the provision for uncollectible Vacation Interest sales revenue by $0.3 million and $0.1 million for the three months ended March 31, 2013 and 2012, respectively.

A summary of credit quality as of the dates presented below is as follows (in thousands):




FICO Scores	March 31, 2013		December 31, 2012
>799	$	31,341	$	31,199
700 – 799	186,675		181,456
600 – 699	130,332		127,423
<600	24,241		24,686
No FICO Scores	20,622		22,490
	$	393,211	$	387,254

FICO credit scores were updated as of March 31, 2013 for all mortgages and contracts receivable.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

The provision for uncollectible Vacation Interest sales revenue in the allowance schedule above does not include ASC 978 adjustments related to deferred revenue. The ASC 978 adjustments offset the provision for uncollectible Vacation Interest sales revenue by $0.6 million and $0.1 million for the three months ended September 30, 2012 and 2011, respectively, and $1.4 million and $0.1 million for the nine months ended September 30, 2012 and 2011, respectively.

A summary of credit quality for the periods presented below is as follows (in thousands):

	September 30, 2012						December 31, 2011
FICO Scores	DiamondResortsMortgages and Contracts		UnrestrictedSubsidiariesMortgages and Contracts		Total		DiamondResortsMortgages and Contracts		UnrestrictedSubsidiariesMortgages and Contracts		Total
>799	$	22,448	$	1,143	$	23,591	$	22,868	$	1,340	$	24,208
700 – 799	142,708		15,127		157,835		139,561		18,769		158,330
600 – 699	97,307		25,288		122,595		88,355		35,858		124,213
<600	27,697		18,941		46,638		13,626		18,841		32,467
No FICO Scores	8,326		12,702		21,028		6,976		18,492		25,468
	$	298,486	$	73,201	$	371,687	$	271,386	$	93,300	$	364,686

FICO credit scores were updated as of December 31, 2011 for all mortgages and contracts receivables with the exception of those acquired through the PMR Acquisition.


Note 6	— Transactions with Related Parties

Due from Related Parties, Net and Due to Related Parties, Net

Amounts due from related parties, net and due to related parties, net consist primarily of transactions with HOAs or Collections for which the Company acts as the management company. Due from related parties, net transactions include management fees for the Company’s role as the management company, certain expenses reimbursed by HOAs and Collections, and the allocation of a portion of the Company’s Vacation Interest carrying costs, management and member services, consolidated resort operations, loan portfolio and general and administrative expenses according to a pre-determined schedule approved by the board of directors at each HOA and Collection. Due to related parties, net transactions include (1i) the amounts due to HOAs under inventory recovery agreements the Company enters into regularly with certain HOAs and similar agreements with the Collections pursuant to which the Company recaptures ~~Vacation Interests~~VOIs, either in the form of vacation points or vacation intervals, and brings them into the Company’s inventory for sale to customers; (2ii) the maintenance fee and assessment fee liability owed to HOAs for intervals or to the Collections for points owned by the Company (this liability is recorded on January 1 of each year for the entire amount of annual maintenance and assessment fees and is relieved throughout the year by the payments remitted to the HOAs and the Collections; these maintenance and assessment fees are also recorded as prepaid expenses and other assets in the accompanying condensed consolidated balance sheet and amortized ratably over the year); (3iii) cleaning fees owed to the HOAs and Collections for room stays incurred by the Company’s customers; (4iv) subsidy liabilities according to a developer guarantee at a resort; in addition, the Company carries subsidy liabilities owed to certain HOAs to fund the negative cash flows at these HOAs according to certain subsidy agreements which have been terminated; and (5v) miscellaneous transactions with other non-HOA related parties.

Amounts due from related parties and due to related parties, some of which are due on demand, carry no interest. Due to the fact that the right of offset exists between the Company and the HOAs/ and the Collections, the Company evaluates amounts due to and from each HOA/ and Collection at each reporting period to present the balances as either a net due to or a net due from related parties for each HOA and Collection in accordance with the requirements of ASC 210~~-20~~, "Balance Sheet— - Offsetting."

Due from related parties, net ~~for~~as of the ~~periods~~dates presented below consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
Amounts due from HOAs	$	716,~~118~~354	$	1213,~~163~~346
Amounts due from trusts	4,551		15,673
Amounts due from Collections	5,957		8,970
Amounts due from other	~~1,548~~667		~~429~~679
Total due from related parties, net	$	1322,~~217~~978	$	2822,~~265~~995

14Due to related parties, net as of the dates presented below consisted of the following (in thousands):



	March 31, 2013		December 31, 2012
Amounts due to HOAs	$	49,890	$	33,441
Amounts due to Collections	46,706		30,563
Amounts due to other	203		200
Total due to related parties, net	$	96,799	$	64,204

Guggenheim Relationship

Two members of the board of managers of DRP, Messrs. Zachary Warren and Scott Minerd, are principals of Guggenheim Partners, LLC ("Guggenheim"), an affiliate of the DRP Holdco, LLC (the "Guggenheim Investor"), a 21.1% investor in the Company. Pursuant to the Fifth Amended and Restated Operating Agreement of DRP, dated as of October 15, 2012, Guggenheim Partners, LLC has the right to appoint two members to the board of managers of DRP, subject to certain security ownership thresholds, and Messrs. Warren and Minerd have served as members of the board of managers of DRP as the appointees of Guggenheim Partners, LLC.

In connection with the amendment and restatement of the Company's 2008 Conduit Facility on April 11, 2013, an affiliate of Guggenheim became a commercial paper conduit for the 2008 Conduit Facility. Also, another affiliate of Guggenheim is currently an investor in the Company's DROT 2009 Notes and DROT 2011 Notes. See Note 15—Borrowings for the definition of and more detail regarding these borrowings.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~Due~~On July 1, 2011, the Company completed the Tempus Resorts Acquisition. In order to ~~related~~fund ~~parties~~this acquisition, ~~net~~Tempus Acquisition, LLC entered into the Tempus Acquisition Loan with Guggenheim Corporate Funding, LLC. See Note 15— Borrowings for the ~~periods~~definition ~~presented~~of ~~below~~and ~~consisted~~more detail on the Tempus Acquisition Loan. During the three months ended March 31, 2013, Tempus Acquisition, LLC made an aggregate of approximately $1.2 million in interest payments and approximately $2.6 million in principal payments on the ~~following~~Tempus (Acquisition Loan. During the three months ended March 31, 2012, Tempus Acquisition, LLC made an aggregate of approximately $1.1 million in ~~thousands):~~interest payments and $1.4 million in principal payments on the Tempus Acquisition Loan.

	September 30, 2012		December 31, 2011
Amounts due to HOAs	$	56,648	$	34,796
Amounts due to trusts	41,121		20,434
Amounts due to other	672		292
Total due to related parties, net	$	98,441	$	55,522

On May 21, 2012, the Company completed the PMR Acquisition. In order to fund this acquisition, DPMA entered into the PMR Acquisition Loan with Guggenheim Corporate Funding, LLC. See Note 15—Borrowings for the definition of and more detail on the PMR Acquisition Loan. During the three months ended March 31, 2013, DPMA made an aggregate of approximately $1.5 million in interest payments and approximately $2.2 million in principal payments on the PMR Acquisition Loan.

In connection with the PMR Acquisition completed in May 2012, the Company acquired $2.1 million in amounts due from HOAs for management fee, rental commission, collection services, and various other services provided based on a preliminary appraisal.


Note 7	— Other Receivables, Net

Other receivables, net ~~for~~as of the ~~periods~~dates presented below consisted of the following (in thousands):

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
Mini-vacation and sampler programs receivable	$	8,992		$	2,261
THE Club dues receivable	$	20,167		$	37,046
THE Club dues receivable	8,808			32,670
Mini-vacation and sampler programs receivable	10,291			9,939
Owner maintenance fee receivable related to our Caribbean resorts	5,288			3,807
Owner maintenance fee receivable related to the St. Maarten resorts	7,268			5,224
Rental receivables and other resort management-related receivables	54,~~039~~879			4,~~679~~145
Mortgage/contracts interest receivable	34,~~956~~177			4,~~730~~398
Tax refund receivable	2,~~284~~341			—2,240
THE Club conversion receivable	320			589
Insurance claims receivable	2,257			54
Other receivables	3,458			2,536
THE Club conversion receivable	261			284
Total other receivables, gross	38,145			51,272
Other receivables	2,238			2,631
Allowance for doubtful accounts	(13,437		)	(16,219		)
Total other receivables, gross	53,879			65,961
Total other receivables, net	$	24,708		$	35,053
Allowance for doubtful accounts	(18,142		)	(19,912		)
Total other receivables, net	$	35,737		$	46,049

In connection with the PMR Acquisition completed in May 2012, the Company acquired $2.9 million in other receivables primarily related to mini-vacation and sampler programs based on a preliminary appraisal. In addition, the Company submitted a $2.3 million refund claim to the Mexican tax authority to recover certain value-added taxes paid in connection with the PMR Acquisition, which is included in the tax refund receivable line above.


Note 8	— Prepaid Expenses and Other Assets, Net

The nature of selected balances included in prepaid expenses and other assets, net includes:

Prepaid and unamortized maintenance fees—prepaid annual maintenance fees billed by the HOAs and the Collections on unsold Vacation Interests owned by the Company, which are charged to expense ratably over the year.

Deferred commissions—commissions paid to sales agents related to deferred mini-vacations and sampler program revenue, which are charged to advertising, sales and marketing expense as the associated revenue is recognized. Sampler programs allow purchasers to utilize vacation points during a trial period.

Prepaid member benefits and affinity programs—usage rights of THE Club members exchanged for a variety of products and travel services, including airfare, cruises and excursions, amortized ratably over the year.

Vacation Interest purchases in transit—open market purchases of vacation points from prior owners for which the titles have not been officially transferred to the Company. These Vacation Interest purchases in transit are reclassified to unsold Vacation Interest, net, upon successful transfer of title.

Prepaid rent—portion of rent paid in advance and charged to expense in accordance with lease agreements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

Prepaid expenses and other assets, net as of the dates presented below consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
Debt issuance costs, net	$	23,376	$	24,607
Prepaid and unamortized maintenance fees	$	52,500	$	5,767
Prepaid and unamortized maintenance fees	19,215		4,641
Debt issuance costs, net	22,596		22,143
Deferred commissions	68,~~840~~595		38,~~756~~118
Prepaid insurance	3,412		2,179
Unamortized exchange fees	6,858		149
Other inventory/consumables	3,276		2,580
Prepaid member benefits and affinity programs	5,627		2,322
Deposits and advances	3,084		8,892
Vacation Interest purchases in transit	5,578		3,262
Prepaid member benefits and affinity programs	2,812		552
Prepaid insurance	4,312		2,382
Unamortized exchange fees	2,269		28
Other inventory/consumables	3,789		3,299
Vacation Interest purchases in transit	651		2,238
Deposits and advances	3,254		3,228
Prepaid sales and marketing costs	569		340
Prepaid professional fees	1,823		1,231
Prepaid rent	535		269
Prepaid sales and marketing costs	1,054		614
Deferred inventory recovery agreements	533		—
Prepaid rent	635		296
Assets to be disposed (not actively marketed)	~~525~~494		~~505~~526
Other	45,~~860~~651		24,~~890~~687
Total prepaid expenses and other assets, net	$	71122,~~957~~766	$	5358,~~477~~024

With the exception of Vacation Interest purchases in transit and assets to be disposed (not actively marketed), prepaid expenses are expensed as the underlying assets are utilized or amortized. Debt issuance costs incurred in connection with obtaining funding for the Company have been capitalized and are being amortized over the lives of the related funding agreements as a component of interest expense using a method which approximates the effective interest method. Amortization of capitalized debt issuance costs included in interest expense was $1.35 million and $1.12 million for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011, respectively, and $3.8 million and $3.9 million for the nine months ended September 30,~~ 2012 ~~and 2011~~, respectively. See Note 15— Borrowings for more detail.

Debt issuance costs, net of amortization recorded as of ~~September~~March 3031, ~~2012~~2013 were comprised of $1312.68 million related to the Senior Secured Notes, $32.79 million related to the Diamond Resorts Owners Trust Series 2009-1 Class A and Class B Notes, $2.51 million related to the ~~DPM~~PMR Acquisition Loan, $12.60 million related to the Diamond Resorts Owners Trust Series ~~2011~~2013-1 Class A and Class B Notes, $1.24 million related to the ~~Tempus~~Diamond ~~Acquisition~~Resorts ~~Loan~~Owners Trust Series 2011-1 Notes, $01.51 million related to the ~~2008~~Tempus ~~Conduit~~Acquisition ~~Facility~~Loan, $0.32 million related to the ILXA ~~Receivables~~loans ~~Loan~~ and ~~the ILXA Inventory Loan, and~~ $0.1 million related to the Tempus Inventory Loan. ~~See Note 15—Borrowings for definition of and more detail on the Company's borrowings.~~

Debt issuance costs, net of amortization recorded as of December 31, ~~2011~~2012 were comprised of $1413.72 million related to the Senior Secured Notes, $43.83 million related to the Diamond Resorts Owners Trust Series 2009-1 Class A and Class B Notes, $2.3 million related to the PMR Acquisition Loan, $1.95 million related to the Diamond Resorts Owners Trust Series 2011-1 Notes, $1.42 million related to the Tempus ~~Guggenheim~~Acquisition Loan, $10.23 million related to the 2008 Conduit Facility, $0.53 million related to the ILXA loans, and $0.1 million related to the ~~Quorum~~Tempus ~~Facility,~~Inventory ~~and $0~~Loan.1 ~~million~~See ~~related~~Note to15— ~~the~~Borrowings ~~Tempus~~for ~~Inventory~~definition ~~Loan~~of and more detail on the Company's borrowings.


Note 9	— Unsold Vacation Interests, Net

Unsold Vacation Interests, net ~~for~~as of the ~~periods~~dates presented below consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
	March 31, 2013		December 31, 2012
Completed unsold Vacation Interests, net	$	~~282~~252,~~827~~455	$	~~221~~268,~~062~~007
Undeveloped land	38,~~844~~872		3138,~~553~~786
Vacation Interest construction in progress	89,~~417~~161		49,~~190~~074
Unsold Vacation Interests, net	$	~~330~~300,~~088~~488	$	~~256~~315,~~805~~867

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~Unsold~~Activity ~~VOIs~~related ~~are~~to ~~valued at the lower of cost or fair market value. The cost of~~ unsold VOIs includes acquisition costs, hard and soft construction costs (which are comprised of architectural and engineering costs incurred during construction), the cost incurred to recover inventory and other carrying costs (including interest, real estate taxes and other costs incurred during the construction period). Costs are expensed to Vacation ~~Interest cost of sales under the relative sales value method. In accordance with ASC 978~~Interests, ~~under~~net the relative sales value method, cost of sales is calculated as a percentage of Vacation Interest sales revenue using a cost of sales percentage ratio of total estimated development costs to total estimated Vacation Interest sales revenue, including estimated future revenue and incorporating factors such as changes in prices and the recovery of VOIs generally as a result of maintenance fee and mortgages and contracts receivable defaults. In accordance with ASC 978-340, the selling, marketing and administrative costs associated with any sale, whether the original sale or subsequent resale of recovered inventory, are expensed as incurred. The costs capitalized for ~~recovered intervals differ based on a variety of factors, including~~ the ~~method~~periods ofpresented ~~recovery~~below ~~and~~consisted ~~the timing~~ of the ~~original~~following ~~sale~~(in and/or loan origination. Interest, real estate taxes and other carrying costs incurred during the construction period are capitalized and such costs incurred on completed Vacation Interests are expensed.thousands):

In accordance with ASC 978, on a quarterly basis, the Company calculates the total estimated Vacation Interest sales revenue and total estimated costs. The effects of changes in these estimates are accounted for as a current period adjustment so that the balance sheet at the end of the period of change and the accounting in subsequent periods are as they would have been if the revised estimates had been the original estimates. These adjustments can be material.



	Three Months ended March 31,
	2013			2012
Balance, beginning of period	$	315,867		$	256,805
Vacation Interest cost of sales	(17,846		)	(8,231		)
Inventory recovery activity - North America	(455		)	4
Inventory recovery activity - Europe	849			2,453
Open market and bulk purchases	400			271
Accrued bulk purchases	1,467			—
Capitalized legal, title and trust fees	745			733
Construction in progress	452			231
Loan default recoveries	686			3,226
Effect of foreign currency translation	(1,952		)	1,121
Other	275			(88		)
Balance, end of period	$	300,488		$	256,525

InSee ~~connection~~Note ~~with~~2— ~~the~~Summary ~~PMR~~of ~~Acquisition~~Significant ~~completed~~Accounting inPolicies ~~May~~set ~~2012,~~forth in the Company's ~~recorded~~Annual ~~$36.2~~Report ~~million~~on ofForm ~~unsold~~10-K ~~Vacation~~for ~~Interests~~the ~~based~~year onended aDecember ~~preliminary~~31, ~~appraisal.~~2012 ~~See~~for ~~Note~~discussions ~~20—~~on ~~Business~~unsold ~~Combinations~~Vacation ~~for further details~~Interests.

In connection with the ILX Acquisition, the Tempus Resorts Acquisition, the PMR Acquisition and the Aegean Blue Acquisition, the Company acquired $10.1 million, $23.1 million, $30.4 million and $3.5 million in unsold Vacation Interest.


Note 10	— Property and Equipment, Net

Property and equipment, net ~~for~~as of the ~~periods~~dates presented below consisted of the following (in thousands):

	September 30, 2012			December 31, 2011
	March 31, 2013			December 31, 2012
Buildings and leasehold improvements	$	32,058		$	29,032
Land and improvements	$	16,824		$	16,828
Land and improvements	16,818			16,819
Buildings and leasehold improvements	33,172			32,932
Furniture and office equipment	16,~~432~~054			1216,~~832~~180
Computer software	1618,~~028~~645			1117,~~428~~370
Computer equipment	910,~~416~~789			710,~~954~~358
Construction in progress	50403			~~345~~25
Property and equipment, gross	9095,~~802~~887			7893,~~410~~693
Less accumulated depreciation	(3640,~~061~~832		)	(3038,~~233~~573		)
Property and equipment, net	$	5455,~~741~~055		$	4855,~~177~~120

Depreciation expense related to property and equipment was $2.24 million and $21.09 million for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011, respectively, and $6.0 million and $5.6 million for the nine months ended September 30,~~ 2012 ~~and 2011~~, respectively.

Property and equipment are recorded at either cost for assets purchased or constructed, or fair value in the case of assets acquired through business combinations. The costs of improvements that extend the useful life of property and equipment are capitalized when incurred. These capitalized costs may include structural costs, equipment, fixtures, and floor, and wall coverings. All repair and maintenance costs are expensed as incurred.

Buildings and leasehold improvements are depreciated using the straight-line method over the lesser of the estimated useful lives, which range from four to forty years, or the remainder of the lease terms. Furniture, office equipment, computer software and computer equipment are depreciated using the straight-line method over their estimated useful lives, which range from three to seven years.

In connection with the PMR Acquisition completed in May 2012, the Company acquired $1.4 million in furniture, office and computer equipment, and leasehold improvements based on a preliminary appraisal. See Note 20~~— Business Combinations for further details.~~

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued


Note 11	— Intangible Assets, Net

Intangible assets, net as of March 31, 2013 consisted of the following (in thousands):

Intangible assets, net consisted of the following as of September 30, 2012 (in thousands):



	Gross Carrying Cost		Accumulated Amortization			Net Book Value
Management contracts	$	117,107	$	(22,853	)	$	94,254
Member relationships	37,842		(27,729		)	10,113
Distributor relationships and other	4,842		(897		)	3,945
	$	159,791	$	(51,479	)	$	108,312

	Gross CarryingCost		AccumulatedAmortization			Net BookValue
Management contracts	$	113,938	$	(19,322	)	$	94,616
Member relationships	36,203		(25,377		)	10,826
Distributor relationships and other	1,033		(516		)	517
	$	151,174	$	(45,215	)	$	105,959

Intangible assets, net as of December 31, 2012 consisted of the following (in thousands):

Intangible assets, net consisted of the following as of December 31, 2011 (in thousands):



	Gross Carrying Cost		Accumulated Amortization			Net Book Value
Management contracts	$	117,672	$	(20,931	)	$	96,741
Member relationships	38,017		(26,348		)	11,669
Distributor relationships and other	4,866		(778		)	4,088
	$	160,555	$	(48,057	)	$	112,498

	Gross CarryingCost		AccumulatedAmortization			Net BookValue
Management contracts	$	75,043	$	(14,072	)	$	60,971
Member relationships	29,325		(23,032		)	6,293
Distributor relationships and other	1,230		(385		)	845
	$	105,598	$	(37,489	)	$	68,109

Amortization expense for management contracts is recognized on a straight-line basis over the estimated useful lives ranging from five to twenty-five years. Amortization expense for management contracts was $2.2 million and $1.4 million for the three months ended March 31, 2013 and 2012, respectively. Amortization expense for member relationships, distributor relationships and other is amortized over the period of time that the relationships are expected to produce cash flows. Amortization expense for member relationships, distributor relationships and other intangibles was $1.6 million and $0.5 million for the three months ended March 31, 2013 and 2012, respectively. Membership relationships and distributor relationships have estimated useful lives ranging from three to thirty years. However, the Company expects to generate significantly more cash flows during the earlier years of the relationships than the later years. Consequently, amortization expenses on these relationships decrease significantly over the lives of the relationships.

InThe ~~connection~~estimated ~~with~~aggregate ~~the~~amortization ~~PMR~~expense ~~Acquisition~~for ~~completed~~intangible inassets ~~May~~is ~~2012,~~expected ~~the~~to ~~Company~~be ~~recorded~~ $4513.13 million, of$12.0 ~~intangible~~million, ~~assets~~$8.5 ~~based~~million, on$7.4 amillion ~~preliminary~~and ~~appraisal~~$6.5 ~~See~~million ~~Note~~for ~~20—Business~~the ~~Combinations~~twelve ~~for~~months ~~further~~ending ~~details.~~March 31, 2014 through 2018, respectively.

Amortization expense for management contracts is recognized on a straight-line basis over the estimated useful lives ranging from five to twenty-five years. Amortization expense for management contracts was $2.0 million and $1.3 million for the three months ended September 30, 2012 and 2011, respectively, and was $5.0 million and $3.3 million for the nine months ended September 30, 2012 and 2011, respectively. Amortization expense for member relationships, distributor relationships and other is amortized over the period of time that the relationships are expected to produce cash flows. Amortization expense for member relationships, distributor relationships and other intangibles was $1.1 million and $0.5 million for the three months ended September 30, 2012 and 2011, respectively, and was $2.4 million and $1.3 million for the nine months ended September 30, 2012 and 2011, respectively. Membership relationships and distributor relationships have estimated useful lives ranging from three to thirty years. However, the Company expects to generate significantly more cash flows during the earlier years of the relationships than the later years. Consequently, amortization expenses on these relationships decrease significantly over the lives of the relationships.

The estimated aggregate amortization expense for intangible assets, notwithstanding future acquisitions, if any, is expected to be $12.1 million, $11.7 million, $9.9 million, $7.0 million and $6.7 million for the twelve month periods ending September 30, 2013 through 2017, respectively.

Note 12 — Assets Held for Sale

Assets held for sale are recorded at the lower of cost or their estimated fair value less cost to sell and are not subject to depreciation. Sale of the assets classified as such is probable, and transfer of the assets is expected to qualify for recognition as a completed sale, generally within one year of the balance sheet date. During the year ended December 31, 2010, the Company made the decision to sell certain resorts and certain units in its European operations. A portion of the units ~~were~~was sold by ~~September~~March 3031, ~~2012~~2013. During the nine months ended September 30, 2012, approximately $1.4 million was transferred from assets held for sale to intangibles and unsold Vacation Interests, net as the pending sales on these assets were canceled and they are not expected to be sold within one year of the balance sheet date.

The $4.29 million balance in assets held for sale as of ~~September~~March 3031, ~~2012~~2013 consisted of the points equivalent of unsold units and resorts that are either held for sale or pending the consummation of sale. As of ~~September~~March 3031, ~~2012~~2013, the Company iswas a party to sales contracts entered into during ~~the~~2012 ~~first~~and ~~quarter of~~ 2011 ~~and the second quarter of 2012~~ for approximately $31.53 million and $03.24 million, respectively, of units that ~~are~~were classified as held for sale. The proceeds will be paid over several years and the Company will retain title to the properties until the full amounts due under the sales contracts are received. According to guidance included in ASC 360, "Property, Plant, and Equipment," the sales shall not be considered consummated until all consideration has been exchanged. Consequently, the assets pending consummation of sale will continue to be included in assets held for sale until all proceeds are received.

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consideration has been exchanged. Consequently, the assets pending consummation of sale will continue to be included in assets held for sale until all proceeds are received.

Note 13 — Accrued Liabilities

The Company records estimated amounts for certain accrued liabilities at each period end. Accrued liabilities are obligations to transfer assets or provide services to other entities in the future as a result of past transactions or events. The nature of selected balances included in accrued liabilities of the Company includes:

Accrued marketing expenses—expenses for travel vouchers and certificates used as sales incentives to buyers as well as attraction tickets as tour incentives. Such vouchers and certificates will be paid for in the future based on actual redemption.

~~Accrued exchange company fees—estimated liability owed to an exchange company for annual dues.~~21

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Accrued exchange company fees—estimated liability owed to Interval International for annual dues related to exchange services provided to the Company.

Accrued operating lease liabilities—difference between straight-line operating lease expenses and cash payments associated with any equipment, furniture, or facilities leases classified as operating leases.

Deposits on pending sale of assets—deposits that the Company has received in connection with the pending sales of certain assets in its European operations. The sale of these assets has not been consummated due to the fact that not all consideration has been exchanged. These deposits are, therefore, accounted for using the deposit method in accordance with ASC 360, "Property, Plant and Equipment"." See Note 12—Assets Held for Sale for further detail.

Accrued contingent litigation liabilities—estimated settlement costs for existing litigation cases.

Accrued call center costs—expenses associated with the outsourced customer service call center operations.

Accrued ~~liabilities~~contingent ~~for~~litigation ~~the~~liabilities—estimated ~~periods~~settlement ~~presented~~costs ~~below~~for ~~consisted~~existing oflitigation ~~the following (in thousands):~~cases.

	September 30, 2012		December 31, 2011
Accrued payroll and related	$	18,970	$	18,947
Accrued commissions	10,144		5,951
Accrued interest	9,425		20,618
Accrued other taxes	8,445		6,903
Accrued marketing expenses	8,172		4,706
Accrued professional fees	8,164		2,046
Accrued exchange company fees	3,592		1,044
Accrued operating lease liabilities	3,079		2,092
Accrued insurance	2,415		1,478
Deposits on pending sale of assets	1,715		865
Accrued contingent litigation liabilities	1,186		1,184
Accrued call center costs	423		1,173
Other	5,051		3,319
Total accrued liabilities	$	80,781	$	70,326

Accrued liabilities as of the dates presented below consisted of the following (in thousands):



	March 31, 2013		December 31, 2012
Accrued payroll and related	$	21,547	$	22,313
Accrued interest	11,684		23,627
Accrued commissions	11,570		12,021
Accrued marketing expenses	10,675		12,189
Accrued exchange company fees	9,021		1,209
Accrued professional fees	6,797		5,472
Accrued other taxes	6,763		7,165
Accrued operating lease liabilities	3,670		3,438
Deposits on pending sale of assets	3,615		2,693
Accrued insurance	3,321		4,983
Accrued liability related to business combinations	3,301		3,400
Accrued call center costs	1,715		2,060
Accrued contingent litigation liabilities	1,244		1,102
Other	5,097		4,779
Total accrued liabilities	$	100,020	$	106,451

Note 14 — Deferred Revenues

The Company records deferred revenues for payments received or billed but not earned for various activities.

Deferred mini-vacations and sampler programs revenue—sold but unused trial ~~Vacation Interests~~VOIs. This revenue is recognized when the purchaser completes a stay at one of the Company’s resorts or the trial period expires, whichever is earlier. Such revenue is recorded as a reduction to Vacation Interest carrying cost in accordance with ASC 978, with the exception of the Company’s European sampler product and a U.S. fixed-term product, both of which are three years in duration and, as such, are treated as Vacation Interest sales revenue.

Deferred maintenance and reserve fee revenue—maintenance fees billed as of January first of each year and earned ratably over the year in the Company’s capacity as the HOA for the two resorts in St. Maarten. In addition, the HOA will periodically bill the owners for capital project assessments to repair and replace the amenities or to reserve the out-of-pocket deductibles for hurricanes and other natural disasters. These assessments are deferred until refurbishment activity occurs, at which time the amounts collected are recognized as consolidated resort operations revenue, with an equal amount recognized as consolidated resort operations expense.

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THE Club deferred revenue—THE Club annual membership fees billed to members (offset by an estimated uncollectible amount) and amortized ratably over a one-year period and optional reservation protection fees recognized over an approximate life of the member's reservation, which is generally six months on average.

Deferred ~~management~~maintenance ~~fees~~ and ~~allocations~~reserve fee revenue—~~-management~~maintenance fees ~~and~~billed ~~allocations~~as ~~paid~~of inJanuary ~~advance~~first byof ~~the~~each ~~HOAs~~year toand ~~the~~earned ~~Company~~ratably ~~for~~over ~~its~~the ~~role~~year asfor the ~~management~~two ~~company~~resorts in St. ~~The~~ ~~Company~~Maarten ~~allocates~~where athe ~~portion~~Company offunctions ~~its~~as ~~Vacation~~the ~~Interest~~HOA. ~~carrying~~In ~~costs~~addition, ~~management~~the ~~and~~owners ~~member~~are ~~services,~~billed ~~consolidated~~for ~~resort~~capital ~~operations,~~project ~~loan~~assessments ~~portfolio,~~to repair and ~~general~~replace ~~and~~the ~~administrative~~amenities ~~expenses~~or to reserve the ~~HOAs~~out-of-pocket deductibles for hurricanes and other natural disasters. These ~~advance~~assessments ~~payments~~ are ~~recorded~~deferred asuntil ~~deferred~~the ~~revenue~~refurbishment ~~when~~activity ~~they~~occurs, ~~are~~at ~~received~~which ~~and~~time the amounts collected are recognized as consolidated resort operations revenue, ~~during~~with ~~the~~an ~~period~~equal ~~that~~amount ~~they~~recognized ~~are~~as ~~earned.~~consolidated resort operations expense.

Deferred revenue from an exchange company—unearned portion of a $5.0 million payment that the Company received in 2008 as consideration for granting the exclusive rights to an exchange company to provide call center services and exchange services to the Company. In accordance with ASC 605-50, "Revenue Recognition — Customer Payments and Incentives", the $5.0 million will be recognized over the 10-year term of the agreements as a reduction of the costs incurred for the services provided by the exchange company.

Accrued guest deposits—amounts received from guests for future rentals recognized as revenue when earned.

Deferred amenity fee revenue—amenity fees are charged to VOI owners at a certain resort to cover costs associated with the swimming pools, tennis courts and golf course. These fees are billed annually and amortized ratably over the year. 22

Deferred revenues for the periods presented below consisted of the following (in thousands):

	September 30, 2012		December 31, 2011
Deferred mini-vacation and sampler program revenue	$	28,536	$	16,954
Deferred maintenance and reserve fee revenue	15,912		11,508
THE Club deferred revenue	9,546		38,124
Deferred management fees and allocation revenue	3,313		—
Deferred revenue from an exchange company	2,466		2,787
Accrued guest deposits	1,202		659
Deferred amenity fee revenue	606		—
Other	770		742
Total deferred revenues	$	62,351	$	70,774

Note 15— Borrowings

Senior Secured Notes. On August 13, 2010, the Company completed the issuance of $425.0 million of principal amount of Senior Secured Notes. The Senior Secured Notes carry an interest rate of 12.0% and were issued with an original issue discount of 2.5%, or $10.6 million. Interest payments will be made in arrears on February 15 and August 15 of each year, commencing February 15, 2011.

Conduit Facilities, 2009 Securitization and 2011 Securitization. On November 3, 2008, the Company entered into agreements for its 2008 conduit facility ("2008 Conduit Facility"), pursuant to which it issued secured VOI receivable-backed variable funding notes designated as Diamond Resorts Issuer 2008 LLC, Variable Funding Notes, in an aggregate principal amount not to exceed $215.4 million, which was decreased to $200.0 million, $73.4 million and $64.6 million on March 27, 2009, October 15, 2009 and August 31, 2010, respectively. On October 14, 2011, the Company entered into an amended and restated 2008 Conduit Facility that extended the maturity date of the facility to April 12, 2013. The amendment provides for a $75.0 million, 18-month facility that is annually renewable for 364-day periods at the election of the lenders, bears interest at either LIBOR or the commercial paper rate (having a floor of 0.50%) plus 4.0%, and has a non-use fee of 0.75%. The advance rates on loans receivable in the portfolio are limited to 75% of the face value of the eligible loans.

On October 15, 2009, the Company completed the 2009 securitization transaction and issued two consumer loan backed notes designated as Diamond Resorts Owners Trust Series 2009-1 Class A (the "DROT 2009 Class A Notes"), and Series 2009-1 Class B, (the "DROT 2009 Class B Notes" and together with the DROT 2009 Class A Notes, the "DROT 2009 Notes"). The Class A notes carry an interest rate of 9.3% and had an initial face value of $169.2 million. The Class B notes carry an interest rate of 12.0% and had an initial face value of $12.8 million. The DROT 2009 Notes have a maturity date of March 20, 2026.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

OnDeferred ~~April~~revenue ~~27,~~from ~~2011,~~an exchange company—unearned portion of a $5.0 million payment that the Company ~~completed~~received in 2008 as consideration for granting the ~~2011~~exclusive ~~securitization~~rights ~~transaction~~to Interval International to provide call center services and ~~issued~~exchange services to the ~~Diamond~~Company. ~~Resorts~~In ~~Owners~~accordance ~~Trust~~with ~~Series~~ASC ~~2011~~605-150, ~~Notes~~"Revenue ~~with~~Recognition a— ~~face~~Customer ~~value~~Payments ofand Incentives," the $~~64.~~5.0 million ~~("DROT~~will ~~2011~~be ~~Notes").~~recognized ~~The~~over ~~DROT~~the ~~2011~~10-year ~~Notes~~term ~~mature~~of ~~March~~the ~~20,~~agreements ~~2023~~as ~~and~~a ~~have~~reduction anof ~~interest~~the ~~rate~~costs ofincurred 4for the services provided by Interval International.~~0%.~~

~~Quorum~~Deferred ~~Facility.~~revenues ~~The Company's subsidiary, DRI Quorum, entered into a Loan Sale and Security Agreement (the "LSSA"), dated~~ as of April 30, 2010 with Quorum Federal Credit Union ("Quorum") as purchaser. The LSSA and related documents provide for an aggregate minimum $40 million loan sale facility and joint marketing venture ("Quorum Facility") where DRI Quorum may sell eligible consumer loans and in-transit loans to Quorum on a non-recourse, permanent basis, provided that the ~~underlying~~dates ~~consumer~~presented ~~obligor~~below isconsisted ~~a Quorum credit union member. The joint marketing venture has a minimum term~~ of ~~two years and~~ the LSSA provides for a purchase period of two years. The purchase price payment and the program purchase fee are each determined at the time that the loan is sold to Quorum. To the extent excess funds remain after payment of the sold loans at Quorum’s purchase price, such excess funds shall be remitted to the Company as a deferred purchase price payment. This transaction did not qualify as a loan sale under U.S. GAAP. On April 27, 2012, the Quorum Facility agreement was amended to increase the aggregate minimum of the Quorum Facility to $60.0 million and to extend the term of the agreement by providing that the term shall automatically be extended for one year periods following ~~the~~(in ~~initial term, provided that either party may terminate the agreement at any time with a sixty-day written notice to the other party.~~thousands):

At September 30, 2012, the weighted average purchase price payment was 89.6% of the obligor loan amount and the weighted average program purchase fee was 6.3%.



	March 31, 2013		December 31, 2012
Deferred mini-vacation and sampler program revenue	$	38,572	$	33,633
THE Club deferred revenue	31,015		41,097
Deferred maintenance and reserve fee revenue	30,642		13,335
Accrued guest deposits	2,777		2,100
Deferred revenue from an exchange company	2,193		2,350
Deferred amenity fee revenue	1,818		—
Deferred management fees and allocation revenue	413		360
Other	1,013		958
Total deferred revenues	$	108,443	$	93,833

~~ILXA~~Note ~~Receivables~~15 ~~Loan~~— ~~and~~Borrowings Inventory Loan. On August 31, 2010, the Company entered into agreements to acquire certain assets from ILX Resorts Incorporated and its affiliates through its wholly-owned subsidiary, ILXA (the "ILX Acquisition"). The purchase price was a cash payment of approximately $6.9 million and the assumption of approximately $23.8 million in liabilities. In connection with the ILX Acquisition, ILXA entered into an Inventory Loan and Security Agreement ("ILXA Inventory Loan") and a Receivables Loan and Security Agreement ("ILXA Receivables Loan") with Textron Financial Corporation. The ILXA Inventory Loan is a non-revolving credit facility in the maximum principal amount of $23.0 million with an interest rate of 7.5%. The ILXA Receivables Loan is a receivables facility with an initial principal amount of $11.9 million with an interest rate of 10% and is collateralized by mortgages and contracts receivable of ILXA. Both loans mature on August 31, 2015. ILXA and each of its wholly-owned subsidiaries are special purpose and unrestricted subsidiaries.

~~Tempus~~Senior ~~Acquisition~~Secured ~~Loan and Tempus Resorts Acquisition Financing~~Notes. On ~~July 1~~August 13, ~~2011~~2010, the Company completed the ~~Tempus~~issuance ~~Resorts~~of ~~Acquisition~~$425.0 ~~through~~million ~~Mystic~~of ~~Dunes,~~principal ~~LLC,~~amount ~~a wholly-owned subsidiary~~ of ~~Tempus~~Senior ~~Acquisition,~~Secured ~~LLC~~Notes. InThe ~~order~~Senior toSecured ~~fund~~Notes ~~the~~carry ~~Tempus~~an ~~Resorts~~interest ~~Acquisition,~~rate ~~Tempus~~of ~~Acquisition,~~12.0% ~~LLC, entered into a Loan~~ and ~~Security~~were ~~Agreement~~issued with ~~Guggenheim~~an ~~Corporate~~original ~~Funding,~~issue ~~LLC,~~discount asof ~~administrative~~2.5%, ~~agent~~or ~~for~~$10.6 ~~the~~million. ~~lender~~Interest ~~parties~~payments ~~thereto~~are ~~(the~~due ~~"Tempus~~in ~~Acquisition~~arrears ~~Loan").~~on ~~The~~February 15 ~~Tempus~~and ~~Acquisition~~August 15 ~~Loan~~of iseach ~~collateralized~~year, bycommencing ~~all assets of Tempus Acquisition~~February 15, ~~LLC~~2011. The ~~Tempus~~Senior ~~Acquisition~~Secured ~~Loan~~Notes ~~was~~mature ~~initially~~ in anAugust ~~aggregate~~2018 ~~amount of $41.1 million (which included a $5.5 million revolving loan), has an interest rate of 18.0% (of which 10.0% is paid currently~~ and ~~the remaining~~ may be ~~paid~~redeemed inby ~~cash~~the orCompany ~~accrued~~at ~~and~~any ~~added~~time pursuant to the ~~principal~~terms ~~amount~~ of the ~~Tempus~~Senior ~~Acquisition~~Secured ~~Loan),~~Notes. ~~and~~If ~~matures~~the onCompany ~~June 30~~redeems, ~~2015.~~in Inwhole ~~addition,~~or ~~Tempus~~in ~~Acquisition~~part, ~~LLC~~the isSenior ~~also~~Secured ~~required~~Notes toprior ~~make an exit fee payment for up~~ to ~~10%~~August of2014, the ~~initial~~redemption ~~Tempus~~price ~~Acquisition~~will ~~Loan~~be ~~balance upon~~ the ~~final~~face ~~payment-in-full~~value of the ~~outstanding~~Senior ~~balance~~Secured ~~under~~Notes ~~the~~plus ~~loan.~~accrued Onand ~~September~~unpaid ~~28,~~interest ~~2012,~~and ~~Tempus~~an ~~Acquisition,~~applicable ~~LLC~~premium. ~~amended~~If the ~~Loan~~Company ~~and~~redeems ~~Security~~all ~~Agreement~~or topart ~~terminate~~of the ~~revolving~~Senior ~~loan~~Secured ~~and~~Notes ~~transfer~~on ~~the~~or ~~then-outstanding~~after ~~balance~~August ~~under~~2014, the ~~revolving~~redemption ~~loan~~price towill ~~the~~be ~~term~~106% ~~loan.~~of Onthe ~~October~~face 4,value ~~2012,~~of ~~Tempus Acquisition, LLC further amended~~ the ~~Loan~~Senior ~~and~~Secured ~~Security~~Notes, ~~Agreement~~subject to ~~provide~~decreases anover ~~additional $6.6 million borrowing under~~ the ~~term~~next ~~loan~~two ~~to fund the Aegean Blue Acquisition~~years.

AnConduit Facilities, 2009 Securitization, 2011 Securitization, and 2013 Securitization. On November 3, 2008, the Company entered into agreements for its 2008 conduit facility ("2008 Conduit Facility"), pursuant to which it issued secured VOI receivable-backed variable funding notes designated as Diamond Resorts Issuer 2008 LLC Variable Funding Notes in an aggregate ofprincipal amount not to exceed $7215.54 million, which was decreased to $200.0 million, $73.4 million and $64.6 million on March 27, 2009, October 15, 2009 and August 31, 2010, respectively. On October 14, 2011, the Company entered into an amended and restated 2008 Conduit Facility agreement that extended the maturity date of the ~~Tempus~~facility ~~Acquisition~~to ~~Loan~~April 12, 2013. The amendment provided for a $75.0 million, 18-month facility that was ~~used~~annually byrenewable ~~Tempus~~for ~~Acquisition~~364-day periods at the election of the lenders, ~~LLC~~bore tointerest ~~purchase~~at either LIBOR or the commercial paper rate (having a 10floor of 0.50%) ~~participating~~plus ~~interest~~4.0%, and had a non-use fee of 0.75%. The advance rates on loans receivable in the ~~Tempus~~portfolio ~~Receivables~~were ~~Loan~~limited ~~and~~to 75% of the ~~remaining~~face ~~proceeds~~value ~~were~~of ~~loaned~~the toeligible ~~Mystic~~loans. ~~Dunes~~On April 11, ~~LLC~~2013, ~~pursuant~~the toCompany aentered ~~Loan~~into another amended and ~~Security~~restated ~~Agreement~~2008 ~~having~~Conduit ~~payment~~Facility ~~terms~~agreement ~~identical~~that toextended the ~~Tempus~~maturity ~~Acquisition~~date ~~Loan~~of (the ~~"Mystic~~facility ~~Dunes~~to ~~Loan")~~April 10, 2015. ~~The~~That ~~Mystic~~amended ~~Dunes~~and ~~Loan~~restated 2008 Conduit Facility provides for a $125.0 million, 24-month facility that is ~~collateralized~~annually byrenewable ~~all~~for ~~assets~~364-day periods at the election of ~~Mystic~~the ~~Dunes~~lenders, ~~LLC.~~bears ~~The~~interest ~~proceeds~~at ofeither LIBOR or the ~~Mystic~~commercial ~~Dunes~~paper ~~Loan~~rate ~~were~~(each ~~used~~having toa ~~pay~~floor ~~off~~of ~~certain~~0.50%) ~~existing~~plus ~~indebtedness~~3.25%, and ~~closing~~has ~~costs~~a ~~associated~~non-use ~~with~~fee of 0.75%. The overall advance rate on loans receivable in the ~~Tempus~~portfolio ~~Resorts~~is ~~Acquisition~~limited to 85% of the aggregate face value of the eligible loans.

~~Additionally~~On October 15, ~~Mystic~~2009, ~~Dunes~~the ~~Receivables,~~Company ~~LLC,~~completed athe ~~subsidiary~~2009 ofsecuritization ~~Mystic~~transaction ~~Dunes,~~and ~~LLC~~issued ~~entered~~two ~~into~~consumer aloan ~~Loan~~backed notes designated as the Diamond Resorts Owner Trust ("DROT") 2009 Class A Notes and ~~Security~~the ~~Agreement~~DROT ~~with~~Series ~~Resort~~2009 ~~Finance~~Class B ~~America~~Notes, ~~LLC~~ (together, the "~~Tempus~~DROT ~~Receivables~~2009 ~~Loan~~Notes"). The ~~Tempus~~DROT ~~Receivables~~2009 ~~Loan~~Class A isNotes acarry ~~receivables~~an ~~credit~~interest ~~facility~~rate inof ~~the~~9.3% ~~amount~~and had an initial face value of $74169.52 million,. ~~collateralized~~The byDROT ~~mortgages~~2009 Class B Notes carry an interest rate of 12.0% and ~~contracts~~had ~~receivable~~an ~~acquired~~initial inface ~~the~~value ~~Tempus~~of ~~Resorts~~$12.8 ~~Acquisition~~million. ~~All~~The ~~cash~~DROT ~~flows~~2009 ~~received~~Notes ~~from~~have ~~customer~~a ~~payments,~~maturity ~~including~~date ~~principal,~~of ~~interest~~March ~~and~~20, ~~miscellaneous~~2026. ~~fees~~The (net ofproceeds ~~contractual~~received ~~servicing~~were ~~costs)~~$181.1 ~~are~~million ~~used~~compared to ~~pay~~ the ~~principal~~$182.0 ~~and~~million ~~accrued~~face ~~interest~~value ~~balances~~and on the ~~Tempus~~Company ~~Receivables~~recorded ~~Loan~~the $0.9 Inmillion ~~addition,~~difference ~~Mystic~~as ~~Dunes~~an ~~Receivables,~~original ~~LLC~~issue isdiscount ~~required~~on tothe ~~make~~securitization ~~additional~~notes ~~principal~~payable. ~~payments~~Also inon ~~the~~October 15, ~~event~~2009, the ~~aging~~Company ~~status~~used of the ~~receivables~~proceeds infrom the ~~underlying~~DROT ~~portfolio~~2009 ~~does~~Notes ~~not~~to ~~meet~~pay ~~certain~~down ~~requirements~~the $148.9 ~~During~~million ~~the~~then-outstanding ~~nine~~principal ~~months~~balance ~~ended~~under ~~September 30,~~its ~~2012,~~2008 ~~Mystic~~Conduit ~~Dunes~~Facility, ~~LLC~~along ~~made~~with ~~additional~~requisite ~~principal~~accrued ~~payments~~interest ofand ~~$0.1~~fees ~~million~~associated ~~pursuant~~with toboth ~~this~~conduit ~~requirement~~facilities. ~~The~~

21On April 27, 2011, the Company completed a securitization transaction and issued the DROT 2011 Notes with a face value of $64.5 million ("DROT 2011 Notes"). The DROT 2011 Notes mature on March 20, 2023 and carry an interest rate of

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~Tempus~~4.0%. ~~Receivables~~The ~~Loan~~net ~~has~~proceeds anwere ~~interest~~used ~~rate~~to ~~which~~pay isoff ~~the~~in ~~higher~~full ofthe ~~(i)~~$36.4 ~~one~~million then-~~month~~outstanding ~~LIBOR~~principal ~~plus~~balance ~~7.0%~~under ~~and~~the ~~(ii)~~2008 ~~10%,~~Conduit ~~adjusted monthly~~Facility, ~~and~~to ~~matures~~pay ondown ~~July~~approximately ~~1, 2015~~$7.0 ~~Furthermore,~~million of the ~~Company~~Quorum isFacility ~~obligated~~(see definition below), to pay ~~Resort~~requisite ~~Finance~~accrued ~~America,~~interest ~~LLC~~and anfees ~~initial~~associated ~~defaulted~~with ~~timeshare~~both ~~loans~~facilities, ~~release~~and ~~fee~~to ~~over~~pay 36certain ~~months~~expenses ~~from~~incurred ~~August~~in ~~2011~~connection ~~through~~with ~~July~~the ~~2014~~issuance ~~("Notes~~of ~~Payable—RFA~~the ~~fees").~~DROT ~~The~~2011 ~~fee~~Notes, ~~was~~including ~~recorded~~the atfunding ~~fair value as~~ of ~~July 1, 2011 using~~ a ~~discount~~reserve ~~rate~~account ofrequired ~~10%~~thereby.

~~Another~~On ~~subsidiary~~January 23, ~~of Mystic Dunes~~2013, ~~LLC~~the ~~entered~~Company ~~into~~completed ana ~~Amended~~securitization ~~and~~transaction ~~Restated Inventory Loan~~ and ~~Security~~issued ~~Agreement with Textron Financial Corporation (~~the ~~“Tempus~~DROT ~~Inventory~~2013 ~~Loan”)~~Notes inwith ~~the~~a ~~maximum~~face ~~amount~~value of $493.36 million, ~~collateralized~~("DROT by2013 ~~certain~~Notes"). ~~VOI~~The ~~inventory~~DROT ~~acquired~~2013 inNotes ~~the~~mature ~~Tempus~~on ~~Resorts~~January 20, ~~Acquisition.~~2025 ~~The~~and ~~Tempus~~carry ~~Inventory~~a ~~Loan~~weighted ~~has~~average an interest rate of ~~three-month LIBOR (with a floor of~~ 2.0%~~) plus 5~~.5% ~~and~~The ~~matures~~net onproceeds ~~June~~were ~~30,~~used ~~2016, subject~~ to ~~extension~~pay tooff ~~June~~the ~~30,~~then-outstanding ~~2018.~~principal ~~Hereinafter,~~balance under the ~~Tempus~~2008 ~~Acquisition~~Conduit ~~Loan,~~Facility ~~the~~and ~~Mystic~~to ~~Dunes~~pay ~~Loan,~~expenses ~~the~~incurred ~~Tempus~~in ~~Receivables~~connection ~~Loan~~with ~~and~~ the ~~Tempus~~issuance ~~Inventory~~of ~~Loan~~the ~~are~~DROT ~~sometimes~~2013 ~~collectively~~Notes, ~~referred~~including tothe ~~herein~~funding asof ~~the~~a ~~"Tempus~~reserve ~~Loans~~account required thereby."

~~Tempus~~Quorum ~~Acquisition~~Facility. The Company's subsidiary, ~~LLC~~DRI Quorum, ~~Mystic~~entered ~~Dunes~~into a Loan Sale and Servicing Agreement (the "LSSA"), ~~LLC~~dated as of April 30, 2010 (as amended and restated, the “Quorum Facility”) with Quorum Federal Credit Union ("Quorum") as purchaser. The LSSA and related documents provide for an aggregate minimum $40.0 million loan sale facility and joint marketing venture where DRI Quorum may sell eligible consumer loans and in-transit loans to Quorum on a non-recourse, permanent basis, provided that the underlying consumer obligor is a Quorum credit union member. The joint marketing venture has a minimum term of two years, and the LSSA provides for a purchase period of two years. The purchase price payment and the program purchase fee are each determined at the time that the loan is sold to Quorum. To the extent excess funds remain after payment of ~~its~~the ~~wholly-owned~~sold ~~subsidiaries~~loans at Quorum’s purchase price, such excess funds are ~~special~~required ~~purpose~~to be remitted to the Company as a deferred purchase price payment. This transaction did not qualify as a loan sale under U.S. GAAP. The LSSA was amended on April 27, 2012 to increase the aggregate minimum committed amount of the Quorum Facility to $60.0 million. The LSSA was further amended and ~~unrestricted~~restated ~~subsidiaries~~effective as of December 31, 2012 to increase the aggregate minimum committed amount to $80.0 million and to extend the term of the agreement to December 31, 2015; provided that Quorum may further extend the term for additional one-year periods by written notice. As of March 31, 2013, the weighted average purchase price payment was 89.7% of the obligor loan amount and the weighted average program purchase fee was 6.1%.

~~DPM~~ILXA ~~Acquisition~~Receivables Loan and Inventory Loan. On ~~May 21~~August 31, ~~2012~~2010, ~~DPMA~~the Company completed the ~~PMR~~ILX Acquisition ~~whereby~~through itits ~~acquired~~wholly-owned ~~assets~~subsidiary, ~~pursuant~~ILXA. toIn connection with the ILX Acquisition, ILXA entered into an ~~Asset~~Inventory ~~Purchase~~Loan and Security Agreement, ~~among~~("ILXA ~~DPMA~~Inventory Loan") and ~~Pacific~~a ~~Monarch~~Receivables ~~Resorts,~~Loan ~~Inc.,~~and ~~Vacation~~Security ~~Interval~~Agreement ~~Realty,~~("ILXA ~~Inc.,~~Receivables ~~Vacation~~Loan") ~~Marketing~~with ~~Group,~~Textron ~~Inc~~Financial Corporation., ~~MGV~~The ~~Cabo,~~ILXA ~~LLC,~~Inventory ~~Desarrollo~~Loan ~~Cabo~~is ~~Azul,~~a S.non-revolving decredit ~~R.L.~~facility dein ~~C.V.,~~the ~~and~~maximum ~~Operadora~~principal ~~MGVM~~amount Sof $23.0 demillion ~~R.L.~~with dean ~~C.V. Pursuant~~interest torate ~~the~~of ~~Asset~~7.5%. ~~Purchase~~The ~~Agreement,~~ILXA ~~DPMA~~Receivables ~~acquired~~Loan ~~certain~~is ~~real~~a ~~estate~~receivables ~~and~~facility ~~timeshare~~with ~~related~~an ~~assets,~~initial ~~for~~principal ~~approximately~~amount of $5111.69 million inwith ~~cash,~~an ~~plus~~interest ~~the~~rate ~~assumption~~of 10.0% and is collateralized by mortgages and contracts receivable of ~~specified~~ILXA. ~~liabilities~~Both ~~related~~loans tomature ~~the~~on ~~acquired~~August 31, ~~assets~~2015. ILXA and each of its wholly-owned subsidiaries are special-purpose subsidiaries.

Tempus Acquisition Loan and Tempus Resorts Acquisition Financing. On July 1, 2011, the Company completed the Tempus Resorts Acquisition through Mystic Dunes, LLC, a wholly-owned subsidiary of Tempus Acquisition, LLC. In order to fund the ~~PMR~~Tempus Resorts Acquisition, onTempus ~~May 21~~Acquisition, ~~2012,~~LLC ~~DPMA~~ entered into a Loan and Security Agreement with Guggenheim Corporate Funding, LLC, as administrative agent for ~~the~~lenders, ~~lender~~which ~~parties~~include ~~thereto~~affiliates of, ~~and~~or funds managed or advised by, Guggenheim, which is an affiliate of the ~~lenders~~Guggenheim ~~party~~Investor, ~~thereto~~and Silver Rock Financial LLC, which is an affiliate of an investor in the Company (the ~~"DPM~~“Tempus Acquisition Loan"”). The ~~DPM~~Tempus Acquisition Loan is collateralized by ~~substantially~~ all ~~of the~~ assets of ~~DPMA~~Tempus Acquisition, LLC. The ~~DPM~~Tempus Acquisition Loan iswas initially in an aggregate principal amount of $7141.31 million (which ~~initially~~included ~~consisted of~~ a $615.35 million ~~term~~revolving loan ~~and a $10~~).0 ~~million~~The ~~revolving~~Tempus ~~loan),~~Acquisition ~~has~~Loan anbears interest at a rate of 18.0% (of which an amount equal to not less than 10.0% per annum is paid ~~currently~~in cash on a quarterly basis and the remaining accrued amount may be paid, at ~~DPMA~~Tempus Acquisition, LLC's election, in cash or in kind by adding the applicable accrued amount to principal), and ~~added~~matures on June 30, 2015. In addition, Tempus Acquisition, LLC paid a 2.0% closing fee based on the initial Tempus Acquisition Loan balance as of July 1, 2011 and is also required to make an exit fee payment for up to 10% of the initial Tempus Acquisition Loan balance upon the final payment-in-full of the outstanding balance under the loan. Tempus Acquisition, LLC is required to make principal prepayments equal to (i) on a monthly basis, 40% of the aggregate interval purchase price received by Mystic Dunes, LLC in the prior month, (ii) within one business day of receipt, net participation proceeds payments less amounts attributable to interest paid, generated by Tempus Acquisition, LLC's acquisition of a participating interest in the Tempus Receivables Loan, (iii) 100% of excess cash flow from the Tempus Resorts Acquisition and the Aegean Blue Acquisition, commencing with the quarter ending December 31, 2012, and (iv) $0.3 million, payable monthly, commencing in January 2013. Within 30 days after the end of each calendar year commencing with calendar year 2012, Tempus Acquisition, LLC is also required to make an additional prepayment in an amount equal to the difference between the aggregate principal prepayments paid in the calendar year and $5.0 million, such that a minimum of $5.0 million in aggregate annual principal reductions have been made. On September 28, 2012, Tempus Acquisition, LLC amended the ~~applicable~~Loan ~~term~~and orSecurity Agreement to terminate the revolving loan), and ~~matures~~transfer onthe ~~May~~then-outstanding 21balance under the revolving loan to the term loans. On October 4, ~~2016~~2012, Tempus Acquisition, LLC further amended the Loan and Security Agreement to provide an additional $6.6 million borrowing under the term loans to fund the Aegean Blue Acquisition. The Tempus Acquisition Loan

The DPM Acquisition Loan provides that (1) DPMA is required to pay quarterly (a) to Guggenheim Corporate Funding, LLC, for its own account, an administration fee, and (b) to Guggenheim Corporate Funding, LLC, for the benefit of lenders with commitments to make revolving loans thereunder, an unused line fee based upon each such lender's commitment to provide revolving loans and the then outstanding principal amount of such lender's revolving loan, (2) DPMA shall make certain mandatory monthly and quarterly prepayments of amounts borrowed under the DPM Acquisition Loan, and (3) on the maturity date for the term loan, if not paid earlier in accordance therewith, DPMA is required to pay an exit fee of up to 10.0% of the initial loan amount. On the closing date for the PMR Acquisition, pursuant to the DPM Acquisition Loan, DPMA paid a closing fee of approximately $2.1 million to Agent and certain lenders party thereto. The proceeds of the DPM Acquisition Loan were used to fund the purchase price for the PMR Acquisition and closing costs associated therewith. 24

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was further amended on November 20, 2012 and December 31, 2012 to increase the term loans by $2.5 million and $5.0 million respectively, to pay separation payments to principals of the Mystic Dunes resorts, and to fund guaranties and indemnities required to be paid to Mystic Dunes, LLC's HOAs. Some of the investment advisory clients of Wellington Management Company, LLP ("Wellington Management Investors") also became lenders under this credit facility in connection with the December 2012 amendment to the Tempus Acquisition Loan.

An aggregate of $7.5 million of the Tempus Acquisition Loan was used by Tempus Acquisition, LLC to purchase a 10% participating interest in the Tempus Receivables Loan, and the remaining proceeds were loaned to Mystic Dunes, LLC pursuant to a Loan and Security Agreement having payment terms identical to the Tempus Acquisition Loan (the "Mystic Dunes Loan"). The Mystic Dunes Loan is collateralized by all assets of Mystic Dunes, LLC. The proceeds of the Mystic Dunes Loan were used to pay off certain existing indebtedness and closing costs associated with the Tempus Resorts Acquisition.

Additionally, Mystic Dunes Receivables, LLC, a subsidiary of Mystic Dunes, LLC, entered into a Loan and Security Agreement with Resort Finance America, LLC (the "Tempus Receivables Loan"). The Tempus Receivables Loan is a receivables credit facility in the amount of $74.5 million, collateralized by mortgages and contracts receivable acquired in the Tempus Resorts Acquisition. All cash flows received from customer payments, including principal, interest and miscellaneous fees (net of contractual servicing costs) are used to pay the principal and accrued interest balances on the Tempus Receivables Loan. In addition, Mystic Dunes Receivables, LLC is required to make additional principal payments in the event the aging status of the receivables in the underlying portfolio does not meet certain requirements. During the three months ended March 31, 2013 and 2012, Mystic Dunes, LLC made additional principal payments of $0.3 million and $0.1 million, respectively, pursuant to this requirement. The Tempus Receivables Loan bears interest at a rate that is the higher of (i) one-month LIBOR plus 7.0% or (ii) 10%, adjusted monthly, and matures on July 1, 2015. Furthermore, the Company is obligated to pay Resort Finance America, LLC an initial defaulted timeshare loans release fee over 36 months from August 2011 through July 2014 ("Notes Payable—RFA fees"). The fee was recorded at fair value as of July 1, 2011 using a discount rate of 10.0%.

Another subsidiary of Mystic Dunes, LLC entered into an Amended and Restated Inventory Loan and Security Agreement with Textron Financial Corporation (the “Tempus Inventory Loan”) in the maximum amount of $4.3 million, collateralized by certain VOI inventory acquired in the Tempus Resorts Acquisition. The Tempus Inventory Loan bears interest at a rate equal to the three-month LIBOR (with a floor of 2.0%) plus 5.5% and matures on June 30, 2016, subject to extension to June 30, 2018. Hereinafter, the Tempus Acquisition Loan, the Mystic Dunes Loan, the Tempus Receivables Loan and the Tempus Inventory Loan are sometimes collectively referred to herein as the "Tempus Loans."

Tempus Acquisition, LLC, Mystic Dunes, LLC and each of their respective wholly-owned subsidiaries are special-purpose subsidiaries.

PMR Acquisition Loan and Inventory Loan. On May 21, 2012, DPMA completed the PMR Acquisition whereby it acquired assets pursuant to an Asset Purchase Agreement, among DPMA and Pacific Monarch Resorts, Inc., Vacation Interval Realty, Inc., Vacation Marketing Group, Inc., MGV Cabo, LLC, Desarrollo Cabo Azul, S. de R.L. de C.V., and Operadora MGVM S. de R.L. de C.V. Pursuant to the Asset Purchase Agreement, DPMA acquired four resort management agreements, unsold VOIs and the rights to recover and resell such interests, a portion of the seller's consumer loans portfolio and certain real property and other assets, for approximately $51.6 million in cash, plus the assumption of specified liabilities related to the acquired assets.

In order to fund the PMR Acquisition, on May 21, 2012, DPMA entered into a Loan and Security Agreement with Guggenheim Corporate Funding, LLC, as administrative agent for lenders, which include affiliates of, or funds managed or advised by, Guggenheim, which is an affiliate of the Guggenheim Investor, Wellington Management Company, LLP, including some of the Wellington Management Investors, and Silver Rock Financial LLC, which is an affiliate of an investor in the Company (the “PMR Acquisition Loan”). The PMR Acquisition Loan is collateralized by substantially all of the assets of DPMA. The PMR Acquisition Loan was initially in an aggregate principal amount of $71.3 million (consisting of a $61.3 million term loan and a $10.0 million revolving loan). The PMR Acquisition Loan bears interest at a rate of 18.0% (of which an amount equal to not less than 10.0% per annum is paid in cash on a quarterly basis and the remaining accrued amount may be paid, at DPMA's election, in cash or in kind by adding the applicable accrued amount to principal), and matures on May 21, 2016.

The PMR Acquisition Loan provides that, (i) DPMA is required to pay quarterly (a) to the administrative agent, for its own account, an administration fee, and (b) to Guggenheim Corporate Funding, LLC, for the benefit of lenders with commitments to make revolving loans thereunder, an unused line fee based upon each such lender's commitment to provide revolving loans and the then outstanding principal amount of such lender's revolving loan, (ii) DPMA is required to make certain mandatory monthly and quarterly prepayments of amounts borrowed under the PMR Acquisition Loan, and (iii) on the maturity date for the term loan, if not paid earlier in accordance therewith, DPMA is required to pay an exit fee of up to 10.0%

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of the initial loan amount. On the closing date for the PMR Acquisition, pursuant to the PMR Acquisition Loan, DPMA paid a closing fee of approximately $2.1 million to the administrative agent and certain lenders party thereto. The proceeds of the PMR Acquisition Loan were used to fund the purchase price for the PMR Acquisition and the associated closing costs.

On September 28, 2012, DPMA amended the Loan and Security Agreement to terminate the revolving loan and transfer the then-outstanding balance under the revolving loan to the term loan.

On May 21, 2012, DPMA also entered into an Inventory Loan and Security Agreement (the "DPM Inventory Loan") with RFA PMR LoanCo, LLC. The DPM Inventory Loan ~~will~~provides ~~provide~~ debt financing for a portion of the purchase price of the defaulted receivables to be purchased by DPMA pursuant to a collateral recovery and repurchase agreement entered into between DPMA and an affiliate of RFA PMR LoanCo, LLC in connection with the PMR Acquisition. The interest rate is a variable rate equal to the sum of LIBOR plus 6.0% per annum, provided that LIBOR is never less than 2.0% ~~nor~~or greater than 4.0%% per annum. ~~As of September 30, 2012, there have been no borrowings under this facility.~~

DPMA and each of its wholly-owned subsidiaries are special -purpose ~~and unrestricted~~ subsidiaries.

Other Notes Payable. The Company finances premiums on certain insurance policies under unsecured notes. These unsecured notes will mature in ~~January~~ September 2013 and ~~February~~December 2013, and each ~~carry~~carries an interest rate of 3.12% per annum. In addition, the Company purchased certain software licenses during the ~~three~~year ~~months~~ ended ~~September 30~~December 31, 2012 with monthly interest-free payments due for the next two years. ~~This~~and this obligation was recorded at fair value ~~as of September 30, 2012~~ using a discount rate of 5.7%.

The following table presents selected information on the Company’s borrowings ~~for~~as of the ~~periods~~dates presented below (dollars in thousands):

2226

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	September 30, 2012										December 31, 2011
	March 31, 2013										December 31, 2012
	Principal Balance			Weighted Average Interest Rate	Maturity	Gross Amount of Mortgages and Contracts as Collateral		Borrowing / Funding Availability			Principal Balance
Borrowings under Restricted Subsidiaries
Senior Secured Notes	$	425,000		12.0%	8/15/2018	$	—	$	—		$	425,000
Original issue discount related to Senior Secured Notes	(8,~~757~~253		)			—		—			(98,~~454~~509		)
Diamond Resorts Owners Trust Series 2009-1 (1)(2)	58,278			9.5%	3/20/2026	98,226		—			84,464
Diamond Resorts Owners Trust Series 2013-1 (1)(2)	86,233			2.0%	1/20/2025	88,322		—			—
Original issue discount related to Diamond Resorts Owners Trust Series 2009-1 (1) (2)	(499		)			—		—			(659		)
PMR Acquisition Loan (1)(3)(4)(5)	61,237			20.5%	5/21/2016	—		—			62,211
Diamond Resorts Owners Trust Series 2011-1 (1)(2)	40,581			4.0%	3/20/2023	41,406		—			51,912
Quorum Facility (1)(2)	55,711			6.1%	12/31/2015	60,116		24,289		(6)	52,417
Original issue discount related to Diamond Resorts Owners Trust Series 2011-1 (1)(2)	(334		)			—		—			(395		)
Tempus Acquisition Loan (1)(3)(4)(5)	49,209			19.8%	6/30/2015	—		—			50,846
Quorum Facility (1)(2)	51,681			6.3%	4/30/2013	54,952		8,319			31,733
Diamond Resorts Owners Trust Series 2009-1 (1)(2)	42,489			9.5%	3/20/2026	82,667		—			50,025
2008 Conduit Facility (1)(2)	52,738			4.5%	4/12/2013	65,917		18,864			21,111
Original issue discount related to Diamond Resorts Owners Trust Series 2009-1 (2)	(383		)			—		—			(441		)
Notes payable-insurance policies (3)	2,126			3.1%	Various	—		—			1,814
Diamond Resorts Owners Trust Series 2011-1 (1)(2)	33,296			4.0%	3/20/2023	33,750		—			36,849
Notes payable-other (3)	1,017			5.6%	Various	—		—			56
Original issue discount related to Diamond Resorts Owners Trust Series 2011-1 (2)	(290		)			—		—			(312		)
Total Restricted Subsidiaries	621,831					260,501		27,183			605,582
Tempus Receivables Loan (1)(2)(4)	40,054			10.0%	7/1/2015	52,265		—			44,027
Borrowings under Unrestricted Subsidiaries:
Payments in transit (1)(2)(4)	(1,506		)			—		—			(1,150		)
DPM Acquisition Loan (1)(3)	63,489			20.4%	5/21/2016	—		—			—
10% participation interest (Tempus Acquisition, LLC) (1)(2)(4)	(5,749		)			—		—			(5,945		)
Tempus Receivables Loan (1)(2)	48,182			10.0%	7/1/2015	62,763		—			63,035
2008 Conduit Facility (1)(2)	22,853			4.5%	4/12/2013	26,422		49,878		(6)	70,912
Payments in transit (1)(2)	(1,509		)			—		—			(1,886		)
2008 Conduit Facility (1)(2)(4)	713			4.5%	4/12/2013	824		1,556		(6)	4,088
10% participation interest (Tempus Acquisition, LLC) (1)(2)	(6,077		)			—		—			(6,799		)
ILXA Inventory Loan (1)(3)(4)	13,929			7.5%	8/31/2015	—		—			15,939
Tempus Acquisition Loan (1)(3)	37,180			20.4%	6/30/2015	—		—			42,658
Notes payable-insurance policies (3)	5,888			3.2%	Various	—		—			2,366
ILXA Inventory Loan (1)(3)	16,794			7.5%	8/31/2015	—		—			21,087
ILXA Receivables Loan (1)(2)(4)	5,507			10.0%	8/31/2015	3,420		—			5,832
ILXA Receivables Loan (1)(2)	6,140			10.0%	8/31/2015	4,308		—			7,420
Tempus Inventory Loan (1)(3)(4)	2,819			7.5%	6/30/2016	—		—			2,992
Tempus Inventory Loan (1)(3)	3,113			7.5%	6/30/2016	—		—			3,599
DPM Inventory Loan (1)(3)(4)	2,560			8.0%	Various						1,267
Note Payable-RFA fees (1)(3)	1,596			10.0%	6/20/2014	—		—			2,170
Note Payable-RFA fees (1)(3)(4)	1,190			10.0%	6/20/2014	—		—			1,395
2008 Conduit Facility (1)(2)	2,503			4.5%	4/12/2013	3,129		895			959
Notes payable-other (3)	697			5.6%	Various	—		—			872
Notes payable-other (1)(3)	—					—		—			130
Notes payable-other (1)(3)(4)	16			—%	11/18/2015	—		—			18
Total Unrestricted Subsidiaries	171,411					70,200		895			132,373
Total	$	833,220				$	347,786	$	75,723		$	810,699
Grand Total	$	793,242				$	330,701	$	28,078		$	737,955
(1) Non-recourse indebtedness
(2) Securitization notes and Funding Facilities
(3) Other notes payable
(4) Borrowing through special-purpose subsidiaries only
(5) Borrowing from Guggenheim Corporate Funding, LLC, a related party
(6) Borrowing / funding availability is calculated as the difference between the maximum commitment amount and the outstanding principal balance; however, the actual availability is dependent on the amount of eligible loans that serve as the collateral for such borrowings.

Borrowing Restrictions and Limitations

All of the Company’s borrowing under the Senior Secured Notes, securitization notes, and 2008 Conduit Facility contain various restrictions and limitations that may affect ~~its~~the Company's business and affairs. These include, but are not limited to, restrictions and limitations relating to its ability to incur indebtedness and other obligations, to make investments and acquisitions and to pay dividends. The Company is also required to maintain certain financial ratios and comply with other financial and performance covenants. The failure of the Company to comply with any of these provisions, or to pay its obligations, could result in foreclosure by the lenders of their security interests in the Company’s assets, and could otherwise have a material adverse effect on the Company. The Company was in compliance with all financial covenants as of ~~September~~March 3031, ~~2012~~2013.

~~Liquidity~~27

Cash provided by operations was $25.3 million for the nine months ended September 30, 2012 compared to cash used by operations of $2.4 million for the nine months ended September 30, 2011. Cash and cash equivalents were $18.2 million and $19.9 million as of September 30, 2012 and December 31, 2011, respectively. The Company believes there will be sufficient existing cash resources and cash flows from operations, in addition to future refinancing activities, to meet the anticipated debt

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maturities and the Company's other cash requirements for the next twelve months. If cash flows from operations are less than expected, the Company would need to curtail its sales and marketing operations or raise additional capital.Liquidity

Historically, the Company has depended on the availability of credit to finance the consumer loans that it provides to its customers for the purchase of their VOIs. Typically, these loans require a minimum cash down payment of 10% of the purchase price at the time of sale;. ~~however~~However, selling, marketing and administrative expenses attributable to VOI sales are primarily cash expenses and often exceed the buyer's minimum down payment requirement. Accordingly, the availability of financing facilities for the sale or pledge of these receivables to generate liquidity is a critical factor in the Company's ability to meet its short-term and long-term cash needs. The Company has historically relied upon its ability to sell receivables in the securitization market in order to generate liquidity and create capacity on its conduit facilities and Quorum Facility (together referred to as "Funding Facilities").

Note 16 — Income Taxes

The income tax ~~(benefit)~~ provision for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012 was determined based on the recording of a gain on bargain purchase from business combinations with corresponding deferred tax liability that produces a tax benefit through the release of the deferred tax asset valuation allowance, as well as pre-tax book income (loss) (adjusted for book-tax differences) for those periods. However, because the Company includes U.S. entities not taxed at the corporate level, non-U.S. disregarded entities, differences in tax rates between the U.S. and foreign jurisdictions, full valuation allowances on its foreign and domestic net operating losses and other deferred tax assets, and foreign currency and rate change adjustments in calculating its income tax provision, the Company's estimated effective tax rate, for the periods presented, differs significantly from the federal statutory rate of 35%.

Note 17 — Commitments and Contingencies

Lease Agreements

The Company conducts a significant portion of its operations from leased facilities, which include regional and global administrative facilities as well as off-premise booths and tour centers near active sales centers. The longest of these obligations extends into 2019. Many of these agreements have renewal options, subject to adjustments for inflation. In most cases, the Company expects that in the normal course of business, such leases will be renewed or replaced by other leases. Typically, these leases call for a minimum lease payment that increases over the life of the agreement by a fixed percentage or an amount based upon the change in a designated index. All of the facilities lease agreements are classified as operating leases.

In addition, the Company leases office and other equipment under both long-term and short-term lease arrangements, which are generally classified as operating leases.

Purchase Obligations

The Company has entered into various purchase obligations relating to sales center remodeling, ~~and~~ property amenity improvement and corporate office expansion projects. The total remaining commitment was $12.01 million as of ~~September~~March 3031, ~~2012~~2013.

Litigation and Other

From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business~~, including claims or proceedings relating to the Company’s Vacation Interest sales and consumer loan business~~.

~~One of the Company's subsidiaries,~~ FLRX, ~~Inc.,~~Litigation is a defendant in a lawsuit originally filed in July 2003, alleging the breach of certain contractual terms relating to the obligations under a stock purchase agreement for the acquisition of FLRX in 1998, as well as certain violations under applicable consumer protection acts. FLRX currently conducts no operations and has no material assets other than an indirect interest in two undeveloped real estate parcels in Mexico. In January 2010, following a jury trial, a Washington state court entered a judgment against FLRX, awarded plaintiffs damages of $30.0 million plus post-judgment interest at a rate of 12% per annum and attorney's fees of approximately $1.5 million plus accrued interest, and ordered specific performance of certain ongoing contractual obligations pursuant to the breach of contract claim.

~~FLRX~~One ~~appealed~~of the ~~verdict.~~Company's Onsubsidiaries, ~~November~~FLRX, 14Inc. ("FLRX"), ~~2011~~is a defendant in a lawsuit originally filed in July 2003, alleging the ~~Company~~breach ~~received~~of ~~notice~~certain ~~that~~contractual terms relating to the ~~Court~~obligations ofunder ~~Appeals~~a stock purchase agreement for the ~~State~~acquisition of ~~Washington~~FLRX ~~affirmed~~in ~~the~~1998, ~~lower~~as ~~court~~well ~~decision~~as ~~upholding~~certain ~~the~~violations ~~judgment~~under ~~against~~applicable ~~FLRX~~consumer protection acts. OnFLRX ~~February~~currently ~~27,~~conducts ~~2012,~~no ~~FLRX~~operations ~~filed~~and ahas ~~petition~~no ~~for~~material ~~review~~assets ~~with~~other ~~the~~than ~~State~~an ~~Supreme~~indirect ~~Court~~interest in two undeveloped real estate parcels in Mexico. OnIn ~~June~~January 62010, ~~2012~~following a jury trial, ~~the~~a ~~petition~~Washington ~~was~~state ~~denied.~~court ~~Any~~entered ~~liability~~a injudgment ~~this~~against ~~matter~~FLRX, isawarded ~~not~~plaintiffs ~~covered~~damages byof ~~insurance~~$30.0 ~~Neither~~million ~~DRC~~plus ~~nor~~post-judgment ~~any~~interest at a rate of ~~its~~12% ~~other~~per ~~subsidiaries~~annum ~~are~~and ~~party~~attorney's tofees ~~this~~of ~~lawsuit~~approximately $1.5 ~~Sunterra~~million ~~was~~plus ~~originally~~accrued ~~named~~interest, and ordered specific performance of certain ongoing contractual obligations pursuant to the breach of contract claim.

24FLRX appealed the verdict. On November 14, 2011, the Company received notice that the Court of Appeals for the State of Washington affirmed the lower court decision upholding the judgment against FLRX. On February 27, 2012, FLRX filed a petition for review with the State Supreme Court. On June 6, 2012, the petition was denied. Any liability in this matter is not covered by insurance. Neither DRC nor any of its other subsidiaries is party to this lawsuit. Sunterra was originally named as a defendant in this matter, but it was later dismissed from the case. It is possible that FLRX may at some point determine to file for protection under the Federal Bankruptcy Code.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

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asIn aApril ~~defendant~~2012, the plaintiffs in ~~this~~the ~~matter,~~FLRX ~~but~~case itfiled ~~was~~a ~~later~~lawsuit ~~dismissed~~in ~~from~~King County Superior Court in the ~~case~~State of Washington against DRP and DRC. ItThe iscomplaint, ~~possible~~which ~~that~~alleges ~~FLRX~~two ~~may~~claims atfor ~~some~~alter ~~point~~ego ~~determine~~and fraudulent conveyance, seeks to ~~file~~hold DRP and DRC liable for ~~protection~~the ~~under~~judgment entered against FLRX. Plaintiffs claim that the ~~Federal~~defendants ~~Bankruptcy~~manipulated ~~Code~~the corporate form of FLRX and caused fraudulent transfers of assets from FLRX.

InOn ~~April~~May 18, 2012, the ~~plaintiffs~~case inwas ~~the~~removed ~~FLRX~~to ~~case~~the ~~described~~U.S. ~~above~~District ~~filed~~Court afor ~~lawsuit~~the inWestern ~~the~~District of Washington, ~~state~~Case ~~court~~No. ~~against~~2:12-cv-00870. ~~DRP~~On ~~and~~August 29, 2012, DRC. ~~The~~filed ~~complaint~~an ~~seeks~~answer to ~~hold~~the ~~DRP~~complaint, denying all material allegations therein and ~~DRC~~raising ~~liable~~various ~~for~~affirmative defenses. On September 24, 2012, the ~~judgment~~court entered ~~against~~an ~~FLRX,~~order ~~alleging~~dismissing ~~that~~DRP. ~~these~~The ~~entities~~court ~~manipulated~~has set the ~~corporate~~case ~~form~~for oftrial ~~FLRX~~on ~~and~~December ~~caused~~3, ~~fraudulent~~2013. ~~transfers~~The ofparties ~~assets~~are ~~from~~currently ~~FLRX~~engaged toin ~~these~~written ~~entities~~discovery. The Company intends to vigorously defend against these claims.

Although the Company believes that it will not have any material liability when these matters are ultimately resolved, there can be no assurance that this will be the case. AtAs ~~September~~of March 3031, ~~2012~~2013, the Company had an estimated litigation accrual of $1.1 million in accrued liabilities in the accompanying condensed consolidated balance sheet, which represents the write-down of FLRX’s investment in subsidiaries to $0. Legal fees associated with these cases ~~will~~are be expensed as incurred.

~~Two separate cases have been filed in~~ St. Maarten ~~against~~Litigation AKGI St. Maarten NV, or AKGI, one of the Company's subsidiaries, challenging AKGI's title to seven whole ownership units at the Royal Palm Resort, and alleging the breach of certain agreements that existed prior to AKGI's acquisition of the resort. AKGI purchased the resort at auction in 1995. Each claimant alleges that, between 1989 and 1991, he purchased certain units from the prior owner of Royal Palm Resort, and that he holds, in perpetuity, legal title to, or a leasehold interest in, the respective units and is entitled to a refund of the purchase price and an annual 12% return on the purchase price (which totaled $1.2 million in one case and $1.3 million in the other case). Due to the nature of the AKGI purchase and the underlying St. Maarten laws, the Company believes that the obligations to the claimants would only be enforceable if the agreement between the claimant and AKGI's predecessor was either a timeshare agreement or a lease agreement. AKGI has answered that the claimants' agreements were, in fact, investment contracts, and therefore not enforceable under St. Maarten law. In February 2011, the case that was pending in the highest and final court of appeal was dismissed as to all claims, with the Company having no obligations, financial or otherwise, to claimant. The other case is currently pending in the intermediate court of appeal. A lien has been placed on AKGI's interest in the Royal Palm Resort while the remaining action is pending.

In ~~October~~December ~~2011~~2004 and January 2005, two separate cases were filed in the ~~HOA~~Joint Court of Justice of the Netherlands Antilles against AKGI St. Maarten NV ("AKGI"), one of the Company's ~~managed~~subsidiaries, ~~resorts~~challenging ~~levied~~AKGI's atitle ~~$65.8~~to ~~million~~seven ~~water~~whole ~~intrusion~~ownership ~~assessment~~units toat the ~~owners~~Royal Palm Resort, and alleging the breach of certain agreements that ~~resort,~~existed prior to AKGI's acquisition of ~~which~~the $9resort.7 ~~million~~AKGI ~~was~~purchased ~~assessed~~the toresort ~~the~~at ~~Company~~auction in 1995. ~~The~~ ~~proceeds~~Each ofclaimant ~~this~~alleges ~~assessment~~that, ~~will~~between be1989 ~~used~~and to1991, ~~repair~~he ~~the~~purchased ~~water~~certain ~~intrusion~~units ~~damage~~from atthe ~~this~~prior ~~resort. In~~owner ~~April~~of ~~2012~~Royal Palm Resort, ~~the~~and ~~Company~~that ~~was~~he ~~named~~holds asin perpetuity, legal title to, or a ~~defendant~~leasehold interest in, athese ~~putative~~respective ~~class~~units ~~action~~and ~~pending~~is inentitled to a refund of the ~~District~~purchase ~~Court~~price ~~for~~and an annual 12% return on the ~~District~~purchase ofprice ~~Hawaii. The~~(which ~~action,~~totaled ~~brought~~$1.2 bymillion ~~five~~in ~~deeded~~one ~~owners~~case and ~~members~~$1.3 ofmillion ~~one~~in the other case). Due to the nature of the ~~Collections~~AKGI ~~managed~~purchase byand the ~~Company~~underlying St. Maarten laws, ~~alleges~~the ~~breaches~~Company ofbelieves ~~fiduciary~~that ~~duty~~the ~~and~~obligations ~~unfair~~to ~~and~~the ~~deceptive~~claimants ~~trade~~would ~~practices~~only ~~against~~be enforceable if the ~~Company~~agreement between the claimant and ~~certain~~AKGI's ~~affiliates,~~predecessor ~~officers,~~was ~~and~~either ~~employees~~a oftimeshare ~~the~~agreement ~~Company~~or ~~and~~a ~~seeks,~~lease ~~among~~agreement. ~~other~~AKGI ~~things,~~has toanswered ~~invalidate~~that the ~~water~~claimants' ~~intrusion~~agreements ~~assessment~~were, in fact, investment contracts, and ~~enjoin~~are ~~the~~therefore ~~water~~not ~~intrusion~~enforceable ~~project~~under St. Maarten law. In ~~November~~February ~~2012~~2011, the ~~Company~~case ~~reached~~that anwas ~~agreement~~pending ~~with~~in the ~~named~~highest ~~plaintiffs~~ and ~~their~~final ~~counsel~~court of appeal was dismissed as to ~~settle~~all claims, with the ~~litigation~~Company inhaving ~~full.~~no ~~The~~obligations, ~~settlement~~financial isor ~~subject~~otherwise, to ~~court approval~~claimant. The ~~Company~~other ~~does~~case ~~not~~is ~~expect~~currently pending in the ~~settlement~~intermediate tocourt ~~have~~of aappeal. ~~material~~A ~~impact~~lien has been placed on ~~its~~AKGI's ~~financial~~interest ~~condition~~in orthe ~~results~~Royal ofPalm ~~operations~~Resort while the remaining action is pending.

InHawaii ~~September~~Water ~~2012,~~Intrusion ~~the~~Assessment ~~U.S.~~and ~~Department~~Litigation ~~of Labor completed an audit of the Company's labor practices. The outcome of the audit did not have a material impact on the Company's financial position or its results of operations.~~

~~The~~In October 2011, the HOA of one of the Company's ~~has~~managed ~~entered~~resorts ~~into~~in ~~contracts~~Hawaii ~~with~~levied ~~individual~~a ~~contractors~~$65.8 ~~and~~million ~~certain~~water ~~key~~intrusion ~~management~~assessment ~~employees~~to the owners of that ~~specify~~resort, ~~severance~~of ~~payments~~which ~~upon~~$9.7 ~~termination~~million ofwas assessed to the ~~contracts~~Company. ~~Furthermore~~During the quarter ended December 31, 2011, the Company's isportion ~~also~~of ~~currently~~the ~~subject~~water tointrusion ~~litigation~~assessment was recorded as Vacation Interest carrying cost, net in the accompanying condensed consolidated statements of operations and ~~claims~~comprehensive ~~regarding~~income ~~employment~~(loss) with a corresponding increase to due to related parties, ~~tort~~net in the accompanying condensed consolidated balance sheet. The proceeds of this assessment are being used to repair the water intrusion damage at the resort. In April 2012, ~~contract~~the Company was named as a defendant in a putative class action pending in the District Court for the District of Hawaii. The action, ~~construction~~brought by five deeded owners and members of one of the Collections managed by the Company, ~~sales~~alleges ~~taxes~~breaches of fiduciary duty and ~~commission~~unfair ~~disputes~~and deceptive trade practices against us and certain of the Company's officers and employees and seeks, among ~~others~~other things, to invalidate the water intrusion assessment and enjoin the water intrusion project. ~~The~~In November, 2012, the Company ~~believes~~reached ~~that~~an ~~none~~agreement ofwith ~~these~~the ~~actions,~~named ~~including~~plaintiffs and their counsel to settle the ~~actions~~litigation ~~described~~in ~~above,~~full. ~~will~~The settlement is subject to court approval. The Company does not expect the settlement to have a material ~~adverse~~impact ~~effect~~ on its ~~consolidated~~ financial ~~position~~condition or results of operations.

Note 18 — Fair Value Measurements

ASC 820, Fair Value Measurements ("ASC 820"), defines fair value, establishes a framework for measuring fair value in accordance with ~~accounting~~U.S. ~~principles generally accepted in the United States~~GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:


•	Level 1: Quoted prices for identical instruments in active markets.


•	Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.

• Level 3: Unobservable inputs used when little or no market data is available.

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At September 30, 2012 and December 31, 2011, the Company's derivative instruments were the 2010 Cap, June 2012 Cap, July 2012 Cap, and September 2012 Cap ("the Caps"), which had fair values of $0. The Caps were valued internally due to the immateriality of the balances based on cash flow models that discount the future cash flows based on a discount rate that factors in a credit risk premium and the volatility of forward rates. The Caps were classified as Level 3, based on the fact that the credit risk data used for the valuation is not directly observable and cannot be corroborated by observable market data. The Company’s assessment of the significant inputs to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. See Note 3—Concentrations of Risk for further detail on the Caps.

At September 30, 2012, mortgages and contracts receivable had a balance of $298.4 million, net of allowance. The allowance for loan and contract losses against the mortgages and contracts receivable is derived using a static pool analysis to develop historical default percentages based on FICO scores to apply to the mortgage and contract population. The Company evaluates other factors such as economic conditions, industry trends, default rates and past due aging reports. The Company believes that this balance approximates the fair value of the mortgages and contracts based on the recent extension of the Company’s 2008 Conduit Facility on October 14, 2011. These financial assets are classified as Level 3 as there is little market data available.

The borrowings under the Senior Secured Notes are classified as Level 2 as they are not actively traded on the open market. At September 30, 2012, the fair value of the Senior Secured Notes was $459.0 million based on a quoted price of 1.08 on a restricted bond market.

At September 30, 2012, all of the Company’s securitization notes and 2008 Conduit Facility are classified as Level 2 since they are either recently-completed transactions or measured using other significant observable inputs including the current refinancing activities, which the Company believes approximates similar instruments in active markets.

At September 30, 2012, the DROT 2011 Notes (net of unamortized original issue discount) had an aggregate balance of $40.2 million. The Company, with the assistance of an investment banking firm, determined the fair value of the DROT 2011 Notes was $42.4 million on the same date.

At September 30, 2012, the DROT 2009 Notes (net of unamortized original issue discount) had an aggregate balance of $57.8 million. The Company, with the assistance of an investment banking firm, determined the fair value of the DROT 2009 Notes was $61.5 million on the same date.

At September 30, 2012, the Quorum Facility, the ILXA Receivables Loan, the ILXA Inventory Loan, the Tempus Acquisition Loan, the Tempus Receivables Loan, the Tempus Inventory Loan and the DPM Acquisition Loan had an aggregate balance of $226.6 million in the accompanying condensed consolidated balance sheet, which the Company believes approximates their fair value due to the fact that these transactions were recently completed. The Quorum Facility was amended in April 2012, the ILXA Receivables Loan and ILXA Inventory Loan were issued in August 2010, the Tempus Acquisition Loan, the Tempus Receivables Loan and the Tempus Inventory Loan were issued in July 2011, and the DPM Acquisition Loan was issued in May 2012.

At September 30, 2012, the fair value and the carrying value of the borrowings under Notes Payable—RFA fees were both $1.6 million as the carrying value represents the net present value of all future payments using an imputed interest rate of 10%.

The carrying value related to the notes payable balance, excluding the ILXA Inventory Loan, the Tempus Inventory Loan, the Tempus Acquisition Loan, Note Payable-RFA fees and the DPM Acquisition Loan, was $3.1 million as of September 30, 2012. The fair value was not calculated based on the fact that the components of the notes payable were either due within one year or were immaterial.

At December 31, 2011, mortgages and contracts receivable had a balance of $283.3 million, net of allowance. The allowance for loan and contract losses against the mortgages and contracts receivable is derived using a static pool analysis to develop historical default percentages based on FICO scores to apply to the mortgage and contract population. The Company evaluates other factors such as economic conditions, industry trends, default rates and past due aging reports. The Company believes that this balance approximates the fair value of the mortgages and contracts based on the recent extension of the Company’s 2008 Conduit Facility on October 14, 2011. These financial assets are classified as Level 3 as there is little market data available.

The borrowings under the Senior Secured Notes are classified as Level 2 as they are not actively traded on the open market. At December 31, 2011, the fair value of the Senior Secured Notes was $419.7 million based on its quoted price of 98.75 on a restricted bond market.

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At December 31, 2011, all of the Company’s securitization notes and 2008 Conduit Facility are classified as Level 2 since they are either recently-completed transactions or measured using other significant observable inputs including the current refinancing activities, which the Company believes approximates similar instruments in active markets.

At December 31, 2011, the DROT 2011 Notes (net of unamortized original issue discount) had an aggregate balance of $51.5 million. The Company, with the assistance of an investment banking firm, determined the fair value of the DROT 2011

Notes was $51.9 million.

At December 31, 2011, the DROT 2009 Notes (net of unamortized original issue discount) had an aggregate balance of $83.8 million. The Company, with the assistance of an investment banking firm, determined the fair value of the DROT 2009

Notes was $88.9 million.

At December 31, 2011, the Quorum Facility, the ILXA Receivables Loan, the ILXA Inventory Loan, the Tempus Acquisition Loan, the Tempus Receivables Loan and the Tempus Inventory Loan had an aggregate balance of $169.5 million in the accompanying condensed consolidated balance sheet, which the Company believes approximates their fair value due to the fact that these transactions were recently completed. The Quorum Facility was issued in April 2010, the ILXA Receivables Loan and ILXA Inventory Loan were issued in August 2010, and the Tempus Acquisition Loan, the Tempus Receivables Loan and the Tempus Inventory Loan were issued in July 2011.

At December 31, 2011, the fair value and the carrying value of the borrowings under Notes Payable—RFA fees were both $2.2 million as the carrying value represents the net present value of all future payments using an imputed interest rate of 10%.

The carrying value related to the notes payable balance, excluding the ILXA Inventory Loan, the Tempus Inventory Loan, and the Tempus Acquisition Loan and Note Payable-RFA fees, was $2.0 million as of December 31, 2011. The fair value was not calculated based on the fact that the components of the notes payable were either due within one year or were immaterial.

In accordance with ASC 820-10, the Company also applied the provisions of fair value measurement to various non-recurring measurements for the Company’s financial and non-financial assets and liabilities and recorded the impairment charges. The Company’s non-financial assets consist of property and equipment, which are recorded at cost, net of depreciation unless impaired, and assets held for sale, which are recorded at the lower of cost or their estimated fair value less costs to sell.

Note 19 — Common and Preferred Units

On June 17, 2010, the Company entered into agreements with DRP Holdco, LLC, an investment vehicle managed by an affiliate of Guggenheim Partners, LLC ("Guggenheim"). These agreements provided for Guggenheim to make a $75.0 million investment in common and preferred units of the Company. The entire $75.0 million investment was attributed to preferred units in accordance with the agreements and the value assigned to common units was $0. An initial investment of $25.0 million was made on June 17, 2010 and the remaining investment of $50.0 million was received on August 13, 2010. The proceeds of this investment were used to repurchase the equity securities previously held by the Investor and, therefore, the Company did not retain any net proceeds from these transactions.

These agreements also contained a provision to allow the Company, at its discretion, to redeem any of the preferred units at any time after August 13, 2012, for any reason or no reason, at optional redemption premiums ranging from 100% to 103% depending on the redemption date. In addition, Guggenheim may have required the Company to redeem all or any portion of the preferred units it held under the following circumstances: (1) simultaneously with the Company's initial public stock offering; (2) at any time after August 13, 2019; (3) upon the acceleration of payment of principal by any lender of senior indebtedness; and (4) in the event of certain uncured breaches of the agreements that governed the preferred units. The preferred redemption premiums varied from 100% to 105% depending on the event leading to the redemption.

The Company applied the guidance enumerated in ASC 480-10 when determining the classification and measurement of preferred stock. In addition, the Company classified the $75.0 million of conditionally redeemable preferred units as temporary member capital due to the fact that the preferred units contained redemption rights that were either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company's control.

Furthermore, the preferred units had a priority return of 17.0% per annum from June 17, 2010 to August 13, 2010 and had a priority return of 16.5% per annum from August 14, 2010 through redemption, compounded quarterly, as well as a liquidation preference with respect to the common equity securities.

In accordance with ASC 480-10, the Company was required to record the redemption premiums and accrete for the priority returns periodically as it was probable that the preferred units would be redeemed by the Company. Both the redemption premiums and the priority returns were recorded as an increase to accumulated deficits and a corresponding increase to redeemable preferred units in temporary member capital.

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Prior to any distributions to the common unit holders, the holders of the preferred units were entitled to receive from the Company the product of (a) an amount equal to the sum of (i) such holder's contribution with respect to the preferred units reduced by any distributions to such holders, and (ii) accrued but unpaid distributions of priority returns, and (b) the relevant redemption premiums based on the date of redemption. Once the sum of any unpaid priority returns and the unreturned contributions with respect to the preferred units was reduced to $0, the preferred units would have been deemed canceled. The balance, if any, would have been distributed to the common unit holders on a pro rata basis.

On February 18, 2011, DRP entered into various agreements with four new equity investors to issue an aggregate of 25.1 common units and 133.33 preferred units in exchange for $10.1 million. This transaction brought the total number of issued and outstanding common units to 1,115.1 and issued and outstanding preferred units to 1,133.3. The terms of the new equity investor agreements were consistent with the terms included in the Guggenheim agreements discussed above.

Also on February 18, 2011, DRP entered into a warrant purchase agreement to repurchase certain warrants issued by DRC from various holders of the warrants. These warrants were originally issued to holders of DRC's Second Lien Facility but became detached and transferable to other parties when the Second Lien Facility was extinguished in August 2010. DRP purchased warrants that were exercisable into approximately 5.2% of the shares of common stock of DRC, in exchange for approximately $10.1 million in cash.

In July 2011, DRP consummated a recapitalization transaction pursuant to which it sold 280.89 common units to certain institutional accredited investors in exchange for $136.5 million. DRP paid approximately $4.5 million in fees in conjunction with the recapitalization transactions. DRP used $108.7 million of the proceeds and issued 26.56 common units to redeem all of the issued and outstanding preferred units (including accrued and unpaid priority returns). In addition, DRP paid $16.4 million to CDP, a related party of the Company, to redeem 34.74 common units previously held by CDP. Immediately after the transaction above, CDP owns approximately 54.3% of the issued and outstanding common units with the remainder owned by various institutional investors.

On July 21, 2011 and July 29, 2011, DRP entered into various warrant purchase agreements to repurchase certain warrants issued by DRC from various warrant holders. These warrants were also originally issued to holders of DRP's Second Lien Facility but became detached and transferable to other parties when the Second Lien Facility was extinguished in August 2010. DRP purchased warrants that were exercisable into approximately 3.3% of the shares of common stock of DRC for approximately $6.4 million in cash.

Note 20 — Business Combinations

On July 1, 2011, the Company completed the Tempus Resorts Acquisition through Mystic Dunes, LLC, a wholly-owned unrestricted subsidiary of Tempus Acquisition, LLC. During the nine months ended September 30, 2012, the Company recorded a $0.1 million adjustment to reduce the gain on bargain purchase from business combination due to information received subsequent to the issuance of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

On May 21, 2012, the Company completed the PMR Acquisition through DPMA, a wholly-owned unrestricted subsidiary of the Company, whereby DPMA acquired certain real estate and timeshare related assets, for approximately $51.6 million in cash, plus the assumption of specified liabilities related to the acquired assets. In order to fund the PMR Acquisition, DPMA entered into the DPM Acquisition Loan, which is collateralized by substantially all of the assets of DPMA. See Note 15— Borrowings for more information.

The PMR Acquisition added nine locations to the Company's collection of available resorts, four management contracts, VOI inventory, additional owner-families and members to the Company's owner base and an opportunity to generate additional future fee-based revenue. The Company accounted for the PMR Acquisition under the purchase method in accordance with ASC 805, "Business Combinations." As of September 30, 2012, the acquisition was recorded based on a preliminary appraisal; accordingly, provisional amounts have been assigned to the assets acquired and liabilities assumed. Changes to the provisional amounts may be material. The Company expects to make all changes to provisional amounts within one year of the acquisition date.

The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed from Pacific Monarch Resorts, Inc. at the acquisition date based on the preliminary appraisal (in thousands). The Company recorded $22.8 million in gain on bargain purchase from business combinations in accordance with ASC 805-30-25 due to the fact that the assets were purchased as part of a distressed sale as Pacific Monarch Resorts, Inc. had filed for Chapter 11 bankruptcy proceedings in October 2011.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued

	Based onPreliminaryAppraisal
Consideration:
Cash	$	51,635
Fair value of total consideration transferred	$	51,635
Recognized amounts of identifiable assets acquired and liabilities assumed as of May 21, 2012:
Prepaid expenses and other assets	$	315
Due from related parties, net	2,067
Other receivables, net	2,866
Mortgages and contracts receivable	1,783
Unsold Vacation Interests	36,221
Property and equipment	1,408
Intangible assets	45,100
Total assets	89,760
Deferred tax liability	13,612
Liabilities assumed	1,748
Total identifiable net assets	$	74,400
Gain on bargain purchase from business combination	$	22,765

Acquired PMR intangible assets consist of the following (dollar amounts in thousands):

	Weighted Average Useful Life in Years	Based on Preliminary Appraisal
Management Contracts	15	$	38,300
Customer Lists	3	6,800
Total acquired intangible assets		$	45,100

The PMR Acquisition contributed $22.1 million of revenue and $26.1 million of net income, which includes $22.8 million of gain on bargain purchase and $13.6 million of related income tax benefit, from the acquisition date through September 30, 2012. These amounts are included in the condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2012. For the three months ended September 30, 2012, $17.3 million of revenue and $2.9 million of net loss attributable to the PMR Acquisition are included in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended September 30, 2012.

The following table presents unaudited consolidated pro forma financial information as if the closing of the PMR Acquisition had occurred on January 1, 2011 for purposes of the financial information presented for the three and nine months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2012			September 30, 2011		September 30, 2012			September 30, 2011
Revenue	$	142,712		$	124,702	$	396,908		$	334,695
Net (loss) income	$	(10,017	)	$	36,628	$	(8,302	)	$	26,703

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~The~~• ~~historical~~Level ~~unaudited consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the PMR Acquisition, (2) factually supportable, and (~~3): ~~expected~~Unobservable toinputs ~~have~~used awhen ~~continuing~~little ~~impact~~or onno ~~the~~market ~~combined~~data ~~results~~is ~~of the Company and DPMA~~available.

As of March 31, 2013 and December 31, 2012, the Company's derivative instruments were the 2010 Cap Agreement and the 2012 Cap Agreements, which had fair values of $0 based on valuation reports provided by counterparties. The ~~unaudited~~2010 ~~pro~~Cap ~~forma~~Agreement ~~results~~and ~~have~~the ~~been~~2012 ~~adjusted~~Cap ~~with~~Agreements ~~respect~~were toclassified ~~certain~~as ~~aspects~~Level 3, based on the fact that the credit risk data used for the valuation is not directly observable and cannot be corroborated by observable market data. The Company’s assessment of the ~~PMR~~significant ~~Acquisition~~inputs to ~~reflect:~~the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. See Note 3— Concentrations of Risk for further detail on these cap agreements.

•As of March 31, 2013, mortgages and contracts receivable had a balance of $321.0 million, net of allowance. The allowance for loan and contract losses against the ~~consummation~~mortgages and contracts receivable is derived using a static pool analysis to develop historical default percentages based on FICO scores to apply to the mortgage and contract population. The Company evaluates other factors such as economic conditions, industry trends and past due aging reports in order to determine the adjustments needed to true up the allowance which adjusts the carrying value of mortgages and contracts receivable to management's best estimate of collectibility. As a result, the ~~acquisition;~~Company believes that the carrying value of the mortgages and contracts receivable approximated its fair value at March 31, 2013. These financial assets were classified as Level 3 as there is little market data available.

•The ~~changes~~borrowings inunder ~~assets~~the ~~and~~Senior ~~liabilities~~Secured toNotes ~~record~~were ~~their~~classified ~~acquisition~~as ~~date~~Level ~~fair~~2 ~~values~~as ~~and~~of ~~changes~~March 31, in2013 ~~certain~~based ~~expenses~~on ~~resulting~~a ~~therefrom;~~quoted price of 110.0 on a restricted bond market as they were not actively traded on the open market.

•As ~~additional~~of ~~indebtedness~~March 31, ~~including~~2013, ~~but~~the ~~not~~Company’s ~~limited~~2008 Conduit Facility, DROT 2009 Notes, DROT 2011 Notes and DROT 2013 Notes were classified as Level 2. The Company believes the fair value of the 2008 Conduit Facility approximated its carrying value due to the fact that it was recently amended and, ~~debt~~therefore, ~~issuance~~measured ~~costs~~using other significant observable inputs including the current refinancing activities. The fair value of the DROT 2009 Notes, DROT 2011 Notes and ~~interest~~DROT ~~expense~~2013 Notes, ~~incurred~~which the Company believes approximated similar instruments in ~~connection~~active markets, was determined with the ~~acquisition;~~assistance of an investment banking firm.

•As of March 31, 2013, the ~~removal~~Quorum ofFacility, ~~legal~~the ~~and~~ILXA ~~professional~~Receivables ~~fees~~Loan, ~~incurred~~the inILXA ~~connection~~Inventory ~~with~~Loan, the Tempus Acquisition Loan, the Tempus Receivables Loan, the Tempus Inventory Loan, the PMR Acquisition; Loan and the DPM Inventory Loan were classified as Level 2 based on an internal analysis performed by the Company utilizing the discounted cash flow model and the quoted prices for identical or similar instruments in markets that are not active.

•As ~~the removal~~ of ~~PMR~~March 31, ~~reorganization~~2013, ~~items~~the ~~relating~~Company tobelieves the ~~impairment~~fair value of ~~assets~~the ~~that~~borrowings ~~were~~under ~~subsequently~~Notes ~~measured~~Payable—RFA atfees ~~fair~~approximated ~~value~~its ~~upon~~carrying ~~the~~value, ~~completion~~as of the ~~PMR~~carrying ~~Acquisition~~value ~~and~~represents ~~professional fees related to~~ the ~~PMR~~net ~~Acquisition~~present ~~and~~value ~~bankruptcy~~of ~~proceedings,~~all ~~which~~future dopayments ~~not~~using ~~relate~~an toimputed ~~continuing~~interest ~~operations;~~rate ~~and~~of 10%.

•As of March 31, 2013, the ~~removal~~fair value of ~~the~~all ~~gain~~other debt instruments was not calculated, based on ~~bargain~~the ~~purchase~~fact ~~from~~that ~~business~~they ~~combination~~were either due within one year or were immaterial.

~~The~~As ~~unaudited~~of ~~pro~~December 31, ~~forma~~2012, ~~results~~mortgages doand ~~not~~contracts ~~reflect~~receivable ~~future~~had ~~events~~a ~~that~~balance ~~either~~of ~~have~~$312.9 ~~occurred~~million, ornet ~~may~~of ~~occur~~allowance. ~~after~~The allowance for loan and contract losses against the ~~PMR~~mortgages ~~Acquisition,~~and ~~including,~~contracts ~~but~~receivable ~~not~~is ~~limited~~derived using a static pool analysis to, ~~the~~develop ~~anticipated~~historical ~~realization~~default ofpercentages ~~ongoing~~based ~~savings~~on ~~from~~FICO ~~operating~~scores ~~synergies~~to inapply ~~subsequent~~to ~~periods~~the mortgage and contract population. ~~They~~The ~~also~~Company doevaluates ~~not~~other ~~give~~factors ~~effect~~such toas ~~certain~~economic ~~one-time~~conditions, ~~charges~~industry ~~the~~trends ~~Company~~and ~~expects~~past todue ~~incur~~aging reports in ~~connection~~order ~~with~~to determine the ~~PMR~~adjustments ~~Acquisition,~~needed ~~including~~to true up the allowance, ~~but~~which ~~not~~adjust ~~limited~~the carrying value of mortgages and contracts receivable to management's best estimate of collectibility. As a result, ~~transitional/integration~~the ~~costs~~Company believes that the carrying value of the mortgages and ~~charges~~contracts ~~that~~receivable approximated its fair value at December 31, 2012. These financial assets are ~~expected~~classified toas ~~achieve~~Level ~~ongoing~~3 ~~cost~~as ~~savings~~there ~~and~~is ~~synergies~~little market data available.

OnThe ~~October~~borrowings 5,under ~~2012,~~ the ~~Company~~Senior ~~completed~~Secured ~~the~~Notes ~~Aegean~~were ~~Blue~~classified ~~Acquisition~~as ~~that~~Level ~~added~~2 ~~five~~as ~~resorts located on the Greek islands~~ of ~~Rhodes~~December ~~and Crete to its collection of resorts~~31, as2012 ~~well~~based ason ~~additional~~a ~~owners~~quoted toprice ~~the~~of ~~Company's ownership base~~109.0 ~~This~~on ~~acquisition~~a ~~will~~restricted bebond ~~accounted for under the purchase method in accordance with ASC 805~~market, ~~"Business~~as ~~Combinations."~~they ~~See~~were ~~Note~~not ~~25—Subsequent~~actively ~~Events~~traded ~~for further details~~ on ~~this~~the ~~acquisition~~open market.

~~Note~~As 21of —December 31, ~~Segment~~2012, ~~Reporting~~the Company’s 2008 Conduit Facility, DROT 2009 Notes and DROT 2011 Notes were classified as Level 2. The Company believes the fair value of the 2008 Conduit Facility approximated its carrying value due to the fact that it was recently amended and was, therefore, measured using other significant observable inputs including the current refinancing activities. The fair value of the DROT 2009 Notes and DROT 2011 Notes, which the Company believes approximated similar instruments in active markets, was determined with the assistance of an investment banking firm.

~~The~~As ~~Company presents its results~~ of ~~operations in two segments: (1)~~December ~~Hospitality~~31, ~~and Management Services~~2012, ~~which includes operations related to~~ the ~~management~~Quorum ~~of resort properties and the Collections~~Facility, ~~revenue from its operation of THE Club and~~ the ~~provision~~ILXA ofReceivables ~~other services; and (2) Vacation Interest Sales and Financing~~Loan, ~~which includes operations relating to~~ the ~~marketing~~ILXA ~~and~~Inventory ~~sales of Vacation Interests~~Loan, ~~as well as~~ the ~~consumer~~Tempus ~~financing~~Acquisition ~~activities~~Loan, ~~related to such sales. While certain line items reflected on~~ the ~~statement~~Tempus ofReceivables ~~operations and comprehensive income (loss) fall completely into one of these business segments~~Loan, ~~other~~the ~~line~~Tempus ~~items~~Inventory ~~relate to revenues or expenses which are applicable to more than one segment. For line items that are applicable to more than one segment~~Loan, ~~revenues~~the orPMR ~~expenses~~Acquisition ~~are~~Loan ~~allocated by management, which involves significant estimates. Certain expense items (principally corporate interest expense~~ and ~~depreciation~~the ~~and~~DPM ~~amortization)~~Inventory ~~are~~Loan ~~not,~~were inclassified ~~management’s~~as ~~view,~~Level ~~allocable~~2 tobased ~~either~~on ofan ~~these~~internal ~~business~~analysis ~~segments~~performed asby ~~they~~the ~~apply~~Company toutilizing the ~~entire~~discounted ~~Company.~~cash Inflow ~~addition,~~model ~~general~~ and ~~administrative~~the ~~expenses~~quoted ~~are~~prices ~~not allocated to either of these business segments because, historically, management has not allocated these expenses~~ for ~~purposes~~identical ofor ~~evaluating~~similar ~~the~~instruments ~~Company’s~~in ~~different~~markets ~~operational~~that ~~divisions. Accordingly, these expenses~~ are ~~presented~~not ~~under Corporate and Other~~active.

Management believes that it is impracticable to allocate specific assets and liabilities related to each business segment. In addition, management does not review balance sheets by business segment as part of their evaluation of operating segment performances. Consequently, no balance sheet segment reports have been presented.

Information about the Company’s operations in different business segments for the periods presented below is as follows:

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS BY BUSINESS SEGMENT
For the Three Months Ended September 30, 2012 and 2011
(In thousands)
(Unaudited)
	Three Months Ended September 30, 2012											Three Months Ended September 30, 2011
	Hospitality andManagementServices		VacationInterest Salesand Financing			Corporate andOther			Total			Hospitality and Management Services		Vacation Interest Sales and Financing			Corporate and Other			Total
Revenues:
Vacation Interest sales	$	—	$	89,594		$	—		$	89,594		$	—	$	60,228		$	—		$	60,228
Provision for uncollectible Vacation Interest sales revenue	—		(6,276		)	—			(6,276		)	—		(4,516		)	—			(4,516		)
Vacation Interest, net	—		83,318			—			83,318			—		55,712			—			55,712
Management and member services	29,999		—			—			29,999			25,992		—			—			25,992
Consolidated resort operations	8,361		—			—			8,361			7,601		—			—			7,601
Interest	—		12,551			335			12,886			—		12,966			1,684			14,650
Other	1,019		7,129			—			8,148			274		3,221			—			3,495
Total revenues	39,379		102,998			335			142,712			33,867		71,899			1,684			107,450
Costs and Expenses:
Vacation Interest cost of sales	—		16,778			—			16,778			—		1,854			—			1,854
Advertising, sales and marketing	—		49,554			—			49,554			—		34,488			—			34,488
Vacation Interest carrying cost, net	—		8,226			—			8,226			—		4,156			—			4,156
Management and member services	8,862		—			—			8,862			6,719		—			—			6,719
Consolidated resort operations	7,314		—			—			7,314			6,620		—			—			6,620
Loan portfolio	189		2,257			—			2,446			290		1,882			—			2,172
Other operating	—		2,454			—			2,454			—		1,023			—			1,023
General and administrative	—		—			27,976			27,976			—		—			21,074			21,074
Depreciation and amortization	—		—			5,205			5,205			—		—			3,853			3,853
Interest	—		4,554			20,254			24,808			—		5,649			16,453			22,102
Impairments and other write-offs	—		—			401			401			—		—			693			693
Gain on disposal of assets	—		—			(122		)	(122		)	—		—			(76		)	(76		)
Adjustment (gain) on bargain purchase from business combinations	—		—			115			115			—		—			(34,183		)	(34,183		)
Total costs and expenses	16,365		83,823			53,829			154,017			13,629		49,052			7,814			70,495
Income (loss) before provision (benefit) for income taxes	23,014		19,175			(53,494		)	(11,305		)	20,238		22,847			(6,130		)	36,955
Provision (benefit) for income taxes	—		—			340			340			—		—			(646		)	(646		)
Net income (loss)	$	23,014	$	19,175		$	(53,834	)	$	(11,645	)	$	20,238	$	22,847		$	(5,484	)	$	37,601

As of December 31, 2012, the Company believes the fair value of the borrowings under Notes Payable—RFA fees approximated its carrying value as the carrying value represents the net present value of all future payments using an imputed interest rate of 10.0%.

As of December 31, 2012, the fair value of all other debt instruments was not calculated, based on the fact that they were either due within one year or were immaterial.

In accordance with ASC 820, the Company also applied the provisions of fair value measurement to various non-recurring measurements for the Company’s financial and non-financial assets and liabilities and recorded the impairment charges. The Company’s non-financial assets consist of property and equipment, which are recorded at cost, net of depreciation unless impaired, and assets held for sale, which are recorded at the lower of cost or their estimated fair value less costs to sell.

The carrying values and estimated fair values of the Company's financial instruments as of March 31, 2013 were as follows (dollars in thousands):



	Carrying Value		Total Estimated Fair Value		Estimated Fair Value (Level 2)		Estimated Fair Value (Level 3)
Assets:
Mortgages and contracts receivable, net	$	320,967	$	320,967	$	—	$	320,967
Total assets	$	320,967	$	320,967	$	—	$	320,967
Liabilities:
Senior Secured Notes, net	$	416,747	$	467,500	$	467,500	$	—
Securitization notes and Funding Facilities, net	278,928		291,788		291,788		—
Notes payable	137,545		137,440		137,440		—
Total liabilities	$	833,220	$	896,728	$	896,728	$	—

The carrying values and estimated fair values of the Company's financial instruments as of December 31, 2012 were as follows (dollars in thousands):



	Carrying Value		Total Estimated Fair Value		Estimated Fair Value (Level 2)		Estimated Fair Value (Level 3)
Assets:
Mortgages and contracts receivable, net	$	312,932	$	312,932	$	—	$	312,932
Total assets	$	312,932	$	312,932	$	—	$	312,932
Liabilities:
Senior Secured Notes, net	$	416,491	$	463,250	$	463,250	$	—
Securitization notes and Funding Facilities, net	256,302		270,392		270,392		—
Notes payable	137,906		137,769		137,769		—
Total liabilities	$	810,699	$	871,411	$	871,411	$	—

Note 19 — Common and Preferred Units and Stock-Based Compensation

Tempus Warrant (June 2011)

In connection with the funding of the Tempus Acquisition Loan pursuant to the Loan and Security Agreement, dated as of June 30, 2011, among Tempus Acquisition, LLC, the lenders party thereto and Guggenheim Corporate Funding, LLC, which was entered into in connection with the Tempus Resorts Acquisition, DRP issued a warrant (the “Tempus Warrant”) to Guggenheim Corporate Funding, LLC, as administrative agent, for the benefit of the lenders, pursuant to a Warrant Agreement, between DRP and Guggenheim Corporate Funding, LLC. The Tempus Warrant vests and becomes exercisable, subject to the provisions of the Tempus Warrant described below, upon the sixty-first day (the “Tempus Warrant Exercise Date”) following,

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

~~CONDENSED~~among ~~CONSOLIDATING~~other ~~STATEMENT~~things, OFan ~~OPERATIONS~~initial BYunderwritten ~~BUSINESS~~public ~~SEGMENT~~offering of the common stock of DRC or of any successor corporation of DRP ("DRP Successor"), a payment default by Tempus Acquisition, LLC (after expiration of applicable grace and care periods) under the Tempus Acquisition Loan, or a sale of DRP or DRC (a " Tempus Warrant Triggering Event"). Following a Tempus Warrant Triggering Event, the Tempus Warrant would become exercisable on the Tempus Warrant Exercise Date as to an aggregate percentage of the fully-diluted outstanding common equity of DRP equal to the quotient of (i) the dollar amount by which the actual total repayments of principal on the Tempus Acquisition Loan from the date of the Tempus Warrant through the day immediately preceding the Tempus Warrant Exercise Date is less than a certain benchmark amount (the “Tempus Benchmark Amount”) as determined pursuant to the terms of the Tempus Warrant, divided by (ii) the fair market value of the common equity of DRP as determined pursuant to the terms of the Tempus Warrant. The purchase price for each common unit of DRP issuable upon exercise of the Tempus Warrant is $0.0001 per common unit. During the 60-day period following a Tempus Warrant Triggering Event, DRP or the DRP Successor, as applicable, has the option to purchase the Tempus Warrant from the holder for a cash payment equal to the Tempus Benchmark Amount, less any cash payments made on the Tempus Acquisition Loan from the date of the Tempus Warrant through the date of such Tempus Warrant Triggering Event. The Company determined that the Tempus Warrant had a nominal value as of March 31, 2013 and December 31, 2012.

~~For~~PMR ~~the~~Warrant ~~Nine~~(May ~~Months Ended September 30,~~ 2012) ~~and 2011~~

(In ~~thousands~~connection with the funding of the PMR Acquisition Loan pursuant to the Loan and Security Agreement, dated as of May 21, 2012, among DPMA, the lenders party thereto and Guggenheim Corporate Funding, LLC, which was entered into in connection with the PMR Acquisition, DRP issued a warrant (the “PMR Warrant”) to Guggenheim Corporate Funding, LLC, as administrative agent, for the benefit of the lenders, pursuant to a Warrant Agreement, between DRP and Guggenheim Corporate Funding, LLC. The PMR Warrant vests and becomes exercisable, subject to the provisions of the PMR Warrant described below, upon the sixty-first day (the “PMR Warrant Exercise Date”) following, among other things, an initial underwritten public offering of the common stock of DRC or of any DRP Successor, a payment default by DPMA (after expiration of applicable grace and care periods) under the PMR Acquisition Loan, or a sale of DRP or DRC (a "PMR Warrant Triggering Event"). Following a PMR Warrant Triggering Event, the PMR Warrant would become exercisable on the PMR Warrant Exercise Date as to an aggregate percentage of the fully-diluted outstanding common equity of DRP equal to the quotient of (i) the dollar amount by which the actual total repayments of principal on the PMR Acquisition Loan from the date of the PMR Warrant through the day immediately preceding the PMR Warrant Exercise Date is less than a certain benchmark amount (the “PMR Benchmark Amount”) as determined pursuant to the terms of the PMR Warrant, divided by (ii) the fair market value of the common equity of DRP as determined pursuant to the terms of the PMR Warrant. The purchase price for each common unit of DRP issuable upon exercise of the PMR Warrant is $0.0001 per common unit. During the 60-day period following a PMR Warrant Triggering Event, DRP or the DRP Successor, as applicable, has the option to purchase the PMR Warrant from the holder for a cash payment equal to the PMR Benchmark Amount, less any cash payments made on the PMR Acquisition Loan from the date of the PMR Warrant through the date of such PMR Warrant Triggering Event. The Company determined that the PMR Warrant had a nominal value as of March 31, 2013 and December 31, 2012.

Issuance of Class B Common Units and Stock-Based Compensation (~~Unaudited~~October 2012)

	Nine Months Ended September 30, 2012											Nine Months Ended September 30, 2011
	Hospitality andManagementServices		VacationInterest Salesand Financing			Corporate andOther			Total			Hospitality andManagementServices		VacationInterest Salesand Financing			Corporate andOther			Total
Revenues:
Vacation Interest sales	$	—	$	218,857		$	—		$	218,857		$	—	$	154,631		$	—		$	154,631
Provision for uncollectible Vacation Interest sales revenue	—		(16,093		)	—			(16,093		)	—		(11,259		)	—			(11,259		)
Vacation Interest, net	—		202,764			—			202,764			—		143,372			—			143,372
Management and member services	85,574		—			—			85,574			73,495		—			—			73,495
Consolidated resort operations	25,522		—			—			25,522			21,789		—			—			21,789
Interest	—		38,015			1,039			39,054			—		31,679			2,601			34,280
Other	3,835		16,357			—			20,192			7,649		8,184			—			15,833
Total revenues	114,931		257,136			1,039			373,106			102,933		183,235			2,601			288,769
Costs and Expenses:
Vacation Interest cost of sales	—		17,175			—			17,175			—		(3,760		)	—			(3,760		)
Advertising, sales and marketing	—		124,591			—			124,591			—		96,121			—			96,121
Vacation Interest carrying cost, net	—		26,674			—			26,674			—		20,063			—			20,063
Management and member services	25,597		—			—			25,597			18,534		—			—			18,534
Consolidated resort operations	22,620		—			—			22,620			19,894		—			—			19,894
Loan portfolio	631		6,549			—			7,180			729		5,599			—			6,328
Other operating	—		5,419			—			5,419			—		2,503			—			2,503
General and administrative	—		—			70,937			70,937			—		—			58,797			58,797
Depreciation and amortization	—		—			13,379			13,379			—		—			10,165			10,165
Interest	—		14,240			55,718			69,958			—		14,082			46,300			60,382
Impairments and other write-offs	—		—			390			390			—		—			1,016			1,016
Gain on disposal of assets	—		—			(218		)	(218		)	—		—			(448		)	(448		)
Gain on bargain purchase from business combinations	—		—			(22,634		)	(22,634		)	—		—			(34,183		)	(34,183		)
Total costs and expenses	48,848		194,648			117,572			361,068			39,157		134,608			81,647			255,412
Income (loss) before benefit for income taxes	66,083		62,488			(116,533		)	12,038			63,776		48,627			(79,046		)	33,357
Benefit for income taxes	—		—			(13,353		)	(13,353		)	—		—			(64		)	(64		)
Net income (loss)	$	66,083	$	62,488		$	(103,180	)	$	25,391		$	63,776	$	48,627		$	(78,982	)	$	33,421

On October 15, 2012, the Company established the Diamond Resorts Parent, LLC 2012 Equity Incentive Plan (the "2012 Plan"), which authorized awards of 112.2 restricted Class B common units ("BCUs") to participants in the 2012 Plan. The BCUs represent a fractional part of the interest in the profits, losses and distributions, but not the capital, of DRP and are non-voting and subject to certain restrictive covenants.

On the same date in October 2012, to mitigate the dilutive effect of the July 2011 recapitalization transaction on Messrs. Cloobeck, Palmer and Kraff, DRP issued 103.8 BCUs under the 2012 Plan to Messrs. Cloobeck, Palmer and Kraff for no cash consideration. These BCUs were 100% vested as of the issuance date. Also on that date, DRP granted BCUs pursuant to the 2012 Plan to Messrs. Bentley and Lanznar and two other participants in the 2012 Plan for no cash consideration, in connection with their provision of services to DRP. These BCUs were also 100% vested on the grant date; however, because these BCUs are tied to service to DRP, they are subject to forfeiture if the grantee’s employment with DRP is terminated for cause and subject to repurchase by DRP (at its option) if the grantee’s employment with DRP is terminated for any reason other than termination by DRP for cause. The BCUs are not entitled to any distributions nor do they have any fair value unless and until the cumulative amount distributed to holders of DRP common units other than BCUs is at least equal to a specified amount.

The Company measured compensation expense related to the BCUs at fair value on the issuance date and recognized this expense in the consolidated statements of operations and comprehensive income (loss). For the year ended December 31, 2012, the Company recognized $3.3 million in such compensation expense based on a weighted-average grant-date fair value of $32,008 per unit.

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

Note 2220 — ~~Condensed~~Segment ~~Consolidating Financial Statements - Restricted and Unrestricted Subsidiaries~~Reporting

The ~~following~~Company ~~condensed~~presents ~~consolidating~~its ~~financial~~results ~~statements~~of ~~present,~~operations onin atwo ~~supplemental~~segments: ~~basis,~~(i) Hospitality ~~the~~and ~~financial~~Management ~~position~~Services, ~~results~~which ofincludes operations, ~~and~~related ~~statements~~to ofthe ~~cash~~management ~~flow~~of ~~for~~resort ~~(1)~~properties ~~those~~and ~~subsidiaries of~~ the ~~Company~~Collections, ~~which~~revenue ~~have~~from ~~been~~its ~~designated~~operation ~~"Unrestricted~~of ~~Subsidiaries"~~THE ~~for~~Club ~~purposes~~and of the ~~Senior~~provision ~~Secured~~of ~~Note~~other ~~Indenture~~services; and (2ii) Vacation ~~the~~Interest ~~Company~~Sales and ~~all~~Financing, ofwhich ~~its~~includes ~~other~~operations ~~subsidiaries.~~relating Asto ofthe ~~September 30,~~marketing ~~2012~~ and ~~December 31,~~sales ~~2011~~of Vacation Interests, ~~the~~as ~~Unrestricted~~well ~~Subsidiaries~~as ~~were~~the ~~FLRX,~~consumer ~~Inc.~~financing ~~and~~activities ~~its~~related ~~subsidiaries,~~to ~~ILXA~~such ~~and~~sales. ~~its~~While ~~subsidiaries,~~certain ~~Tempus~~line ~~Acquisition,~~items ~~LLC~~reflected ~~and~~on ~~its~~the ~~subsidiaries,~~statement ~~and~~of ~~DPMA~~operations and ~~its~~comprehensive ~~subsidiaries.~~income As(loss) offall ~~September 30,~~completely ~~2011,~~into ~~the~~one ~~Unrestricted~~of ~~Subsidiaries~~these ~~were~~business ~~FLRX~~segments, ~~Inc.~~other ~~and~~line ~~its~~items ~~subsidiaries,~~relate ~~ILXA~~to ~~and~~revenues ~~its~~or ~~subsidiaries,~~expenses ~~and~~which ~~Tempus~~are ~~Acquisition,~~applicable ~~LLC~~to ~~and~~more ~~its~~than ~~subsidiaries~~one segment. For ~~purposes~~line ofitems ~~the~~that ~~Senior~~are ~~Secured~~applicable ~~Note~~to ~~Indenture,~~more ~~the~~than ~~financial~~one ~~position~~segment, ~~results~~revenues ofor ~~operations~~expenses are allocated by management, ~~and~~which ~~statements~~involves ofsignificant ~~cash~~estimates. ~~flow~~Certain ofexpense ~~Unrestricted~~items ~~Subsidiaries~~(principally ~~are~~corporate ~~excluded~~interest ~~from~~expense ~~the~~and ~~Company~~depreciation and amortization) are not, in management’s ~~financial~~view, ~~results~~allocable to ~~determine~~either ~~whether~~of these business segments as they apply to the entire Company. isIn inaddition, ~~compliance~~general ~~with~~and ~~the~~administrative ~~financial~~expenses ~~covenants~~are ~~governing~~not ~~the~~allocated ~~Senior~~to ~~Secured~~either ~~Notes.~~of ~~Accordingly~~these business segments because, historically, management ~~believes~~has ~~that~~not ~~the~~allocated ~~following~~these ~~presentation~~expenses isfor ~~helpful~~purposes toof ~~current~~evaluating ~~and~~the ~~potential~~Company’s ~~investors~~different inoperational ~~the~~divisions. ~~Senior~~Accordingly, ~~Secured~~these ~~Notes~~expenses asare ~~well~~presented asunder ~~others~~Corporate and Other.

Information about the Company’s operations in different business segments for the periods presented below is as follows:

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING BALANCE SHEET September 30, 2012(in thousands)(Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS BY BUSINESS SEGMENT
	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
For the Three Months Ended March 31, 2013
ASSETS
(In thousands)
Cash and cash equivalents	$	17,798		$	449		$	—		$	18,247
(Unaudited)
Cash in escrow and restricted cash	37,929			838			—			38,767
	Hospitality andManagementServices			VacationInterest Salesand Financing			Corporate andOther			Total
Mortgages and contracts receivable, net of allowance of $55,551, $25,229, $0 and $80,780, respectively	251,114			47,339			(4		)	298,449
Revenues:
Due from related parties, net	25,721			4,051			(16,555		)	13,217
Management and member services	$	31,587		$	—		$	—		$	31,587
Other receivables, net	17,915			6,793			—			24,708
Consolidated resort operations	8,620			—			—			8,620
Income tax receivable	1,902			—			—			1,902
Vacation Interest sales, net of provision of $0, $6,672, $0 and $6,672, respectively	—			91,668			—			91,668
Prepaid expenses and other assets, net	63,291			9,791			(1,125		)	71,957
Interest	—			12,858			397			13,255
Unsold Vacation Interests, net	267,429			78,600			(15,941		)	330,088
Other	3,490			4,832			—			8,322
Property and equipment, net	32,488			22,253			—			54,741
Total revenues	43,697			109,358			397			153,452
Assets held for sale	4,058			154			—			4,212
Costs and Expenses:
Intangible assets, net	31,729			74,230			—			105,959
Management and member services	9,779			—			—			9,779
Total assets	$	751,374		$	244,498		$	(33,625	)	$	962,247
Consolidated resort operations	7,722			—			—			7,722
LIABILITIES AND MEMBER CAPITAL (DEFICIT)
Vacation Interest cost of sales	—			17,846			—			17,846
Accounts payable	$	13,088		$	1,733		$	—		$	14,821
Advertising, sales and marketing	—			50,359			—			50,359
Due to related parties, net	64,742			57,721			(24,022		)	98,441
Vacation Interest carrying cost, net	—			8,237			—			8,237
Accrued liabilities	70,289			11,621			(1,129		)	80,781
Loan portfolio	246			2,259			—			2,505
Income taxes payable	2,856			—			—			2,856
Other operating	—			368			—			368
Deferred revenues	61,043			1,308			—			62,351
General and administrative	—			—			22,800			22,800
Senior Secured Notes, net of original issue discount of $8,757, $0, $0 and $8,757, respectively	416,243			—			—			416,243
Depreciation and amortization	—			—			6,254			6,254
Securitization notes and Funding Facilities, net of original issue discount of $833, $0, $0 and $833, respectively	202,445			49,239			—			251,684
Interest expense	—			4,078			20,764			24,842
Notes payable	3,143			122,172			—			125,315
Impairments and other write-offs	—			—			79			79
Total liabilities	833,849			243,794			(25,151		)	1,052,492
Gain on disposal of assets	—			—			(50		)	(50		)
Member capital (deficit)	152,212			9,675			(9,675		)	152,212
Total costs and expenses	17,747			83,147			49,847			150,741
(Accumulated deficit) retained earnings	(217,933		)	(8,467		)	714			(225,686		)
Income (loss) before provision for income taxes	25,950			26,211			(49,450		)	2,711
Accumulated other comprehensive (loss) income	(16,754		)	(504		)	487			(16,771		)
Provision for income taxes	—			—			438			438
Total member (deficit) capital	(82,475		)	704			(8,474		)	(90,245		)
Net income (loss)	$	25,950		$	26,211		$	(49,888	)	$	2,273
Total liabilities and member capital (deficit)	$	751,374		$	244,498		$	(33,625	)	$	962,247

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS BY BUSINESS SEGMENT

For the Three Months Ended ~~September~~March 3031, 2012

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Hospitality andManagementServices			VacationInterest Salesand Financing			Corporate andOther			Total
Revenues:
Vacation Interest sales	$	83,957		$	5,637		$	—		$	89,594
Management and member services	$	27,280		$	—		$	—		$	27,280
(Provision) adjustment for uncollectible Vacation Interest sales revenue	(6,639		)	363			—			(6,276		)
Consolidated resort operations	8,534			—			—			8,534
Vacation Interest, net	77,318			6,000			—			83,318
Vacation Interest sales, net of provision of $0, $4,115, $0 and $4,115, respectively	—			54,572			—			54,572
Management and member services	29,772			4,220			(3,993		)	29,999
Interest	—			13,327			329			13,656
Consolidated resort operations	7,262			1,099			—			8,361
Other	882			4,026			—			4,908
Interest	10,053			2,833			—			12,886
Total revenues	36,696			71,925			329			108,950
Other	9,034			10,178			(11,064		)	8,148
Total revenues	133,439			24,330			(15,057		)	142,712
Costs and Expenses:
Vacation Interest cost of sales	16,121			657			—			16,778
Management and member services	8,275			—			—			8,275
Advertising, sales and marketing	46,721			3,405			(572		)	49,554
Consolidated resort operations	7,082			—			—			7,082
Vacation Interest carrying cost, net	6,518			2,498			(790		)	8,226
Vacation Interest cost of sales	—			8,231			—			8,231
Management and member services	9,837			2,432			(3,407		)	8,862
Advertising, sales and marketing	—			34,819			—			34,819
Consolidated resort operations	6,183			1,131			—			7,314
Vacation Interest carrying cost, net	—			9,272			—			9,272
Loan portfolio	~~2,316~~223			12,~~204~~128			~~(1,074~~—		)	2,~~446~~351
Other operating	~~2,973~~—			1,~~523~~158			~~(2,042~~—		)	21,~~454~~158
General and administrative	~~17,780~~—			~~10,196~~—			—20,760			2720,~~976~~760
Depreciation and amortization	~~2,348~~—			~~2,857~~—			—3,805			53,~~205~~805
Interest	16,952			7,856			—			24,808
Interest expense	—			4,920			17,011			21,931
Impairments and other write-offs	~~401~~—			—			—(11		)	~~401~~(11		)
Gain on disposal of assets	~~(122~~—		)	—			—(72		)	(~~122~~72		)
Adjustment on bargain purchase from business combinations	—			115			—			115
Gain on bargain purchase from business combinations	—			—			(51		)	(51		)
Total costs and expenses	~~128~~15,~~028~~580			3360,~~874~~528			(741,~~885~~442		)	~~154~~117,~~017~~550
Income (loss) before benefit for income taxes	5,411			(9,544		)	(7,172		)	(11,305		)
Income (loss) before provision for income taxes	21,116			11,397			(41,113		)	(8,600		)
Provision (benefit) for income taxes	450			(110		)	—			340
Provision for income taxes	—			—			975			975
Net Income (loss)	$	4,961		$	(9,434	)	$	(7,172	)	$	(11,645	)
Net income (loss)	$	21,116		$	11,397		$	(42,088	)	$	(9,575	)

Note 21 — Condensed Consolidating Financial Statements - Guarantor and Non-guarantor

The following condensed consolidating financial statements present, on a supplemental basis, the financial position, results of operations, and statements of cash flow for (i) those subsidiaries of the Company which have been designated "Non-guarantor Subsidiaries" for purposes of the indenture governing the Senior Secured Notes; and (ii) the Company and all of its other subsidiaries. Please see Exhibit 21.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for a list of the Company's guarantor subsidiaries. The Company's non-guarantor subsidiaries include its European subsidiaries, special-purpose subsidiaries and a wholly-owned captive insurance entity. For purposes of the indenture governing the Senior Secured Notes, the financial position, results of operations, and statements of cash flows of the Company's non-guarantor subsidiaries are excluded from the Company’s financial results to determine whether the Company is in compliance with the financial covenants governing the Senior Secured Notes. Accordingly, management believes that the following presentation is helpful to readers of this quarterly report.

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

CONDENSED CONSOLIDATING BALANCE SHEET March 31, 2013 (In thousands) (Unaudited)

	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Assets:
Cash and cash equivalents	$	11,736		$	14,468		$	—		$	26,204
Cash in escrow and restricted cash	35,850			20,531			—			56,381
Mortgages and contracts receivable, net of allowance of $12,382, $72,525, $0 and $84,907, respectively	29,256			291,714			(3		)	320,967
Due from related parties, net	126,407			34,482			(137,911		)	22,978
Other receivables, net	23,628			12,109			—			35,737
Income tax receivable	4			25			—			29
Prepaid expenses and other assets, net	81,795			55,233			(14,262		)	122,766
Unsold Vacation Interests, net	213,886			115,614			(29,012		)	300,488
Property and equipment, net	30,089			24,966			—			55,055
Assets held for sale	—			4,886			—			4,886
Intangible assets, net	27,079			81,233			—			108,312
Total assets	$	579,730		$	655,261		$	(181,188	)	$	1,053,803
Liabilities and Member Capital (Deficit):
Accounts payable	$	6,809		$	6,715		$	—		$	13,524
Due to related parties, net	80,860			171,263			(155,324		)	96,799
Accrued liabilities	64,851			36,313			(1,144		)	100,020
Income taxes payable	—			855			—			855
Deferred revenues	89,552			18,891			—			108,443
Senior Secured Notes, net of unamortized original issue discount of $8,253, $0, $0 and $8,253, respectively	416,747			—			—			416,747
Securitization notes and Funding Facilities, net of unamortized original issue discount of $0, $673, $0 and $673, respectively	—			278,928			—			278,928
Notes payable	6,569			130,976			—			137,545
Total liabilities	665,388			643,941			(156,468		)	1,152,861

Member capital (deficit)	143,094			26,736			(14,262		)	155,568
Accumulated deficit	(200,861		)	(23,456		)	(10,844		)	(235,161		)
Accumulated other comprehensive (loss) income	(27,891		)	8,040			386			(19,465		)
Total member (deficit) capital	(85,658		)	11,320			(24,720		)	(99,058		)
Total liabilities and member capital (deficit)	$	579,730		$	655,261		$	(181,188	)	$	1,053,803

For the Nine Months Ended September 30, 2012

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
Revenues:
Vacation Interest sales	$	207,049		$	11,808		$	—		$	218,857
(Provision) adjustment for uncollectible Vacation Interest sales revenue	(17,273		)	1,180			—			(16,093		)
Vacation Interest, net	189,776			12,988			—			202,764
Management and member services	85,023			9,173			(8,622		)	85,574
Consolidated resort operations	21,430			4,092			—			25,522
Interest	28,853			10,201			—			39,054
Other	23,657			18,374			(21,839		)	20,192
Total revenues	348,739			54,828			(30,461		)	373,106
Costs and Expenses:
Vacation Interest cost of sales	16,249			926			—			17,175
Advertising, sales and marketing	119,072			6,507			(988		)	124,591
Vacation Interest carrying cost, net	22,875			5,708			(1,909		)	26,674
Management and member services	26,395			5,948			(6,746		)	25,597
Consolidated resort operations	18,949			3,671			—			22,620
Loan portfolio	6,960			2,143			(1,923		)	7,180
Other operating	7,309			3,419			(5,309		)	5,419
General and administrative	51,923			19,014			—			70,937
Depreciation and amortization	6,793			6,586			—			13,379
Interest	50,534			19,424			—			69,958
Impairments and other write-offs	390			—			—			390
Gain on disposal of assets	(218		)	—			—			(218		)
Gain on bargain purchase from business combinations	—			(22,634		)	—			(22,634		)
Total costs and expenses	327,231			50,712			(16,875		)	361,068
Income (loss) before benefit for income taxes	21,508			4,116			(13,586		)	12,038
Provision (benefit) for income taxes	209			(13,562		)	—			(13,353		)
Net income (loss)	$	21,299		$	17,678		$	(13,586	)	$	25,391

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF ~~CASH FLOWS~~OPERATIONS

~~Nine~~For the Three Months Ended ~~September~~March 3031, ~~2012~~ 2013

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Operating activities:
Revenues:
Net income (loss)	$	21,299		$	17,678		$	(13,586	)	$	25,391
Management and member services	$	26,262		$	9,929		$	(4,604	)	$	31,587
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Consolidated resort operations	6,527			2,093			—			8,620
Provision (adjustment) for uncollectible Vacation Interest sales revenue	17,273			(1,180		)	—			16,093
Vacation Interest sales, net of provision of $6,381, $291, $0 and $6,672, respectively	77,262			14,406			—			91,668
Amortization of capitalized financing costs and original issue discounts	4,163			579			—			4,742
Interest	(93		)	13,787			(439		)	13,255
Amortization of capitalized loan origination costs and portfolio discounts (premiums)	2,376			(706		)	—			1,670
Other	10,272			10,963			(12,913		)	8,322
Depreciation and amortization	6,793			6,586			—			13,379
Total revenues	120,230			51,178			(17,956		)	153,452
Impairments and other write-offs	390			—			—			390
Costs and Expenses:
Gain on disposal of assets	(218		)	—			—			(218		)
Management and member services	9,667			3,805			(3,693		)	9,779
Gain on bargain purchase from business combinations	—			(22,634		)	—			(22,634		)
Consolidated resort operations	6,113			1,609			—			7,722
Deferred income taxes	—			(13,612		)	—			(13,612		)
Vacation Interest cost of sales	16,653			1,193			—			17,846
Gain on foreign currency exchange	(98		)	—			—			(98		)
Advertising, sales and marketing	41,962			9,291			(894		)	50,359
Gain on mortgage repurchase	(26		)	—			—			(26		)
Vacation Interest carrying cost, net	4,525			4,768			(1,056		)	8,237
Changes in operating assets and liabilities excluding acquisitions:
Loan portfolio	2,232			2,795			(2,522		)	2,505
Mortgages and contracts receivable	(42,922		)	11,803			(2		)	(31,121		)
Other operating	884			2,083			(2,599		)	368
Due from related parties, net	9,225			348			8,735			18,308
General and administrative	15,651			7,149			—			22,800
Other receivables, net	14,783			(1,422		)	19			13,380
Depreciation and amortization	2,234			4,020			—			6,254
Prepaid expenses and other assets, net	(20,289		)	1,638			(21		)	(18,672		)
Interest expense	12,815			12,466			(439		)	24,842
Unsold Vacation Interests, net	(39,266		)	(7,745		)	12,737			(34,274		)
Impairments and other write-offs	—			79			—			79
Accounts payable	1,270			1,042			—			2,312
Loss (gain) on disposal of assets	1			(51		)	—			(50		)
Due to related parties, net	41,079			15,613			(7,896		)	48,796
Total costs and expenses	112,737			49,207			(11,203		)	150,741
Accrued liabilities	1,515			10,912			14			12,441
Income (loss) before provision for income taxes	7,493			1,971			(6,753		)	2,711
Income taxes receivable and payable	(2,046		)	—			—			(2,046		)
Provision for income taxes	23			415			—			438
Deferred revenues	(10,139		)	1,277			—			(8,862		)
Net income (loss)	$	7,470		$	1,556		$	(6,753	)	$	2,273
Net cash provided by operating activities	5,162			20,177			—			25,339
Investing activities:
Property and equipment capital expenditures	(11,005		)	(268		)	—			(11,273		)
Purchase of assets in connection with the PMR Acquisition, net of $0, $0, $0, and $0 cash acquired, respectively	—			(51,635		)	—			(51,635		)
Proceeds from sale of assets	497			—			—			497
Net cash used in investing activities	(10,508		)	(51,903		)	—			(62,411		)

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS ~~— Continued~~

~~Nine~~For the Three Months Ended ~~September~~March 3031, ~~2012~~ 2013

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Financing activities:
Operating activities:
Changes in cash in escrow and restricted cash	$	(4,521	)	$	(232	)	$	—		$	(4,753	)
Net income (loss)	$	7,470		$	1,556		$	(6,753	)	$	2,273
Proceeds from issuance of securitization notes and Funding Facilities	80,997			1,867			—			82,864
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Proceeds from issuance of notes payable	1,124			64,138			—			65,262
Provision for uncollectible Vacation Interest sales revenue	6,381			291			—			6,672
Payments on securitization notes and Funding Facilities	(66,937		)	(15,358		)	—			(82,295		)
Amortization of capitalized financing costs and original issue discounts	654			1,220			—			1,874
Payments on notes payable	(7,426		)	(15,919		)	—			(23,345		)
Amortization of capitalized loan origination costs and net portfolio discounts	1,182			48			—			1,230
Payments of debt issuance costs	(24		)	(2,570		)	—			(2,594		)
Depreciation and amortization	2,234			4,020			—			6,254
Payments of costs related to issuance of common and preferred units	(35		)	—			—			(35		)
Impairments and other write-offs	—			79			—			79
Net cash provided by financing activities	3,178			31,926			—			35,104
Loss (gain) on disposal of assets	1			(51		)	—			(50		)
Net (decrease) increase in cash and cash equivalents	(2,168		)	200			—			(1,968		)
Loss on foreign currency exchange	—			61			—			61
Effect of changes in exchange rates on cash and cash equivalents	318			—			—			318
Gain on insurance settlement	(2,203		)	—			—			(2,203		)
Cash and cash equivalents, beginning of period	19,648			249			—			19,897
Changes in operating assets and liabilities excluding acquisitions:
Cash and cash equivalents, end of period	$	17,798		$	449		$	—		$	18,247
Mortgages and contracts receivable	(3,450		)	(12,607		)	(1		)	(16,058		)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Due from related parties, net	727			(8,037		)	9,399			2,089
Cash paid for interest	$	61,067		$	11,032		$	—		$	72,099
Other receivables, net	8,959			3,234			—			12,193
Cash paid for taxes, net of tax refunds	$	2,337		$	—		$	—		$	2,337
Prepaid expenses and other assets, net	(31,255		)	(33,232		)	80			(64,407		)
Purchase of assets in connection with the PMR Acquisition:
Unsold Vacation Interests, net	6,617			(158		)	6,751			13,210
Fair value of assets acquired based on a preliminary report	$	—		$	89,760		$	—		$	89,760
Accounts payable	(2,711		)	827			—			(1,884		)
Gain on bargain purchase recognized	—			(22,765		)	—			(22,765		)
Due to related parties, net	22,346			22,603			(9,397		)	35,552
Cash paid	—			(51,635		)	—			(51,635		)
Accrued liabilities	(7,557		)	4,585			(79		)	(3,051		)
Deferred tax liability	—			(13,612		)	—			(13,612		)
Income taxes payable	898			191			—			1,089
Liabilities assumed	$	—		$	1,748		$	—		$	1,748
Deferred revenues	9,900			5,515			—			15,415
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Net cash provided by (used in) operating activities	20,193			(9,855		)	—			10,338
Insurance premiums financed through issuance of notes payable	$	7,573		$	—		$	—		$	7,573
Investing activities:
Assets held for sale reclassified to unsold Vacation Interests	$	1,353		$	—		$	—		$	1,353
Property and equipment capital expenditures	(2,325		)	(199		)	—			(2,524		)
Assets held for sale reclassified to other intangibles	$	192		$	—		$	—		$	192
Net cash used in investing activities	$	(2,325	)	$	(199	)	$	—		$	(2,524	)

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING ~~BALANCE~~STATEMENT ~~SHEET~~OF CASH FLOWS — Continued

~~December~~ For the Three Months Ended March 31, ~~2011~~ 2013

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-GuarantorSubsidiaries			Eliminations			Total
ASSETS
Financing activities:
Cash and cash equivalents	$	19,648		$	249		$	—		$	19,897
Changes in cash in escrow and restricted cash	$	(12,114	)	$	(2,075	)	$	—		$	(14,189	)
Cash in escrow and restricted cash	33,370			618			—			33,988
Proceeds from issuance of securitization notes and Funding Facilities	—			127,680			—			127,680
Mortgages and contracts receivable, net of allowance of $50,519, $33,579, $0 and $84,098, respectively	227,835			55,473			(6		)	283,302
Proceeds from issuance of notes payable	—			1,319			—			1,319
Due from related parties, net	33,686			2,399			(7,820		)	28,265
Payments on securitization notes and Funding Facilities	—			(105,151		)	—			(105,151		)
Other receivables, net	32,579			2,455			19			35,053
Payments on notes payable	(2,564		)	(7,252		)	—			(9,816		)
Income tax receivable	629			—			—			629
Payments of debt issuance costs	74			(2,048		)	—			(1,974		)
Prepaid expenses and other assets, net	45,402			9,221			(1,146		)	53,477
Net cash (used in) provided by financing activities	(14,604		)	12,473			—			(2,131		)
Unsold Vacation Interests, net	225,375			34,634			(3,204		)	256,805
Net increase in cash and cash equivalents	3,264			2,419			—			5,683
Property and equipment, net	25,943			22,234			—			48,177
Effect of changes in exchange rates on cash and cash equivalents	—			(540		)	—			(540		)
Assets held for sale	5,517			—			—			5,517
Cash and cash equivalents, beginning of period	8,472			12,589			—			21,061
Intangible assets, net	34,050			34,059			—			68,109
Cash and cash equivalents, end of period	$	11,736		$	14,468		$	—		$	26,204
Total assets	$	684,034		$	161,342		$	(12,157	)	$	833,219
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
LIABILITIES AND MEMBER CAPITAL (DEFICIT)
Cash paid for interest	$	25,273		$	7,416		$	—		$	32,689
Accounts payable	$	11,662		$	691		$	—		$	12,353
(Cash tax refunds, net of cash paid for taxes) cash paid for taxes, net of cash tax refunds	$	(876	)	$	220		$	—		$	(656	)
Due to related parties, net	28,684			42,261			(15,423		)	55,522
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued liabilities	68,316			3,153			(1,143		)	70,326
Insurance premiums financed through issuance of notes payable	$	5,914		$	—		$	—		$	5,914
Income taxes payable	3,491			—			—			3,491
Deferred revenues	70,743			31			—			70,774
Senior Secured Notes, net of original issue discount of $9,454, $0, $0 and $9,454, respectively	415,546			—			—			415,546
Securitization notes and Funding Facilities, net of original issue discount of $1,054, $0, $0 and $1,054, respectively	188,165			62,730			—			250,895
Notes payable	1,871			69,643			—			71,514
Total liabilities	788,478			178,509			(16,566		)	950,421
Member capital (deficit)	152,247			9,675			(9,675		)	152,247
(Accumulated deficit) retained earnings	(238,345		)	(26,140		)	13,408			(251,077		)
Accumulated other comprehensive (loss) income	(18,346		)	(702		)	676			(18,372		)
Total member (deficit) capital	(104,444		)	(17,167		)	4,409			(117,202		)
Total liabilities and member capital (deficit)	$	684,034		$	161,342		$	(12,157	)	$	833,219

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2012 (In thousands) (Audited)

	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Assets:
Cash and cash equivalents	$	8,472		$	12,589		$	—		$	21,061
Cash in escrow and restricted cash	23,736			18,575			—			42,311
Mortgages and contracts receivable, net of allowance of $5,814, $77,970, $0 and $83,784, respectively	33,373			279,563			(4		)	312,932
Due from related parties, net	129,135			27,083			(133,223		)	22,995
Other receivables, net	30,384			15,665			—			46,049
Income tax receivable	902			25			—			927
Prepaid expenses and other assets, net	50,709			21,497			(14,182		)	58,024
Unsold Vacation Interests, net	220,499			117,629			(22,261		)	315,867
Property and equipment, net	29,510			25,610			—			55,120
Assets held for sale	—			5,224			—			5,224
Intangible assets, net	27,569			84,929			—			112,498
Total assets	$	554,289		$	608,389		$	(169,670	)	$	993,008
Liabilities and Member Capital (Deficit):
Accounts payable	$	9,520		$	6,199		$	—		$	15,719
Due to related parties, net	59,496			155,203			(150,495		)	64,204
Accrued liabilities	72,396			35,120			(1,065		)	106,451
Income taxes payable	—			701			—			701
Deferred revenues	79,652			14,181			—			93,833
Senior Secured Notes, net of original issue discount of $8,509, $0, $0 and $8,509, respectively	416,491			—			—			416,491
Securitization notes and Funding Facilities, net of original issue discount of $0, $753, $0 and $753, respectively	—			256,302			—			256,302
Notes payable	3,219			134,687			—			137,906
Total liabilities	640,774			602,393			(151,560		)	1,091,607

Member capital (deficit)	143,095			26,655			(14,182		)	155,568
Accumulated deficit	(207,978		)	(25,012		)	(4,444		)	(237,434		)
Accumulated other comprehensive (loss) income	(21,602		)	4,353			516			(16,733		)
Total member (deficit) capital	(86,485		)	5,996			(18,110		)	(98,599		)
Total liabilities and member capital (deficit)	$	554,289		$	608,389		$	(169,670	)	$	993,008

For the Three Months Ended September 30, 2011

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
Revenues:
Vacation Interest sales	$	57,537		$	2,691		$	—		$	60,228
Provision for uncollectible Vacation Interest sales revenue	(4,417		)	(99		)	—			(4,516		)
Vacation Interest, net	53,120			2,592			—			55,712
Management and member services	26,165			1,640			(1,813		)	25,992
Consolidated resort operations	7,228			979			(606		)	7,601
Interest	10,561			4,089			—			14,650
Other	4,311			2,287			(3,103		)	3,495
Total revenues	101,385			11,587			(5,522		)	107,450
Costs and Expenses:
Vacation Interest cost of sales	1,728			126			—			1,854
Advertising, sales and marketing	33,350			1,321			(183		)	34,488
Vacation Interest carrying cost, net	3,600			731			(175		)	4,156
Management and member services	6,184			2,816			(2,281		)	6,719
Consolidated resort operations	5,658			962			—			6,620
Loan portfolio	1,955			562			(345		)	2,172
Other operating	1,583			461			(1,021		)	1,023
General and administrative	16,480			4,561			33			21,074
Depreciation and amortization	2,395			1,458			—			3,853
Interest	17,054			5,048			—			22,102
Impairments and other write-offs	681			12			—			693
(Gain) loss on disposal of assets	(232		)	156			—			(76		)
Gain on bargain purchase from business combinations	—			(34,183		)	—			(34,183		)
Total costs and expenses	90,436			(15,969		)	(3,972		)	70,495
Income (loss) before benefit for income taxes	10,949			27,556			(1,550		)	36,955
Benefit for income taxes	(499		)	(147		)	—			(646		)
Net income (loss)	$	11,448		$	27,703		$	(1,550	)	$	37,601

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2011~~ 2012

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenues:
Vacation Interest sales	$	149,496		$	5,134		$	1		$	154,631
Management and member services	$	23,079		$	6,373		$	(2,172	)	$	27,280
Provision for uncollectible Vacation Interest sales revenue	(11,088		)	(171		)	—			(11,259		)
Consolidated resort operations	6,463			2,071			—			8,534
Vacation Interest, net	138,408			4,963			1			143,372
Vacation Interest sales, net of provision of $4,068, $47, $0 and $4,115, respectively	47,501			7,071			—			54,572
Management and member services	73,865			3,399			(3,769		)	73,495
Interest	508			13,784			(636		)	13,656
Consolidated resort operations	21,024			1,371			(606		)	21,789
Other	6,841			3,752			(5,685		)	4,908
Interest	29,294			4,986			—			34,280
Total revenues	84,392			33,051			(8,493		)	108,950
Other	17,218			2,308			(3,693		)	15,833
Total revenues	279,809			17,027			(8,067		)	288,769
Costs and Expenses:
Vacation Interest cost of sales	(3,995		)	235			—			(3,760		)
Management and member services	6,671			2,738			(1,134		)	8,275
Advertising, sales and marketing	93,446			3,032			(357		)	96,121
Consolidated resort operations	5,516			1,566			—			7,082
Vacation Interest carrying cost, net	17,245			3,362			(544		)	20,063
Vacation Interest cost of sales	6,795			1,436			—			8,231
Management and member services	16,646			6,020			(4,132		)	18,534
Advertising, sales and marketing	30,512			4,487			(180		)	34,819
Consolidated resort operations	18,440			1,454			—			19,894
Vacation Interest carrying cost, net	5,352			4,313			(393		)	9,272
Loan portfolio	52,~~976~~131			~~697~~2,033			(~~345~~1,813		)	62,~~328~~351
Other operating	31,~~269~~788			~~486~~800			(1,~~252~~430		)	21,~~503~~158
General and administrative	4813,~~278~~938			106,~~417~~823			~~102~~(1		)	5820,~~797~~760
Depreciation and amortization	71,~~663~~832			21,~~502~~973			—			103,~~165~~805
Interest	52,918			7,464			—			60,382
Interest expense	11,347			11,220			(636		)	21,931
Impairments and other write-offs	~~994~~11			(22		)	—			~~1,016~~(11		)
(Gain) loss on disposal of assets	(732		)	284			—			(448		)
Gain on disposal of assets	(1		)	(71		)	—			(72		)
Gain on bargain purchase from business combinations	—			(~~34,183~~51		)	—			(~~34,183~~51		)
Total costs and expenses	~~260~~85,~~148~~892			137,~~792~~245			(65,~~528~~587		)	~~255~~117,~~412~~550
Income (loss) before provision (benefit) for income taxes	19,661			15,235			(1,539		)	33,357
Loss before provision for income taxes	(1,500		)	(4,194		)	(2,906		)	(8,600		)
Provision (benefit) for income taxes	292			(356		)	—			(64		)
Provision for income taxes	530			445			—			975
Net income (loss)	$	19,369		$	15,591		$	(1,539	)	$	33,421
Net loss	$	(2,030	)	$	(4,639	)	$	(2,906	)	$	(9,575	)

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~Nine~~For the Three Months Ended ~~September~~March 3031, ~~2011~~ 2012

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations			Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	19,369		$	15,591		$	(1,539	)	33,421
Net loss	$	(2,030	)	$	(4,639	)	$	(2,906	)	$	(9,575	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for uncollectible Vacation Interest sales revenue	114,~~088~~068			~~171~~47			—			114,~~259~~115
Amortization of capitalized financing costs and original issue discounts	~~4,550~~573			~~194~~933			—			41,~~744~~506
Amortization of capitalized loan origination costs and portfolio discounts	1,797			204			—			2,001
Amortization of capitalized loan origination costs and net portfolio discounts (premiums)	671			(919		)	—			(248		)
Depreciation and amortization	71,~~663~~832			21,~~502~~973			—			103,~~165~~805
Impairments and other write-offs	~~994~~11			(22		)	—			~~1,016~~(11		)
(Gain) loss on disposal of assets	(732		)	284			—			(448		)
Gain on disposal of assets	(1		)	(71		)	—			(72		)
Gain on bargain purchase from business combinations	—			(~~34,183~~51		)	—			(~~34,183~~51		)
Loss on foreign currency exchange	13			—			—			13
Gain on foreign currency exchange	—			(29		)	—			(29		)
Gain on mortgage repurchase	(~~158~~11		)	—			—			(~~158~~11		)
Unrealized gain on derivative instruments	(79		)	—			—			(79		)
Gain on insurance settlement	(3,535		)	—			—			(3,535		)
Changes in operating assets and liabilities excluding acquisitions:
Mortgages and contracts receivable	(~~1,456~~709		)	~~5,186~~75			(7—		)	~~3,723~~(634		)
Due from related parties, net	(312,~~560~~491		)	~~(943~~11,554		)	~~(54~~5,526		)	(4,~~557~~589		)
Other receivables, net	148,~~976~~764			~~665~~3,422			~~633~~40			1612,~~274~~226
Prepaid expenses and other assets, net	(1233,~~624~~012		)	(127,~~082~~875		)	~~(498~~833		)	(1460,~~204~~054		)
Unsold Vacation Interests, net	~~(30~~2,~~186~~016		)	(2,~~183~~618		)	12,~~540~~056			~~(30~~1,~~829~~454		)
Accounts payable	31,~~076~~063			84(1,283		)	—			~~3,160~~(220		)
Due to related parties, net	1630,~~264~~379			1925,~~703~~138			~~105~~(5,045		)	3650,~~072~~472
Accrued liabilities	(75,~~333~~504		)	(~~3,116~~358		)	~~(180~~329		)	(105,~~629~~533		)
Income taxes receivable and payable	(533		)	(356		)	—			(889		)
Income taxes payable	36			399			—			435
Deferred revenues	~~(23~~15,~~064~~506		)	(13,~~690~~864		)	—(833		)	~~(24~~18,~~754~~537		)
Net cash (used in) provided by operating activities	(3,470		)	1,053			—			(2,417		)
Net cash provided by operating activities	11,161			9,540			—			20,701
Investing activities:
Property and equipment capital expenditures	(51,~~003~~675		)	(~~121~~210		)	—			(51,~~124~~885		)
Purchase of assets in connection with the Tempus Resorts Acquisition, net of $0, $2,515, $0, $2,515 cash acquired, respectively	—			(102,398		)	—			(102,398		)
Proceeds from sale of assets	1			218			—			219
Disbursement of Tempus Note Receivable	—			(3,493		)	—			(3,493		)
Net cash (used in) provided by investing activities	$	(1,674	)	$	8		$	—		$	(1,666	)
Proceeds from sale of assets	1,948			1			—			1,949
Net cash used in investing activities	$	(3,055	)	$	(106,011	)	$	—		$	(109,066	)

Table of Contents

DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS — Continued

~~Nine~~For the Three Months Ended ~~September~~March 3031, ~~2011~~ 2012

(In thousands)

(Unaudited)

	Diamond Resorts Parent, LLC and Restricted Subsidiaries			UnrestrictedSubsidiaries			Eliminations		Total
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-GuarantorSubsidiaries			Eliminations		Total
Financing activities:
Changes in cash in escrow and restricted cash	$	(18,~~395~~310	)	$	~~1,938~~(455	)	$	—	$	~~543~~(8,765	)
Proceeds from issuance of securitization notes and Funding Facilities	~~102,502~~—			7830,~~662~~607			—		~~181~~30,~~164~~607
Proceeds from issuance of notes payable	—			~~44,678~~65			—		~~44,678~~65
Payments on securitization notes and Funding Facilities	~~(96,635~~—		)	(835,~~615~~765		)	—		(~~105~~35,~~250~~765		)
Payments on notes payable	(62,~~114~~486		)	(74,~~544~~602		)	—		(137,~~658~~088		)
Payments of debt issuance costs	~~(2,844~~1		)	(~~1,571~~25		)	—		(~~4,415~~24		)
Proceeds from issuance of common and preferred units	146,651			—			—		146,651
Payments of costs related to issuance of common and preferred units	(8		)	—			—		(8		)
Repurchase of a portion of outstanding warrants	(16,598		)	—			—		(16,598		)
Net cash used in financing activities	(10,803		)	(10,175		)	—		(20,978		)
Repurchase a portion of outstanding common units	(16,352		)	—			—		(16,352		)
Net decrease in cash and cash equivalents	(1,316		)	(627		)	—		(1,943		)
Repurchase of redeemable preferred units	(108,701		)	—			—		(108,701		)
Effect of changes in exchange rates on cash and cash equivalents	—			237			—		237
Payments on costs related to issuance of common and preferred units	(4,585		)	—			—		(4,585		)
Cash and cash equivalents, beginning of period	10,836			9,061			—		19,897
Net cash (used in) provided by financing activities	(4,071		)	107,548			—		103,477
Cash and cash equivalents, end of period	$	9,520		$	8,671		$	—	$	18,191
Net (decrease) increase in cash and cash equivalents	(10,596		)	2,590			—		(8,006		)
Effect of changes in exchange rates on cash and cash equivalents	61			—			—		61
Cash and cash equivalents, beginning of period	27,163			166			—		27,329
Cash and cash equivalents, end of period	$	16,628		$	2,756		$	—	$	19,384
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	6225,~~947~~615		$	46,~~275~~439		$	—	$	6732,~~222~~054
Cash paid for taxes, net of cash tax refunds	$	~~684~~498		$	—51		$	—	$	~~684~~549
Purchase of assets in connection with the Tempus Resorts Acquisition:
Fair value of assets acquired	$	—		$	146,974		$	—	$	146,974
Gain on bargain purchase recognized	$	—		$	(34,183	)	$	—	$	(34,183	)
Cash paid	$	—		$	(104,915	)	$	—	$	(104,915	)
Liabilities assumed	$	—		$	7,876		$	—	$	7,876
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Priority returns and redemption premiums on preferred units	$	8,412		$	—		$	—	$	8,412
Insurance premiums financed through issuance of notes payable	$	6,043		$	—		$	—	$	6,043
Insurance premiums financed through issuance of notes payable	$	6,141		$	—		$	—	$	6,141
Unsold Vacation Interests, net reclassified to assets held for sale	$	—		$	18		$	—	$	18
Assets held for sale reclassified to unsold Vacation Interests	$	2,994		$	—		$	—	$	2,994

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DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~—continued~~--Continued

Note 2322 — ~~Condensed~~Geographic ~~Consolidating~~ Financial ~~Statements - Guarantor and Non-guarantor Subsidiaries~~Information

The ~~following~~Company ~~condensed~~conducts ~~consolidating~~its ~~financial~~Hospitality ~~statements~~and ~~present,~~Management onServices aand ~~supplemental~~Vacation ~~basis,~~Interest ~~the~~Sales ~~financial~~and ~~position,~~Financing ~~results of~~ operations, ~~and~~in ~~statements~~two ofgeographic ~~cash~~areas: ~~flow~~North ~~for~~America ~~(1)~~and ~~those~~Europe. ~~subsidiaries~~The ~~of the~~ Company’s ~~which~~North ~~have~~America ~~been~~operations ~~designated~~include ~~"Non-guarantor~~the ~~Subsidiaries"~~Company’s ~~for~~branded ~~purposes~~resorts ofin the ~~Senior~~continental ~~Secured~~U.S., ~~Note~~Hawaii, ~~Indenture;~~Mexico, Canada and ~~(2)~~ the ~~Company~~Caribbean, and ~~all of its other subsidiaries. Please see Exhibit 21.1 of~~ the Company'’s ~~Annual~~Europe ~~Report~~operations oninclude ~~Form 10-K for~~ the ~~year ended December 31, 2011 for a list of the guarantor subsidiaries. The~~ Company'’s ~~non-guarantor~~branded ~~subsidiaries~~resorts ~~include~~in ~~its~~England, ~~European~~Scotland, ~~subsidiaries~~Ireland, ~~special purpose and unrestricted subsidiaries~~Italy, ~~special purpose subsidiaries created for the non-recourse indebtedness~~Spain, ~~and a wholly-owned captive insurance entity. For purposes of the Senior Secured Note Indenture~~Portugal, ~~the financial position~~Austria, ~~results of operations~~Malta, France and ~~statements~~Greece. ofThe ~~cash~~following ~~flows~~table ofreflects ~~Non-guarantor~~total ~~Subsidiaries~~revenue ~~are~~and ~~excluded~~assets ~~from~~by ~~the~~geographic ~~Company’s~~area ~~financial~~for ~~results to determine whether~~ the ~~Company~~periods isended inon, ~~compliance~~or ~~with~~as ~~the financial covenants governing the Senior Secured Notes. Accordingly~~of, ~~management believes that~~ the ~~following~~dates ~~presentation~~presented isbelow ~~helpful~~(in ~~to readers of this quarterly report.~~thousands):



	Three Months Ended March 31,
	2013		2012
Revenue
North America	$	139,451	$	99,386
Europe	14,001		9,564
Total Revenues	$	153,452	$	108,950



	March 31, 2013		December 31, 2012
Mortgages and contracts receivable, net
North America	$	319,172	$	310,955
Europe	1,795		1,977
Total mortgages and contracts receivable, net	$	320,967	$	312,932
Unsold Vacation Interests, net
North America	$	260,674	$	275,352
Europe	39,814		40,515
Total unsold Vacation Interests, net	$	300,488	$	315,867
Property and equipment, net
North America	$	50,753	$	50,643
Europe	4,302		4,477
Total property and equipment, net	$	55,055	$	55,120
Intangible assets, net
North America	$	100,291	$	103,141
Europe	8,021		9,357
Total intangible assets, net	$	108,312	$	112,498
Total long-term assets, net
North America	$	730,890	$	740,091
Europe	53,932		56,326
Total long-term assets, net	$	784,822	$	796,417

Note 23 — Subsequent Events

On April 11, 2013, the Company entered into another amended and restated 2008 Conduit Facility agreement that extended the maturity date of the facility to April 10, 2015. See Note 15—Borrowings for further detail on this amendment to the 2008 Conduit Facility.

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~~DIAMOND~~ITEM ~~RESORTS~~2. MANAGEMENT’S ~~PARENT,~~DISCUSSION ~~LLC~~AND ANALYSIS OF FINANCIAL CONDITION AND ~~SUBSIDIARIES~~RESULTS

~~NOTES~~OF ~~TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued~~OPERATIONS

CONDENSED CONSOLIDATING BALANCE SHEET September 30, 2012(in thousands)(Unaudited)
	Diamond Resorts Parent, LLC and Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
ASSETS
Cash and cash equivalents	$	9,423		$	8,824		$	—		$	18,247
Cash in escrow and restricted cash	21,558			17,209			—			38,767
Mortgages and contracts receivable, net of allowance of $44,906, $35,874, $0 and $80,780, respectively	(10,306		)	308,759			(4		)	298,449
Due from related parties, net	113,722			20,153			(120,658		)	13,217
Other receivables, net	13,008			11,700			—			24,708
Income tax receivable	1,875			27			—			1,902
Prepaid expenses and other assets, net	60,180			26,024			(14,247		)	71,957
Unsold Vacation Interests, net	223,598			122,431			(15,941		)	330,088
Property and equipment, net	28,262			26,479			—			54,741
Assets held for sale	—			4,212			—			4,212
Intangible assets, net	28,059			77,900			—			105,959
Total assets	$	489,379		$	623,718		$	(150,850	)	$	962,247
LIABILITIES AND MEMBER CAPITAL (DEFICIT)
Accounts payable	$	10,637		$	4,184		$	—		$	14,821
Due to related parties, net	42,372			192,740			(136,671		)	98,441
Accrued liabilities	52,157			29,753			(1,129		)	80,781
Income taxes payable	(2		)	2,858			—			2,856
Deferred revenues	53,093			9,258			—			62,351
Senior Secured Notes, net of original issue discount of $8,757, $0, $0 and $8,757, respectively	416,243			—			—			416,243
Securitization notes and Funding Facilities, net of original issue discount of $0, $833, $0 and $833, respectively	—			251,684			—			251,684
Notes payable	3,123			122,192			—			125,315
Total liabilities	577,623			612,669			(137,800		)	1,052,492
Member capital (deficit)	139,739			26,719			(14,246		)	152,212
(Accumulated deficit) retained earnings	(206,268		)	(20,127		)	709			(225,686		)
Accumulated other comprehensive (loss) income	(21,715		)	4,457			487			(16,771		)
Total member (deficit) capital	(88,244		)	11,049			(13,050		)	(90,245		)
Total liabilities and member capital (deficit)	$	489,379		$	623,718		$	(150,850	)	$	962,247

This discussion contains forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. We have tried to identify forward-looking statements in this discussion by using words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.” These forward-looking statements include, among others, statements relating to our future financial performance, business prospects and strategy, anticipated financial position, liquidity and capital resources and other similar matters. These forward-looking statements are based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Although we believe that our expectations are based on reasonable assumptions, our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this quarterly report as a result of various factors, including, among others:


•	adverse trends or disruptions in economic conditions generally or in the vacation ownership, vacation rental and travel industries;


•	adverse changes to, or interruptions in, relationships with our affiliates and other third parties, including termination of our hospitality management contracts;


•	our ability to maintain an optimal inventory of vacation ownership interests ("VOI" or "Vacation Interests") for sale;


•	our ability to sell, securitize or borrow against our consumer loans;


•	decreased demand from prospective purchasers of VOIs;


•	adverse events or trends in vacation destinations and regions where the resorts in our network are located;


•	changes in our senior management;


•	our ability to comply with regulations applicable to the vacation ownership industry;


•	the effects of our indebtedness and our compliance with the terms thereof;


•	our ability to successfully implement our growth strategy;


•	our ability to compete effectively; and


•	other risks and uncertainties discussed in "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Accordingly, you should read this report completely and with the understanding that our actual future results may be materially different from what we expect. Forward-looking statements speak only as of the date of this report. Except as expressly required under federal securities laws and the rules and regulations of the Securities and Exchange Commission (the "SEC"), we do not have any obligation, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this report, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this quarterly report or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

In addition, you should read the following discussion in conjunction with our condensed consolidated financial statements and other financial information included elsewhere in this quarterly report.

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~~DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES~~Overview

~~NOTES~~We TOare a global leader in the hospitality and vacation ownership industry, with an ownership base of more than 490,000 owner-families, or members, and a worldwide network of 295 destinations located in 32 countries, throughout the continental United States ("U.S."), Hawaii, Canada, Mexico, the Caribbean, Central America, South America, Europe, Asia, Australia and Africa. Our resort network includes 80 Diamond Resorts-branded properties that we manage. We also have 211 affiliated resorts and four cruise itineraries, which we do not manage and do not carry our brand, but are a part of our network and are available for our members to use as vacation destinations. For financial reporting purposes, our business consists of two segments: Hospitality and Management Services, which is composed of our hospitality and management services operations, including our operations related to the management of our resort properties, seven multi-resort trusts (the "Collections") and THE ~~CONDENSED~~Club, ~~CONSOLIDATED~~and ~~FINANCIAL~~Vacation ~~STATEMENTS—continued~~Interest Sales and Financing, which is composed of our marketing and sales of VOIs and the consumer financing of purchases of VOIs.

~~CONDENSED~~We ~~CONSOLIDATING~~are ~~STATEMENT~~led OFby ~~OPERATIONS~~an experienced management team that has delivered strong operating results through disciplined execution. Our management team has taken a number of significant steps to refine our strategic focus, build our brand recognition and streamline our operations, including (i) maximizing revenue from our hospitality and management services business, (ii) implementing a focus throughout our business on service and hospitality, and (iii) adding resorts to our network through complementary strategic acquisitions. Management has also implemented growth strategies to increase our revenues while remaining consistent with our capital-efficient business model. A key strategy has been the acquisition of complementary resorts and associated management contracts using special-purpose subsidiaries financed on a non-recourse basis.

~~For~~On August 31, 2010, we acquired from ILX Resorts Incorporated and its affiliates certain resort management agreements, unsold VOIs and the ~~Three~~rights ~~Months~~to ~~Ended~~recover ~~September~~and 30resell such interests, a portfolio of consumer loans and certain real property and other assets (the “ILX Acquisition”), which added ten additional resorts to our resort network. On July 1, 2011, we acquired from Tempus Resorts International, Ltd., and its subsidiaries certain management agreements, unsold VOIs and the rights to recover and resell such interests, the seller's consumer loan portfolio and certain real property and other assets (the “Tempus Resorts Acquisition”), which added two resorts to our resort network. On May 21, 2012, we acquired from Pacific Monarch Resorts, Inc. and its affiliates four management contracts, unsold VOIs and the rights to recover and resell such interests, a portfolio of consumer loans and certain real property and other assets, which added nine locations to our resort network (the "PMR Acquisition"). On October 5, 2012, we acquired all of the issued and outstanding shares of Aegean Blue Holdings Plc, thereby acquiring management contracts, unsold VOIs and the rights to recover and resell such interests and certain other assets (the “Aegean Blue Acquisition”), which added five resorts located on the Greek Islands of Rhodes and Crete to our resort network. These transactions were effected through special-purpose subsidiaries, and funded by financial partners on a non-recourse basis. We believe that this transaction structure enables us to obtain substantial benefits from these acquisitions, without subjecting our historical business or our capital structure to the full risks associated with acquisitions and related leverage.

(In ~~thousands~~addition, on January 29, 2013, we entered into a memorandum of understanding with Island One, Inc. (“Island One”), Crescent One, LLC (“Crescent”) and the holder of their respective equity interests. Island One and Crescent operate a vacation ownership, h

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