SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934





For The Quarter Ended September 30, 1997         Commission File Number 33-16122
                      ------------------                                --------

                                ILX INCORPORATED
                                ----------------
             (Exact name of registrant as specified in its charter)


             ARIZONA                                      86-0564171
             -------                                      ----------
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)

          2111 East Highland Avenue, Suite 210, Phoenix, Arizona 85016
          ------------------------------------------------------------
                    (Address of principal executive offices)

         Registrant's telephone number, including area code 602-957-2777
                                                            ------------

                  ---------------------------------------------

Former name,  former  address,  and former  fiscal year,  if changed  since last
report.



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.


                                        Yes   X        No
                                             ---          ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
stock, as of the latest practicable date.


           Class                               Outstanding at September 30, 1997
           -----                               ---------------------------------
Common Stock, without par value                        13,431,662 shares
Preferred Stock, $10 par value                           380,468 shares
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        September 30,   December 31, 
                                                                            1997            1996
                                                                        ------------    ------------
                                                                         (Unaudited)
<S>                                                                     <C>             <C>         
Assets
     Cash and cash equivalents                                          $  2,218,261    $  3,523,047
     Notes receivable, net                                                16,058,418      11,745,720
     Resort property held for timeshare sales                             14,064,827      15,247,587
     Resort property under development                                     1,727,833       1,209,706
     Land held for sale                                                    1,551,065       1,547,493
     Deferred assets                                                         313,813         313,346
     Property and equipment, net                                           5,182,104       4,877,467
     Deferred income taxes                                                   438,449       1,178,653
     Minority interests                                                      318,711            --
     Other assets                                                          2,082,751       1,631,886
                                                                        ------------    ------------
                                                                        $ 43,956,232    $ 41,274,905
                                                                        ------------    ------------

Liabilities and Shareholders' Equity
     Accounts payable                                                   $  1,919,757    $  2,310,600
     Accrued and other liabilities                                         1,727,533       3,476,135
     Genesis funds certificates                                            1,164,913       1,182,087
     Due to affiliates                                                        41,336         139,715
     Notes payable                                                        19,250,677      14,867,096
     Notes payable to affiliates                                           3,110,106       1,567,287
                                                                        ------------    ------------
                                                                          27,214,322      23,542,920
                                                                        ------------    ------------

Minority Interests                                                              --         2,556,865
                                                                        ------------    ------------

Shareholders' Equity
     Preferred stock, $10 par value;  10,000,000 shares authorized;
       380,468 and 392,109 shares issued and outstanding; liquidation
       preference of $3,804,680 and $3,921,090, respectively               1,384,891       1,419,243

     Common stock, no par value; 40,000,000 shares authorized;
       13,462,162 and 13,024,290 shares issued and outstanding            10,275,111       9,788,738

     Treasury stock, at cost, 30,500 and 30,000 shares, respectively         (37,099)        (36,536)

     Additional paid in capital                                               79,450          78,300

     Retained earnings                                                     5,039,557       3,925,375
                                                                        ------------    ------------
                                                                          16,741,910      15,175,120
                                                                        ------------    ------------
                                                                        $ 43,956,232    $ 41,274,905
                                                                        ============    ============
</TABLE>
                 See notes to consolidated financial statements
                                       2
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                        Three months ended              Nine months ended
                                                           September 30,                   September 30,
                                                           -------------                   -------------
                                                        1997            1996            1997            1996
                                                    ------------    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>         
Revenues
     Sales of timeshare interests                   $  7,017,548    $  5,480,153    $ 17,955,423    $ 15,270,596
     Resort operating revenue                          2,636,829       2,713,317       7,866,593       7,996,778
     Sales of land and other                              12,982          30,017          67,563         331,615
     Interest income                                     414,482         248,532         973,236         712,628
                                                    ------------    ------------    ------------    ------------
                                                      10,081,841       8,472,019      26,862,815      24,311,617
                                                    ------------    ------------    ------------    ------------

Cost of sales and operating expenses
     Cost of timeshare interests sold                  2,538,146       1,566,106       6,286,509       4,960,098
     Cost of resort operations                         2,672,365       2,598,017       7,938,745       7,924,836
     Cost of land sold and other                           5,981          31,160          50,978         291,017
     Advertising and promotion                         2,629,237       1,980,278       6,539,853       5,168,565
     General and administrative                          692,225         723,990       2,199,251       2,157,287
     Provision for doubtful accounts                     208,759          36,410         526,352         459,143
                                                    ------------    ------------    ------------    ------------
                                                       8,746,713       6,935,961      23,541,688      20,960,946
                                                    ------------    ------------    ------------    ------------

Operating income                                       1,335,128       1,536,058       3,321,127       3,350,671

Interest expense                                         564,710         478,962       1,500,472       1,406,073
                                                    ------------    ------------    ------------    ------------

Income before minority interests and income taxes        770,418       1,057,096       1,820,655       1,944,598
Minority interests                                       290,446        (204,303)        121,693        (486,469)
Income taxes                                            (423,845)       (354,006)       (776,302)       (607,371)
                                                    ------------    ------------    ------------    ------------

Net income                                          $    637,019    $    498,787    $  1,166,046    $    850,758
                                                    ============    ============    ============    ============

Net income per common and equivalent
share                                               $       0.04    $       0.03    $       0.08    $       0.06
                                                    ============    ============    ============    ============

Number of common and equivalent
shares                                                13,413,664      13,013,372      13,257,677      12,890,033
                                                    ============    ============    ============    ============
</TABLE>
                 See notes to consolidated financial statements
                                       3
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                           September 30,
                                                                                           -------------
                                                                                       1997           1996
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>        
Cash flows from operating activities:
    Net income                                                                      $ 1,166,046    $   850,758
Adjustments to reconcile net income to net cash provided by operating activities:
    Undistributed minority interest                                                    (121,968)       239,258
    Provision for doubtful accounts                                                     526,352        459,143
    Depreciation and amortization                                                       345,145        543,643
    Deferred income taxes                                                               740,204        735,150
    Amortization of guarantee fees                                                       67,150         56,300
    Gain on settlement of liability                                                     (98,705)          --
Change in assets and liabilities:
    Decrease in resort property held for timeshare sales                              1,182,760        485,381
    Additions to resort property under development                                     (518,127)       (65,269)
    Increase in land held for sale                                                       (3,572)        (2,309)
    Increase in other assets                                                           (174,637)      (198,852)
    Decrease in accounts payable                                                       (390,843)      (141,757)
    Increase (decrease) in accrued and other liabilities                                487,323        (15,841)
    Decrease in Genesis funds certificates                                              (17,174)      (175,171)
    Decrease in due to affiliates                                                       (98,379)      (240,863)
                                                                                    -----------    -----------
Net cash provided by operating activities                                             3,091,575      2,529,571
                                                                                    -----------    -----------
Cash flows from investing activities:
    (Increase) decrease in deferred assets                                              (67,617)        66,050
    Purchases of plant and equipment                                                   (492,988)      (242,465)
    Notes receivable, net                                                            (4,554,967)    (3,123,123)
                                                                                    -----------    -----------
Net cash used in investing activities                                                (5,115,572)    (3,299,538)
                                                                                    -----------    -----------
Cash flows from financing activities:
    Proceeds from notes payable                                                       6,208,386      4,181,139
    Principal payments on notes payable                                              (4,374,662)    (3,826,898)
    Principal payments on notes payable to affiliates                                  (202,181)      (339,350)
    Distributions to minority partners                                                 (960,000)      (720,000)
    Proceeds from issuance of common stock                                               96,125        423,875
    Acquisition of treasury stock                                                          (563)          --
    Redemption of preferred stock                                                          --          (12,000)
    Preferred stock dividend payments                                                   (47,894)       (47,971)
                                                                                    -----------    -----------
Net cash provided by (used in) financing activities                                     719,211       (341,205)
                                                                                    -----------    -----------
Net decrease in cash and cash equivalents                                            (1,304,786)    (1,111,172)
Cash and cash equivalents at beginning of period                                      3,523,047      3,746,518
                                                                                    -----------    -----------
Cash and cash equivalents at end of period                                          $ 2,218,261    $ 2,635,346
                                                                                    ===========    ===========
</TABLE>
                 See notes to consolidated financial statements
                                       4
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation and Business Activities
---------------------------------------------------

The Company's  significant  business activities include  developing,  operating,
marketing  and financing  ownership  interests in resort  properties  located in
Arizona,  Colorado,  Florida, Indiana and Mexico. Effective in the third quarter
of 1994, the Company  expanded its  operations to include  marketing of skin and
hair care products which are not considered significant to resort operations.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
notes  required  by  generally  accepted  accounting   principles  for  complete
financial  statements.  In  the  opinion  of  management,  all  adjustments  and
reclassifications  considered  necessary for a fair and comparable  presentation
have been included and are of a normal recurring  nature.  Operating results for
the three and nine month periods ended  September 30, 1997, are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1997. The accompanying  financial  statements should be read in conjunction with
the Company's most recent audited financial statements.

The consolidated  financial  statements include the accounts of ILX Incorporated
and its wholly owned and majority-owned  subsidiaries  ("ILX" or the "Company").
All significant  intercompany  transactions and balances have been eliminated in
consolidation.

Revenue Recognition
-------------------

Revenue  from sales of timeshare  interests is  recognized  in  accordance  with
Statement of Financial  Accounting Standard No. 66, Accounting for Sales of Real
Estate ("SFAS No. 66"). No sales are recognized  until such time as a minimum of
10% of the purchase  price has been received in cash,  the buyer is committed to
continued  payments  of the  remaining  purchase  price and the Company has been
released of all future obligations for the timeshare interest.  Resort operating
revenue  represents  daily room rentals and revenues  from food and other resort
services. Such revenues are recorded as the rooms are rented or the services are
performed.

Statements of Cash Flows
------------------------

Cash  equivalents  are highly liquid  investments  with an original  maturity of
three months or less.  During the three and nine month periods  ended  September
30, 1997 and 1996,  the Company paid  interest and income taxes and  capitalized
interest to resort property under development as follows:

                                 Three Months Ended         Nine Months Ended
                                     September 30,             September 30,
                                     -------------             -------------
                                  1997         1996         1997         1996
                               ----------   ----------   ----------   ----------

Interest                       $  627,079   $  497,975   $1,546,751   $1,376,891
Income Taxes                   $     --     $    2,000   $     --     $    2,000
Interest Capitalized           $   54,020   $   19,859   $  140,006   $   53,958
                                       5
<PAGE>
Reclassifications
-----------------

The  financial  statements  for  prior  periods  have  been  reclassified  to be
consistent with the 1997 financial statement presentation.


Note 2 - Notes Payable

In June 1997, the Company negotiated a settlement  agreement for the 1996 breach
by a timeshare lender of a 1995 management  agreement between the lender and the
Company.  Under the management  agreement,  the lender committed to advance $3.5
million,  but  failed  to fund  $1.1  million  of this  amount.  The  settlement
agreement  provides for  repayment of the  outstanding  advances  through a note
payable in the amount of $2.4 million.  The note bears interest  commencing July
1, 1997, at 12% per annum,  payable monthly.  Commencing July 1, 1998, principal
is  payable  through  release  payments  upon  the  sale  of  certain  timeshare
intervals. Any outstanding principal and interest is due in full on December 31,
2002.  The note is  secured  by one  million  shares of ILX stock  pledged by an
affiliate of the Company,  for which the affiliate will receive a guarantee fee.
The  settlement  agreement  also  includes  the  termination  of the  management
agreement (which included a profit sharing  arrangement),  the commitment by the
lender to advance an  additional  $550,000,  bringing  the total  commitment  to
$6,550,000,  for the construction of Varsity Clubs of America - Tucson,  as well
as a  reduction  in  interest  rate to 12% (from  13%) on the  Varsity  Clubs of
America - Tucson construction note, and the addition of a fee of $100 per annual
Varsity Clubs of America - Tucson  timeshare  interest  sold. The settlement was
recorded as follows:

                 Increase in notes payable         $ 2,400,000
                 Decrease in accrued liabilities    (2,214,622)
                 Increase in notes receivable         (284,083)
                 Gain on settlement                     98,705
                                                   -----------
                                                   $         0
                                                   ===========

In June 1997,  the Company  entered into an agreement  with one of its timeshare
lenders whereby the Company may borrow up to $5 million  against  consumer notes
from sales of  timeshare  interests  in Kohl's  Ranch  Lodge and,  in  addition,
whereby  the  Company in July 1997  borrowed  $1.5  million,  secured by a first
position deed of trust on Kohl's Ranch Lodge.  The existing  first deed of trust
on Kohl's Ranch Lodge of $444,500 was repaid in full in conjunction with the new
financing.  The $1.5 million borrowing bears interest at prime plus 4%, interest
payable  monthly and principal  payable  through  release  payments as timeshare
interests are sold, with a minimum principal payment of $80,000 due per quarter,
and the balance  due in full June 27,  2000.  Borrowings  against the $5 million
commitment for timeshare paper bear interest at prime plus 3.25% and are secured
by the consumer notes.

In July 1997, the Company borrowed $598,500 from one of its timeshare lenders to
purchase 285 timeshare  interests in Los  Abrigados  Resort & Spa. The interests
were acquired for  approximately  $567,000,  including  closing costs,  under an
option  agreement  whereby  the  Company  had both the option and under  certain
circumstances the obligation to purchase up to 667 intervals at a cost of $2,100
per interval. The July purchase was made at a negotiated rate that was less than
the amount specified in the option agreement.  Following this  transaction,  107
intervals  remain  subject to the option.  The  borrowing  is secured by the 285
intervals and bears interest at prime plus 4%, with a 13% maximum rate. Interest
is payable monthly and principal is payable in quarterly installments of $25,000
through September 2000.
                                       6
<PAGE>
In September  1997, the Company  borrowed an additional  $800,000 from the first
mortgage holder on the Los Abrigados Resort & Spa and extended the maturity date
of the borrowing to April 1999.

During  the third  quarter  of 1997,  the  Company  borrowed  $1,309,269  on its
$6,550,000  construction financing commitment for the Varsity Clubs of America -
Tucson facility,  bringing the balance  outstanding on the loan to $1,609,269 at
September 30, 1997.

During the first nine months of 1997, the Company  borrowed  $1,651,427  against
consumer  notes  receivable  and also borrowed on its lines of credit,  of which
$200,000 was outstanding at September 30, 1997.

During the second quarter of 1997,  property and equipment of $97,181 was leased
and a vehicle was financed for $29,450.


Note 3 - Notes Payable to Affiliates

In July 1997, the Company issued 184,000 shares of its restricted  common stock,
which were subsequently  registered with the Securities and Exchange Commission,
in exchange for a $230,000 note payable to an affiliate. In conjunction with the
exchange,  100 timeshare  intervals in Los Abrigados Resort & Spa, which secured
the note, were released.

In August 1997, the Company acquired the Class B Limited Partnership Interest in
LAP,  effective  as of  January 1, 1997,  for a  purchase  price of  $2,920,000,
consisting of cash payments of $820,000,  the issuance of 100,000  shares of the
Company's  common stock valued at $1.25 per share and the issuance of promissory
notes in the amount of $1,300,000  and $675,000.  The  $1,300,000  note payable,
secured  by the  Company's  10%  Class B  Limited  Partnership  Interest  in Los
Abrigados, bears interest at 8%, with principal of $100,000 payable on or before
January 1, 1998 and principal  and interest  payable in annual  installments  of
$200,000  commencing July 31, 1998,  with any unpaid  principal and interest due
July 31,  2002.  Interest  from August 8, 1997  through  January 1, 1998 will be
added to principal on December 31, 1997.  The $675,000 note payable,  secured by
the Company's 11.5% Class B Limited Partnership Interest in Los Abrigados, bears
interest at 8%, with principal and interest  payable in annual  installments  of
$100,000  commencing July 31, 1998,  with any unpaid  principal and interest due
July 31, 2002. The purchase was recorded as follows:

             Increase in notes payable to affiliates   $ 1,975,000
             Issuance of common stock                      125,000
             Increase in other assets                     (306,392)
             Decrease in minority interest              (2,613,608)
                                                       -----------
             Issuance of cash payments                 $  (820,000)
                                                       ===========


Note 4 - Shareholders' Equity

During  the first  nine  months of 1997,  holders  of 11,334  shares of Series C
Preferred Stock  exchanged  their shares for 18,890 shares of common stock.  The
exchanges  were  recorded as a reduction in  preferred  stock and an increase in
common  stock of $31,282.  Shares of stock valued at $3,966 and cash of $16 were
issued in the first nine months of 1997 for the  Dividend  Arrearage  due to the
holders of Series C Preferred Stock who converted their shares in the first nine
months of 1997.
                                       7
<PAGE>
During the second  quarter of 1997,  holders of 307 shares of Series A Preferred
Stock exchanged their shares for lodging certificates at Kohl's Ranch. Preferred
stock was  reduced  by  $3,070,  which is the  liquidation  and par value of the
shares surrendered and additional paid in capital was increased by $1,150, which
is the difference between the par value of the preferred stock and the liability
recorded related to the lodging certificates.

During the first six months of 1997, the Company issued to employees in exchange
for services  provided  71,000  shares of  restricted  common  stock,  valued at
$39,875.

Effective  January 1,  1997,  the  Company  entered  into a one-year  consulting
agreement for financial and business advisory services,  subject to extension on
a  month-to-month  basis at the  option  of the  Company.  In  exchange  for the
services to be provided, the Company granted options for up to 500,000 shares of
common stock  exercisable over a one-year period,  provided that certain options
were  exercised  prior to June 30, 1997.  Also  effective  January 1, 1997,  the
Company  entered into a separate  consulting  agreement  through  June 1997.  In
exchange  for the  services to be  provided  under this  agreement,  the Company
granted  options  for  500,000  shares  of  common  stock  at $1.25  per  share,
exercisable  through June 1997.  The  obligations  to fulfill such options under
both agreements were assumed by an affiliate of the Company effective January 1,
1997. All such options expired without exercise on June 30, 1997.

In June 1997, the Company entered into an agreement with EVEREN Securities, Inc.
("ESI") for ESI to act as ILX's exclusive  financial advisor,  investment banker
and agent  with  respect to  evaluation  of  alternatives  to  position  ILX for
long-term growth and to enhance shareholder value. In exchange for the services,
ILX issued 60,000 shares of ILX common stock on August 1, 1997 and will issue an
additional 60,000 shares on February 1, 1998. The shares issued and to be issued
have  been  valued at  $112,500,  and are being  amortized  over a  twelve-month
period. $28,125 has been expensed through September 30, 1997. In accordance with
the terms of the agreement,  ILX has registered with the Securities and Exchange
Commission  the shares issued in August and will likewise cause the shares to be
issued in February to be so registered.  The parties intend for the agreement to
remain in effect for a minimum of one year.


Note 5 - Subsequent Events

In October 1997, the Company made a bid to acquire an approximate  5/8 undivided
interest in the common areas of and all of the  undeveloped  and unsold portions
of the  Roundhouse  Resort,  an  existing  59-unit  resort  with  five  acres of
developable  land located in  Pinetop/Lakeside,  Arizona.  The Company's bid has
been approved by the United States Bankruptcy Court for the District of Arizona,
with the closing expected in mid-November. The bid price is $700,000, to consist
of $525,000  in cash and  $175,000  in stock  valued at the market  price on the
closing date.
                                       8
<PAGE>
                                ILX INCORPORATED

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Results of Operations
---------------------

Sales of timeshare interests were 28.1% and 17.6% greater for the three and nine
months  ended  September  30, 1997,  respectively,  than for the same periods in
1996. The increases  reflect  greater sales from the Sedona and South Bend Sales
Offices,  sales to customers  already owning  interests in ILX resorts,  and the
opening of sales  offices in Tucson and the Phoenix  metropolitan  area,  net of
reduced  sales from the Kohl's  Ranch  Sales  Office for the first six months of
1997.

The  increase  in sales to  existing  ILX owners in 1997  reflects  an  expanded
marketing  program  whereby owners are offered the  opportunity to upgrade their
ownership  to a larger size unit,  to exchange  their  ownership  to a different
resort,  and/or  to  purchase  additional  time.  As a result  of the  increased
marketing  efforts to existing  customers,  revenue  increased to  approximately
$528,000 in 1997 from $202,000 in 1996 for the third quarter,  and to $2,232,000
from  $703,000  for  the  nine  months  ended   September  30,  1997  and  1996,
respectively.

Sales  of  timeshare   interests   from  the  Sedona   Sales  Office   increased
approximately  $395,000  and  $659,000  for the  three  and  nine  months  ended
September  30, 1997 from the same periods in 1996 due to increases in prices and
a greater  number of  timeshare  tours,  and in the first and third  quarters of
1997,  increased  closing rates (number of timeshare  sales divided by number of
timeshare tours).

Sales of  timeshare  interests  in  Varsity  Clubs of  America - Notre Dame were
$2,507,980  and  $1,823,887 and $5,726,925 and $3,879,491 for the three and nine
months ended September 30, 1997 and 1996,  respectively.  In 1997, approximately
$3,904,000  in Varsity Clubs of America - Notre Dame sales were  generated  from
the South Bend Sales  Office,  $1,779,000  from the Sedona Sales  Office,  which
commenced  offering  interests in Varsity  Clubs of America - Notre Dame in June
1996 and $44,000  from the Tucson  Sales  Office,  which  opened in August 1997.
Sales of  Varsity  Clubs of America - Notre Dame in the first six months of 1996
were primarily from the South Bend Sales Office. The increase in 1997 sales from
the South Bend Sales Office reflects higher closing rates and increased prices.

Sales of timeshare interests in Kohl's Ranch increased approximately $112,000 in
the third quarter of 1997 from the third quarter of 1996,  reflecting  increased
prices,  net of a reduced closing rate. Sales decreased  approximately  $306,000
for the nine months ended  September  30, 1997 from the same period in 1996 as a
result of lower  closing rates and a lower number of timeshare  tours,  which in
part were  offset by  increased  prices.  Second  and third  quarter  1997 sales
include  $109,395 in sales of Kohl's Ranch  interests from a sales office opened
on a trial basis in the Phoenix metropolitan area in late April 1997. The office
was not  retained  beyond  the  trial  period  (April - July  1997)  due to high
marketing costs and low closing rates.

In late August 1997, the Tucson Sales Office opened and began selling  timeshare
interests in Los Abrigados  Resort & Spa,  Varsity Clubs of America - Notre Dame
and Kohl's  Ranch  Lodge.  Sales from this  office were  $240,730  for the third
quarter of 1997.

The  increase  in cost of  timeshare  interests  sold as a  percentage  of sales
between years  reflects an  adjustment  to the  estimated  cost of Los Abrigados
interests in 1996.
                                       9
<PAGE>
The  decreases in resort  operating  revenue for both the third  quarter and the
nine months ended  September 30, 1997 from the same periods in 1996 reflect:  at
Los Abrigados Resort & Spa, increased occupancy by timeshare owners and exchange
guests, who pay substantially  lower rates than resort guests,  reduced food and
beverage  revenue  from these  guests,  net of  increased  average  daily rates;
increased  occupancy and average daily rates for both Varsity Clubs of America -
Notre Dame and Kohl's  Ranch;  and revenue  from  Lomacasi  Cottages,  which was
acquired on March 1, 1996. The increased usage of Los Abrigados  Resort & Spa by
timeshare  owners and exchange  guests in 1997 reflects in part  differences  in
timing  of usage as well as the  increasing  number  of  timeshare  owners.  The
increased  occupancy  at Varsity  Clubs of America - Notre Dame and Kohl's Ranch
reflects the maturing of  operations at these  properties,  both of which opened
during 1995.

Cost of resort  operations  as a  percentage  of  resort  operating  revenue  is
comparable  between  periods for the nine months ended  September 30, 1997.  The
increase  in cost of resort  operations  as a  percentage  of  resort  operating
revenue for the third  quarter of 1997 from the same  period in 1996  reflects a
change in estimated  depreciation  expense in 1996. 1997 costs for Varsity Clubs
of America - Notre Dame and Kohl's  Ranch as a  percentage  of revenue are lower
than 1996 due to increased  occupancy and average daily rate. 1997 Los Abrigados
costs as a percentage of revenue are higher than 1996 due to increased occupancy
by timeshare owners, who pay a lower rate for their usage.

The  decrease in sales of land and other and the  related  cost of sales for the
nine months ended  September 30, 1997 reflects the sale of a parcel of land held
by Genesis in the second  quarter of 1996.  Sales are  comparable  for the three
months ended September 30, 1997 and 1996.

The increase in interest  income from 1996 to 1997 is a result of the  increased
consumer paper retained by the Company and an increase in interest rates charged
by the Company effective July 1997. The Company  hypothecates  (borrows against)
the majority of its retained paper.

Advertising  and  promotion as a percentage  of sales has increased for both the
third quarter and nine months ended  September 30, 1997 from the same periods in
1996 due to increased costs of generating  tours to the Arizona sales offices in
1997, a low closing rate in the trial  Phoenix  office in 1997, a lower  closing
rate at the Kohl's  Ranch  Sales  Office in 1997 than 1996,  the  opening of the
Tucson Sales Office in 1997, and due to the recognition in 1996 of benefits from
premiums  issued to potential  customers in prior periods which expired  without
redemption. Increases in costs of generating tours in 1997 is due in part to the
trial of several new marketing  strategies  which were determined not to be cost
effective and therefore terminated in July and August 1997.

General and  administrative  expenses are comparable  between years for the nine
months ended September 30, 1997 and 1996.  General and  administrative  expenses
are lower as a percentage  of revenue in the third  quarter of 1997 than for the
same period in 1996 due to the  recognition in 1997 of a $114,929 gain resulting
from the  settlement of accrued  liabilities  and the purchase of assets from an
affiliate at less than the recorded amount.

The increase in the  provision  for doubtful  accounts for the third  quarter of
1997 from same period in 1996  reflects an  adjustment  to the provision in 1996
based on the expected  performance of the portfolio of consumer paper, both sold
and unsold. The provision for doubtful accounts is comparable as a percentage of
sales of timeshare  interests  for the nine months ended  September 30, 1997 and
1996.

Interest expense is comparable between periods and reflects increased borrowings
against  consumer  paper  retained by the  Company,  borrowings  against  resort
property  held for sale and debt  issued in  exchange  for the  purchase  of LAP
minority interest, net of payments.
                                       10
<PAGE>
The decrease in minority  interests  from 1996 to 1997  reflects the purchase by
the Company of the  minority  interest in LAP  effective  January 1, 1997.  1997
minority interest consists of operating losses of Lomacasi  Cottages,  which was
acquired March 1, 1996 and the minority  interest in operating  losses of Sedona
Worldwide Incorporated commencing January 1, 1997.

ILX  Incorporated  intends  from time to time to utilize the trade names  and/or
marks "ILX Resorts" and "ILX Resorts Incorporated."

Liquidity and Capital Resources
-------------------------------

The Company's  liquidity needs  principally  arise because it finances  consumer
purchases of timeshare  interests.  The Company  addresses such liquidity  needs
through the sale and/or  hypothecation  of the consumer  notes it generates.  In
that regard,  the Company has $5 million of credit issued by a financing company
under which conforming  notes from sales of interval  interests in Los Abrigados
Resort & Spa can be sold on a recourse  basis  through  March 1998. In addition,
the  Company  has an open  ended  arrangement  with a finance  company  which is
expected to provide  financing of notes from sales of interests in Los Abrigados
Resort & Spa of at  least $5  million  through  1997.  At  September  30,  1997,
approximately  $2.2 million is available  under the fixed  commitment line and a
minimum of $2.4 million is expected to be available on the open-ended  line. The
Company also has financing  commitments  whereby the Company may borrow up to $2
million  against  non-conforming  notes from sales of interval  interests in Los
Abrigados  Resort & Spa, Golden Eagle Resort,  Kohl's Ranch and Varsity Clubs of
America - Notre Dame, and $2.2 million  against  conforming  notes from sales of
interval  interests  in Golden Eagle Resort  through  March 1998.  Approximately
$900,000 was available under these commitments at September 30, 1997.

The Company  has a $10  million  open ended  financing  arrangement  whereby the
Company may sell eligible  notes  received from sales of timeshare  interests in
Varsity Clubs of America - Notre Dame on a recourse  basis.  Approximately  $3.5
million was available under this commitment at September 30, 1997.

The Company  has  financing  commitments  whereby it may borrow up to $5 million
against  conforming  notes received from sales of timeshare  interests in Kohl's
Ranch through March 1998 and $5 million  through June 2000.  Approximately  $2.2
million  was  available  on the first  commitment  and $5  million on the second
commitment at September 30, 1997.

The Company will continue to retain certain  non-conforming notes which have one
to two year terms or which do not otherwise  meet existing  financing  criteria,
and  finance  these  notes  through  internal  funds.  The  Company  will pursue
additional credit facilities to finance conforming and  non-conforming  notes as
the need for such financing arises.

The Company has a $500,000 line of credit each from two financial  institutions.
At September 30, 1997, $800,000 was available for working capital.

In June 1997, the Company negotiated a settlement  agreement for the 1996 breach
by a timeshare lender of a 1995 management  agreement between the lender and the
Company.  Under the management  agreement,  the lender committed to advance $3.5
million,  but  failed  to fund  $1.1  million  of this  amount.  The  settlement
agreement  provides for  repayment of the  outstanding  advances  through a note
payable in the amount of $2.4 million.
                                       11
<PAGE>
In July 1997,  the Company  borrowed $1.5 million,  secured by a first  position
deed of trust on Kohl's  Ranch  Lodge.  The  funds  were used to repay the prior
first deed of trust of $444,500, and the balance for working capital.

In July 1997,  the Company  acquired 285  timeshare  interests in Los  Abrigados
Resort & Spa for  approximately  $567,000.  The  purchase of the  intervals  was
financed by a $598,500  borrowing from one of the Company's  timeshare  lenders,
and is secured by the intervals acquired.

In  August  and  September  1997,  the  Company  acquired  the  Class B  Limited
Partnership  Interests in Los Abrigados for $820,000 cash, 100,000 shares of the
Company's  common  stock  valued at $1.25 per share and notes  payable  totaling
$1,975,000  secured by the  Company's  interest in LAP. The Company  borrowed an
additional  $800,000 from the first mortgage  holder on Los Abrigados to finance
the acquisition.

During  the third  quarter  of 1997,  the  Company  borrowed  $1,309,268  on its
construction  financing  commitment  for the  Varsity  Clubs of America - Tucson
facility.

Cash  provided by operating  activities  increased  from  $2,529,571  in 1996 to
$3,091,575  in 1997  due to  greater  net  income  and an  increase  in  accrued
liabilities,  offset by additions to resort  property under  development in 1997
and greater additions to resort property held for timeshare sales in 1996.

The increase in cash used in investing  activities  from  $3,299,538  in 1996 to
$5,115,572 in 1997 reflects  primarily an increase in consumer notes retained by
the Company and an increase in purchases of plant and equipment.

The change from cash used in  financing  activities  in 1996 of $341,205 to cash
provided by financing activities in 1997 of $719,211 reflects greater borrowings
in 1997.

Although no assurances can be made, based on the prior success of the Company in
obtaining  necessary  financings for  operations and for expansion,  the Company
believes  that  with its  existing  financing  commitments,  its cash  flow from
operations and the  contemplated  financings  discussed  above, the Company will
have  adequate  capital  resources  for at least the next twelve to  twenty-four
months.


Item 6.  Exhibits and Reports on Form 8-K

Exhibits
--------

     (a) The Exhibit  Index  attached to this report is hereby  incorporated  by
reference.

Reports on Form 8-K
-------------------

     (b)

     (i) The Company filed with the Securities and Exchange  Commission a report
     on Form 8-K dated August 22, 1997, which disclosed the following:

     Item 5.  Other Events.

         On August  29,  1997,  ILX  Incorporated  ("ILX")  and Alan R.  Mishkin
     ("Mishkin")  entered into an Agreement for Transfer of Limited  Partnership
     Interest (the "Mishkin Agreement").
                                       12
<PAGE>
         Under the  terms of the  Mishkin  Agreement,  ILX is to  purchase  from
     Mishkin all of Mishkin's Class B Limited Partnership Interest (the "Mishkin
     LAP Interest") in Los Abrigados  Limited Partners  Partnership,  an Arizona
     limited partnership  ("LAP").  For accounting  certainty,  the parties have
     agreed  that  the  transfer  of the  Mishkin  LAP  Interest  shall  have an
     effective date of January 1, 1997. In consideration for the transfer of the
     Mishkin LAP Interest,  ILX shall pay to Mishkin $720,000 upon closing,  and
     shall  deliver a promissory  note in the amount of $675,000  (the  "Mishkin
     Note").  In addition,  ILX shall issue to Mishkin  100,000 shares of common
     stock of ILX. Closing under the Mishkin  Agreement is scheduled to occur on
     or before September 28, 1997.

         When issued, the Mishkin Note will be payable in annual installments of
     $100,000 (inclusive of principal and interest),  payable on July 31 of each
     year beginning July 31, 1998.  The entire unpaid  principal  balance of the
     Mishkin  Note and accrued and unpaid  interest,  if any, is payable on July
     31,  2002.  ILX's  obligations  under the  Mishkin  Note are  secured  by a
     Security Agreement covering the Mishkin LAP Interest (the "Mishkin Security
     Agreement").

         The above  descriptions are qualified in their entirety by reference to
     the Mishkin Agreement, Mishkin Note and Mishkin Security Agreement attached
     as Exhibits 10A, 10B and 10C, respectively, of this Form 8-K.

         On August 22, 1997, ILX purchased from Martori Enterprises Incorporated
     ("MEI"), all of MEI's Class B Limited Partnership Interest in LAP (the "MEI
     LAP Interest").  The purchase was consummated  pursuant to an Agreement for
     Transfer  of  Limited  Partnership  Interest  (the  "MEI  Agreement").   In
     consideration  for  transfer  of the  MEI  LAP  Interest,  ILX  paid to MEI
     $100,000,  and issued a promissory  note in the amount of  $1,300,000  (the
     "MEI  Note").  The MEI  Note  is  payable  by an  installment  of  $100,000
     (inclusive  of principal  and  interest)  on January 1, 1998,  and by equal
     annual  installments  of $200,000  (inclusive  of principal  and  interest)
     payable on July 31 of each year, beginning July 31, 1998. The entire unpaid
     principal balance of the MEI Note and accrued and unpaid interest,  if any,
     is  payable  on July 31,  2002.  ILX's  obligations  under the MEI Note are
     secured by a Security  Agreement  covering the MEI LAP  Interest  (the "MEI
     Security Agreement").

         The MEI Agreement and the transactions contemplated thereby are subject
     to  rescission by ILX at any time prior to the close of business on October
     15,  1997,  if ILX has not  acquired the Mishkin LAP Interest by that date.
     ILX anticipates that it will not exercise this rescission right.

         The above  descriptions are qualified in their entirety by reference to
     the MEI Agreement,  the MEI Note and the MEI Security Agreement attached as
     Exhibits 10D, 10E and 10F, respectively, of this Form 8-K.

     (ii)The Company filed with the Securities and Exchange  Commission a report
     on Form 8-K dated September 22, 1997, which disclosed the following:

     Item 5.  Other Events.

         On  September  22, 1997,  ILX  Incorporated  ("ILX")  filed a No Action
     Letter Request (the "Request") with the Securities and Exchange  Commission
     (the "SEC").  ILX seeks an opinion from the SEC regarding ILX's proposal to
     transfer common stock of its  subsidiary,  Sedona  Worldwide  incorporated,
     formerly Red Rock  Collection  Incorporated,  ("Sedona")  to the holders of
     ILX's common stock on a prorata basis. ILX seeks to conduct the transfer as
     a taxable  dividend  without  registration of the Sedona common stock under
     the Securities Act of 1933.
                                       13
<PAGE>
         Prior  to  conducting  the  payment  of the  stock  dividend  to  ILX's
     shareholders,  ILX would  cause  Sedona to  undertake a stock split so that
     Sedona would have 4,000,000 issued and outstanding  shares of common stock.
     Thereafter,  ILX would  transfer  a total of twenty  percent  of the Sedona
     common  stock  to Todd  Fisher  and to a trust  held  by  celebrity  Debbie
     Reynolds in connection  with Personal  Services  Agreements that Mr. Fisher
     and Ms. Reynolds entered with ILX and Sedona.  Under those Agreements,  Mr.
     Fisher and Ms. Reynolds have agreed,  among other things, that Ms. Reynolds
     will endorse the Red Rock Collection line of face, body, bath and hair care
     products. (ILX contemplated merging Red Rock Collection with another wholly
     owned subsidiary, which then was named Sedona Worldwide Incorporated,  with
     the intention that the resulting  corporation would fulfill the obligations
     under the Personal Service Agreements.  Instead, on September 19, 1997, ILX
     elected to and did change Red Rock  Collection's  name to Sedona  Worldwide
     Incorporated  and  changed  the  name  of  the  original  Sedona  Worldwide
     Incorporated to SW Resorts Incorporated.  Accordingly, Sedona will continue
     to benefit from and be subject to the obligations contained in the Personal
     Service  Agreements and Sedona holds all the assets and  liabilities of Red
     Rock  Collection.  ILX will continue to hold SW Resorts  Incorporated  as a
     wholly owned subsidiary.)

         In connection with the dividend payment of Sedona common stock to ILX's
     common shareholders,  ILX's board of directors will establish a record date
     when and as the board deems appropriate. The record date will determine the
     identity of the ILX common shareholders who will be entitled to receive the
     dividend of Sedona's common stock when the subject shares are  transferred.
     In  connection  with the stock  transfer,  ILX proposes to place the Sedona
     common stock in escrow until the stock may be transferred to the identified
     ILX shareholders pursuant to the state laws of the states in which the such
     ILX shareholders  reside.  The  determination of when such transfers may be
     undertaken  in  compliance  with any  applicable  state law will be made by
     ILX's board of  directors on advice of ILX's  counsel.  The  transfers  are
     proposed to take place on a state-by-state basis when and as ILX's board on
     advice  of  counsel  determines  that an  exemption  from  registration  is
     available  under such state laws or ILX otherwise  qualifies the shares for
     transfer to the appropriate ILX shareholders.

         The above  description  of the  Request  and the  proposed  transfer of
     Sedona  common  stock is  qualified  in its  entirety by  reference  to the
     Request, which is attached as Exhibit 10A.

     Item 7.  Financial Statements and Exhibits.

         The Exhibits  required by Item 601 of Regulation S-K have been supplied
     as follows:
<TABLE>
<CAPTION>
     Exhibit
     Numbers                        Description of Exhibit                                                               Page No.
     ----------------------------------------------------------------------------------------------------------------------------
         <S>                        <C>                                                                                       <C>
         10A                        Mishkin Agreement                                                                          4
         10B                        Form of Mishkin Note                                                                      14
         10C                        Form of Mishkin Security Agreement                                                        16
         10D                        MEI Agreement                                                                             21
         10E                        MEI Note                                                                                  29
         10F                        MEI Security Agreement                                                                    31
         10A                        No Action Letter Request                                                                   4
</TABLE>
                                       14
<PAGE>
                                   SIGNATURES





                  Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.



                                ILX INCORPORATED
                                  (Registrant)




                              /S/ Joseph P. Martori
                         -------------------------------
                                Joseph P. Martori
                             Chief Executive Officer





                               /S/ Nancy J. Stone
                         -------------------------------
                                 Nancy J. Stone
                                   President/
                             Chief Financial Officer





                               /S/ Denise L. Janda
                         -------------------------------
                                 Denise L. Janda
                          Vice President and Controller









Date:  As of October 31, 1997
                                       15
<PAGE>
                                  EXHIBIT INDEX

No.               Description
---               -----------

10-1     Third Amendment to Loan and Security Agreement between Tammac Financial
         Corp. and ILX Incorporated dated as of August 25, 1997 (Kohl's Ranch).

10-2     Fourth Modification  Agreement  ($5,000,000) between Bank One, Arizona,
         NA and Los Abrigados  Partners Limited  Partnership  dated September 3,
         1997 (additional advance).
                                       16