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,
      2008
            Commission
      File Number 001-13855





ILX
RESORTS 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 200, Phoenix, Arizona 85016


(Address
of principal executive offices)





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




_____________________________________


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





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


Yes   x                              No  
o





Indicate
by check mark whether the registrant 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.




Large accelerated filer  o
            Accelerated filer  oNon-accelerated filer  o
            Smaller
      reporting company  x




Indicate
by check mark whether the registrant is a shell company.   o Yes  x No





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





Class
            
            Outstanding at September 30,
    2008Common
      Stock, without par value
            
            3,642,204
      shares












ITEM
1.  FINANCIAL STATEMENTS





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




(Unaudited)


December
      31,
                
                
                September
      30,2007
                
                
                2008ASSETSCash
      and cash equivalents, including restricted cash of $101,113 and $0,
      respectively
                
                $
                3,332,922
                
                
                $
                2,888,260Notes
      receivable, net of allowance for uncollectible notesof
      $3,801,902 and $2,405,197, respectively
                
                
                35,369,404
                
                
                
                19,860,710Resort
      property held for Vacation Ownership Interest sales
                
                
                18,655,976
                
                
                
                24,598,069Resort
      property under development
                
                
                4,659,865
                
                
                
                1,269,445Land
      held for sale
                
                
                585,511
                
                
                
                586,681Property
      and equipment, net
                
                
                20,003,338
                
                
                
                20,130,853Other
      assets
                
                
                2,611,469
                
                
                
                2,672,854Deferred
      tax asset
                
                
                -
                
                
                
                1,663,874TOTAL
      ASSETS
                
                $
                85,218,485
                
                
                $
                73,670,746LIABILITIES
      AND SHAREHOLDERS' EQUITYLIABILITIES:Accounts
      payable
                
                $
                1,409,993
                
                
                $
                1,363,283Accrued
      expenses and other liabilities
                
                
                3,784,582
                
                
                
                3,967,527Income
      tax payable
                
                
                44,232
                
                
                
                -Notes
      payable
                
                
                37,353,072
                
                
                
                37,925,323Note
      payable affiliate
                
                
                600,000
                
                
                
                -Deferred
      income taxes
                
                
                3,830,318
                
                
                
                -TOTAL
      LIABILITIES
                
                
                47,022,197
                
                
                
                43,256,133MINORITY
      INTERESTS
                
                
                2,032,716
                
                
                
                1,994,151COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITYPreferred
      stock, $10 par value; 10,000,000 shares authorized;117,722
      shares issued and outstanding; liquidation preference
      of  $1,177,220
                
                
                746,665
                
                
                
                746,665Common
      stock, no par value; 30,000,000 shares authorized;5,477,257
      and 5,580,259 shares issued and outstanding, respectively
                
                
                29,018,839
                
                
                
                29,322,887Treasury
      stock, at cost, 1,925,496 and 1,938,055 shares,
    respectively
                
                
                (9,973,257
                )
                
                
                (10,000,210
                )Additional
      paid-in capital
                
                
                59,435
                
                
                
                59,435Deferred
      compensation
                
                
                (265,513
                )
                
                
                (136,645
                )Retained
      earnings
                
                
                16,577,403
                
                
                
                8,428,330TOTAL
      SHAREHOLDERS' EQUITY
                
                
                36,163,572
                
                
                
                28,420,462TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                
                $
                85,218,485
                
                
                $
                73,670,746




See notes
to condensed consolidated financial statements.




2





ILX
RESORTS INCORPORATED AND SUBSIDIARIES




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS




(Unaudited)




Three
      months ended September 30,
              
              
              Nine
      months ended September 30,2007
              
              
              2008
              
              
              2007
              
              
              2008REVENUES:Sales
      of Vacation Ownership Interests
              
              $
              6,134,279
              
              
              $
              4,936,013
              
              
              $
              19,228,836
              
              
              $
              15,657,867Estimated
      uncollectible revenue
              
              
              (268,648
              )
              
              
              (14,765,160
              )
              
              
              (839,097
              )
              
              
              (15,234,768
              )Resort
      operating revenue
              
              
              5,324,324
              
              
              
              5,188,714
              
              
              
              14,831,125
              
              
              
              15,292,829Interest
      and finance income
              
              
              890,162
              
              
              
              522,259
              
              
              
              2,665,790
              
              
              
              2,040,871Total
      revenues
              
              
              12,080,117
              
              
              
              (4,118,174
              )
              
              
              35,886,654
              
              
              
              17,756,799COST
      OF SALES AND OPERATING EXPENSES:Cost
      of Vacation Ownership Interests sold (recovered)
              
              
              754,658
              
              
              
              (2,641,944
              )
              
              
              2,419,608
              
              
              
              (1,242,527
              )Cost
      of resort operations
              
              
              4,656,385
              
              
              
              4,589,281
              
              
              
              13,262,044
              
              
              
              13,553,999Sales
      and marketing
              
              
              4,495,338
              
              
              
              3,626,697
              
              
              
              13,839,827
              
              
              
              11,404,765General
      and administrative
              
              
              1,616,566
              
              
              
              1,694,664
              
              
              
              4,679,529
              
              
              
              4,904,364Depreciation
      and amortization
              
              
              359,101
              
              
              
              274,120
              
              
              
              1,103,107
              
              
              
              882,575Total
      cost of sales and operating expenses
              
              
              11,882,048
              
              
              
              7,542,818
              
              
              
              35,304,115
              
              
              
              29,503,176Timeshare
      and resort operating income (loss)
              
              
              198,069
              
              
              
              (11,660,992
              )
              
              
              582,539
              
              
              
              (11,746,377
              )Income
      from land and other, net (including Related Party)
              
              
              (14,364
              )
              
              
              9,115
              
              
              
              75,158
              
              
              
              55,293Total
      operating income (loss)
              
              
              183,705
              
              
              
              (11,651,877
              )
              
              
              657,697
              
              
              
              (11,691,084
              )Interest
      expense
              
              
              (687,223
              )
              
              
              (663,184
              )
              
              
              (2,013,570
              )
              
              
              (1,972,901
              )Loss
      before income taxes and minority interest
              
              
              (503,518
              )
              
              
              (12,315,061
              )
              
              
              (1,355,873
              )
              
              
              (13,663,985
              )Income
      tax benefit
              
              
              193,161
              
              
              
              4,960,508
              
              
              
              534,063
              
              
              
              5,489,872Loss
      before minority interest
              
              
              (310,357
              )
              
              
              (7,354,553
              )
              
              
              (821,810
              )
              
              
              (8,174,113
              )Minority
      interest in loss of consolidated subsidiary
              
              
              20,616
              
              
              
              13,050
              
              
              
              20,616
              
              
              
              38,565NET
      LOSS
              
              $
              (289,741
              )
              
              $
              (7,341,503
              )
              
              $
              (801,194
              )
              
              $
              (8,135,548
              )NET
      LOSS PER SHARE:Total
      Basic net loss per share
              
              $
              (0.09
              )
              
              $
              (2.01
              )
              
              $
              (0.24
              )
              
              $
              (2.24
              )Total
      Diluted net loss per share
              
              $
              (0.09
              )
              
              $
              (2.01
              )
              
              $
              (0.24
              )
              
              $
              (2.24
              )DIVIDENDS
      PER SHARE
              
              $
              0.125
              
              
              $
              -
              
              
              $
              0.375
              
              
              $
              -


See notes
to condensed consolidated financial statements.





3





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS




(Unaudited)




Nine
      months ended September 30,2007
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (801,194
              )
              
              $
              (8,135,548
              )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Loss
      on sale of property and equipment
              
              
              394
              
              
              
              683Gain
      of sale of investment in common stock
              
              
              (29,327
              )
              
              
              -Minority
      interest in net loss
              
              
              (20,616
              )
              
              
              (38,565
              )Income
      tax benefit
              
              
              (534,063
              )
              
              
              (5,489,872
              )Estimated
      uncollectible revenue
              
              
              839,097
              
              
              
              15,234,768Depreciation
      and amortization
              
              
              1,103,107
              
              
              
              882,575Amortization
      of deferred compensation
              
              
              193,317
              
              
              
              132,916Change
      in assets and liabilities:Decrease
      in notes receivable, net
              
              
              398,971
              
              
              
              273,926Increase
      in resort property held for Vacation Ownership Interest
      sales
              
              
              (1,786,826
              )
              
              
              (5,942,093
              )(Increase)
      decrease in resort property under development
              
              
              (1,509,998
              )
              
              
              3,390,420Increase
      in land held for sale
              
              
              (10,174
              )
              
              
              (1,170
              )Increase
      in other assets
              
              
              (675,555
              )
              
              
              (195,038
              )Increase
      (decrease) in accounts payable
              
              
              254,102
              
              
              
              (46,710
              )Increase
      in accrued and other liabilities
              
              
              1,864,037
              
              
              
              182,945Decrease
      in deferred income taxes
              
              
              (18,760
              )
              
              
              (4,320
              )Decrease
      in income taxes payable
              
              
              (530,627
              )
              
              
              (44,232
              )Net
      cash (used in) provided by operating activities
              
              
              (1,264,115
              )
              
              
              200,685CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
              
              
              (1,869,279
              )
              
              
              (877,120
              )Proceeds
      from sale of investment in common stock
              
              
              29,327
              
              
              
              -Proceeds
      from sale of other assets
              
              
              100,000
              
              
              
              -Proceeds
      from sale of property and equipment
              
              
              11,383
              
              
              
              -Assumption
      of First Piggy LLC membership interests
              
              
              -
              
              
              
              33,263Net
      cash used in investing activities
              
              
              (1,728,569
              )
              
              
              (843,857
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
              
              
              9,752,804
              
              
              
              9,188,944Principal
      payments on notes payable
              
              
              (8,702,372
              )
              
              
              (8,616,693
              )Principal
      payment on note payable to affiliate
              
              
              -
              
              
              
              (300,000
              )Preferred
      stock dividends
              
              
              (46,788
              )
              
              
              (46,788
              )Acquisition
      of treasury stock
              
              
              (357,090
              )
              
              
              (26,953
              )Common
      stock dividend
              
              
              (786,352
              )
              
              
              -Net
      cash (used in) provided by financing activities
              
              
              (139,798
              )
              
              
              198,510DECREASE
      IN CASH AND CASH EQUIVALENTS
              
              
              (3,132,482
              )
              
              
              (444,662
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              5,583,721
              
              
              
              3,332,922CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              2,451,239
              
              
              $
              2,888,260SUPPLEMENTAL
      DISCLOSURE OF NONCASH INVESTING
      AND FINANCING ACTIVITIES:Value
      of dividend shares issued under DRIP plan
              
              $
              712,433
              
              
              $
              -Deferred
      compensation resulting from unvested common stock issuance
              
              
              267,648
              
              
              
              4,048Assets
      acquired through capital lease
              
              
              406,205
              
              
              
              -Note
      receivable issued for sale of property and equipment
              
              
              700,000
              
              
              
              -Common
      stock issued to repay portion of note payable to affiliate
              
              
              -
              
              
              
              300,000


See notes
to condensed consolidated financial statements.




4





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




Note
1. Summary of Significant Accounting Policies





Principles
of Consolidation and Business Activities





The
condensed consolidated financial statements include the accounts of ILX Resorts
Incorporated, and its wholly owned subsidiaries (“ILX” or the
“Company”).  All significant intercompany transactions and balances
have been eliminated in consolidation.





The
accompanying condensed consolidated balance sheet as of December 31, 2007, which
has been derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X.  Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements.  In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature.  Operating results for the nine-month period
ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008.  The
accompanying financial statements should be read in conjunction with the
Company’s most recent audited financial statements.





The
Company’s significant business activities include developing, operating,
marketing and financing ownership interests (“Vacation Ownership Interests”) in
resort properties located in Arizona, Colorado, Indiana, Nevada and
Mexico.





Revenue
Recognition





Revenue
from sales of Vacation Ownership Interests is recognized in accordance with
Statement of Financial Accounting Standards No. 152, Accounting for Real Estate
Time-Sharing Transactions (“SFAS 152”).  No sales are recognized until
such time as a minimum of 10% of the purchase price and any incentives given at
the time of sale has been received in cash, the statutory rescission period has
expired, the buyer is committed to continued payments of the remaining purchase
price and the Company has been released of all future obligations for the
Vacation Ownership Interest.  Resort operating revenue represents
daily room rentals (inclusive of homeowner’s dues) and revenues from food and
other resort services.  Such revenues are recorded as the rooms are
rented or the services are performed.





Condensed
Consolidated Statements of Cash Flows





Cash
equivalents are liquid investments with an original maturity of three months or
less.  The following summarizes interest paid (excluding capitalized
interest), income taxes paid and interest capitalized.






Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2007
              
              
              2008
              
              
              2007
              
              
              2008Interest
      paid
              
              $
              687,223
              
              
              $
              663,184
              
              
              $
              2,013,570
              
              
              $
              1,976,978Income
      taxes paid
              
              
              -
              
              
              
              4,320
              
              
              
              706,386
              
              
              
              48,552Interest
      capitalized
              
              
              399,752
              
              
              
              245,778
              
              
              
              980,648
              
              
              
              778,714
  Stock
Based Compensation





The
Company records stock based compensation in accordance with the provisions of
SFAS No. 123R. SFAS No. 123R addresses the accounting for share-based payments
to employees, including grants of employee stock options. Under the standard,
the Company is required to account for such transactions using a fair-value
method and recognize the expense in the condensed consolidated statement of
operations. The Company had no unvested options at September 30,
2008.








5





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
2. Notes Receivable, Net





During
the third quarter of 2008, the Company recorded an increase in its estimated
uncollectible revenue of $14,549,432 million and a reduction in cost of Vacation
Ownership Interests owned in the amount of $3,281,615, the “allowance
adjustment,” to record the reduction in its expectation of collectability of
both past due and currently performing Customer Notes and consumer notes sold
with recourse and the recovered Vacation Ownership Interests as a
result.  In conjunction with these entries the Company wrote off
Customer Notes in excess of 90 days delinquent in the amount of $16,420,471,
increased resort property held for sale by $3,281,615 and recognized an income
tax benefit of $4,507,127.  The reduction in expectation of
collectability is based upon recent economic, financial and credit
conditions.







Notes receivable consist of the following:




December 31,
              
              
              September
      30,2007
              
              
              2008Vacation
      Ownership Interest notes receivable
              
              $
              35,049,568
              
              
              $
              18,682,535Holdbacks
      by financial institutions
              
              
              2,584,131
              
              
              
              2,174,484Other
      receivables
              
              
              1,537,607
              
              
              
              1,408,888Allowance
      for possible credit losses
              
              
              (3,801,902
              )
              
              
              (2,405,197
              )$
              35,369,404
              
              
              $
              19,860,710




The following summarizes activity in the allowance
for possible credit losses for the twelve and nine month periods
ended:




December
      31,
              
              
              September
      30,2007
              
              
              2008Beginning
      balance
              
              $
              4,265,108
              
              
              $
              3,801,902Estimated
      uncollectible revenue
              
              
              1,100,556
              
              
              
              15,234,768Amounts
      written off
              
              
              (1,563,762
              )
              
              
              (16,631,473
              )Ending
      balance
              
              $
              3,801,902
              
              
              $
              2,405,197


Note 3. Basic and Diluted Net Loss
Per Share







In accordance with SFAS No. 128, “Earnings
Per Share,” the following presents the computation of basic and diluted net loss
per share:




Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2007
              
              
              2008
              
              
              2007
              
              
              2008Net
      loss
              
              $
              (289,741
              )
              
              $
              (7,341,503
              )
              
              $
              (801,194
              )
              
              $
              (8,135,548
              )Less:
      Series A preferred stock dividends
              
              
              (11,697
              )
              
              
              (11,697
              )
              
              
              (35,091
              )
              
              
              (35,091
              )Basic
      and Diluted Net Loss Available to Common Shareholders
              
              $
              (301,438
              )
              
              $
              (7,353,200
              )
              
              $
              (836,285
              )
              
              $
              (8,170,639
              )Basic
      Weighted-Average Common Shares Outstanding
              
              
              3,530,014
              
              
              
              3,652,820
              
              
              
              3,510,476
              
              
              
              3,642,941Effect
      of dilutive securities:Stock
      options
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Diluted
      Weighted-Average Common Shares Outstanding
              
              
              3,530,014
              
              
              
              3,652,820
              
              
              
              3,510,476
              
              
              
              3,642,941Basic
      Net Loss Per Common Share
              
              $
              (0.09
              )
              
              $
              (2.01
              )
              
              $
              (0.24
              )
              
              $
              (2.24
              )Diluted
      Net Loss Per Common Share
              
              $
              (0.09
              )
              
              $
              (2.01
              )
              
              $
              (0.24
              )
              
              $
              (2.24
              )


Stock
options to purchase 25,000 shares of common stock at a price of $9.90 per share
were outstanding at September 30, 2008 and 2007, but were not included in the
computation of diluted net income per share because their effect would be
anti-dilutive.  These options expire in 2009.








6





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
4. Shareholders’ Equity





During the nine months ended September
30, 2008, the Company issued 6,000 shares of common stock, valued at $17,376 to
employees under the Stock Bonus Plan.  These shares have voting rights
and therefore are included in shares outstanding.  The 6,000 shares
are contingent upon the recipients being employed by the Company on January 15,
2011.  The $17,376 deferred expense is being amortized pro-rata over
the vesting period and the unrecognized portion is included in deferred
compensation on the condensed consolidated balance sheet.  Deferred
compensation of $13,328, representing 3,000 shares issued in January 2007 and
2008 was reversed in the nine months ended September 30, 2008 due to the
termination of Stock Bonus Plan participants prior to vesting in the
shares.  The Company also issued 100,002 restricted common shares
valued at the fair value of $300,000 to six former members of First Piggy LLC as
partial repayment of a $600,000 note payable to affiliates.





In
December 2002, the Company announced an annual cash dividend of $0.40 per common
share to be paid in equal quarterly installments, payable on the tenth day of
the calendar month following the end of each calendar quarter, to common
shareholders of record as of the last day of each calendar quarter in
2003.  The Company continued to pay the dividend each year and for
2007 the dividend was established at $0.50 per common share to be paid in equal
quarterly installments of $0.125.  In December 2007, the dividend was
discontinued and no payment was made for the fourth quarter 2007.  In
March 2003, the Company adopted the ILX Resorts Incorporated Dividend
Reinvestment Plan (“DRIP”).  The DRIP was amended and restated in
March 2006.  Under the terms of the DRIP, shareholders could elect to
reinvest dividends in shares of the Company’s common stock, with no brokerage or
other fees to the shareholder.





Note
5.  Share Based Compensation





Employee
Stock Options





The
Company has Stock Option Plans pursuant to which options (which term as used
herein includes both incentive stock options and non-statutory stock options)
could have been granted through 2005 to key employees, including officers,
whether or not they are directors, and non-employee directors and consultants,
who are determined by the Board of Directors to have contributed in the past, or
who may be expected to contribute materially in the future, to the success of
the Company.  The exercise price of the options granted pursuant to
the Plans could be not less than the fair market value of the shares on the date
of grant.  All outstanding stock options require the holder to have
been a director or employee of the Company for at least one year before
exercising the option.  Incentive stock options are exercisable over a
five-year period from date of grant if the optionee was a ten-percent or more
shareholder immediately prior to the granting of the option and over a ten-year
period if the optionee was not a ten-percent shareholder.  No further
grants may be made under the Plans.





Stock
Bonus Plan





The
Company’s Stock Bonus Plan was created to advance the interests of the Company
and its shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business to
acquire and retain a proprietary interest in the Company by ownership of its
stock.







A summary of the non-vested stock under the Stock Bonus
Plan at September 30, 2008 follows:




Non-Vested
      Shares
              
              
              Weighted
      Average Grant Date Fair ValueNon-vested
      at December 31, 2007
              
              
              93,000
              
              
              
              $7.83Stock
      Granted
              
              
              6,000
              
              
              
              2.90Stock
      Vested
              
              
              (26,000
              )
              
              
              7.70Stock
      Forfeited
              
              
              (3,000
              )
              
              
              4.44Non-vested
      at September 30, 2008
              
              
              70,000
              
              
              
              $7.61





Deferred compensation of $44,177 and
$132,916 was amortized in the three and nine months ended September 30, 2008,
respectively.  Unamortized deferred compensation of $136,645 will be
amortized over the weighted average remaining term of 1.18 years.  The
value of the non-vested stock under the Stock Bonus Plan at September 30, 2008
is $104,300.








7





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
6. Related Party Transactions





During
the nine months ended September 30, 2008, the Company’s wholly owned subsidiary,
Genesis Investment Group, Inc. (“Genesis”), recorded the sale of 33 Vacation
Ownership Interests to Premiere Vacation Club homeowners’ association, an
Arizona nonprofit corporation (“PVC”).  PVC purchased the intervals at
$2,415 per interval, the same price at which it has historically acquired
intervals in arms-length negotiations with unaffiliated third
parties.  PVC is owned by the holders of its vacation ownership
interests, including the Company.  A gain of $30,295 was recorded on
the sale.  At September 30, 2008, deeds of trust for 623 of the
Vacation Ownership Interests secure outstanding indebtedness from PVC to Genesis
of $1,408,888 which is included in notes receivable.





The
Company, together with James Bruno Enterprises LLC (Bruno), formed ILX-Bruno LLC
(“ILX-Bruno”) in August 2005 to purchase and develop three parcels approximating
22 acres of land in Sedona, Arizona from the Forest Service of the Department of
Agriculture and an unrelated party (approximately one acre).  The
Company entered into an Operating Agreement with Bruno, as a member of
ILX-Bruno, in which the Company was named as the manager of
ILX-Bruno.  The Company held an 85.0% interest in ILX-Bruno as of
September 30, 2008.  ILX-Bruno is included in the Company’s condensed
consolidated financial statements as of September 30, 2008 with Bruno’s capital
contributions net of operating losses included as Minority Interests on the
accompanying condensed consolidated balance sheets.





At
December 31, 2007, a note payable to former First Piggy LLC members in the
principal amount of $600,000 (bearing interest at 8.0%) was outstanding,
together with interest payable in the amount of $4,077.  The note
provided for principal payments of $300,000 in each of 2008 and
2009.  In February 2008, $300,000 of the note payable was satisfied
through the issuance of 100,002 shares of the Company’s common stock, and the
remaining $300,000 principal plus accrued interest was paid in
cash.





In April
2008, Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and PVC
entered into loan agreements to borrow up to $350,000 and $900,000,
respectively, at an interest rate of 6.15% to finance renovations and the
purchase of certain equipment.  The borrowings have a maturity date of
March 31, 2011.  ILX Resorts Incorporated has guaranteed the
borrowings, including interest, for both SVC and PVC and has entered into a
Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee
of 1% of the maximum principal amount under the loan agreements.  The
amounts outstanding under the loan agreements as of September 30, 2008 are
$350,000.




Note
7. Profit Sharing Plan





On
October 1, 2008, the Board of Directors of the Company voted to terminate the
ILX Resorts Incorporated Profit Sharing Plan effective September 15,
2008.








8





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
8. Commitments and Contingencies





Legal
Proceedings





In
October 2005, The Greens of Las Vegas, Inc. (“GOLV”) filed suit against the
Company, VCA-Nevada (“VCA-NV”), Greens Worldwide Incorporated (“GWWI”) and all
of the directors of GWWI from 2003 to the present.  GOLV alleged that
the Company interfered with prospective advantages between GOLV and third
parties, interfered with contracts between GOLV and VCA-NV, fraud, unjust
enrichment and civil conspiracy.  All Defendants answered the
Complaint on March 16, 2006 and asserted various counterclaims.  In
February 2008, the Nevada trial court granted the Company’s Motion to Dismiss
the Complaint and in April 2008 reaffirmed its decision and awarded that GOLV
pay the Company’s attorneys’ fees in the amount of $626,000.  The
counterclaims of the Company against the Plaintiffs still
remained.  GOLV appealed to the Nevada Supreme Court and, at a
mandatory settlement conference in June 2008, the parties agreed to settle the
entire matter with prejudice.  The Company dismissed its counterclaims
and agreed not to execute the attorneys’ fees judgment among other
things.  GOLV dismissed its claims against all Defendants and the
pending appeals.





Other
litigation has arisen in the normal course of the Company’s business, none of
which is deemed to be material.







9





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS








Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations





The following discussion of the
Company’s financial condition and results of operations includes certain
forward-looking statements.  When used in this Form 10-Q, the words
“estimate,” “projection,” “intend,” “anticipates,” “expects,” “may,” “should,”
“believes” and similar terms are intended to identify forward-looking statements
that relate to the Company’s future performance.  Such statements are
subject to substantial risks and uncertainties that could cause actual results
to differ materially from those projected, including, without limitation, the
risks and uncertainties set forth below.  Readers are cautioned not to
place undue reliance on the forward-looking statements set forth
below.  The Company undertakes no obligation to publicly update or
revise any of the forward-looking statements contained herein.





Overview





ILX Resorts Incorporated (“ILX” or the
“Company”) is one of the leading developers, marketers and operators of
timeshare resorts in the western United States and Mexico.  The
Company’s principal operations consist of (i) acquiring, developing and
operating timeshare resorts marketed by the Company as vacation ownership
resorts, (ii) marketing and selling vacation ownership interests in the
timeshare resorts, which typically have entitled the buyers thereof to ownership
of a fully-furnished unit for a one-week period on either an annual or an
alternate year (i.e., bienniel) basis (“Vacation Ownership Interests”), and
(iii) providing purchase money financing to the buyers of Vacation Ownership
Interests at its resorts.  In addition, the Company receives revenues
from the rental of unused or unsold inventory of units at its vacation ownership
resorts, and from the sale of food, beverages and other services at such
resorts.  The Company’s current portfolio of resorts consists of eight
resorts in Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico,
land in Puerto Penãsco (Rocky Point), Mexico and land in Sedona, Arizona
(collectively, the “ILX Resorts”).  One of the resorts in Arizona is
not at this time registered with the Arizona Department of Real Estate nor is
being marketed for sale as Vacation Ownership Interests, and is operated under a
long-term lease arrangement.  The Company also owns 2,233 Vacation
Ownership Interests in a resort in Las Vegas, Nevada, all of which have been
annexed into Premiere Vacation Club, 193 Vacation Ownership Interests in a
resort in Pinetop, Arizona, all of which have been annexed into Premiere
Vacation Club and 175 Vacation Ownership Interests in a resort in Phoenix,
Arizona, 174 of which have been annexed into Premiere Vacation
Club.





Significant
Accounting Policies





Principles
of Consolidation and Business Activities





The
condensed consolidated financial statements include the accounts of ILX Resorts
Incorporated, and its wholly owned subsidiaries (“ILX” or the
“Company”).  All significant intercompany transactions and balances
have been eliminated in consolidation.





The
accompanying condensed consolidated balance sheet as of December 31, 2007, which
has been derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Registration S-X.  Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements.  In
the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature.  Operating results for the nine-month period
ended September 30, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008.  The
accompanying financial statements should be read in conjunction with the
Company’s most recent audited financial statements.





The
Company’s significant business activities include developing, operating,
marketing and financing ownership interests (“Vacation Ownership Interests”) in
resort properties located in Arizona, Colorado, Indiana and Mexico.








10





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Revenue
Recognition





Revenue
from sales of Vacation Ownership Interests is recognized in accordance with
Statement of Financial Accounting Standards No. 152, Accounting for Real Estate
Time-Sharing Transactions (“SFAS 152”).  No sales are recognized until
such time as a minimum of 10% of the purchase price and any incentives given at
the time of sale has been received in cash, the statutory rescission period has
expired, the buyer is committed to continued payments of the remaining purchase
price and the Company has been released of all future obligations for the
Vacation Ownership Interest.  Resort operating revenue represents
daily room rentals (inclusive of homeowner’s dues) and revenues from food and
other resort services.  Such revenues are recorded as the rooms are
rented or the services are performed.





Recent
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157).  SFAS 157 establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  SFAS 157 is effective for the Company as of
January 1, 2008.  In February 2008, the FASB issued FASB Staff
Position No. 157-2 (FSP 157-2); which extended the effective date for certain
nonfinancial assets and nonfinancial liabilities to fiscal years beginning after
November 15, 2008.  The adoption of the portions of SFAS 157 that were
not postponed by FSP 157-2 did not have a material impact on the Company’s
consolidated financial statements.  Adoption of the postponed portions
of SFAS 157 is not anticipated to cause a material change in financial position
or results of operations.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159), which allows an irrevocable election to measure certain financial assets
and financial liabilities at fair value on an instrument-by-instrument basis,
with unrealized gains and losses recognized currently in earnings. Under SFAS
159, the fair value option may only be elected at the time of initial
recognition of a financial asset or financial liability or upon the occurrence
of certain specified events. Additionally, SFAS 159 provides that application of
the fair value option must be based on the fair value of an entire financial
asset or financial liability and not selected risks inherent in those assets or
liabilities. SFAS 159 requires that assets and liabilities which are measured at
fair value pursuant to the fair value option be reported in the financial
statements in a manner that separates those fair values from the carrying
amounts of similar assets and liabilities which are measured using another
measurement attribute. SFAS 159 also provides expanded disclosure requirements
regarding the effects of electing the fair value option on the financial
statements. SFAS 159 was effective prospectively for fiscal years beginning
after November 15, 2007.  The adoption of this standard did not have a
material effect on the Company’s financial position or results of
operations.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141(R) Business Combinations (SFAS 141(R))
and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51(SFAS
160).  SFAS 141(R) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any non-controlling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired.  SFAS 160
seeks to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 141(R) and SFAS 160 are effective for fiscal years
beginning on or after December 15, 2008.  Earlier adoption is
prohibited.  The Company is currently evaluating the impact the
adoption of these standards will have on the Company’s financial position or
results of operations.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161 Disclosures about Derivative
Instruments and Hedging Activities(SFAS 161).  SFAS 161
requires enhanced disclosures about an entity’s derivative and hedging
activities.  SFAS 161 is effective for fiscal years beginning on or
after November 15, 2008.  Earlier adoption is
encouraged.  The adoption of this standard is not expected to have a
material effect on the Company’s financial position or results of
operations.








11





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Results
of Operations





Non-GAAP
Financial Measures





The
following table of certain operating information for the Company is presented
with information both inclusive and exclusive of an adjustment to increase the
allowance for uncollectible notes and write-off certain Customer Notes in the
third quarter of 2008.  See a discussion below of the allowance
adjustment.  In presenting these comparative operating results, the
Company has included a column which excludes the effect of the allowance
adjustment as the Company believes this information is reflective of the
Company’s operations for the three and nine months ended September 30,
2008.  The following comparison of the three and nine months ended
September 30, 2008 with the three and nine months ended September 30, 2007 is
based on the results prior to the allowance adjustment.






Three
      Months Ended
              
              
              
              
              
              
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              
              
              
              
              
              
              September
      30,2008
              
              
              2008
              
              
              
              
              
              
              
              
              2008
              
              
              2008Prior
      to
              
              
              Allowance
              
              
              
              
              
              
              
              
              Prior
      to
              
              
              Allowance2007
              
              
              Adjustment
              
              
              Adjustment
              
              
              2008
              
              
              2007
              
              
              Adjustment
              
              
              Adjustment
              
              
              2008As
      a percentage of total revenues:Sales
      of Vacation Ownership Interests
              
              
              50.8
              %
              
              
              47.3
              %
              
              
              
              
              
              (119.8
              )%
              
              
              53.6
              %
              
              
              48.5
              %
              
              
              
              
              
              88.2
              %Estimated
      uncollectible revenue
              
              
              (2.2
              )%
              
              
              (2.0
              )%
              
              
              360.5
              %
              
              
              358.5
              %
              
              
              (2.3
              )%
              
              
              (2.1
              )%
              
              
              (83.7
              )%
              
              
              (85.8
              )%Resort
      operating revenue
              
              
              44.1
              %
              
              
              49.7
              %
              
              
              
              
              
              
              (126.0
              )%
              
              
              41.3
              %
              
              
              47.3
              %
              
              
              
              
              
              
              86.1
              %Interest
      and finance income
              
              
              7.3
              %
              
              
              5.0
              %
              
              
              
              
              
              
              (12.7
              )%
              
              
              7.4
              %
              
              
              6.3
              %
              
              
              
              
              
              
              11.5
              %Total
      revenues
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              
              
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              
              
              
              
              100.0
              %As
      a percentage of sales of Vacation Ownership Interests(1):Cost
      of Vacation Ownership Interests sold (recovered)
              
              
              12.9
              %
              
              
              13.6
              %
              
              
              (34.1
              )%
              
              
              (26.9
              )%
              
              
              13.2
              %
              
              
              13.6
              %
              
              
              (296.1
              )%
              
              
              (293.7
              )%Sales
      and marketing
              
              
              76.6
              %
              
              
              76.8
              %
              
              
              
              
              
              
              36.9
              %
              
              
              75.3
              %
              
              
              76.2
              %
              
              
              
              
              
              
              (2695.5
              )%Contribution
      margin percentage from sale of Vacation Ownership Interests (2)
              
              
              10.5
              %
              
              
              9.6
              %
              
              
              
              
              
              
              (110.0
              )%
              
              
              11.6
              %
              
              
              10.2
              %
              
              
              
              
              
              
              (2301.9
              )%As
      a percentage of resort operating revenue:Cost
      of resort operations
              
              
              87.5
              %
              
              
              88.4
              %
              
              
              
              
              
              
              88.4
              %
              
              
              89.4
              %
              
              
              88.6
              %
              
              
              
              
              
              
              88.6
              %As
      a percentage of total revenues(1):General
      and administrative
              
              
              13.4
              %
              
              
              16.2
              %
              
              
              
              
              
              
              41.1
              %
              
              
              13.0
              %
              
              
              15.2
              %
              
              
              
              
              
              
              27.6
              %Depreciation
      and amortization
              
              
              3.0
              %
              
              
              2.6
              %
              
              
              
              
              
              
              6.7
              %
              
              
              3.1
              %
              
              
              2.7
              %
              
              
              
              
              
              
              5.0
              %Total
      operating income (loss)
              
              
              1.5
              %
              
              
              (3.7
              )%
              
              
              
              
              
              
              (282.9
              )%
              
              
              1.8
              %
              
              
              (2.4
              )%
              
              
              
              
              
              
              (65.8
              )%Selected
      operating data:Vacation Ownership Interests sold (3)
      (4)
              
              
              244
              
              
              
              207
              
              
              
              
              
              
              
              207
              
              
              
              810
              
              
              
              678
              
              
              
              
              
              
              
              678Average
      sales price per Vacation Ownership Interest sold (excluding revenues from Upgrades) (4)
              
              $
              17,976
              
              
              $
              16,845
              
              
              
              
              
              
              $
              16,845
              
              
              $
              17,776
              
              
              $
              17,157
              
              
              
              
              
              
              $
              17,157Average
      sales price per Vacation Ownership Interestsold (including
      revenues from Upgrades) (4)
              
              $
              24,432
              
              
              $
              23,281
              
              
              
              
              
              
              $
              23,281
              
              
              $
              22,859
              
              
              $
              22,526
              
              
              
              
              
              
              $
              22,526





(1)Sales
of Vacation Ownership Interests and total revenues includes the reduction for
estimated uncollectible revenue.


(2)
Defined as: the sum of Vacation Ownership Interest sales less the cost of
Vacation Ownership Interests sold less sales and marketing expenses less
estimated uncollectible revenue divided by sales of Vacation Ownership Interests
less estimated uncollectible revenue.


(3)Reflects all Vacation Club Ownership Interests on an annual
basis.


(4)Consists of an aggregate of 364 and 329 biennial and annual Vacation
Ownership Interests for the three months ended September 30, 2007 and 2008,
respectively and 1,193 and 1,059 biennial and annual Vacation Ownership
Interests for the nine months ended September 30, 2007 and 2008,
respectively.  Excludes the number of conversions and
upgrades.








12





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Comparison
of the Three and Nine Months Ended September 30, 2007 to the Three and Nine
Months Ended September 30, 2008





During the third quarter of 2008, the
Company recorded an increase in its estimated uncollectible revenue of
$14,549,432 million and a reduction in cost of Vacation Ownership Interests
owned in the amount of $3,281,615, the “allowance adjustment”, to record the
reduction in its expectation of collectability of both past due and currently
performing Customer Notes and consumer notes sold with recourse and the
recovered Vacation Ownership Interests as a result.  In conjunction
with these entries the Company wrote off Customer Notes in excess of 90 days
delinquent in the amount of $16,420,471, increased resort property held for sale
by $3,281,615 and recognized an income tax benefit of $4,507,127.  The
reduction in expectation of collectability is based upon recent economic,
financial and credit conditions.





Sales of
Vacation Ownership Interests exclusive of the allowance adjustment discussed
above decreased 19.5% or $1,145,346 to $4,720,285 for the three months ended
September 30, 2008, from $5,865,631 for the same period in 2007 and decreased
18.6% or $3,417,208 to $14,972,531 for the nine months ended September 30, 2008
from $18,389,739 for the same period in 2007.  The decrease reflects
reduced sales from the Rancho Mañana and Sedona sales offices due to the closure
of the Rancho Mañana sales office in June 2007 and decreased tours in Sedona in
large part as a result of major road construction, offset by increased sales at
the Tucson sales office due to greater tours in 2008.





The
average sales price per Vacation Ownership Interest sold (excluding revenues
from Upgrades) decreased 6.3% or $1,131 to $16,845 for the three months ended
September 30, 2008 from $17,976 for the same period in 2007 and decreased 3.5%
or $619 to $17,157 for the nine months ended September 30, 2008 from $17,776 for
the same period in 2007.  The decrease in average sales price is due
to a change in the product mix sold, including the introduction in March 2008 of
a lower priced product with more limited use features in anticipation of and in
response to decreased consumer disposable income due to economic
conditions.  The number of Vacation Ownership Interests sold decreased
15.2% from 244 in the three months ended September 30, 2007 to 207 for the same
period in 2008 and decreased 16.3% from 810 for the nine months ended September
30, 2007 to 678 for the same period in 2008 primarily due to the closure of the
Rancho Mañana sales office discussed above and decreased tours at the Sedona
sales office.  The three and nine months ended September 30, 2008
included 245 and 763 biennial Vacation Ownership Interests (counted as 122.5 and
381.5 annual Vacation Ownership Interests) compared to 241 and 766 biennial
Vacation Ownership Interests (counted as 120.5 and 383 annual Vacation Ownership
Interests) in the same period in 2007.





Upgrade
revenue, included in Vacation Ownership Interest sales, decreased 15.5% to
$1,328,976 for the three months ended September 30, 2008 from $1,572,193 for the
same period in 2007 and decreased 11.7% to $3,637,212 for the nine months ended
September 30, 2008 from $4,117,422 for the same period in 2007.  The
decrease in 2008 reflects the closure of the Rancho Mañana sales office which
provided proximate access to many existing owners in the Phoenix area, offset by
increased sales in other offices.  The average sales price per
Vacation Ownership Interest sold (including upgrades) decreased 4.7% or $1,151
to $23,281 for the three months ended September 30, 2008 from $24,432 in 2007
and decreased 1.5% or $333 to $22,526 for the three months ended September 30,
2008 from $22,859 in 2007.  The decrease for the three and nine months
ended September 30, 2008 is due to the combination of the decrease in average
sales price per Vacation Ownership Interest sold (excluding Upgrades) described
above and the reduction in Upgrade revenue.





Resort
operating revenue decreased 2.5% to $5,188,714 for the three months ended
September 30, 2008, from $5,324,324 for the same period in 2007 and increased
3.1% to $15,292,829 for the nine months ended September 30, 2008 from
$14,831,125 for the same period in 2007.  The decrease for the three
months ended September 30, 2008 reflects decreased occupancy at certain of the
Company’s Sedona resorts.  The increase for the nine months ended
September 30, 2008 reflects revenue from the operation of the Sea of Cortez
Premiere Vacation Club (which was previously operated by a third party and the
net effect of revenue less expenses charged to revenue) beginning in July 2007,
as well as increased revenue from Vacation Ownership Interest
owners.  Cost of resort operations as a percentage of resort operating
revenue increased from 87.5% to 88.4% for the three months ended September 30,
2008 and decreased from 89.4% to 88.6% for the nine months ended September 30,
2008.  The increase for the three months ended September 30, 2008 is
due to the decreased occupancy discussed above.  The decrease for the
nine months ended September 30, 2008, reflects the increase in revenue from
Vacation Ownership Interest owners.





13





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








Interest
and finance income decreased 41.3% to $522,259 for the three months ended
September 30, 2008 from $890,162 for the same period in 2007 and decreased 23.4%
to $2,040,871 for the nine months ended September 30, 2008 from $2,665,790 for
the same period in 2007, reflecting decreased Customer Note balances, a
reduction in notes sold at a premium due to decreased sales and the expiration
of the agreement in June 2008 with a financial institution to sell Customer
Notes and a greater portion of Customer Notes being zero-interest one year
maturities.





Cost of
Vacation Ownerships recovered of $3,281,615 was recorded in the third quarter of
2008 in conjunction with the write off of consumer notes receivable discussed
above.





Cost of
Vacation Ownership Interests sold exclusive of the Vacation Ownerships recovered
as a percentage of Vacation Ownership Interest sales increased from 12.9% for
the three months ended September 30, 2007 to 13.6% for the three months ended
September 30, 2008 and increased from 13.2% for the nine months ended September
30, 2007 to 13.6% for the nine months ended September 30, 2008, due to the
introduction in March 2008 of a lower priced product and a decrease in the
forecasted average sales price.





Sales and
marketing as a percentage of sales of Vacation Ownership Interests was
consistent at 76.8% and 76.6% for the three months ended September 30, 2008 and
2007, respectively and increased to 76.2% for the nine months ended September
30, 2008 from 75.3% for the same period in 2007.  The increase for the
nine months ended September 30, 2008 reflects lower average sales prices in the
Sedona office net of the closure of the Rancho Mañana sales office in June
2007.





General
and administrative expenses increased to 16.2% and 15.2% of total revenue for
the three and nine months ended September 30, 2008, from 13.4% and 13.0% for the
same periods in 2007.  The percentage increases reflect the reduction
in total revenue.  The $225,000 increase for the nine months ended
September 30, 2008 reflects a combination of the general and administrative
expense reductions implemented in late 2007 and early 2008, net of certain
non-recurring benefits in June 2007, expense for an allowance on a receivable
amount from a third party, as well as redeployment of certain labor, previously
utilized for construction activities and capitalized, to other
activities.





Income
from land and other, net increased to $9,115 for the three months ended
September 30, 2008 from a loss of $14,364 for the three months ended September
30, 2007 and decreased to $55,293 for the nine months ended September 30, 2008
from $75,158 for the same period in 2007.  The increase for the three
months ended September 30, 2008 is the result of increased net revenue from the
Company’s Sedona Spa retail operations.  The decrease for the nine
months ended September 30, 2008 results from the second quarter 2007 gain of
$29,327 on the sale of 253,589 shares of a third party’s common
stock.





Interest
expense decreased 3.5% to $663,184 for the three months ended September 30, 2008
from $687,223 for the same period in 2007 and decreased 2.0% to $1,972,901 for
the nine months ended September 30, 2008 from $2,013,570 for the same period in
2007.  The decrease for the three and nine months ended September 30,
2008 reflects reductions in rate on variable rate borrowings, net of increased
interest bearing obligations.





14





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








Liquidity
and Capital Resources





Sources
of Cash





The
Company generates cash primarily from the sale of Vacation Ownership Interests
(including Upgrades), from the financing of Customer Notes from such sales and
from resort operations.  For the nine months ended September 30, 2007,
cash used in operations was $1,264,115 as compared to cash provided by
operations of $200,685 for the nine months ended September 30,
2008.  The decrease in cash used in operations reflects an increase in
estimated uncollectible revenue due to the increased allowance for and write off
of Customer Notes, a net decrease in resort property under development and
resort property held for Vacation Ownership Interest sales due to greater
additions in 2007 for the expansion of VCA South Bend, a smaller amount of cash
paid for income taxes in 2008 and a decrease in other assets due to lower escrow
balances resulting from the repayment of a note payable using escrow funds in
2007.  These decreases are offset by the larger net loss and resultant
income tax benefit, a decrease in accounts payable and a decrease in accrued
liabilities due to timing differences in amounts related to homeowner’s
associations.





For
regular federal income tax purposes, the Company reports substantially all of
its non-factored financed Vacation Ownership Interest sales under the
installment method.  Under the installment method, the Company
recognizes income on sales of Vacation Ownership Interests only when cash is
received by the Company in the form of a down payment, as an installment
payment, or from proceeds from the sale of the Customer Note.  The
deferral of income tax liability conserves cash resources on a current
basis.  Interest may be imposed, however, on the amount of tax
attributable to the installment payments for the period beginning on the date of
sale and ending on the date the related tax is paid.  If the Company
is otherwise not subject to tax in a particular year, no interest is imposed
since the interest is based on the amount of tax paid in that
year.  The condensed consolidated financial statements do not contain
an accrual for any interest expense that would be paid on the deferred taxes
related to the installment method, as the interest expense is not
estimable.





At
December 31, 2007, the Company’s subsidiary, Genesis, had federal NOL
carryforwards of approximately $205,000, which are limited as to usage because
they arise from built in losses of an acquired company.  In addition,
such losses can only be utilized through the earnings of Genesis and are limited
to a maximum of $189,000 per year.  Any unused Genesis NOLs will
expire in 2008.





In
addition, Section 382 of the Internal Revenue Code imposes additional
limitations on the utilization of NOLs by a corporation following various types
of ownership changes, which result in more than a 50% change in ownership of a
corporation within a three-year period.  Such changes may result from
new common stock issuances by the Company or changes occurring as a result of
filings with the Securities and Exchange Commission of Schedules 13D and 13G by
holders of more than 5% of the common stock, whether involving the acquisition
or disposition of common stock.  If such a subsequent change occurs,
the limitations of Section 382 would apply and may limit or deny the future
utilization of the NOL by the Company, which could result in the Company paying
additional federal and state taxes.








15





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Uses
of Cash





Investing
activities typically reflect a net use of cash because of capital
additions.  Net cash used in investing activities was $843,857 and
$1,728,569 for the nine months ended September 30, 2008 and 2007,
respectively.  The decrease in net cash used in investing activities
in 2008 is due to reduced ILX-Bruno capital expenditures for projects in
Sedona.





Net cash
provided by financing activities in the nine months ended September 30, 2008 was
$198,510 as compared to net cash used in financing activities of $139,798 in the
nine months ended September 30, 2007.  The increase in cash provided
by financing activities reflects the payment of a dividend and greater purchases
of treasury shares in 2007, offset by the repayment in 2008 of a note payable to
affiliates.





The
Company requires funds to finance the acquisitions of property for future resort
development and to further develop the existing resorts, as well as to make
capital improvements and support current operations.





Customer
defaults have a significant impact on cash available to the Company from
financing Customer Notes receivable in that notes which are more than 60 to 90
days past due are not eligible as collateral.  As a result, the
Company in effect must repay borrowings against such notes or buy back such
notes if they were sold with recourse.





Credit
Facilities and Capital





The
Company has a financing commitment in the amount of $20 million whereby the
Company may borrow against notes receivable pledged as
collateral.  These borrowings bear interest at a rate of prime plus
1.5%.  The $20 million commitment has a borrowing period which expires
in December 2009 and the maturity is in 2013.  At September 30, 2008,
approximately $7.2 million was available under this commitment.





The
Company’s agreement with a financial institution for a commitment of $30
million, under which the Company sold certain of its Customer Notes expired in
June 2008. The agreement provided for sales on a recourse basis with a purchase
rate of prime plus 2.75%.  Customer Notes were sold at discounts or
premiums to the principal amount in order to yield the purchase rate, with the
premium held back by the financial institution as additional
collateral.





At
September 30, 2008 and 2007, the Company had approximately $7.7 million and
$10.4 million, respectively, in outstanding notes receivable sold on a recourse
basis.  Portions of the notes receivable are secured by customer deeds
of trust on Los Abrigados Resort & Spa, VCA–South Bend and
VCA–Tucson.





In
January 2008, the Company amended an existing note payable due March 1, 2008 to
extend the maturity date to March 1, 2010.  All other terms remain
unchanged.





In
February 2008, the Company amended an existing construction note payable to
provide an additional $1.9 million in financing, increase the interest rate by
1.0% to 10.0% per year and extend the maturity date to February
2013.





16





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








In March
2008, the Company amended its existing commitment pursuant to which the Company
may hypothecate Customer Notes that are pledged to the lender as
collateral.  The amendment extends the borrowing period through
December 2009, extends the maturity date to 2013 and decreases the maximum
borrowing amount to $20.0 million.





Also
during the first nine months of 2008, the Company amended an existing line of
credit with a borrowing limit of $1.0 million to extend the maturity date to
November 28, 2008 and amended an existing line of credit with a borrowing limit
of $1,750,000 to extend the maturity date to September 30, 2009.





In the
future, the Company may negotiate additional credit facilities, issue corporate
debt, issue equity securities, or any combination of the above.  Any
debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as dictated by market conditions.  While the Company has
maintained good relationships with its lenders and will seek renewal or
replacement of existing lines upon their maturity, there is no assurance that
the Company will be able to secure additional corporate debt or equity at or
beyond current levels, at the same or comparable terms, or that the Company will
be able to maintain its current level of debt.  The Company may
negotiate with additional lenders to supplement its existing credit
facilities.





The
Company believes anticipated borrowings under existing or proposed credit
facilities, together with anticipated cash generated from operations, will be
sufficient to meet the Company’s liquidity, operating and capital requirements
for the near term. To the extent the Company is not successful in maintaining or
replacing existing financings, it would have to curtail operations or sell
assets, thereby having a material adverse effect on results of operations, cash
flows, and financial position.








17





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








Off-Balance
Sheet Arrangements





In April
2008, Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and PVC
entered into loan agreements to borrow up to $350,000 and $900,000,
respectively, at an interest rate of 6.15% to finance renovations and the
purchase of certain equipment.  The borrowings have a maturity date of
March 31, 2011.  ILX Resorts Incorporated has guaranteed the
borrowings, including interest, for both SVC and PVC and has entered into a
Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee
of 1% of the maximum principal amount under the loan agreements. The amounts
outstanding under the loan agreements as of September 30, 2008 are
$350,000.





Contractual
Cash Obligations and Commercial Commitments







The
following table presents the Company’s contractual cash obligations and
commercial commitments as of September 30, 2008.  The Company also
sold consumer notes with recourse through June 2008.  The Company has
no other significant contractual obligations or commercial commitments either on
or off-balance sheet as of this date, except as described below and in the
Off-Balance Sheet Arrangements section above.




Payments
      Due by PeriodContractual
      Cash Obligations
              
              Total
              
              
              <
      1 Year
              
              
              1-3
      Years
              
              
              4-5
      Years
              
              
              >
      5 YearsLong-term
      Debt
              
              $
              37,668,000
              
              
              $
              10,496,000
              
              
              $
              9,295,000
              
              
              $
              15,858,000
              
              
              $
              2,019,000Capital
      Lease Obligations
              
              
              257,000
              
              
              
              61,000
              
              
              
              138,000
              
              
              
              58,000
              
              
              
              -Operating
      Leases
              
              
              15,009,000
              
              
              
              1,841,000
              
              
              
              2,815,000
              
              
              
              2,077,000
              
              
              
              8,276,000Agreement
      to purchase VOI's
              
              
              44,000
              
              
              
              44,000
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              52,978,000
              
              
              $
              12,442,000
              
              
              $
              12,248,000
              
              
              $
              17,993,000
              
              
              $
              10,295,000


Seasonality





The
Company’s revenues are moderately seasonal with the volume of ILX owners, hotel
guests and Vacation Ownership Interest exchange participants typically greatest
in the second and third fiscal quarters.  Also impacting revenues are
economic downturns, gasoline prices, inclement weather, forest fires, gasoline
prices and other unforeseen natural disasters.  As the Company expands
into new markets and geographic locations it may experience increased or
additional seasonality dynamics which may cause the Company’s operating results
to fluctuate.





Inflation





Inflation
and changing prices have not had a material impact on the Company’s revenues,
operating income and net income during any of the Company’s three most recent
fiscal years or the nine months ended September 30, 2008.  However, to
the extent inflationary trends affect interest rates, a portion of the Company’s
debt service costs may be affected as well as the rates the Company charges on
its Customer Notes.





Item
3. Quantitative and Qualitative Disclosures about Market Risk





The
Company currently derives a portion of income from the spread between the
interest rates charged to customers and the interest rates at which it borrows
against customer notes or at which it sells customer notes.  The
Company’s indebtedness bears interest at variable rates while the retained
customer notes bear interest at fixed rates.  As a result, increases
in interest rates could cause interest expense to exceed interest income on the
Company’s portfolio of retained customer notes.  The Company does not
currently engage in interest rate hedging transactions.  Therefore,
any change in the prime interest rate could have a material effect on results of
operations, liquidity and financial position.  If there were a
one-percentage point change in the prevailing prime rate at September 30, 2008,
then based on the $20.2 million balance of variable rate debt at September 30,
2008, interest expense would increase or decrease by approximately $202,000
(before income taxes) per annum.








18





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Item
      4T.
            Controls
      and Procedures





(a)  Evaluation
of Disclosure Controls and Procedures





The
Company has established disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) to ensure that material information relating to the Company is made known
to the officers who certify the Company’s financial reports and to other members
of senior management and the Board of Directors. These disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports that are filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's (“SEC”) rules and forms. Under the
supervision and with the participation of management, including the principal
executive officer and principal financial officer an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2008 was completed based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).  Based on this evaluation, the principal
executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures are functioning effectively.





(b)  Changes
in Internal Control over Financial Reporting





There was
no change in the Company’s internal control over financial reporting during the
Company’s most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.





Part
II





Item
      1.
            Legal
      Proceedings





In
October 2005, The Greens of Las Vegas, Inc. (“GOLV”) filed suit against the
Company, VCA-Nevada (“VCA-NV”), Greens Worldwide Incorporated (“GWWI”) and all
of the directors of GWWI from 2003 to the present.  GOLV alleged that
the Company interfered with prospective advantages between GOLV and third
parties, interfered with contracts between GOLV and VCA-NV, fraud, unjust
enrichment and civil conspiracy.  All Defendants answered the
Complaint on March 16, 2006 and asserted various counterclaims.  In
February 2008, the Nevada trial court granted the Company’s Motion to Dismiss
the Complaint and in April 2008 reaffirmed its decision and awarded that GOLV
pay the Company’s attorneys’ fees in the amount of $626,000.  The
counterclaims of the Company against the Plaintiffs still
remained.  GOLV appealed to the Nevada Supreme Court and, at a
mandatory settlement conference in June 2008, the parties agreed to settle the
entire matter with prejudice.  The Company dismissed its counterclaims
and agreed not to execute the attorneys’ fees judgment among other
things.  GOLV dismissed its claims against all Defendants and the
pending appeals.





Other
litigation has arisen in the normal course of the Company’s business, none of
which is deemed to be material.





Item
      1A.
            Risk
      Factors





There are
no material changes from risk factors as previously disclosed in the Company’s
Form 10-K for the year ended December 31, 2007 and the Form 10-Q for the six
months ended June 30, 2008.







19





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





(C)






ISSUER
PURCHASES OF EQUITY SECURITIES




(a)
      Total Number of Shares (or Units) purchased
              
              
              (b)
      Average Price Paid per Share (or Unit)
              
              
              (c)
      Total Number of Shares (or Units) Purchased as Part of Publicly Announced
      Plans or Programs
              
              
              (d)
      Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
      Yet Be Purchased Under the Plans or ProgramsPeriodJuly
      1, 2008 -     July 31, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -August
      1, 2008 - August 31, 2008
              
              
              3,400
              
              
              $
              2.18
              
              
              
              3,400
              
              
              
              745,800September
      1, 2008 - September 30, 2008
              
              
              8,359
              
              
              $
              2.04
              
              
              
              8,359
              
              
              
              737,441Total
              
              
              11,759
              
              
              $
              2.08
              
              
              
              11,759
              
              
              
              737,441


On May
13, 2008 the Company announced that it had received board of director approval
to repurchase up to 750,000 shares of common stock.





Item
      3.
            Defaults
      Upon Senior Securities





None





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders





None





Item
      5.
            Other
      Information





None





Item
      6.
            Exhibits





(i)
            Exhibits





Exhibit
      No.
              Description
  31
              CERTIFICATION
      PURSUANT TO 18 U.S.C. § 1350, AS ADOPTEDPURSUANT
      TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 200232
              CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS
      ADOPTED PURSUANT
      TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
      2002







20





SIGNATURES














Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused its quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.











ILX
RESORTS INCORPORATED


(Registrant)











/s/
      Joseph P. MartoriJoseph
      P. MartoriChief
      Executive Officer














/s/
      Nancy J. StoneNancy
      J. StoneVice
      Chairman & President














/s/
      Margaret M. EardleyMargaret
      M. EardleyExecutive
      Vice President & Chief Financial
Officer














/s/
      Taryn L. ChmielewskiTaryn
      L. ChmielewskiVice
      President & Corporate
Controller














Date:  As
of November 13, 2008






21