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 June 30,
      2009
            Commission
      File Number 001-13855





ILX RESORTS
INCORPORATED


(Debtor
and Debtor-In-Possession as of March 2, 2009)


(Exact
name of registrant as specified in its charter)





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





2111 East Highland Avenue,
Suite 200, Phoenix, Arizona 85016


(Address
of principal executive offices)





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


_____________________________________________





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x    No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).Yes x    No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





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   xNo





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





Class
                
                Outstanding at June 30,
  2009Common
      Stock, without par value
                
                3,635,877
      shares











ITEM
1.  FINANCIAL STATEMENTS





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-In-Possession as of March 2, 2009)




CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)




December
31,
                                            
                                            
                                            June 30,2008
                                            
                                            
                                            2009ASSETSCash and cash
      equivalents
                                            
                                            $
                                            2,145,601
                                            
                                            
                                            $
                                            1,401,188Notes receivable, net of allowance
      for uncollectible notes of $2,766,951 and $3,281,053,
      respectively
                                            
                                            
                                            19,297,008
                                            
                                            
                                            
                                            18,867,863Resort property held for Vacation
      Ownership Interest sales
                                            
                                            
                                            23,997,073
                                            
                                            
                                            
                                            23,137,630Resort property under
      development
                                            
                                            
                                            1,269,445
                                            
                                            
                                            
                                            1,274,613Land held for
      sale
                                            
                                            
                                            586,681
                                            
                                            
                                            
                                            595,295Property and equipment,
      net
                                            
                                            
                                            21,007,739
                                            
                                            
                                            
                                            20,472,571Income tax
      receivable
                                            
                                            
                                            31,892
                                            
                                            
                                            
                                            31,892Deferred tax
      asset
                                            
                                            
                                            1,978,332
                                            
                                            
                                            
                                            2,409,586Other
assets
                                            
                                            
                                            2,492,211
                                            
                                            
                                            
                                            3,556,538TOTAL
ASSETS
                                            
                                            $
                                            72,805,982
                                            
                                            
                                            $
                                            71,747,176LIABILITIES AND SHAREHOLDERS'
      EQUITYLIABILITIES:Liabilities not subject to
      compromise:Accounts
      payable
                                            
                                            $
                                            1,847,903
                                            
                                            
                                            $
                                            500,453Accrued expenses and other
      liabilities
                                            
                                            
                                            3,864,210
                                            
                                            
                                            
                                            3,079,313Notes
    payable
                                            
                                            
                                            37,172,105
                                            
                                            
                                            
                                            34,235,609Liabilities subject to
      compromise
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,656,157TOTAL
      LIABILITIES
                                            
                                            
                                            42,884,218
                                            
                                            
                                            
                                            42,471,532COMMITMENTS AND
      CONTINGENCIESSHAREHOLDERS'
      EQUITYILX Resorts Incorporated
      shareholders' equity:Preferred stock, $10 par value;
      10,000,000 shares authorized; 117,722 shares issued and
      outstanding; liquidation preference
      of  $1,177,220
                                            
                                            
                                            746,665
                                            
                                            
                                            
                                            746,665Common stock, no par value;
      30,000,000 shares authorized; 5,580,259 and 5,578,259 shares
      issued and outstanding
                                            
                                            
                                            29,322,887
                                            
                                            
                                            
                                            29,306,263Treasury stock, at cost, 1,942,382
      shares
                                            
                                            
                                            (10,005,915
                                            )
                                            
                                            
                                            (10,005,915
                                            )Additional paid-in
      capital
                                            
                                            
                                            59,435
                                            
                                            
                                            
                                            59,435Deferred
      compensation
                                            
                                            
                                            (91,503
                                            )
                                            
                                            
                                            (48,732
                                            )Retained
      earnings
                                            
                                            
                                            7,908,805
                                            
                                            
                                            
                                            7,261,924Total ILX Resorts Incorporated
      shareholders' equity
                                            
                                            
                                            27,940,374
                                            
                                            
                                            
                                            27,319,640Non controlling interest in
      subsidiary
                                            
                                            
                                            1,981,390
                                            
                                            
                                            
                                            1,956,004TOTAL SHAREHOLDERS'
      EQUITY
                                            
                                            
                                            29,921,764
                                            
                                            
                                            
                                            29,275,644TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY
                                            
                                            $
                                            72,805,982
                                            
                                            
                                            $
                                            71,747,176





See notes
to condensed consolidated financial statements





2





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-In-Possession as of March 2, 2009)




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


Three months ended June
      30,
                                                                
                                                                
                                                                Six months ended June
      30,2008
                                                                
                                                                
                                                                2009
                                                                
                                                                
                                                                2008
                                                                
                                                                
                                                                2009REVENUES:Sales of Vacation Ownership
      Interests
                                                                
                                                                $
                                                                5,448,207
                                                                
                                                                
                                                                $
                                                                4,036,248
                                                                
                                                                
                                                                $
                                                                10,721,854
                                                                
                                                                
                                                                $
                                                                7,093,324Estimated uncollectible
      revenue
                                                                
                                                                
                                                                (238,122
                                                                )
                                                                
                                                                
                                                                (226,917
                                                                )
                                                                
                                                                
                                                                (469,608
                                                                )
                                                                
                                                                
                                                                (399,077
                                                                )Resort operating
      revenue
                                                                
                                                                
                                                                5,368,230
                                                                
                                                                
                                                                
                                                                4,950,840
                                                                
                                                                
                                                                
                                                                10,104,115
                                                                
                                                                
                                                                
                                                                9,250,256Interest and finance
      income
                                                                
                                                                
                                                                873,181
                                                                
                                                                
                                                                
                                                                465,328
                                                                
                                                                
                                                                
                                                                1,518,612
                                                                
                                                                
                                                                
                                                                974,677Total
    revenues
                                                                
                                                                
                                                                11,451,496
                                                                
                                                                
                                                                
                                                                9,225,499
                                                                
                                                                
                                                                
                                                                21,874,973
                                                                
                                                                
                                                                
                                                                16,919,180COST OF SALES AND OPERATING
      EXPENSES:Cost of Vacation Ownership
      Interests sold
                                                                
                                                                
                                                                722,302
                                                                
                                                                
                                                                
                                                                521,538
                                                                
                                                                
                                                                
                                                                1,399,417
                                                                
                                                                
                                                                
                                                                911,465Cost of resort
      operations
                                                                
                                                                
                                                                4,641,677
                                                                
                                                                
                                                                
                                                                3,623,151
                                                                
                                                                
                                                                
                                                                8,964,718
                                                                
                                                                
                                                                
                                                                7,279,609Sales and
      marketing
                                                                
                                                                
                                                                3,923,322
                                                                
                                                                
                                                                
                                                                2,222,554
                                                                
                                                                
                                                                
                                                                7,778,068
                                                                
                                                                
                                                                
                                                                4,845,196General and
      administrative
                                                                
                                                                
                                                                1,529,785
                                                                
                                                                
                                                                
                                                                1,197,725
                                                                
                                                                
                                                                
                                                                3,209,700
                                                                
                                                                
                                                                
                                                                2,488,806Depreciation and
      amortization
                                                                
                                                                
                                                                284,072
                                                                
                                                                
                                                                
                                                                257,182
                                                                
                                                                
                                                                
                                                                608,455
                                                                
                                                                
                                                                
                                                                535,492Total cost of sales and operating
      expenses
                                                                
                                                                
                                                                11,101,158
                                                                
                                                                
                                                                
                                                                7,822,150
                                                                
                                                                
                                                                
                                                                21,960,358
                                                                
                                                                
                                                                
                                                                16,060,568Timeshare and resort operating
      income (loss)
                                                                
                                                                
                                                                350,338
                                                                
                                                                
                                                                
                                                                1,403,349
                                                                
                                                                
                                                                
                                                                (85,385
                                                                )
                                                                
                                                                
                                                                858,612Income from land and other, net
      (including Related Party)
                                                                
                                                                
                                                                12,448
                                                                
                                                                
                                                                
                                                                9,995
                                                                
                                                                
                                                                
                                                                46,178
                                                                
                                                                
                                                                
                                                                23,322Total operating income
      (loss)
                                                                
                                                                
                                                                362,786
                                                                
                                                                
                                                                
                                                                1,413,344
                                                                
                                                                
                                                                
                                                                (39,207
                                                                )
                                                                
                                                                
                                                                881,934Interest
      expense
                                                                
                                                                
                                                                (643,893
                                                                )
                                                                
                                                                
                                                                (702,702
                                                                )
                                                                
                                                                
                                                                (1,309,717
                                                                )
                                                                
                                                                
                                                                (1,365,953
                                                                )REORGANIZATION
      ITEMS:Loss on disposal of facilities and
      other
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (12,043
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (403,476
                                                                )Professional
      fees
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (66,025
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (216,025
                                                                )Income (loss) before income taxes
      and noncontrolling interest in subsidiary
                                                                
                                                                
                                                                (281,107
                                                                )
                                                                
                                                                
                                                                632,574
                                                                
                                                                
                                                                
                                                                (1,348,924
                                                                )
                                                                
                                                                
                                                                (1,103,520
                                                                )Income tax benefit
      (expense)
                                                                
                                                                
                                                                107,467
                                                                
                                                                
                                                                
                                                                (258,132
                                                                )
                                                                
                                                                
                                                                529,364
                                                                
                                                                
                                                                
                                                                431,253Net income
      (loss)
                                                                
                                                                
                                                                (173,640
                                                                )
                                                                
                                                                
                                                                374,442
                                                                
                                                                
                                                                
                                                                (819,560
                                                                )
                                                                
                                                                
                                                                (672,267
                                                                )Net loss attritutable to
      noncontrolling interest in subsidiary
                                                                
                                                                
                                                                12,442
                                                                
                                                                
                                                                
                                                                12,754
                                                                
                                                                
                                                                
                                                                25,515
                                                                
                                                                
                                                                
                                                                25,386Net income (loss) attritutable to
      ILX Resorts Incorporated
                                                                
                                                                $
                                                                (161,198
                                                                )
                                                                
                                                                $
                                                                387,196
                                                                
                                                                
                                                                $
                                                                (794,045
                                                                )
                                                                
                                                                $
                                                                (646,881
                                                                )NET INCOME (LOSS) PER
      SHARETotal Basic net income (loss) per
      share
                                                                
                                                                $
                                                                (0.05
                                                                )
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                $
                                                                (0.22
                                                                )
                                                                
                                                                $
                                                                (0.18
                                                                )Total Diluted net income (loss)
      per share
                                                                
                                                                $
                                                                (0.05
                                                                )
                                                                
                                                                $
                                                                0.10
                                                                
                                                                
                                                                $
                                                                (0.22
                                                                )
                                                                
                                                                $
                                                                (0.18
                                                                )





See notes
to condensed consolidated financial statements





3





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-In-Possession as of March 2, 2009)


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


Six months ended June
      30,2008
                                        
                                        
                                        2009CASH FLOWS FROM OPERATING
      ACTIVITIES:Net loss
                                        
                                        $
                                        (819,560
                                        )
                                        
                                        $
                                        (672,267
                                        )Adjustments to reconcile net loss
      to net cash (used in) provided by operating
      activities:Loss on sale of property and
      equipment
                                        
                                        
                                        972
                                        
                                        
                                        
                                        9,061Reorganization loss on disposal of
      facilities and other
                                        
                                        
                                        -
                                        
                                        
                                        
                                        403,476Reorganization professional
      fees
                                        
                                        
                                        -
                                        
                                        
                                        
                                        216,025Income tax
      benefit
                                        
                                        
                                        (529,364
                                        )
                                        
                                        
                                        (431,253
                                        )Estimated uncollectible
      revenue
                                        
                                        
                                        469,608
                                        
                                        
                                        
                                        399,077Depreciation and
      amortization
                                        
                                        
                                        608,455
                                        
                                        
                                        
                                        535,492Amortization of deferred
      compensation
                                        
                                        
                                        88,739
                                        
                                        
                                        
                                        26,147Change in assets and
      liabilities:Decrease in notes receivable,
      net
                                        
                                        
                                        534,722
                                        
                                        
                                        
                                        30,068(Increase) decrease in resort
      property held for Vacation Ownership Interest
      sales
                                        
                                        
                                        (2,515,775
                                        )
                                        
                                        
                                        859,443Decrease (increase) in resort
      property under development
                                        
                                        
                                        2,723,113
                                        
                                        
                                        
                                        (5,168
                                        )Increase in land held for
      sale
                                        
                                        
                                        (1,170
                                        )
                                        
                                        
                                        (8,614
                                        )Increase in other
      assets
                                        
                                        
                                        (504,304
                                        )
                                        
                                        
                                        (1,599,103
                                        )(Decrease) increase in accounts
      payable
                                        
                                        
                                        (313,176
                                        )
                                        
                                        
                                        1,109,141Increase (decrease) in accrued and
      other liabilities
                                        
                                        
                                        204,018
                                        
                                        
                                        
                                        (3,835
                                        )Decrease in income taxes
      payable
                                        
                                        
                                        (44,232
                                        )
                                        
                                        
                                        -Net cash (used in) provided by
      operating activities
                                        
                                        
                                        (97,954
                                        )
                                        
                                        
                                        867,690CASH FLOWS FROM INVESTING
      ACTIVITIES:Purchases of property and
      equipment
                                        
                                        
                                        (523,459
                                        )
                                        
                                        
                                        (89,490
                                        )Proceeds from sale of property and
      equipment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,094Assumption of First Piggy LLC
      membership interests
                                        
                                        
                                        33,263
                                        
                                        
                                        
                                        -Net cash used in investing
      activities
                                        
                                        
                                        (490,196
                                        )
                                        
                                        
                                        (88,396
                                        )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds from notes
      payable
                                        
                                        
                                        6,542,479
                                        
                                        
                                        
                                        616,434Principal payments on notes
      payable
                                        
                                        
                                        (5,675,827
                                        )
                                        
                                        
                                        (2,140,141
                                        )Principal payment on note payable
      to affiliate
                                        
                                        
                                        (300,000
                                        )
                                        
                                        
                                        -Preferred stock
      dividends
                                        
                                        
                                        (46,788
                                        )
                                        
                                        
                                        -Acquisition of treasury
      stock
                                        
                                        
                                        (2,469
                                        )
                                        
                                        
                                        -Net cash provided by (used in)
      financing activities
                                        
                                        
                                        517,395
                                        
                                        
                                        
                                        (1,523,707
                                        )DECREASE IN CASH AND CASH
      EQUIVALENTS
                                        
                                        
                                        (70,755
                                        )
                                        
                                        
                                        (744,413
                                        )CASH AND CASH EQUIVALENTS AT
      BEGINNING OF PERIOD
                                        
                                        
                                        3,332,922
                                        
                                        
                                        
                                        2,145,601CASH AND CASH EQUIVALENTS AT END
      OF PERIOD
                                        
                                        $
                                        3,262,167
                                        
                                        
                                        $
                                        1,401,188SUPPLEMENTAL DISCLOSURE OF NONCASH
      INVESTING AND FINANCING
      ACTIVITIES:Deferred compensation resulting
      from unvested common stock issuance
                                        
                                        $
                                        9,840
                                        
                                        
                                        $
                                        -Common stock issued to repay
      portion of note payable to affiliate
                                        
                                        
                                        300,000
                                        
                                        
                                        
                                        -


See notes
to condensed consolidated financial statements





4





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
1. Chapter 11 Reorganization





On March
2, 2009 (the “Petition Date”), ILX Resorts Incorporated (“ILX” or the “Company”)
and fifteen of its subsidiaries and limited liability companies (“the Debtors”)
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code (“the Bankruptcy Code”) in the United States Bankruptcy
Court for the District of Arizona (“the Bankruptcy Court”).  The cases
are being jointly administered under Case Number
2:09-BK-03594-RTB.  The Company cannot provide any assurance as to
what values, if any, will be ascribed in the bankruptcy proceedings to various
pre-petition liabilities, common stock and other securities. Accordingly,
caution should be exercised with respect to existing and future investments in
any of these liabilities or securities. Trading of the Company’s common stock on
the NYSE AMEX exchange was suspended on March 2, 2009 and the stock was
subsequently delisted on March 13, 2009.





Reporting
Requirements





As a
result of its bankruptcy filing, the Company is periodically required to file
various documents with and provide certain information to, the Bankruptcy Court,
including statements of financial affairs, schedules of assets and liabilities
and monthly operating reports in forms prescribed by federal bankruptcy law, as
well as certain financial information on an unconsolidated basis. Such materials
will be prepared according to requirements of federal bankruptcy
law.  While they accurately provide then-current information required
under federal bankruptcy law, they are nonetheless unconsolidated, unaudited and
are prepared in a format different from that used in the Company’s consolidated
financial statements filed under the securities laws.  Accordingly,
the Company believes that the substance and format do not allow meaningful
comparison with its regular publicly disclosed consolidated financial
statements.  Moreover, the materials filed with the Bankruptcy Court
are not prepared for the purpose of providing a basis for an investment decision
relating to the Company’s securities, or for comparison with other financial
information filed with the Securities and Exchange Commission.





Reasons
for Bankruptcy





The
Debtor’s Chapter 11 filings were due to recent economic conditions and
unanticipated reductions in credit facilities caused by instability in the
credit markets.





Motions





The
Bankruptcy Court has approved various motions for relief designed to allow the
Company to continue normal operations.  The Bankruptcy Court’s orders
authorize the Debtors, among other things, in their discretion to: a) pay
certain pre-petition and post-petition employee wages, salaries and benefits and
other employee obligations, b) pay vendors in the ordinary course for goods and
services received from and after the Petition Date, c) continue maintenance of
existing bank accounts and existing cash management systems, and d) use certain
cash collateral through August 31, 2009.





Under the
Bankruptcy Code, the Company may assume or reject certain unexpired leases
subject to the Bankruptcy Court’s approval and certain other
conditions.  As of the filing date of this report, the Debtors have
filed motions to reject seven operating leases; all of which have been
granted.  Various other filings have been made with respect to
utilities, third party servicing firms, professional firm engagements and
contract approvals.





Notifications





Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing.  The Debtors’ Chapter 11
filing automatically enjoined, or stayed, the continuation of any judicial or
administrative proceeding or other actions against the Debtors or their property
to recover on, collect or secure a claim arising prior to the Petition
Date.  Vendors are being paid for goods and services provided after
the Petition Date in the ordinary course of business.  A September 15,
2009 bar date has been established for the filing of proofs of claims against
the Debtors.





5





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Proofs
of Claim





As
permitted under the bankruptcy process, certain of the Debtors’ creditors filed
proofs of claim with the Bankruptcy Court.  The Debtors believe some
of these claims are invalid because they are duplicative, have been amended or
superseded by later filed claims or are inaccurate.  Differences in
amounts between claims filed by creditors and liabilities shown in our records
are being investigated and will be resolved in connection with our claims
resolution process.  There can be no assurances at this time that the
Company will not continue to record adjustments related to the ultimate amount
of claims allowed.





Executory
Contracts and Determination of Allowed Claims





Under the
Bankruptcy Code, the Debtors may assume or reject certain executory contracts
and unexpired leases.  Claims may arise as a result of rejecting any
executory contract or unexpired lease.  As mentioned above, the
Debtors have rejected seven operating leases.  The condensed
consolidated financial statements do not include the effects of any claims from
the rejection of these as the Company cannot estimate the amount that will be
allowed by the Bankruptcy Court.





Plan
of Reorganization





The
Debtors have the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and an additional 60 days to obtain necessary acceptances
of the plan. Due to ongoing discussions with the Company’s primary lender, a
motion to extend exclusivity for an additional 45 days was filed and approved in
June 2009.  A second motion to extend exclusivity for an additional 90
days was filed in July 2009.  This motion seeks to extend the Debtors
exclusive right to file a plan of reorganization to November 15, 2009 and the
ability to obtain necessary acceptances of the plan to January 15, 2010. The
Debtor intends to file its plan on or before August 31, 2009.





A plan of
reorganization will be deemed accepted by holders of claims against and equity
interest in the Debtors if (1) at least one-half in number and two-thirds in
dollar amount of claims actually voting in each impaired class of claims have
voted to accept the plan and (2) at least two-thirds in amount of equity
interests actually voting in each impaired class of equity interests has voted
to accept the plan.





Under the
priority classification established by the Bankruptcy Code, unless creditors
agree otherwise, pre and post petition liabilities must be satisfied in full
before stockholders are entitled to receive any distribution under a plan of
reorganization.  The ultimate treatment of creditors and stockholders
will not be determined until confirmation of a plan of
reorganization.  No assurance can be given as to what values, if any,
will be ascribed in the Chapter 11 cases to each of these groups or what types
or amounts of distributions, if any, they would receive.  A plan of
reorganization could result in holders of the Debtors’ liabilities and/or
securities, including common stock, receiving no distribution on account of
their interests and cancellation of their holdings.





There can
be no assurance at this time that the Company will be able to restructure as a
going concern or that a plan of reorganization will be confirmed by the
Bankruptcy Court, or that any such plan will be implemented
successfully.





Risks
and Uncertainties





The ability of the Company, both during
and after the Chapter 11 case, to continue as a going concern is dependent upon,
among other things, a) the ability of the Company to successfully achieve
required cost savings to complete its restructuring; b) the ability of the
Company to maintain adequate liquidity; c) the ability of the Company to
generate cash from operations; d) the ability of the Company to confirm a plan
of reorganization under the Bankruptcy Code and e) the Company’s ability to
achieve and maintain profitability.  Uncertainty as to the outcome of
these factors raises substantial doubt about the Company’s ability to continue
as a going concern.  A plan of reorganization could materially change
the amounts currently disclosed in the condensed consolidated financial
statements.





6





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Liquidity
and Going Concern Matters





The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern.  This assumes a
continuation of operations and the realization of assets and liabilities in the
ordinary course of business.  The condensed consolidated financial
statements do not include any adjustments that might result if the Company were
forced to discontinue operations.  The Company has liquidity needs in
the operation of its business which are eased by the use of cash collateral
discussed above.  In order to address liquidity concerns, the Company
has made expense reductions and scaled back its sales and marketing
operations.  It has also rejected certain lease agreements as
discussed above.







Note
2. Summary of Significant Accounting Policies





Principles
of Consolidation and Business Activities





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





The accompanying condensed consolidated
balance sheet as of December 31, 2008, which has been derived from audited
financial statements, and the unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.  Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
of America for complete financial statements.  In the opinion of
management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature.  Operating results for the six-month period ended
June 30, 2009 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2009.  The accompanying
financial statements should be read in conjunction with the Company’s most
recent audited financial statements.





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





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.





7





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





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 June
      30,
                    
                    
                    Six Months Ended June
      30,2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009Interest
    paid
                    
                    $
                    643,893
                    
                    
                    $
                    31,724
                    
                    
                    $
                    1,313,794
                    
                    
                    $
                    345,296Income taxes
      paid
                    
                    
                    11,816
                    
                    
                    
                    -
                    
                    
                    
                    44,232
                    
                    
                    
                    -Interest
      capitalized
                    
                    
                    262,151
                    
                    
                    
                    -
                    
                    
                    
                    532,936
                    
                    
                    
                    81,496





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.





Reclassification





The
financial statements for the prior period have been reclassified to be
consistent with the current period financial statement
presentation.  The reclassification had no effect on net
income.





Note
3. Reorganization Items





SOP 90-7 requires separate disclosure
of reorganization items on both the statement of operations and the statement of
cash flows.  The Debtors’ reorganization items on the condensed
consolidated statements of operations consist of the following:




Three Months Ended June
      30,
                                
                                
                                Six Months Ended June
      30,2008
                                
                                
                                2009
                                
                                
                                2008
                                
                                
                                2009Loss on disposal of facilities and
      other
                                
                                $
                                -
                                
                                
                                $
                                12,043
                                
                                
                                $
                                -
                                
                                
                                $
                                403,476Professional
      fees
                                
                                
                                -
                                
                                
                                
                                66,025
                                
                                
                                
                                -
                                
                                
                                
                                216,025$
                                -
                                
                                
                                $
                                78,068
                                
                                
                                $
                                -
                                
                                
                                $
                                619,501





The loss on disposal of facilities and
other includes the write-off of lease acquisition costs, deposits, leasehold
improvements and other items related to the rejection of seven unexpired leases
as discussed in Note 1 and trustee fees.  Professional fees related to
the reorganization are fees paid to legal counsel and are estimated by the
Debtors and will be reconciled when actual invoices are received.




8





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





The Debtors’ reorganization items on
the condensed consolidated statements of cash flows consist of the
following:




Six Months Ended June
      30,2008
                      
                      
                      2009Loss on disposal of facilities and
      other
                      
                      $
                      -
                      
                      
                      $
                      403,476Professional
      fees
                      
                      
                      -
                      
                      
                      
                      216,025Change in accounts
      payable
                      
                      
                      -
                      
                      
                      
                      2,462,305Change in accrued & other
      liabilities
                      
                      
                      -
                      
                      
                      
                      781,063Notes
    payable
                      
                      
                      -
                      
                      
                      
                      1,412,789





The Company uses significant amounts of
cash in the development and marketing of Vacation Ownership Interests, but
collects the cash on the Customer Notes receivable over a long period of
time.  Historically, the Company borrowed against and/or sold
receivables to provide sufficient cash to fund its operations.  The
Company is currently unable to borrow under its facility, but does have the use
of cash collateral generated by customer payments under a motion granted by the
Bankruptcy Court (see Note 1). Cash collateral received during the six month
period ended June 30, 2009 was $2,177,020.





Note
4. Liabilities Subject to Compromise





Liabilities
subject to compromise (“LSTC”) refer to both secured and unsecured obligations
that will likely be accounted for under a plan of
reorganization.  Actions to enforce or effect payment of pre-petition
liabilities are stayed.  SOP 90-7 requires pre-petition liabilities
that are subject to compromise to be reported at amounts expected to be allowed,
even if they may be settled for lesser amounts.  These liabilities
represent the estimated amount expected to be allowed on known or potential
claims to be resolved through the Chapter 11 proceedings and remain subject to
future adjustments arising from negotiated settlements, actions of the
Bankruptcy Court, rejection of executory contracts and unexpired leases, the
determination as to the value of collateral, proofs of claim, or other
events.  LSTC also includes certain items that may be assumed under
the plan of reorganization and as such may be subsequently reclassified to
liabilities not subject to compromise.  The Company has not included
secured debt that is fully secured as LSTC, but these obligations could be
transferred to LSTC based on treatment in the final plan of
reorganization.  All post petition interest on notes payable is
accrued at contract rate without regard to default or other rate payable in the
event of delinquency and included in accounts payable LSTC.  The
determination of how liabilities will be treated cannot be made until the
Bankruptcy Court approves a plan of reorganization.  Liabilities
subject to compromise consist of the following:




December
31,
                          
                          
                          June 30,2008
                          
                          
                          2009Accounts
      payable
                          
                          $
                          -
                          
                          
                          $
                          2,462,305Accrued & other
      liabilities
                          
                          
                          -
                          
                          
                          
                          781,063Notes
    payable
                          
                          
                          -
                          
                          
                          
                          1,412,789$
                          -
                          
                          
                          $
                          4,656,157





9





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note 5. Basic and Diluted Net Income
(Loss) Per Share





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




Three Months
      Ended
                                                
                                                
                                                Six Months
      EndedJune 30,
                                                
                                                
                                                June 30,2008
                                                
                                                
                                                2009
                                                
                                                
                                                2008
                                                
                                                
                                                2009Net (loss) income attributable to
      ILX Resorts Incorporated
                                                
                                                $
                                                (161,198
                                                )
                                                
                                                $
                                                387,196
                                                
                                                
                                                $
                                                (794,045
                                                )
                                                
                                                $
                                                (646,881
                                                )Less: Series A preferred stock
      dividends
                                                
                                                
                                                (11,697
                                                )
                                                
                                                
                                                (11,697
                                                )
                                                
                                                
                                                (23,394
                                                )
                                                
                                                
                                                (23,394
                                                )Basic and Diluted Net (Loss)
      Income Available to Common Shareholders
                                                
                                                $
                                                (172,895
                                                )
                                                
                                                $
                                                375,499
                                                
                                                
                                                $
                                                (817,439
                                                )
                                                
                                                $
                                                (670,275
                                                )Basic Weighted-Average Common
      Shares Outstanding
                                                
                                                
                                                3,656,823
                                                
                                                
                                                
                                                3,635,877
                                                
                                                
                                                
                                                3,637,920
                                                
                                                
                                                
                                                3,636,386Diluted Weighted-Average Common
      Shares Outstanding
                                                
                                                
                                                3,656,823
                                                
                                                
                                                
                                                3,635,877
                                                
                                                
                                                
                                                3,637,920
                                                
                                                
                                                
                                                3,636,386Basic Net (Loss) Income Per Common
      Share
                                                
                                                $
                                                (0.05
                                                )
                                                
                                                $
                                                0.10
                                                
                                                
                                                $
                                                (0.22
                                                )
                                                
                                                $
                                                (0.18
                                                )Diluted Net (Loss) Income Per
      Common Share
                                                
                                                $
                                                (0.05
                                                )
                                                
                                                $
                                                0.10
                                                
                                                
                                                $
                                                (0.22
                                                )
                                                
                                                $
                                                (0.18
                                                )





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





Note
6. Shareholders’ Equity





A summary
of the composition of shareholders’ equity as of June 30, 2009 and 2008, and the
changes during the six months then ended is presented in the following
table:




Total ILX
      ResortsIncorporated
                                        
                                        
                                        Noncontrollingshareholders'
      equity
                                        
                                        
                                        interest
                                        
                                        
                                        Total
equityBalance at December 31,
      2008
                                        
                                        $
                                        27,940,374
                                        
                                        
                                        $
                                        1,981,390
                                        
                                        
                                        $
                                        29,921,764Amortization of deferred
      compensation
                                        
                                        
                                        26,147
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        26,147Net loss
                                        
                                        
                                        (646,881
                                        )
                                        
                                        
                                        (25,386
                                        )
                                        
                                        
                                        (672,267
                                        )Balance at June 30,
      2009
                                        
                                        $
                                        27,319,640
                                        
                                        
                                        $
                                        1,956,004
                                        
                                        
                                        $
                                        29,275,644Total ILX
      ResortsIncorporated
                                        
                                        
                                        Noncontrollingshareholders'
      equity
                                        
                                        
                                        interest
                                        
                                        
                                        Total
equityBalance at December 31,
      2007
                                        
                                        $
                                        36,163,572
                                        
                                        
                                        $
                                        2,032,716
                                        
                                        
                                        $
                                        38,196,288Share-based
      compensation
                                        
                                        
                                        300,000
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        300,000Amortization of deferred
      compensation
                                        
                                        
                                        88,739
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        88,739Series A dividend
      payment
                                        
                                        
                                        (46,788
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        (46,788
                                        )Distribution to First Piggy LLC
      members
                                        
                                        
                                        33,263
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        33,263Acquisition of treasury
      shares
                                        
                                        
                                        (2,469
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        (2,469
                                        )Net loss
                                        
                                        
                                        (794,045
                                        )
                                        
                                        
                                        (25,515
                                        )
                                        
                                        
                                        (819,560
                                        )Balance at June 30,
      2008
                                        
                                        $
                                        35,742,272
                                        
                                        
                                        $
                                        2,007,201
                                        
                                        
                                        $
                                        37,749,473


Also,
during the six months ended June 30, 2009, the Company reversed deferred
compensation of $16,624, representing 2,000 shares issued in January 2006 due to
the termination of a Stock Bonus Plan participant prior to vesting in the
shares.





10





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
7.  Share Based Compensation





Employee
Stock Options





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





Stock
Bonus Plan





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





A summary of the non-vested stock under
the Stock Bonus Plan at June 30, 2009 follows:




Non-Vested
                                    Shares
                                  
                                  
                                  Weighted Average Grant
      Date
                                    Fair ValueNon-vested at December 31,
      2008
                                  
                                  
                                  70,000
                                  
                                  
                                  $7.61Stock
    Granted
                                  
                                  
                                  -
                                  
                                  
                                  -Stock
Vested
                                  
                                  
                                  (31,500
                                  )
                                  
                                  8.23Stock
    Forfeited
                                  
                                  
                                  (2,000
                                  )
                                  
                                  8.31Non-vested at June 30,
      2009
                                  
                                  
                                  36,500
                                  
                                  
                                  $7.03





Unamortized deferred compensation of
$48,732 will be amortized over the weighted average remaining term of 0.68
years.  As discussed in Note 1, the Company is currently in Chapter 11
and its common stock was delisted in March 2009.  Therefore, the
Company cannot currently ascribe a value to the non-vested stock under the Stock
Bonus Plan.





Note
8. Related Party Transactions





In prior
years the Company’s wholly owned subsidiary, Genesis Investment Group, Inc.
(“Genesis”), sold Vacation Ownership Interests to Premiere Vacation Club
homeowners’ association, an Arizona nonprofit corporation
(“PVC”).  PVC purchased the intervals at $2,415 per interval, the same
price at which it has historically acquired intervals in arms-length
negotiations with unaffiliated third parties.  PVC is owned by the
holders of its vacation ownership interests, including the
Company.  At June 30, 2009, deeds of trust for 623 of the Vacation
Ownership Interests secure outstanding indebtedness from PVC to Genesis of
$1,397,888 which is included in notes receivable.  Genesis is one of
the subsidiaries that filed a voluntary petition under Chapter 11 of the
Bankruptcy Code.





11





ILX
RESORTS INCORPORATED AND SUBSIDIARIES


(Debtor
and Debtor-in-Possession as of March 2, 2009)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





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 June
30, 2009.  ILX-Bruno is included in the Company’s condensed
consolidated financial statements as of June 30, 2009 with Bruno’s capital
contributions net of operating losses included as noncontrolling interest in
subsidiary on the accompanying condensed consolidated balance
sheet.  ILX-Bruno is one of the entities that filed a voluntary
petition under Chapter 11 of the Bankruptcy Code.





In April
2008, Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and PVC
entered into loan agreements to borrow up to $350,000 and $900,000,
respectively, at an interest rate of 6.15% to finance renovations and the
purchase of certain equipment.  The borrowings have a maturity date of
March 31, 2011.  ILX Resorts Incorporated has guaranteed the
borrowings, including interest, for both SVC and PVC and has entered into a
Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee
of 1% of the maximum principal amount under the loan agreements.  The
amounts outstanding under the loan agreements as of June 30, 2009 are $833,333
and all payments are current.





Note
9. Commitments and Contingencies





Legal
Proceedings





As discussed in Note 1, the Company and
certain of its subsidiaries and limited liability companies are debtors in
possession in the Chapter 11 case.





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





12





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS








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





The following discussion of the
Company’s financial condition and results of operations includes certain
forward-looking statements.  When used in this Form 10-Q, the words
“estimate,” “projection,” “intend,” “anticipates,” “expects,” “may,” “should”
and similar terms are intended to identify forward-looking statements that
relate to the Company’s future performance.  Actual results could
differ materially from these forward-looking statements as a result of a number
of factors, including, but not limited to, the Company’s need for additional
financing, intense competition in various aspects of its business, the risks of
rapid growth, its dependence on key personnel, general economic conditions,
government and regulatory actions, the impact of our announcement of our
voluntary filing under Chapter 11 of the United States Bankruptcy Code, the
ability to continue as a going concern, the ability to obtain court approval of
our motions in the Chapter 11 proceedings, our ability to develop, pursue,
confirm and consummate one or more plans of reorganization with respect to the
Chapter 11 cases, our ability to obtain and maintain normal terms with vendors
and service providers and other factors discussed in this document and in the
Company’s public filings with the Securities and Exchange Commission.Readers are cautioned not to place
undue reliance on the forward-looking statements set forth below.  The
Company undertakes no obligation to publicly update or revise any of the
forward-looking statements contained herein.





Overview





ILX
Resorts Incorporated (“ILX” or the “Company”) is one of the leading developers,
marketers and operators of timeshare resorts in the western United States and
Mexico.  The Company’s principal operations consist of (i) acquiring,
developing and operating timeshare resorts marketed by the Company as vacation
ownership resorts, (ii) marketing and selling vacation ownership interests in
the timeshare resorts, which typically have entitled the buyers thereof to
ownership of a fully-furnished unit for a one-week period on either an annual or
an alternate year (i.e., bienniel) basis (“Vacation Ownership Interests”), and
(iii) providing purchase money financing to the buyers of Vacation Ownership
Interests at its resorts.  In addition, the Company receives revenues
from the rental of unused or unsold inventory of units at its vacation ownership
resorts, and from the sale of food, beverages and other services at such
resorts.  The Company’s current portfolio of resorts consists of seven
resorts in Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico,
land in Puerto Penãsco (Rocky Point), Mexico and land in Sedona, Arizona
(collectively, the “ILX Resorts”).  The Company also owns 2,241
Vacation Ownership Interests in a resort in Las Vegas, Nevada, 2,233 of which
have been annexed into Premiere Vacation Club, 194 Vacation Ownership Interests
in a resort in Pinetop, Arizona, all of which have been annexed into Premiere
Vacation Club and 174 Vacation Ownership Interests in a resort in Phoenix,
Arizona, all of which have been annexed into Premiere Vacation
Club.  On March 2, 2009, the Company and certain of its subsidiaries
and limited liability companies filed for relief under Chapter 11 of the United
States Bankruptcy Court for the District of Arizona as discussed under Note 1 in
this Report on Form 10-Q.





Significant
Accounting Policies





Principles
of Consolidation and Business Activities





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





The
accompanying condensed consolidated balance sheet as of December 31, 2008, which
has been derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Registration S-X.  Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements.  In
the opinion of management, all adjustments
and reclassifications considered necessary for a fair and comparable
presentation have been included and are of a normal recurring
nature.  Operating results for the six-month period ended June 30,
2009 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2009.  The accompanying financial
statements should be read in conjunction with the Company’s most recent audited
financial statements.




13





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








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





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 Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards 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 was effective for the Company as of
January 1, 2008.  In February 2008, the FASB issued FASB Staff
Position No. 157-2; which extended the effective date to fiscal years beginning
after November 15, 2008.  Adoption of this standard did not cause a
material change in financial position or results of operations.





In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141(R)BusinessCombinations(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 were effective for fiscal years
beginning on or after December 15, 2008.  The adoption of these
standards did not have a material effect on the Company’s financial position or
results of operations.





In December 2007, the FASB ratified
Emerging Issues Task Force (EITF) Issue No. 07-1,Accounting for
Collaborative Arrangements(EITF 07-1). EITF 07-1 defines
collaborative arrangements and establishes reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. EITF 07-1 also establishes
the appropriate income statement presentation and classification for joint
operating activities and payments between participants, as well as the
sufficiency of the disclosures related to these arrangements. EITF 07-1 was
effective for fiscal years beginning after December 15, 2008.The
adoption of this EITF did not have a material effect on the Company’s financial
position or results of operations.





14





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








In
February 2008, the FASB issued FASB Staff Position (FSP) FAS No. 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions (FSP FAS 140-3).
FSP FAS 140-3 requires an initial transfer of a financial asset and a repurchase
financing that was entered into contemporaneously or in contemplation of the
initial transfer to be evaluated as a linked transaction under SFAS No. 140
unless certain criteria are met, including that the transferred asset must be
readily obtainable in the marketplace. FSP FAS 140-3 was effective for fiscal
years beginning after November 15, 2008, and was to be applied to new
transactions entered into after the date of adoption. The adoption of this FSP
did not have a material effect 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 was effective for fiscal years beginning on or
after November 15, 2008. The adoption of this standard did not have a material
effect on the Company’s financial position or results of
operations.





In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(FSP EITF 03-6-1). FSP EITF 03-6-1 clarified that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1
was effective for fiscal years beginning after December 15, 2008. The adoption
of this EITF did not have a material effect on the Company’s financial position
or results of operations.





In
December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8,
Disclosures by Public Entities
(Enterprises) about Transfers of Financial Assets and Interests in Variable
Interest Entities ("FSP FAS 140-4 and FIN 46(R)-8"). FSP FAS 140-4 and
FIN 46(R)-8 amends SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities and FIN
46(R), FASB Interpretation No.
46 (R), Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, to require public entities to
provide additional disclosures about transfers of financial assets and their
involvement with variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 were
effective for the first interim or annual reporting period ending after December
15, 2008. The adoption of these standards did not have a material effect on the
Company’s financial position or results of operations.





In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1 (collectively, “FSP FAS 107-1”), Interim Disclosures about Fair Value
of Financial Instruments.  FSP FAS 107-1 amends SFAS No. 107,
Disclosures about Fair Value
of Financial Instruments, to require an entity to provide disclosures
about fair value of financial instruments in interim financial
information.  The FSP FAS 107-1 also amends APB Opinion No. 28, Interim Financial Reporting,
to require those disclosures about the fair value of financial instruments in
summarized financial information at interim reporting periods.  Under
FSP FAS 107-1, the Company will be required to include disclosures about the
fair value of its financial instruments whenever it issues financial information
for interim reporting periods.  In addition, the Company will be
required to disclose in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods, the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial
position.  FSP FAS 107-1 is effective for periods ending after June
15, 2009 and the adoption did not have a material impact on the Company’s
financial position or results of operations.





In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165 Subsequent Events (SFAS
165).  SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  SFAS
165 was effective for interim and annual periods ending after June 15,
2009.  The adoption of this standard did not have a material effect on
the Company’s financial position or results of operations.





15





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








In June
2009, the FASB issued Statement of Financial Accounting Standards No. 167 Amendments to FASB Interpretation
No. 46(R) (SFAS 167).  SFAS 167 was adopted to improve
financial reporting by enterprises involved with variable interest entities by
addressing certain aspects of Interpretation 46(R) including the effect of
Statement of Financial Accounting Standards No. 166 Accounting for Transfers of
Financial Assets.SFAS 167 is effective for annual reporting
periods beginning after November 15, 2009.  Earlier adoption is
prohibited.  The adoption of this standard is not expected to have a
material effect on the Company’s financial position or results of
operations.





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162(SFAS 168) which establishes the
FASB Accounting Standards Codification TM (Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP.  Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants.  This
Statement shall be effective for financial statements issued for interim and
annual periods ending after September 15, 2009.  On the effective date
of the Statement, all then-existing non-SEC accounting and reporting standards
are superseded, except as noted within SFAS 168.  Concurrently, all
nongrandfathered, non-SEC accounting literature not included in the Codification
is deemed non-authoritative with some exceptions as noted within the
literature.  We do not anticipate that this pronouncement will have a
material impact on our results of operations or financial
position.





16





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)




Results
of Operations





The following table sets forth certain
operating information for the Company:




Three Months
      Ended
                                      
                                      
                                      Six Months
      EndedJune 30,
                                      
                                      
                                      June 30,2008
                                      
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      2009As a percentage of total
      revenues:Sales of Vacation Ownership
      Interests
                                      
                                      
                                      47.6
                                      %
                                      
                                      
                                      43.8
                                      %
                                      
                                      
                                      49.0
                                      %
                                      
                                      
                                      41.9
                                      %Estimated uncollectible
      revenue
                                      
                                      
                                      (2.1
                                      %)
                                      
                                      
                                      (2.5
                                      %)
                                      
                                      
                                      (2.1
                                      )%
                                      
                                      
                                      (2.4
                                      )%Resort operating
      revenue
                                      
                                      
                                      46.9
                                      %
                                      
                                      
                                      53.7
                                      %
                                      
                                      
                                      46.2
                                      %
                                      
                                      
                                      54.7
                                      %Interest and finance
      income
                                      
                                      
                                      7.6
                                      %
                                      
                                      
                                      5.0
                                      %
                                      
                                      
                                      6.9
                                      %
                                      
                                      
                                      5.8
                                      %Total
    revenues
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      100.0
                                      %As a percentage of sales of
      Vacation Ownership Interests(1):Cost of Vacation Ownership
      Interests sold
                                      
                                      
                                      13.9
                                      %
                                      
                                      
                                      13.7
                                      %
                                      
                                      
                                      13.6
                                      %
                                      
                                      
                                      13.6
                                      %Sales and
      marketing
                                      
                                      
                                      75.3
                                      %
                                      
                                      
                                      58.3
                                      %
                                      
                                      
                                      75.9
                                      %
                                      
                                      
                                      72.4
                                      %Contribution margin percentage
      from sale of Vacation Ownership Interests(2)
                                      
                                      
                                      10.8
                                      %
                                      
                                      
                                      28.0
                                      %
                                      
                                      
                                      10.5
                                      %
                                      
                                      
                                      14.0
                                      %As a percentage of resort
      operating revenue:Cost of resort
      operations
                                      
                                      
                                      86.5
                                      %
                                      
                                      
                                      73.2
                                      %
                                      
                                      
                                      88.7
                                      %
                                      
                                      
                                      78.7
                                      %As a percentage of total
      revenues(1):General and
      administrative
                                      
                                      
                                      13.4
                                      %
                                      
                                      
                                      13.0
                                      %
                                      
                                      
                                      14.7
                                      %
                                      
                                      
                                      14.7
                                      %Depreciation and
      amortization
                                      
                                      
                                      2.5
                                      %
                                      
                                      
                                      2.8
                                      %
                                      
                                      
                                      2.8
                                      %
                                      
                                      
                                      3.2
                                      %Total operating income
      (loss)
                                      
                                      
                                      3.2
                                      %
                                      
                                      
                                      15.3
                                      %
                                      
                                      
                                      (0.2
                                      )%
                                      
                                      
                                      5.2
                                      %Selected operating
      data:Vacation Ownership Interests sold(3)
      (4)
                                      
                                      
                                      256
                                      
                                      
                                      
                                      233
                                      
                                      
                                      
                                      471
                                      
                                      
                                      
                                      393Average sales price per Vacation
      Ownership Interest sold (excluding revenues from
      Upgrades)(4)
                                      
                                      $
                                      16,687
                                      
                                      
                                      $
                                      14,029
                                      
                                      
                                      $
                                      17,294
                                      
                                      
                                      $
                                      14,319Average sales price per Vacation
      Ownership Interest sold (including revenues from
      Upgrades)(4)
                                      
                                      $
                                      20,772
                                      
                                      
                                      $
                                      16,877
                                      
                                      
                                      $
                                      22,195
                                      
                                      
                                      $
                                      17,519





(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 382 and 314 biennial and annual Vacation Ownership
Interests for the three months ended June 30, 2008 and 2009, respectively and
730 and 544 biennial and annual Vacation Ownership Interests for the six months
ended June 30, 2008 and 2009, respectively.  Excludes the number of
conversions and upgrades.











17




MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION
AND RESULTS OF OPERATIONS
 (CONTINUED)


Comparison
of the Three and Six Months Ended June 30, 2008 to the Three and Six Months
Ended June 30, 2009




Sales of
Vacation Ownership Interests decreased 26.9% or $1,400,754 to $3,809,331 for the
three months ended June 30, 2009, from $5,210,085 for the same period in 2008
and decreased 34.7% or $3,557,999 to $6,694,247 for the six months ended June
30, 2009 from $10,252,246 for the same period in 2008.  The decrease
reflects reduced sales at all sales offices.  As part of a
comprehensive expense reduction program, the Company closed three of its sales
offices in January 2009.  The decreased revenue is the result of these
closures as well as decreased average sales prices discussed below and lower
closing rates and tours at the Tucson sales office due to general economic
conditions and the impact of the Chapter 11 filing by the Company.





The
average sales price per Vacation Ownership Interest sold (excluding revenues
from Upgrades) decreased 15.9% or $2,658 to $14,029 for the three months ended
June 30, 2009 from $16,687 for the same period in 2008 and decreased 17.2% or
$2,975 to $14,319 for the six months ended June 30, 2009 from $17,294 for the
same period in 2008.  The decrease in average sales price is due to a
change in the product mix sold and special promotional pricing following the
Company’s Chapter 11 filing.  The number of Vacation Ownership
Interests sold decreased 9.0% from 256 in the three months ended June 30, 2008
to 233 for the same period in 2009 and decreased 16.6% from 471 for the six
months ended June 30, 2008 to 393 for the same period in 2009 primarily due to
the closure of the three sales offices and decreased closing rates at the Tucson
sales office discussed above.  The three and six months ended June 30,
2009 included 162 and 303 biennial Vacation Ownership Interests (counted as 81
and 151.5 annual Vacation Ownership Interests) compared to 253 and 518 biennial
Vacation Ownership Interests (counted as 126.5 and 259 annual Vacation Ownership
Interests) in the same period in 2008.





Upgrade
revenue, included in Vacation Ownership Interest sales, decreased 36.4% to
$663,591 for the three months ended June 30, 2009 from $1,043,817 for the same
period in 2008 and decreased 45.6% to $1,255,861 for the six months ended June
30, 2009 from $2,308,236 for the same period in 2008.  The decrease in
2009 reflects decreased marketing efforts to existing owners in Sedona and
Tucson.  Upgrades often do not involve the sale of additional Vacation
Ownership Interests (merely their exchange) and, therefore, such Upgrades
increase the average sales price per Vacation Ownership Interest
sold.  The average sales price per Vacation Ownership Interest sold
(including upgrades) decreased 18.8% or $3,895 to $16,877 for the three months
ended June 30, 2009 from $20,772 in 2008 and decreased 21.1% or $4,676 to
$17,519 for the six months ended June 30, 2009 from $22,195 in
2008.  These decreases are due to the combination of the decrease in
average sales price per Vacation Ownership Interest sold (excluding Upgrades)
described above and the reduction in Upgrade revenue.





Resort
operating revenue decreased 7.8% to $4,950,840 for the three months ended June
30, 2009, from $5,368,230 for the same period in 2008 and decreased 8.5% to
$9,250,256 for the six months ended June 30, 2009 from $10,104,115 for the same
period in 2008.  The decrease for the three and six months ended June
30, 2009 reflects the closure of the Los Abrigados Lodge, decreased occupancy at
the Company’s resorts and decreased average daily rate at certain of the
Company’s Sedona and Tucson resorts.  Cost of resort operations as a
percentage of resort operating revenue decreased from 86.5% to 73.2% for the
three months ended June 30, 2009 and decreased from 88.7% to 78.7% for the six
months ended June 30, 2009 reflecting expense reduction measures put in place in
the first quarter 2009 as well as the closure of the Los Abrigados Lodge in
March 2009.  The Los Abrigados Lodge operated under a long term lease
agreement that was rejected as part of the Chapter 11 proceedings and was mainly
used to house tour guests and had minimal revenue from other
sources.





Interest
and finance income decreased 46.7% to $465,328 for the three months ended June
30, 2009 from $873,181 for the same period in 2008 and decreased 35.8% to
$974,677 for the six months ended June 30, 2009 from $1,518,612 for the same
period in 2008, reflecting decreased Customer Note balances, a reduction in
notes sold due to the expiration of the agreement in June 2008 with a financial
institution to sell Customer Notes and a greater portion of Customer Notes being
zero-interest one year maturities.





18





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








Cost of
Vacation Ownership Interests sold as a percentage of Vacation Ownership Interest
sales was consistent at 13.7% and 13.9% for the three months ended June 30, 2009
and 2008 and 13.6% for the six months ended June 30, 2009 and 2008,
respectively.





Sales and
marketing as a percentage of sales of Vacation Ownership Interests decreased to
58.3% for the three months ended June 30, 2009 from 75.3% for the same period in
2008 and decreased to 72.4% for the six months ended June 30, 2009 from 75.9%
for the same period in 2008, reflecting lower marketing costs per tour and
reduced sales office expenses.  Sales of Vacation Ownership Interests
are reduced by estimated uncollectible revenue.  Sales and marketing
as a percentage of gross sales of Vacation Ownership Interests decreased to
55.1% and 68.3% for the three and six months ended June 30, 2009 respectively
from 72.0% and 72.5% for the same periods in the prior year.  The
significant reduction between second quarter 2008 and 2009 reflects the
rejection of leases for less effective marketing venues and other cost cutting
strategies as well as tour flow in the second quarter from telemarketing efforts
in the first quarter prior to elimination of certain of these
programs.





General
and administrative expenses decreased to 13.0% of total revenue for the second
quarter ended June 30, 2009, from 13.4% for the same period in 2008 and was
consistent at 14.7% for the six months ended June 30, 2009 and 2008,
respectively.  The percentage decreases reflect reductions in
professional fees related to the Greens of Las Vegas lawsuit settled in 2008 and
employee benefit plans, a decrease in salaries and related benefits as a result
of a reduction in force and comprehensive salary reductions in January 2009 as
well as a decrease in rent and other expenses resulting from the rejection of a
lease as part of the Bankruptcy filing as discussed in Note 1.





Income
from land and other, net decreased to $9,995 and $23,322 for the three and six
months ended June 30, 2009, respectively from $12,448 and $46,178 for the same
periods in 2008.  Income from land and other, net for the six months
ended June 30, 2008 included a gain of $30,295 on the sale of vacation ownership
interests to PVC by Genesis.





Interest
expense increased 9.1% to $702,702 for the three months ended June 30, 2009 from
$643,893 for the same period in 2008 and increased 4.3% to $1,365,953 for the
six months ended June 30, 2009 from $1,309,717 for the same period in 2008,
reflecting reductions in rate on variable rate borrowing and lower outstanding
balances, net of reduced capitalized interest.





Reorganization
items include loss on disposal of facilities and other and professional
fees.  The loss on disposal of facilities and other includes the
write-off of lease acquisition costs, deposits, leasehold improvements and other
items related to the rejection of seven unexpired leases as well as trustee
fees.  Professional fees are expenses for expert counsel.





Liquidity
and Capital Resources





Sources
of Cash





The
Company generates cash primarily from the sale of Vacation Ownership Interests
(including Upgrades), from the financing of Customer Notes from such sales and
from resort operations.  Because the Company uses significant amounts
of cash in the development and marketing of Vacation Ownership Interests, but
collects the cash on the Customer Notes receivable over a long period of time,
borrowing against and/or selling receivables is necessary to provide sufficient
cash to fund its normal operations.  The Company is currently unable
to borrow under its facility, but does have the use of cash collateral generated
by customer payments under a motion granted by the Bankruptcy
Court.





For the
six months ended June 30, 2009 cash provided by operations was $867,690 as
compared to cash used in operations of $97,954 for the six months ended June 30,
2008.  The increase in cash provided by operations reflects a
reduction in net loss, a net decrease in resort property under development and
resort property held for Vacation Ownership Interest sales due to greater
additions in 2008 for the expansion of Premiere Vacation Club at Bell Rock and
the Winner’s Circle suites at Los Abrigados, and an increase in accounts payable
due to non payment of pre-petition amounts. These are offset by a smaller
decrease in notes receivable and an increase in other assets for a cash reserve
retained by the Company’s credit card processor.





19





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








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.





Uses
of Cash





Investing
activities typically reflect a net use of cash because of capital
additions.  Net cash used in investing activities was $88,396 and
$490,196 for the six months ended June 30, 2009 and 2008,
respectively.  The decrease in net cash used in investing activities
in 2009 is due to reduced ILX-Bruno capital expenditures for projects in
Sedona.





Net cash
used in financing activities in the six months ended June 30, 2009 was
$1,523,707 as compared to net cash provided by financing activities of $517,395
for the six months ended June 30, 2008.  The decrease in cash provided
by financing activities is due to the post petition discontinuation of advances
against new consumer notes, net of the repayment in 2008 of a note payable to
affiliates and the post petition use of cash collateral for operations rather
than for debt service.





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





Although
the Company is not currently obligated to replace delinquent Customer Notes due
to the Chapter 11 stay, historically customer defaults have had a significant
impact on cash available to the Company from financing Customer Notes receivable
and continue to effect the Company’s cash flow to the extent customer payments
are not collected as scheduled.





Credit
Facilities and Capital





The
Company has a financing commitment aggregating $20 million whereby the Company
borrowed against notes receivable pledged as collateral.  These
borrowings bear interest at a rate of prime plus 1.5%.  The $20
million commitment has a borrowing period which expires in December 2009 and the
maturity is in January 2013.  At June 30, 2009, approximately $8.5
million was available under this commitment.However, the Company may
not currently borrow on this facility due to its March 2, 2009 filing under
Chapter 11 of the United State Bankruptcy Code.





At June
30, 2009 and 2008, the Company had approximately $5.4 million and $8.8 million,
respectively, in outstanding notes receivable sold on a recourse
basis.  A small portion of the notes receivable are secured by
customer deeds of trust on Los Abrigados Resort & Spa and
VCA–Tucson.





In
January 2009, the Company amended an existing line of credit to reduce the
borrowing limit to $750,000 and change the interest rate to libor plus 3.84%,
but not less than 4.25%, from prime plus 1.0%.





20





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








On March
1, 2009 a Loan and Security Agreement in the original amount of $5.0 million
with Textron Financial Corporation (the “Lender”) was terminated.  The
loan’s original maturity date was December 31, 2008 but was extended to February
28, 2009 by two separate letter agreements.  The outstanding principal
balance on the loan was $4,577,874 as of March 1, 2009.  The Company
and the Lender were unable to reach a mutually acceptable longer term extension
of the loan.  The loan is secured by an assignment of a Promissory
Note to the Company and a Deed of Trust from an affiliated limited liability
company securing approximately 14 acres of land in Sedona, Arizona.





The
Company is not in compliance with certain of its loan covenants which include
Debt Service Coverage Ratios and a Tangible Net Worth ratio.  In
addition, the March 2009 Chapter 11 filing constitutes an event of default under
the Company’s loan agreements.





As part
of its reorganization, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the
above.  Any debt incurred or issued by the Company may be secured or
unsecured, may bear interest at fixed or variable rates of interest, and may be
subject to such terms as management deems prudent and Bankruptcy Court
approval.  There is no assurance that the Company will be able to
secure additional corporate debt or equity at or beyond current levels or that
the Company will be able to maintain its current level of debt.





The
Company continues to assess its liquidity position due to its reorganization
status, the scarcity of capital and uncertainty of the credit markets, current
economic conditions, sales challenges as a result of the foregoing and the
expenses associated with the Chapter 11 Bankruptcy proceedings.





Off-Balance
Sheet Arrangements





In April
2008, the Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and
PVC entered into loan agreements to borrow up to $350,000 and $900,000,
respectively, at an interest rate of 6.15% to finance renovations and the
purchase of certain equipment for resort operations.  The borrowings
have a maturity date of March 31, 2011.  The Company has guaranteed
the borrowings, including interest, for both SVC and PVC and has entered into a
Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee
of 1.0% of the maximum principal amount under the loan
agreements.  The amounts outstanding under the loan agreements as of
June 30, 2009 were $833,333 and all payments are current.





Seasonality





The
Company’s revenues are moderately seasonal with the volume of ILX owners, hotel
guests and Vacation Ownership Interest exchange participants typically greatest
in the second and third fiscal quarters.  Also impacting revenues are
inclement weather, 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 six months ended June 30, 2009.  However, to the
extent inflationary trends affect interest rates, a portion of the Company’s
debt service costs may be affected as well as the rates the Company charges on
its Customer Notes.





Item
3. Quantitative and Qualitative Disclosures about Market Risk





The
Company currently derives a portion of income from the spread between the
interest rates charged to customers and the interest rates at which it borrows
against customer notes.  The Company’s indebtedness bears interest at
variable rates while the retained customer notes bear interest at fixed
rates.  As a result, increases in interest rates could cause interest
expense to exceed interest income on the Company’s portfolio of retained
customer notes.  The Company does not currently engage in interest
rate hedging transactions.  Therefore, any change in the prime
interest rate could have a material effect on results of operations, liquidity
and financial position.  If there were a one-percentage point change
in the prevailing prime rate at June 30, 2009, then based on the $17.9 million
balance of variable rate debt at June 30, 2009, interest expense would increase
or decrease by approximately $179,000 (before income taxes) per
annum.





21





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 June 30, 2009 was completed based on criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).  Based on this evaluation, the principal
executive officer and principal financial officer concluded that the Company’s
disclosure controls and procedures are functioning effectively.





(b)  Changes
in Internal Control over Financial Reporting





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





Part
II





Item
      1.
            Legal
      Proceedings





As
discussed in Note 1, the Company and certain of its subsidiaries and limited
liability companies are debtors in possession in the Chapter 11
case.





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





Item
      1A.
            Risk
      Factors





The
description of the risk factor labeled WE MAY NOT BE ABLE TO FINANCE OUR GROWTH
which was disclosed in the Company’s Form 10-K for the year ended December 31,
2008 should be revised and read as follows:





22





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)








We intend
to selectively acquire and develop new vacation ownership resorts and may
continue to expand our existing resorts. Our long term plans may include
development of some or all of the land we currently own, which includes land in
Sedona, adjacent to our Los Abrigados Resort and land in Puerto Penasco (“Rocky
Point”) Mexico.  Acquiring and/or developing new resorts, or expansion
of existing resorts will place substantial demands on our liquidity and capital
resources, as well as on our personnel and administrative capabilities. Risks
associated with our development and construction activities include, but are not
limited to, the following:





·
            construction
      costs or delays may exceed original estimates, which could make the
      development or expansion uneconomical or
  unprofitable;




·
            sales
      of Vacation Ownership Interests or other revenue from newly completed
      facilities may not be sufficient to make the resort or development
      profitable;




·
            financing
      may not be available on terms favorable for development of a project, if
      at all,




·
            financing
      may not be available on terms favorable for the continued sales
      of  Vacation Ownership Interests, if at all;
  and




·
            carrying
      costs, including the cost of capital, may make holding land for future
      development unsustainable.




We cannot
provide assurance that adequate financing for this or other future development
projects will be available on terms and conditions favorable to our company, if
at all.  Our ability to obtain needed financing and to repay any
indebtedness at maturity may depend on refinancing or future sales of debt or
equity, which may not be available on terms favorable to our company, if at all.
Factors that could affect our access to the capital markets, or the cost of such
capital, include the following:





·
            condition
      of the capital markets,





·
            changes
      in interest rates,




·
            general
      economic conditions,




·
            the
      threat of war or terrorist
activities,




·
            our
      voluntary filing under Chapter 11 of the United States Bankruptcy
      Code




·
            the
      perception in the capital markets of the vacation ownership industry, our
      business, and our business
prospects,




·
            our
      results of operations, and




·
            the
      amount of debt we have outstanding and our financial
      condition.




The
description of the risk factor labeledOUR STOCK IS NOT LISTED
ON A PUBLIC EXCHANGE, WHICH MAY NEGATIVELY IMPACT ITS LIQUIDITY AND PRICE which
was disclosed in the Company’s Form 10-K for the year ended December 31, 2008
should be revised to read as follows:
 
 As a
result of our filing under Chapter 11 of the United States Bankruptcy Code,
trading in our common stock was halted on March 2, 2009 and the stock was
delisted from NYSE AMEX on March 13, 2009.  Although we sought a
market maker to enable our common stock to be quoted on the automated Pink Quote
system, we were not successful in doing so.  Because our stock is not
quoted on an exchange or interdealer quotation system, market transparency is
diminished and execution of orders is more difficult, which may negatively
impact the price of our stock.




23





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS


(CONTINUED)





The
description of the risk factor labeled WE MAY NOT SUCCESSFULLY EMERGE FROM
CHAPTER 11 which was disclosed in the Company’s Form 10-K for the year ended
December 31, 2008 should be revised to read as follows:





On March
2, 2009 we filed a voluntary petition for protection from creditors under
Chapter 11 of the United States Bankruptcy Code.  We have filed
certain motions to extend exclusivity and intend to file a plan of
reorganization on or before August 31, 2009 and seek confirmation of that plan
from our creditors and the court.  There can be no assurance that we
will be successful in obtaining plan confirmation or of the effect of such a
plan, if confirmed, on the value of the stock.  If our plan is not
confirmed, we could risk conversion to a Chapter 7 filing or dismissal, which
could adversely affect the value of our stock.





There are
no other material changes from risk factors as previously disclosed in the
Company’s Form 10-K for the year ended December 31, 2008.





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




Item
      3.
            Defaults
      Upon Senior Securities





As a
result of the Chapter 11 filing, the Company is in default on substantially all
of its debt obligations.  The Company also did not make its annual
dividend payment of $46,788 to Series A Preferred Stock
Shareholders.





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




Item
      5.
              Other
      InformationNone




Item
      6.
              Exhibits(i)         
       Exhibits




Exhibit
      No.
              Description31
              CERTIFICATION
      PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT 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





24





SIGNATURES














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











ILX
RESORTS INCORPORATED


(Registrant)











/s/
      Joseph P. 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 August 12, 2009






25