SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

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


For The Quarter Ended September 30, 1998        Commission File Number 001-13855
                      ------------------                               ---------


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


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


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


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

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

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

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

           CLASS                               OUTSTANDING AT SEPTEMBER 30, 1998
-------------------------------                ---------------------------------
Common Stock, without par value                         4,097,593 shares
<PAGE>
                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                    ILX RESORTS INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                  December 31,     September 30,
                                                     1997              1998
                                                     ----              ----
                                                                    (Unaudited)
                                     ASSETS
  Cash and cash equivalents                      $  3,226,038      $  1,650,200
  Notes receivable, net                            15,861,621        18,910,291
  Resort property held for Vacation
    Ownership Interest sales                       14,666,658        20,881,974
  Resort property under development                 2,943,936           147,631
  Land held for sale                                1,557,498         1,593,009
  Deferred assets                                     289,009           264,048
  Property and equipment, net                       3,472,899         4,251,823
  Deferred income taxes                               304,430                --
  Other assets                                      1,400,224         1,496,604
                                                 ------------      ------------

    TOTAL ASSETS                                 $ 43,722,313      $ 49,195,580
                                                 ============      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
  Accounts payable                               $  2,830,375      $  1,740,263
  Accrued and other liabilities                     2,220,566         1,690,413
  Notes payable                                    19,884,479        17,508,694
  Notes payable to affiliates                       2,166,100         1,620,557
  Income taxes payable                                     --           174,320
                                                 ------------      ------------

    Total liabilities                              27,101,520        22,734,247
                                                 ------------      ------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

  Preferred stock, $10 par value; 10,000,000
   shares authorized; 380,468 shares issued
   and outstanding; liquidation preference
   of $3,804,680                                    1,384,891         1,384,891
  Common stock, no par value; 30,000,000
   shares authorized; 2,692,433 and
   4,332,533 shares issued                         10,267,667        19,819,477
  Treasury stock, at cost, 103,060 and
   234,940 shares                                    (652,587)       (1,040,456)
  Additional paid in capital                           79,450            79,450
  Retained earnings                                 5,541,372         6,217,971
                                                 ------------      ------------

    Total shareholders' equity                     16,620,793        26,461,333
                                                 ------------      ------------

      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,722,313      $ 49,195,580
                                                 ============      ============

                 See notes to consolidated financial statements

                                       2
<PAGE>
                    ILX RESORTS INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED         NINE MONTHS ENDED
                                                 SEPTEMBER 30,              SEPTEMBER 30,
                                          -----------------------    -------------------------
                                              1997        1998           1997         1998
                                              ----        ----           ----         ----
<S>                                       <C>          <C>           <C>           <C>
Timeshare Revenues:
  Sales of Vacation Ownership
    Interests                             $6,812,548   $5,633,797    $17,750,423   $16,881,611
  Resort operating revenue                 2,770,829    3,342,697      8,000,593     8,929,975
  Interest income                            414,482      810,098        973,236     1,743,771
                                          ----------   ----------    -----------   -----------
    Total timeshare revenues               9,997,859    9,786,592     26,724,252    27,555,357
                                          ----------   ----------    -----------   -----------
Cost of Sales and Operating Expenses:
  Cost of Vacation Ownership
  Interests sold                             852,314      739,509      2,369,296     2,347,826
  Cost of resort operations                2,672,365    3,157,149      7,938,745     8,705,876
  Sales and marketing                      4,095,069    4,169,458     10,237,066    10,989,279
  General and administrative                 703,731      842,848      2,003,106     2,120,528
  Provision for doubtful accounts            208,759      168,586        526,352       498,768
  Depreciation and amortization              137,494       99,706        345,145       284,216
                                          ----------   ----------    -----------   -----------
Total cost of sales and operating
  expenses                                 8,669,732    9,177,256     23,419,710    24,946,493
                                          ----------   ----------    -----------   -----------

Timeshare operating income                 1,328,127      609,336      3,304,542     2,608,864
                                          ----------   ----------    -----------   -----------

Income from land and other, net                7,001        4,435         16,585        21,975
                                          ----------   ----------    -----------   -----------

Total operating income                     1,335,128      613,771      3,321,127     2,630,839

Interest expense                             564,710      515,111      1,500,472     1,422,244
                                          ----------   ----------    -----------   -----------
Income before income taxes and
minority interests                           770,418       98,660      1,820,655     1,208,595

Income tax expense                          (303,845)     (39,000)      (656,302)     (484,000)
                                          ----------   ----------    -----------   -----------

Income before minority interests             466,573       59,660      1,164,353       724,595
                                          ----------   ----------    -----------   -----------

Minority interests                            (9,554)          --       (178,307)           --
                                          ----------   ----------    -----------   -----------

NET INCOME                                $  457,019   $   59,660    $   986,046   $   724,595
                                          ==========   ==========    ===========   ===========
NET INCOME PER SHARE
  Basic                                   $     0.16   $     0.01    $      0.35   $      0.18
                                          ==========   ==========    ===========   ===========
  Diluted                                 $     0.16   $     0.01    $      0.35   $      0.18
                                          ==========   ==========    ===========   ===========
</TABLE>
                 See notes to consolidated financial statements

                                       3
<PAGE>
                    ILX RESORTS INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                         NINE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                     -------------------------
                                                         1997          1998
                                                         ----          ----
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                          $   986,046   $   724,595
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Undistributed minority interest                        178,032            --
  Deferred income taxes                                  414,204       478,750
  Provision for doubtful accounts                        526,352       498,768
  Depreciation and amortization                          345,145       284,216
  Amortization of guarantee fees                          67,150        39,075
  Gain on early extinguishment of note payable                --      (200,000)
  Change in assets and liabilities:
   Decrease (increase) in resort property held
    for Vacation Ownership Interest sales              1,016,760    (3,419,011)
   (Decrease) in resort property under development      (518,127)           --
   Increase in land held for sale                         (3,572)      (35,511)
   Increase in other assets                              (11,637)     (114,830)
   Decrease in accounts payable                         (390,843)   (1,090,112)
   Increase (decrease) in accrued and other
    liabilities                                          357,065      (331,032)
                                                     -----------   -----------
Net cash provided by (used in) operating
 activities                                            2,966,575    (3,165,092)
                                                     -----------   -----------
Cash flows from investing activities:
  Notes receivable, net                               (4,429,967)   (3,547,438)
  Increase in deferred assets                            (67,617)      (14,114)
  Purchases of property and equipment, net              (492,988)   (1,044,690)
  Net cash paid for minority interest                   (820,000)           --
                                                     -----------   -----------
Net cash used in investing activities                 (5,810,572)   (4,606,242)
                                                     -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                          6,208,386     9,716,404
  Principal payments on notes payable                 (4,374,662)   12,092,189)
  Principal payments on notes payable to affiliates     (202,181)     (387,143)
  Distributions to minority partners                    (140,000)           --
  Net proceeds from issuance of common stock              96,125     9,394,289
  Acquisition of treasury stock                             (563)     (387,869)
  Preferred stock dividend payments                      (47,894)      (47,996)
                                                     -----------   -----------
Net cash (used in) provided by financing activities   (1,539,211)    6,195,496
                                                     -----------   -----------
DECREASE IN CASH AND CASH EQUIVALENTS                 (1,304,786)   (1,575,838)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD       3,523,047     3,226,038
                                                     -----------   -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $ 2,218,261   $ 1,650,200
                                                     ===========   ===========

                 See notes to consolidated financial statements

                                       4
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BUSINESS ACTIVITIES

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

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and the  instructions  to Form  10-Q and  Rule  10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
notes  required  by  generally  accepted  accounting   principles  for  complete
financial  statements.  In  the  opinion  of  management,  all  adjustments  and
reclassifications  considered  necessary for a fair and comparable  presentation
have been included and are of a normal recurring  nature.  Operating results for
the  three  and  nine  months  ended  September  30,  1998  are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1998. 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,  Florida, Indiana
and Mexico.  The Company's  operations  also include  marketing of skin and hair
care products, which are not considered significant to resort operations.

REVERSE STOCK SPLIT

         On January 9, 1998, the Company's shareholders approved an amendment to
the Company's  Articles of Incorporation to effect a one-for-five  reverse stock
split of the  Company's  issued  and  outstanding  shares of common  stock.  The
reverse  stock  split  has  been  retroactively  reflected  in the  accompanying
financial statements.

REVENUE RECOGNITION

         Revenue from sales of Vacation  Ownership  Interests is  recognized  in
accordance with Statement of Financial  Accounting  Standard No. 66,  Accounting
for Sales of Real Estate ("SFAS 66"). No sales are recognized until such time as
a minimum of 10% of the purchase  price 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 and revenues from food and other resort services.
Such  revenues  are  recorded  as the  rooms  are  rented  or the  services  are
performed.

CONSOLIDATED STATEMENTS OF CASH FLOWS

         Cash equivalents are liquid  investments  with an original  maturity of
three months or less. The following  summarizes interest paid, income taxes paid
and capitalized interest.
                                THREE MONTHS ENDED         NINE MONTHS ENDED
                                   SEPTEMBER 30,             SEPTEMBER 30,
                                ------------------         -----------------
                                  1997       1998         1997          1998
                                  ----       ----         ----          ----

         Interest paid         $627,000    $356,000    $1,547,000    $1,498,000
         Income taxes paid     $     --    $  2,000    $       --    $    5,000
         Capitalized interest  $ 54,000    $ 34,000    $  140,000    $  357,000

                                       5
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                   (CONTINUED)

RESORT PROPERTY UNDER DEVELOPMENT

         Resort property under development  totaling  $2,943,936 at December 31,
1997 was  reclassified to resort property held for Vacation  Ownership  Interest
sales as of September 30, 1998 to reflect completion of construction. The resort
opened to revenue paying guests in July 1998.

ACCOUNTING MATTERS

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
130,  "Reporting  Comprehensive  Income"  ("SFAS 130"),  which was effective for
financial   statements  for  periods  beginning  after  December  15,  1997  and
establishes  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains  and   losses)  in  a  full  set  of
general-purpose  financial  statements.  The Company  adopted  SFAS 130 in 1998.
There were no items of other  comprehensive  income,  as that term is defined in
SFAS 130, in the three and nine months ended September 30, 1997 or September 30,
1998.

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports issued to shareholders.  It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers.  The Company is currently  evaluating what impact this statement will
have on its financial statements.

         In June 1998, the Financial  Accounting Standards Board issued SFAS No.
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities"  ("SFAS
133"), which is effective for the Company in 2000. SFAS No. 133 requires that an
entity  recognize all derivatives as either assets or liabilities in the balance
sheet and measure those  instruments  at fair value.  The standard also provides
specific   guidance  for  accounting  for  derivatives   designated  as  hedging
instruments.  The Company is currently evaluating what impact this standard will
have on its financial statements.

RECLASSIFICATIONS

         The  financial  statements  for  1997  have  been  reclassified  to  be
consistent with the 1998 presentation.

NOTE 2. NOTES PAYABLE

         In June 1998,  the Company  entered  into a borrowing  agreement  under
which it may borrow up to $40 million against eligible  receivables through June
2002.  The terms of the  agreement  provide for  borrowing at prime plus 1.5% to
prime plus 1.75%,  with a maturity date of June 11, 2007. A commitment fee of 1%
is payable as amounts are advanced under the line.

         In June 1998, the Company  acquired  residential real estate in Sedona,
Arizona for $308,000  for which it paid  $58,000 in cash and  borrowed  $250,000
secured by a deed of trust.  The note bears  interest  at 8.5%,  and  matures in
2003.

         In  September  1998,  the  Company  amended a  borrowing  agreement  to
increase  the  amount  that it may  borrow  against  eligible  receivables  from
$2,000,000  to $3,500,000  through  September  2001.  The terms of the agreement
provide for borrowing at prime plus 3%, with a maturity date of September 2006.

         In  September  1998,  the  Company  borrowed  $300,000  for  additional
development  at  Varsity  Clubs  of  America  - South  Bend  Chapter,  including
enclosure of the outdoor  swimming  pool.  The note is secured by furniture  and
equipment, bears interest at 9.5% and matures in 2001.

                                       6
<PAGE>
NOTE 3. NOTE PAYABLE TO AFFILIATES

         In September 1998, the Company entered into an agreement to purchase at
a $200,000 discount a promissory note from an affiliate with a current principal
balance  before the  discount of $998,349 and accrued  interest of $13,130.  The
Company  made a  $100,000  principal  payment  in  September  1998  and paid the
remaining balance in October 1998.

NOTE 4. NET INCOME PER SHARE

         In  accordance  with SFAS No. 128,  "Earnings Per Share," the following
presents the computation of basic and diluted net income per share:
<TABLE>
<CAPTION>
                           BASIC NET INCOME PER SHARE

                                          THREE MONTHS ENDED      NINE MONTHS ENDED
                                              SEPTEMBER 30,         SEPTEMBER 30,
                                          ------------------      -----------------
                                         1997       1998          1997        1998
                                         ----       ----          ----        ----
<S>                                  <C>         <C>           <C>          <C>
Net income                           $  457,019  $   59,660    $  986,046   $ 724,595
Less: Series A preferred stock
  dividends                             (12,000)    (12,000)      (35,947)    (36,000)
Series C convertible preferred
  stock cumulation share dividends   $   (8,859)     (4,938)      (26,577)    (21,775)
                                     ----------  ----------    ----------  ----------
Net income available to common
 stockholders - basic                $  436,160  $   42,722    $  923,522   $ 666,820
                                     ==========  ==========    ==========  ==========
Weighted average shares of common
 stock outstanding - basic            2,654,633   4,165,440     2,623,502   3,612,701
                                     ==========  ==========    ==========  ==========

Basic net income per share           $     0.16  $     0.01    $     0.35  $     0.18
                                     ==========  ==========    ==========  ==========

                          DILUTED NET INCOME PER SHARE

                                          THREE MONTHS ENDED      NINE MONTHS ENDED
                                              SEPTEMBER 30,         SEPTEMBER 30,
                                          ------------------      -----------------
                                         1997       1998           1997        1998
                                         ----       ----           ----        ----
Net income                           $ 457,019   $   59,660     $  986,046  $  724,595
Less: Series A preferred stock
  dividends                            (12,000)     (12,000)       (35,947)    (36,000)
                                     ---------   ----------     ----------  ----------
Net income available to common
  stockholders - diluted             $ 445,019   $   47,660     $  950,099  $  688,595
                                     =========   ==========     ==========  ==========
Weighted average shares of
  common stock outstanding           2,654,633    4,165,440      2,623,502   3,612,701
Add: Convertible preferred stock
  (Series B and C) dilutive effect     110,541      110,541        112,320     110,541
                                     ---------   ----------     ----------  ----------
Weighted average shares of common
  stock outstanding - dilutive       2,765,174    4,275,981      2,735,822   3,723,242
                                     =========   ==========     ==========  ==========

Diluted net income per share         $    0.16   $     0.01     $     0.35  $     0.18
                                     =========   ==========     ==========  ==========
</TABLE>
         Stock options and warrants to purchase  157,200  shares of common stock
at prices  ranging from $6.75 per share to $8.125 per share were  outstanding at
September  30,  1998 but were not  included  in the  computation  of diluted net
income per share because the options' and warrants' exercise prices were greater
than the average market price of the underlying common shares. These options and
warrants expire at various dates between 1998 and 2004.

NOTE 5. SHAREHOLDERS' EQUITY

         During the first quarter of 1998,  the Company  issued 28,100 shares of
restricted  common  stock,  valued at $82,521,  to  employees  in  exchange  for
services provided. In February 1998, the Company issued 12,000 shares, valued at
$75,000,  to EVEREN  Securities,  Inc., for investment  banking and underwriting
services.
                                       7
<PAGE>
NOTE 6. COMMON STOCK OFFERING

         In April 1998, the Company sold,  through a public offering,  1,400,000
shares of its common stock at a price of $6.75;  EVEREN  Securities,  Inc.,  the
underwriter  of the  offering,  also  exercised  its  overallotment  option  and
purchased an additional  200,000 shares at a price of $6.75,  for total proceeds
of $10,800,000.  Proceeds of the offering,  net of the costs of the underwriting
(including  a  7%  underwriting   discount,   professional  fees,  printing  and
promotional costs totaling $1,405,711), were recorded as common stock.

NOTE 7. OTHER

         In June 1998,  the Company  entered into an agreement to acquire  1,500
one-week, 25-year right-to-use Vacation Ownership Interests to be constructed on
land adjacent to a full service  resort in San Carlos,  Mexico.  Such  interests
will be  contributed  to the  Company's  Premiere  Vacation Club in exchange for
participation  in the  profits of  Premiere  Vacation  Club as  provided  in the
agreement.

                                       8
<PAGE>
           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" AND SIMILAR
TERMS ARE  INTENDED TO IDENTIFY  FORWARD-LOOKING  STATEMENTS  THAT RELATE TO THE
COMPANY'S  FUTURE  PERFORMANCE.  SUCH  STATEMENTS  ARE  SUBJECT  TO  SUBSTANTIAL
UNCERTAINTY.   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  was  formed in 1986 to enter  the  Vacation
Ownership  Interest  business.  The Company generates revenue primarily from the
sale and financing of Vacation Ownership  Interests.  The Company also generates
revenue  from the rental of its unused or unsold  inventory  of units at the ILX
resorts and from the sale of food, beverages and other services at such resorts.
The Company  currently  owns five resorts in Arizona,  one in Indiana and one in
Colorado.  In addition,  the Company has the right to market Vacation  Ownership
Interests in resorts located in Florida and Mexico.

         The Company  recognizes  revenue  from the sale of  Vacation  Ownership
Interests  at such  time as a  minimum  of 10% of the  purchase  price  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's  future  obligations  for the Vacation  Ownership  Interests have been
released.  Resort operating revenues are recorded as the rooms are rented or the
services are performed.

         Costs  associated  with the  acquisition  and  development  of Vacation
Ownership  Interests,  including  carrying costs such as interest and taxes, are
capitalized  and  amortized  to cost  of  sales  as the  respective  revenue  is
recognized.


                                       9
<PAGE>
           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:
<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED     NINE MONTHS ENDED
                                                   SEPTEMBER 30,          SEPTEMBER 30,
                                                 1997      1998       1997       1998
                                                 ----      ----       ----       ----
<S>                                              <C>        <C>        <C>        <C>
As a percentage of total timeshare revenues:
 Sales of Vacation Ownership Interests           68.2%      57.5%      66.5%      61.3%
 Resort operating revenue                        27.7%      34.2%      29.9%      32.4%
 Interest income                                  4.1%       8.3%       3.6%       6.3%
                                                -----      -----      -----      -----
 Total timeshare revenues                       100.0%     100.0%     100.0%     100.0%
                                                =====      =====      =====      =====
As a percentage of sales of Vacation
Ownership Interests:
 Cost of Vacation Ownership Interests sold       12.5%      13.1%      13.3%      13.9%
 Sales and marketing                             60.1%      74.0%      57.7%      65.1%
 Provision for doubtful accounts                  3.1%       3.0%       3.0%       3.0%
 Contribution margin percentage from sale
  of Vacation Ownership Interests (1)            24.3%       9.9%      26.0%      18.0%

As a percentage of resort operating revenue:
 Cost of resort operations                       96.4%      94.4%      99.2%      97.5%

As a percentage of total timeshare revenues:
 General and administrative                       7.0%       8.6%       7.5%       7.7%
 Depreciation and amortization                    1.4%       1.0%       1.3%       1.0%
 Timeshare operating income                      13.3%       6.2%      12.4%       9.5%

Selected operating data:
 Vacation Ownership Interests sold (2) (3)        522        352      1,231      1,114
 Average sales price per Vacation Ownership
   Interest sold (excluding revenues from
   Upgrades) (2)                              $12,023    $13,387    $12,598    $13,018
 Average sales price per Vacation Ownership
   Interest sold (including revenues from
   Upgrades) (2)                              $13,051    $16,005    $14,420    $15,161
</TABLE>
----------
(1)  Defined as: the sum of Vacation  Ownership  Interest sales less the cost of
     Vacation Ownership  Interests sold less sales and marketing expenses less a
     provision  for doubtful  accounts,  divided by sales of Vacation  Ownership
     Interests.
(2)  Reflects all Vacation Ownership Interests on an annual basis.
(3)  Vacation Ownership Interests consist of 241 annual and 562 biennial for the
     three months ended  September  30, 1997 and 143 annual and 418 biennial for
     the three  months  ended  September  30,  1998,  and 582  annual  and 1,298
     biennial  for the nine months ended  September  30, 1997 and 503 annual and
     1,221 biennial for the nine months ended September 30, 1998.

                                       10
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998

         Sales of Vacation  Ownership  Interests  decreased 17% or $1,178,751 to
$5,633,797 for the three months ended  September 30, 1998,  from  $6,812,548 for
the same period in 1997 and decreased 5% or $868,812 to $16,881,611 for the nine
months ended  September 30, 1998 from  $17,750,423  for the same period in 1997.
The  reductions  in sales  reflect a decline  in sales  from the South  Bend and
Sedona sales offices as a result of fewer tours generated to those offices and a
lower  closing  rate in the Sedona  office,  net of increased  upgrade  sales to
existing  owners and sales from the Tucson sales office,  which opened in August
1997. The average sales price per Vacation  Ownership  Interest sold  (excluding
revenues  from  Upgrades)  increased  11% and 3% for the  three  and nine  month
periods ended September 30, 1998,  reflecting higher prices charged for Premiere
Vacation Club interests in comparison to interests in individual properties. The
Company began selling Premiere Vacation Club late in the second quarter of 1998.

         The number of Vacation Ownership  Interests sold decreased 32.6% to 352
for the three  months ended  September  30, 1998 from 522 for the same period in
1997 and decreased 9% to 1,114 for the nine months ended September 30, 1998 from
1,231 for the same period in 1997. Sales of Vacation Ownership  Interests in the
three and nine months ended September 30, 1998,  included 418 and 1,221 biennial
Vacation Ownership Interests (counted as 209 and 610.5 annual Vacation Ownership
Interests)  compared  to 562 and 1,298  biennial  Vacation  Ownership  Interests
(counted  as 281 and 649  annual  Vacation  Ownership  Interests)  for the  same
periods in 1997, respectively.

         The  decrease in tour flow to the South Bend sales  office in the first
nine months of 1998 was due to the  termination  of the marketing  company which
had  provided the  majority of tours to the sales  office,  in favor of internal
generation of tours.  Fewer tours have been generated  during the transition and
start-up periods of these new programs.  Improvement in tour flow as a result of
the  investment  in these  programs is expected to be realized  beginning in the
latter half of the fourth quarter in 1998.  Tour flow to the Sedona sales office
has decreased due to increasing  competition for tours in the Phoenix market. In
response to this trend,  the Company  sought  approval in California to generate
tours to its Sedona sales  office,  and such approval was received in July 1998.
The Company began test  marketing  into  California  late in the third  quarter.
Significant  tour flow from this market is not expected until late in the fourth
quarter of 1998 or early 1999,  following  completion of test marketing.  During
July and August 1998 the Sedona sales office  experienced  an 11% closing  rate,
substantially  lower  than the  office's  historical  performance.  The  Company
attributes  the decline to  management  of the office and,  accordingly,  made a
change in management on September 1, 1998.  Following the change,  the September
closing rate for the office increased to 18%, consistent with historical results
from this office.

         Upgrade  revenue,   included  in  Vacation  Ownership  Interest  sales,
increased  72% to $921,722 for the three months  ended  September  30, 1998 from
$536,645 for the same period in 1997 and increased 6% to $2,385,830 for the nine
months ended September 30, 1998 from $2,242,596 for the same period in 1997. The
increases in Upgrade revenue in the third quarter and  year-to-date  reflect the
introduction  of  Premiere  Vacation  Club late in the  second  quarter of 1998.
Premiere  Vacation  Club,  which offers buyers the  opportunity to utilize their
time at any of the  participating  individual  ILX  Resorts,  to receive day use
privileges  and food and beverage  discounts at all ILX Resorts and a variety of
other benefits,  is currently being marketed as an Upgrade to owners of Vacation
Ownership Interests in the individual ILX Resorts (as well as to new customers).
Interests in Premiere Vacation Club are sold for higher prices than interests of
a similar size and season in the Company's individual resorts due to the greater
flexibility  Premiere  provides.  The increase in Upgrade  revenue from Premiere
Vacation  Club  sales in 1998 is offset in part by the  greater  trade-in  value
recognized  in 1997 on Upgrades by owners of Golden Eagle  ownership  interests.
Golden Eagle ownership interests have a higher trade-in value than the Company's
other properties and, in 1997, a disproportionate  number of Golden Eagle owners
upgraded their ownership  interests.  Upgrades generally 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 introduction of the higher priced Premiere  Vacation Club interests
to both new customers and existing owners is reflected in the increased  average
sales price per Vacation  Ownership  Interest  sold.  The average sale price per

                                       11
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
                                   (CONTINUED)

Vacation  Ownership Interest sold excluding revenue from Upgrades increased from
$12,023 to  $13,387  and from  $12,598  to $13,018  for the three and nine month
periods  in 1997 to the  same  periods  in 1998  and  the  average  sales  price
including Upgrades increased from $13,051 to $16,005 and from $14,420 to $15,161
for the same periods.

         Resort  operating  revenues  increased  21%  and  12% or  $571,868  and
$929,382  to  $3,342,697  and  $8,929,975  for the three and nine month  periods
ending September 30, 1998,  respectively,  reflecting increases at the Company's
Sedona properties and at Kohl's Ranch Lodge, and the opening of Varsity Clubs of
America - Tucson Chapter in July 1998.

         The  decreases in cost of resort  operations  as a percentage of resort
operating  revenue for both the three and nine month periods ended September 30,
1998 reflect increased revenue at the Company's Sedona property and Kohl's Ranch
Lodge, net of the effects of recognition of start-up and initial operating costs
of Varsity Clubs of America - Tucson Chapter.

         Interest  income  increased  95% to $810,098 for the three months ended
September  30, 1998 from  $414,482 for the same period in 1997 and increased 79%
to $1,743,771 for the nine months ended September 30, 1998 from $973,236 for the
same period in 1997,  primarily  as a result of the  increase in customer  notes
retained by the Company and  increases in interest  rates charged by the Company
on  its  customer  notes.  The  Company  is  retaining  and  borrowing   against
(hypothecating) rather than selling a greater portion of its consumer notes.

         Cost of Vacation  Ownership  Interests sold as a percentage of Vacation
Ownership  Interest sales increased slightly  (approximately  0.6%) for both the
three and nine month periods ended September 30, 1998,  reflecting variations in
product mix. 1998 sales include a lower  proportion of sales of interests in Los
Abrigados  Resort & Spa, and greater  sales of interests in Varsity  Clubs.  The
purpose  built  Varsity  Clubs  typically  have a  greater  cost of  sales  than
interests  in Los  Abrigados.  Partially  offsetting  this change in mix are the
greater 1998 prices as described above.

         Sales and  marketing  as a  percentage  of sales of Vacation  Ownership
Interests increased to 74% and 65% for the three and nine months ended September
30,  1998 from 60% and 58% for the same  periods in 1997,  respectively,  due to
reduced tours to the South Bend sales office as a result of the transition  from
the  utilization  of a major outside  vendor of tours to internal  generation of
tours,  increased  costs of  generating  tours to the  Sedona  sales  office and
reduced closing rates in the Sedona office in July and August,  all as discussed
above.  Sales and  marketing  expenses in the third quarter of 1998 also reflect
start-up costs  associated  with developing  sales  operations at the Roundhouse
Resort in Pinetop,  Arizona,  and two offsite sales offices in Mexico, which are
not expected to produce  significant revenue until at least the first quarter of
1999.  Sales and  marketing  expenses  also include  costs of developing an exit
program for non-purchasers  which allows such customers to take advantage of the
benefits of  ownership  on a trial  basis.  Introduction  of the exit program is
planned for the fourth quarter of 1998,  with  significant  revenue not expected
until 1999.

         The  provision  for  doubtful  accounts  as a  percentage  of  Vacation
Ownership Interest sales remained comparable between years.

         General and  administrative  expenses increased 20% to $842,848 for the
three months ended  September 30, 1998 from $703,731 for the same period in 1997
and increased 6% to $2,120,528 for the nine months ended September 30, 1998 from
$2,003,106  for the same  period in 1997.  General and  administrative  expenses
increased as a percentage of total timeshare  revenues increased to 8.6% for the
three and 7.7% for the nine months ended September 30, 1998 compared to 7.0% and
7.5% for the same periods in 1997,  respectively.  The increases reflect greater
staffing  (including  information  systems,  contract  and loan  processing  and
accounting and financial  personnel) to support recent and planned  expansion of
sales offices, properties and marketing programs, including the Varsity Clubs of
America - Tucson Chapter hotel and sales office, offsite sales offices in Mexico
and the Premiere Vacation Club program.

                                       12
<PAGE>
         Interest  expense  decreased  9% to $515,111 for the three months ended
September 30, 1998 from $564,710 for the same period in 1997 and decreased 5% to
$1,422,244 for the nine months ended  September 30, 1998 from $1,500,472 for the
same period in 1997, reflecting reductions in borrowings in the second and third
quarters  of 1998 from the use of  proceeds  of the  follow-on  offering  of the
Company's  common  stock,  net  of  an  increase  in  borrowings  against  notes
receivable  as the Company  retains and borrows  against,  rather than sells,  a
greater portion of its customer notes receivable.

         Income tax expense as a  percentage  of pre-tax  income net of minority
interests is comparable between years.

         The  elimination of minority  interests in 1998 is due to the buyout by
the Company of the LAP minority interest in August 1997.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF CASH

         The  Company  generates  cash  primarily  from  the  sale  of  Vacation
Ownership Interests (including  Upgrades),  the financing of customer notes from
such sales and resort  operations.  During the nine months ended  September  30,
1997 and  1998,  cash  provided  by (used  in)  operations  was  $2,966,575  and
$(3,165,092),  respectively.  The  negative  cash flow for the nine months ended
September  30, 1998 was due  primarily to the  construction  of Varsity Clubs of
America  -  Tucson  Chapter,   which  was  financed  in  large  part  through  a
construction  loan and lease  financing.  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 a necessary part
of its normal operations.

         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 installment  payments
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 consolidated  financial  statements do not contain an accrual for
any interest  expense that would be paid on the  deferred  taxes  related to the
installment method, as the interest expense is not estimable.

         At  December  31,  1997,  the  Company,   excluding  Genesis,  had  NOL
carryforwards  of $4.8  million,  which expire in 2001 through 2012. At December
31,  1997,  Genesis had federal NOL  carryforwards  of $1.9  million,  which are
limited  as to usage  because  they arise from  built-in  losses of an  acquired
company.  In addition,  such losses can only be utilized through the earnings of
Genesis  and are limited to a maximum of  $189,000  per year.  To the extent the
entire  $189,000 is not utilized in a given year,  the difference may be carried
forward to future years. Any unused Genesis NOLs will expire in 2008.

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

                                       13
<PAGE>
USES OF CASH

         Investing  activities  typically  reflect a net use of cash  because of
capital  additions  and loans to  customers  in  connection  with the  Company's
Vacation Ownership Interest sales. Net cash used in investing activities for the
nine months ended  September 30, 1997 and 1998 was  $5,810,572  and  $4,606,242,
respectively.

         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.  During the nine
months ended September 30, 1998, the Company was  constructing  Varsity Clubs of
America - Tucson Chapter,  which was completed in July 1998. During that period,
the Company  borrowed  $3,438,076 on its construction  financing  commitment and
$800,200 on its lease commitment for this property.

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

CREDIT FACILITIES AND CAPITAL

         The  Company  has  agreements  with  financial  institutions  for total
commitments  aggregating  $25.0 million under which the Company may sell certain
of its customer notes.  These  agreements  provide for sales on a recourse basis
with a percentage of the amount sold held back by the financial  institution  as
additional  collateral.  Notes may be sold at discounts or premiums to yield the
consumer market rate as defined by the financial  institution.  At September 30,
1998, approximately $9.1 million was available under these commitments.

         The Company also has financing  commitments  aggregating  $43.5 million
whereby the Company may borrow against notes  receivable  pledged as collateral.
These  borrowings  bear interest at a rate of prime plus 1.5% to prime plus 3.0%
and expire at various  dates from 2002  through  2003.  At  September  30, 1998,
approximately  $39.7 million is available under these commitments.  In addition,
the Company has a written  commitment  for an additional  $10.0 million of notes
receivable financing that is subject to final documentation.

         In April 1998, the Company sold,  through a public offering,  1,400,000
shares of its common stock at a price of $6.75;  EVEREN  Securities,  Inc.,  the
underwriter  of the  offering,  also  exercised  its  overallotment  option  and
purchased an additional  200,000 shares at a price of $6.75,  for total proceeds
of $10,800,000.  Proceeds of the offering,  net of the costs of the underwriting
(including  a  7%  underwriting   discount,   professional  fees,  printing  and
promotional costs totaling $1,405,711), were recorded as common stock.

         In the future, the Company may negotiate  additional credit facilities,
issue corporate debt, issue equity securities,  or any combination of the above.
Any debt incurred or issued by the Company may be secured or unsecured, may bear
interest  at fixed or  variable  rates of  interest,  and may be subject to such
terms as management  deems prudent.  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 believes available borrowing  capacity,  together with cash
generated from operations,  will be sufficient to meet the Company's  liquidity,
operating and capital requirements for at least the next 12 months.

OTHER

         In June 1998,  the Company  entered into an agreement to acquire  1,500
one-week, 25-year right-to-use Vacation Ownership Interests to be constructed on
land adjacent to a full service  resort in San Carlos,  Mexico.  Such  interests
will be contributed to Premiere  Vacation Club in exchange for  participation in
the profits of Premiere Vacation Club as provided in the agreement.

                                       14
<PAGE>
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.  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.

YEAR 2000 ISSUES

         The  inability of  computers,  software and other  equipment  utilizing
microprocessors  to  recognize  and properly  process  data fields  containing a
2-digit year is commonly  referred to as the Year 2000 Compliance  issue. As the
year 2000 approaches,  such systems may be unable to accurately  process certain
date-based information.

                  The  Company   believes  it  has  identified  all  significant
applications  that will require  modifications  to ensure Year 2000  Compliance.
Internal and external  resources are  currently  being used to make the required
modifications and test Year 2000 Compliance. The modification and upgrade of all
significant internal  applications is currently in process. The Company plans on
completing the modification and upgrade process of all significant  applications
by December 31, 1998.

         In addition, the Company has communicated with others with whom it does
significant  business to determine their Year 2000 Compliance  readiness and the
extent  to which  the  Company  is  vulnerable  to any  third  party  Year  2000
Compliance issues.  However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted,  or that
a failure to convert by another  company,  or a conversion  that is incompatible
with the  Company's  systems,  would not have a material  adverse  effect on the
Company.

         The total cost to the Company of these Year 2000 Compliance  activities
has not been and is not anticipated to be material to its financial  position or
results  of  operations  in any given  year.  Since the  Company  commenced  its
assessment  of its Year 2000  Compliance  during  early  1998,  it has  expended
approximately  $28,000 and estimates  additional  future costs of  approximately
$40,000,  consisting primarily of software purchases and associated training and
consulting services. In addition,  certain employees of the Company have devoted
their time to assessing and implementing the Company's Year 2000 Compliance, the
costs of which have not been  separately  allocated by the Company.  These costs
and the date on which the Company  plans to complete the Year 2000  modification
and testing  processes  are based on  management's  best  estimates,  which were
derived utilizing numerous  assumptions of future events including the continued
availability of certain  resources and other factors.  However,  there can be no
guarantee that these  estimates will be achieved and actual results could differ
from those plans.

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 three or nine months ended  September 30,
1998.  However,  to the extent  inflationary  trends affect short-term  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.

                                       15
<PAGE>
                                     PART II

ITEM I. LEGAL PROCEEDINGS

         A dispute has arisen between the general  contractor,  Summit Builders,
and the Company's wholly owned subsidiary,  VCA Tucson Incorporated with respect
to amounts owing under the  guaranteed  maximum price  contract  relating to the
construction  of VCA Tucson.  The matter has been submitted to arbitration  with
the  general  contractor  and  the  Company  filing  claims  and  counterclaims,
respectively.  The Company has  obtained a payment bond in  accordance  with the
provisions  of Arizona law. The Company  believes its ultimate  exposure will be
consistent with its expectations under the guaranteed maximum price contract and
the change orders approved by the Company during the course of construction.

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

ITEM II.  CHANGES IN SECURITIES AND USE OF PROCEEDS

          None

ITEM III. DEFAULTS UPON SENIOR SECURITIES

          None

ITEM IV.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None

ITEM V.   OTHER INFORMATION

          None

ITEM VI.  EXHIBITS AND REPORTS ON FORM 8-K

          (i)  Exhibits

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

                    10-1      AMENDED  AND  RESTATED   SECURED  LINE  OF  CREDIT
                              LENDING     AGREEMENT    between    ILX    Resorts
                              Incorporated,   Los  Abrigados   Partners  Limited
                              Partnership,  ILE Sedona Incorporated,  VCA Tucson
                              Incorporated,   VCA   South   Bend   Incorporated,
                              Premiere  Development  Incorporated and Litchfield
                              Financial  Corporation  dated as of September  17,
                              1998 (filed herewith)

                    10-2      AGREEMENT FOR SALE AND TRANSFER OF PROMISSORY NOTE
                              between  ILX  Resorts   Incorporated  and  Martori
                              Enterprises Incorporated dated as of September 29,
                              1998 (filed herewith)

                    27-1      Financial Data Schedule (filed herewith)

             (ii) Reports on Form 8-K

                  None

                                       16
<PAGE>

                                   SIGNATURES


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



                            ILX RESORTS INCORPORATED
                                  (Registrant)




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



                               /s/ Nancy J. Stone
                           ---------------------------
                                 Nancy J. Stone
                                    President


                              /s/ Stephen W. Morgan
                           ---------------------------
                                Stephen W. Morgan
                             Chief Financial Officer
                            and Senior Vice President


Date:  As of November 11, 1998

                                       17
<PAGE>

                                  EXHIBIT INDEX


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


10-1      AMENDED AND RESTATED SECURED LINE OF CREDIT LENDING  AGREEMENT between
          ILX Resorts Incorporated,  Los Abrigados Partners Limited Partnership,
          ILE  Sedona  Incorporated,  VCA  Tucson  Incorporated,  VCA South Bend
          Incorporated,   Premiere   Development   Incorporated  and  Litchfield
          Financial Corporation dated as of September 17, 1998 (filed herewith)

10-2      AGREEMENT FOR SALE AND TRANSFER OF PROMISSORY NOTE between ILX Resorts
          Incorporated  and  Martori   Enterprises   Incorporated  dated  as  of
          September 29, 1998 (filed herewith)

27-1      Financial Data Schedule (filed herewith)