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, 1997              Commission File Number 33-16122
                      -------------                                     --------

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

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

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

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

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

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

                         Yes    X                  No
                            ---------                ---------

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

             Class                              Outstanding at June 30, 1997
-------------------------------                 ----------------------------
Common Stock, without par value                       13,078,669 shares
Preferred Stock, $10 par value                         385,145 shares
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                    June 30,              December 31,
                                                                                      1997                    1996
                                                                                      ----                    ----
                                                                                  (Unaudited)                     
<S>                                                                             <C>                    <C>   
Assets
     Cash and cash equivalents                                                  $      1,677,805       $      3,523,047
     Notes receivable, net                                                            14,372,337             11,745,720
     Resort property held for timeshare sales                                         14,456,753             15,247,587
     Resort property under development                                                 1,347,245              1,209,706
     Land held for sale                                                                1,551,065              1,547,493
     Deferred assets                                                                     321,930                313,346
     Property and equipment, net                                                       4,811,690              4,877,467
     Deferred income taxes                                                               862,294              1,178,653
     Other assets                                                                      1,791,747              1,631,886
                                                                                ----------------       ----------------
                                                                                $     41,192,866       $     41,274,905
                                                                                ================       ================
Liabilities and Shareholders' Equity
     Accounts payable                                                           $      1,779,134       $      2,310,600
     Accrued and other liabilities                                                     1,615,122              3,476,135
     Genesis funds certificates                                                        1,171,009              1,182,087
     Due to affiliates                                                                    91,480                139,715
     Notes payable                                                                    16,638,835             14,867,096
     Notes payable to affiliates                                                       1,429,854              1,567,287
                                                                                ----------------       ----------------
                                                                                      22,725,434             23,542,920
                                                                                ----------------       ----------------

Minority Interests                                                                     2,725,343              2,556,865
                                                                                ----------------       ----------------

Shareholders' Equity
     Preferred stock, $10 par value;  10,000,000 shares authorized;  
       385,145 and 392,109 shares issued and outstanding; liquidation   
       preference of $3,851,450 and 3,921,090, respectively                            1,397,799              1,419,243

     Common stock, no par value; 40,000,000 shares authorized; 
       13,108,669 and 13,024,290 shares issued and outstanding                         9,849,263              9,788,738

     Treasury stock, at cost, 30,000 shares                                              (36,536)               (36,536)

     Additional paid in capital                                                           79,450                 78,300

     Retained earnings                                                                 4,452,113              3,925,375
                                                                                ----------------       ----------------
                                                                                      15,742,089             15,175,120
                                                                                ----------------       ----------------
                                                                                $     41,192,866       $     41,274,905
                                                                                ================       ================
</TABLE>
                 See notes to consolidated financial statements
                                        2
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                           Three months ended              Six months ended
                                                                June 30,                       June 30,
                                                                --------                       --------
                                                         1997             1996           1997            1996
                                                         ----             ----           ----            ----
<S>                                                 <C>             <C>             <C>             <C>
Revenues
     Sales of timeshare interests                   $  5,846,579    $  4,893,354    $ 10,937,875    $  9,790,443
     Resort operating revenue                          2,801,978       2,965,718       5,229,764       5,283,461
     Sales of land and other                              22,996         248,337          54,581         301,598
     Interest income                                     294,031         259,603         558,754         464,096
                                                    ------------    ------------    ------------    ------------
                                                       8,965,584       8,367,012      16,780,974      15,839,598
                                                    ------------    ------------    ------------    ------------

Cost of sales and operating expenses
     Cost of timeshare interests sold                  2,045,433       1,685,883       3,748,363       3,393,992
     Cost of resort operations                         2,662,267       2,873,657       5,266,380       5,326,819
     Cost of land sold and other                          17,944         232,709          44,997         259,857
     Advertising and promotion                         2,137,939       1,657,893       3,910,616       3,188,287
     General and administrative                          659,826         758,012       1,507,026       1,433,297
     Provision for doubtful accounts                     170,823         132,553         317,593         422,733
                                                    ------------    ------------    ------------    ------------
                                                       7,694,232       7,340,707      14,794,975      14,024,985
                                                    ------------    ------------    ------------    ------------

Operating income                                       1,271,352       1,026,305       1,985,999       1,814,613

Interest expense                                         472,177         456,017         935,762         927,111
                                                    ------------    ------------    ------------    ------------

Income before minority interests 
and income taxes                                         799,175         570,288       1,050,237         887,502
Minority interests                                       (94,468)       (136,996)       (168,753)       (282,166)
Income taxes                                            (281,884)       (178,869)       (352,457)       (253,365)
                                                    ------------    ------------    ============    ------------

Net income                                          $    422,823    $    254,423    $    529,027    $    351,971
                                                    ============    ============    ============    ============

Net income per common and equivalent share
                                                    $       0.03    $       0.02    $       0.04    $       0.03
                                                    ============    ============    ============    ============

Number of common and equivalent shares                13,181,978      12,873,021      13,158,683      12,827,837
                                                    ============    ============    ============    ============
</TABLE>
                 See notes to consolidated financial statements
                                        3
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                            Six months ended
                                                                                                 June 30,
                                                                                                 --------
                                                                                            1997           1996
                                                                                            ----           ----
<S>                                                                                     <C>            <C>
Cash flows from operating activities:
    Net income                                                                          $   529,027    $   351,971
    Adjustments to reconcile net income to net cash provided by operating activities:
    Increase in undistributed minority interest                                             168,478         57,541
    Provision for doubtful accounts                                                         317,593        422,733
    Depreciation and amortization                                                           208,278        473,678
    Deferred income taxes                                                                   316,359        397,393
    Amortization of guarantee fees                                                           45,850         38,350
    Gain on settlement of liability                                                         (98,705)          --
    Change in assets and liabilities:
         Decrease in resort property held for timeshare sales                               790,834      1,134,199
         Additions to resort property under development                                    (137,539)       (40,431)
         Increase in land held for sale                                                      (3,572)        (2,309)
         Increase in other assets                                                          (173,161)      (263,112)
         Decrease in accounts payable                                                      (531,466)      (132,460)
         Increase in accrued and other liabilities                                          374,909        155,998
         Decrease in Genesis funds certificates                                             (11,078)       (13,372)
         Decrease in due to affiliates                                                      (48,235)      (206,867)
                                                                                        -----------    -----------
Net cash provided by operating activities                                                 1,747,572      2,373,312
                                                                                        -----------    -----------
Cash flows from investing activities:
    (Increase) decrease in deferred assets                                                  (54,434)        66,050
    Purchases of plant and equipment                                                         (2,570)      (294,207)
    Notes receivable, net                                                                (2,660,127)    (2,334,865)
                                                                                        -----------    -----------
Net cash used in investing activities                                                    (2,717,131)    (2,563,022)
                                                                                        -----------    -----------
Cash flows from financing activities:
    Proceeds from notes payable                                                           1,238,048      3,151,070
    Principal payments on notes payable                                                  (2,016,166)    (2,313,145)
    Principal payments on notes payable to affiliates                                      (137,433)      (250,652)
    Distribution to minority partners                                                          --         (600,000)
    Proceeds from issuance of common stock                                                   39,875        236,375
    Redemption of preferred stock                                                              --          (12,000)
    Redemption of common stock                                                                 --             --
    Preferred stock dividend payments                                                            (7)           (11)
                                                                                        -----------    -----------
Net cash (used in) provided by financing activities                                        (875,683)       211,637
                                                                                        -----------    -----------
Net (decrease) increase in cash and cash equivalents                                     (1,845,242)        21,927
Cash and cash equivalents at beginning of period                                          3,523,047      3,746,518
                                                                                        -----------    -----------
Cash and cash equivalents at end of period                                              $ 1,677,805    $ 3,768,445
                                                                                        ===========    ===========
</TABLE>
                 See notes to consolidated financial statements
                                        4
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

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

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

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

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

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

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

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

Cash  equivalents  are highly liquid  investments  with an original  maturity of
three months or less. During the three and six month periods ended June 30, 1997
and 1996,  the Company  paid no income taxes and paid  interest and  capitalized
interest to resort property under development as follows:

                             Three Months Ended             Six Months Ended
                                  June 30,                       June 30,
                                  --------                       --------
                             1997           1996           1997           1996
                             ----           ----           ----           ----

Interest                   $402,607       $478,516       $939,388       $878,916
Interest Capitalized       $ 40,402       $ 17,050       $ 85,986       $ 34,099

                                       5
<PAGE>
Reclassifications
-----------------

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

Note 2 - Notes Payable

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

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

During the first six  months of 1997,  the  Company  borrowed  $938,048  against
consumer  notes  receivable  and also borrowed on its lines of credit,  of which
$300,000 was outstanding at June 30, 1997.

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


Note 3 - Shareholders' Equity

During the second quarter of 1997, holders of 6,657 shares of Series C Preferred
Stock  exchanged  their shares for 11,095 shares of common stock.  The exchanges
were recorded as a reduction in preferred  stock and an increase in common stock
of $18,373.  Shares of stock  valued at $2,277 and cash of $7 were issued in the
second quarter of 1997 for the Dividend Arrearage due to the holders of Series C
Preferred Stock who converted their shares in the second quarter of 1997.

During the second  quarter of 1997,  holders of 307 shares of Series A Preferred
Stock exchanged their shares for lodging certificates at Kohl's Ranch. Preferred
stock was  reduced  by  $3,070,  which is the  liquidation  and par value of the
shares surrendered and additional paid in capital was increased by $1,150, which
is the difference between the par value of the preferred stock and the liability
recorded related to the lodging certificates.
                                       6
<PAGE>
During the first six months of 1997, the Company issued to employees in exchange
for services  provided  71,000  shares of  restricted  common  stock,  valued at
$39,875.

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

In June 1997, the Company entered into an agreement with EVEREN Securities, Inc.
("ESI") for ESI to act as ILX's exclusive  financial advisor,  investment banker
and agent  with  respect to  evaluation  of  alternatives  to  position  ILX for
long-term growth and to enhance shareholder value. In exchange for the services,
ILX will issue  60,000  shares of ILX common stock on each of August 1, 1997 and
February 1, 1998,  and cause those shares to be registered  with the  Securities
and  Exchange  Commission.  The parties  intend for the  agreement  to remain in
effect for a minimum of one year.

Note 4 - Subsequent Events

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

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

In July 1997, the Company issued 184,000 shares of its restricted  common stock,
which were subsequently  registered,  in exchange for a $230,000 note payable to
an affiliate.  In conjunction with the exchange,  100 timeshare intervals in Los
Abrigados Resort & Spa, which secured the note, were released.
                                       7
<PAGE>
                                ILX INCORPORATED

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

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

Sales of timeshare  interests were 19.5% and 11.7% greater for the three and six
months ended June 30, 1997, respectively, than for the same periods in 1996. The
increases  reflect  greater sales to customers  already owning  interests in ILX
resorts,  greater  sales from the Sedona  and South Bend Sales  Offices  and the
opening of a sales office in the Phoenix metropolitan area, net of reduced sales
from the Kohl's Ranch Sales Office.

The  increase  in sales to  existing  ILX owners in 1997  reflects  an  expanded
marketing  program  whereby owners are offered the  opportunity to upgrade their
ownership  to a larger size unit,  to exchange  their  ownership  to a different
resort,  and/or  to  purchase  additional  time.  As a result  of the  increased
marketing  efforts to existing  customers,  revenue  increased to  approximately
$810,000 in 1997 from $315,000 in 1996 for the second quarter, and to $1,705,000
from $611,000 for the six months ended June 30, 1997 and 1996, respectively.

Sales  of  timeshare   interests   from  the  Sedona   Sales  Office   increased
approximately  $79,000 and  $264,000 for the three and six months ended June 30,
1997 from the same periods in 1996 due to increases in prices for both  quarters
and  increased  closing  rates  (number of timeshare  sales divided by number of
timeshare tours) in the first quarter and a greater number of timeshare tours in
the second quarter.

Sales of  timeshare  interests  in  Varsity  Clubs of  America - Notre Dame were
$1,814,900  and $796,294 and  $3,218,945  and  $2,055,604  for the three and six
months  ended  June 30,  1997 and  1996,  respectively.  In 1997,  approximately
$2,062,000  in Varsity Clubs of America - Notre Dame sales were  generated  from
the South Bend Sales Office and $1,157,000  from the Sedona Sales Office,  which
commenced  offering  interests in Varsity  Clubs of America - Notre Dame in June
1996.  Sales of Varsity Clubs of America - Notre Dame in the first six months of
1996 were  primarily  from the  South  Bend  Sales  Office,  with  approximately
$105,000  generated by the Sedona Sales  Office.  The increase in sales from the
South Bend Sales Office reflects  higher closing rates and increased  prices for
the second quarter of 1997.

Sales of timeshare interests in Kohl's Ranch decreased approximately $157,000 in
the second  quarter of 1997 and  $418,000 for the six months ended June 30, 1997
from the same periods in 1996 as a result of lower closing rates,  which in part
were offset by increased  prices.  Second quarter 1997 sales include  $95,545 in
sales of Kohl's Ranch  interests  from a sales office opened on a trial basis in
the Phoenix  metropolitan  area in late April 1997.  The office was not retained
beyond the trial period (April - July 1997) due to high marketing  costs and low
closing rates.

Cost of timeshare  interests sold as a percentage of sales is comparable between
years.

The decreases in resort  operating  revenue for both the second  quarter and the
six months  ended June 30, 1997 from the same periods in 1996 reflect a decrease
in food and beverage  revenue and  increased  occupancy by timeshare  owners and
exchange  guests who pay  substantially  lower rates than  resort  guests at Los
Abrigados  Resort & Spa, net of increased  occupancy and average daily rates for
Varsity Clubs of America - Notre Dame and Kohl's Ranch and revenue from Lomacasi
Cottages,  which was  acquired  on March 1,  1996.  The  increased  usage of Los
Abrigados  Resort & Spa by timeshare owners and exchange guests in 1997 reflects
in part differences  during the year by such users in timing of usage as well as
the increasing number of timeshare owners.
                                       8
<PAGE>
The  increased  occupancy  at  Varsity  Clubs of America - Notre Dame and Kohl's
Ranch  reflects the maturing of  operations at these  properties,  both of which
opened during 1995.

Cost of resort  operations  as a  percentage  of  resort  operating  revenue  is
comparable between periods. 1997 costs for Varsity Clubs of America - Notre Dame
and Kohl's Ranch as a percentage of revenue are lower than 1996 due to increased
occupancy  and average daily rate.  1997 Los Abrigados  costs as a percentage of
revenue are higher than 1996 due to increased occupancy by timeshare owners, who
pay a lower rate for their usage.

The  decreases in sales of land and other and the related cost of sales for both
the second  quarter  and six months  ended June 30,  1997  reflect the sale of a
parcel of land held by Genesis in the second quarter of 1996.

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

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

General and  administrative  expenses are  comparable  between years for the six
months  ended June 30, 1997 and 1996.  General and  administrative  expenses are
lower as a percentage of revenue in the second quarter of 1997 than for the same
period in 1996 due to the  recognition  in 1997 of a $98,705 gain resulting from
the settlement of an accrued  liability at less than the recorded amount.  First
quarter 1996  expenses  reflect  gains from the  discounting  and  prepayment of
accrued obligations.

The  provision  for doubtful  accounts  relates  primarily to sales of timeshare
interests  and is  comparable  as a percentage  of sales of timeshare  interests
between periods.

Interest expense is comparable between periods and reflects increased borrowings
against consumer paper retained by the Company,  net of reductions in borrowings
against resort property held for sale.

The  decrease in minority  interests  from 1996 to 1997  reflects  the  minority
interest in operating losses of Lomacasi  Cottages,  which was acquired March 1,
1996, the minority interest in operating losses of Sedona Worldwide Incorporated
commencing January 1, 1997, and a decrease in LAP net income in 1997 as a result
of reduced  resort  operating  revenue and stock  bonuses  granted in 1997,  and
reductions in 1996 of estimated liabilities.


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

The Company's  liquidity needs principally arise from the necessity of financing
notes received from sales of timeshare  interests.  In that regard,  the Company
has $5 million of credit issued by a financing  company  under which  conforming
notes from sales of interval interests in Los Abrigados Resort & Spa can be sold
on a recourse  basis through  March 1998.  In addition,  the Company has an open
ended  arrangement with a finance company which is expected to provide financing
of notes from sales of  interests in Los  Abrigados  Resort & Spa of at least $5
million through 1997. At June 30, 1997,  approximately $2.7 million is available
under the fixed  commitment 
                                       9
<PAGE>
line and a minimum of $2.6 million is expected to be available on the open-ended
line. The Company also has financing  commitments whereby the Company may borrow
up to $2 million against  non-conforming  notes from sales of interval interests
in Los Abrigados  Resort & Spa,  Golden Eagle  Resort,  Kohl's Ranch and Varsity
Clubs of America - Notre Dame, and $2.2 million  against  conforming  notes from
sales  of  interval  interests  in  Golden  Eagle  Resort  through  March  1998.
Approximately  $1.7 million was available  under these  commitments  at June 30,
1997.

The Company has a $10 million financing  commitment whereby the Company may sell
eligible  notes  received from sales of timeshare  interests in Varsity Clubs of
America  -  Notre  Dame  on  a  recourse   basis  through   September  1,  1997.
Approximately $4.5 million was available under this commitment at June 30, 1997.

The Company has  financing  commitments  whereby it may borrow up to $10 million
against  conforming  notes received from sales of timeshare  interests in Kohl's
Ranch through August 1997 and $5 million through June 2000.  Approximately  $7.5
million  was  available  on the first  commitment  and $5  million on the second
commitment at June 30, 1997.

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

The Company has a $500,000 line of credit each from two financial  institutions.
At June 30, 1997, $700,000 was available for working capital.

In June 1997, the Company negotiated a settlement  agreement for the 1996 breach
by a timeshare lender of a 1995 management  agreement between the lender and the
Company.  Under the management  agreement,  the lender committed to advance $3.5
million,  but  failed  to fund  $1.1  million  of this  amount.  The  settlement
agreement  provides for  repayment of the  outstanding  advances  through a note
payable in the amount of $2.4 million.

In July 1997,  the Company  borrowed $1.5 million,  secured by a first  position
deed of trust on Kohl's  Ranch  Lodge.  The  funds  were used to repay the prior
first  deed of trust  of  $444,500,  and the  balance  will be used for  working
capital.

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

Cash  provided by operating  activities  decreased  from  $2,373,312  in 1996 to
$1,747,572  in 1997 due to greater 1997  additions to resort  property  held for
timeshare sales and a decrease in 1997 in accounts payable.

The increase in cash used in investing  activities  from  $2,563,022  in 1996 to
$2,717,131  in 1997  reflects  an increase  in  consumer  notes  retained by the
Company,   an  increase  in  deferred  assets   relating  to  Sedona   Worldwide
Incorporated, net of a reduction in purchases of plant and equipment in 1997.

The change from cash  provided by  financing  activities  in 1996 of $211,637 to
cash  used  in  financing  activities  in  1997 of  $875,683  is due to  greater
borrowings in 1996.
                                       10
<PAGE>
Although no assurances can be made, based on the prior success of the Company in
obtaining  necessary  financings for  operations and for expansion,  the Company
believes  that  with its  existing  financing  commitments,  its cash  flow from
operations and the  contemplated  financings  discussed  above, the Company will
have  adequate  capital  resources  for at least the next twelve to  twenty-four
months.

Item 6.  Exhibits and Reports on Form 8-K

     (b)

     (i) The Company filed with the Securities and Exchange  Commission a report
     on Form 8-K dated May 2, 1997, which disclosed the following:

     Item 5.  Other Events.

         Effective  January 7, 1997, ILX Incorporated  ("ILX") and Texas Capital
     Securities  ("TCS")  entered into a Letter  Agreement  regarding  financial
     advisory  services  (the "TCS Letter  Agreement")  and an Option  Agreement
     regarding  options  on up to 500,000  shares of ILX common  stock (the "TCS
     Option  Agreement").  The TCS Letter Agreement and the TCS Option Agreement
     are dated as of January 7, 1997 and were executed  January 27, 1997.  Under
     the TCS Letter Agreement, ILX granted TCS options to acquire 500,000 shares
     of ILX's common stock pursuant to the TCS Option Agreement.  The TCS Option
     Agreement  provides that TCS receives  options for up to 250,000  shares of
     ILX's common stock  exercisable  at a price of $1.25 per share on or before
     June 30, 1997 (the "First  Option").  If TCS  exercises the First Option in
     full prior to its  expiration  date,  TCS may  exercise  options  for up to
     125,000  shares of ILX's common stock  exercisable  at a price of $1.75 per
     share on or before  September 30, 1997 (the "Second  Option").  If TCS then
     exercises the Second Option in full prior to its  expiration  date, TCS may
     exercise options for up to 125,000 shares of ILX's common stock exercisable
     at a price of $2.00 per share on or before  December  15,  1997 (the "Third
     Option"). At ILX's election,  the term of the Third Option will be extended
     to the extent that ILX extends the term of the TCS Letter Agreement.

         Effective  January 1, 1997, ILX and Investor  Resource  Services,  Inc.
     ("IRS") entered into a Consulting Agreement pursuant to which IRS agreed to
     provide certain investor  relations,  broker relations and public relations
     services to ILX (the "IRS  Consulting  Agreement").  Under the terms of the
     IRS Consulting Agreement, IRS received new and extended options to purchase
     500,000  shares of ILX  common  stock at $1.25 per share  (the "IRS  Option
     Shares").  The options granted in the IRS Consulting Agreement with respect
     to the IRS Option Shares expire on June 30, 1997.

         On May 2, 1997, ILX and TCS and IRS executed Assumption Agreements with
     Martori Enterprises  Incorporated  ("MEI"), an affiliate and shareholder of
     ILX,  under  which MEI agreed to assume all of ILX's  obligations  to issue
     shares of its common  stock on the  exercise of the options held by TCS and
     IRS under the TCS Option  Agreement and the IRS  Consulting  Agreement (the
     "Assumption Agreements").  Copies of the Assumption Agreements are attached
     as Exhibit 10 hereto and the above description of the Assumption Agreements
     is qualified in its entirety by reference to those  Assumption  Agreements.
     The descriptions of the TCS Letter Agreement,  the TCS Option Agreement and
     the IRS  Consulting  Agreement are qualified in their entirety by reference
     to those Agreements, copies of which are attached to ILX's Form 8-K Reports
     dated February 10, 1997 and January 13, 1997, respectively.

     (ii)The Company filed with the Securities and Exchange  Commission a report
     on Form 8-K dated May 15, 1997, which disclosed the following:
                                       11
<PAGE>
     Item 5.  Other Events.

         On October 30, 1996, ILX Incorporated ("ILX") entered into an Agreement
     for  Purchase  and Sale (the  "Agreement")  with  Debbie  Reynolds  Hotel &
     Casino,  Inc.,  a Nevada  corporation,  ("DRHC")  (OTC:  DEBI)  and  Debbie
     Reynolds  Resorts,  Inc., a Nevada  corporation,  ("DRC") whereby ILX could
     acquire,  among other assets,  the physical assets  constituting the Debbie
     Reynolds  Hotel & Casino in Las Vegas,  Nevada.  The purchase price for the
     assets was  $16,800,000  and was payable by issuance to DRHC of  $7,500,000
     worth of federally  registered  ILX common stock valued for purposes of the
     transaction  at $2.00 per share  (totaling  3,750,000  shares),  as well as
     payment  of  $4,200,000  in cash and  ILX's  assumption  of  $5,100,000  in
     mortgage indebtedness.

         Consummation  of the transaction was contingent on, among other things,
     satisfaction  of various  conditions  by the sellers and the  completion of
     ILX's due diligence  investigation.  On May 15, 1997, ILX  transmitted  the
     required  formal written notice of its election to cancel and terminate the
     Agreement (the "Election  Notice")  effective  immediately,  although ILX's
     management  remains  hopeful that the parties may yet structure  some other
     type of  strategic  relationship  involving  the  Debbie  Reynolds  Hotel &
     Casino.

     (iii) The Company  filed with the  Securities  and  Exchange  Commission  a
     report on Form 8-K dated June 23, 1997, which disclosed the following:

     Item 5.  Other Events.

         Effective   June  23,  1997,  ILX   Incorporated   ("ILX")  and  EVEREN
     Securities,   Inc.  ("ESI")  entered  into  a  Letter  Agreement  regarding
     financial advisory services (the "Letter Agreement"). The Letter Agreement,
     which was accepted and agreed to by ILX on June 23, 1997,  will take effect
     commencing July 1, 1997. The Letter  Agreement is attached to this Form 8-K
     as Exhibit 10.

         Under  the  terms  of the  Letter  Agreement,  ESI  is to act as  ILX's
     exclusive  financial  advisor,  investment banker and agent with respect to
     the evaluation of various alternatives to position ILX for long-term growth
     and  evaluation  of  various   strategic   alternatives  that  may  enhance
     shareholder  value.  The  services,  which are more fully  described in the
     Letter Agreement, may include: evaluating third party entities that ILX may
     seek to  acquire or with  which ILX may seek to merge;  evaluating  capital
     raising  strategies and providing access to the capital markets;  and other
     investment banking and related services on which ESI and ILX may agree. The
     Letter  Agreement  has no fixed term,  although the parties have  expressed
     their  intentions that the Letter  Agreement  remain in effect for at least
     one year.  However,  30 days after ILX executes the Letter Agreement it may
     be  terminated  by either  party on  10-days'  written  notice to the other
     party, although ILX would have certain ongoing obligations to ESI including
     to compensate ESI for previously  earned fees, to reimburse ESI for accrued
     expenses,  to honor a right of first  refusal held by ESI, and to indemnify
     ESI for certain matters.

         In  exchange  for the above  services  under the Letter  Agreement,  in
     addition  to other  compensation  that may be  payable  to ESI as  "success
     fees," ILX agreed to transfer to ESI 60,000  shares of ILX's  common  stock
     (the "Common  Stock") on each of August 1, 1997 and February 1, 1998 and to
     cause  those  shares to be  registered  under an  appropriate  registration
     statement.

         The above  descriptions  of the Letter  Agreement  is  qualified in its
     entirety by reference to that Agreement, attached hereto as Exhibit 10.
                                       12
<PAGE>


     Item 7.  Financial Statements and Exhibits.

          The Exhibits required by Item 601 of Regulation S-K have been supplied
     as follows:

     Exhibit
     Numbers           Description of Exhibit                           Page No.
     ---------------------------------------------------------------------------
        10             Assumption Agreements                               4
        10             Election Notice                                     4
        10             Letter Agreement                                    4
                                       13
<PAGE>
                                   SIGNATURES

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

                                ILX INCORPORATED
                                  (Registrant)



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



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



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




Date:  As of August 11, 1997
                                       14