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, 1996         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)

                   2777 East Camelback Road, Phoenix, AZ 85016
                   -------------------------------------------
                    (Address of principal executive offices)

                                  602-957-2777
                                  ------------

               Registrant's telephone number, including area code


Former name,  former  address,  and former  fiscal year,  if changed  since last
report:
                                       N/A
                                       ---


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

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

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


           Class                               Outstanding at September 30, 1996
-------------------------------                ---------------------------------
Common Stock, without par value                       12,999,426 shares

Preferred Stock, $10 par value                          394,727 shares
                                       1
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   September 30,   December 31, 
                                                                                       1996            1995 
                                                                                       ----            ---- 
                                                                                    (Unaudited)
<S>                                                                                <C>             <C>
Assets
     Cash and cash equivalents                                                     $  2,635,346    $  3,746,518
     Notes receivable, net                                                           11,449,467       8,785,487
     Resort property held for timeshare sales                                        17,495,486      17,191,791
     Resort property under development                                                1,184,349       1,119,080
     Land held for sale                                                               1,547,493       1,545,184
     Deferred assets                                                                    329,146         451,496
     Property and equipment, net                                                      2,809,321         835,485
     Deferred income taxes                                                            1,151,871       1,887,021
     Other assets                                                                     2,194,281       2,190,451
                                                                                   ------------    ------------
                                                                                   $ 40,796,760    $ 37,752,513
                                                                                   ============    ============

Liabilities and Shareholders' Equity

     Accounts payable                                                              $  2,171,881    $  2,313,638
     Accrued and other liabilities                                                    3,295,213       3,293,160
     Genesis funds certificates                                                       1,191,672       1,366,843
     Due to affiliates                                                                   99,766         440,629
     Deferred income                                                                     26,461           2,869
     Notes payable                                                                   14,944,464      11,689,945
     Notes payable to affiliates                                                      1,598,562       1,837,912
                                                                                   ------------    ------------
                                                                                     23,328,019      20,944,996
                                                                                   ------------    ------------

Minority Interests                                                                    2,482,287       3,032,415
                                                                                   ------------    ------------

Shareholders' Equity

    Preferred stock, $10 par value;  10,000,000 shares  authorized;  394,727 and
    411,483 shares issued and outstanding;  liquidation preference of $3,947,270
    and $4,114,830, respectively

                                                                                      1,464,941       1,515,134

    Common stock, no par value: 40,000,000 shares authorized;  13,019,426 and
    12,625,757 shares issued and outstanding
                                                                                      9,780,412       9,322,375

    Treasury stock, at cost, 20,000 shares                                              (25,032)        (25,032)

    Additional paid in capital                                                           39,950          35,190

    Retained earnings                                                                 3,726,183       2,927,435
                                                                                   ------------    ------------
                                                                                     14,986,454      13,775,102
                                                                                   ------------    ------------
                                                                                   $ 40,796,760    $ 37,752,513
                                                                                   ============    ============
</TABLE>
                 See notes to consolidated financial statements
                                       2
<PAGE>

                        ILX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                       Three months ended                         Nine months ended
                                                          September 30,                             September 30,
                                                          -------------                             -------------
                                                    1996                 1995                  1996                  1995
                                                    ----                 ----                  ----                  ----
<S>                                          <C>                   <C>                  <C>                   <C>
Revenues
    Sales of timeshare interests             $      5,480,153      $      5,930,648     $     15,270,596      $     16,548,152
    Resort operating revenue                        2,713,317             2,321,423            7,996,778             6,358,548
    Sales of land and other                            30,017                41,892              331,615               145,891
    Interest income                                   248,532               161,562              712,628               446,511
                                             ----------------      ----------------     ----------------      ----------------
                                                    8,472,019             8,455,525           24,311,617            23,499,102
                                             ----------------      ----------------     ----------------      ----------------

Cost of sales and operating expenses

    Cost of timeshare interests sold                1,566,106             2,286,937            4,960,098             6,089,296
    Cost of resort operations                       2,598,017             2,729,194            7,924,836             6,569,344
    Cost of land sold and other                        31,160                37,180              291,017                83,813
    Advertising and promotion                       1,980,278             1,771,411            5,168,565             4,737,935
    General and administrative                        723,990               795,356            2,157,287             2,281,762
    Provision for doubtful accounts                    36,410               347,598              459,143               950,917
                                             ----------------      ----------------     ----------------      ----------------
                                                    6,935,961             7,967,676           20,960,946            20,713,067
                                             ----------------      ----------------     ----------------      ----------------

Operating income                                    1,536,058               487,849            3,350,671             2,786,035

Interest expense                                      478,962               380,611            1,406,073               836,850

Income before minority interests and 
    income taxes                                    1,057,096               107,238            1,944,598             1,949,185
Minority interests                                   (204,303)                  948             (486,469)             (345,686)
Income taxes                                         (354,006)              384,727             (607,371)              (63,399)
                                             -----------------     ----------------     -----------------     -----------------

Net income                                   $        498,787      $        492,913     $        850,758      $      1,540,100
                                             ================      ================     ================      ================

Net income per common and equivalent share   $           0.03      $           0.04     $           0.06      $           0.12
                                             ================      ================     ================      ================

Number of common and equivalent shares             13,013,372            13,009,355           12,890,033            12,699,419
                                             ================      ================     ================      ================

Net income per share assuming full dilution  $           0.03      $           0.04     $           0.06      $           0.12
                                             ================      ================     ================      ================

Number of fully diluted shares                     13,479,302            13,493,935           13,364,166            13,187,992
                                             ================      ================     ================      ================
</TABLE>
                 See notes to consolidated financial statements
                                       3
<PAGE>
                        ILX INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Nine months ended
                                                                                        September 30,
                                                                                --------------------------
                                                                                    1996           1995
                                                                                    ----           ----
<S>                                                                             <C>            <C>
Cash flows from operating activities:
    Net income                                                                  $   850,758    $ 1,540,100
Adjustments to reconcile net income to net cash used in operating activities:
    Undistributed minority interest                                                 239,258        345,686
    Additions to notes receivable                                                (9,204,197)    (9,018,079)
    Proceeds from sales of notes receivable                                       6,081,074      6,425,596
    Provision for doubtful accounts                                                 459,143        950,917
    Depreciation and amortization                                                   543,643        491,086
    Increase in deferred income taxes                                               735,150       (203,667)
    Amortization of guarantee fees                                                   56,300         79,100
Change in assets and liabilities:
        Decrease (increase) in resort property held for timeshare sales             304,567     (5,655,558)
        Additions to resort property under development                              (65,269)      (344,115)
        (Increase) decrease in land held for sale                                    (2,309)         1,000
        Increase in other assets                                                   (198,852)      (408,206)
        (Increase) decrease in accounts payable                                    (141,757)       193,879
        (Decrease) increase in accrued and other liabilities                        (39,433)     1,141,607
        Increase in income taxes payable                                               --          103,553
        Decrease in Genesis funds certificates                                     (175,171)      (246,078)
        Decrease in due to affiliates                                              (240,863)      (506,022)
        Increase (decrease) in deferred income                                       23,592       (363,552)
                                                                                -----------    -----------
Net cash used in operating activities                                              (774,366)    (5,472,753)
                                                                                -----------    -----------
Cash flows from investing activities:
    Decrease (increase) in deferred assets                                           66,050       (163,299)
    Purchases of plant and equipment                                                (61,651)      (112,210)
                                                                                -----------    -----------
Net cash provided by (used in) investing activities                                   4,399       (275,509)
                                                                                -----------    -----------
Cash flows from financing activities:
    Proceeds from notes payable                                                   4,526,139      7,715,212
    Principal payments on notes payable                                          (4,171,898)    (4,059,256)
    Proceeds from notes payable to affiliates                                          --          900,000
    Principal payments on notes payable to affiliates                              (339,350)      (461,827)
    Distributions to minority partners                                             (720,000)          --
    Proceeds from issuance of common stock                                          423,875         74,181
    Acquisition of treasury stock                                                      --          (25,032)
    Redemption of preferred stock                                                   (12,000)          (185)
    Redemption of common stock                                                         --             (185)
    Preferred stock dividend payments                                               (47,971)           (24)
                                                                                -----------    -----------
Net cash (used in) provided by financing activities                                (341,205)     4,142,884
                                                                                -----------    -----------
Net decrease in cash and cash equivalents                                        (1,111,172)    (1,605,378)
Cash and cash equivalents at beginning of period                                  3,746,518      3,635,587
                                                                                -----------    -----------
Cash and cash equivalents at end of period                                      $ 2,635,346    $ 2,030,209
                                                                                ===========    ===========
</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
Registration  S-X.  Accordingly,  they do not include all of the information and
notes  required  by  generally  accepted  accounting   principles  for  complete
financial  statements.  In  the  opinion  of  management,  all  adjustments  and
reclassifications  considered  necessary for a fair and comparable  presentation
have been included and are of a normal recurring  nature.  Operating results for
the three and nine month periods ended  September 30, 1996, are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
1996. 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.  Revenue from
sales of  timeshare  interests  in  Varsity  Clubs of  America - Notre  Dame was
recognized  by  the  percentage  of  completion   method  as   development   and
construction  proceeded  and as the costs of  development  and  profit  could be
reasonably  estimated  through August 15, 1995, when the property was completed.
Resort  operating  revenue  represents daily room rentals and revenues from food
and other resort services. Such revenues are recorded as the rooms are rented or
the services are performed.

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

Cash  equivalents  are highly liquid  investments  with an original  maturity of
three months or less.  During the three and nine month periods  ended  September
30, 1996 and 1995,  the Company paid  interest and income taxes and  capitalized
interest to resort property under development as follows:

                           Three Months Ended           Nine Months Ended
                              September 30,                September 30,
                              -------------                -------------
                          1996           1995           1996           1995
                          ----           ----           ----           ----

Interest             $    497,975   $    341,944   $  1,376,891    $     924,602
Income Taxes         $      2,000   $      2,786   $      2,000    $     136,286
Interest Capitalized $     19,859   $     89,577   $     53,958    $     216,380
                                       5
<PAGE>
Reclassifications
-----------------

The  financial  statements  for  prior  periods  have  been  reclassified  to be
consistent with the 1996 financial statement presentation.


Note 2 - Notes Payable

In February 1996, the Company  borrowed an additional  $1,760,000 from the first
mortgage  holder on the Los  Abrigados  resort and extended the maturity date to
September 1998.

The mortgage on the Red Rock  Collection  building was repaid in January 1996 by
the affiliate  who purchased the building in 1995. In this non-cash  transaction
to the Company, both the note payable and the related receivable were reduced by
$180,000.

During the second  quarter of 1996,  the  Company  made its first  borrowing  of
$300,000 on its $6 million, 13% interest rate, construction financing commitment
for the Varsity Clubs of America - Tucson facility.

During the first nine months of 1996, the Company  borrowed  $1,850,782  against
consumer notes receivable.

Property and equipment of $339,924 was leased in the second  quarter of 1996 and
a vehicle was financed for $23,741 in the third quarter of 1996.


Note 3 - Notes Payable to Affiliates

In January  1996,  an  affiliate  of the Company  agreed to accept a  discounted
payment of $60,000 cash and $100,000 in a promissory  note as full  satisfaction
of a  remaining  obligation  of the  Company to such  affiliate  of  $173,225 in
guarantee  fees and $44,073 in holdbacks.  The note bears  interest at 10%, with
interest due quarterly and the principal due in full in December 1999.


Note 4 - Shareholders' Equity

During  the first  nine  months of 1996,  holders  of 10,914  shares of Series C
Preferred Stock  exchanged  their shares for 18,190 shares of common stock.  The
exchanges  were  recorded as a reduction in  preferred  stock and an increase in
common  stock of $30,123.  Shares of stock valued at $4,039 and cash of $20 were
issued in the first nine months of 1996 for the  Dividend  Arrearage  due to the
holders of Series C Preferred Stock who converted their shares in the first nine
months of 1996.

During  the  first  nine  months  of 1996,  holders  of 807  shares  of Series A
Preferred Stock exchanged their shares for lodging certificates at Los Abrigados
and  Kohl's  Ranch.  Preferred  stock  was  reduced  by  $8,070,  which  is  the
liquidation  and par value of the  shares  surrendered  and  additional  paid in
capital was increased by $4,760,  which is the difference  between the par value
of the  preferred  stock  and the  liability  recorded  related  to the  lodging
certificates.

In January  1996,  5,035  shares of Series A Preferred  Stock were  redeemed for
$12,000.

During the first quarter of 1996, the Company issued 72,500 shares of restricted
common stock, valued at $52,000, to employees in exchange for services provided.

In accordance with consulting  agreements entered into in 1995, 50,000 shares of
restricted  common stock,  valued at $1.1875 per share, were issued in the first
quarter of 1996. In the second and third  quarters of 1996,  options for 100,000
and 150,000,  respectively,  of the total  500,000  option  shares of restricted
common stock granted under the consulting agreements were exercised at $1.25 per
share.  All  such  restricted  shares  were  subsequently  registered  with  the
Securities and Exchange Commission.
                                       6
<PAGE>
Note 5 - Lomacasi Cottages

In March 1996, the Company,  through a subsidiary,  became the managing  general
partner of the  limited  partnership  which owns  Lomacasi  Cottages  in Sedona,
Arizona,  a 5.27 acre  property  approximately  one mile from the Los  Abrigados
resort.  The Company  acquired its  partnership  interest for a $25,000  capital
contribution  and took the property  subject to existing  non-recourse  deeds of
trust  on the  property  and  accrued  liabilities.  The  balance  sheet  of the
partnership at March 1, 1996, was as follows:

                    Assets
                    Cash                               $    20,000
                    Property and equipment               2,116,337
                    Other assets                             9,928
                                                       -----------
                                                       $ 2,146,265
                                                       ===========
                    Liabilities and Partners' Equity
                    Accounts payable                   $    22,862
                    Accrued and other liabilities           15,315
                    Notes payable                        2,152,474
                                                       -----------
                                                         2,190,651
                                                       -----------
                    Partners' capital                      (44,386)
                                                       -----------
                                                       $ 2,146,265
                                                       ===========

The first  mortgage  of $549,625  bears  interest  at 12.5% with  principal  and
interest  payable in monthly  installments of $6,779 through  November 2000. The
$1,534,849 note payable, secured by a second deed of trust, bears interest at 8%
through  December 1996 and increases .5% annually  through December 1999 when it
becomes  fixed at 9.5%.  Interest  is  accrued  and added to  principal  through
December 1996 and,  thereafter,  is payable  monthly with principal due November
2010. A note payable of $68,000,  secured by a deed of trust,  bears interest at
8% with principal and interest  payments of $4,779 due monthly  through May 1997
(interest  payments are deducted from the capital account of a limited partner).
The Company is using the resort to provide lodging accommodations to prospective
timeshare purchasers at the Company's Sedona Sales Office. The Company may offer
timeshare interests in the resort in the future.  Until such time, the resort is
classified as property and equipment.


Note 6 - Acquisition of Additional Resort Property Held for Sale

In September 1996, the Company acquired  approximately one-half acre of improved
property  adjacent to the Los Abrigados resort for a purchase price of $750,000,
consisting of a $185,862  cash down payment and a $564,138  first deed of trust.
The  Company  intends  to make  improvements  to the  property  in the amount of
approximately $300,000 and to offer approximately 468 timeshare intervals in the
property  commencing  in 1997.  The first deed of trust bears  interest at prime
plus 4% with interest payable monthly and principal payable through release fees
as intervals are sold.


Note 7 - Other

During the first quarter of 1996,  the Company  received an additional  $700,000
pursuant  to a  management  agreement  with  one of its  timeshare  lenders.  At
September 30, 1996,  approximately  $1.2 million  remains  available  under this
agreement;  however, an affiliate of the lender filed for bankruptcy  protection
in 1996.  While the  Company  has been  informed  that said  proceedings  do not
involve  the lender  with which the Company  conducts  business,  the lender has
failed to fund advances  requested by the Company.  It is the Company's position
that the management  agreement,  as previously amended,  has been anticipatorily
breached by the lender and its  affiliates.  The Company is of the opinion  that
while  further  advances  under the  management  agreement  may not  occur,  the
bankruptcy will have no additional  material impact on the Company's  ability to
obtain  timeshare  financing  from the lender or alternate  sources.  Any future
payments under the management  agreement received by the Company will be applied
to mitigate present and future damages sustained by the Company by virtue of the
breach by the lender and its  affiliates of the  management  agreement and other
loan transactions between the Company, its subsidiaries and affiliates,  and the
lender and its  affiliates.  The  balance  outstanding
                                       7
<PAGE>
under the  agreement of  $2,185,519  at  September  30, 1996 and  $1,500,000  at
December 31, 1995, is included in accrued and other liabilities.


Note 8 - Subsequent Event

On October 30, 1996, the Company entered into a definitive agreement with Debbie
Reynolds Hotel & Casino, Inc., a Nevada corporation ("DRHC") and Debbie Reynolds
Resorts,  Inc., a Nevada  corporation,  whereby the Company will acquire all the
assets constituting the Debbie Reynolds Hotel & Casino in Las Vegas, Nevada. The
purchase price of $16,800,000  includes 3,750,000 federally registered shares of
the Company's  common stock valued for purposes of the  transaction at $2.00 per
share,  as well as $4,200,000  in cash and  $5,100,000 in assumption of mortgage
indebtedness. The transaction is contingent upon approval by the shareholders of
DRHC, a standard due diligence investigation by the Company, and satisfaction of
various  other  conditions.  The hotel  consists of 193 rooms in a twelve  story
structure situated on over six acres.
                                       8
<PAGE>
                                ILX INCORPORATED

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


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

Sales of timeshare  interests for the three and nine months ended  September 30,
1995 were  greater  than the same  periods in 1996 due to the  inclusion of 1994
sales of timeshare  interests in Varsity  Clubs of America - Notre Dame in 1995,
due to the  operation of the Phoenix  Sales Office in the first quarter of 1995,
and due to a program to sell upgraded  intervals to existing timeshare owners of
Los Abrigados resort in 1995. 1996 sales include sales of timeshare interests in
Kohl's Ranch, which commenced in the third quarter of 1995, and second and third
quarter 1996 sales reflect reduced sales at the Sedona Sales Office.

1995 Varsity Clubs of America - Notre Dame sales of timeshare  interests include
1994 sales of timeshare interests of approximately $23,000 for the third quarter
and $513,000 for the nine months ended September 30, 1995.  Recognition had been
deferred in 1994 and recognized on the percentage of completion in 1995 when the
property was substantially  complete. 1995 sales of timeshare interests from the
Varsity  Clubs of America - Notre Dame Sales Office  excluding  these 1994 sales
exceeded 1996 sales by  approximately  $700,000 due to higher average prices and
higher  closing  rates in 1995.  In response to lower 1996  closing  rates,  the
Company  modified its sales approach in October 1996 and expects  improvement in
both closing rate and average price in the fourth quarter.

On April 1, 1995,  the Company  closed the Phoenix Sales Office,  which had sold
primarily  interests in Los  Abrigados,  and began  directing  the customers who
would otherwise have attended a Phoenix Sales Office  presentation to the Sedona
Sales Office, where closing rates had consistently exceeded those of the Phoenix
Sales Office. The Phoenix Sales Office generated  approximately  $771,000 in the
first quarter of 1995.

During the first quarter of 1995, the Company converted eight of its one-bedroom
business suites at Los Abrigados resort to two-bedroom suites with kitchens, and
invited its  existing  timeshare  owners to exchange  their one and  two-bedroom
suites  without  kitchens  to these  upgraded  units.  Revenue of  approximately
$525,000 from these upgrades is included in the first six months of 1995.

Sales of timeshare interests from the Kohl's Ranch Sales Office commenced in the
third  quarter of 1995 and the Company then began  directing  its  Phoenix-based
customers to the Kohl's  Ranch Sales Office as well as its Sedona Sales  Office.
While the number of  customers  generated  to both  offices  increased in total,
customers directed to the Sedona Sales Office declined and, accordingly,  Sedona
Sales Office sales of timeshare  interests  decreased by approximately  $466,000
and  $838,000  for  the  three  and  nine  months  ended   September  30,  1996,
respectively.  Kohl's  Ranch Sales  Office  sales of  timeshare  interests  were
approximately $803,000 and $2,400,000 for the same periods, respectively. Kohl's
Ranch sales were approximately $339,000 for the third quarter of 1995.

The  decrease  in cost of  timeshare  interests  sold as a  percentage  of sales
between years  reflects an  adjustment  to the  estimated  cost of Los Abrigados
interests in 1996.

The  increases in resort  operating  revenue for both the third quarter and nine
months ended  September 30, 1996,  from the same periods in 1995 reflect revenue
from  Varsity  Clubs of America - Notre Dame which  opened in  mid-August  1995,
revenue from Kohl's Ranch, which was acquired on June 1, 1995 and an increase in
revenue from Los Abrigados resort as a result of an increase in occupancy and in
average daily rate.

The decrease in cost of resort  operations as a percentage  of resort  operating
revenue in 1996 from 1995  reflects a change in estimated  depreciation  expense
and lower Los  Abrigados  costs as a  percentage  of  revenue  due to  increased
occupancy and average daily rate and reductions in operating  costs,  net of the
costs of operations  for Varsity Clubs of America - Notre Dame and Kohl's Ranch,
which began  operations in 1995 and accordingly have lower occupancy than mature
resorts. In addition, the smaller, current size and reduced amenities offered at
these  properties  is likely to yield a higher  cost of resort  operations  as a
percentage of resort operating revenue than that of the Los Abrigados resort.
                                       9
<PAGE>
The  increase in sales of land and other and the  related  cost of sales for the
nine months ended September 30, 1996, reflects the sale of a parcel of land held
by Genesis.  Sales are comparable for the three month period ended September 30,
1996 and 1995.  Sales of land and other and the associated cost of land sold and
other also include in 1995 and 1996 sales of Red Rock Collection products and in
1996 revenue and related  costs from the Kohl's Ranch Water Company for services
provided.

The increase in interest  income from 1995 to 1996 is a result of the  increased
consumer paper retained by the Company as well as increased balances of invested
cash.

Advertising  and promotion as a percentage of sales increased for both the third
quarter  and  first  three  quarters  of 1996  from  the same  periods  in 1995,
reflecting a promotional  program in operation until November 1996 which offered
certain purchasers from the Varsity Clubs of America - Notre Dame Sales Office a
vacation  experience  (including  airfare  and car  rental) in addition to their
timeshare  interval.  While the cost of the vacation experience was added to the
buyer's  purchase  price,  it has the effect of increasing  promotion costs as a
percentage of sales. In addition,  in 1996, the Varsity Clubs of America - Notre
Dame Sales Office  experienced a lower  closing rate (number of timeshare  sales
divided by  timeshare  tours) and the Varsity  Clubs of America - Notre Dame and
Sedona Sales Offices experienced increased costs of generating tours.

General and  administrative  expenses are comparable  between years for both the
third quarter and nine months ended September 30, 1996 and 1995.

The decreases in the  provision for doubtful  accounts for the third quarter and
nine months ended  September  30, 1996 from the same periods in 1995 reflect the
expected performance of the portfolio of consumer paper, both sold and unsold.

The  increase  in interest  expense  for both the third  quarter and nine months
ended  September  30, 1996 from the same periods in 1995 reflects an increase in
notes payable,  including the note payable for the construction of Varsity Clubs
of America - Notre Dame,  the Kohl's  Ranch and  Lomacasi  Cottages  acquisition
notes and increased borrowings against consumer notes receivable.

The  increases in minority  interests for both the third quarter and nine months
ended  September 30, 1996 reflect  increases in Los Abrigados  resort net income
between years due to  adjustments  in the  estimated  cost of sales of timeshare
intervals and estimated depreciation expense, the reduced provision for doubtful
accounts and increased hotel operating  income,  net of the minority interest in
operating losses of Lomacasi resort commencing March 1, 1996.

Income tax expense increased from a benefit for both the third quarter and first
three quarters of 1995 to a provision for both the third quarter and first three
quarters of 1996 because 1995 reflects the reduction in the valuation  allowance
reflecting  management's  estimate of the future  benefit to be derived from the
utilization of Genesis net operating  loss  carryovers and because 1996 includes
gross receipts tax on revenue generated in Indiana.

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  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 at
least $5 million through 1996. At September 30, 1996, approximately $4.8 million
is available under the fixed commitment line and  approximately  $2.3 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,  Golden
Eagle Resort and Kohl's Ranch,  and $2.2 million  against  non-conforming  notes
from sales of interval interests in the Golden Eagle Resort through March 1998.
Approximately  $2.6 million was available  under these  commitments at September
30, 1996.
                                       10
<PAGE>
The Company also 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  $5.9 million was available under this commitment at September 30,
1996.

The Company has a financing  commitment  whereby it may borrow up to $10 million
against  conforming  notes received from sales of timeshare  interests in Kohl's
Ranch  through  August 1997.  Approximately  $8.3 million was  available on this
commitment at September 30, 1996.

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 from one financial  institution  and a
$400,000 line of credit from another. $700,000 was available for working capital
under the lines at September 30, 1996.

In February 1996, the Company  borrowed an additional  $1,760,000 from the first
mortgage  holder on the Los Abrigados  resort.  The Company used these funds for
improvements  to the Los  Abrigados  resort  and  Kohl's  Ranch and for  working
capital.

Effective March 1, 1996, the Company, through a subsidiary,  became the managing
general  partner of the  limited  partnership  which owns  Lomacasi  Cottages in
Sedona,  Arizona,  a 5.27  acre  property  approximately  one mile  from the Los
Abrigados  resort.  The Company acquired its partnership  interest for a $25,000
capital contribution. The resort is encumbered by non-recourse deeds of trust on
the  property  totaling  approximately  $2.2  million.  The Company is using the
resort to provide lodging  accommodations to prospective timeshare purchasers at
the Company's Sedona Sales Office,  thereby creating more  availability of rooms
for resort guests at the Los Abrigados  resort.  The Company may offer timeshare
interests in the resort in the future.

During the first quarter of 1996,  the Company  received an additional  $700,000
pursuant  to a  management  agreement  with  one of its  timeshare  lenders.  At
September 30, 1996,  approximately  $1.2 million  remains  available  under this
agreement;  however, an affiliate of the lender filed for bankruptcy  protection
in 1996.  While the  Company  has been  informed  that said  proceedings  do not
involve  the lender  with which the Company  conducts  business,  the lender has
failed to fund advances  requested by the Company.  It is the Company's position
that the management  agreement,  as previously amended,  has been anticipatorily
breached by the lender and its  affiliates.  The Company is of the opinion  that
while  further  advances  under the  management  agreement  may not  occur,  the
bankruptcy will have no additional  material impact on the Company's  ability to
obtain  timeshare  financing  from the lender or alternate  sources.  Any future
payments under the management  agreement received by the Company will be applied
to mitigate present and future damages sustained by the Company by virtue of the
breach by the lender and its  affiliates of the  management  agreement and other
loan transactions between the Company, its subsidiaries and affiliates,  and the
lender and its affiliates.

During the second  quarter of 1996,  the  Company  made its first  borrowing  of
$300,000 on its $6 million, 13% interest rate, construction financing commitment
for the Varsity Clubs of America - Tucson facility.

In September 1996, the Company acquired  approximately one-half acre of improved
property  adjacent to the Los Abrigados  resort for a $185,862 cash down payment
and a $564,138 first deed of trust. The Company intends to make  improvements to
the property and to offer  timeshare  intervals  in the property  commencing  in
1997.

Cash used in operating  activities decreased from $5,472,753 in 1995 to $774,366
in 1996 because 1995  included  additions to resort  property held for timeshare
sales  for  Varsity  Clubs  of  America  - Notre  Dame and  improvements  to Los
Abrigados.

The change from cash used in  investing  activities  in 1995 of $275,509 to cash
provided by  investing  activities  in 1996 of $4,399  reflects  investments  in
Varsity Clubs of America  deferred  assets in 1995 and the  cancellation  of the
Company's  options on its  Varsity  Clubs of  America  sites near Penn State and
Auburn University in 1996.

Cash provided by financing  activities  of $4,142,884 in 1995  decreased to cash
used in financing activities in 1996 of $341,205 because 1995 reflects increased
borrowings  for  construction  of Varsity  Clubs of America - Notre
                                       11
<PAGE>
Dame and for  improvements to the Los Abrigados  resort,  and 1996 reflects cash
distributions to LAP minority partners.

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.
                                       12
<PAGE>
Item 5.  Other Information

On October 30, 1996, the Company entered into a definitive agreement with Debbie
Reynolds Hotel & Casino,  Inc., a Nevada  corporation  ("DRHC") (OTC:  DEBI) and
Debbie Reynolds Resorts, Inc., a Nevada corporation ("DRC"), whereby the Company
will acquire all the assets  constituting  the Debbie Reynolds Hotel & Casino in
Las Vegas,  Nevada (the "Hotel").  The purchase  price of  $16,800,000  includes
3,750,000  federally  registered shares of the Company's common stock valued for
purposes of the  transaction  at $2.00 per share,  as well as $4,200,000 in cash
and  $5,100,000 in  assumption  of mortgage  indebtedness.  The  transaction  is
contingent  upon approval by the  shareholders of DRHC, a standard due diligence
investigation by the Company, and satisfaction of various other conditions.  The
Hotel  consists of 193 rooms in a twelve  story  structure  situated on over six
acres.  Hotel  amenities  include the Debbie  Reynolds  Hollywood  Movie Museum,
Debbie's  Star  Theater,  space  for a  planned  full-service  casino,  food and
beverage  facilities,  a pool and a spa.  Forty-three  of the hotel  rooms  have
recently  been  renovated and  established  as timeshare  units.  As part of the
agreement, Debbie Reynolds will continue to perform and make regularly scheduled
appearances at the Hotel.
                                       13
<PAGE>
Item 6.  Exhibits and Reports on Form 8-K

Exhibits
--------

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


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

     (b) On August 5, 1996,  a report on Form 8-K was filed with the  Securities
         and Exchange Commission, which disclosed the following:

         Item 5.  Other Events.

              Effective  June 2, 1995, ILX  Incorporated  (" ILX ") entered into
         Consulting Agreements with Investor Resource Services,  Inc., a Florida
         corporation,  (" IRC ")  and  Universal  Solutions,  Inc.,  a  Colorado
         corporation, (" Universal ") pursuant to which IRC and Universal agreed
         to provide  certain  investor  relations,  broker  relations and public
         relations  services to ILX. The  Consulting  Agreements are Exhibits to
         ILX's Form S-2 Registration Statement No. 33-61477.  Under the terms of
         the Consulting Agreements,  as amended in the related Option Agreements
         (which  are  attached  as  Exhibits  to  ILX's  Form  S-3  Registration
         Statement No. 333-03151), each of IRC and Universal received from ILX a
         total of  50,000  shares  of ILX  Common  Stock  (the " Shares  ") plus
         options to purchase an additional 250,000 shares of ILX Common Stock at
         $1.25 per share (the " Option Shares "). ILX agreed that the Shares and
         the  Option  Shares  may be  registered  pursuant  to the  terms of the
         Consulting Agreements.

              The term of the Option  Agreements  originally was to terminate 30
         days  after the  effective  date of any  registration  described  under
         Section 7(b) of the Consulting  Agreements (a " Registration ") or June
         1, 1997, whichever occurred first. Pursuant to a letter agreement dated
         June 10, 1996 (the " Letter  Agreement "), a copy of which was attached
         as Exhibit A to ILX's  Current  Report  dated June 14, 1996 on Form 8K,
         ILX agreed to extend the term of the  Option  Agreements  so that those
         Option  Agreements  would terminate 90 days after the effective date of
         any  such  Registration  or June 1,  1997,  whichever  occurs  earlier.
         Pursuant  to a letter  agreement  dated  August  5,  1996 (the " Second
         Letter  Agreement  "), a copy of which is attached as Exhibit A hereto,
         ILX agreed to extend the term of the  Option  Agreements  so that those
         Option  Agreements would terminate 120 days after the effective date of
         any such  Registration or June 1, 1997,  whichever  occurs earlier.  In
         consideration for the extension,  IRC and Universal agreed to exercise,
         collectively  and on or before August 15, 1996,  options for 100,000 of
         the Option Shares at a price of $1.25 per Option Share.

              The above  descriptions of the Consulting  Agreements,  the Option
         Agreements,  the Letter  Agreement and the Second Letter  Agreement are
         qualified in their entirety by reference to the Consulting  Agreements,
         the Option  Agreements,  the  Letter  Agreement  and the Second  Letter
         Agreement.


         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           IRS/Universal Second Letter Agreement         4
                                       14
<PAGE>
                                   SIGNATURES





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



                                ILX INCORPORATED
                                  (Registrant)




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




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





                               /s/ Denise L. Janda
                         ------------------------------
                                 Denise L. Janda
                            Vice President/Controller



Date:  As of November 12, 1996
                                       15
<PAGE>
                                  EXHIBIT INDEX

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


10-1     Fourth  Amendment  to Financing  Agreement  and  Reaffirmation  of Loan
         Documents  between Tammac  Financial  Corp. and Los Abrigados  Partners
         Limited Partnership and ILX Incorporated dated as of September 7, 1996.

10-2     First Amendment to Loan and Security Agreement between Tammac Financial
         Corp. and ILX Incorporated dated as of September 7, 1996.

10-3     Amended and Restated  Promissory Note to Tammac  Financial Corp. by ILX
         Incorporated dated as of September 7, 1996.

10-4     Agreement  for  Purchase  and Sale of  Debbie  Reynolds  Hotel & Casino
         between  Debbie  Reynolds  Hotel & Casino,  Inc.  and  Debbie  Reynolds
         Resorts, Inc. and ILX Incorporated dated October 30, 1996.