ILX Resorts (ILXRQ) 10-Q 2010 Q1 Quarterly report

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 March 31, 2010 Commission File Number 001-13855

ILX RESORTS INCORPORATED

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

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

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

_____________________________________________

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

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

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

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

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

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

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

Class	Outstanding at March 31, 2010
Common Stock, without par value	3,631,877 shares

ITEM 1.  FINANCIAL STATEMENTS

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31,			March 30,
	2009			2010
ASSETS
Cash and cash equivalents	$	3,939,522		$	5,413,347
Notes receivable, net of allowance for uncollectible notes of $5,740,554 and $5,823,755, respectively		15,628,902			15,557,413
Resort property held for Vacation Ownership Interest sales		23,835,999			23,530,179
Resort property under development		1,274,613			1,274,613
Land held for sale		605,302			605,302
Property and equipment, net		20,095,348			19,933,213
Income tax receivable		1,496,274			1,496,274
Deferred tax asset		1,717,076			1,981,407
Other assets		2,524,368			2,221,642
TOTAL ASSETS	$	71,117,404		$	72,013,390
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Liabilities not subject to compromise:
Accounts payable	$	813,017		$	1,075,024
Accrued expenses and other liabilities		2,480,290			3,016,499
Notes payable		33,779,437			33,615,828
Liabilities subject to compromise		5,972,518			6,639,517
TOTAL LIABILITIES		43,045,262			44,346,868
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
ILX Resorts Incorporated shareholders' equity:
Preferred stock, $10 par value; 10,000,000 shares authorized; 117,722 shares issued and outstanding; liquidation preference of  $1,177,220		746,665			746,665
Common stock, no par value; 30,000,000 shares authorized; 5,578,259 and 5,574,259 shares issued and outstanding		29,280,759			29,280,759
Treasury stock, at cost, 1,942,382 shares		(10,005,915	)		(10,005,915	)
Additional paid-in capital		59,435			59,435
Deferred compensation		(4,996	)		(2,172	)
Retained earnings		6,064,636			5,668,139
Total ILX Resorts Incorporated shareholders' equity		26,140,584			25,746,911
Non controlling interest in subsidiary		1,931,558			1,919,611
TOTAL SHAREHOLDERS' EQUITY		28,072,142			27,666,522
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	71,117,404		$	72,013,390

See notes to condensed consolidated financial statements

2

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended March 31,
	2009			2010
REVENUES:
Sales of Vacation Ownership Interests	$	3,057,076		$	2,508,745
Estimated uncollectible revenue		(172,160	)		(140,819	)
Resort operating revenue		4,299,416			4,058,220
Interest and finance income		509,349			403,940
Total revenues		7,693,681			6,830,086
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership Interests sold		389,927			316,321
Cost of resort operations		3,656,458			3,341,790
Sales and marketing		2,622,642			1,709,153
General and administrative		1,291,081			1,095,719
Depreciation and amortization		278,310			219,095
Total cost of sales and operating expenses		8,238,418			6,682,078
Timeshare and resort operating (loss) income		(544,737	)		148,008
Income from land and other, net (including Related Party)		13,327			8,041
Total operating (loss) income		(531,410	)		156,049
Interest expense		(663,251	)		(688,061	)
REORGANIZATION ITEMS:
Loss on disposal of facilities and other		(391,433	)		(27,328	)
Professional fees		(150,000	)		(113,435	)
Loss before income taxes and noncontrolling interest in subsidiary		(1,736,094	)		(672,775	)
Income tax benefit		689,385			264,331
Net loss		(1,046,709	)		(408,444	)
Net loss attritutable to noncontrolling interest in subsidiary		12,632			11,947
Net loss attritutable to ILX Resorts Incorporated	$	(1,034,077	)	$	(396,497	)
NET LOSS PER SHARE
Total Basic net loss per share	$	(0.28	)	$	(0.11	)
Total Diluted net loss per share	$	(0.28	)	$	(0.11	)

See notes to condensed consolidated financial statements

3

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2009			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,046,709	)	$	(408,444	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on sale of property and equipment		9,840			2,841
Reorganization loss on disposal of facilities and other		391,433			27,328
Reorganization professional fees		150,000			113,435
Income tax benefit		(689,385	)		(264,331	)
Estimated uncollectible revenue		172,160			140,819
Depreciation and amortization		278,310			219,095
Amortization of deferred compensation		4,762			2,824
Change in assets and liabilities:
Decrease (increase) in notes receivable, net		501,802			(69,330	)
Decrease in resort property held for Vacation Ownership Interest sales		353,655			305,820
Increase in resort property under development		(5,168	)		-
Increase in land held for sale		(8,614	)		-
(Increase) decrease in other assets		(608,537	)		166,252
Increase in accounts payable		625,982			907,690
Increase in accrued and other liabilities		301,097			539,000
Net cash provided by operating activities		430,628			1,682,999
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(82,716	)		(45,565	)
Net cash used in investing activities		(82,716	)		(45,565	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		603,450			12,434
Principal payments on notes payable		(1,854,960	)		(176,043	)
Net cash used in financing activities		(1,251,510	)		(163,609	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(903,598	)		1,473,825
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,145,601			3,939,522
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,242,003		$	5,413,347

See notes to condensed consolidated financial statements

4

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Chapter 11 Reorganization

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

Reporting Requirements

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

Reasons for Bankruptcy

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

Motions

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

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

Notifications

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

5

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Proofs of Claim

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

Executory Contracts and Determination of Allowed Claims

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

Plan of Reorganization

The Debtors had the exclusive right for 120 days after the Petition Date to file a plan of reorganization and an additional 60 days to obtain necessary acceptances of the plan. Due to ongoing discussions with the Company’s primary lender, a motion to extend exclusivity for an additional 45 days was filed and approved in June 2009.  A second motion to extend exclusivity was granted, the Debtors filed a plan of reorganization and disclosure statement on August 28, 2009 and in September the Court extended the Debtors exclusive right to obtain necessary acceptances of the plan to December 1, 2009. The Debtor filed an Amended Joint Plan of Reorganization (“the Plan”) and First Amended Joint Disclosure Statement (“the Disclosure Statement”) on October 2, 2009.  Also on October 2, 2009, the Bankruptcy Court entered its order approving the Disclosure Statement and establishing the solicitation and voting procedures for the Debtors’ Plan.  The creditors and equity holders’ votes for or against, and any objections to the Debtors’ Plan were required to be filed on or before November 2, 2009.  The confirmation hearing on the Debtors’ Plan was scheduled for November 10 and 12, 2009.  The Company’s primary lender filed a Motion for Relief From Automatic Stay Regarding Debtors’ Real and Personal Property on August 15, 2009.  The hearing on this motion was scheduled to be held in conjunction with the Plan confirmation hearing on November 10 and 12, 2009.  The Debtors and their primary lender asked for an extension on November 12, 2009 until January 7, 2010 in order to work together on a mutually acceptable plan of reorganization.  In January 2010, the Debtors and their primary lender reached an agreement and are now working together on a Joint Plan of Reorganization (“Joint Plan”) in which most of the Debtors assets will be sold to a third party.

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

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

6

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There can be no assurance at this time that the Company will be able to sell most of its assets to a third party or that it can restructure as a going concern, that the Joint Plan or Plan will be confirmed by the Bankruptcy Court, or that any will be implemented successfully.

Reorganization Costs

The Debtors have incurred and will continue to incur significant costs associated with their reorganization.  The amount of these costs, which are being expensed as incurred, have affected and are expected to continue to significantly affect the Debtors’ liquidity and results of operations.  See Note 3 “Reorganization Items” for additional information.

Risks and Uncertainties

The Debtors’ proposed Joint Plan contemplates a sale of most assets to a third party and does not contemplate that the Company will continue as a going concern.  If the proposed sale does not occur, the ability of the Company, both during and after the Chapter 11 case, to continue as a going concern is dependent upon, among other things, a) the ability of the Company to successfully achieve required cost savings to complete its restructuring; b) the ability of the Company to maintain adequate liquidity; c) the ability of the Company to generate cash from operations; d) the ability of the Company to collect customer note balances; e) the ability of the Company to confirm a plan of reorganization under the Bankruptcy Code and f) the Company’s ability to achieve and maintain profitability.  Uncertainty as to the outcome of these factors raises substantial doubt about the Company’s ability to continue as a going concern.  A confirmed plan could materially change the amounts currently disclosed in the condensed consolidated financial statements.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Business Activities

The condensed consolidated financial statements include the accounts of ILX Resorts Incorporated, and its wholly owned subsidiaries (“ILX” or the “Company”).  All significant intercompany transactions and balances have been eliminated in consolidation.  As is required by FASB ASC 810, the Company clearly presents ownership interests in subsidiaries held by parties other than the Company in the consolidated statement of shareholders’ equity separate from the Company’s equity (Note 6).  The Company also presents the amount of consolidated net loss attributable to the parent and to the noncontrolling interest separately on the condensed consolidated statement of operations.

The accompanying condensed consolidated balance sheet as of December 31, 2009, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature.  Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  The accompanying financial statements should be read in conjunction with the Company’s most recent audited financial statements.

7

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

FASB Accounting Standards Codification

In June 2009, the FASB issued FASB Accounting Standards Codification (“FASB ASC”) 105, Generally Accepted Accounting Principles, which establishes the FASB ASC as the sole source of authoritative generally accepted accounting principles.  Pursuant to the provisions of FASB ASC 105, the Company has updated references to generally accepted accounting principles in its financial statements.  The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.

Revenue Recognition

Revenue from sales of Vacation Ownership Interests is recognized in accordance with FASB ASC 978, Real Estate - Time-Sharing Activities.  No sales are recognized until such time as a minimum of 10% of the purchase price and any incentives given at the time of sale has been received in cash, the statutory rescission period has expired, the buyer is committed to continued payments of the remaining purchase price and the Company has been released of all future obligations for the Vacation Ownership Interest.  Resort operating revenue represents daily room rentals, revenues from food, beverages and other amenities, and the management and operation of the ILX Resorts (inclusive of homeowner’s dues).  Such revenues are recorded as the rooms are rented or the services are performed.

Condensed Consolidated Statements of Cash Flows

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

	Three Months Ended March 31,
	2009		2010
Interest paid	$	313,572	$	25,168
Income taxes paid		-		-
Interest capitalized		81,496		-

Stock Based Compensation

The Company records stock based compensation in accordance with the provisions of FASB ASC 718. FASB ASC 718 addresses the accounting for share-based payments to employees, including grants of employee stock options.Under the standard, the Company is required to account for such transactions using a fair-value method and recognize the expense in the condensed consolidated statement of operations.

Reclassification

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

8

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3. Reorganization Items

FASB ASC 852 requires separate disclosure of reorganization items on both the statement of operations and the statement of cash flows.  The Debtors’ reorganization items on the condensed consolidated statements of operations consist of the following:

	Three Months Ended March 31,
	2009		2010
Loss on disposal of facilities and other	$	391,433	$	27,328
Professional fees		150,000		113,435
	$	541,433	$	140,763

The loss on disposal of facilities and other includes the write-off of leasehold improvements related to the rejection of seven unexpired leases as discussed in Note 1 and trustee fees.  Professional fees related to the reorganization are fees paid to legal and expert counsel.

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

	Three Months Ended March 31,
	2009		2010
Loss on disposal of facilities and other	$	391,433	$	27,328
Professional fees		150,000		113,435
Change in accounts payable		1,953,207		664,208
Change in accrued & other liabilities		502,158		2,791
Notes payable		1,412,789		-

The Company uses significant amounts of cash in the development and marketing of Vacation Ownership Interests, but collects the cash on the Customer Notes receivable over a long period of time.  Historically, the Company borrowed against and/or sold receivables to provide sufficient cash to fund its operations.  The Company is currently unable to borrow under any facility, but does have the use of cash collateral generated by customer payments under a motion granted by the Bankruptcy Court (see Note 1). Cash collateral received during the three-month periods ended March 31, 2010 and 2009 was $1,574,992 and $503,131, respectively and, in exchange the Company has pledged all new Customer Notes during that period.

Note 4. Liabilities Subject to Compromise

Liabilities subject to compromise (“LSTC”) refers to both secured and unsecured obligations that will likely be accounted for under a confirmed plan of reorganization.  Actions to enforce or effect payment of pre-petition liabilities are stayed.  FASB ASC 852 requires pre-petition liabilities that are subject to compromise to be reported at amounts expected to be allowed, even if they may be settled for lesser amounts.  These liabilities represent the estimated amount expected to be allowed on known or potential claims to be resolved through the Chapter 11 proceedings and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral, proofs of claim, or other events.  LSTC also includes certain items that may be assumed under the confirmed plan of reorganization and as such may be subsequently reclassified to liabilities not subject to compromise.  The Company has not included secured debt that is fully secured as LSTC nor any post petition obligations for rejected leases, but these obligations could be transferred or added to LSTC based on treatment in the final approved plan of reorganization.  All post petition interest on notes payable is accrued at contract rate without regard to default or other rate payable in the event of delinquency and included in accounts payable and notes payable LSTC.  The determination of how liabilities will be treated cannot be made until the Bankruptcy Court approves a plan of reorganization.  Liabilities subject to compromise consist of the following:

9

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	December 31,		March 31,
	2009		2010
Accounts payable	$	3,787,175	$	4,451,383
Accrued & other liabilities		772,554		775,345
Notes payable		1,412,789		1,412,789
Total liabilities subject to compromise	$	5,972,518	$	6,639,517

Note 5. Basic and Diluted Net Loss Per Share

In accordance with FASB ASC 260, “Earnings Per Share,” the following presents the computation of basic and diluted net loss per share:

	Three Months Ended
	March 31,
	2009			2010
Net loss attributable to ILX Resorts Incorporated	$	(1,034,077	)	$	(396,497	)
Basic and Diluted Net Loss Available to Common Shareholders	$	(1,034,077	)	$	(396,497	)
Basic Weighted-Average Common Shares Outstanding		3,636,900			3,631,877
Diluted Weighted-Average Common Shares Outstanding		3,636,900			3,631,877
Basic Net Loss Per Common Share	$	(0.28	)	$	(0.11	)
Diluted Net Loss Per Common Share	$	(0.28	)	$	(0.11	)

Stock options to purchase 25,000 shares of common stock at a price of $9.90 per share were outstanding at March 31, 2009, but were not included in the computation of diluted net loss per share because their effect would be anti-dilutive.  These options expired in December 2009.

10

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6. Shareholders’ Equity

A summary of the composition of shareholders’ equity as of March 31, 2010 and 2009, and the changes during the three months then ended is presented in the following table:

	Total ILX Resorts
	Incorporated			Noncontrolling			Total
	shareholders' equity			interest			shareholders' equity
Balance at December 31, 2009	$	26,140,584		$	1,931,558		$	28,072,142
Amortization of deferred compensation		2,824						2,824
Net loss		(396,497	)		(11,947	)		(408,444	)
Balance at March 31, 2010	$	25,746,911		$	1,919,611		$	27,666,522
	Total ILX Resorts
	Incorporated			Noncontrolling			Total
	shareholders' equity			interest			shareholders' equity
Balance at December 31, 2008	$	27,940,374		$	1,981,390		$	29,921,764
Amortization of deferred compensation		4,762						4,762
Net loss		(1,034,077	)		(12,632	)		(1,046,709	)
Balance at March 31, 2009	$	26,911,059		$	1,968,758		$	28,879,817

Also, during the three months ended March 31, 2009, the Company reversed deferred compensation of $16,624, representing 2,000 shares issued in January 2006 due to the termination of a Stock Bonus Plan participant prior to vesting in the shares.

Note 7.  Share Based Compensation

Stock Bonus Plan

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

A summary of the non-vested stock under the Stock Bonus Plan at March 31, 2010 follows:

	Non-Vested Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2009		32,500			$7.11
Stock Granted		-			-
Stock Vested		(29,500	)		$7.54
Stock Forfeited		-			-
Non-vested at March 31, 2010		3,000			$2.90

Unamortized deferred compensation of $2,172 will be amortized over the weighted average remaining term of 0.79 years.  As discussed in Note 1, the Company is currently in Chapter 11 and its common stock was delisted in March 2009.  Therefore, the Company cannot currently ascribe a value to the non-vested stock under the Stock Bonus Plan.

11

ILX RESORTS INCORPORATED AND SUBSIDIARIES

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8. Related Party Transactions

The Company, together with James Bruno Enterprises LLC (Bruno), formed ILX-Bruno LLC (“ILX-Bruno”) in August 2005 to purchase and develop three parcels approximating 22 acres of land in Sedona, Arizona from the Forest Service of the Department of Agriculture and an unrelated party (approximately one acre).  The Company entered into an Operating Agreement with Bruno, as a member of ILX-Bruno, in which the Company was named as the manager of ILX-Bruno.  The Company held an 85.0% interest in ILX-Bruno as of March 31, 2010.  ILX-Bruno is included in the Company’s condensed consolidated financial statements as of March 31, 2010 with Bruno’s capital contributions net of operating losses included as noncontrolling interest in subsidiary on the accompanying condensed consolidated balance sheet.  ILX-Bruno is one of the entities that filed a voluntary petition under Chapter 11 of the Bankruptcy Code.

In April 2008, Sedona Vacation Club Incorporated homeowners’ association (“SVC”) and Premiere Vacation Club homeowners’ association (“PVC”) entered into loan agreements to borrow up to $350,000 and $900,000, respectively, at an interest rate of 6.15% to finance renovations and the purchase of certain equipment.  The borrowings have a maturity date of March 31, 2011.  ILX Resorts Incorporated has guaranteed the borrowings, including interest, for both SVC and PVC and has entered into a Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee of 1% of the maximum principal amount under the loan agreements.  The amounts outstanding under the loan agreements as of March 31, 2010 are $416,667 and all payments are current.

Note 9. Commitments and Contingencies

Legal Proceedings

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

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

12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

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

Overview

ILX Resorts Incorporated (“ILX” or the “Company”) is one of the leading developers, marketers and operators of timeshare resorts in the western United States and Mexico.  The Company’s principal operations consist of (i) acquiring, developing and operating timeshare resorts marketed by the Company as vacation ownership resorts, (ii) marketing and selling vacation ownership interests in the timeshare resorts, which typically have entitled the buyers thereof to ownership of a fully-furnished unit for a one-week period on either an annual or an alternate year (i.e., bienniel) basis (“Vacation Ownership Interests”), and (iii) providing purchase money financing to the buyers of Vacation Ownership Interests at its resorts.  In addition, the Company receives revenues from the rental of unused or unsold inventory of units at its vacation ownership resorts, and from the sale of food, beverages and other services at such resorts.  The Company’s current portfolio of resorts consists of seven resorts in Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico, land in Puerto Penãsco (Rocky Point), Mexico and land in Sedona, Arizona (collectively, the “ILX Resorts”).  The Company also owns 2,241 Vacation Ownership Interests in a resort in Las Vegas, Nevada, 2,233 of which have been annexed into Premiere Vacation Club, 194 Vacation Ownership Interests in a resort in Pinetop, Arizona, all of which have been annexed into Premiere Vacation Club and 176 Vacation Ownership Interests in a resort in Phoenix, Arizona, 174 of which have been annexed into Premiere Vacation Club.  On March 2, 2009, the Company and certain of its subsidiaries and limited liability companies filed for relief under Chapter 11 of the United States Bankruptcy Court for the District of Arizona as discussed under Note 1 in this Report on Form 10-Q.  The Company anticipates filing a Joint Plan with its primary lender whereby most of its assets would be sold to a third party.

Significant Accounting Policies

Principles of Consolidation and Business Activities

The condensed consolidated financial statements include the accounts of ILX Resorts Incorporated, and its wholly owned subsidiaries (“ILX” or the “Company”).  All significant intercompany transactions and balances have been eliminated in consolidation.  As is required by FASB ASC 810, the Company clearly presents ownership interests in subsidiaries held by parties other than the Company in the consolidated statement of shareholders’ equity separate from the Company’s equity (Note 6).  The Company also presents the amount of consolidated net loss attributable to the parent and to the noncontrolling interest separately on the condensed consolidated statement of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

The accompanying condensed consolidated balance sheet as of December 31, 2009, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Registration S-X.  Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature.  Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  The accompanying financial statements should be read in conjunction with the Company’s most recent audited financial statements.

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

FASB Accounting Standards Codification

In June 2009, the FASB issued FASB Accounting Standards Codification (“FASB ASC”) 105, Generally Accepted Accounting Principles, which establishes the FASB ASC as the sole source of authoritative generally accepted accounting principles.  Pursuant to the provisions of FASB ASC 105, the Company has updated references to generally accepted accounting principles in its financial statements.  The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.

Revenue Recognition

Revenue from sales of Vacation Ownership Interests is recognized in accordance with FASB ASC 978, Real Estate - Time-Sharing Activities.  No sales are recognized until such time as a minimum of 10% of the purchase price and any incentives given at the time of sale has been received in cash, the statutory rescission period has expired, the buyer is committed to continued payments of the remaining purchase price and the Company has been released of all future obligations for the Vacation Ownership Interest.  Resort operating revenue represents daily room rentals, revenues from food, beverages and other amenities, and the management and operation of the ILX Resorts (inclusive of homeowner’s dues).  Such revenues are recorded as the rooms are rented or the services are performed.

Recent Accounting Pronouncements

In April 2009, the FASB issued a new staff position, to require an entity to provide disclosures about fair value of financial instruments in interim financial information.  The staff position also amends a previous accounting standard to require those disclosures about the fair value of financial instruments in summarized financial information at interim reporting periods.  Under the new staff position, the Company will be required to include disclosures about the fair value of its financial instruments whenever it issues financial information for interim reporting periods.  In addition, the Company will be required to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position.  The staff position was effective for periods ending after June 15, 2009 and the adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued a new standard which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The new standard was effective for interim and annual periods ending after June 15, 2009.  The adoption of this standard did not have a material effect on the Company’s financial position or results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

In June 2009, the FASB issued a new standard which was adopted to improve financial reporting by enterprises involved with variable interest entities.The new standard is effective for annual reporting periods beginning after November 15, 2009.  Earlier adoption is prohibited.  The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

In February 2010, the FASB issued Accounting Standards Update (ASU) 2010-09, to address potential practice issues associated with FASB ASC Topic 855 (Statement 165). The ASU eliminates the requirement for SEC filers to disclose the date through which subsequent events have been evaluated in originally issued and reissued financial statements.  This change was immediately effective.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Results of Operations

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

	Three Months Ended
	March 31,
	2009			2010
As a percentage of total revenues:
Sales of Vacation Ownership Interests		39.7	%		36.7	%
Estimated uncollectible revenue		(2.2	%)		(2.0	%)
Resort operating revenue		55.9	%		59.4	%
Interest and finance income		6.6	%		5.9	%
Total revenues		100.0	%		100.0	%
As a percentage of sales of Vacation Ownership Interests(1):
Cost of Vacation Ownership Interests sold		13.5	%		13.4	%
Sales and marketing		90.9	%		72.2	%
Contribution margin percentage from sale of Vacation
Ownership Interests (2)		(4.4	%)		14.5	%
As a percentage of resort operating revenue:
Cost of resort operations		85.0	%		82.3	%
As a percentage of total revenues(1):
General and administrative		16.8	%		16.0	%
Depreciation and amortization		3.6	%		3.2	%
Total operating (loss) income		(6.9	%)		2.3	%
Selected operating data:
Vacation Ownership Interests sold (3) (4)		160			130
Average sales price per Vacation Ownership Interest
sold (excluding revenues from Upgrades) (4)	$	14,743		$	14,197
Average sales price per Vacation Ownership Interest
sold (including revenues from Upgrades) (4)	$	18,457		$	18,775

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

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

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

(4)  Consists of an aggregate of 230 and 174 biennial and annual Vacation Ownership Interests for the three months ended March 31, 2009 and 2010, respectively.  Excludes the number of conversions and upgrades.

Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended March 31, 2010

Sales of Vacation Ownership Interests decreased 17.9% or $548,331 to $2,508,745 for the three months ended March 31, 2010, from $3,057,076 for the same period in 2009.  The decrease reflects a reduction in scale of sales operations.  As part of a comprehensive expense reduction program, the Company closed three of its sales offices in January 2009, and continues to operate two sales offices in Sedona and Tucson at a reduced scale.  The decreased revenue includes a reduction in tours to the Sedona and Tucson sales office during the Chapter 11 proceedings, as well as decreased average sales prices discussed below offset by higher closing rates at both the Sedona and Tucson sales offices.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

The average sales price per Vacation Ownership Interest sold (excluding revenues from Upgrades) decreased 3.7% or $546 to $14,197 for the three months ended March 31, 2010 from $14,743 for the same period in 2009.  The decrease in average sales price is due to a change in the product mix sold and special promotional pricing following the Company’s Chapter 11 filing.  The number of Vacation Ownership Interests sold decreased 18.8% from 160 in the three months ended March 31, 2009 to 130 for the same period in 2010 primarily due to the reduced scale and resultant reduction in tours to the Sedona and Tucson sales offices discussed above.  The three months ended March 31, 2010 included 88 biennial Vacation Ownership Interests (counted as 44 annual Vacation Ownership Interests) compared to 141 biennial Vacation Ownership Interests (counted as 70.5 annual Vacation Ownership Interests) in the same period in 2009.

Upgrade revenue, included in Vacation Ownership Interest sales, was consistent at $595,105 and $592,270 for the three months ended March 31, 2010 and 2009, respectively.  Upgrades often do not involve the sale of additional Vacation Ownership Interests (merely their exchange) and, therefore, such Upgrades increase the average sales price per Vacation Ownership Interest sold.  The average sales price per Vacation Ownership Interest sold (including upgrades) increased 1.7% or $318 to $18,775 for the three months ended March 31, 2010 from $18,457 in 2009.  This increase is due to the impact of level Upgrade revenue between years while the number of sales of new Vacation Ownership Interests excluding Upgrades and the average sales price per Vacation Ownership Interest sold (excluding Upgrades) declined.

Resort operating revenue decreased 5.6% to $4,058,220 for the three months ended March 31, 2010, from $4,299,416 for the same period in 2009.  The decrease for the three months ended March 31, 2010 reflects the closure of the Los Abrigados Lodge in March 2009, decreased occupancy at certain of the Company’s Arizona resorts and decreased average daily rate at certain of the Company’s Arizona and South Bend resorts.  Cost of resort operations as a percentage of resort operating revenue decreased from 85.0% to 82.3% for the three months ended March 31, 2010 reflecting expense reduction measures put in place in the first quarter 2009 as well as the closure of the Los Abrigados Lodge in March 2009.  The Los Abrigados Lodge operated under a long term lease agreement that was rejected as part of the Chapter 11 proceedings and was mainly used to house tour guests and had minimal revenue from other sources.

Interest and finance income decreased 20.7% to $403,940 for the three months ended March 31, 2010 from $509,349 for the same period in 2009, reflecting decreased Customer Note balances and special interest rates on certain products following the Chapter 11 filing.

Cost of Vacation Ownership Interests sold as a percentage of Vacation Ownership Interest sales was consistent at 13.4% and 13.5% for the three months ended March 31, 2010 and 2009, respectively.

Sales and marketing as a percentage of sales of Vacation Ownership Interests decreased to 72.2% for the three months ended March 31, 2010 from 90.9% for the same period in 2009, reflecting increased closing rates, lower marketing costs per tour and reduced sales office expenses.  The significant reduction between the three months ended March 31, 2010 and the comparable period in 2009 reflects the rejection of leases in March 2009 for less effective marketing venues and other cost cutting strategies.

General and administrative expenses decreased to 16.0% of total revenue for the first quarter ended March 31, 2010, from 16.8% for the same period in 2009.  The percentage decrease reflects a decrease in salaries and related benefits as a result of a reduction in force and comprehensive salary reductions in January 2009 as well as a decrease in rent and other expenses resulting from the rejection of a lease as part of the Bankruptcy filing as discussed in Note 1.

Income from land and other, net was consistent at $8,041 and $13,327 for the three months ended March 31, 2010 and 2009, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Interest expense increased 3.7% to $688,061 for the three months ended March 31, 2010 from $663,251 for the same period in 2009, reflecting reduced capitalized interest net of lower outstanding balances.

Reorganization items include loss on disposal of facilities and other and professional fees.  The loss on disposal of facilities and other in the three months ended March 31, 2009 includes the write-off of lease acquisition costs, deposits, leasehold improvements and other items related to the rejection of seven unexpired leases as well as trustee fees.  The loss on disposal of facilities and other in the three months ended March 31, 2010 includes the write-off of leasehold improvements and trustee fees.  Professional fees are expenses for legal and expert counsel.

Liquidity and Capital Resources

Sources of Cash

The Company generates cash primarily from the sale of Vacation Ownership Interests (including Upgrades), from the financing of Customer Notes from such sales and from resort operations.  Because the Company uses significant amounts of cash in the development and marketing of Vacation Ownership Interests, but collects the cash on the Customer Notes receivable over a long period of time, borrowing against and/or selling receivables is necessary to provide sufficient cash to fund its normal operations.  The Company’s credit facility expired in December 2009.  The Company was unable to borrow under its facility after its Chapter 11 filing, but does have the use of cash collateral generated by customer payments under a motion granted by the Bankruptcy Court.

For the three months ended March 31, 2010 and 2009 cash provided by operations was $1,682,999 and $430,628, respectively.  The increase in cash provided by operations reflects a reduction in net loss and resultant smaller income tax benefit, an increase in accounts payable due to non payment of pre-petition amounts and accrued interest on notes payable, a decrease in other assets due to the timing of the 2009 partial payment of third party homeowners’ dues which were paid directly by the PVC in 2010. These are offset by an increase in notes receivable and a decrease in the reorganization loss on disposal of facilities and other due to the write-off of lease related expenses when the leases were rejected in March 2009.

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

At December 31, 2009, the Company had federal net operating loss, or "NOL," carryforwards of approximately $5.2 million and a state NOL carryforward of approximately $12.0 million. These NOL carryforwards expire in 2028.

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

18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Uses of Cash

Investing activities typically reflect a net use of cash because of capital additions.  Net cash used in investing activities was $45,565 and $82,716 for the three months ended March 31, 2010 and 2009, respectively.  The decrease in net cash used in investing activities in 2010 is due to reduced capital expenditures.

Net cash used in financing activities was $163,609 and $1,251,510 in the three months ended March 31, 2010 and 2009, respectively.  The decrease in cash used in financing activities is due to the post petition use of cash collateral for operations rather than for debt service, net of the post petition discontinuation of advances against new consumer notes.

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

Credit Facilities and Capital

The Company had a financing commitment aggregating $20 million whereby the Company borrowed against notes receivable pledged as collateral.  These borrowings bear interest at a rate of prime plus 1.5%.  The $20 million commitment had a borrowing period which expired in December 2009 and the maturity is in January 2013.  The Company was not able to borrow on this facility after its March 2, 2009 filing under Chapter 11 of the United States Bankruptcy Code.

At March 31, 2010 and 2009, the Company had approximately $3.7 million and $6.1 million, respectively, in outstanding notes receivable sold on a recourse basis.

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

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

Under the contemplated Joint Plan, material additional credit facilities are not anticipated to be required.  Under the Plan or otherwise, as part of its reorganization, the Company may negotiate additional credit facilities, including leases, issue corporate debt, issue equity securities, or any combination of the above.  Any debt incurred or issued by the Company may be secured or unsecured, may bear interest at fixed or variable rates of interest, and may be subject to such terms as management and the Bankruptcy Court deems prudent.  There is no assurance that the Company will be able to secure additional corporate debt or equity at or beyond current levels or that the Company will be able to maintain its current level of debt.

19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

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

Off-Balance Sheet Arrangements

In April 2008, SVC and PVC entered into loan agreements to borrow up to $350,000 and $900,000, respectively, at an interest rate of 6.15% to finance renovations and the purchase of certain equipment for resort operations.  The borrowings have a maturity date of March 31, 2011.  The Company has guaranteed the borrowings, including interest, for both SVC and PVC and has entered into a Guarantee Fee Agreement with SVC and PVC under which it received a guarantee fee of 1.0% of the maximum principal amount under the loan agreements.  The amounts outstanding under the loan agreements as of March 31, 2010 were $416,667 and all payments are current.

Seasonality

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

Inflation

Inflation and changing prices have not had a material impact on the Company’s revenues, operating income and net income during any of the Company’s two most recent fiscal years or the three months ended March 31, 2010.  However, to the extent inflationary trends affect interest rates, a portion of the Company’s debt service costs may be affected as well as the rates the Company charges on its Customer Notes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4T. Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (“SEC”) rules and forms. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2010 was completed��based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are functioning effectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

(b)  Changes in Internal Control over Financial Reporting

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

Part II

Item 1. Legal Proceedings

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

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

Item 1A. Risk Factors

Not applicable

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

None           

Item 3. Defaults Upon Senior Securities

As a result of the Chapter 11 filing, the Company is in default on substantially all of its debt obligations.

Item 5. Other Information

None

Item 6. Exhibits

(i) Exhibits

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

21

SIGNATURES

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

ILX RESORTS INCORPORATED

(Registrant)

/s/ Joseph P. Martori

Joseph P. Martori

Chief Executive Officer

/s/ Nancy J. Stone

Nancy J. Stone

Vice Chairman & President

/s/ Margaret M. Eardley

Margaret M. Eardley

Executive Vice President & Chief Financial Officer

/s/ Taryn L. Chmielewski

Taryn L. Chmielewski

Vice President & Corporate Controller

Date:  As of May 13, 2010

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