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Filed pursuant to Rule 424(b)(4)
Reg No. 333-45403
PROSPECTUS
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1,400,000 SHARES

[ILX LOGO]

ILX RESORTS INCORPORATED

Common Stock

ILX Resorts Incorporated, an Arizona corporation (the "Company" or "ILX"),
is a leading developer, marketer and operator of timeshare resorts, also known
as vacation ownership resorts, located primarily in the western United States.
The Company focuses its growth strategy on marketing vacation ownership
interests in (i) its convenient access resorts and (ii) its proprietary branded
Varsity Clubs of America (defined herein) urban vacation ownership properties.
Following the completion of construction of a Varsity Club property in Tucson,
Arizona, the Company will own seven resorts in three states, Arizona (5
resorts), Colorado (1 resort) and Indiana (1 resort). As of December 31, 1997,
the Company owned an aggregate of 391 units, comprising a total of 20,171 (sold
and unsold) one-week vacation ownership interests.

All of the shares of no par value common stock (the "Common Stock"),
offered hereby (the "Offering"), are being sold by the Company. ILX's Common
Stock is quoted on the American Stock Exchange(SM) under the symbol "ILX." On
April 6, 1998, the closing sale price of the Common Stock was $7.00 per share.
See "Price Range of Common Stock."

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SEE "RISK FACTORS" BEGINNING ON PAGE 15 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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UNDERWRITING
DISCOUNTS AND PROCEEDS TO THE
PRICE TO PUBLIC COMMISSIONS COMPANY (1)
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Per Share $6.75 $0.4725 $6.2775
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Total (2) $9,450,000 $661,500 $8,788,500
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(1) Before deducting estimated expenses of $450,000 payable by the Company.

(2) The Company has granted to the several underwriters (the "Underwriters") of
which EVEREN Securities, Inc. is acting as representative (the
"Representative"), an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 210,000 additional shares of Common Stock to
cover over-allotments, if any. If the option is exercised in full, the
Price to Public, Underwriting Discounts And Commissions and Proceeds to the
Company will be $10,867,500, $760,725 and $10,106,775, respectively. See
"Underwriting."

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The shares of Common Stock are offered subject to receipt and acceptance
by the Representative, to prior sale and to the Representative's right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Common Stock will be made
through The Depository Trust Company, New York, New York, on or about April 15,
1998.
EVEREN SECURITIES, INC.
The date of this Prospectus is April 8, 1998
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[3 page layout of Company's Convenient Access Resorts and Varsity Clubs of
America properties, consisting of the following: (1) Map of Continental United
States identifying locations of existing ILX Resorts and six potential sites for
future Varsity Clubs; and (2) pictures of Los Abrigados Resort & Spa,
Interior -- Los Abrigados, Lobby -- Kohl's Ranch, Kohl's Ranch Lodge, Full
Service Food & Beverage Amenities, Stadium Sports Lounge -- VCA -- South Bend,
VCA -- South Bend, Typical VCA Members' Lounge, VCA -- Tucson -- Construction
Site.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING THE PURCHASE OF THE COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING
TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE COMMON STOCK OR THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

ILX Resorts Incorporated(TM), Premiere Vacation Club(TM), Varsity Clubs of
America(TM), Red Rock Collection(TM), Sedona Spa(TM), Joey Bistro(TM) and Sedona
Worldwide(TM) are trademarks and trade names of the Company. Certain trademarks
and trade names included in this Prospectus are the property of third parties
and the use thereof does not imply a direct or indirect endorsement of the
Company by such third parties. Specifically, neither the Company nor its
subsidiary, Varsity Clubs of America Incorporated, is affiliated with any
university, including, without limitation, the University of Notre Dame or the
University of Arizona.
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PROSPECTUS SUMMARY

Except as otherwise noted, (A) all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option, (B) all information in
this Prospectus with respect to Vacation Ownership Interests is presented on an
annual, as opposed to an alternate-year basis, and (C) all share information has
been adjusted to give retroactive effect to a one-for-five reverse stock split
(the "Reverse Stock Split"), declared effective by the Company as of January 12,
1998. Unless the context otherwise requires, references to the "Company" or
"ILX" means ILX Resorts Incorporated and its consolidated subsidiaries. Unless
otherwise indicated, all vacation ownership industry data contained herein is
derived from information prepared by the American Resort Development Association
("ARDA"), an industry trade association. This Prospectus contains certain
"forward-looking statements," including statements regarding, among other items,
the Company's growth strategy, industry and demographic trends, the Company's
ability to finance its operations and anticipated trends in its business. Actual
results could differ materially from these forward-looking statements as a
result of a number of factors, including, but not limited to, the Company's need
for additional financing, intense competition in various aspects of its
business, the risks of rapid growth, its dependence on key personnel and other
factors described under "Risk Factors" commencing at page 15 and elsewhere in
this Prospectus.

THE COMPANY

ILX is one of the leading developers, marketers and operators of timeshare
resorts in the western United States. 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 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., biennial) 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 its 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
four resorts in Arizona, one in Indiana, and one in Colorado, and the Company is
constructing a seventh resort in Tucson, Arizona (collectively, the "ILX
Resorts"). At December 31, 1997, the ILX Resorts (excluding the Tucson property
currently under construction) represented an aggregate of 391 units and 20,171
sold and unsold one-week Vacation Ownership Interests. Upon completion of the
Tucson property currently under construction, the Company expects to own an
aggregate of 453 units, comprising 23,395 (sold and unsold) one-week Vacation
Ownership Interests. As of December 31, 1997, the Company also owned an
aggregate of approximately 84 Vacation Ownership Interests in destination
resorts owned by others and located in Florida, Mexico and elsewhere, and had
acquired the rights to market Vacation Ownership Interests in four destination
resorts owned by an unaffiliated third party and located on the island of Kauai,
Hawaii (collectively, the "Additional Interests").

The Company was founded in 1986 and commenced implementation of its current
operating and growth strategies in the fourth quarter of 1991. During the period
from December 31, 1991 through December 31, 1997, the Company increased the
number of ILX Resorts from two to seven, and increased its total inventory of
sold and unsold Vacation Ownership Interests from 9,915 weeks to 23,479 weeks
(including 3,224 under construction at VCA-Tucson and the 84 Additional
Interests). The Company's total revenues increased from $6.1 million in 1991 to
$36.4 million in 1997. During this period, the Company's growth was fueled
principally by the acquisition, redevelopment, ground-up development and
expansion of certain ILX Resorts and the marketing and sale of Vacation
Ownership Interests in these resorts.

The Company believes it was able to purchase the ILX Resorts and the
Additional Interests at relatively attractive prices because of its skill in
locating, identifying and acquiring distressed or underdeveloped resorts and
Vacation Ownership Interests. The Company successfully utilized this strategy in
connection with its Los Abrigados Resort & Spa in Sedona, Arizona ("Los
Abrigados") (175 units), the Kohl's Ranch Lodge in Payson, Arizona ("Kohl's
Ranch") (52 units) and, most recently, the Roundhouse Resort in Pinetop/

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Lakeside, Arizona (59 existing units owned by current owners of Vacation
Ownership Interests and planned expansion of approximately 100 units).

Utilizing management's development expertise, the Company developed and
implemented the Varsity Clubs of America ("Varsity Club") concept. This concept
entails ground-up development of urban vacation ownership properties
strategically situated in tourist destinations which are accessible to major
population centers near prominent colleges and universities. The first Varsity
Club, consisting of 62 units, was completed in August 1995 and is located
approximately three miles from the University of Notre Dame in South Bend,
Indiana ("VCA-South Bend"). Construction of a second Varsity Club, consisting of
62 planned units, located near the University of Arizona in Tucson, Arizona
("VCA-Tucson"), is scheduled for completion in April 1998. The scope of the
Company's activities since 1991 have enabled the Company's management team,
which has significant experience in the vacation ownership resort and real
estate development industries, to establish substantial in-house capabilities in
areas critical to the Company's operating and growth strategies, including
property identification and acquisition, property development and
rehabilitation, and Vacation Ownership Interest sales and marketing.

The Company is pursuing a two-pronged operating strategy which focuses on
marketing Vacation Ownership Interests in the Company's convenient access
resorts ("CARs") and in its Varsity Clubs. CARs are typically high-quality
vacation ownership resorts situated in settings of natural beauty and located
within convenient and inexpensive travelling distance from major population
centers (currently Phoenix and Denver). The Company's CARs are intended to
facilitate more frequent "short-stay" getaways, which the Company believes is an
increasingly popular vacation trend. As of December 31, 1997, the Company
operated five CARs consisting of 329 units and held 5,355 unsold Vacation
Ownership Interests in those CARs. The Company's inventory of CARs has been
marketed primarily by ILX employees at the Company's on-site sales offices
located at or near selected ILX Resorts.

Although purchasers will continue to be able to purchase Vacation Ownership
Interests at any individual ILX Resort or an Additional Interest, commencing in
1998, the Company's inventory of CARs will be marketed primarily through
membership interests in its proprietary branded Premiere Vacation Club. The
Premiere Vacation Club offers purchasers a deeded one-week membership interest
which may be used at any time between certain specified dates at any one of the
ILX Resorts included in the Premiere Vacation Club, or may be split into
multiple stays of shorter duration at any combination of such resorts. In
addition, Premiere Vacation Club membership interests may be exchanged for a
stay at other resorts through the major national exchange networks in which
owners of Vacation Ownership Interests in the ILX Resorts and Additional
Interests (the "ILX Owners") may participate, such as Resort Condominiums
International ("RCI") and Interval International ("II"). Substantially all of
the Company's inventory of Vacation Ownership Interests, including those at its
Varsity Clubs and those to be included in the Premiere Vacation Club, qualify as
"red time," the highest demand classification for purposes of participation in
such exchange networks. The Company believes that its Premiere Vacation Club
concept will be appealing to customers because of its emphasis on flexible use
options (e.g., floating days, two-day uses and the ability to split a purchased
membership interest), locations within convenient driving distances from major
metropolitan areas and other features (e.g., high quality amenities and food and
beverage discounts at its participating ILX Resorts).

Clubs offer features common to a "city club", including a fitness center,
swimming pool, bar, restaurant/lounge, billiards and large sitting/welcome room.
In addition, the Varsity Clubs concept enables the Company to enlarge the
Company's target list of potential purchasers by utilizing an identification
with the local university to market Vacation Ownership Interests to alumni,
sports season ticket holders, parents of university students and corporate
sponsors of university events, among others, who attend the sporting, academic
and cultural events regularly hosted by various universities, thereby enlarging
the Company's target base of potential purchasers. Varsity Clubs offer a
flexible ownership structure which permits the purchase of Vacation Ownership
Interests consisting of a single day, a collection of single days (such as
selected days during an entire specified sports season) or a traditional
one-week period, in addition to unlimited use of the common areas for "city
club" use. The Company believes that direct marketing to a large target base of
potential purchasers with university affiliations will enable the Company to
achieve premium pricing with respect to those portions of its inventory which
coincide with high demand for accommodations at prominent university-sponsored
events. The Company also believes that its success in gaining access to alumni
and other target potential purchasers with relationships to the University of
Notre Dame or the University of Arizona may facilitate similar arrangements with
other universities in the areas in which future Varsity Clubs are developed.

The Company had more than 12,000 existing ILX Owners at December 31, 1997.
During 1997, the Company sold 2,512 annual and biennial Vacation Ownership
Interests at the ILX Resorts, compared to 2,320 and 2,195 during 1996 and 1995,
respectively. The average sales price for a Vacation Ownership Interest
(excluding sales of Upgrades, as defined below) was $10,994 for an annual
interest and $6,506 for a biennial interest, resulting in a weighted average
price (each biennial interest is treated as one-half of an annual interest) of
$11,963 during the year ended December 31, 1996 and $11,444 for an annual
interest and $6,899 for a biennial interest, resulting in a weighted average
price of $12,656 during the year ended December 31, 1997. At December 31, 1997,
the Company had an existing inventory of 7,105 unsold Vacation Ownership
Interests (including Vacation Ownership Interests in the CARs, VCA-South Bend
and the Additional Interests) and a master plan, subject to consumer demand,
receipt of applicable permits and other contingencies generally applicable to
real estate development, to construct up to 11,438 (including 3,224 to be
constructed at VCA-Tucson) additional Vacation Ownership Interests through 1999
and thereafter at the existing ILX Resorts. See "Risk Factors -- Risks of Rapid
Growth."

Vacation Ownership Industry Trends

The vacation ownership resort industry has experienced rapid growth. In
1997, the worldwide vacation ownership industry grew to approximately $6.0
billion in sales, compared to $3.2 billion in 1990. Also in 1997, ARDA estimated
that the worldwide industry grew to 4.5 million owners as compared to 1.8
million owners in 1990. From 1980 through 1997, an estimated 6.9 million
Vacation Ownership Interests were purchased for total sales of $53.6 billion.

While demographics differ by property, historically, through 1997, the
average ILX Owner has been between 40 and 55 years old and had an annual income
in excess of $50,000. According to ARDA, in 1997 the median age and household
income of a Vacation Ownership Interest owner in the United States was 50 years
and $71,000, respectively. The Company expects the vacation ownership resort
industry to continue to grow as the "baby-boom" generation moves through the 40
to 55 age bracket. According to the 1990 U.S. Census Bureau study, the 40 to 55
age group comprised 17.3% of the U.S. population, and households with an
aggregate income exceeding $40,000 comprised 35.6% of U.S. households. The
number of persons in the United States between the ages of 40 and 55 grew to an
estimated 51.4 million in 1995 from 43.1 million in 1990 and is predicted to
increase to approximately 59.5 million by 2000. This represents estimated growth
of 19.3% between 1990 and 1995, and the U.S. Census Bureau predicted this
population group to grow 15.8% from 1995 to 2000. In comparison, the U.S. Census
Bureau reported that the total U.S. population grew and is projected to grow by
less than 6.0% in the same time periods.

The Company believes that a high level of fragmentation in the vacation
ownership resort industry presents opportunities for growth. According to Ragatz
Associates, a long-time vacation ownership industry consultant, there were
approximately 200 operators of approximately 294 vacation ownership resorts
actively
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selling Vacation Ownership Interests in 1996 in the United States, with no
single operator controlling in excess of 10% of the United States market. See
"Risk Factors -- Competition" "Business -- The Vacation Ownership Industry
Overview" and "Business -- Competition."

Growth Strategy

The Company believes that its experienced management team, substantial
in-house operating and development capabilities and two-pronged marketing
strategy, position the Company to capitalize on the growth trends in the
vacation ownership resort industry. The Company intends to continue to grow by
implementing the following strategies:

Focus on the Western United States. The ILX Resorts are primarily
located in the western United States, and the Company will continue to
focus its acquisition and development of additional vacation ownership
resorts primarily in that region. The Company believes that the western
region of the United States provides numerous opportunities to develop or
acquire additional CARs by locating vacation ownership resorts in settings
of natural beauty and, when possible, within convenient travelling
distances of major population centers. The Company also believes the
western United States has numerous universities located in or near large
population centers which will be targeted as potential sites for future
Varsity Club properties. By focusing its expansion in the western United
States, the Company believes it can more easily incorporate additional
resorts into its Premiere Vacation Club and market these resorts to ILX
Owners and others using its existing sales, marketing and other resources.
Further, demographic trends indicate that the population in the western
United States will continue to grow at a rate faster than the rest of the
country, providing a larger potential customer base in the future.

Develop Additional Properties. The Company believes its inventory of
Vacation Ownership Interests can be significantly and prudently increased
through the development of additional Varsity Clubs, as well as development
of additional CARs, to be marketed through its Premiere Vacation Club. The
Company successfully completed development of its VCA-South Bend in August
1995, which will serve as the prototype for additional Varsity Clubs.
Construction of the planned 62-unit VCA-Tucson near the University of
Arizona commenced in August 1997 and is expected to be completed in April
1998 at an estimated aggregate cost of $7.5 million. The Company intends to
develop additional Varsity Clubs using the same general design concepts,
architectural plans and construction specifications which were established
at VCA-South Bend, and which are being implemented in the development of
VCA-Tucson. The Company believes there exist multiple sites in the western
United States which are accessible to major population centers and local
tourist attractions and are proximate to universities with prominent
athletic and cultural activities so as to make them appropriate for the
development of additional Varsity Clubs. The Company intends to initiate
development of approximately five Varsity Clubs in the next three years.
Areas in which the Company is currently investigating the potential
development of additional Varsity Clubs include Tempe, Arizona; Boulder,
Colorado; Las Vegas, Nevada; Palo Alto, California; Salt Lake
City -- Provo, Utah; and Seattle, Washington. However, no contracts or
commitments currently exist for any such proposed locations. See "Risk
Factors -- Risks of Rapid Growth" and "Risk Factors -- Competition."

Acquire and Redevelop Additional Resorts. The Company has
historically expanded and enhanced its portfolio of vacation ownership
resorts primarily through the acquisition and redevelopment of CARs located
in settings of natural beauty, which the Company believes have been
available at relatively attractive prices from sellers who have
underutilized or underdeveloped the resorts or are in distressed
situations. By acquiring such resorts at relatively favorable prices and
utilizing the Company's substantial in-house development capabilities to
expand and enhance the resorts' Vacation Ownership Interests inventory, the
Company has been able to achieve favorable overall inventory investment
costs relative to the vacation ownership industry. During 1996, the
Company's average cost of Vacation Ownership Interests sold as a percentage
of Vacation Ownership Interest sales at ILX Resorts was 15.8%, and for
Vacation Ownership Interests which it acquired (as opposed to developed
from ground up) the average cost was 13.7%. Both of the foregoing
percentages compare favorably to the vacation ownership

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industry's median product cost as a percentage of net sales of between
20.1% and 25.0%, as reported in ARDA's Financial Performance Digest 1997.

The Company has previously demonstrated its ability to acquire quality
vacation ownership resorts at relatively attractive prices, and the Company
intends to continue to seek similar opportunities in the future. Because of
management's familiarity with the Company's geographic market and its
skills in the property acquisition and development areas, the Company
believes it will continue to be able to identify a substantial number of
vacation ownership resorts for acquisition which are suitable for the
Company's value-added management approach. Acquired resorts will be
marketed primarily through the Premiere Vacation Club, as individual ILX
Resorts or a combination thereof. The Company believes that its Premiere
Vacation Club will afford greater flexibility in the acquisition of
additional vacation ownership resorts to the extent that small or remote
resorts which may not otherwise be attractive to purchasers of Vacation
Ownership Interests at a single resort may significantly enhance the
consumer appeal of a membership interest in the Premiere Vacation Club. The
Company believes these types of resorts can be acquired at relatively
attractive prices since other potential purchasers are likely to lack the
resources to market such vacation ownership resorts effectively and,
therefore, be unwilling to pay higher prices for them. Although it has no
binding agreements and there can be no assurance that the Company will
consummate any of such acquisitions, the Company is engaged in active
negotiations with respect to several potential vacation ownership resort
acquisitions. See "Risk Factors -- Risks of Rapid Growth."

Expand Existing ILX Resorts. The Company intends to capitalize upon
opportunities to expand the ILX Resorts. The Company believes development
of additional units at existing ILX Resorts is generally the most
economical means of growing the Company's Vacation Ownership Interest
inventory and sales profits because the fixed costs associated with
developing the necessary infrastructure (i.e., lobby areas, restaurants and
pools) need not be incurred and may be spread over a larger number of
units. Currently, the Company's expansion plans through 1999 include the
development of approximately 20 units at Los Abrigados, 24 units at
VCA-South Bend, 12 units at Kohl's Ranch and as many as 40 units at the
Roundhouse Resort. The Company anticipates increasing its inventory of
Vacation Ownership Interests through expansion of existing ILX Resorts by
as many as approximately 8,300 weeks through 1999 (including 3,224 weeks
currently under construction at VCA-Tucson).

Increase Sales of Vacation Ownership Interests to ILX Owners. The
Company seeks to increase sales and profitability at its ILX Resorts and
with respect to the Additional Interests by selling upgrades, which consist
of sales to existing ILX Owners of a Vacation Ownership Interest at a
different ILX Resort or in the Premiere Vacation Club; during a more
popular season or in a larger unit at the same ILX Resort; or of an annual
interest to an owner of a biennial interest (collectively, "Upgrades"). The
Company believes that ILX Owners have a better understanding of Vacation
Ownership Interests than first-time buyers, are generally familiar with the
ILX Resorts and, based on historical experience, have a demonstrated
tendency to take vacations, which results in a higher percentage of sales
from marketing efforts to ILX Owners than to prospective purchasers who
have never purchased a Vacation Ownership Interest. The Company intends to
begin marketing Upgrade sales in its Premiere Vacation Club to ILX Owners
in early 1998. The Company's sales to ILX Owners have increased from $1.0
million of Upgrades in 1996 to $3.0 million of Upgrades in 1997.

Increase Net Income from Customer Financing Transactions. From
January 1, 1994 through December 31, 1997, approximately 20% to 25% of the
Company's sales were on a cash basis and the Company provided financing for
the remaining 75% to 80% of its sales of Vacation Ownership Interests.
Buyers who finance their purchase of Vacation Ownership Interests are
required by the Company to make a down payment of at least 10% of the total
sales price and may pay the balance to the Company over a period of seven
years pursuant to a promissory note wherein the Company is the lender
("Customer Notes"). At December 31, 1997, the Company retained a portfolio
of Customer Notes with an aggregate principal amount of $14.5 million, of
which $12.0 million are serviced by an outside vendor and have a weighted
average yield of 13.8% per annum, which compares favorably to the Company's
weighted average cost of borrowings for such Customer Notes of 12.4% per
annum.

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Prior to 1995, the Company sold the majority of its Customer Notes and
retained only the small remaining portion, which it used as collateral to
obtain working capital (i.e., hypothecate). Since 1995, the Company has
steadily increased the amount of Customer Notes which it retains and
hypothecates and, as a result, at December 31, 1997, the Company had
retained Customer Notes in an aggregate outstanding principal amount of
$14.5 million as compared to $7.9 million at December 31, 1995. Because the
Company has historically financed its operations through the sale of a
substantial majority of its Customer Notes, the Company's net income from
customer financing transactions (i.e., the spread between the interest
charged to borrowing customers and the Company's borrowing costs) has been
limited. Although there can be no assurance in this regard, the Company
believes that the closing of this Offering and the reduction of its current
indebtedness will allow the Company to arrange more favorable Customer
Notes' financing, which will in turn enable the Company to retain a
significantly greater percentage of its Customer Notes, and, thus, increase
the net income in the event of favorable interest rate differences. See
"Risk Factors -- Financing Customer Borrowings, Liquidity Risks."

The Company believes its relatively high rate of cash sales and low
rate of defaults on Customer Notes is due in part to the relatively high
customer appeal of the ILX Resorts and the credit due diligence
pre-approval process performed by the Company and its lenders. During 1996
and 1997, the Company provided for uncollectible Customer Notes by
reserving 3% of its gross sales (including cash sales) as an allowance for
doubtful accounts. At December 31, 1997, the Company had reserved $3.0
million for possible credit losses. Management believes this amount is
sufficient to cover anticipated losses from defaults on Customer Notes,
however there can be no assurance in this regard. At December 31, 1997,
$3.2 million in principal, or 8.2%, of the retained Customer Notes and
Customer Notes previously sold, which are recourse to the Company, were
more than 90 days past due. See "Risk Factors -- Financing Customer
Borrowings; Liquidity Risks" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Sales and Marketing

All of the Company's sales and substantially all of the Company's marketing
functions are currently performed in-house. Consequently, the Company invests
significant resources attracting, training and seeking to retain its sales and
marketing employees. The Company actively sells Vacation Ownership Interests
through a sales staff of approximately 140 employees, including approximately
100 sales agents at four locations at or near selected ILX Resorts. Prospective
first-time purchasers participate in a tour of the facilities as well as its
related amenities, guided by a salesperson. At the conclusion of the tour, the
terms of making a purchase, including financing alternatives, are explained to
the customer. In addition to generating sales to first-time buyers, the
Company's sales force seeks to generate sales of additional Vacation Ownership
Interests or Upgrades to ILX Owners. Sales to ILX Owners generally have lower
marketing costs as these buyers tend to be more familiar with the nature of
purchasing a Vacation Ownership Interest and the amenities offered by the ILX
Resorts. Although sales to ILX Owners have historically been a minor portion of
the Company's total sales, the Company intends to increase its sales efforts
with respect to ILX Owners. See "Business -- Growth Strategy."

The Company's marketing strategy seeks to target prospective buyers who
respond favorably to travel-related inducements because the Company believes
such consumers are more likely to travel and, therefore, have a greater
likelihood of purchasing a Vacation Ownership Interest. The Company's marketing
activities are devoted primarily towards (i) hotel guests at the ILX Resorts,
(ii) exchange program participants staying at the ILX Resorts, (iii) off-premise
contacts with visitors to the local surroundings of the ILX Resorts and (iv)
direct mail and telemarketing to residents of metropolitan areas within driving
distances of the ILX Resorts. By targeting customers who live within driving
distance of an ILX Resort or who are vacationing at or near an ILX Resort, the
Company avoids the more expensive marketing costs of subsidized air fare and
lodging typically associated with the vacation ownership industry. Consistent
with this strategy, the Company's Varsity Club concept seeks to offer a branded
"city club" experience for flexible use by local residents. In order to enlarge
its base of potential purchasers, the Company's marketing efforts related to its
Varsity Clubs

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seek to focus upon alumni, parents of university students and other persons or
entities who have a preexisting affiliation with or other attraction to the
local university. All of the Company's marketing activities emphasize the
convenience of its CARs coupled with the opportunity to participate in exchange
networks as well as the quality and breadth of amenities available at each of
the ILX Resorts. See "Business -- Operating Strategies" and "Business -- Sales
and Marketing."

Recent Developments

The Company has recently undertaken certain steps to enhance its operations
and to seek to increase stockholder value, including the following:

Los Abrigados Partnership Buy-In. In August 1997, the Company
acquired the outstanding 21.5% minority interest in Los Abrigados Partners
Limited Partnership ("LAP"), which owns and operates the Los Abrigados
resort. The aggregate consideration paid by the Company in connection with
this acquisition was $2.9 million. The 1996 pre-tax earnings attributable
to the minority interest were $671,664. As part of the transaction, the
Company succeeded to the capital accounts of the former limited partners in
the amount of $2.9 million on the date of the transaction.

Acquisition of Roundhouse Resort. In December 1997, the Company
completed the acquisition of the Roundhouse Resort, an existing 59-unit
vacation ownership resort with approximately five acres of developable land
located in Pinetop/Lakeside, Arizona. The aggregate consideration paid by
the Company in connection with this acquisition was approximately $715,000,
including acquisition costs. Redevelopment of this property is expected to
commence in late 1998 with initial construction of up to 40 additional
units (consisting of an aggregate of 2,080 Vacation Ownership Interests).
The Company also plans to market Upgrades to the approximately 2,500 owners
of Vacation Ownership Interests who acquired the existing 59 units at this
resort prior to its acquisition by the Company. The Company believes that
up to a total of 100 additional units (including the aforementioned 40
units planned to be constructed during 1998 and 1999) can be built at this
resort, subject to receipt of appropriate governmental permits.

Sale of Lomacasi. In December 1997, the Company sold its 75% interest
in the Lomacasi Resort in Sedona, Arizona ("Lomacasi") for aggregate
consideration of $2.85 million, including the assumption by the buyer of
indebtedness of $2.23 million and the receipt of 100,000 shares of the
Company's Common Stock, valued at $6.25 per share. Lomacasi had operated at
a loss since its acquisition by the Company in March 1996, and the Company
believes that more attractive expansion opportunities exist at or nearby
the ILX Resorts.

Reverse Stock Split; New Listing. In January 1998, the Company's
shareholders approved the one-for-five Reverse Stock Split of the
outstanding shares of Common Stock, which became effective as of the close
of business on January 12, 1998. Also, in February 1998, the Company
commenced listing of its Common Stock on the American Stock Exchange. Prior
thereto, the Company's Common Stock was quoted on the Nasdaq SmallCap
Market. The Company initiated the Reverse Stock Split and the change of
listing from the Nasdaq SmallCap Market to the American Stock Exchange with
an objective of enhancing the long-term value of its Common Stock to its
shareholders and increasing the liquidity of and market for its Common
Stock.

9
10

The Resorts

The table below sets forth certain information, as of December 31, 1997,
with respect to the ILX Resorts and the Additional Interests. The information
set forth below does not include the Company's planned development of additional
Varsity Clubs.

UNITS AT RESORT(1) TOTAL VACATION OWNERSHIP
-------------------------- INTERESTS AT RESORTS(1)
-------------------------------------------------
TOTAL UNITS
AT PLANNED TOTAL INTERESTS UNSOLD INTERESTS PLANNED
RESORTS LOCATION 12/31/97 EXPANSION(2) AT 12/31/97 AT 12/31/97 EXPANSION(2)
------- -------- ----------- ------------ --------------- ---------------- ------------

Convenient Access
Resorts
Los Abrigados Resort
& Spa Sedona, AZ 175 20 9,100 2,200 1,040
The Inn at Los
Abrigados Sedona, AZ 10 0 510 510 0
Kohl's Ranch Lodge Payson, AZ 52 12 2,704 1,994 624
Roundhouse Resort(3) Pinetop/Lakeside, AZ 59 100 2,950 0 5,200
Golden Eagle Resort Estes Park, CO 33 2 1,683 651 102
--- --- ------ ----- ------
Total CARs 329 134 16,947 5,355 6,966
Varsity Clubs of
America
VCA-South Bend South Bend, IN 62 24 3,224 1,666 1,248
VCA-Tucson(4) Tucson, AZ 0 62 0 0 3,224
--- --- ------ ----- ------
Total VCAs 62 86 3,224 1,666 4,472
Additional
Interests(5) N/A N/A 84 84 N/A
--- --- ------ ----- ------
Total Vacation
Ownership
Interests(6) 391 220 20,255 7,105 11,438
=== === ====== ===== ======

VACATION OWNERSHIP INTERESTS SOLD(1)
--------------------------------------------------------------

AVERAGE SALES
IN 1997 ONLY PRICE IN 1997
DATE SALES THROUGH ----------------- ------------------
RESORTS COMMENCED 12/31/97 ANNUAL BIENNIAL ANNUAL BIENNIAL
------- ---------- -------- ------ -------- ------- --------

Convenient Access
Resorts
Los Abrigados Resort
& Spa 1989 6,900 361 553 $13,342 $8,819
The Inn at Los
Abrigados 1998 0 0 0 0 0
Kohl's Ranch Lodge 1995 710 66 249 $11,848 $6,676
Roundhouse Resort(3) 1998 2,950 N/A N/A N/A N/A
Golden Eagle Resort 1987 1,032 104 0 $ 9,494 N/A
------ --- -----
Total CARs 11,592 531 802
Varsity Clubs of
America
VCA-South Bend 1995 1,558 236 903 $10,385 $5,785
VCA-Tucson(4) 1998 0 N/A N/A N/A N/A
------ --- -----
Total VCAs 1,558 236 903
Additional
Interests(5) 1987 N/A 40 N/A $ 4,964 N/A
------ --- -----
Total Vacation
Ownership
Interests(6) 13,150 807 1,705
====== === =====

- ---------------
(1) The Company sells both annual Vacation Ownership Interests (entitling the
owner to the use of a unit for a one-week period on an annual basis) and
biennial Vacation Ownership Interests (entitling the owner to the use of a
unit for a one-week period on an alternate-year basis) with respect to 52
weeks per unit per year. Accordingly, the Company is generally able to sell
52 annual Vacation Ownership Interests or 104 alternate-year Vacation
Ownership Interests per unit. With respect to "Vacation Ownership Interests
Sold" and "Average Sales Price in 1997," the data is provided for both
annual and biennial Vacation Ownership Interests sold. For purposes of
calculating "Total Vacation Ownership Interests at Resorts" and "Vacation
Ownership Interests Sold Through 12/31/97," numbers are based on sales of
Vacation Ownership Interests on an annual basis only and reflect the sale of
between 50 to 52 weeks per unit per year. To the extent that biennial
Vacation Ownership Interests are sold, the actual number of unsold Vacation
Ownership Interests would be increased.

(2) The completion of planned additional vacation ownership units and Vacation
Ownership Interests is subject to the receipt of applicable governmental
permits, availability of necessary funds, consumer demand and other
contingencies.

(3) Information relating to inventory at this ILX Resort includes 59 units
(2,950 weeks) purchased by owners prior to the Company's acquisition of this
ILX Resort in December 1997. The Company's planned expansion at this resort
consists of 40 units through 1999 and the remainder to be constructed
thereafter, consistent with demand.

(4) Development of VCA-Tucson is scheduled to be completed in April 1998 and
initial marketing of Vacation Ownership Interests at this ILX Resort is
anticipated to commence at that time.

(5) The Company owns all of the 84 Vacation Ownership Interests set forth in the
table. The Additional Interests also consist of an unspecified number of
Vacation Ownership Interests with respect to which the Company has a
marketing agreement pursuant to which it may make sales of such Vacation
Ownership Interests at these resorts.

(6) "Vacation Ownership Interests Sold Through 12/31/97" excludes the Additional
Interests sold.

10
11

CORPORATE BACKGROUND

The Company was incorporated under the laws of Arizona in 1986 as
"International Leisure Enterprises Incorporated," and thereafter changed its
name to "ILX Incorporated" and in January 1998 to "ILX Resorts Incorporated."
The Company's headquarters are located at 2111 East Highland Avenue, Suite 210,
Phoenix, Arizona 85016. The Company's telephone number is (602) 957-2777.

THE OFFERING

Common Stock Offered
By the Company(1).................................. 1,400,000 shares
Common Stock Outstanding
Before the Offering(2)............................. 2,589,373 shares
Common Stock Outstanding
After the Offering(1)(2)........................... 3,989,373 shares
Use of Proceeds...................................... The Company intends to use the net proceeds
from this Offering for the repayment of
outstanding indebtedness. See "Use of
Proceeds."
American Stock Exchange Symbol....................... ILX
Dividends............................................ The Company currently intends to retain future
earnings to finance its operations and fund the
growth of its business, and does not intend to
pay cash dividends on its Common Stock in the
foreseeable future. See "Risk
Factors -- Absence of Common Stock Dividends;
Rights of Preferred Stock" and "Dividend
Policy."

- ---------------
(1) Excludes 210,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option in full. See "Underwriting."

(2) Excludes (i) 60,400 shares of Common Stock issuable upon exercise of
outstanding options with a weighted average exercise price of $8.02 per
share, (ii) 132,646 shares of Common Stock issuable upon conversion of
outstanding shares of Preferred Stock, (iii) 10,000 shares of Common Stock
issuable upon the exercise of outstanding warrants at an exercise price of
$7.50 per share, (iv) 20,000 shares of Common Stock issuable at a weighted
average conversion price of $7.50 per share upon conversion of certain
outstanding promissory notes issued by the Company (the outside conversion
date is December 31, 1999) and (v) 103,060 shares of Common Stock held as
treasury shares, each as of December 31, 1997. See "Management -- Stock
Option Plans," "Description of ILX Securities and Pertinent Arizona
Statutes," and the Company's Consolidated Financial Statements.

11
12

SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION

The Summary Consolidated Historical and Pro Forma Financial Information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included herein, "Selected Consolidated Historical and Pro Forma
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

HISTORICAL PRO FORMA
----------------------------------------------- ------------
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(e)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA (a)
Timeshare revenues:
Sales of Vacation Ownership Interests........ $12,264 $18,714 $21,354 $19,639 $23,981 $23,981
Resort operating revenue..................... 8,072 8,764 8,868 10,945 10,920 10,648
Interest income.............................. 360 403 627 997 1,510 1,510
------- ------- ------- ------- ------- -------
20,696 27,881 30,849 31,581 36,411 36,139
------- ------- ------- ------- ------- -------
Cost of sales and operating expenses:
Cost of Vacation Ownership Interests sold.... 1,457 2,393 3,530 3,101 3,219 3,219
Cost of resort operations.................... 6,962 7,525 8,985 10,407 10,473 10,229
Sales and marketing.......................... 6,718 10,142 10,972 10,486 13,895 13,890
General and administrative................... 667 2,056 3,779 2,304 2,975 2,956
Provision for doubtful accounts.............. 1,158 764 1,235 591 702 702
Depreciation and amortization................ 353 1,425 696 476 455 409
------- ------- ------- ------- ------- -------
17,315 24,305 29,197 27,365 31,719 31,405
------- ------- ------- ------- ------- -------
Timeshare operating income..................... 3,381 3,576 1,652 4,216 4,692 4,734
Income from land and other, net................ 10 517 192 50 28 28
------- ------- ------- ------- ------- -------
Total operating income......................... 3,391 4,093 1,844 4,266 4,720 4,762
Gain on sale of property....................... 0 0 0 0 356 0
Interest expense............................... (600) (666) (1,265) (1,975) (2,085) (1,106)
------- ------- ------- ------- ------- -------
Income before income taxes and minority
interests.................................... 2,791 3,427 579 2,291 2,991 3,656
Income tax (expense) benefit................... 100 161 547 (679) (1,145) (1,482)
------- ------- ------- ------- ------- -------
Income before minority interests............... 2,891 3,588 1,126 1,612 1,846 2,174
Minority interests............................. (815) (1,440) (501) (561) (178) 0
------- ------- ------- ------- ------- -------
Net income..................................... $ 2,076 $ 2,148 $ 625 $ 1,051 $ 1,668 $ 2,174
======= ======= ======= ======= ======= =======
Net income per share (b):
Basic........................................ $ 0.88 $ 0.86 $ 0.24 $ 0.38 $ 0.60 $ 0.53
======= ======= ======= ======= ======= =======
Diluted...................................... $ 0.84 $ 0.83 $ 0.24 $ 0.37 $ 0.59 $ 0.52
======= ======= ======= ======= ======= =======

12
13

OTHER DATA(a)
Net income per share excluding gain on sale of
property on a diluted basis(b)............... $ 0.84 $ 0.83 $ 0.24 $ 0.37 $ 0.51 $ 0.52
EBITDA(c)...................................... $ 3,062 $ 4,218 $ 2,140 $ 4,253 $ 5,089 $ 5,263
Cash flows provided by (used in):
Operating activities......................... $ 2,438 $ 4,013 $ (703) $ 3,976 $ 2,809
Investing activities......................... $(1,433) $(2,149) $(3,156) $(3,520) $(6,480)
Financing activities......................... $ 338 $ (288) $ 3,970 $ (679) $ 3,374
Operating data:
Number of ILX Resorts at period end.......... 2 2 4 4 6
Number of Vacation Ownership Interests
sold(d).................................... 1,013 1,604 1,877 1,562 1,660
Number of Vacation Ownership Interests in
inventory at period end(d)................. 6,250 5,082 9,347 7,955 7,105
Average price of Vacation Ownership Interests
sold (excluding revenues from
Upgrades)(d)............................... $10,954 $10,795 $10,624 $11,963 $12,656
Average price of Vacation Ownership Interests
sold (including revenues from
Upgrades)(d)............................... $12,106 $11,667 $11,377 $12,573 $14,446

Historical As Adjusted
----------------------------------------------- --------------
December 31,
----------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(f)
------- ------- ------- ------- ------- --------------
(In thousands)

BALANCE SHEET DATA(a):
Notes receivable.............................. $ 6,672 $ 6,751 $ 8,785 $11,746 $15,862 $15,862
Resort property held for Vacation Ownership
Interest sales.............................. 9,749 9,408 14,852 15,248 14,667 14,667
Total assets.................................. 24,907 28,403 37,753 41,275 43,722 43,722
Notes payable................................. 5,409 7,332 13,528 16,434 22,051 13,563
Shareholders' equity.......................... 10,541 12,957 13,775 15,175 16,621 25,109

- ---------------
(a) The summary consolidated historical financial information set forth above
for each of the fiscal years 1993 through 1997, has been derived from the
audited consolidated financial statements of the Company which have been
restated to give effect to the Reverse Stock Split.

(b) Gives retroactive pro forma effect to the Reverse Stock Split.

(c) EBITDA represents net income before interest expense, income taxes, gain on
sale of property and depreciation and amortization. EBITDA is presented
because it is a widely accepted indicator of a company's financial
performance. However, EBITDA should not be construed as an alternative to
net income as a measure of the Company's operating results or to cash flows
from operating activities (determined in accordance with generally accepted
accounting principles) as a measure of liquidity. Since revenues from
Vacation Ownership Interest sales include Customer Notes received by the
Company, EBITDA does not reflect cash flow available to the Company. The
Company's management interprets trends in EBITDA to be an indicator of the
Company's financial performance, in addition to net income and cash flows
from operating activities (determined in accordance with generally accepted
accounting principles). The following table reconciles EBITDA to net income:

PRO FORMA
HISTORICAL ------------
---------------------------------------------- YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER
---------------------------------------------- 31,
1993 1994 1995 1996 1997 1997(e)
------ ------ ------ ------ ------ ------------
(IN THOUSANDS)

Net income............................. $2,076 $2,148 $ 625 $1,051 $1,668 $2,174
Interest expense....................... 600 666 1,265 1,975 2,085 1,106
Income tax expense (benefit)........... (100) (161) (547) 679 1,145 1,482
Depreciation and amortization.......... 353 1,425 696 476 455 409
Amortization of guarantee fees......... 133 140 101 72 92 92
Gain on sale of property............... 0 0 0 0 (356) 0
------ ------ ------ ------ ------ ------
EBITDA................................. $3,062 $4,218 $2,140 $4,253 $5,089 $5,263
====== ====== ====== ====== ====== ======

13
14

(d) Vacation Ownership Interests are expressed in terms of annual intervals
(biennial sales are counted as one-half of an annual sale).

(e) The above unaudited pro forma income statement data for the year ended
December 31, 1997 gives effect to (a) the purchase by the Company of the
remaining minority interest in LAP for $2,920,000 consisting of $820,000
cash, 20,000 shares of Common Stock issued (valued at $125,000) and notes
payable aggregating $1,975,000, bearing interest at 8% per annum, (b) the
sale of the Company's general partnership interest in the Lomacasi Resort
for approximately $2,850,000 consisting of the assumption by the buyer of
indebtedness of approximately $2,225,000 and the receipt by the Company of
100,000 shares of the Company's common stock valued at $625,000, (c) the
sale of 1,400,000 shares of Common Stock in this Offering (excluding the
210,000 shares subject to the Underwriters' over-allotment option) and (d)
the application of the estimated net proceeds therefrom to repay certain
indebtedness. These transactions are reflected as if they had occurred at
the beginning of 1997, and exclude the non-recurring gain of $356,000 on the
sale of Lomacasi. The adjustments consist of (i) elimination of the Lomacasi
resort operations, the gain on the sale of Lomacasi and related interest
expense and minority interest, (ii) elimination of the LAP minority
interest, (iii) additional interest expense for the debt used to purchase
the LAP minority interest, (iv) reduction in the number of shares
outstanding by 80,000, consisting of the 100,000 shares received from the
sale of the Company's general partnership interest in the Lomacasi Resort
less the 20,000 shares issued in connection with the purchase of the LAP
minority interest (v) reduction of interest expense to give effect to the
repayment of certain indebtedness using the estimated net proceeds from this
Offering and (vi) adjustment of the provision for income taxes for the
effect of the pro forma adjustments. These adjustments are summarized as
follows:

YEAR ENDED
DECEMBER 31,
1997
--------------
INCREASE
(DECREASE)
IN NET INCOME
(IN THOUSANDS)

Resort operating revenue.................................... $(272)
Cost of resort operations................................... 244
Sales and marketing......................................... 5
General and administrative.................................. 19
Depreciation and amortization............................... 46
Gain on sale of property.................................... (356)
Interest expense............................................ 979
Income tax expense.......................................... (337)
Minority interest expense................................... 178
-----
Total....................................................... $ 506
=====

(f) As adjusted to give effect to this Offering and the application of the
estimated net proceeds therefrom as described in Note (e) above as if this
Offering and application of the estimated net proceeds therefrom occurred as
of December 31, 1997.

14
15

RISK FACTORS

An investment in the Common Stock offered hereby involves a substantial
degree of risk and should only be made by investors who can afford the loss of
their entire investment. Prospective investors, prior to making an investment
decision, should give careful consideration, in addition to the other
information contained in this Prospectus, to the following risk factors. The
following risk factors, however, may not represent all of the risks associated
with the Company's business. The following discussion of certain risks
associated with the Company's business and operations includes certain
forward-looking statements. When used in this Prospectus, the words "estimate,"
"projection," "intends" and "anticipates" and similar terms are intended to
identify forward-looking statements that relate to the Company's future
performance. Such statements are subject to substantial uncertainty. Readers are
cautioned not to place undue reliance on any forward-looking statements set
forth below. The Company undertakes no obligation to publicly update or revise
any of the forward-looking statements contained herein.

RISKS OF RAPID GROWTH

Risks Associated with Execution of Growth Strategy. A principal component
of the Company's growth strategy is to acquire additional improved and
unimproved real estate for the construction and development of new Varsity Clubs
and CARs. The Company's ability to execute its growth strategy depends on a
number of factors, including, but not limited to: (i) the availability of
attractive resort development opportunities, (ii) the Company's ability to
acquire properties relating to such opportunities on economically feasible
terms, (iii) the Company's ability to market and sell Vacation Ownership
Interests at newly developed or acquired resorts; and (iv) the Company's ability
to manage newly developed or acquired resorts in a manner which results in
customer satisfaction. Specifically, the success of the Company's Premiere
Vacation Club depends upon its ability to acquire and develop a sufficient
number of participating resorts to make membership interests attractive to
consumers. In addition, the success of the Company's Varsity Clubs concept is
dependent on the Company's ability to successfully negotiate with universities
proximate to its Varsity Clubs for access to the alumni, parents and other
persons affiliated with such universities. There can be no assurance that the
Company will be successful with respect to any or all of these factors.

Risks Associated with Financing Growth. The Company intends to selectively
acquire and develop new vacation ownership resorts and continue the expansion of
its ILX Resorts. Acquiring and developing new resorts will place substantial
demands on the Company's liquidity and capital resources, as well as on its
personnel and administrative capabilities. Risks associated with the Company's
development and construction activities include, but are not limited to, the
following: (i) construction costs or delays at a property may exceed original
estimates, possibly making the expansion or development uneconomical or
unprofitable; (ii) sales of Vacation Ownership Interests at a newly completed
resort may not be sufficient to make the resort profitable; and (iii) financing
may not be available on terms favorable for development of, or the continued
sales of Vacation Ownership Interests at, a resort. The Company projects that
currently planned expansion at ILX Resorts and development of its planned
VCA-Tucson project will cost in excess of $14 million. Although the Company has
secured adequate financing for those phases of the projects currently under
development, there can be no assurance that adequate additional financing for
future development projects will continue to be available on terms and
conditions favorable to ILX. The Company's ability to obtain and repay any
indebtedness at maturity may depend on refinancing or future sales of debt or
equity, which may not be available on terms favorable to the Company. Factors
which could affect the Company's access to the capital markets, or the cost of
such capital, include changes in interest rates, general economic conditions,
the perception in the capital markets of the vacation ownership industry and the
Company's business, results of operations, leverage, financial condition and
business prospects. The Company does not currently and upon the closing of the
Offering will not have the financing available to complete all of its planned
expansion as set forth in "Business -- Growth Strategy."

While the Company's construction activities typically are performed by
third-party contractors whose performance cannot be assured by the Company,
construction claims may be asserted against the Company for construction defects
and such claims may give rise to liabilities. In addition, certain state and
local laws

15
16

may impose liability on property developers with respect to construction defects
discovered or repairs made by future owners of such property.

Risks Associated with the Acquisition of Properties. The Company's ability
to execute its growth strategy also depends to a significant degree on the
existence of attractive project acquisition opportunities. Currently, there are
numerous potential buyers of real estate which have a stronger capital structure
than that of the Company and, consequently, such entities have greater resources
with which to acquire attractive resort opportunities. There can be no assurance
that the Company will be able to successfully compete against such other buyers.
In addition, the Company's development and construction activities, as well as
its ownership and management of real estate, are subject to comprehensive
federal, state and local laws regulating matters such as environmental and
health concerns, protection of endangered species, water supplies, zoning, land
development, land use, building design and construction, marketing and sales,
and other matters. Such laws and difficulties in obtaining, or failing to
obtain, the requisite licenses, permits, allocations, authorizations and other
entitlements pursuant to such laws could impact the development and completion
of the Company's projects. See "-- Regulation of Marketing and Sales of Vacation
Ownership Interests and Related Laws." The enactment of "slow growth" or
"no-growth" initiatives or changes in labor or other laws in any area where the
Company's projects are located could also delay, affect the cost or feasibility
of, or preclude entirely the expansion planned at the ILX Resorts or the
development of other resorts. See "Business -- Growth Strategy."

Risks Associated with the Expansion of the ILX Resorts. The Company's
growth strategy includes the expansion of a number of units at the ILX Resorts,
when appropriate. Risks associated with such expansion include but are not
limited to, the following: (i) construction costs may exceed original estimates,
possibly making the expansion uneconomical, (ii) construction or conversion may
not be completed as scheduled, possibly resulting in delayed recognition of
revenue and increased interest expense, (iii) applicable governmental permits
and authorizations may not be obtained or may be delayed, (iv) necessary
financing may not be obtained or may be unavailable on favorable terms, and (v)
market demand may not be sufficient to make such expansion profitable.
Accordingly, there can be no assurance that the Company will complete all of its
planned expansion of the ILX Resorts or, if completed, that such expansion will
be profitable.

Risks Associated with Expansion into New Markets. The Company's growth
strategy consists of acquiring and developing additional CARs and Varsity Clubs
throughout the western United States, including markets in which the Company
does not currently have an ILX Resort or conduct any sales or marketing
activities. Historically, the ILX Resorts have been located primarily in
Arizona, however, the Company's prior success in Arizona, Indiana or Colorado
does not ensure the success of the acquisition, development or operation of
future ILX Resorts or Varsity Clubs. See "-- Geographic Concentration Within the
Western United States, Specifically Arizona." Accordingly, in connection with
expansion into new markets, the Company may be exposed to a number of risks,
including but not limited to (i) a lack of familiarity and understanding of
local consumer preferences, (ii) the inability to attract, hire, train and
retain additional sales, marketing and resort staff at costs attractive to the
Company, (iii) the inability to obtain, or to obtain in a timely manner,
necessary permits and approvals from state and local government agencies and
qualified construction services at acceptable costs, (iv) the inability to
capitalize on new marketing relationships and development agreements, (v) the
uncertainty involved in, and additional costs associated with, marketing
Vacation Ownership Interests prior to completion of marketed units, and (vi)
other uncertainties generally associated with entering new markets.

Dependence on Varsity Clubs of America. The Company's ability to execute
its growth strategy depends to a substantial extent upon the success of its
Varsity Club concept. Although the Company has successfully developed, operated
and marketed VCA-South Bend, there can be no assurance that it will continue to
do so in the future or that it will be successful in developing, operating or
marketing additional Varsity Clubs. The Company's ability to successfully
develop additional Varsity Clubs depends upon the following factors, among
others: (i) the availability of additional locations situated within or
proximate to population centers sufficiently large to provide an appropriate
marketing base, (ii) the availability of suitable land at competitive prices in
attractive locations, (iii) the availability of sufficient capital on
commercially reasonable terms, (iv) the goodwill associated with the Varsity
Clubs of America brand name, (v) the Company's ability to access
16
17

affinity groups within the markets in which each of its Varsity Clubs operates
or will operate and (vi) the availability of attractive sites proximate to
prominent universities. The Company's failure to effectively manage one or more
of these factors may adversely impact its results of operations.

FINANCING CUSTOMER BORROWINGS; LIQUIDITY RISKS

The Company typically finances 75% to 80% of its overall sales of Vacation
Ownership Interests. Although the Company conducts substantial credit
pre-approval due diligence with respect to each financed sale, there are
significant risks associated with such transactions, including those set forth
below. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
Customer Financing."

Borrower Defaults. Purchasers are required to make a down payment of at
least 10% of the aggregate purchase price of the Vacation Ownership Interest and
deliver a Customer Note to the Company for the balance. Although the Company
conducts credit pre-approval due diligence with respect to each purchaser, it
bears the risk of default associated with Customer Notes which it retains and
those which it sells with recourse. If a buyer of a Vacation Ownership Interest
defaults, the Company will generally pursue collection remedies to the extent
legally permitted. Although the Company, in many cases, may have recourse
against a Vacation Ownership Interest buyer for the unpaid price, certain
states, including Arizona and Indiana, have laws which limit the Company's
ability to recover personal judgments against customers who have defaulted on
their loans. If the Company is unable to collect the defaulted amount or obtain
a voluntary quitclaim to the mortgaged interest, the Company will likely
foreclose on and then remarket the recovered Vacation Ownership Interest.
Irrespective of the Company's remedy, the associated marketing, selling and
administrative costs from the original sale are not recovered in the event of a
default, and such costs must be incurred again to resell the Vacation Ownership
Interest. In addition, the costs associated with exercising collection and
foreclosure remedies can be high relative to the value of the underlying asset.
Further, private mortgage insurance or its equivalent is not readily available
to cover defaults with respect to Customer Notes.

The Company has historically sold the majority of its Customer Notes to
third parties, most of which are recourse to the Company. As a result, the
Company may be required to repurchase or replace any such Customer Note which
becomes delinquent. The Company takes these contingent obligations into account
in establishing its allowance for uncollectible Customer Notes. There can be no
assurance that such allowances are adequate to offset actual defaults under
Customer Notes which are recourse to the Company. If the Company's allowances
are inadequate to cover actual defaults, the Company's financial condition and
results of operations could be materially adversely affected. See Note 2 of
Notes to Consolidated Financial Statements.

Borrowing Base. The Company typically finances its working capital needs
by hypothecating Customer Notes which meet certain criteria established by
third-party lenders (i.e., conforming Customer Notes), as well as non-conforming
Customer Notes. As of December 31, 1997 the Company had agreements with lenders
to borrow up to $17.1 million against conforming retained Customer Notes and an
additional $2.1 million against non-conforming retained Customer Notes, of which
approximately $13.0 million remained available. Once hypothecated, ILX Owners
make payments on their Customer Notes directly to the lender's collection center
or agent, where receipts are applied against the Company's loan balance. All of
a customer's payments are applied to the Company's loan balance, both principal
and interest. Historically, the Company's borrowings have not approached the
maximum amount available under its existing credit facilities; however, there
can be no assurance that the Company's future working capital needs will not
exceed amounts available under its credit facilities. To the extent the Company
generates additional Customer Notes through its sales efforts, the applicable
Customer Notes may be pledged to lenders for additional borrowings, subject to
applicable restrictions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

Negative Cash Flow. On financed sales, the Company ordinarily receives
only 10% of the purchase price on the sale of a Vacation Ownership Interest, but
must pay in full the costs associated with the development, marketing, and sale
of the Vacation Ownership Interest. The foregoing costs generally exceed such
down

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payment. Maximum borrowings available under the Company's existing credit
facilities may not be sufficient to cover these costs, thereby straining
available capital resources, liquidity and capacity to grow. The Company's
existing credit facilities expire at various dates from 1998 through 2000 and
the Company does not presently have binding agreements to extend the terms of
such credit facilities or for any replacement financing upon the expiration of
such credit facilities. Moreover, there can be no assurance that alternative or
additional credit facilities can be made on terms that are satisfactory to the
Company. Accordingly, future sales of Vacation Ownership Interests may be
limited by the availability of funds to finance the initial negative cash flow
that often results from sales that are financed by the Company. If the Company
is required to sell its Customer Notes to lenders, discounts from the face value
of such Customer Notes may be required by such lenders. In addition, there can
be no assurance that the Company will be able to negotiate the sale of such
Customer Notes at favorable rates, or at all.

Interest Rate Mismatch. The Company has not historically derived
significant net interest income from its financing activities because the
interest receivable on the retained Customer Notes has only slightly exceeded,
if at all, the Company's interest payable. However, in order to increase the net
interest derived from such activities, the Company has recently increased and
intends to further increase the interest rates of Vacation Ownership Interest
purchase money financing and will seek to renegotiate or otherwise obtain lower
rates of interest payable to its lenders. There can be no assurance that the
Company will be able to increase its customer's interest rates without eroding
sales volume or that it will be successful in renegotiating or obtaining lower
interest rates from its lenders. In addition, even if the Company were
successful in these efforts, the Company's indebtedness bears interest at
variable rates while the retained Customer Notes bear interest at fixed rates.
As a result, increases in interest rates could cause the Company's interest
expense to exceed its interest income on its portfolio of retained Customer
Notes. Moreover, the Company does not currently engage in interest rate hedging
transactions. Therefore, any increase in interest rates, particularly if
sustained, could have a material adverse effect on the Company's results of
operations, liquidity and financial position. Further, to the extent interest
rates generally decrease on loans available to the Company's customers, the
Company faces an increased risk that customers will pre-pay their Customer Notes
and reduce the Company's income, if any, from financing activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customer Financing."

Maturity Mismatch. The Customer Notes typically have a seven-year term,
while the Company's related revolving credit borrowings mature on different
dates over the next five years. Accordingly, there is a mismatch between the
Company's anticipated cash receipts and cash disbursements. Although the Company
has historically been able to secure financing sufficient to fund its
operations, it does not presently have credit facilities with its lenders to
extend the respective terms of its existing credit facilities or to replace such
credit facilities upon their expiration. Failure to obtain such refinancing or
replacement credit facilities could require the Company to sell its portfolio of
retained Customer Notes, potentially at a discount, or to seek other
alternatives to enable it to continue in business. While the Company has been
successful in obtaining financing to date, there is no assurance it will be able
to do so in the future. The failure to do so in the future could have a material
adverse effect on its results of operations and liquidity. See "-- Acceleration
of Deferred Taxes and Net Operating Loss Carryforward Limitations."

COMPETITION

The vacation ownership industry has historically been highly fragmented
with approximately 200 operators of approximately 294 resorts actively selling
Vacation Ownership Interests in 1996 in the United States, according to Ragatz
Associates, a long time vacation ownership industry research group. These
operators primarily consisted of local and regional resort developers and
operators. See "Business -- The Vacation Ownership Industry Overview." However,
the industry has recently undergone a consolidating trend. In fact, some of the
world's most recognized lodging, hospitality and entertainment companies, such
as Marriott Ownership Resorts, The Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts and Promus Hotel
Corporation, have recently entered the industry. Other companies in the vacation
ownership industry, including Signature Resorts, Inc., Fairfield Communities,
Inc., Silverleaf Resorts, Inc., Trendwest Resorts, Inc. and Vistana, Inc. are
public companies with enhanced access

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to capital and other resources. As a result, access to marketing, personnel and
other resources may be limited or available to the Company on unfavorable terms.
In addition, competition from vacation ownership resort developers and operators
may limit the Company's ability to acquire additional resorts, and obtain access
to affinity groups, while costs associated with other aspects of the Company's
operations are likely to increase. If the Company is unable to compete
successfully against such companies, its business and results of operations may
be materially adversely affected. See "Business -- Competition."

In addition to the competitors named above, most of the ILX Resorts face
direct competition from smaller, local vacation ownership companies with resorts
within the vicinity of the ILX Resorts. The Company is also subject to
competition from other entities engaged in the commercial lodging business,
including condominiums, hotels and motels, and others engaged in the leisure
business. ILX anticipates that it will continue to face substantial competition
in all aspects of its operations from organizations that are more experienced in
the leisure industry and have greater access to financial, marketing and other
resources. As a result, these competitors may have greater negotiating leverage
or be able to take advantage of greater gross sales, thereby reducing the retail
price of Vacation Ownership Interests and causing the Company to achieve
relatively smaller profit margins in order to remain competitive. A reduction in
the product costs associated with any of these competitors, or an increase in
the Company's costs relative to such competitors' costs, could have a material
adverse effect on the Company's results of operations, liquidity and financial
position.

DEPENDENCE ON KEY PERSONNEL

ILX relies upon certain key management employees, including Joseph P.
Martori, Chairman and Chief Executive Officer; Nancy J. Stone, President and
Chief Operating Officer; and Edward S. Zielinski, Executive Vice President of
the Company and President of Varsity Clubs of America Incorporated. ILX
currently has employment agreements with each of these officers, which contain
certain non-competition provisions. See "Management -- Employment Agreements."
However, the loss of any such individuals could materially and adversely affect
the Company's business. There can be no assurance that ILX will be able to
retain key members of its current management team or that it will be able to
attract experienced personnel in the future. The Company's success is also
dependent upon its ability to attract and maintain qualified acquisition,
development, marketing, management, administrative and sales personnel. The
ability to attract, train and retain such personnel will become particularly
important as the Company grows and develops additional resorts, and there can be
no assurance that the Company will be successful in attracting and/or retaining
such personnel. Should the Company be unable to attract and retain such key
personnel, the Company's business and results of operations could be materially
adversely affected. See "-- Competition" above and "Management -- Employment
Agreements."

GEOGRAPHIC CONCENTRATION WITHIN THE WESTERN UNITED STATES, SPECIFICALLY ARIZONA

As of December 31, 1997, approximately 60% of the Company's customers and
71% of the ILX Resorts and Additional Interests were located in Arizona. As a
result, the Company's financial condition and results of operations may be
materially adversely affected by local Arizona economic downturns, changing
demographics or regulatory changes. Further, the Company's growth strategy
includes the development and acquisition of additional CARs and Varsity Clubs
throughout the western United States. Although expansion into markets other than
Arizona may reduce the Company's susceptibility to downturns in the Arizona
market, there can be no assurance that the Company will be able to successfully
apply its current operating strategy to new markets beyond Arizona. In addition,
because the Company intends to execute its growth strategy primarily in the
western United States, it will continue to be particularly susceptible to
adverse changes in economic circumstances, demographic trends or regulatory
changes affecting those markets which it enters and the western United States in
general. There can be no assurance that the Company will be able to offset or
minimize the adverse effects of such circumstances upon its business, financial
condition or results of operations. See "-- Risks of Rapid Growth -- Risks
Associated with Expansion into New Markets" above.

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DEPENDENCE ON EXCHANGE NETWORKS; LACK OF DIVERSE LOCATIONS

The Company's ability to successfully market and sell Vacation Ownership
Interests is dependent in part upon the availability of exchange networks which
allow ILX Owners to "trade" the time they have purchased for time at another
participating vacation ownership resort. All Vacation Ownership Interests
currently offered by ILX are qualified for inclusion in either the RCI or II
exchange network or both. However, there can be no assurances as to the
Company's continued ability to qualify additional properties or the continued
availability of such exchange networks for ILX's existing portfolio of Vacation
Ownership Interests. If such networks cease to function effectively or ILX is
unable to respond to consumer demand for greater choices of desirable locations,
it will be at a competitive disadvantage with respect to its competitors that
can offer such choices. As a result of such disadvantages, the Company may be
unable to sell a sufficient number of Vacation Ownership Interests or it may be
unable to make sales at sufficiently high prices to remain profitable. As a
result of such risks, the Company's results of operations could be materially
adversely affected. See "Business -- Participation in Exchange Networks."

RISKS ASSOCIATED WITH LEVERAGE

The Company anticipates that its future business activities will be
financed, in whole or in part, with indebtedness obtained pursuant to additional
borrowings under the Company's existing credit facilities or under credit
facilities to be obtained by the Company in the future. The definitive
agreements with respect to these credit facilities do and could contain
restrictive covenants which limit the Company's ability to, among other things,
make capital expenditures, incur additional indebtedness and dispose of assets,
or which require the Company to maintain certain financial ratios. The
indebtedness incurred under these credit facilities may be secured by mortgages
on a portion of the ILX Resorts, Customer Notes and other assets of the Company.
In addition, the Company's future credit facilities may not permit the release
of liens on the Company's Vacation Ownership Interests upon the sale of such
interests which could impair their marketability. In the event of a default by
the Company under one or more of these credit facilities, the lenders could
foreclose on the vacation ownership properties secured by a mortgage or deed of
trust or take possession of other assets pledged as collateral.

The extent of the Company's leverage and the terms of the Company's
indebtedness (such as requirements that the Company maintain certain
debt-to-equity ratios) could also impair the Company's ability to obtain
additional financing in the future, to make acquisitions or to take advantage of
significant business opportunities that may arise. Furthermore, the Company's
indebtedness and related debt service obligations may increase its vulnerability
to adverse general economic and vacation ownership industry conditions and to
increased competitive pressures. Although the Company intends to reduce its
indebtedness with the net proceeds from this Offering, there can be no assurance
that the Company will not be required to incur additional indebtedness in the
foreseeable future to execute its growth strategy. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Growth
Strategy."

REGULATION OF MARKETING AND SALES OF VACATION OWNERSHIP INTERESTS AND RELATED
LAWS

The Company's marketing and sales of Vacation Ownership Interests and other
operations are subject to extensive regulation by the federal government and the
states and local jurisdictions in which the Company conducts business. The
Federal Trade Commission has taken the most active federal regulatory role
through the Federal Trade Commission Act, which prohibits unfair or deceptive
acts or competition in interstate commerce. Other federal legislation to which
the Company is or may be subject includes the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the Interstate
Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act, the
Consumer Credit Protection Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act
and the Civil Rights Acts of 1964, 1968 and 1991. Amendments to any of these
regulations or the enactment of additional regulations could constrain the
manner in which the Company conducts it business and result in reduced revenues
or increased costs.

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In addition, many states, including Arizona, have adopted specific laws and
regulations regarding the sale of Vacation Ownership Interests, which require
the Company, among other things, to obtain and file numerous documents and
supporting information with the responsible state agency, and obtain its
approval for an offering statement which describes all material aspects of the
sale of Vacation Ownership Interests. When the agency determines that Vacation
Ownership Interests at a particular project may be sold, it will issue a public
report for the project. Regardless of whether the resort is located in Arizona,
the Company is required to deliver an offering statement or public report
together with certain additional information concerning the terms of the
purchase to all prospective purchasers of a Vacation Ownership Interest who are
Arizona residents and attend a sales presentation in Arizona. Laws in each state
where the Company currently sells Vacation Ownership Interests generally grant
the purchaser of a Vacation Ownership Interest the right to cancel a contract of
purchase at any time within three to seven calendar days following the date the
contract was signed by the purchaser. Most states also have other laws which
regulate the Company's activities and protect purchasers, such as real estate
licensure laws; travel sales licensure laws; anti-fraud laws; consumer
protection laws; telemarketing laws; prize, gift and sweepstakes laws; and other
related laws. ILX and its subsidiary companies are currently authorized to
market and sell interests in all states in which the ILX Resorts are located and
all states in which it is marketing and selling Vacation Ownership Interests.
The Company and its subsidiaries intend to apply for the right to conduct sales
operations in additional states throughout the United States. However, there can
be no assurance that any state will grant, or continue to grant, ILX the right
to sell its Vacation Ownership Interests in such states or that, if such right
to conduct sales operations is granted, it will be granted on terms and
conditions acceptable to ILX. Further, if agents or employees of ILX violate
such regulations or licensing requirements, such acts or omissions could cause
the revocation or non-renewal of licenses required for the sale of Vacation
Ownership Interests in such states.

The Company believes it is in material compliance with applicable federal,
state and local laws and regulations to which it is currently subject relating
to the sale and marketing of Vacation Ownership Interests. However, the Company
expects some consumer complaints in the ordinary course of its business. There
can be no assurance that the costs of resolving such complaints or qualifying
under applicable regulations in all jurisdictions in which the Company desires
to conduct sales will not be significant, that the Company is in material
compliance with applicable federal, state and local laws and regulations, or
that violations of applicable laws will not have adverse implications for the
Company, including, without limitation, negative public relations, potential
litigation and regulatory sanctions. The expense, negative publicity and
potential sanctions associated with the failure to comply with applicable laws
or regulations could have a material adverse effect on the Company's results of
operations, liquidity or financial position. See "Business -- Governmental
Regulation."

Under certain conditions, Vacation Ownership Interests may be considered
"securities" under state or federal law, with consequent time-consuming and
expensive requirements for registration of such interests, licensing of
salespeople and compliance with other regulations. There can be no guarantee
that ILX's Vacation Ownership Interests can be designed so as to avoid
regulation as "securities" under applicable federal or state laws. The Company
has been advised by its counsel, Squire, Sanders & Dempsey L.L.P., that in the
opinion of such counsel, based on its review of the nature of the Company's
Vacation Ownership Interests and its sales practices concerning them, including
its Premiere Vacation Club, the Company's Vacation Ownership Interests do not
constitute "securities" within the meaning of Section 2(1) of the Securities Act
of 1933, as amended. If ILX's Vacation Ownership Interests are deemed to be
securities, there can be no assurance that ILX will be able to comply with the
applicable state and federal securities requirements or that the liabilities or
contingencies that result from such compliance will be immaterial. As a result,
such compliance may impact ILX's ability to conduct its business and may
undermine the value of ILX's securities, including ILX Common Stock.

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local laws, ordinances and regulations, as
well as common law, the owner, operator or tenant of real property is liable for
the costs of removal or remediation of certain hazardous or toxic substances
located on, in, or emanating from, such property, as well as related costs of
investigation

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and property damage. Such laws often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of the hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease the property or to borrow money using such real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements and the corresponding
requirements to comply with such regulations may result in the need to cease or
alter operations at a property. Further, the owner or operator of a site may be
subject to common law claims by third parties based on damages and costs
resulting from violations of environmental regulations or from contamination
associated with the site.

Although the Company typically conduct extensive due diligence prior to
acquiring real property, it may not obtain Phase I environmental reports with
respect to those properties located in remote or rural areas. Failure to obtain
such reports may result in the Company acquiring or developing unusable property
or assuming certain liabilities which could have been avoided if the Company had
the information typically discovered in a Phase I report. To date, the Company
has obtained environmental reports with respect to two of the ILX Resorts. Even
when such due diligence investigation is performed, no assurance can be given
that the Company's due diligence efforts or Phase I reports, when available,
will reveal all environmental liabilities or that no prior owner created any
material environmental condition not identifiable by the Company. Certain
environmental laws impose liability on a previous owner of property to the
extent hazardous or toxic substances were present during the prior ownership
period. A transfer of the property may not relieve an owner of such liability.
Thus, the Company may have liability with respect to properties previously sold
by it or by its predecessors. See "Business -- Governmental
Regulation -- Environmental Matters."

ACCELERATION OF DEFERRED TAXES AND NET OPERATING LOSS CARRYFORWARD LIMITATIONS

While the Company reports sales of Vacation Ownership Interests as income
for financial reporting purposes upon closing a sale (see Notes to Consolidated
Financial Statements), federal income tax regulations allow the Company to
report a portion of financed sales on the installment method. Under the
installment method, the Company recognizes income on the sale of a Vacation
Ownership Interest when cash is received in the form of a down payment and then
incrementally as payments on retained Customer Notes are received or when the
Customer Note is factored. As of December 31, 1997, the Company had deferred
taxes (i.e., taxes owed to taxing authorities in the future as a consequence of
income previously reported in the financial statements) in the amount of $4.3
million attributable to this method of reporting Vacation Ownership Interests
sales. If the Company should factor the Customer Notes or if the retained
Customer Notes were foreclosed on by a lender of the Company or otherwise
collected or disposed of, the deferred gain would be reportable for tax purposes
and the deferred taxes, including interest on those taxes, as computed under
Section 453 of the Internal Revenue Code of 1986, as amended (the "Code"), would
become due. Moreover, the Company would owe accrued interest on such deferred
taxes which would be payable when the taxes are due in the event the deferred
taxes reverse in a year when income taxes are payable by the Company, the
likelihood of which is not now reasonably ascertainable. There can be no
assurance that the Company will have sufficient cash resources to pay those
taxes and interest if payable. Furthermore, if the Company's sales of Vacation
Ownership Interests should decrease in the future, the Company's diminished
operations may not generate either sufficient tax losses to offset taxable
income or funds to pay the deferred tax liability from prior periods.
Consequently, the Company's liquidity and financial position could be adversely
affected.

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

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

LIMITED RESALE MARKET FOR VACATION OWNERSHIP INTERESTS

Based on its experience with the ILX Resorts and the Additional Interests,
the Company believes that resales of Vacation Ownership Interests are generally
made at net sales prices below their original customer purchase price. The
relatively lower sales price is partly attributable to the high marketing and
sales costs associated with initial sales of such Vacation Ownership Interests.
Accordingly, the initial purchase of a Vacation Ownership Interest may be less
attractive to prospective buyers. Also, buyers who seek to resell their Vacation
Ownership Interests may compete with sales of Vacation Ownership Interests by
the Company. While Vacation Ownership Interest resale clearing houses or brokers
do not currently have a material impact on the Company's business, if a
secondary market for Vacation Ownership Interests were to become more organized
and liquid, the availability of resale Vacation Ownership Interests at lower
prices could adversely affect the prices and number of sales of new Vacation
Ownership Interests by the Company. As a result, the Company's business and
results of operations may be adversely affected.

ADVERSE EFFECTS OF DOWNTURNS IN GENERAL ECONOMIC CONDITIONS

Any adverse change in economic conditions or significant price increases or
adverse occurrences affecting the travel and tourism industry, such as the cost
and availability of fuel or real estate, could have a material adverse effect on
the Company's business and results of operations. Such conditions or occurrences
may also have an adverse effect upon the availability and cost of financing for
the Company and its customers, and preclude the Company from making loans to
customers for Vacation Ownership Interest purchases or prevent customers from
paying off outstanding Customer Notes. See "-- Financing Customer Borrowings;
Liquidity Risks -- Borrower Defaults" and "-- Geographic Concentration Within
the Western United States, Specifically Arizona" above.

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock has in the past been, and following
the closing of this Offering is likely to be, highly volatile and could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of new acquisitions or development projects, changes in
financial estimates by securities analysts or other events or factors. The
market price of the Common Stock also may be affected by the Company's ability
to meet analysts' expectations, and any failure to meet such expectations, even
if minor, could have a material adverse effect on the market price of the Common
Stock. In addition, the stock market has in the past and may in the future
experience significant and widespread price and volume fluctuations which have
often been unrelated to the operating performance of the companies whose equity
securities may be affected. These broad market fluctuations may adversely affect
the market price of the Common Stock. In the past, securities class action
litigation has often been instituted against a company following periods of
volatility in the market price of its securities. Even if the Company were to
successfully defend itself, any such litigation instituted against the Company
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
results of operations or financial condition. See "Price Range of Common Stock."

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COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES BY DISABLED
PERSONS

A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although the Company believes the ILX Resorts are substantially in compliance
with laws governing their accessibility by disabled persons, the Company may
need to incur additional costs to comply with such laws at its existing or
subsequently acquired resorts. Additional federal, state and local legislation
may impose further burdens or restrictions on the Company, with respect to
access by disabled persons. The ultimate cost of compliance with such
legislation is not currently ascertainable, but such costs could be substantial
and, as a result, could have a material adverse effect on the Company's results
of operations, liquidity or capital resources.

NATURAL DISASTERS; UNINSURED LOSS

There are certain types of losses (such as losses arising from floods or
acts of war) that are not generally insured because they are either uninsurable
or not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its invested capital in a resort,
as well as the anticipated future revenues from such resort. At the same time,
the Company is obligated to pay any debt service or other obligations related to
the property. Consequently, any such loss could have a material adverse effect
on the Company's results of operations, liquidity or financial position. See
"Business -- Insurance."

SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS

The Company has historically experienced quarterly fluctuations in its
gross revenues and net income from its operations. The Company's sales of
Vacation Ownership Interests have typically been lower during the first and
fourth quarters of each year and the Company expects this trend to continue in
the future. In addition, the Company's earnings may be adversely affected by the
timing of the completion of future resorts, fluctuations in travel and vacation
patterns, and weather or other natural phenomena. As the Company enters new
markets, it may experience additional fluctuations in its quarterly results or
an increased impact of seasonality on its business and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

VOTING CONTROL BY EXISTING ILX SHAREHOLDERS

Holders of the Company's Common Stock are entitled to cumulative voting
rights with respect to the election of the Company's directors. Cumulative
voting permits each holder of Common Stock to cast an aggregate number of votes
equal to the number of directorships to be filled multiplied by the number of
shares of Common Stock as to which they are entitled to cast votes. The holders
may cast all of such votes in favor of any individual nominee or may allocate
them among multiple nominees as they choose. As a result, a holder of less than
a majority of the outstanding Common Stock may elect one or more directors by
casting all of his respective votes in favor of a single candidate. Although
ILX's Bylaws authorize a Board of Directors of up to 15 directors, ILX currently
has 6 directors. Consequently, a purchaser must hold approximately 16.7% of the
ILX Common Stock to be outstanding upon the closing of this Offering to be able
to independently elect a director. Martori Enterprises Incorporated, an Arizona
corporation ("MEI"), controlled by Joseph P. Martori and his cousin, Edward J.
Martori ("EJM"), collectively, will own or have the power to vote approximately
22.3% of the ILX Common Stock outstanding upon the closing of this Offering
(approximately 21.2% if the Underwriters' over-allotment option is exercised in
full), and thereby have the power to elect at least 1 of the 6 directors and
exert substantial influence over, and in most cases, control essentially all of
ILX's business and affairs. In addition, Joseph P. Martori and EJM control MEI
and its voting decisions with respect to shares of the Common Stock held by MEI.
If the interests of MEI, Joseph P. Martori and EJM as shareholders differ from
the interests of the other shareholders, such other shareholders may be
adversely affected. See "Certain Relationships and Related Transactions,"
"Principal Shareholders" and "Description of ILX Securities and Pertinent
Arizona Statutes."

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ARIZONA ANTI-TAKEOVER PROVISIONS; BARRIERS TO TAKEOVER

Arizona law restricts a security holder from entering into certain
transactions, an acquiror from affecting changes in the control of corporations,
and the exercise of certain voting rights without shareholder approval. See
"Description of ILX Securities and Pertinent Arizona Statutes -- Arizona
Anti-Takeover Legislation and Anti-Takeover Devices." Such statutory
restrictions and the availability of Preferred Stock may adversely hamper future
transactions involving a change in control or potential change in control of ILX
or transactions with persons with shareholdings over specified percentages,
thereby depressing the price of ILX Common Stock. Further, such circumstances
may adversely affect the ability of one or more holders of ILX Common Stock to
effect a change in control of ILX. See "-- Absence of Common Stock Dividends;
Rights of Preferred Stock" and "-- Dilution".

ABSENCE OF COMMON STOCK DIVIDENDS; RIGHTS OF PREFERRED STOCK

The Company has never paid cash dividends on its Common Stock and it does
not contemplate paying cash dividends on its Common Stock in the foreseeable
future. It is the present intention of ILX's management to retain future
earnings, if any, subject to payment of required dividends on the Company's
outstanding Preferred Stock for reinvestment in the Company. As of December 31,
1997, there were 59,845, 55,000 and 265,623 shares, respectively, of the
Company's Series A, Series B and Series C Preferred Stock outstanding. Each
share of outstanding $10.00 par value Series A Preferred Stock ("Series A
Stock") is entitled to an annual dividend of $.80 per share out of funds legally
available therefor. Dividends may not be paid on ILX Common, Series B or Series
C Preferred Stock until the Series A Stock sinking fund requirements and
dividend payments are satisfied. The $10.00 par value Series C Convertible
Preferred Stock ("Series C Stock") is entitled to receive dividends, when and as
declared by ILX's Board of Directors, out of any funds legally available
therefor at the rate of $.60 per share per annum (the "Dividend Preference")
payable in preference and priority to any payment of any dividend on ILX Common
Stock but subordinate and subject to the dividend rights of the Series A Stock.
Except for "Cumulation Shares" issuable on conversion or liquidation of the
Series C Stock, the right to the Dividend Preference is not cumulative. If,
during any year prior to November 1, 1998, the Dividend Preference is not paid
in full, the unpaid portion thereof will accumulate through November 1, 1998.
See "Dividend Policy" and "Description of ILX Securities and Pertinent Arizona
Statutes."

DILUTION

The Company's Articles of Incorporation, as amended (the "Articles of
Incorporation"), permit the Board of Directors to issue up to an aggregate of
30,000,000 shares of Common Stock and up to 10,000,000 shares of Preferred Stock
in one or more series without any action on the part of its shareholders, the
terms of which may adversely affect the rights of holders of Common Stock. In
addition, the issuance of Preferred Stock may be used as an "anti-takeover"
device without further action on the part of the shareholders. Further, the
issuance of Preferred Stock may dilute the voting power of holders of Common
Stock (such as the issuance of Preferred Stock with super-voting rights) and may
render more difficult the removal of current management, even if such removal
may be in the shareholders' best interests. In addition, any such issuance of
Preferred Stock could prevent the holders of Common Stock from realizing a
premium on their shares. See "Description of ILX Securities and Pertinent
Arizona Statutes."

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26

USE OF PROCEEDS

The Company estimates that the net proceeds from the sale of the 1,400,000
shares of Common Stock offered hereby, assuming an offering price to the public
of $6.75 per share, will be approximately $8.488 million ($9.807 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated expenses of this Offering.
The Company intends to use the estimated net proceeds of this Offering to repay
indebtedness. The indebtedness to be repaid matures on various dates from 1998
through 2002 and accrues interest at rates ranging from 12.0% to 13.0% per annum
with a weighted average interest rate of 12.2% per annum. Pending such uses, all
net proceeds will be invested in short-term investment grade instruments or bank
certificates of deposit.

PRICE RANGE OF COMMON STOCK

The following table sets forth, for the periods indicated, the range of
high and low sales prices for the Common Stock, after giving effect to the
Reverse Stock Split. The information for the periods ended prior to February 11,
1998 is as quoted on the Nasdaq SmallCap Market. Since February 11, 1998, the
Common Stock has been listed on the American Stock Exchange. The closing sales
price of the Company's Common Stock on April 6, 1998 was $7.00, and, as of
December 31, 1997, the Common Stock was held by approximately 1,158 holders of
record.

COMMON STOCK
--------------
HIGH LOW
----- -----

YEAR ENDED DECEMBER 31, 1996
First Quarter............................................. $6.90 $5.00
Second Quarter............................................ 9.70 5.65
Third Quarter............................................. 8.15 5.95
Fourth Quarter............................................ 7.50 4.85
YEAR ENDED DECEMBER 31, 1997
First Quarter............................................. $6.88 $5.00
Second Quarter............................................ 6.88 3.13
Third Quarter............................................. 8.44 3.91
Fourth Quarter............................................ 8.75 5.15
YEAR ENDED DECEMBER 31, 1998
First Quarter............................................. $7.25 $4.38

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27

DIVIDEND POLICY

The Company has not and does not intend to pay cash dividends on its Common
Stock in the foreseeable future. See "Risk Factors -- Absence of Common Stock
Dividends; Rights of Preferred Stock." The Company currently intends to retain
future earnings to finance its operations and fund the growth of its business.
Any payment of future dividends will be at the discretion of the Board of
Directors of the Company and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual and other restrictions regarding the payment of dividends, and other
factors that the Company's Board of Directors deems relevant.

As of December 31, 1997, there were 59,845, 55,000 and 265,623 shares,
respectively, of the Company's Series A, Series B and Series C Stock
outstanding. Each share of outstanding Series A Stock is entitled to an annual
dividend of $.80 per share out of funds legally available therefor. Dividends
may not be paid on ILX Common, Series B or Series C Stock until the Series A
Stock dividend requirements are satisfied. The Series C Stock is entitled to a
Dividend Preference, when and as dividends are declared by ILX's Board of
Directors, at the rate of $.60 per share per annum payable prior to any payment
of any dividend on ILX Common Stock but subordinate to the dividend rights of
the Series A Stock. The Series C Stock dividend is not cumulative. If, during
any year prior to November 1, 1998, the Series C Stock dividend is not paid in
full, the unpaid portion will accumulate through November 1, 1998, and the total
accumulated amount will be converted, at the option of the holder, into shares
of Common Stock at a conversion price of $30.00 per share. See "Description of
ILX Securities and Pertinent Arizona Statutes."

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28

CAPITALIZATION

The following table sets forth at December 31, 1997, the consolidated
capitalization of the Company on an actual basis and as adjusted to give effect
to the Offering and the application of estimated net proceeds therefrom. This
table should be read in conjunction with "Use of Proceeds," the Consolidated
Financial Statements and the notes thereto, "Selected Consolidated Historical
and Pro Forma Financial Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(a)
------- --------------
(DOLLARS IN THOUSANDS)

Debt:
Notes payable to affiliates............................... $ 2,166 $ 2,166
Notes payable and capital lease obligations............... 19,885 11,397
------- -------
Total indebtedness........................................ 22,051 13,563
------- -------
Shareholders' equity:
Preferred Stock, $10 par value; 10,000,000 shares
authorized; 380,468 shares issued and outstanding;
liquidation preference of $3,804,680................... 1,385 1,385
Common Stock, no par value; 30,000,000 shares authorized;
2,692,433 shares issued and outstanding, and pro forma
shares of 4,092,433 as adjusted for the Offering(b).... 10,268 18,756
Treasury stock, at cost, 103,060 shares................... (652) (652)
Additional paid-in capital................................ 79 79
Retained earnings......................................... 5,541 5,541
------- -------
Total shareholders' equity............................. 16,621 25,109
------- -------
Total capitalization.............................. $38,672 $38,672
======= =======

- ---------------

(a) Adjusted to give effect to the application of the estimated net proceeds
from this Offering. See "Use of Proceeds." Assumes repayment of $8.488
million in principal amount of debt outstanding as of December 31, 1997. See
"Use of Proceeds."

(b) Does not include an aggregate of (i) 60,400 shares of Common Stock reserved
for issuance pursuant to the Company's stock option plans at a weighted
average exercise price of $8.02 per share, (ii) 132,646 shares of Common
Stock reserved for issuance upon conversion of outstanding Preferred Stock,
(iii) 10,000 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants at an exercise price of $7.50 per share, (iv) 20,000
shares of Common Stock reserved for issuance upon conversion of a note
payable at an exercise price of $7.50 per share and (v) 210,000 shares of
Common Stock which the Underwriters may purchase pursuant to their
over-allotment option. See "Management -- Stock Option Plans," "Description
of ILX Securities and Pertinent Arizona Statutes," "Underwriting" and the
Company's Consolidated Financial Statements.

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29

SELECTED CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION

The selected consolidated historical financial information set forth below
for the five years ended December 31, 1997 has been derived from the
consolidated financial statements of the Company which have been restated to
give effect to the Reverse Stock Split. The consolidated financial statements of
the Company for the three years in the period ended December 31, 1997 and as of
December 31, 1996 and 1997 were audited by Deloitte & Touche LLP, independent
auditors, as indicated in their report included elsewhere in this Prospectus.

The Company has recently reformatted and reclassified certain items on its
Consolidated Statements of Operations. This has been done to give readers of the
Company's Consolidated Statements of Operations a clearer view of the financial
performance of the Company's core business: the ownership and operation of
vacation ownership resorts. The Company's "Cost of Vacation Ownership Interests
Sold" line item has been reclassified to consist only of the real estate costs.
The Company had previously included sales commissions and closing costs in this
expense line item. Sales commission expenses and closing costs have been
reclassified as "Sales and Marketing Expenses." Depreciation and amortization
expense has been omitted from cost of resort operations and general and
administrative expense and now comprises its own expense line item. The Company
believes that these reclassifications are consistent with how many other
publicly traded companies in the vacation ownership industry present their
expense line items.

The unaudited pro forma income statement for the year ended December 31,
1997 gives effect to (i) the minority interest buy-in by the Company in LAP,
(ii) the sale of Lomacasi, excluding the gain on such sale and (iii) the
contemplated application of the net proceeds from this Offering as if these
transactions occurred at the beginning of 1997. The unaudited as adjusted
balance sheet at December 31, 1997 gives effect to this Offering and the
application of the proceeds therefrom to payment of debt as of December 31,
1997, subject to the assumptions stated in the related notes. See "Prospectus
Summary -- Recent Developments" and "Use of Proceeds". The unaudited pro forma
income statement and balance sheet data are not necessarily indicative of what
the actual results of operations or financial position of the Company would have
been, nor do they purport to represent the Company's results of operations or
financial position for future periods.

The Selected Consolidated Historical and Pro Forma Financial Information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

29
30

30
31

HISTORICAL AS ADJUSTED
----------------------------------------------- ------------
DECEMBER 31, DECEMBER 31,
----------------------------------------------- ------------
1993 1994 1995 1996 1997 1997(f)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS)

BALANCE SHEET DATA(a):
Notes receivable...................... $ 6,672 $ 6,751 $ 8,785 $11,746 $15,862 $15,862
Resort property held for Vacation
Ownership Interest sales............ 9,749 9,408 14,852 15,248 14,667 14,667
Total assets.......................... 24,907 28,403 37,753 41,275 43,722 43,722
Notes payable......................... 5,409 7,332 13,528 16,434 22,051 13,563
Shareholders' equity.................. 10,541 12,957 13,775 15,175 16,621 25,109

(b) Gives retroactive pro forma effect to the Reverse Stock Split.

HISTORICAL PRO FORMA
---------------------------------------------- ------------
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(e)
------ ------ ------ ------ ------ ------------
(IN THOUSANDS)

Net income................... $2,076 $2,148 $ 625 $1,051 $1,668 $2,174
Interest expense............. 600 666 1,265 1,975 2,085 1,106
Income tax expense
(benefit).................. (100) (161) (547) 679 1,145 1,482
Depreciation and
amortization............... 353 1,425 696 476 455 409
Amortization of guarantee
fees....................... 133 140 101 72 92 92
Gain on sale of property..... 0 0 0 0 (356) 0
------ ------ ------ ------ ------ ------
EBITDA....................... $3,062 $4,218 $2,140 $4,253 $5,089 $5,263
====== ====== ====== ====== ====== ======

(d) Vacation Ownership Interests are expressed in terms of annual intervals
(biennial sales are counted as one-half of an annual sale).

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32

(ii) elimination of the LAP minority interest, (iii) additional interest
expense for the debt used to purchase the LAP minority interest, (iv)
reduction in the number of shares outstanding by 80,000, consisting of the
100,000 shares received from the sale of the Company's general partnership
interest in the Lomacasi Resort less the 20,000 shares issued in connection
with the purchase of the LAP minority interest, (v) reduction of interest
expense to give effect to the repayment of certain indebtedness using the
estimated net proceeds from this Offering, and (vi) adjustment of the
provision for income taxes for the effect of the pro forma adjustments.
These adjustments are summarized as follows:

YEAR ENDED
DECEMBER 31,
1997
--------------
INCREASE
(DECREASE)
IN NET INCOME
(IN THOUSANDS)

Resort operating revenue............................... $(272)
Cost of resort operations.............................. 244
Sales and marketing.................................... 5
General and administrative............................. 19
Depreciation and amortization.......................... 46
Gain on sale of property............................... (356)
Interest expense....................................... 979
Income tax expense..................................... (337)
Minority interest expense.............................. 178
-----
Total.................................................. $ 506
=====

32
33

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
Prospectus, the words "estimate," "projection," "intend," "anticipates" and
similar terms are intended to identify forward-looking statements that relate to
the Company's future performance. Such statements are subject to substantial
uncertainty. Readers are cautioned not to place undue reliance on the
forward-looking statements set forth below. The Company undertakes no obligation
to publicly update or revise any of the forward-looking statements contained
herein.

OVERVIEW

ILX Resorts Incorporated was formed in 1986 to enter the Vacation Ownership
Interest business. The Company generates revenue primarily from the sale and
financing of Vacation Ownership Interests. The Company also generates revenue
from the rental of its unused or unsold inventory of units at the ILX Resorts
and from the sale of food, beverages or other services at such resorts. The
Company currently owns four resorts in Arizona, one in Indiana, one in Colorado
and the Company is constructing a seventh resort in Tucson, Arizona.

The Company recognizes revenues from the sale of Vacation Ownership
Interests at such time as a minimum of 10% of the purchase price has been
received in cash, the statutory rescission period has expired, the buyer is
committed to continued payments of the remaining purchase price and the
Company's future obligations for the Vacation Ownership Interests have been
released. Resort operating revenues are recorded as the rooms are rented or the
services are performed.

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

33
34

RESULTS OF OPERATIONS

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

YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------

As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests..................... 69.2% 62.2% 65.9%
Resort operating revenue.................................. 28.8% 34.7% 30.0%
Interest income........................................... 2.0% 3.1% 4.1%
------- ------- -------
Total timeshare revenues............................... 100.0% 100.0% 100.0%
======= ======= =======
As a percentage of sales of Vacation Ownership Interests:
Cost of Vacation Ownership Interests sold................. 16.5% 15.8% 13.4%
Sales and marketing....................................... 51.4% 53.4% 57.9%
Provision for doubtful accounts........................... 5.8% 3.0% 2.9%
Contribution margin percentage from sale of Vacation
Ownership Interests(1)................................. 26.3% 27.8% 25.7%
As a percentage of resort operating revenue:
Cost of resort operations................................. 101.3% 95.1% 95.9%
As a percentage of total timeshare revenues:
General and administrative................................ 12.3% 7.3% 8.2%
Depreciation and amortization............................. 2.3% 1.5% 1.3%
Timeshare operating income................................ 5.4% 13.4% 12.9%
Selected operating data:
Vacation Ownership Interests sold (2)(3).................. 1,877 1,562 1,660
Average sales price per Vacation Ownership Interest sold
(excluding revenues from Upgrades)(2).................. $10,624 $11,963 $12,656
Average sales price per Vacation Ownership Interest sold
(including revenues from Upgrades)(2).................. $11,377 $12,573 $14,446

- ---------------
(1) Defined as: the sum of Vacation Ownership Interest sales less the cost of
Vacation Ownership Interests sold less sales and marketing expenses less a
provision for doubtful accounts, divided by sales of Vacation Ownership
Interests.

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

(3) Consists of an aggregate of 2,195, 2,320 and 2,512 biennial and annual
Vacation Ownership Interests for the years ended December 31, 1995, 1996
and 1997, respectively.

Comparison of Year Ended December 31, 1996 to December 31, 1997

Sales of Vacation Ownership Interests increased 22.4% or $4.4 million in
1997 to $24.0 million from $19.6 in 1996. The increase reflects both an increase
in sales prices and an expanded marketing program whereby existing ILX Owners
were offered an opportunity to purchase an Upgrade. Upgrade revenue, included in
sales of Vacation Ownership Interests, increased 200% from $1.0 million in 1996
to $3.0 million in 1997. The average sales price per Vacation Ownership Interest
sold (including Upgrades) increased 14.9% from $12,573 in 1996 to $14,446 in
1997 as a result of increased sales prices and the additional Upgrade sales.
Upgrades generally do not involve the sale of additional Vacation Ownership
Interests (merely their exchange) and, therefore, such Upgrades increase the
average sales price per Vacation Ownership Interest sold.

The number of Vacation Ownership Interests sold increased 6.3% from 1,562
in 1996 to 1,660 in 1997. The average sales price per Vacation Ownership
Interest sold (excluding Upgrades) increased 5.8% from $11,963 in 1996 to
$12,656 in 1997. Sales of Vacation Ownership Interests in 1997 included 1,705
biennial

34
35

Vacation Ownership Interests (counted as 853 annual Vacation Ownership
Interests) compared to 1,517 biennial Vacation Ownership Interest sales (counted
as 759 annual Vacation Ownership Interests) in 1996. The increase in average
price per Vacation Ownership Interest sold (excluding Upgrades) in 1997 resulted
both from increased prices and from the Company's increased sales of biennial
Vacation Ownership Interests (the sales price of which is more than one-half of
an annual Vacation Ownership Interest sales price).

Resort operating revenues and cost of resort operations are comparable
between the two periods.

The 51.4% increase in interest income from $997,500 in 1996 to $1,510,208
in 1997 is a result of the increased Customer Notes retained by the Company and
an increase in interest rates charged by the Company on its Customer Notes,
effective July 1997.

Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales decreased from 15.8% in 1996 to 13.4% in 1997 due to
the increased sales of biennial Vacation Ownership Interests (which have a lower
cost of sales percentage than an annual Vacation Ownership Interest) and a
larger amount of Upgrade sales in 1997.

Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 57.9% in 1997 compared to 53.4% in 1996 due to (i)
increased costs of generating tours to ILX Resorts in 1997, (ii) increased costs
from the opening of a new sales office in Tempe in 1997, (iii) increased costs
from the opening of a Tucson sales office in 1997 (which is anticipated to
achieve operating efficiency consistent with the Company's standards following
opening of VCA-Tucson), and (iv) recognition in 1996 of benefits from premiums
issued to potential customers in prior periods which expired without redemption.
Increases in costs of generating tours in 1997 is due in part to the trial of
several new marketing strategies which were determined ineffective and were
therefore terminated in July and August 1997. Additionally, the Tempe sales
office was not retained beyond the trial period (April-July 1997) due to high
marketing costs and low closing rates.

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

General and administrative expenses increased 30.4% to $3.0 million in 1997
from $2.3 million in 1996. General and administrative expenses increased to 8.2%
as a percentage of total timeshare revenues in 1997 from 7.3% in 1996 due to an
increase in payroll expense, professional fees and rent expense.

In December 1997, the Company sold its general partnership interest in
Lomacasi Cottages resulting in a non-recurring gain of $356,000.

The decrease in minority interests from 1996 to 1997 reflects (i) the
buyout by the Company of the LAP minority interest in August 1997 and (ii)
reduced LAP resort income.

Comparison of Year Ended December 31, 1995 to the Year Ended December 31, 1996

Sales of Vacation Ownership Interests decreased by 8.4% or $1.8 million to
$19.6 million in 1996 from $21.4 million in 1995. Part of this decline reflects
operation through April 1995 of a Phoenix sales office (which generated
approximately $771,000 in sales in 1995 prior to closure) and the recognition of
approximately $513,000 in sales of Vacation Ownership Interests in VCA-South
Bend written in 1994 but for which revenue recognition was deferred until
completion of construction in 1995. Upgrade revenue, included in Vacation
Ownership Interest sales, decreased 28.6% from $1.4 million in 1995 to $1.0
million in 1996. The average sales price per Vacation Ownership Interest sold
(including Upgrades) increased 10.5% from $11,377 in 1995 to $12,573 in 1996 as
a result of increased sales of biennial Vacation Ownership Interests which was
partially offset by the decline in Upgrade sales.

The number of Vacation Ownership Interests sold decreased 16.8% from 1,877
in 1995 to 1,562 in 1996. The average sales price of Vacation Ownership
Interests sold (excluding Upgrades) increased 12.6% from $10,624 in 1995 to
$11,963 in 1996 due primarily to an increase in the number of biennial Vacation
Ownership Interests sold. Sales of Vacation Ownership Interests in 1996 included
1,517 biennial interests (counted as 759 annual Vacation Ownership Interests)
compared to 636 (counted as 318 annual Vacation Ownership
35
36

Interests) in 1995. The increase in 1996 biennial sales was the result of the
Company's increased sales and marketing efforts in this market segment and its
ability to charge a sales price that was significantly greater than one-half of
the sales price of an annual Vacation Ownership Interest. The increased emphasis
upon sales of biennial Vacation Ownership Interests at higher prices and the
closure of the Phoenix sales office resulted in a reduction in sales of annual
Vacation Ownership Interests from 1,559 in 1995 to 803 in 1996.

Resort operating revenue increased 22.5% from $8.9 million in 1995 to $10.9
million in 1996. The increase reflects a full year of operations in 1996 of both
VCA-South Bend, which opened in mid-August 1995, and Kohl's Ranch, which was
acquired on June 1, 1995.

The 59.1% increase in interest income from $627,081 in 1995 to $997,500 in
1996 is a result of the increased amount of Customer Notes retained by the
Company as well as increased balances of invested cash.

Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales decreased from 16.5% in 1995 to 15.8% in 1996 due to an
increase in the number of biennial sales.

Sales and marketing costs as a percentage of Vacation Ownership Interests
sales increased from 51.4% in 1995 to 53.4% in 1996 due to a promotional program
in 1996 which offered certain purchasers of Vacation Ownership Interests a
vacation experience (including accommodations, airfare and car rental). While
the cost of the vacation experience was added to the purchase price, it had the
effect of increasing sales and marketing costs as a percentage of sales of
Vacation Ownership Interests. Additionally, 1995 included the recognition of
$513,400 of revenue recognized on the percentage of completion method but for
which marketing costs were recognized in 1994 when incurred.

The decrease in the provision for doubtful accounts as a percentage of
sales of Vacation Ownership Interests from 5.8% in 1995 to 3.0% in 1996 reflects
the expected performance of the portfolio of consumer paper based on the
Company's collection experience in the prior years, both sold and unsold.

The decrease in cost of resort operations as a percentage of resort
operating revenue to 95.1% in 1996 from 101.3% in 1995 reflects lower costs of
operations at Los Abrigados as a percentage of revenue due to increased
occupancy, increased ILX Owner rates and reductions in operating costs, net of
the costs of operations for VCA-South Bend and Kohl's Ranch, which began
operations in 1995 and accordingly had lower occupancy than mature resorts.

General and administrative expenses decreased 39.5% from $3.8 million in
1995 to $2.3 million in 1996 due in part to operating efficiencies in 1996 and
unusual expenses in 1995. General and administrative expense decreased to 7.3%
as a percentage of total timeshare revenues in 1996 from 12.3% in 1995. In 1995,
approximately $400,000 of expenses were recognized relating to a $10.0 million
convertible bond offering which was abandoned due to the underwriter's inability
to place the bonds. Proceeds from the failed offering were intended for Varsity
Clubs expansion; however, as a result of abandoning the bond offering, the
Company canceled its options on certain Varsity Clubs sites, and $320,000 of
related costs were written-off because the Company no longer expected to build
at these sites within the option periods.

The increase in interest expense from $1.3 million in 1995 to $2.0 million
in 1996 reflects an increase in notes payable, including the note payable for
the construction of VCA-South Bend, which interest had been capitalized through
completion in August 1995, the acquisition notes for Kohl's Ranch, Lomacasi
Cottages and the Inn at Los Abrigados, and increased borrowings against consumer
notes receivable.

Income tax expense increased from a benefit in 1995 to a provision in 1996
because 1995 included a reduction in the valuation allowance, reflecting
management's estimate of the future benefit to be derived from the utilization
of Genesis NOL carryovers, and also a result of increased net income in 1996.

Minority interests are comparable between years. However, 1996 reflects an
increase in Los Abrigados net income between years due to increased hotel
operating income, increased Vacation Ownership Interest sales prices and reduced
costs of Vacation Ownership Interests sold, depreciation and bad debt provision.
For 1995, the minority interests include the minority interest ownership of the
Genesis land parcels sold in 1995.

36
37

LIQUIDITY AND CAPITAL RESOURCES

Sources of Cash

The Company generates cash primarily from the sale of Vacation Ownership
Interests (including Upgrades), the financing of Customer Notes from such sales
and resort operations. During 1995, 1996 and 1997, cash provided by (used in)
operations was $(0.7) million, $4.0 million, and $2.8 million, respectively. The
negative cash flow in 1995 was due primarily to an increase in resort property
held for timeshare sales of $4.4 million resulting from the completion of
construction and opening of VCA-South Bend, which was financed primarily through
borrowings of $4.2 million in 1995. Because the Company uses significant amounts
of cash in the development and marketing of Vacation Ownership Interests, but
collects the cash on the Customer Notes receivable over a long period of time,
borrowing against and/or selling receivables is a necessary part of its normal
operations. See "Risk Factors -- Financing Customer Borrowings" and "Risk
Factors -- Borrower Defaults."

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

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

In addition, Section 382 of the Code imposes additional limitations on the
utilization of NOL's by a corporation following various types of ownership
changes which result in more than a 50% change in ownership of a corporation
within a three year period. Such changes may result from new Common Stock
issuances by the Company or changes occurring as a result of filings with the
Securities and Exchange Commission of Schedules 13D and 13G by holders of more
than 5% of the Common Stock, whether involving the acquisition or disposition of
Common Stock. If such a subsequent change occurs, the limitations of Section 382
would apply and may limit or deny the future utilization of the NOL by the
Company, which could result in the Company paying substantial additional federal
and state taxes. See "Risk Factors -- Acceleration of Deferred Taxes and Net
Operating Loss Carryforward Limitations" and Note 8 of Notes to Consolidated
Financial Statements.

Uses of Cash

Investing activities typically reflect a net use of cash because of capital
additions and loans to customers in connection with the Company's Vacation
Ownership Interest sales. Net cash used in investing activities in 1995, 1996
and 1997 was $3.2 million, $3.5 million and $6.5 million, respectively. Cash
used in investing activities increased $3.0 million in 1997 compared to 1996,
due to the Company's purchase of the minority interest in LAP (see Note 11 of
Notes to Consolidated Financial Statements) which included a cash payment of
approximately $820,000 and due to the Company's strategy of hypothecating its
Customer Notes rather than selling them.

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

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The Company is currently constructing VCA -- Tucson, Arizona at an aggregate
estimated cost of $7.5 million. Construction of the facility commenced in 1997
and is expected to be completed in April 1998. The Company has a commitment for
construction financing in the amount of $6.55 million, which is expected to be
sufficient to build and furnish the property. At December 31, 1997, $3.1 million
had been drawn against this commitment.

Customer defaults have a significant impact on cash available to the
Company from financing Customer Notes receivables in that notes which are more
than 60 to 90 days past due are not eligible as collateral. As a result, the
Company in effect must repay borrowings against such notes or buy back such
notes if they were sold with recourse. See "Risk Factors -- Borrower Defaults,"
"Risk Factors -- Financing Customer Borrowings" and "Risk
Factors -- Development, Construction and Property Acquisition Activities."

Credit Facilities

The Company has agreements with financial institutions for total
commitments aggregating $20.0 million under which the Company may sell certain
of its Customer Notes. These agreements provide for sales on a recourse basis
with a percentage of the amount sold held back by the financial institution as
additional collateral. Notes may be sold at discounts or premiums to yield the
consumer market rate as defined by the financial institution. At December 31,
1997, approximately $6.0 million was available under these commitments.

The Company also has financing commitments aggregating $19.2 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus 3.25% to prime plus 5.0%
and expire at various dates from 1998 through 2000. At December 31, 1997,
approximately $13.0 million is available under these commitments.

In the future, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the above.
Any debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as management deems prudent. There is no assurance that the Company will
be able to secure additional corporate debt or equity at or beyond current
levels or that the Company will be able to maintain its current level of debt.
See "Risk Factors -- Leverage."

The Company believes available borrowing capacity, together with cash
generated from operations, will be sufficient to meet the Company's liquidity,
operating and capital requirements for at least the next 12 months.

SEASONALITY

The Company's revenues are moderately seasonal with the volume of ILX
Owners, hotel guests and Vacation Ownership Interest exchange participants
typically greatest in the second and third fiscal quarters. As the Company
expands into new markets and geographic locations it may experience increased or
additional seasonality dynamics which may cause the Company's operating results
to fluctuate. See "Risk Factors -- Risks of Rapid Growth" and "-- Seasonality
and Variability of Quarterly Results."

YEAR 2000 ISSUES

As with other organizations, some of the Company's computer programs were
originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly with
dates from the year 2000 and beyond. The Company has initiated efforts to remedy
this situation and expects all programs to be corrected and tested prior to the
year 2000. The incremental costs of this project are not expected to have a
material effect on the Company's consolidated financial statements or results of
operations.

INFLATION

Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its Customer Notes.
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BUSINESS

THE COMPANY

ILX is one of the leading developers, marketers and operators of timeshare
resorts in the western United States. 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., biennial) basis, 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
its unused or unsold inventory of units at the ILX Resorts, and from the sale of
food, beverages and other services at such resorts. The Company's current
portfolio of ILX Resorts consists of four resorts in Arizona, one in Indiana,
and one in Colorado, and the Company is constructing a seventh resort in Tucson,
Arizona. At December 31, 1997, the ILX Resorts (excluding the Tucson property
currently under construction) represented an aggregate of 391 units and 20,171
sold and unsold one-week Vacation Ownership Interests. Upon completion of the
Tucson property currently under construction, the Company expects to own an
aggregate of 453 units, comprising 23,395 (sold and unsold) one-week Vacation
Ownership Interests. The Company also markets the Additional Interests, which
consisted, at December 31, 1997, of an aggregate of approximately 84 Vacation
Ownership Interests in destination resorts owned by others and located in
Florida, Mexico and elsewhere, and the rights to market Vacation Ownership
Interests in four destination resorts owned by an unaffiliated third party and
located on the island of Kauai, Hawaii.

The Company was founded in 1986 and commenced implementation of its current
operating and growth strategies in the fourth quarter of 1991. During the period
from December 31, 1991 through December 31, 1997, the Company increased the
number of ILX Resorts from two to seven, and increased its total inventory of
sold and unsold Vacation Ownership Interests from 9,915 weeks to 23,479 weeks
(including 3,224 under construction at VCA-Tucson and the 84 Additional
Interests). The Company's total revenues increased from $6.1 million in 1991 to
$36.4 million in 1997. During this period, the Company's growth was fueled
principally by the acquisition, redevelopment and expansion of certain ILX
Resorts and the marketing and sale of Vacation Ownership Interests in these
resorts.

The Company believes it was able to purchase the ILX Resorts and the
Additional Interests at relatively attractive prices because of its skill in
locating, identifying and acquiring distressed or underdeveloped resorts and
Vacation Ownership Interests. The Company successfully utilized this strategy in
connection with Los Abrigados in Sedona, Arizona (175 units), the Kohl's Ranch
Lodge in Payson, Arizona (52 units) and, most recently, the Roundhouse Resort in
Pinetop/Lakeside, Arizona (59 existing units owned by current owners of Vacation
Ownership Interests and planned expansion of approximately 100 units).

Utilizing management's development expertise, the Company developed and
implemented the Varsity Clubs concept. This concept entails ground-up
development of urban vacation ownership properties strategically situated in
tourist destinations which are accessible to major population centers near
prominent colleges and universities. The first Varsity Club, VCA-South Bend,
consisting of 62 units, was completed in August 1995 and is located
approximately three miles from the University of Notre Dame in South Bend,
Indiana. Construction of a second Varsity Club, VCA-Tucson, consisting of 62
planned units, located near the University of Arizona in Tucson, Arizona, is
scheduled for completion in April 1998. The scope of the Company's activities
since 1991 have enabled the Company's management team, which has significant
experience in the vacation ownership resort and real estate development
industries, to establish substantial in-house capabilities in areas critical to
the Company's operating and growth strategies, including property identification
and acquisition, property development and rehabilitation, and Vacation Ownership
Interest sales and marketing.

The quality and customer appeal of the Company's resorts have been
recognized by several industry awards and travel publications. RCI and II, the
exchange networks in which ILX Owners may participate, assign ratings to the
vacation ownership properties which members own. Gold Crown and Five-Star are
the

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highest ratings assigned by RCI and II, respectively, and are awarded to only 5%
of the participating resorts. The Company's Los Abrigados resort has been
awarded Gold Crown status by RCI and Five-Star status by II. Each of VCA-South
Bend, VCA-Tucson and the Inn at Los Abrigados have also received Five-Star
status by II. In addition, the ILX Resorts and several of the resort restaurants
have received numerous local and national recognitions. Specifically, Los
Abrigados has been awarded the Wine Spectator Award of Excellence for 10
consecutive years. In addition, the Red Rock Fantasy, a 22-acre themed light
extravaganza hosted by Los Abrigados for the past seven years, has received
substantial national and local media coverage, including television coverage by
CNN, TNN, NBC, Fox and CBS and print media coverage by USA Today, Better Homes
and Gardens, The Denver Post, The Arizona Republic and America West Airlines
Inflight Magazine.

The Company is pursuing a two-pronged operating strategy which focuses on
marketing Vacation Ownership Interests in the Company's CARs and in its Varsity
Clubs. CARs are typically high-quality vacation ownership resorts situated in
settings of natural beauty and located within convenient and inexpensive
travelling distance from major population centers (currently Phoenix and
Denver). The Company's CARs are intended to facilitate more frequent
"short-stay" getaways, which the Company believes is an increasingly popular
vacation trend. As of December 31, 1997, the Company operated five CARs
consisting of 329 units and held 5,355 unsold Vacation Ownership Interests in
those CARs. The Company's inventory of CARs has been marketed primarily by ILX
employees at the Company's on-site sales offices located at or near selected ILX
Resorts.

Although purchasers will continue to be able to purchase Vacation Ownership
Interests at any individual ILX Resort or an Additional Interest, commencing in
1998, the Company's inventory of CARs will be marketed through membership
interests in its proprietary branded Premiere Vacation Club. The Premiere
Vacation Club offers purchasers a deeded one-week membership interest which may
be used at any time between certain specified dates at any one of the ILX
Resorts included in the Premiere Vacation Club, or may be split into multiple
stays of shorter duration at any combination of such resorts. In addition,
Premiere Vacation Club membership interests may be exchanged for a stay at other
resorts through the major national exchange networks in which ILX Owners may
participate, such as RCI and II. Substantially all of the Company's inventory of
Vacation Ownership Interests, including those at its Varsity Clubs and those to
be included in the Premiere Vacation Club, qualify as "red time," the highest
demand classification for purposes of participation in such exchange networks.
The Company believes that its Premiere Vacation Club concept will be appealing
to customers because of its emphasis on flexible use options (e.g., floating
days, two-day uses and the ability to split a purchased membership interest),
locations within convenient driving distances from major metropolitan areas and
other features (e.g., high quality amenities and food and beverage discounts at
its participating ILX Resorts).

In addition to marketing through its Premiere Vacation Club, the Company
intends to aggressively pursue the expansion of its proprietary branded Varsity
Club concept. The Company will focus on development of additional Varsity Clubs
in areas with a significant base of existing tourism and access to major
population centers, which are located near prominent colleges and universities
in the western United States. The Company completed construction and commenced
operations of its prototype Varsity Club property, VCA-South Bend, located near
the University of Notre Dame, in 1995. Construction of a second Varsity Club,
VCA-Tucson, located near the University of Arizona in Tucson, Arizona, is
expected to be completed in April 1998. The Company intends to develop its
Varsity Club properties at attractive locations for visiting tourists who may
rent accommodations or purchase a Vacation Ownership Interest from the Company.
In connection with the purchase of a Vacation Ownership Interest, Varsity Clubs
offer area residents an urban "city club" experience with unlimited day-use
privileges, as well as the opportunity to participate in the II Vacation
Ownership Interest exchange network. The Company believes that Varsity Clubs
offer features common to a "city club", including a fitness center, swimming
pool, bar, restaurant/ lounge, billiards and large sitting/welcome room. In
addition, the Varsity Clubs concept enables the Company to enlarge the Company's
target list of potential purchasers by utilizing an identification with the
local university to market Vacation Ownership Interests to alumni, sports season
ticket holders, parents of university students and corporate sponsors of
university events, among others, who attend the sporting, academic and cultural
events regularly hosted by various universities, thereby enlarging the Company's
target base of potential purchasers. Varsity Clubs offer a flexible ownership
structure which permits the purchase of

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Vacation Ownership Interests consisting of a single day, a collection of single
days (such as selected days during an entire specified sports season) or a
traditional one-week period, in addition to unlimited use of the common areas
for "city club" use. The Company believes that direct marketing to a large
target base of potential purchasers with university affiliations will enable the
Company to achieve premium pricing with respect to those portions of its
inventory which coincide with high demand for accommodations at prominent
university-sponsored events. The Company also believes that its success in
gaining access to alumni and other target potential purchasers with
relationships to the University of Notre Dame or the University of Arizona may
facilitate similar arrangements with other universities in the areas in which
future Varsity Clubs are developed.

The Company had more than 12,000 existing ILX Owners at December 31, 1997.
During 1997, the Company sold 2,512 annual and biennial Vacation Ownership
Interests at the ILX Resorts, compared to 2,320 and 2,195 during 1996 and 1995,
respectively. The average sales price for a Vacation Ownership Interest
(excluding sales of Upgrades) was $10,994 for an annual interest and $6,506 for
a biennial interest, resulting in a weighted average price of $11,963 (each
biennial interest is treated as one-half of an annual interest)during the year
ended December 31, 1996 and $11,444 for an annual interest and $6,899 for a
biennial interest, resulting in a weighted average price of $12,656 during the
year ended December 31, 1997. At December 31, 1997, the Company had an existing
inventory of 7,105 unsold Vacation Ownership Interests (including Vacation
Ownership Interests in the CARs, VCA-South Bend and the Additional Interests)
and a master plan, subject to consumer demand, receipt of applicable permits and
other contingencies generally applicable to real estate development, to
construct up to 11,438 (including 3,224 to be constructed at VCA-Tucson)
additional Vacation Ownership Interests through 1999 and thereafter at the
existing ILX Resorts. See "Risk Factors -- Risks of Rapid Growth."

THE VACATION OWNERSHIP INDUSTRY OVERVIEW

The Market. The vacation resort industry consists primarily of commercial
lodging operators and vacation ownership resorts. Commercial lodging typically
consists of (i) hotels and motels which rent individual rooms on a nightly,
weekly or monthly basis and (ii) rental of privately owned condominium units or
homes. These facilities often prove uneconomical for frequent or long-term
leisure travelers, particularly vacationing families. In addition, rates and
availability are often unpredictable and sometimes change.

Vacation ownership resorts are gaining in popularity as a relatively
economical and convenient alternative to commercial lodging establishments.
"Vacation ownership" is defined by ARDA as the right to accommodations at a
vacation development for a specified period each year, for a specified number of
years or for perpetuity. Buyers of Vacation Ownership Interests pay for a
specified occupancy right and generally pay an annual maintenance fee, which
typically ranges from $300 to $600 per unit to cover the management and upkeep
of the resort. Vacation ownership resorts allow buyers to essentially pre-pay
for their vacation, while securing vacation accommodations and controlling room
cost. Vacation ownership resorts often provide comparable locations and greater
amenities at a decreased cost as compared to commercial lodging. In addition,
such resorts generally offer superior accommodations in terms of unit size.

Worldwide Market. The worldwide vacation ownership industry has
experienced rapid growth since its inception in Europe in the mid-1960s. In
1997, the worldwide vacation ownership industry grew to approximately $6.0
billion in sales, from $3.2 billion in 1990. Also in 1997, ARDA estimated that
the worldwide industry grew to approximately 4.5 million owners as compared to
1.8 million in 1990. The worldwide vacation ownership industry has grown to
around 4,145 timeshare resorts in 1995 (the most recent year for which such
statistics are available), from approximately 500 timeshare resorts in 1980.
From 1980 through 1997, an estimated 6.9 million Vacation Ownership Interests
have been purchased for total sales of approximately $53.6 billion. As shown in
the following graphs, the worldwide vacation ownership industry has expanded
significantly since 1980 both in Vacation Ownership Interest sales and the
number of Vacation Ownership Interest owners.

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Measurement Period Dollar Volume of Vacation
(Fiscal Year Covered) Interval Sales|(in billions)

1980 0.490
1981 0.965
1982 1.165
1983 1.340
1984 1.735
1985 1.580
1986 1.610
1987 1.940
1988 2.390
1989 2.970
1990 3.240
1991 3.740
1992 4.250
1993 4.505
1994 4.760
1995 5.200
1996 5.700
1997 6.000

Measurement Period Number of Vacation Interval
(Fiscal Year Covered) Owners|(in thousands)

1980 155
1981 220
1982 335
1983 470
1984 620
1985 805
1986 970
1987 1125
1988 1310
1989 1530
1990 1800
1991 2070
1992 2363
1993 2760
1994 3144
1995 3500
1996 4000
1997 4500

Source: The 1995 Worldwide Resort Timeshare Industry, ARDA Report; Unpublished
ARDA estimates as of September 1997.

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United States Market. First introduced to the United States in the 1970s,
the vacation ownership industry has experienced significant growth, with the
number of vacation ownership resorts in 1997 increasing to 1,204 vacation
ownership resorts from 870 resorts in 1993. Similarly, the number of households
owning Vacation Ownership Interests has increased to 1.8 million households in
1997 from 1.3 million households in 1993. During 1996, the United States
vacation ownership industry sold a total of 218,000 one-week Vacation Ownership
Interests at an average price of $10,000 each, for a total sales volume of $2.2
billion, which is a 69.2% increase from 1993 when the vacation ownership
industry sold a total of 168,840 one-week Vacation Ownership Interests at an
average price of $7,000 each, for a total sales volume of $1.3 billion. Despite
the growth experienced in the industry, vacation ownership had only achieved an
estimated 1.8% market penetration of all U.S. households at January 1, 1997.

Western United States Market. According to ARDA, in the western United
States there exist approximately 379 vacation ownership resorts with over
550,000 owners and $746.0 million of total sales in 1996 (representing 68,200
one-week Vacation Ownership Interests). The western United States accounted for
approximately 34.0% of the total Vacation Ownership Interest sales in the United
States in 1996. The Company focuses its acquisition and development efforts in
the western United States, where favorable demographic growth trends currently
exist and are projected to continue for the foreseeable future. According to the
U.S. Census Bureau, the western United States is projected to have the highest
population growth rate of any region in the nation. The number of persons in the
western United States grew to an estimated 57.1 million in 1995 from 52.2
million in 1990 and is predicted to increase to approximately 60.8 million by
2000. While the western United States population grew by 10.5% between 1990 and
1995, and is projected to grow by 6.5% from 1995 to 2000, the total U.S.
population grew and is projected to grow by less than 6.0% in each such time
period.

The Consumer. According to ARDA, the median age of a Vacation Ownership
Interest owner in the United States in 1997 was 50 years, while the median
annual household income of a U.S. Vacation Ownership Interest owner in 1997 was
approximately $71,000. While demographics differ by property, historically
through 1997, the typical age and annual income of an ILX Owner has been from
between 40 to 55 years and in excess of $50,000, respectively. According to the
1990 U.S. Census study, the 40 to 55 age group comprised 17.3% of the U.S.
population, and households with an aggregate income exceeding $40,000 comprised
35.6% of U.S. households. As demonstrated by the first graph below, the number
of persons in the United States between the ages of 40 and 55 grew to an
estimated 51.4 million in 1995 from 43.1 million in 1990 and is predicted to
increase to approximately 59.5 million by 2000. This represents estimated growth
of 19.3% between 1990 and 1995, and the U.S. Census Bureau predicted this
population group to grow 15.8% from 1995 to 2000. In comparison, the U.S. Census
Bureau reported that the total U.S. population grew and is projected to grow by
less than 6.0% in the same time periods.

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Estimated US Population Growth
Measurement Period in the 40-55 Year Age Group(1)
(Fiscal Year Covered) (in millions)

1990 43.1
1995 51.4
2000 59.5
2005 63.9

(1) Source: 1996 U.S. Census Bureau Study, Population Projections of the United
States by Age, Sex, Race, and Hispanic Origin: 1995 to 2050, March 1996

As can be seen in the graph below, the western United States, the Company's
target acquisition and development region, experienced a 27.8% increase in the
40 to 55 year age group from 1990 to 1995, and is estimated by the U.S. Census
Bureau to grow 17.4% between 1995 and 2000.

Estimated Western US Population
Measurement Period Growth in the 40-55 Year Age
(Fiscal Year Covered) Group (2) (in millions)

1990 9
1995 11.5
2000 13.5
2005 14.8

(2) Source: 1996 U.S. Census Bureau Study, Population Projections of the United
States by Age, Sex, Race, and Hispanic Origin: 1995 to 2025, October 1996

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Reasons for Growth. The Company believes that this growth trend in the
vacation ownership industry is a result of certain shifts in customer
satisfaction and changes in consumer perceptions of vacation ownership.
Management believes that these trends are attributable to the following factors,
among others:

- Increased flexibility and options associated with vacation ownership;

- Improved quality and management of vacation ownership resorts and related
amenities;

- Improved customer perception of the value and quality of vacation
ownership, as compared to other vacation lodging alternatives;

- Demographic trends resulting in a greater base of customers meeting the
profile of a typical Vacation Ownership Interest purchaser;

- Growth of exchange networks, such as II and RCI;

- Increased customer protection regulation of the vacation ownership
industry;

- Increased participation of brand name lodging companies; and

- Greater access to financing for purchasers.

The Vacation Ownership Interest industry historically has been highly
fragmented and dominated by a very large number of local and regional resort
developers and operators, each with limited portfolios of differing quality.
Ragatz Associates, a long-time vacation ownership industry research group,
estimates that there were approximately 200 operators of approximately 294
resorts actively selling Vacation Ownership Interests in 1996 in the United
States, with no single operator controlling more than 10% of the total vacation
ownership resorts in the United States. More recently, there has been a
consolidating trend among Vacation Ownership Interest developers and operators.
In addition, many of the world's most widely-recognized lodging, hospitality and
entertainment companies have begun to develop and sell Vacation Ownership
Interests under their brand names, including Marriott Ownership Resorts, The
Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons
Hotels & Resorts and Promus Hotel Corporation. The Company believes that the
entry of such participants into the vacation ownership industry is one of the
most significant factors contributing to the industry's current success. The
Company believes that national lodging and hospitality companies are attracted
to the Vacation Ownership Interest industry because of its relatively low
product cost and high profit margins and the recognition that Vacation Ownership
Interests provide an attractive alternative to the traditional hotel-based
vacation and allow traditional hotel companies to leverage their brands into
additional resort markets where demand exists for accommodations beyond
traditional hotels. See "Risk Factors -- Competition."

According to an ARDA study dated 1997, the three primary reasons cited by
consumers for purchasing a Vacation Ownership Interest are (i) the ability to
exchange the Vacation Ownership Interest for accommodations at other resorts
through exchange networks such as RCI and II, (ii) the quality and appeal of the
resort at which they purchased a Vacation Ownership Interest, and (iii) the
money savings over traditional resort vacations. According to a 1995 ARDA study,
Vacation Ownership Interest buyers have a high rate of repeat purchases:
approximately 41% of all Vacation Ownership Interest owners own more than one
interval, representing approximately 65% of the industry inventory, and
approximately 51% of all owners who bought their first Vacation Ownership
Interest before 1985 have since purchased a second Vacation Ownership Interest.
In addition, customer satisfaction increases with length of ownership, age,
income, multiple location ownership, and accessibility to Vacation Ownership
Interest exchange networks.

GROWTH STRATEGY

The Company believes that its experienced management team, substantial
in-house operating and development capabilities and two-pronged marketing
strategy, position the Company to capitalize on the

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growth trends in the vacation ownership resort industry. The Company intends to
continue to grow by implementing the following strategies:

Focus on the Western United States. The ILX Resorts are primarily
located in the western United States, and the Company will continue to
focus its acquisition and development of additional vacation ownership
resorts primarily in that region. The Company believes that the western
region of the United States provides numerous opportunities to develop or
acquire additional CARs by locating vacation ownership resorts in settings
of natural beauty and, when possible, within convenient travelling
distances of major population centers. The Company also believes the
western United States has numerous universities located in or near large
population centers which will be targeted as potential sites for future
Varsity Clubs properties. By focusing its expansion in the western United
States, the Company believes it can more easily incorporate additional
resorts into its Premiere Vacation Club and market these resorts to ILX
Owners and others using its existing sales, marketing and other resources.
Further, demographic trends indicate that the population in the western
United States will continue to grow at a rate faster than the rest of the
country, providing a larger potential customer base in the future.

Develop Additional Properties. The Company believes its inventory of
Vacation Ownership Interests can be significantly and prudently increased
through the development of additional Varsity Clubs, as well as development
of additional CARs, to be marketed through its Premiere Vacation Club. The
Company successfully completed development of its VCA-South Bend in August
1995, which will serve as the prototype for additional Varsity Clubs.
Construction of the planned 62-unit VCA-Tucson near the University of
Arizona commenced in August 1997 and is expected to be completed in April
1998 at an estimated aggregate cost of $7.5 million. The Company intends to
develop additional Varsity Clubs using the same general design concepts,
architectural plans and construction specifications which were established
at VCA-South Bend, and which are being implemented in the development of
VCA-Tucson. The Company believes there exist numerous sites in the western
United States which are accessible to major population centers and local
tourist attractions and are proximate to universities with prominent
athletic and cultural activities so as to make them appropriate for the
development of additional Varsity Clubs. The Company intends to initiate
development of approximately five Varsity Clubs in the next three years.
Areas in which the Company is currently investigating the potential
development of additional Varsity Clubs include Tempe, Arizona; Boulder,
Colorado; Las Vegas, Nevada; Palo Alto, California; Salt Lake
City -- Provo, Utah; and Seattle, Washington. However, no contracts or
commitments currently exist for any such proposed locations. See "Risk
Factors -- Risks of Rapid Growth" and "Risk Factors -- Competition."

Premiere Vacation Club will afford greater flexibility in the acquisition
of additional vacation ownership resorts to the extent that small or remote
resorts which may not otherwise be attractive to purchasers of Vacation
Ownership Interests at a single resort may significantly enhance the
consumer appeal of a membership interest in the Premiere Vacation Club. The
Company believes these types of resorts can be acquired at relatively
attractive prices since other potential purchasers are likely to lack the
resources to market such vacation ownership resorts effectively and,
therefore, be unwilling to pay higher prices for them. Although it has no
binding agreements and there can be no assurance that the Company will
consummate any of such acquisitions, the Company is currently engaged in
active negotiations with respect to several potential vacation ownership
resort acquisitions, See "Risk Factors -- Risks of Rapid Growth."

Expand Existing ILX Resorts. The Company intends to capitalize upon
opportunities to expand the existing ILX Resorts. The Company believes
development of additional units at existing ILX Resorts is generally the
most economical means of growing the Company's Vacation Ownership Interest
inventory and sales profits because the fixed costs associated with
developing the necessary infrastructure (i.e., lobby areas, restaurant and
pools) need not be incurred and may be spread over a larger number of
units. Currently, the Company's expansion plans through 1999 include the
development of approximately 20 units at Los Abrigados, 24 units at
VCA-South Bend, 12 units at Kohl's Ranch and as many as 40 units at the
Roundhouse Resort. The Company anticipates increasing its inventory of
Vacation Ownership Interests through expansion of existing ILX Resorts by
as many as approximately 8,300 weeks through 1999 (including 3,224
currently under construction at VCA-Tucson).

Increase Sales of Vacation Ownership Interests to ILX Owners. The
Company seeks to increase sales and profitability at its ILX Resorts and
with respect to the Additional Interests by selling Upgrades. The Company
believes that ILX Owners have a better understanding of a Vacation
Ownership Interest than first-time buyers, are generally familiar with the
ILX Resorts and, based on historical experience, have a demonstrated
tendency to take vacations, which results in a higher percentage of sales
from marketing efforts to ILX Owners than to prospective purchasers who
have never purchased a Vacation Ownership Interest. The Company intends to
begin marketing Upgrade sales in its Premiere Vacation Club to ILX Owners
in 1998. The Company's sales to ILX Owners have increased from $1.0 million
of Upgrades in 1996 to $3.0 million of Upgrades in 1997.

Increase Net Income from Customer Financing Transactions. From
January 1, 1994 through December 31, 1997, approximately 20% to 25% of the
Company's sales were on a cash basis and the Company provided financing for
the remaining 75% to 80% of its sales of Vacation Ownership Interests.
Buyers who finance their purchase of Vacation Ownership Interests are
required by the Company to make a down payment of at least 10% of the total
sales price and may pay the balance to the Company over a period of seven
years pursuant to a promissory note wherein the Company is the lender
("Customer Notes"). At December 31, 1997, the Company had a portfolio of
retained Customer Notes with an aggregate principal amount of $14.5
million, of which $12.0 million are serviced by an outside vendor and have
a weighted average yield of 13.8% per annum, which compares favorably to
the Company's weighted average cost of borrowings for such Customer Notes
of 12.4% per annum.

Prior to 1995, the Company sold the majority of its Customer Notes and
retained only the small remaining portion, which it then hypothecated.
Since 1995, the Company has steadily increased the amount of Customer Notes
which it hypothecates and, as a result, at December 31, 1997, the Company
had retained Customer Notes in an aggregate outstanding principal amount of
$14.5 million as compared to $7.9 million at December 31, 1995. Because the
Company has historically financed its operations through the sale of a
substantial majority of its Customer Notes, the Company's net income from
customer financing transactions (i.e., the spread between the interest
charged to borrowing customers and the Company's borrowing costs) has been
limited. Although there can be no assurance in this regard, the Company
believes that the closing of this Offering and the reduction of its current
indebtedness will allow the Company to arrange more favorable Customer
Notes' financing, which will in turn enable the Company to retain a
significantly greater percentage of its Customer Notes, and, thus, increase
the net income in the event of favorable interest rate differences. See
"Risk Factors -- Financing Customer Borrowings, Liquidity Risks."
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THE RESORTS

The table below sets forth certain information, as of December 31, 1997,
with respect to the ILX Resorts. The information set forth below does not
include the Company's planned expansion of the ILX Resorts or development of
additional Varsity Clubs and CARs, except for VCA-Tucson, construction of which
has commenced and for which all governmental permits have been obtained.

SIZE OF
UNITS(2) RESORT AMENITIES
-------------- ------------------------------------------------------------
RESTAURANT/ WHIRLPOOL/ SWIMMING FITNESS LOCAL
RESORTS(1) LOCATION S 1BR 2BR LOUNGE SPA POOL CENTER AMENITIES(3)
- -------------------------- ---------------------- --- --- --- ----------- ---------- -------- ------- ------------

Convenient Access Resorts
Los Abrigados Resort & Spa Sedona, AZ 158 17 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V
The Inn at Los Abrigados Sedona, AZ 9 1 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V
Kohl's Ranch Lodge Payson, AZ 42 4 6 1/2 Y Y Y B,BB,C,D,
F,FW,G,H,
Sh,TH,V
Roundhouse Resort Pinetop/Lakeside, AZ 19 30 10 1/1 Y Y Y C,FW,G,
H,MT,SS, TH
Golden Eagle Resort Estes Park, CO 9 21 3 1/1 Y Y N BL,D,F,
FW,G,H,
Sh,TH
--- --- --
Total CARs 79 213 37
Varsity Clubs of America
VCA -- South Bend South Bend, IN 3 54 5 1/1 Y Y Y B,BB,BL,
D,G,M,
MT,Sh,UC
VCA -- Tucson Tucson, AZ 4 46 12 1/1 Y Y Y BL,D,G,M,
MT,Sh,T, UC
--- --- --
Total Varsity Clubs 7 100 17
--- --- --

Total 86 313 54
=== === ==

- ---------------
(1) Information regarding the Additional Interests has not been included in the
following chart, as the Company only owns a number of, or has rights to
market, Vacation Ownership Interests at such resorts and does not own any of
such resorts.
(2) "S" indicates studio unit; "1 BR" indicates one-bedroom unit; "2 BR"
indicates two-bedroom unit. Units with the same number of bedrooms may vary
in size and amenities.
(3) B -- Basketball, BB -- Bocce Ball, BL -- Billiard, C -- Casino, D -- Dining,
F -- Fishing, FW -- Four Wheel Tours, G -- Golf, H -- Horseback Riding,
M -- Museums, MT -- Movie Theater, Sh -- Shopping, SS -- Snow Skiing,
T -- Tennis, TH -- Trail Hiking, UC -- University Campus, V -- Volleyball.
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DESCRIPTION OF ILX RESORTS

CONVENIENT ACCESS RESORTS

Los Abrigados Resort & Spa. Los Abrigados is located in Sedona, Arizona,
approximately 110 miles from Phoenix, Arizona. This resort consists of 175 units
situated on approximately 20 acres of lush landscaping and Spanish-styled
plazas, winding walkways and bridges. Los Abrigados offers one- and two-bedroom
units, each with a separate living area, bedroom, mini-kitchen and balcony or
patio. Twenty suites offer a fireplace and whirlpool spa as well. Nine units
offer full kitchenettes. The Los Abrigados resort is designed in Southwestern
decor and surrounded by the dramatic red rocks of Oak Creek Canyon. This resort
has an on-site sales office.

Amenities at the resort include four restaurants and a sports bar,
billiards emporium, library, two pools, tennis courts, sports court, basketball
court, bocce ball courts, fitness center and health spa offering a variety of
personal care services, aerobic and yoga classes, whirlpools, steam and sauna
rooms, hydrotherapy and other personal care facilities. In addition, golf,
horseback riding, jeep, helicopter and hot air balloon rides, and other outdoor
activities are easily accessible. Los Abrigados is both an II Five-Star and RCI
Gold Crown resort.

As of December 31, 1997, Los Abrigados contained 9,100 Vacation Ownership
Interests, of which 2,200 remained available for sale. In addition, the Company
has an option to acquire 107 additional Vacation Ownership Interests at this
resort. The Company believes there exist additional expansion opportunities at
and contiguous to Los Abrigados, however, no contracts, rights or commitments
exist with respect to any of such opportunities.

The Inn at Los Abrigados. The Inn at Los Abrigados is located in Sedona,
Arizona, approximately 110 miles from Phoenix, Arizona. This resort consists of
ten units adjacent to Los Abrigados. The Inn at Los Abrigados consists of the
main Morris House and nine bed and breakfast-style units in three buildings
situated amidst a former apple orchard. The Morris House includes a multi-level
luxury suite sleeping six, and features a sunken living room, full kitchen with
dining area, a loft, two full bathrooms and a private backyard with patio and
barbecue. The bed and breakfast-style units each feature king beds, a sitting
area, microwave, refrigerator, coffee maker, full bath with shower and balcony
or patio. Guests of the Inn at Los Abrigados have charge privileges at and full
use of all Los Abrigados amenities. The Inn at Los Abrigados is an II Five-Star
resort.

The Company acquired the Inn at Los Abrigados in September 1996 at a
purchase price of $750,000 and completed improvements at this resort in the
fourth quarter of 1997. The Company commenced marketing an aggregate of 510
Vacation Ownership Interests at this resort in the first quarter of 1998.

Kohl's Ranch Lodge. Kohl's Ranch is a 10.5 acre property located 17 miles
northeast of Payson, Arizona and approximately 105 miles from Phoenix, Arizona.
It is bordered on the eastern side by Tonto Creek and is surrounded by the Tonto
National Forest, which is believed to be the largest stand of Ponderosa Pines in
the world. Kohl's Ranch consists of 52 units. Forty-one of the units are at the
main lodge, 8 units consist of one- and two-bedroom cabins along Tonto Creek,
and three units are part of a triplex cabin. This resort also has an on-site
sales office.

Kohl's Ranch offers a variety of common area amenities including an outdoor
heated pool, outdoor whirlpool spa, exercise room, putting green, bocce ball
court, children's playground and gazebos and sport court. Kohl's Ranch also
includes a freestanding building that contains food and beverage facilities and
space for additional retail and other operations. Each unit at the resort is
equipped with an air conditioner, telephones, color televisions and
mini-kitchenette or full kitchen, and many have a fireplace. In addition, Kohl's
Ranch offers a unique pet resort. Kohl's Ranch is an RCI resort.

As of December 31, 1997, Kohl's Ranch contained 2,704 Vacation Ownership
Interests, of which approximately 1,994 were available for sale. In addition,
the Company has expansion capabilities at Kohl's

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Ranch for 12 additional creekside cabin units (624 one-week Vacation Ownership
Interests), which it intends to develop in 1998.

Roundhouse Resort. The Company's recently acquired Roundhouse Resort is
located on 9.5 acres in the White Mountains of northeastern Arizona,
approximately 190 miles from Phoenix, Arizona. Roundhouse Resort currently
consists of 59 units, all of which existed prior to the Company's acquisition of
this resort.

Amenities at the Roundhouse Resort include a restaurant, lounge and
recreation center with indoor pool, racquetball and basketball courts. In
addition, the resort is proximate to golf courses, skiing, horseback riding,
hiking and other outdoor activities. At an elevation of 7,200 feet, the
Roundhouse Resort is set in a location that offers four seasons, a distinct
contrast to Arizona's arid lowlands. Roundhouse Resort is an RCI resort.

As of December 31, 1997, the Roundhouse Resort contained 2,950 one-week
Vacation Ownership Interests, all of which were sold by the previous owners of
this resort. However, the Company intends to expand this resort through the
construction of up to 100 additional units (representing up to 5,200 Vacation
Ownership Interests) commencing with 40 units (representing 2,080 Vacation
Ownership Interests) in late 1998 or 1999.

Golden Eagle Resort. The Golden Eagle Resort is a four acre property
located in the town of Estes Park, Colorado, within three miles of Rocky
Mountain National Park and approximately 70 miles from Denver, Colorado. This
resort consists of 33 total units and is bounded generally by undeveloped
forested mountainside land, which offer excellent mountain views from the
resort.

The Golden Eagle Resort is centered around the historic Crag's Lodge, a
four-story wood frame building constructed in the early 1900s, which serves as
the resort's main lodge. Amenities offered at this resort include a restaurant,
bar and library, as well as two other freestanding buildings containing six
guest rooms and support facilities. Each unit at Golden Eagle features a fully
equipped kitchenette, living and dining areas, television and video cassette
player. Additional amenities at this resort include a heated pool and spa as
well as local outdoor attractions. Golden Eagle Resort is an RCI resort.

As of December 31, 1997, the Golden Eagle Resort contained 1,683 one-week
Vacation Ownership Interests, of which 651 were available for sale. In addition,
the Company owns one unit in a residential duplex adjacent to the property,
which is not currently available for sales of Vacation Ownership Interests. The
Company intends to construct two additional units at the resort in 1998 or 1999
which would yield an additional 102 Vacation Ownership Interests.

VARSITY CLUBS OF AMERICA

VCA-South Bend. The Company's first Varsity Clubs facility is an
approximately four acre property located approximately three miles from the
University of Notre Dame and Notre Dame Stadium in South Bend, Indiana, which is
90 miles from Chicago, Illinois. The VCA-South Bend offers a total of 62 units,
consisting of studio, one- and two-bedroom suites.

Each one- and two-bedroom suite at VCA-South Bend includes a king master
bedroom, living room with sofa sleeper, kitchenette and whirlpool spa as well as
color television with premium movie channels. Common areas at the resort include
the Stadium Sports Lounge, featuring a theater-wall television in a stadium-type
setting, fitness center with whirlpool spa, outdoor heated pool, bocce ball,
children's playground, billiards room, library, gift shop, business center and
special events facilities. The Company intends VCA-South Bend to serve as a
prototype, subject to modifications and improvements, for the expansion of the
Company's Varsity Clubs concept to other suitable locations, with additional
modifications made as appropriate to suit local tastes and preferences.
VCA-South Bend is an II Five-Star resort.

As of December 31, 1997, this resort contained 3,224 one-week Vacation
Ownership Interests, of which approximately 1,666 were available for sale. The
Company anticipates expanding this resort during 1998 by constructing an
additional 24 units, thereby adding 1,248 one-week Vacation Ownership Interests.
To the Company's knowledge, no other Vacation Ownership Interest resorts exist
proximate to the University of Notre Dame.

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VCA-Tucson. The two acre site for the second Varsity Club resort,
presently under construction, is in Tucson, Arizona, approximately three miles
from the University of Arizona and approximately 110 miles from Phoenix,
Arizona. Upon completion, this resort will consist of 62 units. This resort is
expected to open in April 1998.

VCA-Tucson was designed in accordance with the VCA-South Bend prototype,
with certain modifications made to improve operating efficiencies and satisfy
local tastes. Each of the planned one- and two-bedroom suites will feature a
king master bedroom, living room with sofa sleeper, kitchenette, whirlpool spa,
as well as color television with premium movie channels. Amenities at this
resort will include a Sports Lounge designed similar to that at VCA-South Bend,
the Twenty-Four Hour Sports Ticker, touchdown breakfast buffet, Joey Pizza (a
popular restaurant theme originally introduced at Los Abrigados), billiards
room, library, gift shop, fitness center, outdoor heated pool, whirlpool spa,
steam room, children's playground, bocce ball court, business center and special
events facilities. VCA-Tucson has been designated an II Five-Star resort.

Upon its completion, VCA-Tucson will contain approximately 3,224 one-week
Vacation Ownership Interests. The Company intends to begin marketing Vacation
Ownership Interests at this resort in the second quarter of 1998.

ADDITIONAL INTERESTS

In addition to the ILX Resorts, ILX owns or is authorized pursuant to a
marketing agreement to sell a designated number of Vacation Ownership Interests
at additional resorts owned by unaffiliated third parties. At December 31, 1997,
the Company owned ten Vacation Ownership Interests at the Ventura Resort located
in Boca Raton, Florida. Purchasers of Vacation Ownership Interests at Ventura
Resort acquire deed and title to a particular unit, which entitles the purchaser
to use of the unit and to use the resort's common area during a fixed designated
time period. As of December 31, 1997, the Company also owned 38 Vacation
Ownership Interests at the Costa Vida Vallarta Resort, located on a private
beach, just minutes south of Puerto Vallarta, Mexico. Vacation Ownership
Interests in the Costa Vida Vallarta resort consist solely of contractual use
rights which expire in 2009. The Company also owns one to two Vacation Ownership
Interests in each of a number of additional resorts which it holds for resale.

In addition, the Company has entered into a marketing agreement with Pahio
Resorts, which owns and operates the Pahio at Kauai Beach Villas, Pahio at Bali
Hai Villas, Pahio at the Shearwater and Pahio at Ka' Eo Kai, each on the island
of Kauai, Hawaii. Under the marketing agreement, ILX may market and sell,
subject to regulatory approval, Vacation Ownership Interests in Pahio's four
Hawaii resorts. In 1997, the Company marketed on a limited basis Vacation
Ownership Interests for Pahio at Kauai Beach Villas, which have been approved
for sale in Arizona. Commencing in 1998, the Company may expand its marketing
efforts with respect to the Pahio Resorts as it deems desirable.

OPERATING STRATEGIES

The Company's operating strategy seeks to emphasize the following
characteristics, which management believes provide ILX with certain competitive
advantages within the vacation ownership industry.

Flexible Vacation Ownership Interest Purchase Options. The Company
believes the flexibility associated with its inventory of Vacation
Ownership Interests provides a uniquely appealing opportunity for ILX
Owners. Unlike many of the Company's competitors, substantially all of the
Company's inventory of Vacation Ownership Interests at the ILX Resorts are
intended to be used on dates specified from time to time by the ILX Owner
within a broad range of available dates and not fixed at the time of
purchase. Purchasers of a membership interest in the Company's proprietary
branded Premiere Vacation Club will be entitled to use their interest at
any single CAR or may split up their interest according to the owner's
needs and preferences and used at any number of participating CARs, as well
as thousands of other resorts through the domestic and international
exchange programs in which ILX Owners participate. In addition, Vacation
Ownership Interests at Varsity Clubs may be purchased for highly desirable
single-day uses, a collection of single days (such as designated days
during an entire football or other sports season) or other packages suited
to meet each ILX Owner's preferences.

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Customer Satisfaction. The Company believes that its inventory of
highly desirable resorts with extensive amenities combined with flexible
purchase options have resulted in a high level of customer satisfaction.
Each of the ILX Resorts is located in an area with unique tourist
attractions and offers food, beverage and other amenities comparable to
full-service commercial lodging facilities, at discounted prices to ILX
Owners. As a result, the Company believes ILX Owners generally have a high
level of satisfaction resulting in additional purchases and increased
goodwill. The Company intends to capitalize upon this by directing a
portion of its marketing efforts towards increasing sales of Vacation
Ownership Interests to ILX Owners. See "-- Growth Strategy" above.

Enhanced Amenities. Excluding the recently acquired Roundhouse
Resort, each of the ILX Resorts has at least one full-service restaurant
and other food and beverage facilities in addition to a range of other
amenities typically found at high-quality resorts, such as horseback
riding, golf, swimming pools and exercise facilities. The Roundhouse Resort
contains a fully equipped restaurant which the Company intends to commence
operating in 1998. The Company believes that most resorts offering Vacation
Ownership Interests have none or only limited restaurant and other food and
beverage facilities. As a result, management believes ILX Owners appreciate
the ability to enjoy traditional full-service commercial hotel amenities
and also maintain the option to use more economical in-room facilities. See
"-- The Resorts."

Demonstrated Ability to Acquire and Develop Properties. The Company
has historically been successful at acquiring resorts in settings of
natural beauty at relatively low costs. The Company's acquisition strategy
is to identify underutilized or distressed properties in locations with
high tourist appeal and access to major metropolitan centers. Thereafter,
the Company's redevelopment efforts are primarily targeted at improving the
amenities and appointments of such properties. Recently, the Company has
successfully developed its prototype Varsity Clubs of America resort,
VCA-South Bend, and has commenced construction of VCA-Tucson. Future
Varsity Clubs will be designed and constructed in accordance with the
VCA-South Bend prototype, with appropriate modifications and improvements.
The Company believes that its acquisition and development strategies have
resulted in a portfolio of desirable properties with a relatively low cost
of sales margin. See "-- Growth Strategy" and Consolidated Financial
Statements.

Convenient Access Resorts. The Company's CARs are typically located
within a two-hour drive of an ILX Owner's principal residence, which
accommodates a demand for more frequent and convenient "short-stay"
vacations without the costs of airfare. This proximity also facilitates
marketing of the Company's Premiere Vacation Club, which permits members to
divide their Vacation Ownership Interest into shorter stays at any of the
Company's CARs included in the Premiere Vacation Club or exchange their
entire interest during any year through an exchange network. In addition to
the use of their Vacation Ownership Interest, ILX Owners are also entitled
to unlimited day-use of the offered amenities and discounted food, beverage
and other services at all ILX Resorts, thereby facilitating use and
enhancing the benefits of ownership by ILX Owners.

Standard Design, Lower Construction and Operating Costs of Varsity
Clubs. The Company's Varsity Clubs concept is based upon its VCA-South
Bend prototype. While each Varsity Club may have aspects uniquely tailored
to its targeted customer base, the Company believes that its standard
architectural and interior designs for Varsity Clubs will significantly
reduce associated development and construction costs. Standardization also
allows the Company to rapidly develop new Varsity Clubs and integrate new
resorts in response to demand. The Company anticipates that new Varsity
Clubs can be constructed within one year from acquisition of the underlying
real property.

Premium Locations. The Company believes that the variety and natural
beauty of the surroundings for its CARs enhance their attraction to
customers. Substantially all of the ILX Resorts are located in the Western
United States in part because of the numerous locations in that region
which are attractive to tourists and convenient to major metropolitan
areas. Substantially all of the Company's inventory of Vacation Ownership
Interests qualify as "red time," the highest demand classification for
purposes of participation in exchange networks such as RCI and II. The
Company intends to develop additional

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Varsity Clubs and Premiere Vacation Club resorts in other Western United
States sites which offer natural settings or other attractions to entice
tourists to visit such locations.

Integrated In-House Operations. Substantially all of the Company's
marketing, sales, development, property management, financing and
collections operations are conducted internally, except certain minimal
marketing functions and those payment and collection activities related to
the financing by third parties of Customer Notes. In addition, the Company
operates all of the ILX Resorts on a centralized basis, with operating and
maintenance costs paid from ILX Owners' dues as well as hotel rental
revenues. The Company intends to integrate all aspects of its operations,
excluding those collection activities related to third-party financing,
into its in-house capabilities. The Company believes that its internal
capabilities result in greater control and consistency of all phases of its
operations and result in lower overall costs than generally associated with
outsourcing such operations. Integration also facilitates the Company's
Premiere Vacation Club and the ILX Resorts' qualification in the RCI and II
exchange networks, among others.

Directed Marketing. The Company's marketing strategy with respect to
its Premiere Vacation Club is to target potential customers who have a
demonstrated interest in the location of its ILX Resorts or a likelihood of
frequent travel. As opposed to traditional marketing strategies which often
emphasize telemarketing and direct mail activities focused on promotional
inducements unrelated to travel, the Company's marketing activities
primarily offer travel-related inducements (such as discounted or
complimentary vacations at nearby ILX Resorts). By offering travel-related
inducements, the Company believes it is better able to identify customers
who like to travel, which results in a higher percentage of sales per
contacts. In addition, the Company developed its proprietary Varsity Clubs
of America concept to capitalize upon affinity marketing strategies. The
Company believes that a high-quality "city club" experience combined with
the traditional benefits associated with Vacation Ownership Interests, such
as the opportunity to participate in exchange networks, will appeal to
consumers in the local markets of each Varsity Club. Further, the Varsity
Clubs concept is intended to take advantage of a marketing base of alumni,
sports enthusiasts, parents of students, corporate sponsors and others
affiliated with each university next to which a Varsity Club will be
developed. For example, alumni of the University of Arizona, to whom the
Company intends to market Vacation Ownership Interests at its VCA-Tucson,
currently number approximately 180,000, as of December 31, 1997. The
Company believes that these marketing strategies permit it to take
advantage of existing affinities, resulting in a higher rate of closings
per customer contacts.

PREMIERE VACATION CLUB

Commencing in 1998, the Premiere Vacation Club will offer purchasers deeded
membership interests that may be used in their entirety at one time or may be
divided into shorter stays at a variety of the Company's CARs or may be
exchanged through a participating exchange network. The Company's Premiere
Vacation Club emphasizes (i) CARs which facilitate short-stay vacations with
relatively low cost and time associated with travel to the ILX Resort, (ii)
located near settings of natural beauty, (iii) with high quality amenities and
resort services and (iv) which facilitate flexible use options. The Company
believes that its proprietary branded Premiere Vacation Club will capitalize
upon affinity marketing strategies and increase the goodwill associated with the
ILX Resorts. In addition, membership interests in the Premiere Vacation Club
will be marketed at a higher average gross sales price than sales of Vacation
Ownership Interests in a single ILX Resort, which the Company believes will
result in increased revenues. The Company intends to market membership interests
in its Premiere Vacation Club to ILX Owners as well as first-time buyers,
thereby expanding its sales volume without increasing its sales and marketing
costs in the same proportion as generally associated with sales to first-time
buyers.

Initially, the Company's Premiere Vacation Club inventory will consist of
Vacation Ownership Interests in the ILX Resorts and the Additional Interests.
Thereafter, new resorts will be added through the Company's aggressive pursuit
of selected acquisition opportunities. To this end, in December 1997, the
Company acquired an undivided interest in the common areas of and all of the
undeveloped and unsold portions of the Roundhouse Resort, an existing 59 unit
resort with five acres of developable land located in Pinetop/Lakeside,
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Arizona. By marketing its inventory of Vacation Ownership Interests through the
Premiere Vacation Club, the Company believes it has greater flexibility with
respect to potential acquisition opportunities than generally associated with
the sale of Vacation Ownership Interests in a single vacation resort, to the
extent that small or remote resorts which may be inefficient to market as a
single location resort may enhance the consumer appeal of a membership interest
in the Premiere Vacation Club. With its existing and planned resorts in Arizona,
the Company is seeking to build a critical mass of CARs within driving distance
of the Phoenix and Tucson metropolitan markets which will support the initial
introduction of the Premiere Vacation Club concept. The Company believes that
the geographic and cultural diversity of Arizona make that state particularly
appropriate for this expansion. Thereafter, the Company intends to develop
networks of CARs proximate to other major metropolitan areas in the western
United States.

VARSITY CLUBS OF AMERICA

The Company intends to aggressively pursue the expansion of its proprietary
branded Varsity Clubs concept. The Company will focus on development of
additional Varsity Clubs near prominent colleges and universities in the western
United States located in areas with a significant base of existing tourism and
access to major population centers. The Varsity Clubs of America concept is
primarily intended to offer residents in major population centers a "city club"
experience with day-use privileges regularly available, as well as the
opportunity to exchange their Vacation Ownership Interest through the exchange
networks in which ILX Owners participate. The Varsity Clubs concept also seeks
to maximize the appeal of such urban timeshare resorts by strategically locating
each of them proximate to one or more prominent colleges and universities with
nationally recognized athletic, cultural and other events. Large universities
host a variety of sporting, recreational, academic and cultural events that
create a substantial and relatively constant influx of participants, attendees
and spectators. The Varsity Clubs concept is designed to address the specific
needs of these individuals and entities by creating specialty vacation ownership
resorts that have a flexible ownership structure, enabling the purchase of
anything from a single day, a collection of single days (such as an entire
football or other sports' season) or a traditional one-week period. Each Varsity
Clubs facility will operate as a hotel to the extent of unsold or unused
vacation ownership inventory.

The prototype VCA-South Bend facility is an all-suite, 62 unit lodging
facility that features amenities such as The Stadium (a sports-theme atrium
lounge), a private Member's Lounge, exercise facilities, a swimming pool and
whirlpool spa, complete business services and other facilities popular with the
target market of likely purchasers. The prototype Varsity Clubs facility is
based on a four-acre configuration expandable to as many as 90 units, without
the need to acquire additional real property, and can be built in smaller
configurations if warranted by a particular market or if dictated by the
availability of land.

The first Varsity Clubs facility was completed in August 1995 and is
located approximately three miles from the University of Notre Dame and Notre
Dame Stadium in South Bend, Indiana, and approximately 90 miles from Chicago,
Illinois. Customers purchase deed and title to a floating period's use of a unit
and unlimited day-use privileges at the common areas of the property. Purchasers
may also receive the right to use the facility on specified dates, such as dates
of home football games, for which they pay a premium. A total of 62 units, or
3,224 one-week intervals, have been constructed at VCA-South Bend and, at
December 31, 1997, approximately 1,666 one-week intervals were available for
sale. ILX anticipates expanding the facility in 1998 by constructing an
additional 24 suites, thus adding 1,248 one-week intervals. To ILX's knowledge,
no other vacation ownership resorts exist proximate to the University of Notre
Dame. To date, VCA-South Bend has been able to compete favorably for commercial
guests because of its superior facilities and amenities relative to other
lodging accommodations in the area.

The site for the second Varsity Clubs facility is located in Tucson,
Arizona, less than three miles from the University of Arizona. This second
Varsity Club will be completed in April 1998 and will offer 62 suites, or 3,224
one-week intervals. VCA-Tucson was designed in accordance with the VCA-South
Bend prototype, with certain modifications made to improve efficiency and
incorporate local design themes. The Company chose Tucson as a site for its
Varsity Clubs concept because of its status as a year-round destination
location, a large residential population base of approximately 750,000, and the
proximity to the University of Arizona, which has an alumni base in excess of
180,000 people as of December 31, 1997. The Company believes that all
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of these factors increase the appeal of VCA-Tucson to prospective buyers as well
as providing increased trading power for purchasers of Vacation Ownership
Interests in the resort for purposes of participation in exchange networks.
Construction of the Tucson resort commenced in late 1997 and the facility is
expected to open in April 1998.

The Company is considering various other sites for development of
additional Varsity Clubs facilities in the next five to seven years. Management
believes there exist numerous sites in the Western United States that are
attractive for the development of additional Varsity Clubs. The Company intends
to expand its Varsity Clubs concept to approximately five of these areas over
the next three years, based upon the VCA-South Bend prototype, with certain
modifications and improvements. The Company also believes that Varsity Clubs
will establish their own brand name recognition as additional facilities are
offered, each with a consistent design and selection of amenities. Varsity Clubs
expansion efforts will initially be primarily focused on metropolitan areas in
the western United States, each located near one or more large universities, but
the Company will assess other potential opportunities as they arise. Ideally,
the Company will seek to place additional Varsity Clubs near universities that
are located in or convenient to popular tourist destination locations in or near
large metropolitan areas, such as Tempe, Arizona; Boulder, Colorado; Las Vegas,
Nevada; Palo Alto, California; Salt Lake City -- Provo, Utah; and Seattle,
Washington. The Company will also seek to broaden the affinity marketing base of
its future Varsity Clubs by situating them proximate to more than one prominent
college or university, where appropriate. The Varsity Clubs concept also seeks
to capitalize on affinity marketing strategies through the perceived affiliation
with a nationally recognized university and the "city club" experience which the
Company seeks to associate with the Varsity Clubs of America brand name. The
Company intends to provide purchasers of Vacation Ownership Interests in one
Varsity Club certain benefits at other Varsity Clubs in order to enhance their
appeal to consumers.

SALES AND MARKETING

Marketing is the process by which the Company attracts potential customers
to visit and tour an ILX Resort or attend a sales presentation. Sales is the
process by which the Company seeks to sell a Vacation Ownership Interest to a
potential customer once he or she arrives for a tour at an ILX Resort or attends
a sales presentation. The Company believes it has the marketing and sales
infrastructure necessary to sell Vacation Ownership Interests on a competitive
basis. All of the Company's sales and substantially all of the Company's
marketing functions are currently performed in-house and the Company invests
significant resources in attracting, training and seeking to retain its sales
and marketing employees. The Company intends to incorporate more of its
marketing operations into its in-house capabilities. The Company believes this
strategy provides it with greater control over these critical functions,
resulting in greater consistency of customer relations and improved customer
satisfaction. In addition, management believes that its practice of hiring
employees to staff its sales and marketing functions, as opposed to using
independent contractors as has been the industry norm, results in a higher
retention rate among its sales force and provides a pool of experienced staff
from which to draw upon as the Company's business expands. The Company expends
substantial resources identifying, attracting and training its sales and
marketing personnel and offers a full package of employment benefits to its
sales and marketing personnel. Management believes that consistency and high
quality in its sales and marketing operations is crucial to its success. The
Company believes that the package of benefits offered to its sales and marketing
employees is uncommon in the vacation ownership industry and, as a result,
attracts high quality personnel and provides an incentive for their performance.

Marketing. The Company's marketing activities are devoted primarily
towards (i) hotel guests at the ILX Resorts, (ii) RCI and II exchange program
participants staying at the ILX Resorts, (iii) off-premise contacts with
visitors to the local surroundings of the ILX Resorts and in the metropolitan
areas within driving distances of the ILX Resorts and (iv) direct mail and
telemarketing to residents of metropolitan areas within driving distance of the
ILX Resorts. The Company's marketing strategy seeks to target prospective buyers
who respond favorably to travel-related inducements because the Company believes
such consumers are more likely to travel and therefore have a greater likelihood
of purchasing a Vacation Ownership Interest. The Company identifies potential
purchasers through internally developed marketing techniques, and sells Vacation
Ownership Interests through its four sales offices located at or near ILX
Resorts. The Company

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primarily targets customers who live within driving distance of an ILX Resort or
who are vacationing at or near a ILX Resort. This practice allows the Company to
invite potential purchasers to experience the ILX Resorts and avoid the more
expensive marketing costs of subsidized airfare and lodging which are typically
associated with the vacation ownership industry. In addition, the Company
believes that its marketing strategy results in a higher percentage of sales per
prospective customer contacts as compared to many of its competitors because its
targeted customer base has a demonstrated interest in the locale of an ILX
Resort and/or a greater likelihood to take vacations.

Similar to branding techniques utilized by some of its competitors, the
Company also seeks to capitalize upon affinity marketing concepts in attracting
prospective buyers to its Varsity Clubs concept by seeking to develop a branded
"city club" experience for flexible use by local residents. In addition,
marketing of Varsity Clubs seeks to focus on alumni, parents of university
students and other persons or entities who have a pre-existing affiliation with
or other attraction to the local university. All of the Company's marketing
activities emphasize the convenience of the ILX Resorts coupled with the
opportunity to participate in exchange networks as well as the quality and
breadth of amenities available at each of the ILX Resorts.

Sales. The Company actively sells its inventory of Vacation Ownership
Interests primarily through a sales staff of approximately 140 employees,
including approximately 100 sales agents at four sales offices, each located at
or near selected ILX Resorts. Prospective first-time purchasers participate in a
tour of the facilities as well as its related amenities, guided by a
salesperson. At the conclusion of the tour, the terms of making a purchase,
including financing alternatives, are explained to the customer. Approximately
20% to 25% of the Company's sales have historically been made on a cash basis.
However, for those customers seeking financing, the Company conducts substantial
credit pre-approval research. The Company's point-of-sale credit pre-approval
process typically includes a review of the customer's credit history. After
final approval of a purchase, which includes verification of employment, the
Company waits until expiration of the applicable statutory waiting period,
generally from three to seven days, prior to recognizing a sale as complete.

In addition to generating sales to first-time buyers, the Company's sales
force seeks to generate sales of additional Vacation Ownership Interests or
Upgrades to ILX Owners. Sales to ILX Owners generally have lower marketing costs
associated with them as these buyers tend to be more familiar with the nature of
purchasing a Vacation Ownership Interest and the amenities offered by the ILX
Resorts. As a result of an increased emphasis upon sales to these buyers, sales
to ILX Owners accounted for 12.5% of Vacation Ownership Interest sales by the
Company during 1997. During 1995 and 1996, sales to ILX Owners accounted for
less than 6% of the Company's total sales. The Company intends to increase its
sales efforts with respect to ILX Owners.

The Company's inventory of Vacation Ownership Interests has historically
consisted of a one-week interval which may be used on an annual or an
alternate-year basis in a specified ILX Resort during a specified range of
dates. ILX Owners may also participate in exchange networks such as RCI and II.
However, commencing in 1998, the Company will offer deeded membership interests
in its Premiere Vacation Club, which permit a member to stay at one or more of
the participating ILX Resorts for up to one week on an annual or alternate-year
basis. A member may divide their stays into shorter vacations at any time
between a specified period of time. The Company believes that the variety and
flexibility of use options associated with its inventory of Vacation Ownership
Interests are uniquely attractive to customers.

CUSTOMER FINANCING

The Company currently provides financing for approximately 75% to 80% of
its Vacation Ownership Interest sales. On financed sales, the Company receives
at least 10% of the aggregate sales price of Vacation Ownership Interests as a
down payment. Financing for the remainder is typically made available for a term
of seven years at a rate of 14% to 16% per annum. At December 31, 1997, the
Company had a portfolio of retained Customer Notes with an aggregate principal
amount of $14.5 million, of which $12.0 million are serviced by an outside
vendor and have a weighted average yield of 13.8% per annum, which compares
favorably to the Company's weighted average cost of borrowings for such Customer
Notes of 12.4% per annum.

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The Company believes that providing available financing is essential to the
successful sales and marketing of its Vacation Ownership Interest inventory.
However, the Company seeks to minimize the risks associated with its financing
activities by emphasizing the credit pre-approval process. Management believes
that its efforts in this area are more extensive than those typically engaged in
by some of its competitors. In addition, the Company expends significant
resources negotiating alternative repayment programs for past due accounts, so
as to minimize its actual losses. Collection activities with respect to Customer
Notes which the Company has hypothecated are managed internally and serviced by
a third-party on behalf of the lenders and the Company. In addition, the Company
occasionally utilizes third party collection agencies for difficult accounts.
Historically, these have represented only a minimal percentage of the Customer
Notes.

Prior to 1995, the Company sold the majority of its Customer Notes and
retained the small remaining portion, most of which were hypothecated. Since
1995, the Company has increased the amount of Customer Notes which it retains,
most of which it hypothecates, and, as a result, at December 31, 1997, the
Company retained Customer Notes in an aggregate principal amount of $14.5
million as compared to $7.9 million at December 31, 1995. Because the Company
has historically financed its operations through the sale of a substantial
majority of its Customer Notes, the Company's net income from customer financing
transactions (i.e., the spread between the interest charged to customers and the
Company's borrowing costs) has been limited. However, although there can be no
assurance in this regard, the Company believes that the closing of this Offering
and the reduction of its current indebtedness will allow the Company to arrange
more favorable receivable financing, which will in turn enable the Company to
retain a significantly greater percentage of its Customer Notes, thereby
increasing the net income attributable to favorable interest rate differences.
At December 31, 1997, $3.2 million in principal, or 8.2%, of the retained
Customer Notes and the Customer Notes which have been previously sold with
recourse to the Company were over 90 days past due. The Company intends to seek
to negotiate more favorable terms for its Customer Notes credit facilities
following this Offering. However, the Company does not currently have any
agreements regarding renegotiated or additional credit facilities and there can
be no assurance that the Company will be successful in this regard. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Although the terms of each Customer Note vary, typically such notes are
deemed past due when a scheduled payment is 30 days or more past due. In
addition, a delinquency occurs when an account becomes more than 90 days past
due. The Company seeks to avoid defaults by working closely with the lender or
its collection agent with respect to ILX Owners who become delinquent. The first
collection contact typically occurs within 16 to 30 days of a payment's due
date.

The Company has agreements with financial institutions for total
commitments of $20 million under which the Company may sell certain of its
customer notes receivables. These agreements provide for sales on a recourse
basis with a percentage of the amount sold held back by the respective financial
institution as additional collateral. Customer notes receivables may be sold at
discounts or premiums to the principal amount in order to yield the consumer
market rate, as defined by such financial institution. At December 31, 1997,
$6.0 million was available to the Company under these commitments. The Company
also has financing commitments in the aggregate amount of $19.2 million,
pursuant to which the Company may hypothecate Customer Notes which are pledged
to the lender as collateral. These borrowings bear interest at rates from prime
plus 3.25% to prime plus 5.0% and expire at various dates from 1998 through
2000. At December 31, 1997, $13.0 million was available to the Company under
these commitments. The Company currently reserves approximately 3% of gross
sales (including cash sales) as an allowance for doubtful accounts. This reserve
represents a percentage decrease since the Company's inception based upon the
Company's actual collections experience. At December 31, 1995, 1996 and 1997,
the aggregate amount of these reserves were $2.4 million, $2.6 million and $3.0
million, respectively. During 1995, 1996 and 1997, the Company's provision for
doubtful accounts exceeded actual write-offs by $1.1 million, $0.2 million and
$0.4 million, respectively. To the extent that the Company's losses as a result
of bad debt exceed its corresponding reserves, its financial condition and
results of operations may be materially adversely affected. See "Risk
Factors -- Financing Customer Borrowings; Liquidity Risks."

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OTHER OPERATIONS

Resort Operations. The Company also receives revenues from (i) the rental
of its unsold or unused inventory of units at the ILX Resorts, (ii) the sale of
food, beverages and other amenities at such resorts and (iii) the management and
operation of the ILX Resorts. During 1997, the Company received $10.9 million in
net revenues from these operations, consisting of $5.9 million in room rental
revenue, $3.6 million in food and beverage revenue and $1.4 million in other
revenue. Of these amounts, Los Abrigados contributed $7.6 million, or 69.7% of
the Company's total resort operations revenues in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Historically, the Company's resort operation activities have not generated
a material portion of the Company's net profits on a consolidated business.
Revenues from resort operations typically vary significantly from one ILX Resort
to another. In addition, changes in revenue received from these operations have
not typically correlated with fluctuations in the Company's revenues from sales
of Vacation Ownership Interests. Management expects this trend to continue in
the future in part because of the emphasis of the Company's growth strategy on
its Varsity Clubs, which have typically generated a lower percentage of revenues
from resort operations than that generated by the Company's CARs. However, the
Company believes that its resort management activities directly complement the
Company's efforts with respect to the marketing and sales of Vacation Ownership
Interests.

Sedona Spa. The Company's operations also include the sale of personal
care products through its wholly-owned subsidiary Sedona Worldwide Incorporated.
The Company's personal care products have historically been marketed under its
proprietary Red Rock Collection brand name through the ILX Resorts. Commencing
in the second quarter of 1998, these products will be marketed under the brand
name "Sedona Spa" and, in connection with such change, certain modifications to
the product line are being implemented. This resort-based sales program includes
an upscale line of personal care amenities, in-room gift basket promotions and
retail product sales at the ILX Resorts. Sedona Spa products are primarily used
by the Company as promotion incentives to potential purchasers who attend the
Company's sales tours and presentations. The Company then uses direct mail to
market Sedona Spa products to resort customers and tour participants who have
previously used the products. Sales of Sedona Spa products are included in
"Income from land and other, net" on the Company's financial statements and, to
date, have not resulted in a material amount of net revenues or profits to the
Company. The Company has not in the past and does not intend in the future to
devote a significant portion of its resources to sales of Sedona Spa products.

Land Sales. Since 1993, the Company has also received revenues from the
sale of primarily unimproved real property. These operations originated as a
result of the Company's opportunistic acquisition of its wholly owned
subsidiary, Genesis, in November 1993. The sale of real property is not a core
business function for the Company and, as such, the Company has not historically
and does not intend in the future to devote a material portion of its resources
to these operations. Typically, the Company has sold these assets as subdivided
lots or large unimproved parcels. The Company intends to sell substantially all
of the remaining assets during 1998, although there can be no assurance that it
will be able to sell these assets at attractive prices, if at all, during this
year. Following the sale of these assets, management does not expect to engage
in the sale of real property.

PARTICIPATION IN EXCHANGE NETWORKS

The Company believes that consumers are more likely to purchase from its
inventory of Vacation Ownership Interests as a result of the Company's
participation in the Vacation Ownership Interest exchange networks operated by
RCI and II, the leading exchange network operators. In a 1995 study sponsored by
the Alliance for Timeshare Excellence and ARDA, exchange opportunity was cited
by purchasers of interval interests as one of the most significant factors in
their decision to purchase an interest. Membership in RCI or II allows ILX
Owners to exchange in a particular year their occupancy right in the unit in
which they own a Vacation Ownership Interest for an occupancy right at the same
time or a different time in another participating resort, based upon
availability and the payment of a variable exchange fee. A participating ILX
Owner may exchange his or her Vacation Ownership Interest for an occupancy right
in another participating resort by listing the Vacation Ownership Interest as
available with the exchange network operator and by

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requesting occupancy at another participating resort, indicating the particular
resort or geographic area to which the owner desires to travel, the size of the
unit desired and the period during which occupancy is desired. The exchange
network assigns a rating to each listed Vacation Ownership Interest, based upon
a number of factors, including the location and size of the unit, the quality of
the resort and the period of the year during which the Vacation Ownership
Interest is available, and attempts to satisfy the exchange request by providing
an occupancy right in another Vacation Ownership Interest with a similar rating.
Approximately 85% of the Vacation Ownership Interests at the ILX Resorts qualify
as "red time," the highest demand classification, thereby increasing the
exchange opportunities available to ILX Owners. If RCI or II is unable to meet
the member's initial request, the network operator may suggest alternative
resorts, based on availability. In addition, ILX's Owner Services Department has
established arrangements with additional resorts and smaller exchange networks
through which it offers exchange opportunities and discounted vacation getaways
to ILX Owners. The Company believes that its direct participation in the
exchange process, coupled with these additional services, provides ILX with a
competitive advantage and tend to increase customer satisfaction. See
"-- Operating Strategies" above.

COMPETITION

ILX's Vacation Ownership Interest plans compete both with other Vacation
Ownership Interest plans as well as hotels, motels, condominium developments and
second homes. ILX considers the direct competitors of individual resorts to also
include alternative accommodations, including hotels, motels, bed-and-breakfasts
and small vacation ownership operators located within the immediate geographic
vicinity of such resort. This is particularly true with respect to its CARs that
tend to attract purchasers whose decision to buy a Vacation Ownership Interest
is likely to be influenced by the convenience of the resort to their principal
residence.

The Vacation Ownership Interest industry historically has been highly
fragmented and dominated by a very large number of local and regional resort
developers and operators, each with limited portfolios. More recently, many of
the world's most widely-recognized lodging, hospitality and entertainment
companies have begun to develop and sell vacation ownership interests under
their brand names, including Marriott Ownership Resorts, Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts and
Promus Hotel Corporation. In addition, other publicly-traded companies such as
Signature Resorts, Inc., Fairfield Communities, Inc., Silverleaf Resorts, Inc.,
Trendwest Resorts, Inc. and Vistana, Inc. currently compete or may compete in
the future with the Company. Furthermore, significant competition exists in
other markets in which the Company currently operates or is developing vacation
ownership resorts. Many entities with which the Company competes have
significantly greater access to financial, sales and marketing and other
resources than those of the Company and may be able to grow at a more rapid rate
or more profitably as a result. Management anticipates competition to increase
in the future as a result of consolidation in the vacation ownership industry.
There can be no assurance that the Company will be able to successfully compete
with such companies. See "Risk Factors -- Competition."

GOVERNMENTAL REGULATION

General. The Company's marketing and sales activities and other resort
operations are subject to extensive regulation by the federal government and the
states in which the Company's resorts are located and in which its interval
interests are marketed and sold. Federal legislation to which the Company is or
may be subject includes the Federal Trade Commission Act, the Fair Housing Act,
the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Equal
Credit Opportunity Act, the Interstate Land Sales Full Disclosure Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act and the Civil Rights
Acts of 1964, 1968 and 1991. Many states have adopted legislation as well as
specific laws and regulations regarding the sale of vacation ownership
interests. The laws of most states, including Arizona, require a designated
state authority to approve a detailed offering statement describing the Company
and all material aspects of the resort and sale of vacation ownership interests
at such resort. In addition, the laws of most states in which the Company sells
interests grant the purchaser of a Vacation Ownership Interest the right to
rescind a contract of purchase at any time within a statutory rescission period.
Furthermore, most states have other laws which regulate the Company's
activities, such as real estate licensure laws, travel sales licensure laws,
anti-fraud

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laws, telemarketing laws, prize, gift and sweepstakes laws, and labor laws. The
Company believes that it is in material compliance with all applicable federal,
state, local and foreign laws and regulations to which it is currently subject.
See "Risk Factors -- Regulation of Marketing and Sales of Vacation Ownership
Interests and Related Laws."

Environmental Matters. Under applicable federal, state and local
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate, remediate and remove hazardous or
toxic substances at such property, and may be held liable for property damage
and for investigation, remediation and removal costs incurred by such parties in
connection with the contamination. Such laws typically impose such liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The costs associated with compliance
with such regulations may be substantial, and the presence of such substances,
or the failure to properly remediate the contamination on such property, may
adversely affect the owner's or operator's ability to sell or rent such property
or to borrow against such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances at a disposal or
treatment facility also may be liable for the costs of removal or remediation of
a release of hazardous or toxic substances at such disposal or treatment
facility, whether or not such facility is owned or operated by such person. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. Finally, the owner or operator of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially liable
for such costs.

The Company does not always conduct Phase I environmental assessments at
the ILX Resorts, properties under development and properties subject to
acquisition. Because many of the Company's resorts are typically found in remote
locations, it does not consider the risks of environmental liabilities
significant enough to warrant the performance of Phase I assessments at such
locations. Failure to obtain such reports may result in the Company acquiring or
developing unusable property or assuming certain liabilities which could have
been avoided if the Company had the information typically discovered in a Phase
I report. However, when appropriate, the Company has in the past and will in the
future obtain Phase I reports. To date, the Company has obtained environmental
reports with respect to two of the ILX Resorts. In addition, the Company does
conduct significant in-house due diligence prior to the acquisition of any real
property interests. To date, the Company's investigation of its properties have
not revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business, assets, financial condition
or results of operations, nor is the Company aware of any such material
environmental liability. See "Risk Factors -- Possible Environmental
Liabilities."

The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties.

Other Regulations. Under various state and federal laws governing housing
and places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Although management
believes that the Company's resorts are substantially in compliance with present
requirements of such laws, the Company may incur additional costs of compliance
in connection with the development of new resorts, or conversion or renovation
of ILX Resorts. Additional legislation may impose additional requirements on
owners with respect to access by disabled persons. The aggregate costs
associated with compliance with such regulations are not currently known, and,
while such costs are not expected to have a material effect on the Company, such
costs could be substantial. Limitations or restrictions on the completion of
certain renovations may limit application of the Company's growth strategy in
certain instances or reduce profit margins on the Company's operations.

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EMPLOYEES

As of December 31, 1997, the Company had approximately 760 employees, of
which approximately 525 were employed on a full-time basis (including
approximately 120 employed on a full-time equivalent basis of 28 hours per
week). The Company believes relations with its employees are good and none of
its employees are represented by labor unions.

INSURANCE

The Company carries comprehensive liability, business interruption, title,
fire and storm insurance with respect to the ILX Resorts, with policy
specifications, insured limits and deductibles customarily carried for similar
properties which the Company believes are adequate. There are, however, certain
types of losses (such as losses caused by floods or acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss could have a material adverse effect on the Company. See "Risk
Factors -- Natural Disasters; Uninsured Loss."

LEGAL PROCEEDINGS

Although the Company may be subject to litigation from time to time in the
ordinary course of its business, it is not a party to any pending or threatened
legal proceedings that it believes will have a material impact on its business.

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MANAGEMENT

The following table sets forth certain information concerning the Company's
executive officers, directors and certain key employees. Except as otherwise
noted, none of the executive officers are directors or officers of any other
publicly owned corporation or entity.

NAME AGE POSITION
- ---- --- --------

Joseph P. Martori......................... 56 Chairman of the Board and Chief Executive Officer
Nancy J. Stone............................ 40 President, Chief Operating Officer and Director
Edward S. Zielinski....................... 46 Executive Vice President, President and Chief
Operating Officer of Varsity Clubs of America
Incorporated and Director
Jay R. Hoffman............................ 43 Senior Vice President and Chief Financial Officer
John P. Brooks............................ 52 Senior Vice President, Sales and Marketing
George C. Wallach......................... 61 Senior Vice President and General Counsel
Steven R. Chanen.......................... 44 Director
Patrick J. McGroder III................... 52 Director
James W. Myers............................ 63 Director

DIRECTORS AND EXECUTIVE OFFICERS

JOSEPH P. MARTORI has served as a director of the Company since its
inception and as Chairman of the Board since 1991. Mr. Martori served as
President from November 1993 through 1995 and has served as Chief Executive
Officer since 1994. Prior thereto, Mr. Martori was engaged in the private
practice of law since 1967 with the New York City law firm of Sullivan &
Cromwell; the Phoenix law firms of Snell & Wilmer; Martori, Meyer, Hendricks &
Victor, P.A. (of which he was a founding member); and Brown & Bain, P.A. (of
which he was the Chairman of the Corporate, Real Estate and Banking Department).
Mr. Martori was a founder of Firstar Metropolitan Bank & Trust in Phoenix and
has served on its Board of Directors since 1983. Mr. Martori is also Chairman of
the Board of MEI, an investment company which holds 34.2% of the Company's
outstanding Common Stock (22.3% after the closing of this Offering, 21.2% if the
Underwriters' over-allotment option is exercised in full). Mr. Martori is also a
member of the Board of Trustees of The Lawyers' Committee for Civil Rights under
Law. Mr. Martori received a B.S. degree, summa cum laude, and an M.B.A. degree
in finance from New York University and a J.D. degree, cum laude, from the
University of Notre Dame Law School.

NANCY J. STONE has served as a director of the Company since April 1989,
and as President and Chief Operating Officer since January 1996. Ms. Stone
served as Chief Financial Officer of the Company from July 1993 to December 29,
1997, as well as from January 1990 to April 1992, and as Executive Vice
President from July 1993 to December 1995. Ms. Stone served on the faculty of
North Central College, Naperville, Illinois from 1992 to 1993. Ms. Stone also
served as Vice President of Finance and Secretary of the Company from April 1987
to December 1989. Ms. Stone is a Certified Public Accountant in the States of
Arizona and Illinois. Ms. Stone received a B.A. degree in accounting and finance
from Michigan State University magna cum laude, and an M.B.A. degree from
Arizona State University summa cum laude.

EDWARD S. ZIELINSKI has served as a director and Executive Vice President
of the Company since January 1996, and as President and Chief Operating Officer
of Varsity Clubs of America Incorporated since July 1997. Mr. Zielinski served
as Senior Vice President of the Company from January 1994 to December 1995 and
as General Manager of Los Abrigados Resort & Spa from December 1992 until
January 1994, and in various other executive positions with the Company since
November 1988. Mr. Zielinski has twenty years of resort management and marketing
experience in both the domestic and international markets. Prior to joining the
Company, Mr. Zielinski served as General Manager of Oceania Resorts, Ltd., a New
Zealand-Australian company, from August 1985 through October 1988, based in
Auckland, New Zealand. Prior thereto, Mr. Zielinski held senior management
positions with Hyatt International Hotels and Continental Airlines Hotel
Division.

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JAY R. HOFFMAN has served as Senior Vice President and Chief Financial
Officer of the Company since December 1997. Prior thereto, Mr. Hoffman served as
Chief Financial Officer of Homeplex Mortgage Investments Corporation (now
Monterey Homes Corporation), a mortgage company in Phoenix, Arizona from 1988 to
1997; as Senior Audit Manager with Kenneth Leventhal & Company (now Ernst &
Young) in Phoenix, Arizona from 1987 to 1988; and with Arthur Andersen L.L.P. in
Kansas City, Missouri and Phoenix, Arizona from 1976 to 1987. Mr. Hoffman is a
Certified Public Accountant in the States of Arizona and Missouri. Mr. Hoffman
received a B.B.A. degree from the University of Missouri.

JOHN P. BROOKS has served as Senior Vice President, Sales and Marketing, of
the Company since October 1997. Mr. Brooks has also served as Senior Vice
President and General Sales Manager of the Sedona Vacation Club at Los Abrigados
since October 1997 and served as Vice President and Director of Operations at
Los Abrigados from 1994 to October 1997. Mr. Brooks has served in various sales
management positions for the Company since March 1989. Mr. Brooks served in
similar positions with Arroyo Robles Resort in Sedona, Arizona and Fairfield
Resort in Flagstaff, Arizona prior to joining the Company. Mr. Brooks co-owned
and managed Century 21 Plaza II Realty in Phoenix, Arizona from 1977 to 1986.
Mr. Brooks is a licensed real estate broker and received a B.S. degree in
marketing and management from Arizona State University.

GEORGE C. WALLACH has served as General Counsel since May 1997 and as
Senior Vice President of the Company since January 1996. He joined the Company
in 1995 and served as Executive Vice President from February to December 1995
and resident Project Director for Kohl's Ranch Lodge from June 1995 to May 1997.
Prior to joining the Company, Mr. Wallach was a partner in the Phoenix, Arizona
law firm of Brown & Bain, P.A. from 1986 to 1995, specializing in real estate
and business law. Mr. Wallach currently serves on the Board of Directors of The
University of Arizona Law College Association (past President) and the Board of
Directors of The University of Arizona Alumni Association. Mr. Wallach received
B.A. and M.A. degrees from the University of Arizona. Mr. Wallach earned a J.D.
degree at the University of Arizona "with distinction."

STEVEN R. CHANEN has served as a director of the Company since July 1995.
Mr. Chanen has served as President and Chief Operating Officer of Chanen
Construction Company, Inc., Phoenix, Arizona, since 1989, as Chairman of the
Board of Media Technology Capital Corporation (doing business as S.R. Chanen &
Co., Inc.) since 1986, and as President of United Property Investments
Corporation, a subsidiary of United Properties, Ltd. of Vancouver, Canada since
1987. Prior thereto, Mr. Chanen served as Vice President of FMR Capital
Corporation from 1981 to 1986 and as a shareholder and director of Wentworth and
Lundin law firm from 1980 to 1986. Mr. Chanen received B.S. and J.D. degrees
from Arizona State University.

PATRICK J. MCGRODER III has served as a director of the Company since June
1997. Mr. McGroder has been a trial lawyer engaged in the practice of law since
1970, and has served since 1990 as a member of the law firm of Goldstein &
McGroder, Ltd. of Phoenix, Arizona (which he co-founded). Mr. McGroder received
a B.A. degree from the University of Notre Dame and a J.D. degree from the
University of Arizona School of Law.

JAMES W. MYERS has served as a director of the Company since July 1995. Mr.
Myers has served as President of Myers Management and Capital Group, Inc., a
management consulting firm he founded, since December 1995. From 1986 to 1995,
Mr. Myers was President and Chief Executive Officer of Myers Craig Vallone
Francois, Inc., an investment banking and management advisory firm he also
founded. Prior thereto, Mr. Myers held executive positions with a variety of
public and private companies from 1956 to 1986. Mr. Myers also serves as a
director of Chambers Belt, Inc., China Mist Tea, Landiscor, Inc., Solar Cells,
Inc. and Nanomics, Inc. Mr. Myers received a B.S. degree from Northwestern
University and an M.B.A. degree from the University of Chicago.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee"), which consists of Messrs. Myers and McGroder. The Audit
Committee is responsible for recommending independent auditors, reviewing with
the independent auditors the scope and results of the audit

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engagement, establishing and monitoring the Company's financial policies and
control procedures, and reviewing and monitoring the provision of non-audit
services by the Company's auditors.

Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of Messrs.
Myers and McGroder. The Compensation Committee reviews, determines and
establishes salaries, bonuses and other compensation, including stock options
and awards, for the Company's executive officers.

Executive Committee. The Board of Directors has also established an
Executive Committee consisting of Ms. Stone and Messrs. Martori, Myers and
Zielinski. The Executive Committee meets on a monthly basis and has authority to
take certain limited actions on behalf of the Board of Directors concerning the
Company's ongoing operations.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Martori and Ms. Stone served on the Compensation Committee of the Board
of Directors until November 1997. Each of Ms. Stone and Mr. Martori also served
as an executive officer of the Company during that same period. In November
1997, the Compensation Committee was changed to consist solely of non-employee
directors.

Effective as of January 1, 1998, the Company entered into four year
employment agreements with each of Mr. Martori and Ms. Stone. These agreements
provide for an annual base salary of $200,000 for Mr. Martori and $150,000 for
Ms. Stone. In addition, Ms. Stone is to receive an award of 15,000 restricted
shares of Common Stock on January 1st of each year during the term of the
agreement commencing January 1, 1998, provided Ms. Stone is employed by the
Company on the date of grant. See "-- Employment Agreements" and "Certain
Relationships and Related Transactions."

Mr. Martori is the Chairman of the Board of MEI, a holder of 34.2% of the
Company's outstanding Common Stock (22.3% on the closing of this Offering, 21.2%
if the Underwriters' over-allotment option is exercised in full).

In August 1992, LAP issued to MEI, as agent for EJM, MEI, Arthur J. Martori
and Alan R. Mishkin ("Mishkin"), a $770,000 promissory note bearing interest at
14%, collateralized by $810,630 in notes receivable. The promissory note was
issued to reduce Class A limited partners' capital contributions by $500,000,
Class A priority returns by $149,954, Class B accrued interest by $73,772 and
certain loan guarantee fees by $46,274. Principal payments of $52,181 and
interest payments of $13,548 were made during 1997.

In December 1995, LAP issued 10% promissory notes to EJM and Joseph P.
Martori, a trustee for Cynthia J. Polich (not an affiliate of the Company)
("Polich"), in the original principal amounts of $550,000 and $350,000. In 1997,
36,800 shares of the Company's Common Stock were issued in satisfaction of the
remaining $230,000 principal amount of the note payable to EJM. The note payable
for the benefit of Polich matures on December 31, 1999, is secured by 122
Vacation Ownership Interests in Kohl's Ranch and is convertible into Common
Stock at a price of $7.50 per share. In 1997, LAP paid $68,792 in principal and
interest on the note payable for the benefit of Polich and $17,203 in interest
on the note payable to EJM.

In January 1996, the Company paid to MEI $60,000 cash and issued a
promissory note in the principal amount of $100,000 as satisfaction for $173,225
of unpaid guarantee fees and $44,073 in holdbacks previously payable by LAP to
MEI. The note was repaid in full in January 1997. See Notes 9 and 15 to the
Company's Consolidated Financial Statements.

In August 1997, the Company acquired the Class B Limited Partnership
Interests in LAP from MEI and Mishkin for (i) $820,000 cash, consisting of
$720,000 to Mishkin (no longer a related party) and $100,000 to MEI, (ii) the
issuance of 20,000 shares of Common Stock, with a value of $125,000 at the time
of issuance, and (iii) the issuance of 8% promissory notes in the original
principal amounts of $1.3 million payable to MEI and $675,000 payable to
Mishkin. Both of these notes mature in 2002, and their repayment is secured by
interests in LAP.

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During 1997, LAP made a capital distribution of $140,000 to MEI, a Class B
Limited Partner at the time of distribution. See "Certain Relationships and
Related Transactions."

INDEMNIFICATION AND LIMITATION OF LIABILITY

The Company's Articles of Incorporation and Bylaws contain certain
provisions which require the Company to indemnify its officers, directors,
employees and agents against certain liabilities and expenses incurred in
connection with their acting in such capacity. See "Description of ILX
Securities and Pertinent Arizona Statutes -- Certain Charter and By-Law
Provisions."

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows, for each of the fiscal years ended December 31,
1997, 1996, and 1995, the cash compensation paid by the Company, as well as
certain other compensation paid or accrued for those years, to each of the
Company's Chief Executive Officer and other most highly compensated executive
officers (collectively, the "Named Executive Officers") receiving compensation
in excess of $100,000 in all capacities in which they served during the last
completed fiscal year.

SUMMARY COMPENSATION

LONG-TERM
ANNUAL COMPENSATION(2) COMPENSATION AWARDS
-------------------------------------------- ----------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND TITLE YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
-------------- ---- -------- -------- ------------ ---------- ------------ ------------

Joseph P. Martori(1)...... 1997 $149,606 $ 50,000 -- -- -- --
Chairman and Chief 1996 136,500 20,000 -- -- -- --
Executive Officer 1995 204,877 -- -- -- -- --
Nancy J. Stone(1)......... 1997 129,659 102,896(3) -- -- -- --
President and Chief 1996 115,193 17,500 -- -- -- --
Operating Officer 1995 125,489 1,953(4) -- -- -- --
Edward S. Zielinski(1).... 1997 115,012 34,689(5) -- -- -- --
Executive Vice President 1996 110,388 19,968(6) -- -- -- --
1995 90,837 1,953(4) -- -- -- --
John P. Brooks............ 1997 36,000 117,832(7) -- -- -- --
Senior Vice President 1996 36,000 95,518(7) -- -- -- --
1995 36,000 83,348(7) -- -- -- --

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(1) Effective as of January 1, 1998, each of Mr. Martori, Ms. Stone and Mr.
Zielinski entered into an employment agreement with the Company which
establishes the rates of annual base and incentive compensation to be
received by him or her commencing on such date. See "-- Employment
Agreements."

(2) Excludes Profit Sharing Plan contributions on behalf of the executive
officer. During 1994 the Company adopted a Profit Sharing Plan and has since
declared 1995, 1996 and 1997 contributions. None of the Named Executive
Officers was allocated more than $4,100 for the 1995 and 1996 plan years nor
are they expected to be allocated more than $4,500 for the 1997 plan year.

(3) Includes 7,500 shares of unrestricted ILX Common Stock at $5.625 per share
and 7,500 shares of restricted ILX Common Stock at $2.8125 per share.

(4) Represents 500 shares of restricted ILX Common Stock at $3.90625 per share.

(5) Includes 3,500 shares of unrestricted ILX Common Stock at $5.625 per share.

(6) Includes 1,000 shares of restricted ILX Common Stock at $3.75 per share.

(7) Includes commissions on sales of Vacation Ownership Interests.

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OPTION GRANTS IN THE LAST FISCAL YEAR

No stock options or stock appreciation rights were granted to Named
Executive Officers or to other employees in 1997.

OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END
OPTION VALUES

The following table sets forth information regarding option exercises by
the Named Executive Officers during 1997 and unexercised options held by Named
Executive Officers at December 31, 1997.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------

Joseph P. Martori............. 0 $0 0 0 $0 $0
Nancy J. Stone................ 0 0 5,000 0 0 0
Edward S. Zielinski........... 0 0 6,000 0 0 0
John P. Brooks................ 0 0 4,000 0 0 0

DIRECTOR COMPENSATION

The Company's policy is to pay a fee for each Board of Directors' meeting
attended by directors who are not employees of the Company, and reimburse all
directors for actual expenses incurred in connection with attending meetings of
the Board of Directors. The fee for each Board of Directors' meeting attended by
a non-employee director is $1,000. In addition, all non-employee directors
receive a grant of options to purchase 5,000 shares of Common Stock following
their election to the Board of Directors. The options are fully exercisable on
the first anniversary of the date of grant.

STOCK OPTION PLANS

The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which selects the persons to whom stock
options are granted and determines the number of shares of Common Stock covered
by the option, its exercise price or purchase price, and its expiration date.

1995 Stock Option Plan. The Company's 1995 Stock Option Plan was adopted
by the Board of Directors in July 1995 (the "1995 Stock Option Plan"). The 1995
Stock Option Plan authorizes the Board of Directors of the Company to grant
options to purchase the Company's authorized but unissued or reacquired Common
Stock to the key employees of the Company or its subsidiaries. The aggregate
number of shares of Common Stock which may be issued under the Stock Option Plan
is 100,000 shares, all of which were available for future grants as of December
31, 1997. Stock options entitle the optionee to purchase Common Stock from the
Company for a specified exercise price as determined by the Board of Directors,
during a period specified in the applicable option agreement.

Under the 1995 Stock Option Plan, the Company may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Code ("Incentive Stock Options"), or options not intended to qualify as
Incentive Stock Options ("Nonstatutory Options"). The options are granted for
investment purposes only and are not transferable except by the laws of descent
and devise.

Incentive Stock Options may only be granted to employees of the Company.
They are exercisable one year after the grant of the options and expire on the
earlier of (i) five years after the date of grant as to any optionee who
immediately before the granting of the options owned more than ten percent of
the total combined voting power of all classes of stock of the Company or any of
its subsidiaries or (ii) ten years after the date of grant of the option as to
any optionee whose stock ownership represented less than ten percent of the
Company or any of its subsidiaries' combined voting power immediately before the
date of grant. Nonstatutory Stock Options are exercisable at any time after they
are granted and their durations are
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determined by the Board of Directors. All options granted pursuant to the 1995
Stock Option Plan are subject to earlier termination in the event of the
termination of the optionee's employment with the Company.

1992 Stock Option Plan. The Company's 1992 Stock Option Plan was adopted
by the Board of Directors in May 1992 (the "1992 Stock Option Plan"). The 1992
Stock Option Plan authorizes the Board of Directors of the Company to grant
options to purchase the Company's authorized but unissued or reacquired Common
Stock to the key employees of the Company or its subsidiaries. The aggregate
number of shares of Common Stock which may be issued under the 1992 Stock Option
Plan is 100,000 shares, of which 39,600 were available for future grants as of
December 31, 1997. Stock options entitle the optionee to purchase Common Stock
from the Company for a specified exercise price as determined by the Board of
Directors, during a period specified in the applicable option agreement.

Under the 1992 Stock Option Plan, the Company may grant Incentive Stock
Options or Nonstatutory Options. All options granted pursuant to the 1992 Stock
Option Plan are granted for investment purposes only and neither type of options
are transferable except by laws of descent and devise.

Incentive Stock Options may only be granted to employees of the Company.
They are exercisable one year after the grant of the options and expire on the
earlier of (i) five years after the grant of the options for any optionee who
immediately before the granting of the options owned stock representing more
than ten percent of the total combined voting power of all classes of stock of
the Corporation or any of its subsidiaries or (ii) ten years after the grant of
the options for any optionee whose stock ownership represented less than ten
percent of the Company or any of its subsidiaries' combined voting power
immediately before the granting of the options. Nonstatutory Stock Options are
exercisable at any time after they are granted and their durations are
determined by the Board of Directors. However, both types of options are subject
to earlier termination in the event of the termination of the optionee's
employment with the Company.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with each of Mr. Joseph
Martori, Ms. Nancy Stone and Mr. Edward Zielinski to serve as Chairman and Chief
Executive Officer of the Company; President of the Company; and Executive Vice
President of the Company and President of the Company's wholly-owned subsidiary,
Varsity Clubs of America Incorporated, respectively. Each of these agreements
has a four-year term which expires in December 2001. These agreements provide
for an annual base salary of $200,000 to Mr. Martori, $150,000 to Ms. Stone and
$130,000 to Mr. Zielinski. In addition, each employee may receive certain
incentive compensation at the discretion of the Board of Directors. Ms. Stone
and Mr. Zielinski are also entitled to receive awards of 15,000 and 7,000 shares
of restricted Common Stock, respectively, on January 1, 1998 and each
anniversary thereof provided that she or he is employed by the Company on the
date of grant.

Under each employment agreement, the respective employee's employment may
be terminated prior to its expiration (i) by the Company for Good Cause (defined
as his or her willful breach or habitual neglect of his or her duties under the
employment agreement, willful violation of reasonable and substantial rules
governing employee performance, willful refusal to obey reasonable orders in a
manner amounting to gross insubordination or commission of dishonest acts), (ii)
upon the employee's disability or death or (iii) upon thirty days notice of
either party. If the employee is terminated without Good Cause prior to the
expiration of the term of the employment agreement, they are entitled to receive
their base salary for the twelve month period following such termination. The
employment agreements generally prohibit each employee from competing with the
Company during his or her respective term of employment by the Company and for a
period of twelve months following the respective employee's termination for Good
Cause. In addition, each employment agreement contains customary confidentiality
provisions in favor of the Company.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following is a summary of transactions to which the Company or its
subsidiaries is a party in which the amount involved since January 1, 1997
exceeded $60,000 and in which officers, directors, nominees and/or greater than
5% beneficial owners of the Company's Common Stock (or any immediate family
members of the foregoing) had, or will have, a direct or indirect material
interest.

In August 1992, LAP issued to MEI, as agent for EJM, MEI, Arthur J. Martori
and Mishkin, a $770,000 promissory note bearing interest at 14%, collateralized
by $810,630 in notes receivable. The promissory note was issued to reduce Class
A limited partners' capital contributions by $500,000, Class A priority returns
by $149,954, Class B accrued interest by $73,772 and certain loan guarantee fees
by $46,274. Principal payments of $52,181 and interest payments of $13,548 were
made during 1997.

In December 1995, LAP issued 10% promissory notes to EJM and Joseph P.
Martori, a trustee for Polich (not an affiliate of the Company), in the original
principal amounts of $550,000 and $350,000, respectively. In 1997, 36,800 shares
of the Company's Common Stock were issued in satisfaction of the remaining
$230,000 principal amount of the note payable to EJM. The note payable for the
benefit of Polich matures on December 31, 1999, is secured by 122 Vacation
Ownership Interests in Kohl's Ranch and is convertible into Common Stock at a
price of $7.50 per share. In 1997, LAP paid $68,792 in principal and interest on
the note payable for the benefit of Polich and $17,203 in interest on the note
payable to EJM.

In June 1997, the Company entered into an exclusive agreement for financial
advisory, investment banking and agency services with the Underwriter. In
exchange for these services, the Company issued 12,000 shares of Common Stock on
August 1, 1997 and is obligated to issue an additional 12,000 shares in March,
1998. The shares have been registered for resale.

During 1997, the Company made payments of interest in the aggregate amount
of $72,726 to EJM on an 8% promissory note in the principal amount of $909,078,
due December 31, 1999. The note was issued by the Company as consideration for
all of the Class A Limited Partnership Interests in LAP, which the Company
acquired in 1994.

During 1997, LAP made a capital distribution of $140,000 to MEI, a Class B
Limited Partner at the time of distribution.

Effective as of January 1, 1998, the Company entered into four year
employment agreements with each of Messrs. Martori and Zielinski and Ms. Stone.
Pursuant to these agreements, the Company shall provide an annual base salary of
$200,000 to Mr. Martori, $150,000 to Ms. Stone and $130,000 to Mr. Zielinski, in
addition to additional compensation payable at the discretion of the Board of
Directors. Ms. Stone and Mr. Zielinski are entitled to receive 15,000 and 7,000
restricted shares of Common Stock on January 1st of each year during the term of
their respective employment.

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Joseph P. Martori, Chairman of the Board and Chief Executive Officer of the
Company, is also the Chairman of the Board of MEI, which owns 34.2% of the
Common Stock outstanding as of December 15, 1997 (22.3% on the closing of the
Offering, 21.2% if the Underwriters' over-allotment option is exercised in
full). The voting stock of MEI is controlled by EJM, who is a cousin of Joseph
P. Martori. EJM served as a Director of the Company from December 1993 to
November 1997. See "Risk Factors -- Voting Control by Existing ILX
Shareholders."

The above-described transactions are believed to be on terms no less
favorable to the Company than those available in arms' length transactions with
unaffiliated third parties. Each transaction has been approved by independent
directors of the Company who are not parties to the transaction.

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PRINCIPAL SHAREHOLDERS

The following table sets forth, as of February 27, 1998, certain
information regarding the beneficial ownership of the Common Stock of the
Company by (i) each person known by the Company to have beneficial ownership of
5% or more of the outstanding Common Stock, (ii) each director, (iii) each Named
Executive Officer and (iv) all executive officers and directors as a group, and
their percentage ownership before and after this Offering. See "Description of
ILX Securities and Pertinent Arizona Statutes" for a description of the voting
and other rights of holders of the Company's Common Stock.

NAME AND ADDRESS OF NUMBER OF % BEFORE % AFTER
BENEFICIAL OWNER(+) SHARES(1) OFFERING OFFERING
------------------- --------- -------- --------

Joseph P. Martori........................................... 922,724(2) 35.1% 22.9%
Nancy J. Stone.............................................. 90,418(3) 3.4% 2.2%
Edward S. Zielinski......................................... 18,320(4) * *
John P. Brooks.............................................. 4,800(5) * *
James W. Myers.............................................. 9,800(6) * *
Steven R. Chanen............................................ 5,000(7) * *
Patrick J. McGroder III..................................... 17,015(8) * *
Edward J. Martori........................................... 957,219(9) 36.4% 23.8%
Martori Enterprises Incorporated............................ 898,910 34.2% 22.3%
All Directors and Officers as a Group (9 persons)........... 1,058,277 39.6% 26.0%

- ---------------
* Less than 1%.

(+) Unless otherwise indicated, each holder has the address: c/o ILX Resorts
Incorporated, 2111 E. Highland Ave., Suite 210, Phoenix, Arizona 85016.

(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date set forth in the
introductory paragraph above. For purposes of computing the percentage of
outstanding shares of Common Stock held by each person or group of persons
named above, any security which such person or group of persons has or have
the right to acquire from the Company within 60 days from the date set forth
in the introductory paragraph above is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.

(2) Includes 898,910 shares owned by MEI, of which Joseph P. Martori is a
director and owner of 40% of the voting capital stock, 7,002 shares owned by
the daughter of Joseph P. Martori, under trust dated February 20, 1978;
2,200 shares owned by Joseph P. Martori, as custodian for his other daughter
and 212 shares held by a trust, of which Joseph P. Martori is trustee.

(3) Includes 5,000 shares issuable pursuant to options from the Company and
10,000 shares issuable pursuant to options from MEI at $8.125 per share; and
includes 2,000 shares and options to purchase 17,500 shares from the Company
at $8.125 per share held by her husband, Michael W. Stone.

(4) Includes 200 shares held by Edward S. Zielinski as custodian for his son,
Stefan Edward Zielinski, options to purchase 6,000 shares from the Company
at $8.125 per share, and 100 shares held by his wife, Nancy Zielinski.

(5) Includes options to purchase 4,000 shares from the Company at $8.125 per
share.

(6) Includes 4,800 shares owned by Myers Capital Management of which James W.
Myers has sole voting and dispositive power and options to purchase 5,000
shares from the Company at $6.25 per share.

(7) Consists of 5,000 shares issuable pursuant to options from the Company at
$6.25 per share.

(8) Includes 1,500 shares held by the Patrick J. McGroder and Susan McGroder
Revocable Trust; 2,000 shares held by the McGroder Family Limited
Partnership in which Patrick J. McGroder and Susan McGroder have a 99%
interest; 2,280 shares held by Patrick J. McGroder III IRA; 5 shares held by
Shamrock Consultants, which is wholly owned by Patrick J. McGroder; 19
shares held by Patrick J. McGroder II, P.C., an Arizona professional
corporation, wholly owned by Patrick J. McGroder; 128

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shares held by Patrick J. McGroder II, P.C. Profit Sharing Trust, of which
Patrick J. McGroder is the sole beneficiary; 10,000 shares held by McMac,
L.L.C., an Arizona limited liability company of which Patrick J. McGroder is
one-third owner; 150 shares held by Mr. McGroder's children's irrevocable
trusts as follows: 50 shares held by the Caroline E. McGroder 1992 Trust, 50
shares held by the Elizabeth McGroder 1992 Trust and 50 shares held by the
Patrick J. McGroder IV 1992 Trust.

(9) Includes 898,910 shares owned by MEI, 56% of the capital stock of which is
owned by Edward J. Martori, and 142 shares owned by the Estate of Edward
Joseph Martori, of which Edward J. Martori is beneficiary.

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DESCRIPTION OF ILX SECURITIES AND PERTINENT ARIZONA STATUTES

ILX COMMON STOCK

Each share of ILX Common Stock entitles the holder thereof to one vote on
all matters submitted to a vote of ILX's shareholders, except that the election
of directors is by cumulative voting to the extent and in the manner provided by
Arizona law. In any election of directors, cumulative voting entitles each share
of Common Stock to a total number of votes equal to the total number of
directors to be elected. Such votes may be cast for one or more directors as the
shareholder desires. No holder of ILX Common Stock has any preemptive right to
subscribe for or purchase additional shares of ILX's stock. Holders of ILX
Common Stock are entitled to share ratably in all dividends not attributable to
the Series A or Series C Stock that are declared by the Board of Directors, and
in all assets available for distribution upon liquidation after giving effect to
the liquidation preferences of the Series A, Series B and Series C Stock.

SERIES A PREFERRED STOCK

In August 1991, ILX authorized and issued 110,000 shares of non-voting
Series A Stock, of which 59,845 shares remain issued and outstanding at December
31, 1997. Beginning July 1, 1996, the Series A Stock is entitled to an annual
dividend of $.80 per share out of funds legally available therefor. Dividends
may not be paid on ILX Common, or Series C Stock until the Series A Stock
sinking fund requirements and dividends payments are satisfied. The Series A
Stock has a liquidation preference of $10.00 per share that is superior to the
liquidation preferences of the Series B Stock and Series C Stock and the
liquidation rights on the ILX Common Stock. Beginning January 1, 1993, ILX,
through its wholly owned subsidiary, LAP, is required quarterly to make
provision for a dividend sinking fund in an amount equal to $100 for each
unrescinded sale of a Sedona Vacation Club annual Vacation Ownership Interest
made during the preceding calendar quarter. The foregoing discussion of the
Series A Stock is qualified in its entirety by reference to the Certificate of
Designation of the Series A Stock, a copy of which may be obtained from ILX.

SERIES B CONVERTIBLE PREFERRED STOCK

In August 1991, ILX authorized and issued 275,000 shares of non-voting
$10.00 par value Series B Convertible Preferred (the "Series B Stock") Stock, of
which 55,000 shares remain issued and outstanding at December 31, 1997. The
Series B Stock has a liquidation preference of $10.00 per share that is junior
to the liquidation preference of the Series A Stock but senior to the
liquidation preference of the Series C Stock and the liquidation rights on the
ILX Common Stock. From and after July 1, 1996, each share of Series B Stock may
be converted into two-fifths of a share of ILX Common Stock. The conversion rate
shall be adjusted for dividends paid in ILX Common Stock, stock splits, reverse
stock splits and stock reclassifications. No dividends are payable on the Series
B Stock. The foregoing discussion of the Series B Stock is qualified in its
entirety by reference to the Certificate of Designation for the Series B Stock,
a copy of which may be obtained from ILX.

SERIES C CONVERTIBLE PREFERRED STOCK

In November 1993, ILX authorized 309,000 shares of non-voting Series C
Stock. ILX issued 305,652 shares of Series C Stock, of which 265,623 shares
remain issued and outstanding at December 31, 1997. The Series C Stock was
issued, along with certain shares of ILX Common Stock, to former Genesis
shareholders in exchange for their Genesis common stock. The Series C Stock is
entitled to a Dividend Preference, when and as dividends are declared by ILX's
Board of Directors, out of any funds legally available therefor at the rate of
$.60 per share per annum, payable in preference and priority to any payment of
any dividend on ILX Common Stock but subordinate and subject to the dividend
rights of the Series A Stock. Except for Cumulation Shares (as hereafter
defined) issuable on conversion or liquidation of the Series C Stock, the right
to the Dividend Preference is not cumulative. If, during any year prior to
November 1, 1998, the Dividend Preference is not paid in full, the unpaid
portion thereof will accumulate through November 1, 1998 (the total amount of
such cumulation expressed in dollars is referred to herein as the "Dividend
Arrearage"). ILX is not required to pay the Dividend Preference in cash except
upon liquidation. "Cumulation Shares"
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means the total Dividend Arrearage (as of the date of calculation thereof) owed
to any holder of Series C Stock with respect to all shares of Series C Stock
owned of record by such holder divided by $30.00. Partial fiscal years are to be
equitably prorated. The Series C Stock has a liquidation preference of $10.00
per share plus any Dividend Arrearage allocable to such shares. Such liquidation
preference is subordinate to the liquidation preferences of ILX's Series A Stock
and Series B Stock. The Series C Stock may be redeemed by ILX at any time at a
price of $10.00 per share plus payment of all declared but unpaid dividends. At
the option of the holder, shares of Series C Stock may be converted into shares
of ILX Common Stock prior to November 1, 2003 at a rate of one share of ILX
Common Stock, subject to adjustment, for every three shares of Series C Stock.
Upon conversion of a holder's Series C Stock, a holder of Series C Stock also
shall convert the applicable Dividend Arrearage with respect to such shares into
ILX Common Stock at the rate of one share of ILX Common Stock, subject to
adjustment, for every $30.00 of Dividend Arrearage. To date, no cash dividends
have been paid on the Series C Stock. This summary of the terms of the Series C
Stock is qualified in its entirety by the Certificate of Designation of the
Series C Stock, a copy of which may be obtained from ILX.

ARIZONA ANTI-TAKEOVER LEGISLATION AND ANTI-TAKEOVER DEVICES

Arizona Revised Statutes ("ARS") Sections 10-2701 et seq. were adopted by
the Arizona legislature in an attempt to prevent corporate "greenmail" and
restrict the ability of a potential suitor to acquire domestic corporations.
These statutes generally apply to business combinations or control share
acquisitions of "issuing public corporations," which defined term includes ILX.
These statutes could impede an acquisition of ILX and its affiliates. Section
10-2704 limits the ability of a corporation to repurchase stock from a
beneficial owner of more than 5% of the voting power of an issuing public
corporation unless certain conditions are satisfied. ARS Section 10-2705 limits
the ability of the issuing public corporation to enter into or amend any
agreements containing provisions that increase the current or future
compensation of any officer or director of the issuing public corporation during
any tender offer or request or invitation for tenders of any class or series of
shares of the issuing public corporation (other than an offer, request or
invitation by the issuing public corporation). ARS Sections 10-2721, et. seq.
regulates "control share acquisitions," defined as a direct or indirect
acquisition of beneficial ownership of shares of an issuing public corporation
that would, when added to all other shares of the issuing public corporation
beneficially owned by the acquiring person, entitle the acquiring person
immediately after the acquisition to exercise either (a) at least 20% but less
than 33 1/3% or (b) at least 33 1/3% but less than 50% or (c) more than 50% of
the voting power in the election of directors. Among other things, control share
acquisitions exclude statutory mergers and acquisitions, and acquisitions
pursuant to security agreements. Within ten days after engaging in a control
share acquisition, the acquiring person must deliver to the issuing public
corporation an information statement setting forth the identity of the acquiring
person and all of its affiliates, the number and class of securities of the
issuing public corporation beneficially owned before, and to be acquired in, the
control share acquisition, and the terms of the control share acquisition. The
shares acquired in a control share acquisition have all the same voting rights
as other shares in elections for directors, but do not have the right to vote on
other matters unless approved by a resolution of shareholders of the issuing
public corporation other than the acquiring person and any officer or director.
If the shareholders vote not to accord voting rights to the shares acquired by
the acquiring person, the issuing public corporation may redeem the control
shares at their then current market price. Finally, in certain circumstances,
ARS Section 10-2741 prohibits an issuing public corporation or a subsidiary
thereof from engaging in a business combination with any interested shareholder
(i.e., a beneficial owner of at least 10% of the outstanding shares of the
company or an affiliate thereof) of the issuing public corporation or any
affiliate or associate of the interested shareholder for three years after the
interested shareholder's share acquisition date.

The constitutionality of these provisions of Arizona law has not been
tested under Arizona or federal law. No assurance can be given that such
statutes would withstand any such constitutional challenge. The existence of
these statutes may make ILX a less attractive merger or acquisition candidate.

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74

Except as described above with respect to the statutory provisions of the
Arizona anti-takeover laws, ILX has not adopted any anti-takeover devices with
respect to its equity or debt securities. See "Risk Factors -- Arizona
Anti-takeover Provisions."

CERTAIN CHARTER AND BY-LAW PROVISIONS

In general, each director and officer of ILX is eligible to be indemnified
by the Company against all expenses, including attorneys' fees, judgments,
fines, punitive damages and amounts paid in settlement, that were incurred in
connection with a proceeding to which such director or officer was a party by
reason of the fact that such officer or director was acting on behalf of ILX,
unless (1) indemnification is expressly prohibited by applicable law or (2) as
to a director, if the individual breached his or her duty of loyalty to ILX, the
individual's acts or omissions are not in good faith, or the individual engaged
in intentional misconduct or a knowing violation of law. In addition, ILX will
not indemnify a director or officer for any liability incurred in a proceeding
initiated (or participated in as an intervenor or amicus curiae) by the officer
or director seeking indemnification unless such initiation or participation is
authorized by the affirmative vote of a majority of the directors in office.

ILX is required to advance funds to pay the expenses of any officer or
director involved in a proceeding, provided that such expenses are incurred in
good faith and ILX receives an undertaking that the individual will repay the
funds if it is ultimately determined that he or she is not entitled to
indemnification. The indemnification rights granted to ILX's officers and
directors are deemed to be a legally binding contract between ILX and each such
officer and director. Any repeal, amendment or modification of Articles 13 or 14
of ILX's Articles of Incorporation shall be effective prospectively and shall
not affect any prior rights or obligations concerning the indemnification of
ILX's officers and directors.

Article X of ILX's Amended and Restated Bylaws also require the Company to
indemnify its officers, directors, employees and agents against all expenses
incurred by them in connection with any legal action, including shareholder
derative suits, based on any action or omission alleged to have been committed
while acting within the scope of such relationship to the Company. Any such
claim for indemnification is subject to the good faith determination by the
Board of Directors that the person seeking indemnification did not act, fail to
act, or refused to act willfully or with gross negligence or with fraudulent or
criminal intent. Upon making such determination, indemnification is mandatory
unless the person seeking indemnification unreasonably refused to permit the
Company, at its own expense and through counsel of its choosing, to defend him
or her in the subject action.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

74
75

UNDERWRITING

The Underwriters named below, for whom EVEREN Securities, Inc. is acting as
representative, have severally agreed to purchase, and the Company has agreed to
sell, subject to the terms and conditions set forth in an underwriting
agreement, dated April 8, 1998 (the "Underwriting Agreement"), the respective
number of shares of Common Stock set forth opposite their names below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares if any are purchased.

UNDERWRITER NUMBER OF SHARES
----------- ----------------

EVEREN Securities, Inc. .................................... 1,250,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 30,000
Gerard Klauer Mattison & Co., LLC........................... 30,000
Ladenburg Thalmann & Co. Inc. .............................. 30,000
Stephens Inc. .............................................. 30,000
Wedbush Morgan Securities Inc. ............................. 30,000
---------
Total............................................. 1,400,000
=========

The Underwriters, through the Representative, have advised the Company that
they propose to offer the shares to the public at the Price to Public set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $0.27 per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $0.10 per
share to certain other dealers. After the Offering, the public offering price,
concession and reallowance may be changed by the Representative. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.

The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to 210,000 additional
shares to cover over-allotments at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.

The Company and its officers, directors and certain shareholders have
agreed that, for a period of 180 days from the date of this Prospectus, they
will not, without the prior written consent of EVEREN Securities, Inc., directly
or indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock or any security convertible into
Common Stock, except for options granted pursuant to the Company's stock option
plans or certain bona fide gifts. In addition, the Company and its officers,
directors and certain shareholders have agreed that they will not, directly or
indirectly, file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any additional shares of Common
Stock or securities convertible or exchangeable for any shares of Common Stock
for a period of 180 days after the date of this Prospectus.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.

The shares of Common Stock are listed on the American Stock Exchange under
the symbol "ILX".

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representative is permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock. In addition, if the Representative
over-allots (i.e., if it sells more shares of Common Stock than are set forth on
the cover page of this Prospectus) and thereby creates a short position in the
Common Stock in connection with this Offering, then the Representative may
reduce that short position by purchasing Common Stock in the open market. The

75
76

Representative may also elect to reduce any short position by exercising all or
part of the over-allotment option described herein. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might otherwise be in the
absence of such purchases. Neither the Company nor any of the Underwriters makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common Stock.
In addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

In June 1997, the Company entered into an agreement with the Representative
for the Representative to act as ILX's exclusive financial advisor, investment
banker and agent with respect to evaluation of alternatives to position ILX for
long-term growth and to enhance shareholder value. In exchange for their
services, ILX issued 12,000 shares of Common Stock on August 1, 1997 and issued
an additional 12,000 shares in March 1998. In accordance with the terms of the
agreement, ILX has registered with the Securities and Exchange Commission all of
the shares issued to the Representative. However, the Representative has agreed
that such shares shall not be sold, transferred, assigned, pledged or
hypothecated for a period of one year from the effective date of this Offering.

LEGAL MATTERS

Certain legal matters with respect to the Company and the validity of the
securities offered hereby will be passed upon for the Company by Squire, Sanders
& Dempsey L.L.P., Phoenix, Arizona. Certain legal matters will be passed upon
for the Underwriters by O'Melveny & Myers LLP, San Francisco, California.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-1 with the
Commission, under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto, as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.

ILX is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance with the
Exchange Act files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information including the
Registration Statement filed with the Commission by ILX can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such materials may be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a web site that
contains reports, proxy statements and other information filed electronically
with the Commission (http://www.sec.gov).

76
77

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report................................ F-2
Financial Statements
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1996 and 1997........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7

F-1
78

INDEPENDENT AUDITORS' REPORT

Shareholders of ILX Resorts Incorporated
Phoenix, Arizona

We have audited the accompanying consolidated balance sheets of ILX Resorts
Incorporated (formerly ILX Incorporated) and Subsidiaries (the "Company") as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1996 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

March 6, 1998
Phoenix, Arizona

F-2
79

ILX RESORTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Cash and cash equivalents................................... $ 3,523,047 $ 3,226,038
Notes receivable, net (Notes 2, 6, 9 and 13)................ 11,745,720 15,861,621
Resort property held for Vacation Ownership Interest sales
(Notes 2, 3, 9 and 16).................................... 15,247,587 14,666,658
Report property under development (Notes 5 and 9)........... 1,209,706 2,943,936
Land held for sale.......................................... 1,547,493 1,557,498
Deferred assets (Note 6).................................... 313,346 289,009
Property and equipment, net (Notes 7, 9 and 16)............. 4,877,467 3,472,899
Deferred income taxes (Note 8).............................. 1,178,653 304,430
Other assets................................................ 1,631,886 1,400,224
----------- -----------
TOTAL ASSETS...................................... $41,274,905 $43,722,313
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 2,310,600 $ 2,830,375
Accrued and other liabilities............................. 4,658,222 2,162,894
Due to affiliates (Note 15)............................... 139,715 57,672
Notes payable (Note 9).................................... 14,867,096 19,884,479
Notes payable to affiliates (Notes 10 and 15)............. 1,567,287 2,166,100
----------- -----------
Total liabilities................................. 23,542,920 27,101,520
----------- -----------
MINORITY INTERESTS (Note 11)................................ 2,556,865 --
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 17)
SHAREHOLDERS' EQUITY (Notes 13 and 14):
Preferred stock, $10 par value; 10,000,000 shares
authorized; 392,109 and 380,468 shares issued and
outstanding; liquidation preference of $3,921,090 and
$3,804,680, respectively............................... 1,419,243 1,384,891
Common stock, no par value; 30,000,000 shares authorized;
2,604,858 and 2,692,433 shares issued (Note 1)......... 9,788,738 10,267,667
Treasury stock, at cost, 6,000 and 103,060 shares,
respectively........................................... (36,536) (652,587)
Additional paid in capital................................ 78,300 79,450
Retained earnings......................................... 3,925,375 5,541,372
----------- -----------
Total shareholders' equity............................. 15,175,120 16,620,793
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $41,274,905 $43,722,313
=========== ===========

See notes to consolidated financial statements.
F-3
80

ILX RESORTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------

TIMESHARE REVENUES:
Sales of Vacation Ownership Interests............. $21,353,758 $19,639,194 $23,980,707
Resort operating revenue.......................... 8,868,344 10,944,533 10,919,831
Interest income................................... 627,081 997,500 1,510,208
----------- ----------- -----------
Total timeshare revenues....................... 30,849,183 31,581,227 36,410,746
----------- ----------- -----------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership Interests sold......... 3,529,566 3,101,023 3,218,850
Cost of resort operations......................... 8,985,306 10,406,692 10,473,093
Sales and marketing............................... 10,971,694 10,485,847 13,894,731
General and administrative........................ 3,779,194 2,304,373 2,974,835
Provision for doubtful accounts................... 1,235,417 590,653 702,417
Depreciation and amortization..................... 696,062 476,467 455,185
----------- ----------- -----------
Total cost of sales and operating expenses..... 29,197,239 27,365,055 31,719,111
----------- ----------- -----------
Timeshare operating income.......................... 1,651,944 4,216,172 4,691,635
Income from land and other, net..................... 191,976 50,304 28,514
----------- ----------- -----------
Total operating income.............................. 1,843,920 4,266,476 4,720,149
Gain on sale of property (Note 7)................... -- -- 356,000
Interest expense (Notes 9 and 10)................... (1,265,227) (1,975,110) (2,084,969)
----------- ----------- -----------
Income before income taxes and minority interests... 578,693 2,291,366 2,991,180
Income tax (expense) benefit (Note 8)............... 547,216 (678,822) (1,145,000)
----------- ----------- -----------
Income before minority interests.................... 1,125,909 1,612,544 1,846,180
Minority interests (Note 11)........................ (501,246) (561,428) (178,307)
----------- ----------- -----------
NET INCOME.......................................... $ 624,663 $ 1,051,116 $ 1,667,873
=========== =========== ===========
NET INCOME PER SHARE (Notes 1 and 4):
Basic............................................. $ 0.24 $ 0.38 $ 0.60
=========== =========== ===========
Diluted........................................... $ 0.24 $ 0.37 $ 0.59
=========== =========== ===========

See notes to consolidated financial statements
F-4
81

ILX RESORTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
-------------------- ----------------------- -------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ---------- --------- ----------- -------- --------- ----------

BALANCES, JANUARY 1, 1995............ 430,313 $1,648,755 2,481,064 $ 8,972,969 $30,000
Net income...........................
Issuance of common stock for
acquisition........................ 24,000 240,000
Other issuance of common stock....... 17,220 86,212
Exchange of preferred stock for
common stock....................... (7,524) (20,766) 2,508 20,766
Issuance of cumulative shares for
dividend arrearage................. 372 2,613
Exchange of preferred stock for
lodging certificates............... (11,267) (112,670) 5,190
Exercise of cash options............. (39) (185) (13) (185)
Acquisition of treasury shares....... (4,000) ($ 25,032)
------- ---------- --------- ----------- -------- --------- -------
BALANCES, DECEMBER 31, 1995.......... 411,483 1,515,134 2,525,151 9,322,375 (4,000) (25,032) 35,190
Net income...........................
Issuance of common stock............. 74,500 423,875
Exchange of preferred stock for
common stock....................... (13,515) (37,301) 4,505 37,301
Issuance of cumulative shares for
dividend arrearage................. 702 5,187
Exchange of preferred stock for
lodging certificates............... (824) (8,240) 4,760
Redemption of preferred stock........ (5,035) (50,350) 38,350
Payment of dividends.................
Acquisition of treasury shares....... (2,000) (11,504)
------- ---------- --------- ----------- -------- --------- -------
BALANCES, DECEMBER 31, 1996.......... 392,109 1,419,243 2,604,858 9,788,738 (6,000) (36,536) 78,300
Net income...........................
Issuance of common stock............. 83,000 443,681
Exchange of preferred stock for
common stock....................... (11,334) (31,282) 3,778 31,282
Issuance of cumulative shares for
dividend arrearage................. 797 3,966
Exchange of preferred stock for
lodging certificates............... (307) (3,070) 1,150
Payment of dividends.................
Acquisition of treasury shares, net
of reissuances..................... (97,060) (616,051)
------- ---------- --------- ----------- -------- --------- -------
BALANCES, DECEMBER 31, 1997.......... 380,468 $1,384,891 2,692,433 $10,267,667 (103,060) $(652,587) $79,450
======= ========== ========= =========== ======== ========= =======

RETAINED
EARNINGS TOTAL
---------- -----------

BALANCES, JANUARY 1, 1995............ $2,305,405 $12,957,129
Net income........................... 624,663 624,663
Issuance of common stock for
acquisition........................ 240,000
Other issuance of common stock....... 86,212
Exchange of preferred stock for
common stock.......................
Issuance of cumulative shares for
dividend arrearage................. (2,633) (20)
Exchange of preferred stock for
lodging certificates............... (107,480)
Exercise of cash options............. (370)
Acquisition of treasury shares....... (25,032)
---------- -----------
BALANCES, DECEMBER 31, 1995.......... 2,927,435 13,775,102
Net income........................... 1,051,116 1,051,116
Issuance of common stock............. 423,875
Exchange of preferred stock for
common stock.......................
Issuance of cumulative shares for
dividend arrearage................. (5,207) (20)
Exchange of preferred stock for
lodging certificates............... (3,480)
Redemption of preferred stock........ (12,000)
Payment of dividends................. (47,969) (47,969)
Acquisition of treasury shares....... (11,504)
---------- -----------
BALANCES, DECEMBER 31, 1996.......... 3,925,375 15,175,120
Net income........................... 1,667,873 1,667,873
Issuance of common stock............. 443,681
Exchange of preferred stock for
common stock.......................
Issuance of cumulative shares for
dividend arrearage................. (3,982) (16)
Exchange of preferred stock for
lodging certificates............... (1,920)
Payment of dividends................. (47,894) (47,894)
Acquisition of treasury shares, net
of reissuances..................... (616,051)
---------- -----------
BALANCES, DECEMBER 31, 1997.......... $5,541,372 $16,620,793
========== ===========

See notes to consolidated financial statements.
F-5
82

ILX RESORTS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 624,663 $ 1,051,116 $ 1,667,873
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Gain on sale of property................................ -- -- (356,000)
Undistributed minority interest......................... 501,246 531,370 178,307
Deferred income taxes................................... (603,842) 708,368 874,223
Provision for doubtful accounts......................... 1,235,417 590,653 702,417
Depreciation and amortization........................... 696,062 476,467 455,185
Amortization of guarantee fees.......................... 100,350 72,100 92,250
Change in assets and liabilities:
Decrease (increase) in resort property held for
Vacation Ownership Interest sales.................... (4,397,799) 532,072 580,929
Increase in resort property under development......... (417,680) (90,626) (1,734,230)
(Increase) decrease in land held for sale............. 127,984 (2,309) (10,005)
Decrease (increase) in other assets................... (296,028) 356,893 235,356
(Decrease) increase in accounts payable............... 731,979 (3,038) 519,775
Increase (decrease) in accrued and other
liabilities.......................................... 1,903,936 (46,306) (315,105)
Decrease in due to affiliates......................... (543,905) (200,914) (82,043)
Decrease in deferred income........................... (365,195) -- --
----------- ----------- -----------
Net cash provided by (used in) operating activities......... (702,812) 3,975,846 2,808,932
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, net..................................... (3,270,008) (3,550,886) (4,534,235)
Decrease (increase) in deferred assets.................... 198,153 66,050 (67,913)
Purchases of property and equipment, net.................. (84,237) (35,577) (1,057,852)
Net cash paid for minority interest....................... -- -- (820,000)
----------- ----------- -----------
Net cash used in investing activities....................... (3,156,092) (3,520,413) (6,480,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... 9,593,122 5,693,139 9,794,082
Proceeds from notes payable to affiliates................. 900,000 -- --
Principal payments on notes payable....................... (5,841,405) (5,416,266) (6,058,556)
Principal payments on notes payable to affiliates......... (742,672) (370,625) (271,187)
Distributions to minority partners........................ -- (937,534) (140,000)
Proceeds from issuance of common stock.................... 86,212 423,875 98,193
Acquisition of treasury stock and other................... (25,422) (11,524) (579)
Redemption of preferred stock............................. -- (12,000) --
Preferred stock dividend payments......................... -- (47,969) (47,894)
----------- ----------- -----------
Net cash provided by (used in) financing activities......... 3,969,835 (678,904) 3,374,059
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 110,931 (223,471) (297,009)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 3,635,587 3,746,518 3,523,047
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 3,746,518 $ 3,523,047 $ 3,226,038
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Notes payable issued to extinguish accrued liabilities.... $ -- $ -- $ 2,400,000
Notes payable assumed by buyer of property and
equipment............................................... (320,000) (180,000) (2,143,000)
Notes payable issued or assumed to purchase assets or
minority interest....................................... 2,606,550 3,080,278 1,975,000
Treasury stock received for sale of property and
equipment............................................... -- -- 625,000
Common stock issued to acquire assets or in exchange for
indebtedness............................................ 240,000 -- 355,000

See notes to consolidated financial statements.
F-6
83

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Business Activities

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

The Company's significant business activities include developing,
operating, marketing and financing ownership interests ("Vacation Ownership
Interests") in resort properties located in Arizona, Colorado, Florida, Indiana
and Mexico. The Company's operations also include marketing of skin and hair
care products which are not considered significant to resort operations.

Reverse Stock Split

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

Resort Property Held for Vacation Ownership Interest Sales

Resort property held for Vacation Ownership Interest sales is recorded at
the lower of historical cost less amounts charged to cost of Vacation Ownership
Interests sold or market. As Vacation Ownership Interests are sold, the Company
amortizes to cost of sales the average carrying value of the property plus
estimated future additional costs related to remodeling and construction.

Land held for sale is recorded at the lower of cost or fair value less cost
to sell, consistent with the Company's intention to liquidate these properties.

Revenue Recognition

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

Property and Equipment, Net

Property and equipment are stated at cost and are depreciated on the
straight-line method over their respective estimated useful lives ranging from 3
to 30 years. Property and equipment under capitalized leases are stated at the
lesser of fair value or the present value of future minimum lease payments as of
the date placed in service, and amortized on the straight-line method over the
term of the lease.

F-7
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ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Consolidated Statements of Cash Flows

Cash equivalents are liquid investments with an original maturity of three
months or less. The following summarizes interest paid, income taxes paid and
capitalized interest to resort property under development:

YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------

Interest paid.................................. $1,271,000 $1,746,000 $2,222,000
Income taxes paid.............................. 221,000 723,000 78,000
Capitalized interest........................... 228,000 95,000 213,000

Accounting Matters

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which was effective for the Company beginning
January 1, 1996. SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company did not grant any stock options to
employees in 1996 or 1997. The Company intends to continue to apply APB Option
No. 25 to any future stock options that may be granted to employees.

In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"), which is effective for fiscal years beginning
after December 31, 1996. During 1997, SFAS 125 was adopted and had no
significant impact on the Company's financial position, results of operations or
cash flows.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which is
effective for financial statements for periods ending after December 15, 1997
and establishes standards for disclosing information about an entity's capital
structure. During 1997, SFAS 129 was adopted and had no significant effect on
the Company's disclosures about its capital structure.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which is effective for financial
statements for periods beginning after December 15, 1997 and establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. The Company does not believe the adoption of SFAS 130 will
have a material impact on its financial statement presentation or related
disclosures.

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

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and

F-8
85
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reclassifications

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

NOTE 2 NOTES RECEIVABLE, NET

Notes receivable consist of the following:

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Vacation Ownership Interest notes receivable............ $10,559,309 $14,522,191
Holdbacks by financial institutions..................... 3,481,061 4,091,294
Other receivables....................................... 275,347 199,164
Allowance for possible credit losses.................... (2,569,997) (2,951,028)
----------- -----------
$11,745,720 $15,861,621
=========== ===========

Notes generated from the sale of Vacation Ownership Interests generally
bear interest at annual rates ranging from 11% to 16% and have terms of five to
ten years. The notes are collateralized by deeds of trust on the Vacation
Ownership Interests sold.

The Company has agreements with financial institutions for total
commitments aggregating $20 million under which the Company may sell certain of
its notes receivable. These agreements provide for sales on a recourse basis
with a percentage of the amount sold held back by the financial institution as
additional collateral. Notes may be sold at discounts to yield the consumer
market rate as defined by the financial institution. At December 31, 1997,
approximately $6.0 million is available under these commitments.

The Company also has financing commitments aggregating $19.2 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at prime plus 3.25% to prime plus 5% and expire
at various dates from 1998 through 2000. At December 31, 1997, approximately
$13.0 million is available under these commitments.

At December 31, 1996 and 1997, the Company had approximately $22 million
and $24 million, respectively, in outstanding notes receivable sold on a
recourse basis. Portions of the notes receivable are secured by deeds of trust
on Los Abrigados Resort & Spa ("Los Abrigados"), Golden Eagle Resort and Varsity
Clubs of America-South Bend ("VCA-South Bend").

At December 31, 1996 and 1997, the Company had approximately $188,000 and
$173,000, respectively, in additional outstanding notes sold on a recourse basis
to related parties.

At December 31, 1997, notes receivable in the amount of approximately
$302,000 have been contributed to the Company's Series A Preferred Stock sinking
fund and therefore their use is restricted (Note 13).

F-9
86
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes activity in the allowance for possible credit
losses:

YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------

Beginning balance.............................. $1,262,483 $2,410,900 $2,569,997
Provision for doubtful accounts................ 1,235,417 590,653 702,417
Amounts written off............................ (87,000) (431,556) (321,386)
---------- ---------- ----------
Ending balance................................. $2,410,900 $2,569,997 $2,951,028
========== ========== ==========

The Company considers all notes receivable past due in excess of 90 days to
be delinquent. At December 31, 1997, $3.2 million in principal, or 8.2%, of the
retained notes and notes previously sold, which are recourse to the Company,
were more than 90 days past due.

At December 31, 1996 and 1997, the above allowance includes $440,000 and
$480,000 respectively, for notes sold with recourse.

NOTE 3 RESORT PROPERTY HELD FOR VACATION OWNERSHIP INTEREST SALES

Resort property held for Vacation Ownership Interest sales consists of the
following:

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

VCA -- South Bend......................................... $ 5,692,165 $ 4,421,308
Los Abrigados............................................. 4,325,052 3,826,206
Golden Eagle Resort....................................... 2,242,947 2,433,410
Kohl's Ranch Lodge........................................ 2,110,012 2,054,609
The Inn at Los Abrigados.................................. 773,911 1,168,320
Roundhouse Resort......................................... -- 715,305
Ventura Resort............................................ 63,000 39,000
Costa Vida Resort......................................... 40,500 8,500
----------- -----------
$15,247,587 $14,666,658
=========== ===========

In September 1994, the Company acquired, for $15,000, an option from an
affiliate to purchase 667 Vacation Ownership Interests in Los Abrigados that
were sold in 1992. The terms of the option agreement provide that the seller may
sell to the Company or the Company may acquire from the seller up to 25 Vacation
Ownership Interests per month and, in addition, up to one half of the remainder
of the 667 Vacation Ownership Interests per year, for $2,100 per Vacation
Ownership Interest. The seller must provide the Company with written notice of
its intent to sell 30 days in advance of a monthly sale and 180 days in advance
of an annual sale. The Company had purchased 560 Vacation Ownership Interests
under this option as of December 31, 1997.

Varsity Clubs of America Incorporated ("Varsity Clubs"), a wholly-owned
subsidiary of ILX, intends to develop lodging accommodations in areas located
near major university campuses, and to market those lodging accommodations,
including interval ownership interests, to alumni and other sport enthusiasts.
The first Varsity Clubs facility, located near the University of Notre Dame, was
completed in August 1995. Revenues of $513,400, net of related selling costs of
$148,205, were deferred at December 31, 1994 and were recognized in 1995 when
construction was complete. The Company is currently constructing a second
Varsity Club in Tucson, Arizona (Note 5).

The Company acquired approximately one-half acre of improved property, to
be known as the Inn at Los Abrigados, adjacent to Los Abrigados, in September
1996 for a purchase price of $750,000, consisting of a

F-10
87
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$185,862 cash down payment and a $564,138 first deed of trust. The Company made
improvements to the property through late November 1997 when it commenced resort
operations. Vacation Ownership Interest sales are expected to begin in 1998.

In December 1997, the Company acquired the Roundhouse Resort, an existing
59-unit Vacation Ownership Interest resort with approximately five acres of
developable land located in Pinetop/Lakeside, Arizona. The purchase price of
$700,000 was financed by the issuance of a note payable. The Company intends to
construct additional Vacation Ownership Interests on the property commencing in
1998.

NOTE 4 NET INCOME PER SHARE

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

BASIC NET INCOME PER SHARE

YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------

Net income................................................ $ 624,663 $1,051,116 $1,667,873
Less: Series A preferred stock dividends.................. -- (47,969) (47,894)
Series C convertible preferred stock cumulation
share dividends................................... (29,047) (29,047) (29,052)
---------- ---------- ----------
Net income available to common stockholders -- basic...... $ 595,616 $ 974,100 $1,590,927
========== ========== ==========
Weighted average shares of common stock
outstanding -- basic.................................... 2,520,165 2,566,132 2,635,418
========== ========== ==========
Basic net income per share................................ $ 0.24 $ 0.38 $ 0.60
========== ========== ==========

DILUTED NET INCOME PER SHARE

YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------

Net income................................................ $ 624,663 $1,051,116 $1,667,873
Less: Series A preferred stock dividends.................. -- (47,969) (47,894)
---------- ---------- ----------
Net income available to common stockholders -- diluted.... $ 624,663 $1,003,147 $1,619,979
========== ========== ==========
Weighted average shares of common stock outstanding....... 2,520,165 2,566,132 2,635,418
Add: Convertible preferred stock (Series B and Series C)
dilutive effect................................... 119,492 116,827 111,875
---------- ---------- ----------
Weighted average shares of common stock
outstanding -- diluted.................................. 2,639,657 2,682,959 2,747,293
========== ========== ==========
Diluted net income per share.............................. $ 0.24 $ 0.37 $ 0.59
========== ========== ==========

Stock options to purchase 60,400 shares of common stock at prices ranging
from $7.50 per share to $8.125 per share were outstanding at December 31, 1997
but were not included in the computation of diluted net income per share because
the options' exercise prices were greater than the average market price of
common shares. These options expire at various dates between 1999 and 2004.

NOTE 5 RESORT PROPERTY UNDER DEVELOPMENT

In July 1995, the Company acquired for $1,002,000 a two-acre parcel in
Tucson, Arizona, near the University of Arizona, to be the site of a second
Varsity Clubs. The Company made a down payment of $300,600 with the remaining
balance of $701,400 financed by a note payable to the seller. Construction of
the

F-11
88
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

facility commenced in 1997 and is expected to be completed in 1998. The Company
has a commitment for construction financing in the amount of $6.55 million (Note
9), which is expected to be sufficient to build and furnish the property.

NOTE 6 DEFERRED ASSETS

As part of the acquisition of Los Abrigados, certain affiliates of the
Company guaranteed the underlying mortgage on the resort. As partial
consideration for their guarantee, the affiliates earned a $780,000 fee. The fee
is amortized to expense and was payable to the affiliates at the rate of $100
per Los Abrigados Vacation Ownership Interest sold. At December 31, 1996 and
1997, deferred assets included $287,400 and $195,150, respectively, of guarantee
fees, net of accumulated amortization.

As additional consideration for the guarantee, the affiliates were entitled
to receive a percentage of certain amounts held back on the sale of notes
receivable by a financial institution as collateral. The amount was paid as the
amounts held back were collected from the financial institution.

NOTE 7 PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Land...................................................... $ 1,658,500 $ 379,704
Buildings and improvements................................ 3,290,834 3,428,956
Leasehold improvements.................................... 498,198 5,719
Furniture and fixtures.................................... 415,714 498,645
Office equipment.......................................... 269,129 318,020
Computer equipment........................................ 156,611 228,812
Vehicles.................................................. 26,829 56,279
----------- -----------
6,315,815 4,916,135
Accumulated depreciation.................................. (1,438,348) (1,443,236)
----------- -----------
$ 4,877,467 $ 3,472,899
=========== ===========

In March 1996, the Company, through a subsidiary, became the general
partner of the limited partnership that owns Lomacasi Cottages in Sedona,
Arizona, a 5.27-acre property approximately one mile from Los Abrigados. At
December 31, 1996, property and equipment, net of accumulated depreciation,
included $2,162,280 related to Lomacasi Cottages, which served as collateral for
two notes payable aggregating $2,156,842 at December 31, 1996 (Note 9). In
December 1997, the Company sold its general partner interest in Lomacasi
Cottages to a non-affiliated buyer. In connection with the sale, the buyer
assumed the notes payable and the Company received as consideration 100,000
shares of its common stock valued at $625,000 resulting in a gain on the sale of
$356,000.

F-12
89
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 INCOME TAXES

Deferred income tax assets (liabilities) included in the consolidated
balance sheets consist of the following:

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables.... $ 871,000 $ 983,000
Tax basis in excess of book on resort property held for
Vacation Ownership Interest sales.................... 494,000 125,000
Deferred startup expenses for tax purposes.............. 270,000 181,000
Intangible assets capitalized for tax purposes.......... 21,000 20,000
Minority interest allocation in excess of tax........... 270,000 390,000
Alternative minimum tax credit.......................... 121,000 247,000
Net operating loss carryforwards........................ 1,822,000 2,546,000
Other................................................... 41,000 177,000
----------- -----------
Total deferred tax assets............................ 3,910,000 4,669,000
----------- -----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax
purposes............................................. (2,595,000) (4,288,000)
Tax amortization of loan fees in excess of book......... (136,000) (77,000)
----------- -----------
Total deferred tax liabilities....................... (2,731,000) (4,365,000)
----------- -----------
Deferred income taxes........................... $ 1,179,000 $ 304,000
=========== ===========

A reconciliation of the income tax benefit and the amount that would be
computed using statutory federal income tax rates is as follows:

YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
--------- --------- ----------

Federal, computed on income before minority interest and
income taxes.......................................... $ 197,000 $ 779,000 $1,017,000
Minority interest....................................... (170,000) (191,000) (60,000)
State, computed on income after minority interest and
before income taxes................................... 58,000 91,000 169,000
Deferred tax adjustment................................. 128,000 -- --
Decrease in valuation allowance......................... (760,000) -- --
Other................................................... -- -- 19,000
--------- --------- ----------
Income tax expense (benefit)............................ $(547,000) $ 679,000 $1,145,000
========= ========= ==========

The Company reports substantially all Vacation Ownership Interest sales
that it finances on the installment method for Federal income tax purposes.
Under the installment method, the Company does not recognize income on the
financed portion of sales of Vacation Ownership Interests, until the installment
payments on customer receivables are received by the Company or the customer
receivables are sold by the Company. Interest will be imposed, however, on the
amount of tax attributable to the installment payments for the period beginning
on the date of sale and ending on the date the related tax is paid. If the
Company is otherwise not subject to tax in a particular year, no interest is
imposed since the interest is based on the amount of tax paid in that year. The
consolidated financial statements do not contain an accrual for any

F-13
90
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest expense that would be paid on the deferred taxes related to the
installment method. The amount of interest expense is not estimable as of
December 31, 1997.

The Company is subject to Alternative Minimum Tax ("AMT") as a result of
the deferred income that results from the installment sales treatment of
timeshare sales for regular tax purposes. The AMT liability creates a deferred
tax asset that can be used to offset any future tax liability from regular
Federal income tax. This deferred tax asset has an unlimited carryover period.

In 1994, due to the profitability of Los Abrigados, the improvement in the
Arizona real estate market and the development of tax strategies, which include
the acquisition by Genesis of Vacation Ownership Interests in resort properties
that have historically been sold on a profitable basis, it was concluded that
more likely than not a portion of the Genesis net operating loss ("NOL")
carryforwards and the remainder of Los Abrigados tax benefits would be utilized.
Accordingly, the valuation allowance was reduced in 1994. In 1995, due to the
continued expansion and profitability of Vacation Ownership Interests activity
it was determined that the balance of the Genesis NOL's would be utilized and
the remaining valuation allowance was eliminated.

At December 31, 1997, the Company, excluding Genesis, had NOL carryforwards
of approximately $4,756,000, which expire in 2001 through 2012. At December 31,
1997, Genesis had federal NOL carryforwards of approximately $1,892,000 which
are limited as to usage because they arise from built in losses of an acquired
company. In addition, such losses can only be utilized through the earnings of
Genesis and are limited to a maximum of $189,000 per year. To the extent the
entire $189,000 is not utilized in a given year, the difference may be carried
forward to future years. Any unused Genesis NOLs will expire in 2008.

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

NOTE 9 NOTES PAYABLE

Notes payable consist of the following:

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Construction note payable, collateralized by deed of trust
on VCA-Tucson, interest at 12% plus $100 per annual Tucson
Vacation Ownership Interest sold, due through 2001........ $ 300,000 $ 3,111,924
Note payable, collateralized by 200,000 shares of the
Company's common stock pledged by an affiliate, interest
at 12%, due through 2002.................................. -- 2,316,746
Note payable, collateralized by consumer notes receivable
and deed of trust on Kohl's Ranch Lodge, interest at prime
plus 4% (12.5% at December 31, 1997), due through 2003.... 1,787,228 2,052,473
Construction note payable, collateralized by deed of trust
on VCA-South Bend, interest at 13%, due through 1998...... 2,797,733 1,490,823
Note payable, collateralized by deed of trust on Kohl's
Ranch Lodge, interest at prime plus 4% (12.5% at December
31, 1997), due through 2000............................... -- 1,362,120

F-14
91
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31,
--------------------------
1996 1997
----------- -----------

Note payable, collateralized by deed of trust on Golden
Eagle Resort, notes receivable, and an assignment of the
Company's general partnership interest in LAP, interest at
12%, due through 1998..................................... 1,449,990 1,349,990
Note payable, collateralized by deed of trust on Los
Abrigados, interest at prime plus 1.25% (9.75% at December
31, 1997), due through 1999............................... 1,572,167 1,293,167
Note payable, collateralized by notes receivable and deed of
trust on Golden Eagle Resort, interest at prime plus 4%
(12.5% at December 31, 1997), due through 2002............ 1,068,541 1,235,673
Note payable, collateralized by first deed of trust on the
Inn at Los Abrigados, interest at prime plus 4% (12.5% at
December 31, 1997), due through 2000...................... 564,138 750,000
Note payable, collateralized by deed of trust on Roundhouse
Resort, interest at prime plus 3.5% (12.0% at December 31,
1997), due through 1998................................... -- 700,000
Obligations under capital leases with interest at 9.5% to
14.7% (Note 16)........................................... 906,309 686,760
Note payable, collateralized by LAP partnership interest,
interest at 8%, due through 2002.......................... -- 675,000
Note payable, collateralized by 285 Vacation Ownership
Interests in Los Abrigados, interest at prime plus 4%
(12.5% at December 31, 1997), due through 2000............ -- 523,500
Lines of credit aggregating $2,000,000, interest at prime
plus 1.5% to prime plus 2%, due through 1998.............. -- 500,000
Note payable, collateralized by deed of trust, interest at
8.5%, due through 2002.................................... -- 437,503
Note payable, collateralized by VCA-South Bend consumer
notes receivable, interest at prime plus 3.25% (11.75% at
December 31, 1997), due through 2003...................... 135,840 310,278
Note payable, collateralized by Los Abrigados consumer notes
receivable, interest at prime plus 5% (13.5% at December
31, 1997), due through 2003............................... 330,953 272,201
Note payable, collateralized by Kohl's Ranch consumer notes
receivable, interest at prime plus 5% (13.5% at December
31, 1997), due through 2003............................... 265,489 262,358
Note payable, collateralized by second deed of trust on
Kohl's Ranch Lodge, interest at 8%, due through 2000...... 190,450 156,526
Note payable, collateralized by 122 Vacation Ownership
Interests in Kohl's Ranch Lodge, interest at 10% due
December 1999, convertible to common stock at $7.50 per
share collateralized by Kohl's Ranch Lodge consumer notes
receivable................................................ -- 150,000
Note payable, interest at prime plus 3.5% (12.0% at December
31, 1997), due through 2005............................... -- 77,842
Note payable, collateralized by consumer notes receivable
and deed of trust on Los Abrigados, interest at prime plus
4% (12.5% at December 31, 1997), due through 1998......... 140,668 58,636
Note payable, collateralized by deed of trust, interest at
7.375%, due through 2001.................................. 54,996 44,309
Other....................................................... -- 66,650
Notes payable repaid or extinguished in 1997................ 3,302,594 --
----------- -----------
$14,867,096 $19,884,479
=========== ===========

F-15
92
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, approximately $15.8 million of the Company's notes
payable have scheduled payment terms that may be accelerated based on
established release prices related to future Vacation Ownership Interest sales
or are dependent on the amount of mortgage notes receivable pledged as
collateral. The maturities of these notes are included below based on their
scheduled repayment terms and maturities. Future contractual maturities of notes
payable and capitalized leases at December 31, 1997 are as follows:

1998............................................ $ 6,053,856
1999............................................ 1,357,384
2000............................................ 2,054,078
2001............................................ 3,248,636
2002............................................ 4,195,373
Thereafter...................................... 2,975,152
-----------
$19,884,479
===========

NOTE 10 NOTES PAYABLE TO AFFILIATES

Notes payable to affiliates consist of the following:

DECEMBER 31,
------------------------
1996 1997
---------- ----------

Note payable, collateralized by LAP partnership interest,
interest at 8%, due through 2002.......................... $ -- $1,200,000
Note payable, collateralized by LAP partnership interest,
interest at 8%, due through 1999.......................... 909,078 909,078
Other....................................................... -- 57,022
Notes payable repaid or extinguished in 1997................ 658,209 --
---------- ----------
$1,567,287 $2,166,100
========== ==========

Future maturities of notes payable to affiliates at December 31, 1997 are
as follows:

1998............................................. $ 257,022
1999............................................. 1,109,078
2000............................................. 200,000
2001............................................. 200,000
2002............................................. 400,000
----------
$2,166,100
==========

Total interest expense on notes payable to affiliates for the years ended
December 31, 1995, 1996 and 1997 was approximately $222,000, $158,000 and
$147,000, respectively.

NOTE 11 MINORITY INTERESTS

Minority interests consisted primarily of the Company's interests in LAP,
the Arizona limited partnership that owns and operates Los Abrigados. Through
August 1997, the Company held a 78.5% interest in LAP and the 21.5% minority
interest was held by Class B limited partners. In August 1997, the Company
acquired the Class B Limited Partnership Interest in LAP for a purchase price of
$2,920,000 consisting of $820,000 cash, the issuance of 20,000 shares of the
Company's common stock valued at $6.25 per share, and the issuance of promissory
notes in the amounts of $1,300,000 and $675,000 (Notes 9 and 10).

F-16
93
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 COMMITMENTS AND CONTINGENCIES

Operating Leases

Future minimum lease payments on noncancelable operating leases at December
31, 1997 are as follows:

1998.............................................. $263,000
1999.............................................. 206,000
2000.............................................. 171,000
2001.............................................. 107,000
2002.............................................. 9,000
--------
$756,000
========

Total rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $490,000, $443,000 and $532,000, respectively.

Legal Proceedings

NOTE 13 SHAREHOLDERS' EQUITY

Preferred Stock

At December 31, 1996 and 1997, preferred stock includes 60,152 and 59,845
shares of the Company's Series A Preferred Stock carried at $601,520 and
$598,450, respectively. The Series A Preferred Stock has a par value and
liquidation preference of $10 per share and, commencing July 1, 1996, is
entitled to annual dividend payments of $.80 per share. Dividends were paid of
$47,969 in 1996 and $47,894 in 1997. Commencing January 1, 1993, on a quarterly
basis, the Company must contribute $100 per Vacation Ownership Interest sold in
Los Abrigados to a mandatory dividend sinking fund. At December 31, 1997, notes
receivable in the amount of approximately $302,000 have been designated for the
sinking fund. Dividends on the Company's common stock are subordinated to the
Series A dividends and to the contributions required by the sinking fund. The
Company redeemed 5,035 shares of Series A Preferred Stock for $12,000 in 1996.

At December 31, 1996 and 1997, preferred stock also includes 55,000 shares
of the Company's Series B Convertible Preferred Stock carried at $55,000. The
Series B Convertible Preferred Stock has a $10 par value and a liquidation
preference of $10 per share, which is subordinate to the Series A liquidation
preference. The Series B Convertible Preferred Stock is not entitled to
dividends. Commencing July 1, 1996, the Series B Convertible Preferred Stock may
be converted into common stock on the basis of two shares of common for five
shares of preferred stock.

Both the Series A and Series B preferred stock may, at the holder's
election, be exchanged for Los Abrigados Vacation Ownership Interests at the
rate of 1,000 shares of stock plus $2,100 cash per Vacation Ownership Interest.
Through September 1996, these shares could also have been exchanged for lodging
certificates under certain conditions.

At December 31, 1996 and 1997, preferred stock also includes 276,957 and
265,623 shares of the Company's Series C Convertible Preferred Stock carried at
$762,723 and $731,441, respectively. The Series C Convertible Preferred Stock
has a $10 par value and is entitled to dividends at the rate of $.60 per share
per annum when declared by the Board of Directors. If dividends are not declared
in any year prior to the fifth anniversary of the Genesis merger date (November
1, 1993), such undeclared dividends ("Dividend Arrearage") may be converted to
"Cumulation Shares" at the rate of $6 of Dividend Arrearage per

F-17
94
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cumulation Share. The Series C Preferred Stock and the Cumulation Shares have a
liquidation preference of $10 per share and $6 per share, respectively, and are
subordinate to the liquidation preferences of the Series A and Series B stock.
Commencing November 1, 1994 through October 31, 2004, the Series C Preferred
Stock may be converted to ILX common stock on the basis of one share of common
stock for three shares of Series C Preferred Stock and one share of ILX common
stock for each $30 in Dividend Arrearages. For the years ended December 31,
1995, 1996 and 1997, 7,524, 13,515 and 11,334 Series C Convertible shares were
exchanged for 2,508, 4,505 and 3,778 common shares, respectively. For the years
ended December 31, 1995, 1996, and 1997, 372, 702 and 797 common shares were
issued to exchanging shareholders for their 1995, 1996 and 1997 dividend
arrearage, respectively. ILX may redeem the Series C Preferred Stock commencing
November 1, 1996, at $10 per share plus payment of all declared but unpaid
dividends.

Common Stock

In March 1994, the Company issued warrants for 20,000 shares of ILX
restricted common stock exercisable at a price of $8.125 per share, the
approximate market value at date of issuance. The warrants were issued in
conjunction with the early collection in March 1994, of a note receivable with a
due date of December 31, 1997, in the amount of $900,000. The warrants expired
without being exercised on June 30, 1997.

During 1995, 4,923 shares of restricted common stock valued at $29,232 were
issued in exchange for services provided to the Company. The stock was valued at
the approximate market price on the date of the agreement.

Effective June 1995, the Company entered into a one-year consulting
agreement for investor relations, broker relations and public relations
services. In exchange for the services to be provided, the Company issued 10,000
shares of restricted common stock in 1995 and 10,000 shares in 1996. The shares
were valued at $5.9375 per share and the cost was recognized over a one-year
period. In addition, during 1995, the Company granted options for 80,000 shares
of common stock at $6.25 per share and 20,000 shares of common stock at $8.125
per share. During 1996, options for 50,000 shares were exercised at $6.25.

In June 1995, the Company issued 24,000 shares of restricted Common Stock
as partial consideration for the acquisition of Kohl's Ranch Lodge.

In June 1997, the Company entered into an agreement with EVEREN Securities,
Inc. ("ESI") for ESI to act as ILX's exclusive financial advisor, investment
bankers and agent with respect to evaluation of alternatives to position ILX for
long-term growth and to enhance shareholder value. In exchange for the services,
ILX issued 12,000 shares of ILX common stock on August 1, 1997 and will issue an
additional 12,000 shares in March 1998. The shares issued and to be issued have
been valued at $112,500. In accordance with the terms of the agreement, ILX has
registered with the Securities and Exchange Commission the shares issued in
August and will likewise cause the shares to be issued in February to be so
registered. The parties intend for the agreement to remain in effect for a
minimum of one year.

For the years ended December 31, 1995, 1996 and 1997, the Company issued
7,220, 14,500 and 17,240 shares of restricted common stock, or Treasury stock,
valued at $26,837, $52,000 and $49,387, respectively, to employees in exchange
for services provided.

NOTE 14 EMPLOYEE STOCK OPTION PLANS

The Company has Stock Option Plans pursuant to which options (which term as
used herein includes both incentive stock options and non-statutory stock
options) may be granted to key employees, including officers, whether or not
they are directors, and non-employee directors and consultants, who are
determined by the Board of Directors to have contributed in the past, or who may
be expected to contribute materially in the future, to the success of the
Company. The exercise price of the options granted pursuant to the Plans shall
be
F-18
95
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not less than the fair market value of the shares on the date of grant. All
outstanding stock options require the holder to have been a director or employee
of the Company for at least one year before exercising the option. Options are
exercisable over a five-year period from date of grant if the optionee was a
ten-percent or more shareholder immediately prior to the granting of the option
and over a ten-year period if the optionee was not a ten-percent shareholder.
The aggregate number of shares that may be issued under the Plans shall not
exceed 268,275 shares.

Stock option transactions are summarized as follows:

Outstanding at December 31, 1994............................ 65,600
Options granted............................................. 110,000
Options canceled............................................ (1,000)
-------
Outstanding at December 31, 1995............................ 174,600
Options exercised........................................... (50,000)
Options canceled............................................ (58,600)
-------
Outstanding at December 31, 1996............................ 66,000
Options canceled............................................ (5,600)
-------
Outstanding at December 31, 1997............................ 60,400
=======

The exercise price for options granted in 1995 ranged from $6.25 to $8.125
per share and includes options for 10,000 shares granted to directors. The
exercise price for options exercised in 1996 was $6.25 per share for 50,000
shares. The exercise price for options outstanding at December 31, 1997 ranged
from $7.50 to $8.125 per share. Options outstanding at December 31, 1997 have
expiration dates as follows:

YEAR ENDING OPTIONS FOR
DECEMBER 31, SHARES
------------ -----------

1999............................................ 12,500
2000............................................ 10,000
2004............................................ 37,900
-------
60,400
=======

NOTE 15 RELATED PARTY TRANSACTIONS

In addition to the related party transactions described elsewhere in the
financial statements, the Company had the following related party transactions:

The Company leased from affiliates through October 1, 1996, 41 Vacation
Ownership Interests in the Stonehouse at Los Abrigados at the rate of $1,000 per
Vacation Ownership Interest per year. The Company paid $41,000 and $30,750 per
year in lease payments to affiliates for the years ended December 31, 1995 and
1996. The affiliates paid maintenance fees to the Company on an annual basis for
their ownership intervals of $650 per interval in 1995 and $714 per interval in
1996.

In June 1995, an affiliate of the Company purchased twenty-four (24)
one-night intervals in VCA-South Bend for $90,000.

In December 1995, in exchange for modification of the terms of note
payables to affiliates, the Company provided the affiliates with the option to
convert, at maturity, the $580,000 note balances into shares of ILX common stock
at the price of $10 per share. In July 1997, the Company issued 36,800 shares of
its common stock in exchange for $230,000 of the balance on this note. In
conjunction with the exchange, 100 Vacation Ownership Interests in Los
Abrigados, which collateralized the note, were released.

F-19
96
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In December 1995, the Company sold its Red Rock Collection building to an
affiliate for $500,000. The purchase price consisted of a reduction in the
principal balance of the Company's note payable to the affiliate of $320,000 in
December 1995, and, in January 1996, payment by the affiliate of the $180,000
note collateralized by a deed of trust on the building. The Company leased back
the building for a one-year term, with four one-year options to renew through
December 2000. Rent of $44,000 was paid in 1996 and $48,000 in 1997.

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 was paid in full in January
1997.

In September 1996, the Company purchased from an affiliate twenty Vacation
Ownership Interests in the Stonehouse at Los Abrigados for $260,000.
Subsequently, the affiliate purchased 52 Vacation Ownership Interests in Kohl's
Ranch for $260,000.

NOTE 16 CAPITAL LEASES

Leased assets included in resort property held for Vacation Ownership
Interest sales and property and equipment totaled $1,097,720 and $1,132,033 (net
of accumulated amortization of $369,880 and $456,032) at December 31, 1996 and
1997, respectively. The leases expire through 2000. Future minimum lease
payments at December 31, 1997 are as follows:

1998.............................................. $366,848
1999.............................................. 306,057
2000.............................................. 113,246
--------
Total............................................. 786,151
Less: Amounts representing interest............... (99,391)
--------
Net minimum lease payments........................ $686,760
========

NOTE 17 CONCENTRATIONS OF RISK

Credit Risk

The Company is exposed to on-balance sheet credit risk related to its notes
receivable. The Company is exposed to off-balance sheet credit risk related to
loans sold under recourse provisions.

The Company offers financing to the buyers of Vacation Ownership Interests
at the Company's resorts. These buyers make a down payment of at least 10% of
the purchase price and deliver a promissory note to the Company for the balance;
the promissory notes generally bear interest at a fixed rate, are payable over a
seven-year period and are collateralized by a first mortgage on the Vacation
Ownership Interest. The Company bears the risk of defaults on these promissory
notes. The Company performs credit evaluations prior to Vacation Ownership
Interest sales. The Vacation Ownership Interests deed of trust serves as
collateral on the note receivable. If a buyer of a Vacation Ownership Interest
defaults, the Company generally must foreclose on the interest and attempt to
resell it; the associated marketing, selling and administrative costs from the
original sale are not recovered; and such costs must be incurred again to resell
the Vacation Ownership Interest.

Interest Rate Risk

Because the Company's indebtedness bears interest at variable rates and the
Company's customer receivables bear interest at fixed rates, increases in
interest rates could cause the rate on the Company's borrowings to exceed the
rate at which the Company provides financing to its customers. The Company does
not engage in interest rate hedging transactions. Therefore, any increase in
interest rates, particularly if

F-20
97
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sustained, could have a material adverse effect on the Company's results of
operations, cash flows and financial position.

Availability of Funding Sources

The Company funds substantially all of the notes receivable, resort
property held for Vacation Ownership Interest sale and land inventory which it
originates or purchases with sales of consumer notes, borrowings through its
financing facilities and internally generated funds. Borrowings are in turn
repaid with the proceeds received by the Company from sales of notes receivable
or from repayments by consumers of such notes receivable. To the extent that the
Company is not successful in maintaining or replacing existing financings, it
would have to curtail its operations or sell assets, thereby having a material
adverse effect on the Company's results of operations, cash flows and financial
condition.

Geographic Concentration

The Company's notes receivable are primarily originated in Arizona and, to
a lesser extent, Indiana. The risk inherent in such concentrations is dependent
upon regional and general economic stability that affects property values and
the financial stability of the borrowers. The Company's resort property held for
Vacation Ownership Interests sales is also concentrated in these states. The
risk inherent in such concentrations is in the continued popularity of the
resort destinations, which affects the marketability of the Company's products
and the collection of notes receivable.

NOTES 18 DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS 107, Disclosures about Fair Value of Financial Instruments, requires
that the Company disclose estimated fair values for its financial instruments.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents

The carrying amount reported in the balance sheet for cash and cash
equivalents approximates their fair value because of the short maturity of these
instruments.

Notes receivable

The carrying amount reported in the balance sheet for notes receivable
approximates its fair value because the interest rates on the portfolio of notes
receivable approximate current interest rates to be received on similar current
notes receivable.

Notes payable

The carrying amount reported in the balance sheet for notes payable
approximates its fair value because the interest rates on these instruments
approximate current interest rates charged on similar current borrowings.

Notes payable to affiliates

The fair value of the notes payable to affiliates is not determinable since
these financial instruments are not readily marketable and are payable to
affiliates.

F-21
98
ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 SUBSEQUENT EVENTS

On February 2, 1998, the Company filed with the Securities and Exchange
Commission a Registration Statement related to the proposed public offering by
the Company of shares of its common stock.

NOTE 20 QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial information is presented in the following summary.

1996
-------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------

Revenues......................... $7,401,871 $8,118,675 $8,442,002 $7,618,679
Operating income................. 788,308 1,026,305 1,536,058 915,805
Net income....................... 97,548 254,423 498,787 200,358
Net income per share -- basic.... .03 .09 .18 .07
Net income per
share -- diluted............... .03 .09 .18 .07

1997
-------------------------------------------------------
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------

Revenues......................... $7,783,805 $8,942,588 $9,997,859 $9,686,494
Operating income................. 714,647 1,271,352 1,335,128 1,399,022
Net income....................... 106,204 422,823 457,019 681,827
Net income per share -- basic.... .03 .15 .16 .25
Net income per
share -- diluted............... .03 .15 .16 .24

F-22
99
[PICTURES OF:

SETTINGS OF NATURAL BEAUTY,

VCA - TUCSON - ARTIST RENDERING,

KOHL'S RANCH ZANE GREY DINING ROOM,

VCA - TYPICAL ONE-BEDROOM SUITE LAYOUT AND

LOS ABRIGADOS MAIN POOL.]

100

- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.

------------------------------------

TABLE OF CONTENTS

Page
----

Prospectus Summary......................... 3
Risk Factors............................... 15
Use of Proceeds............................ 26
Price Range of Common Stock................ 26
Dividend Policy............................ 27
Capitalization............................. 28
Selected Consolidated Historical and Pro
Forma Financial Information.............. 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 33
Business................................... 39
Management................................. 62
Certain Relationships and Related
Transactions............................. 68
Principal Shareholders..................... 70
Description of ILX Securities and Pertinent
Arizona Statutes......................... 72
Underwriting............................... 75
Legal Matters.............................. 76
Experts.................................... 76
Additional Information..................... 76
Index to Consolidated Financial
Statements............................... F-1

- ------------------------------------------------------
PROSPECTUS April 8, 1998
- ------------------------------------------------------

1,400,000 SHARES

[ILX LOGO]

ILX RESORTS INCORPORATED

Common Stock

------------------------------------

EVEREN SECURITIES, INC.
- ------------------------------------------------------