10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934

For the fiscal year ended December 31, 2005

[ ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934

For the transition period from _______________ to _______________

Commission File Number 001-13855
ILX RESORTS INCORPORATED
ARIZONA	86-0564171
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2111 East Highland Avenue, Suite 200, Phoenix, AZ  85016
Registrant’s telephone number, including area code  (602) 957-2777
Securities registered pursuant to Section 12(b) of the Act:
	Name of each Exchange
Title of Class	on which registered
Common Stock, without par value	American Stock Exchange, Inc.

Securities registered pursuant to Section 12 (g) of the Act:  None

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

Yes    X     No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   []

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ___

Accelerated filer ___

Non-accelerated filer _X_

Indicate by check mark whether the registrant is a shell company.

___ Yes

_X__ No

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

Class	Outstanding at March 24, 2006
Common Stock, without par value	3,491,532  shares

At June 30, 2005, the aggregate market value of Registrant’s common shares held by non-affiliates, based upon the closing price at such date, was approximately $19.4 million.

Portions of Registrant’s definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.

 ILX RESORTS INCORPORATED

2005 Form 10-K Annual Report

Table of Contents

PART I

3

Item 1.  Business

3

Item 1A.  Risk Factors

5

Item 2. Properties

15

Item 3.  Legal Proceedings

27

Item 4.  Submission of Matters to a Vote of Security Holders

27

PART II

27

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

27

Item 6. Selected Financial Data

28

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

29

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

35

Item 8. Financial Statements and Supplementary Data

35

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

35

Item 9A. Controls and Procedures

35

Item 9B.  Other Information

36

PART III

36

Item 10. Directors and Executive Officers of the Registrant

36

Item 11. Executive Compensation

36

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

36

Item 13. Certain Relationships and Related Transactions

36

Item 14. Principal Accounting Fees and Services

36

PART IV

36

Item 15. Exhibits, Financial Statement Schedules

36

PART I

This Form 10-K 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 discussed in this document and in the Company’s public filings with the Securities and Exchange Commission.  Readers are cautioned not to place undue reliance on such forward-looking statements and no assurances can be given that such statements will be achieved.  The Company undertakes n o obligation to publicly update or revise any of the forward-looking statements contained herein.

Item 1.  Business

The Company

ILX Resorts Incorporated (“ILX” or the “Company”) 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 (“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, from the operating por tion of homeowner dues from owners of Vacation Ownership Interests and from the sale of food, beverages and other services at such resorts.  The Company’s current portfolio of resorts consists of eight resorts in Arizona (excluding weeks it owns in the Roundhouse Resort in Pinetop), one in Indiana, one in Colorado, one in San Carlos, Mexico, and land in the early development stages in Puerto Peñasco, Mexico and Sedona, Arizona (collectively, the “ILX resorts”).  The Company also holds 1,967 weeks at the Carriage House in Las Vegas, Nevada and 153 weeks at the Scottsdale Camelback Resort in Scottsdale, Arizona.  One of the resorts in Arizona is not registered with the Arizona Department of Real Estate nor being marketed for sale as Vacation Ownership Interests and is operated under a long-term lease arrangement.

At December 31, 2005, the ILX resorts represented an aggregate of 601 units and 31,406 sold and unsold one-week Vacation Ownership Interests, including the following which have been annexed into Premiere Vacation Club: 1,500 one-week 25-year right-to-use Sea of Cortez Premiere Vacation Club Vacation Ownership Interests in San Carlos, Mexico, 191 weeks in the Roundhouse Resort in Pinetop/Lakeside, Arizona, 1,898 weeks in the Carriage House in Las Vegas, Nevada, and 153 weeks at the Scottsdale Camelback Resort.  The 31,406 sold and unsold Vacation Ownership Interests exclude the Arizona resort not currently registered or marketed as Vacation Ownership Interests.  The Company also holds additional interests, which consisted, at December 31, 2005, of an aggregate of approximately 83 Vacation Ownership Interests in destination resorts owned by others and located in  California, Mexico, Nev ada and elsewhere (collectively, the “Additional Interests”), including 69 in the Carriage House which have not yet been annexed to Premiere Vacation Club.

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, 2005, the Company increased the number of ILX resorts from two to eleven (excluding the Roundhouse Resort, the Carriage House and Scottsdale Camelback Resort), and increased its total inventory of sold and unsold Vacation Ownership Interests from 9,915 weeks to 31,489 weeks (including the Sea of Cortez Premiere Vacation Club, the Roundhouse Resort, the Carriage House, the Scottsdale Camelback Resort Vacation Ownership Interests and the Additional Interests).  The Company’s total revenues increased from $6.1 million in 1991 to $56.9 million in 2005.  During this period, the Company’s growth was fueled principally by the acquisition, redevelopment and expansion of certain ILX re sorts and the marketing, sale and financing 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 and/or terms because of its skill in locating, identifying and acquiring distressed or underdeveloped resorts and undervalued Vacation Ownership Interests. The Company successfully utilized this strategy in connection with the acquisition of the Los Abrigados Resort & Spa in Sedona, Arizona (184 units including the adjacent Celebrity House), the Kohl’s Ranch Lodge in Payson, Arizona (66 units), the Bell Rock Inn in the Village of Oak Creek near Sedona, Arizona (77 units), Rancho Mañana Resort in Cave Creek, Arizona (19 units), Premiere Vacation Club at the Roundhouse Resort in Pinetop/Lakeside, Arizona (21 units), the 1,500 Vacation Ownership Interests in San Carlos, Mexico, the 1,967 vacation ownership interests at the Carriage House in Las Vegas, Nevada, and the 153 weeks at the Scottsdale Camelback Resort in Scottsdale, Arizona.

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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 that are accessible to major population centers near prominent colleges and universities.  The first Varsity Clubs, VCA–South Bend, consisting of 62 units, is located approximately three miles from the University of Notre Dame in South Bend, Indiana.  The second Varsity Clubs, VCA–Tucson, consisting of 60 units, is located approximately three miles from the University of Arizona in Tucson, Arizona.  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 estab lish substantial in-house capabilities in areas critical to the Company’s operating and growth strategies, including property identification and acquisition, property development and rehabilitation, operation of resort properties and Vacation Ownership Interest sales and marketing.

The Company’s primary operating strategy focuses on marketing Vacation Ownership Interests in the Company’s convenient access resorts (“CARs”) and, in addition, affinity marketing of its Varsity Clubs.  CARs are typically high-quality vacation ownership resorts situated in settings of natural beauty or other special locations and within convenient and inexpensive traveling distance from major population centers (currently Phoenix, Tucson, Las Vegas and Denver).  In a 2004 study developed for Interval International (“II”), from data collected for the YPB&R/Yankelovich Partners 2004 National Leisure Travel MONITOR, prospective timeshare buyers preferred their personal automobile with 75% using their own car on vacation in the past year.  The Company’s CARs are intended to facilitate more frequent “short-stay” getaways, which the Company believes is an increasingly popular vacation trend.  To the extent Varsity Clubs resorts are located proximate to major population centers, such resorts may also be CARs.  As of December 31, 2005, the Company operated ten resorts consisting of 601 units and held 8,255.5 unsold Vacation Ownership Interests in those resorts, inclusive of unsold interests in Premiere Vacation Club.  The Company operates Rancho Mañana partly through an assignment of certain responsibilities to the entity which had operated the resort prior to the Company’s acquisition of it.  Third parties operate the Sea of Cortez Premiere Vacation Club, the Roundhouse Resort, the Carriage House and Scottsdale Camelback Resort.  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.  

Historically the Company had primarily marketed Vacation Ownership Interests in individual ILX resorts.  Commencing in June 1998, the Company began marketing much of its inventory of CARs through membership interests in its proprietary branded Premiere Vacation Club. Premiere Vacation Club offers purchasers a deeded one-week membership interest that may be used at any time between certain specified dates at any one of the destinations included in Premiere Vacation Club, or may be split into multiple stays of shorter duration at any combination of such resorts.  Vacation Ownership Interests in individual ILX resorts and in Premiere Vacation Club may be exchanged for stays at other resorts through the major national exchange networks in which ILX owners may participate, such as II and Resort Condominiums International (“RCI”).  The majority of the Company’s inventory of Vacation Ownership Interests, including those at its Varsity Clubs and those included in Premiere Vacation Club, qualify as “red time,” the highest demand classification for purposes of participation in such exchange networks.  The Company designed Premiere Vacation Club to respond to customer preferences for 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, natural beauty and food and beverage discounts at participating ILX resorts).

In addition to marketing through Premiere Vacation Club, the Company may in the future pursue the expansion of its proprietary branded Varsity Clubs concept.  Such expansion would 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 presently has two Varsity Clubs, its prototype Varsity Clubs property, VCA–South Bend, located near the University of Notre Dame and its second Varsity Clubs, VCA–Tucson, located near the University of Arizona in Tucson, Arizona.  Future Varsity Clubs would be developed 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 Intere st, 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.  Varsity Clubs offer a flexible ownership structure that permits the purchase of Vacation Ownership Interests consisting of a single day, a colle ction 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 may enable the Company to achieve premium pricing with respect to

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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 targeted 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 has created a Varsity Clubs wing to recognize the University of Nevada-Las Vegas (“UNLV”) at the Carriage House in Las Vegas.

During 2005, the Company sold 2,546 annual and biennial Vacation Ownership Interests at the ILX resorts, compared to 2,931 and 3,283 during 2004 and 2003, respectively.  The average sales price for a Vacation Ownership Interest (excluding sales of Upgrades) was $15,405 for an annual interest and $8,725 for a biennial interest, resulting in a weighted average price of $16,648 (each biennial interest is treated as one-half of an annual interest) during the year ended December 31, 2005 and $13,987 for an annual interest and $8,206 for a biennial interest, resulting in a weighted average price of $15,214 during the year ended December 31, 2004.  Upgrades are sales to existing owners of Vacation Ownership Interests in the ILX resorts and may consist of the exchange of their Vacation Ownership Interest for a higher demand season; a larger unit; a different ILX resort; or for Premiere Vacation Club; for wh ich the customer pays an additional fee.  At December 31, 2005, the Company had an existing inventory of 8,329.5 unsold Vacation Ownership Interests (including Additional Interests and the unsold interests in Premiere Vacation Club).

Item 1A.  Risk Factors

We face a variety of risks related to the operation of our business and the execution of our business strategy.

WE FACE A VARIETY OF RISKS RELATED TO THE RAPID GROWTH OF OUR BUSINESS.

WE MAY NOT SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY.  A principal component of our growth strategy is to acquire additional improved and unimproved real estate for the construction and development of new convenient access resorts and Varsity Clubs, which are urban vacation ownership properties strategically situated in tourist destinations that are accessible to major population centers near prominent colleges and universities. Our ability to execute our growth strategy will depend upon a number of factors, including the following:

·

the availability of attractive resort development opportunities;

·

our ability to acquire and/or construct properties for such development opportunities on economically feasible terms;

·

our ability to market and sell vacation ownership interests at newly developed or acquired resorts; and

·

our ability to manage newly developed or acquired resorts in a manner that results in customer satisfaction.

In particular, the success of our Premiere Vacation Club will depend upon our ability to continue to acquire and develop a sufficient number of participating resorts to make membership interests attractive to consumers. In addition, the success of our Varsity Clubs concept will be enhanced by our ability to successfully negotiate with universities proximate to our Varsity Clubs for access to the alumni, parents, and other persons affiliated with such universities. We cannot provide assurance that we will be successful with respect to any or all of these factors.

WE MAY NOT BE ABLE TO FINANCE OUR GROWTH. We intend to selectively acquire and develop new vacation ownership resorts and to continue to expand our existing resorts. Our plans include the: development of approximately 22 acres of land in Sedona, adjacent to our Los Abrigados Resort, to be known as Heritage Park.  Acquiring and developing new resorts and Heritage Park will place substantial demands on our liquidity and capital resources, as well as on our personnel and administrative capabilities. Risks associated with our development and construction activities include, but are not limited to, the following:

·

construction costs or delays may exceed original estimates, which could make the development or expansion uneconomical or unprofitable;

·

sales of vacation ownership interests or other revenue from newly completed facilities may not be sufficient to make the resort or development profitable;

5

·

financing may not be available on terms favorable for development of a project; and

·

financing may not be available on terms favorable for the continued sales of vacation ownership interests in a particular project.

We project that currently planned development and expansion at our resorts, and land in the planning stages (including Heritage Park), may cost in excess of $50 million.  Although we have preliminarily secured adequate financing for the projects currently under development, we cannot provide assurance that adequate financing for future development projects will be available on terms and conditions favorable to our Company.  Our ability to obtain needed financing and to 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 our company. Factors that could affect our access to the capital markets, or the cost of such capital, include the following:

·

changes in interest rates,

·

general economic conditions,

·

the threat of war or terrorist activities,

·

the perception in the capital markets of the vacation ownership industry, our business, and our business prospects,

·

our results of operations, and

·

the amount of debt we have outstanding and our financial condition.

WE FACE RISKS ASSOCIATED WITH OUR ABILITY TO ACQUIRE PROPERTIES THAT ARE SUITABLE FOR DEVELOPMENT.   Our ability to execute our growth strategy will depend to a significant degree on the existence of attractive project acquisition opportunities. Currently, there are numerous potential buyers for these properties. Many of these potential buyers have a stronger capital structure and greater resources with which to acquire attractive resort opportunities than we have. We cannot provide assurance that we will be able to compete successfully against such buyers. A variety of comprehensive federal, state, and local laws regulate our development and construction activities, as well as our ownership, sales, and management of real estate. These laws relate to many issues that directly or indirectly affect our business, including the following:

·

marketing and sales,

·

building design and construction,

·

zoning, land use, and development,

·

water supplies,

·

environmental and health concerns, and

·

protection of endangered species.

Any difficulties in or delays in obtaining, or our inability to obtain, the requisite licenses, permits, allocations, authorizations, and other entitlements pursuant to such laws could adversely impact our ability to develop and operate our projects. The enactment of "slow growth" or "no- growth" initiatives or changes in labor or other laws in any area where our projects are located also could delay, affect the cost or feasibility of, or preclude entirely the development or expansion of our resorts.

WE MAY FACE A VARIETY OF RISKS WHEN WE EXPAND OUR RESORTS. Our growth strategy includes the expansion of a number of units at our resorts, when appropriate. Risks associated with such expansion include, but are not limited to, the following:

·

construction costs may exceed original estimates, which could make the expansion uneconomical;

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·

we may not complete construction or conversion as scheduled, which could result in delayed recognition of revenue and increased interest expense;

·

we may be delayed in obtaining, or we may not be able to obtain, applicable governmental permits and authorizations;

·

we may not be able to obtain necessary financing on favorable terms and;

·

market demand may not be sufficient to make such expansion profitable.

Accordingly, we cannot provide assurance that we will complete all of our planned expansion of our resorts or, if completed, that such expansion will be profitable.

WE MAY FACE ADDITIONAL RISKS AS WE EXPAND INTO NEW MARKETS.  Our growth strategy consists of acquiring and developing additional convenient access resorts and Varsity Clubs in the western United States and Mexico, including markets in which we currently do not have an ILX resort or conduct any sales or marketing activities. Our prior success in the geographic locations in which we currently operate does not ensure our continued success as we acquire, develop or operate future resorts or Varsity Clubs. Accordingly, in connection with expansion into new markets, we may be exposed to a number of risks, including, but not limited to, the following:

·

our lack of familiarity and understanding of local consumer preferences;

·

our inability to attract, hire, train, and retain additional sales, marketing, and resort staff at competitive costs;

·

our 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;

·

our inability to capitalize on new marketing relationships and development agreements; and

·

the uncertainty involved in, and additional costs associated with, marketing vacation ownership interests prior to completion of marketed units.

OUR PRACTICE OF FINANCING CUSTOMER BORROWINGS EXPOSES US TO LIQUIDITY RISKS.

We typically finance approximately 80% of our overall sales of vacation ownership interests. Although we conduct credit pre-approval due diligence with respect to each financed sale, there are significant risks associated with such transactions, including those set forth below.

WE COULD INCUR SUBSTANTIAL LOSSES IF PURCHASERS OF VACATION OWNERSHIP INTERESTS DEFAULT ON THEIR OBLIGATIONS TO PAY THE BALANCE OF THE PURCHASE PRICE.  We require purchasers to make a down payment of at least 10% of the aggregate purchase price of the vacation ownership interest and to deliver a promissory note to us for the balance. Although we conduct credit pre-approval due diligence with respect to each purchaser, we bear the risk of default associated with customer notes that we retain and those that we sell with recourse to our company. If a buyer of a vacation ownership interest defaults, we generally will pursue collection remedies to the extent legally permitted. Although in many cases we may have recourse against a buyer for the unpaid purchase price, certain states, including Arizona and Indiana, have laws that limit our ability to recover personal judgments against customers who have defaulte d on their loans. If we are unable to collect the defaulted amount or to obtain a voluntary quitclaim deed to the mortgaged interest, we likely will foreclose on and then remarket the recovered vacation ownership interest. Irrespective of our remedy in the event of a default, we cannot recover the marketing, selling, and administrative costs associated with the original sale and we must incur such costs 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. We generally do not carry private mortgage insurance or its equivalent to cover defaults on customer notes.

We sell or hypothecate (that is, borrow against) the majority of our customer notes. When we sell customer notes, the purchasers generally have recourse to our company. As a result, we may be required to repurchase or replace any such customer note that becomes delinquent. We take these contingent obligations into account in establishing our allowance for uncollectible notes. We cannot provide assurance that such allowances will be adequate to offset actual defaults under customer notes, including notes that we have sold with recourse to our company. Our financial condition and results of operations could be materially adversely affected if our allowances are inadequate to cover actual defaults.

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OUR BORROWING BASE AND/OR OUR ABILITY TO SELL CUSTOMER NOTES MAY BE ADVERSELY AFFECTED BY THE NATURE AND QUALITY OF THE CUSTOMER NOTES.  We typically finance our working capital needs either by selling or by hypothecating customer notes that meet certain criteria established by third-party lenders. As of December 31, 2005, we had agreements with one lender to borrow up to $30.0 million against conforming retained customer notes, of which approximately $11.4 million remained available for borrowing. In addition, as of December 31, 2005, we had an agreement with one lender under which we can sell up to $30.0 million of conforming customer notes, of which approximately $25.7 million remained available.

Once hypothecated or sold, our customers make payments on their notes directly to the lender's collection center or agent. All of a customer's payments on hypothecated notes are applied to our loan balance, both principal and interest. Historically, our borrowings and sales of notes have not approached the maximum amount available under our existing credit facilities. We cannot provide assurance, however, that our future working capital needs will not exceed amounts available under our credit facilities. To the extent that we generate additional customer notes through our sales efforts, we may pledge or sell the applicable customer notes, subject to applicable restrictions.

WE GENERALLY EXPERIENCE NEGATIVE CASH FLOW UPON THE SALE OF FINANCED VACATION OWNERSHIP INTERESTS.  On financed sales, we ordinarily receive only 10% of the purchase price on the sale of a vacation ownership interest, but we must pay in full the costs associated with the development, marketing, and sale of the vacation ownership interest. These costs generally exceed the downpayment we receive at the time of sale. Maximum borrowings and sales of notes available under our existing credit facilities may not be sufficient to cover these costs, which could limit our available capital resources, liquidity, and capacity to grow. Our existing credit facilities expire at various dates through 2007. We presently do not have binding agreements to extend the terms of our existing credit facilities or for any replacement financing upon the expiration of our existing credit facilities. Moreover, we cannot provide ass urance that we will be able to arrange alternative or additional credit facilities on terms that are satisfactory to our company in the future. 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 we finance. Although we currently are selling customer notes at a premium, to the extent that we finance our negative cash flow by selling customer notes to lenders in the future we may be able to sell such notes only at a discount from the face value of such notes. In addition, we cannot provide assurance that we will be able to negotiate the sale of such customer notes at favorable rates, or at all.

FLUCTUATIONS IN INTEREST RATES AND INTEREST RATE MISMATCHES COULD ADVERSELY IMPACT OUR RESULTS OF OPERATIONS, LIQUIDITY, AND FINANCIAL POSITION. We currently derive a portion of income from the spread between the interest rates we charge our customers and the interest rates at which we borrow against customer notes or at which we sell customer notes. We cannot provide assurance, however, that the present interest rate spread will continue in the future. We may not be able to maintain these spreads as a result of decreases in the rates we are able to charge customers or increases in the prime lending rate, or upon the expiration of our current credit facilities and our inability to replace such facilities at existing terms. In addition, our 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 our inter est expense to exceed our interest income on our portfolio of retained customer notes. Moreover, we currently do not engage in interest rate hedging transactions. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on our results of operations, liquidity, and financial position.  If there were a one-percentage point change, based on the $21.7 million balance of variable rate debt at December 31, 2005, interest expense would increase or decrease by approximately $217,000 (before income taxes) per annum. Further, to the extent interest rates generally decrease on third-party financing available to our customers, we face an increased risk that customers will pre-pay their customer notes and reduce our income, if any, from financing activities. In addition, if a customer prepays a note that we have sold, we are required to repay the unearned interest premium, if any, on the note.

THE MISMATCH BETWEEN CUSTOMER NOTES AND OUR CREDIT FACILITIES COULD CREATE SIGNIFICANT LIQUIDITY RISKS. Customer notes typically have a seven-year term, while our related revolving credit facilities mature or expire on different dates over the next six years. Accordingly, a mismatch exists between our anticipated cash receipts and cash disbursements. Although we historically have been able to secure financing sufficient to fund our operations, we currently do not have agreements with our lenders to extend the respective terms of our existing credit facilities or to replace such credit facilities upon their expiration. Our failure to obtain such refinancing or replacement credit facilities could require us to sell our portfolio of retained customer notes, potentially at a discount, or to seek other alternatives to enable us to continue in business. While we have been successful in obtaining financing to date, we cannot provide assurance that we will be able to do so in the future. The failure to do so in the future could have a material adverse effect on our results of operations and liquidity.

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WE FACE SUBSTANTIAL COMPETITION IN THE VACATION OWNERSHIP INDUSTRY.  

The vacation ownership industry consists of a large number of local and regional resort developers and operators. In addition, we face competition from some of the world's most recognized national and international lodging, hospitality, and entertainment companies, such as Marriott Ownership Resorts, The Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts, Starwood Hotels & Resorts Worldwide, Inc., Cendant Corporation, and their subsidiaries and affiliates.  Many of these companies have much greater access to capital and other resources than we do. As a result, we may be at a competitive disadvantage with our competitors for access to marketing, personnel, and other resources that we require to compete successfully. In addition, competition from other vacation ownership resort developers and operators may limit our ability to acquire additional resorts and to obtain access to affinity groups. Our business and results of operations may be materially adversely affected if we are unable to compete successfully against such companies.

In addition to the competitors named above, our resorts and sales offices may face direct competition from smaller, local vacation ownership companies with resorts or sales offices within the vicinity of our resorts, as well as from resales of vacation ownership interests. We also are subject to competition from other entities engaged in the commercial lodging business, including condominiums, hotels and motels, and others engaged in the leisure business who compete with us by offering easy access, including online through proprietary web sites and internet travel intermediaries, to competitive nightly rates on luxury resort accommodations in desirable locations, which could reduce demand for our vacation ownership interests. We anticipate that we will continue to face substantial competition in all aspects of our operations from organizations that are more experienced in the leisure industry and that have gr eater access to financial, marketing, and other resources. As a result, these competitors may have greater negotiating leverage to acquire properties or other resources required to compete or may be able to take advantage of greater gross sales and thereby reduce the retail price of their vacation ownership interests. Our profit margins and operating results could be adversely affected if we find it necessary to reduce our prices in order to remain competitive. A reduction in our profit margins as a result of competitive pressures, or an increase in our costs relative to such competitors' costs, could have a material adverse effect on our results of operations, liquidity, and financial position.

OUR SUCCESS WILL DEPEND UPON OUR KEY MANAGEMENT EMPLOYEES.

We rely upon certain key management employees. The loss of any key employee could materially and adversely affect our business. We cannot provide assurance that we will be able to retain key members of our current management team or that we will be able to attract experienced personnel in the future. Our success also will depend upon our ability to attract and maintain qualified property acquisition, development, marketing, management, administrative, and sales personnel. Our ability to attract, train, and retain such personnel will become particularly important as we grow and develop additional resorts, and we cannot provide assurance that we will be successful in attracting or retaining such personnel. Our business and results of operations could be materially adversely affected if we are not able to attract and retain such key personnel.

OUR BUSINESS COULD BE ADVERSELY AFFECTED BY OUR GEOGRAPHIC CONCENTRATION WITHIN THE WESTERN UNITED STATES, PARTICULARLY ARIZONA.

As of the date of this Form 10-K, a majority of our customers and resort accommodations are located in Arizona. As a result, our financial condition and results of operations may be materially adversely affected by local Arizona economic downturns, changing demographics or regulatory changes. Further, our growth strategy includes expansion of sales centers and vacation ownership interests in the western United States and Mexico. Although expansion into markets other than Arizona may reduce our susceptibility to downturns in the Arizona market, we cannot provide assurance that we will be able to successfully apply our current operating strategy to new markets beyond Arizona. In addition, because we intend to execute our growth strategy primarily in the western United States, we will continue to be particularly susceptible to adverse changes in economic circumstances, demographic trends or regulatory changes af fecting the western United States in general and, in particular, the local markets that we enter. We cannot provide assurance that we will be able to offset or minimize the adverse effects of such circumstances upon our business, financial condition or results of operations.

OUR ABILITY TO SUCCESSFULLY MARKET OUR PROPERTIES WILL DEPEND UPON CONTINUED AVAILABILITY OF VIABLE EXCHANGE NETWORKS.

Our ability to successfully market and sell vacation ownership interests will depend in part upon the availability of "exchange networks," which allow owners of our vacation ownership interests to "trade" the time they have purchased for time at another participating vacation ownership resort. All vacation ownership interests that we currently offer are qualified for inclusion in one or more exchange networks. We cannot provide assurances, however, that we will be able to continue to qualify additional properties or that such exchange networks will

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continue to be available for our existing portfolio of vacation ownership interests. If such networks cease to function effectively or if we are unable to respond to consumer demand for greater choices of desirable locations, we will be at a competitive disadvantage with respect to competitors that can offer such choices. As a result of such disadvantages, we may be unable to sell a sufficient number of vacation ownership interests or we may be unable to make sales at prices that will enable us to remain profitable. Our results of operations could be materially adversely affected as a result of such risks.

OUR COMPANY FACES SIGNIFICANT RISKS ASSOCIATED WITH LEVERAGE.  

We anticipate that we will finance our future business activities, in whole or in part, with indebtedness that we obtain pursuant to additional borrowings under our existing credit facilities or under credit facilities that we will obtain in the future. The definitive agreements with respect to these credit facilities do and could contain restrictive covenants that limit our ability to, among other things, make capital expenditures, incur additional indebtedness, and dispose of assets or that require us to maintain certain financial ratios. The indebtedness incurred under these credit facilities may be secured by mortgages on all or a portion of our resorts, customer notes, and other assets. If we default under one or more of these credit facilities, our 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. In addition, future credit facilities may not provide for the lender to release liens on our vacation ownership interests when we sell such interests. Such restrictions could impair the marketability of our vacation ownership interests.

The extent of our leverage and the terms of our indebtedness, such as requirements that we maintain certain debt-to-equity ratios, also could impair our ability to obtain additional financing in the future, to make acquisitions, or to take advantage of significant business opportunities that may arise. Furthermore, our indebtedness and related debt service obligations may increase our vulnerability to adverse general economic and vacation ownership industry conditions and to increased competitive pressures. We cannot provide assurance that we will not require additional indebtedness in the foreseeable future to execute our growth strategy.

EXTENSIVE FEDERAL, STATE, AND LOCAL LAWS AND REGULATIONS AFFECT THE WAY WE CONDUCT OUR BUSINESS.

The federal government and the states and local jurisdictions in which we conduct business have enacted extensive regulations that affect the manner in which we market and sell vacation ownership interests and conduct our other business operations.  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.  In addition, many states, including Arizona, have adopted specific laws and regulations regarding the sale of vacation ownership interests. These laws and regulations require us, among other things, to obtain and file numerous documents and supporting information with the responsible state agency, to obtain the agency's approval for an offering statement that describes all material aspects of the sale of vacation ownership interests, and 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. Laws in each state where we currently sell 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 purchaser signs the contract. Most states also have other laws that regulate our activities and protect purchasers, such as the following:

·

real estate licensure laws,

·

travel sales licensure laws,

·

anti-fraud laws,

·

consumer protection laws,

·

telemarketing laws, and

·

prize, gift, and sweepstakes laws.

We currently are authorized to market and sell interests in all states in which our resorts are located and all states in which we market and sell vacation ownership interests. We may apply for the right to conduct sales operations in additional states throughout the United States. We cannot provide assurance, however, that any state will grant, or continue to grant, our company the right to sell our 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

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acceptable to us. Further, if agents or employees of our company violate such regulations or licensing requirements, such acts or omissions could cause the states where the violations occurred to revoke or refuse to renew the licenses required to permit us to sell vacation ownership interests in such states.

We believe we are in material compliance with applicable federal, state, and local laws and regulations relating to the sale and marketing of vacation ownership interests to which we currently are subject. From time to time, however, consumers file complaints against our company in the ordinary course of our business. We could incur significant costs to resolve such complaints or to qualify under applicable regulations in all jurisdictions in which we desire to conduct sales. We cannot provide assurance, however, that we will remain in material compliance with applicable federal, state and local laws and regulations, or that violations of applicable laws will not have adverse implications for our company, including, without limitation, negative public relations, potential litigation, and regulatory sanctions. The expense, negative publicity, and potential sanctions associated with our failure to comply with a pplicable laws or regulations could have a material adverse effect on our results of operations, liquidity or financial position.  In particular, increased regulations of telemarketing activities could adversely impact the marketing of vacation ownership interests.

Under certain conditions, vacation ownership interests may be considered "securities" under state or federal law, in which case we would be subject to the time-consuming and expensive requirements to register such interests, license our salespeople, and comply with other regulations.  Although our vacation ownership interests are not considered to be securities in any jurisdiction in which we operate as of the date of this Form 10-K, we cannot guarantee that we can structure vacation ownership interests so as to avoid regulation as "securities" under applicable federal or state laws that may be adopted in the future or in any jurisdiction in which we may operate in the future. If our vacation ownership interests are deemed to be securities, we cannot provide assurance that we will be able to comply with the applicable state and federal securities requirements or that the liabilities o r contingencies that result from such compliance will be immaterial. As a result, such compliance may impact our ability to conduct our business and may undermine the value of our common stock.

EXCESSIVE CLAIMS FOR CONSTRUCTION-RELATED DEFECTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OPERATING RESULTS.

While we typically engage third-party contractors to construct or renovate our resorts, our customers may assert construction claims against our company for construction defects. In addition, certain state and local laws may impose liability on property developers with respect to construction defects discovered or repairs made by future owners of such property. An excessive number of claims for construction-related defects could adversely affect our liquidity, financial condition, and operating results.

ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.

Under various federal, state and local laws, ordinances and regulations, as well as common law, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from property that we own, lease, or operate, as well as related costs of investigation and property damage at such property. Such laws often impose liability without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to sell or lease our property or to borrow money using such real property as collateral. Noncompliance with environmental, health or safety requirements may require us to cease or alter operations at one or more of our properties. Further, we may be subject to common law claims by third parties based on damag es and costs resulting from violations of environmental regulations or from contamination associated with one or more of our properties.

Although we typically conduct significant due diligence prior to acquiring real property, we may not obtain Phase I environmental reports with respect to each of our properties if management believes that the risk of potential environmental liability does not warrant the performance of Phase I assessments due to the remote location of such property or any other reason. If we fail to obtain such reports, we may acquire or develop property and later discover that we cannot operate the property as planned, or we may assume environmental or other liabilities that we could have avoided if we had the information typically revealed in a Phase I report. To date, we have obtained environmental reports with respect to four of our resorts. Even when we perform due diligence investigations, we cannot provide assurance that our due diligence efforts or Phase I reports, when available, will reveal all environmental liabili ties or that we will identify every material environmental condition.

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, we may have liability with respect to properties that we or our predecessors sold in the past.

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ACCELERATION OF DEFERRED TAXES AND NET OPERATING LOSS CARRYFORWARD LIMITATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND LIQUIDITY.

While we report sales of vacation ownership interests as income for financial reporting purposes upon closing a sale, federal income tax regulations allow us to report a portion of financed sales on the installment method, if we so elect. When we elect the installment method, we recognize income on the sale of a vacation ownership interest (a) when we receive cash in the form of a down payment, and (b) incrementally as we receive payments on retained customer notes or when we factor the customer note. As of December 31, 2005, we had deferred taxes (i.e., taxes owed to taxing authorities in the future as a consequence of income previously reported in our financial statements) in the amount of $8.1 million as a result of this method of reporting sales of vacation ownership interests. If we should factor the customer notes, if a lender forecloses on the retained customer notes, or if we otherwise collect or disp ose of the retained customer notes, the deferred gain would be reportable for tax purposes and the deferred taxes, including interest on those taxes, if any, would become due. Moreover, we would owe accrued interest on such deferred taxes that would be payable when the taxes are due in the event the deferred taxes reverse in a year when income taxes are payable by our company, the likelihood of which is not now reasonably ascertainable. We cannot provide assurance that we will have sufficient cash resources to pay those taxes and interest if and when they become payable. Furthermore, if our sales of vacation ownership interests should decrease in the future, our 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, our liquidity and financial position could be adversely affected.

At December 31, 2005, our wholly-owned subsidiary, Genesis Investment Group, Inc. (“Genesis”), had net operating loss, or "NOL," carryforwards of approximately $630,000.  These NOL carryforwards 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.

THE LIMITED RESALE MARKET FOR VACATION OWNERSHIP INTERESTS COULD ADVERSELY AFFECT OUR BUSINESS.

Based on our experience with our resorts and ownership of vacation ownership interests at destination resorts owned by third parties, we believe that resales of vacation ownership interests generally are 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 our efforts to sell our vacation ownership interests. While vacation ownership interest resale clearing houses or brokers currently do not have a material impact on our business, if a secondary market for vacation ownership interests were to become more organized and liquid, the availabi lity of resale vacation ownership interests at lower prices could adversely affect our prices and the number of sales we can close. As a result, our business and results of operations may be adversely affected.

DOWNTURNS IN GENERAL ECONOMIC CONDITIONS CAN SIGNIFICANTLY IMPACT OUR FINANCIAL CONDITION AND OPERATING RESULTS.

Any adverse change in general economic conditions, significant price increases, or adverse occurrences affecting the travel and tourism industry, such as the impact of war or terrorist activity, cyclical overbuilding in the hotel and vacation ownership industries and the financial condition of the airline industry and the impact on air travel, could have a material adverse effect on our company's business and results of operations. Such conditions or occurrences also may have an adverse effect upon the availability and cost of financing for our company and our customers, which could preclude us from making loans to customers for vacation ownership interest purchases or prevent our customers from paying off outstanding customer notes.

WE COULD INCUR COSTS TO COMPLY 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 we believe our resorts are substantially in compliance with laws governing their accessibility by disabled persons, we may incur additional costs to comply with such laws at our existing or subsequently acquired resorts. Additional federal, state, and local legislation with respect to access by disabled persons may impose further burdens or restrictions on our company. We cannot forecast the ultimate cost of compliance with such legislation, but such costs could be substantial and, as a result, could have a material adverse effect on our results of operations, liquidity or capital resources.

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WE MAY HAVE LOSSES THAT ARE NOT COVERED BY INSURANCE.

We carry comprehensive liability, business interruption, title, fire and storm insurance with respect to our resorts, with policy specifications, insured limits and deductibles customarily carried for similar properties, which we believe are adequate.  There are, however, certain types of losses (such as losses caused by floods, acts of terrorism, 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, we could lose our 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 our results of operations, liquidity and financial positions.

INCREASED GASOLINE PRICES, AN OUTBREAK OF WAR, ACTS OF TERRORISM, UNFORESEEN NATURAL DISASTERS OR SIMILAR EVENTS COULD NEGATIVELY IMPACT OUR BUSINESS.

Increased gasoline prices, war, or acts of terrorism, forest fires, inclement weather or other unforeseen natural disasters or similar events could reduce consumer travel. If consumer travel to our resorts and sales centers declines as a result these or other factors, we could experience lower income due to reduced room rentals and/or fewer opportunities for sales presentations to prospective purchasers of vacation ownership interests.

OUR BUSINESS IS SUBJECT TO SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS.

We historically have experienced quarterly fluctuations in our gross revenue and net income from operations. Our sales of vacation ownership interests typically have been lower during the first and fourth quarters of each year and we expect this trend to continue in the future. In addition, our earnings may be adversely affected by our ability to acquire or develop new resorts in a timely manner, fluctuations in travel and vacation patterns, and weather or other natural phenomena. As we enter new markets, we may experience additional fluctuations in our quarterly results or an increased impact of seasonality on our business and results of operations.

CERTAIN OF OUR EXISTING SHAREHOLDERS HAVE THE ABILITY TO EXERT A SIGNIFICANT AMOUNT OF CONTROL OVER OUR COMPANY.

Under Arizona law, holders of our company's common stock are entitled to cumulative voting rights with respect to the election of our 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 the holder is entitled to cast votes. Each holder may cast all of such votes in favor of any individual nominee or may allocate them among multiple nominees as the holder chooses. 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 or her respective votes in favor of a single candidate. We currently have nine directors. Consequently, a holder of approximately 11.1% of our outstanding common stock will be able to independently elect one director.

At February 28, 2006, Joseph P. Martori beneficially owned approximately 29.1% of our outstanding common stock (and all of our officers and directors as a group beneficially owned approximately 42.5% of our outstanding common stock). Because of his ability to elect at least two of our directors, if the interests of Mr. Martori as a shareholder differ from the interests of the other shareholders, such other shareholders may be adversely affected. To the extent that Mr. Martori elects to reinvest dividends paid on his shares of common stock and some of our other shareholders do not reinvest their dividends, Mr. Martori's percentage ownership of our outstanding common stock will increase, which could further increase Mr. Martori's control over our company.

At February 28, 2006, our Employee Stock Ownership Plan and Trust (ESOP) held approximately 18.4% of our outstanding common stock.  Joseph P. Martori, Nancy J. Stone and Joseph P. Martori, II are trustees of the ESOP, although the employee beneficiaries of the ESOP have the ability to vote the number of shares in the ESOP that have been allocated to their respective accounts.  Our ESOP may acquire newly issued shares of common stock from us or already issued shares on the open market.  As our ESOP continues to acquire shares, and shares are granted to key employees under our Stock Bonus Program, an increasing concentration of our ownership will reside with our employees, including our executive officers.

13

IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

As an Arizona corporation, our articles of incorporation and Arizona law contain provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our company, even when those attempts may be in the best interests of our shareholders.  Our articles of incorporation also authorize our board of directors, without shareholder approval, to issue one or more series of preferred stock, which could have voting, liquidation, dividend, conversion, or other rights that adversely affect or dilute the voting power of the holders of common stock.  

OUR STOCK PRICE HAS BEEN, AND WILL LIKELY CONTINUE TO BE, HIGHLY VOLATILE, WHICH MAY NEGATIVELY AFFECT OUR ABILITY TO OBTAIN FINANCING IN THE FUTURE.

The market price of our stock has been and is likely to continue to be highly volatile due to the risks and uncertainties described in this section of the Form 10-K, as well as other factors, including:

¨

fluctuation in interest rates and other conditions that could adversely affect real estate values in general or the market for vacation ownership interests in particular;

¨

price and volume fluctuations in the stock market at large which do not relate to our operating performance; and

¨

any failure to meet market expectations.

From January 1, 2005 through December 31, 2005, the closing price of our common stock as reported on The American Stock Exchange ranged from a high of $10.82 to a low of $8.50.  As a result of this volatility, your investment in our stock is subject to substantial risk.  Furthermore, the volatility of our stock price could negatively impact our ability to raise capital in the future.

The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, companies that have experienced volatility have sometimes been the subject of securities class action litigation. If litigation were instituted on this basis, it could result in substantial costs and a diversion of management's attention and resources.

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Item 2.  Properties

The Resorts

The table below sets forth certain information, as of December 31, 2005, with respect to the ILX resorts.  The information set forth below does not include expansion of the ILX resorts or development of additional Varsity Clubs and CARs.  As described in Note 9 of the Notes to Consolidated Financial Statements, all of the Company’s owned resorts are encumbered by one or more deeds of trust.

			Size of
			Units 1		Resort Amenities
Resorts 2	Location	S	1BR	2BR	Restaurant/Lounge	Whirlpool/Spa	Swimming Pool	Fitness Center	Local Amenities 3
Los Abrigados Resort	Sedona, AZ		158	26 4	3/1	Y	Y-2	Y	B,BB,BL,
& Spa									D,F,FW,G,
									H,MT,Sh,
									T,TH,V
The Inn at Los Abrigados	Sedona, AZ	9		1	3/1	Y	Y-2	Y	B,BB,BL,
									D,F,FW,G,
									H,MT,Sh,
									T,TH,V
Kohl’s Ranch Lodge	Payson, AZ	42	5	19	1/1	Y	Y	Y	B,BB,C,D,
									F,FW,G,H,
									Sh,TH,V
The Historic Crag’s Lodge	Estes Park, CO	9	21	3	1/1	Y	Y	N	BL,D,F,FW,
at the Golden Eagle Resort									G,H,MT,
									Sh,TH
Sea of Cortez	San Carlos,	8	6	16	4/2	Y	Y	Y	BL,BO,D,F,
Premiere Vacation Club	Mexico								G,H,Sh,T,
Bell Rock Inn	Village of	62	11	4	0/0	Y	Y-2	N	B,BB,BL,
	Oak Creek, AZ								D,F,FW,G,
									H,MT,Sh
									T,TH,V
Rancho Mañana Resort	Cave Creek, AZ			19	1/1	Y	Y	Y	D,FW,G,H,
									MT,Sh,TH
Premiere Vacation Club at
the Roundhouse Resort	Pinetop, AZ			21	0/0	Y5	Y5	N	C,D,F,FW
									G,H,MT,Sh,SS,
									T,TH
VCA–South Bend	South Bend, IN		56	6	1/1	Y	Y	Y	B,BB,BL,
									D,G,M,
									MT,Sh,UC
VCA–Tucson	Tucson, AZ	4	44	12	1/1	Y	Y	Y	BL,D,G,M,
									MT,Sh,T,TH
									UC
Total resorts currently being marketed
as Vacation Ownership Interests		134	301	127

15

Los Abrigados Lodge6	Sedona, AZ	39			N	N	Y	N	B,BB,BL,
									D,F,FW,G,
									H,MT,Sh,
									T,TH,V
Total		173	301	127

¹ “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.

² Information regarding the Additional Interests and Vacation Ownership Interests in the Carriage House, the Roundhouse Resort

 and Scottsdale Camelback Resort has not been included in the following chart, as the Company only owns a number of

 Vacation Ownership Interests at such resorts and does not own any of such resorts.

³ B - Basketball, BB - Bocce Ball, BL – Billiards, BO - Boating, 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, W - Watersports.

⁴ Includes the Celebrity House which is adjacent to Los Abrigados.

⁵  Premiere Vacation Club at the Roundhouse Resort guests have access to the pool and other amenities, including basketball and recquetball courts and the

recreation center at the adjacent Roundhouse Resort under a usage agreement.

⁶ The Los Abrigados Lodge is not registered nor marketed for sale as Vacation Ownership Interests.  Los Abrigados Lodge is operated under a long-term lease

 arrangement that is explained in more detail below.

Description of ILX Resorts

Los Abrigados Resort & Spa.  Los Abrigados Resort & Spa (“Los Abrigados”) is located in Sedona, Arizona, approximately 110 miles from Phoenix, Arizona.  This resort consists of 184 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 or full kitchen and balcony or patio.  Thirty suites offer a fireplace and either a private outdoor whirlpool spa or indoor jetted tub as well.  The Celebrity House is a luxury stand-alone unit adjacent to the property and includes its own pool, spa, fireplace and full size kitchen.  Los Abrigados is designed in southwestern décor and is surrounded by the dramatic red rocks of Oak Creek Canyon.  This resort has an on-site sales office.

Amenities at the resort include three restaurants and a sports bar, billiards emporium, library, two pools, outdoor whirlpool spa, tennis courts, sports court, basketball court, bocce ball court, miniature golf, fitness center and health spa offering a variety of personal care services, aerobic and yoga classes, indoor 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 an II Five-Star resort.

As of December 31, 2005, Los Abrigados contained 9,568 Vacation Ownership Interests, of which approximately 111 remained available for sale (excluding 4,088.5 Vacation Ownership Interests owned by Premiere Vacation Club).  The Company believes there exist additional expansion opportunities at and contiguous to Los Abrigados.  The Company, through its ownership in ILX–Bruno LLC (“ILX–Bruno”), purchased approximately 22 acres of land adjacent to Los Abrigados in October 2005 and plans to develop additional units on a portion of the land.

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 includes the main Morris House and nine bed and breakfast-style units in three buildings situated amidst a former apple orchard.  The Morris House is 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.

As of December 31, 2005, the Inn at Los Abrigados contained 510 Vacation Ownership Interests, of which approximately 110.5 remained available for sale (excluding 324.5 Vacation Ownership Interests owned by Premiere Vacation Club).

16

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 66 units.  Forty-one of the units are at the main lodge, 20 units consist of one- and two-bedroom freestanding cabins along Tonto Creek, three units are in a triplex cabin and two are in the duplex cabin overlooking the creek.  The Horton House is a luxury unit that sleeps eight and features a large deck with a barbecue, two full bedrooms and baths and a library. This resort 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, gazebos and sport court.  Each unit at the resort offers a mini-kitchenette or full kitchen, and many have a fireplace.  In addition, Kohl’s Ranch offers a unique pet resort facility.  Kohl’s Ranch is both an RCI and an II resort.

As of December 31, 2005, Kohl’s Ranch contained 3,432 Vacation Ownership Interests, of which five were available for sale (excluding 2,955.5 Vacation Ownership Interests owned by Premiere Vacation Club).  

The Historic Crag’s Lodge at the Golden Eagle Resort.  The Historic Crag’s Lodge at the Golden Eagle Resort (“Golden Eagle”) 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 units and is bounded generally by undeveloped forested mountainside land, which provides excellent mountain views from the resort.

Golden Eagle is centered around the historic Crag’s Lodge, a four-story wood frame building constructed in the early 1900s, which is listed on the National Registry of Historic Places by the United States Department of the Interior, and serves as the resort’s main lodge.  Amenities offered at this resort include a restaurant, bar and library, as well as six guest rooms in a freestanding building.  Each unit at Golden Eagle features a kitchenette, and living and dining areas.  Additional amenities at this resort include a heated pool and spa as well as local outdoor attractions.  Golden Eagle is both an RCI and an II resort.

As of December 31, 2005, Golden Eagle contained 1,683 one-week Vacation Ownership Interests, of which 16 were available for sale (excluding 995 Vacation Ownership Interests owned by Premiere Vacation Club).  The Company may construct a minimum of two additional units in the future, which would yield an additional 102 Vacation Ownership Interests.

Sea of Cortez Premiere Vacation Club.  Sea of Cortez Premiere Vacation Club is an ocean front property on the Sea of Cortez in San Carlos, Sonora, Mexico.  The Company, through Premiere Vacation Club, has acquired 1,500 one-week 25-year right-to-use Vacation Ownership Interests in 30 studio, one- and two- bedroom units in the Sea of Cortez Premiere Vacation Club.  The Company has the option to extend the right-to-use period for an additional 25-year period provided it is not in default under the right-to-use agreement.  The option is exercisable by the Company during the last five years of the initial term, at terms to be negotiated by the parties at that date.  The Company markets such Vacation Ownership Interests exclusively through Premiere Vacation Club.  

Sea of Cortez Premiere Vacation Club has a swimming pool, outdoor restaurant and lounge, volleyball court and beach access, and each unit has an ocean view, a separate living area, bedroom(s), full kitchen and balcony or patio.  Amenities of the adjacent San Carlos Plaza Resort are also available to Premiere Vacation Club owners.  Such amenities include an outdoor swimming pool, whirlpool spa, fitness center, three restaurants, including a Joey Bistro consistent with the restaurant theme originally introduced at Los Abrigados, several lounges, a disco, gift shops and water sports equipment.  This resort has an on-site sales office.  Sea of Cortez Premiere Vacation Club is an II Five-Star resort.

All 1,500 Sea of Cortez Premiere Vacation Club Vacation Ownership Interests have been annexed into Premiere Vacation Club. The Company continues to evaluate the market for the possibility of expansion of this property on contiguous real estate.

Bell Rock Inn. The Bell Rock Inn, in the Village of Oak Creek, Arizona is located approximately six miles south of Los Abrigados Resort & Spa.  The resort originally consisted of 96 studio lodging units, most of which included a fireplace and mini-kitchen facilities on approximately four acres of land.  Renovations in 2004 and 2005 added one and two-bedroom units, bringing the total number of units to 77.  The Bell Rock Inn has two heated pools, a whirlpool spa and outdoor fireplaces.  The Bell Rock Inn is an II resort.  

As of December 31, 2005, the Bell Rock Inn contained 4,004 Vacation Ownership Interests, all of which are annexed into Premiere Vacation Club.  The Company is evaluating the market for the possibility of expansion on this property.

Rancho Mañana Resort.  Rancho Mañana Resort is located in Cave Creek, Arizona, approximately 25 miles from Phoenix, Arizona.  Surrounded by the high sonoran desert, this resort offers 19 luxuriously appointed and spacious casitas on approximately two acres and an additional 3.81 acres of land for further development.  The casitas

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are 1,500 square feet and include two bedrooms, two bathrooms, a whirlpool tub in the master bathroom, a fireplace and a full kitchen.  Amenities at the resort include a lagoon style pool and hot tub, outdoor gas barbeque grills and an adobe fireplace.  The property is adjacent to a European style spa and athletic club, an 18-hole championship golf course and a full service restaurant and lounge (all operated by third parties).  This resort has an on-site sales office.  Rancho Mañana is an II Five-Star resort.

The Company may in the future build additional units and certain common area amenities on the 3.81 acres.  As of December 31, 2005, Rancho Mañana contained 988 Vacation Ownership Interests, all of which are annexed into Premiere Vacation Club.

Premiere Vacation Club at the Roundhouse Resort.  Premiere Vacation Club at the Roundhouse Resort is located in Pinetop/Lakeside Arizona. The resort consists of 21 two-bedroom log-sided cabins on four acres of land in the White Mountains of northeastern Arizona, approximately 190 miles from Phoenix, Arizona.  The units were completed in late 2005 and early 2006.  The resort will also contain a miniature golf course which is expected to be completed in spring 2006.  Guests at Premiere Vacation Club at the Roundhouse Resort have use privileges of the recreation center at the adjacent Roundhouse Resort.  The recreation center contains an indoor pool, racquetball and basketball courts and other recreational opportunities.  The resort is an II resort and is proximate to golf courses, skiing, horseback riding and other outdoor activities.  

As of December 31, 2005, Premiere Vacation Club at the Roundhouse Resort contains 1,092 Vacation Ownership Interests, all of which are annexed to Premiere Vacation Club.  

Roundhouse Resort.  The Roundhouse Resort, is a fully sold out 59-unit timeshare resort located on 9.5 acres adjacent to Premiere Vacation Club at the Roundhouse Resort. The resort is an RCI resort.  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.

As of December 31, 2005, all 191 Vacation Ownership Interests in the Roundhouse Resort which have been acquired by the Company have been annexed into Premiere Vacation Club.

VCA–South Bend.  The Company’s first Varsity Clubs facility is an approximately four acre property located three miles from the University of Notre Dame and Notre Dame Stadium in South Bend, Indiana, which is 90 miles from Chicago, Illinois. VCA–South Bend offers 62 units, consisting of 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.  Common areas at the resort include the Stadium Sports Lounge, which offers a variety of food and beverages and features a theater-wall television in a stadium-type setting, fitness center with whirlpool spa, indoor/outdoor heated pool, bocce ball, children’s playground, billiards room, putting green, library, gift shop, business center and special events facilities.  VCA–South Bend is an II Five-Star resort.

As of December 31, 2005, this resort contained 3,224 one-week Vacation Ownership Interests, of which 370 were available for sale (excluding 1,549 Vacation Ownership Interests owned by Premiere Vacation Club).  Expansion capability exists for an additional 24 units (1,248 one-week Vacation Ownership Interests).  The Company continues to evaluate the market for the possibility of such expansion.  

VCA–Tucson.  The second Varsity Clubs resort is a two-acre property located in Tucson, Arizona, approximately three miles from the University of Arizona and 110 miles from Phoenix, Arizona. VCA–Tucson offers 60 units, consisting of studio, one- and two-bedroom suites.  This resort has an on-site sales office.

VCA–Tucson was designed in accordance with the VCA–South Bend prototype, with certain modifications for operating efficiencies and to reflect the regional style.  Each of the suites includes a king master bedroom, living room with sofa sleeper, kitchenette and whirlpool spa.  Amenities at this resort include a Sports Lounge designed similar to that at VCA–South Bend, the Twenty-Four Hour Sports Ticker, Joey Pizza (a restaurant theme originally introduced at Los Abrigados), billiards room, putting green, library, gift shop, fitness center, outdoor heated pool, whirlpool spa, steam room, children’s playground and special events facilities.  VCA–Tucson is an II Five-Star resort.

At December 31, 2005, this resort contained 3,120 one-week Vacation Ownership Interests, of which 57.5 were available for sale (excluding 2,861.5 Vacation Ownership Interests owned by Premiere Vacation Club).

Los Abrigados Lodge.  The Company leases a hotel in uptown Sedona, Arizona.  The lease commenced October 1, 2000 and terminates on December 31, 2021 and contains a provision in which the term may be automatically extended for consecutive one-year periods after December 31, 2021 up to December 31, 2038 if the lease has not been terminated prior to December 31, 2021.  The property is used for hotel accommodations, mainly for customers invited to attend a vacation ownership presentation at the Company’s Sedona sales office.  As of December 31, 2005, this resort contains 39 units.  These units are not offered for sale as Vacation Ownership Interests.

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The Carriage House

In June 2001, the Company acquired 600 Vacation Ownership Interests in the Carriage House in Las Vegas, Nevada and annexed these weeks into Premiere Vacation Club.  During 2001 to 2005, the Company has purchased additional inventory and intends to continue to acquire Vacation Ownership Interests in the Carriage House and annex the interests into Premiere Vacation Club in the future.  At December 31, 2005, the Company holds 1,967 Vacation Ownership Interests, 1,898 of which have been annexed into Premiere Vacation Club.

The Carriage House is a non-gaming suite hotel located one block off the “Strip” in Las Vegas.  The property contains a heated pool, whirlpool, tennis court and basketball court.  The Carriage House is an II resort.  

Scottsdale Camelback Resort

In February 2004, the Company purchased 150 two-bedroom Vacation Ownership Interests in Scottsdale Camelback Resort in Scottsdale, Arizona and annexed those weeks into Premiere Vacation Club.

Scottsdale Camelback Resort is located in the foothills of Camelback Mountain.  The property contains spacious villas that include full kitchens, fireplaces and garden style bathtubs.  The resort’s amenities include a pool, spa, tennis and racquetball courts, fire pit, fitness center and a restaurant. Scottsdale Camelback Resort is an II Five-Star resort.

At December 31, 2005, the Company had acquired a total of 153 Vacation Ownership Interests in Scottsdale Camelback Resort, all of which are annexed into Premiere Vacation Club.

Premiere Vacation Club

In January 1998, the Company recorded in Maricopa County, Arizona its proprietary Premiere Vacation Club Membership Plan and in May 1998 annexed a total of 5,000 Vacation Ownership Interests into the Club and received Department of Real Estate approval in the State of Arizona to commence selling Vacation Ownership Interests in Premiere Vacation Club.  During 1999, 2001, 2002, 2004 and 2005 the Company annexed additional units and as of December 31, 2005, Premiere Vacation Club included a total of 22,600 Vacation Ownership Interests.  The 22,600 Vacation Ownership Interests annexed into the Club consist of 4,088.5 Vacation Ownership Interests in Los Abrigados (including the Celebrity House), 324.5 Vacation Ownership Interests in the Inn at Los Abrigados, 2,955.5 Vacation Ownership Interests in Kohl’s Ranch Lodge, 995 Vacation Ownership Interests in the Golden Eagle Resort, 1,500 Vacation Ownership Interests in the Sea of Cortez Premiere Vacation Club, 1,549 Vacation Ownership Interests in VCA–South Bend, 2,861.5 Vacation Ownership Interests in VCA–Tucson, 1,092 Vacation Ownership Interests in Premiere Vacation Club at the Roundhouse Resort, 191 Vacation Ownership Interests in the Roundhouse Resort, 1,898 Vacation Ownership Interests in the Carriage House, 4,004 Vacation Ownership Interests in Bell Rock Inn, 988 Vacation Ownership Interests in Rancho Mañana Resort and 153 Vacation Ownership Interests in the Scottsdale Camelback Resort.

At December 31, 2005, 7,590.5 of the 22,600 Premiere Vacation Club Vacation Ownership Interests were available for sale.  Premiere Vacation Club is affiliated with II and memberships in Premiere Vacation Club are offered for sale at each of the Company’s sales offices.

Additional Interests

In addition to the ILX resorts, ILX owns a designated number of Vacation Ownership Interests at additional resorts owned by unaffiliated third parties.  At December 31, 2005, the Company owned Vacation Ownership Interests in a resort in South Africa, four right-to-use Vacation Ownership Interests in a resort in Mexico and one to two Vacation Ownership Interests in each of a number of additional resorts, all of which it holds for resale.

Land

In June 2005, the Company acquired approximately 2.1 acres of land in Puerto Peñasco (“Rocky Point”), Mexico.  The Company intends to develop the land into a resort featuring up to 73 units or 3,796 Vacation Ownership Interests.  

The Company, together with James Bruno Enterprises LLC (“Bruno”), formed ILX-Bruno in August 2005 to purchase and develop three parcels approximating 22 acres of land in Sedona, Arizona from the Forest Service of the Department of Agriculture.  The Company holds a 92% interest in ILX–Bruno.  In October 2005, ILX–Bruno completed the acquisition of two parcels of the land.  In February 2006, ILX-Bruno entered into a real estate contract to purchase the third parcel of land with a closing scheduled for June 30, 2006.  ILX–Bruno is currently evaluating the development opportunities but anticipates constructing additional timeshare units on at least a portion of the land.

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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 Vacation Ownership Interest in the Company’s proprietary branded Premiere Vacation Club are entitled to use their Vacation Ownership Interest at a single resort in Premiere Vacation Club or may split up their Vacation Ownership Interest according to the owner’s needs and preferences at one or more of any number of participating resorts, as well as thou sands 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.

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 most offer food, beverage and other amenities comparable to full-service commercial lodging facilities, with discounted prices extended to ILX owners at the facilities it operates.  As a result, the Company believes ILX owners generally have a high level of satisfaction, resulting in additional purchases and increased goodwill.  The Company capitalizes upon this by directing a portion of its marketing efforts towards increasing sales of Vacation Ownership Interests to ILX owners.

Enhanced Amenities.  Each of the ILX resorts (except the Los Abrigados Lodge, which does not offer Vacation Ownership Interests and does not have a restaurant, the Premiere Vacation Club at the Roundhouse Resort and the Bell Rock Inn) 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.  Many 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.  The Company has successfully developed its prototype Varsity Clubs of America resort, VCA–South Bend, and a second Varsity Clubs facility, 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 h ave resulted in a portfolio of desirable properties with a relatively low cost of product as a percentage of sales.

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 and difficulties of air travel.  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 the various properties included in Premiere Vacation Club (including the VCAs) or exchange their entire interest during any year through an exchange network.  In addition to the use of their Vacation Ownership Interest, owners who have purchased from ILX are also entitled to day-use of the offered amenities and discounted food, beverage and other services at their individual ILX resort or, in the case of Premiere Vacation Club member s, at ILX resorts included in Premiere Vacation Club, with some exceptions, 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 will also allow the Company to 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.  The vast majority of the Company’s inventory of Vacation Ownership Interests qualify as

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“red time,” the highest demand classification for purposes of participation in exchange networks such as II and RCI.  The Company intends to develop additional Premiere Vacation Club resorts in other western United States sites that 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, and financing operations are conducted internally, except certain minimal marketing functions and processing of customer payments and certain collection activities related to promissory notes given by ILX owners as partial payment for a Vacation Ownership Interest (“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 believes that its internal capabilities result in greater control and consistency of all phases of its operations that may result in lower overall costs than generally associated with outsourcing such operations.  Such integration also facilitates the Company’s Premiere V acation Club and the ILX resorts’ qualification in the II and RCI 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.  The Company’s marketing activities primarily offer travel-related inducements (such as discounted or complimentary vacations at nearby ILX resorts or at non-affiliated hotels in popular destinations in the western United States and Mexico or discounted or complimentary area activities to visitors to its resort destinations).  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 contact than other promotions.  In addition, the Company developed its proprietary Varsity Clubs of America concept to capitalize upon affinity marketi ng 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 Clubs.  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 Clubs will be developed.  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

Sales of Vacation Ownership Interests in Premiere Vacation Club commenced in June 1998.  Purchasers are offered deeded membership interests that provide rights to accommodations which may be used each use year in their entirety at one time or may be divided into shorter stays at one or a variety of the Company’s resorts or may be exchanged through a participating exchange network.  The Company’s Premiere Vacation Club emphasizes CARs (i) that 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) that 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 ad dition, membership interests in Premiere Vacation Club are marketed at an average higher gross sales price than sales of Vacation Ownership Interests in a single ILX resort.  The Company also markets membership interests in its Premiere Vacation Club to existing ILX owners, 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 consisted of Vacation Ownership Interests in the ILX resorts.  New resorts are expected to be added through the Company’s pursuit of selected acquisition opportunities, as occurred with the addition of the 1,500 one-week 25-year right-to-use Vacation Ownership Interests in Sea of Cortez Premiere Vacation Club in San Carlos, Mexico, the 988 Vacation Ownership Interests in Rancho Mañana Resort, 1,898 Vacation Ownership Interests in the Carriage House in Las Vegas and 153 Vacation Ownership Interests in Scottsdale Camelback Resort.  By marketing its inventory of Vacation Ownership Interests through 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 exte nt 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 Premiere Vacation Club.  With its existing and planned resorts in Arizona, Nevada and Mexico, the Company is seeking to build a critical mass of CARs within driving distance of the Phoenix and Tucson metropolitan markets.  The Company may develop additional networks of CARs proximate to other major metropolitan areas in the western United States.  Further capitalizing on the flexibility of Premiere Vacation Club, the Company has an agreement with Scottsdale Camelback Resort whereby Premiere Vacation Club members may utilize the resort’s facilities on a day-use basis, thereby enhancing the benefits of ownership in Premiere Vacation Club.  

Varsity Clubs of America

The Company may in the future pursue the expansion of its proprietary branded Varsity Clubs concept.  The Company would focus on development of additional Varsity Clubs near prominent colleges and universities in the western United States, or elsewhere, located in areas with a significant base of existing tourism and access to major population centers.  The Company created a Varsity Clubs wing which recognizes UNLV at the Carriage House,

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which is approximately one mile from campus.  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 operates 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-themed atrium lounge serving a variety of food and beverages and featuring a theater-wall television), 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 is located 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.  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 second Varsity Clubs facility is located in Tucson, Arizona, less than three miles from the University of Arizona.  This second Varsity Clubs offers 60 suites, or 3,120 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 900,000 and the proximity to the University of Arizona, which has a current alumni base in excess of 200,000 people.  The Company believes that all of these factors increase the appeal of VCA–Tucson to prospective buyers as well as provide increased trading power for purchasers of Vacation Ownership Interests in the resort for purposes of participation in exchange n etworks.  The VCA–Tucson on-site sales office offers customers Premiere Vacation Club Vacation Ownership Interests.  Premiere Vacation Club Interests provide the buyer with local city club privileges, access to all resorts in Premiere Vacation Club, including VCA-Tucson and VCA-South Bend, as well as a variety of additional benefits.

The Company would consider development of additional Varsity Clubs facilities that meet its specified criteria.  Management believes there exist numerous sites in the western United States, or elsewhere, that are attractive for the development of additional Varsity Clubs.  The Company believes that Varsity Clubs brand name recognition would be enhanced with the offering of additional facilities.  Varsity Clubs expansion efforts would likely 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 would 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.

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 the majority 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 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 the majority of 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.  

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The Company believes that the package of benefits offered to its sales and marketing employees, including an Employee Stock Ownership Plan, 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 toward (i) hotel guests at the ILX resorts, (ii) II and RCI 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 (iv) telemarketing, direct mail, electronic and other contact with residents of metropolitan areas within driving distance of the ILX resorts (v) its existing customer base and (vi) referrals from existing owners.  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 five sales offices located at ILX resorts.  For its sales offices, the Company primarily targets customers who live within driving distance of the ILX resort or who are vacationing at or near the 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 have been 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 than other approaches because its targeted customer base has a demonstrated interest in the locale of an ILX resort and/or a greater likelihood to take vacations.  The Company also targets local residents to its VCA-Tucson and Rancho Mañana sales offices by offering these prospective customers travel incentives in exch ange for their attendance at the sales presentation.  The Company believes that prospective customers who respond to such travel offers have strong sales potential because of the attractiveness of the convenient access of the ILX resorts to their homes, and because of their interest in travel.  The Company also directs its marketing efforts to current ILX owners.  Marketing costs to existing owners are generally lower than costs associated with first time buyers.

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 preexisting 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 170 employees at December 31, 2005, including approximately 80 sales agents at ILX’s sales offices.  Prospective first-time purchasers at sales offices located at an ILX resort 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% of the Company’s sales have historically been made on a cash basis.  However, for those customers seeking financing, the Company conducts credit pre-approval research.  The Company’s point-of-sale credit pre-approval process typically includes a review of the customer’s credit history, and may include ver ification 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 at the ILX resorts.  Sales to ILX owners accounted for 19.3% of Vacation Ownership Interest sales by the Company during 2005.  During 2004 and 2003, sales to ILX owners accounted for 16.9% and 17.5% of the Company’s total sales, respectively.  

Prior to June 1998, the Company’s inventory of Vacation Ownership Interests had historically consisted of a one-week interval that could be used on an annual or an alternate-year basis in a specified ILX resort during a specified range of dates.  ILX owners could also participate in exchange networks such as II and RCI.  Commencing in June 1998, the Company began offering 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. Premiere Vacation Club members may divide their stays into shorter vacations at any time between a specified period of time, enjoy unlimited day-use and discounted goods and services at certain ILX resorts, as well as a variety of other benefits.  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 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.  The Company typically makes financing for the remainder available to the buyer for a term of

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seven years at a fixed rate of interest, which is currently approximately 14.9% to 17.9% per annum.  The Company also offers reduced rates of interest on shorter financing terms and with larger down payment requirements.  At December 31, 2005, the Company had a portfolio of retained Customer Notes with an aggregate principal amount of $38.5 million, of which $28.9 million were serviced by one outside vendor and had a weighted average yield of 14.5% per annum, which compared favorably to the Company’s weighted average cost of borrowings for such Customer Notes of 8.75% per annum.  

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.  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 that 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 utilizes third party collection agencies for difficult accounts.

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 that it retains, most of which it hypothecates, and, as a result, at December 31, 2005, the Company retained Customer Notes in an aggregate principal amount of $38.5 million as compared to $7.9 million at December 31, 1995.  

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 and 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.

At December 31, 2005, the Company had an agreement with a financial institution for a commitment of $30.0 million under which the Company may sell certain of its Customer Notes. The agreement provides for sales on a recourse basis with a purchase rate of prime plus 2.75%.  Customer Notes may be sold at discounts or premiums to the principal amount in order to yield the purchase rate, with the premium held back by the financial institution as additional collateral.  At December 31, 2005, $25.7 million of the $30.0 million commitment was available to the Company.  The Company also has a financing commitment in the aggregate amount of $30.0 million, pursuant to which the Company may hypothecate Customer Notes that are pledged to the lender as collateral.  This borrowing bears interest at prime plus 1.5%, has a draw period through 2007, and a maturity date of 2012.  At December& nbsp;31, 2005, $11.4 million was available to the Company under this commitment.  The Company currently reserves approximately 4.5% of gross sales (including cash sales) as an allowance for doubtful accounts. At December 31, 2003, 2004 and 2005, the aggregate amount of these reserves was $4.8 million, $3.3 million and $4.1 million, respectively.  During 2003 and 2005, the Company’s provision for doubtful accounts exceeded actual write-offs by $1.7 million and $0.7 million respectively.  In 2004, the Company’s actual write-offs exceeded the provision for doubtful accounts by $1.5 million.  The Company generally writes off receivables only at such time as it accepts back a deed to the underlying property and determines the remainder uncollectible or as beneficial for income tax purposes.  In 2004, the Company wrote off receivables for which it had not exhausted collection efforts and had not accepted a deed back to the underlying property, thereby accelerating such write offs.  Future collections on such notes, if any, will be reported as increases to the allowance in the year collected.  The timing of such write-offs is neither indicative of the date delinquency commenced nor of the date the likelihood of noncollectibility was determined.  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.

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 and for the operating portion of homeowners’ dues paid by owners of Vacation Ownership Interests.  During 2005, the Company received $19.1 million in net revenues from these operations, consisting of $12.4 million in room rental and vacation interval owner dues revenue, $4.5 million in food and beverage revenue and $2.2 million in other revenue.  Of these amounts, Los Abrigados contributed $9.5 million, or 49.6% of the Company’s total resort operations revenues in 2005.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Historically, the Company’s resort operation activities have generated a less significant portion of the Company’s net profits than its core business of sales of Vacation Ownership Interests.  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 as resort occupancy by owners of Vacation Ownership Interests, who pay a lower rate through their dues than the rate charged traditional resort guests, increases; the Company acquires or builds new resorts that are in different phases of the sales life cycle and therefore have different use patterns between vacation owners and resort guests than the existing portfo lio of resorts; and

24

because future resorts may have different rate structures, reflective of their location and amenities, than existing resorts.  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 include the sale of personal care products.  The personal care products are marketed under its proprietary brand name “Sedona Spa.”  Sedona Spa products have, and continue to be, utilized at the ILX resorts as in-room amenities and are also offered for retail sale in the resort gift shops and at the Sedona Spa at Los Abrigados. Sedona Spa products are also used by the Company as promotion incentives to potential purchasers who attend the Company’s sales tours and presentations.  The Company uses direct mail and electronic mail to market Sedona Spa products to resort customers and tour participants who have previously used the products.  The Company anticipates continuing to utilize Sedona Spa products for in-room amenities, promotional incentives and in its retail outlets, as well as continuing to expand marketing effort s outside the Company.

Land Sales.  Since l993, the Company has also received revenues from the sale of primarily unimproved real property.  These operations originated as a result of the Company’s acquisition of its wholly owned subsidiary, Genesis Investment Group, Inc. (“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 the next twenty-four months, although there can be no assurance that it will be able to sell these assets at attractive prices, if at all, during this time.  Following the sale of these assets, management does not expect to regularly engage in the sale of real property.  

In April 2005, the Company sold its leasehold interest in a 44-acre parcel located proximate to the Las Vegas airport, UNLV and the “Strip” in Las Vegas, Nevada.  The Company acquired the 50-year leasehold interest in July 2001 and sold it to Streets Las Vegas, LLC for $18.0 million.  A detailed explanation of the transaction can be found in Management’s Discussion and Analysis.

Resale Operations.  The Company owns and operates Timeshare Resale Brokers, Inc. (“TRBI”), an Arizona company engaged in the resale of Vacation Ownership Interests on behalf of consumers and others, for which it earns a commission upon sale.  The operation is based in Sedona, Arizona.  To date, the operations of TRBI have not been material to the Company.  

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 II and RCI, the leading exchange network operators.  In the “2003 Ragatz Associates Resort Timesharing in the United States Report,” exchange opportunity was cited by purchasers of interval interests as one of the most significant factors in their motivation to purchase an interest.  Membership in II or RCI 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 Owners hip Interest for an occupancy right in another participating resort by listing the Vacation Ownership Interest as available with the exchange network operator and by 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.  The high rating of and demand for the ILX resorts enhance the exchange opportunities available to ILX owners.  If II or RCI is unable to meet the member’s initial request, the network operator may sugge st alternative resorts, based on availability.  ILX also offers purchasers enrollment in a cruise exchange program in which the customer may exchange his or her Vacation Ownership Interest for or receive discounts on cruises worldwide.  Exchanges and discounts through this program are offered on a variety of cruise lines to a broad selection of destinations.  In addition, ILX’s Centralized 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 tends to increase customer satisfaction.

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

25

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 consists of a large number of local and regional resort developers and operators.  In addition, some of the world’s most widely-recognized lodging, hospitality and entertainment companies 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, Starwood Hotels & Resorts Worldwide, Inc., Cendant Corporation, and their subsidiaries and affiliates.  In addition, other publicly traded companies such as, Silverleaf Resorts, Inc. and Bluegreen Corporation 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 co mpetes 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.  In recent years there has been significant consolidation in the industry and in addition several entities have encountered challenges, resulting in their attempt to reorganize through either consolidation or bankruptcy.  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.

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 Vacation Ownership 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 Vacation Ownership 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 laws, consumer protection 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.  

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 contamin ation 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, or more elaborate, reports.  To date, the Company has obtained environmental reports with respect to four of the ILX resorts.  In addition, the Company does conduct signifi cant in-house due diligence prior to the acquisition of any real property interests.  To date, the Company’s investigations of its properties have not revealed any environmental liability that the Company believes would have a material adverse effect on the Company, its business, assets, financial condition or results of operations, nor is the Company aware of any such material environmental liability.

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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.  Future 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.

Employees

As of December 31, 2005, the Company had approximately 840 employees, of which approximately 530 were employed on a full-time basis.  The Company believes relations with its employees are good and none of its employees are represented by labor unions.  The Company has adopted an Employee Stock Ownership Plan for the benefit of its employees.

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, acts of terrorism, 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.  

Corporate Headquarters

The Company leases 10,455 square feet for its corporate offices in Phoenix, Arizona, under a lease that expires on January 31, 2010.  

Item 3. Legal Proceedings

In September 2003, the Company received pleadings indicating that a lawsuit against the Company and its Sedona Vacation Club and Premiere Vacation Club businesses was filed by two individuals claiming damages for deceptive and abusive practices on behalf of a purported class of purchasers of vacation ownership interests.  The Company, Sedona Vacation Club and Premiere Vacation Club received amended complaints in May and June 2004.  In both instances, named plaintiffs were added and deleted.  The amended complaints were considerably more narrow in scope than the initial complaint.  The suit alleged claims for breach of the Arizona Consumer Fraud Act, the Arizona Real Estate Timeshare Act, breach of contract and unjust enrichment.  In April 2005, the Superior Court of Arizona In and For the County of Coconino granted preliminary approval of a Settlement Agreement (attached as Exhibit 99 .1 to the Company’s Form 8-K filed on April 17, 2005 and incorporated herein by reference).  In the Settlement Agreement the Company denied each and every one of the Plaintiffs’ aggregations of unlawful or wrongful conduct and injuries.  A court hearing was held on July 26, 2005 and final approval of the Settlement was granted.  The pre-tax legal and settlement expenses associated with the litigation were $627,069 for the year ended December 31, 2005 as indicated in “Lawsuit and settlement expenses” on the consolidated statements of operation.

In October 2005, The Greens of Las Vegas, Inc. (“GOLV”) filed suit against the Company, VCA Nevada Incorporated (“VCA-NV”), Greens Worldwide Incorporated (“GWWI”) and all of the directors of Greens Worldwide Incorporated from 2003 to the present.  GOLV alleges that the Company interfered with prospective advantage between GOLV and third parties, interfered with contracts between GOLV and VCA Nevada Incorporated, fraud, unjust enrichment and civil conspiracy.  All Defendants answered the Complaint on March 16, 2006 and asserted various counterclaims.  The Company believes that the allegations are without merit and intends to vigorously defend the case.

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

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Item 4. Submission of Matters to a Vote of Security Holders

None

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(A)

The following table sets forth, for the periods indicated, the range of high and low sales prices for the common stock.  The information is as reported by the American Stock Exchange, which listed the common stock of the Company on February 11, 1998.  As of December 31, 2005, the common stock was held by approximately 873 holders of record.  The Company announced its first dividend of $0.40 per share in December 2002.  It has increased the dividend each year.  In 2004, the dividend was $0.42 per share and in 2005 the dividend was $0.44 per share, both paid in quarterly installments.  In September 2005, the dividend was increased to $0.47 per share, payable quarterly for 2006.  Dividends on common stock are subordinate to dividends payable on the Company’s Series A and Series C Preferred Stock.

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	Common Stock
	High	Low
Year Ended December 31, 2004
First Quarter	$11.55	$7.00
Second Quarter	10.85	8.76
Third Quarter	11.14	8.75
Fourth Quarter	16.65	9.50
Year Ended December 31, 2005
First Quarter	10.82	9.00
Second Quarter	10.25	9.15
Third Quarter	9.86	8.60
Fourth Quarter	10.69	8.50

(C)

ISSUER PURCHASES OF EQUITY SECURITIES
	(a) Total Number of Shares (or Units) purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Period
October 1, 2005 -     October 31, 2005	-	$          -	-	-
November 1, 2005 - November 31, 2005	17,100	$     8.93	-	-
December 1, 2005 - December 31, 2005	8,000	$   10.19	-	-
Total	25,100	$     9.34	-	-

Item 6. Selected Financial Data

The selected consolidated historical financial information set forth below for the five years ended December 31, 2005 has been derived from the consolidated financial statements of the Company.

The Selected Consolidated 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.”

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	December 31,
	2001	2002	2003	2004	2005
	(In Thousands, Except Per Share Data)
Revenues	$  48,309	$  58,593	$  65,390	$  59,629	$  56,887
Net income from continuing operations	2,032	3,082	2,751	2,717	6,151
Net income (loss) from discontinued operations	-	1	(1,833)	(36)	93
Net income per share-basic from continuing operations	0.62	1.03	0.93	0.89	1.74
Net income (loss) per share-basic from discontinued operations	-	-	(0.63)	(0.01)	0.03
Net income per share-diluted from continuing operations	0.61	1.00	0.91	0.88	1.73
Net income (loss) per share-diluted from discontinued operations	-	-	(0.62)	(0.01)	0.03
Cash dividends declared per common share	-	-	0.40	0.42	0.44
Total assets	74,125	80,421	83,339	89,260	85,345
Notes payable	41,619	44,729	48,193	46,993	38,377
Shareholders’ equity	25,785	27,747	27,253	33,225	37,543

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion of the Company’s financial condition and results of operations includes certain forward-looking statements.  When used in this Form 10-K, the words “estimate,” “projection,” “intend,” “anticipates,” “expects,” “may,” “should” and similar terms are intended to identify forward-looking statements that relate to the Company’s future performance.  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.

Executive 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, from the operating portion of homeowners’ association dues from owners of Vacation Ownership Interests, and from the sale of food, beverages or other services at such resorts.  The Company currently owns eight resorts in Arizona (including a resort in Sedona, Arizona that is not currently registered with the Arizona Department of Real Estate nor being marketed for sale as Vacation Ownership Interests and is operated under a long-term lease arrangement), one resort in Indiana, one resort in Colorado, 1,500 Vacation Ownership Interests in a resort in San Carlos, Mexico, 191 weeks at a resort in Pinetop, Arizona, 1,967 Vacation Ownership Interests in a resort in Las Vegas, Nevada and 153 weeks at a resort in Scottsdale, Arizona.

Significant Accounting Policies

The following discussion of the Company’s financial condition and results of operations is based on the accompanying consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.  A detailed explanation of significant accounting policies is contained in the consolidated financial statements.  The preparation of which requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and the related disclosure of commitments and contingencies.  The Company evaluates its estimates, including those that relate to its allowance for possible credit losses and the estimate of contingent liabilities related to litigation on an ongoing basis.  The Company bases its estimates on historical experience, current economic factors and legal guidance, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources.  Actual results may differ materially from these estimates under different assumptions and conditions.  

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Results Of Operations

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

	Year Ended December 31,
	2003	2004	2005
As a percentage of total revenues:
Sales of Vacation Ownership Interests	62.3%	61.3%	59.3%
Resort operating revenue	29.0%	31.8%	33.6%
Interest income	8.7%	6.9%	7.1%
Total revenues	100.0%	100.0%	100.0%
As a percentage of sales of Vacation Ownership Interests:
Cost of Vacation Ownership Interests sold	13.3%	13.0%	14.8%
Sales and marketing	65.8%	62.0%	61.7%
Provision for doubtful accounts	5.5%	4.4%	4.4%
Contribution margin percentage from sale of Vacation
Ownership Interests (1)	15.5%	20.6%	19.1%
As a percentage of resort operating revenue:
Cost of resort operations	88.1%	85.3%	85.8%
As a percentage of total revenues:
General and administrative	9.7%	10.3%	10.9%
Depreciation and amortization	2.7%	3.3%	3.1%
Operating income	10.4%	11.3%	22.0%
Selected operating data:
Vacation Ownership Interests sold (2)(3)	2,191	1,935	1,584
Average sales price per Vacation Ownership Interest sold
(excluding revenues from Upgrades) (2)	$     14,894	$     15,214	$     16,648
Average sales price per Vacation Ownership Interest sold
(including revenues from Upgrades) (2)	$     18,020	$     18,272	$     20,539

(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 3,283, 2,931 and 2,546 biennial and annual Vacation Ownership Interests sold to new purchasers for the years ended December 31, 2003, 2004 and 2005, respectively.  Excludes conversions and upgrades.

Comparison of Year Ended December 31, 2004 to December 31, 2005

Sales of Vacation Ownership Interests decreased 7.8% or $2.9 million in 2005 to $33.7 million from $36.6 million in 2004, reflecting decreased sales from the Las Vegas and Sedona sales offices.  The Las Vegas office was relocated from its off-site location and reduced in scale in late 2003.  The Company continued to make refinements to the sales and marketing processes of the Las Vegas sales office but decided in June 2005, following the sale of its leasehold interest in a 44-acre parcel of land in Las Vegas, to withdraw from this market.  The decrease in sales of Vacation Ownership Interests at the Sedona office is due to reduced tours in 2005 due in part to inclement weather.  

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The decreased revenue from the Las Vegas and Sedona sales offices was partially offset by sales generated by the Rancho Mañana sales office which opened in September 2004.  Upgrade revenue increased 4.1% to $6.2 million in 2005 from $5.9 million in 2004.  The increase reflects increased marketing efforts to existing owners visiting the Company’s Sedona resorts.  

The average sales price per Vacation Ownership Interest sold (excluding Upgrades) increased 9.4% to $16,648 in 2005 compared to $15,214 in 2004 and the average sales price per Vacation Ownership Interest sold including Upgrades increased 12.4% to $20,539 in 2005 from $18,272 in 2004.  A change in the product mix sold, including an increase in the percentage of sales of biennial interests (see paragraph below), which are priced at average premiums of 35% more than 50% of the price of the same annual interest, contributed to the increase in the average sales price.

The number of Vacation Ownership Interests sold decreased 18.1% to 1,584 in 2005 from 1,935 in 2004.  Sales of Vacation Ownership Interests in 2005 included 1,925 biennial Vacation Ownership Interests (counted as 962.5 annual Vacation Ownership Interests) and 621 annual Vacation Ownership Interests compared to 1,992 biennial Vacation Ownership Interests (counted as 996 annual Vacation Ownership Interests) and 939 annual Vacation Ownership Interests in 2004.  The decrease reflects the reduced scale and subsequent closure in 2005 of the Las Vegas sales office and inclement weather in Sedona during the first half of 2005, offset by the Rancho Mañana sales office which opened in September 2004.

Resort operating revenues increased 0.9% from $19.0 million in 2004 to $19.1 million in 2005.  The cost of resort operations increased $0.2 million, or 1.4% to $16.4 million in 2005 from $16.2 million in 2004.  Cost of resort operations as a percentage of resort operating revenue increased to 85.8% in 2005 from 85.3% in 2004.  The increase in cost of resort operations was due mainly to pre-opening and startup costs at the Company’s new resort in Pinetop.  

Interest and finance income decreased by 1.4% to $4.0 million in 2005 from $4.1 million in 2004, reflecting reduced interest spreads due to the impact of higher interest rates and greater early payoffs of customer notes.

Cost of Vacation Ownership Interests sold as a percentage of Vacation Ownership Interest sales increased to 14.8% in 2005 from 13.0% in 2004, reflecting the addition of Rancho Mañana inventory.  

Sales and marketing as a percentage of sales of Vacation Ownership Interests decreased to 61.7% in 2005 compared to 62.0% in 2004, reflecting closure of the Las Vegas sales office during 2005.  This office had greater sales and marketing costs as a percentage of sales than other offices.

The provision for doubtful accounts as a percentage of Vacation Ownership Interest sales was consistent at 4.4% in 2005 and 2004.

General and administrative expenses increased 1.3% to $6.2 million in 2005 from $6.1 million in 2004.  General and administrative expenses increased between years as a percentage of total timeshare revenues from 10.3% in 2004 to 10.9% in 2005.  The small increase in actual expenses reflects additional contributions to the ESOP and profit sharing plans in 2005 as well as increased charitable contributions. The increased contributions were made in response to profit generated from the sale of  the Company’s leasehold interest in a 44-acre real estate parcel in Las Vegas described further below.  These increases were offset in part by decreased expenses in Las Vegas following the sale of the leasehold interest.

Lawsuit and settlement expenses for the year ended December 31, 2005 contain the legal and settlement charges associated with the lawsuit that was filed against the Company, its Sedona Vacation Club (“SVCO”) and Premiere Vacation Club (“PVCO”) businesses in September 2003.  An explanation of the lawsuit is contained in Note 10 of the accompanying Notes to Consolidated Financial Statements as well as under Item 3. Legal Proceedings in Part I of the 10-K.  The legal and settlement expenses include the Company’s cost of “ILX Script” that it issued to all SVCO and PVCO owners, printing and postage costs associated with printing and mailing of the “ILX Script,” the printing and the mailing of the Settlement Notice, legal expenses for the plaintiff’s attorneys and legal expenses for the Company’s representation.  The Settlement Agreement received Court approval in July.

Income from land and other, net for the year ended December 31, 2005 includes a net gain of $7,755,733 on the sale of VCA-NV’s leasehold interest in a 44-acre parcel of land located proximate to the Las Vegas airport, UNLV and the “Strip” in Las Vegas, Nevada.  The 50-year leasehold interest with Clark County was originally acquired in July 2001 and was sold to Streets Las Vegas, L.L.C. (“Streets”) for $18,000,000 cash in April 2005.  The closing documents provided for the release of VCA-NV at 91 days after recordation of Clark County’s Consent to the Assignment and Assumption of the Lease.  Clark County fully consented to, and recorded the Assignment and Assumption of Lease in June 2005.  Streets is currently negotiating a new lease for the property and the Company will not be included as a guarantor on the new lease.  At the April closing, the Company r eceived $14,612,031 in cash which represented the $18,000,000 sales price plus $10,480 reimbursement for property taxes less $3,382,799 for payment in full of the note payable and accrued interest secured by the leasehold interest and $15,650 in closing costs.  The full sales price was received and the Company was not obligated to perform activities after the sale, nor is it contingently liable on any debt on the property.

32

Interest expense increased 4.3% from $2.3 million in 2004 to $2.4 million in 2005, reflecting the combined net effect of higher interest rates on the Company’s variable rate notes, and a lower average borrowing balance in 2005.

2005 discontinued operations reflect the recovery of $100,000 cash and a note receivable for $250,000 from GWWI, less an allowance on the note receivable of $150,000 and cash paid for GWWI expenses of $45,066, net of tax expense of $61,974.  The loss from discontinued operations of $36,082 in 2004 reflects the write-off of funds advanced to GWWI in 2004 of $60,136, net of a tax benefit of $24,054.

33

Comparison of Year Ended December 31, 2003 to December 31, 2004

Sales of Vacation Ownership Interests decreased 10.3% or $4.2 million in 2004 to $36.6 million from $40.8 million in 2003, reflecting decreased sales from the Las Vegas sales office.  In October 2003, the Las Vegas sales operation was relocated from its offsite location to the Carriage House and the scale of the operation was reduced.  Upgrade revenue decreased 13.6% to $5.9 million in 2004 from $6.8 million in 2003.  The decrease reflects the $1.0 million in revenue in 2003 from a special program in which owners in the vicinity of VCA South Bend were invited to upgrade their Varsity Club ownership to Premiere Vacation Club.  The average sales price per Vacation Ownership Interest sold (excluding Upgrades) increased 2.1% to $15,214 in 2004 compared to $14,894 in 2003 and the average sales price per Vacation Ownership Interest sold including Upgrades increased 1.4% to $18,272 in 2004 from $ 18,020 in 2003.

The number of Vacation Ownership Interests sold decreased 11.7% to 1,935 in 2004 from 2,191 in 2003.  Sales of Vacation Ownership Interests in 2004 included 1,992 biennial Vacation Ownership Interests (counted as 996 annual Vacation Ownership Interests) and 939 annual Vacation Ownership Interests compared to 2,185 biennial Vacation Ownership Interests (counted as 1,092.5 annual Vacation Ownership Interests) and 1,098 annual Vacation Ownership Interests in 2003.  The decrease reflects the reduced scale of the Las Vegas sales office in 2004.

Resort operating revenues were consistent at $19.0 million in 2004 and 2003.  The cost of resort operations decreased $0.5 million, or 3.0% to $16.2 million in 2004 from $16.7 million in 2003.  Cost of resort operations as a percentage of resort operating revenue decreased to 85.3% in 2004 from 88.1% in 2003.  These decreases reflect the fourth quarter 2003 closure of Bogee’s Sports Bar & Grill (“Bogee’s”) in Las Vegas, Nevada and improved operating results at the Joey Bistro restaurant at the Carriage House in Las Vegas, Nevada.  

Interest and finance income decreased by 27.7% to $4.1 million in 2004 from $5.7 million in 2003, reflecting a fluctuation in the mix of hypothecated and sold paper between years.  

Cost of Vacation Ownership Interests sold as a percentage of Vacation Ownership Interest sales decreased to 13.0% in 2004 from 13.3% in 2003, as a result of an increase in minimum sales prices for certain types of Vacation Ownership Interests in Premiere Vacation Club.  

Sales and marketing as a percentage of sales of Vacation Ownership Interests decreased to 62.0% in 2004 compared to 65.8% in 2003, reflecting improved efficiences of the Las Vegas sales office.

The provision for doubtful accounts as a percentage of Vacation Ownership Interest sales decreased to 4.4% in 2004 from 5.5% in 2003.  The higher percentage in 2003 resulted from a bulk entry based on a quarterly analysis.

General and administrative expenses decreased 3.4% to $6.1 million in 2004 from $6.4 million in 2003.  General and administrative expenses increased between years as a percentage of total timeshare revenues from 9.7% in 2003 to 10.3% in 2004.  The decrease in actual expenses reflects lower contributions to the ESOP plan in 2004 and decreased expenses in Las Vegas, offset by increased salaries and related payroll taxes.

Interest expense increased 2.9% from $2.2 million in 2003 to $2.3 million in 2004, reflecting the combined net effect of higher interest rates on the Company’s variable rate notes, and a lower average balance in 2004.

2003 discontinued operations reflect the cessation of operations by GWWI in 2003 and the reporting of the impairment of the Company’s note receivable from GWWI and investment in GWWI, as well as its operating losses, and rent, net of tax benefits.  The loss from discontinued operations of $36,082 in 2004 reflects the write-off of funds advanced to GWWI in 2004 of $60,136, net of a tax benefit of $24,054.

Liquidity and Capital Resources

Sources of Cash

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.  Cash used in operating activities was $1.8 million in 2005 as compared to cash provided by operating activities of $3.1 million in 2004 and $3.4 million in 2003.  The decrease in cash provided by operations from 2003 to 2004 reflects a net increase in resort property held for Vacation Ownership Interest sales and resort property under development due to decreased sales of Vacation Ownership Interests in 2004 and additions in 2004 for the construction of the Premiere Vacation Club at the Roundhouse Resort, renovations at the Bell Rock Inn and the purchase of Rancho Mañana Resort.  Also contributing to the decrease was the impairment of the note receivable from and undistributed l osses on the equity investment in GWWI, offset by the increased net income and related income taxes.  The decrease in cash provided by operations from 2004 to 2005 reflects a gain on the sale of property and equipment due to the sale of the leasehold interest in Las Vegas which is deducted from cash flows from operations (and included in cash flows from investing activities), a net increase in resort property held for Vacation Ownership Interest sales and resort property

34

under development due to construction of Premiere Vacation Club at the Roundhouse Resort and the acquisition of land in Puerto Peñasco, Mexico, and the recovery of a portion of a note receivable from GWWI written off in 2004.  These decreases in cash are offset by a decrease in notes receivable due to a higher amount of sold notes, increased accounts payable and accrued and other liabilities reflecting both accrual of the lawsuit and settlement expenses and timing differences between years, a decrease in other assets due to lower prepaid loan fees due to the payoff of various loans in 2005 and the net effect of increased net income and resultant income tax expense due to the sale of the leasehold interest in Las Vegas.  

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.  Because the Company uses significant amounts of cash in the development and marketing of Vacation Ownership Interests, but collects the cash on the Customer Notes receivable over a long period of time, borrowing against and/or selling receivables is necessary to provide sufficient cash to fund its normal operations.

The fluctuations in cash provided by financing activities from $1.5 million in 2003 to $2.2 million in 2004 and cash used in financing activities of $8.5 million in 2005, reflect greater repayments of notes payable, the increase in common stock dividends paid each year since 2003 and the increase in treasury stock purchases in 2005, net of the proceeds from the issuance of common stock under a private placement in 2004 (See Note 11 of Notes to Consolidated Financial Statements).  In April 2005, the Company sold its leasehold interest in a 44-acre parcel located proximate to the Las Vegas Airport, UNLV and the “Strip” in Las Vegas, Nevada.  The Company acquired the 50-year leasehold interest in July 2001 and sold it to Streets for $18,000,000.  In conjunction with the closing, the note payable secured by the leasehold interest was paid in full for $3,382,799.  In addition, the Com pany used proceeds from the sale of its Las Vegas leasehold interest to pay $2,000,000 in principal and $1,000,000 in prepaid release fees on an existing construction loan, $1,000,000 in principal on an existing note payable, and $316,667 to pay an existing note in full.

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 the Company receives cash either in the form of a down payment, as an installment payment or from proceeds from the sale of the Customer Note.  The deferral of income tax liability conserves cash resources on a current basis.  Interest may be imposed, however, on the amount of tax attributable to the installment payments for the period beginning on the date of sale and ending on the date the related tax is paid.  If the Company is otherwise not subject to tax in a particular year, no interest is imposed since the interest is based on the amount of tax paid in that year.  The consolidated financial statemen ts 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, 2005, the Company’s subsidiary, Genesis, had federal NOL carryforwards of approximately $630,000, 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.

Uses of Cash

Investing activities typically reflect a net use of cash because of capital additions.  Net cash used in investing activities in 2003 and 2004 was $5.3 million and $1.6 million respectively as compared to cash provided by investing activities of $8.5 million in 2005.  The cash provided by investing activities in 2005 as compared to 2004 and 2003, is reflective of the sale of the Las Vegas leasehold interest net of the ILX-Bruno purchase of approximately 22 acres of land in Sedona, Arizona from the Forest Service.

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.  

On April 9, 1999 (effective January 1, 1999), the Company formed the ILX Resorts Incorporated Employee Stock Ownership Plan and Trust (the “ESOP”).  The intent of the ESOP is to provide a retirement program for employees that aligns their interests with those of the Company.  During 2003, the Company contributed $181,500 to the ESOP and the funds were used to repay a note guaranteed by the Company.  No contribution was made in 2004 and during the year ended December 31, 2005, the Company made contributions of $146,370 which were used to purchase 15,400 Common shares.

The ESOP may purchase additional shares for future year contributions through loans made directly to the ESOP and guaranteed by the Company.  Such borrowings are not expected to exceed $1,000,000.

35

Credit Facilities and Capital

At December 31, 2005, the Company has an agreement with a financial institution for a commitment of $30.0 million under which the Company may sell certain of its Customer Notes.  The agreement provides for sales on a recourse basis with a purchase rate of prime plus 2.75%.  Customer Notes may be sold at discounts or premiums to the principal amount in order to yield the purchase rate, with the premium held back by the financial institution as additional collateral. At December 31, 2005, $25.7 million of the $30.0 million commitment was available to the Company.

The Company also has a financing commitment for $30.0 million whereby the Company may borrow against notes receivable pledged as collateral.  These borrowings bear interest at a rate of prime plus 1.5%. The $30.0 million commitment was amended in February 2006 and, under the amended agreement, the borrowing period expires in 2007 and the maturity is in 2012.  At December 31, 2005, approximately $11.4 million is available under this commitment.

In May 2002, the Company registered with the Arizona Department of Real Estate and annexed to Premiere Vacation Club 4,992 studio Vacation Ownership Interests in the Bell Rock Inn.  In 2004 and 2005, the Company combined and renovated select studio units into larger unit types.  As a result, in 2004, the Company deannexed 572 studio Vacation Ownership Interests and annexed into Premiere Vacation Club 156 two-bedroom Vacation Ownership Interests and 52 one-bedroom Vacation Ownership Interests.  In 2005, the Company deannexed 1,196 studio Vacation Ownership Interests and annexed into Premiere Vacation Club 520 one-bedroom and 52 two-bedroom Vacation Ownership Interests.  This property was acquired through the assumption of an existing mortgage which does not provide for release provisions.  In order to facilitate the registration, the Company secured a guaranty commitment from one of its lenders, opened an escrow account and makes monthly release payments.  The balance of this escrow account of $2,261,407 at December 31, 2005 is included in other assets.

In May 2003 and April 2004, the Company amended an existing construction loan to secure an additional $2.0 million and $1.0 million, respectively, in construction financing for projects and to pay off an existing note.  In August 2004, the Company amended the same construction loan to provide for an additional $4.0 million in construction financing for development of units on its land in Pinetop, Arizona and to payoff an existing first mortgage on the property.  This note was repaid in December 2005.

In October 2003, the Company entered into a one year revolving line of credit agreement, secured by certain Customer Notes, with a bank to provide $600,000 of working capital at an interest rate of prime plus 1.0% with interest paid monthly and all unpaid principal and interest due in October 2004.  In April 2004, the line of credit was amended to increase the credit limit to $1.1 million and extend the maturity date to April 2005.  In 2005, the maturity date was further extended to May 2006.

In February 2004, the Company borrowed $400,000 to purchase 150 timeshare intervals at the Scottsdale Camelback Resort.  The note bore interest at prime plus 1.5%, with monthly principal payments of $5,556 plus interest.  This note was repaid in June 2005.

In July 2004, the Company borrowed $1.8 million, to purchase 19 units and approximately 4 acres of land at the Rancho Mañana Resort.  The note bears interest at prime plus 2.25%, paid monthly, with monthly principal payments of $550 per annual Premiere Vacation Club sale and $275 per biennial Premiere Vacation Club sale.

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

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

36

Contractual Cash Obligations and Commercial Commitments

The following table presents the Company’s contractual cash obligations and commercial commitments as of December 31, 2005.  The Company also sells consumer notes with recourse.  The Company has no other significant contractual obligations or commercial commitments either on or off balance sheet as of this date.

	Payments Due by Period
Contractual Cash Obligations	Total	< 1 Year	1-3 Years	4-5 Years	> 5 Years
Long-term Debt	$    38,277,000	$       5,078,000	$   12,273,000	$  11,017,000	$     9,909,000
Capital Lease Obligations	100,000	100,000	-	-	-
Operating Leases	17,922,000	1,871,000	3,399,000	2,906,000	9,746,000
Total	$    56,299,000	$       7,049,000	$   15,672,000	$  13,923,000	$   19,655,000

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.

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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company currently derives a portion of income from the spread between the interest rates charged to customers and the interest rates at which it borrows against customer notes or at which it sells customer notes.  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 interest expense to exceed interest income on the Company’s portfolio of retained customer notes.  The Company does not currently engage in interest rate hedging transactions.  Therefore, any change in the prime interest rate could have a material effect on results of operations, liquidity and financial position.  If there were a one-percentage point change in the prevailing prime rate at December 31, 2005, then based on the $21.7 million balance of variable rate debt at December 31, 20 05, interest expense would increase or decrease by approximately $217,000 (before income taxes) per annum.

Item 8. Financial Statements and Supplementary Data

See the information set forth on Index to Consolidated Financial Statements appearing on page F-1 of this Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)).  Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rul es and forms.

37

(b)

Changes in Internal Control over Financial Reporting

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

Item 9B. Other Information

None

PART III

Item 10.  Directors and Executive Officers of the Registrant

Information in response to this Item is set forth in the Company’s Definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

Item 11.  Executive Compensation

Information in response to this Item is set forth in the Company’s Definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information in response to this Item is set forth in the Company’s Definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

Information in response to this Item is set forth in the Company’s Definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

Item 14.  Principal Accounting Fees and Services

Information in response to this Item is set forth in the Company’s Definitive Proxy Statement relating to the 2006 Annual Meeting of Shareholders and is incorporated herein by reference.

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a) (1)

Consolidated Financial Statements

Page or Method of Filing

(i)

Report of Hansen, Barnett & Maxwell,

Page F-2
a professional corporation

(ii)

Consolidated Financial Statements and

Pages F-3 through F-21

Notes to Consolidated Statements of

the Registrant, including Consolidated

Balance Sheets as of December 31,

2004 and 2005 and Consolidated

Statements of Operations,

Shareholders’ Equity and Cash

Flows for each of the three years

ended December 31, 2005, 2004

and 2003.

(a) (2)

Consolidated Financial Statement Schedules

Schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is given in the financial statements, including the notes thereto.

(a) (3)

Exhibits

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

38

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30^th day of March, 2006.

ILX Resorts Incorporated,

an Arizona corporation

(Registrant)

By: /s/ Joseph P. Martori

Joseph P. Martori

Chairman of the Board and

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Joseph P. Martori	Chairman of the Board and	March 30, 2006
Joseph P. Martori	Chief Executive Officer
	(principal executive officer)
/s/ Nancy J. Stone	President, Chief Operating	March 30, 2006
Nancy J. Stone	Officer and Director
/s/ Margaret M. Eardley	Executive Vice President and	March 30, 2006
Margaret M. Eardley	Chief Financial Officer
	(principal financial officer)
/s/ Taryn L. Chmielewski	Vice President and Chief	March 30, 2006
Taryn L. Chmielewski	Accounting Officer
/s/ Edward S. Zielinski	Executive Vice President and	March 30, 2006
Edward S. Zielinski	Director
/s/ Joseph P. Martori, II	Executive Vice President and	March 30, 2006
Joseph P. Martori, II	Director
/s/ Steven R. Chanen	Director	March 30, 2006
Steven R. Chanen
/s/ Wayne M. Greenholtz	Director	March 30, 2006
Wayne M. Greenholtz
/s/ Patrick J. McGroder III	Director	March 30, 2006
Patrick J. McGroder III
/s/ James W. Myers	Director	March 30, 2006
James W. Myers
/s/ Steven A. White	Director	March 30, 2006
Steven A. White

39

INDEX TO FINANCIAL STATEMENTS
	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 2004 and 2005	F-3
Consolidated Statements of Operations for the years ended December 31, 2003,
2004 and 2005	F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
2003, 2004 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003,
2004 and 2005	F-6
Notes to Consolidated Financial Statements	F-7

F-1

HANSEN, BARNETT & MAXWELL

A Professional Corporation

CERTIFIED PUBLIC ACCOUNTANTS

5 Triad Center, Suite 750

Salt Lake City, UT 84180-1128

Phone: (801) 532-2200

Fax: (801) 532-7944

www.hbmcpas.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of ILX Resorts Incorporated

We have audited the accompanying consolidated balance sheets of ILX Resorts Incorporated and Subsidiaries (the “Company”) as of December 31, 2005 and 2004 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah

March 29, 2006

F-2

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
	December 31,
	2004	2005
Cash and cash equivalents	$     5,717,484	$     3,984,467
Notes receivable, net (Notes 2 and 9)	40,405,818	39,841,118
Resort property held for Vacation Ownership Interest sales
(Notes 2, 3, and 9)	19,396,486	16,750,859
Resort property under development	1,373,469	4,343,734
Income taxes receivable	-	1,976,967
Land held for sale	701,761	565,164
Deferred assets	24,655	24,655
Property and equipment, net (Notes 6, 7, 9, 15, and 16)	11,216,882	14,801,708
Other assets (Note 5)	10,423,457	5,033,223
TOTAL ASSETS	$   89,260,012	$   87,321,895
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable	$     1,467,860	$     1,994,102
Accrued expenses and other liabilities	2,924,521	3,244,440
Income taxes payable (Note 8)	623,845	-
Notes payable (Note 9)	46,993,045	38,377,194
Deferred income taxes (Note 8)	4,025,368	5,112,662
TOTAL LIABILITIES	56,034,639	48,728,398
MINORITY INTERESTS (Note 15)	-	1,050,000
COMMITMENTS AND CONTINGENCIES	-	-
(Notes 10 and 17)
SHAREHOLDERS' EQUITY (Notes 11, 12 and 13):
Preferred stock, $10 par value; 10,000,000 shares authorized;
117,722 shares issued and outstanding;
liquidation preference of  $1,177,220	746,665	746,665

See notes to consolidated financial statements

F-3

Common stock, no par value; 30,000,000 shares authorized;
5,060,395 and 5,205,619 shares issued	25,290,339	26,601,427
Treasury stock, at cost, 1,568,219 and 1,722,917 shares, respectively	(6,537,380)	(8,004,838)
Additional paid-in capital	59,435	59,435
Deferred compensation	-	(184,800)
Retained earnings	13,666,314	18,325,608
Total shareholders' equity	33,225,373	37,543,497
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$   89,260,012	$   87,321,895

See notes to consolidated financial statements

F-4

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
	Year Ended December 31,
	2003	2004	2005
REVENUES:
Sales of Vacation Ownership Interests	$ 40,758,311	$ 36,554,589	$ 33,703,306
Resort operating revenue	18,952,729	18,970,494	19,136,423
Interest and finance income	5,678,980	4,104,096	4,047,698
Total revenues	65,390,020	59,629,179	56,887,427
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership Interests sold	5,424,084	4,742,004	5,000,846
Cost of resort operations	16,689,575	16,189,367	16,424,059
Sales and marketing	26,803,778	22,678,835	20,779,091
General and administrative	6,351,881	6,136,679	6,216,213
Provision for doubtful accounts	2,232,256	1,613,121	1,480,242
Depreciation and amortization	1,735,767	1,982,171	1,781,032
Total cost of sales and operating expenses	59,237,341	53,342,177	51,681,483
Timeshare and resort operating income	6,152,679	6,287,002	5,205,944
Lawsuit and settlement expenses (Note 10)	-	-	(627,069)
Income from land and other, net (Notes 7 and 15)	671,569	434,325	7,954,864
Total operating income	6,824,248	6,721,327	12,533,739
Interest expense (Note 9)	(2,243,867)	(2,307,961)	(2,406,942)
Income from continuing operations before income taxes	4,580,381	4,413,366	10,126,797
Income tax expense (Note 8)	(1,829,367)	(1,696,714)	(3,975,753)
Income from continuing operations	2,751,014	2,716,652	6,151,044

See notes to consolidated financial statements

F-5

Discontinued operations, net of a tax benefit of $1,222,269
and $24,054 for 2003 and 2004, and tax expense of $61,974
for 2005, respectively  (Note 15)	(1,833,404)	(36,082)	92,961
NET INCOME	$      917,610	$   2,680,570	$   6,244,005
BASIC AND DILUTED NET INCOME PER SHARE (Notes 1 and 4):
Basic from continuing operations	$            0.93	$            0.89	$            1.74
Basic from discontinued operations	$         (0.63)	$         (0.01)	$            0.03
Total Basic net income per share	$            0.30	$            0.88	$            1.77
Diluted from continuing operations	$            0.91	$            0.88	$            1.73
Diluted from discontinued operations	$         (0.62)	$         (0.01)	$            0.03
Total Diluted net income per share	$            0.29	$            0.87	$            1.76
DIVIDENDS PER SHARE	$            0.40	$            0.42	$            0.44

See notes to consolidated financial statements

F-6

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
							Additional		Guaranteed
	Preferred Stock		Common Stock		Treasury Stock		Paid In	Deferred	ESOP	Retained
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Compensation	Obligation	Earnings	Total
BALANCES, DECEMBER 31, 2002	177,591	$    916,726	4,346,387	$   19,497,334	(1,414,795)	$   (5,268,277)	$          66,050	$                              -	$         (181,500)	$   12,716,673	$    27,747,006
Net income										917,610	917,610
Issuance of common stock			3,668	30,917							30,917
Common stock dividends										(1,429,928)	(1,429,928)
Shares issued under DRIP plan			63,577	444,920	21,949	175,916					620,836
Shares issued under DRIP plan to treasury					(33,635)	(269,721)				269,721	-
Exercise of options			5,000	23,000							23,000
Issuance of cumulation shares for
dividend arrearage			7,499	58,387						(58,387)	-
Conversion of preferred stock for
common stock	(11,655)	(32,168)	3,885	32,168							-
Exchange of preferred stock for
lodging certificates	(666)	(6,660)					2,460				(4,200)
Acquisition of treasury shares					(96,895)	(777,070)					(777,070)
Payment of preferred stock dividends										(47,321)	(47,321)
Payment of guaranteed ESOP obligation									181,500		181,500
Cost of ESOP shares released							(9,075)				(9,075)
BALANCES, DECEMBER 31, 2003	165,270	877,898	4,430,016	20,086,726	(1,523,376)	(6,139,152)	59,435	-	-	12,368,368	27,253,275
Net income										2,680,570	2,680,570
Issuance of common stock			503,605	4,104,306							4,104,306
Common stock dividends										(1,689,204)	(1,689,204)
Shares issued under DRIP plan			102,188	915,414	5,000	35,575					950,989
Shares issued under DRIP plan to treasury					(43,843)	(389,778)				389,778	-

See notes to consolidated financial statements

F-7

Exercise of options			5,000	16,250							16,250
Issuance of cumulation shares for
dividend arrearage			3,737	36,410						(36,410)	-
Conversion of preferred stock for
common stock	(47,548)	(131,233)	15,849	131,233							-
Acquisition of treasury shares					(6,000)	(44,025)					(44,025)
Payment of preferred stock dividends										(46,788)	(46,788)
BALANCES, DECEMBER 31, 2004	117,722	746,665	5,060,395	25,290,339	(1,568,219)	(6,537,380)	59,435	-	-	13,666,314	33,225,373
Net income										6,244,005	6,244,005
Issuance of common stock			49,315	379,104				(231,000)			148,104
Common stock dividends										(1,964,761)	(1,964,761)
Shares issued under DRIP plan			95,909	931,984							931,984
Shares issued under DRIP plan to treasury					(44,061)	(426,838)				426,838	-
Amortization of deferred compensation								46,200			46,200
Acquisition of treasury shares					(110,637)	(1,040,620)					(1,040,620)
Payment of preferred stock dividends										(46,788)	(46,788)
BALANCES, DECEMBER 31, 2005	117,722	$    746,665	5,205,619	$   26,601,427	(1,722,917)	$   (8,004,838)	$          59,435	$                 (184,800)	$                      -	$   18,325,608	$    37,543,497

See notes to consolidated financial statements

F-8

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2003	2004	2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$             917,610	$          2,680,570	$          6,244,005
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
(Gain) loss on the sale of property before cash expenses	(122,999)	14,516	(9,100,032)
Gain on extinguishment of debt	(82,294)	-	-
Undistributed losses of equity investment in a related party	946,383	-	-
Impairment (recovery) of note receivable	2,395,423	60,136	(154,934)
Income tax expense	607,098	1,672,660	4,037,726
Provision for doubtful accounts	2,232,256	1,613,121	1,480,242
Depreciation and amortization	1,735,767	1,982,171	1,781,032
Amortization of guarantee fees	58,176	1,775	-
Amortization of loan premium	(151,406)	(158,149)	(40,626)
Amortization of deferred compensation	-	-	46,200
Common stock issued in exchange for services	30,917	128,152	148,104
Change in assets and liabilities:
Increase in notes receivable, net	(7,026,167)	(3,205,757)	(815,542)
Decrease in resort property held for Vacation
Ownership Interest sales	4,473,203	751,523	2,645,627
Increase in resort property under development	(313,452)	(796,890)	(2,970,265)
Increase in land held for sale	(11,076)	(10,824)	(10,563)
Increase in other assets	(1,564,768)	(988,970)	(370,771)
(Decrease) increase in accounts payable	(276,598)	(382,789)	510,245
Increase in accrued and other liabilities	193,759	171,958	319,919
Decrease in deferred income taxes	(729,446)	(644,752)	(2,821,559)
Increase (decrease) in income taxes payable/receivable	41,127	256,171	(2,729,685)
Net cash provided by (used in) operating activities	3,353,513	3,144,622	(1,800,877)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Cash advanced to) recovered from a related party	(2,880,781)	(60,136)	54,934
Purchases of property and equipment	(2,691,818)	(1,548,141)	(9,704,876)
Proceeds from sale of property	262,972	27,261	18,195,659
Net cash (used in) provided by investing activities	(5,309,627)	(1,581,016)	8,545,717
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable	22,662,609	21,936,373	24,413,660
Principal payments on notes payable	(19,825,365)	(22,978,170)	(31,837,329)
Contribution from minority interest holder	-	-	1,050,000
Net proceeds from the issuance of common stock	-	3,976,154	-
Exercise of options	23,000	16,250	-

See notes to consolidated financial statements

F-9

Acquisition of treasury stock and other equity payments	(781,270)	(44,025)	(1,040,620)
Common stock dividends including offering costs	(518,429)	(662,201)	(1,016,780)
Preferred stock dividend payments	(47,321)	(46,788)	(46,788)
Net cash provided by (used in) financing activities	1,513,224	2,197,593	(8,477,857)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(442,890)	3,761,199	(1,733,017)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	2,399,175	1,956,285	5,717,484
CASH AND CASH EQUIVALENTS AT END OF YEAR	$          1,956,285	$          5,717,484	$          3,984,467
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Transfer of property and equipment to resort property held for
Vacation Ownership Interests sales	-	470,774	-
Capital leases and assets assumed under guaranty agreement	618,140	-	-
Value of shares issued under DRIP plan (See Note 10)	685,203	950,989	931,984
Deferred compensation resulting from unvested common
stock issuance (See note 11)	-	-	231,000

See notes to consolidated financial statements

F-10

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, 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, Indiana and Mexico.  

Use of Estimates

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

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 marketed.  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

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, the operating portion of homeowners’ association dues from owners of Vacation Ownership Interests 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 40 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.  Leasehold improvements are stated at cost and are depreciated over the term of the lease.  Depreciation expense was $1,205,615, $1,409,138 and $1,159,244 for the years ended December 31, 2003, 2004 and 2005, respectively.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including intangibles, property and equipment, and resort property held for Vacation Ownership Interest sales, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  The Company evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment.  The Company uses an estimate of future undiscounted net cash flows from the related asset or group of assets over their remaining life in measuring whether the assets are recoverable.  As of December 31, 2005, the Company does not consider any of its long-lived assets to be impaired.  During the fourth quarter 2003, the Company exercised its rights under the Pledge Agreement with Greens Worldwide Incorporated (“GWWI”) and secured certain assets as partial reimbursement for its note receivabl e.  The Company also reviewed its investment in GWWI and determined it was impaired (Note 15).

F-7

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Segment Reporting

The Company has a single segment in the timeshare resort industry.  Revenue from products and services are reflected on the income statement under Sales of Vacation Ownership Interests and Resort Operating Revenue.

Net Income Per Share

Basic income per common share is computed by dividing net income by the weighted average common shares outstanding.  Diluted income per common share is computed by dividing net income by the weighted average common shares outstanding adjusted for the incremental dilution of potentially dilutive securities (Note 4).

Stock Based Compensation

The Company previously applied APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its Stock Option Plans.  Accordingly, no compensation cost has been recognized for stock options granted under the Plans prior to January 1, 2006.  Had compensation cost for the Plans been determined and amortized based on the fair value at the grant dates for awards under the Plans consistent with the alternative method of SFAS No. 123, Accounting for Stock-Based Compensation, the Company’s net income and income per share would have decreased to the pro forma amounts indicated below.  The Company will apply SFAS No. 123 (revised 2004), Share-Based Payment, to any future grants under its Stock Option Plans.  

	Year Ended December 31,
	2003	2004	2005
Net Income to common shareholders	$         870,289	$        2,633,782	$     6,197,217
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects	-	(13,112)	(62,833)
Pro forma net income	$         870,289	$        2,620,670	$     6,134,384
Basic and Diluted Income per share
As reported-basic	$               0.30	$                 0.88	$              1.77
As reported-diluted	0.29	0.87	1.76
Pro forma-basic	0.30	0.87	1.75
Pro forma-diluted	0.29	0.86	1.75

Consolidated Statements of Cash Flows

Cash equivalents are liquid investments with an original maturity of three months or less.  At December 31, 2004 and 2005, the Company had cash in excess of federally insured limits.  The following summarizes interest paid (excluding capitalized interest), income taxes paid and interest capitalized:

	Year Ended December 31,
	2003	2004	2005
Interest paid (excluding capitalized interest)	$2,401,000	$2,469,000	$2,448,000
Income taxes paid	694,000	389,000	5,557,000
Capitalized interest	187,000	226,000	302,000

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  

F-8

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

The Company will be required to apply this statement to inventory costs incurred after December 31, 2005.  The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment,” which is an amendment to SFAS No. 123, “Accounting for Stock-Based Compensation.”  This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees” (APB 25) and requires such transactions to be accounted for using a fair-valued-based method and the resulting cost recognized in the Company’s financial statements.  This new standard is effective for annual periods beginning after June 15, 2005.  The adoption of SFAS No. 123R is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 152, “Accounting for Real-Estate Time-Sharing Transactions.”  SFAS No. 152 amends SFAS No. 66 “Accounting for Sales of Real Estate,” to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real-Estate Time-Sharing Transactions.”  The Company will be required to apply this statement prospectively for real estate time-sharing transactions entered into after December 31, 2005.  At such time, the Company’s revenue will be reduced by the amount of its provision for bad debt.  Prior to such time the Company has recognized its bad debt as an expense.  For the year ended December 31, 2005, this would have resulted in a $1.5 million reduction in revenue and expense.  The Company is still eva luating whether there will be any material change in financial position or cash flows resulting from the adoption of SFAS No. 152.

In December 2004, the FASB issued SFAS No. 153, “Exchange of Non-monetary Assets.”  SFAS No. 153 amends APB Opinion No. 29, “Accounting for Non-monetary Transactions,” to eliminate the exception for non-monetary exchanges of similar productive assets.  The Company will be required to apply this statement to non-monetary exchanges after December 31, 2005.  The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-A Replacement of APB Opinion No. 20 and FASB Statement No. 3.”  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  The Company will be required to apply this statement for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The adoption of this standard is not expected to have a material effect on the Company's financial position or results of operations.

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities and related interpretations. SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies which interest-only strips and principal-only strips are not subject to recognition as liabilities. SFAS 155 eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertai ns to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for the Company for all financial instruments acquired or issued beginning January 1, 2007. The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 amends SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset. It also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS 156 permits an entity to use either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective for the Company as of January 1, 2007. The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

Reclassifications

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

F-9

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Note 2. Notes Receivable, Net

 Notes receivable consist of the following:

	December 31,
	2004	2005
Vacation Ownership Interest notes receivable	$ 39,053,515	$ 38,477,310
Holdbacks by financial institutions	2,515,212	2,851,339
Other receivables	2,182,137	2,582,691
Allowance for possible credit losses	(3,345,046)	(4,070,222)
	$  40,405,818	$  39,841,118

Notes generated from the sale of Vacation Ownership Interests generally bear interest at annual rates ranging from 13.9% to 17.9% and have terms of five to ten years.  The notes are collateralized by deeds of trust on the Vacation Ownership Interests sold.

At December 31, 2005, the Company has an agreement with a financial institution for a commitment of $30.0 million under which the Company may sell certain of its Customer Notes.  The agreement provides for sales on a recourse basis, with a purchase rate of prime plus 2.75%.  Customer Notes may be sold at discounts or premiums to the principal amount in order to yield the purchase rate, with the premium held back by the financial institution as additional collateral.  At December 31, 2005, $25.7 million of the $30.0 million commitment was available to the Company.

The Company accounts for these notes sold with recourse as sales under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities since the Company receives consideration other than the beneficial interests in the transferred assets and has met the conditions of surrendering control.  As noted in the table above, the holdback portion is classified in notes receivable on the consolidated balance sheet.  

For the twelve months ended December 31, 2003, 2004 and 2005, the Company sold with recourse approximately $12 million, $9 million and $9 million of notes receivable generated from sales of Vacation Ownership Interests in the respective years.  The Company recorded finance income of approximately $2.8 million, $1.2 million and $0.8 million, as interest and finance income during the years ended December 31, 2003, 2004 and 2005, respectively, related to notes sold with recourse.  

At December 31, 2004 and 2005, the Company had approximately $14.1 million and $13.4 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”), Varsity Clubs of America–South Bend (“VCA–South Bend”) and Varsity Clubs of America–Tucson (“VCA–Tucson”).

The Company also has a financing commitment for $30.0 million whereby the Company may borrow against notes receivable pledged as collateral.  These borrowings bear interest at prime plus 1.5% (8.75% at December 31, 2005).  The $30.0 million commitment was amended in February 2006 and, under the amended agreement, the borrowing period expires in 2007 and the maturity is in 2012.  At December 31, 2005, approximately $11.4 million is available under this commitment.

At December 31, 2005, notes receivable in the amount of approximately $59,000 have been designated for the Company’s Series A Preferred Stock sinking fund and therefore their use is restricted (Note 11).

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

	Year Ended December 31,
	2003	2004	2005
Beginning balance	$   3,072,668	$  4,810,472	$   3,345,046
Provision for doubtful accounts	2,232,256	1,613,121	1,480,242
Amounts written off	(494,452)	(3,078,547)	(755,066)
Ending balance	$   4,810,472	$  3,345,046	$   4,070,222

The Company considers all notes receivable past due in excess of 90 days to be delinquent.  Typically, uncollectible accounts are not written off until the underlying inventory is recovered via acceptance of a deed back or foreclosure, the timing of which is determined by the Company or as beneficial for income tax purposes.  In 2004,

F-10

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

the Company wrote off receivables for which it had not exhausted collection efforts nor accepted a deed back, thereby accelerating such write-offs.  During 2004 and 2005, the Company deeded back in bulk transactions 111.5 and 97.5 Vacation Ownership Interests of delinquent owners.  These accounts had become delinquent over a period of several years.  At December 31, 2005, $12.4 million in principal or $9.4 million net of the historical costs of the underlying property that would be recovered in the event of noncollectibility, or 22.6% and 17.2%, respectively, of the retained notes and notes previously sold, which are recourse to the Company, were more than 90 days past due.  

At December 31, 2004 and 2005, the above allowance includes $282,000 and $268,000 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,
	2004	2005
Premiere Vacation Club	$        15,980,134	$        13,529,576
VCA–Tucson	225,430	186,719
VCA–South Bend	1,681,313	1,762,794
Golden Eagle Resort	882,063	865,863
Los Abrigados	314,047	139,693
Kohl’s Ranch Lodge	54,856	18,071
The Inn at Los Abrigados	243,058	232,558
Other	15,585	15,585
	$        19,396,486	$        16,750,859

In January 1999, the Company recorded in Maricopa County, Arizona its proprietary Premiere Vacation Club Membership Plan and in May 1999 annexed a total of 5,000 Vacation Ownership Interests into the Club and received Department of Real Estate approval in the State of Arizona to commence selling Vacation Ownership Interests in Premiere Vacation Club.  During 1999, 2001, 2002, 2004 and 2005, the Company annexed additional units and as of December 31, 2005, Premiere Vacation Club included a total of 22,600 Vacation Ownership Interests.  The 22,600 Vacation Ownership Interests annexed into the Club consisted of 4,088.50 Vacation Ownership Interests in Los Abrigados (including the Celebrity House), 324.5 Vacation Ownership Interests in the Inn at Los Abrigados, 2,955.5 Vacation Ownership Interests in Kohl’s Ranch Lodge, 995 Vacation Ownership Interests in the Golden Eagle Resort, 1,500 Vacation Ownership Intere sts in the Sea of Cortez Premiere Vacation Club (consisting of 25-year right-to-use Vacation Ownership Interests in San Carlos, Mexico), 1,549 Vacation Ownership Interests in VCA–South Bend, 2,861.5 Vacation Ownership Interests in VCA–Tucson, 1,092 Vacation Ownership Interests in Premiere Vacation Club at the Roundhouse Resort, 191 Vacation Ownership Interests in the Roundhouse Resort, 1,898 Vacation Ownership Interests in the Carriage House, 4,004 Vacation Ownership Interests in the Bell Rock Inn, 988 Vacation Ownership Interests in the Rancho Mañana Resort, and 153 Vacation Ownership Interests in the Scottsdale Camelback Resort.

F-11

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Note 4. Basic and Diluted Net Income Per Share

The following presents the computation of basic and diluted net income per share:

	Year Ended
	December 31,
	2003	2004	2005
Income from continuing operations	$         2,751,014	$     2,716,652	$     6,151,044
Less: Series A preferred stock dividends	(47,321)	(46,788)	(46,788)
Income from continuing operations available
to common shareholders	2,703,693	2,669,864	6,104,256
Income (loss) from discontinued operations	(1,833,404)	(36,082)	92,961
Basic and Diluted Net Income Available to Common Shareholders	$            870,289	$     2,633,782	$     6,197,217
Basic Weighted-Average Common Shares Outstanding	2,911,297	3,003,481	3,506,954
Effect of dilutive securities:
Convertible Series C preferred stock	37,734	30,562	-
Stock options	6,965	6,531	6,408
Diluted Weighted-Average Common Shares Outstanding	2,955,996	3,040,574	3,513,362
Basic Income Per Common Share
Income from continuing operations	$                  0.93	$              0.89	$              1.74
Income (loss) from discontinued operations	(0.63)	(0.01)	0.03
Total Basic net income per share	$                  0.30	$              0.88	$              1.77
Diluted Income Per Common Share
Income from continuing operations	$                  0.91	$              0.88	$              1.73
Income (loss) from discontinued operations	(0.62)	(0.01)	0.03
Total Diluted net income per share	$                  0.29	$              0.87	$              1.76

Stock options to purchase 13,200 and 25,000 shares of common stock at a price of $8.125 and $9.90 per share were outstanding at December 31, 2003 and 2005, respectively, but were not included in the computation of diluted net income per share because the options’ exercise price was greater than the average market price of common shares.  The 13,200 options at $8.125 expired in 2004.  The 25,000 options at $9.90 expire in 2009.

Note 5. Other Assets

Other assets consist of the following:

	December 31,
	2004	2005
Inventories	$         929,784	$       1,020,971
Escrow accounts	1,708,498	2,327,274
Miscellaneous receivables and other	1,783,357	1,193,747
Deferred loan and lease fees	6,001,818	491,231
	$    10,423,457	$       5,033,223

Inventories consist of food, beverage, retail items and gift certificates and are recorded at the lower of FIFO cost (first-in, first-out) or market.

F-12

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

The Company is required to make monthly release payments into an escrow account under the terms of a guarantee commitment (Note 10).  The balance of this escrow account at December 31, 2004 and 2005 is $1,614,369 and $2,261,407, respectively.

Deferred loan and lease fees are legal and other fees incurred when the Company modifies an existing loan or obtains a new loan or lease and in 2004 mainly consisted of the fees to acquire the leasehold interest in Las Vegas that was sold in 2005 (Notes 7 and 10).  Deferred loan and lease fees are amortized over the term of the underlying loan or lease.

Note 6. Property and Equipment, Net

Property and equipment consist of the following:

	December 31,
	2004	2005
Land	$       150,826	$    8,566,960
Buildings and improvements	5,043,980	5,156,817
Leasehold improvements	3,055,022	1,269,802
Furniture and fixtures	6,012,748	3,188,314
Office equipment	1,924,346	2,074,617
Computer equipment	1,151,973	1,169,302
Vehicles	353,530	310,078
	17,692,425	21,735,890
Accumulated depreciation	(6,475,543)	(6,934,182)
	$  11,216,882	$  14,801,708

In October 2005, the Company, through its membership in ILX-Bruno, completed the acquisition of two parcels approximating 21 acres of land in Sedona, Arizona.  The total purchase price was $8,416,238 (Note 15).

Note 7. Gain on Sale of Las Vegas Leasehold Interest

In April 2005, the Company’s subsidiary VCA Nevada Incorporated (“VCA-NV”) sold its leasehold interest in a 44-acre real estate parcel in Las Vegas, Nevada.  “Income from land and other, net” for the year ended December 31, 2005 includes a net gain of $7,755,733 on the sale.  The initial gain, before certain expenses, was $9,143,897, including $1,151,556 for the write-off of a loan premium.  Bonus payments of $835,000, redemption proceeds to a Director of $382,672, legal fees of $100,000 and the write-off of loan acquisition and other fees are netted against the gain to equal the total of $7,755,733.

Note 8. Income Taxes

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

F-13

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

	December 31,
	2004	2005
Deferred Tax Assets:
Nondeductible accruals for uncollectible receivables	$       1,308,000	$       1,587,000
Tax basis in excess of book on resort property held for Vacation
Ownership Interest sales	516,000	461,000
Net operating loss and minimum tax carryforwards	2,746,000	1,183,000
Loss on investment	164,000	-
Other	245,000	206,000
Total deferred tax assets	4,979,000	3,437,000
Deferred Tax Liabilities:
Installment receivable gross profit deferred for tax purposes	(8,442,000)	(8,088,000)
Tax depreciation in excess of book depreciation	(562,000)	(462,000)
Total deferred tax liabilities	(9,004,000)	(8,550,000)
Net deferred tax liability	$     (4,025,000)	$     (5,113,000)

The provision for income taxes from continuing operations consists of the following:

	Year Ended December 31,
	2003	2004	2005
Current income tax (benefit)
Federal	$     1,413,965	$        835,134	$     1,740,045
State	222,639	172,846	768,229
Benefit of operating loss carryforwards	(1,276,424)	(502,121)	(1,745,559)
Federal (minimum tax)	1,276,424	502,121	2,190,958
Current income tax	$     1,636,604	$     1,007,980	$     2,953,673
Deferred income tax (benefit)
Federal	$        171,472	$        675,448	$     1,234,431
State	21,291	13,286	(212,351)
Deferred income tax	192,763	688,734	1,022,080
Income tax expense from continuing operations	$     1,829,367	$     1,696,714	$     3,975,753

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

	Year Ended December 31,
	2003	2004	2005
Federal, computed on income before income taxes	$       1,557,330	$     1,500,544	$     3,443,111
State, computed on income before income taxes	181,383	161,529	506,340
Other	90,654	34,641	26,302
Income tax expense from continuing operations	$       1,829,367	$     1,696,714	$     3,975,753

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.  

F-14

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

The Company is subject to Alternative Minimum Tax (“AMT”) as a result of the deferred income from the installment sales treatment of Vacation Ownership Interest 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.

At December 31, 2005, the Company’s subsidiary, Genesis, had federal NOL carryforwards of approximately $630,000 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 $189,178 per year.  To the extent the entire $189,178 is not utilized in a given year, the difference may be carried forward to future years.  Any unused Genesis NOLs will expire in 2008.   

F-15

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Note 9. Notes Payable

Notes payable consist of the following:

	December 31,
	2004	2005
Note payable, collateralized by consumer notes receivable, interest at
prime plus 1.5% (8.75% at December 31, 2005) due through 2012	$    20,227,155	$    18,555,388
Note payable, collateralized by pledge of note receivable and land,
interest at 9.0%, due through 2008	-	5,000,000
Construction note payable, collateralized by deeds of trust, interest at
9.0%, due through 2010	-	5,000,000
Note payable, collateralized by deed of trust on Bell Rock Inn, interest at
7.49%, due through 2023	4,129,429	4,027,455
Construction note payable, collateralized by deeds of trust, interest at
prime plus 2.5%.  Note repaid in 2005	5,818,676	-
Note payable, collateralized by deed of trust and assignment of rent on
Premiere Park, interest at the greater of prime plus 1.0% or 7.0%
Note was repaid in 2005	3,412,665	-
Note payable, collateralized by deed of trust on VCA-South Bend, interest at
prime plus 1.5% (8.75% at December 31, 2005) due through 2010	2,085,000	1,700,000
Note payable, collateralized by holdbacks at financial institutions and stock of the
Company, interest at 10.0%, due through 2008	1,923,847	805,502
Note payable collateralized by deed of trust, interest at the greater of prime
plus 1.5% or 7.0%.  Note was repaid in 2005	1,617,483	-
Note payable, collateralized by deed of trust on Rancho Mañana Resort,
interest at prime plus 2.25% (9.5% at December 31, 2005), due through 2006	1,340,005	471,280
Construction note payable, collateralized by treasury stock, interest at prime plus 1.0%
plus a minimum principal payment of $134,000 monthly.  Note was repaid in 2005	1,107,734	-
Lines of credit aggregating $2,100,000, interest at prime plus 1.0%
(8.25% at December 31, 2005), collateralized by
treasury stock and consumer notes receivable, due through 2006	1,150,000	1,000,000
Loan premium, amortized at 4.37%. Related note repaid in 2005 (Note 7)	1,192,182	-
Note payable, collateralized by deed of trust on Los Abrigados, interest at
prime plus 2.5%.  Note repaid in 2005	754,637	-
Note payable, collateralized by pledge of note receivable, interest at
prime plus 1.5%. Note repaid in 2005	338,889	-
Obligations under capital leases with interest at 3.0% to 4.0% (Note 16)	334,213	99,949
Note payable, collateralized by deed of trust, interest at
7.29%, due through 2007	298,125	282,656
Note payable, collateralized by deed of trust, interest at 7.75%,
due through 2007	81,389	77,596
Notes payable, collateralized by furniture, fixtures and equipment, interest
at 3.0% to 10.64%, due through 2009	1,153,796	1,346,894
Other	27,820	10,474
	$    46,993,045	$    38,377,194

F-16

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

At December 31, 2005, approximately $19.0 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.  The amounts below also include amounts scheduled to be due and collected directly from customer payments on the notes receivable used as collateral.  

Future contractual maturities of notes payable and capitalized leases at December 31, 2005 are as follows:

2006	$5,178,370
2007	3,784,777
2008	8,488,197
2009	3,392,243
2010	7,625,152
Thereafter	9,908,455
	$38,377,194

Note 10. Commitments and Contingencies

Operating Leases

Operating leases are used to lease the Los Abrigados Lodge, office space, retail space, equipment and vehicles.  Future minimum lease payments on non-cancelable operating leases at December 31, 2005 are as follows:

2006	$1,871,000
2007	1,722,000
2008	1,677,000
2009	1,690,000
2010	1,217,000
Thereafter	9,746,000
	$17,923,000

Total rent expense for the years ended December 31, 2003, 2004 and 2005 was approximately $2,493,000, $2,458,000 and $2,187,000 respectively.

Legal Proceedings

In September 2003, the Company received pleadings indicating that a lawsuit against the Company and its Sedona Vacation Club and Premiere Vacation Club businesses was filed by two individuals claiming damages for deceptive and abusive practices on behalf of a purported class of purchasers of vacation ownership interests.  The Company, Sedona Vacation Club and Premiere Vacation Club received amended complaints in May and June 2004.  In both instances, named plaintiffs were added and deleted.  The amended complaints were considerably more narrow in scope than the initial complaint.  The suit alleged claims for breach of the Arizona Consumer Fraud Act, the Arizona Real Estate Timeshare Act, breach of contract and unjust enrichment.  In April 2005, the Superior Court of Arizona In and For the County of Coconino granted preliminary approval of a Settlement Agreement (attached as Exhibit 99 .1 to the Company’s Form 8-K filed on April 17, 2005 and incorporated herein by reference).  In the Settlement Agreement the Company denied each and every one of the Plaintiffs’ aggregations of unlawful or wrongful conduct and injuries.  A court hearing was held on July 26, 2005 and final approval of the Settlement was granted.  The pre-tax legal and settlement expenses associated with the litigation were $627,069 for the year ended December 31, 2005 as indicated in “Lawsuit and settlement expenses” on the consolidated statements of operations.

In October 2005, The Greens of Las Vegas, Inc. (“GOLV”) filed suit against the Company, VCA-NV, Greens Worldwide Incorporated and all of the directors of Greens Worldwide Incorporated from 2003 to the present.  GOLV alleges that the Company interfered with prospective advantage between GOLV and third parties, interfered with contracts between GOLV and VCA-NV, fraud, unjust enrichment and civil conspiracy.  All Defendants answered the Complaint on March 16, 2006 and asserted various counterclaims.  The Company believes that the allegations are without merit and intends to vigorously defend the case.

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

Other

F-17

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

In May 2002, the Company registered with the Arizona Department of Real Estate and annexed to Premiere Vacation Club 4,992 studio Vacation Ownership Interests in the Bell Rock Inn.  In 2004 and 2005, the Company combined and renovated selected studio units into larger unit types.  As a result, in 2004 the Company deannexed 572 studio Vacation Ownership Interests and annexed into Premiere Vacation Club 156 two-bedroom Vacation Ownership Interests and 52 one-bedroom Vacation Ownership Interests and in 2005, the Company deannexed 1,196 studio Vacation Ownership Interests and annexed into Premiere Vacation Club 520 one-bedroom and 52 two-bedroom Vacation Ownership Interests.  This property was acquired through the assumption of an existing mortgage which does not provide for release provisions.  In order to facilitate the registration, the Company secured a guaranty commitment from one of its lenders, opened an escrow account and makes monthly release payments.  The balance of this escrow account of $2,261,407 and $1,614,369 in 2005 and 2004 respectively, is included in other assets.

The Company’s Genesis subsidiary has a potential obligation for future payment to holders of fund certificates, which arose from the reorganization of Genesis.  The holders of the certificates are entitled to receive 50% of the proceeds net of costs from the sale of certain Genesis properties.  A liability has been recorded for the possible future payment based on estimated net realizable values of the properties.  These potential obligations as well as amounts due fund certificate holders for sales of properties are included in accrued liabilities.

The Company, through Premiere Vacation Club, has acquired 1,500 one-week 25-year right-to-use Vacation Ownership Interests in 30 studio, one-and two-bedroom units in the Sea of Cortez Premiere Vacation Club.  The Company has the option to extend the right-to-use period for an additional 25-year period provided it is not in default under the right-to-use agreement.  The option is exercisable by the Company during the last five years of the initial term, at terms to be negotiated by the parties at that date.  The Company has an obligation to Premiere Vacation Club to replace the 1,500 weeks at the end of the right-to-use agreement and the Company has accrued a liability of $73,765 for its future obligation.

In July 2004, the Company purchased 19 units and an additional 3.81 acres of land at Rancho Mañana Resort.  In conjunction with the purchase, the Company guaranteed that it would pay a minimum of $5.0 million, payable in product cost and profit distributions of not less than $52,080 per month through June 30, 2013.  As of December 31, 2005, the Company has paid $1,881,026 towards the guaranteed minimum product cost and profit distributions.

In April 2005, VCA-NV sold its leasehold interest in a 44-acre real estate parcel in Las Vegas, Nevada.  ILX continued to act as a Guarantor of the Lease on obligations owed to Clark County as Landlord until such time as the purchaser had received all consents and executed documents necessary for the Company to no longer be a Guarantor but no later than December 31, 2005.  This date was extended by mutual agreement until May 31, 2006.  The purchaser is currently negotiating a new lease for the property and the Company will not be included as a guarantor on the new lease.  The Company does not believe its obligations under the guaranty are material.  In June 2005, Clark County gave and recorded its consent to the Assignment and Assumption of the Lease.  

Note 11. Shareholders’ Equity

Preferred Stock

At December 31, 2004 and 2005, preferred stock includes 58,485 shares of the Company’s Series A Preferred Stock carried at $584,850.  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 $0.80 per share.  Dividends were paid of $47,321, $46,788 and $46,788 in 2003, 2004 and 2005, respectively.  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, 2005, notes receivable in the amount of approximately $59,000 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 Series A 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.  

At December 31, 2004 and 2005, preferred stock also includes 59,237 shares of the Company’s Series C Convertible Preferred Stock carried at $161,815.  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 were not declared in any year prior to the fifth anniversary of the Genesis merger date (November 1, 1993), such undeclared dividends (“Dividend Arrearage”) could have been converted to “Cumulation Shares” at the rate of $6 of Dividend Arrearage per 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 preference of the Series A stock.  Commencing November 1, 1994 through October 31, 2004, the Series C Preferred

F-18

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Stock was convertible 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, 2003, and 2004, the Company recorded the exchange of 11,655 and 47,548 Series C Convertible shares for 3,885 and 15,849 common shares, respectively.  The Series C Preferred Stock no longer has any conversion or future dividend rights.  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

For the years ended December 31, 2003, and 2004, the Company issued 100 and 9,000 shares of restricted common stock, valued at $386 and $73,536, respectively, to employees in exchange for services provided.  In 2003 and 2004, the Company also issued 3,568 and 6,827 shares of common stock valued at $30,531 and $54,616, respectively, to a professional service provider in exchange for services provided.  In addition, in 2004, 72,000 common shares valued at $598,400 were purchased from the Company by the ILX Resorts Incorporated Employee Stock Ownership Plan.  For the year ended December 31, 2005, the Company issued 40,000 shares of unregistered common stock, valued at $308,000 to employees under the Stock Bonus Plan. The Stock Bonus Plan was filed as Exhibit 10.1 to a Form 8-K filed on June 23, 2005 and is incorporated herein by reference.  Of the 40,000 shares, 30,000 are contingent upo n the recipient being employed by the Company on January 1, 2008.  The $231,000 deferred expense is being amortized, pro-rata over the vesting period and the unrecognized portion is in deferred compensation on the consolidated balance sheet.  Also under the Stock Bonus Program during the year ended December 31, 2005, the Company issued 5,340 shares of unregistered common stock and 3,975 shares of common stock, valued at $71,104 to employees and a professional service provider, in exchange for services provided.

In December 2004, the Company issued 415,778 common shares valued at $3,377,754, net of offering costs of $363,589, to selected institutional and private investors under a private placement.

During 2003, 2004 and 2005, the Company purchased 96,895, 6,000 and 110,637 shares of its common stock for $777,070, $44,025 and $1,040,620.

In the years ended December 31, 2003 and 2004, the Company issued 7,499 and 3,737 shares of common stock, valued at $58,387 and $36,410, respectively, as a Cumulation Share dividend on prior conversions of Series C Convertible Preferred Stock to common stock.  Series C Convertible shareholders received one share of common stock for every ten shares of Series C Convertible Preferred Stock converted.

In December 2002, the Company announced an annual cash dividend of $0.40 per common share to be paid in equal quarterly installments, payable on the tenth day of the calendar month following the end of each calendar quarter, to common shareholders of record as of the last day of each calendar quarter in 2003.  In November 2003, the annual cash dividend was increased to $0.42 per common share for 2004 to be paid in equal quarterly installments.  In October 2004, the annual cash dividend for 2005 was established at $0.44 per common share to be paid in equal quarterly installments.  In September 2005, the annual cash dividend was increased to $0.47 per common share for 2006 to be paid in equal quarterly installments.  In March 2003, the Company adopted the ILX Resorts Incorporated Dividend Reinvestment Plan (“DRIP”).  Under the terms of the DRIP, shareholders may elect to reinv est dividends in shares of the Company’s common stock, with no brokerage or other fees to the shareholder.  For the years ended December 31, 2003, 2004 and 2005, shareholders elected to receive 85,526, 107,188 and 95,909 shares of common stock valued at $620,836, $950,989 and $931,984 under the DRIP and cash dividends of $454,061, $662,201 and $1,016,780, respectively.  Of the 85,526 common shares in 2003, 21,949 were purchased in privately negotiated transactions and 63,577 were newly issued common shares.  Of the 107,188 common shares in 2004, 5,000 were purchased in privately negotiated transactions and 102,188 were newly issued common shares.  The 85,526, 107,188 and 95,909 common shares include 33,635, 43,843 and 44,061 common shares, valued at $269,721, $389,778 and $426,838, respectively, issued on shares held as collateral.  The Company incurred offering costs of $64,368 under the DRIP in 2003 which were netted against common shares issued.  At December 31, 2005, $3 83,097 was accrued for the fourth quarter 2005 dividend which is payable January 10, 2006.

In January 2003 and 2004, options to purchase 5,000 shares of common stock priced at $4.60 and $3.25 per share, respectively, were exercised.

Note 12. Employee Stock Ownership Plan

On April 9, 1999 (effective January 1, 1999), the Company formed the ILX Resorts Incorporated Employee Stock Ownership Plan and Trust (the “ESOP”).  The intent of the ESOP is to provide a retirement program for all eligible employees which aligns their interests with those of the Company.  Generally, all employees who have completed one year of service, have attained the age of 21 and complete 1,000 hours of service during the plan year are eligible to participate in the ESOP.

F-19

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

During the year ended December 31, 2003, the Company contributed $181,500 to the ESOP and the funds were used to make principal and interest payments on the note payable secured by common stock of the Company owned by the ESOP and guaranteed by the Company.  The difference of $9,075 between the fair market value of the leveraged shares at the time of the debt repayment and their actual cost when the shares were purchased was charged to Paid in Capital.  During the year ended December 31, 2004, the ESOP purchased 72,000 common shares from the Company for $598,400.  During the year ended December 31, 2005, the Company made contributions to the ESOP of $146,370 which were used to purchase 15,400 common shares.

At December 31, 2005, the ESOP held 634,531 shares and $15,790 in cash.  

Note 13. 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 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 th e granting of the option and over a ten-year period if the optionee was not a ten-percent shareholder.  In February 2004, the Company issued options to purchase 5,000 shares of common stock at an exercise price of $7.57 per share to an independent director.  In December 2004, the Company issued to its independent directors options to purchase 25,000 shares in total of common stock at an exercise price of $9.90 per share.  The aggregate number of shares that may be issued under the Plans shall not exceed 100,000 shares.  The number of shares available for grant under the Plans at December 31, 2004 and 2005 was 60,000.

Stock option transactions are summarized as follows:

F-20

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

	Options	Exercise Price Range	Weighted Average   Exercise Price
Outstanding at December 31, 2002	33,200	$3.25-$8.125	$5.80
Options granted	-	-	-
Options exercised	(5,000)	4.60	4.60
Options canceled	-	-	-
Outstanding at December 31, 2003	28,200	3.25-8.125	6.01
Options granted	30,000	7.57-9.90	9.51
Options exercised	(5,000)	3.25	3.25
Options canceled	(13,200)	8.125	8.13
Outstanding at December 31, 2004	40,000	4.60-9.90	6.01
Options granted	-	-	-
Options exercised	-	-	-
Options canceled	-	-	-
Outstanding at December 31, 2005	40,000	$4.60-$9.90	$6.01
Exercisable at December 31, 2004	15,000	$4.60-$7.57	$5.59
Exercisable at December 31, 2005	40,000	$4.60-$9.90	$8.28
Weighted-average fair value of
options granted during year
ended December 31, 2004	$        4.21
Weighted-average fair value of
options granted during year
ended December 31, 2005	$            -

The weighted average assumptions used to estimate the fair value of each option grant, using the Black-Scholes option-pricing model, are also presented:

	Year Ended December 31,
	2003	2004	2005
Weighted-Average Assumptions:
Dividend yield	-	4.40%	-
Expected volatility	-	69.20%	-
Risk-free interest rate	-	3.41%	-
Expected life of options, in years	-	5.00	-

F-21

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

A summary of stock options outstanding and exercisable at December 31, 2005 follows:

Options Outstanding				Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$                  4.60	10,000	0.77	$              4.60	10,000	$                       4.60
$                  7.57	5,000	3.14	$              7.57	5,000	$                       7.57
$                  9.90	25,000	3.96	$              9.90	25,000	$                       9.90
	40,000			40,000

Note 14. Profit Sharing Plan

The Company has a defined contribution profit sharing plan in which substantially all employees are eligible to participate.  The Company contributes a discretionary amount to the plan as determined by the Board of Directors.  The Company declared contributions of $50,000 for the year ended December 31, 2003, $65,000 for the year ended December 31, 2004 and $150,000 for the year ended December 31, 2005.  

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:

In December 1995, the Company sold the building that houses its Phoenix telemarketing operations, the Sedona Spa warehouse and administrative offices and certain other ILX administrative offices, to an affiliate for $500,000.  The Company leases the building for $48,000 per year.  The lease expires December 31, 2006 and has 4 one-year options to renew at the rate of $48,000 per year.  The building was sold in 2006 and is no longer owned by an affiliate.

During 2003, 2004 and 2005, the Company’s wholly owned subsidiary, Genesis Investment Group, Inc. (“Genesis”), recorded the sale of 385, 240 and 103 Vacation Ownership Interests to Premiere Vacation Club homeowners’ association, an Arizona nonprofit corporation (“PVCO”).  PVCO purchased the intervals at $2,415 per interval, the same price at which it has historically acquired intervals in arms-length negotiations with unaffiliated third parties.  A gain of $422,633, $274,273 and $110,665 for the years ended December 31, 2003, 2004 and 2005, respectively, were recorded on the sales and is included in “Income from land and other, net.”  At December 31, 2005, deeds of trust for 573 of the Vacation Ownership Interests secure outstanding indebtedness from PVCO to Genesis of $1,351,628.  The notes bear interest at 8.0% and are payable through 2015.

In August 2002, the Company invested $1,000,000 in cash for 8,000,000 (266,667 post reverse stock split in January 2005) shares or an approximately 36.4% ownership interest in GWWI.  The Company, through a subsidiary, VCA-NV, also entered into a sublease agreement with GWWI in 2002.  GWWI planned to develop the 23-acres of the Company’s 44-acre parcel in Las Vegas, Nevada.  The facility included a sports themed restaurant and bar, pro shop, and one 18-hole natural grass putting course.  Through October 2003, the Company advanced GWWI $2,880,781 under a promissory note, accruing interest at 10%.  GWWI ceased operations on October 31, 2003.  The sublease between the Company’s subsidiary and GWWI was terminated in conjunction with the closing of operations.  The Company’s note receivable from GWWI was secured by a Pledge Agreement of GWWI’s assets.  The Company exercised its rights under the Pledge Agreement and assumed certain GWWI assets in partial satisfaction of the note.  In addition, the Company transferred assets under certain equipment leases entered into by GWWI and assumed payments on those leases.  The difference between the carrying value of the assets transferred and the assumption of the leases reduced the balance of the note from GWWI. The remaining principal and interest balance as well as the investment in GWWI was determined to be impaired and the Company recorded the impairment in 2003 and classified its operations as discontinued.  In 2003, the remaining outstanding principal balance of the note of $2,395,423, the Company’s share of GWWI losses for the first three quarters of 2003 of $403,609, the impairment of the remaining investment of $542,774 and the rental income from GWWI of $286,132, was reported as discontinued operations, net of a tax benefit of $1,222,269.  In 2004, cash advanced to GWWI in the amount of $60,136 was re ported as discontinued operations, net of a tax benefit of $24,054.  In 2005, GWWI

F-22

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

entered into an Agreement for Exchange of Common Stock with US Pro Golf Tour, Inc. (“USPGT”).  In conjunction with this Agreement, VCA-NV forgave the note payable from GWWI in exchange for $100,000 cash, 1,000,000 restricted shares of common stock of GWWI and a $250,000 note payable from the shareholders of USPGT.  Income from discontinued operations for 2005 included the $100,000 cash, $100,000 of the note receivable (the Company has recorded a $150,000 allowance on the note) offset by certain expenses, net of tax expense of $61,974.

The Company, together with James Bruno Enterprises LLC (“Bruno”), formed ILX-Bruno LLC (“ILX-Bruno”) in August 2005 to purchase and develop three parcels approximating 22 acres of land in Sedona, Arizona from the Forest Service of the Department of Agriculture.  The Company entered into an Operating Agreement with Bruno, as a member of ILX-Bruno, in which the Company was named as the manager of ILX-Bruno.  The agreement became effective upon the purchase of the property in October 2005.  The Operating Agreement was filed as Exhibit 10.1 to a Form 8-K filed on October 4, 2005 and is incorporated herein by reference.  Prior to the formation of ILX-Bruno, Bruno had placed on deposit with the Forest Service $588,000 and the Company had placed on deposit $252,000.  Upon the formation of ILX-Bruno, these deposits became capital contributions to ILX-Bruno.  In anticipation of the clos ing, additional capital contributions of $462,000 and $2,098,000 were made in September 2005 by Bruno and the Company, respectively.  In October 2005, ILX-Bruno completed the acquisition of approximately 21 acres of land in Sedona, Arizona for a purchase price of $8,416,238.  A portion of the purchase price was funded by a note payable to the Company of $5 million.  In addition, the Company made an additional $298,385 in capital contributions for working capital.  The Company holds a 92.0% interest in ILX-Bruno as of December 31, 2005.  ILX-Bruno is included in the Company’s consolidated financial statements as of December 31, 2005 with Bruno’s capital contributions included as Minority Interests on the accompanying consolidated balance sheet.  In February 2006, ILX-Bruno entered into a real estate contract to purchase an adjacent parcel of approximately 0.9 acres for $1.1 million, with a closing scheduled for June 30, 2006.

Note 16. Capital Leases

Leased assets included in property and equipment totaled $596,508 and $596,508 (net of accumulated amortization of $262,296 and $496,560) at December 31, 2004 and 2005, respectively.  The leases expire through 2006.  Future minimum lease payments at December 31, 2005 are as follows:

2006	$     100,788
Less:  Amounts representing interest	(839)
Net minimum lease payments	$       99,949

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 and the Vacation Ownership Interest deed of trust serves as collateral on the note receivable.  If a buyer of a Vacation Ownership Interest defaults, the Company generally recovers the Vacation Ownership Interest by receiving a deed back from the owner or through foreclosure.  The Company may resell the Vacation Ownership Inte rest; however, 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 sustained, could have a material adverse effect on the Company’s results of operations, cash flows and financial position.

Availability of Funding Sources

F-23

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

The Company funds substantially all of the notes receivable, resort property held for Vacation Ownership Interest sales 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 have been primarily originated in Arizona.  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 Interest sales is also concentrated in Arizona.  The risk inherent in such concentration is in the continued popularity of the resort destinations, which affects the marketability of the Company’s products and the collection of notes receivable.  

Note 18. Disclosures about Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value 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.

Note 19. Subsequent Events

During March 2005, the Company sold 266,667 shares of GWWI common stock and recorded a gain of $571,100 on the transaction.

On March 27, 2005, Genesis recorded the sale of 116 Vacation Ownership Interests to PVCO.  PVCO purchased the intervals at $2,415 per interval and Genesis recorded a gain of $104,268 on the transaction.

On March 30, 2005, the Company filed a registration statement with the Securities and Exchange Commission to register an additional 519,123 shares of common stock that may be issued under a dividend reinvestment plan originally established in March 2003.

F-24

ILX Resorts Incorporated and Subsidiaries

Notes to Consolidated Financial Statements

Note 20. Quarterly Financial Data (Unaudited)

Quarterly financial information is presented in the following summary.

	2003
	Three Months Ended
	March 31	June 30	September 30	December 31
Revenues	$   14,754,034	$   17,457,215	$   17,564,566	$   15,614,205
Operating income	1,282,826	2,305,407	1,808,027	1,427,988
Net income from continuing operations	457,100	1,047,267	736,758	509,889
Net income (loss) from discontinued operations	27,855	(4,061)	(62,825)	(1,794,373)
Net income per share – basic from continuing operations	0.15	0.36	0.25	0.17
Net income (loss) per share-basic from discontinued operations	0.01	0.00	(0.02)	(0.62)
Net income per share – diluted from continuing operations	0.15	0.35	0.25	0.17
Net income (loss) per share-diluted from discontinued operations	0.01	0.00	(0.02)	(0.61)

	2004
	Three Months Ended
	March 31	June 30	September 30	December 31
Revenues	$     13,124,152	$       16,853,379	$   15,247,934	$  14,403,714
Operating income	585,038	2,488,250	1,949,120	1,698,919
Net income from continuing operations	69,688	1,183,829	811,590	651,545
Net loss from discontinued operations	-	-	-	(36,082)
Net income per share – basic from continuing operations	0.02	0.40	0.27	0.20
Net loss per share-basic from discontinued operations	-	-	-	(0.01)
Net income per share – diluted from continuing operations	0.02	0.39	0.27	0.20
Net loss per share-diluted from discontinued operations	-	-	-	(0.01)

	2005
	Three Months Ended
	March 31	June 30	September 30	December 31
Revenues	$       13,061,326	$     14,340,060	$       15,023,905	$       14,462,136
Operating income	982,549	7,856,606	2,291,862	1,402,722
Net income from continuing operations	229,668	4,420,198	1,047,478	453,700
Net income (loss) from discontinued operations	(16,833)	-	109,794	-
Net income per share-basic from continuing operations	0.06	1.25	0.30	0.13
Net income (loss) per share-basic from discontinued operations	-	-	0.03	-
Net income per share-diluted from continuing operations	0.06	1.25	0.30	0.12
Net income (loss) per share-diluted from discontinued operations	-	-	0.03	-

Note 21. Significant Fourth Quarter Adjustment

There were no material fourth quarter adjustments or accounting changes.

F-25

Exhibit Index

Exhibit Numbers	Description	Page Numbers or Method of Filing
1	Form of Underwriting Agreement	Incorporated by reference to Registration Statement on Form S-1 No. 333-45403
3(i).1	Articles of Incorporation of ILX Resorts Incorporated as Amended	Filed herewith
3(i).2	Certificate of Designation, Preferences, Rights, and Limitations of Series A Preferred Stock, $10.00 par value of International Leisure Enterprises Incorporated, filed September 5, 1991	Incorporated by reference to 1991 10-K
3(i).3	Certificate of Designation, Preferences, Rights, and Limitations of Series B Preferred Stock, $10.00 par value of International Leisure Enterprises Incorporated, filed September 5, 1991	Incorporated by reference to 1991 10-K
3(ii).10	Certificate of Designation of Series C Preferred Stock, filed April 30, 1993
		Incorporated by reference to 1993 10-K
3.(ii)	Amended and Restated Bylaws of International Leisure Enterprises Incorporated, dated October 26, 1987	Incorporated by reference to 1990 10-K
4	Form of Common Stock Certificate	Incorporated by reference to Form 8-A, filed February 4, 1998
10.1	1992 Stock Option Plan	Incorporated by reference to 1992 10-K
10.2	1995 Stock Option Plan	Incorporated by reference to 1995 10-K
10.3	Agreement and Plan of Merger among ILE Acquisition Corporation, International Leisure Enterprises Incorporated and Genesis Investment Group, Inc., dated March 15, 1993	Incorporated by reference to 1992 10-K
10.4	First Amendment to Agreement and Plan of Merger between ILE Acquisition Corporation, International Leisure Enterprises Incorporated and Genesis Investment Group, Inc., dated April 22, 1993	Incorporated by reference to 1993 10-K
10.5	Lease Agreement between Edward John Martori and Red Rock Collection Incorporated, dated December 29, 1995	Incorporated by reference to 1995 10-K

10.6	Lease Agreement between Edward John Martori and ILX Resorts Incorporated dated January 1, 2000	Incorporated by reference to 1999 10-K
10.7	First Amended Certificate of Limited Partnership and Amended Agreement of Los Abrigados Partners Limited Partnership, dated September 9, 1991	Incorporated by reference to 1991 10-K
10.8	Certificate of Amendment of Limited Partnership for Los Abrigados Partners Limited Partnership, dated November 11, 1993	Incorporated by reference to 1994 10-K/A-3
10.9	First Amendment to Amended Agreement of Los Abrigados Partners Limited Partnership, dated February 9, 1996	Incorporated by reference to 1995 10-K
10.10	Installment Promissory Note ($1,300,000) by ILX Incorporated to Martori Enterprises Inc., dated August 8, 1997	Incorporated by reference to Form 8-K, filed August 22, 1997
10.11	Security Agreement between ILX Incorporated and Martori Enterprises Inc., dated August 8, 1997	Incorporated by reference to Form 8-K, filed August 22, 1997
10.12	Amended and Restated Promissory Note ($909,078) by ILX Incorporated to Edward J. Martori, dated January 1, 1996	Incorporated by reference to Registration Statement on Form S-1 No. 333-45403
10.13	Agreement to Modify Amended and Restated Promissory Note ($909,078) by ILX Resorts Incorporated to Edward J. Martori dated January 1, 1996 and the sale by Martori Enterprises Incorporated to ILX Resorts Incorporated and/or its nominee of certain vacation ownership interests in ILX Premiere Vacation Club and VCA South Bend Incorporated	Incorporated by reference to 9/30/99 10Q
10.14	Agreement for Transfer of Limited Partnership Interest by ILX Incorporated and Alan R. Mishkin, dated August 29, 1997	Incorporated by reference to Form 8-K, filed August 22, 1997
10.15	Installment Promissory Note ($675,000) by ILX Incorporated to Alan R. Mishkin dated September 24, 1997	Incorporated by reference to Form 8-K, filed August 22, 1997
10.16	Security (Pledge) Agreement between ILX Incorporated and Alan R. Mishkin, dated September 24, 1997	Incorporated by reference to Form 8-K, filed August 22, 1997
10.17	Form of Employment Agreement among ILX Resorts Incorporated and each of Joseph Martori, Nancy Stone and Edward Zielinski	Incorporated by reference to Registration Statement on Form S-1 No. 333-45403

10.18	Secured Line of Credit Lending Agreement between Litchfield Financial Corporation and ILX Resorts Incorporated, Los Abrigados Partners Limited Partnership and Premiere Development Incorporated dated as of June 12, 1998	Incorporated by reference to 6/30/98 10Q
10.19	Secured Line of Credit Promissory Note between Litchfield Financial Corporation and ILX Resorts Incorporated, Los Abrigados Partners Limited Partnership and Premiere Development Incorporated dated as of June 12, 1998	Incorporated by reference to 6/30/98 10Q
10.20	Business Agreement among ILX Resorts Incorporated, Premiere Vacation Club and Premiere Development Incorporated and Treasures of the Sea of Cortez, Promotura de Inversion Turistica, Immobiliaria y Hotelera Los Algodones and Immobiliaria Cerro Pelon dated as of June 8, 1998	Incorporated by reference to 6/30/98 10Q
10.21	Amended and Restated Secured Line of Credit Lending Agreement between ILX Resorts Incorporated, Los Abrigados Partners Limited Partnership, ILE Sedona Incorporated, VCA Tucson Incorporated, VCA South Bend Incorporated, Premiere Development Incorporated and Litchfield Financial Corporation dated as of September 17, 1998	Incorporated by reference to 9/30/98 10Q
10.22	Agreement for Sale and Transfer of Promissory Note between ILX Resorts Incorporated and Martori Enterprises Incorporated dated as of September 29, 1998	Incorporated by reference to 9/30/98 10Q
10.23	Contract of Sale of Timeshare Receivables with Recourse between Resort Funding, Inc. and Premiere Development Incorporated dated as of March 19, 1999	Incorporated by reference to 1998 10-K
10.24	Guaranty Agreement between ILX Resorts Incorporated and Resort Funding, Inc. dated as of March 19, 1999	Incorporated by reference to 1998 10-K
10.25	Rider to Contract between Resort Funding, Inc. and Premiere Development Incorporated dated March 24, 1999 to supplement the Contract of Sale of Timeshare Receivables with Recourse dated as of March 19, 1999	Incorporated by reference to 1998 10-K
10.26	Credit Agreement between Patrick J. McGroder, III, Nancy J. Stone, and James W. Myers, Trustees for the ILX Resorts Incorporated Employee Stock Ownership Plan and Trust and Litchfield Financial Corporation dated as of August 12, 1999	Incorporated by reference to 9/30/99 10Q
10.27	Sedona Worldwide Incorporated Form 10-SB	Incorporated by reference to SWI’s Form 10-SB on Form 10SB12G No. 000-25025, filed November 4, 1998

10.28	Sedona Worldwide Incorporated Amendment No. 1 to Form 10-SB	Incorporated by reference to SWI’s Amendment No. 1 to Form 10-SB on Form 1012G/A No. 000-25025, filed July 2, 1999
10.29	Sedona Worldwide Incorporated Amendment No. 2 to Form 10-SB	Incorporated by reference to SWI’s Amendment No. 2 to Form 10-SB on Form 10SB12G/A No. 000-25025, filed November 12, 1999
10.30	Sedona Worldwide Incorporated Amendment No. 3 to Form 10-SB	Incorporated by reference to SWI’s Amendment No. 3 to Form 10-SB on Form 1012G/A No. 000-25025, filed December 8, 1999
10.31	Letter agreement, dated as of October 28, 1999, among ILX Resorts Incorporated and Sedona Worldwide Incorporated	Incorporated by reference to 1999 10-K
10.32	Modification Agreement between ILX Resorts Incorporated and Sedona Worldwide Incorporated, dated January 1, 2001	Incorporated by reference to 2000 10-K
10.33	Schedule 14C Definitive Information Statement pursuant to Section 14(c) of the Securities Exchange Act of 1934 for Sedona Worldwide Incorporated	Incorporated by reference to Schedule 14C on Form No. DEF 14C No. 001-13855, filed January 3, 2000
10.34	Promissory Note ($600,000) by ILX Resorts Incorporated to The Steele Foundation, Inc. dated February 23, 2000	Incorporated by reference to 1999 10-K
10.35	Installment Promissory Note ($500,000) by ILX Resorts Incorporated to Martori Enterprises Incorporated dated August 1, 1999	Incorporated by reference to 1999 10-K
10.36	Purchase and Sale Agreement between ILX Resorts Incorporated and Las Vegas Golf Center, LLC, dated August 16, 2000	Incorporated by reference to 9/30/2000 10Q
10.37	First Amendment in Total between the County of Clark, a political subdivision of the State of Nevada, and ILX Resorts Incorporated, dated November 15, 2000	Incorporated by reference to 2000 10-K
10.38	Assignment and Assumption of Lease between ILX Resorts Incorporated and VCA Nevada Incorporated, dated January 12, 2001	Incorporated by reference to 2000 10-K
10.39	First Amendment to Purchase and Sale Agreement between ILX Resorts Incorporated and Las Vegas Golf Center, LLC, dated February 15, 2001	Incorporated by reference to 2000 10-K

10.40	Purchase and Sale Agreement between ILX Resorts Incorporated and John L. Fox, M.D., dated October 23, 2000	Incorporated by reference to 9/30/2001 10Q
10.41	Secured Promissory Note ($4,900,000) by VCA Nevada Incorporated to Las Vegas Golf Center, L.L.C., dated July 31, 2001	Incorporated by reference to 9/30/2001 10Q
10.42	First Modification Agreement dated September 13, 2001 between ILX Resorts Incorporated and The Steele Foundation, Inc.	Incorporated by reference to 9/30/2001 10Q
10.43	Amendment to Loan Documents between ILX Resorts Incorporated, Los Abrigados Partners Limited Partnership and Premiere Development Incorporated dated October 31, 2001	Incorporated by reference to 2001 10-K
10.44	General Bill of Sale, Assignment and Assumption Agreement between ILX Resorts Incorporated and Sedona Worldwide Incorporated dated January 2, 2002	Incorporated by reference to 2001 10-K
10.45	Purchase and Sale Agreement between ILX Resorts Incorporated and Edward John Martori, dated March 25, 2002	Incorporated by reference to 3/31/2002 10Q
10.46	Sedona Station Lease between ILX Resorts Incorporated and Edward John Martori, dated March 25, 2002	Incorporated by reference to 3/31/2002 10Q
10.47	Loan Purchase and Sale Agreement between ILX Resorts Incorporated and Las Vegas Golf Center, L.L.C. dated June 23, 2002	Incorporated by reference to 6/30/2002 10Q
10.48	Allonge dated June 23, 2002 executed on behalf of Las Vegas Golf Center, L.L.C., to the order of ILX Resorts Incorporated	Incorporated by reference to 6/30/2002 10Q
10.49	Secured Promissory Note between VCA Nevada Incorporated and Greens Worldwide Incorporated dated June 30, 2003	Incorporated by reference to 6/30/2002 10Q
10.50	Pledge Agreement between VCA Nevada Incorporated and Greens Worldwide Incorporated dated June 30, 2003	Incorporated by reference to 6/30/2003 10Q
10.51	Closing Agreement between VCA Nevada Incorporated, ILX Resorts Incorporated, Carol Colombo and Streets Las Vegas, L.L.C.	Filed herewith
10.52	Stock Bonus Plan	Incorporated by reference to Form 8-K filed on 6/29/05
10.53	Contract of Sale of Timeshare Receivables with Recourse by and between Resort Funding LLC and Premiere Development Incorporated	Incorporated by reference to Form 8-K filed on 7/5/05
10.54	Operating Agreement of ILX-Bruno LLC	Incorporated by reference to Form 8-K filed on 10/4/05
10.55	Restated First Amendment to the Operating Agreement of ILX-Bruno LLC	Incorporated by reference to Form 8-K filed on 10/4/05

14	Code of Ethics	Filed herewith
21	List of subsidiaries of ILX Resorts Incorporated	Filed herewith
23	Consent of Independent Registered Certified Public Accountants	Filed herewith
23.1	Consent of Independent Registered Certified Public Accountants	Filed herewith
31	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

EX-3

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

1.

Name: The name of the corporation (hereinafter called "Corporation") shall be INTERNATIONAL LEISURE ENTERPRISES INCORPORATED.

2.

Purpose: The purpose for which this Corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under the laws of the State of Arizona, as they may be amended from time to time.

3.

Initial Business: The Corporation initially intends to conduct the business of resort development and management; provided, however, that such initial intention shall in no manner whatever limit the character of the business which the Corporation may ultimately conduct.

4.

Authorized Capital: The authorized capital stock of this Corporation shall be ten million (10,000,000) shares of common stock having no par value.

5.

Statutory Agent: The name and address of the initial statutory agent of the Corporation is Joseph P. Martori, c/o Brown & Bain, P.A., 222 North Central Avenue, Phoenix, Arizona 85001.

6.

Known Place of Business: The known place of business of the Corporation shall be in Maricopa County, Arizona but a different and other offices and places for conducting business, both within and without the State of Arizona, may be established from time to time by the Board of Directors.

7.

Board of Directors: The initial Board of Directors shall consist of three (3) directors. The persons who are to serve as directors until the first annual meeting of the shareholders or until their successors are elected and qualified are:

Steven A. White

9080 Santa Monica Boulevard

Los Angeles, California 90069

Ronald D. Nitzberg

9740 W. Broadview Drive

Bay Harbor Island, Florida 33154

Joseph P. Martori

222 North Central Avenue

P.O. Box 400

Phoenix, Arizona 85001

Otherwise, the number of persons to serve on the Board of Directors shall be fixed by the Bylaws of the Corporation.

8.

Quorum: A quorum at any meeting of the Board of Directors shall consist of a majority of the number of directors then serving, but not less than two directors, provided that if and when a Board of Directors comprised of one member is authorized, or in the event that only one director is then serving, then one director shall constitute a quorum.

9.

Incorporators: The names and addresses of the incorporators of the Corporation are:

Karina Munger

222 North Central Avenue

Phoenix, Arizona 85004

Diane Russell

10115 E. Mountain View Rd., #1009

Scottsdale, Arizona 85258

All powers, duties and responsibilities of the incorporators shall cease at the time of filing of these Articles of Incorporation with the Arizona Corporation Commission.

10.

Distributions From Capital Surplus: The Board of Directors of the Corporation may, from time to time, distribute on a pro rata basis to its shareholders out of the capital surplus of the Corporation a portion of its assets, in cash or in property.

11.

Repurchase of Shares: The Board of Directors of the Corporation may, from time to time, cause the Corporation to purchase its own shares to the extent of the unreserved and unrestricted earned and capital surplus of the Corporation.

12.

Dividends: The Board of Directors may authorize the payment of dividends to the holders of shares of any class of stock payable in shares of any other class.

13.

Indemnification of Officers, Directors, Employees and Agents: Subject to the further provisions hereof, and to the extent permitted by law, the Corporation shall indemnify any and all of its existing and former directors, officers, employees and agents against all expenses incurred by them and each of them, including but not limited to legal fees, judgments, penalties, and amounts paid in settlement or compromise, which may arise or be incurred, rendered, or levied in any legal action brought or threatened against any of them for or on account of any action or omission alleged to have been committed while acting within the scope of employment as director,officer, employee, or agent of the Corporation, whether or not any action is or has been filed against them and whether or not any settlement or compromise is approved by a court. Indemnification shall be made by the Corporation whether the legal action brought or th reatened is by or in the right of the Corporation or by any other

person. Whenever any existing or former director, officer, employee, or agent shall report to the President of the Corporation or the Chairman of the Board of Directors that he or she has incurred or may incur expenses, including but not limited to legal fees, judgments, penalties, and amounts paid in settlement or compromise in a legal action brought or threatened against him or her for or on account of any action or omission alleged to have been committed by him or her while acting within the scope of his or her employment as a director, officer, employee, or agent of the Corporation, the Board of Directors shall, at its next regular or at a special meeting held within a reasonable time thereafter, determine in good faith whether, in regard to the matter involved in the action or contemplated action, such person acted, failed to act, or refused to act willfully or with gross negligence or with fraudulent or criminal intent. If the Board of Directors determines in good faith that such person did not act, fail to act, or refuse to act willfully or with gross negligence or with fraudulent or criminal intent in regard to the matter involved in the action or contemplated action, indemnification shall be mandatory and shall be automatically extended as specified herein, provided, however, that the Corporation shall have the right to refuse indemnification in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the Corporation, at its own expense and through counsel of its own choosing, to defend him or her in the action.

IN WITNESS WHEREOF, we, the undersigned, have hereunto set our hands this 8th day of October, 1986.

\s\ Karina Munger

\s\ Diane Russell

Joseph P. Martori, having been designated to act as Statutory Agent for International Leisure Enterprises Incorporated, hereby consents to act in that capacity until removal or resignation is submitted in accordance with the Arizona Revised Statutes.

\s\ Joseph P. Martori, Statutory Agent

c/o Brown & Bain, P.A.

2212 North Central Avenue

Phoenix, Arizona 85004

ARTICLES OF AMENDMENT TO THE

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

Pursuant to the provisions of A.R.S. § 10-061, the undersigned corporation adopts the attached amendments to its Articles of Incorporation.

FIRST:

The name of the corporation is INTERNATIONAL LEISURE ENTERPRISES INCORPORATED.

SECOND:

The document attached hereto as Exhibit "A" sets forth the amendments to the Articles of Incorporation which were adopted by the shareholders of the corporation.

THIRD:

The aforesaid amendments were adopted by the shareholders of the corporation on July 22, 1987, in the manner prescribed by the Arizona Business Corporation Act.

FOURTH:

The number of shares of the corporation outstanding at the time of such adoption and entitled to vote thereon was:

Class or Series	Number of Shares
Common	8,233,334

The number of shares of a class or series entitled to vote on the aforesaid amendments was:

Class or Series	Number of Shares
Common	1,766,666

FIFTH:

The number of shares voted for and against such amendments, respectively, was:

For:

1,766,666

Against:   0

and the number of shares of Common Stock entitled to vote as a class or series for and against such amendments, respectively, was:

For:

1,766,666

Against:   0

DATED:

August 28, 1987

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

By: /s/

Ronald D. Nitzberg, President

By: /s/

Nancy J. Stone, Secretary

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 28th day of  August, 1987, by Ronald D. Nitzberg, President of International Leisure Enterprises Incorporated, an Arizona corporation.

/s/

Notary Public

My Commission Expires: 01/24/1988

STATE OF ARIZONA

)

)SS.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 28th day of August, 1987, by Nancy J. Stone, Secretary of International Leisure Enterprises Incorporated, an Arizona corporation.

/s/

Notary Public

My Commission Expires: 01/24/1988

EXHIBIT A

RESOLVED, that the Article 13 of the Articles of Incorporation of the Corporation is hereby amended to read as follows:

Indemnification of Directors and Officers Scope of Indemnification

(a)

The Corporation shall indemnify directors and officers of the Corporation against any liability incurred in connection with any proceeding in which the director and/or officer may be involved as a party or otherwise, by reason of.the fact that such person is or was acting on behalf of the Corporation except where such indemnification is expressly prohibited by applicable law.

(b)

If a director or officer is entitled to indemnification with respect to a portion, but not all, of any liabilities to which such person may be subject, the Corporation shall indemnify such persons to the maximum extent for such portion of the liabilities.

(c)

The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the director or officer is not entitled to indemnification.

(d)

For purposes of this Article:

(1) "liability" means any damage, judgment, amount paid in settlement, fine, penalty, punitive damages, excise tax assessed with respect to an employee benefit plan, or cost or expense of any nature (including, without limitation, attorneys' fees and disbursements); and

(2) "proceeding" means any threatened, pending or completed action, suit, appeal or the proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Corporation, a class of its security holders or otherwise.

Proceedings Initiated by officers or directors. Notwithstanding any other provision of this Article, the Corporation shall not indemnify a director or officer for any liability incurred in a proceeding initiated (which shall not be deemed to include counterclaims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the proceeding is Authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in the office.

Advancing Expenses. The Corporation shall pay the expenses (including attorneys' fees and disbursements) incurred in good faith by an officer or director in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation pursuant to this Article. The financial

ability of an officer or director to repay an advance shall not be a prerequisite to the making of such advance.

Payment of Indemnification. A director or officer shall be entitled to indemnification within 30 days after a written request for indemnification has been delivered to the Secretary of the Corporation.

Contract Rights; Amendment or Repeal. All rights under this Article shall be deemed a contract between the Corporation and the officer or director pursuant to which the Corporation and each officer or director intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only as to conduct of an officer or director occurring thereafter, and shall not affect any rights or obligations then existing.

Scope of Article. The rights granted by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an indemnified capacity and as to action in any other capacity. The indemnification and advancement of expenses provided by or granted pursuant to this Article shall continue as to a person who has ceased to be an officer or director in respect of matters arising prior to such time, and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such person.

RESOLVED, FURTHER that the following is hereby added as Article 14 of the Articles of Incorporation of the Corporation:

ARTICLE 14

Elimination of Director Liability

Personal liability of directors. A director of the Corporation shall not be personally liable for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys' fees and disbursements)) for any action taken, or any failure to take action, unless the director has breached his or her duty of loyalty to the Corporation, or the directors acts or omissions are not in good faith or involve intentional misconduct or a knowing violation of law.

Interpretation of article. The provisions of this article are cumulative and shall be in addition to and independent of any and all other limitations on the liabilities of directors of the Corporation, or rights of indemnification by the Corporation to which a director of the Corporation may be entitled, whether such limitations or rights arise under or are created by any statute, rule of law, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Each person who serves as a director of the Corporation while this Article 14 is in effect shall be deemed to be doing so in reliance on the provisions of this Article. No amendment to or repeal of this Article 14, nor the

adoption of any provision of these Articles inconsistent with this- Article, shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal or adoption of an inconsistent provision. In any action, suit or proceeding involving this application of the provisions of this Article 14, the part or parties challenging the right of a director to the benefits of this Article shall have the burden of proof.

ARTICLES OF AMENDMENT TO THE

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

Pursuant to the provisions of A.R.S. § 10-061, the undersigned corporation adopts the attached amendment to its Articles of Incorporation.

FIRST:

The name of the corporation is INTERNATIONAL LEISURE ENTERPRISES INCORPORATED.

SECOND:

The document attached hereto as Exhibit "A" sets forth the amendment to the Articles of Incorporation which was adopted by the shareholders of the corporation.

THIRD:

The aforesaid amendment was adopted by the shareholders of the corporation on October 14, 1987, in the manner prescribed by the Arizona Business Corporation Act.

FOURTH:

The number of shares of the corporation outstanding at the time of such adoption and entitled to vote thereon was:

Class or Series	Number of Shares
Common	8,208,522

The number of shares of a class or series entitled to vote on the aforesaid amendments was:

Class or Series	Number of Shares
Common	1,791,478

FIFTH:

The number of shares voted for and against such amendments, respectively, was:

For:

1,351,479

Against:

0

and the number of shares of Common Stock entitled to vote as a class or series for and against such amendments, respectively, was:

For:

1,791,478

Against:

0

DATED: October 19, 1987

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

By: /s/

Ronald D. Nitzberg, President

By: /s/

Nancy J. Stone, Secretary

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 19th day of October, 1987, by Ronald D. Nitzberg, President of International Leisure Enterprises Incorporated, an Arizona corporation.

/s/

Notary Public

My Commission Expires: 01/24/1988

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 19th day of October, 1987, by Nancy J. Stone, Secretary of International Leisure Enterprises Incorporated, an Arizona corporation.

/s/

Notary Public

My Commission Expires: 01/24/1988

EXHIBIT A

RESOLVED, that Article 13 of the Articles of Incorporation of the Corporation is hereby amended to read as follows:

Indemnification of Directors and Officers

Scope of Indemnification.

(a) The Corporation shall indemnify directors and officers of the Corporation to the fullest extent permitted by Arizona law, as currently in effect, except for A.R.S. §10-005(F), against any liability incurred in connection with any proceeding in which the director and/or officer may be involved as a party or otherwise, by reason of the fact that such person is or was acting on behalf of the Corporation except where such indemnification is expressly prohibited by applicable law.

(b) If a director or officer is entitled to indemnification with respect to a portion, but not all, of any liabilities to which such person may be subject, the Corporation shall indemnify such person to the maximum extent for such portion of the liabilities.

(c) The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the director or officer is not entitled to indemnification.

(d) For purposes of this Article:

(1) "liability" means any damage, judgment, amount paid in settlement, fine, penalty, punitive damages, excise tax assessed with respect to an employee benefit plan, or cost or expense of any nature (including, without limitation, attorneys' fees and disbursements); and

(2) "proceeding" means any threatened, pending or completed action, suit, appeal or the proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Corporation, a class of its security holders or otherwise.

Proceedings Initiated by officers or  directors. Notwithstanding any other provision of this Article, the Corporation shall not indemnify a director or officer for any liability incurred in a proceeding initiated (which shall not be deemed to include counterclaims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office.

Advancing Expenses. The Corporation shall pay the expenses (including attorneys' fees and disbursements) incurred in good faith by an officer or director in advance of the final

disposition of a proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation pursuant to this Article. The financial ability of an officer or director to repay an advance shall not be a prerequisite to the making of such advance.

Payment of Indemnification. A director or officer shall be entitled to indemnification within 30 days after a written request for indemnification has been delivered to the Secretary of the Corporation.

Contract Rights; Amendment or Repeal. All rights under this Article shall be deemed a contract between the Corporation and the officer or director pursuant to which the Corporation and each officer or director intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only as to conduct of an officer or director occurring thereafter, and shall not affect any rights or obligations then existing.

Scope of Article. The indemnification and advancement of expenses provided by or granted pursuant to this Article shall continue as to a person who has ceased to be an officer or director in respect of matters arising prior to such time, and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such person.

STATE OF ARIZONA

ARTICLES OF AMENDMENT TO THE

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

Pursuant to the provisions of Section 10-061, Arizona Revised Statutes, the undersigned Arizona corporation adopts the attached Amendments to its Articles of Incorporation

FIRST:

The name of the corporation is International Leisure Enterprises Incorporated.

SECOND:

The document attached hereto as Exhibit A sets forth the amendments to the Articles of Incorporation which were adopted by the shareholders of the corporation on April 18, 1990, in the manner prescribed by the applicable Arizona Revised Statutes.

THIRD:

The number of shares of the corporation outstanding at the time of such adoption was 3,916,166; and the number of shares entitled to vote thereon was 2,571,157.

FOURTH:

The designation and number of outstanding shares of each class or series entitled to vote thereon as a class or series were as follows:

Class or Series	Number of Shares
Common	2,571,157

FIFTH:

The number of shares of each class or series entitled to vote thereon as a class or series voted for or against such amendment, respectively, was:

Class or	Number of	Number of
Series	Shares For	Shares Against
Common	2,571,157	None

SIXTH:

The amendment does not provide for an exchange, reclassification or cancellation of any issued shares.

SEVENTH:

The amount of stated capital is not affected by the amendments.

DATED: May 2, 1990

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED, an Arizona corporation

By: /s/

Nancy J. Stone, President

By: /s/

Judy L. Schmucker, Assistant Secretary

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 2nd day of May, 1990, by Nancy J. Stone, the President of International Leisure Enterprises Incorporated, an Arizona corporation, on behalf of the corporation.

/s/ Notary Public

My Commission Expires: 01/24/1992

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 2nd day of May, 1990, by Judy L. Schmucker, the Assistant Secretary of International Leisure Enterprises Incorporated, an Arizona corporation, on behalf of the corporation.

/s/ Notary Public

My Commission Expires: 01/24/1992

EXHIBIT A

AMENDMENT TO

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

Section 4

The authorized capital stock of this Corporation shall be (1) forty million (40,000,000) shares of common stock having no par value, and (2) ten million (10,000,000) shares of preferred stock having a par value of Ten Dollars ($10.00) per shares.

Section 4.1

Preferred Stock. Of the shares of capital stock hereinbefore authorized, ten million (10,000,000) shares having a par value of Ten Dollars ($10.00) per share shall constitute Preferred Stock. The Preferred Stock may be issued, from time to time, in one or more series, each of such series to have such designation and such relative voting, dividend, liquidation, conversion and other rights, preferences and limitations as are fixed by the Board of Directors from time to time. Authority is hereby expressly vested in and granted to the Board of Directors of this Corporation from time to time, subject to the provisions of this Paragraph, to adopt a resolution or resolutions dividing the shares of Preferred Stock into one or more series and, with respect to each such series, fixing the following:

(a) The number of shares to constitute such series and the distinctive designation thereof;

(b) The annual dividend rate on the shares of such series and the date or dates from which dividends shall be accumulated as herein provided;

(c) The times when and the price at which shares of such series shall be redeemable, the limitations and restrictions with respect to such redemptions and the amount, if any, in addition to any accumulated dividends thereon which the holders of shares of such series shall be entitled to receive upon the redemption thereof, which amount may vary at different redemption dates and may differ in the case of shares redeemed through the operation of any purchase, retirement or sinking fund from the case of shares otherwise redeemed;

(d) The amount, if any, in addition to any accumulated dividends thereon which the holders of shares of such series shall be entitled to receive upon the liquidation, dissolution or winding-up of this Corporation, which amount may vary depending on whether such liquidation, dissolution or winding-up is voluntary or involuntary and, if voluntary, may vary at different dates;

(e) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund and, if so, the extent to and manner in which such purchase, retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or for other corporate purposes and the terms and provisions relative to the operation of said fund or funds;

(f) Whether or not the shares of such series shall be convertible into shares of stock of any other class or classes, or of any other series of Preferred Stock or series of other class of shares, and if so convertible, the price or prices, the rate or rates of conversion and the method, if any, of adjusting the same;

(g) The limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or making of other distributions on, and upon the purchase, redemption or other acquisition by this Corporation or any subsidiary of this Corporation, of the Common Stock or any other class or series of stock of this Corporation ranking on a parity with or junior to the shares of such series either as to dividends or upon liquidation;

(h) The conditions or restrictions, if any, upon the creation of indebtedness of this Corporation or of any subsidiary, or upon the issue of any additional stock (including additional shares of such series or of any other series or of any other class) ranking on a parity with or prior to the shares of such series either as to dividends or upon liquidation;

(i) The regular and/or special voting powers, if any, of such series; and

(j) Such other preferences and relative, participating, optional or other special rights, or qualifications, limitations or restrictions, as shall not be inconsistent with these Articles or applicable law.

The Board of Directors also have authority to change the designation of shares, or the relative rights, preferences and limitations of the shares and further, the Board shall have authority to increase or decrease the number of shares of any series previously determined by it, provided, however, that the number of shares of any series shall not be decreased to a number less than that of the shares of that series then outstanding.

No Preemptive Rights, Stock Options and Rights. No stockholder of this Corporation shall have any preemptive or other similar right or option with respect to shares of capital stock proposed to be offered or issued by this Corporation. The Board of Directors shall have the authority to create and issue rights and options entitling the holders thereof to purchase from this Corporation shares of its capital stock. Any such rights or options need not be offered or issued generally to stockholders of this Corporation and may be offered or issued to such persons (including directors, officers and/or employees of this Corporation and/or any affiliate) as the Board of Directors deems appropriate.

STATE OF ARIZONA

ARTICLES OF AMENDMENT TO THE

ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

(changed by this amendment to ILX Incorporated)

Pursuant to the provisions of Section 10-061, Arizona Revised Statutes, the undersigned Arizona corporation adopts the attached Amendment to its Articles of Incorporation.

FIRST:

The name of the corporation is International Leisure Enterprises Incorporated.

SECOND:

The document attached hereto as Exhibit A sets forth the amendment to the Articles of Incorporation which was adopted by the shareholders of the Corporation on June 28, 1993, in the manner prescribed by the applicable Arizona Revised Statutes.

THIRD:

The number of shares of the Corporation outstanding at the time of such adoption was 11,472,198; and the number of shares entitled to vote thereon was 11,472,198.

FOURTH:

The designation and number of outstanding shares of each class or series entitled to vote thereon as a class or series were as follows:

Class or Series	Number of Shares
Common	11,472,198

FIFTH:

The number of shares of each class or series entitled to vote thereon as a class or series voted for or against such amendment, respectively, was:

Class or Series	Number of Shares For	Number of Shares Against
Common	10,243,568	3,340

SIXTH:

The amendment does not provide for an exchange, reclassification or cancellation of any issued shares.

SEVENTH:

The amount of stated capital is not affected by the amendment.

DATED: June 28, 1993

INTERNATIONAL LEISURE ENTERPRISES

INCORPORATED, an Arizona

corporation

By: /s/

Randall L. Pullen, President

By: /s/

Gordon Wren, Secretary

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 28th day of June, 1993, by Randall L. Pullen, the President of International Leisure Enterprises Incorporated, an Arizona corporation, on behalf of the Corporation.

/s/ Notary Public

My Commission Expires: 01/24/1996

STATE OF ARIZONA

)

)ss.

County of Maricopa

)

The foregoing instrument was acknowledged before me this 28th day of June, 1993, by Gordon Wren, the Secretary of International Leisure Enterprises Incorporated, an Arizona corporation, on behalf of the Corporation.

/s/ Notary Public

My Commission Expires: 01/24/1996

EXHIBIT A

AMENDMENT TO ARTICLES OF INCORPORATION OF

INTERNATIONAL LEISURE ENTERPRISES INCORPORATED

Article I is hereby amended as follows:

1.

Name: The name of the Corporation shall be ILX Incorporated.

ILX Incorporated

Changed Name to

ILX Resorts, Incorporated

CERTIFICATE OF AMENDMENT

TO ARTICLES OF INCORPORATION OF

ILX INCORPORATED

Pursuant to the provisions of A.R.S. Section 10-1001, et seq., the undersigned Corporation adopts the following amendments to its Articles of Incorporation:

1.

The name of the Corporation is ILX Incorporated.

2.

Pursuant to A.R.S. Section 10-1003, as of December 29, 1997, the Board of Directors of the Corporation adopted the following amendments to the Articles of Incorporation of ILX Incorporated and resolved that they be submitted to the Shareholders for their approval at a Special Meeting called for such purpose:

(a) RESOLVED, that Section 4 of the Articles of Incorporation of the

Corporation, as amended (the "Articles of Incorporation"), be amended to effect a one-for-five reverse split of the Corporation's outstanding no par value Common Stock (the "Common Stock"), and shall thereafter read in its entirety as follows:

Section 4. Authorized capital: The authorized capital stock of this Corporation shall be (i) thirty million (30,000,000) shares of common stock having no par value, and (ii) ten million (10,000,000) shares of preferred stock having a par value of ten dollars (510.00) per share. Each five (5) shares of the Corporation's Common Stock issued as of Monday, January 12, 1998 (the "Split Effective Date") shall be automatically changed and reclassified, as of the Split Effective Date and without further action, into one (1) fully paid and nonassessable share of the Corporation's Common Stock; provided, however, that any fractional interest resulting from such change and classification shall be rounded upward to the nearest whole share;

FURTHER RESOLVED, that the Articles of Incorporation be further amended by amending Section 1 for the purpose of changing the name of the Corporation, and shall thereafter read in its entirety as follows:

Section 1. "Name: The name of the corporation (hereinafter called

"Corporation") shall be ILX RESORTS, INCORPORATED."

(b) Except as expressly amended herein, all other provisions of the Articles of Incorporation of this Corporation shall remain unchanged and in full force and effect as originally filed with the Arizona Corporation Commission.

3.

Pursuant to A.R.S. Section 10-1003, at a Special Meeting held on January 9, 1998, the holders of the Company's outstanding Common Stock approved the foregoing amendments. An aggregate of 7,836,256 shares of Common Stock were indisputably represented at such meeting. The designation and number of outstanding shares of each class or series entitled to vote on the amendment as a class or series were as follows:

Class or Series	Number of Shares
Common	12,931,662

4.

The number of shares of each class entitled to vote on the amendments as a class or series voted for or against each of such amendments, respectively, which was sufficient for approval by that voting group, as follows:

(a) With respect to the amendment to Section 4 of the Articles of Incorporation:

Class or Series	Number of Shares For	Number of Shares Against
Common Stock	7,702,459	116,803

(b) With respect to the amendment to Section 1 of the Articles of Incorporation:

Class or Series	Number of Shares For	Number of Shares Against
Common Stock	7,824,564	4,118

5.

The foregoing amendments to the Company's Articles of Incorporation shall become effective as of 5:00 P.M. Mountain Standard Time on Monday, January 12, 1998.

DATED this 12th day of January, 1998.

ILX INCORPORATED, an Arizona corporation

By: /s/

Nancy J. Stone, President

ATTEST:

/s/

By: Stephanie Castranova, Secretary

ARTICLES OF CORRECTION

This document is filed pursuant to the provisions of A.R.S. Section 10-124.

ARTICLES OF CORRECTION OF:

ILX RESORTS, INCORPORATED

The undersigned hereby submits for filing Articles of Correction executed on behalf of the above named Corporation, pursuant to the provisions of the appropriate Statute, referenced above, of the Arizona Revised Statutes.

1:

The Article to be corrected is:

Certificate of Amendment of the Articles of Incorporation of ILX Incorporated (a copy of this document is attached hereto as "Exhibit A").

Date Filed:

January 12, 1998.

2.

The inaccuracy in the Articles is:

The name of the corporation was changed to "ILX Resorts, Incorporated".

A comma was inadvertently added to the corporate name after the word" resorts".

The Articles of Correction hereby reads as follows:

The correct name of the corporation is "ILX Resorts Incorporated".

Dated this 20th day of January, 1998.

ILX RESORTS, INCORPORATED,

an Arizona corporation

By: /s/

Nancy J. Stone, President

ATTEST:

By: /s/

Stephanie Castranova, Secretary

Exhibit "A"

ILX Incorporated

Changed Name to ILX Resorts, Incorporated

CERTIFICATE OF AMENDMENT

TO ARTICLES OF INCORPORATION OF

ILX INCORPORATED

Pursuant to the provisions of A.R.S. Section 10-1001, et se g., the undersigned Corporation adopts the following amendments to its Articles of Incorporation:

1.

The name of the Corporation is 1LX Incorporated.

2.

Pursuant to A.R.S. Section 10-1003, as of December 29, 1997, the Board of Directors of the Corporation adopted the following amendments to the Articles of Incorporation of ILX Incorporated and resolved that they be submitted to the Shareholders for their approval at a Special Meeting called for such purpose:

(a) RESOLVED, that Section 4 of the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), be amended to effect a one-for-five reverse split of the Corporation's outstanding no par value Common Stock (the "Common Stock"), and shall thereafter read in its entirety as follows:

Section 4. Authorized Capital: The authorized capital stock of this Corporation shall  be (i) thirty million (30,000,000) shares of common stock having no par value, and (ii) ten million (10,000,000) shares of preferred stock having a par value of ten dollars ($10.00) per share. Each five (5) shares of the Corporation's Common Stock issued as of Monday, January 12, 1998 (the "Split Effective Date") shall be automatically changed and reclassified, as of the Split Effective Date and without further action, into one (1) fully paid and nonassessable share of the Corporation's Common Stock; provided, however, that any fractional interest resulting from such change and classification shall be rounded upward to the nearest whole share;

FURTHER RESOLVED, that the Articles of Incorporation be further amended by amending Section 1 for the purpose of changing the name of the Corporation, and shall thereafter read in its entirety as follows:

Section 1. "Name: The name of the corporation (hereinafter called "Corporation") shall be ILX RESORTS, INCORPORATED."

(b) Except as expressly amended herein, all other provisions of the Articles of Incorporation of this Corporation shall remain unchanged and in full force and effect as originally filed with the Arizona Corporation Commission.

3.

Pursuant to A.R.S. Section 10-1003, at a Special Meeting held on January 9, 1998, the holders of the Company's outstanding Common Stock approved the foregoing amendments. An aggregate of 7,836,256 shares of Common Stock were indisputably represented at such meeting. The designation and number of outstanding shares of

each class or series entitled to vote on the amendment as a class or series were as follows:

Class or Series	Number of Shares
Common Stock	12,931,662

4.

The number of shares of each class entitled to vote on the amendments as a class or series voted for or against each of such amendments, respectively, which was sufficient for approval by that voting group, as follows:

(a) With respect to the amendment to Section 4 of the Articles of Incorporation:

Class or Series	Number of Shares For	Number of Shares Against
Common Stock	7,702,459	116,803

(b) With respect to the amendment to Section 1 of the Articles of Incorporation:

Class or Series	Number of Shares For	Number of Shares Against
Common Stock	7, 824,564	4,118

5.

The foregoing amendments to the Company's Articles of Incorporation shall  become effective as of 5:00 P.M. Mountain Standard Time on Monday, January 12, 1998.

DATED this 12th day of January, 1998.

ILX INCORPORATED, an Arizona corporation

By: /s/

Nancy J. Stone, President

ATTEST:

By: /s/

Stephanie Castranova, Secretary

EX-10

Exhibit 10.51

CLOSING AGREEMENT

This Closing Agreement ("Closing Agreement") is made and entered into as of the Closing of the New Escrow referenced in Paragraph 1 of the New Agreement dated April 1, 2005 ("New Agreement"). This Closing Agreement is by and between VCA Nevada Incorporated (VCA), ILX Resorts Incorporated (ILX), Carol Colombo (Colombo) and Streets Las Vegas, L.L.C. ("Streets").

RECITALS

1.

Pursuant to that certain New Agreement dated as of April 1, 2005, VCA has granted to Colombo the right to purchase the interests of VCA in "Airport Lease" (defined below) Colombo desires to name Streets as her designee for purposes of acquiring the Airport Lease as defined in the New Agreement. The transaction pursuant to which Streets acquires VCA's interest in the Airport Lease is referred to herein as the "Airport Lease Acquisition." For purposes of this Closing Agreement, the term "Airport Lease" shall mean that certain lease covering an approximately 44 acre parcel of land located on the Northwest Corner of Tropicana Blvd. and Paradise Road of which Clark County, Nevada is the Landlord (the "Property"), as evidenced by that certain First Amendment in Total dated November 21, 2000, as amended by that certain First Amendment to the First Amendment in Total dat ed August 20, 2002.

2.

Concurrently with the acquisition of the Airport Lease, Streets is redeeming all of the membership interest of VCA in Streets (the "Streets Membership Redemption").

3.

Pursuant to that certain Loan Agreement and related documents, instruments and agreements (together, the "Loan Documents"), Streets is borrowing Twenty Five Million Dollars ($25,000,000) from Canpartners Realty Holding Company IV, LLC ("Lender"). The transactions contemplated pursuant to the Loan Documents are referred to the "Loan Transactions."

4.

The Airport Lease Acquisition, the Streets Membership Redemption and the Loan Transactions are referred to together as the "Transactions."

AGREEMENT

Now, therefore, for good and valuable consideration and as an inducement to the parties to consummate the Transactions and enter into the documents in connection therewith, the parties agree as follows;

1

1.

Matters  Related to the New Agreement.

1.1

Conditioned upon the contemporaneous closing of the New Escrow (the "Closing") Colombo hereby assigns and transfers to Streets, without warranty, her rights under the New Agreement to acquire the Airport Lease and her rights to acquire the VCA Membership Interest, and Streets hereby accepts such assignment.

1.2

Conditioned upon the Closing, Section 2 of the New Agreement is modified so that, provided that the New Escrow closes and VCA is paid $18 million in cash prior to the close of business, Pacific time on April 15, 2005, VCA waives and forever releases the right to receive the additional consideration of $1 million referenced in the second sentence of such Section 2.

2.

Transfers Effective as of Closing.  Effective as of Closing:

2.1

VCA will assign the Airport Lease to Streets, subject only to the consent to assignment by Clark County (the "County"). The form of assignment of the Airport Lease is attached as Exhibit A.

2.2

VCA will assign to Streets, and Streets will redeem from VCA, the VCA Membership Interest, in accordance with the terms set forth in Section 3 of this Closing Agreement.

2.3

VCA will assign to Streets all of the Work Product (as defined in the New Agreement), in accordance with the terms set forth in Section 4 of this Closing Agreement.

3.

Matters Relating to Assignment and Redemption of VCA's Interest in Streets.

3.1

At the Closing, VCA hereby assigns and transfers to Streets all of its right, title and interest in and to VCA's ownership interest in Streets ("VCA's Membership Interest in Streets"), which as of the date of this Agreement equals 25% of the total outstanding membership interests in Streets, and Streets hereby redeems VCA's Membership Interest in Streets.

3.2

VCA hereby agrees to execute any and all additional documents and take any and all acts that may be necessary to effectuate the intent of this assignment and redemption.

4.

Matters Relating to Assignment of Work Product.

2

4.1

At the Closing, VCA hereby assigns and transfers to Streets all of its right, title and interest in and to the Streets Work Product (as defined in the New Agreement), and Streets hereby accepts such assignment.

4.2

VCA hereby agrees to execute any and all additional documents and take any and all acts that may be necessary to effectuate the intent of this assignment.

5.

Assignment of Subleases. At the Closing, VCA hereby transfers and assigns to Streets all of its rights, title and interest under the existing subleases with BVT Habvaria Limited Partnership and with L.C.D., Inc. (but excluding any liability associated therewith arising out of conditions existing or events occurring prior to the date of this assignment. VCA warrants that, except for the subleases referenced above and any rights of Streets or its members, there are no subleases, licenses or other rights to use affecting any portion of the Property Streets shall not assume any contracts entered into by VCA relating to the Property, including but not limited to security contracts, maintenance contracts, services contracts, employee or independent contractor arrangements and any other contractual relationships of any nature whatsoever.

6.

Representations and Covenants of VCA. VCA represents, warrants and covenants to Streets as follows, all of which representations shall survive the Closing:

6.1

Neither VCA nor the Property are bound or encumbered by any agreement with AdAmerica or any other person, firm or entity regarding signage, and without limiting the generality of the foregoing, the agreement between AdAmerica and VCA concerning signage at the southeast corner of the Airport Property is terminated and of no further force or effect.

6.2

Section 1.5.3 of the Airport Lease provides that the "Return of Equity" is a deduction from "Net Revenues" (as such terms are defined in the Airport Lease) for the purpose of calculating the rental payments due under the Airport Lease. VCA and ILX hereby represent, warrant and covenant that (i) the equity funds ("Equity") contributed by VCA and ILX pursuant to the terms and conditions of the Airport Lease, as of January 1, 2005,shall not be less than $12,000,000 (the "Minimum Equity"); (ii) All such Minimum Equity was appropriately contributed and documented in accordance with the terms and conditions of the Airport Lease, is a due and valid carry forward interest that is hereby conveyed to Streets, along with any additional Equity that shall have accrued prior to the date of this Agreement; and (iii) the Minimum Equity will be validated and approved as Equity in the course of any audit that may be performed by the Airport or Clark County, regardless when such audit may be performed. VCA agrees to fully cooperate with Lender and Streets and Streets agrees to fully cooperate with VCA with any audit of the Minimum Equity requested by Lender, the Airport or Clark County in order to determine the Equity contribution of VCA

3

and ILX for purposes of calculating the amount of Equity to be used in calculating the amount of rental to be paid under the Airport Lease. This covenant shall survive the transfer of the Airport Lease by VCA to Streets. VCA and ILX acknowledge and agrees that the assignment of the Attributed Equity to Streets served as a material inducement to Streets to enter into the Transactions and that Streets would be materially harmed by any audit finding that did not validate and attribute to Streets the Minimum Equity.

6.3

None of VCA's representations or warranties in the Loan Agreement are false or misleading.

6.4

VCA and ILX are, and shall remain, fully liable for any and all claims, liabilities, expenses, charges or damages, now or hereafter existing, that are attributable to the Airport Lease, the underlying property or any activities related thereto, including but not limited to any matters involving any sublessees, related to events occurring, in whole or in part, prior to the date of execution of the Closing Agreement.

7.

Indemnity.  VCA and ILX agree to indemnify and hold Streets harmless against any and all losses, damages, liabilities or claims of any nature whatsoever, now or hereafter existing and including but in no way limited to claims involving any sublessee under the Airport Lease, arising or attributable in whole or in part to events occurring prior to date of execution of this Closing Agreement

8.

Miscellaneous.

8.1

Attorney's Fees. Should either party employ an attorney to enforce any of the provisions hereof or to recover damages for the breach of this Agreement, the non-prevailing party agrees to pay the other party's reasonable expenses, including attorneys' fees and expenses, expended or incurred in connection therewith, as determined by a court of competent jurisdiction.

8.2

Exclusive Venue and Jurisdiction. Exclusive venue and jurisdiction for any legal dispute arising out of this New Agreement will be in the Maricopa County, Arizona Superior Court.

8.3

Binding Effect. This New Agreement shall be binding upon the successors, assigns and heirs (as applicable) of Colombo, Streets, VCA and ILX.

4

8.4

Time of Essence. Time is of the essence in the performance of each and every party's obligations hereunder.

8.5

Ownership of Furniture, Furnishings and Equipment. VCA is and shall remain the sole and exclusive owner of any and all furnishings, equipment, and furniture located within the building situated upon the Airport Lease property (except those furnishings, equipment and furniture otherwise owned by authorized sublessees). VCA shall have access to the building premises during normal business hours for a period of not less than 30 days from the date of the closing of the Land Transaction within which to remove any such furnishings, equipment and furniture, or to take any other such action as VCA shall deem appropriate with respect thereto, provided that VCA shall be responsible for any clean-up costs or repair costs associated with the removal of such furnishings, equipment and furniture. VCA shall not be entitled to remove any fixtures located within the building or otherwise located upon the Airport Lease Property.

8.6

Obligation to Use Best Efforts. VCA hereby covenants to use its best efforts to facilitate and secure the consent of Clark County to the Assignment of the Airport Lease from VCA to Streets. If for any reason Clark County fails to consent to the assignment, and provided that VCA shall have received payment of the $18 million referenced in Section 1.2 above, then VCA agrees to use its best efforts to create and institute a structure pursuant to which Streets receives the benefit of the bargain, as it is evidenced by the New Agreement.

8.7

Due Authority. Each signatory to this Closing Agreement hereby represents and warrants that they each have all requisite power and authority to conduct its business, to own and lease its properties and to execute, deliver and perform all of their respective obligations under this Closing Agreement.

7.8

Counterparts. This Closing Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Closing Agreement.

STREETS LAS VEGAS, LLC

By:

______________________

Carol A. Colombo

Its:

Manager

______________________

Carol A. Colombo, individually

5

VCA NEVADA INCORPORATED, an

 Arizona corporation

By:

________________________

Joseph P. Martori, Sr.

Its:

Chairman of the Board

ILX RESORTS INCORPORATED, an

Arizona corporation

By:

________________________

Joseph P. Martori, Sr.

Its:

Chairman of the Board

6

EX-14

FINANCE CODE OF ETHICS

BUSINESS CONDUCT

ILX Resorts Incorporated subscribes to the highest principles of business ethics.  Our common goal must always be to maintain the Company’s established reputation for absolute integrity.  ILX does not seek business success through illegal or unethical means, regardless of the circumstances.  Employees whose behavior is found to violate the Company’s Code of Ethics will be subject to disciplinary action including, when appropriate, termination.

As an ILX employee, you are to follow the highest principles of business ethics.  While it is impossible to define every situation where unethical business conduct may occur, the following are specifically to be avoided:

·

GRATUITIES TO GOVERNMENT EMPLOYEES/OFFICIALS

In accordance with government regulations, no ILX employee may offer a gratuity to any government employee or official on behalf of, or in pursuance of, Company business.  Gratuities are defined as meals, drinks, gifts, expenses, cash, or any other item of value including personal service.  An offer to provide, or the actual provision of, any form of gratuity to a government employee or official will constitute grounds for immediate termination.  This policy does not prohibit offering discounts on food, beverages or services to governmental employees at ILX facilities, provided such discounts are offered uniformly to all such employees and do not exceed discount rates offered to other non-governmental groups.

·

GRATUITIES TO/FROM CUSTOMERS AND SUPPLIERS

As an employee of ILX, you may not offer to give, or accept a gratuity from a customer, supplier or any other representative in the pursuit of business, or in conjunction with the negotiation of business on behalf of ILX.  Expenses for meals as part of a seminar, convention, or business meeting are not within the definition of gratuities for the purpose of his policy.  Invitations extended by a customer or supplier to participate in any program or activity, such as a party or football game, should be referred to your manager for approval on a case-by-case basis.  This policy is not intended to cover normal gratuities for resort employees for providing service to guests (i.e., food and beverage services).  Any violation of this policy will constitute grounds for immediate termination.

·

POLITICAL ACTIVITIES

ILX Resorts Incorporated, without reservation, accepts the basic democratic principle that all employees are free to make their own individual decisions in civic and political matters.  The Company encourages its employees to accept the personal responsibility of good citizenship, including participation in civic and political activities.  However, such activities are to be carried on outside of normal working hours.  No political activities or solicitations may be carried on within Company premises.  For purposes of this policy, political activities are defined as activities in support of, or in concert with, any individual candidate (including employees who are or may candidates) for political office, or a political party, which seeks to influence the election of candidates to federal, state or local offices.

RELEVANT LAWS

ILX employees must obey all relevant laws including those that apply to consumer marketing, privacy, copyright protection, securities and taxes.

CONFLICT OF INTEREST

Employees of ILX Resorts Incorporated may not engage in any activity, practice, or conduct, which conflicts with, or appears to conflict with, the interest of ILX, its customers, or its suppliers.  Any appearance of a conflict of interest will be deemed as an actual conflict of interest and is hereby prohibited.  As such, employees and their immediate family may not engage in the same or similar lines of business as those of ILX nor hold a material financial interest in companies which are competitors to ILX.  For purposes of these provisions, immediate family includes spouse, children and others sharing the same home as the employee.  Exceptions may be made on a case-by-case basis.  Such exception requests must be made in advance of their occurrence to the employee’s supervisor and approved, in writing, by the Human Resource Department.

Employees are not to engage in, directly or indirectly, either on or off the job, any conduct, which is disloyal, disruptive, competitive, or damaging to ILX Resorts Incorporated.

REPORTING

ILX will report the financial condition and results of operations honestly.  The Company’s records will be kept in accordance with generally accepted accounting principles and with established internal control policies.  No financial data will be influenced by others or by performance objectives.  ILX will cooperate fully with, and not conceal information from, external auditors and regulatory agencies during examinations of the Company’s books, records and operations.

CONCERNS REGARDING QUESTIONABLE ACCOUNTING OR AUDITING MATTERS

Any employee who has concerns regarding questionable accounting or auditing matters may anonymously submit his or her concern by mailing it in an envelope marked “Audit Committee-Confidential” to ILX Resorts Incorporated, 2111 E. Highland Avenue, Suite 200, Phoenix, Arizona 85016.

I adhere to the above Finance Code of Ethics.

Name

Date

EX-21

ILX RESORTS INCORPORATED

LIST OF SUBSIDIARIES

All-Star Resorts, Inc., an Arizona corporation

Genesis Investment Group, Inc., an Arizona corporation

Golden Eagle Realty, Inc., a Colorado corporation

Golden Eagle Resort, Inc., an Arizona corporation

Harbor Southwest Development, Inc., an Arizona corporation

ILE Florida, Inc., an Arizona corporation

ILE Sedona Incorporated, an Arizona corporation

ILX Bell Rock Incorporated, an Arizona corporation

ILX-Bruno LLC, an Arizona limited liability company

ILX Tourist Station Incorporated, an Arizona corporation

Kohl’s Ranch Water Company, an Arizona corporation

Laveen Properties, Inc., an Arizona corporation

Premiere Development Incorporated, an Arizona corporation

Premiere Media Incorporated, an Arizona corporation

Rocky Point Genesis Incorporated, an Arizona corporation

Southern Vacations, Inc., a Florida corporation

Timeshare Resale Brokers, Inc., an Arizona corporation

Varsity Clubs of America Incorporated, an Arizona corporation

VCA Management Incorporated, an Arizona corporation

VCA Nevada Incorporated, an Arizona corporation

VCA South Bend Incorporated, an Arizona corporation

VCA Tucson Incorporated, an Arizona corporation

Los Abrigados Partners Limited Partnership, an Arizona limited partnership

VCASB Partners General Partnership, an Arizona general partnership

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the use of our report dated March 29, 2006 with respect to the financial statements of ILX Resorts Incorporated included in this annual report on Form 10-K filed on March 31, 2006 with the Securities Exchange Commission, and incorporated by reference in the Registration Statements on Form S-3 (No. 333-132852 and No. 333-120378) and Form S-8 (No. 333-127892).  

/s/HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
March 29, 2006

EX-23

                                                                  Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

ILX Resorts Incorporated

We hereby consent to the incorporation by reference in this Registration Statement of ILX Resorts Incorporated on Form S-3 of our report, dated March 1, 2005, relating to the consolidated financial statements of ILX Resorts Incorporated and Subsidiaries, which appear in the Annual Report on Form 10-K of ILX Resorts Incorporated as of December 31, 2004 and 2003 and each of the three years in the period ended December 31, 2004. We also consent to the reference to us under the heading “Experts” in this Registration Statement.

HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah

March 29, 2006

EX-31

Form of Certification for Form 10-K

CERTIFICATIONS

I, Joseph P. Martori, Chairman, and Chief Executive Officer of ILX Resorts Incorporated (the “Company”) certify that:

1.

I have reviewed this annual report on Form 10-K of ILX Resorts Incorporated;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 30, 2006

/s/Joseph P. Martori

Joseph P. Martori

Chairman and Chief Executive

    Officer

Form of Certification for Form 10-K

CERTIFICATIONS

I, Margaret M. Eardley, Executive Vice President and Chief Financial Officer of ILX Resorts Incorporated (the “Company”) certify that:

1.

I have reviewed this annual report on Form 10-K of ILX Resorts Incorporated;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 30, 2006

/s/Margaret M. Eardley

Margaret M. Eardley

Executive Vice President and

    Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of ILX Resorts Incorporated (the "Company") on Form 10-K for the year ending December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I (We), Joseph P. Martori, Chief Executive Officer, and Margaret M. Eardley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Joseph P. Martori_____________________             
Joseph P. Martori
Chief Executive Officer
March 30, 2006

/s/ Margaret M. Eardley___________________
Margaret M. Eardley
Chief Financial Officer
March 30, 2006