**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
      10-QSB**


(Mark
      One)





[√]
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934







**For
      the quarterly period ended March 31, 2007**





OR





[ 
                 ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      transition period from  to
      ______





Commission
      file number **114800**





**DEER
      VALLEY CORPORATION**


***(Exact
      name of Registrant as specified in its charter)***








********Florida**
            **20-5256635**(State
                or other jurisdiction of
            (I.R.S.
                employerincorporation
                or organization)
            identification
                no.)





**4902
                Eisenhower Blvd., Suite 185, Tampa, FL**
            **33634**(Address
                of principal executive offices)
            (Zip
                code)




Registrant's
      telephone number, including area code: **(813)
      885-5998**







Former
      name of Registrant, if changed since last report





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





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes [   ] No [√]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes [   ] No [√]





The
      Registrant had 8,609,063 shares of Common Stock, par value $0.001 per share,
      outstanding as of May
      1,
      2007 .
















**TABLE
      OF CONTENTS**







**PART
              I**
            **FINANCIAL
              INFORMATION**
            **PAGE**Item
                1
            Financial
                Statements
            F-1Consolidated
                Balance Sheets
            F-2As
                ofMarch
                31,
                2007 (unaudited)F-3Consolidated
                Statements of OperationsThree
                Months endedMarch
                31,
                2007(unaudited)Three
                Months endedApril
                1,
                2006(unaudited)Consolidated
                Statements of Cash Flows
            F-4Three
                Months endedMarch
                31,
                2007(unaudited)Three
                Months endedApril
                1,
                2006(unaudited)Notes
                to Consolidated Financial Statements (unaudited)
            F-5 -- F-10Item
                2
            Management's
                Discussion and Analysis or Plan of Operation
            3Item
                3
            Controls
                and Procedures
            9**PART
                II**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            9Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            10Item
                3
            Defaults
                Upon Senior Securities
            10Item
                4
            Submission
                of Matters to a Vote of Security Holders
            10Item
                5
            Other
                Information
            10Item
                6
            Exhibits
            10


Unless
        otherwise indicated or the context otherwise requires, all references below
        in
        this filing to “we,” “us,” the “Company,” and "Deer Valley" are to Deer
        Valley Corporation, a Florida corporation, together with its wholly-owned
        subsidiary, Deer Valley Homebuilders, Inc., an Alabama corporation.
 
 **PART
        I**  **FINANCIAL
        INFORMATION**








**Item
      1.  Financial Statements**


**Deer
        Valley Corporation & Subsidiary**
 **Condensed
        Consolidated Financial Statements**
  **Contents:****Consolidated
                    Balance Sheet as of March 31, 2007 (unaudited)**
                **F-2****Consolidated
                    Statements of Operations for the three month period ended March
                    31, 2007
                    and April 1, 2006 (unaudited)**
                **F-3****Consolidated
                    Statements of Cash Flows for the three month period ended March
                    31, 2007
                    and April 1, 2006 (unaudited)**
                **F-4****Notes
                    to Condensed Consolidated Financial Statements
                    (unaudited)**
                **F-5
                    -- F-10**









F-1


**Deer
        Valley Corporation & Subsidiary**
 **Consolidated
        Balance Sheets**




**ASSETS****March
                  31,****2007****(unaudited)****Current
                  Assets:**Cash
              
              
              $
              5,599,667Accounts
                  receivable
              
              
              
              2,834,582Inventory
              
              
              
              1,761,823Prepaid
                  expenses and other current assets
              
              
              
              923,558Total
                  Current Assets
              
              
              
              11,119,630Fixed
                  Assets:Property,
                  plant and equipment, net
              
              
              
              3,206,301Other
                  Assets:Goodwill
              
              
              
              5,721,413Other
                  assets
              
              
              
              82,456Total
                  Other Assets:
              
              
              
              5,803,869**Total
                  Assets**
              
              
              **$**
              **20,129,801****LIABILITIES
                  AND STOCKHOLDERS'EQUITY(DEFICIT)****Current
                  Liabilities:**Current
                  maturities on long term debt
              
              
              $
              1,289,361Accounts
                  payable and accrued expenses
              
              
              
              3,145,359Accrued
                  warranties
              
              
              
              2,000,000Other
                  current liabilities
              
              
              
              94,736Total
                  Current Liabilities
              
              
              
              6,529,456**Long
                  Term Liabilities:**Long-term
                  debt, net of current maturities
              
              
              
              3,121,086**Total
                  Liabilities**
              
              
              
              9,650,541**Stockholders'
                  Equity (Deficit):**Series
                  A Preferred stock, $0.01 par value, 750,000 shares authorized,
                  638,775
                  shares issued and outstanding.
              
              
              
              6,387,745Series
                  B Preferred stock, $0.01 par value, 49,451 shares authorized, 0
                  shares
                  issued and outstanding
              
              
              
              -Series
                  C Preferred stock, $0.01 par value, 26,750 shares authorized, 26,750
                  shares issued and outstanding
              
              
              
              267Series
                  D Preferred stock, $0.01 par value, 132,081 shares authorized,
                  0 shares
                  issued and outstanding
              
              
              
              -Series
                  E Preferred stock, $0.01 par value, 750,000 shares authorized,
                  750,000
                  shares issued and outstanding
              
              
              
              7,500Common
                  stock, $0.001 par value, 100,000,000 shares authorized, 8,609,063
                  shares
                  issued and outstanding.
              
              
              
              8,608Additional
                  paid-in capital
              
              
              
              43,676,118Retained
                  earnings and accumulated deficit
              
              
              
              (39,600,980
              )**Total
                  Stockholders Equity (Deficit)**
              
              
              
              10,479,258**Total
                  Liabilities and Stockholders Equity (Deficit)**
              
              
              **$**
              **20,129,801**




*See
        notes to consolidated financial statements*




F-2




**Deer
        Valley Corporation & Subsidiary**
 **Consolidated
        Statements of Operations**
 **March
                    31,**
                
                **April
                    1,****2007**
                
                **2006****(unaudited)**
                
                
                **(unaudited)****REVENUE**
                
                $
                11,812,342
                
                $
                12,913,079**COST
                    OF REVENUE**
                
                
                10,436,409
                
                
                10,895,389**GROSS
                    PROFIT**
                
                
                1,375,933
                
                
                2,017,690**OPERATING
                    EXPENSES:**Depreciation
                
                
                63,091
                
                
                36,065Selling,
                    general and administrative
                
                
                1,424,529
                
                
                1,249,327TOTAL
                    OPERATING EXPENSES
                
                
                1,487,620
                
                
                1,285,392OPERATING
                    INCOME/(LOSS)
                
                
                (111,687
                )
                
                732,298**OTHER
                    INCOME (EXPENSES)**Other
                    income
                
                
                -
                
                
                6,243Interest
                    income
                
                
                62,634
                
                
                -Interest
                    expense
                
                
                (39,664
                )
                
                (13,867
                )TOTAL
                    OTHER INCOME/(EXPENSES)
                
                
                22,970
                
                
                (7,624
                )INCOME/(LOSS)
                    BEFORE INCOME TAXES
                
                
                (88,717
                )
                
                724,674INCOME
                    TAX EXPENSE
                
                
                (45,528
                )
                
                (261,173
                )**NET
                    INCOME/(LOSS)**
                
                **$**
                **(134,245**
                **)**
                **$**
                **463,501**Dividends
                    to preferred stockholders
                
                
                (91,777
                )
                
                (113,086
                )Deemed
                    dividend to preferred stockholders on beneficial conversion
                    feature
                
                
                -
                
                
                (1,491,243
                )**NET
                    INCOME/(LOSS)Available to Common Shareholders**
                
                **$**
                **(226,023**
                **)**
                **$**
                **(1,140,828**
                **)****Net
                    Income/(Loss) Per Share (Basic)**
                
                **$**
                **(0.03**
                **)**
                **$**
                **(1.14**
                **)****Net
                    Income/(Loss) Per Share (Fully Diluted)**
                
                **$**
                **(0.03**
                **)**
                **$**
                **(1.14**
                **)****Weighted
                    Average Common Shares Outstanding**
                
                
                **8,350,510**
                
                
                **1,000,000****Weighted
                    Average Common and Common Equivalent Shares Outstanding**
                
                
                **8,350,510**
                
                
                **1,000,000**
  
 *See
        notes to consolidated financial statements*






F-3




**Deer
      Valley Corporation & Subsidiary**


**Consolidated
      Statements of Cash Flows**


**For
                  the three month period ended****March
                  31,**
              
              
              
              **April
                  1,****2007**
              
              
              
              **2006****(unaudited)**
              
              
              
              
              **(unaudited)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income (loss)
              
              $
              (134,245
              )
              
              
              $
              463,501Adjustments
                  to reconcile net income (loss) to net cash provided for/used in
                  operating
                  activities:Depreciation
                  and amortization
              
              
              68,039
              
              
              
              
              36,065Changes
                  in assets and liabilities:(Increase)/decrease
                  in receivables
              
              
              (659,584
              )
              
              
              
              (673,910
              )(Increase)/decrease
                  in inventories
              
              
              (464,180
              )
              
              
              
              (1,360,783
              )(Increase)/decrease
                  in prepayments and other assets
              
              
              (7,380
              )
              
              
              
              (74,342
              )Increase/(decrease)
                  in accounts payable
              
              
              154,244
              
              
              
              
              954,070Increase/(decrease)
                  in income taxes payable
              
              
              (304,471
              )
              
              
              
              261,173Increase/(decrease)
                  in estimated warranties
              
              
              -
              
              
              
              
              110,000Increase/(decrease)
                  in accrued expenses
              
              
              (440,692
              )
              
              
              
              275,514**CASH
                  FLOW PROVIDED FOR/USED IN OPERATING ACTIVITIES**
              
              **$**
              **(1,788,270**
              **)**
              
              
              **$**
              **(8,711**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of equipment
              
              
              (62,123
              )
              
              
              
              (245,771
              )Purchase
                  of Company, net of cash acquired
              
              
              -
              
              
              
              
              (2,777,116
              )**CASH
                  FLOW USED IN INVESTING ACTIVITIES**
              
              **$**
              **(62,123**
              **)**
              
              
              **$**
              **(3,022,887**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from preferred issuances
              
              
              -
              
              
              
              
              6,541,014Repayment
                  of notes payable
              
              
              (19,001
              )
              
              
              
              -Proceeds
                  from the exercise of warrants
              
              
              37,910
              
              
              
              
              -Distributions
                  to former shareholders
              
              
              -
              
              
              
              
              (150,000
              )Proceeds
                  from issuance of common stock
              
              
              -
              
              
              
              
              18Proceeds
                  from long-term debt
              
              
              -
              
              
              
              
              43,039**CASH
                  FLOW PROVIDED BY FINANCING ACTIVITIES**
              
              **$**
              **18,909**
              
              
              
              **$**
              **6,434,071****NET
                  INCREASE (DECREASE) IN CASH**
              
              **$**
              **(1,831,485**
              **)**
              
              
              **$**
              **3,402,473****CASH,
                  Beginning**
              
              **$**
              **7,431,152**
              
              
              
              **$**
              **221****CASH,
                  Ending**
              
              **$**
              **5,599,667**
              
              
              
              **$**
              **3,402,694****SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid during the year for:Interest
              
              $
              39,664
              
              
              
              $
              13,867Taxes
              
              $
              285,000
              
              
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF NON CASH INVESTING AND FINANCING
                  ACTIVITIES:**Additional
                  purchase price accrued under earnout provision
              
              $
              -
              
              
              
              $
              496,407Accrual
                  of dividends on preferred stock
              
              $
              91,777
              
              
              
              $
              113,086Deemed
                  dividend on beneficial conversion feature
              
              $
              -
              
              
              
              $
              1,491,243





*See
        notes to consolidated financial statements*
   F-4




**Deer
        Valley Corporation & Subsidiary**
 **Notes
        to Condensed Consolidated Financial Statements**
 **(unaudited)**
  
  **1.
        BASIS OF PRESENTATION**
 
 The
        accompanying unaudited consolidated financial statements for the three month
        period ended March 31, 2007 and April 1, 2006 have been prepared in accordance
        with accounting principles generally accepted in the United States of America
        for interim financial information and pursuant to the rules and regulations
        of
        the Securities and Exchange Commission for Form 10-Q. Accordingly, they do
        not
        include all the information and footnotes required by accounting principles
        generally accepted in the United States of America for complete financial
        statements.
 
 The
        unaudited financial information included in this report includes all adjustments
        which are, in the opinion of management, necessary to reflect a fair statement
        of the results for the interim periods. The operations for the three month
        periods ended March 31, 2007 and April 1, 2006 are not necessarily indicative
        of
        the results of the full fiscal year.
 
 The
        condensed consolidated financial statements included in this report should
        be
        read in conjunction with the financial statements and notes thereto included
        in
        the Registrant's December 31, 2006 Annual Report on Form 10-KSB and subsequent
        filings on Form 8-K.
 
 **2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 ***Stock
        Based Compensation*** *-* In
        December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
        Payment". SFAS 123(R) will provide investors and other users of financial
        statements with more complete and neutral financial information by requiring
        that the compensation cost relating to share-based payment transactions be
        recognized in financial statements. That cost will be measured based on the
        fair
        value of the equity or liability instruments issued. SFAS 123(R) covers a
        wide
        range of share-based compensation arrangements including share options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123,
        "Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
        25,
        "Accounting for Stock Issued to Employees". SFAS 123, as originally issued
        in
        1995, established as preferable a fair-value-based method of accounting for
        share-based payment transactions with employees. However, that statement
        permitted entities the option of continuing to apply the guidance in Opinion
        25,
        as long as the footnotes to financial statements disclosed what net income
        would
        have been had the preferable fair-value-based method been used. Public entities
        (other than those filing as small business issuers) will be required to apply
        SFAS 123(R) as of the first interim or annual reporting period that begins
        after
        June 15, 2005. For public entities that file as small business issuers SFAS
        123(R) is applicable as of the beginning of the first interim or annual
        reporting period that begins after December 15, 2005.
 
 Prior
        to
        January 1, 2006, the Company accounted for Stock Options and Stock Based
        Compensation under the recognition and measurement provisions of APB Opinion
        No.
        25, “Accounting for Stock Issued to Employees”, and related Interpretations, as
        permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation”.
        Effective January 1, 2006, the Company adopted the fair value recognition
        provisions of SFAS No. 123(R), Share-Based Payment, using the
        modified-prospective-transition method. Under that transition method,
        compensation cost for all share-based payments granted prior to, but not
        yet
        vested as of January 1, 2006 are based on (a) the grant date fair value
        estimated in accordance with the original provisions of SFAS No. 123, and
        (b)
        compensation cost for all share-based payments granted subsequent to January
        1,
        2006 are based on the grant-date fair value estimated in accordance with
        the
        provisions of SFAS No.123(R). Results for prior periods have not been restated.
 
 As
        of
        March 31, 2007, the Company has not yet created a stock incentive plan which
        authorizes the issuance of options to purchase common stock. As a result
        no
        stock-based employee compensation cost has been recognized in the Statement
        of
        Operations for the three month period ended March 31, 2007 and April 1,
        2006.
   F-5
 
 ***Stock
        Options and Warrants:***
 
 The
        following table summarizes the activity related to all Company stock options
        and
        warrants for the period ended March 31, 2007:




**Stock****Warrants**
              
              **Options**
              
              **Warrants**
              
              **Options**
              
              **Warrants**
              
              **Options****Outstanding
                  at December 31, 2006**
              
              
              **22,506,977**
              
              
              **-**
              
              **$**
              **0.75-3.00**
              
              
              **-**
              
              **$**
              **1.64**
              
              
              **-**Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              (25,273
              )
              
              -
              
              $
              1.50
              
              
              -
              
              $
              1.50
              
              
              -Cancelled
                  or expired
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Outstanding
                  at March 31, 2007**
              
              
              **22,481,704**
              
              
              **-**
              
              **$**
              **0.75-3.00**
              
              
              **-**
              
              **$**
              **1.64**
              
              
              **-****Exercisable
                  at March 31, 2007**
              
              
              **22,481,704**
              
              
              **-**
              
              **$**
              **0.75-3.00**
              
              
              **-**
              
              **$**
              **1.64**
              
              
              **-**




The
        warrants expire at various dates ranging from January 2011 through November
        2016. See *Note
        7 -Equity Transactions-Warrants* for
        further details on the Company’s warrants.
 
 ***Earning
        (Loss) Per Share*** -
        The
        Company uses SFAS No. 128, “ *Earnings
        Per Share* ”
for
        calculating the basic and diluted loss per share. Basic loss per share is
        computed by dividing net loss and net loss attributable to common shareholders
        by the weighted average number of common shares outstanding. Diluted loss
        per
        share is computed similar to basic loss per share except that the denominator
        is
        increased to include the number of additional common shares that would have
        been
        outstanding if the potential shares had been issued and if the additional
        shares
        were dilutive. Common equivalent shares are excluded from the computation
        of net
        loss per share as they would be anti-dilutive.




**For
                  the three month period ending****March
                  31,**
              
              
              
              **April
                  1,****2007**
              
              
              
              **2006****Net
                  loss available to common shareholders**
              
              
              **($226,023**
              **)**
              
              
              
              **($1,140,828)**Weighted
                  average shares outstanding:Basic
              
              
              8,350,510
              
              
              
              
              1,000,000**Loss
                  per share:****Basic**
              
              
              **($0.03**
              **)**
              
              
              
              **($1.14)****Diluted***
              
              
              **($0.03**
              **)**
              
              
              
              **($1.14)**





*Diluted
        weighted average per share outstanding for periods ended March 31, 2007 and
        April 1, 2006 do not include the effect of dilutive securities because to
        do so
        would have been anti-dilutive (see detailed list of anti-diluted shares below).
        Accordingly, basic and diluted net loss per share for this period is the
        same.
   F-6


**Common
                Stock Equivalents as of****March
                  31,**
              
              **April
                  1,****Securities**
              
              **2007**
              
              **2006***Preferred:*Series
                  A Preferred
              
              
              8,516,993
              
              
              9,941,620Series
                  B Preferred
              
              
              -
              
              
              4,945,100Series
                  C Preferred
              
              
              2,675,000
              
              
              2,675,000Series
                  E Preferred
              
              
              750,000
              
              
              -*Warrants:*Class
                  A Warrants
              
              
              10,369,351
              
              
              9,941,639Class
                  B Warrants
              
              
              4,970,824
              
              
              4,970,824Class
                  C Warrants
              
              
              2,000,000
              
              
              2,000,000Class
                  D Warrants
              
              
              2,000,000
              
              
              2,000,000Class
                  E Warrants
              
              
              880,544
              
              
              -Class
                  F Warrants
              
              
              750,000
              
              
              -Class
                  BD-1 Warrants
              
              
              -
              
              
              919,162Class
                  BD-2 Warrants
              
              
              919,162
              
              
              919,162Class
                  BD-3 Warrants
              
              
              459,581
              
              
              459,581Class
                  BD-4 Warrants
              
              
              66,121
              
              
              -Class
                  BD-5 Warrants
              
              
              66,121
              
              
              -**Total
                  antidilutive shares**
              
              
              **34,423,697**
              
              
              **38,772,088**




***Recent
        Accounting Pronouncements***
 
 FASB
        Interpretation No 47, “Accounting for Conditional Asset Retirement Obligations”
(“FIN 47”) was issued in March 2005 and clarifies the accounting prescribed
        in SFAS No. 143, “Accounting for Asset Retirement Obligations”. FIN 47
        requires the recognition of a liability for the fair value of a conditional
        asset retirement obligation if the fair value can be reasonably estimated,
        even
        though uncertainty exists as to the timing and method of settlement. Management
        is currently evaluating the requirements of FIN 47 and has not yet determined
        the impact on the financial statements.
 
 FASB
        Interpretation No 48, “Accounting for Uncertainty in Income Taxes -- an
        interpretation of FASB Statement No. 109” (“FIN 48”), was issued in
        July 2006. This interpretation clarifies the accounting for uncertainty in
        income taxes recognized in an entity's financial statements in accordance
        with
        SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition
        threshold and measurement attribute for financial statement disclosure of
        tax
        positions taken, or expected to be taken, on a tax return. The Company will
        be
        required to adopt FIN 48 in the first quarter of fiscal 2008. Management
        is
        currently evaluating the requirements of FIN 48 and has not yet determined
        the
        impact on the financial statements.
  In
        September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No.
        108”), *Considering
        the Effects of Prior Year Misstatements When Quantifying Misstatements in
        Current Year Financial Statements* .
        SAB No.
        108 provides guidance to registrants for assessing materiality. SAB No. 108
        states that registrants should use both a balance sheet approach and income
        statement approach when quantifying and evaluating the materiality of a
        misstatement. SAB No. 108 also provides guidance on correcting errors under
        the
        dual approach as well as transition guidance for correcting previously
        immaterial errors that are now considered material. We adopted SAB No. 108
        as of
        January 1, 2007 without any impact on our financial statements.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement”
(“SFAS 157”), which defines fair value, establishes a framework for measuring
        fair value and expands disclosures about assets and liabilities measured
        at fair
        value. The Company will be required to adopt SFAS 157 in the first quarter
        of
        fiscal 2009. Management is currently evaluating the requirements of SFAS
        157 and
        has not yet determined the impact on the financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers'
        Accounting for Defined Benefit Pension and Other Postretirement Plans --
        an
        amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158
        requires an employer to recognize a plan's funded status in its statement
        of
        financial position, measure a plan's assets and obligations as of the end
        of the
        employer's fiscal year and recognize the changes in a defined benefit
        postretirement plan's funded status in comprehensive income in the year in
        which
        the changes occur. The Company will be required to recognize the funded status
        of benefit plans and adopt the new disclosure requirements effective
        August 31, 2007. The Company will be required to measure plan assets and
        benefit obligations as of the date of the fiscal year-end statement of financial
        position effective August 31, 2009. Management is currently evaluating the
        requirements of SFAS 158, but based on the current funded status of the plans,
        management does not anticipate SFAS 158 will have a material impact on the
        Company's financial statements.
   F-7
  In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* .
        SFAS
        No. 159 permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. SFAS No. 159 will be effective at the
        beginning of fiscal year 2008. We are presently evaluating the impact of
        the
        adoption of SFAS No. 159 on our results of operations and financial
        position.
  
 **3.
        INVENTORY**
 
 Inventory
        consisted of the following components:
 **March
                    31,****2007****(unaudited)**Raw
                    Materials
                
                
                1,001,494Work-in-Process
                
                
                360,865Finished
                    Goods
                
                
                399,464**Total
                    Inventory**
                
                **$**
                **1,761,823**
    **4.
            PRODUCT WARRANTIES**




The Company provides the retail home buyer a one-year limited
      warranty covering defects in material or workmanship in home structure, plumbing
      and electrical systems. The Company estimated warranty costs are accrued at
      the
      time of the sale to the dealer following industry standards and historical
      warranty cost incurred. Periodic adjustments to the estimated warranty accrual
      are made as events occur which indicate changes are necessary. As of March
      31,
      2007 and December 31, 2006, the Company has provided a liability of $2,000,000
      for estimated warranty costs relating to homes sold, based upon management's
      assessment of historical experience factors and current industry
      trends.




Management
        reviews its warranty requirements at the close of each reporting period and
        adjusts the reserves accordingly. The following
        tabular presentation reflects activity in warranty reserves during the periods
        presented:
  **March
                    31,****2007****(unaudited)****Balance
                    at beginning of period**
                
                **$**
                **2,000,000**Warranty
                    charges
                
                
                1,023,972Warranty
                    payments
                
                
                (1,023,972
                )**Balance
                    at end of period**
                
                **$**
                **2,000,000**




**5.
        COMMITMENTS AND CONTINGENCIES**




***Litigation-*** The
        Company in the normal course of business is subject to claims and litigation.
        Management of the Company is of the opinion that, based on information
        available, such legal matters will not ultimately have a material adverse
        effect
        on the financial position or results of operation of the Company.
 
 *Reserve
        for Repurchase Commitments -*** Deer
        Valley Homebuilders, Inc. (“DVH”) is contingently liable under the terms of
        repurchase agreements with financial institutions providing inventory financing
        for retailers of DVH’s products. These arrangements, which are customary in the
        industry, provide for the repurchase of products sold to retailers in the
        event
        of default by the retailer. The risk of loss under these agreements is spread
        over numerous retailers. The price DVH is obligated to pay generally declines
        over the period of the agreement (typically 18 to 24 months) and the risk
        of
        loss is further reduced by the sale value of repurchased homes. The maximum
        amount for which the Company is contingently liable under repurchase agreements
        is approximately $15,765,000 at March 31, 2007.  DVH to date has not
        experienced significant losses under these agreements, and management does
        not
        expect any future losses to have a material effect on the accompanying financial
        statements.
 
 ***Earnout
        Agreement -*** On
        January 18, 2006, the Company's wholly-owned subsidiary, DeerValley Acquisitions
        Corp. (dissolved on July 1, 2006), entered into an Earnout Agreement (the
        "Earnout Agreement"), between Deer Valley Homebuilders, Inc., DeerValley
        Acquisitions Corp., and the former owners of Deer Valley Homebuilders, Inc.
        In
        connection with the Earnout Agreement additional payments may be paid to
        the
        former owners of Deer Valley Homebuilders, Inc. as an earnout based upon
        the Net
        Income Before Taxes of Deer Valley Homebuilders, Inc. during the next five
        (5)
        years, up to a maximum of $6,000,000. In any given year during the term of
        the
        Earnout Agreement, 50% of the pre-tax profit exceeding $1,000,000 per year
        will
        be accrued and become distributable to the prior shareholders. During the
        period
        ending December 31, 2006 the Company’s wholly owned subsidiary, Deer Valley
        Homebuilders, Inc., had pre-tax profit in the amount of $4,936,287, of which
        $3,936,287 was above the Company's earnout threshold of $1,000,000. The Company
        accrued 50% of the amount in excess of earnout threshold in the amount of
        $1,968,143. During the three month period ending March 31, 2007, Deer Valley
        Homebuilders, Inc. did not have pre-tax profit in excess of the threshold
        and
        therefore no additional earnout was accrued. The maximum remaining potential
        accrual under the Earnout Agreement is $3,535,450.


F-8
  *Loans
        and Letter of Credit* **-** On
        April
        12, 2006, DVH entered
        into a Loan and Security Agreement providing for a revolving line of credit
        in
        an amount not to exceed Two Million Five Hundred Thousand and No/100 Dollars
        ($2,500,000) (the "Loan") evidenced by a revolving credit note (the "Note")
        and
        secured by accounts receivable, inventory, equipment and all other tangible
        and
        intangible personal property of DVH ,
        DeerValley Acquisitions Corp. (a subsidiary of the Company, now dissolved),
        and
        the Company. The purpose of the Loan was to provide working capital, to provide
        Letter of Credit support, to replace DVH ’s
        previous revolving line of credit with State Bank and Trust, and to provide
        interim financing for the acquisition of the real property on which DVH operates
        a plant in Sulligent, Alabama. The Loan has a one year term and has a variable
        interest rate at 2.60% above LIBOR. Upon issuance of a letter of credit, DVH is
        charged a letter of credit fee equal to 1.00% of the face amount of the letter
        of credit. The Loan provides for conditions to meet prior to each advance,
        including financial ratios.
 
 In
        addition to the revolving line of credit described in the preceding paragraph, DVH ,
        during
        its normal course of business, is required to issue irrevocable standby letters
        of credit in the favor of independent third party beneficiaries to cover
        obligations under repurchase agreements (See *Note
        6-Commitments and Contingencies-“Reserve for Repurchase Commitments”* for
        further details). As of March 31, 2007, no amounts had been drawn on the
        above
        irrevocable letters of credit by the beneficiaries.
 
 On
        May
        26, 2006, DVH entered into a Loan Agreement with Fifth Third Bank (the “Lender”)
        providing for a loan of Two Million and No/100 Dollars ($2,000,000) (the
        "Loan")
        evidenced by a promissory note and secured by a first mortgage on DVH’s
        properties in Guin, Alabama and Sulligent, Alabama, including the structures
        and
        fixtures located thereon, as well as DVH’s interest in any lease thereof. The
        purpose of the loan is to pay off an existing loan from another bank secured
        by
        the Guin property and to reduce the outstanding balance on DVH’s revolving
        credit facility with the Lender. The net effect of the reduction in the
        revolving credit balance is to increase the credit available to the Company
        for
        working capital under its revolving facility. The Loan has a term from May
        26,
        2006 through June 1, 2011 and has a variable interest rate at 2.25% above
        LIBOR.
        There is no prepayment penalty. Future advances are available under the Loan
        Agreement, subject to approval by the Lender. Also on May 26, 2006, the Company
        and DVA guaranteed the Loan. Should Deer Valley default, thereby triggering
        acceleration of the Loan, the Company would become liable for payment of
        the
        Loan.
  ***Dividends
          Payable-*** As
          of
          March 31, 2007 the total accrued dividend payable to Series A Preferred
          shareholders was $91,777.
    F-9
   **6.
        EQUITY TRANSACTIONS**
 
 ***Series
        A Convertible Preferred Stock -*** ** During
        the three month period ending March 31, 2007 certain shareholders converted
        18,750 shares of Series A Preferred stock, par value $187,500, into 250,000
        shares of the Company’s common stock.
 
 ***Class
        A warrants -*** During
        the three month period ending March 31, 2007 certain shareholders exercised
        25,
        273 Class A warrants, with a strike price of $1.50, into 25,273 shares of
        the
        Company’s common stock. **
 
 ***Common
        Stock Dividends -*** On
        March
        15, 2007, a dividend to holders of Series A Preferred Stock became due. On
        March
        29, 2007 the Company issued 147,209 shares of the Company’s common stock to
        Series A Preferred shareholders as payment for $243,545 of
        dividends.
 
 **7.
        SUBSEQUENT EVENTS**
 
 On
        April
        11, 2007, Deer Valley Corporation entered into a new Loan and Security Agreement
        providing for a revolving line of credit in an amount not to exceed Two Million
        Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (the "DV Loan
        Agreement") evidenced by a revolving credit note and secured by accounts
        receivable, inventory, equipment and all other tangible and intangible personal
        property of Deer Valley Corporation and DVH. The purpose of the DV Loan
        Agreement is to provide a standby source of working capital, letters of credit
        required by the terms of certain repurchase agreements and performance bonds
        entered into in the normal course of the Company’s business, and to provide
        financing for potential acquisition(s) of new manufacturing facilities or
        subsidiaries. The DV Loan Agreement has a one year term and has a variable
        interest rate at 2.60% above LIBOR. Upon issuance of a letter of credit,
        Deer
        Valley Corporation is charged a letter of credit fee equal to 1.00% of the
        face
        amount of the letter of credit. The DV Loan Agreement provides for conditions
        to
        meet prior to each advance, including financial ratios.
 
 In
        addition to the above, on April 11, 2007, DVH renewed its existing Loan and
        Security Agreement providing for a revolving line of credit in an amount
        not to
        exceed Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00)
        (the
        "DVH Loan agreement") evidenced by a revolving credit note and secured by
        accounts receivable, inventory, equipment and all other tangible and intangible
        personal property of DVH and Deer Valley Corporation. The purpose of the
        DVH
        Loan is to provide standby working capital and letters of credit required
        by the
        terms of certain repurchase agreements and performance bonds entered into
        in the
        normal course of DVH’s business. The DVH Loan Agreement has a one year term and
        has a variable interest rate at 2.60% above LIBOR. Upon issuance of a letter
        of
        credit, DVH is charged a letter of credit fee equal to 1.00% of the face
        amount
        of the letter of credit. The DVH Loan provides for conditions to meet prior
        to
        each advance, including financial ratios.
 
  F-10




**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation**





**Cautionary
      Notice Regarding Forward Looking Statements**





We
      desire
      to take advantage of the “safe harbor” provisions of the Private Securities
      Litigation Reform Act of 1995. This filing contains a number of forward-looking
      statements which reflect management’s current views and expectations with
      respect to our business, strategies, products, future results and events, and
      financial performance. All statements made in this filing other than statements
      of historical fact, including statements addressing operating performance,
      events, or developments which management expects or anticipates will or may
      occur in the future, including statements related to distributor channels,
      volume growth, revenues, profitability, new products, adequacy of funds from
      operations, statements expressing general optimism about future operating
      results, and non-historical information, are forward looking statements. In
      particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“may,” variations of such words, and similar expressions identify
      forward-looking statements, but are not the exclusive means of identifying
      such
      statements, and their absence does not mean that the statement is not
      forward-looking. These forward-looking statements are subject to certain risks
      and uncertainties, including those discussed below. Our actual results,
      performance or achievements could differ materially from historical results
      as
      well as those expressed in, anticipated, or implied by these forward-looking
      statements. We do not undertake any obligation to revise these forward-looking
      statements to reflect any future events or circumstances.





Readers
      should not place undue reliance on these forward-looking statements, which
      are
      based on management’s current expectations and projections about future events,
      are not guarantees of future performance, are subject to risks, uncertainties
      and assumptions (including those described below), and apply only as of the
      date
      of this filing. Our actual results, performance or achievements could differ
      materially from the results expressed in, or implied by, these forward-looking
      statements. Factors which could cause or contribute to such differences include,
      but are not limited to, risks discussed in our Annual Report on form 10-KSB.
      We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information, future events, or
      otherwise.





**Overview**





The
      Company, through its wholly-owned subsidiary, Deer Valley Homebuilders, Inc.
      (“DVH”), an Alabama corporation with its business offices located at 205
      Carriage Street, P.O. Box 310, Guin, Alabama 35563, is engaged in the
      production, sale and marketing of factory-built homes in the southeastern and
      south central U.S. housing market. As of the date of this filing, we manufacture
      all of our factory-built homes in two manufacturing facilities, one located
      in
      Guin, Alabama and one located in Sulligent, Alabama. We rely upon a team of
      regional sales directors and approximately 80 independent dealers to market
      our
      factory-built homes in over 100 retail locations. As of the date of this filing,
      we are selling our factory-built homes in 13 states through our network of
      independent dealers and retail centers.





In
      recent
      years, the factory-built housing industry has suffered a downturn in sales
      as a
      result of a tightening of credit standards, restricted availability of retail
      and wholesale financing, and excessive inventory levels. This industry decline
      began in 1999, approximately five years before we successfully launched and
      began to rapidly grow our business in January, 2004. We have excelled in a
      tough
      industry through efficient manufacturing at our production facilities, industry
      leading products, an experienced and capable, relations oriented sales and
      management teams, stringent cost controls, and attention to dealer support,
      customer satisfaction, and service efforts.





As
      part
      of its strategic plan to continue its growth in a challenging industry, the
      Company has increased its involvement in the modular segment of the factory
      built housing industry. On March
      28,  2007,
      we
      showcased our new modular homes at the South Central Manufactured Housing
      Institute Show in Tunica, Mississippi. The first of our new modular units are
      designed to be sold through the Company’s existing dealer network. The Company
      is developing more complex models incorporating a much wider range of
      architectural freedom in both exterior and interior designs. The Company intends
      to sell these models to large tract developers. All modular homes are built
      in a
      factory in sections and transported to a site to be joined together on a
      permanent foundation. Modular homes are distinct from factory-built homes
      constructed in accordance with the Federal Manufactured Home Construction and
      Safety Standards (“HUD Code homes”). Unlike HUD Code homes, modular homes
      generally do not have integrated steel frames and axles. The structural portion
      of the house is similar to typical "stick-built" construction and the
      architectural freedom of the exterior presents a “site-built”
appearance.


-3-


To
      facilitate our growth strategy in the modular home market, on April 11, 2007,
      the Company increased the availability under its revolving line of credit from
      $2.5 million to $5 million (see paragraph below titled “ *Recent
      Developments* ”).





Beginning
      in the second quarter of calendar year 2007, state and federal agencies, and
      other government sponsored entities, began distributing Requests for Proposals
      (RFPs) for housing to replace FEMA trailers in the Gulf Coast region. Management
      believes that these RFPs indicate a near term upswing in production for those
      in
      the industry serving the Gulf Coast, to meet increased demand for permanent
      factory-built housing in
      the
      wake of Hurricane Katrina. As a result, the Company is seeking to take advantage
      of its Alabama location and reputation in the Gulf Coast area to become a
      participant in the permanent rebuilding of that area.





**Manufacturing
      Operations**





We
      currently produce all of our factory-built homes at two manufacturing facilities
      in Guin and Sulligent, Alabama. Our facilities normally function on a
      single-shift, five-day work week basis. However, beginning in January, 2007
      and
      continuing through the first quarter of 2007, we restricted our production
      to
      four days per week or approximately 80% of our “normal” production rate. In
      addition, we extended the annual Christmas holiday by one week and closed our
      manufacturing facilities for the last week of March. These reductions reflected
      the industry wide softness in demand during the first quarter of 2007 for HUD
      Code housing units. In spite of our controlled reduction in production during
      the first quarter, the Company’s operations reflected a gross profit; however,
      we are reporting a consolidated loss of $226,023, or approximately $0.03 per
      common share. With the coming of spring, we have experienced an increase in
      demand for our manufactured homes. As a result, the Company resumed its normal
      five days per week production schedule at both manufacturing facilities
      beginning in mid-April, 2007.





While
      our
      HUD Code and modular homes are constructed with many of the same components
      and
      building materials used in site-built homes, we utilize a cost-efficient
      assembly line manufacturing process which enables us to produce a quality home
      at a significantly lower cost per square foot than a traditional, site-built
      home. Our homes are built with residential features, including 1/2 inch drywall,
      ThermopaneTM brand windows, enhanced insulation, oak cabinets, cultured marble
      vanities, and two inch by six inch exterior wall construction
      standards.





The
      extent of customization of our homes varies to a significant degree with the
      price of the homes. In the higher price range of the market, the home buyer
      is
      often less sensitive to the price increase associated with significant design
      modifications. Our experience in producing a customized home on a cost-effective
      basis has allowed us to offer customized homes, factory-provided trim-out
      services, and walk-through inspections of homes.





Our
      modular homes must be constructed in accordance with the local building codes
      in
      effect at the point of delivery. These codes vary from state to state and also
      within states. Such variance in standards is not conducive to standardized
      factory construction of a quality home. Accordingly, we build our modular homes
      to the standards of the International Residential Code (“IRC”), which is
      generally more stringent than local building codes. The IRC has been adopted
      wholesale by several states and by selected localities in many
      others.





Each
      of
      our HUD Code homes is constructed in accordance with the Federal Manufactured
      Home Construction and Safety Standards promulgated by the U.S. Department of
      Housing and Urban Development, better known as the “HUD Code.” Our production
      and marketing efforts have concentrated on multi-section homes.





Because
      the cost of transporting a factory-built home is significant, substantially
      all
      of our homes are sold to dealers within a 500 mile radius of our manufacturing
      facility. DVH arranges, at dealers’ expense, for the transportation of finished
      homes to dealer locations using independent trucking companies. Customary sales
      terms are cash--on-delivery or guaranteed payment from a floor-plan financing
      source. Dealers or other independent installers are responsible for placing
      the
      home on site and connecting utilities.





When
      evaluating the Company’s financial condition and operating performance, the key
      performance indicators management examines are (1) the Company’s production
      rate, in “floors” produced per day, (2) the cost of sales, and (3) the size of
      the Company’s sales backlog. For more information on these performance
      indicators, please see the attached financial statements and notes thereto
      and
      the section of the Company’s Annual Report on Form 10-KSB titled “Description of
      Business.”





The
      Company’s executives are currently focusing on three matters. First, in
      recognition of an important trend in the housing market toward modular homes,
      management is
      increasing the Company’s involvement in the modular segment of the factory-built
      housing industry. As an important step in this process, o n
      March
      28,  2007,
      the
      Company showcased its new modular homes at the South Central Manufactured
      Housing Institute Show in Tunica, Mississippi. The specific modular units shown
      in Tunica were designed to be sold through the Company’s existing dealer
      network. Second,
      the Company is participating in the competition to provide small modular unitsthrough
      government sponsored programs intended to replace the FEMA trailers remaining
      in
      use by the victims of Hurricane Katrina and other 2005 storms. Third, management
      is seeking to aggressively develop its engineering capability and appropriate
      sales channels for certain modular houses that are beyond the scope of its
      existing engineering capability and its existing dealer
      base.


-4-




**Results
      of Operations**





*The
      following discussion examines the results of the Company’s operations for the
      three month periods ended April 1, 2006 and March 31, 2007. This discussion
      of
      our financial condition and results of operations should be read in conjunction
      with our financial statements and notes to the financial statements, included
      herewith. This discussion should not be construed to imply that the results
      discussed herein will necessarily continue into the future, or that any
      conclusion reached herein will necessarily be indicative of actual operating
      results in the future. Such discussion represents only the best present
      assessment by our management. Historical financial information presented for
      the
      three month period ended April 1, 2006 reflects the Company’s acquisition of
      Deer Valley Homebuilders, Inc. on J* *anuary
      18, 2006, retroactive to January 1, 2006.* *Historical financial information presented for the three month period ended
      March 31, 2007 is that of the Company on a consolidated basis with Deer Valley
      Homebuilders, Inc* *.
      It
      is also imperative that one read our December 31, 2006 Annual Report on Form
      10-KSB and subsequent filings on Form 8-K.*





**HISTORICAL
      RESULTS - PERIODS ENDED MARCH 31, 2007 AND APRIL 1, 2006**





***Revenues.*** Overall
      gross revenue for the three month periods ended March 31, 2007 and April 1,
      2006
      were $11,812,342 and $12,913,079, respectively. Revenue for the three month
      period ended March 31, 2007 declined from the previous three month period,
      primarily due to the Company’s controlled reduction of the number of production
      days per week and fewer (two) production weeks. Our production ceases on normal
      holidays, such as Labor Day, and for approximately one week at July 4 and at
      Christmas of each year, in order to allow management to survey inventory,
      perform maintenance on equipment, and to prepare forecasts and plans for the
      upcoming six month periods. Our 2006 Christmas holiday was extended by one
      week,
      into the first quarter of 2007, and production was suspended for the last week
      of March. The reduced number of production days during the first quarter of
      2007
      was only partially offset by the Company only having one plant in operation
      for
      the first two months of 2006.





***Selling,
      General, and Administrative Expenses.*** Selling,
      general and administrative expenses consisted of payroll and related expenses
      for executive, accounting, and administrative personnel, professional fees,
      and
      other general corporate expenses. Selling, general, and administrative expenses
      for the three month periods ended March 31, 2007 and April 1, 2006 were
      $1,424,529 and $1,249,327, respectively. These general and administrative costs
      have increased at our operating subsidiary, Deer Valley Homebuilders, Inc.,
      primarily due to increased production capacity, increased trade show
      participation, sales and operating expenses. The production direct cost
      of goods has remained generally in the same ratio to sales, with
      increased quantity discounts being offset by a rise in material cost.





***Net
      Income (Loss).*** The
      net
      loss for the three month period ended March 31, 2007 was $134,245, and the
      net
      income for the three month period ended April 1, 2006 was $463,501. After
      accounting for the stock dividend payable to preferred shareholders, the net
      loss available to common stockholders for the three month period ended March
      31,
      2007 was $226,023. After accounting for the stock dividend payable to preferred
      shareholders and the deemed dividend to preferred shareholders on beneficial
      conversion features, the net loss available to common stockholders for the
      three
      month period ended April 1, 2006 was $1,140,828.





**Liquidity
      and Capital Resources**





Management
      believes that the Company currently has sufficient cash flow from operations,
      available bank borrowings, cash, and cash equivalents to meet its short-term
      working capital requirements. As of March 31, 2007, the Company had $5,599,667
      in cash and cash equivalents. Should our costs and expenses prove to be greater
      than we currently anticipate, or should we change our current business plan
      in a
      manner which will increase or accelerate our anticipated costs or capital
      demand, such as through the acquisition of new products, our working capital
      could be depleted at an accelerated rate.





The
      net
      cash used in operating activities for the three
      month period ended March 31, 2007 was $1,788,270. The
      net
      cash used in operating activities for the three
      month period ended April 1, 2006 was $8,711.  The
      net
      cash used in investing activities as of March 31, 2007 was $62,123, which
      primarily reflects purchases of equipment. The net cash used in investing
      activities as of April 1, 2006 was $3,022,887, which primarily reflects the
      amount related to the purchase of Deer Valley Homebuilders, which was
      $6,375,000, net of cash acquired in the purchase, as well as purchases of
      equipment.


-5-





The
      net
      cash provided by financing activities as of March
      31,
      2007 was
      $ 18,909 ,
      the
      majority of which was due to proceeds
      from warrant exercises .
      The net
      cash provided by financing activities as of April 1, 2006 was $6,434,071, the
      majority of which resulted from the issuance of preferred stock.





We
      are
      contingently liable under the terms of repurchase agreements with financial
      institutions providing inventory financing for retailers of our products. For
      more information on the repurchase agreements, including the Company’s
      contingent liability thereunder, please see “Reserve for Repurchase Commitments”
below.





**Recent
      Developments**





On
      April
      11, 2007, Deer Valley Corporation entered into a new Loan and Security Agreement
      providing for a revolving line of credit in an amount not to exceed Two Million
      Five Hundred Thousand and No/100 Dollars ($2,500,000.00) (the "DV Loan
      Agreement") evidenced by a revolving credit note and secured by accounts
      receivable, inventory, equipment and all other tangible and intangible personal
      property of Deer Valley Corporation and DVH. The purpose of the DV Loan
      Agreement is to provide a standby source of working capital, letters of credit
      required by the terms of certain repurchase agreements and performance bonds
      entered into in the normal course of the Company’s business, to provide
      financing for potential acquisition(s) of new manufacturing facilities or
      subsidiaries, and to
      provide funding for the Company’s entry into the modular home market .
      The DV
      Loan Agreement has a one year term and has a variable interest rate at 2.60%
      above LIBOR. Upon issuance of a letter of credit, Deer Valley Corporation is
      charged a letter of credit fee equal to 1.00% of the face amount of the letter
      of credit. The DV Loan Agreement provides for conditions to meet prior to each
      advance, including financial ratios.





In
      addition to the above, on April 11, 2007, DVH renewed its existing Loan and
      Security Agreement providing for a revolving line of credit in an amount not
      to
      exceed Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00)
      (the
      "DVH Loan agreement") evidenced by a revolving credit note and secured by
      accounts receivable, inventory, equipment and all other tangible and intangible
      personal property of DVH and Deer Valley Corporation. The purpose of the DVH
      Loan is to provide standby working capital and letters of credit required by
      the
      terms of certain repurchase agreements and performance bonds entered into in
      the
      normal course of DVH’s business. The DVH Loan Agreement has a one year term and
      has a variable interest rate at 2.60% above LIBOR. Upon issuance of a letter
      of
      credit, DVH is charged a letter of credit fee equal to 1.00% of the face amount
      of the letter of credit. The DVH Loan provides for conditions to meet prior
      to
      each advance, including financial ratios.





**Critical
      Accounting Policies**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States of America. The
      preparation of these consolidated financial statements requires us to make
      estimates and judgments which affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosures of contingent assets
      and liabilities. For a description of those estimates, see Note 2, Summary
      of
      Significant Accounting Policies, contained in the explanatory notes to the
      Company’s financial statements for the quarter ended March 31, 2007, contained
      in this filing. On an ongoing basis, we evaluate our estimates, including those
      related to reserves, deferred tax assets, valuation allowances, impairment
      of
      long-lived assets, fair value of equity instruments issued to consultants for
      services, and estimates of costs to complete contracts. We base our estimates
      on
      historical experience and on various other assumptions which we believe to
      be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying value of assets and liabilities which are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions. However, we believe that
      our estimates, including those for the above-described items, are
      reasonable.





**Critical
      Accounting Estimates**




Management
      is aware that certain changes in accounting estimates employed in generating
      financial statements can have the effect of making the Company look more or
      less
      profitable than it actually is. Management does not believe that either the
      Company or its auditors have made any such changes in accounting estimates.
      A
      summary of the most critical accounting estimates employed by the Company in
      generating financial statements follows below.


-6-




**Warranties**





We
      provide our retail buyers with a one-year limited warranty covering defects
      in
      material or workmanship, including plumbing and electrical systems. We record
      a
      liability for estimated future warranty costs relating to homes sold, based
      upon
      our assessment of historical experience and industry trends. In making this
      estimate, we evaluate historical sales amounts, warranty costs related to homes
      sold and timing in which any work orders are completed. The Company has recorded
      a warranty liability of $ 2,000,000
      on its balance sheet as of March 31, 2007. Although we maintain reserves for
      such claims, there can be no assurance that warranty expense levels will remain
      at current levels or that the reserves that we have set aside will continue
      to
      be adequate. A large number of warranty claims which exceed our current warranty
      expense levels could have a material adverse affect upon our results of
      operations.





**Volume
      Incentives Payable**





We
      have
      relied upon volume incentive payments to our independent dealers who retail
      our
      products. These volume incentive payments are accounted for as a reduction
      to
      gross sales, and are estimated and accrued when sales of our factory-built
      homes
      are made to our independent dealers. Volume incentive reserves are recorded
      based upon the annualized purchases of our independent dealers who purchase
      a
      qualifying amount of home products from us. We accrue a liability to our
      dealers, based upon estimates derived from historical payout rates. Volume
      incentive costs represent a significant expense to us, and any significant
      changes in actual payouts could have an adverse affect on our financial
      performance. We had a reserve for volume incentives payable of $467,845 as
      of
      March 31, 2007, as compared to $137,779 as of April 1, 2006.





**Reserve
      for Repurchase Commitments**





Most
      of
      our independent dealers finance their purchases under a wholesale floor plan
      financing arrangement under which a financial institution provides the dealer
      with a loan for the purchase price of the home and maintains a security interest
      in the home as collateral. When entering into a floor plan arrangement, the
      financial institution routinely requires that we enter into a separate
      repurchase agreement with the lender, under which we are obligated, upon default
      by the independent dealer, to repurchase the factory-built home at our original
      invoice price less the cost of administrative and shipping expenses. Our
      potential loss under a repurchase obligation depends upon the estimated net
      resale value of the home, as compared to the repurchase price that we are
      obligated to pay. This amount generally declines on a predetermined schedule
      over a period that usually does not exceed 24 months.





The
      risk
      of loss that we face under these repurchase agreements is lessened by several
      factors, including the following:





(i)
            the
                sales of our products are spread over a number of independent
                dealers,(ii)
            we
                have had only isolated instances where we have incurred a repurchase
                obligation,(iii)
            the
                price we are obligated to pay under such repurchase agreements declines
                based upon a predetermined amount over a period which usually does
                not
                exceed 24 months, and(iv)
            we
                have been able to resell homes repurchased from lenders at current
                market
                prices, although there is no guarantee that we will continue to be
                able to
                do so.





The
      maximum amount for which the Company is contingently liable under such
      agreements amounted to approximately $ 15,765,000
      as of March 31, 2007, as compared to $12,272,510 as of April 1, 2006. As of
      March 31, 2007 and April 1, 2006, we had a reserve of $84,650 and $60,000,
      respectively, established for future repurchase commitments, based upon our
      prior experience and evaluation of our independent dealers’ financial
      conditions. Because Deer Valley to date has not experienced any significant
      losses under these agreements, management does not expect any future losses
      to
      have a material effect on our accompanying financial statements.





**Revenue
      Recognition**





Revenue
      for our products sold to independent dealers are generally recorded when all
      of
      the following conditions have been met: (i) an order for the home has been
      received from the dealer, (ii) an agreement with respect to payment terms has
      been received, and (iii) the home has been shipped and risk of loss has passed
      to the dealer.





-7-


**Recent
      Accounting Pronouncements**





FASB
      Interpretation No 47, “Accounting for Conditional Asset Retirement Obligations”
(“FIN 47”) was issued in March 2005 and clarifies the accounting prescribed
      in SFAS No. 143, “Accounting for Asset Retirement Obligations”. FIN 47
      requires the recognition of a liability for the fair value of a conditional
      asset retirement obligation if the fair value can be reasonably estimated,
      even
      though uncertainty exists as to the timing and method of settlement. Management
      is currently evaluating the requirements of FIN 47 and has not yet determined
      the impact on the financial statements.





FASB
      Interpretation No 48, “Accounting for Uncertainty in Income Taxes -- an
      interpretation of FASB Statement No. 109” (“FIN 48”), was issued in
      July 2006. This interpretation clarifies the accounting for uncertainty in
      income taxes recognized in an entity's financial statements in accordance with
      SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition
      threshold and measurement attribute for financial statement disclosure of tax
      positions taken, or expected to be taken, on a tax return. The Company will
      be
      required to adopt FIN 48 in the first quarter of fiscal 2008. Management is
      currently evaluating the requirements of FIN 48 and has not yet determined
      the
      impact on the financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No.
      108”), *Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements* .
      SAB No.
      108 provides guidance to registrants for assessing materiality. SAB No. 108
      states that registrants should use both a balance sheet approach and income
      statement approach when quantifying and evaluating the materiality of a
      misstatement. SAB No. 108 also provides guidance on correcting errors under
      the
      dual approach as well as transition guidance for correcting previously
      immaterial errors that are now considered material. We adopted SAB No. 108
      as of
      January 1, 2007 without any impact on our financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement”
(“SFAS 157”), which defines fair value, establishes a framework for measuring
      fair value and expands disclosures about assets and liabilities measured at
      fair
      value. The Company will be required to adopt SFAS 157 in the first quarter
      of
      fiscal 2009. Management is currently evaluating the requirements of SFAS 157
      and
      has not yet determined the impact on the financial statements.





In
      September 2006, the FASB issued SFAS No. 158 (“SFAS 158”), “Employers'
      Accounting for Defined Benefit Pension and Other Postretirement Plans -- an
      amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158
      requires an employer to recognize a plan's funded status in its statement of
      financial position, measure a plan's assets and obligations as of the end of
      the
      employer's fiscal year and recognize the changes in a defined benefit
      postretirement plan's funded status in comprehensive income in the year in
      which
      the changes occur. The Company will be required to recognize the funded status
      of benefit plans and adopt the new disclosure requirements effective
      August 31, 2007. The Company will be required to measure plan assets and
      benefit obligations as of the date of the fiscal year-end statement of financial
      position effective August 31, 2009. Management is currently evaluating the
      requirements of SFAS 158, but based on the current funded status of the plans,
      management does not anticipate SFAS 158 will have a material impact on the
      Company's financial statements.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* .
      SFAS
      No. 159 permits entities to choose to measure many financial instruments and
      certain other items at fair value. SFAS No. 159 will be effective at the
      beginning of fiscal year 2008. We are presently evaluating the impact of the
      adoption of SFAS No. 159 on our results of operations and financial
      position.





**Off-Balance
      Sheet Arrangements**





In
      connection with the Capital Stock Purchase Agreement, the Company entered into
      the Earnout Agreement, pursuant to which additional payments may be paid to
      the
      former owners of DVH, as an earnout, based upon the Net Income Before Taxes
      of
      DVH during the next five (5) years, up to a maximum of $6,000,000. The business
      purpose of executing the Earnout Agreement was to set the purchase price of
      Deer
      Valley Homebuilders, Inc. by an objective standard, given that the owners of
      DVH
      and the Company could not agree on an outright purchase price. The Company’s
      obligations under the Earnout Agreement could negatively affect liquidity,
      capital resources, market risk, and credit risk.





During
      the term of the Earnout Agreement, 50% of the pre-tax profit exceeding
      $1,000,000 per year will be accrued and become distributable to the former
      owners of DVH. During the three month period ending March 31, 2007, Deer Valley
      Homebuilders, Inc. did not have pre-tax profit in excess of the threshold and
      therefore no additional
      earnout was accrued. The maximum remaining potential accrual under the Earnout
      Agreement is $3,535,450.


-8-




**Item
      3.**  **Controls
      and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company’s Chief Executive Officer and acting Chief Financial Officer has
      evaluated the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
      the
      fiscal period ending March 31, 2007 covered by this Quarterly Report on
      Form 10-QSB. Based upon such evaluation, the Chief Executive Officer
      and acting Chief Financial Officer has concluded that, as of the end of
      such period, the Company’s disclosure controls and procedures were not effective
      as required under Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act.  This conclusion by the Company's Chief Executive Officer
      and acting Chief Financial Officer does not relate to reporting
      periods after March 31, 2007.




The
      Company’s Chief Executive Officer is actively researching candidates for
      membership on the Board of Directors who would be “independent” and who,
      accordingly, could serve on an audit committee. In addition, the Company's
       Chief Executive and acting Chief Financial Officer is devoting
      considerable effort to continue to develop and implement a 
system of disclosure controls and procedures to ensure that information required
      to be disclosed in our reports filed under the Securities Exchange Act of 1934
      is accumulated and communicated to management and its officers, as appropriate,
      to allow timely decisions regarding required disclosure.





**Changes
      in Internal Controls over Financial Reporting**




Beginning
      with the Company’s first fiscal year ending after December 15, 2007,
      Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include
      management's report on our internal control over financial reporting in our
      Annual Report on Form 10-K. The internal control report must contain
      (1) a statement of management's responsibility for establishing and
      maintaining adequate internal control over our financial reporting, (2) a
      statement identifying the framework used by management to conduct the required
      evaluation of the effectiveness of our internal control over financial
      reporting, (3) management's assessment of the effectiveness of our internal
      control over financial reporting as of the end of our most recent fiscal year,
      including a statement as to whether or not our internal control over financial
      reporting is effective, and (4) a statement that our registered independent
      public accounting firm has issued an attestation report on management's
      assessment of our internal control over financial reporting.




In
      order
      to achieve compliance with Section 404 within the prescribed period,
      management is planning to commence a Section 404 compliance project to
      assess the adequacy of our internal control over financial reporting, remediate
      any control deficiencies that may be identified, validate through testing that
      controls are functioning as documented, and implement a continuous reporting
      and
      improvement process for internal control over financial reporting. At this
      time,
      management is assessing the proper parameters of a Section 404 compliance
      project in light of emerging guidance from the SEC on such
      parameters.




Except
      as
      described above, during the quarter ended March 31, 2007, there have been no
      changes in our internal control over financial reporting that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.




**Inherent
      Limitations of the Effectiveness of Internal Control**




A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the internal control system
      are
      met. Because of the inherent limitations of any internal control system, no
      evaluation of controls can provide absolute assurance that all control issues,
      if any, within a company have been detected.


**PART
      II**  **OTHER
      INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





Although
      the Company in the normal course of business is subject to claims and
      litigation, the Company is not a party to any material legal proceeding nor
      is
      the Company aware of any circumstance which may reasonably lead a third party
      to
      initiate legal proceeding against the Company.





As
      of the
      date of this filing, there are no material pending legal or governmental
      proceedings relating to our Company or properties to which we are a party,
      and
      to our knowledge there are no material proceedings to which any
      of
      our directors, executive officers, or affiliates are a party adverse to us
      or
      which have a material interest adverse to us.


-9-





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





*Unregistered
      Sales of Equity Securities*





Other
      than sales previously reported, there were no unregistered sales of equity
      securities.




*Issuer
      Purchases of Equity Securities*





The
      Company did not repurchase any equity securities during the fiscal quarter
      ended
      March 31, 2007.








**Item
      3.**  **Defaults
      Upon Senior Securities**





None.





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





None.





**Item
      5.**  **Other
      Information**





None.





**Item
      6.**  **Exhibits**


**Exhibit
                No.**
            **Description**3.01
            Articles
                of Incorporation of Deer Valley Corporation. (1)3.02
            Bylaws
                of Deer Valley Corporation. (1)4.01
            Certificate
                of Designation, Rights, and Preferences of Series A Convertible Preferred
                Stock. (1)4.02
            Certificate
                of Designation, Rights, and Preferences of Series B Convertible Preferred
                Stock. (1)4.03
            Certificate
                of Designation, Rights, and Preferences of Series C Convertible Preferred
                Stock. (1)4.04
            Certificate
                of Designation, Rights, and Preferences of Series D Convertible Preferred
                Stock. (1)4.05
            Certificate
                of Designation, Rights, and Preferences of Series E Convertible Preferred
                Stock. (2)10.01
            Amendment
                to Loan Agreement (3)10.02
            Form
                of Renewal Revolving Credit Note (3)10.03
            Revolving
                Credit Loan and Security Agreement (3)10.04
            Form
                of Revolving Credit Note (3)10.05
            Continuing
                Guaranty of Deer Valley Homebuilders, Inc. (3)10.06
            Continuing
                Guaranty of Deer Valley Corporation (3)31.01
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                April 9, 2007. (4)31.02
            Certification
                of Acting Chief Financial Officer pursuant to Rule 13a-14(a) and
                15d-14(a)
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated April 9, 2007. (4)32.01
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
                April 9,
                2007. (4)32.02
            Certification
                of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                dated
                April 9, 2007. (4)





(1)  Previously
      filed as an exhibit to the Form 8-K, filed with the SEC on July 28, 2006 and
      incorporated herein by reference.





(2)  Previously
      filed as an exhibit to the Form 10-QSB, filed with the SEC on November 20,
      2006
      and incorporated herein by reference.





(3)  Previously
      filed as an exhibit to the Form 8-K filed with the SEC on April 16, 2007 and
      incorporated herein by reference.





(4)  Filed
      herewith.





-10-





**SIGNATURE**





Pursuant
      to the requirements 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.





Deer
                Valley Corporation(Registrant)Dated:
                May 14, 2007
            By:*/s/Charles
                G. Masters*Charles
                G. MastersPresident
                & Chief Executive Officer








-11-