UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 (Mark
        One)
 
 x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 For
        the
        quarterly period ended June 30, 2007
 
 **OR**
 
   o
              **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:  001-13003
 
 
 **SILVERLEAF
        RESORTS, INC**.
 (Exact
        name of Registrant as specified in its charter)
 
 **TEXAS**
              
              **75-2259890**(State
                  of incorporation)
              
              (I.R.S.
                  Employer Identification No.)
 
 
 **1221
        RIVER BEND DRIVE, SUITE 120**
 **DALLAS,
        TEXAS  75247**
 (Address
        of principal executive offices, including zip code)
 
 
 **214-631-1166**
 (Registrant’s
        telephone number, including area code)
 
 
 Indicate
        by check mark whether the Registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes
x     No
         ̈
 
 Indicate
        by check mark whether the Registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 Large
                  accelerated filer    ̈
              Accelerated
                  filer    ̈
              Non-accelerated
                  filer   x
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
 ̈  No
x
  Number
        of
        shares of common stock outstanding of the issuer’s Common Stock, par value $0.01
        per share, as of August 10, 2007:  37,808,154.
  
 
  **Forward-Looking
        Statements**
 
 This
        quarterly report on Form 10-Q contains forward-looking statements within
        the
        meaning of the Private Securities Litigation Reform Act of 1995,
        Section 27A of the Securities Act of 1933, and Section 21E of the
        Securities Exchange Act of 1934, including in particular, statements about
        our
        plans, objectives, expectations and prospects under the headings “Business” and
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations.” You can identify these statements by forward-looking words such as
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek” and
        similar expressions. Although we believe that the plans, objectives,
        expectations and prospects reflected in or suggested by our forward-looking
        statements are reasonable, those statements involve uncertainties and risks,
        and
        we can give no assurance that our plans, objectives, expectations and prospects
        will be achieved. Important factors that could cause our actual results to
        differ materially from the results anticipated by the forward-looking statements
        are contained in our Annual Report on Form 10-K for the year ended December
        31,
        2006 under Part I, Item 1A. “Risk Factors” beginning on page 21; Part I, Item 2.
“Properties” beginning on page 30; Part II, Item 7. “Management’s Discussion and
        Analysis of Financial Condition and Results of Operations” beginning on page 45
        and elsewhere in the report. Any or all of these factors could cause our
        actual
        results and financial or legal status for future periods to differ materially
        from those expressed or referred to in any forward-looking statement. All
        written or oral forward-looking statements attributable to us are expressly
        qualified in their entirety by these cautionary statements. Forward-looking
        statements speak only as of the date on which they are made.
  1
  **INDEX**
 
 
 PagePART
                  I.
              FINANCIAL
                INFORMATIONItem
                  1.
              Condensed
                  Consolidated Statements of Operations for the
                  three months and six months ended June 30, 2007 and
                  2006
              3Condensed
                  Consolidated Balance Sheets as of June 30, 2007
                  and December 31, 2006
              4Condensed
                  Consolidated Statement of Shareholders' Equity
                  for the six months ended June 30, 2007
              5Condensed
                  Consolidated Statements of Cash Flows for the six
                  months ended June 30, 2007 and 2006
              6Notes
                  to the Condensed Consolidated Financial
                  Statements
              7Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition
                  and  Results of Operations
              14Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              21Item
                  4.
              Controls
                  and Procedures
              22PART
                II.
              OTHER
                INFORMATIONItem
                  1.
              Legal
                  Proceedings
              22Item
                  1A.
              Risk
                  Factors
              23Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              23Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              23Signatures
              24
  2
 ***Index***
 
 **PART
        I: FINANCIAL INFORMATION**
 **Item
        1. Financial Statements**
 
 **SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 (in
        thousands, except share and per share amounts)
 (Unaudited)
 
 Three
                  Months Ended
                June
                  30,
              
              
              Six
                  Months Ended
                June
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006**Revenues:**Vacation
                  Interval sales
              
              $
              58,577
              
              
              $
              48,635
              
              
              $
              111,942
              
              
              $
              90,102Estimated
                  uncollectible revenue
              
              
              (9,372
              )
              
              
              (8,428
              )
              
              
              (17,913
              )
              
              
              (15,615
              )Net
                  sales
              
              
              49,205
              
              
              
              40,207
              
              
              
              94,029
              
              
              
              74,487Interest
                  income
              
              
              12,940
              
              
              
              11,323
              
              
              
              25,487
              
              
              
              21,418Management
                  fee income
              
              
              615
              
              
              
              465
              
              
              
              1,230
              
              
              
              930Other
                  income
              
              
              1,093
              
              
              
              1,038
              
              
              
              1,933
              
              
              
              1,870Total
                  revenues
              
              
              63,853
              
              
              
              53,033
              
              
              
              122,679
              
              
              
              98,705**Costs
                  and Operating Expenses:**Cost
                  of Vacation Interval sales
              
              
              5,683
              
              
              
              4,736
              
              
              
              11,453
              
              
              
              8,917Sales
                  and marketing
              
              
              29,142
              
              
              
              23,423
              
              
              
              56,591
              
              
              
              42,655Operating,
                  general and administrative
              
              
              9,480
              
              
              
              8,181
              
              
              
              17,903
              
              
              
              15,370Depreciation
              
              
              858
              
              
              
              584
              
              
              
              1,716
              
              
              
              1,123Interest
                  expense and lender fees
              
              
              6,126
              
              
              
              5,117
              
              
              
              11,777
              
              
              
              9,542Total
                  costs and operating expenses
              
              
              51,289
              
              
              
              42,041
              
              
              
              99,440
              
              
              
              77,607Income
                  before provision for income taxes
              
              
              12,564
              
              
              
              10,992
              
              
              
              23,239
              
              
              
              21,098Provision
                  for income taxes
              
              
              (4,837
              )
              
              
              (4,232
              )
              
              
              (8,947
              )
              
              
              (8,123
              )**Net
                  income**
              
              $
              7,727
              
              
              $
              6,760
              
              
              $
              14,292
              
              
              $
              12,975**Basic
                  net income per share**
              
              $
              0.20
              
              
              $
              0.18
              
              
              $
              0.38
              
              
              $
              0.35**Diluted
                  net income per share**
              
              $
              0.20
              
              
              $
              0.17
              
              
              $
              0.36
              
              
              $
              0.33**Weighted
                  average basic common shares outstanding**
              
              
              37,808,154
              
              
              
              37,501,246
              
              
              
              37,808,154
              
              
              
              37,497,794**Weighted
                  average diluted common shares outstanding**
              
              
              39,396,758
              
              
              
              39,250,633
              
              
              
              39,384,338
              
              
              
              39,217,335
   The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
 ***Index***
 
 **SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (in
        thousands, except share and per share amounts)
 
 
 ASSETS
              
              June
                  30,
                2007
              
              
              December
                  31,
                2006(Unaudited)Cash
                  and cash equivalents
              
              $
              7,677
              
              
              $
              11,450Restricted
                  cash
              
              
              15,102
              
              
              
              15,771Notes
                  receivable, net of allowance for uncollectible notes of
                $70,583
                  and $68,118, respectively
              
              
              258,240
              
              
              
              229,717Accrued
                  interest receivable
              
              
              3,218
              
              
              
              2,936Investment
                  in special purpose entity
              
              
              10,097
              
              
              
              13,008Amounts
                  due from affiliates
              
              
              2,410
              
              
              
              1,251Inventories
              
              
              155,833
              
              
              
              147,759Land,
                  equipment, buildings, and leasehold improvements, net
              
              
              32,723
              
              
              
              28,040Land
                  held for sale
              
              
              281
              
              
              
              205Prepaid
                  and other assets
              
              
              28,709
              
              
              
              24,393TOTAL
                  ASSETS
              
              $
              514,290
              
              
              $
              474,530LIABILITIES
                  AND SHAREHOLDERS' EQUITYLIABILITIESAccounts
                  payable and accrued expenses
              
              $
              12,663
              
              
              $
              14,192Accrued
                  interest payable
              
              
              2,276
              
              
              
              1,792Amounts
                  due to affiliates
              
              
              77
              
              
              
              246Unearned
                  Vacation Interval sales
              
              
              1,057
              
              
              
              -Unearned
                  samplers
              
              
              7,151
              
              
              
              6,245Income
                  taxes payable
              
              
              385
              
              
              
              163Deferred
                  income taxes
              
              
              23,509
              
              
              
              17,683Notes
                  payable and capital lease obligations
              
              
              277,800
              
              
              
              254,550Senior
                  subordinated notes
              
              
              26,817
              
              
              
              31,467Total
                  Liabilities
              
              
              351,735
              
              
              
              326,338COMMITMENTS
                  AND CONTINGENCIES (Note 7)SHAREHOLDERS'
                  EQUITYPreferred
                  stock, 10,000,000 shares authorized, none issued and
                  outstanding
              
              
              -
              
              
              
              -Common
                  stock, par value $0.01 per share, 100,000,000 shares authorized,
                37,808,154
                  shares issued and outstanding at June 30, 2007 and
                December
                  31, 2006
              
              
              378
              
              
              
              378Additional
                  paid-in capital
              
              
              112,626
              
              
              
              112,555Retained
                  earnings
              
              
              49,551
              
              
              
              35,259Total
                  Shareholders' Equity
              
              
              162,555
              
              
              
              148,192TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY
              
              $
              514,290
              
              
              $
              474,530
 
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
 ***Index***
 
 **SILVERLEAF
                  RESORTS, INC. AND
                  SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY**(in
                  thousands, except share amounts)(Unaudited)Common
                  StockNumber
                  of
                Shares
                Issued
              
              
              $0.01
                Par
                Value
              
              
              Additional
                Paid-in
                Capital
              
              
              Retained
                Earnings
              
              
              TotalJanuary
                  1, 2007
              
              
              37,808,154
              
              
              $
              378
              
              
              $
              112,555
              
              
              $
              35,259
              
              
              $
              148,192Stock-based
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              71
              
              
              
              -
              
              
              
              71Net
                  income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,292
              
              
              
              14,292June
                  30, 2007
              
              
              37,808,154
              
              
              $
              378
              
              
              $
              112,626
              
              
              $
              49,551
              
              
              $
              162,555
   The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  5
 ***Index***
 
 **SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 (in
        thousands)
 (Unaudited)
 
 Six
                    Months Ended
                  June
                    30,2007
                
                
                2006OPERATING
                    ACTIVITIES:Net
                    income
                
                $
                14,292
                
                
                $
                12,975Adjustments
                    to reconcile net income to net cash used in  operating
                    activities:Estimated
                    uncollectible revenue
                
                
                17,913
                
                
                
                15,615Deferred
                    income taxes
                
                
                5,826
                
                
                
                4,347Depreciation
                
                
                1,716
                
                
                
                1,123Gain
                    on sale of land held for sale
                
                
                -
                
                
                
                (499
                )Stock-based
                    compensation
                
                
                71
                
                
                
                164Cash
                    effect from changes in operating assets and liabilities:Restricted
                    cash
                
                
                (5
                )
                
                
                (662
                )Notes
                    receivable
                
                
                (46,436
                )
                
                
                (52,259
                )Accrued
                    interest receivable
                
                
                (282
                )
                
                
                (375
                )Investment
                    in special purpose entity
                
                
                2,911
                
                
                
                5,427Amounts
                    due from/to affiliates
                
                
                (1,328
                )
                
                
                (1,604
                )Inventories
                
                
                (8,074
                )
                
                
                (14,059
                )Prepaid
                    and other assets
                
                
                (4,392
                )
                
                
                (2,505
                )Accounts
                    payable and accrued expenses
                
                
                (1,529
                )
                
                
                (359
                )Accrued
                    interest payable
                
                
                484
                
                
                
                258Unearned
                    Vacation Interval sales
                
                
                1,057
                
                
                
                591Unearned
                    samplers
                
                
                906
                
                
                
                365Income
                    taxes payable
                
                
                222
                
                
                
                1,800Net
                    cash used in operating activities
                
                
                (16,648
                )
                
                
                (29,657
                )INVESTING
                    ACTIVITIES:Purchases
                    of land, equipment, buildings, and leasehold improvements
                
                
                (6,399
                )
                
                
                (6,400
                )Proceeds
                    from sale of land held for sale
                
                
                -
                
                
                
                791Net
                    cash used in investing activities
                
                
                (6,399
                )
                
                
                (5,609
                )FINANCING
                    ACTIVITIES:Proceeds
                    from borrowings from unaffiliated entities
                
                
                81,337
                
                
                
                126,241Payments
                    on borrowings to unaffiliated entities
                
                
                (62,737
                )
                
                
                (90,386
                )Restricted
                    cash for repayment of debt
                
                
                674
                
                
                
                (3,712
                )Proceeds
                    from exercise of stock options
                
                
                -
                
                
                
                16Net
                    cash provided by financing activities
                
                
                19,274
                
                
                
                32,159Net
                    change in cash and cash equivalents
                
                
                (3,773
                )
                
                
                (3,107
                )CASH AND CASH
                    EQUIVALENTS:Beginning
                    of period
                
                
                11,450
                
                
                
                10,990End
                    of period
                
                $
                7,677
                
                
                $
                7,883SUPPLEMENTAL
                    CASH FLOW INFORMATION:Interest
                    paid, net of amounts capitalized
                
                $
                10,639
                
                
                $
                8,650Income
                    taxes paid
                
                $
                2,900
                
                
                $
                3,100
 
 The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  6
 ***Index***
  **SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 
 **Note
        1 – Background**
 
 These
        condensed consolidated financial statements of Silverleaf Resorts, Inc.
        (“Silverleaf,” “the Company,” “we,” or “our”) presented herein do not include
        certain information and disclosures required by accounting principles generally
        accepted in the United States of America for complete financial statements.
        However, in our opinion, all normal and recurring adjustments considered
        necessary for a fair presentation have been included. Operating results for
        the
        six months ended June 30, 2007 are not necessarily indicative of the results
        that may be expected for the year ending December 31, 2007.
 
 These
        condensed consolidated financial statements should be read in conjunction
        with
        our audited consolidated financial statements and footnotes included in our
        Form
        10-K for the year ended December 31, 2006 as filed with the Securities and
        Exchange Commission (“SEC”), as well as all the financial information contained
        in interim and other reports filed with the SEC since then. The accounting
        policies used in preparing these condensed consolidated financial statements
        are
        the same as those described in such Form 10-K.
 
 **Note
        2 – Significant Accounting Policies Summary**
 
 *Basis
        of Presentation —*The accompanying condensed consolidated financial
        statements have been prepared in conformity with accounting policies generally
        accepted in the United States of America. In our opinion, the accompanying
        condensed consolidated financial statements contain all material adjustments,
        consisting only of normal recurring adjustments necessary to present fairly
        our
        financial position, our results of operations and changes in our cash
        flows.
 
 *Principles
        of Consolidation —*The condensed consolidated financial statements include
        the accounts of the Company and its wholly-owned subsidiaries, excluding
        Silverleaf Finance III, LLC, our wholly-owned off-balance sheet qualified
        special purpose finance subsidiary, formed during the third quarter of 2005
        (“SF-III”). All significant intercompany accounts and transactions have been
        eliminated in the condensed consolidated financial statements.
 
 *Adoption
        of SFAS No. 152 —*We adopted Statement of Financial Accounting Standards
        No. 152 “Accounting for Real Estate Time Sharing Transactions” (“SFAS No. 152”)
        effective January 1, 2006. However, we did not record a cumulative effect
        of a
        change in accounting principle as our adoption of SFAS No. 152 had an immaterial
        impact on our results for periods prior to January 1, 2006. SFAS No. 152
        amends
        Financial Accounting Standards Board Statement No. 66, “Accounting for Sales of
        Real Estate”, to reference the financial accounting and reporting guidance for
        real estate time-sharing transactions that is provided in American Institute
        of
        Certified Public Accountants Statement of Position 04-2, “Accounting for Real
        Estate Time-Sharing Transactions” (“SOP 04-2”). This Statement also amends
        Financial Accounting Standards Board Statement No. 67, “Accounting for Costs and
        Initial Rental Operations of Real Estate Projects”, to state that the guidance
        for (a) incidental operations and (b) costs incurred to sell real estate
        projects does not apply to real estate time-sharing transactions. The accounting
        for those operations and costs is subject to the guidance in SOP 04-2. SFAS
        No.
        152 provides guidance on determining revenue recognition for timeshare
        transactions, evaluation of uncollectibility of Vacation Interval receivables,
        accounting for costs of Vacation Interval sales, operations during holding
        periods (or incidental operations), and other accounting transactions specific
        to time share operations. Restatement or reclassification of previously reported
        financial statements is not permitted. Accordingly, as a result of the adoption
        of SFAS No. 152, our financial statements for periods beginning on or after
        January 1, 2006 are not comparable, in all respects, with those prepared
        for
        periods ending on or prior to December 31, 2005.
 
 *Revenue
        and Expense Recognition —*A substantial portion of Vacation Interval sales
        are made in exchange for mortgage notes receivable, which are secured by
        a deed
        of trust on the Vacation Interval sold. We recognize the sale of a Vacation
        Interval under the full accrual method after a binding sales contract has
        been
        executed, the buyer has made a down payment of at least 10%, and the statutory
        rescission period has expired. If all accrual method criteria are met except
        that significant development costs remain to complete the project or phase,
        revenues are recognized on the percentage-of-completion basis. Under this
        method, the amount of revenue recognized (based on the sales value) at the
        time
        a sale is recognized is measured by the relationship of costs already incurred
        to the total of costs already incurred and estimated future costs to complete
        the development of the phase. The remaining amount is deferred and recognized
        as
        the remaining costs are incurred. We had $1.1 million in unearned Vacation
        Interval sales at June 30, 2007 related to the percentage-of-completion
        method.
  7
 ***Index***
  Both
        of
        the above methods employ the relative sales value method in accounting for
        costs
        of sales and inventory, which are applied to each phase separately. Generally,
        we consider each type of building a separate phase. Pursuant to the provisions
        of SFAS No. 152, in determining relative sales value, an estimate of
        uncollectibility is used to reduce the estimate of total Vacation Interval
        revenue under the project, both actual to date plus expected future revenue.
        The
        relative sales value method is used to allocate inventory cost and determine
        cost of sales in conjunction with a sale. Under the relative sales value
        method,
        cost of sales is estimated as a percentage of net sales using a cost of sales
        percentage which represents the ratio of total estimated cost, including
        both
        costs already incurred plus estimated costs to complete the phase, if any,
        to
        total estimated Vacation Interval revenue under the project. Common costs,
        including amenities, are allocated to inventory cost among the phases that
        those
        costs are expected to benefit, and are included in total estimated
        costs.
 
 The
        estimate of total revenue for a phase, which includes both actual to date
        revenues and expected future revenues, incorporates factors such as actual
        or
        estimated uncollectibles, changes in sales mix and unit sales prices,
        repossessions of intervals, effects of upgrade programs, and past and expected
        sales programs to sell slow moving inventory units. On at least a quarterly
        basis, we evaluate the estimated cost of sales percentage using updated
        information for total estimated phase revenue and total estimated phase costs,
        both actual to date and expected in the future. The effects of changes in
        estimates are accounted for in the period in which they first become known
        on a
        retrospective basis using a current period adjustment.
 
 Certain
        Vacation Interval sales transactions are deferred until the minimum down
        payment
        has been received. We account for these transactions utilizing the deposit
        method. Under this method, the sale is not recognized, a receivable is not
        recorded, and inventory is not relieved. Any cash received is carried as
        a
        deposit until the sale can be recognized. When these types of sales are
        cancelled without a refund, deposits forfeited are recognized as income and
        the
        interest portion is recognized as interest income. This income is not
        significant.
 
 In
        addition to sales of Vacation Intervals to new prospective owners, we sell
        additional and upgraded Vacation Intervals to existing owners. Revenues are
        recognized on an additional Vacation Interval sale, which is a new interval
        sale
        that is treated as a separate transaction from the original Vacation Interval
        for accounting purposes, when the buyer makes a down payment of at least
        10%,
        excluding any equity from the original Vacation Interval purchased. Revenues
        are
        recognized on an upgrade Vacation Interval sale, which is a modification
        and
        continuation of the original sale, by including the buyer’s equity from the
        original Vacation Interval towards the down payment of at least 10%. The
        additional accrual method criteria described above must also be satisfied
        for
        revenue recognition of additional and upgraded Vacation Intervals. The revenue
        recognized on upgrade Vacation Interval sales is the difference between the
        upgrade sales price and traded-in sales price, and cost of sales is the
        incremental increase in the cost of the Vacation Interval
        purchased.
 
 We
        recognize interest income as earned. Interest income is accrued on notes
        receivable, net of an estimated amount that will not be collected, until
        the
        individual notes become 90 days delinquent.  Once a note becomes 90
        days delinquent, the accrual of interest income ceases until collection is
        deemed probable.
 
 We
        receive fees for management services provided to Silverleaf Club and Orlando
        Breeze Resort Club. These revenues are recognized on an accrual basis in
        the
        period the services are provided if collection is deemed probable.
 
 Services
        and other income are recognized on an accrual basis in the period service
        is
        provided.
 
 Sales
        and
        marketing costs are charged to expense in the period incurred. Commissions,
        however, are recognized in the same period as the revenue is
        recognized.
 
 *Cash
        and Cash Equivalents —*Cash and cash equivalents consist of all highly
        liquid investments with an original maturity at the date of purchase of three
        months or less. Cash and cash equivalents include cash, certificates of deposit,
        and money market funds.
 
 *Restricted
        Cash*— Restricted cash consists of certificates of deposit that serve as
        collateral for construction bonds and cash restricted for repayment of
        debt.
 
 *Allowance
        for Uncollectible Notes —*Estimated uncollectible revenue is recorded at an
        amount sufficient to maintain the allowance for uncollectible notes at a
        level
        management considers adequate to provide for anticipated losses resulting
        from
        customers' failure to fulfill their obligations under the terms of their
        notes.
        The allowance for uncollectible notes is adjusted based upon a periodic
        static-pool analysis of the notes receivable portfolio, which tracks
        uncollectible notes for each year’s sales over the life of these notes. Other
        factors considered in the assessment of uncollectibility are the aging of
        notes
        receivable, historical collection experience, and current economic
        factors.
  8
 ***Index***
  Credit
        losses take three forms. The first is the full cancellation of the note,
        whereby
        the customer is relieved of the obligation and we recover the underlying
        inventory. The second form is a deemed cancellation, whereby we record the
        cancellation of all notes that become 90 days delinquent, net of notes that
        are
        no longer 90 days delinquent. The third form is the note receivable reduction
        that occurs when a customer trades a higher value product for a lower value
        product. In estimating the allowance, we project future cancellations and
        credit
        losses for each sales year by using historical cancellations
        experience.
 
 The
        allowance for uncollectible notes is reduced by actual cancellations and
        losses
        experienced, including losses related to previously sold notes receivable
        which
        became delinquent and were reacquired pursuant to the recourse obligations
        discussed herein. Recourse to the Company on sales of customer notes receivable
        is governed by the agreements between the purchasers and the
        Company.
 
 *Investment
        in Special Purpose Entity*— We closed a securitization transaction with
        SF-III, which is a qualified special purpose entity formed for the purpose
        of
        issuing $108.7 million of Timeshare Loan-Backed Notes Series 2005-A (“Series
        2005-A Notes”) in a private placement during the third quarter of 2005. This
        transaction qualified as a sale for accounting purposes. The Series 2005-A
        Notes
        are secured by timeshare receivables sold to SF-III by the Company pursuant
        to a
        transfer agreement between us and SF-III. Under that agreement, we sold to
        SF-III approximately $132.8 million in timeshare receivables that were
        previously pledged as collateral under revolving credit facilities with our
        senior lenders and Silverleaf Finance I, Inc., (“SF-I”), our former qualified
        special purpose entity which was dissolved during the third quarter of 2005.
        The
        proceeds from the sale of the timeshare receivables to SF-III were used to
        pay
        off in full the credit facility of SF-I and to pay down amounts we owed under
        our senior credit facilities. The timeshare receivables we sold to SF-III
        are
        without recourse, except for breaches of certain representations and warranties
        at the time of sale. We are responsible for servicing the timeshare receivables
        purchased by SF-III pursuant to the terms of the agreement and receive a
        fee for
        our services. Such fees received approximate our internal cost of servicing
        such
        timeshare receivables, and approximates the fee a third party would receive
        to
        service such receivables.  As a result, the related servicing asset or
        liability was estimated to be insignificant.
 
 We
        account for and evaluate the investment in our special purpose entity in
        accordance with Statement of Financial Accounting Standards No. 140, “Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities” (“SFAS No. 140”), EITF 99-20, “Recognition of Interest Income and
        Impairment on Purchased Beneficial Interests and Beneficial Interests That
        Continue to Be Held by a Transferor in Securitized Financial Assets”, and
        Statement of Financial Accounting Standards No. 115, “Accounting for Certain
        Investments in Debt and Equity Securities,” as applicable. SFAS No. 140 was
        amended in March 2006 by Statement of Financial Accounting Standards No.
        156,
“Accounting for Servicing of Financial Assets” (“SFAS No. 156”) and is to be
        applied prospectively to new transactions occurring after the effective
        date.  The adoption of SFAS No. 156 as of January 1, 2007, did not
        affect the manner in which we account for our investment in our special purpose
        entity. The gain or loss on the sale of notes receivable is determined based
        on
        the proceeds received, the fair value assigned to the investment in our special
        purpose entity, and the recorded value of notes receivable sold. The fair
        value
        of the investment in our special purpose entity is estimated based on the
        present value of future cash flows we expect to receive from the notes
        receivable sold.  We utilized the following key assumptions to
        estimate the fair value of such cash flows related to SF-III: customer
        prepayment rate (including expected accounts paid in full as a result of
        upgrades) – 15.9%; expected credit losses – 8.81% to 11.38%; discount rate –
15.0% to 21.5%; base interest rate – 5.37%; and loan servicing fees – 1.75%. Our
        assumptions are based on experience with our notes receivable portfolio,
        available market data, estimated prepayments, the cost of servicing, and
        net
        transaction costs. Such assumptions are assessed quarterly and, if necessary,
        adjustments are made to the carrying value of the investment in our special
        purpose entity on a prospective basis as a change in accounting estimate,
        with
        the amount of periodic interest accretion adjusted over the remaining life
        of
        the beneficial interest. The carrying value of the investment in our special
        purpose entity represents our maximum exposure to loss regarding our involvement
        with our special purpose entity.
 
 *Inventories
        —*Inventories are stated at the lower of cost or market value. Cost
        includes amounts for land, construction materials, amenities and common costs,
        direct labor and overhead, taxes, and capitalized interest incurred in the
        construction or through the acquisition of resort dwellings held for timeshare
        sale. Timeshare unit costs are capitalized as inventory and are allocated
        to
        cost of Vacation Interval sales based upon their relative sales
        values.
 
 We
        estimate the total cost to complete all amenities at each resort. This cost
        includes both costs incurred to date and expected costs to be incurred. At
        June
        30, 2007, the estimated costs not yet incurred, which are expected to complete
        promised amenities was $3.8 million. We allocate the estimated cost of promised
        and completed amenities to cost of Vacation Interval sales based on Vacation
        Intervals sold in a given period as a percentage of total Vacation Intervals
        expected to sell over the life of a particular resort project.
  9
 ***Index***
  The
        relative sales value method of recording Vacation Interval cost of sales
        has
        been amended by SFAS No. 152 beginning January 1, 2006 to include estimated
        future defaults of uncollectible sales and the subsequent resale of the
        recovered Vacation Intervals reacquired on future cancelled sales in our
        total
        estimate of revenues we expect to earn on a project. We periodically review
        the
        carrying value of our inventory on an individual project basis for impairment,
        to ensure that the carrying value does not exceed market value.
 
 *Land,
        Equipment, Buildings, and Leasehold Improvements*— Land, equipment
        (including equipment under capital lease), buildings, and leasehold improvements
        are stated at cost. When assets are disposed of, the cost and related
        accumulated depreciation are removed, and any resulting gain or loss is
        reflected in income for the period. Maintenance and repairs are charged to
        expense as incurred; significant betterments and renewals, which extend the
        useful life of a particular asset, are capitalized. Depreciation is calculated
        for all fixed assets, other than land, using the straight-line method over
        the
        estimated useful life of the assets, ranging from 3 to 20 years. We periodically
        review our long-lived assets for impairment whenever events or changes in
        circumstances indicate that the carrying amount of an asset may not be
        recoverable.
 
 *Prepaid
        and Other Assets*— Prepaid and other assets consist primarily of prepaid
        insurance, prepaid postage, commitment fees, debt issuance costs, deferred
        commissions, novelty inventories, deposits, collected cash in lender lock
        boxes
        which has not yet been applied to the loan balances by our lenders, and
        miscellaneous receivables. Commitment fees and debt issuance costs are amortized
        over the life of the related debt.
 
 *Income
        Taxes*— Deferred income taxes are recorded for temporary differences between
        the basis of assets and liabilities as recognized by tax laws and their carrying
        value as reported in the condensed consolidated financial statements. A
        provision is made or benefit recognized for deferred income taxes relating
        to
        temporary differences for financial reporting purposes. To the extent a deferred
        tax asset does not meet the criteria of "more likely than not" for realization,
        a valuation allowance would be recorded. Although we do not currently have
        any
        charges for interest and penalties, if these costs were incurred, they would
        be
        reported within the provision for income taxes. Our federal tax return includes
        all items of income, gain, loss, expense, and credit of SF-III, which is
        a
        non-consolidated subsidiary for reporting purposes and a disregarded entity
        for
        federal income tax purposes. We have a tax sharing agreement with
        SF-III.
 
 We
        file
        U.S. federal income tax returns as well as income tax returns in various
        states.
        We are no longer subject to income tax examinations by the Internal Revenue
        Service for years prior to 2003, although carryforward attributes that were
        generated prior to 2003 may still be subject to examination. For the majority
        of
        state tax jurisdictions, we are no longer subject to income tax examinations
        for
        years prior to 2003. In the state of Texas, we are no longer subject to
        franchise tax examinations for years prior to 2002.
 
 *Derivative
        Financial Instruments*— We follow Statement of Financial Accounting
        Standard No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 133”) as amended, which establishes accounting and reporting
        standards for derivative financial instruments, including certain derivative
        instruments embedded in other contracts and hedging activities.
**All derivatives, whether designed as hedging relationships or
        not, are required to be recorded on the balance sheet at fair value. If the
        derivative is designated as a fair value hedge, the changes in the fair value
        of
        the derivative and of the hedged item attributable to the hedged risk are
        recognized in earnings. If the derivative is designated as a cash flow hedge,
        the effective portions of changes in the fair value of the derivative are
        recorded in other comprehensive income and ineffective portions of changes
        in
        the fair value of cash flow hedges are recognized in earnings.
 
 To
        partially offset an increase in interest rates, we have engaged in two interest
        rate hedging transactions, or derivatives, related to our conduit loan through
        Silverleaf Finance II, Inc., (“SF-II”), a Delaware corporation, for a notional
        amount of $29.4 million at June 30, 2007, that expire between September 2011
        and
        March 2014. Our variable funding note with Silverleaf Finance IV, LLC, (“SF-IV”)
        also acts as an interest rate hedge since it contains a provision for an
        interest rate cap. The balance outstanding under this line of credit at June
        30,
        2007 is $33.5 million.
 
 *Earnings
        Per Share*— Basic earnings per share is computed by dividing net income by
        the weighted average common shares outstanding. Earnings per share assuming
        dilution is computed by dividing net income by the weighted average number
        of
        common shares and potentially dilutive shares outstanding. The number of
        potentially dilutive shares is computed using the treasury stock method,
        which
        assumes that the increase in the number of common shares resulting from the
        exercise of the stock options is reduced by the number of common shares that
        we
        could have repurchased with the proceeds from the exercise of the stock
        options.
 
 *Stock-Based
        Compensation*—We adopted Statement of Financial Accounting Standards No.
        123R, “Share Based Payment” (“SFAS No. 123R”), as of January 1, 2006, using the
        modified prospective method. Under this transition method, for all stock
        options
        granted on or prior to December 31, 2005 that were outstanding as of that
        date,
        compensation cost is recognized for the unvested portion over the remaining
        requisite service period, using the fair value for these options as estimated
        at
        the date of grant using the Black-Scholes option-pricing model under the
        original provisions of SFAS No. 123 for pro-forma disclosure purposes.
        Accordingly, we recognized $71,000 and $164,000 of stock-based compensation
        expense for the six months ended June 30, 2007 and 2006,
        respectively.  At June 30, 2007, there is $159,000 of unamortized
        compensation expense related to stock options granted prior to 2006, which
        will
        be fully recognized by August 2008.
  10
 ***Index***
  At
        June
        30, 2007, we have two stock-based compensation plans. Readers should refer
        to
“Stock-Based Compensation” under Note 2 – “Significant Accounting Policies
        Summary” and Note 10 – “Equity” of our financial statements, which are included
        in our Annual Report on Form 10-K for the year ended December 31, 2006, for
        additional information related to these stock-based compensation
        plans.
 
 The
        following table summarizes our outstanding stock options for the six months
        ended June 30, 2007 and 2006:
 
 **2007**
              
              
              **2006**Options
                  outstanding, January 1
              
              
              2,823,807
              
              
              
              3,137,657Granted
              
              
              —
              
              
              
              —Exercised
              
              
              —
              
              
              
              (51,668
              )Expired
              
              
              (297,000
              )
              
              
              —Forfeited
              
              
              (1,000
              )
              
              
              —Options
                  outstanding, June 30
              
              
              2,525,807
              
              
              
              3,085,989Exercisable,
                  June 30
              
              
              2,347,807
              
              
              
              2,155,200
 
 The
        weighted average exercise price of the 51,668 shares exercised during the
        first
        six months of 2006 was $0.315 per share.
 
 *Use
        of Estimates*— The preparation of the condensed consolidated financial
        statements requires the use of management’s estimates and assumptions in
        determining the carrying values of certain assets and liabilities, the
        disclosure of contingent assets and liabilities at the date of the condensed
        consolidated financial statements, and the reported amounts for certain revenues
        and expenses during the reporting period. Actual results could differ from
        those
        estimated. Significant management estimates include the allowance for
        uncollectible notes, estimates for income taxes, valuation of SF-III, and
        the
        future sales plan and estimated recoveries used to allocate certain costs
        to
        inventory phases and cost of sales.
 
 *Other
        Recent Accounting Pronouncements*—
 
 *SFAS
        No. 156*– In March 2006, the Financial Accounting Standards Board (“FASB”)
        issued Statement of Financial Accounting Standards No. 156, “Accounting for
        Servicing of Financial Assets.” The statement allows for the adoption of the
        fair value method of accounting for servicing assets, as opposed to the lower
        of
        amortized cost or market value, including mortgage servicing rights, which
        represent an entity’s right to a future stream of cash flows based upon the
        contractual servicing fee associated with servicing mortgage loans. The
        statement is effective as of the beginning of any fiscal year beginning after
        September 15, 2006, with early adoption permitted as of January 1, 2006.
        The
        adoption of SFAS No. 156 did not impact our consolidated financial position,
        results of operations, or cash flows.
 
 *FIN
        No. 48***–**In July 2006, the FASB issued FASB Interpretation No. 48,
        “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), which clarifies the
        accounting for uncertainty in income taxes recognized in an enterprise’s
        financial statements in accordance with Statement of Financial Accounting
        Standards No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. It also provides guidance on derecognition, classification, interest
        and penalties, accounting in interim periods, disclosure, and transition.
        FIN
        No. 48 is effective for fiscal years beginning after December 15, 2006. We
        adopted the provisions of FIN No. 48 on January 1, 2007. The adoption of
        FIN No.
        48 did not impact our consolidated financial position, results of operations,
        or
        cash flows.
 
 *SFAS
        No. 157***–**
        In September 2006, the FASB issued Statement of Financial Accounting Standards
        No. 157, “Fair Value Measurements”**(“SFAS No. 157”), which
        clarifies that the term fair value is intended to mean a market-based measure,
        not an entity-specific measure, and gives the highest priority to quoted
        prices
        in active markets in determining fair value.  SFAS No. 157 requires
        disclosures about (1) the extent to which companies measure assets and
        liabilities at fair value, (2) the methods and assumptions used to measure
        fair
        value, and (3) the effect of fair value measures on earnings.  SFAS No. 157
        is effective for fiscal years beginning after November 15, 2007.  We
        are currently assessing the financial impact the adoption of SFAS No.
        157 will have on our consolidated financial position, results of operations,
        and
        cash flows.
  11
 ***Index***
  *SFAS
        No. 159* **–** In February 2007, the FASB issued Statement
        of Financial Accounting Standards No. 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities” (“SFAS No. 159”), which allows an irrevocable
        election to measure certain financial assets and financial liabilities at
        fair
        value on an instrument-by-instrument basis, with unrealized gains and losses
        recognized currently in earnings. Under SFAS No. 159, the fair value option
        may
        only be elected at the time of initial recognition of a financial asset or
        financial liability or upon the occurrence of certain specified events.
        Additionally, SFAS No. 159 provides that application of the fair value option
        must be based on the fair value of an entire financial asset or financial
        liability and not selected risks inherent in those assets or liabilities.
        SFAS
        No. 159 requires that assets and liabilities which are measured at fair value
        pursuant to the fair value option be reported in the financial statements
        in a
        manner that separates those fair values from the carrying amounts of similar
        assets and liabilities which are measured using another measurement attribute.
        SFAS No. 159 also provides expanded disclosure requirements regarding the
        effects of electing the fair value option on the financial statements. SFAS
        No.
        159 is effective prospectively for fiscal years beginning after November
        15,
        2007, with early adoption permitted for fiscal years in which interim financial
        statements have not been issued, provided that all of the provisions of SFAS
        No.
        157 are early adopted as well. We are currently assessing the financial impact
        the adoption of SFAS No. 159 will have on our consolidated financial position,
        results of operations, and cash flows.
 
 **Note
        3 – Earnings Per Share**
 
 The
        following table illustrates the reconciliation between basic and diluted
        weighted average common shares outstanding for the three and six months ended
        June 30, 2007 and 2006:
 **Three
                    Months Ended**
                
                
                **Six
                    Months Ended****June
                    30,**
                
                
                **June
                    30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Weighted
                    average shares outstanding - basic
                
                
                37,808,154
                
                
                
                37,501,246
                
                
                
                37,808,154
                
                
                
                37,497,794Issuance
                    of shares from stock options exercisable
                
                
                2,031,807
                
                
                
                2,396,241
                
                
                
                2,031,807
                
                
                
                2,267,589Repurchase
                    of shares from stock options proceeds
                
                
                (443,203
                )
                
                
                (646,854
                )
                
                
                (455,623
                )
                
                
                (548,048
                )Weighted
                    average shares outstanding - diluted
                
                
                39,396,758
                
                
                
                39,250,633
                
                
                
                39,384,338
                
                
                
                39,217,335
 
 Outstanding
        stock options totaling approximately 494,000 and 867,000 were not dilutive
        at
        June 30, 2007 and 2006, respectively, because the exercise price for such
        options exceeded the market price for our shares.
 
 **Note
        4**–**Notes Receivable**
 
 We
        provide financing to the purchasers of Vacation Intervals, which are
        collateralized by their interest in such Vacation Intervals. The notes
        receivable generally have initial terms of seven to ten years. The average
        yield
        on outstanding notes receivable at June 30, 2007 and 2006 was approximately
        16.0% and 15.6%, respectively, with individual rates ranging from 0% to 17.9%.
        The Vacation Interval notes receivable with interest rates of 0% originated
        primarily between 1997 and 2003, and have an outstanding balance at June
        30,
        2007 of approximately $118,000. In connection with the sampler program, we
        routinely enter into notes receivable with terms of 10 months. Notes receivable
        from sampler sales were $3.6 million and $2.7 million at June 30, 2007 and
        2006,
        respectively, and are non-interest bearing.
 
 We
        consider accounts over 60 days past due to be delinquent.  As of June
        30, 2007, $3.6 million of notes receivable, net of accounts charged off,
        were
        considered delinquent. An additional $27.8 million of notes, of which $24.7
        million is pledged to senior lenders, would have been considered to be
        delinquent, had we not granted payment concessions to the customers, which
        brings a delinquent note current and extends the maturity date if two
        consecutive payments are made.
 Notes
        receivable are scheduled to mature as follows at June 30, 2007 (in
        thousands):
 
 For
                  the 12-Month Period Ending June 30,2008
              
              $
              39,3432009
              
              
              38,4682010
              
              
              41,4322011
              
              
              43,6402012
              
              
              46,574Thereafter
              
              
              119,366328,823Less
                  allowance for uncollectible notes
              
              
              (70,583
              )Notes
                  receivable, net
              
              $
              258,240
  12
 ***Index***
  The
        activity in gross notes receivable is as follows for the three and six month
        periods ended June 30, 2007 and 2006 (in thousands):
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Balance,
                  beginning of period
              
              $
              310,609
              
              
              $
              247,593
              
              
              $
              297,835
              
              
              $
              230,051Sales
              
              
              45,643
              
              
              
              44,984
              
              
              
              85,768
              
              
              
              85,223Collections
              
              
              (20,289
              )
              
              
              (16,882
              )
              
              
              (39,332
              )
              
              
              (32,964
              )Receivables
                  charged off
              
              
              (7,140
              )
              
              
              (5,094
              )
              
              
              (15,448
              )
              
              
              (11,709
              )Balance,
                  end of period
              
              $
              328,823
              
              
              $
              270,601
              
              
              $
              328,823
              
              
              $
              270,601
 
 The
        activity in the allowance for uncollectible notes is as follows for the three
        and six months ended June 30, 2007 and 2006 (in thousands):
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Balance,
                  beginning of period
              
              $
              68,351
              
              
              $
              64,837
              
              
              $
              68,118
              
              
              $
              52,479Reclassification
                  of estimated inventory recoveries on future charge offs
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              11,786Estimated
                  uncollectible revenue
              
              
              9,372
              
              
              
              8,428
              
              
              
              17,913
              
              
              
              15,615Receivables
                  charged off
              
              
              (7,140
              )
              
              
              (5,094
              )
              
              
              (15,448
              )
              
              
              (11,709
              )Balance,
                  end of period
              
              $
              70,583
              
              
              $
              68,171
              
              
              $
              70,583
              
              
              $
              68,171
 
 **Note
        5 – Debt**
 
 The
        following table summarizes our notes payable, capital lease obligations,
        and
        senior subordinated notes at June 30, 2007 and December 31, 2006 (in
        thousands):
  **June
                        30,**
                      **2007**
                    
                    
                    **December
                        31,**
                      **2006**
                    
                    
                    **Revolving**
                      **Term**
                    
                    **Maturity**
                    
                    **Interest**
                      **Rate**$100
                        million Textron receivable-based revolver ($100 million maximum
                        combined
                        receivable, inventory and acquisition commitments, see inventory
                        /
                        acquisition component below).
                    
                    $
                    48,765
                    
                    
                    $
                    28,903
                    
                    
                    1/31/10
                    
                    1/31/13
                    
                    Prime$50
                        million CapitalSource receivable-based revolver
                    
                    
                    17,610
                    
                    
                    
                    22,831
                    
                    
                    4/29/08
                    
                    4/29/08
                    
                    Prime
                        + 0.75%$35
                        million Wells Fargo Foothill receivable-based revolver
                    
                    
                    5,080
                    
                    
                    
                    93
                    
                    
                    12/31/08
                    
                    12/31/11
                    
                    Prime$125
                        million SF-IV receivable-based revolver
                    
                    
                    33,491
                    
                    
                    
                    —
                    
                    
                    12/3/08
                    
                    12/3/10
                    
                    LIBOR+1.25%$66.4
                        million Textron receivable-based non-revolving conduit
                        loan
                    
                    
                    18,729
                    
                    
                    
                    25,090
                    
                    
                    —
                    
                    3/22/14
                    
                    7.035%$26.3
                        million Textron receivable-based non-revolving conduit
                        loan
                    
                    
                    10,663
                    
                    
                    
                    14,210
                    
                    
                    —
                    
                    9/22/11
                    
                    7.90%$128.1
                        million Silverleaf Finance V, L.P.  receivable-based
                        non-revolver
                    
                    
                    88,924
                    
                    
                    
                    113,138
                    
                    
                    —
                    
                    7/16/18
                    
                    6.70%$10
                        million Textron inventory loan agreement
                    
                    
                    —
                    
                    
                    
                    10,000
                    
                    
                    8/31/08
                    
                    8/31/10
                    
                    LIBOR+3.25%$6
                        million Textron inventory loan agreement
                    
                    
                    —
                    
                    
                    
                    5,000
                    
                    
                    8/31/08
                    
                    8/31/10
                    
                    Prime
                        + 3.00%$5
                        million Textron inventory loan agreement
                    
                    
                    —
                    
                    
                    
                    1,115
                    
                    
                    —
                    
                    3/31/07
                    
                    Prime
                        + 3.00%Textron
                        inventory / acquisition loan agreement (see receivable-based
                        revolver
                        above and disclosure of Textron consolidated, amended and
                        restated loan
                        and security agreement below).
                    
                    
                    18,300
                    
                    
                    
                    —
                    
                    
                    1/31/10
                    
                    1/31/12
                    
                    Prime
                        + 1.00%$30
                        million CapitalSource inventory loan agreement
                    
                    
                    19,376
                    
                    
                    
                    18,876
                    
                    
                    4/29/09
                    
                    4/29/11
                    
                    Prime
                        + 1.50%$15
                        million Wells Fargo Foothill inventory loan agreement
                    
                    
                    8,600
                    
                    
                    
                    5,985
                    
                    
                    12/31/08
                    
                    12/31/10
                    
                    Prime
                        + 2.00%Various
                        notes, due from January 2009 through August 2016, collateralized
                        by
                        various assets with interest rates ranging from 6.0% to
                        8.5%
                    
                    
                    6,825
                    
                    
                    
                    7,590
                    
                    
                    —
                    
                    various
                    
                    variousTotal
                        notes payable
                    
                    
                    276,363
                    
                    
                    
                    252,831Capital
                        lease obligations
                    
                    
                    1,437
                    
                    
                    
                    1,719
                    
                    
                    —
                    
                    various
                    
                    variousTotal
                        notes payable and capital lease obligations
                    
                    
                    277,800
                    
                    
                    
                    254,5506.0%
                        senior subordinated notes, due 2007
                    
                    
                    —
                    
                    
                    
                    3,796
                    
                    
                    —
                    
                    4/1/07
                    
                    6.00%101⁄2%
                        senior subordinated notes, due 2008
                    
                    
                    2,146
                    
                    
                    
                    2,146
                    
                    
                    —
                    
                    4/1/08
                    
                    10.50%8.0%
                        senior subordinated notes, due 2010
                    
                    
                    24,671
                    
                    
                    
                    24,671
                    
                    
                    —
                    
                    4/1/10
                    
                    8.00%Interest
                        on the 6.0% senior subordinated notes, due 2007
                    
                    
                    —
                    
                    
                    
                    854
                    
                    
                    —
                    
                    4/1/07
                    
                    6.00%Total
                        senior subordinated notes
                    
                    
                    26,817
                    
                    
                    
                    31,467Total
                    
                    $
                    304,617
                    
                    
                    $
                    286,017
 
 At
        June
        30, 2007, our senior credit facilities provided for loans of up to $473.3
        million, of which $203.8 million is available for future advances. The LIBOR
        rate on our senior credit facilities was 5.32% (1 month) and the Prime rate
        on
        these facilities was 8.25% at June 30, 2007.
  13
 ***Index***
  Effective
        February 21, 2007, we entered into a consolidated, amended and restated loan
        and
        security agreement with Textron Financial Corporation (“Textron”). Our
        receivables and inventory financing arrangements were consolidated into one
        facility, with an additional financing arrangement included for acquisitions.
        The maximum aggregate commitment of Textron is $100.0 million. The maximum
        commitment of Textron with respect to the inventory and acquisition financing
        arrangements is $40.0 million and $20.0 million, respectively, with the maximum
        aggregate commitment on the inventory and acquisition components combined
        being
        $40.0 million.  We can borrow up to $100.0 million under the
        receivables financing arrangement provided we have no borrowings under either
        of
        the inventory or acquisitions financing arrangements. The interest rate on
        the
“receivables component” was reduced from Prime Rate plus 1% to Prime Rate. The
        interest rate on advances under the “inventory component” and the “acquisitions
        component” of the consolidated debt are now Prime Rate plus 1%. The interest
        rates charged under our prior inventory loan agreements with Textron were
        Prime
        Rate plus 3% and LIBOR plus 3.25%. The funding period has been extended from
        June 2008 to January 2010. The receivables component matures on January 31,
        2013, and the acquisition and inventory components each mature on January
        31,
        2012.
 
 **Note
        6 – Subsidiary Guarantees**
 
 All
        subsidiaries of the Company, except SF-II, SF-III, SF-IV, and Silverleaf
        Finance
        V, L.P., (“SF-V”) have guaranteed the $26.8 million of senior subordinated
        notes. Separate financial statements and other disclosures concerning each
        guaranteeing subsidiary (each, a “Guarantor Subsidiary”) are not presented
        herein because the guarantee of each Guarantor Subsidiary is full and
        unconditional and joint and several, and each Guarantor Subsidiary is a
        wholly-owned subsidiary of the Company, and together comprise all of our
        direct
        and indirect subsidiaries.
 
 The
        Guarantor Subsidiaries had no operations for the six months ended June 30,
        2007
        and 2006. Combined summarized balance sheet information as of June 30, 2007
        and
        December 31, 2006 for the Guarantor Subsidiaries is as follows (in
        thousands):
 
 **June
                  30,**
                **2007**
              
              
              **December
                  31,**
                **2006**Other
                  assets
              
              $
              2
              
              
              $
              2Total
                  assets
              
              $
              2
              
              
              $
              2Investment
                  by parent (includes equity and amounts due to parent)
              
              $
              2
              
              
              $
              2Total
                  liabilities and equity
              
              $
              2
              
              
              $
              2
 
 **Note
        7**–**Commitments and Contingencies**
 
 We
        are
        currently subject to litigation arising in the normal course of our business.
        From time to time, such litigation includes claims regarding employment,
        tort,
        contract, truth-in-lending, the marketing and sale of Vacation Intervals,
        and
        other consumer protection matters. Litigation has been initiated from time
        to
        time by persons seeking individual recoveries for themselves, as well as,
        in
        some instances, persons seeking recoveries on behalf of an alleged class.
        In our
        judgment, none of the lawsuits currently pending against us, either individually
        or in the aggregate, is likely to have a material adverse effect on our
        business, results of operations, or financial position.
 
 Various
        legal actions and claims may be instituted or asserted in the future against
        us
        and our subsidiaries, including those arising out of our sales and marketing
        activities and contractual arrangements.  Some of the matters may
        involve claims, which, if granted, could be materially adverse to our financial
        position.
 
 Litigation
        is subject to many uncertainties, and the outcome of individual litigated
        matters is not predictable with assurance. We will establish reserves from
        time
        to time when deemed appropriate under generally acceptable accounting
        principles. However, the outcome of a claim for which we have not deemed
        a
        reserve to be necessary may be decided unfavorably against us and could require
        us to pay damages or make other expenditures in amounts or a range of amounts
        that could be materially adverse to our business, results of operations,
        or
        financial position.
 
 **Item
        2.  Management’s Discussion and Analysis of Financial Condition and
        Results of Operations**
 
 Certain
        matters discussed throughout this Form 10-Q filing are forward-looking
        statements that are subject to risks and uncertainties that could cause actual
        results to differ materially from those projected. Such risks and uncertainties
        include, but are not limited to, those discussed in the Company’s Form 10-K for
        the year ended December 31, 2006.
 
 As
        of
        June 30, 2007, we own and operate 13 timeshare resorts in various stages
        of
        development in Texas, Missouri, Illinois, Georgia, Massachusetts, and Florida,
        and a hotel near the Winter Park recreational area in Colorado which we
        purchased in April 2006. Our resorts offer a wide array of country club-like
        amenities, such as golf, swimming, horseback riding, boating, and many organized
        activities for children and adults. The Company has a Vacation Interval
        ownership base of over 103,000 members. Our condensed consolidated financial
        statements include the accounts of Silverleaf Resorts, Inc. and its
        subsidiaries, with the exception of SF-III, all of which are
        wholly-owned.
  14
 ***Index***
  As
        required, we adopted SFAS No. 152, “Accounting for Real Estate Time-Sharing
        Transactions” as of January 1, 2006. The adoption of SFAS No. 152 prospectively
        revises the classification of certain revenue and cost activity. However,
        the
        adoption of SFAS No. 152 did not have a material effect on our reported net
        income, nor did it result in a cumulative effect adjustment.
 
 **Results
        of Operations**
 
 The
        following table sets forth certain operating information for the
        Company.
 
 Three
                  Months Ended
                June
                  30,
              
              
              Six
                  Months Ended
                June
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006As
                  a percentage of total revenues:Vacation
                  Interval sales
              
              
              91.7
              %
              
              
              91.7
              %
              
              
              91.2
              %
              
              
              91.3
              %Estimated
                  uncollectible revenue
              
              
              -14.7
              %
              
              
              -15.9
              %
              
              
              -14.6
              %
              
              
              -15.8
              %Net
                  sales
              
              
              77.0
              %
              
              
              75.8
              %
              
              
              76.6
              %
              
              
              75.5
              %Interest
                  income
              
              
              20.3
              %
              
              
              21.4
              %
              
              
              20.8
              %
              
              
              21.7
              %Management
                  fee income
              
              
              1.0
              %
              
              
              0.9
              %
              
              
              1.0
              %
              
              
              0.9
              %Other
                  income
              
              
              1.7
              %
              
              
              1.9
              %
              
              
              1.6
              %
              
              
              1.9
              %Total
                  revenues
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %As
                  a percentage of Vacation Interval sales:Cost
                  of Vacation Interval sales
              
              
              9.7
              %
              
              
              9.7
              %
              
              
              10.2
              %
              
              
              9.9
              %Sales
                  and marketing
              
              
              49.7
              %
              
              
              48.2
              %
              
              
              50.6
              %
              
              
              47.3
              %As
                  a percentage of total revenues:Operating,
                  general and administrative
              
              
              14.8
              %
              
              
              15.4
              %
              
              
              14.6
              %
              
              
              15.6
              %Depreciation
              
              
              1.3
              %
              
              
              1.1
              %
              
              
              1.4
              %
              
              
              1.1
              %As
                  a percentage of interest income:Interest
                  expense and lender fees
              
              
              47.3
              %
              
              
              45.2
              %
              
              
              46.2
              %
              
              
              44.6
              %
 
 **Results
        of Operations for the Three Months Ended June 30, 2007 and
        2006**
 
 Revenues
 
 Revenues
        for the quarter ended June 30, 2007 were $63.9 million, representing a $10.8
        million increase over revenues from the quarter ended June 30, 2006. As
        discussed below, the increase is primarily attributable to a $9.9 million
        increase in Vacation Interval sales during the second quarter of
        2007.
 
 The
        following table summarizes our Vacation Interval sales (dollars in thousands,
        except average price).
 
 **Three
                  Months Ended June 30, 2007**
              
              
              **Three
                  Months Ended June 30, 2006****Sales**
              
              
              **Intervals**
              
              
              **Average**
                **Price**
              
              
              **Sales**
              
              
              **Intervals**
              
              
              **Average**
                **Price**Interval
                  Sales to New Customers
              
              $
              22,918
              
              
              
              1,841
              
              
              $
              12,449
              
              
              $
              21,955
              
              
              
              1,726
              
              
              $
              12,720Upgrade
                  Interval Sales to Existing Customers
              
              
              23,174
              
              
              
              2,639
              
              
              
              8,781
              
              
              
              17,463
              
              
              
              2,123
              
              
              
              8,225Additional
                  Interval Sales to Existing Customers
              
              
              12,485
              
              
              
              1,267
              
              
              
              9,854
              
              
              
              9,217
              
              
              
              944
              
              
              
              9,764Total
              
              $
              58,577
              
              
              
              
              
              
              
              
              
              
              $
              48,635
 
 Vacation
        Interval sales increased 20.4% during the second quarter of 2007 versus the
        same
        period of 2006, as a result of continued growth in customer tours, higher
        closing percentages on our sales to existing customers, and an increase in
        average sales prices on our sales to existing customers. The number of interval
        sales to new customers increased 6.7%, offset by a decrease in average prices
        of
        2.1% (due to product mix), resulting in a 4.4% net increase in sales to new
        customers in the second quarter of 2007 versus the same period of 2006. The
        number of interval sales to existing customers increased 27.4% and average
        prices increased 4.9%, resulting in a 33.7% net increase in sales to existing
        customers during the second quarter of 2007 versus the same period of
        2006.
  15
 ***Index***
  Estimated
        uncollectible revenue, which represents estimated future gross cancellations
        of
        notes receivable, was $9.4 million for the second quarter of 2007 versus
        $8.4
        million for the same period of 2006. Our estimated uncollectible revenue
        as a
        percentage of Vacation Interval sales was 16.0% during the quarter ended
        June
        30, 2007 and 17.3% during the same period of 2006.  The net percentage
        improvement is due to the improved performance of notes originated in 2003
        through 2007, as compared to notes originated in earlier years, before we
        implemented programs focused on selling to customers with a higher quality
        of
        credit. We will continue our current collection programs and seek new programs
        to reduce note defaults and improve the credit quality of our customers.
        However, there can be no assurance that these efforts will be
        successful.
 
 Interest
        income increased $1.6 million, or 14.3%, to $12.9 million during the second
        quarter of 2007 from $11.3 million during the same period of 2006. The increase
        primarily resulted from a higher average notes receivable balance during
        the
        second quarter of 2007 versus the same period of 2006, and an increase in
        the
        average yield on our outstanding notes receivable to 16.0% at June 30, 2007
        from
        15.6% at June 30, 2006.
 
 Management
        fee income, which consists of management fees collected from the resorts’
management clubs, cannot exceed the management clubs’ net income. Management fee
        income increased $150,000 to $615,000 during the second quarter of 2007 versus
        $465,000 during the same period of 2006.
 
 Other
        income consists of marina income, golf course and pro shop income, hotel
        income,
        and other miscellaneous items. Other income remained fairly constant at $1.1
        million for the second quarter of 2007 compared to $1.0 million for the second
        quarter of 2006.
 
 Cost
        of Vacation Interval Sales
 
 With
        the
        implementation of SFAS No. 152 effective January 1, 2006, the relative sales
        value method of recording Vacation Interval cost of sales was amended to
        include
        an estimate of future defaults of uncollectible revenue, both actual to date
        plus expected future revenue. The relative sales value method is used to
        allocate inventory cost and determine cost of sales in conjunction with a
        sale.
        Under the relative sales value method, cost of sales is estimated as a
        percentage of net sales using a cost of sales percentage which represents
        the
        ratio of total estimated cost, including both costs already incurred plus
        costs
        to complete the phase, if any, to total estimated Vacation Interval revenue
        under the project, including amounts already recognized and future revenues.
        Common costs, including amenities, are allocated to inventory cost among
        the
        phases that those costs are expected to benefit. The estimate of total revenue
        for a phase, which includes both actual to date revenues and expected future
        revenues, incorporates factors such as actual or estimated uncollectibles,
        changes in sales mix and unit sales prices, repossessions of intervals, effects
        of upgrade programs, and past and expected future sales programs to sell
        slow
        moving inventory units.
 
 Cost
        of
        Vacation Interval sales remained the same at 9.7% for the second quarter
        of 2007
        as compared to the second quarter of 2006.
 
 Sales
        and Marketing
 
 Sales
        and
        marketing expense as a percentage of Vacation Interval sales increased to
        49.7%
        for the second quarter of 2007 versus 48.2% for the same period of 2006.
        The
        $5.7 million increase in sales and marketing expense is primarily attributable
        to our increased volume of Vacation Interval sales. The increase is also
        due to
        increased costs related to new and existing promotional programs used to
        generate tours. These promotional programs were a primary factor in providing
        us
        with a 25% growth in tours and a 20.4% increase in Vacation Interval sales
        during the second quarter of 2007 versus the second quarter of
        2006.
 
 In
        accordance with SFAS No. 152, sampler sales and related costs are accounted
        for
        as incidental operations, whereby incremental costs in excess of incremental
        revenue are charged to expense as incurred and the operations are presented
        as a
        net expense in the condensed consolidated statement of operations. Since
        our
        sampler sales primarily function as a marketing program for us, allowing
        us
        additional opportunities to sell a Vacation Interval to a prospective customer,
        the incremental costs of our sampler sales typically exceed incremental sampler
        revenue. Accordingly, $758,000 and $691,000 of sampler revenues were recorded
        as
        a reduction to sales and marketing expense for the quarters ended June 30,
        2007
        and 2006, respectively.
 
 Operating,
        General and Administrative
 
 Operating,
        general and administrative expense as a percentage of total revenues decreased
        to 14.8% for the second quarter of 2007 versus 15.4% for the same period
        of
        2006. Overall, operating, general and administrative expense increased by
        $1.3
        million for the second quarter of 2007, as compared to the same period of
        2006,
        primarily due to an increase
        in bank
        fees of $427,000, resulting from higher credit card processing fees from
        increased sales volume, and an increase in salaries of
        $358,000.
  16
 ***Index***
  Depreciation
 
 Depreciation
        expense as a percentage of total revenues was 1.3% for the quarter ended
        June
        30, 2007 versus 1.1% for the same quarter of 2006. Overall, depreciation
        expense
        for the second quarter of 2007 was $858,000 versus $584,000 for the same
        period
        of 2006, an increase of $274,000, due to capital expenditures of approximately
        $14.3 million since June 30, 2006.
 
 Interest
        Expense and Lender Fees
 
 Interest
        expense and lender fees as a percentage of interest income increased to 47.3%
        for the second quarter of 2007 compared to 45.2% for the same period of 2006.
        Overall, interest expense and lender fees increased $1.0 million for the
        second
        quarter of 2007 versus the same period of 2006.  This increase is
        primarily the result of a larger average debt balance outstanding during
        the
        second quarter of 2007, partially offset by a decrease in our weighted average
        cost of borrowings to 7.7% for the quarter ended June 30, 2007 as compared
        to
        8.1% for the quarter ended June 30, 2006.
 
 Income
        before Provision for Income Taxes
 
 Income
        before provision for income taxes increased to $12.6 million for the quarter
        ended June 30, 2007, as compared to $11.0 million for the quarter ended June
        30,
        2006, as a result of the above-mentioned operating results.
 
 Provision
        for Income Taxes
 
 Provision
        for income taxes as a percentage of income before provision for income taxes
        was
        38.5% for the quarters ended June 30, 2007 and 2006. As of January 1, 2007,
        we
        had no unrecognized tax benefits, and as a result, no benefits that would
        affect
        the effective income tax rate. We do not anticipate any significant changes
        related to unrecognized tax benefits in the next 12 months. As of January
        1,
        2007, and June 30, 2007, we did not have an accrual for interest and penalties
        related to unrecognized tax benefits.
 
 Net
        Income
 
 Net
        income for the quarter ended June 30, 2007 increased to $7.7 million, as
        compared to $6.8 million for the quarter ended June 30, 2006, as a result
        of the
        above-mentioned operating results.
 
 **Results
        of Operations for the Six Months Ended June 30, 2007 and
        2006**
 
 Revenues
 
 Revenues
        for the six months ended June 30, 2007 were $122.7 million, representing
        a $24.0
        million increase from revenues of $98.7 million for the six months ended
        June
        30, 2006. As discussed below, the increase is primarily attributable to a
        $21.8
        million increase in Vacation Interval sales during the first six months of
        2007.
 
 The
        following table summarizes our Vacation Interval sales (dollars in thousands,
        except average price).
 
 **Six
                  Months Ended June 30, 2007**
              
              
              **Six
                  Months Ended June 30, 2006****Sales**
              
              
              **Intervals**
              
              
              **Average**
                **Price**
              
              
              **Sales**
              
              
              **Intervals**
              
              
              **Average**
                **Price**Interval
                  Sales to New Customers
              
              $
              46,185
              
              
              
              3,758
              
              
              $
              12,290
              
              
              $
              41,950
              
              
              
              3,469
              
              
              $
              12,093Upgrade
                  Interval Sales to Existing Customers
              
              
              42,576
              
              
              
              4,901
              
              
              
              8,687
              
              
              
              32,721
              
              
              
              3,997
              
              
              
              8,186Additional
                  Interval Sales to Existing Customers
              
              
              23,181
              
              
              
              2,365
              
              
              
              9,802
              
              
              
              15,431
              
              
              
              1,598
              
              
              
              9,657Total
              
              $
              111,942
              
              
              
              
              
              
              
              
              
              
              $
              90,102
 
 Vacation
        Interval sales increased 24.2% during the first six months of 2007 versus
        the
        same period of 2006, as a result of continued growth in customer tours, higher
        closing percentages on our sales to existing customers, and an overall increase
        in average sales prices during the first half of 2007 versus the comparable
        period of 2006. The number of interval sales to new customers increased 8.3%,
        and average prices increased 1.6%, resulting in a 10.1% net increase in sales
        to
        new customers in the first half of 2007 versus the same period of 2006. The
        number of interval sales to existing customers increased 29.9% and average
        prices increased 5.2%, resulting in a 36.6% net increase in sales to existing
        customers during the first six months of 2007 versus the same period of
        2006.
  17
 ***Index***
  Estimated
        uncollectible revenue, which represents estimated future gross cancellations
        of
        notes receivable, was $17.9 million for the first half of 2007 versus $15.6
        million for the same period of 2006. Our estimated uncollectible revenue
        as a
        percentage of Vacation Interval sales was 16.0% during the first six months
        of
        2007 and 17.3% during the same period of 2006. The net percentage improvement
        is
        due to the improved performance of notes originated in 2003 through 2007,
        as
        compared to notes originated in earlier years, before we implemented programs
        focused on selling to customers with a higher quality of credit. We will
        continue our current collection programs and seek new programs to reduce
        note
        defaults and improve the credit quality of our customers. However, there
        can be
        no assurance that these efforts will be successful.
 
 Interest
        income increased $4.1 million, or 19.0%, to $25.5 million during the first
        half
        of 2007 from $21.4 million during the same period of 2006. The increase
        primarily resulted from a higher average notes receivable balance during
        the
        first half of 2007 versus the same period of 2006.  The increase in
        average yield on our outstanding notes receivable from 15.6% at June 30,
        2006 to
        16.0% at June 30, 2007 also contributed to the increase in interest
        income.
 
 Management
        fee income, which consists of management fees collected from the resorts’
management clubs, cannot exceed the management clubs’ net income. Management fee
        income increased $300,000 to $1.2 million during the first six months of
        2007
        versus $930,000 during the same period of 2006.
 
 Other
        income consists of marina income, golf course and pro shop income, hotel
        income,
        land sales, and other miscellaneous items. Other income was $1.9 million
        for the
        first six months of 2007 and 2006.  We generated hotel income of
        $544,000 during the first six months of 2007 versus $88,000 for the same
        period
        of 2006.  During the first six months of 2006 we also recorded a
        pretax gain of approximately $499,000 from the sale of two parcels of land
        in
        Mississippi.
 
 Cost
        of Vacation Interval Sales
 
 With
        the
        implementation of SFAS No. 152 effective January 1, 2006, the relative sales
        value method of recording Vacation Interval cost of sales was amended to
        include
        an estimate of future defaults of uncollectible revenue, both actual to date
        plus expected future revenue. The relative sales value method is used to
        allocate inventory cost and determine cost of sales in conjunction with a
        sale.
        Under the relative sales value method, cost of sales is estimated as a
        percentage of net sales using a cost of sales percentage which represents
        the
        ratio of total estimated cost, including both costs already incurred plus
        costs
        to complete the phase, if any, to total estimated Vacation Interval revenue
        under the project, including amounts already recognized and future revenues.
        Common costs, including amenities, are allocated to inventory cost among
        the
        phases that those costs are expected to benefit. The estimate of total revenue
        for a phase, which includes both actual to date revenues and expected future
        revenues, incorporates factors such as actual or estimated uncollectibles,
        changes in sales mix and unit sales prices, repossessions of intervals, effects
        of upgrade programs, and past and expected future sales programs to sell
        slow
        moving inventory units.
 
 Cost
        of
        Vacation Interval sales remained fairly steady at 10.2% for the first half
        of
        2007 compared to 9.9% for the first half of 2006.
 
 Sales
        and Marketing
 
 Sales
        and
        marketing expense as a percentage of Vacation Interval sales increased to
        50.6 %
        for the six-month period ended June 30, 2007, from 47.3% for the same period
        of
        2006. The $13.9 million increase in sales and marketing expense is primarily
        attributable to our increased volume of Vacation Interval sales, as well
        as
        increased costs related to new and existing promotional programs used to
        generate tours. These promotional programs were a primary factor in providing
        us
        with a 25% growth in tours and a 24.2% increase in Vacation Interval sales
        during the first six months of 2007 versus the first six months of 2006.
        The
        increase is also due in part to expenses related to our off site sales center
        which was open throughout the first half of 2007 and for only a portion of
        the
        first half of 2006.
 
 In
        accordance with SFAS No. 152, sampler sales and related costs are accounted
        for
        as incidental operations, whereby incremental costs in excess of incremental
        revenue are charged to expense as incurred and the operations are presented
        as a
        net expense in the consolidated statement of operations. Since our sampler
        sales
        primarily function as a marketing program for us, allowing us additional
        opportunities to sell a Vacation Interval to a prospective customer, the
        incremental costs of our sampler sales typically exceed incremental sampler
        revenue. Accordingly, $1.6 million and $1.5 million of sampler revenues were
        recorded as a reduction to sales and marketing expense for the six months
        ended
        June 30, 2007 and 2006, respectively.
  18
 ***Index***
  Operating,
        General and Administrative
 
 Operating,
        general and administrative expense as a percentage of total revenues decreased
        1.0% to 14.6% for the first half of 2007 versus 15.6% for the same period
        of
        2006. Overall, operating, general and administrative expense increased by
        $2.5
        million for the first half of 2007, as compared to the same period of 2006,
        primarily
        due toan increase in salaries of $879,000, and an increase in bank fees
        of $647,000, due largely to higher credit card processing fees resulting
        from
        higher sales volume.
 
 Depreciation
 
 Depreciation
        expense as a percentage of total revenues increased to 1.4% for the six months
        ended June 30, 2007 versus 1.1% for the same period of 2006. Overall,
        depreciation expense for the first half of 2007 was $1.7 million versus $1.1
        million for the same period of 2006, an increase of $593,000, due to capital
        expenditures of approximately $14.3 million since June 30, 2006.
 
 Interest
        Expense and Lender Fees
 
 Interest
        expense and lender fees as a percentage of interest income increased to 46.2%
        for the first six months of 2007 compared to 44.6% for the same period of
        2006.
        This increase is primarily the result of a larger average debt balance
        outstanding during the first six months of 2007, partially offset by a decrease
        in our weighted average cost of borrowings to 7.7% at June 30, 2007 as compared
        to 8.1% at June 30, 2006.
 
 Income
        before Provision for Income Taxes
 
 Income
        before provision for income taxes increased to $23.2 million for the six
        months
        ended June 30, 2007, as compared to $21.1 million for the six months ended
        June
        30, 2006, as a result of the above-mentioned operating results.
 
 Provision
        for Income Taxes
 
 Provision
        for income taxes as a percentage of income before provision for income taxes
        was
        38.5% for the first six months of 2007 and 2006. As of January 1, 2007, we
        had
        no unrecognized tax benefits, and as a result, no benefits that would affect
        the
        effective income tax rate. We do not anticipate any significant changes related
        to unrecognized tax benefits in the next 12 months. As of January 1, 2007,
        and
        June 30, 2007, we did not have an accrual for interest and penalties related
        to
        unrecognized tax benefits.
 
 Net
        Income
 
 Net
        income increased to $14.3 million for the six months ended June 30, 2007,
        as
        compared to $13.0 million for the six months ended June 30, 2006, as a result
        of
        the above-mentioned operating results.
 
 **Liquidity
        and Capital Resources**
 
 ***Sources
        of Cash.***We generate cash primarily from the cash received on the
        sale of Vacation Intervals, the financing and collection of customer notes
        receivable from Vacation Interval owners, the sale of notes receivable to
        our
        special purpose entities, management fees, sampler sales, marina income,
        and
        golf course and pro shop income. We typically receive a 10% to 15% down payment
        on sales of Vacation Intervals and finance the remainder with the issuance
        of a
        seven-year to ten-year customer promissory note. We generate cash from customer
        notes receivable by (i) borrowing at an advance rate of 75% to 80% of eligible
        customer notes receivable, (ii) selling notes receivable, and (iii) from
        the
        spread between interest received on customer notes receivable and interest
        paid
        on related borrowings. Because we use significant amounts of cash in the
        development and marketing of Vacation Intervals, but collect cash on customer
        notes receivable over a seven-year to ten-year period, borrowing against
        receivables has historically been a necessary part of normal operations.
        During
        the six months ended June 30, 2007, our operating activities used $16.6 million
        of cash compared to $29.7 million during the same period of 2006. This $13.1
        million difference in cash used in operating activities during the first
        half of
        2007 versus the comparable 2006 period was primarily the result of a decrease
        in
        cash used on inventories during the first half of 2007 versus the same period
        of
        2006, largely due to the acquisition of approximately 30 acres of undeveloped
        land contiguous to our Orlando Breeze resort in Florida for $4.0 million,
        and a
        general expansion of timeshare units and amenities at several other resorts
        during the first six months of 2006.
  19
 ***Index***
  Although
        it appears we have adequate liquidity to meet our needs through 2008, we
        are
        continuing to identify additional financing arrangements into 2009 and beyond.
        To finance our growth, development, and any future expansion plans, we may
        at
        some time be required to consider the issuance of other debt, equity, or
        collateralized mortgage-backed securities. Any debt we incur or issue may
        be
        secured or unsecured, have fixed or variable rate interest, and may be subject
        to such terms as we deem prudent.
 
 ***Uses
        of Cash.***During the first half of 2007, investing activities used
        $6.4 million of cash for capital expenditures, compared to $5.6 million cash
        used for investing activities during the first half of 2006. The $5.6 million
        net cash used during the first half of 2006 consists of $6.4 million of
        equipment purchases, partially offset by net proceeds of $791,000 received
        from
        the sale of two parcels of land in Mississippi.
 
 During
        the first six months of 2007, net cash provided by financing activities was
        $19.3 million compared to $32.2 million for the comparable 2006
        period.  The net cash of $19.3 million provided by financing
        activities during the first six months of 2007 was primarily the result of
        $81.3
        million of proceeds received from borrowings against pledged notes receivable
        and our inventory loans, offset by $62.7 million of payments on borrowings
        against pledged notes receivable and other debt. The
        net
        cash of $32.2 million provided by financing activities during the first six
        months of 2006 was primarily the result of $126.2 million of proceeds received
        from borrowings against pledged notes receivable, partially offset by $90.4
        million of payments on borrowings against pledged notes
        receivable.
 
 At
        June
        30, 2007, our senior credit facilities provided for loans of up to $473.3
        million, of which approximately $269.5 million of principal related to advances
        under the credit facilities was outstanding. As of June 30, 2007, the weighted
        average cost of funds for all borrowings was 7.7%. Customer defaults have
        a
        significant impact on our cash available from financing customer notes
        receivable in that notes more than 60 days past due are not eligible as
        collateral. As a result, we must repay borrowings against such delinquent
        notes.
        As of June 30, 2007, $3.6 million of notes were more than 60 days past
        due.
 
 Certain
        debt agreements include restrictions on our ability to pay dividends based
        on
        minimum levels of net income and cash flow. Our ability to pay dividends
        might
        also be restricted by the Texas Business Corporation Act.
 
 *Off-Balance
        Sheet Arrangements.*During the third quarter of 2005, we closed a term
        securitization transaction with our wholly-owned off-balance sheet qualified
        special purpose finance subsidiary, SF-III, a Delaware limited liability
        company, which was formed for the purpose of issuing $108.7 million of its
        Series 2005-A Notes in a private placement through UBS Securities LLC. The
        Series 2005-A Notes were issued pursuant to an Indenture ("Indenture") between
        Silverleaf, as Servicer of the timeshare loans, SF-III, and Wells Fargo Bank,
        National Association, as Indenture Trustee, Custodian, Backup Servicer, and
        Account Intermediary. The Series 2005-A Notes were issued in four classes
        ranging from Class A through Class D notes with a blended fixed rate of
        5.4%.  The Class A Notes, Class B Notes, Class C Notes and Class D
        Notes have received a rating from Moody’s Investor Services, Inc. of “Aaa”,
“Aa2”, “A2” and “Baa2”, respectively.
 
 The
        Series 2005-A Notes are secured by timeshare receivables sold to SF-III by
        us
        pursuant to a transfer agreement between SF-III and us. Under that agreement,
        we
        sold to SF-III approximately $132.8 million in timeshare receivables that
        were
        previously pledged as collateral under revolving credit facilities with our
        senior lenders and SF-I, and recognized a pre-tax gain of $5.8 million. In
        connection with this sale, we received cash consideration of $108.7 million,
        which was primarily used to pay off in full the credit facility of SF-I and
        to
        pay down amounts we owed under credit facilities with our senior lenders.
        We
        dissolved SF-I simultaneously with the sale of the timeshare receivables
        to
        SF-III.  The timeshare receivables we sold to SF-III are without
        recourse to us, except for breaches of certain representations and warranties
        at
        the time of sale. We are responsible for servicing the timeshare receivables
        purchased by SF-III pursuant to the terms of the Indenture and receive a
        fee for
        our services equal to 1.75% of eligible timeshare receivables held by the
        facility. Such fees were $486,000 and $840,000 for the six months ended June
        30,
        2007 and 2006, respectively.  Such fees received approximate our
        internal cost of servicing such timeshare receivables, and approximates the
        fee
        a third party would receive to service such receivables. As a result, the
        related servicing asset or liability was estimated to be
        insignificant.
 
 At
        June
        30, 2007, SF-III held notes receivable totaling $47.7 million, with related
        borrowings of $39.4 million. Except for the repurchase of notes that fail
        to
        meet initial eligibility requirements, we are not obligated to repurchase
        defaulted or any other contracts sold to SF-III. As the Servicer of the notes
        receivable sold to SF-III, we are obligated by the terms of the conduit facility
        to foreclose upon the Vacation Interval securing a defaulted note receivable.
        We
        may, but are not obligated to, purchase the foreclosed Vacation Interval
        for an
        amount equal to the net fair market value of the Vacation Interval if the
        net
        fair market value is no less than fifteen percent of the original acquisition
        price that the customer paid for the Vacation Interval. For the six months
        ended
        June 30, 2007, we paid approximately $744,000 to repurchase the Vacation
        Intervals securing defaulted contracts to facilitate the re-marketing of
        those
        Vacation Intervals. Our total investment in SF-III was valued at $10.1 million
        at June 30, 2007, which represents our maximum exposure to loss regarding
        our
        involvement with SF-III.
  20
 ***Index***
  Our
        special purpose entities allow us to realize the benefit of additional credit
        availability we have with our current senior lenders. We require credit
        facilities to have the liquidity necessary to fund our costs and expenses;
        therefore it is vitally important to our liquidity plan to have financing
        available to us in order to finance future sales, since we finance the majority
        of our timeshare sales over seven to ten years.
 
 *Income
        Taxes.*For regular federal income tax purposes, we report substantially all
        of the Vacation Interval sales we finance under the installment method. Under
        this method, income on sales of Vacation Intervals is not recognized until
        cash
        is received, either in the form of a down payment or as installment payments
        on
        customer notes receivable. The deferral of income tax liability conserves
        cash
        resources on a current basis. Interest is imposed, however, on the amount
        of tax
        attributable to the installment payments for the period beginning on the
        date of
        sale and ending on the date the payment is received.  If we are not
        subject to tax in a particular year, no interest is imposed since the interest
        is based on the amount of tax paid in that year. The condensed consolidated
        financial statements do not contain an accrual for any interest expense that
        would be paid on the deferred taxes related to the installment method as
        the
        interest expense is not reasonably estimable.
 
 In
        addition, we are subject to current alternative minimum tax ("AMT") as a
        result
        of the deferred income that results from the installment sales
        treatment.  Payment of AMT creates a deferred tax asset in the form of
        a minimum tax credit, which, unless otherwise limited, reduces the future
        regular tax liability attributable to Vacation Interval sales. Due to AMT
        losses
        in certain years prior to 2003, which offset all AMT income for years prior
        to
        2003, no minimum tax credit exists for years prior to 2003. Nevertheless,
        we had
        significant AMT in 2006 and for the six months ended June 30, 2007, and
        anticipate that we will pay significant AMT in future periods.
 
 The
        federal net operating losses (“NOLs”) of $162.4 million at December 31, 2006,
        expire between 2019 through 2021. Realization of the deferred tax assets
        arising
        from NOLs is dependent on generating sufficient taxable income prior to the
        expiration of the loss carryforwards.
 
 Due
        to a
        restructuring in 2002, an ownership change within the meaning of Section
        382(g)
        of the Internal Revenue Code (“the Code”) occurred. As a result, our NOL is
        subject to an annual limitation for the current and future taxable
        years.  This annual limitation may be increased for any recognized
        built-in gain to the extent allowed in Section 382(h) of the
        Code.  There is an annual limitation of approximately $768,000, which
        was the value of our stock immediately before the ownership change, multiplied
        by the applicable long term tax exempt rate.  We believe that
        approximately $36.2 million of our net operating loss carryforwards as of
        December 31, 2006 were subject to the Section 382 limitations.
 
 **Item
        3.  Quantitative and Qualitative Disclosures About Market
        Risk**
 
 Interest
        on our notes receivable portfolio, senior subordinated debt, capital leases,
        and
        miscellaneous notes is fixed, whereas interest on our primary loan agreements,
        which had a total facility amount of $473.3 million at June 30, 2007, have
        a
        fixed-to-floating debt ratio of 44% fixed rate debt to 56% floating rate
        debt.
        The impact of a one-point effective interest rate change on the $151.2 million
        balance of variable-rate financial instruments at June 30, 2007, would be
        approximately $458,000 on our results of operations for the six months ended
        June 30, 2007, or approximately $0.01 per diluted share.
 
 At
        June
        30, 2007, the carrying value of our notes receivable portfolio approximates
        fair
        value because the weighted average interest rate on the portfolio approximates
        current interest rates received on similar notes. If interest rates on our
        notes
        receivable are increased or perceived to be above market rates, the fair
        market
        value of our fixed-rate notes will decline, which may negatively impact our
        ability to sell new notes. The impact of a one-point interest rate change
        on the
        portfolio at June 30, 2007 could result in a fair value impact of approximately
        $10.7 million over the 6.75 year weighted average remaining life of our notes
        receivable portfolio.
 
 *Credit
        Risk*— We are exposed to on-balance sheet credit risk related to our notes
        receivable. We are exposed to off-balance sheet credit risk related to notes
        sold.
 
 We
        offer
        financing to the buyers of Vacation Intervals at our resorts. These buyers
        generally make a down payment of 10% to 15% of the purchase price and deliver
        a
        promissory note to us for the balance. The promissory notes generally bear
        interest at a fixed rate, are payable over a seven to ten year period, and
        are
        secured by a first mortgage on the Vacation Interval. We bear the risk of
        defaults on these promissory notes. Although we prescreen prospects by credit
        scoring them in the early stages of the marketing and sales process, we
        generally do not perform a detailed credit history review of our
        customers.
  21
 ***Index***
  If
        a
        buyer of a Vacation Interval defaults, we generally must foreclose on the
        Vacation Interval and attempt to resell it; the associated marketing, selling,
        and administrative costs from the original sale are not recovered; and such
        costs must be incurred again to resell the Vacation Interval. Although in
        many
        cases we may have recourse against a Vacation Interval buyer for the unpaid
        price, certain states have laws that limit our ability to recover personal
        judgments against customers who have defaulted on their loans. Accordingly,
        we
        have generally not pursued this remedy.
 
 *Interest
        Rate Risk —*We have historically derived net interest income from our
        financing activities because the interest rates we charge our customers who
        finance the purchase of their Vacation Intervals exceed the interest rates
        we
        pay to our senior lenders. Because 56% of our indebtedness bears interest
        at
        variable rates and our customer notes receivable bear interest at fixed rates,
        increases in interest rates will erode the spread in interest rates that
        we have
        historically experienced and could cause our interest expense on borrowings
        to
        exceed our interest income on our portfolio of customer loans. Therefore,
        any
        increase in interest rates, particularly if sustained, could have a material
        adverse effect on our results of operations, cash flows, and financial
        position.
 
 To
        partially offset an increase in interest rates, we have engaged in two interest
        rate hedging transactions, or derivatives, related to our conduit loan through
        SF-II, for a notional amount of $29.4 million at June 30, 2007, that expires
        between September 2011 and March 2014. Our variable funding note with SF-IV
        also
        acts as an interest rate hedge since it contains a provision for an interest
        rate cap. The balance outstanding under this line of credit at June 30, 2007
        is
        $33.5 million.
 
 In
        addition, the Series 2005-A Notes related to our off-balance sheet special
        purpose finance subsidiary, SF-III, with a balance of $39.4 million at June
        30,
        2007, bear interest at a blended fixed rate of 5.4%, and the Series 2006-A
        Notes
        related to SF-V, with a balance of $88.9 million at June 30, 2007 bear interest
        at a blended fixed rate of 6.7%.
 
 *Availability
        of Funding Sources —*We fund substantially all of the notes receivable,
        timeshare inventories, and land inventories which we originate or purchase
        with
        borrowings through our financing facilities, sales of notes receivable,
        internally generated funds, and proceeds from public debt and equity offerings.
        Borrowings are in turn repaid with the proceeds we receive from repayments
        of
        such notes receivable. To the extent that we are not successful in maintaining
        or replacing existing financings, we would have to curtail our operations
        or
        sell assets, thereby having a material adverse effect on our results of
        operations, cash flows, and financial position.
 
 *Geographic
        Concentration —*Our notes receivable are primarily originated in Texas,
        Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such
        concentrations is dependent upon regional and general economic stability,
        which
        affects property values and the financial stability of the borrowers. Our
        Vacation Interval inventories are concentrated in Texas, Missouri, Illinois,
        Massachusetts, Georgia, and Florida. The risk inherent in such concentrations
        is
        in the continued popularity of the resort destinations, which affects the
        marketability of our products and the collection of notes
        receivable.
 
 **Item
        4.  Controls and Procedures**
 
 An
        evaluation as of the end of the period covered by this report was carried
        out
        under the supervision and with the participation of our management, including
        our Chief Executive Officer and Chief Financial Officer, of the effectiveness
        and design and operation of our disclosure controls and procedures (as defined
        in Rules 13a–15(e) and 15d-15(e) under the Securities Exchange Act of 1934).
        Based upon that evaluation, the Chief Executive Officer and the Chief Financial
        Officer concluded that, as of the end of the period covered by this report,
        those disclosure controls and procedures are effective.  There were no
        changes made in our internal control over financial reporting (as defined
        in
        Rules 13a-15(f) and 15d–15(f) under the Securities Exchange Act of 1934) during
        the second quarter of 2007 that materially affected or are reasonably likely
        to
        materially affect our internal control over financial reporting.
 
 **PART
        II: OTHER INFORMATION**
 
 **Item
        1.  Legal Proceedings**
 
 We
        are
        currently subject to litigation arising in the normal course of our business.
        From time to time, such litigation includes claims regarding employment,
        tort,
        contract, truth-in-lending, the marketing and sale of Vacation Intervals,
        and
        other consumer protection matters. Litigation has been initiated from time
        to
        time by persons seeking individual recoveries for themselves, as well as,
        in
        some instances, persons seeking recoveries on behalf of an alleged class.
        In our
        judgment, none of the lawsuits currently pending against us, either individually
        or in the aggregate, is likely to have a material adverse effect on our
        business, results of operations, or financial position.
  22
 ***Index***
  We
        are
        the plaintiff in a suit filed in U.S. District Court in Springfield,
        Massachusetts against Berkshire Wind Power, LLC, which is seeking to construct
        a
        wind farm directly adjacent to the property line of a 500 acre tract of land
        we
        own in Berkshire County, Massachusetts. The case is styled *Silverleaf
        Resorts, Inc. v. Berkshire Wind Power, LLC*, Civil Action No. 06-30152, and
        is currently pending in U.S. District Court for the District of Massachusetts,
        Western Division. We are seeking to permanently enjoin the construction of
        this
        wind farm facility unless it is set back further from our property line on
        the
        grounds that, among other things, as currently proposed it will constitute
        a
        nuisance and will unreasonably interfere with the reasonable use and enjoyment
        of our property. Prior to commencement of this litigation, we were in the
        initial stages of developing this 500 acre tract. If the defendant is ultimately
        successful in developing this neighboring site in accordance with its current
        plans, the proximity of such a wind farm facility to our property line may
        affect our future development plans for this 500 acre tract. The court, which
        originally scheduled a trial for May 21, 2007 on the issue of our request
        for an
        injunction, has postponed the trial until November 13, 2007 to allow the
        parties
        time to resolve their differences. At this time, no settlement has been
        reached.
 
 **Item
        1A.  Risk Factors**
 
 There
        have been no material changes to the risk factors previously disclosed under
        the
        heading “Risk Factors” beginning on page 21 of our annual report on Form 10-K
        for the year ended December 31, 2006.
 
 **Item
        4.  Submission of Matters to a Vote of Security
        Holders**
 
 At
        the
        2007 Annual Meeting of Shareholders held on May 8, 2007, the shareholders
        of the
        Company elected directors, and ratified the selection of BDO Seidman, LLP
        as the
        Company’s independent auditors.
 
 The
        board
        nominees were elected as directors with the following vote:
 
 **Nominee**
              
              **For**
              
              **Withheld**J.
                  Richard Budd, III.
              
              30,340,701
              
              405,060James
                  B. Francis, Jr.
              
              30,343,701
              
              402,060Herbert
                  B. Hirsch
              
              30,340,651
              
              405,110Robert
                  E. Mead
              
              30,210,446
              
              535,315Rebecca
                  Janet Whitmore
              
              30,342,342
              
              403,419
 
 With
        respect to the Board proposal to ratify the appointment of BDO Seidman, LLP
        as
        the Company’s independent registered public accounting firm, the vote was as
        follows:
 
 **For**
              
              **Against**
              
              **Abstain**30,719,748
              
              19,912
              
              8,800
 
 **Item
        6.  Exhibits and Reports on Form
        8-K**
 
 (a)
              Exhibits
                  filed herewith:
 
 31.1
              Certification
                  of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of
                  2002
 31.2
              Certification
                  of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of
                  2002
 32.1
              Certification
                  of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of
                  2002
 32.2
              Certification
                  of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of
                  2002
 
 (b)
              Reports
                  on Form 8-K:
 
 We
        filed
        the following Current Reports on Form 8-K with the SEC during the quarter
        ended
        June 30, 2007:
 
 Current
        report on Form 8-K filed with the SEC on May 3, 2007 relating to a press
        release
        announcing that the Company will release its financial results for the quarter
        ended March 31, 2007 on May 8, 2007, and will host a conference call to review
        the results on May 9, 2007.
 
 Current
        report on Form 8-K filed with the SEC on May 9, 2007 relating to the Company’s
        earnings release for the quarter ended March 31, 2007.
 
 Current
        report on Form 8-K filed with the SEC on June 18, 2007 relating to the
        announcement that the Company is raising its 2007 net income guidance from
        $25.5
        million to a range of $27.5 million to $28.5 million ($0.70 to $0.72 per
        fully
        diluted share).
  23
 ***Index***
  **SIGNATURES**
 
 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.
 
 Dated:  August
                  10, 2007
              By:
              /s/  ROBERT
                  E. MEADRobert
                  E. MeadChairman
                  of the Board andChief
                  Executive OfficerDated:  August
                  10, 2007
              By:
              /s/  HARRY
                  J. WHITE, JR.Harry
                  J. White, Jr.Chief
                  Financial Officer
  24
 ***Index***
 
 **INDEX
        TO EXHIBITS**
 
 
 **Exhibit
                  No.**
              **Description**31.1
              Certification
                  of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200231.2
              Certification
                  of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200232.1
              Certification
                  of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  200232.2
              Certification
                  of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
   25