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 March 31, 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.
                EmployerIdentification
                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 o





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 o Accelerated
      filer o 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
o    
No
x




Number
      of
      shares of common stock outstanding of the issuer’s Common Stock, par value $0.01
      per share, as of May 11, 2007: 37,808,154.











**Explanatory
      Note**





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 Items 1 and 2. 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
      discussed under the heading “Risk Factors” beginning on page 21 of our annual
      report on Form 10-K for the year ended December 31, 2006. 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


**SILVERLEAF
        RESORTS, INC.**


**INDEX**


PagePART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Condensed
                  Consolidated Statements of Operations for the threemonths
                  ended March 31, 2007 and 2006
              3Condensed
                  Consolidated Balance Sheets as of March 31, 2007and
                  December 31, 2006
              4Condensed
                  Consolidated Statement of Shareholders' Equity forthe
                  three months ended March 31, 2007
              5Condensed
                  Consolidated Statements of Cash Flows for thethree
                  months ended March 31, 2007 and 2006
              6Notes
                  to the Condensed Consolidated Financial Statements
              7Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition andResults
                  of Operations
              14Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              19Item
                  4.
              Controls
                  and Procedures
              20PART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              20Item
                  1A.
              Risk
                  Factors
              20Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              21Signatures
              22
 
 2


**PART
        1: 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 EndedMarch
                31,2007
            
            2006**Revenues:**Vacation
                Interval sales
            
            $
            53,365
            
            $
            41,467Estimated
                uncollectible revenue
            
            
            (8,541
            )
            
            (7,186
            )Net
                sales
            
            
            44,824
            
            
            34,281Interest
                income
            
            
            12,547
            
            
            10,095Management
                fee income
            
            
            615
            
            
            465Other
                income
            
            
            840
            
            
            831Total
                revenues
            
            
            58,826
            
            
            45,672**Costs
                and Operating Expenses:**Cost
                of Vacation Interval sales
            
            
            5,770
            
            
            4,181Sales
                and marketing
            
            
            27,449
            
            
            19,232Operating,
                general and administrative
            
            
            8,423
            
            
            7,189Depreciation
            
            
            858
            
            
            539Interest
                expense and lender fees
            
            
            5,651
            
            
            4,425Total
                costs and operating expenses
            
            
            48,151
            
            
            35,566Income
                before provision for income taxes
            
            
            10,675
            
            
            10,106Provision
                for income taxes
            
            
            (4,110
            )
            
            (3,891
            )**Net
                income**
            
            $
            6,565
            
            $
            6,215**Basic
                net income per share**
            
            $
            0.17
            
            $
            0.17**Diluted
                net income per share**
            
            $
            0.17
            
            $
            0.16**Weighted
                average basic common shares issued****and
                outstanding**
            
            
            37,808,154
            
            
            37,494,304**Weighted
                average diluted common shares issued****and
                outstanding**
            
            
            39,362,485
            
            
            38,615,036





The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 3
  **SILVERLEAF
      RESORTS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(in
      thousands, except share and per share amounts)





March
                  31,
              
              December
                  31,ASSETS
              
              2007
              
              2006(Unaudited)Cash
                  and cash equivalents
              
              $
              22,885
              
              $
              11,450Restricted
                  cash
              
              
              15,489
              
              
              15,771Notes
                  receivable, net of allowance for uncollectible notes of$68,351
                  and $68,118, respectively
              
              
              242,258
              
              
              229,717Accrued
                  interest receivable
              
              
              2,996
              
              
              2,936Investment
                  in special purpose entity
              
              
              11,806
              
              
              13,008Amounts
                  due from affiliates
              
              
              1,511
              
              
              1,251Inventories
              
              
              148,397
              
              
              147,759Land,
                  equipment, buildings, and leasehold improvements, net
              
              
              30,997
              
              
              28,040Land
                  held for sale
              
              
              276
              
              
              205Prepaid
                  and other assets
              
              
              27,057
              
              
              24,393TOTAL
                  ASSETS
              
              $
              503,672
              
              $
              474,530LIABILITIES
                  AND SHAREHOLDERS' EQUITYLIABILITIESAccounts
                  payable and accrued expenses
              
              $
              10,074
              
              $
              14,192Accrued
                  interest payable
              
              
              2,053
              
              
              1,792Amounts
                  due to affiliates
              
              
              128
              
              
              246Unearned
                  Vacation Interval sales
              
              
              75
              
              
              -Unearned
                  samplers
              
              
              6,251
              
              
              6,245Income
                  taxes payable
              
              
              1,572
              
              
              163Deferred
                  income taxes
              
              
              20,494
              
              
              17,683Notes
                  payable and capital lease obligations
              
              
              276,765
              
              
              254,550Senior
                  subordinated notes
              
              
              31,467
              
              
              31,467Total
                  Liabilities
              
              
              348,879
              
              
              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 March 31, 2007 andDecember
                  31, 2006
              
              
              378
              
              
              378Additional
                  paid-in capital
              
              
              112,591
              
              
              112,555Retained
                  earnings
              
              
              41,824
              
              
              35,259Total
                  Shareholders' Equity
              
              
              154,793
              
              
              148,192TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY
              
              $
              503,672
              
              $
              474,530




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
 4
  **SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY**
 (in
        thousands, except share amounts)
 (Unaudited)





Common
                StockNumber
                of
            
            $0.01
            
            AdditionalShares
            
            Par
            
            Paid-in
            
            RetainedIssued
            
            Value
            
            Capital
            
            Earnings
            
            TotalJanuary
                1, 2007
            
            
            37,808,154
            
            $
            378
            
            $
            112,555
            
            $
            35,259
            
            $
            148,192Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            36
            
            
            -
            
            
            36Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            6,565
            
            
            6,565March
                31, 2007
            
            
            37,808,154
            
            $
            378
            
            $
            112,591
            
            $
            41,824
            
            $
            154,793


The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


5


**SILVERLEAF
        RESORTS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(in
      thousands)


(Unaudited)






Three
                  Months EndedMarch
                  31,2007
              
              2006OPERATING
                  ACTIVITIES:Net
                  income
              
              $
              6,565
              
              $
              6,215Adjustments
                  to reconcile net income to net cash used inoperating
                  activities:Estimated
                  uncollectible revenue
              
              
              8,541
              
              
              7,186Deferred
                  income taxes
              
              
              2,811
              
              
              3,667Depreciation
              
              
              858
              
              
              539Gain
                  on sale of land held for sale
              
              
              -
              
              
              (499
              )Stock-based
                  compensation
              
              
              36
              
              
              81Cash
                  effect from changes in operating assets and liabilities:Restricted
                  cash
              
              
              (4
              )
              
              (654
              )Notes
                  receivable
              
              
              (21,082
              )
              
              (24,156
              )Accrued
                  interest receivable
              
              
              (60
              )
              
              (104
              )Investment
                  in special purpose entity
              
              
              1,202
              
              
              557Amounts
                  due from/to affiliates
              
              
              (378
              )
              
              294Inventories
              
              
              (638
              )
              
              (9,529
              )Prepaid
                  and other assets
              
              
              (2,735
              )
              
              (2,235
              )Accounts
                  payable and accrued expenses
              
              
              (4,118
              )
              
              (1,002
              )Accrued
                  interest payable
              
              
              261
              
              
              301Unearned
                  Vacation Interval sales
              
              
              75
              
              
              76Unearned
                  samplers
              
              
              6
              
              
              (43
              )Income
                  taxes payable
              
              
              1,409
              
              
              1,303Net
                  cash used in operating activities
              
              
              (7,251
              )
              
              (18,003
              )INVESTING
                  ACTIVITIES:Purchases
                  of land, equipment, buildings, and leasehold improvements
              
              
              (3,815
              )
              
              (290
              )Proceeds
                  from sale of land held for sale
              
              
              -
              
              
              791Net
                  cash (used in) provided by investing activities
              
              
              (3,815
              )
              
              501FINANCING
                  ACTIVITIES:Proceeds
                  from borrowings from unaffiliated entities
              
              
              49,036
              
              
              66,095Payments
                  on borrowings to unaffiliated entities
              
              
              (26,821
              )
              
              (49,233
              )Restricted
                  cash for repayment of debt
              
              
              286
              
              
              (2,408
              )Net
                  cash provided by financing activities
              
              
              22,501
              
              
              14,454Net
                  change in cash and cash equivalents
              
              
              11,435
              
              
              (3,048
              )CASH
                  AND CASH EQUIVALENTS:Beginning
                  of period
              
              
              11,450
              
              
              10,990End
                  of period
              
              $
              22,885
              
              $
              7,942SUPPLEMENTAL
                  CASH FLOW INFORMATION:Interest
                  paid, net of amounts capitalized
              
              $
              4,631
              
              $
              3,485Income
                  taxes paid
              
              $
              -
              
              $
              1,500




The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.


6




**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
      three months ended March 31, 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, including our adoption of
      Statement of Financial Accounting Standards No. 152, “Accounting for Real Estate
      Time-Sharing Transactions” (“SFAS No. 152”) and Statement of Financial
      Accounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”),
      effective January 1, 2006.





**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 SFAS No. 152 effective January 1, 2006. However, we did not have 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. The remaining amount is deferred
      and recognized as the remaining costs are incurred. We had $75,000 in deferred
      Vacation Interval sales at March 31, 2007 related to the
      percentage-of-completion method.





7


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 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 periodic analysis of the notes
      receivable portfolio, historical credit loss experience, and current economic
      factors.





8


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 will 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 our investment in 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% 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 our investment
      in 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 less cost to sell. 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
      March
      31, 2007, the estimated costs not yet incurred, which are expected to complete
      promised amenities was $4.4 million. We allocate the estimated promised and
      completed amenities cost 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


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
      SF-II, for a notional amount of $34.1 million at March 31, 2007, that expires
      between September 2011 and March 2014. Our VFN 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 March 31, 2007 is $18.6
      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 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 remain 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
      $36,000 and $81,000 of stock-based compensation expense for the three months
      ended March 31, 2007 and 2006, respectively. At March 31, 2007, there is
      $194,000 of unamortized compensation expense related to the stock option grants
      during 2005, which will be fully recognized by August 2008.





10


At
      March
      31, 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. There
      were no stock options forfeited, expired or exercised during the first three
      months of 2006 or 2007. There have been no stock options granted since
      2005.





*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 and 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 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 or results of operations.





*FIN
      No. 48*  **-** In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”). FIN No. 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement 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. The Company 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 Financial Accounting Standards Board 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 still evaluating the impact the adoption of SFAS
      No. 157 will have on our consolidated financial position and results of
      operations.




*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 and results of
      operations.





11


**Note
      3 - Earnings Per Share**





The
      following table illustrates the reconciliation between basic and diluted
      weighted average common shares outstanding for the three months ended March
      31,
      2007 and 2006:





**Three
                Months Ended****March
                31,****2007**
            
            **2006**Weighted
                average shares outstanding - basic
            
            
            37,808,154
            
            
            37,494,304Issuance
                of shares from stock options exercisable
            
            
            2,031,807
            
            
            2,270,657Repurchase
                of shares from stock options proceeds
            
            
            (477,476
            )
            
            (1,149,925
            )Weighted
                average shares outstanding - diluted
            
            
            39,362,485
            
            
            38,615,036





Outstanding
      stock options totaling approximately 792,000 and 867,000 were not dilutive
      at
      March 31, 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 March 31, 2007 and 2006 was
      approximately 15.9% and 15.4%, respectively, with individual rates ranging
      from
      0% to 17.5%. The Vacation Interval notes receivable with interest rates of
      0%
      originated between 1997 and 2003, and have an outstanding balance at March
      31,
      2007 of approximately $148,000. In connection with the sampler program, we
      routinely enter into notes receivable with terms of 10 months. Notes receivable
      from sampler sales were $2.9 million and $2.3 million at March 31, 2007 and
      2006, respectively, and are non-interest bearing.





We
      consider accounts over 60 days past due to be delinquent. As of March 31, 2007,
      $3.1 million of notes receivable, net of accounts charged off, were considered
      delinquent. An additional $28.3 million of notes, of which $25.1 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 March 31, 2007 (in
      thousands):





For
                the 12-Month Period Ending March 31,2008
            
            $
            38,1552009
            
            
            37,4552010
            
            
            40,0012011
            
            
            41,3592012
            
            
            43,532Thereafter
            
            
            110,107310,609Less
                allowance for uncollectible notes
            
            
            (68,351
            )Notes
                receivable, net
            
            $
            242,258





The
      activity in gross notes receivable is as follows for the three month periods
      ended March 31, 2007 and 2006 (in thousands):





**Three
                Months Ended****March
                31,****2007**
            
            **2006**Balance,
                beginning of period
            
            $
            297,835
            
            $
            230,051Sales
            
            
            40,125
            
            
            40,238Collections
            
            
            (19,043
            )
            
            (16,082
            )Receivables
                charged off, gross
            
            
            (8,308
            )
            
            (6,614
            )Balance,
                end of period
            
            $
            310,609
            
            $
            247,593





12





The
      activity in the allowance for uncollectible notes is as follows for the three
      months ended March 31, 2007 and 2006 (in thousands):





**Three
                Months Ended****March
                31,****2007**
            
            **2006**Balance,
                beginning of period
            
            $
            68,118
            
            $
            52,479Reclassification
                of estimated inventory recoveries on future charge offs
            
            
            —
            
            
            11,786Estimated
                uncollectible revenue
            
            
            8,541
            
            
            7,186Receivables
                charged off, gross
            
            
            (8,308
            )
            
            (6,614
            )Balance,
                end of period
            
            $
            68,351
            
            $
            64,837





**Note
      5 - Debt**





The
      following table summarizes our notes payable, capital lease obligations, and
      senior subordinated notes at March 31, 2007 and December 31, 2006 (in
      thousands):





**March
                31,**
            
            **December
                31,**
            
            **Revolving**
            
            
            
            **Interest******
            ****
            **2007**
            ****
            **2006**
            ****
            **Term**
            ****
            **Maturity**
            ****
            **Rate**
            ****$100
                million Textron receivable-based revolver ($100 million maximum combined
                receivable, inventory and acquisition commitments, see inventory
                /
                acquisition component below)
            
            $
            45,542
            
            $
            28,903
            
            
            1/31/10
            
            
            1/31/13
            
            
            Prime$50
                million CapitalSource receivable-based revolver
            
            
            18,817
            
            
            22,831
            
            
            4/29/08
            
            
            4/29/08
            
            
            Prime
                + 0.75%$35
                million Wells Fargo Foothill receivable-based revolver
            
            
            62
            
            
            93
            
            
            12/31/08
            
            
            12/31/11
            
            
            Prime$125
                million Silverleaf Finance IV, LLC receivable-based
                revolver
            
            
            18,621
            
            
            —
            
            
            12/3/08
            
            
            12/3/10
            
            
            LIBOR+1.25%$25
                million Resort Funding receivable-based revolver
            
            
            —
            
            
            —
            
            
            5/20/07
            
            
            5/20/10
            
            
            Prime
                + 1.50%$66.4
                million Textron receivable-based non-revolving conduit
                loan
            
            
            21,687
            
            
            25,090
            
            
            —
            
            
            3/22/14
            
            
            7.035%$26.3
                million Textron receivable-based non-revolving conduit
                loan
            
            
            12,403
            
            
            14,210
            
            
            —
            
            
            9/22/11
            
            
            7.90%$128.1
                million Silverleaf Finance V, L.P. receivable-based non-revolver
            
            
            100,257
            
            
            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)
            
            
            20,245
            
            
            —
            
            
            1/31/10
            
            
            1/31/12
            
            
            Prime
                + 1.00%$30
                million CapitalSource inventory loan agreement
            
            
            21,376
            
            
            18,876
            
            
            4/29/09
            
            
            4/29/11
            
            
            Prime
                + 1.50%$15
                million Wells Fargo Foothill inventory loan agreement
            
            
            8,985
            
            
            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%
            
            
            7,209
            
            
            7,590
            
            
            —
            
            
            various
            
            
            variousTotal
                notes payable
            
            
            275,204
            
            
            252,831Capital
                lease obligations
            
            
            1,561
            
            
            1,719
            
            
            —
            
            
            various
            
            
            variousTotal
                notes payable and capital lease obligations
            
            
            276,765
            
            
            254,5506.0%
                senior subordinated notes, due 2007
            
            
            3,796
            
            
            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
            
            
            854
            
            
            —
            
            
            4/1/07
            
            
            6.00%Total
                senior subordinated notes
            
            
            31,467
            
            
            31,467Total
            
            $
            308,232
            
            $
            286,017





We
      have
      $246.4 million available funding under our current debt facilities. At March
      31,
      2007, the LIBOR rate on our senior credit facilities was 5.32% (1 month) and
      the
      Prime rate on these facilities was 8.25%.





Effective
      February 21, 2007, w e
      entered
      into a consolidated, amended and restated loan and security agreement with
      Textron Financial Corporation (“Lender”). Our receivables and inventory
      financing arrangements were consolidated into one facility, with an additional
      financing arrangement included for acquisitions. The maximum aggregate
      commitment of the Lender is $100.0 million. The maximum commitment of the Lender
      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.





13


**Note
      6 - Subsidiary Guarantees**





All
      subsidiaries of the Company, except Silverleaf Finance II, Inc., (“SF-II”), a
      Delaware corporation, SF-III, Silverleaf Finance IV, LLC, (“SF-IV”), and
      Silverleaf Finance V, L.P., (“SF-V”) have guaranteed the $31.5 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 three months ended March 31,
      2007 and 2006. Combined summarized balance sheet information as of March 31,
      2007 and December 31, 2006 for the Guarantor Subsidiaries is as follows (in
      thousands):





**March
                31,**
            
            **December
                31,****2007**
            
            **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
      March 31, 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 101,000 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.





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.





14





**Results
      of Operations**





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




Three
                Months EndedMarch
                31,2007
            
            2006As
                a percentage of total revenues:Vacation
                Interval sales
            
            
            90.7
            %
            
            90.8
            %Estimated
                uncollectible revenue
            
            
            -14.5
            %
            
            -15.7
            %Net
                sales
            
            
            76.2
            %
            
            75.1
            %Interest
                income
            
            
            21.3
            %
            
            22.1
            %Management
                fee income
            
            
            1.1
            %
            
            1.0
            %Other
                income
            
            
            1.4
            %
            
            1.8
            %Total
                revenues
            
            
            100.0
            %
            
            100.0
            %As
                a percentage of Vacation Interval sales:Cost
                of Vacation Interval sales
            
            
            10.8
            %
            
            10.1
            %Sales
                and marketing
            
            
            51.4
            %
            
            46.4
            %As
                a percentage of total revenues:Operating,
                general and administrative
            
            
            14.3
            %
            
            15.7
            %Depreciation
            
            
            1.5
            %
            
            1.2
            %As
                a percentage of interest income:Interest
                expense and lender fees
            
            
            45.0
            %
            
            43.8
            %





**Results
      of Operations for the Three Months Ended March 31, 2007 and 2006**





Revenues





Revenues
      for the quarter ended March 31, 2007 were $58.8 million, representing a $13.2
      million increase from revenues of $45.7 million for the quarter ended March
      31,
      2006. As discussed below, the increase is primarily attributable to an $11.9
      million increase in Vacation Interval sales during the first quarter of
      2007.





The
      following table summarizes our Vacation Interval sales (dollars in thousands,
      except average price).





**Three
                Months Ended Mar 31, 2007**
            
            **Three
                Months Ended Mar 31, 2006****Average**
            
            
            
            
            
            **Average****$
                Sales**
            
            **Intervals**
            
            **Price**
            
            **$
                Sales**
            
            **Intervals**
            
            **Price**Interval
                Sales to New Customers
            
            $
            23,267
            
            
            1,917
            
            $
            12,137
            
            $
            19,995
            
            
            1,743
            
            $
            11,471Upgrade
                Interval Sales to Existing Customers
            
            
            19,402
            
            
            2,262
            
            
            8,577
            
            
            15,258
            
            
            1,874
            
            
            8,142Additional
                Interval Sales to Existing Customers
            
            
            10,696
            
            
            1,098
            
            
            9,741
            
            
            6,214
            
            
            654
            
            
            9,502Total
            
            $
            53,365
            
            
            
            
            
            
            
            $
            41,467





Overall,
      Vacation Interval sales increased $11.9 million, or 28.7%, during the first
      quarter of 2007 versus the same period of 2006, as a result of higher closing
      percentages and continued growth in customer tours. The number of interval
      sales
      to new customers increased 10.0% and average prices increased 5.8%, resulting
      in
      a 16.4% net increase in sales to new customers in the first quarter of 2007
      versus the same period of 2006. The number of interval sales to existing
      customers increased 32.9% and average prices increased 5.5%, resulting in a
      40.2% net increase in sales to existing customers during the first quarter
      of
      2007 versus the same period of 2006.





Estimated
      uncollectible revenue ,
      which
      represents estimated future gross cancellations of notes receivable prior to
      any
      recoveries of inventory, was $8.5 million for the first quarter of 2007 versus
      $7.2 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
      March
      31, 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 2006 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.




15


Interest
      income increased $2.5 million, or 24.3%, to $12.5 million during the first
      quarter of 2007 from $10.1 million during the same period of 2006. The increase
      primarily resulted from a higher average notes receivable balance during the
      first quarter of 2007 versus the same period of 2006, and an increase in the
      average yield on our outstanding notes receivable to 15.9% at March 31, 2007
      from 15.4% at March 31, 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 first quarter of 2007 versus
      $465,000 during the same period of 2006.





Other
      income consists of marina income, golf course and pro shop income, and other
      miscellaneous items. Other income remained fairly constant at $840,000 for
      the
      first quarter of 2007, compared to $831,000 for the first quarter of 2006.
      During the first quarter of 2007 ,
      we had
      income generated from The Pinnacle Lodge of $368,000. In the first quarter
      of
      2006, we sold two parcels of Mississippi land, resulting in a $499,000 pretax
      gain.





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
      sales as a percentage of Vacation Interval sales increased to 10.8% during
      the
      first quarter of 2007 versus 10.1% reported for the same period of 2006. This
      increase is primarily due to an increased ratio of interval sales of units
      constructed in more recent years with higher inventory cost.





Sales
      and Marketing





Sales
      and
      marketing expense as a percentage of Vacation Interval sales increased to 51.4%
      for the first quarter of 2007 versus 46.4% for the same period of 2006. Overall,
      sales and marketing expense increased $8.2 million due primarily to our
      increased volume of Vacation Interval sales. The increase is also due to
      additional costs associated with our off site sales center we opened in March
      2006 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 26% growth in tours and a 28.7% increase in Vacation
      Interval sales during the first quarter of 2007 versus the first quarter of
      2006.





In
      accordance with SFAS No. 152, $866,000 and $768,000 of sampler revenues were
      recorded as a reduction to sales and marketing expense for the quarters ended
      March 31, 2007 and 2006, respectively, since the incremental costs of our
      sampler sales exceed incremental sampler revenue.




Operating,
      General and Administrative





Operating,
      general and administrative expenses as a percentage of total revenues decreased
      to 14.3% for the first quarter of 2007 versus 15.7% for the same period of
      2006.
      Overall, operating, general and administrative expense increased by $1.2 million
      for the first quarter of 2007 as compared to the same period of 2006, primarily
      due to an
      increase in salaries of $521,000, and an increase in bank fees of $220,000,
      primarily related to credit card processing.





Depreciation





Depreciation
      expense as a percentage of total revenues was 1.5% for the quarter ended March
      31, 2007 versus 1.2% for the same quarter of 2006. Overall, depreciation expense
      for the first quarter of 2007 was $858,000 versus $539,000 for the same period
      of 2006, an increase of $319,000, due to capital expenditures of approximately
      $17.9 million since March 31, 2006.




16


Interest
      Expense and Lender Fees





Interest
      expense and lender fees as a percentage of interest income increased to 45.0%
      for the first quarter of 2007, compared to 43.8% for the same period of 2006.
      Overall, interest expense and lender fees increased $1.2 million for the first
      quarter of 2007 versus the same period of 2006. This increase is primarily
      the
      result of a larger average debt balance outstanding during 2007, partially
      offset by a decrease in our weighted average cost of borrowings from 8.0% for
      the quarter ended March 31, 2006 to 7.8% for the quarter ended March 31,
      2007.





Income
      before Provision for Income Taxes





Income
      before provision for income taxes increased to $10.7 million for the quarter
      ended March 31, 2007, as compared to $10.1 million for the quarter ended March
      31, 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 March 31, 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
      and
      March 31, 2007, we did not have an accrual for interest and penalties related
      to
      unrecognized tax benefits.





Net
      Income





Net
      income was $6.6 million for the quarter ended March 31, 2007, as compared to
      $6.2 million for the quarter ended March 31, 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 three months ended March 31, 2007, our operating activities used $7.3
      million of cash compared to using $18.0 million of cash during the same period
      of 2006. This $10.7 million difference in cash used in operating activities
      during the first three months of 2007 versus the comparable 2006 period was
      primarily the result of $9.5 million in cash spent on inventories during the
      first quarter of 2006 versus $638,000 for the same period of 2007. This was
      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.





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 three months of 2007, investing activities used $3.8 million of cash
      from capital expenditures; however during the first three months of 2006,
      investing activities provided cash of $501,000 primarily due to net proceeds
      of
      $791,000 received from the sale of two parcels of land in Mississippi, partially
      offset by capital expenditures of $290,000.





During
      the first three months of 2007, net cash provided by financing activities was
      $22.5 million compared to $14.5 million for the comparable 2006 period. The
      net
      cash of $22.5 million provided by financing activities during the first three
      months of 2007 was primarily the result of $49.0 million of proceeds received
      from borrowings against pledged notes receivable and our inventory loans, offset
      by $26.9 million of payments on borrowings against pledged notes receivable
      and
      other debt. The
      net
      cash of $14.5 million provided by financing activities during the first quarter
      of 2006 was primarily the result of $66.1 million of proceeds received from
      borrowings against pledged notes receivable, partially offset by $49.2 million
      of payments on borrowings against pledged notes receivable.





17


At
      March
      31, 2007, our senior credit facilities provided for loans of up to $514.3
      million of which approximately $268.0 million of principal related to advances
      under the credit facilities was outstanding. As of March 31, 2007, the weighted
      average cost of funds for all borrowings was 7.8%. 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 March 31, 2007, $3.1 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. W e
      are responsible
      for servicing the timeshare receivables purchased by SF-III pursuant to the
      terms of the Indenture and will receive a fee for our services equal to 1.75%
      of
      eligible timeshare receivables held by the facility. Such fees were $261,000
      and
      $448,000 for the quarters ended March 31, 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
      March
      31, 2007, SF-III held notes receivable totaling $54.6 million, with related
      borrowings of $45.5 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 three months
      ended March 31, 2007, we paid approximately $462,000 to repurchase the Vacation
      Intervals securing defaulted contracts to facilitate the re-marketing of those
      Vacation Intervals. Total investment in SF-III was valued at $11.8 million
      at
      March 31, 2007, which represents our maximum exposure to loss regarding our
      involvement with SF-III.





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 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.





18


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 three months ended March 31, 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 $514.3 million at March 31, 2007, have
      a
      fixed-to-floating debt ratio of 50% fixed rate debt to 50% floating rate debt.
      The impact of a one-point effective interest rate change on the $133.6 million
      balance of variable-rate financial instruments at March 31, 2007, would be
      approximately $331,000 on our results of operations for the three months ended
      March 31, 2007, or approximately $0.01 per diluted share.





At
      March
      31, 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 March 31, 2007 could result in a fair value impact of approximately
      $10.2 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.





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 50% 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 $34.1 million at March 31, 2007, that expires
      between September 2011 and March 2014. Our VFN 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 March 31, 2007 is $18.6
      million.




19


In
      addition, the Series 2005-A Notes related to our off-balance sheet special
      purpose finance subsidiary, SF-III, with a balance of $45.5 million at March
      31,
      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 $100.3 million at March 31, 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
      f irst
      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.





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
      our
      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 has scheduled a trial for May 21, 2007 on the issue of our
      request for an injunction.





**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.


20


**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
      March 31, 2007:





Current
      report on Form 8-K filed with the SEC on February 15, 2007 relating to the
      transfer of listing of the Company’s common stock from the American Stock
      Exchange to The NASDAQ Capital Market with a ticker symbol of
“SVLF.”





Current
      report on Form 8-K filed with the SEC on February 27, 2007 relating to the
      Consolidated, Amended and Restated Loan and Security Agreement with Textron
      Financial Corporation effective February 21, 2007.





Current
      report on Form 8-K filed with the SEC on March 2, 2007 relating to a press
      release announcing that the Company will release its financial results for
      the
      fourth quarter and year ended December 31, 2006 on March 7, 2007.





Current
      report on Form 8-K filed with the SEC on March 8, 2007 relating to the Company’s
      earnings release for the fourth quarter and year ended December 31,
      2006.





Current
      report on Form 8-K filed with the SEC on March 9, 2007 relating to the
      announcement that Robert E. Mead, the Company’s Chairman and CEO, will present
      at the B. Riley & Co. 8 th Annual
      Las Vegas Investor Conference on March 14, 2007.





Current
      report on Form 8-K filed with the SEC on March 12, 2007 relating to Employment
      Agreements the Company entered into with four Named Executive Officers on March
      8, 2007.


21





**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:
              May 11, 2007
            By:
            /s/
              ROBERT E. MEADRobert
              E. MeadChairman
                of the Board and
              Chief
                Executive Officer


Dated:
              May 11, 2007
            By:
            /s/
              HARRY J. WHITE, JR.Harry
              J. White, Jr.Chief
              Financial Officer




22





**INDEX
      TO EXHIBITS**





**Exhibit
              No.**
            **Description**





31.1
            Certification
                of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





31.2
            Certification
                of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





32.1
            Certification
                of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32.2
            Certification
                of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





23