UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-K


(Mark
      One)





T
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
The Fiscal Year Ended December 31, 2007





Or





£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934





FOR
THE TRANSITION PERIOD FROM _________ TO _________





Commission
File Number 001-13003





Silverleaf
Resorts, Inc.





(Exact
Name of Registrant as Specified in its Charter)





Texas
            
            75-2259890(State
      or Other Jurisdiction of Incorporation
      or Organization)
            
            (I.R.S.
      Employer Identification
      No.)1221
      River Bend Drive, Suite 120Dallas,
      Texas
            
            75247(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





Registrant's
Telephone Number, Including Area Code: 214-631-1166





Securities
Registered Pursuant to Section 12(b) of the Act:





Common
Stock, $.01 par value





Securities
Registered Pursuant to Section 12(g) of the Act:





None










Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes £     No
T





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Act.


Yes £     No
T





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 T     No
£










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


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


Large
      accelerated filer  £
            Accelerated
      filer  T
            Non-accelerated
      filer  £





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes £     No
T










The
aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant, based upon the closing sales price of the common stock on
June 30, 2007 as reported on The NASDAQ Capital Market, was
$98,783,643.  For this purpose, “affiliates” include members of the
board of directors and executive management of the registrant and all persons
known to be the beneficial owners of more than 5% of the registrant’s
outstanding common stock.





As of
March 11, 2008, 37,933,154 shares of the registrant’s common stock, $0.01 par
value, were issued and outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





Certain
information required by Part III of this report (Items 10, 11, 12, 13, and 14)
is incorporated by reference from the registrant’s definitive proxy statement to
be filed pursuant to Regulation 14A with respect to the registrant’s fiscal 2008
annual meeting of shareholders.  If such proxy statement is not so
filed on or before 120 days after the end of the registrant’s fiscal year, such
information will be included in an amendment to this Form 10-K to be filed no
later than the end of such 120-day period.




2




FORM10-K TABLE OF CONTENTS





Item
      Number
            
            
            
            PagePART
      IItem
      1.
            
            Business - Governmental Regulation, Environmental Matters,
      Utility Regulation, Other Regulation
            
            4Item
      1A.
            
            Risk Factors
            
            20Item
      1B.
            
            Unresolved Staff Comments
            
            29Item
      2.
            
            Properties
            
            30Item
      3.
            
            Legal Proceedings
            
            41Item
      4.
            
            Submission of Matters to a Vote of Security
      Holders
            
            41PART
      IIItem
      5.
            
            Market for Registrant’s Common Equity, Related Stockholder
      Matters, and Issuer Purchases of Equity Securities
            
            42Item
      6.
            
            Selected Financial Data
            
            44Item
      7.
            
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            
            45Item
      7A.
            
            Quantitative and Qualitative Disclosures about Market
      Risk
            
            59Item
      8.
            
            Financial Statements and Supplementary
    Data
            
            60Item
      9.
            
            Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
            
            61Item
      9A.
            
            Controls and Procedures
            
            61Item
      9B.
            
            Other Information
            
            62PART
      IIIItem
      10.
            
            Directors, Executive Officers, and Corporate
      Governance
            
            63Item
      11.
            
            Executive Compensation
            
            63Item
      12.
            
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            64Item
      13.
            
            Certain Relationships and Related Transactions, and
      Director Independence
            
            64Item
      14.
            
            Principal Accountant Fees and Services
            
            64PART
      IVItem
      15.
            
            Exhibits and Financial Statement
    Schedules
            
            64Index to Consolidated Financial
    Statements
            
            F-1




3
 Table of Contents





Forward-Looking
Statements





Throughout
this annual report on Form 10-K and documents incorporated herein by reference,
we make forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,
and Section 21E of the Securities Exchange Act of 1934, including in
particular, statements about our plans, objectives, expectations, and prospects
under the headings “Business” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” You can identify these
statements by forward-looking words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “plan,” “seek,” and similar expressions. Although we believe
that the plans, objectives, expectations, and prospects reflected in or
suggested by our forward-looking statements are reasonable, those statements
involve uncertainties and risks, and we can give no assurance that our plans,
objectives, expectations, and prospects will be achieved. Important factors that
could cause our actual results to differ materially from results anticipated by
such forward-looking statements are contained herein under the headings “Risk
Factors,” “Properties,” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” as well as elsewhere herein. 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.





In
addition, forward-looking statements speak only as of the date on which they are
made.  Such forward-looking statements are based on our beliefs,
assumptions, and expectations of our future performance taking into account all
information known to us at the time such statements are made.  These
beliefs, assumptions, and expectations can change as a result of many potential
events or factors, not all of which are known to us.  If a change
occurs, our business, financial condition, liquidity, results of operations,
plans, and other objectives may vary materially from those expressed in our
forward-looking statements.  We caution investors that while
forward-looking statements reflect our good-faith beliefs at the time such
statements are made, such statements are not guarantees of future performance
and are affected by actual events that occur after said statements are
made.  We expressly disclaim any responsibility to update
forward-looking statements, whether as a result of new information, future
events, or otherwise.  Accordingly, investors should use caution in
relying on past forward-looking statements, which were based on results and
trends existing when those statements were made, to anticipate future results or
trends.




PART
I





ITEM1.
            BUSINESS





Overview





Silverleaf
Resorts, Inc. (the “Company,” “Silverleaf,” “we,” or “our”) was incorporated in
Texas in 1989. Our principal business is the development, marketing, and
operation of “getaway” and “destination” timeshare resorts. As of December 31,
2007, we own seven “getaway resorts” in Texas, Missouri, Illinois, and Georgia
(the “Getaway Resorts”). We also own six “destination resorts” in Texas,
Missouri, Massachusetts, and Florida (the “Destination Resorts”). In addition,
we own and operate a hotel located near the Winter Park recreational area in
Colorado which provides our owners with another destination vacation alternative
and gives Silverleaf an entry point into this increasingly popular destination
area.





The
Getaway Resorts are designed to appeal to vacationers seeking comfortable and
affordable accommodations in locations convenient to their residences and are
located near major metropolitan areas. Our Getaway Resorts are located close to
principal areas where we market our vacation products to facilitate more
frequent “short-stay” getaways.  We believe such short-stay getaways
are growing in popularity as a vacation trend. Our Destination Resorts are
located in or near areas with national tourist appeal and offer our customers
the opportunity to upgrade into a more upscale resort area as their lifestyles
and travel budgets permit. Both the Getaway Resorts and the Destination Resorts
(collectively, the “Existing Resorts”) provide a quiet, relaxing vacation
environment. We believe our resorts offer our customers an economical
alternative to commercial vacation lodging. The average price for an annual
one-week vacation ownership interval (“Vacation Interval”) for a two-bedroom
unit at the Existing Resorts was $9,607 for 2007 and $11,681 for
2006.  The reduction in price during 2007 versus 2006 was due to
promotional pricing offered during the second half of 2007 on select products
and a shift in sales mix to lower-cost inventory.





Owners of
Vacation Intervals at the Existing Resorts (“Silverleaf Owners”) enjoy certain
distinct benefits. These benefits include (i) use of vacant lodging facilities
at the Existing Resorts through our “Bonus Time” Program; (ii) year-round access
to the Existing Resorts' non-lodging amenities such as fishing, boating,
horseback riding, swimming, tennis, or golf on a daily basis for little or no
additional charge; and (iii) the right to exchange the use of a Vacation
Interval at one of our Existing Resorts for a different time period at a
different Existing Resort through our internal exchange program. These benefits
are subject to availability and other limitations. Silverleaf Owners may also
enroll in the Vacation Interval exchange network operated by Resort Condominiums
International (“RCI”).  As of December 31, 2007, all of our Existing
Resorts are under contract with the RCI exchange network.





4
 Table of Contents


Certain
Significant 2007 Events
 
 ·
              In
      February 2007, we amended our loan agreement with Textron Financial
      Corporation (“Textron”) to consolidate our receivables and inventory
      financing arrangements into one facility, with an additional financing
      arrangement included for acquisitions. The maximum aggregate commitment of
      Textron is $100 million, which can be borrowed under the receivables
      financing arrangement provided we have no borrowings under either of the
      inventory or acquisitions financing arrangements.  The maximum
      commitment with respect to the inventory and acquisition financing
      arrangements was set at $40 million and $20 million, respectively, with
      the maximum aggregate commitment on the inventory and acquisition
      components combined being $40 million.  In October 2007, we
      further amended the agreement to increase our inventory financing
      arrangement from $40 million to $50 million.  Under the amended
      agreement, the maximum commitment with respect to the inventory and
      acquisition financing arrangements were set at $50 million and $20
      million, respectively, with the maximum aggregate commitment on the
      inventory and acquisition components combined being $50
      million.  The interest rate on the receivables component was
      reduced from Prime plus 1% with a 6% floor to Prime with no floor. The
      interest rate on advances under the inventory component and the
      acquisitions component of the consolidated debt are now Prime plus 1%. The
      interest rates charged under our prior inventory loan agreements with
      Textron were Prime plus 3% and LIBOR plus 3.25%.  The funding
      period was extended from June 2008 to January 2010. The receivables
      component matures January 31, 2013, and the acquisition and inventory
      components each mature on January 31,
2012.
 
 ·
              Effective
      February 28, 2007, we listed our common stock on The NASDAQ Capital Market
      (“NASDAQ”), under the symbol “SVLF.”  As a result, trading in
      Silverleaf common stock ceased on the American Stock Exchange effective at
      the closing of the markets on February 27,
2007.
 
 ·
              In
      September 2007, we entered into a $37.5 million revolving loan agreement
      with Liberty Bank as agent for itself and other lenders. The loan is
      secured by notes receivable from timeshare sales at an advance rate of up
      to 75% of the aggregate outstanding principal balance of all eligible
      notes receivable pledged as security.  The revolving loan period
      will expire on September 28, 2009, and the principal balance of the loan
      facility will be due on September 28, 2012, or if the revolving period is
      extended, 36 months from the expiration of the revolving
      period.  The outstanding principal balance on the facility will
      bear interest at LIBOR plus 2.40%.  Proceeds from the loan are
      used to fund normal business operations and for general working capital
      purposes.
 
 ·
              In
      September 2007, we amended our variable funding note (“VFN”) with UBS Real
      Estate Securities Inc. (“UBS”) through our wholly-owned and consolidated
      special purpose finance subsidiary, Silverleaf Finance IV, LLC
      (“SF-IV”).  The facility was amended to increase the
      availability from $125 million to $150 million and to extend the funding
      period from December 2008 to September 2009.  The maturity date
      of the amended facility was extended to September 2011. The VFN is secured
      by customer notes receivable sold to SF-IV.  Proceeds from the
      sale of customer notes receivable to SF-IV are used to fund normal
      business operations and for general working capital
    purposes.
 
 ·
              In
      December 2007, we opened the new Beach Club section of The Villages Resort
      in Flint, Texas (near Tyler), which serves the Dallas/Fort Worth
      market.  The Beach Club will be sold exclusively as an upgrade
      product to existing Silverleaf Owners.  All amenities are
      scheduled for completion in the first quarter of 2008.  Once
      fully developed, it will contain approximately 144
  units.
 
 Certain
      Significant Events Subsequent to
2007
 
 ·
              In
      January 2008, we opened our first indoor water park at The Villages Resort
      in Flint, Texas.  The opening of the indoor water park marks a
      significant milestone for us, as we continue to enhance our resorts and
      increase our appeal to both new customers and existing
    owners.
 
 ·
              Effective
      February 4, 2008, the Company’s board of directors elected
      Robert M. Sinnott as Chief Financial Officer.
      Mr. Sinnott succeeds Harry J. White, Jr., who has served as
      Chief Financial Officer since June 1998. Mr. White will remain
      with the Company as Chief Accounting Officer through May 8, 2008, the
      annual shareholder meeting date. After that date, Mr. White
      has announced his plans to retire as an officer and full-time
      employee of the Company; however, he will remain involved with the
      Company in a consulting capacity.
  5
 Table of Contents
  Operations
 
 Our
primary business is marketing and selling Vacation Intervals from our inventory
to individual consumers.  Our principal activities in this regard
include:
 
 ·
              acquiring
      and developing timeshare resorts;
 ·
              marketing
      and selling one-week annual and biennial Vacation Intervals to prospective
      first-time owners;
 ·
              marketing
      and selling upgraded and additional Vacation Intervals to existing
      Silverleaf Owners;
 ·
              financing
      the purchase of Vacation Intervals;
and
 ·
              managing
      timeshare resorts.


We have
in-house capabilities which enable us to coordinate all aspects of development
and expansion of the Existing Resorts and the potential development of any
future resorts, including site selection, design, and construction pursuant to
standardized plans and specifications.





We
perform substantial marketing and sales functions internally.  We have
made significant investments in operating technology, including telemarketing
and computer systems and proprietary software applications. We identify
potential purchasers through internally developed marketing techniques and
through cooperative arrangements with outside vendors.  We sell
Vacation Intervals predominately through on-site sales offices located at
certain of our resorts, which are located near major metropolitan areas. This
practice provides us an alternative to marketing costs of subsidized airfare or
lodging, which are typically associated with the timeshare industry. In 2006, we
began marketing and sales activity at our first off-site sales center, which is
located in the Dallas/Ft. Worth metroplex.





As part
of the Vacation Interval sales process, we offer potential purchasers financing
of up to 90% of the purchase price over a seven-year to ten-year period. We have
historically financed our operations by borrowing from third-party lending
institutions at an advance rate of 75% to 80% of eligible customer receivables.
At December 31, 2007 and 2006, we had a portfolio of approximately 41,481 and
36,104 customer promissory notes, respectively, totaling $358.7 million and
$297.4 million, respectively, with an average yield of 16.3% and 15.7% per
annum, respectively, which compares favorably to our weighted average cost of
borrowings of 7.6% per annum at December 31, 2007. We cease recognition of
interest income when collection is no longer deemed probable. At December 31,
2007 and 2006, $6.0 million and $4.7 million in principal, or 1.7% and 1.6%,
respectively, of our loans to Silverleaf Owners were 61 to 90 days past
due.  We record the cancellation of all notes that become 90 days
delinquent, net of notes that are no longer 90 days delinquent.  As of
December 31, 2007 and 2006, we had no timeshare loans receivable over 90 days
past due.  We continue collection efforts with regard to all timeshare
notes receivable from customers until all collection techniques that we utilize
have been exhausted.  We provide for uncollectible notes by reserving
an estimated amount that our management believes is sufficient to cover
anticipated losses from customer defaults.





Each
timeshare resort has a timeshare owners' association (a “Club”). At December 31,
2007, each Club (other than the club at our Orlando Breeze resort) operates
through a centralized organization to manage its respective resort on a
collective basis. This centralized organization is Silverleaf Club, a Texas
not-for-profit corporation. Silverleaf Club is under contract with each Club for
each of the Existing Resorts (with the exception of Orlando Breeze) to operate
and manage their resort. In turn, we have a contract (“Management Agreement”)
with Silverleaf Club, under which we perform the supervisory and management
functions of the resorts on a collective basis. All costs of operating the
timeshare resorts, including management fees payable to us under the Management
Agreement, are to be covered by monthly dues paid by the timeshare owners to
their respective Clubs as well as income generated by the operation of certain
amenities at the timeshare resorts.





Orlando
Breeze has its own club (“Orlando Breeze Resort Club”), which is operated
independently of Silverleaf Club.  We also provide certain supervisory
and management functions for Orlando Breeze Resort Club under the terms of a
written agreement.





Marketing
and Sales





Marketing
is the process by which we attract potential customers to visit and tour an
Existing Resort or attend a sales presentation. Sales is the process by which we
seek to sell a Vacation Interval to a potential customer who arrives for a tour
at an Existing Resort or attends a sales presentation.





Marketing.Our in-house marketing
staff creates databases of new prospects, which are principally developed
through cooperative arrangements with outside vendors to identify prospects who
meet our marketing criteria. Using our automated dialing and bulk mailing
equipment, in-house marketing specialists conduct coordinated telemarketing and
direct mail procedures which invite prospects to tour one of our resorts and
receive an incentive, such as a free gift, without regard to whether or not a
Vacation Interval is purchased.





6
 Table of Contents





Sales. We sell our Vacation
Intervals primarily through on-site salespersons at certain Existing Resorts.
Upon arrival at an Existing Resort for a scheduled tour, the prospect is met by
a member of our sales force who leads the prospect on a 90-minute tour of the
resort and its amenities. At the conclusion of the tour, the sales
representative explains the benefits and costs of becoming a Silverleaf Owner.
The presentation also includes a description of the financing alternatives that
we offer. Prior to the closing of any sale, a verification officer interviews
each prospect to ensure our compliance with sales policies and regulatory agency
requirements. The verification officer also plays a Bonus Time video for the
customer to explain the advantages of and limitations on the Bonus Time
program.  No sale becomes final until a statutory waiting period
(which varies from state to state) of three to fifteen calendar days has passed.
We also sell our Vacation Intervals to existing Silverleaf Owners as either
upgraded sales of more desirable higher priced Vacation Intervals or additional
week Vacation Interval sales.





Sales
representatives receive commissions ranging from 2.0% to 14.0% of the sales
price of a Vacation Interval depending on established guidelines. Sales managers
also receive commissions of 1.0% to 4.5% and are subject to commission
chargebacks in the event the purchaser fails to make the first required payment.
Sales directors also receive commissions of 1.0% to 3.5%, which are also subject
to chargebacks.





Prospects
who are interested in a lower priced product are offered biennial (alternate
year) intervals or other lower priced products that entitle the prospect to
sample a resort for a specified number of nights. The prospect may apply the
cost of a lower priced product against the down payment on a Vacation Interval
if the interval is purchased by a certain date. In addition, we actively market
both on-site and off-site upgraded Vacation Intervals as well as additional
weeks to existing Silverleaf Owners. Although most upgrades and additional week
sales are sold by our in-house sales staff, we have contracted with a third
party to assist in offsite marketing of these products at our Destination
Resorts. In recent years, we have been focusing on shifting our sales mix to
more heavily represent sales to existing customers. These upgrade and additional
week programs have been well received by Silverleaf Owners and accounted for
approximately 59.7% and 55.7% of our gross revenues from Vacation Interval sales
for the years ended December 31, 2007 and 2006, respectively. By offering lower
priced products and upgraded and additional week Vacation Intervals, we believe
we offer an array of affordable products for all prospects in our target market.
Also, by offering products with a range of prices, we attempt to broaden our
market with initial sales of lower priced products, which we attempt to
gradually upgrade and/or augment with additional week sales over
time.





In March
2006, we opened our first showroom-style, off-site sales office.  The
showroom, located in the Dallas/Fort Worth metroplex in Irving, Texas, operates
under the name “Silverleaf Vacation Store.”  It offers potential
customers an interactive “virtual” experience of our resorts, including a model
unit and photo gallery.  The 16,500 square-foot showroom cost $1.1
million and employs approximately 40 to 50 on-site sales personnel. This new
showroom generated $10.7 million in annual sales to new members for the year
ended December 31, 2007 and $6.2 million for the ten month period ended December
31, 2006.  The showroom has provided us with a significant sales
opportunity by enabling potential customers to experience the quality and
service of our resorts without leaving their own community. We expect that new
owners who purchase at this showroom will later participate in our upgrade and
additional week sales programs.





Our sales
representatives are a critical component of our sales and marketing
effort.  We continually strive to attract, train, and retain a
dedicated sales force. We provide intensive sales instruction and training,
which assists sales representatives in acquainting prospects with each
particular resort's benefits. Our sales instruction and training also focuses on
compliance by each sales representative with all federal, state, and local laws
applicable to timeshare sales. Each sales representative is our employee and
receives some employment benefits.  At December 31, 2007, we had a
sales force of 758 employees.





Seasonality





Our sales
of Vacation Intervals have generally been lower in the months of November and
December. Cash flow and earnings may be impacted by the timing of development,
the completion of future resorts, and the potential impact of weather or other
conditions in the regions where we operate. Our operating results could be
negatively impacted by these factors.





Customer
Financing





We offer
financing to buyers of Vacation Intervals at our resorts. Buyers who elect to
finance their purchases through us typically make down payments of at least 10%
of the purchase prices and deliver promissory notes for the balances. The
promissory notes generally bear interest at a fixed rate, are generally payable
over a seven-year 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. In
2005, we began obtaining a pre-screen credit score on touring families. If the
credit score does not meet certain minimum credit criteria, a 15% down payment
is generally required instead of our standard 10% down payment. There are a
number of risks associated with financing customers’ purchases of Vacation
Intervals.  For an explanation of these risks, please see the section
of this report entitled “Risk Factors.”





7
 Table of Contents





In 2007
we accrued 17.0% of the purchase price of Vacation Intervals as estimated
uncollectible revenue, which is an offset to Vacation Interval sales. Prior to
the adoption of Statement of Financial Accounting Standards No. 152, “Accounting
for Real Estate Time-Sharing Transactions” (“SFAS No. 152”), effective January
1, 2006, this line item was recorded as an expense provision for uncollectible
notes.  The allowance for uncollectible notes was 19.3% of gross notes
receivable as of December 31, 2007 compared to 22.9% at December 31,
2006.  We plan to 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 our efforts will
be successful.





If a
buyer of a Vacation Interval defaults, we generally must foreclose on the
Vacation Interval and attempt to resell it. When this occurs, the associated
marketing, selling, and administrative costs from the original sale are not
recovered and sales and marketing 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 or hinder our ability to recover personal judgments against customers who
have defaulted on their loans. For example, under Texas law, if we pursue a
post-foreclosure deficiency claim against a customer, the customer may file a
court proceeding to determine the fair market value of the property foreclosed
upon. In such event, we may not recover a personal judgment against the customer
for the full amount of the deficiency, but may recover only to the extent that
the indebtedness owed to the Company exceeds the fair market value of the
property. Accordingly, we do not generally pursue this remedy because we have
not found it to be cost effective.





At
December 31, 2007, we had notes receivable in the approximate principal amount
of $359.0 million with an allowance for uncollectible notes of $69.1
million.





Additionally,
at December 31, 2007, our off-balance-sheet finance subsidiary, Silverleaf
Finance III, LLC (“SF-III”), held notes receivable totaling $37.2 million with
related borrowings of $29.9 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 defaulted Vacation
Intervals for an amount equal to the net fair market value of such Vacation
Intervals, which may not be less than fifteen percent of the original
acquisition price that the customer paid for the Vacation
Interval.  For the year ended December 31, 2007, we paid $1.2 million
to repurchase Vacation Intervals securing defaulted notes receivable to
facilitate the re-marketing of those Vacation Intervals. Our total investment in
SF-III had a carrying value of $7.3 million at December 31, 2007.





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 intend
to borrow either directly or through our fully consolidated special purpose
finance subsidiaries additional funds under our existing revolving credit
facilities with our lenders to finance our operations. At December 31, 2007, we
and our fully consolidated subsidiaries had borrowings under our credit
facilities in the approximate principal amount of $307.5 million, of which
$244.4     million of such facilities are receivables
based and currently permit borrowings of 75% to 80% of the principal amount of
performing notes.  Payments from Silverleaf Owners on such notes are
credited directly to our senior lenders and applied against our loan
balances.  At December 31, 2007, we had a portfolio of approximately
41,481 Vacation Interval customer promissory notes in the approximate principal
amount of $358.7 million, of which $6.0 million in principal amount was 61 days
or more past due and therefore ineligible as collateral.





At
December 31, 2007, our portfolio of customer notes receivable had an average
yield of 16.3%. At such date, our borrowings had a weighted average cost of
7.6%, and had a fixed-to-floating debt ratio of 29% fixed-rate debt to 71%
floating-rate debt. We have historically derived net interest income from our
operating activities because the interest rates we charge our customers who
finance the purchase of their Vacation Intervals exceed the interest rates we
pay our senior lenders. Because 71% of our existing indebtedness currently bears
interest at variable rates and our customer notes receivable bear interest at
fixed rates, increases in interest rates would 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.  Although interest rates have recently been trending downward,
any increase in interest rates, particularly if sustained, could have a material
adverse effect on our results of operations, liquidity, and financial
condition.





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To
partially offset potential increases in interest rates, we have executed two
interest rate swaps related to our conduit loan with Silverleaf Finance II, Inc.
(“SF-II”), with fixed rates of 7.04% and 7.90%, for a total notional amount of
$21.3 million at December 31, 2007.  Such interest rate swaps expire
between September 2011 and March 2014. In addition, our variable funding note
with SF-IV also acts as an interest rate hedge since it contains a provision for
an interest rate cap. The balance under this line of credit was $59.3 million at
December 31, 2007.





In
addition, the Series 2005-A Notes related to our off-balance-sheet special
purpose finance subsidiary, SF-III, with a balance of $29.9 million at December
31, 2007, bear interest at a blended fixed rate of 5.4%.





Limitations
on availability of financing would inhibit sales of Vacation Intervals due to
(i) the lack of funds to finance the initial negative cash flow that results
from sales that we finance, and (ii) reduced demand if we are unable to provide
financing to purchasers of Vacation Intervals. We ordinarily receive only 10% to
15% of the purchase price as a cash down payment on the sale of a Vacation
Interval that we finance, but we must pay in full the costs of developing,
marketing, and selling the Vacation Interval. Maximum borrowings available under
our current credit agreements may not be sufficient to cover these costs,
thereby straining capital resources, liquidity, and capacity to grow. In
addition, to the extent interest rates decrease generally on loans available to
our customers, we face an increased risk that customers will pre-pay their loans
and reduce our income from operating activities.





We
typically provide financing to customers over a seven-year to ten-year
period.  Our customer notes receivable had a weighted average maturity
of seven years at December 31, 2007. Our credit facilities have scheduled
maturities between April 2008 and July 2018. Additionally, our revolving credit
facilities could be declared immediately due and payable as a result of any
default by us. Although it appears that we have adequate liquidity to meet our
needs through at least January 2010, we are continuing to identify additional
financing arrangements beyond such date.





Development
and Acquisition Process





We intend
to further develop our Existing Resorts and/or acquire new resorts only to the
extent we deem such expansion financially beneficial, and then only as the
capital markets permit.





If we are
able to develop or acquire new resorts, we will do so under our established
development policies.  Before committing capital to a site, we test
the market using our own market analysis testing techniques and explore the
zoning and land-use laws applicable to the potential site and the regulatory
issues pertaining to licenses and permits for timeshare marketing, sales, and
operations. We also contact various governmental entities and review
applications for necessary governmental permits and approvals. If we are
satisfied with our market analysis and regulatory review, we will prepare a
conceptual layout of the resort, including building site plans and resort
amenities. After we apply our standard lodging unit design and amenity package,
we prepare a budget that estimates the cost of developing the resort, including
costs of lodging facilities, infrastructure, and amenities, as well as projected
sales, marketing, and general and administrative costs. We typically perform
additional due diligence, including obtaining an environmental report by an
environmental consulting firm, a survey of the property, and a title commitment.
We employ legal counsel to review these documents and pertinent legal issues. If
we are satisfied with the site after the environmental and legal review, we will
complete the purchase of the property.





We manage
all construction activities internally. We typically complete the development of
a new resort's basic infrastructure and models within one year, with additional
units added within 180 to 270 days, weather permitting, based on
demand.  In addition, a functional sales office may be established at
each new resort.





Clubs
/ Silverleaf Club





Silverleaf
Club directors are elected by the majority of the boards of directors of the
individual Clubs. We have the right to supervise the management of our resorts
under the terms of the Management Agreement.  Silverleaf Owners are
obligated to pay monthly dues to their respective Clubs, which obligation is
secured by a lien on their Vacation Interval in favor of their Club. If a
Silverleaf Owner fails to pay his monthly dues, his Club may institute
foreclosure proceedings regarding the delinquent Silverleaf Owner's Vacation
Interval.  The number of foreclosures that occurred as a result of
Silverleaf Owners failing to pay monthly dues was 1,558 in 2007 and 1,222 in
2006. Typically, we purchase at foreclosure all Vacation Intervals that are the
subject of foreclosure proceedings instituted by the Club because of delinquent
dues.





At
December 31, 2007, the Club at each timeshare resort (other than Orlando Breeze)
operates through a centralized organization provided by Silverleaf Club to
manage the resorts on a collective basis. The consolidation of resort operations
through Silverleaf Club permits: (i) a centralized reservation system for all
resorts; (ii) substantial cost savings by purchasing goods and services for all
resorts on a group basis, which generally results in a lower cost of goods and
services than if such goods and services were purchased by each resort on
an individual basis; (iii) centralized management for the entire resort system;
(iv) centralized legal, accounting, and administrative services for the entire
resort system; and (v) uniform implementation of various rules and regulations
governing all resorts. All furniture, furnishings, recreational equipment, and
other personal property used in connection with the operation of the Existing
Resorts are owned by either that resort’s Club or Silverleaf Club, rather than
by us.





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Orlando
Breeze has its own club, Orlando Breeze Resort Club, which is operated
independently of Silverleaf Club.  However, we supervise the
management and operation of the Orlando Breeze Resort Club under the terms of a
written agreement.





At
December 31, 2007, Silverleaf Club had 820 full-time employees and Orlando
Breeze Resort Club had 13 full-timeemployees. Each Club is
solely responsible for their salaries, as well as the direct expenses of
operating the Existing Resorts, while we are responsible for the direct expenses
of new development and all marketing and sales activities. To the extent
Silverleaf Club provides payroll, administrative, and other services that
directly benefit the Company, we reimburse Silverleaf Club for such services and
vice versa.





Silverleaf
Club and Orlando Breeze Resort Club collect dues from Silverleaf Owners, plus
certain other amounts assessed against Silverleaf Owners from time to time, and
generate income by the operation of certain amenities at the Existing
Resorts.  Silverleaf Club and Orlando Breeze Resort Club dues were
approximately $64.96 per month ($32.48 for biennial owners) during 2007, except
for certain members of Oak N’ Spruce Resort, who prepay dues at an annual rate
of $497.  Such amounts are used by the respective Clubs to pay the
costs of operating the Existing Resorts and the management fees due to the
Company pursuant to applicable management agreements.  Our management
agreements with Silverleaf Club and Orlando Breeze Resort Club authorize us to
supervise the management and operations of the Existing Resorts and provide for
a maximum management fee equal to 15% of gross revenues of either Silverleaf
Club or Orlando Breeze Resort Club, but our right to receive such a fee on an
annual basis is limited to the net income of Silverleaf Club or Orlando Breeze
Resort Club. However, if we do not receive the maximum fee, such deficiency is
deferred for payment to succeeding years, subject again to the annual net income
limitation.  Due to anticipated refurbishment of units at the Existing
Resorts, together with the operational and maintenance expenses associated with
our current expansion and development plans, our 2007 management fees were
subject to the annual net income limitations. Accordingly, for the year ended
December 31, 2007, management fees recognized were $2.8 million. For financial
reporting purposes, management fees from Silverleaf Club and Orlando Breeze
Resort Club are recognized based on the lower of (i) the aforementioned maximum
fees or (ii) net income.  During the third quarter of 2007, the
Silverleaf Club management agreement’s term was extended through March 2020 and
continues year-to-year thereafter unless cancelled by either
party.  The Orlando Breeze Resort Club management agreement’s amended
term expires January 2011 and continues in successive 3-year terms thereafter,
unless cancelled by either party.  As a result of the past performance
of the Silverleaf Club and Orlando Breeze Resort Club, it is uncertain whether
Silverleaf Club and Orlando Breeze Resort Club will consistently generate
positive net income.  Therefore, future income to the Company under
the management agreements with Silverleaf Club and Orlando Breeze Resort Club
could be limited.  At December 31, 2007, there were approximately
103,000 Vacation Interval owners who pay dues to Silverleaf Club and
approximately 1,900 Vacation Interval owners who pay dues to Orlando Breeze
Resort Club.  If we develop new resorts outside of Florida, their
respective Clubs are expected to be added to the Silverleaf Club management
agreement.





Other
Operations





Operation of
Amenities and Other Assets. We own, operate, and receive the revenues
from the marina at The Villages, the golf course and pro shop at Holiday Hills,
and the golf course and pro shop at Apple Mountain. In addition, we will receive
revenues from the operation of the water park at The Villages in
2008.  Although we own the golf course at Holly Lake, a homeowners’
association in the development operates the golf course. In general, Silverleaf
Club receives revenues from the various amenities that require a usage fee, such
as watercraft rentals, horseback rides, and restaurants.





Samplers.
Revenues related to sampler contracts, which entitle a prospective owner to
sample a resort during certain periods, have been and will continue to be
deferred until the customer uses the stay or allows the contract to expire.
Effective January 1, 2006, sampler sales and related costs are accounted for as
incidental operations, whereby incremental costs in excess of related
incremental revenues are charged to expense as incurred. Conversely, incremental
revenues in excess of related incremental costs are recorded as a reduction of
inventory in the consolidated balance sheet. Incremental costs include costs
that would not have been incurred had we not sold samplers. During the years
ended December 31, 2007 and 2006, all sampler sales were recorded as a reduction
to sales and marketing expense since direct and incremental costs of sampler
sales exceeded incremental sampler revenues.  The reduction to sales
and marketing expense related to sampler sales in 2007 and 2006 was $3.4 million
and $2.9 million, respectively.





Utility
Services. Prior to March 2005, we owned the water supply facilities at
Piney Shores, The Villages, Hill Country, Holly Lake, Ozark Mountain, Holiday
Hills, Timber Creek, and Fox River resorts. We also owned the waste-water
treatment facilities at The Villages, Piney Shores, Ozark Mountain, Holly Lake,
Timber Creek, and Fox River resorts. We maintained permits to supply and charge
third parties for the water supply facilities at The Villages, Holly Lake,
Holiday Hills, Ozark Mountain, Hill Country, Piney Shores, and Timber Creek
resorts, and the waste-water facilities at Ozark Mountain, Holly Lake, Piney
Shores, Hill Country, and The Villages resorts. In March 2005, all of our
utility services assets and liabilities were sold for $13.1 million, which
resulted in a gain of $879,000. Certain purchasers of these utility assets
entered into a services agreement to provide uninterrupted water supply and
waste water treatment services to the eight timeshare resorts to which the sold
utility assets relate. These purchasers charge the timeshare resorts the
tariffed rate for those utility services that are regulated by the states in
which the resorts are located. For any unregulated utility services, such
purchasers charge a rate set in accordance with the ratemaking procedures of the
Texas Commission on Environmental Quality.





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Other Property.During 2006, we sold 9 acres of an 11-acre tract of land we owned in
Mississippi for $789,000.  We recognized a gain of $499,000 on the
sale. We have been and we remain entitled to 85% of any profits generated with
regards to this land while an affiliate of a director of the Company owns a 10%
net profits interest.





We also
own a 500-acre tract of land in the Berkshire Mountains of Western Massachusetts
that we are in the initial stages of developing.  During September
2007, we purchased an additional 394.3 acre tract which adjoins the 500
acres.  We have not yet finalized our future development plans for
this site.





In
November 2007, we purchased 15.3 acres of undeveloped land in Grand County,
Colorado with plans to develop up to 136 Vacation Interval units on the
property.  The acquired land is located approximately two miles from
the Company-owned Pinnacle Lodge hotel.





Policies
with Respect to Certain Activities





Our board
of directors sets policies with regard to all aspects of our business operations
without a vote of security holders.  In some instances the power to
set certain policies may be delegated by the board of directors to a committee
comprised of its members, or to the officers of the Company.  As set
forth herein under the headings “Customer Financing” and “Description of Our
Indebtedness and Senior Credit Facilities,” we finance all of our operations
through borrowings and make loans to our customers to finance the purchase of
our Vacation Intervals.





We do
not:





·
            invest
      in the securities of unaffiliated issuers for the purpose of exercising
      control;





·
            underwrite
      securities of other issuers;





·
            engage
      in the purchase and sale (or turnover) of investments sponsored by other
      issuers; or





·
            offer
      securities in exchange for
property.





Nor do we
propose to engage in any of the above activities.  In the past, we
have from time to time repurchased or otherwise reacquired our own common stock
and other securities.  We have no policy or proposed policy with
respect to future repurchases or re-acquisitions of our common stock or other
securities.  However, our board of directors may approve such
repurchase activities if it finds these activities to be in the best interests
of the Company and its shareholders.





Investment
Policies





Our board
of directors determines our policies concerning investments, including the
percentage of assets we may invest in any one type of investment and the
principles and procedures we employ in connection with the acquisition of
assets.  The board of directors may change these policies without a
vote of security holders.  We do not propose to invest in any
investments or activities not related directly or indirectly to (i) the
timeshare business, (ii) the acquisition, development, marketing, selling, or
financing of Vacation Intervals, or (iii) the management of timeshare
resorts.  We currently have no policies limiting the geographic areas
in which we might engage in investments in the timeshare business or limiting
the percentage of our assets invested in any specific timeshare related
property.  We primarily acquire assets for use in operations and not
to hold for possible capital gain.





Participation
in Vacation Interval Exchange Networks





Internal
Exchanges. Each Silverleaf Owner has certain exchange privileges through
the Silverleaf Club which may be used on an annual basis to: (i) exchange an
interval for a different interval (week) at the same resort so long as the
desired interval is of an equal or lower rating; or (ii) exchange an interval
for the same interval (week) of equal or lower rating at any of our other
Existing Resorts.  Silverleaf Owners of Getaway Resorts can only
exchange for an interval in a Getaway Resort unless they own a “Presidents,”
“Chairmans,” or “Ambassador” Vacation Interval.  These exchange rights
are a convenience we provide Silverleaf Owners, and are conditioned upon
availability of the desired interval or resort.  Approximately 8,492
exchanges occurred in 2007.  Silverleaf Owners pay an exchange fee of
$75 to Silverleaf Club for each such internal exchange.





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External Exchange
Network. We believe participation in a Vacation Interval exchange network
operated by RCI makes our Vacation Intervals more attractive. At December 31,
2007, all Existing Resorts are registered with RCI, and approximately 40% of
Silverleaf Owners participate in RCI's exchange network.  RCI
membership allows participating Silverleaf Owners to exchange their occupancy
right in a unit for an occupancy right in a unit of the same or lower color
rating in another participating resort, based upon availability and the payment
of a variable exchange fee. A member may exchange a Vacation Interval for an
occupancy right in another participating resort by a) listing the Vacation
Interval as available with the exchange organization and b) requesting occupancy
at another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired, and
the period during which occupancy is desired.





RCI
assigns a rating of “red,” “white,” or “blue” to each Vacation Interval for
participating resorts based upon a number of factors, including the location and
size of the unit, the quality of the resort, and the period during which the
Vacation Interval is available, and attempts to satisfy exchange requests by
providing an occupancy right in another Vacation Interval with a similar rating.
For example, an owner of a red Vacation Interval may exchange his interval for a
red, white, or blue interval. An owner of a white Vacation Interval may exchange
only for a white or blue interval, and an owner of a blue interval may exchange
only for a blue interval. At December 31, 2007, RCI’s designation of our units
as red, white, and blue Vacation Intervals is approximately 68%, 20%, and 12%,
respectively. If RCI is unable to meet the member's initial request, it suggests
alternative resorts based on availability. RCI’s annual membership fees, which
are at the option and expense of the owner of the Vacation Interval, are
currently $89.  Exchange rights with RCI require an additional fee of
$164 for domestic exchanges and $199 for foreign exchanges. Resorts
participating in the exchange networks are required to adhere to certain minimum
standards regarding available amenities, safety, security, décor, unit supplies,
maid service, room availability, and overall ambiance. See “Risk Factors” for a
description of risks associated with the exchange programs.





Competition





All of
our operations are contained within and are in support of a single industry
segment – the vacation ownership industry – and we currently operate in only six
geographic areas of the United States. These geographic areas are Texas,
Missouri, Massachusetts, Illinois, Georgia, and Florida. We encounter
significant competition from other timeshare resorts in the markets that we
serve. The timeshare industry is highly fragmented and includes a large number
of local and regional resort developers and operators. However, some of the
world's most recognized lodging, hospitality, and entertainment companies, such
as Marriott International, Inc. (“Marriott”), Walt Disney Company (“Disney”),
Hilton Hotels Corporation (“Hilton”), Hyatt Corporation (“Hyatt”), and Four
Seasons Hotels, Inc. (“Four Seasons”) have entered the industry. Other companies
in the timeshare industry, including Wyndham Worldwide Corporation (“Wyndham”),
through its Wyndham Vacation Resorts (formerly Fairfield Resorts) and WorldMark
by Wyndham (formerly Trendwest Resorts), Starwood Hotels & Resorts Worldwide
Inc. (“Starwood”), Bluegreen Corporation (“Bluegreen”), and Diamond Resorts
International, formerly Sunterra Corporation, (“Diamond”) are, or are
subsidiaries of, public companies with enhanced access to capital and other
resources that public ownership implies.





Wyndham,
Bluegreen, and Diamond own timeshare resorts in or near Branson, Missouri, which
compete with our Holiday Hills and Ozark Mountain resorts, and to a lesser
extent with our Timber Creek Resort. Additionally, a number of other public or
privately-owned timeshare resorts operate in most states in which we own
Existing Resorts which generates further competition.





Many
competitors also own timeshare resorts in or near Orlando, Florida, where our
newest resort, Orlando Breeze, is located. However sales of Orlando Breeze
Vacation Intervals are primarily upgrade and additional week interval sales to
our existing customers, with the sales taking place at our other Existing
Resorts.





We
believe Marriott, Disney, Hilton, Hyatt, and Four Seasons generally target
consumers with higher annual incomes than our target market. However, many of
our other competitors target consumers with similar income levels as our target
market. Our competitors may possess significantly greater financial, marketing,
personnel, and other resources than we do.  We cannot be certain that
such competitors will not significantly reduce the price of their Vacation
Intervals or offer greater convenience, services, or amenities than we
do.





The
American Resort Development Association (“ARDA”) recently published a study
entitled “State of the Vacation Timeshare Industry: United States Study 2007”
(the “ARDA Study”), which reported sales volume in the United States of $10.0
billion for 2006, compared to $4.8 billion in 2001 and $2.7 billion in 1997,
equating to a 10-year compound annual growth rate of approximately 14 percent.
The study estimated that 4.4 million households owned one or more U.S.
timeshare intervals or equivalent points at January 1, 2007, representing a
7.3% increase over the prior year.  However, there can be no assurance
that the existing levels of growth in timeshare demand will continue or that we
will not have to compete with larger and better capitalized competitors in
future periods for a declining number of potential timeshare
purchasers.





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While our
principal competitors are developers of timeshare resorts, we are also subject
to competition from other entities engaged in the commercial lodging business,
including condominiums, hotels, and motels, as well as others engaged in the
leisure business and, to a lesser extent, from campgrounds, recreational
vehicles, tour packages, and second home sales. A reduction in the product costs
associated with any of these competitors, or an increase in our costs relative
to such competitors' costs, could have a material adverse effect on our results
of operations, liquidity, and financial position.





Numerous
businesses, individuals, and other entities compete with us in seeking
properties for acquisition and development of new resorts. Some of these
competitors are larger and have greater financial and other resources. Such
competition may result in a higher cost for properties we wish to acquire and
thus prevent us from acquiring suitable properties for the development of new
resorts.





Governmental
Regulation





General.
Our marketing and sales of Vacation Intervals and other operations are subject
to extensive regulation by the federal government and the states and
jurisdictions in which the Existing Resorts are located and in which our
Vacation Intervals are marketed and sold. On a federal level, the Federal Trade
Commission has taken the most active regulatory role through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or competition in
interstate commerce. Other federal legislation to which the Company is or may be
subject includes the Truth-in-Lending Act and Regulation Z, the Equal
Opportunity Credit Act and Regulation B, the Interstate Land Sales Full
Disclosure Act, the Real Estate Settlement Procedures Act, the Consumer Credit
Protection Act, the Telephone Consumer Protection Act, the Telemarketing and
Consumer Fraud and Abuse Prevention Act, the Fair Housing Act, the Civil Rights
Acts of 1964 and 1968, the Fair Credit Reporting Act, the Fair Debt Collection
Act, and the Americans with Disabilities Act (“ADA”). Additionally, as a
publicly owned company, we are subject to all federal and state securities laws,
including the Sarbanes-Oxley Act of 2002.





In
response to certain fraudulent marketing practices in the timeshare industry in
the 1980s, various states enacted legislation aimed at curbing such abuses.
Certain states in which we operate have adopted specific laws and regulations
regarding the marketing and sale of Vacation Intervals. The laws of most states
require us to file a detailed offering statement and supporting documents with a
designated state authority, which describe the Company, the project, and our
promotion and sale of Vacation Intervals. The offering statement must be
approved by the appropriate state agency before we may solicit residents of such
state. The laws of certain states require us to deliver an offering statement
(or disclosure statement), together with certain additional information
concerning the terms of the purchase, to prospective purchasers of Vacation
Intervals who are residents of such states, even if the resort is not located in
such state.  Laws governing Missouri generally only require certain
disclosures in sales documents for prospective purchasers. There are also laws
in each state where we sell Vacation Intervals that grant the purchaser the
right to cancel a contract of purchase at any time within three to fifteen
calendar days following the sale.





We market
and sell our Vacation Intervals to residents of certain states adjacent or
proximate to the states where our resorts are located. Many of these neighboring
states also regulate the marketing and sale of Vacation Intervals to their
residents. Most states have additional laws which regulate our activities and
protect purchasers, such as real estate licensure laws; travel sales licensure
laws; anti-fraud laws; consumer protection laws; telemarketing laws; prize,
gift, and sweepstakes laws; and other related laws.  We do not
register all of our resorts in each of the states where we register certain
resorts.





Most of
the states where we currently operate have enacted laws and regulations that
limit our ability to market our resorts through telemarketing activities. These
states have enacted “do not call” lists that permit consumers to block
telemarketing activities by registering their telephone numbers for a period of
years for a nominal fee. We purchase these lists from the various states
quarterly and do not contact those telephone numbers
listed.  Additionally, the federal Do-Not-Call Implementation Act,
enacted on March 11, 2003, provided for the establishment of a National Do Not
Call Registry administered by the United States Federal Trade Commission (“FTC”)
under its Telemarketing Sales Rule (“TSR”) and the Federal Communications
Commission. The FTC began enforcement actions in October 2003 for violations of
the TSR by telemarketers.  Violations could result in penalties up to
$11,000 per violation.  The FTC reported that approximately 146
million telephone numbers had been registered on the National Do Not Call List
Registry as of September 30, 2007. Since the introduction of state and federal
Do-Not-Call legislation, we have become somewhat more reliant on direct mail
solicitations as an alternative to some of the telemarketing techniques we have
historically utilized. Existing and future restrictions on telemarketing
practices could cause our sales to decline.





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We
believe we are in material compliance with applicable federal and state laws and
regulations relating to the sales and marketing of Vacation Intervals in the
jurisdictions in which we currently do business. However, we are routinely and
currently the subject of a number of consumer complaints and regulatory
inquiries generally relating to our marketing or sales practices. We always
attempt to resolve all such complaints or inquiries directly with the consumer
or the regulatory authority involved. We cannot be certain that all of these
complaints and inquiries by regulators can be resolved without adverse
regulatory actions or other consequences, such as class action lawsuits or
rescission offers. We expect some level of consumer complaints in the ordinary
course of business as we aggressively market and sell Vacation Intervals to
households, which may include individuals who may not be financially
sophisticated.  We cannot be certain that the costs of resolving
consumer complaints and regulatory inquiries or of qualifying under Vacation
Interval ownership regulations in all jurisdictions in which we conduct sales or
wish to conduct sales in the future will not be significant, that we are in
material compliance with applicable federal and state laws and regulations, or
that violations of law will not have adverse implications, including negative
public relations, potential litigation, and regulatory sanctions. The potential
expense, negative publicity, and sanctions associated with the failure to comply
with applicable laws or regulations could have a material adverse effect on our
results of operations, liquidity, or financial position. Further, we cannot be
certain that either the federal government or states having jurisdiction over
our business will not adopt additional regulations or take other actions that
would adversely affect our business, results of operations, or financial
position.





During
the 1980s and continuing through the present, the timeshare industry has been
and continues to be afflicted with negative publicity and prosecutorial
attention due to, among other things, marketing practices which were widely
viewed as deceptive or fraudulent. Included among the many timeshare companies
which have been the subject of federal, state, and local enforcement actions and
investigations in the past were certain of the partnerships and corporations
that were merged into the Company prior to 1996 (the “Merged Companies,” or
individually “Merged Company”). Some of the settlements, injunctions, and
decrees resulting from litigation and enforcement actions (the “Orders”) to
which certain of the Merged Companies consented in the 1980s purport to bind all
successors and assigns, and accordingly may also be enforceable against the
Company. In addition, at that time the Company was directly a party to one such
Order issued in Missouri. No past or present officers, directors, or employees
of the Company or any Merged Company were named as subjects or respondents in
any of these Orders.  However, each Order purports to bind generically
unnamed “officers, directors, and employees” of certain Merged Companies.
Therefore, certain of these Orders may be interpreted to be enforceable against
the present officers, directors, and employees of the Company even though they
were not individually named as subjects of the enforcement actions which
resulted in these Orders. These Orders require, among other things, that all
parties bound by the Orders, including the Company, refrain from engaging in
deceptive sales practices in connection with the offer and sale of Vacation
Intervals. The requirements of the Orders are substantially what applicable
state and federal laws and regulations mandate, but the consequence of violating
the Orders may be that sanctions (including possible financial penalties and
suspension or loss of licensure) may be imposed more summarily and may be
harsher than would be the case if the Orders did not bind the Company. In
addition, the existence of the Orders may be viewed negatively by prospective
regulators in jurisdictions where the Company does not now do business, with
attendant risks of increased costs and reduced opportunities.





In early
1997, we were the subject of consumer complaints that triggered governmental
investigations into the Company's affairs. In March 1997, we entered into an
Assurance of Voluntary Compliance with the Texas Attorney General, in which we
agreed to make additional disclosure to purchasers of Vacation Intervals
regarding the limited availability of our Bonus Time program during certain
periods. We paid $15,200 for investigatory costs and attorneys' fees of the
Texas Attorney General in connection with this matter. Also, in March 1997, we
entered into an agreed order (the “Agreed Order”) with the Texas Real Estate
Commission requiring that we comply with certain aspects of the Texas Timeshare
Act, Texas Real Estate License Act, and Rules of the Texas Real Estate
Commission, with which we had allegedly been in non-compliance until mid-1995.
The allegations included (i) our admitted failure to register the Missouri
Destination Resorts in Texas (due to our misunderstanding of the reach of the
Texas Timeshare Act); (ii) payment of referral fees for Vacation Interval sales,
the receipt of which was improper on the part of the recipients; and (iii)
miscellaneous other actions alleged to violate the Texas Timeshare Act, which we
denied. While the Agreed Order acknowledged that we independently resolved ten
consumer complaints referenced in the Agreed Order, discontinued the practices
complained of, and registered the Missouri Destination Resorts during 1995 and
1996, the Texas Real Estate Commission ordered us to cease these discontinued
practices and enhance our disclosure to purchasers of Vacation Intervals. In the
Agreed Order, we agreed to make a voluntary donation of $30,000 to the State of
Texas. The Agreed Order also directed that we revise our training manual for
timeshare salespersons and verification officers. While the Agreed Order
resolved all of the alleged violations contained in complaints received by the
Texas Real Estate Commission through December 31, 1996, we have encountered and
expect to encounter some level of additional consumer complaints, regulatory
scrutiny, and periodic remedial action in the ordinary course of our business.
In this regard, during 2004 we renewed our timeshare-offering plan in the state
of New York, which we inadvertently allowed to lapse in 2001. As part of this
renewal process, we rescinded $897,000 of sales to New York residents that were
made in 2001 after our timeshare offering plan lapsed.





We have
established compliance and supervisory methods in training sales and marketing
personnel which adheres to legal requirements. With regard to direct mailings, a
designated compliance employee reviews all mailings to determine if they comply
with applicable state legal requirements. With regard to telemarketing, our
marketing management personnel prepare a script for telemarketers based upon
applicable state legal requirements. All telemarketers receive training that
includes, among other things, directions to adhere strictly to the approved
script. Telemarketers are also monitored by their supervisors to ensure that
they do not deviate from the approved script. Additionally, sales personnel
receive training as to such applicable legal requirements. We have a salaried
employee at each sales office who reviews the sales documents prior to closing a
sale to review compliance with legal requirements. Periodically, we are notified
by regulatory agencies to revise our disclosures to consumers and to remedy
other alleged inadequacies regarding the sales and marketing process. In such
cases, we revise our direct mailings, telemarketing scripts, or sales disclosure
documents, as appropriate, to comply with such requests. We have supervisors to
monitor compliance with all state and federal Do-Not-Call
regulations.





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We are
not currently aware of any non-compliance with any state or federal statute,
rule, or regulation which we believe would have a material adverse effect on our
business, results of operations, or financial position.





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





Certain
federal, state, and local laws, regulations, and ordinances govern the removal,
encapsulation, or disturbance of asbestos-containing materials (“ACMs”) when
such materials are in poor condition or in the event of construction,
remodeling, renovation, or demolition of a building. Such laws may impose
liability for release of ACMs and may provide for third parties to seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In connection with our ownership and operation of our properties, we may
be potentially liable for such costs. In 1994, we conducted a limited asbestos
survey at each of our resorts, existing at that time, which surveys did not
reveal material potential losses associated with ACMs.





In
addition, studies have linked radon, a naturally occurring substance, to
increased risks of lung cancer. While there are currently no state or federal
requirements regarding the monitoring for, presence of, or exposure to radon in
indoor air, the EPA and the Surgeon General recommend testing residences for the
presence of radon in indoor air, and the EPA further recommends that
concentrations of radon in indoor air be limited to less than 4 picocuries per
liter of air (Pci/L) (the “Recommended Action Level”). The presence of radon in
concentrations equal to or greater than the Recommended Action Level in one or
more of our properties may adversely affect our ability to sell Vacation
Intervals at such properties and the market value of such property. We have not
tested our properties for radon. Federal legislation will eventually require us
to disclose to potential purchasers of Vacation Intervals at our resorts that
were constructed prior to 1978 any known lead-paint hazards and will impose
treble damages for failure to so notify.





Electric
transmission lines are located in the vicinity of some of our properties.
Electric transmission lines are one of many sources of electromagnetic fields
(“EMFs”) to which people may be exposed. Research into potential health impacts
associated with exposure to EMFs has produced inconclusive results.
Notwithstanding the lack of conclusive scientific evidence, some states now
regulate the strength of electric and magnetic fields emanating from electric
transmission lines, while others have required transmission facilities to
measure for levels of EMFs. In addition, we understand that lawsuits have, on
occasion, been filed (primarily against electric utilities) alleging personal
injuries resulting from exposure as well as fear of adverse health effects. In
addition, fear of adverse health effects from transmission lines has been a
factor considered in determining property value in obtaining financing and in
condemnation and eminent domain proceedings brought by power companies seeking
to construct transmission lines. Therefore, potential exists for the value of a
property to be adversely affected as a result of its proximity to a transmission
line and for the Company to be exposed to damage claims by persons exposed to
EMFs.





We
conducted Phase I environmental assessments at each of our resorts during 2001
or later, in order to identify potential environmental
concerns.  These Phase I assessments were carried out in accordance
with accepted industry practices and consisted of non-invasive investigations of
environmental conditions at the properties, including a preliminary
investigation of the sites and identification of publicly known conditions
concerning properties in the vicinity of the sites, physical site inspections,
review of aerial photographs and relevant governmental records where readily
available, interviews with knowledgeable parties, investigation for the presence
of above ground and underground storage tanks presently or formerly at the
sites, and the preparation and issuance of written reports. Our Phase I
assessments of the properties did not reveal any environmental liability that we
believe would have a material adverse effect on our business, assets, or results
of operations taken as a whole; nor are we aware of any such material
environmental liability. Nevertheless, it is possible that our Phase I
assessments did not reveal all environmental liabilities or that there are
material environmental liabilities of which we are unaware. Moreover, there can
be no assurance that (i) future laws, ordinances, or regulations will not impose
any material environmental liability or (ii) the current environmental condition
of the properties will not be affected by the condition of land or operations in
the vicinity of the properties (such as the presence of underground storage
tanks) or by third parties unrelated to us. We do not believe that compliance
with applicable environmental laws or regulations will have a material adverse
effect on our results of operations, liquidity, or financial
position.





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





Utility
Regulation. Prior to March 2005, we owned the water supply and
waste-water treatment facilities at several of the Existing Resorts, which are
regulated by various governmental agencies. In March 2005, we sold all of our
utility services assets and liabilities.  Consequently, all utilities
at our resorts are currently supplied under agreements with third parties who
are subject to rate and other regulation by various federal, state, regional,
and local environmental, health, and other agencies.





Other Regulation.Under various state and federal laws governing housing and places of
public accommodation, including ADA, we are required to meet certain
requirements related to access and use by disabled persons. Although we believe
that our facilities are generally in compliance with present requirements of
such laws, we are aware of certain of our properties that are not in full
compliance with all aspects of such laws.  We are presently
responding, and expect to respond in the future, to inquiries, claims, and
concerns from consumers and regulators regarding our compliance with existing
state and federal regulations affording the disabled access to housing and
accommodations. It is our practice to respond positively to all such inquiries,
claims, and concerns and to work with regulators and consumers to resolve all
issues arising under existing regulations concerning access and use of our
properties by disabled persons.  We believe that we will incur
additional costs of compliance and/or remediation in the future with regard to
the requirements of such existing regulations. Future legislation may also
impose new or further burdens or restrictions on owners of timeshare resort
properties with respect to access by the disabled. The ultimate cost of
compliance with such legislation and/or remediation of conditions found to be
non-compliant is not currently ascertainable, and while such costs are not
expected to have a material effect on our business, such costs could be
substantial. Limitations or restrictions on the completion of certain
renovations may limit application of our growth strategy in certain instances or
reduce profit margins on our operations. We are also subject to a variety of
local, state, and federal laws and regulations concerning health and sanitation,
facility operations, fire safety, and occupational safety.





Employees





At
December 31, 2007, we had 2,171 full and part-time employees and the Clubs
collectively had 833 full and part-time employees.  Our employee
relations are good, both at the Company and at the Clubs. None of our employees
are represented by a labor union and


we are
not aware of any union organization efforts with respect to any of our
employees.





Insurance





We carry
comprehensive liability, fire, hurricane, and storm insurance with respect to
our resorts, with policy specifications, insured limits, and deductibles
customarily carried for similar properties, which we believe are
adequate.  However, certain types of losses (such as losses arising
from floods in non-floodplain areas and acts of war) generally are not insured
because such losses are either uninsurable or not economically insurable. Should
an uninsured loss or a loss in excess of insured limits occur, we could lose the
capital invested in a resort, as well as the anticipated future revenues from
such resort, and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could have a material
adverse effect on our results of operations,
liquidity, or financial position. We self-insure for employee medical claims
reduced by certain stop-loss provisions. We also self-insure for property damage
to certain vehicles and heavy equipment.





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DESCRIPTION
OF OUR INDEBTEDNESS AND SENIOR CREDIT FACILITIES AT DECEMBER 31,
2007





Existing
Indebtedness. We use the following credit agreements to finance the sale
of Vacation Intervals, to finance construction, and for working capital needs.
The loans are collateralized (or cross-collateralized) by customer notes
receivable, inventory, construction in process, land, improvements, and related
equipment at certain Existing Resorts. The credit facilities secured by customer
notes receivable allow advances ranging from 75% to 80% of the unpaid balance of
certain eligible customer notes receivable. The following table summarizes our
credit agreements with our senior lenders, our wholly-owned and consolidated
special purpose finance subsidiaries, and our off-balance-sheet qualified
special purpose entity, SF-III, as of December 31, 2007 (in
thousands):





Maximum
      Amount Available
            
            
            BalanceReceivable-Based
      Revolving Facilities
            
            $
            342,495
            
            
            $
            154,413Receivable-Based
      Non-Revolving Facilities
            
            
            90,015
            
            
            
            90,015Inventory
      Loans
            
            
            75,005
            
            
            
            63,078Subtotal
      On Balance Sheet
            
            
            507,515
            
            
            
            307,506Off-Balance-Sheet
      Receivable-Based Term Loan
            
            
            29,920
            
            
            
            29,920Grand
      Total
            
            $
            537,435
            
            
            $
            337,426





Textron
Facility.We have a
long-standing relationship with Textron dating back to August 1995. Since that
time, we have had various loan facilities in place with Textron.  Our
facilities with Textron are as follows at December 31, 2007:





·
            Receivables,
      Inventory, and Acquisition Loans – In February 2007, we amended our loan
      agreement with Textron to consolidate our receivables and inventory
      financing arrangements into one facility, with an additional financing
      arrangement included for acquisitions. The maximum aggregate commitment of
      Textron is $100 million, which can be borrowed under the receivables
      financing arrangement provided we have no borrowings under either of the
      inventory or acquisitions financing arrangements.  The maximum
      commitment with respect to the inventory and acquisition financing
      arrangements was initially set at $40 million and $20 million,
      respectively, with the maximum aggregate commitment on the inventory and
      acquisition components combined being $40 million.  In October
      2007, we further amended the agreement to increase our inventory financing
      arrangement from $40 million to $50 million.  Under the amended
      agreement, the maximum commitment with respect to the inventory and
      acquisition financing arrangements were set at $50 million and $20
      million, respectively, with the maximum aggregate commitment on the
      inventory and acquisition components combined being $50
      million.  The interest rate on the receivables component was
      reduced from Prime plus 1% with a 6% floor to Prime with no floor. The
      interest rate on advances under the inventory component and the
      acquisitions component of the consolidated debt are now Prime plus 1%. The
      interest rates charged under our prior inventory loan agreements with
      Textron were Prime plus 3% and LIBOR plus 3.25%.  The funding
      period was extended from June 2008 to January 2010. The receivables
      component matures January 31, 2013, and the acquisition and inventory
      components each mature on January 31,
2012.





·
            Conduit
      Loans – We executed a $66.4 million conduit term loan with Textron through
      our conduit financing subsidiary, SF-II in 2003.  We pledged
      customer notes receivable as security to Textron.  As additional
      collateral, we also provided Textron a pledge of all of our equity
      interest in SF-II and a $15.7 million demand note from us to SF-II under
      which payment may be required if SF-II defaults on its loan from
      Textron.  Textron's conduit loan to SF-II matures in 2014 and
      bears interest at a fixed annual rate of 7.035%.  During 2005,
      we executed a $26.3 million expansion of our conduit term loan agreement
      with SF-II.  This conduit term loan with SF-II matures in 2011
      and bears interest at a fixed annual rate of
  7.9%.





CapitalSource
Facility.During 2005, we
executed a $50 million receivables loan agreement with CapitalSource, which
matures in April 2008 and bears interest at a rate of Prime plus 0.75%. We also
have a $30 million revolving inventory loan facility with CapitalSource, which
revolves through April 2009, matures in April 2011, and bears interest at a rate
of Prime plus 1.5%.





Wells Fargo
Foothill Facility.During 2005, we executed a $50 million
receivables loan agreement with Wells Fargo Foothill, which was subsequently
reduced to $35 million in 2006. This facility matures in December 2011 and bears
interest at the Prime rate with a 6% floor. We also have a $15 million revolving
inventory loan facility with Wells Fargo Foothill, which revolves through
December 2008, matures in December 2010, and bears interest at a rate of Prime
plus 2% with a 6% floor.





Silverleaf
Finance III Facility.During 2005, we executed a term
securitization transaction with our wholly-owned off-balance-sheet qualified
special purpose finance subsidiary, SF-III, which was formed for the purpose of
issuing $108.7 million of its Series 2005-A Notes in a private placement through
UBS Real Estate Securities Inc.  The Series 2005-A Notes were issued
by SF-III 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 received ratings from Moody's Investor Services, Inc.
of “Aaa,” “Aa2,” “A2,” and “Baa2,” respectively.  In connection with
this transaction, we sold SF-III $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 in 2005.  The Series 2005-A
Notes are secured by timeshare receivables we sold to SF-III. Such timeshare
receivables were sold to SF-III without recourse to us, except for breaches of
certain representations and warranties at the time of sale. Pursuant to the
terms of an agreement, we will continue servicing these timeshare receivables
and receive fees for our services.





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Silverleaf
Finance IV Facility.During 2006, we executed a $100 million revolving
senior credit facility through a newly-formed, wholly-owned and consolidated
special purpose finance subsidiary, SF-IV.  SF-IV was formed for the
purpose of issuing a $100 million variable funding note to
UBS.  During 2006, the facility was amended to increase the
availability from $100 million to $125 million, extend the funding period from
March 2007 to December 2008, and reduce the interest rate on advances from LIBOR
plus 1.5% to LIBOR plus 1.25%.  The facility was further amended in
September 2007 to increase the availability from $125 million to $150 million
and to extend the funding period from December 2008 to September
2009.  The maturity date of the amended facility was extended to
September 2011. The VFN is secured by customer notes receivable sold to
SF-IV.  Proceeds from the sale of customer notes receivable to SF-IV
are used to fund normal business operations and for general working capital
purposes. Pursuant to the terms of an agreement, we will continue servicing
these customer notes receivable and receive fees for our services.





Silverleaf
Finance V Facility. During 2006, we executed a $128 million term
securitization transaction through a newly-formed, wholly-owned and consolidated
special purpose finance subsidiary, Silverleaf Finance V, L.P.
(“SF-V”).  SF-V was formed for the purpose of issuing $128 million of
its Series 2006-A Notes in a private offering and sale through UBS. The Series
2006-A Notes were issued in seven classes ranging from Class A through Class G
notes with a blended fixed rate of 6.7%.  The Class A through Class G
notes were rated “Aaa,” “Aa2,” “A2,” “Baa1,” “Baa2,” “Baa3,” and “Ba2,”
respectively, by Moody’s Investors Service, Inc., and mature in July
2018.  The Series 2006-A Notes are secured by customer notes
receivable sold to SF-V by SF-IV and Silverleaf in three separate transactions
from August 2006 to November 2006. The original amount of notes receivable
purchased by SF-V to secure the Series 2006-A Notes was $155.1 million and the
balance of eligible notes receivable pledged as collateral at December 31, 2007
was $80.4 million. The proceeds from the sale of the customer notes receivable
to SF-V were primarily used to pay down consolidated indebtedness to senior
lenders. All customer notes receivable purchased by SF-V were acquired without
recourse, except in the case of breaches of customary representations and
warranties made in connection with the sale of the notes. Pursuant to the terms
of an agreement, we will continue servicing these customer notes receivable and
receive fees for our services.





Liberty
Bank.  In September 2007, we entered into a $37.5 million
revolving loan agreement with Liberty Bank and other lenders. The loan is
secured by customer notes receivable at an advance rate of up to 75% of the
aggregate outstanding principal balance of all eligible notes receivable pledged
as security.  The revolving loan period will expire on September 28,
2009, and the principal balance of the loan facility will be due on September
28, 2012, or if the revolving period is extended, 36 months from the expiration
of the revolving period.  The outstanding principal balance on the
facility will bear interest at LIBOR plus 2.40%.  Proceeds from the
loan will be used to fund normal business operations and for general working
capital purposes.





Senior
Subordinated Notes.At December 31, 2007, we have $2.1 million of 101⁄2%
senior subordinated notes due April 2008, and $24.7 million of 8% senior
subordinated notes due April 2010, with interest payable semi-annually on April
1 and October 1. Our payment and performance under these senior subordinated
notes has been guaranteed by all of our present and future domestic restricted
subsidiaries.




18
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The
following table summarizes our notes payable, capital lease obligations, and
senior subordinated notes at December 31, 2006 and 2007 (in
thousands):





2006
            
            
            2007
            
            
            RevolvingTerm
            
            Maturity
            
            InterestRate$100
      million Textron receivable-based revolver ($100 million maximum combined
      receivable, inventory and acquisition commitments, see inventory /
      acquisition component below).
            
            $
            28,903
            
            
            $
            63,119
            
            
            1/31/10
            
            1/31/13
            
            Prime$50
      million CapitalSource receivable-based revolver
            
            
            22,831
            
            
            
            14,122
            
            
            4/29/08
            
            4/29/08
            
            Prime
      + 0.75%$35
      million Wells Fargo Foothill receivable-based revolver
            
            
            93
            
            
            
            8,044
            
            
            12/31/08
            
            12/31/11
            
            Prime$150
      million SF-IV receivable-based revolver
            
            
            —
            
            
            
            59,268
            
            
            9/3/09
            
            9/3/11
            
            LIBOR
      + 1.25%$37.5
      million Liberty Bank receivable-based revolver
            
            
            —
            
            
            
            9,860
            
            
            9/28/09
            
            9/28/12
            
            LIBOR
      + 2.40%$66.4
      million Textron receivable-based non-revolving conduit
loan
            
            
            25,090
            
            
            
            13,489
            
            
            —
            
            3/22/14
            
            7.035%$26.3
      million Textron receivable-based non-revolving conduit
loan
            
            
            14,210
            
            
            
            7,765
            
            
            —
            
            9/22/11
            
            7.90%$128
      million SF-V receivable-based non-revolver
            
            
            113,138
            
            
            
            68,761
            
            
            —
            
            7/16/18
            
            6.70%$10
      million Textron inventory loan agreement
            
            
            10,000
            
            
            
            —
            
            
            (a)
            
            (a)
            
            LIBOR
      + 3.25%$6
      million Textron inventory loan agreement
            
            
            5,000
            
            
            
            —
            
            
            (a)
            
            (a)
            
            Prime
      + 3.00%$5
      million Textron inventory loan agreement
            
            
            1,115
            
            
            
            —
            
            
            (a)
            
            (a)
            
            Prime
      + 3.00%Textron
      inventory / acquisition loan agreement (see receivable- based revolver
      above)
            
            
            —
            
            
            
            30,005
            
            
            1/31/10
            
            1/31/12
            
            Prime
      + 1.00%$30
      million CapitalSource inventory loan agreement
            
            
            18,876
            
            
            
            20,091
            
            
            4/29/09
            
            4/29/11
            
            Prime
      + 1.50%$15
      million Wells Fargo Foothill inventory loan agreement
            
            
            5,985
            
            
            
            12,982
            
            
            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%
            
            
            7,590
            
            
            
            6,970
            
            
            —
            
            various
            
            variousTotal
      notes payable
            
            
            252,831
            
            
            
            314,476Capital
      lease obligations
            
            
            1,719
            
            
            
            1,722
            
            
            —
            
            various
            
            variousTotal
      notes payable and capital lease obligations
            
            
            254,550
            
            
            
            316,1986.0%
      senior subordinated notes, due 2007
            
            
            3,796
            
            
            
            —
            
            
            —
            
            4/1/07
            
            6.00%101⁄2%
      senior subordinated notes, due 2008
            
            
            2,146
            
            
            
            2,146
            
            
            —
            
            4/1/08
            
            10.50%8.0%
      senior subordinated notes, due 2010
            
            
            24,671
            
            
            
            24,671
            
            
            —
            
            4/1/10
            
            8.00%Interest
      on the 6.0% senior subordinated notes, due 2007
            
            
            854
            
            
            
            —
            
            
            —
            
            4/1/07
            
            6.00%Total
      senior subordinated notes
            
            
            31,467
            
            
            
            26,817Total
            
            $
            286,017
            
            
            $
            343,015





(a)
            The
      Textron debt was consolidated during the first quarter of 2007, as noted
      in the disclosure “Textron Facility”
above.





At
December 31, 2007, our senior credit facilities provided for loans of up to
$507.5 million, of which $200.0 million was available for future
advances.  At December 31, 2007, the LIBOR rate on our senior credit
facilities was 4.60% (1 month) and the Prime rate on these facilities was
7.25%.





Financial
Covenants Under Senior Credit Facilities.





Our
senior credit facilities discussed above provide certain financial covenants
that we must satisfy.  Any failure to comply with the financial
covenants in any single loan agreement will result in a cross default under the
various facilities.  As of and for the years ended December 31, 2005,
2006, and 2007, we have been in full compliance with our debt covenants in our
credit facilities with all of our senior lenders.  Financial covenants
existing at December 31, 2007 are described below.





Tangible Net
Worth Covenant.Although our senior lenders’ requirements
vary, the most restrictive “net worth” covenant is that we must maintain
Tangible Net Worth at all times greater than the Tangible Net Worth as of
December 31, 2004, or $132.1 million, plus 50% of the aggregate Consolidated Net
Income after December 31, 2004.  “Tangible Net Worth” is (i) the
consolidated net worth of the Company and our consolidated subsidiaries, plus
(ii) to the extent not otherwise included in the such consolidated net worth,
unsecured subordinated indebtedness of the Company and our consolidated
subsidiaries, the terms and conditions of which are reasonably satisfactory to
the required banks, minus (iii) the consolidated intangibles of the Company and
our consolidated subsidiaries, including, without limitation, goodwill,
trademarks, trade names, copyrights, patents, patent applications, licenses, and
rights in any of the foregoing and other items treated as intangibles in
accordance with generally accepted accounting
principles.  “Consolidated Net Income” is the consolidated net income
of the Company and our subsidiaries after deduction of all expenses, taxes, and
other proper charges (but excluding any extraordinary profits or losses)
determined in accordance with generally accepted accounting
principles.





Marketing and
Sales Expenses Covenant.  Our ratio of marketing expenses to
Vacation Interval sales for the latest rolling 12 months then ended must not
equal or exceed 55% as of the last day of any fiscal quarter. Two senior lenders
have increased such ratio to 57% as of the last day of each fiscal
quarter.  As of December 31, 2007 and 2006, the ratio was 52.3% and
51.7%, respectively.





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Minimum Loan
Delinquency Covenant.  Our over 30-day delinquency rate on our
entire consumer loan portfolio may not be greater than 10% as of the last day of
each fiscal quarter.  As of December 31, 2007 and 2006, the 30-day
delinquency rate was 5.2% and 4.8%, respectively.





Debt Service
Covenant.  Our ratio of (i) earnings before interest, income
taxes, depreciation, and amortization (“EBITDA”) less capital expenditures as
determined in accordance with generally accepted accounting principles to (ii)
the interest expense minus all non-cash items constituting interest expense must
not be less than 1.25 to 1 as of the last day of each fiscal quarter, for the
latest rolling 12 months then ending, or for the average of the last four
quarters.  As of December 31, 2007 and 2006, the ratio for the average
of the latest rolling 12 months was 2.3 to 1 and 2.0 to 1,
respectively.





Profitable
Operations Covenant.Our Consolidated
Net Income (i) for any fiscal year must not be less than $1.00, (ii) for any two
consecutive fiscal quarters (reviewed on an individual rather than on an
aggregate basis) must not be less than $1.00, and (iii) for any rolling 12-month
period must not be less than $1.00.





Leverage Ratio
Covenant.Our ratio of debt to Tangible Net Worth must not
exceed 6.0 to 1 at any time during the term of the loans.  As of
December 31, 2007 and 2006, the ratio was 1.7 to 1 and 1.6 to 1,
respectively.





FICO Score
Covenant.Our weighted average FICO Credit Bureau Score for
all sales to Silverleaf Owners with respect to which a FICO score can be
obtained must not be less than 640 for any fiscal calendar
quarter.  For the fourth quarters of 2007 and 2006, our weighted
average FICO score was 673 and 681, respectively.





Our
credit facilities also contain covenants including requirements that we (i)
preserve and maintain the collateral securing the loans; (ii) pay all taxes and
other obligations relating to the collateral; and (iii) refrain from selling or
transferring the collateral or permitting any encumbrances on the collateral.
The credit agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
our assets, a merger, consolidation, or reorganization of the Company, or other
changes of control of the Company would constitute an event of default and
permit senior lenders to accelerate the maturity of the facility.  At
December 31, 2007, we are in compliance with these covenants.





ITEM1A.
            RISK
      FACTORS





If
our assumptions and estimates in our business model are not accurate, our future
results could be negatively impacted.





The
financial covenants in our credit facilities are based upon a business model
prepared by our management. We used a number of assumptions and estimates in
preparing the business model, including:





·
            We
      estimated that we will sell our existing and planned inventory of Vacation
      Intervals within 15 years;


·
            We
      assumed that our level of sales and operating profits and costs can be
      maintained and will grow in future
periods;


·
            We
      assumed the availability of credit facilities necessary to sustain our
      operations and anticipated growth;
and


·
            We
      assumed that we can raise the prices on our products and services as
      market conditions allow.





These
assumptions and estimates are subject to significant business, economic, and
competitive risks and uncertainties.  If our assumptions and estimates
are wrong, our future financial position and results of operations may vary
significantly from those projected in the business model.  Our
independent auditors have not reviewed or expressed an opinion about our
business model or our ability to achieve it.





Changes
in the timeshare industry could affect our operations.





We
operate principally within the timeshare industry.  Our results of
operations and financial position could be negatively affected by any of the
following events:





·
            An
      oversupply of timeshare units,


·
            A
      reduction in demand for timeshare
units,


·
            Changes
      in travel and vacation patterns,


·
            A
      decrease in popularity of our resorts with our
  consumers,


·
            Governmental
      regulations or taxation of the timeshare industry,
  and




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·
              Negative
      publicity about the timeshare
industry.


We
may be vulnerable to the change in the credit markets which could adversely
impact our results of operations, liquidity, and financial
position.





Because
we use various mass marketing techniques, a certain percentage of our sales are
to customers who may be considered to have marginal credit
quality.  During 2007 and 2006, approximately 21.6% and 19.6%,
respectively, of our sales were made to customers with FICO® scores below
600.  In addition, we have experienced an increase in defaults in our
loan portfolio as compared to historical rates.  Due to deteriorating
conditions in the sub-prime mortgage industry there can be no assurance that
defaults have stabilized or that they will not worsen.  These and
other recent adverse changes in the credit markets and related uncertain
economic conditions may eliminate or reduce the availability or increase the
cost of significant sources of funding for us in the
future.  Specifically, if default rates for our borrowers were to
rise, it may require an increase in our estimated uncollectible
revenue.





We
may be impacted by general economic conditions.





Our
customers may be more vulnerable to deteriorating economic conditions than
consumers in the luxury or upscale timeshare markets.  The state of
the economy in general and deterioration of the residential real estate market
could depress consumer spending for Vacation Intervals. Additionally,
significant increases in the cost of transportation may limit the number of
potential customers who travel to our resorts for a sales
presentation.  Due to the economic slowdown and recent deterioration
of the sub-prime mortgage markets, we could experience increased delinquencies
in the payment of Vacation Interval promissory notes and monthly Club
dues.  Additionally, if the recent disruptions in the credit markets
and the economy continue, there is no assurance that we will continue to have
access to new credit and securitization facilities on favorable terms or at
all.





We
are at risk for defaults by our customers.





We offer
financing to the buyers of Vacation Intervals at our resorts. Notes receivable
from timeshare buyers constitute one of our principal assets. These buyers make
down payments of at least 10% of the purchase price and deliver promissory notes
to us for the balances. The promissory notes generally bear interest at a fixed
rate, are payable over a seven-year to ten-year period, and are secured by a
first mortgage on the Vacation Interval.  We bear the risk of defaults
on these promissory notes. Although we prescreen prospects via credit scoring in
the early stages of the marketing and sales process, we generally do not perform
a detailed credit history review of our customers, as is the case with most
other timeshare developers.





For the
years ended December 31, 2007 and 2006, we recorded 17.0% and 17.3% of the
purchase price of Vacation Intervals as estimated uncollectible revenue, which
resulted in decreases in our sales revenue of $40.1 million and $32.5 million,
respectively.  When a buyer of a Vacation Interval defaults, we
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 we incur such costs again when we resell the Vacation
Interval. Although 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. For
example, if we were to file a lawsuit to collect the balance owed to us by a
customer in Texas (where approximately 60% of Vacation Interval sales occurred
in 2007), the customer could file a court proceeding to determine the fair
market value of the property foreclosed upon. In such event, we would only
recover the amount that the indebtedness owed to us exceeds the property’s fair
market value rather than the full amount owed. Accordingly, we have generally
not pursued this remedy.





At
December 31, 2007, we had Vacation Interval customer notes receivable in the
approximate principal amount of $358.7 million, and had an allowance for
uncollectible notes of $69.1 million. Due to the recent deterioration of the
sub-prime mortgage markets, the risk of Vacation Interval defaults has
heightened.  We cannot be certain that this allowance is
adequate.





We
must borrow funds to finance our operations.





Our
business is dependent on our ability to finance customer notes receivable
through our lenders.  At December 31, 2007 we either directly or
through our fully consolidated finance subsidiaries owed $307.5 million of
principal to our senior lenders.





Borrowing Base.We have receivable-based loan agreements with senior lenders to borrow up
to $432.5 million.  We have pledged our customer promissory notes as
security under these agreements. Our senior lenders typically lend us 75% to 80%
of the principal amount of such customers' notes.  Collections from
Silverleaf Owners on such notes are credited directly to our senior lenders and
applied against our loans receivable balances.  At December 31, 2007,
we had a portfolio of approximately 41,481 Vacation Interval customer notes
receivable in the approximate principal amount of $358.7
million.  Approximately $6.0 million in principal amount of our
customer notes were 61 days or more past due and, therefore, ineligible as
collateral. The amount of customer notes receivable eligible as collateral in
the future may not be sufficient to support the borrowings we may require for
our liquidity and continued growth.





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Negative Cash
Flow.We ordinarily receive only 10% to 15% of the purchase price as a
down payment on the sale of a Vacation Interval, but we must pay in full the
cost of developing, marketing, and selling the interval.  Maximum
borrowings available under our credit facilities may not be sufficient to cover
these costs, thereby straining our capital resources, liquidity, and capacity to
grow.





Interest Rate
Mismatch.At December 31, 2007, our portfolio of customer loans
receivable had a weighted average fixed interest rate of 16.3%.  At
such date, our borrowings (which bear interest predominantly at variable rates)
against the portfolio had a weighted average cost of funds of
7.6%.  We have historically derived net interest income from our
operating activities because the interest rates we charge our customers exceed
the interest rates we pay to our senior lenders. Because 71% of our existing
indebtedness currently bear interest at variable rates and our customer notes
receivable bear interest at fixed rates, increases in interest rates charged by
our senior lenders would erode the spread in interest rates that we have
historically enjoyed and could cause the interest expense on our borrowings to
exceed our interest income on our portfolio of customer notes receivable.
Although interest rates have recently been trending downward, any increase in
interest rates, particularly if sustained, could have a material adverse effect
on our business, results of operations,  and financial position. To
the extent interest rates decrease on loans available to our customers, we face
an increased risk that customers will pre-pay their loans, which would reduce
our income from operating activities.





To
partially offset potential increases in interest rates, we have executed two
interest rate swaps related to our conduit loan with SF-II, with fixed rates of
7.04% and 7.90%, for a total notional amount of $21.3 million at December 31,
2007.  Such interest rate swaps expire between September 2011 and
March 2014.  In addition, our VFN with SF-IV also acts as an interest
rate hedge since it contains a provision for an interest rate cap.  At
December 31, 2007, we had a balance under this line of credit of $59.3
million.  Such VFN will mature in September 2011.





In
addition, the Series 2005-A Notes related to our off-balance-sheet special
purpose finance subsidiary, SF-III, with a balance of $29.9 million at December
31, 2007, bear interest at a blended fixed rate of 5.4%.





Maturity
Mismatch.We typically provide financing to our customers over a
seven-year to ten-year period.  Our customer notes had a weighted
average maturity of seven years at December 31, 2007.  Our senior
credit facilities have scheduled maturity dates between April 2008 and July
2018.  Additionally, should our revolving credit facilities be
declared in default, the amount outstanding could be immediately due and
payable.  Accordingly, there could be a mismatch between our
anticipated cash receipts and cash disbursements in future periods. Although we
have historically been able to secure financing sufficient to fund our
operations, we do not presently have agreements with our senior lenders to
extend the terms of our existing funding commitments beyond their scheduled
maturity dates or to replace such commitments upon their expiration. If we are
unable to refinance our existing loans, we could be required to sell our
portfolio of customer notes receivable, probably at a substantial discount, or
to seek other alternatives to enable us to continue in business.  We
cannot be certain that we will be able to obtain required financing in the
future.





Impact on
Sales. Limitations on the availability of financing would inhibit sales
of Vacation Intervals due to (i) the lack of funds to finance the initial
negative cash flow that results from sales that we finance and (ii) reduced
demand if we are unable to provide financing to purchasers of Vacation
Intervals.





We
may not be able to obtain additional financing.





Several
unpredictable factors may cause our adjusted EBITDA to be insufficient to meet
debt service requirements or satisfy financial covenants.  We incurred
a net loss in 2003. Should we record net losses in future periods, our cash flow
and our ability to obtain additional financing could be materially and adversely
impacted.





Many
factors that determine whether or not we generate sufficient EBITDA to meet
current or future debt service requirements and satisfy financial covenants are
inherently difficult to predict. These factors include:





·
            the
      number of sales of Vacation
Intervals;


·
            the
      average purchase price per
interval;





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·
            the
      number of customer defaults;


·
            our
      cost of borrowing;


·
            our
      sales and marketing costs and other operating expenses;
  and


·
            the
      continued sales of notes receivable
portfolios.





Our
current and planned expenses and debt repayment levels are and will be to a
large extent fixed in the short term, and consider historical expectations to
project future revenues and cash flows. We may be unable to reduce spending in a
timely manner to compensate for any past or future revenue or cash flow
shortfall.  It is possible that our revenue, cash flow, or operating
results may not meet the expectations of our business model, and may even result
in our being unable to meet debt repayment schedules or financial covenants
contained in our debt agreements.





Our
leverage is significant and may impair our ability to obtain additional
financing, reduce the amount of cash available for operations, and make us more
vulnerable to financial downturns.





Our
agreements with our various lenders may:





·
            require
      a substantial portion of our cash flow to be used to pay interest expense
      and principal;


·
            impair
      our ability to obtain on acceptable terms, if at all, additional financing
      that might be necessary for working capital, capital expenditures, or
      other purposes; and


·
            limit
      our ability to further refinance or amend the terms of our existing debt
      obligations, if necessary or
advisable.





We may
not be able to manage our financial leverage as we intend, and we may not be
able to achieve an appropriate balance between the rate of growth which we
consider acceptable and future reductions in financial leverage. If we are not
able to achieve growth in adjusted EBITDA, we may not be able to refinance our
existing debt obligations and we may be precluded from incurring additional
indebtedness due to cash flow coverage requirements under existing or future
debt instruments.





We
may not be able to securitize our assets in the capital markets.





We may
not be able to securitize our Vacation Interval customer notes receivable
because of, among other factors, the performance of the notes receivable and
adverse conditions in the market for loan-backed notes in general.





Our
business is highly regulated.





We are
subject to substantial governmental regulation in the conduct of our business.
See “Item 1. Business - Governmental Regulation, Environmental Matters, Utility
Regulation, Other Regulation,” and “Item 3. Legal Proceedings.” If we are found
to have violated any statute, rule, or regulation applicable to us, our assets,
or our business, it could have a material adverse effect on our results of
operations, liquidity, and financial position.





We
are dependent on our key personnel.





The loss
of the services of key members of our management or our inability to hire,
retain, or integrate new or replacement management and employees as needed could
have a material adverse effect on our results of operations, liquidity, and
financial position in future periods.





We
will incur costs at our resorts for additional development and construction
activities.





We intend
to continue to develop our Existing Resorts and to acquire or develop additional
timeshare resorts.  However, continued development of our resorts
places substantial demands on our liquidity and capital resources, as well as on
our personnel and administrative capabilities. Risks associated with our
development and construction activities include:





·
            construction
      costs or delays at a property may exceed original estimates which could
      make the development uneconomical or
  unprofitable;


·
            sales
      of Vacation Intervals at a newly completed property may not be sufficient
      to make the property profitable;
and


·
            financing
      may not be available on favorable terms for development of or the
      continued sales of Vacation Intervals at a
  property.





We cannot
be certain that we will have the liquidity and capital resources available to
develop and expand our resorts as we presently intend.





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Our
development and construction activities, as well as our ownership and management
of real estate, are subject to comprehensive federal, state, and local laws
regulating such matters as environmental and health concerns, protection of
endangered species, water supplies, zoning, land development, land use, building
design and construction, marketing and sales, and other matters. Our failure to
maintain the requisite licenses, permits, allocations, authorizations, and other
entitlements pursuant to such laws could impact the development, completion, and
sale of Vacation Intervals at our resorts. The enactment of “slow growth” or
“no-growth” initiatives or changes in labor or other laws in any area where our
resorts are located could also delay, affect the cost or feasibility of, or
preclude entirely the expansion planned at one or more of our
resorts.





Most of
our resorts are located in rustic areas, which in the past have often required
us to provide public utility water and sanitation services in order to proceed
with development.  This development is subject to permission and
regulation by governmental agencies, the denial or conditioning of which could
limit or preclude development. Although we are not currently operating any such
utilities, if future development requires that we do, we would be subject to
risk of liability in connection with both the quality of fresh water provided
and the treatment and discharge of waste-water.





In 2005,
we sold our water distribution and waste water treatment utilities assets at
eight of our resorts located in Texas, Illinois, and Missouri.  The
purchasers of those assets entered into separate services agreements to provide
uninterrupted water supply and waste water treatment services to the eight
affected resorts and to maintain the utilities assets.  The purchasers
also agreed to provide sufficient future capital additions at each resort as
will be required to provide at least the same level of utility services to the
resort as is currently provided.  Failure by the purchasers of these
utility assets to supply service to the resorts or to adequately maintain and
expand as needed the water distribution and waste water treatment utilities
assets could impact our ability to provide the utilities necessary to operate or
expand the resorts, either of which could have a material adverse effect on our
business, results of operations and financial position.





We
must incur costs to comply with laws governing accessibility of facilities to
disabled persons.





We are
subject to a number of state and federal laws, including the Fair Housing Act
and ADA, which impose requirements related to disabled persons access and use of
a variety of public accommodations and facilities.  Although ADA did
not become effective until 1991, we believe our Existing Resorts are
substantially in compliance and we will incur additional costs to fully comply
if necessary. Additional federal, state, and local legislation may impose
further restrictions or requirements on us with respect to access by disabled
persons. The ultimate cost of compliance with such legislation is not currently
known, however such costs are not expected to have a material effect on our
results of operations, liquidity, and financial position.





We
may be vulnerable to regional conditions.





Our
performance and the value of our properties are affected by regional factors,
including local economic conditions (which may be adversely impacted by business
layoffs or downsizing, industry slowdowns, changing demographics, and other
factors) and the local regulatory climate.  Our current geographic
concentration could make us more susceptible to adverse events or conditions
that affect the particular areas in which we operate.  At December 31,
2007, 54% of our owners lived in Texas, 15% lived in Illinois, 7% lived in
Massachusetts, and 3% lived in Missouri.  Our remaining customer base
lives primarily in other states within the United States of
America.





We
may be liable for environmental claims.





Under
various federal, state, and local laws, ordinances, and regulations, as well as
common law, the owner or operator of real property generally is liable for the
costs of removal or remediation of certain hazardous or toxic substances located
on, in, or emanating from such property, as well as related costs of
investigation and property damage. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or lease a property or to borrow money using such real property as
collateral. Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling, or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health, or safety requirements may result in the need to
cease or alter operations at a property. Further, the owner or operator of a
site may be subject to common law claims by third parties based on damages and
costs resulting from violations of environmental regulations or from
contamination associated with the site. Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
were prepared in 2001 or later by independent environmental consultants for all
of the Existing Resorts.  The reports did not reveal, nor are we aware
of, any environmental liability that would have a material adverse effect on our
results of operations, liquidity, or financial position. We cannot be certain
that the Phase I reports revealed all environmental liabilities or that no prior
owner created any material environmental condition not known to us.





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Certain
environmental laws impose liability on a previous owner of property to the
extent hazardous or toxic substances were present during the prior ownership
period. A transfer of the property may not relieve an owner of such liability.
Thus, we may have liability with respect to properties previously sold by us or
by our predecessors.





We
believe that we are in compliance in all material respects with all federal,
state, and local ordinances and regulations regarding hazardous or toxic
substances. We have not been notified by any governmental authority or third
party of any non-compliance, liability, or other claim in connection with any of
our present or former properties.





Our
sales could decline if our resorts do not qualify for participation in an
exchange network.





The
attractiveness of Vacation Interval ownership is enhanced by the availability of
exchange networks that allow Silverleaf Owners to exchange in a particular year
the occupancy right in their Vacation Interval for an occupancy right in another
participating network resort. According to ARDA, the ability to exchange
Vacation Intervals was cited by many buyers as an important reason for
purchasing a Vacation Interval. Several companies, including RCI, provide
broad-based Vacation Interval exchange services.  As of December 31,
2007, all Existing Resorts are qualified for participation in the RCI exchange
network.  We cannot be certain that the Existing Resorts or any future
resorts will continue to qualify for participation in these networks or any
other exchange network. If such exchange networks cease to function effectively,
or if our resorts are not accepted as exchanges for other desirable resorts, our
sales of Vacation Intervals could decline.





Our
sales would be affected by a secondary market for Vacation
Intervals.





We
believe the market for resale of Vacation Intervals is very limited and that
resale prices are substantially below the original purchase price of a Vacation
Interval. This may make ownership of Vacation Intervals less attractive to
prospective buyers.  Owners of Vacation Intervals who wish to sell
their Vacation Interval compete with our sales efforts.  Vacation
Interval resale clearinghouses and brokers, including Internet-based
clearinghouses, do not currently have a material impact on our
sales.  However, if the secondary market for Vacation Intervals
becomes more organized and liquid, whether through Internet-based clearinghouses
and brokers or other means, the availability of resale intervals at lower prices
could materially and adversely affect our prices and our ability to sell new
Vacation Intervals.





Our
sales are seasonal in nature.





Our sales
of Vacation Intervals have generally been lower in the months of November and
December. Cash flow and earnings may be impacted by the timing of development,
the completion of future resorts, and the potential impact of weather or other
conditions in the regions where we operate. Our operating results could be
negatively impacted by these factors.





We
are not insured for certain types of losses.





While we
believe that we maintain adequate levels of insurance for most casualties and
losses, we do not insure certain types of losses (such as losses arising from
floods in non-floodplain areas and acts of war) either because insurance is
unavailable or unaffordable.  Should an uninsured loss or a loss in
excess of insured limits occur, we could be required to repair damage at our
expense or lose our capital invested in a damaged resort, as well as lose
anticipated future revenues from such resort.  However, we would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property.  Hence, our results of operations, liquidity,
and financial position could be adversely affected by such losses.





We
will continue to be leveraged.





Our
ability to finance customer notes receivable and develop our resorts is
dependent upon borrowed funds, which would be collateralized by certain of our
assets.  In addition, our loan agreements contain financial covenants
that must be complied with in order to continue to borrow additional funds.
Failure to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on our results of
operations, liquidity, and financial position. Future loan agreements would
likely contain similar restrictions.





The
indenture pertaining to our 8% senior subordinated note permits us to incur
certain additional indebtedness, including indebtedness secured by our customer
notes receivable.  Accordingly, to the extent our customer notes
receivable increase and we have sufficient credit facilities available, we may
be able to borrow additional funds. The indenture pertaining to our 8% senior
subordinated note also permits us to borrow additional funds in order to finance
development of our resorts.  Future construction loans may result in
liens against the respective properties.





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Common
stock could be impacted by our indebtedness.





The level
of our indebtedness could negatively impact holders of our common stock,
because:





·
            a
      substantial portion of our cash flow from operations must be dedicated to
      the payment of principal and interest on our
  indebtedness;


·
            our
      ability to obtain additional debt financing in the future for working
      capital, capital expenditures, or acquisitions may be
    limited;


·
            our
      level of indebtedness could limit our flexibility in reacting to changes
      in the industry and economic conditions
  generally;


·
            negative
      covenants in our loan agreements may limit our management’s ability to
      operate our business in the best interests of our
      shareholders;


·
            some
      of our loans are at variable rates of interest, and a substantial increase
      in interest rates could adversely affect our ability to meet debt service
      obligations; and


·
            increased
      interest expense will reduce earnings, if
any.





We
could lose the right to manage the Clubs.





Aside
from Orlando Breeze, each Existing Resort has a Club that operates through a
centralized organization called Silverleaf Club, to manage such resorts on a
collective basis.  Orlando Breeze has its own Club, which is not part
of Silverleaf Club.  The consolidation of operations under Silverleaf
Club permits:





·
            a
      centralized reservation system for these
  resorts;


·
            substantial
      cost savings by purchasing goods and services for these resorts on a group
      basis, which generally results in a lower cost of goods and services than
      if such goods and services were purchased by each resort on an individual
      basis;


·
            centralized
      management for the entire resort
system;


·
            centralized
      legal, accounting, and administrative services for the entire resort
      system; and


·
            uniform
      implementation of various rules and regulations governing these
      resorts.





We
currently have the right to unilaterally appoint the board of directors or
governors of the Clubs until the respective control periods expire (typically
triggered by the cessation of sales of the planned development), unless
otherwise provided by the bylaws of the association or under applicable
law.  Thereafter, the bylaws of certain Clubs require that a majority
of the members of the board of directors or governors of those Clubs be owners
of Vacation Intervals of those resorts.  The loss of control of the
board of directors or governors of the Clubs could result in our being unable to
unilaterally cause the renewal of the Management Agreement with the Silverleaf
Club when it expires in 2020. This could result in a loss of revenue and have
other materially adverse effects on our business, financial position, or results
of operations.





We
could issue preferred stock that would have rights and preferences senior to
common stock.





Our
Articles of Incorporation authorize the Board of Directors to issue up to
10,000,000 shares of preferred stock in one or more series and to establish the
preferences and rights, including the right to vote and the right to convert
into common stock.  Such preferences and rights would likely grant
such preferred stock holders certain preferences in right of payment upon a
dissolution of the Company and the liquidation of our assets that would not be
available to common stock holders.  To the extent that our credit
facilities would permit, the Board could also establish a dividend payable to
the holders of the preferred stock holders that would not be available to common
stock holders.





Our
cash flow may not be adequate upon an acceleration of deferred
taxes.





While we
report sales of Vacation Intervals as income at the time of the sale after
receiving a 10% to 15% down payment for financial reporting purposes, we report
substantially all Vacation Interval sales on the installment method for federal
income tax purposes. Under the installment method, we recognize income on the
sale of Vacation Intervals as cash is received, either in the form of a down
payment or as collections on customer loans are received.  Our
liability for deferred taxes (i.e., taxes owed to taxing authorities in the
future related to income previously reported in the financial statements) was
$100.7 million at December 31, 2007, primarily attributable to this method of
reporting Vacation Interval sales, before utilization of any available deferred
tax benefits (up to $70.2 million at December 31, 2007), including net operating
loss carryforwards, limitations on the use of which are discussed
below.  These amounts do not include accrued interest on the deferred
taxes, which will be payable if the deferred taxes become payable, the amount of
which is not now reasonably ascertainable.  If we should sell our
installment notes or be required to factor such notes or if the notes were
foreclosed on by one of our senior lenders or otherwise disposed of, the
deferred gain would be reportable for regular federal tax purposes and the
deferred taxes, including interest on the taxes for the period such taxes were
deferred, as computed under Section 453 of the Internal Revenue Code of 1986, as
amended (the “Code”), would become due. We cannot be certain that we would have
sufficient cash resources to pay those taxes and interest nor can we be certain
how the payment of such taxes may affect our operational liquidity needs.
Furthermore, if our sales of Vacation Intervals should decrease in the future,
our diminished operations may not generate either sufficient tax losses to
offset taxable income or funds to pay the deferred tax liability from prior
periods.





26
 Table of Contents





We
will be subject to Alternative Minimum Taxes.





For
purposes of computing the 20% alternative minimum tax (“AMT”) imposed under
Section 55 of the Code on our alternative minimum taxable income (“AMTI”), the
installment sales method is generally not allowed.  The Code requires
an adjustment to our AMTI for a portion of our adjusted current earnings
(“ACE”).  Our ACE must be computed without application of the
installment sales method.  Accordingly, we anticipate that we will pay
significant AMT in future years.  However, Section 53 of the Code
provides for a credit (“minimum tax credit”) against our regular federal income
tax liability for all or a portion of any AMT previously paid.





Due to
losses incurred in 2000 and 2001, we received refunds of AMT totaling $8.3
million during 2001 and $1.6 million during 2002 as a result of the carryback of
our 2000 and 2001 AMT losses to 1999, 1998, and 1997.  For 2007, we
estimate our AMT liability was $5.5 million, which results in total AMT credit
carryforwards of $13.6 million as of December 31, 2007.  Our credit
carryforwards as of December 31, 2006 were $8.1 million, as
adjusted.





Due to
the exchange offer described under the next heading, an ownership change within
the meaning of Section 382(g) of the Code occurred.  Under Section
383, the excess credits existing as of the date of an ownership change can be
used to offset tax liability for post-change years only to the extent of the
Section 383 Credit Limitation, which is defined as the tax liability
attributable to taxable income to the extent it does not exceed the Section 382
limitation for such post-change year (to the extent available after the
application of various adjustments).  As a result of certain refunds
of previously paid AMT, there is no minimum tax credit that is subject to
Section 383 of the Code as a result of our ownership change. If it is
subsequently determined that we have an AMT liability for prior years, and thus
a minimum tax credit as of the time of the exchange offer, or if additional
“ownership changes” within the meaning of Section 382(g) of the Code occur in
the future, we cannot be certain that such ownership changes will not result in
a limitation on the use of any such minimum tax credit. See the discussion under
the next heading regarding possible future ownership changes.





Our
use of net operating loss carryforwards could be limited by an ownership
change.





We had
net operating loss (“NOL”) carryforwards of $155.5 million at December 31, 2007
for regular federal income tax purposes, related primarily to the immediate
deduction of expenses and the simultaneous deferral of installment sale gains.
In addition to the general limitations on the carryback and carryforward of NOLs
under Section 172 of the Code, Section 382 of the Code imposes additional
limitations on the utilization of NOLs by a corporation following various types
of ownership changes which result in more than a 50 percentage point change in
ownership of a corporation within a three-year period.





Our
completion in 2002 of our exchange offer with certain holders of our senior
subordinated notes resulted in an ownership change within Section 382(g) as of
May 2, 2002 (the “change date”).  As a result, the future utilization
of $22.7 million of our NOL as of December 31, 2007 is subject to limitation for
regular federal income tax purposes.  There is an annual limitation of
$768,000, which was the value of our stock immediately before the ownership
change, multiplied by the applicable long-term tax exempt
rate.  However, that annual limitation may be increased for any
recognized built-in gain, which existed as of the change date to the extent
allowed in Section 382 of the Code.  We believe that the built-in gain
associated with the installment sale gains as of the change date increases the
annual limitation and will allow the utilization of most of the $22.7 million
portion of our NOL as needed.  Nevertheless, we cannot be certain that
the limitations of Section 382 will not limit or deny our future utilization of
the $22.7 million portion of our NOL.  Such limitation or denial could
require us to pay substantial additional federal and state taxes and
interest.





Moreover,
we cannot be certain that future ownership changes will not limit or deny our
future utilization of all of our NOL.  The more than 50 percentage
point test for a change in ownership is based on a three-year lookback and will
be determined for the three years commencing May 26, 2006 by including the
8,000,000 shares sold by two of our principal shareholders on that date, which
resulted in an approximately 21.3 percentage point change in ownership based on
the shares outstanding on that date.  Therefore, that change in
ownership, when combined with other changes before and after that date, could
result in another more than 50 percentage point change in ownership in the
future.





27
 Table of Contents





If we
cannot utilize our NOL, we will be required to pay substantial additional
federal and state taxes and interest.  Such tax and interest
liabilities may adversely affect our liquidity.





We
could be liable for back payroll taxes if our independent contractors are
reclassified as employees.





Although
we treat all on-site sales personnel as employees for payroll tax purposes, we
do have independent contractor agreements with certain sales and marketing
persons or entities.  We have not treated these independent
contractors as employees and do not withhold payroll taxes from the amounts paid
to such persons or entities.  In the event the Internal Revenue
Service or any state or local taxing authority were to successfully classify
such persons or entities as employees, rather than as independent contractors,
we could be liable for back payroll taxes.  This could have a material
adverse effect on our results of operations, liquidity, and financial
position.





We
could be negatively impacted by national and state Do-Not-Call
Lists.





We rely
heavily on telemarketing activities to arrange tours of our resorts to potential
customers.  On July 3, 2003, the Federal Communications Commission
(“FCC”) released new rules and regulations promulgated under the Telephone
Consumer Protection Act of 1991, which could have a future negative impact on
our telemarketing activities.  The FCC has implemented, in conjunction
with the Federal Trade Commission (“FTC”), a National Do Not Call Registry,
which applies to both interstate and intrastate commercial telemarketing
calls.  The FTC has reported that
approximately 146 million telephone numbers had been registered on the National
Do Not Call Registry as of September 30, 2007.This could sharply limit
the number of contacts we will be able to make through our telemarketing
activities.  We will continue to telemarket to individuals who do not
place their telephone numbers on a do-not-call list and those with whom we have
an established business relationship. Our use of autodialers to call potential
customers in our database could also be restricted by new call abandonment
standards specified in the FCC rules and regulations. The large quantity of
telephone numbers registered on the National Do Not Call Registry and the
restrictions on our use of autodialers could negatively affect our sales and
marketing efforts and require us to use less effective, more expensive
alternative marketing methods.  The new rules became effective on
October 1, 2003 and we have experienced a decline in the number of telemarketing
calls we are able to complete as a result of the changes in the rules relating
to the use of automatic dialers. All companies involved in telemarketing expect
some negative impact to their businesses as a result of the do-not-call rules
and other federal and state legislation, which seeks to protect the privacy of
consumers from various types of marketing solicitations.  Because of
our historical dependence on telemarketing, we believe that these changes in the
law will continue to have a material impact on our operations and will require
us to modify our historical marketing practices in order to both remain
compliant with the law and to achieve the levels of resort tours by consumers
which are necessary for our profitable operation. We will continue to assess the
do-not-call rules' impact on both operations and alternative methods of
marketing, such as direct mail, that are not impacted by the new rules. In
addition to the National Do-Not-Call List, various states have implemented
Do-Not-Call legislation that also may affect our business.





The
substantially increased costs of our compliance with the requirements of the
Sarbanes-Oxley Act, including the requirements of Section 404, may
adversely affect our available cash, our management team’s attention to our core
business, and the price of our stock.





As of
December 31, 2007, we are required to fully comply with the internal control
reporting provisions of §404 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated thereunder by the Securities and Exchange Commission
(“SEC”) to implement §404.  In anticipation of this, we have taken
steps over the last several years to increase the effectiveness of our internal
control over financial reporting.  These internal control enhancements
have resulted in substantially increased costs to us.  Our management
also regularly evaluates the effectiveness and design and operation of our
disclosure controls and procedures and our internal control over financial
reporting.  While we currently believe our disclosure controls and
procedures and our internal controls over financial reporting which are in place
are effective and properly documented, we may find it necessary to continue to
incur substantially increased costs in future periods to further enhance our
internal controls over financial reporting.  There can be no assurance
that our continuing assessment of the effectiveness of our internal control over
financial reporting will not result in increased costs of compliance which may
adversely affect our available cash, our management team’s attention to our core
business, and our stock price.





The
market trading price of our common stock has been and is likely to continue to
be volatile.





The
market trading price of our common stock has been and is likely to continue to
be subject to significant fluctuations.  For example, the closing
market trading price for our common stock has fluctuated over the past two years
from a low of $2.95 to a high of $6.89.  Because of our stock’s
history of trading volatility, we believe that significant market fluctuations
are likely to continue in future periods.





28
 Table of Contents





The
trading market for our common stock may be limited.





Approximately
38% of our shares are held by non-affiliates and there has historically been a
low and inconsistent trading volume for our shares.  For example, the
average daily trading volume for our shares for the two-month period ended
February 29, 2008 was approximately 60,000 shares. There can be no assurance
that an active and steady trading market, which is not subject to extreme
fluctuations, will develop for our shares.





Sales
of common stock by existing shareholders, including officers or directors, may
adversely affect the market price of our common stock.





Approximately
62% of our common stock is held by affiliates, including our officers and
directors.  Volume sales of stock by these affiliates in the trading
market coupled with the historically low daily trading volume for our common
stock may materially and adversely affect the market price of our common
stock.





We
may fail to meet the continued listing requirements of The NASDAQ Capital
Market.





Effective
February 28, 2007, we began trading on The NASDAQ Capital Market and ceased
trading on AMEX. However, due to the historic volatility of the market trading
price of our common stock, there can be no assurance that we will continue to
meet the requirements for continued listing on NASDAQ.  Our failure to
comply with NASDAQ listing standards could result in the delisting of our common
stock by NASDAQ, thereby limiting the ability of our shareholders to sell our
common stock.





Certain
of our existing shareholders have the ability to exert a significant amount of
control over the Company.





As of
December 31, 2007, Robert E. Mead, our Chairman of the Board and Chief Executive
Officer, beneficially owned approximately 24.7% of our outstanding common stock,
and Grace Brothers, Ltd. (“Grace”), beneficially owned 16.2% of our common
stock.  As a result, these individuals and entities are able to exert
significant influence over the Company and its activities, including the
nomination, election, and removal of our board of directors, the adoption of
amendments to our charter documents, and the outcome of any corporate
transaction or other matter submitted to our shareholders for approval,
including mergers, consolidations, and the sale of all or substantially all of
our assets.





Mr. Mead
and Grace's interests may conflict with the interests of other holders of our
common stock and they may take actions affecting us with which other
shareholders may disagree.  For example, if Mr. Mead and Grace acted
in concert, they may jointly decide not to enter into a transaction in which our
shareholders would receive consideration for their shares that is much higher
than the cost of their investment in our common stock or than the then current
market price of our common stock.





Available
Information




We file
reports with the SEC, including our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished to the SEC pursuant to the requirements of the
Securities Exchange Act of 1934. The general public may read and copy any
materials that we file with the SEC at the SEC’s Public Reference Room located
at 100 F Street N.E., Washington, DC 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC maintains an Internet site, www.sec.gov, which
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.




Our
Internet address is www.silverleafresorts.com.
On our Internet website, we provide a link to the SEC’s website where our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished to the SEC pursuant to
the requirements of the Securities Exchange Act of 1934 can be viewed. Upon
request, we will make available free of charge copies of the aforementioned
reports, as well as copies of the charters of the three independent committees
of our board of directors and our Code of Business Conduct and
Ethics.  This information can be obtained by written request to us at:
Silverleaf Resorts, Inc. Attention: Sandra G. Cearley, Corporate Secretary, 1221
River Bend Drive, Suite 120, Dallas, Texas 75247. The information contained on
our website, or on other websites linked to our website, is not part of this
report.





ITEM1B.
            UNRESOLVED
      STAFF COMMENTS





None.





29
 Table of Contents





ITEM2.
            PROPERTIES





Our
principal executive office, located in Dallas, Texas, is approximately 66,000
square feet of leased space. We also maintain two leased telemarketing centers
in the Dallas area. Our sales are conducted primarily through sales centers
located at our various resorts and a leased off-site sales center in Irving,
Texas, which opened in March 2006.  The square footage of our leased
telemarketing centers and off-site sales center are approximately 21,000,
40,000, and 16,500, respectively.  We also lease small office
facilities in San Antonio and Houston, Texas and Alpharetta, Georgia which we
use in our marketing efforts in those locales.





Pinnacle Lodge.In 2006, we purchased Pinnacle Lodge, a 64-room hotel property located
near the Winter Park recreational area in Colorado which provides our owners
with another destination vacation alternative and gives Silverleaf an entry
point into this increasingly popular destination area.  We generated
$1.1 million and $522,000 of revenues at the Pinnacle Lodge during the years
2007 and 2006, respectively.





Other Properties.We own a 500-acre tract of land in the Berkshire Mountains of Western
Massachusetts that we are in the initial stages of developing.  During
September 2007, we purchased an additional 394.3 acre tract which adjoins the
500 acres.  We have not yet finalized our future development plans for
this site.





In
November 2007, we purchased 15.3 acres of undeveloped land in Grand County,
Colorado with plans to develop up to 136 Vacation Interval units on the
property.  The acquired land is located only two miles from the
Pinnacle Lodge hotel.





At
December 31, 2007, we owned a total of 13 timeshare resorts. Each of these
resorts was encumbered by various liens and security agreements at December 31,
2007 due to inventory from each resort being pledged as collateral under our
inventory credit facilities with our senior lenders. See “Note 8 – Debt” in the
Notes to our Consolidated Financial Statements for a further description of
these credit facilities.  Principal developmental activity which
occurred at our Existing Resorts during 2007 and future plans are summarized
below.





Continued
Development of The Villages Resort.The Villages Resort, located
approximately 100 miles east of Dallas, Texas, has 362 existing units. We intend
to develop approximately 236 additional units (12,272 Vacation Intervals) at
this resort in the future.  During 2007, we added 16 new units and a
$10 million indoor water park at this resort.





Continued
Development of Piney Shores Resort.Piney Shores Resort, located near
Conroe, Texas, north of Houston, has 202 existing units. We intend to develop
approximately 168 additional units (8,736 Vacation Intervals) at this resort.
During 2007, we added 12 new units at this resort.





Continued
Development of Timber Creek Resort.Timber Creek Resort, located in
Desoto, Missouri, has 72 existing units. We intend to develop approximately 24
additional units (1,248 Vacation Intervals) at this resort. During 2007, we did
not add any new units at this resort.





Continued
Developmentof Fox River
Resort.Fox River Resort, located 70 miles southwest of Chicago, in
Sheridan, Illinois, has 240 existing units. We intend to develop approximately
276 additional units (14,352 Vacation Intervals) at this resort. During 2007, we
added 12 new units at this resort.





Continued
Developmentof Apple Mountain
Resort.Apple Mountain Resort, located approximately 125 miles north of
Atlanta, Georgia, has 84 existing units. We intend to develop approximately 180
additional units (9,360 Vacation Intervals) at this resort. During 2007, we
added 12 new units at this resort.





Continued
Developmentof Ozark Mountain
Resort.Ozark Mountain Resort, located approximately 15 miles from
Branson, Missouri, has 148 existing units. We intend to develop approximately 12
additional units (624 Vacation Intervals) at this resort. During 2007, we did
not add any new units at this resort.





Continued
Developmentof Holiday Hills
Resort.Holiday Hills Resort, located two miles east of Branson,
Missouri, in Taney County, has 458 existing units. We intend to develop
approximately 444 additional units (23,088 Vacation Intervals) at this
resort.  During 2007, we added 12 new units at this resort. During
2005, we purchased approximately 81 acres, and in 2007, we purchased
approximately 37 additional acres of land, both adjacent to the existing
resort.





Continued
Developmentof Hill Country
Resort.Hill Country Resort, located near Canyon Lake in the hill country
of central Texas between Austin and San Antonio, has 342 existing units. We
intend to develop approximately 156 additional units (8,112 Vacation Intervals)
at this resort. During 2007, we added 40 new units at this resort.





30
 Table of Contents





ContinuedDevelopment of
Oak N' Spruce Resort.Oak N’ Spruce Resort, located 134 miles west of
Boston, Massachusetts, has 320 existing units. We intend to develop
approximately 30 additional units (1,560 Vacation Intervals) at this
resort.  During 2007, we added 12 new units at this
resort.





Continued
Developmentof Silverleaf’s
Seaside Resort.Silverleaf’s Seaside Resort, located in Galveston, Texas,
has 132 existing units. We intend to develop approximately 276 additional units
(14,352 Vacation Intervals) at this resort. During 2007, we added 12 new units
at this resort.





Continued
Development of Orlando Breeze Resort.Orlando Breeze Resort, located in
Davenport, Florida, just outside Orlando, Florida, has 48 existing
units.  We intend to develop approximately 24 additional units (1,248
Vacation Intervals) at this resort. During 2007, we did not add any new units at
this resort. On January 4, 2006, we purchased an additional 31 acres contiguous
to the Orlando Breeze Resort. We have not yet finalized plans for development of
this property.





As of
December 31, 2007, we had construction commitments of $19.2
million.





Future
Growth Strategy





Our
future growth strategy is to conservatively increase annual revenues through a
combination of:





·
            continuing
      to develop new or existing resorts;


·
            maintaining
      marketing, sales, and development activities at those resorts in
      accordance with our current business
model;


·
            concentrating
      on marketing to existing members, including sales of upgraded Vacation
      Intervals, additional week sales, and existing owner referral
      programs;


·
            adding
      other assets and amenities to attract our customers by enhancing vacation
      experiences;


·
            opening
      new off-site sales centers in major metropolitan areas;
  and


·
            emphasizing
      our secondary products, such as biennial (alternate year) intervals, to
      broaden our potential market with a wider price range of products for
      first-time buyers.





Competitive
Advantages





We
believe our business affords us the following competitive
advantages:





Convenient
Getaway Locations. Our Getaway Resorts are located within a two-hour
drive of a majority of our target customers' residences, which accommodates what
we believe to be the growing demand for shorter, more frequent, close-to-home
vacations. This proximity of our customer base to our resorts facilitates use of
our Bonus Time program, allowing Silverleaf Owners to use vacant units, subject
to availability and certain limitations. We believe we are the only timeshare
operator that offers customers these expanded use benefits. Silverleaf Owners
can also conveniently drive to and enjoy non-lodging resort amenities at our
resorts year-round on a day use “country-club” type basis.





Substantial
Internal Growth Capacity. At December 31, 2007, we had an inventory of
27,300 Vacation Intervals and a master plan to construct new units which will
result in up to 94,952 additional Vacation Intervals at our Existing
Resorts.  Our master plan for construction of new units is contingent
upon future sales at our Existing Resorts and the availability of financing,
granting of governmental permits, and future land-planning and site-layout
considerations.





In-House
Operations. We have in-house marketing, sales, financing, development,
and property management capabilities.  While we utilize outside
contractors to supplement internal resources, our internal capabilities provide
greater control over all phases of our operations, help maintain operating
standards, and reduce overall costs.





Lower
Construction and Operating Costs. We have developed and generally employ
standard architectural designs and operating procedures, which we believe
significantly reduce construction and operating expenses. Standardization and
integration also allow us to rapidly develop new inventory in response to
demand. Weather permitting, new units at Existing Resorts can typically be
constructed on an “as needed” basis within 180 to 270 days.





Centralized
Property Management Supervision. We presently supervise the operation of
all of our Existing Resorts (except for Orlando Breeze) on an integrated,
centralized, and collective basis through our Management Agreement with
Silverleaf Club with operating and maintenance costs paid from Silverleaf
Owners' monthly dues.  While our Orlando Breeze resort in Florida has
its own separate Club (Orlando Breeze Resort Club), we also provide centralized
supervision of its operations under the terms of a written agreement to ensure
the quality of services provided to Orlando Breeze timeshare
owners.  We believe that consolidation of resort operations benefits
Silverleaf Owners by providing a uniform level of service, accommodations, and
amenities on a standardized, cost-effective basis. Integration also facilitates
our internal exchange program and the Bonus Time program.





31
 Table of Contents





Experienced
Management. Our senior management has extensive experience in the
acquisition, development, marketing, sales, and operation of timeshare resorts.
The senior officers have an average of eighteen years of experience in the
timeshare industry.




32
 Table of Contents





Resorts
Summary





The
following tables set forth certain information regarding each of the Existing
Resorts at December 31, 2007, unless otherwise indicated.





Existing
Resorts





Units at
      Resorts
            
            
            Vacation IntervalsAt
      Resorts
            
            
            
            Vacation
      Intervals_SoldResort/Location
            
            Primary
              Market
              Served
            
            Inventory
              At
              12/31/07
            
            
            Planned
              Expansion(b)
            
            
            Inventory
              At
              12/31/07
            
            
            Planned
              Expansion
            
            Date
              Sales
              Commenced
            
            Through
              12/31/07
      (c)
            
            
            In
              2007
              Only
      (a)
            
            
            Percentage
              Through
              12/31/07
            
            
            Average
              Sales
              Price in
              2007
      (a)
            
            
            Amenities/
              Activities(d)Getaway
      ResortsHolly
      Lake
            
            Dallas-
            
            
            130
            
            
            
            —
            
            
            
            1,657
            
            
            
            —
            
            1982
            
            
            4,843
            
            
            
            1,250
            
            
            
            74.5
            %
            
            $
            5,940
            
            
            B,F,G,H,M,S,THawkins,
      TX
            
            Ft.
      Worth, TXThe
      Villages
            
            Dallas-
            
            
            362
            
            
            
            236
            
            
            
            3,230
            
            
            
            12,272
            (g)
            1980
            
            
            15,186
            
            
            
            4,556
            
            
            
            82.5
            %
            
            
            7,852
            
            
            B,F,H,M,S,TFlint,
      TX
            
            Ft.
      Worth, TXLake
      O' The Woods
            
            Dallas-
            
            
            64
            
            
            
            —
            
            
            
            589
            
            
            
            —
            
            1987
            
            
            2,611
            
            
            
            358
            
            
            
            81.6
            %
            
            
            6,075
            
            
            F,M,S,T(e)Flint,
      TX
            
            Ft.
      Worth, TXPiney
      Shores
            
            Houston,
      TX
            
            
            202
            
            
            
            168
            (g)
            
            
            4,050
            
            
            
            8,736
            (g)
            1988
            
            
            6,262
            
            
            
            694
            
            
            
            60.7
            %
            
            
            11,521
            
            
            B,F,H,M,S,TConroe,
      TXTimber
      Creek
            
            St.
      Louis,
            
            
            72
            
            
            
            24
            (g)
            
            
            2,020
            
            
            
            1,248
            (g)
            1997
            
            
            1,724
            
            
            
            64
            
            
            
            46.0
            %
            
            
            13,076
            
            
            B,F,G,H,M,S,TDeSoto,
      MO
            
            MOFox
      River
            
            Chicago,
      IL
            
            
            240
            
            
            
            276
            (g)
            
            
            3,460
            
            
            
            14,352
            (g)
            1997
            
            
            9,020
            
            
            
            963
            
            
            
            72.3
            %
            
            
            12,578
            
            
            B,F,G,H,M,S,TSheridan,
      ILApple
      Mountain
            
            Atlanta,
      GA
            
            
            84
            
            
            
            180
            (g)
            
            
            2,388
            
            
            
            9,360
            (g)
            1999
            
            
            1,980
            
            
            
            350
            
            
            
            45.3
            %
            
            
            11,096
            
            
            G,H,M,S,TClarkesville,
      GADestination
      Resorts
            
            LocationsOzark
      Mountain
            
            Branson,
            
            
            148
            
            
            
            12
            (g)
            
            
            466
            
            
            
            624
            (g)
            1982
            
            
            7,006
            
            
            
            886
            
            
            
            93.8
            %
            
            
            9,694
            
            
            B,F,M,S,TKimberling
      City, MO
            
            MOHoliday
      Hills
            
            Branson,
            
            
            458
            
            
            
            444
            (g)
            
            
            2,509
            
            
            
            23,088
            (g)
            1984
            
            
            21,171
            
            
            
            1,982
            
            
            
            89.4
            %
            
            
            11,306
            
            
            G,S,T(e)Branson,
      MO
            
            MOHill
      Country
            
            Austin-San
            
            
            342
            (f)
            
            
            156
            (g)
            
            
            2,759
            
            
            
            8,112
            (g)
            1984
            
            
            14,653
            
            
            
            2,219
            
            
            
            84.2
            %
            
            
            10,148
            
            
            M,S,T(e)Canyon
      Lake, TX
            
            Antonio,
      TXOak
      N' Spruce
            
            Boston,
      MA-
            
            
            320
            
            
            
            30
            (g)
            
            
            2,324
            
            
            
            1,560
            (g)
            1998
            
            
            14,316
            
            
            
            1,617
            
            
            
            86.0
            %
            
            
            10,941
            
            
            F,M,S,TSouth
      Lee, MA
            
            New
      York, NYSilverleaf's
      Seaside
            
            Galveston,
            
            
            132
            
            
            
            276
            (g)
            
            
            1,544
            
            
            
            14,352
            (g)
            2000
            
            
            5,320
            
            
            
            299
            
            
            
            77.5
            %
            
            
            12,974
            
            
            S,TGalveston,
      TX
            
            TXOrlando
      Breeze
            
            Orlando,
            
            
            48
            
            
            
            24
            (g)
            
            
            304
            
            
            
            1,248
            (g)
            2005
            
            
            2,192
            
            
            
            156
            
            
            
            87.8
            %
            
            
            16,699
            
            
            SDavenport,
      FL
            
            FLTotal
            
            
            
            
            2,602
            
            
            
            1,826
            
            
            
            27,300
            
            
            
            94,952
            
            
            
            
            106,284
            
            
            
            15,394
            
            
            
            79.6
            %
            
            $
            9,607





33
 Table of Contents





(a)
            These
      totals do not reflect sales of upgraded Vacation Intervals to existing
      Silverleaf Owners. An “upgraded Vacation Interval” sale refers to an
      exchange of a lower priced interval for a higher priced interval in which
      the Silverleaf Owner is given credit for all principal payments previously
      made toward the purchase of the lower priced interval.  For the
      year ended December 31, 2007, upgrade sales at the Existing Resorts were
      as follows:





Resort
            
            Upgraded Vacation Intervals
      Sold
            
            
            Average
      Sales Price — Net of Exchanged
      IntervalHolly
      Lake
            
            
            29
            
            
            $
            5,270The
      Villages
            
            
            996
            
            
            
            7,261Lake
      O' The Woods
            
            
            15
            
            
            
            6,821Piney
      Shores
            
            
            678
            
            
            
            7,692Hill
      Country
            
            
            1,162
            
            
            
            7,935Timber
      Creek
            
            
            17
            
            
            
            7,267Fox
      River
            
            
            537
            
            
            
            8,144Ozark
      Mountain
            
            
            482
            
            
            
            8,660Holiday
      Hills
            
            
            2,225
            
            
            
            8,981Oak
      N’ Spruce
            
            
            956
            
            
            
            7,705Apple
      Mountain
            
            
            260
            
            
            
            9,837Silverleaf's
      Seaside
            
            
            967
            
            
            
            8,655Orlando
      Breeze
            
            
            1,664
            
            
            
            11,0429,988





The
average sales price for the 9,988 upgraded Vacation Intervals sold was $8,735
for the year ended December 31, 2007.





(b)
            Represents
      units included in our master plan. This plan is subject to change based
      upon various factors, including consumer demand, the availability of
      financing, grant of governmental land-use permits, and future
      land-planning and site layout considerations. The following chart reflects
      the status of certain planned units at December 31,
  2007:





Land-Use
      Process Not Started
            
            
            Land-Use
      Process Pending
            
            
            Land-Use
      Process Complete
            
            
            Currently
      in Construction
            
            
            TotalThe
      Villages
            
            
            —
            
            
            
            —
            
            
            
            236
            
            
            
            —
            
            
            
            236Piney
      Shores
            
            
            —
            
            
            
            —
            
            
            
            168
            
            
            
            —
            
            
            
            168Timber
      Creek
            
            
            —
            
            
            
            —
            
            
            
            24
            
            
            
            —
            
            
            
            24Fox
      River
            
            
            —
            
            
            
            —
            
            
            
            276
            
            
            
            —
            
            
            
            276Apple
      Mountain
            
            
            —
            
            
            
            180
            
            
            
            —
            
            
            
            —
            
            
            
            180Ozark
      Mountain
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12
            
            
            
            12Holiday
      Hills
            
            
            —
            
            
            
            —
            
            
            
            420
            
            
            
            24
            
            
            
            444Hill
      Country
            
            
            —
            
            
            
            —
            
            
            
            156
            
            
            
            —
            
            
            
            156Oak
      N' Spruce
            
            
            —
            
            
            
            —
            
            
            
            10
            
            
            
            20
            
            
            
            30Silverleaf's
      Seaside
            
            
            —
            
            
            
            —
            
            
            
            264
            
            
            
            12
            
            
            
            276Orlando
      Breeze
            
            
            —
            
            
            
            —
            
            
            
            12
            
            
            
            12
            
            
            
            24—
            
            
            
            180
            
            
            
            1,566
            
            
            
            80
            
            
            
            1,826





“Land-Use
Process Pending” means that we have commenced the process which we believe is
required under current law in order to obtain the necessary land-use
authorizations from the applicable local governmental authority with
jurisdiction, including submitting for approval any architectural drawings,
preliminary plats, or other attendant items as may be required.





“Land-Use
Process Complete” means either that (i) we believe that we have obtained all
necessary land-use authorizations under current law from the applicable local
governmental authority with jurisdiction, including the approval and filing of
any required preliminary or final plat and the issuance of building permit(s),
in each case to the extent applicable, or (ii) upon payment of any required
filing or other fees, we believe that we will under current law obtain such
necessary authorizations without further process.





(c)
            These
      totals are net of intervals received from upgrading customers and from
      intervals received from
cancellations.





(d)
            Principal
      amenities available to Silverleaf Owners at each resort are indicated by
      the following symbols: B — boating; F — fishing; G — golf; H — horseback
      riding; M — miniature golf; S — swimming pool; and T —
    tennis.





(e)
            Boating
      is available near the resort.





(f)
            Includes
      three units which have not been finished-out for accommodations and which
      are currently used for other
purposes.





34
 Table of Contents





(g)
            Engineering,
      architectural, and construction estimates have not been completed, and we
      cannot be certain that we will develop these properties at the unit
      numbers currently projected.





Features
Common to Existing Resorts





Getaway
Resorts are primarily located in rustic areas offering Silverleaf Owners a
quiet, relaxing vacation environment. Furthermore, the resorts offer different
vacation activities, including golf, fishing, boating, swimming, horseback
riding, tennis, and archery. Destination Resorts are located in or near areas
with national tourist appeal. Features common to the Existing Resorts include
the following:





Bonus Time
Program. Silverleaf Club’s Bonus Time program offers Silverleaf Owners a
benefit not typically enjoyed by other timeshare owners. In addition to the
right to use a unit one week per year, the Bonus Time program allows all
Silverleaf Owners, who are current on their dues and timeshare loan installment
payments, to use vacant units for up to three nights at a time at any of our
owned resorts. Sunday through Thursday night stays are currently without charge,
while Friday through Saturday stays presently cost $49.95 per night payable to
Silverleaf Club. The Bonus Time program is limited based on the availability of
units. Availability is created when a Silverleaf Owner does not use his or her
owned week. Silverleaf Owners who have utilized the resort less frequently are
given priority to use the program and may only use an interval with an equal or
lower rating than their owned Vacation Interval. We believe this program is
important as many vacationers prefer shorter two to three day vacations. Owners
of unused intervals that are utilized by the Bonus Time program are not
compensated other than by their participation in the Bonus Time
program.





Year-Round Use of
Amenities. Even when not using the lodging facilities, Silverleaf Owners
have unlimited year-round day usage of the amenities located at the Existing
Resorts, such as boating, fishing, miniature golf, tennis, swimming, or hiking,
for little or no additional cost. Certain amenities, however, such as golf,
horseback riding, or watercraft rentals, may require a usage fee.





Exchange
Privileges. Each Silverleaf Owner has certain exchange privileges through
Silverleaf Club which may be used on an annual basis to (i) exchange an interval
for a different interval (week) at the same resort so long as the desired
interval is of an equal or lower rating; or (ii) exchange an interval for the
same interval (week) of equal or lower rating at any other of our Existing
Resorts. Silverleaf Owners of Getaway Resorts can only exchange for an interval
in a Getaway Resort unless they own a “Presidents,” “Chairmans,” or “Ambassador”
Vacation Interval.  These exchange rights are a convenience we provide
Silverleaf Owners and are conditioned upon availability of the desired interval
or resort.  Approximately 8,492 exchanges occurred in 2007. Silverleaf
Owners pay an exchange fee of $75 to Silverleaf Club for each such internal
exchange.  In addition, Silverleaf Owners may join the exchange
program administered by RCI for an annual fee of $89.





Deeded
Ownership. We typically sell a Vacation Interval that entitles the owner
to use a specific unit for a designated one-week interval each year. The
Vacation Interval purchaser receives a recorded deed, which grants the purchaser
a percentage interest in a specific unit for a designated week. We also sell a
biennial (alternate year) Vacation Interval that allows the owner to use a unit
for a one-week interval every other year with reduced dues.





Management
Club. Each of the Existing Resorts has a Club for the benefit of the
timeshare owners. At December 31, 2007, the Clubs (except for the club at
Orlando Breeze) operate under Silverleaf Club to manage the Existing Resorts on
a centralized and collective basis. We have contracted with Silverleaf Club to
perform the supervisory and management functions granted by the Clubs. Costs of
these operations are covered by monthly dues paid by timeshare owners to their
respective Clubs together with income generated by the operation of certain
amenities at each respective resort. Our destination resort in Florida, Orlando
Breeze, has its own club, Orlando Breeze Resort Club, which operates
independently of Silverleaf Club.  However, we supervise the
management and operation of Orlando Breeze Resort Club under the terms of a
written agreement.





On-Site
Security. Each of the Existing Resorts is patrolled by security personnel
who are either employees of the various management clubs or employees of
independent security service companies that have contracted with the
Clubs.





Description
Of Timeshare Resorts Owned and Operated By Silverleaf





Getaway
Resorts





Holly Lake
Resort.Holly Lake is a family-oriented golf resort located in the Piney
Woods of east Texas, approximately 105 miles east of Dallas, Texas. The
timeshare portion of Holly Lake is part of a 4,300 acre mixed-use development of
single-family lots and timeshare units with other third-party developers. We own
approximately 1,205 acres within Holly Lake, of which approximately 1,133 acres
may not be developed due to deed restrictions. At December 31, 2007,
approximately 26 acres were developed. We currently have no future development
plans.





35
 Table of Contents





At
December 31, 2007, 130 units were completed and no additional units are planned
for development. Three different types of units are offered at the resort: (i)
two bedroom, two bath, vinyl siding, fourplexes; (ii) one bedroom, one bath, one
sleeping loft, log construction duplexes; and (iii) two bedroom, two bath, log
construction fourplexes. Each unit has a living room with sleeper sofa and full
kitchen. Other amenities within each unit include whirlpool tub, color
television, and vaulted ceilings. Certain units include interior ceiling fans,
imported ceramic tile, over-sized sliding glass doors, and rattan and pine
furnishings.





Amenities
at the resort include an 18-hole golf course with pro shop, 19th-hole private
club, country store, indoor rodeo arena and stables, five tennis courts (four
lighted), two lakes (one with sandy swimming beach, one with boat launch for
water-skiing), three outdoor swimming pools with bathhouses and pavilion,
hiking/nature trails, children's playground area, two miniature golf courses,
five picnic areas, activity center with grill, big screen television, game room
with arcade games and pool tables, horseback riding trails, and activity areas
for basketball, horseshoes, volleyball, shuffleboard, and archery. Silverleaf
Owners can also rent canoes, bicycles, and water-trikes. Homeowners in
neighboring subdivisions are entitled to use the amenities at Holly Lake
pursuant to easements or use agreements.





At
December 31, 2007, the resort contained 6,500 Vacation Intervals, of which 1,657
intervals remained available for sale. We have no plans to build additional
units. Vacation Intervals at the resort are currently priced from $6,500 to
$15,800 for one-week stays. During 2007, 1,250 Vacation Intervals were
sold.





The Villages and
Lake O' The Woods Resorts. The Villages and Lake O' The Woods are sister
resorts located on the shores of Lake Palestine, approximately 100 miles east of
Dallas, Texas. The Villages, located approximately five miles northwest of Lake
O' The Woods, is an active sports resort popular for water-skiing and boating.
Lake O' The Woods is a quiet wooded resort where Silverleaf Owners can enjoy the
seclusion of dense pine forests less than two hours from the Dallas/Fort Worth
metroplex. The Villages is a mixed-use development of single-family lots and
timeshare units, while Lake O' The Woods has been developed solely as a
timeshare resort. The two resorts contain approximately 619 acres, of which
approximately 379 may not be developed due to deed restrictions. At December 31,
2007, approximately 155 acres were developed.





At
December 31, 2007, 362 units were completed at The Villages and 64 units were
completed at Lake O' The Woods. An additional 236 units are planned for
development at The Villages and no additional units are planned for development
at Lake O' The Woods. There are five different types of units at these resorts:
(i) three bedroom, two and one-half bath, wood siding exterior duplexes and
fourplexes; (ii) two bedroom, two and one-half bath, wood siding exterior
duplexes and fourplexes; (iii) two bedroom, two bath, brick and siding exterior
fourplexes; (iv) two bedroom, two bath, wood and vinyl siding exterior
fourplexes, sixplexes, twelveplexes, and sixteenplexes; and (v) one bedroom, one
bath with two-bed loft sleeping area, log construction duplexes. Amenities
within each unit include full kitchen, whirlpool tub, and color television.
Certain units include interior ceiling fans, ceramic tile, and/or a fireplace.
“Presidents Harbor” and “Presidents Beach Club” units feature a larger, more
spacious floor plan with a back veranda, washer and dryer, and a more elegant
decor.





Both
resorts are situated on Lake Palestine, a 27,000 acre public lake. Recreational
facilities and improvements at The Villages include a full-service marina with
convenience store, gas dock, boat launch, water-craft rentals, and covered and
locked rental boat stalls; three swimming pools; two lighted tennis courts;
miniature golf course; nature trails; campsites; horseback riding;
soccer/softball field; children's playground; RV sites; a 9,445 square foot
activity center with theater room with wide-screen television, reading room,
grill, tanning beds, pool table, sauna, and small indoor gym; and competitive
sports facilities which include horseshoe pits, archery range, and shuffleboard,
volleyball, and basketball courts. Silverleaf Owners at The Villages can also
rent or use motor boats, paddle boats, and pontoon boats.  Neighboring
homeowners are also entitled to use these amenities pursuant to a use
agreement.





In 2007,
we completed construction of the indoor water park at The
Villages.  This attraction is focused on indoor fun and entertainment
for people of all ages.  The water park includes inner tube and body
slides, a wave pool, a lazy river ride, and an interactive play system topped by
a tipping water bucket.  In 2007 we commenced the construction of the
Beach Club amenity.  The planned amenity will include a white sand
beach with volleyball courts, multi-level pool and spa with kids spray ground
and water play area, lighted tennis courts, basketball and sports courts,
shuffleboard, horseshoe pits, covered pavilions and a gazebo.





Recreational
facilities at Lake O' The Woods include swimming pool, bathhouse, lighted tennis
court, a recreational beach area with picnic areas, a fishing pier, nature
trails, soccer/softball field, children's playground, RV sites, an activity
center with wide-screen television and pool table, horseshoe pits, archery
range, miniature golf course, shuffleboard, volleyball, and basketball
courts.





At
December 31, 2007, The Villages contained 18,416 total Vacation Intervals, of
which 3,230 remained available for sale. We plan to build 236 additional units
at The Villages, which would yield an additional 12,272 Vacation Intervals
available for sale. At December 31, 2007, Lake O' The Woods contained 3,200
total Vacation Intervals, of which 589 remained available for sale. We have no
plans to build additional units at Lake O' The Woods. Vacation Intervals at The
Villages and Lake O' The Woods are currently priced from $6,500 to $16,800 for
one-week stays (and start at $3,900 for biennial intervals), while one-week
“Presidents Harbor” and “Presidents Beach Club” intervals are priced from
$11,500 to $28,500 depending on the value rating of the interval. During 2007,
4,556 and 358 Vacation Intervals were sold at The Villages and Lake O' The
Woods, respectively.





36
 Table of Contents





Piney Shores
Resort. Piney Shores Resort is a quiet, wooded resort ideally located for
day-trips from metropolitan areas in the southeastern Gulf Coast area of Texas.
Piney Shores Resort is located on the shores of Lake Conroe, approximately 40
miles north of Houston, Texas. The resort contains approximately 112 acres. At
December 31, 2007, approximately 73 acres were developed.





At
December 31, 2007, 202 units were completed and 168 units are planned for
development at Piney Shores Resort.  All units are two bedroom, two
bath units and will comfortably accommodate up to six people. Amenities include
a living room with sleeper, full kitchen, whirlpool tub, color television, and
interior ceiling fans. Certain “lodge-style” units feature stone fireplaces,
white-washed pine wall coverings, “age-worn” paint finishes, and antique
furnishings. “Presidents Cove” units feature a larger, more spacious floor plan
with a back veranda, washer and dryer, and a more elegant décor.





Piney
Shores Resort lies on the shoreline of Lake Conroe, a 21,000 acre public lake.
Recreational facilities and improvements available at the resort include two
swimming pools and a spa, a bathhouse complete with outdoor shower and
restrooms, lighted tennis court, miniature golf course, stables, horseback
riding, children's playground, picnic areas, boat launch, beach area,
4,626-square foot activity center, 32-seat theatre room with big screen
television, covered wagon rides, and facilities for horseshoes, archery,
shuffleboard, and basketball.





At
December 31, 2007, the resort contained 10,312 Vacation Intervals, of which
4,050 remained available for sale. We intend to build 168 additional units,
which would yield an additional 8,736 Vacation Intervals available for sale.
Vacation Intervals at the resort are currently priced from $7,500 to $16,800 for
one-week stays (and start at $4,500 for biennial intervals), while one-week
“Presidents Cove” intervals are priced at $11,500 to $28,500 depending on the
value rating of the interval. During 2007, 694 Vacation Intervals were
sold.





Timber Creek
Resort.Timber Creek Resort, in Desoto, Missouri, is located
approximately 50 miles south of St. Louis, Missouri. The resort contains
approximately 329 acres. At December 31, 2007, approximately 179 acres were
developed.





At
December 31, 2007, 72 units were completed and an additional 24 units are
planned for future development at Timber Creek Resort.  All units are
two bedroom, two bath units. Amenities within each new unit include a living
room with sleeper sofa, full kitchen, whirlpool tub, and color television.
Certain units include a fireplace, ceiling fans, imported ceramic tile, French
doors, and rattan or pine furniture.





The
primary recreational amenity available at the resort is a 40-acre fishing lake.
Other amenities include a clubhouse, a five-hole par-three executive golf
course, swimming pool, two lighted tennis courts, themed miniature golf course,
horseback riding, volleyball court, shuffleboard/multi-use sports court, fitness
center, horseshoes, archery, a welcome center, playground, arcade, movie room,
tanning bed, cedar sauna, sales and registration building, hook-ups for
recreational vehicles, and boat docks.  We are obligated to maintain
and provide campground facilities for members of the previous owner's campground
system.





At
December 31, 2007, the resort contained 3,744 Vacation Intervals and 2,020
Vacation Intervals remained available for sale. We plan to build 24 additional
units, which would collectively yield 1,248 additional Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$8,500 to $16,800 for one-week stays (and start at $5,100 for biennial
intervals). During 2007, 64 Vacation Intervals were sold.





Fox River Resort.Fox River Resort, in Sheridan, Illinois, is located approximately 70
miles southwest of Chicago, Illinois. The resort contains approximately 363
acres. At December 31, 2007, approximately 147 acres were
developed.





At
December 31, 2007, 240 units are completed and 276 units are planned for future
development at Fox River Resort.  All units are two bedroom, two bath
units. Amenities within each unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units include ceiling
fans, ceramic tile, and rattan or pine furniture. “Presidents Lakeside” units
feature a larger, more spacious floor plan with a back veranda, washer and
dryer, and a more elegant décor.





Amenities
currently available at the resort include a five-hole par-three executive golf
course, outdoor swimming pool, clubhouse, covered pool, miniature golf course,
horseback riding, stable and corral, welcome center, sales and registration
buildings, hook-ups for recreational vehicles, a tennis court, a basketball
court / seasonal ice-skating rink, shuffleboard courts, sand volleyball courts,
outdoor pavilion, and playgrounds. We also offer winter recreational activities
at this resort, including ice-skating, snowmobiling, and cross-country skiing.
We are obligated to maintain and provide campground facilities for members of
the previous owner's campground system.





37
 Table of Contents





At
December 31, 2007, the resort contained 12,480 Vacation Intervals and 3,460
Vacation Intervals remained available for sale. We plan to build 276 additional
units, which would collectively yield 14,352 additional Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$8,500 to $16,800 for one-week stays (and start at $5,100 for biennial
intervals), while one-week “Presidents Lakeside” intervals are priced at $11,500
to $28,500 depending on the value rating of the interval. During 2007, 963
Vacation Intervals were sold.





Apple Mountain
Resort. Apple Mountain Resort, in Clarkesville, Georgia, is located
approximately 125 miles north of Atlanta, Georgia. The resort is situated on 285
acres of beautiful open pastures and rolling hills, with 150 acres being the
resort’s golf course. At December 31, 2007, approximately 181 acres were
developed.





At
December 31, 2007, 84 units are completed and 180 units are planned for
development at Apple Mountain Resort.  The “lodge-style” units were
the first units developed.  All units are two bedrooms, two full
baths. Amenities within each unit include a living room with sleeper sofa, full
kitchen, whirlpool tub, and color television. Certain units include ceiling
fans, imported ceramic tile, electronic door locks, and rattan or pine
furniture. “Presidents Greens” units feature a larger more spacious floor plan
with a back veranda, washer and dryer, and a more elegant décor.





Amenities
at the resort include a 9,445 square foot administration building and activity
center featuring a theatre room with a wide-screen television, a member services
building, pool tables, arcade games, and snack area. Other amenities at the
resort include two tennis courts, horseback riding, swimming pool, shuffleboard,
miniature golf course, and volleyball and basketball courts. This resort is
located in the Blue Ridge Mountains and offers accessibility to many other
outdoor recreational activities, including Class 5 white water
rapids.





The
primary recreational amenity available to the resort is an established 18-hole
golf course situated on approximately 150 acres of open fairways and rolling
hills. Elevation of the course varies from 1,530 to 1,600 feet.  The
course is designed with approximately 104,000 square feet of bent grass greens.
The course's tees total approximately 2 acres, fairways total approximately 24
acres, and primary roughs total approximately 29 acres, all covered with TIF 419
Bermuda. The balance of grass totals approximately 95 acres and is covered with
Fescue. The course has 19 sand bunkers totaling 19,800 square feet and
approximately seven miles of cart paths. Lining the course are apple orchards
totaling approximately four acres, with white pines along twelve of the
fairways. The course has a five-acre irrigation lake and a pond of approximately
900 square feet located on the fifteenth hole. The driving range covers
approximately nine acres and has 20,000 square feet of tee area covered in TIF
419 Bermuda. The pro shop offers a full line of golfing accessories and
equipment.  An on-site golf professional offers lessons and plans
events for the club.





At
December 31, 2007, the resort contained 4,368 Vacation Intervals, of which 2,388
remained available for sale. We plan to build 180 additional units, which would
yield an additional 9,360 Vacation Intervals available for sale. Vacation
Intervals at the resort are currently priced from $8,500 to $16,800 for one-week
stays (and start at $5,100 for biennial intervals). The “Presidents Greens”
units are priced from $11,500 to $28,500 for one week stays.  During
2007, 350 Vacation Intervals were sold.





Destination
Resorts





Ozark Mountain
Resort. Ozark Mountain Resort is a family-oriented resort located on the
shores of Table Rock Lake, which features bass fishing. The resort comprises 115
acres and is located approximately 15 miles from Branson, Missouri, a family
music and entertainment center, 233 miles from Kansas City, and 276 miles from
St. Louis. Ozark Mountain Resort is a mixed-use development of timeshare and
condominium units. At December 31, 2007, approximately 106 acres were developed.
There are 8 acres that may not be developed due to deed
restrictions.





At
December 31, 2007, 148 units are completed and 12 units are planned for
development at Ozark Mountain Resort. There are two types of units at the
resort: (i) two bedroom, two bath, one-story fourplexes and (ii) two bedroom,
two bath, three-story sixplexes. Each standard unit includes two large bedrooms,
two bathrooms, living room with sleeper sofa, and full kitchen. Other amenities
within each unit include whirlpool tub, color television, and vaulted ceilings.
Certain units contain interior ceiling fans, imported ceramic tile, oversized
sliding glass doors, rattan or pine furnishings, and a fireplace. “Presidents
View” units feature a panoramic view of Table Rock Lake, a larger, more spacious
floor plan with front and back verandas, washer and dryer, and a more elegant
decor.





38
 Table of Contents





The
primary recreational amenity available at the resort is Table Rock Lake, a
43,100-acre public lake. Other recreational facilities and improvements at the
resort include a swimming beach with dock, an activities center with pool table,
covered boat dock and launch ramp, olympic-sized swimming pool, lighted tennis
court, nature trails, two picnic areas, playground, miniature golf course, and a
competitive sports area accommodating volleyball, basketball, tetherball,
horseshoes, shuffleboard, and archery. Guests can also rent or use canoes or
paddle boats.  Owners of neighboring condominium units we developed in
the past are also entitled to use these amenities pursuant to use
agreements.





At
December 31, 2007, the resort contained 7,472 Vacation Intervals, of which 466
remained available for sale. We plan to build 12 additional units, which would
yield an additional 624 Vacation Intervals available for sale. Vacation
Intervals at the resort are currently priced from $10,000 to $18,500 for
one-week stays, while one-week “Presidents View” intervals are priced at $15,500
to $31,500 depending on the value rating of the interval. During 2007, 886
Vacation Intervals were sold.





Holiday Hills
Resort. Holiday Hills Resort is a resort community located in Taney
County, Missouri, two miles east of Branson, Missouri. The resort is 224 miles
from Kansas City and 267 miles from St. Louis. The resort is heavily wooded by
cedar, pine, and hardwood trees, and is favored by Silverleaf Owners seeking
quality golf and nightly entertainment in nearby Branson. Holiday Hills Resort
is a mixed-use development of single-family lots, condominiums, and timeshare
units. The resort contains approximately 521 acres, including a 91-acre golf
course. At December 31, 2007, approximately 300 acres were
developed.





At
December 31, 2007, 458 units were completed and an additional 444 units are
planned for future development. There are five types of timeshare units at this
resort: (i) three bedroom, three bath, three-story twelveplexes, (ii) two
bedroom, two bath, one-story fourplexes, (iii) one bedroom, one bath, with
upstairs loft, log construction duplexes, (iv) two bedroom, two bath, two-story
fourplexes, and (v) two bedroom, two bath, three-story sixplexes and
twelveplexes. Each unit includes a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units include a fireplace, ceiling
fans, imported tile, oversized sliding glass doors, vaulted ceilings, and rattan
or pine furniture. “Presidents Fairway,” “Chairmans Fairway,” and “Ambassador
Fairway” units feature a larger, more spacious floor plan with back veranda,
washer and dryer, and a more elegant décor.





Taneycomo
Lake, a popular lake for trout fishing, is approximately three miles from the
resort, and Table Rock Lake is approximately ten miles from the resort.
Amenities at the resort include an 18-hole golf course, tennis court, picnic
areas, campsites, basketball court, activity area which includes shuffleboard,
horseshoes, and a children’s playground, a 5,356 square foot clubhouse that
includes a pro shop, restaurant, and meeting space, a 2,800 square foot outdoor
swimming pool, and three sports pools.  Lot and condominium unit
owners are also entitled to use these amenities pursuant to use agreements we
have with certain homeowners’ associations.





At
December 31, 2007, the resort contained 23,680 Vacation Intervals, of which
2,509 remained available for sale. We plan to build 444 additional units, which
would yield an additional 23,088 Vacation Intervals available for sale. Vacation
Intervals at the resort are currently priced from $9,000 to $18,500 for one-week
stays (and start at $5,400 for biennial intervals), while one-week “Presidents
Fairway” intervals are priced at $15,500 to $31,500, one-week “Chairmans
Fairway” intervals are priced from $18,000 to $38,000, and one-week “Ambassador
Fairway” intervals are priced from $18,000 to $42,450, depending on the value
rating of the interval. During 2007, 1,982 Vacation Intervals were
sold.





Hill Country
Resort. Hill Country Resort is located near Canyon Lake in the hill
country of central Texas between Austin and San Antonio. The resort contains
approximately 114 acres. At December 31, 2007, approximately 40 acres were
developed.





At
December 31, 2007, 342 units were completed and 156 units are planned for
development at Hill Country Resort. Some units are single story, while certain
other units are two-story structures in which the bedrooms and baths are located
on the second story. Each unit contains two bedrooms, two bathrooms, living room
with sleeper sofa, and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and interior design details such as vaulted
ceilings. Certain units include interior ceiling fans, imported ceramic tile,
oversized sliding glass doors, rattan and pine furnishings, and a fireplace. 134
units feature our “lodge style.” 80 “Presidents Villas” units feature a larger,
more spacious floor plan with back veranda, washer and dryer, and a more elegant
decor.  16 “Ambassador Villas” feature a larger, more spacious three
bedroom, three bath, floor plan with back veranda, washer and dryer, and a more
elegant décor.





Amenities
at the resort include a 7,943 square foot activity center with electronic games,
pool table, and wide-screen television, miniature golf course, children's
playground areas, barbecue and picnic area, enclosed swimming pool and heated
spa, children's wading pool, tennis court, and activity areas for basketball,
horseshoes, shuffleboard, and sand volleyball.  Area sights and
activities include water-tubing on the nearby Guadalupe River and visiting the
many tourist attractions in San Antonio, such as Sea World, The Alamo, The River
Walk, Fiesta Texas, and the San Antonio Zoo.





39
 Table of Contents





At
December 31, 2007, the resort contained 17,412 Vacation Intervals, of which
2,759 remained available for sale. We plan to build 156 additional units, which
collectively would yield 8,112 additional Vacation Intervals available for sale.
Vacation Intervals at the resort are currently priced from $10,000 to $18,500
for one-week stays (and start at $6,000 for biennial intervals), while one-week
“Presidents Villas” intervals are priced at $15,500 to $31,500, and one-week
“Ambassador Villas” intervals are priced at $18,000 to $42,450, depending on the
value rating of the interval. During 2007, 2,219 Vacation Intervals were
sold.





Oak N' Spruce
Resort.Oak N' Spruce Resort, located in the Berkshire mountains of
western Massachusetts, is approximately 134 miles west of Boston, Massachusetts,
and 114 miles north of New York City. Oak N' Spruce Resort is a mixed-use
development which includes a hotel and timeshare units. The resort contains
approximately 244 acres. At December 31, 2007, approximately 37 acres were
developed. There are 206 acres that we may not develop due to deed
restrictions.





At
December 31, 2007, the resort had 320 units completed and 30 units are planned
for development. There are seven types of existing units at the resort: (i)
one-bedroom flat, (ii) one-bedroom townhouse, (iii) two-bedroom flat, (iv)
two-bedroom townhouse, (v) two-bedroom, flex-time, (vi) two-bedroom lodge style
and “Presidents” style units, and (vii) three-bedroom “Presidents” style units.
There is also a 21-room hotel at the resort that could be converted to timeshare
use. Amenities within each new unit include a living room with sleeper sofa,
full kitchen, whirlpool tub, and color television. Certain units include ceiling
fans, ceramic tile, and rattan or pine furniture.





Amenities
at the resort include two indoor heated swimming pools with hot tubs, an outdoor
pool with sauna, one sports pool, health club, lounge, ski rentals, miniature
golf, shuffleboard, basketball and tennis courts, horseshoe pits, hiking and ski
trails, and an activity area for badminton. The resort is also near Beartown
State Forest.





At
December 31, 2007, the resort contained 16,640 Vacation Intervals, of which
2,324 remained available for sale. We plan to build 30 additional units, which
would yield an additional 1,560 Vacation Intervals available for sale. Vacation
Intervals at the resort are currently priced from $6,500 to $18,500 for one-week
stays (and start at $3,900 for biennial intervals), while one-week “Presidents
Oak” intervals are priced from $12,500 to $31,500 depending on the value rating
of the interval. During 2007, 1,617 Vacation Intervals were sold.





Silverleaf’s
Seaside Resort. Silverleaf’s Seaside Resort is located in Galveston,
Texas, approximately 50 miles south of Houston, Texas. The resort contains
approximately 87 acres. At December 31, 2007, approximately 53 acres were
developed.





At
December 31, 2007, the resort had 132 units and an additional 276 are planned
for development. The two bedroom, two bath units are situated in three-story
twelveplex buildings. Amenities within each unit include two large bedrooms, two
bathrooms (one with a whirlpool tub), living room with sleeper sofa, full
kitchen, color television, and electronic door locks. “Presidents Dunes” units
feature a larger, more spacious floor plan with a back veranda, washer and
dryer, and a more elegant décor.





With 635
feet of beachfront, the primary amenity at the resort is the Gulf of Mexico.
Other amenities include a tennis court, swimming pool, miniature golf, sand
volleyball, playground, picnic pavilion, horseshoes, and
shuffleboard.





At
December 31, 2007, the resort contained 6,864 Vacation Intervals, of which 1,544
remained available for sale. We plan to build 276 additional units, which would
yield an additional 14,352 Vacation Intervals for sale. Vacation Intervals at
the resort are currently priced from $9,500 to $19,500 for one-week stays (and
start at $5,100 for biennial intervals), while one-week “Presidents Dunes”
intervals are priced at $13,500 to $35,500 depending on the value rating of the
interval. During 2007, 299 Vacation Intervals were sold.





Orlando Breeze
Resort.Orlando Breeze Resort is located in Davenport, Florida, just
outside Orlando, Florida, near the major tourist attractions of Walt Disney
World, Sea World, and Universal Studios. At December 31, 2007, all acres were
developed. In January 2006, we purchased approximately 31 acres of undeveloped
land contiguous to our 4.8 acres in Davenport, Florida. Extensive
pre-development work must be completed before we develop the property. Any
development of the property is subject to state and local governmental approvals
necessary for timeshare operations.





At
December 31, 2007, the resort had 48 units and an additional 24 are planned for
development. The units consist of two and three bedroom units, with eight
two-bedroom units and eight three-bedroom units. Amenities within each
refurbished unit include a living room with sleeper sofa, full kitchen, color
television, ceiling fans, ceramic tile, Broyhill furniture, and aluminum patio
furniture. Amenities at the resort include a heated outdoor swimming pool with
whirlpool, fitness center, arcade, playground, sand volleyball, and basketball
courts.





40
 Table of Contents





At
December 31, 2007, the resort contained 2,496 Vacation Intervals of which 304
remained available for sale. We plan to build 24 additional units, which would
yield an additional 1,248 Vacation Intervals for sale. Vacation Intervals at the
resort are currently priced from $25,500 to $35,500 for one-week stays. During
2007, 156 Vacation Intervals were sold.





ITEM3.
            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 expected to have a material adverse effect on our
business, results of operations, liquidity, 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 incur other expenditures that could be materially adverse
to our business, results of operations, or financial position.





We were
the plaintiff in a suit filed in the U.S. District Court for the District of
Massachusetts.  The case was styled Silverleaf Resorts, Inc. v.
Berkshire Wind Power, LLC, Civil Action No. 06-30152.  We
initiated this lawsuit because the defendant was 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.  Prior to commencement of this
litigation, we were in the initial stages of developing this tract of
land.  Our concern was that if the defendant was ultimately successful
in developing this neighboring site in accordance with its plans, the proximity
of such a wind farm facility to our property line could adversely affect our
future development plans for our property.  Accordingly, we sought to
permanently enjoin the construction of the wind farm facility unless certain of
its proposed turbines were set back further from our property line on the
grounds that, among other things, as proposed it would have constituted a
nuisance and would have unreasonably interfered with the reasonable use and
enjoyment of our property. Alternatively, we requested damages for the
prospective nuisance.  The defendant asserted that we should be
responsible for certain costs, including the costs to take the depositions of
the defendant's experts.  We asserted that the defendant should pay the
costs of the depositions of our experts.  The court originally
scheduled a trial for May 21, 2007 on the issue of our request for an
injunction, but postponed the trial until November 13, 2007 to allow the parties
time to resolve their differences.  Continuing settlement discussions
between the parties were unsuccessful and in October 2007, we moved to dismiss
this action without prejudice.  The defendant opposed our motion to
dismiss unless the dismissal was with prejudice or, alternatively, that the
defendant was allowed to recover certain statutory costs. On February 29, 2008,
the court allowed our Motion to Dismiss without prejudice on our outstanding
nuisance claim, ruling that the parties should bear their own cost, expenses,
and attorney’s fees.  Final judgment dismissing the suit was also
entered on February 29, 2008.





We are
also a co-plaintiff with two other parties in a related matter brought in
the Land Court Department of the Trial Court of the Commonwealth of
Massachusetts, styled as Silverleaf Resorts, Inc., et al. v.
Zoning Board of Appeals of the Town of Lanesborough, et al.,Civil Action
No. 07 MISC 351155.  In this action, we and our co-plaintiffs have
challenged the validity of a special permit issued by the Lanesborough Zoning
Board of Appeals to Berkshire Wind Power, LLC, for a portion of a road needed to
access the wind farm facility that is the subject of the U.S. District Court
Action.  We seek a court decree that the special permit granted Berkshire
Wind expired from non-use and is therefore no longer valid. The case is now in
fast track discovery, but no final trial date has been set.





ITEM4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





41
 Table of Contents





PART
II





ITEM5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
      PURCHASES OF EQUITY SECURITIES





STOCK
PERFORMANCE GRAPH





The stock
performance graph below shall not be deemed incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K
into any filing under the Securities Act or under the Exchange Act, except to
the extent we specifically incorporate this information by reference, and it
shall not otherwise be deemed filed under such Acts.





Set forth
below is a line graph comparing the total cumulative return of our common stock
since December 31, 2002 to (a) the S&P 500 Index, a broad equity market
index, and (b) the Russell MicroCap Index, an index that measures the
performance of stocks in the micro-cap segment of market capitalization. The
comparisons in this table are required by the Securities and Exchange Commission
and are not intended to forecast or be indicative of possible future performance
of our common stock.





Only a
few other publicly held companies engage in our principal line of business - the
sale of vacation ownership intervals. Prominent among this limited group are
Walt Disney Company, Hilton Hotels Corporation, and Marriott International,
Inc., which are (i) diversified, with far less than 50% of their respective
revenues attributable to vacation ownership interval sales, and (ii)
substantially larger than we are in terms of revenue, assets and market
capitalization. Therefore, we concluded that a sufficient body of reliable
market data to use as a comparison peer group is not available.  In
2006 our common stock was added to the Russell MicroCap Index.  In the
below graph we have elected to compare the performance of our common stock to
the S&P 500 Index and the Russell MicroCap Index.





The graph
assumes $100 was invested on December 31, 2002 in our common stock, the S&P
500, and the Russell MicroCap and assumes dividends are
reinvested.  Silverleaf’s cumulative total return of $1,189 is due to
the growth in the bid price of our common stock from $0.35 at December 31, 2002
to $4.16 at December 31, 2007.









Measurement
      Period (Fiscal Year Covered)12/02
            
            
            
            12/03
            
            
            
            12/04
            
            
            
            12/05
            
            
            
            12/06
            
            
            
            12/07Silverleaf
      Resorts, Inc.
            
            
            100.00
            
            
            
            228.57
            
            
            
            394.29
            
            
            
            931.43
            
            
            
            1277.14
            
            
            
            1188.57S
      & P 500
            
            
            100.00
            
            
            
            128.68
            
            
            
            142.69
            
            
            
            149.70
            
            
            
            173.34
            
            
            
            182.87Russell
      MicroCap
            
            
            100.00
            
            
            
            166.36
            
            
            
            189.89
            
            
            
            194.76
            
            
            
            226.98
            
            
            
            208.82








42
 Table of Contents





The
following table sets forth the high and low closing prices of our common stock
for the quarterly periods indicated, which correspond to the quarterly fiscal
periods for financial reporting purposes.  The common stock prices
from January 2006 to February 27, 2007 are the closing bid prices as quoted on
the American Stock Exchange under the symbol “SVL.”   Effective
February 28, 2007, we listed our common stock on The NASDAQ Capital Market
(“NASDAQ”), under the symbol “SVLF.”  From that point forward the common
stock prices shown are the closing bid prices as quoted on NASDAQ.





High
            
            
            LowYear
      Ended December 31, 2006:First
      Quarter
            
            $
            3.89
            
            
            $
            2.95Second
      Quarter
            
            
            5.00
            
            
            
            3.10Third
      Quarter
            
            
            3.82
            
            
            
            3.13Fourth
      Quarter
            
            
            4.47
            
            
            
            3.82Year
      Ended December 31, 2007:First
      Quarter
            
            $
            5.00
            
            
            $
            4.25Second
      Quarter
            
            
            5.95
            
            
            
            4.56Third
      Quarter
            
            
            6.89
            
            
            
            4.60Fourth
      Quarter
            
            
            6.50
            
            
            
            4.05





As of
December 31, 2007, we believe that there were approximately 2,306 holders of our
common stock, which is the only class of our equity securities
outstanding.





Our stock
option plans provide for the award of nonqualified stock options to directors,
officers, and key employees, and the grant of incentive stock options to key
salaried employees. Stock options provide for the right to purchase common stock
at a specified price, which may be less than or equal to fair market value on
the date of grant (but not less than par value). Stock options may be granted
for any term and upon such conditions determined by our Board of
Directors.





Dividend
Policy





We have
never declared or paid any cash dividends on our capital stock and do not
anticipate paying cash dividends on our common stock in the foreseeable
future.  We currently intend to retain future earnings to finance our
operations and fund the growth of our business. Any payment of future dividends
will be at the discretion of our Board of Directors and will depend upon, among
other things, our earnings, financial position, capital requirements, level of
indebtedness, contractual and other restrictions related to payment of dividends
under our senior credit facilities, and other factors that our Board of
Directors deem relevant.





Shares
Authorized for Issuance under Equity Compensation Plans





Please
see “Security Ownership of Certain Beneficial Owners and Management” under item
12 of this Annual Report on Form 10-K for information regarding shares
authorized under our equity compensation plans.





Recent
Sales of Unregistered Securities





There
have been no recent sales of unregistered securities.





43
 Table of Contents





ITEM6.
            SELECTED
      FINANCIAL DATA





Selected
Consolidated Historical Financial and Operating Information





The
Selected Consolidated Historical Financial and Operating Information shown below
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this report on Form
10-K.  As discussed under the heading “Significant Accounting Policies
Summary” in Note 2 to our Consolidated Financial Statements, in 2006 we changed
our accounting for real estate time-sharing transactions in connection with the
adoption of Statement of Financial Accounting Standards No. 152, “Accounting for
Real Estate Time-Sharing Transactions,” and changed our accounting for
stock-based compensation in connection with the adoption of Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment.”  As
a result, certain amounts presented in the following tables for years preceding
2006 may not be comparable to 2006 and subsequent years.





Year Ended December 31,2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007(in
      thousands, except share and per share amounts)Statement
      of Income Data:Revenues:Vacation
      Interval sales
            
            $
            123,585
            
            
            $
            138,046
            
            
            $
            146,416
            
            
            $
            187,481
            
            
            $
            235,135Estimated
      uncollectible revenue
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (32,491
            )
            
            
            (40,071
            )Sampler
      sales
            
            
            1,765
            
            
            
            2,150
            
            
            
            2,623
            
            
            
            —
            
            
            
            —Net
      sales
            
            
            125,350
            
            
            
            140,196
            
            
            
            149,039
            
            
            
            154,990
            
            
            
            195,064Interest
      income
            
            
            34,730
            
            
            
            37,843
            
            
            
            38,154
            
            
            
            46,248
            
            
            
            53,019Management
      fee income
            
            
            1,547
            
            
            
            1,201
            
            
            
            1,856
            
            
            
            1,861
            
            
            
            2,806Gain
      on sale of notes receivable
            
            
            3,205
            
            
            
            1,915
            
            
            
            6,457
            
            
            
            —
            
            
            
            —Other
      income
            
            
            2,834
            
            
            
            2,522
            
            
            
            6,402
            
            
            
            3,785
            
            
            
            4,141Total
      revenues
            
            
            167,666
            
            
            
            183,677
            
            
            
            201,908
            
            
            
            206,884
            
            
            
            255,030Costs
      and operating expenses:Cost
      of Vacation Interval sales
            
            
            22,657
            
            
            
            24,964
            
            
            
            23,427
            
            
            
            19,003
            
            
            
            23,027Sales
      and marketing
            
            
            65,775
            
            
            
            71,890
            
            
            
            74,667
            
            
            
            93,957
            
            
            
            119,679Provision
      for uncollectible notes
            
            
            53,673
            
            
            
            26,811
            
            
            
            23,649
            
            
            
            —
            
            
            
            —Operating,
      general and administrative
            
            
            26,209
            
            
            
            25,639
            
            
            
            28,038
            
            
            
            32,315
            
            
            
            39,101Depreciation
            
            
            3,806
            
            
            
            3,588
            
            
            
            2,723
            
            
            
            2,539
            
            
            
            3,511Interest
      expense and lender fees
            
            
            16,550
            
            
            
            17,627
            
            
            
            17,253
            
            
            
            21,662
            
            
            
            24,610Total
      costs and operating expenses
            
            
            188,670
            
            
            
            170,519
            
            
            
            169,757
            
            
            
            169,476
            
            
            
            209,928Other
      income:Gain
      on early extinguishment of debt
            
            
            6,376
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      other income
            
            
            6,376
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Income
      (loss) before provision for income taxes and discontinued
      operations
            
            
            (14,628
            )
            
            
            13,158
            
            
            
            32,151
            
            
            
            37,408
            
            
            
            45,102Provision
      for income taxes
            
            
            86
            
            
            
            23
            
            
            
            9,725
            
            
            
            14,402
            
            
            
            17,398Income
      (loss) from continuing operations
            
            
            (14,714
            )
            
            
            13,135
            
            
            
            22,426
            
            
            
            23,006
            
            
            
            27,704Discontinued
      operations:Gain
      on sale of discontinued operations (net of taxes)
            
            
            —
            
            
            
            —
            
            
            
            613
            
            
            
            —
            
            
            
            —Income
      from discontinued operations (net of taxes)
            
            
            794
            
            
            
            624
            
            
            
            128
            
            
            
            —
            
            
            
            —Income
      from discontinued operations
            
            
            794
            
            
            
            624
            
            
            
            741
            
            
            
            —
            
            
            
            —Net
      income (loss)
            
            $
            (13,920
            )
            
            $
            13,759
            
            
            $
            23,167
            
            
            $
            23,006
            
            
            $
            27,704Net
      income (loss) per share — Basic (a)Income
      (loss) from continuing operations
            
            $
            (0.40
            )
            
            $
            0.35
            
            
            $
            0.61
            
            
            $
            0.61
            
            
            $
            0.73Income
      from discontinued operations
            
            
            0.02
            
            
            
            0.02
            
            
            
            0.02
            
            
            
            —
            
            
            
            —Net
      income (loss)
            
            $
            (0.38
            )
            
            $
            0.37
            
            
            $
            0.63
            
            
            $
            0.61
            
            
            $
            0.73Net
      income (loss) per share — Diluted (a)Income
      (loss) from continuing operations
            
            $
            (0.40
            )
            
            $
            0.33
            
            
            $
            0.57
            
            
            $
            0.59
            
            
            $
            0.70Income
      from discontinued operations
            
            
            0.02
            
            
            
            0.02
            
            
            
            0.02
            
            
            
            —
            
            
            
            —Net
      income (loss)
            
            $
            (0.38
            )
            
            $
            0.35
            
            
            $
            0.59
            
            
            $
            0.59
            
            
            $
            0.70Weighted
      average number of common shares issued and  outstanding —
      Basic
            
            
            36,826,906
            
            
            
            36,852,133
            
            
            
            36,986,926
            
            
            
            37,579,462
            
            
            
            37,811,387Weighted
      average number of common shares issued and outstanding —
      Diluted
            
            
            36,826,906
            
            
            
            38,947,854
            
            
            
            39,090,921
            
            
            
            39,261,652
            
            
            
            39,417,017




44
 Table of Contents




December 31,2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007(in
      thousands)Balance
      Sheet Data:Cash
      and cash equivalents
            
            $
            4,093
            
            
            $
            10,935
            
            
            $
            10,990
            
            
            $
            11,450
            
            
            $
            13,170Notes
      receivable, net of allowance for uncollectible notes
            
            
            193,379
            
            
            
            196,466
            
            
            
            177,572
            
            
            
            229,717
            
            
            
            289,907Amounts
      due from affiliates
            
            
            150
            
            
            
            288
            
            
            
            680
            
            
            
            1,251
            
            
            
            1,358Inventories
            
            
            101,399
            
            
            
            109,303
            
            
            
            117,597
            
            
            
            147,759
            
            
            
            179,188Total
      assets
            
            
            351,787
            
            
            
            369,506
            
            
            
            361,796
            
            
            
            474,530
            
            
            
            581,059Amounts
      due to affiliates
            
            
            656
            
            
            
            929
            
            
            
            544
            
            
            
            246
            
            
            
            —Notes
      payable and capital lease obligations
            
            
            215,337
            
            
            
            218,310
            
            
            
            177,269
            
            
            
            254,550
            
            
            
            316,198Senior
      subordinated notes
            
            
            36,591
            
            
            
            34,883
            
            
            
            33,175
            
            
            
            31,467
            
            
            
            26,817Total
      liabilities
            
            
            264,088
            
            
            
            268,038
            
            
            
            236,961
            
            
            
            326,338
            
            
            
            405,018Shareholders'
      equity
            
            
            87,699
            
            
            
            101,468
            
            
            
            124,835
            
            
            
            148,192
            
            
            
            176,041Cash
      Flows Data:Net
      cash provided by (used in) operating activities
            
            $
            23,953
            
            
            $
            9,404
            
            
            $
            75,681
            
            
            $
            (45,648
            )
            
            $
            (39,895
            )








As of and for the Year Ended December
      31,2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007Other
      Operating Data:Number
      of Existing Resorts at period end
            
            
            12
            
            
            
            12
            
            
            
            13
            
            
            
            13
            
            
            
            13Number
      of Vacation Intervals sold (excluding Upgrades)(b)
            
            
            9,560
            
            
            
            10,431
            
            
            
            8,332
            
            
            
            9,855
            
            
            
            15,394Number
      of in-house Vacation Intervals sold
            
            
            4,833
            
            
            
            4,816
            
            
            
            6,576
            
            
            
            8,777
            
            
            
            9,988Number
      of Vacation Intervals in inventory
            
            
            24,255
            
            
            
            22,857
            
            
            
            27,396
            
            
            
            28,801
            
            
            
            27,300Average
      price of Vacation Intervals sold (excluding
Upgrades)(b)(c)
            
            $
            9,510
            
            
            $
            10,031
            
            
            $
            11,124
            
            
            $
            11,681
            
            
            $
            9,607Average
      price of upgraded Vacation Intervals sold (net of exchanged
      interval)
            
            $
            6,759
            
            
            $
            6,938
            
            
            $
            8,171
            
            
            $
            8,245
            
            
            $
            8,735





__________





(a)
            Net
      income (loss) per share is based on the weighted average number of common
      shares outstanding.





(b)
            Vacation
      Intervals sold during the years ended December 31, 2003, 2004, 2005, 2006,
      and 2007, include 1,620 biennial intervals (counted as 810 annual Vacation
      Intervals), 2,556 biennial intervals (counted as 1,278 annual Vacation
      Intervals), 2,780 biennial intervals (counted as 1,390 annual Vacation
      Intervals), 5,117­ biennial intervals (counted as 2,558 annual
      Vacation Intervals), and 3,588 biennial intervals (counted as 1,794 annual
      Vacation Intervals), respectively.





(c)
            Includes
      annual and biennial Vacation Interval sales for one-bedroom, two-bedroom,
      and three-bedroom units.





ITEM7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion should be read in conjunction with “Selected Financial
Data,” our consolidated financial statements and notes thereto, and other
financial data included elsewhere herein. The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements.





Executive
Summary





We are in
the business of owning and operating thirteen timeshare resorts as of December
31, 2007. Our income is derived principally from marketing and selling timeshare
interests at our resorts in one-week intervals and from the interest earned from
financed sales of such timeshare interests.  As of December 31, 2007,
we have seven Getaway Resorts located within 1.5 to 2 hours of major
metropolitan areas, which are the primary market for timeshare sales to new
purchasers.  Our six Destination Resorts are located
farther  from major metropolitan areas.  The principal
purchasers of timeshare interests at the Destination Resorts are existing owners
who are upgrading or buying additional interests.




45
 Table of Contents





The
following economic or industry-wide factors are relevant to us:





·
            We
      predominantly sell vacation and recreational products to customers who
      drive to our locations.  We believe that this type of usage is
      somewhat immune from issues that would affect the travel industry as a
      whole (i.e., the disruptions to the airline industry and destination
      resort industry after September 11, 2001).  However, major
      increases in gasoline prices or other issues that cause the U.S population
      to drive less could have a negative impact on
  us.





·
            Telemarketing
      is a very important element in the generation of tours to potential new
      customers of timeshare interests.  We presently comply with
      state and national do-not-call regulations.  Changes to existing
      regulations could have a negative impact on our ability to generate the
      necessary tours to sell timeshare
interests.





·
            We
      finance the majority of our sales over seven to ten years.  An
      economic downturn could negatively affect the ability of our customers to
      pay their principal and interest, which might result in additional
      estimated uncollectible revenue.





·
            Our
      fixed-to-floating debt ratio is 29% fixed and 71% floating. Although
      interest rates have recently been trending downward, an increase in
      interest rates on our variable rate facilities could have a negative
      impact on our profitability.





·
            Since
      we predominantly finance our sales of timeshare interests, we require
      credit facilities to have the liquidity necessary to fund our day-to-day
      costs and expenses.  We presently have adequate credit
      facilities to fund our operations through January 2010.  A
      disruption in the availability of credit facilities would severely impact
      our ability to continue marketing and selling timeshare interests as we do
      today.





·
            We
      believe there are three areas which are particularly important to our
      success as a business:





▪▪
            Identifying
      potential customers who are likely to pay their principal and interest
      payments when due after purchasing timeshare intervals, thereby resulting
      in an acceptable level of estimated uncollectible
  revenue.





▪▪
            Maintaining
      sales and marketing expenses at an acceptable level to result in a
      favorable percentage relationship between sales and marketing expense and
      Vacation Interval sales.





▪▪
            Maintaining
      adequate credit facilities to finance our operations and support the
      borrowings that are required for our liquidity and continued
      growth.





We earn
revenue and income and finance our operations as follows:





·
            Our
      primary source of revenue is Vacation Interval sales.  Vacation
      Interval sales are a combination of sales to new customers and upgrade
      and/or additional week sales to existing customers.  We have
      been focusing on increasing the percentage mix of sales to existing
      customers in recent years.  In addition, we have been focusing
      on identifying potential new customers who have more favorable credit
      characteristics and will ultimately be more likely to pay principal and
      interest on their timeshare notes when due.  To manage sales, we
      separately assess sales to potential new customers and sales to existing
      customers as different factors affect these types of sales. For example,
      for sales to potential new customers, we measure sales per tour in order
      to ascertain that our marketing programs are delivering the proper types
      of family tours to effectively and efficiently generate sales and we
      closely monitor rescission rates.  However, the number of tours
      to existing customers is not meaningful and their rescission rates on
      incremental sales are much lower.





One
product that is sold to new customers is a sampler, which gives the customer the
right to use the resorts on an “as available” basis from Sunday to
Thursday.  Revenues related to sampler contracts, which entitle the
prospective owner to sample a resort during certain periods, have been and will
continue to be deferred until the customer uses the stay or allows the contract
to expire.  Effective January 1, 2006, sampler sales and related costs
are accounted for as incidental operations, whereby incremental costs in excess
of related incremental revenues are charged to expense as
incurred.  Conversely, incremental revenues in excess of related
incremental costs are recorded as a reduction of inventory in the consolidated
balance sheet. Incremental costs include costs that would not have been incurred
had we not sold samplers. During the years ended December 31, 2006 and 2007, all
sampler sales were recorded as a reduction to sales and marketing expense since
direct and incremental costs of sampler sales exceeded incremental sampler
revenues. The reduction to sales and marketing expense related to sampler sales
in 2006 and 2007 was $2.9 million and $3.4 million,
respectively.  Prior to SFAS No. 152, sampler sales were reported
separately as revenue. We recognized $2.6 million in revenues from sampler sales
for the year ended December 31, 2005.




46
 Table of Contents





The
following table shows the elements management considers important to assessing
our Vacation Interval sales (in thousands, except for tours and sales per
tour):





Year Ended December 31,2005
            
            
            2006
            
            
            2007Tours
      to potential new purchasers
            
            
            74,244
            
            
            
            86,950
            
            
            
            108,541Sales
      per tour
            
            $
            1,160
            
            
            $
            1,217
            
            
            $
            1,123Gross
      sales to new customers
            
            
            86,156
            
            
            
            105,785
            
            
            
            121,867Rescissions
      of sales to new customers
            
            
            (17,932
            )
            
            
            (19,970
            )
            
            
            (23,809
            )Net
      sales to new customers
            
            
            68,224
            
            
            
            85,815
            
            
            
            98,058Gross
      sales to existing customers
            
            
            87,083
            
            
            
            109,524
            
            
            
            150,026Rescissions
      of sales to existing customers
            
            
            (6,268
            )
            
            
            (4,953
            )
            
            
            (9,559
            )Net
      sales to existing customers
            
            
            80,815
            
            
            
            104,571
            
            
            
            140,467Total
      sales
            
            
            149,039
            
            
            
            190,386
            
            
            
            238,525Less
      sampler sales
            
            
            (2,623
            )
            
            
            (2,905
            )
            
            
            (3,390
            )Total
      Vacation Interval sales
            
            $
            146,416
            
            
            $
            187,481
            
            
            $
            235,135Rescission
      rate for new customers
            
            
            20.8
            %
            
            
            18.9
            %
            
            
            19.5
            %Rescission
      rate for existing customers
            
            
            7.2
            %
            
            
            4.5
            %
            
            
            6.4
            %Rescission
      rate for all customers
            
            
            14.0
            %
            
            
            11.6
            %
            
            
            12.3
            %





·
            In
      assessing the effectiveness of our sales and marketing programs, we
      believe it is also important to compare sales and marketing expenses to
      Vacation Interval sales.  The separate elements of sales and
      marketing expense that we assess are the cost of marketing to new
      purchasers, the cost of marketing to existing purchasers, offsite
      marketing, commissions, and sales and marketing overhead, as detailed in
      the following table (in thousands, except for tours and cost per
      tour):





Year Ended December 31,2005
            
            
            2006
            
            
            2007Tours
      to potential new purchasers
            
            
            74,244
            
            
            
            86,950
            
            
            
            108,541Cost
      per tour
            
            $
            463
            
            
            $
            424
            
            
            $
            464Cost
      of marketing to new purchasers
            
            
            34,378
            
            
            
            36,875
            
            
            
            50,324Cost
      of marketing to existing purchasers
            
            
            8,000
            
            
            
            11,649
            
            
            
            15,424Offsite
      marketing
            
            
            —
            
            
            
            6,041
            
            
            
            6,118Commissions
            
            
            23,178
            
            
            
            29,733
            
            
            
            37,780Sales
      and marketing overhead
            
            
            9,111
            
            
            
            12,564
            
            
            
            13,423Sampler
      sales offset
            
            
            —
            
            
            
            (2,905
            )
            
            
            (3,390
            )Total
      sales and marketing expense
            
            $
            74,667
            
            
            $
            93,957
            
            
            $
            119,679As
      a percentage of Vacation Interval  sales:Cost
      of marketing to new purchasers
            
            
            23.5
            %
            
            
            19.7
            %
            
            
            21.4
            %Cost
      of marketing to existing purchasers
            
            
            5.5
            %
            
            
            6.2
            %
            
            
            6.5
            %Offsite
      marketing
            
            
            0.0
            %
            
            
            3.2
            %
            
            
            2.6
            %Commissions
            
            
            15.8
            %
            
            
            15.9
            %
            
            
            16.1
            %Sales
      and marketing overhead
            
            
            6.2
            %
            
            
            6.7
            %
            
            
            5.7
            %Sampler
      sales offset
            
            
            0.0
            %
            
            
            (1.6
            )%
            
            
            (1.4
            )%Total
      sales and marketing expense
            
            
            51.0
            %
            
            
            50.1
            %
            
            
            50.9
            %





·
            Our
      second most important source of revenue is interest income, which is
      predominantly earned on our notes receivable.  Interest income
      as a percentage of average annual notes receivable has increased each year
      from 2003 through 2007as a result of
      periodically increasing the interest rate we charged our new
      customers.





·
            We
      have three lesser revenue sources.  They are management fees,
      predominantly from Silverleaf Club, gains on sales of notes receivable to
      our off-balance-sheet special purpose entity, and other
      income.  Gains on sales of notes receivable were $6.5 million
      for the year ended December 31, 2005.  We did not have any gains
      on sales of notes receivable in the years 2006 or
  2007.





·
            We
      generate cash from the collection of down payments, principal and interest
      from timeshare notes receivable, from sales of notes receivable, and from
      management fees and other income.  We also generated cash during
      each of the last three years from the sale of undeveloped land at
      locations that had been previously acquired for the possible development
      of new resorts.





·
            Since
      the majority of our sales are financed, we have revolving credit
      facilities that are drawn upon monthly to fund our day-to-day costs,
      expenses, and capital expenditures.





47
 Table of Contents





We
operate principally in only one business segment, the timeshare
industry.  Further, we only operate in the United
States.  As of December 31, 2007, we operate resorts in six states
(Texas, Missouri, Illinois, Massachusetts, Georgia, and Florida), and sell
primarily to residents of those states, with limited sales to residents of
nearby states. In addition, we own and operate a hotel located near the Winter
Park recreational area in Colorado which provides our owners with another
destination vacation alternative and gives Silverleaf an entry point into this
increasingly popular destination area.





Our
principal short-term focus is on continuing to conservatively increase annual
revenues. We will continue to identify new and existing customers with
acceptable credit characteristics that will allow us to profitably sell new,
upgrade, and additional Vacation Intervals at our Existing Resorts. Long term,
if the opportunities present themselves, we will consider adding and developing
new resorts where timeshare intervals can be marketed and sold at a
profit.





Critical
Accounting Policies





Adoption of SFAS No. 152 — We
adopted Statement of Financial Accounting Standards No. 152, “Accounting for
Real Estate Time-Sharing Transactions” (“SFAS No. 152”), effective January 1,
2006.  However, such adoption did not result in recognition of a
cumulative effect of a change in accounting principle as the impact on our
results of operations for periods prior to January 1, 2006 was not
material.  SFAS No. 152 amends Statement of Financial Accounting
Standards No. 66, “Accounting for Sales of Real Estate,” to apply the financial
accounting and reporting guidance for real estate time-sharing transactions
provided in American Institute of Certified Public Accountants Statement of
Position 04-2, “Accounting for Real Estate Time-Sharing Transactions” (“SOP
04-2”). SFAS No. 152 further amends Statement of Financial Accounting Standards
No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate
Projects” (“SFAS No. 67”), to stipulate that guidance provided for (a)
incidental operations and (b) costs incurred to sell real estate projects under
SFAS No. 67 be governed by SOP 04-2 as it relates to real estate time-sharing
transactions. In general, 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,
accounting for operations during holding periods (or incidental operations), and
other accounting transactions specific to timeshare 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
(including Cost of Sales) — A substantial portion of Vacation Interval
sales are consummated in exchange for mortgage notes receivable, which are
secured by a deed of trust on the Vacation Interval sold. If development costs
related to a particular project or phase are complete, we recognize related
Vacation Interval sales 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 such criteria are met
yet significant development costs remain to complete the project or phase,
revenues are recognized on the percentage-of-completion basis.  Under
this method, once the sales criteria are met, revenues are recognized
proportionate to costs already incurred relative to total costs expected for the
project or phase.  As of December 31, 2007, $296,000 in unearned
Vacation Interval sales related to deferral of sales recognition under the
percentage-of-completion method.





Both of
these revenue recognition methods employ the relative sales value method in
determining related cost of sales and inventory applicable to each Vacation
Interval sale recognized.  Under the relative sales value method, a
cost of sales percentage is used to apply costs to related sales as
follows:





·
            Total
      revenues to be recognized over an entire project or phase, considering
      both revenues recognized to date plus estimated revenues to be recognized
      over future periods, less an estimate of uncollectibility, is
      determined.


·
            Total
      costs of a project or phase, considering both costs already incurred plus
      estimated costs to complete the phase, if any, is
      determined.  Common costs, including amenities, are included in
      total estimated costs and allocated to inventory phases that such costs
      are expected to benefit.


·
            The
      cost of sales ratio applied to each sale represents total estimated costs
      as a percentage of total estimated revenues, which is specific to each
      inventory phase.  Generally, each building type is considered a
      separate phase.





The
estimate of total revenue for a particular phase also considers factors such as
trends in uncollectibles, changes in sales mix and unit sales prices,
repossessions of Vacation Intervals, effects of upgrade programs, and past and
expected sales programs to sell slow moving inventory units. At least quarterly
we evaluate the estimated cost of sales percentage applied to each sale using
updated information for total estimated phase revenue and total estimated phase
costs.  The effects of changes in estimates are accounted for in the
period in which such changes first become known on a retrospective basis, such
that the balance sheet at the end of the period of change and the accounting in
subsequent periods reflect the revised estimates as if such estimates had been
the original estimates.





48
 Table of Contents





As
mentioned, 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.





We also
sell additional and upgraded Vacation Intervals to existing owners. Revenues are
recognized on an additional Vacation Interval sale, which represents a new
Vacation Interval sale treated as a separate transaction from the original
Vacation Interval sale, 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%.  Revenue recognized on upgrade Vacation
Interval sales represents the difference between the upgrade sales price and
traded-in sales price, while related cost of sales represents 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 such services
are provided.





Sales and
marketing costs are charged to expense in the period incurred. Commissions,
however, are recognized in the same period the related revenues are
recognized.





Allowance for Uncollectible Notes
- Estimated uncollectible revenue is recorded at an amount sufficient to
maintain the allowance for uncollectible notes at a level management considers
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes.  The
allowance for uncollectible notes is adjusted based upon a periodic static-pool
analysis of the notes receivable portfolio, which tracks uncollectible notes for
each year’s sales over the lives of the notes.  Other factors
considered in the assessment of uncollectibility include the aging of notes
receivable, historical collection experience and credit losses, customer credit
scores (FICO® scores), and current economic factors.





Credit
losses represent three varieties as follows:





·
            A full cancellation of the note,
      whereby the customer is relieved of the obligation and we recover the
      underlying inventory,


·
            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,
  and


·
            A note receivable reduction that
      occurs when a customer trades a higher value product for a lower value
      product.





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 on sales of customer notes receivable is governed by
agreements between the purchasers of said notes and the Company.





In
accordance with SFAS No. 152, effective January 1, 2006, the provision for
uncollectible notes is characterized as estimated uncollectible revenue and
reported as a reduction to Vacation Interval sales rather than as a separate
expense item: provision for uncollectible notes.





Our
estimated uncollectible revenue as a percentage of Vacation Interval sales was
17.0% and 17.3% for the years ended December 31, 2007 and 2006, respectively.
Our provision for uncollectible notes as a percentage of Vacation Interval sales
was 16.2% for the year ended December 31, 2005.  Under the relative
sales value method, an estimate of the value of inventory recoveries is
considered in determining inventory costing and allocation to
sales.  Prior to 2006, such recoveries were included as a reduction to
the provision for uncollectible notes. Considering this change in treatment of
inventory recoveries, our net provision for expected credit losses would have
been lower for the years ended December 31, 2007 and 2006 compared to the year
ended December 31, 2005. Due to the state of the economy in general, and recent
deterioration of the residential real estate market and sub-prime mortgage
markets, the risk of Vacation Interval defaults has heightened.  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.





49
 Table of Contents





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, an estimate for the value of future recoveries, taxes, and
capitalized interest incurred in the construction or through the acquisition of
resort dwellings held for timeshare sale. Timeshare unit inventory costs are
capitalized as inventory and are allocated to cost of Vacation Interval sales
based upon their relative sales values.  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.  Inventory costs are charged to cost of sales using the
relative sales value method, which is described above.





In
estimating the total cost to complete all amenities at each resort, we consider
both costs incurred to date and expected costs to be incurred. At December 31,
2007, the estimated costs not yet incurred but expected to complete promised
amenities was $2.8 million.  We allocate the estimated cost of
promised and completed amenities to cost of Vacation Interval sales based on
Vacation Intervals sold in a given period as a percentage of total Vacation
Intervals expected to sell over the life of a particular resort project,
including the estimated resale of the recovered Vacation Intervals reacquired on
estimated future cancelled sales.





Vacation
Intervals may be reacquired as a result of (i) foreclosure (or deed in lieu of
foreclosure) and (ii) trade-in associated with the purchase of an upgraded or
downgraded Vacation Interval. Vacation Intervals reacquired are recorded in
inventory at the lower of their original cost or market value. Vacation
Intervals that have been reacquired are relieved from inventory on a specific
identification basis when resold.  Inventory acquired several years
ago through our program to reacquire Vacation Intervals owned but not actively
used by Silverleaf Owners has a significantly lower average cost basis than
recently constructed inventory, which contributes significantly to historical
operating margins. Newer inventory added through our construction and
acquisition programs has a higher average cost basis.





Liquidity
and Capital Resources





As of and
for the years ended December 31, 2005, 2006, and 2007, we have been in full
compliance with our debt covenants in our credit facilities with all of our
senior lenders.





The
following table summarizes our credit agreements with our senior lenders and our
off-balance-sheet special purpose finance subsidiary, SF-III, as of December 31,
2007 (in thousands):





Maximum
      Amount Available
            
            
            BalanceReceivable-Based
      Revolvers
            
            $
            342,495
            
            
            $
            154,413Receivable-Based
      Non-Revolvers
            
            
            90,015
            
            
            
            90,015Inventory
      Loans
            
            
            75,005
            
            
            
            63,078Subtotal
      On Balance Sheet
            
            
            507,515
            
            
            
            307,506Off-Balance-Sheet
      Receivable-Based Term Loan
            
            
            29,920
            
            
            
            29,920Grand
      Total
            
            $
            537,435
            
            
            $
            337,426





We use
these credit agreements to finance the sale of Vacation Intervals, to finance
construction, and for working capital needs. The loans mature between April 2008
and July 2018, and are collateralized (or cross-collateralized) by customer
notes receivable, inventory, construction in process, land, improvements, and
related equipment at certain of the Existing Resorts. Our fixed-to-floating debt
ratio at December 31, 2007 was 29% fixed-rate debt to 71% floating-rate
debt.  The credit facilities that bear interest at variable rates are
tied to the prime rate, LIBOR, or the corporate rate charged by certain banks.
The credit facilities secured by customer notes receivable allow advances of 75%
to 80% of eligible customer notes receivable. In addition, we have $2.1 million
of senior subordinated notes due April 2008, and $24.7 million of senior
subordinated notes due April 2010, with interest payable semi-annually on April
1 and October 1, guaranteed by all of our present and future domestic restricted
subsidiaries.





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, golf course and
pro shop income, and hotel 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-to-ten-year customer promissory note. We generate cash from
customer notes receivable (i) by borrowing at an advance rate of 75% to 80% of
eligible customer notes receivable, (ii) by 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-to-ten-year period, borrowing against
receivables has historically been a necessary part of normal
operations.





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During
the year ended December 31, 2005, we had net cash provided by operating
activities of $75.7 million, which was primarily the result of sales of notes
receivable, partially offset by the increase in our maximum exposure to loss
regarding our involvement with SF-III.





During
the year ended December 31, 2007, cash used in operating activities was $39.9
million compared to $45.6 million during the same period of 2006. This $5.7
million difference in cash used in operating activities during 2007 versus 2006
primarily resulted from the timing of payments on accounts payable, accrued
expenses, income taxes, and prepaid and other assets, partially offset by an
increase in inventories due to higher cash outflows for construction projects in
the current year.





Although
it appears we have adequate liquidity to meet our needs through January 2010, we
continue to identify additional financing arrangements. 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. Investing
activities typically reflect a net use of cash due to capital additions and
property acquisitions. However during 2005, net cash provided by investing
activities of $18.5 million primarily relates to the sale of our water
distribution and waste water treatment utilities assets at eight of our resorts,
and the sale of undeveloped land located in Luzerne County,
Pennsylvania.





During
2007, investing activities used $16.8 million of cash compared to $13.6 million
during 2006. The $13.6 million net cash used during 2006 resulted primarily from
the purchase of the following assets: Pinnacle Lodge (our 64-room hotel located
near the Winter Park recreational area in Colorado), two offsite sales offices,
and a corporate aircraft. We also began construction on the water park at The
Villages in 2006.  These purchases were partially offset by net
proceeds of $789,000 received from the sale of two parcels of land in
Mississippi.  The $16.8 million net cash used during 2007 consisted of
asset purchases totaling $17.0 million, partially offset by net proceeds of
$242,000 received from the sale of a land parcel in Texas.  During
2007, we purchased unimproved real property in Massachusetts and Missouri. The
Massachusetts land is a 394.3 acre tract which adjoins 500 acres that we own in
Berkshire County, Massachusetts, and the Missouri land consists of 36.7 acres
and is adjacent to our Holiday Hills resort in Taney County,
Missouri.





Net cash
used in financing activities for the year ended December 31, 2005 was $94.1
million, which primarily consists of $244.7 million of payments on borrowings
against pledged notes receivable and the repurchase of previously sold notes,
partially offset by $150.7 million of proceeds received from borrowings against
pledged notes receivable.  We paid fair value for the outstanding
balance of notes receivable under SF-I, two non-revolving loans with one of our
senior lenders, three term notes with another senior lender, and the outstanding
balance under both the receivable and inventory loans with a third senior
lender.





During
2007, net cash provided by financing activities was $58.4 million compared to
$59.7 million for 2006.  The net cash of $59.7 million provided by
financing activities during 2006 was primarily the result of $320.3 million of
proceeds received from borrowings against pledged notes receivable, partially
offset by $250.6 million of payments on borrowings against pledged notes
receivable and $10.2 million of increases in restricted cash reserved for
payments of debt, all of which were primarily due to our transactions with SF-IV
and SF-V.  The net cash of $58.4 million provided by financing
activities during 2007 was primarily the result of $181.3 million of proceeds
received from borrowings against pledged notes receivable and our inventory
loans, offset by $124.3 million of payments on borrowings against pledged notes
receivable and other debt.





At
December 31, 2007, our senior credit facilities provided for loans of up to
$507.5 million, of which $307.5 million of principal related to advances under
the credit facilities was outstanding. As of December 31, 2007, the weighted
average cost of funds for all borrowings was 7.6%. 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 December 31, 2007, $6.0 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. In 2005, we consummated a securitization transaction with
our wholly-owned off-balance-sheet qualified special purpose finance subsidiary,
SF-III, 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.  In
connection with this transaction, we sold SF-III $132.8 million in timeshare
receivables that were previously pledged as collateral under revolving credit
facilities with our senior lenders and SF-I, our former qualified special
purpose entity which was dissolved in 2005.  The Series 2005-A Notes
are secured by timeshare receivables we sold to SF-III pursuant to a transfer
agreement between us and SF-III.  The proceeds from the sale of the
timeshare receivables to SF-III of $108.7 million were primarily used to fully
pay off the credit facility of SF-I and to pay down amounts we owed under credit
facilities with our senior lenders.  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. In accordance with the
agreement, we are responsible for servicing the timeshare receivables purchased
by SF-III and receive fees for our services equal to 1.75% of eligible timeshare
receivables held by the facility. Such fees were $1.1 million, $1.5 million, and
$854,000 for the years ended December 31, 2005, 2006, and 2007,
respectively.





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At
December 31, 2007, SF-III held notes receivable totaling $37.2 million, with
related borrowings of $29.9 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 servicer of notes
receivable sold to SF-III, we are obligated to foreclose upon Vacation Intervals
securing defaulted note receivables. We may, but are not obligated to, purchase
foreclosed Vacation Intervals for an amount equal to the net fair market value
of such Vacation Intervals, which may not be less than fifteen percent of the
original acquisition price that the customer paid for the Vacation Interval. For
the year ended December 31, 2007, we paid $1.2 million to repurchase Vacation
Intervals securing defaulted contracts to facilitate the re-marketing of those
Vacation Intervals.  The carrying value of our investment in SF-III
was $7.3 million at December 31, 2007, which represents our maximum exposure to
loss regarding our obligation with SF-III.





Our
special purpose entities provide us with additional credit availability under
our facilities with our current senior lenders. As we require credit facilities
to provide liquidity necessary to fund our costs and expenses, 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.





In
addition, we are subject to current alternative minimum tax 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 2007, and anticipate that we will pay significant
AMT in future periods.





Federal
net operating losses of $155.5 million existing at December 31, 2007 expire
between 2020 and 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 $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 $22.7 million
of our net operating loss carryforwards as of December 31, 2007 were subject to
the Section 382 limitations.





Discontinued Operations. In
accordance with Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the water
and utility property assets and liabilities were designated as held for sale
effective December 31, 2004. In accordance with the provisions of SFAS No. 144,
the results of operations of these properties are included in income from
discontinued operations for all periods presented.





On March
11, 2005, we sold the water distribution and waste water treatment utilities
assets at eight of our timeshare resorts for $13.1 million, which resulted in a
gain of $879,000 once all conditions of the sale were met.  Certain of
the purchasers entered into a services agreement to provide uninterrupted water
supply and waste water treatment services to our eight timeshare resorts to
which the sold utility assets relate.  The purchasers charge our
timeshare resorts the tariffed rate for those utility services that are
regulated by the states in which the resorts are located.  For any
unregulated utility services, the purchasers charge a rate set in accordance
with the ratemaking procedures of the Texas Commission on Environmental
Quality.  The proceeds of our sale of these utility assets were used
to reduce senior debt in accordance with our loan agreements with our senior
lenders.





Our
agreement with the purchasers contains provisions relating to the required
post-closing receipt of customary governmental approvals from utility regulators
in Missouri and Texas. During 2005, the purchasers received governmental
approval from the utility regulators in Missouri. Approval from the utility
regulators in Texas is still pending, with a deadline for obtaining such
approvals extended to June 2008.  If the purchasers do not receive
required approvals by such date or if the deadline is not extended, the Texas
assets will be reconveyed to us, the sale will be rescinded, and we will be
obligated to return to the purchasers $6.2 million of the purchase price
attributable to such assets.





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Results
of Operations





The
following table sets forth certain operating information for the Company for the
years ended December 31, 2005, 2006, and 2007:





2005
            
            
            2006
            
            
            2007As
      a percentage of total revenues:Vacation
      Interval sales
            
            
            72.5
            %
            
            
            90.6
            %
            
            
            92.2
            %Estimated
      uncollectible revenue
            
            
            0.0
            %
            
            
            (15.7
            )%
            
            
            (15.7
            )%Sampler
      sales
            
            
            1.3
            %
            
            
            0.0
            %
            
            
            0.0
            %Net
      sales
            
            
            73.8
            %
            
            
            74.9
            %
            
            
            76.5
            %Interest
      income
            
            
            18.9
            %
            
            
            22.4
            %
            
            
            20.8
            %Management
      fee income
            
            
            0.9
            %
            
            
            0.9
            %
            
            
            1.1
            %Gain
      on sale of notes receivable
            
            
            3.2
            %
            
            
            0.0
            %
            
            
            0.0
            %Other
      income
            
            
            3.2
            %
            
            
            1.8
            %
            
            
            1.6
            %Total
      revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %As
      a percentage of Vacation Interval sales:Cost
      of Vacation Interval sales
            
            
            16.0
            %
            
            
            10.1
            %
            
            
            9.8
            %Sales
      and marketing
            
            
            51.0
            %
            
            
            50.1
            %
            
            
            50.9
            %Provision
      for uncollectible notes
            
            
            16.2
            %
            
            
            0.0
            %
            
            
            0.0
            %As
      a percentage of total revenues:Operating,
      general and administrative
            
            
            13.9
            %
            
            
            15.6
            %
            
            
            15.3
            %Depreciation
            
            
            1.3
            %
            
            
            1.2
            %
            
            
            1.4
            %As
      a percentage of interest income:Interest
      expense and lender fees
            
            
            45.2
            %
            
            
            46.8
            %
            
            
            46.4
            %





Results
of Operations for the Years Ended December 31, 2007 and 2006





Revenues





Revenues
for the year ended December 31, 2007 were $255.0 million, representing a $48.1
million, or 23.3% increase, compared to revenues of $206.9 million for the year
ended December 31, 2006. As discussed below, the increase is primarily
attributable to a $47.7 million increase in Vacation Interval sales during the
year 2007.





The
following table summarizes our Vacation Interval sales for the years ended
December 31, 2007 and 2006 (dollars in thousands, except average
price):





2006
            
            
            2007Sales
            
            
            Intervals
            
            
            AveragePrice
            
            
            Sales
            
            
            Intervals
            
            
            AveragePriceInterval
      Sales to New Customers
            
            $
            82,909
            
            
            
            6,557
            
            
            $
            12,644
            
            
            $
            94,668
            
            
            
            9,121
            
            
            $
            10,379Upgrade
      Interval Sales to Existing Customers
            
            
            72,366
            
            
            
            8,777
            
            
            
            8,245
            
            
            
            87,243
            
            
            
            9,988
            
            
            
            8,735Additional
      Interval Sales to Existing Customers
            
            
            32,206
            
            
            
            3,298
            
            
            
            9,765
            
            
            
            53,224
            
            
            
            6,273
            
            
            
            8,485Total
            
            $
            187,481
            
            
            
            
            
            
            
            
            
            
            $
            235,135





Vacation
Interval sales increased 25.4% in 2007 versus 2006 as a result of increased
interval sales to both new and existing customers as a result of an overall
growth in customer tours and continued high closing percentages on our sales to
both new and existing customers.  The number of interval sales to new
customers increased 39.1% offset by a decrease in average prices of 17.9% (due
to promotional pricing we offered during the third and fourth quarters of 2007
on select products) resulting in a 14.2% increase in sales to new customers in
2007 versus 2006. The number of upgrade interval sales to existing customers
increased 13.8% and average prices increased 5.9%, resulting in a 20.6% increase
in upgrade interval sales to existing customers during the year ended December
31, 2007 compared to the year ended December 31, 2006. The number of additional
interval sales to existing customers increased 90.2% and average prices
decreased 13.1% (also due to promotional pricing on additional interval sales)
resulting in a 65.3% net increase in additional interval sales to existing
customers during 2007 versus 2006.





Estimated
uncollectible revenue, which represents estimated future gross cancellations of
notes receivable, was $40.1 million for the year ended December 31, 2007 versus
$32.5 million for the year ended December 31, 2006. Our estimated uncollectible
revenue as a percentage of Vacation Interval sales was 17.0% for the year 2007
compared to 17.3% for 2006. Our receivables charged off as a percentage of
beginning of period gross notes receivable was 13.1% for 2007 compared to 12.4%
for the same period of 2006.  We believe our notes receivable are
adequately reserved, however, there can be no assurance that the percentage of
estimated uncollectible revenue will remain at its current level.





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Interest
income increased $6.8 million, or 14.6%, to $53.0 million for the year ended
December 31, 2007 from $46.2 million for 2006. The increase primarily resulted
from a higher average notes receivable balance in 2007 versus the same period of
2006, and an increase in the average yield on our outstanding notes receivable
to 16.3% at December 31, 2007 from 15.7% at December 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 $945,000 to $2.8 million for the year ended December 31, 2007
compared to $1.9 million for the year ended December 31, 2006, due primarily to
increased profitability of the resorts’ management clubs during 2007 versus
2006.





Other
income consists of marina income, golf course and pro shop income, hotel income,
and other miscellaneous items. Other income was $4.1 million for the year ended
December 31, 2007 compared to $3.8 million for the year ended December 31,
2006.  The increase is primarily attributable to hotel income of $1.1 million
during 2007 versus $522,000 during 2006, offset by gains on sales of land of
$242,000 in 2007 compared to $499,000 in 2006.





Cost of Vacation Interval
Sales





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 revenues under
the project, including amounts already recognized and estimated 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 considers factors such as trends in uncollectibles, changes in sales
mix and unit sales prices, repossessions of Vacation Intervals, effects of
upgrade programs, and past and expected future sales programs to sell slow
moving inventory units.





Cost of
Vacation Interval sales decreased to 9.8% in 2007 compared to 10.1% in
2006.  During 2007, cost of sales decreased due to increases in our
future relative sales value related to an increase in repossession and resale of
timeshare intervals, an increase in expected future sales price on some of our
higher-end products, and an increase in our master plan for new units added
across our properties as we continue to execute on our long-term growth strategy
of adding lodging units, amenities, and other assets to our existing properties.
In addition, we experienced an increase in sales of lower cost-basis timeshare
intervals during 2007 versus 2006.  These increases were partially
offset by costs recognized during 2007 related to past construction projects
that were terminated as we revamped our master plan during the
year.





Sales and
Marketing





Sales and
marketing expense as a percentage of Vacation Interval sales increased to 50.9%
for the year ended December 31, 2007 versus 50.1% for the comparable prior year
period.  The $25.7 million increase in sales and marketing expense is
primarily attributable to our increased volume of Vacation Interval sales as
well as increased costs related to new and existing promotional programs used to
generate tours.  These promotional programs were a primary factor in
providing us with a 24.8% growth in tours to potential new purchasers and a
25.4% increase in Vacation Interval sales during the year of 2007 versus
2006.





In
accordance with SFAS No. 152, sampler sales and related costs are accounted for
as incidental operations, whereby incremental costs in excess of related
incremental revenues are charged to expense as incurred.  Since our
sampler sales primarily function as a marketing program, allowing us additional
opportunities to sell Vacation Intervals to prospective customers, the
incremental costs of our sampler sales typically exceed incremental sampler
revenues.  Accordingly, $3.4 million and $2.9 million of sampler
revenues were recorded as a reduction to sales and marketing expense for the
years ended December 31, 2007 and 2006, respectively.





Operating, General and
Administrative





Operating,
general and administrative expenses as a percentage of total revenues decreased
to 15.3% in 2007 from 15.6% in 2006. Overall, operating, general and
administrative expenses increased by $6.8 million during 2007 as compared to
2006, primarily due to an increase in salaries of $2.7 million, a write-off of
$1.0 million of predevelopment costs associated with a potential land
acquisition that was terminated, an increase in bank fees of $900,000 (resulting
from higher credit card processing fees related to increased sales volume), and
a $474,000 increase in legal fees.





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Depreciation





Depreciation
expense as a percentage of total revenues increased to 1.4% in 2007 versus 1.2%
in 2006. Overall, depreciation expense was $3.5 million for 2007 compared to
$2.5 million for 2006, an increase of $972,000 due to capital expenditures of
$17.1 million during the year ended December 31, 2007.





Interest Expense and Lender
Fees





Interest
expense and lender fees as a percentage of interest income decreased to 46.4%
for the year ended December 31, 2007, compared to 46.8% for the same period of
2006.  Overall, interest expense and lender fees increased $2.9
million for 2007 versus 2006 primarily due to a larger average debt balance
outstanding during 2007, partially offset by a decrease in our weighted average
cost of borrowings to 7.6% for the year ended December 31, 2007 as compared to
7.9% for the year ended December 31, 2006.





Income before Provision for
Income Taxes





Income
before provision for income taxes increased to $45.1 million for the year ended
December 31, 2007 compared to $37.4 million for the year ended December 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
38.6% for the year ended December 31, 2007 compared to 38.5% for
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 December 31, 2007, we did not require an accrual for
interest and penalties related to unrecognized tax benefits.





Net
Income





Net
income was $27.7 million for the year ended December 31, 2007 compared to $23.0
million for the year ended December 31, 2006 as a result of the above-mentioned
operating results.





Results
of Operations for the Years Ended December 31, 2006 and 2005





Revenues





Revenues
for the year ended December 31, 2006 were $206.9 million, representing a $5.0
million, or 2.5% increase, compared to revenues of $201.9 million for the year
ended December 31, 2005.  As discussed below, the increase is
primarily attributable to a $41.1 million increase in Vacation Interval sales,
net of gains on sales of notes receivable and other income in 2005.





In
accordance with SFAS No. 152, total revenue for the year ended December 31, 2006
is decreased by estimated uncollectible revenue of $32.5 million, which
represents estimated future gross cancellations of notes receivable. In
addition, under SFAS No. 152, sampler sales are accounted for as incidental
operations, which require that any such incidental revenues be recorded as a
reduction of incremental costs or expenses. Accordingly, $2.9 million of sampler
sales, which would have been reported as revenue prior to adoption of SFAS No.
152, were accounted for as a reduction to sales and marketing expense in the
year ended December 31, 2006. Had these two changes mandated by SFAS No. 152 not
been made, revenues would have increased by 20.0% to $242.3
million.





The
following table summarizes our Vacation Interval sales for the years ended
December 31, 2006 and 2005 (dollars in thousands, except average
price):





2005
            
            
            2006Average
            
            
            
            
            
            
            
            
            AverageSales
            
            
            Intervals
            
            
            Price
            
            
            Sales
            
            
            Intervals
            
            
            PriceInterval
      Sales to New Customers
            
            $
            65,601
            
            
            
            5,364
            
            
            $
            12,230
            
            
            $
            82,909
            
            
            
            6,557
            
            
            $
            12,644Upgrade
      Interval Sales to Existing Customers
            
            
            53,734
            
            
            
            6,576
            
            
            
            8,171
            
            
            
            72,366
            
            
            
            8,777
            
            
            
            8,245Additional
      Interval Sales to Existing Customers
            
            
            27,081
            
            
            
            2,968
            
            
            
            9,124
            
            
            
            32,206
            
            
            
            3,298
            
            
            
            9,765Total
            
            $
            146,416
            
            
            
            
            
            
            
            
            
            
            $
            187,481





Vacation
Interval sales increased 28.0% in 2006 versus 2005, due to increased interval
sales to both new and existing customers as a result of increased demand from
our existing customers for upgraded intervals, higher closing percentages, and
lower rescission rates. The number of interval sales to new customers increased
22.2% and average prices increased 3.4%, resulting in a 26.4% increase in sales
to new customers in 2006 versus 2005.  The number of upgrade interval
sales to existing customers increased 33.5% and average prices increased 0.9%,
resulting in a 34.7% increase in upgrade interval sales to existing customers
during the year ended December 31, 2006 compared to the year ended December 31,
2005.  The number of additional interval sales to existing customers
increased 11.1% and average prices increased 7.0% resulting in an 18.9% increase
in additional interval sales to existing customers during 2006 versus
2005.





55
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Estimated
uncollectible revenue, which represents estimated future gross cancellations of
notes receivable, was $32.5 million for the year ended December 31, 2006 versus
$0 reported on this line for 2005.  Our estimated uncollectible
revenue as a percentage of Vacation Interval sales was 17.3% for the year ended
December 31, 2006. In accordance with SFAS No. 152, effective January 1, 2006,
the provision for uncollectible notes is characterized as estimated
uncollectible revenue and reported as a reduction to Vacation Interval sales
rather than as a separate expense item: provision for uncollectible
notes.  Our receivables charged off as a percentage of beginning of
period gross notes receivable was 12.4% for 2006 compared to 12.1% for the same
period of 2005.  We believe our notes receivable are adequately
reserved, however, there can be no assurance that the percentage of estimated
uncollectible revenue will remain at its current level.





We
reported sampler sales revenues for the year 2005 totaling $2.6 million compared
to $0 for 2006.  During the year ended December 31, 2006, all sampler
sales of $2.9 million were recorded as a reduction to sales and marketing
expense, since incremental costs of sampler sales exceeded incremental sampler
sales, in accordance with SFAS No. 152.





Interest
income increased $8.0 million, or 21.2%, to $46.2 million for the year ended
December 31, 2006 from $38.2 million for 2005. The increase primarily resulted
from (i) a higher average notes receivable balance in 2006 versus the same
period of 2005, (ii) a $2.1 million increase in interest accretion related to
the investment in our special purpose entity for the year ended December 31,
2006 versus the year ended December 31, 2005, and (iii) an increase in the
average yield on our outstanding notes receivable to 15.7% at December 31, 2006
from 15.3% at December 31, 2005.





Management
fee income, which consists of management fees collected from the resorts’
management clubs, cannot exceed the management clubs’ net income. Management fee
income remained constant at $1.9 million for both years ended December 31, 2006
and 2005.





There
were no sales of notes receivable during the year of 2006.  We
reported gains on sales of notes receivable of $6.5 million during 2005,
resulting from the sale of $8.0 million and $132.8 million of notes receivable
to SF-I and SF-III, respectively, and recognizing pre-tax gains of $669,000 and
$5.8 million, respectively. In connection with the sale to SF-I, we received
cash consideration of $6.0 million, which was used to pay down borrowings under
our senior revolving loan facilities. In connection with the sale to SF-III, we
received gross 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.





Other
income consists of marina income, golf course and pro shop income, land sales,
and other miscellaneous items. Other income was $3.8 million and $6.4 million
for the years ended December 31, 2006 and 2005, respectively.  The
decrease is primarily due to a $3.6 million gain on the sale of undeveloped land
located in Pennsylvania during 2005, which is partially offset by a $499,000
gain on the sale of two parcels of land in Mississippi during 2006, and hotel
income of $522,000 in 2006.





Cost of Vacation Interval
Sales





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 revenues under
the project, including amounts already recognized and estimated 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 considers factors such as trends in uncollectibles, changes in sales
mix and unit sales prices, repossessions of Vacation Intervals, effects of
upgrade programs, and past and expected future sales programs to sell slow
moving inventory units.





Cost of
Vacation Interval sales decreased to 10.1% in 2006 compared to 16.0% in 2005.
This decrease is primarily due to the implementation of SFAS No. 152 effective
January 1, 2006, which amends the relative sales value method of recording
Vacation Interval cost of sales as noted above.  For comparability, had
cost of sales not been reduced by the estimated future recoveries of inventory,
as described above, cost of sales for 2006 would have been 14.5% of Vacation
Interval Sales versus 16.0% in 2005.Higher average sales prices during
2006 compared to 2005 contributed to the reduction in cost of Vacation Interval
sales.





56
 Table of Contents





Sales and
Marketing





Sales and
marketing expense as a percentage of Vacation Interval sales decreased to 50.1%
for the year ended December 31, 2006 versus 51.0% for the same period of
2005.  The $19.3 million increase in sales and marketing expense is
primarily attributable to our increased volume of Vacation Interval sales as
well as increased costs related to new and existing promotional programs used to
generate tours.  These promotional programs were a primary factor in
providing us with a 28.0% increase in Vacation Interval sales during the year of
2006 versus 2005.





In
accordance with SFAS No. 152, sampler sales and related costs are accounted for
as incidental operations, whereby incremental costs in excess of related
incremental revenues are charged to expense as incurred.  Since our
sampler sales primarily function as a marketing program, allowing us additional
opportunities to sell Vacation Intervals to prospective customers, the
incremental costs of our sampler sales typically exceed incremental sampler
revenues.  Accordingly, $2.9 million of sampler revenues were recorded
as a reduction to sales and marketing expense for the year ended December 31,
2006.  Prior to SFAS No. 152, sampler sales were reported separately
as revenue.  We recognized $2.6 million in revenues from sampler sales
for the year ended December 31, 2005.





Provision for Uncollectible
Notes





In
accordance with SFAS No. 152, effective January 1, 2006, the provision for
uncollectible notes is characterized as estimated uncollectible revenue and
reported as a reduction to Vacation Interval sales rather than as a separate
expense item: provision for uncollectible notes.  Our estimated
uncollectible revenue as a percentage of Vacation Interval sales was 17.3% for
2006.  Our provision for uncollectible notes as a percentage of
Vacation Interval sales was 16.2% during 2005.  As noted above, an
estimate for the value of inventory recoveries was included as a reduction to
the provision for uncollectible notes prior to 2006 but is now included as a
component in the relative sales value method of our inventory costing and
allocation accounting. Considering the estimate for inventory recoveries of
approximately 4.3% of Vacation Interval sales, our net provision for expected
credit losses was 13.0% during 2006, which compares favorably to 16.2% for
2005.





Operating, General and
Administrative





Operating,
general and administrative expense as a percentage of total revenues increased
to 15.6% in 2006 from 13.9% in 2005.  Overall, operating, general and
administrative expenses increased $4.3 million during 2006 as compared to 2005,
primarily due to an increase in professional fees of $1.9 million, and a $1.5
million increase in salaries.  Excluding the impact of
SFAS No. 152 on our revenues during 2006 as described above, operating, general
and administrative expenses as a percentage of total revenues would have been
13.3% during 2006.





Depreciation





Depreciation
expense as a percentage of total revenues was 1.2% in 2006 compared to 1.3% in
2005. Overall, depreciation expense decreased $184,000 for the year of 2006
versus the same period of 2005.





Interest Expense and Lender
Fees





Interest
expense and lender fees as a percentage of interest income increased to 46.8%
for the year ended December 31, 2006, compared to 45.2% for the same period of
2005. Overall, interest expense and lender fees increased $4.4 million for 2006
versus 2005, primarily due to a larger average debt balance outstanding during
2006, partially offset by a decrease in our weighted average cost of borrowings
to 7.9% for the year ended December 31, 2006 as compared to 8.1% for the year
ended December 31, 2005.





Income before Provision for
Income Taxes and Discontinued Operations





Income
before provision for income taxes and discontinued operations increased to
income of $37.4 million for the year ended December 31, 2006, as compared to
$32.2 million for the year ended December 31, 2005, 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 and
discontinued operations was 38.5% for 2006, as compared to 30.2% for
2005.  The higher effective income tax rate during 2006 was the result
of utilizing enough of the NOL carryforward and other deferred tax assets during
2005, causing us to move into a net deferred tax liability position at year-end
2005 and for all of 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 December
31, 2007, we did not require an accrual for interest and penalties related to
unrecognized tax benefits.





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Income from Continuing
Operations





Income
from continuing operations increased to $23.0 million for the year ended
December 31, 2006 compared to $22.4 million for the year ended December 31, 2005
as a result of the above-mentioned operating results.





Income from Discontinued
Operations





Income
from discontinued operations, net of income taxes, was $741,000 during the year
ended December 31, 2005.  We recognized a gain on sale of discontinued
operations, net of income taxes, of $613,000 during 2005 related to the sale of
our water distribution and waste water treatment utilities assets at eight of
our timeshare resorts.  There were no activities from discontinued
operations during the year ended December 31, 2006.





Net
Income





Net
income was $23.0 million for the year ended December 31, 2006, compared to $23.2
million for the year ended December 31, 2005, as a result of the above-mentioned
operating results.





Contractual
Obligations and Commitments





The
following table summarizes our scheduled contractual commitments as of December
31, 2007 (in thousands):





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            ThereafterLong-term
      debt
            
            $
            42,362
            
            
            $
            24,516
            
            
            $
            60,527
            
            
            $
            113,500
            
            
            $
            51,404
            
            
            $
            175,739Capital
      leases
            
            
            778
            
            
            
            698
            
            
            
            291
            
            
            
            104
            
            
            
            9
            
            
            
            —Operating
      leases
            
            
            2,653
            
            
            
            2,322
            
            
            
            1,513
            
            
            
            956
            
            
            
            466
            
            
            
            717Construction
      commitments
            
            
            19,151
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            $
            64,944
            
            
            $
            27,536
            
            
            $
            62,331
            
            
            $
            114,560
            
            
            $
            51,879
            
            
            $
            176,456





Long-term
debt includes $126.8 million of future interest, using an approximate interest
rate of 7.6%, which is our weighted average cost of borrowings at December 31,
2007.  Capital leases include $157,000 of future interest, using an
approximate interest rate of 6.1%, which is our weighted average cost of
borrowings on our capital lease obligations at December 31, 2007. We also have a
$15.7 million demand note with SF-II, our wholly owned on-balance-sheet conduit
financing subsidiary, which is excluded from long-term debt as the note
represents only a potential, future cash outlay and is eliminated on a
consolidated basis.





Inflation





Inflation
and changing prices have not had a material impact on our revenues, operating
income, and net income during any of the three most recent fiscal years.
However, to the extent inflationary trends affect short-term interest rates, a
portion of our debt service costs may be affected as well as the rates we charge
on our customer notes receivable.





Recent
Accounting Pronouncements





SFAS No. 156 – In March 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets”
(“SFAS No. 156”). 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. SFAS No. 156 was effective as of the
beginning of fiscal years beginning after September 15, 2006, with early
adoption permitted as of January 1, 2006.  The adoption of SFAS No.
156 on January 1, 2007, did not impact our consolidated financial position,
results of operations, or cash flows.





FIN No. 48– In July 2006, the FASB
issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with Statement
of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN
No. 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. It also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN No. 48 was effective for fiscal years
beginning after December 15, 2006.  The adoption of FIN No. 48, on
January 1, 2007, did not impact our consolidated financial position, results of
operations, or cash flows.





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SFAS No. 157– In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements.  SFAS No. 157 will be applied prospectively, and will be
effective for periods beginning after November 15, 2007.  The FASB
issued Staff Position No. 157-2 in February 2008, which delayed the effective
date of SFAS No. 157 for certain nonfinancial assets and liabilities to fiscal
years beginning after November 15, 2008.  Based on our preliminary
assessment, we do not believe the adoption of SFAS No. 157 will have a material
impact on our consolidated financial position, results of operations, or cash
flows.





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.  Based on our preliminary assessment, we do not believe the
adoption of SFAS No. 159 will have a material impact on our consolidated
financial position, results of operations, or cash flows.





SFAS No.141R–In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), “Business Combinations” (“SFAS No. 141R”), which requires all business
combinations, whether full, partial, or step acquisitions, to reflect all assets
and liabilities of an acquired business at their fair values at the acquisition
date.  In subsequent periods, contingent liabilities will be measured at
the higher of their acquisition date fair value or the estimated amounts to be
realized.  SFAS No. 141R applies to all transactions or other events in
which an entity obtains control of one or more businesses.  SFAS No. 141R
is effective prospectively for fiscal years beginning after December 15,
2008.  Early adoption is not permitted.  We are currently
assessing the financial impact the adoption of SFAS No. 141R will have on
our financial position, results of operations, and cash flows.





SFAS No. 160 –In December 2007, the FASB
issued Statement of Financial Accounting Standards No. 160, “Noncontrolling
Interests in Consolidated Financial Statements” (“SFAS No.
160”).  SFAS No. 160 amends Accounting Research Bulletin No. 51
“Consolidated Financial Statements,” and Financial Accounting Standards Board
Statement No. 128, “Earnings Per Share.”  A noncontrolling interest is
defined in SFAS No. 160 as the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent.  SFAS No. 160
states that accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a component of
equity.  SFAS No. 160 applies to all entities that prepare consolidated
financial statements, except not-for-profit organizations.  SFAS No.
160 is effective prospectively for fiscal years beginning after
December 15, 2008.  We are currently assessing the financial impact
the adoption of SFAS No. 160 will have on our consolidated financial position,
results of operations, and cash flows.





ITEM7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





General - 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 $507.5 million at December 31, 2007, have a
fixed-to-floating debt ratio of 29% fixed-rate debt to 71% floating-rate debt.
The impact of a one-point effective interest rate change on the $217.5 million
balance of variable-rate financial instruments at December 31, 2007 would be
approximately $1.3 million on our results of operations, after taxes, for the
year ended December 31, 2007, or approximately $0.03 per diluted
share.





At
December 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.  Our fixed-rate notes receivable are subject to interest rate
risk and will decrease in fair value if market rates increase, which may
negatively impact our ability to sell our fixed-rate notes in the
marketplace.  A hypothetical one-point interest rate increase in the
marketplace at December 31, 2007 would result in a fair value decrease of
approximately $11.6 million on 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.





59
 Table of Contents





We offer
financing to the buyers of Vacation Intervals at our resorts. These buyers
generally make a down payment of 10% to 15% of the purchase price and deliver a
promissory note to us for the balance. The promissory notes generally bear
interest at a fixed rate, are payable over a seven to ten year period, and are
secured by a first mortgage on the Vacation Interval. We bear the risk of
defaults on these promissory notes. Although we prescreen prospects via credit
scoring techniques in the early stages of the marketing and sales process, we
generally do not perform a detailed credit history review of our
customers. Due to the state of the economy in general, and recent
deterioration of the residential real estate market and sub-prime mortgage
markets, the risk of Vacation Interval defaults has
heightened.  Because we use various mass marketing techniques, a
certain percentage of our sales are to customers who may be considered to have
marginal credit quality.  During 2007 and 2006, approximately 21.6%
and 19.6%, respectively, of our sales were made to customers with FICO® scores
below 600.  In addition, we have experienced an increase in defaults
in our loan portfolio as compared to historical rates.  Due to
deteriorating conditions in the sub-prime mortgage industry there can be no
assurance that defaults have stabilized or that they will not
worsen.  These and other recent adverse changes in the credit markets
and related uncertain economic conditions may eliminate or reduce the
availability or increase the cost of significant sources of funding for us in
the future.  Specifically, if default rates for our borrowers were to
rise, it may require an increase in our estimated uncollectible revenue. 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.




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 71% 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. Although interest rates have
recently been trending downward, 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 potential increases in interest rates, we have executed two
interest rate swaps related to our conduit loan with SF-II, with fixed rates of
7.04% and 7.90%, for a total notional amount of $21.3 million at December 31,
2007.  Such interest rate swaps expire between September 2011 and
March 2014.  Our variable funding note with SF-IV also acts as an
interest rate hedge since it contains a provision for an interest rate
cap.  The balance outstanding under this line of credit at December
31, 2007 was $59.3 million.  Such variable funding note will mature in
September 2011.





In
addition, the Series 2005-A Notes related to our off-balance-sheet special
purpose finance subsidiary, SF-III, with a balance of $29.9 million at December
31, 2007, bear interest at a blended fixed rate of 5.4%.





Availability of Funding Sources —We fund substantially all of our 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 collections on 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 condition.





Geographic Concentration —
Our notes receivable and Vacation Interval inventories are primarily originated
in Texas, Missouri, Illinois, Massachusetts, Georgia, and Florida. Risks
inherent in such concentrations are:





·
            regional
      and general economic stability, which affects property values and the
      financial stability of the borrowers,
and


·
            the
      continued popularity of our resort destinations, which affects the
      marketability of our products and the collection of notes
      receivable.





ITEM8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





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





60
 Table of Contents





ITEM9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM9A.
            CONTROLS
      AND PROCEDURES





Management's
Report on Internal Control over Financial Reporting





Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that are filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms. These disclosure controls and procedures include controls and procedures
designed to ensure that information required to be disclosed under the Exchange
Act is accumulated and communicated to our management on a timely basis to allow
decisions regarding required disclosure. Under the supervision and with the
participation of our management, including our chief executive officer, chief
financial officer, and chief accounting officer, we evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of
December 31, 2007  based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





Our
internal control over financial reporting includes policies and procedures that
(1) pertain to maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of our management and board of
directors; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of assets that
could have a material effect on the financial statements.





Due to
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements and, even when determined to be effective, can
only provide reasonable, not absolute, assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate as a result of changes in conditions or deterioration in the degree
of compliance.





Based on
the assessment, our management has concluded that our internal control over
financial reporting was effective as of December 31, 2007 and provides
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles. The results of
management's assessment were reviewed with the Audit Committee of our Board of
Directors.





Our
internal control over financial reporting has been audited by BDO Seidman, LLP,
an independent registered public accounting firm, as stated in their report
which is included herein.





Changes
in Internal Control over Financial Reporting





During
the fourth quarter of 2007, there were no changes in our internal control over
financial reporting that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To the
Board of Directors and Shareholders of


Silverleaf
Resorts, Inc.


Dallas,
Texas




We have
audited Silverleaf Resorts Inc.’s (the “Company”) internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying  “Management’s Report on
Internal Control Over Financial Reporting”. Our responsibility is to express an
opinion on the company’s internal control over financial reporting based on our
audit.





61
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We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Silverleaf Resorts, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on the COSO criteria.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Silverleaf
Resorts, Inc. as of December 31, 2007 and 2006 and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2007 and our report dated March 11,
2008 expressed an unqualified opinion thereon.







/s/ BDO
Seidman, LLP


Dallas,
Texas


March 11,
2008





ITEM9B.
            OTHER
      INFORMATION





None.





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PART III





MANAGEMENT





ITEM10.
            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE





The
required information is incorporated by reference from our Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on May 8,
2008.





The
following table sets forth certain information concerning each person who was a
director or executive officer of the Company as of December 31,
2007.





Name
            
            Age
            
            PositionRobert
      E. Mead
            
            61
            
            Chairman
      of the Board and Chief Executive OfficerSharon
      K. Brayfield
            
            47
            
            PresidentDavid
      T. O'Connor
            
            65
            
            Executive
      Vice President — SalesJoe
      W. Conner
            
            50
            
            Chief
      Operating OfficerHarry
      J. White, Jr.
            
            53
            
            Chief
      Financial Officer and TreasurerMichael
      D. Jones
            
            41
            
            Chief
      Information OfficerEdward
      L. Lahart
            
            43
            
            Executive
      Vice President — OperationsThomas
      J. Morris
            
            42
            
            Senior
      Vice President — Capital MarketsSandra
      G. Cearley
            
            46
            
            Corporate
      SecretaryJames
      B. Francis, Jr.
            
            59
            
            DirectorJ.
      Richard Budd, III
            
            55
            
            DirectorHerbert
      B. Hirsch
            
            71
            
            DirectorRebecca
      Janet Whitmore
            
            53
            
            Director


____________________





Effective
February 4, 2008, the Company’s board of directors elected
Robert M. Sinnott as Chief Financial Officer. Mr. Sinnott
succeeds Harry J. White, Jr., who has served as Chief
Financial Officer since June 1998. Mr. White will remain with the
Company as Chief Accounting Officer through May 8, 2008, the annual
shareholder meeting date. After that date, Mr. White has announced his
plans to retire as an officer and full-time employee of the Company; however, he
will remain involved with the Company in a consulting
capacity.




The
following table sets forth certain information concerning other officers of the
Company as of December 31, 2007.





Name
            
            Age
            
            PositionRobert
      G. Levy
            
            59
            
            Vice
      President — Resort OperationsDarla
      Cordova
            
            43
            
            Vice
      President — Sales AdministrationHerman
      Jay Hankamer
            
            68
            
            Vice
      President — Resort DevelopmentBarbara
      L. Lewis
            
            43
            
            Vice
      President — Financial ServicesMichael
      P. Lowrey
            
            49
            
            Vice
      President — Call Center OperationsPhillip
      B. Davis
            
            37
            
            Vice
      President — Finance


____________________





ITEM11.
            EXECUTIVE
      COMPENSATION





The
required information is incorporated by reference from our Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on May 8,
2008.




63
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ITEM12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





Equity Compensation Plan
Information





The
following table sets forth information about our equity compensation plans as of
December 31, 2007:





Plan Category
            
            Number
      of Securities to be Issued Upon Exercise of Outstanding Options,Warrants, and Rights
            
            
            Weighted
      Average Exercise Price of Outstanding Options, Warrants, and Rights
            
            
            Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation PlansEquity
      Compensation Plans Approved by Security Holders
            
            
            2,513,807
            
            
            $
            3.28
            
            
            
            59Equity
      Compensation Plans Not  Approved by Security
    Holders
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            2,513,807
            
            
            $
            3.28
            
            
            
            59





There are
59 options remaining available of the 2,209,614 approved options under our 2003
Stock Option Plan.





Security Ownership of
Certain Beneficial Owners and Management





The
required information is incorporated by reference from our Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on May 8,
2008.





ITEM13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





The
required information is incorporated by reference from our Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on May 8,
2008.





ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





The
required information is incorporated by reference from our Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on May 8,
2008.





PART
IV





ITEM15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(a)
            The
      following documents are filed as part of this
  report:




Exhibit
      Number
              
              Description3.1
              
              —
              
              Third
      Amended and Restated Articles of Incorporation of the Registrant dated
      December 17, 2003 (incorporated by reference to Exhibit 3.1 to
      Registrant's Form 8-K filed December 29, 2003).3.2
              
              —
              
              Articles
      of Correction dated February 9, 2004 to Articles of Incorporation of the
      Registrant (incorporated by reference to Exhibit 3.2 of Registrant’s Form
      10-K for year ended December 31, 2003).3.3
              
              —
              
              Third
      Amended and Restated Bylaws of Silverleaf Resorts, Inc. (incorporated by
      reference to Exhibit 3.1 to Registrant’s Form 8-K dated November 14,
      2007).3.4
              
              —
              
              Amended
      and Restated Certificate of Incorporation of Silverleaf Finance II, Inc.
      dated December 23, 2003 (incorporated by reference to Exhibit 3.2 to
      Registrant's Form 8-K filed December 29, 2003).4.1
              
              —
              
              Form
      of Stock Certificate of Registrant (incorporated by reference to Exhibit
      4.1 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration
      Statement on Form S-1, File No. 333-24273).4.2
              
              —
              
              Amended
      and Restated Indenture dated May 2, 2002, between the Registrant, Wells
      Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary
      Guarantors for the Registrant's 101⁄2% Senior Subordinated Notes due 2008
      (incorporated by reference to Exhibit 4.1 to Registrant's Form 10-Q for
      the quarter ended June 30, 2002).4.3
              
              —
              
              Certificate
      No. 001 of 101⁄2% Senior Subordinated Notes due 2008 in the amount of
      $75,000,000 (incorporated by reference to Exhibit 4.2 to Registrant’s Form
      10-Q for quarter ended March 31, 1998).4.4
              
              —
              
              Subsidiary
      Guarantee dated April 8, 1998 by Silverleaf Berkshires, Inc.; Bull’s Eye
      Marketing, Inc.; Silverleaf Resort Acquisitions, Inc.; Silverleaf Travel,
      Inc.; Database Research, Inc.; and Villages Land, Inc. (incorporated by
      reference to Exhibit 4.3 to Registrant’s Form 10-Q for the quarter ended
      March 31, 1998).
  64
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  4.5
              
              —
              
              Indenture
      dated June 7, 2004 by and among the Registrant, the Subsidiary Guarantors,
      and Wells Fargo Bank, National Association for the Registrant’s 8% Senior
      Subordinated Notes due 2010 (incorporated by reference to Exhibit 4.1 of
      Registrant’s Form 10-Q for the quarter ended June 30,
    2004).4.6
              
              —
              
              Certificate
      No. 001 dated June 7, 2004 of 8% Senior Subordinated Notes due 2010 in the
      amount of $24,761,000 (incorporated by reference to Exhibit 4.2 of
      Registrant’s Form 10-Q for the quarter ended June 30,
    2004).4.7
              
              —
              
              Subsidiary
      Guarantee dated June 7, 2004 by Awards Verification Center, Inc.,
      Silverleaf Travel, Inc., Silverleaf Resort Acquisition,
      Inc.,  Bull’s Eye Marketing, Inc., Silverleaf Berkshires, Inc.,
      eStarCommunications, Inc., People Really Win Sweepstakes, Inc., and SLR
      Research, Inc. (incorporated by reference to Exhibit 4.3 of Registrant’s
      Form 10-Q for the quarter ended June 30, 2004).9.1
              
              —
              
              Voting
      Trust Agreement dated November 1, 1999 between Robert E. Mead and Judith
      F. Mead (incorporated by reference to Exhibit 9.1 of the Registrant’s Form
      10-K for the year ended December 31, 1999).10.1
              
              —
              
              Form
      of Registration Rights Agreement between Registrant and Robert E. Mead
      (incorporated by reference to Exhibit 10.1 to Amendment No. 1 dated May
      16, 1997 to Registrant's Registration Statement on Form S-1, File No.
      333-24273).10.2
              
              —
              
              Silverleaf
      Club Agreement between the Silverleaf Club and the resort clubs named
      therein (incorporated by reference to Exhibit 10.4 to Registrant's
      Registration Statement on Form S-1, File No.
333-24273).10.3
              
              —
              
              Management
      Agreement between Registrant and the Silverleaf Club (incorporated by
      reference to Exhibit 10.5 to Registrant's Registration Statement on Form
      S-1, File No. 333-24273).10.4
              
              —
              
              Form
      of Indemnification Agreement (between Registrant and all officers,
      directors, and proposed directors) (incorporated by reference to Exhibit
      10.18 to Registrant's Registration Statement on Form S-1, File No.
      333-24273).10.5
              
              —
              
              Resort
      Affiliation and Owners Association Agreement between Resort Condominiums
      International, Inc., Ascension Resorts, Ltd., and Hill Country Resort
      Condoshare Club, dated July 29, 1995 (similar agreements for all other
      Existing Owned Resorts) (incorporated by reference to Exhibit 10.19 to
      Registrant's Registration Statement on Form S-1, File No.
      333-24273).10.6
              
              —
              
              First
      Amendment to Silverleaf Club Agreement, dated March 28, 1990, among
      Silverleaf Club, Ozark Mountain Resort Club, Holiday Hills Resort Club,
      the Holly Lake Club, The Villages Condoshare Association, The Villages
      Club, Piney Shores Club, and Hill Country Resort Condoshare Club
      (incorporated by reference to Exhibit 10.22 to Amendment No. 1 dated May
      16, 1997 to Registrant's Registration Statement on Form S-1, File No.
      333-24273).10.7
              
              —
              
              First
      Amendment to Management Agreement, dated January 1, 1993, between Master
      Endless Escape Club and Ascension Resorts, Ltd. (incorporated by reference
      to Exhibit 10.23 to Amendment No. 1 dated May 16, 1997 to Registrant's
      Registration Statement on Form S-1, File No.
333-24273).10.8
              
              —
              
              Silverleaf
      Club Agreement dated September 25, 1997, between Registrant and Timber
      Creek Resort Club (incorporated by reference to Exhibit 10.13 to
      Registrant's Form 10-Q for quarter ended September 30,
    1997).10.9
              
              —
              
              Second
      Amendment to Management Agreement, dated December 31, 1997, between
      Silverleaf Club and Registrant (incorporated by reference to Exhibit 10.33
      to Registrant’s Annual Report on Form 10-K for year Ended December 31,
      1997).10.10
              
              —
              
              Silverleaf
      Club Agreement, dated January 5, 1998, between Silverleaf Club and Oak N'
      Spruce Resort Club (incorporated by reference to Exhibit 10.34 to
      Registrant’s Annual Report on Form 10-K for year ended December 31,
      1997).10.11
              
              —
              
              Master
      Club Agreement, dated November 13, 1997, between Master Club and Fox River
      Resort Club (incorporated by reference to Exhibit 10.43 to Registrant’s
      Annual Report on Form 10-K for year ended December 31,
    1997).10.12
              
              —
              
              Management
      Agreement dated October 13, 1998, by and between the Registrant and Eagle
      Greens, Ltd. (incorporated by reference to Exhibit 10.6 to Registrant’s
      Form 10-Q for quarter ended September 30, 1998).10.13
              
              —
              
              Eighth
      Amendment to Management Agreement, dated March 9, 1999, between the
      Registrant and the Silverleaf Club (incorporated by reference to Exhibit
      10.47 to Registrant's Form 10-K for the year ended December 31,
      1999).10.14
              
              —
              
              Ninth
      Amendment to Management Agreement dated September 27, 2002 between the
      Registrant and Silverleaf Club (incorporated by reference to Exhibit 10.1
      to Registrant’s Form 10-Q for quarter dated September 30,
      2002).10.15
              
              —
              
              Developer
      Transfer Agreement dated as of December 19, 2003 between the Registrant
      and Silverleaf Finance II, Inc. (incorporated by reference to Exhibit 10.1
      of Registrant’s Form 8-K filed on December 29, 2003).10.16
              
              —
              
              Amendment
      No. 1 dated as of March 28, 2005 to Developer Transfer Agreement
      between the Registrant and Silverleaf Finance II, Inc. (incorporated by
      reference to Exhibit 10.1 to Registrant's Form 8-K filed on March 31,
      2005).10.17
              
              —
              
              Loan
      and Security Agreement dated as of December 19, 2003 between Silverleaf
      Finance II, Inc. and Textron Financial Corporation (incorporated by
      reference to Exhibit 10.2 to Registrant’s Form 8-K filed on December 29,
      2003).10.18
              
              —
              
              Amendment
      No. 1 dated as of March 28, 2005 to Loan and Security Agreement between
      the Registrant and Textron Financial Corporation (incorporated by
      reference to Exhibit 10.2 to Registrant's Form 8-K filed on March 31,
      2005).10.19
              
              —
              
              Defined
      Terms to Transfer Agreement and Loan and Security Agreement dated as of
      December 19, 2003 between Silverleaf Finance II, Inc. and Textron
      Financial Corporation (incorporated by reference to Exhibit 10.3 to
      Registrant’s Form 8-K filed on December 29, 2003).10.20
              
              —
              
              2003
      Stock Option Plan of the Registrant (incorporated by reference to Exhibit
      10.55 to Registrant's Form 10-K for year ended December 31,
      2003).10.21
              
              —
              
              Form
      of Services Agreements dated as of March 8, 2005 between the Registrant
      and the Purchasers of the water utilities and waste water facilities at
      the Registrant’s resorts in Texas, Missouri and Illinois (incorporated by
      reference to Exhibit 10.10 to Registrant's Form 8-K dated March 16,
      2005).10.22
              
              —
              
              Receivables
      Loan and Security Agreement between the Registrant and CapitalSource
      Finance, LLC dated as of April 29, 2005 (incorporated by reference to
      Exhibit 10.2 to Registrant's Form 8-K filed May 5,
  2005).10.23
              
              —
              
              First
      Amendment to Receivables Loan and Security Agreement dated as of April 28,
      2006 between CapitalSource Finance LLC and the Registrant (incorporated by
      reference to Registrant’s Exhibit 10.7 to Form 10-Q for the period ended
      March 31, 2006).10.24
              
              —
              
              Amended
      and Restated Inventory Loan and Security Agreement dated as of April 28,
      2006 between CapitalSource Finance LLC and the Registrant (incorporated by
      reference to Registrant’s Exhibit 10.8 to Form 10-Q for the period ended
      March 31, 2006).10.25
              
              —
              
              Indenture
      dated as of July 1, 2005 between Silverleaf Finance III, LLC, as
      Issuer, the Registrant, as Servicer, and Wells Fargo Bank, National
      Association, as Indenture Trustee, Backup Servicer, Custodian and Account
      Intermediary (incorporated by reference to Exhibit 10.1 to Registrant's
      Form 8-K filed July 28, 2005).10.26
              
              —
              
              First
      Supplement to Indenture dated as of February 8, 2006 between the
      Registrant, Silverleaf Finance III, LLC and Wells Fargo Bank, National
      Association (incorporated by reference to Exhibit 10.1 to Registrant’s
      Form 10-Q for the period ended June 30,
2006).
  65
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  10.27
              
              —
              
              Second
      Supplement to Indenture dated as of July 14, 2006 between the Registrant,
      Silverleaf Finance III, LLC and Wells Fargo Bank, National Association
      (incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-Q for
      the period ended June 30, 2006).10.28
              
              —
              
              Standard
      Definitions to Indenture and Transfer Agreement (incorporated by reference
      to Exhibit 10.2 to Registrant's Form 8-K filed July 28,
    2005).10.29
              
              —
              
              Transfer
      Agreement dated as of July 1, 2005 between the Registrant and
      Silverleaf Finance III, LLC (incorporated by reference to Exhibit 10.3 to
      Registrant's Form 8-K filed July 28, 2005).10.30
              
              —
              
              Loan
      and Security Agreement--Receivables between the Registrant and Well Fargo
      Foothill, Inc., dated as of December 16, 2005 (incorporated by reference
      to Exhibit 10.2 to Registrant's Form 8-K filed on December 23,
      2005).10.31
              
              —
              
              First
      Amendment to Loan and Security Agreement-Inventory dated as of October 6 ,
      2006, between the Registrant and Wells Fargo Foothill,
  Inc.10.32
              
              —
              
              Second
      Amendment to Loan and Security Agreement-Receivables dated as of March 1,
      2007, between the Registrant and Wells Fargo Foothill, Inc. (incorporated
      by reference to Exhibit 10.62 of Registrant’s Form 10-K for year ended
      December 31, 2006).10.33
              
              —
              
              Indenture
      dated as of March 2, 2006 by and among Silverleaf Finance IV, LLC, UBS
      Real Estate Securities Inc. and Wells Fargo Bank, National Association, as
      Trustee (incorporated by reference to Exhibit 10.2 to Registrant’s Form
      8-K filed on March 8, 2006).10.34
              
              —
              
              First
      Supplement to Indenture dated as of December 22, 2006 by and among
      Silverleaf Finance IV, LLC, UBS Real Estate Securities Inc. and Wells
      Fargo Bank, National Association, as Trustee (incorporated by reference to
      Exhibit 10.2 to Registrant’s Form 8-K filed on December 29,
      2006).10.35
              
              —
              
              Second
      Supplement to Indenture dated as of September 12, 2007, by and among
      Silverleaf Finance IV, LLC, UBS Real Estate Securities Inc. and Wells
      Fargo Bank, National Association, as Trustee (incorporated by reference to
      Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended September 30,
      2007).10.36
              
              —
              
              Amended
      and Restated Sale and Servicing Agreement dated as of December 22, 2006
      between the Registrant, Silverleaf Finance IV, LLC and Wells Fargo Bank,
      National Association, as Backup Servicer, Trustee and Account Intermediary
      (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed
      on December 29, 2006).10.37
              
              —
              
              First
      Amendment to Amended and Restated Sale and Servicing Agreement dated as of
      September 12, 2007, by and among Silverleaf Finance IV, LLC, Silverleaf
      Resorts, Inc., and Wells Fargo Bank, National Association, as Trustee,
      Backup Servicer and Account Intermediary (incorporated by reference to
      Exhibit 10.2 of Registrant’s Form 10-Q for the quarter ended September 30,
      2007).10.38
              
              —
              
              Annex
      A—Amended and Restated Defined Terms to Indenture and Amended and Restated
      Sale and Servicing Agreement dated as of December 22, 2006 (incorporated
      by reference to Exhibit 10.3 to Registrant’s Form 8-K filed on December
      29, 2006).10.39
              
              —
              
              Indenture
      dated as of August 1, 2006 between the Registrant, Silverleaf Finance V,
      L.P., Silverleaf Finance V, LLC and Wells Fargo Bank, National Association
      (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed
      on August 31, 2006).10.40
              
              —
              
              Standard
      Definitions to Indenture and Transfer Agreement (incorporated by reference
      to Exhibit 10.2 of Registrant’s Form 8-K filed on August 31,
      2006).10.41
              
              —
              
              Transfer
      Agreement dated as of August 1, 2006 between the Registrant and Silverleaf
      Finance V, L.P. (incorporated by reference to Exhibit 10.3 of Registrant’s
      Form 8-K filed on August 31, 2006).10.42
              
              —
              
              Loan
      Sale Agreement dated as of August 1, 2006 between the Registrant and
      Silverleaf Finance V, L.P.  (incorporated by reference to
      Exhibit 10.4 of Registrant’s Form 8-K filed on August 31,
      2006).10.43
              
              —
              
              Consolidated,
      Amended and Restated Loan and Security Agreement dated as of February 21,
      2007 between the Registrant and Textron Financial Corporation
      (incorporated by reference to Exhibit 10.61 to Registrant’s Form 10-K for
      year ended December 31, 2006).10.44
              
              —
              
              Loan
      and Security Agreement dated September 28, 2007 between the Registrant and
      Liberty Bank as Agent for itself and other Lenders (incorporated by
      reference to Exhibit 10.1 to Registrant’s Form 8-K filed on October 4,
      2007).10.45
              
              —
              
              Asset
      Purchase and Sale Agreement between the Registrant and The Fitzpatrick
      Family Limited Partnership (incorporated by reference to Registrant’s
      Exhibit 10.1 to Form 10-Q for the period ended March 31,
      2006).10.46
              
              —
              
              First
      Amendment to Asset Purchase and Sale Agreement between the Registrant and
      The Fitzpatrick Family Limited Partnership (incorporated by reference to
      Registrant’s Exhibit 10.2 to Form 10-Q for the period ended March 31,
      2006).10.47
              
              —
              
              Ratification
      of Asset Purchase and Sale Agreement between the Registrant and
      Fitzpatrick Land Registrant, LLC (incorporated by reference to
      Registrant’s Exhibit 10.3 to Form 10-Q for the period ended March 31,
      2006).10.48
              
              —
              
              Form
      of Securities Purchase Agreement, dated May 24, 2006, by and among the
      Registrant, the selling shareholders and the investors (incorporated by
      reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 26,
      2006)10.49
              
              —
              
              Amended,
      Extended and Restated Employment Agreement between the Registrant and
      Robert E. Mead (incorporated by reference to Annex A of the Proxy
      Statement on Schedule 14A filed with the SEC on April 6,
    2006)10.50
              
              —
              
              Employment
      Agreement dated March 8, 2007 between the Registrant and Sharon K.
      Brayfield (incorporated by reference to Exhibit 10.1 to Registrant’s Form
      8-K filed on March 12, 2007).10.51
              
              —
              
              Employment
      Agreement dated March 8, 2007 between the Registrant and Harry J. White,
      Jr. (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K
      filed on March 12, 2007).10.52
              
              —
              
              Amendment
      No. 1 to Employment Agreement dated February 4, 2008 between the
      Registrant and Harry J. White, Jr. (incorporated by reference to Exhibit
      10.2 of Registrant’s Form 8-K filed on February 6,
  2008).10.53
              
              —
              
              Employment
      Agreement dated March 8, 2007 between the Registrant and Joe W. Conner
      (incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K filed
      on March 12, 2007).10.54
              
              —
              
              Employment
      Agreement dated March 8, 2007 between the Registrant and David T. O’Connor
      (incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K filed
      on March 12, 2007).10.55
              
              —
              
              Employment
      Agreement dated February 4, 2008 between the Registrant and Robert M.
      Sinnott (incorporated by references to Exhibit 10.1 to Registrant’s Form
      8-K filed on February 6, 2008).10.56
              
              —
              
              Contract
      of Sale dated October 30, 2006 by and between Virgil M. Casey, Ronald D.
      Casey, Charles Randolph Casey, and Roger Kevin Casey, Trustees Of The
      Casey Family Trust Dated June 3, 1992, Ronald D. Casey and Wife, P.
      Beverly Casey, Charles Randolph Casey, and Roger Kevin Casey and
      Silverleaf Resorts, Inc. (incorporated by reference to Exhibit 10.3 of
      Registrant’s Form 10-Q for the quarter ended September 30,
      2007).
  66
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  10.57
              
              —
              
              Contract
      of Sale dated July 24, 2007 by and between J. W. Kelly’s Enterprises,
      Inc., James W. Kelly and Dorothy H. Kelly and James J. Oestreich, as
      assigned pursuant to the Assignment Of Contract Rights dated August 1,
      2007 between James J. Oestreich and Silverleaf Resorts, Inc. (incorporated
      by reference to Exhibit 10.4 of Registrant’s Form 10-Q for the quarter
      ended September 30, 2007).10.58
              
              —
              
              Contract
      of Sale dated July 24, 2007 by and between J. W. Kelly’s Enterprises,
      Inc., James W. Kelly and Dorothy H. Kelly and James J. Oestreich, as
      assigned pursuant to the Assignment Of Contract Rights dated August 1,
      2007 between James J. Oestreich and Silverleaf Resorts, Inc. (incorporated
      by reference to Exhibit 10.4 of Registrant’s Form 10-Q for the quarter
      ended September 30, 2007).*10.59
              
              —
              
              Amendment
      to Consolidated, Amended and Restated Loan and Security Agreement dated
      October 31, 2007 between the Registrant and Textron Financial
      Corporation.*10.60
              
              —
              
              Resort
      Affiliation and Owners Association Agreement dated October 18, 2007
      between the Registrant, Orlando Breeze Resort Club and RCI,
      LLC.*10.61
              
              —
              
              Amendment
      dated November 15, 2007 to Loan and Security Agreement between the
      Registrant and Liberty Bank.*10.62
              
              —
              
              Tenth
      Amendment to Management Agreement dated September 6, 2007 between the
      Registrant and Silverleaf Club.*10.63
              
              —
              
              Contract
      of Sale dated May 1, 2006 between the Registrant and Summit at Winter Park
      Land Co., LLC.*10.64
              
              —
              
              Amendment
      to Contract of Sale dated June 26, 2006 between the Registrant and Summit
      at Winter Park Land Co., LLC.*10.65
              
              —
              
              Second
      Amendment to Contract of Sale dated February 23, 2007 between the
      Registrant and Summit at Winter Park Land Co., LLC.*10.66
              
              —
              
              Third
      Amendment to Contract of Sale dated March 1, 2007 between the Registrant
      and Summit at Winter Park Land Co., LLC.*10.67
              
              —
              
              Fourth
      Amendment to Contract of Sale dated April 26, 2007 between the Registrant
      and Summit at Winter Park Land Co., LLC.*10.68
              
              —
              
              Fifth
      Amendment to Contract of Sale dated May 10, 2007 between the Registrant
      and Summit at Winter Park Land Co., LLC.*10.69
              
              —
              
              Sixth
      Amendment to Contract of Sale dated September 6, 2007 between the
      Registrant and Summit at Winter Park Land Co., LLC.*12.1
              
              —
              
              Computation
      of Ratio of Earnings to Fixed Charges.14.1
              
              —
              
              Code
      of Ethics adopted by the Registrant on December 16, 2003 (incorporated by
      reference to Exhibit 14.1  to Registrant's Form 10-K for year
      ended December 31, 2003).*21.1
              
              —
              
              Subsidiaries
      of Silverleaf Resorts, Inc.*23.1
              
              —
              
              Consent
      of BDO Seidman, LLP.*31.1
              
              —
              
              Certification
      of Chief Executive Officer Pursuant to Rule 15d-14(a) of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*31.2
              
              —
              
              Certification
      of Chief Financial Officer Pursuant to Rule 15d-14(a) of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*31.3
              
              —
              
              Certification
      of Chief Accounting Officer Pursuant to Rule 15d-14(a) of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*32.1
              
              —
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*32.2
              
              —
              
              Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*32.3
              
              —
              
              Certification
      of Chief Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*filed
      herewith


(b)
            Reports
      on Form 8-K





We filed
the following Current Reports on Form 8-K with the SEC during the quarter ended
December 31, 2007:




Current
report on Form 8-K filed with the SEC on October 4, 2007 relating to the
announcement of a new revolving credit facility with Liberty Bank.





Current
report on Form 8-K filed with the SEC on October 24, 2007 announcing the filing
of a universal shelf registration statement.





Current
report on Form 8-K filed with the SEC on October 25, 2007 relating to press
release announcing the scheduled release of financial results for the three and
nine month periods ended September 30, 2007.





Current
report on Form 8-K filed with the SEC on October 31, 2007 relating to press
release announcing financial results for the three and nine months ended
September 30, 2007.





Current
report on Form 8-K filed with the SEC on November 6, 2007 relating to the
purchase of 15.3 acres of undeveloped land located in Grand County,
Colorado.





Current
report on Form 8-K filed with the SEC on November 14, 2007 relating to the board
of director’s adoption of the Third Amended and Restated Bylaws of the
Company.




67
 Table of Contents




Current
report on Form 8-K filed with the SEC on December 19, 2007 relating to the
announcement of the opening of the new Beach Club at The Villages Resort in
Flint, Texas.





(c)
                The
      exhibits required by Item 601 of Regulation S-K have been listed in Item
      15(a) above. The exhibits listed in Item 15(a) above are either (a) filed
      with this report, or (b) have previously been filed with the SEC and are
      incorporated herein by reference to the particular previous
      filing.





(d)
            Financial
      Statement Schedules





None.
Schedules are omitted because of the absence of the conditions under which they
are required or because the information required by such omitted schedules is
set forth in the consolidated financial statements or the notes
thereto.





68
 Table of Contents





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized in the City of Dallas, State of Texas,
on March 11, 2008.





SILVERLEAF
      RESORTS, INC.By:
            /s/ ROBERT E.
      MEADName:
            Robert
      E. MeadTitle:
            Chairman
      of the Board and Chief Executive Officer





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, this report has been signed below on behalf of the Registrant in the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/ ROBERT E. MEAD
            
            Chairman
      of the Board and Chief Executive Officer
            
            March
      11, 2008Robert
      E. Mead
            
            (Principal
      Executive Officer)/s/ ROBERT M. SINNOTT
            
            Chief
      Financial Officer
            
            March
      11, 2008Robert
      M. Sinnott
            
            (Principal
      Financial Officer)/s/ HARRY J. WHITE, JR.
            
            Chief
      Accounting Officer
            
            March
      11, 2008Harry
      J. White, Jr./s/ J. RICHARD BUDD, III
            
            Director
            
            March
      11, 2008J.
      Richard Budd, III/s/ JAMES B. FRANCIS, JR.
            
            Director
            
            March
      11, 2008James
      B. Francis, Jr./s/ HERBERT B. HIRSCH
            
            Director
            
            March
      11, 2008Herbert
      B. Hirsch/s/ REBECCA JANET WHITMORE
            
            Director
            
            March
      11, 2008Rebecca
      Janet Whitmore




69
 Table of Contents





INDEXTO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
            
            F-2Financial
      StatementsConsolidated
      Balance Sheets as of December 31, 2006 and 2007
            
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2005, 2006, and
      2007
            
            F-4Consolidated
      Statements of Shareholders' Equity for the years ended December 31, 2005,
      2006, and 2007
            
            F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2005, 2006, and
      2007
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7





F-1
 Table of Contents





REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM







To the
Board of Directors and Shareholders of


Silverleaf
Resorts, Inc.


Dallas,
Texas




We have
audited the accompanying consolidated balance sheets of Silverleaf Resorts, Inc.
(the “Company”) as of December 31, 2007 and 2006 and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2007. These financial statements
are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.




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




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Silverleaf Resorts, Inc. at
December 31, 2007 and 2006, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2007, in conformity
with accounting principles generally accepted in the United States of
America.




As
discussed in Note 2 to the consolidated financial statements, in 2006 the
Company changed its accounting for real estate time-sharing transactions in
connection with the adoption of Statement of Financial Accounting Standards No.
152, “Accounting for Real Estate Time-Sharing Transactions,” and changed its
accounting for stock-based compensation in connection with the adoption of FASB
Statement No. 123(R), “Share-Based Payment.”




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Silverleaf Resorts Inc.’s internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 11,
2008 expressed an unqualified opinion thereon.








/s/ BDO
Seidman, LLP


Dallas,
Texas


March 11,
2008




F-2
 Table of Contents





SILVERLEAFRESORTS, INC.


CONSOLIDATED
BALANCE SHEETS


(in
thousands, except share and per share amounts)





December 31,ASSETS
            
            2006
            
            
            2007Cash
      and cash equivalents
            
            $
            11,450
            
            
            $
            13,170Restricted
      cash
            
            
            15,771
            
            
            
            12,816Notes
      receivable, net of allowance for uncollectible notes of $68,118 and
      $69,128, respectively
            
            
            229,717
            
            
            
            289,907Accrued
      interest receivable
            
            
            2,936
            
            
            
            3,744Investment
      in special purpose entity
            
            
            13,008
            
            
            
            7,315Amounts
      due from affiliates
            
            
            1,251
            
            
            
            1,358Inventories
            
            
            147,759
            
            
            
            179,188Land,
      equipment, buildings, and leasehold improvements, net
            
            
            28,040
            
            
            
            41,565Land
      held for sale
            
            
            205
            
            
            
            509Prepaid
      and other assets
            
            
            24,393
            
            
            
            31,487TOTAL
      ASSETS
            
            $
            474,530
            
            
            $
            581,059LIABILITIES
      AND SHAREHOLDERS' EQUITYLIABILITIESAccounts
      payable and accrued expenses
            
            $
            14,192
            
            
            $
            21,071Accrued
      interest payable
            
            
            1,792
            
            
            
            2,470Amounts
      due to affiliates
            
            
            246
            
            
            
            —Unearned
      Vacation Interval sales
            
            
            —
            
            
            
            296Unearned
      samplers
            
            
            6,245
            
            
            
            6,921Income
      taxes payable
            
            
            163
            
            
            
            782Deferred
      income taxes
            
            
            17,683
            
            
            
            30,463Notes
      payable and capital lease obligations
            
            
            254,550
            
            
            
            316,198Senior
      subordinated notes
            
            
            31,467
            
            
            
            26,817Total
      Liabilities
            
            
            326,338
            
            
            
            405,018COMMITMENTS
      AND CONTINGENCIES (Note 9)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 and 37,818,154 shares issued and outstanding at December 31,
      2006 and 2007, respectively
            
            
            378
            
            
            
            378Additional
      paid-in capital
            
            
            112,555
            
            
            
            112,700Retained
      earnings
            
            
            35,259
            
            
            
            62,963Total
      Shareholders' Equity
            
            
            148,192
            
            
            
            176,041TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            474,530
            
            
            $
            581,059





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





F-3
 Table of Contents





SILVERLEAFRESORTS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands, except share and per share amounts)





Year Ended December 31,2005
            
            
            2006
            
            
            2007Revenues:Vacation
      Interval sales
            
            $
            146,416
            
            
            $
            187,481
            
            
            $
            235,135Estimated
      uncollectible revenue
            
            
            —
            
            
            
            (32,491
            )
            
            
            (40,071
            )Sampler
      sales
            
            
            2,623
            
            
            
            —
            
            
            
            —Net
      sales
            
            
            149,039
            
            
            
            154,990
            
            
            
            195,064Interest
      income
            
            
            38,154
            
            
            
            46,248
            
            
            
            53,019Management
      fee income
            
            
            1,856
            
            
            
            1,861
            
            
            
            2,806Gain
      on sale of notes receivable
            
            
            6,457
            
            
            
            —
            
            
            
            —Other
      income
            
            
            6,402
            
            
            
            3,785
            
            
            
            4,141Total
      revenues
            
            
            201,908
            
            
            
            206,884
            
            
            
            255,030Costs
      and Operating Expenses:Cost
      of Vacation Interval sales
            
            
            23,427
            
            
            
            19,003
            
            
            
            23,027Sales
      and marketing
            
            
            74,667
            
            
            
            93,957
            
            
            
            119,679Provision
      for uncollectible notes
            
            
            23,649
            
            
            
            —
            
            
            
            —Operating,
      general and administrative
            
            
            28,038
            
            
            
            32,315
            
            
            
            39,101Depreciation
            
            
            2,723
            
            
            
            2,539
            
            
            
            3,511Interest
      expense and lender fees
            
            
            17,253
            
            
            
            21,662
            
            
            
            24,610Total
      costs and operating expenses
            
            
            169,757
            
            
            
            169,476
            
            
            
            209,928Income
      before provision for income taxes and discontinued
    operations
            
            
            32,151
            
            
            
            37,408
            
            
            
            45,102Provision
      for income taxes
            
            
            9,725
            
            
            
            14,402
            
            
            
            17,398Income
      from continuing operations
            
            
            22,426
            
            
            
            23,006
            
            
            
            27,704Discontinued
      OperationsGain
      on sales of discontinued operations (net of taxes)
            
            
            613
            
            
            
            —
            
            
            
            —Income
      from discontinued operations (net of taxes)
            
            
            128
            
            
            
            —
            
            
            
            —Income
      from discontinued operations
            
            
            741
            
            
            
            —
            
            
            
            —Net
      Income
            
            $
            23,167
            
            
            $
            23,006
            
            
            $
            27,704Basic
      income per share:Income
      from continuing operations
            
            $
            0.61
            
            
            $
            0.61
            
            
            $
            0.73Income
      from discontinued operations
            
            $
            0.02
            
            
            $
            —
            
            
            $
            —Net
      income
            
            $
            0.63
            
            
            $
            0.61
            
            
            $
            0.73Diluted
      income per share:Income
      from continuing operations
            
            $
            0.57
            
            
            $
            0.59
            
            
            $
            0.70Income
      from discontinued operations
            
            $
            0.02
            
            
            $
            —
            
            
            $
            —Net
      income
            
            $
            0.59
            
            
            $
            0.59
            
            
            $
            0.70Weighted
      average basic common shares issued and outstanding
            
            
            36,986,926
            
            
            
            37,579,462
            
            
            
            37,811,387Weighted
      average diluted common shares issued and outstanding
            
            
            39,090,921
            
            
            
            39,261,652
            
            
            
            39,417,017





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





F-4
 Table of Contents








SILVERLEAFRESORTS, INC.


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY


(in
thousands, except share amounts)





Common StockNumber
      of
            
            
            $0.01
            
            
            Additional
            
            
            RetainedShares
            
            
            Par
            
            
            Paid-in
            
            
            Earnings
            
            
            Treasury StockIssued
            
            
            Value
            
            
            Capital
            
            
            (Deficit)
            
            
            Shares
            
            
            Cost
            
            
            TotalJanuary
      1, 2005
            
            
            37,249,006
            
            
            $
            372
            
            
            $
            116,614
            
            
            $
            (10,914
            )
            
            
            388,768
            
            
            $
            (4,604
            )
            
            $
            101,468Exercise
      of stock options
            
            
            245,298
            
            
            
            3
            
            
            
            (4,407
            )
            
            
            —
            
            
            
            (388,768
            )
            
            
            4,604
            
            
            
            200Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            23,167
            
            
            
            —
            
            
            
            —
            
            
            
            23,167December
      31, 2005
            
            
            37,494,304
            
            
            
            375
            
            
            
            112,207
            
            
            
            12,253
            
            
            
            —
            
            
            
            —
            
            
            
            124,835Stock-based
      compensation
            
            
            —
            
            
            
            —
            
            
            
            252
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            252Exercise
      of stock options
            
            
            313,850
            
            
            
            3
            
            
            
            96
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            99Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            23,006
            
            
            
            —
            
            
            
            —
            
            
            
            23,006December
      31, 2006
            
            
            37,808,154
            
            
            
            378
            
            
            
            112,555
            
            
            
            35,259
            
            
            
            —
            
            
            
            —
            
            
            
            148,192Stock-based
      compensation
            
            
            —
            
            
            
            —
            
            
            
            142
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            142Exercise
      of stock options
            
            
            10,000
            
            
            
            —
            
            
            
            3
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            27,704
            
            
            
            —
            
            
            
            —
            
            
            
            27,704December
      31, 2007
            
            
            37,818,154
            
            
            $
            378
            
            
            $
            112,700
            
            
            $
            62,963
            
            
            
            —
            
            
            $
            —
            
            
            $
            176,041





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


F-5
 Table of Contents





SILVERLEAFRESORTS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)





Year Ended December 31,2005
            
            
            2006
            
            
            2007OPERATING
      ACTIVITIES:Net
      income
            
            $
            23,167
            
            
            $
            23,006
            
            
            $
            27,704Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Income
      from discontinued operations
            
            
            (741
            )
            
            
            —
            
            
            
            —Estimated
      uncollectible revenue / provision for uncollectible notes
            
            
            23,649
            
            
            
            32,491
            
            
            
            40,071Deferred
      income taxes
            
            
            8,485
            
            
            
            9,198
            
            
            
            12,780Depreciation
            
            
            2,723
            
            
            
            2,539
            
            
            
            3,511Gain
      on sale of notes receivable
            
            
            (6,457
            )
            
            
            —
            
            
            
            —Gain
      on sale of land held for sale
            
            
            (3,635
            )
            
            
            (499
            )
            
            
            (242
            )Proceeds
      from sale of notes receivable, net
            
            
            104,193
            
            
            
            —
            
            
            
            —Stock-based
      compensation
            
            
            —
            
            
            
            252
            
            
            
            142Cash
      effect from changes in operating assets and liabilities:Restricted
      cash
            
            
            (1,153
            )
            
            
            (663
            )
            
            
            1,547Notes
      receivable
            
            
            (51,579
            )
            
            
            (96,422
            )
            
            
            (100,261
            )Accrued
      interest receivable
            
            
            (36
            )
            
            
            (693
            )
            
            
            (808
            )Investment
      in special purpose entity (“SPE”)
            
            
            (17,629
            )
            
            
            9,794
            
            
            
            5,693Amounts
      due from affiliates
            
            
            (914
            )
            
            
            (869
            )
            
            
            (353
            )Inventories
            
            
            (8,824
            )
            
            
            (18,376
            )
            
            
            (31,429
            )Prepaid
      and other assets
            
            
            936
            
            
            
            (10,310
            )
            
            
            (7,398
            )Accounts
      payable and accrued expenses
            
            
            1,500
            
            
            
            4,636
            
            
            
            6,879Accrued
      interest payable
            
            
            52
            
            
            
            438
            
            
            
            678Unearned
      Vacation Interval sales
            
            
            —
            
            
            
            —
            
            
            
            296Unearned
      samplers
            
            
            676
            
            
            
            935
            
            
            
            676Income
      taxes payable
            
            
            1,268
            
            
            
            (1,105
            )
            
            
            619Net
      cash provided by (used in) operating activities
            
            
            75,681
            
            
            
            (45,648
            )
            
            
            (39,895
            )INVESTING
      ACTIVITIES:Purchases
      of land, equipment, buildings, and leasehold improvements
            
            
            (761
            )
            
            
            (14,347
            )
            
            
            (17,050
            )Proceeds
      from sale of discontinued operations
            
            
            13,101
            
            
            
            —
            
            
            
            —Proceeds
      from sale of land held for sale
            
            
            6,131
            
            
            
            789
            
            
            
            242Net
      cash provided by (used in) investing activities
            
            
            18,471
            
            
            
            (13,558
            )
            
            
            (16,808
            )FINANCING
      ACTIVITIES:Proceeds
      from borrowings of debt and capital leases
            
            
            150,666
            
            
            
            320,341
            
            
            
            181,311Payments
      of debt and capital leases
            
            
            (244,651
            )
            
            
            (250,559
            )
            
            
            (124,299
            )Restricted
      cash reserved for payments of debt
            
            
            (312
            )
            
            
            (10,215
            )
            
            
            1,408Proceeds
      from exercise of stock options
            
            
            200
            
            
            
            99
            
            
            
            3Net
      cash (used in) provided by financing activities
            
            
            (94,097
            )
            
            
            59,666
            
            
            
            58,423Net
      change in cash and cash equivalents
            
            
            55
            
            
            
            460
            
            
            
            1,720CASH
      AND CASH EQUIVALENTS:Beginning
      of period
            
            
            10,935
            
            
            
            10,990
            
            
            
            11,450End
      of period
            
            $
            10,990
            
            
            $
            11,450
            
            
            $
            13,170SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid, net of amounts capitalized
            
            $
            15,532
            
            
            $
            19,192
            
            
            $
            21,627Income
      taxes paid
            
            
            1,200
            
            
            
            7,500
            
            
            
            7,755SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Land,
      equipment, buildings and leasehold improvements acquired under capital
      leases
            
            
            62
            
            
            
            1,691
            
            
            
            552Land,
      equipment, buildings, and leasehold improvements acquired through seller
      financing
            
            
            —
            
            
            
            4,100
            
            
            
            1,100Notes
      receivable, net of allowance for uncollectible notes, acquired from
      SPE
            
            
            62,884
            
            
            
            —
            
            
            
            —Notes
      payable acquired from SPE
            
            
            50,386
            
            
            
            —
            
            
            
            —Other
      assets, liabilities, and equity acquired from SPE
            
            
            12,498
            
            
            
            —
            
            
            
            —





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





F-6
 Table of Contents





SILVERLEAFRESORTS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Years Ended December 31, 2005, 2006, and 2007








1.
            NATURE
      OF BUSINESS





Silverleaf
Resorts, Inc., a Texas Corporation (the “Company,” “Silverleaf,” “we,” or
“our”), is in the business of marketing and selling vacation intervals
(“Vacation Intervals”). Our principal activities, in this regard, consist of (i)
developing and acquiring timeshare resorts; (ii) marketing and selling one-week
annual and biennial Vacation Intervals to new owners; (iii) marketing and
selling upgrade and additional week Vacation Intervals to existing Silverleaf
owners (“Silverleaf Owners”); (iv) providing financing for the purchase of
Vacation Intervals; and (v) operating timeshare resorts under management
agreements. We have in-house sales, marketing, financing, and property
management capabilities and coordinate the operation of our 13 owned resorts
(the “Existing Resorts”) and our one hotel property, Pinnacle Lodge, as of
December 31, 2007, and the development of any new timeshare resort, including
site selection, design, and construction. Sales of Vacation Intervals are
marketed to individuals primarily through direct mail and telephone
solicitation.





Each
Existing Resort has a timeshare owners’ association (a “Club”). Each Club (other
than Orlando Breeze) operates through a centralized organization Silverleaf Club
to manage the Existing Resorts on a collective basis. Orlando Breeze has its own
club, (“Orlando Breeze Resort Club”), which operates independently of Silverleaf
Club; however, we supervise the management and operation of the Orlando Breeze
Resort Club under the terms of a written agreement. Silverleaf Club has
contracted with us to perform the supervisory, management, and maintenance
functions at the twelve Existing Resorts that it oversees. All costs of
operating these Existing Resorts, including management fees to the Company, are
to be covered by monthly dues paid by Silverleaf Owners to their respective
Clubs as well as income generated by the operation of certain amenities and
revenue-producing assets at these Existing Resorts. Subject to availability of
funds from the Clubs, we are entitled to a management fee to compensate us for
the services provided. We evaluate the Clubs in accordance with Financial
Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of
Variable Interest Entities.”  As we are not the primary beneficiaries,
consolidation is not necessary.





In
addition to Vacation Interval sales revenues, we generate revenue from interest
income derived from operating activities, management fees received from
Silverleaf Club, selling notes receivable to special purpose entities, and other
sources. All of the operations are directly related to the resort real estate
development industry.





Our
consolidated financial statements as of and for the years ended December 31,
2005, 2006, and 2007 reflect the operations of the Company and its wholly-owned
subsidiaries, Silverleaf Travel, Inc., Awards Verification Center, Inc., Bull’s
Eye Marketing, Inc., Silverleaf Berkshires, Inc., People Really Win Sweepstakes,
Inc., SLR Research, Inc., Silverleaf Finance II, Inc. (“SF-II”), Silverleaf
Finance IV, LLC (“SF-IV”), and Silverleaf Finance V, L.P. (“SF-V”). SF-II,
SF-IV, and SF-V are all described in more detail under the heading “Debt” in
Note 8.  Bull’s Eye Marketing, Inc., which had nominal operations, was
dissolved in 2005.





2.
            SIGNIFICANT
      ACCOUNTING POLICIES SUMMARY





Basis of Presentation —The
accompanying consolidated financial statements have been prepared in conformity
with accounting policies generally accepted in the United States of America and
in accordance with the rules and regulations of the SEC.





Use of Estimates — The
preparation of these 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 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 our investment in Silverleaf Finance III, LLC (“SF-III”),
our wholly-owned off-balance-sheet qualified special purpose finance subsidiary,
and the future sales plan and estimated recoveries used to allocate certain
costs to inventory phases and cost of sales.





Principles of Consolidation —The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, excluding Silverleaf Finance I, Inc.
(“SF-I”), our wholly-owned qualified special purpose entity dissolved during the
third quarter of 2005, and SF-III. All significant intercompany accounts and
transactions have been eliminated in these consolidated financial
statements.





Adoption of SFAS No. 152 — We
adopted Statement of Financial Accounting Standards No. 152, “Accounting for
Real Estate Time-Sharing Transactions” (“SFAS No. 152”), effective January 1,
2006.  However, such adoption did not result in recognition of a
cumulative effect of a change in accounting principle as the impact on our
results of operations for periods prior to January 1, 2006 was not
material.  SFAS No. 152 amends Statement of Financial Accounting
Standards No. 66, “Accounting for Sales of Real Estate,” to apply the financial
accounting and reporting guidance for real estate time-sharing transactions
provided in American Institute of Certified Public Accountants Statement of
Position 04-2, “Accounting for Real Estate Time-Sharing Transactions” (“SOP
04-2”). SFAS No. 152 further amends Statement of Financial Accounting Standards
No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate
Projects” (“SFAS No. 67”), to stipulate that guidance provided for (a)
incidental operations and (b) costs incurred to sell real estate projects under
SFAS No. 67 be governed by SOP 04-2 as it relates to real estate time-sharing
transactions. In general, 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,
accounting for operations during holding periods (or incidental operations), and
other accounting transactions specific to timeshare 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.





F-7
 Table of Contents





Revenue and Expense Recognition
(including Cost of Sales) — A substantial portion of Vacation Interval
sales are consummated in exchange for mortgage notes receivable, which are
secured by a deed of trust on the Vacation Interval sold. If development costs
related to a particular project or phase are complete, we recognize related
Vacation Interval sales 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 such criteria are met
yet significant development costs remain to complete the project or phase,
revenues are recognized on the percentage-of-completion basis.  Under
this method, once the sales criteria are met, revenues are recognized
proportionate to costs already incurred relative to total costs expected for the
project or phase.  As of December 31, 2007, $296,000 in unearned
Vacation Interval sales related to deferral of sales recognition under the
percentage-of-completion method.





Both of
these revenue recognition methods employ the relative sales value method in
determining related cost of sales and inventory applicable to each Vacation
Interval sale recognized.  Under the relative sales value method, a
cost of sales percentage is used to apply costs to related sales as
follows:





·
            Total
      revenues to be recognized over an entire project or phase, considering
      both revenues recognized to date plus estimated revenues to be recognized
      over future periods, less an estimate of uncollectibility, is
      determined.


·
            Total
      costs of a project or phase, considering both costs already incurred plus
      estimated costs to complete the phase, if any, is
      determined.  Common costs, including amenities, are included in
      total estimated costs and allocated to inventory phases that such costs
      are expected to benefit.


·
            The
      cost of sales ratio applied to each sale represents total estimated costs
      as a percentage of total estimated revenues, which is specific to each
      inventory phase.  Generally, each building type is considered a
      separate phase.





The
estimate of total revenue for a particular phase also considers factors such as
trends in uncollectibles, changes in sales mix and unit sales prices,
repossessions of Vacation Intervals, effects of upgrade programs, and past and
expected sales programs to sell slow moving inventory units. At least quarterly
we evaluate the estimated cost of sales percentage applied to each sale using
updated information for total estimated phase revenue and total estimated phase
costs.  The effects of changes in estimates are accounted for in the
period in which such changes first become known on a retrospective basis, such
that the balance sheet at the end of the period of change and the accounting in
subsequent periods reflect the revised estimates as if such estimates had been
the original estimates.





As
mentioned, 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.





We also
sell additional and upgraded Vacation Intervals to existing owners. Revenues are
recognized on an additional Vacation Interval sale, which represents a new
Vacation Interval sale treated as a separate transaction from the original
Vacation Interval sale, 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%.  Revenue recognized on upgrade Vacation
Interval sales represents the difference between the upgrade sales price and
traded-in sales price, while related cost of sales represents 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.





F-8
 Table of Contents





Services
and other income are recognized on an accrual basis in the period such services
are provided.





Sales and
marketing costs are charged to expense in the period incurred. Commissions,
however, are recognized in the same period the related revenues are
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 reserved for payments of debt.





Allowance for Uncollectible Notes
- Estimated uncollectible revenue is recorded at an amount sufficient to
maintain the allowance for uncollectible notes at a level management considers
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes.  The
allowance for uncollectible notes is adjusted based upon a periodic static-pool
analysis of the notes receivable portfolio, which tracks uncollectible notes for
each year’s sales over the lives of the notes.  Other factors
considered in the assessment of uncollectibility include the aging of notes
receivable, historical collection experience and credit losses, customer credit
scores (FICO® scores), and current economic factors.





Credit
losses represent three varieties as follows:





·
            A full cancellation of the note,
      whereby the customer is relieved of the obligation and we recover the
      underlying inventory,


·
            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,
  and


·
            A note receivable reduction that
      occurs when a customer trades a higher value product for a lower value
      product.





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 on sales of customer notes receivable is governed by
agreements between the purchasers of said notes and the Company.





In
accordance with SFAS No. 152, effective January 1, 2006, the provision for
uncollectible notes is characterized as estimated uncollectible revenue and
reported as a reduction to Vacation Interval sales rather than as a separate
expense item: provision for uncollectible notes.





Investment in Special Purpose
Entities—In 2005, we consummated
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.  In connection with this transaction, we sold SF-III $132.8
million in timeshare receivables that were previously pledged as collateral
under revolving credit facilities with our senior lenders and SF-I, our former
qualified special purpose entity which was dissolved in 2005.  This
transaction qualified as a sale for accounting purposes. The Series 2005-A Notes
are secured by timeshare receivables we sold to SF-III. The proceeds from the
sale of the timeshare receivables to SF-III were used to fully pay off 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. Pursuant to the terms of an agreement, we are responsible for servicing
these timeshare receivables and receive fees for our services. As such fees
approximate both our internal cost of servicing such timeshare receivables and
fees a third party would charge to service such receivables, the related
servicing asset or liability was estimated to be insignificant.





We
account for and evaluate the investment in our special purpose entity in
accordance with Statement of Financial Accounting Standards No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities” (“SFAS No. 140”), EITF 99-20, “Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets,” and
Statement of Financial Accounting Standards No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” as applicable. SFAS No. 140 was
amended in March 2006 by Statement of Financial Accounting Standards No. 156,
“Accounting for Servicing of Financial Assets” (“SFAS No. 156”) and is to be
applied prospectively to new transactions occurring after the effective
date.  The adoption of SFAS No. 156 as of January 1, 2007 did not
affect the manner in which we account for our investment in our special purpose
entity. The gain or loss on the sale of notes receivable is determined based on
the proceeds received, the fair value assigned to the investment in our special
purpose entity, and the recorded value of notes receivable sold. The fair value
of the investment in our special purpose entity is estimated based on the
present value of future cash flows we expect to receive from the notes
receivable sold.  We utilized the following key assumptions to
estimate the fair value of such cash flows related to SF-III: customer
prepayment rate (including expected accounts paid in full as a result of
upgrades) – 15.9%; expected credit losses – 16.0%; discount rate – 12.0% to
21.5%; base interest rate – 5.37%; and loan servicing fees – 1.75%. Our
assumptions are based on experience with our notes receivable portfolio,
available market data, estimated prepayments, the cost of servicing, and net
transaction costs. Such assumptions are assessed quarterly and, if necessary,
adjustments are made to the carrying value of the investment in our special
purpose entity on a prospective basis as a change in accounting estimate, with
the amount of periodic interest accretion adjusted over the remaining life of
the beneficial interest. The carrying value of the investment in our special
purpose entity represents our maximum exposure to loss regarding our obligation
with our special purpose entity.





F-9
 Table of Contents





At
December 31, 2007, the sensitivity of the current fair value of residual cash
flows to immediate 10 percent and 20 percent adverse changes to key assumptions
are as follows (in thousands):





Customer
      Prepayment Rate (including accounts paid in full as a result of
      upgrades):Impact
      on fair value of a 10% adverse change
            
            $
            207Impact
      on fair value of a 20% adverse change
            
            $
            417Expected
      Credit Losses Rate:Impact
      on fair value of a 10% adverse change
            
            $
            221Impact
      on fair value of a 20% adverse change
            
            $
            439Discount
      Rate:Impact
      on fair value of a 10% adverse change
            
            $
            81Impact
      on fair value of a 20% adverse change
            
            $
            160





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, an estimate for the value of future recoveries, taxes, and
capitalized interest incurred in the construction or through the acquisition of
resort dwellings held for timeshare sale. Timeshare unit inventory costs are
capitalized as inventory and are allocated to cost of Vacation Interval sales
based upon their relative sales values.  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.  Inventory costs are charged to cost of sales using the
relative sales value method, which is described above.





In
estimating the total cost to complete all amenities at each resort, we consider
both costs incurred to date and expected costs to be incurred. At December 31,
2007, the estimated costs not yet incurred but expected to complete promised
amenities was $2.8 million.  We allocate the estimated cost of
promised and completed amenities to cost of Vacation Interval sales based on
Vacation Intervals sold in a given period as a percentage of total Vacation
Intervals expected to sell over the life of a particular resort project,
including the estimated resale of the recovered Vacation Intervals reacquired on
estimated future cancelled sales.





Vacation
Intervals may be reacquired as a result of (i) foreclosure (or deed in lieu of
foreclosure) and (ii) trade-in associated with the purchase of an upgraded or
downgraded Vacation Interval. Vacation Intervals reacquired are recorded in
inventory at the lower of their original cost or 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, which range from 3 to 20
years.





Valuation of Long-Lived Assets- In accordance with Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No.
144”), we assess potential impairments to our long-lived assets, including land,
equipment, buildings, and leasehold improvements, when there is evidence that
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  If circumstances require a long-lived asset
be tested for possible impairment, we compare undiscounted cash flows expected
to be generated by an asset to the carrying value of the asset.  If
the carrying value of the long-lived asset is not recoverable on an undiscounted
cash flow basis, an impairment is recognized to the extent that the carrying
value exceeds its fair value.  Fair value is determined through
various valuation techniques including discounted cash flow models, quoted
market values, and third-party independent appraisals, as considered
necessary.  We did not recognize any impairments for our long-lived
assets in the years ended December 31, 2005, 2006, and 2007.





Prepaid and Other Assets —
Prepaid and other assets consists primarily of prepaid insurance, prepaid
postage, commitment fees, debt issuance costs, deferred commissions, novelty
inventories, deposits, collected cash in senior lender lock boxes which has not
yet been applied to related loan balances by our senior lenders, and
miscellaneous receivables. Commitment fees and debt issuance costs are amortized
over the lives 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 consolidated financial statements. A provision is made or benefit
recognized for deferred income taxes relating to such temporary
differences.  To the extent a deferred tax asset does not meet the
criteria of “more likely than not” for realization, a valuation allowance is
recorded. Although we do not currently have any material charges related to
interest and penalties, such costs, if incurred, are 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.





F-10
 Table of Contents





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 2004, although carryforward attributes that were
generated prior to 2004 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 2004.  In the state of Texas, we are no longer subject
to franchise tax examinations for years prior to 2003.





Derivative Financial Instruments —Statement of Financial Accounting Standard No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended,
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.  Accounting for changes in the fair value of
derivatives depends on the intended use of the derivative and the resulting
designation.  Derivatives used to hedge exposure to changes in the
fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value
hedges.  Derivatives used to hedge exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered
cash flow hedges.




For
derivatives designated as fair value hedges, changes in the fair value of the
derivative and the hedged item related to the hedged risk are recognized in
earnings.  For derivatives designated as cash flow hedges, the
effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (outside of earnings) and subsequently
reclassified to earnings when the hedged transaction affects earnings, while the
ineffective portion of changes in the fair value of the derivative is recognized
directly in earnings.  We assess the effectiveness of each hedging
relationship by comparing the changes in fair value or cash flows of the
derivative hedging instrument with the changes in fair value or cash flows of
the designated hedged item or transaction.  For derivatives not
designated as hedges, changes in the fair value are recognized in
earnings.





Our
objective in using derivatives is to increase stability related to interest
expense and to manage our exposure to interest rate movements or other
identified risks.  To accomplish this objective, we primarily use
interest rate swaps and caps within our cash flow hedging
strategy.  Interest rate swaps designated as cash flow hedges involve
the receipt of variable-rate amounts in exchange for fixed-rate payments over
the life of the agreements without exchange of the underlying principal
amount.  Interest rate caps designated as cash flow hedges provide
interest rate protection above the strike rate on the cap and result in our
receipt of interest payments when actual rates exceed the cap
strike.  We recognize changes in fair value of our interest rate swaps
in earnings for the current period.  The amounts recognized for such
interest rate swaps for the periods ending December 31, 2005, 2006, and 2007
were immaterial.





Earnings Per Share — Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding during the period. Earnings per share assuming
dilution is computed by dividing net income by the weighted average number of
common shares and potentially dilutive shares outstanding during the period. 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.





Outstanding
stock options totaling approximately 2.3 million, 2.0 million, and 2.0 million
were dilutive securities that were included in the computation of diluted
earnings per share at December 31, 2005, 2006, and 2007, respectively.
Outstanding stock options totaling 867,000, 827,000, and 492,000 were not
dilutive at December 31, 2005, 2006, and 2007, respectively, because the
exercise price for such options exceeded the market price for our common
shares.





Stock-Based Compensation — We
adopted Statement of Financial Accounting Standards No. 123R, “Share Based
Payment” (“SFAS No. 123R”), as of January 1, 2006, using the modified
prospective method. Under this transition method, for all stock options granted
on or prior to December 31, 2005 that were outstanding as of that date,
compensation cost is recognized for the unvested portion over the remaining
requisite service period, using the fair value for these options as estimated at
the date of grant using the Black-Scholes option-pricing model under the
original provisions of SFAS No. 123 for pro-forma disclosure purposes.
Accordingly, we recognized stock-based compensation of $252,000 and $142,000 for
the years ended December 31, 2006 and 2007, respectively.  At December
31, 2007, unamortized compensation expense related to stock options granted
prior to 2006 was $88,000, which will be fully recognized by August 31,
2008.





See Note
10 under the heading
“Equity” for a table thatillustrates the effect on net income and net
income per share had we applied the fair-value recognition provisions of SFAS
No. 123 to our outstanding stock option grants as of the year ended December 31,
2005, prior to the adoption of SFAS No. 123R.  In addition, see Note
10 for all other information related to our stock option
transactions.





F-11
 Table of Contents





Other Recent Accounting
Pronouncements—





SFAS No. 156 – In March 2006,
the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting
for Servicing of Financial Assets”. The statement allows for the adoption of the
fair value method of accounting for servicing assets, as opposed to the lower of
amortized cost or market value, including mortgage servicing rights, which
represent an entity’s right to a future stream of cash flows based upon the
contractual servicing fee associated with servicing mortgage loans. SFAS No. 156
was effective as of the beginning of fiscal years beginning after September 15,
2006, with early adoption permitted as of January 1, 2006.  The
adoption of SFAS No. 156 on January 1, 2007, did not impact our consolidated
financial position, results of operations, or cash flows.





FIN No. 48– In July 2006, the FASB
issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with Statement
of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN
No. 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. It also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN No. 48 was effective for fiscal years
beginning after December 15, 2006.  The adoption of FIN No. 48 on
January 1, 2007, did not impact our consolidated financial position, results of
operations, or cash flows.





SFAS No. 157– In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements.  SFAS No. 157 will be applied prospectively, and will be
effective for periods beginning after November 15, 2007.  The FASB
issued Staff Position No. 157-2 in February 2008, which delayed the effective
date of SFAS No. 157 for certain nonfinancial assets and liabilities to fiscal
years beginning after November 15, 2008. Based on our preliminary
assessment, we do not believe the adoption of SFAS No. 157 will have a material
impact on our financial position, results of operations, or cash
flows.





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.  Based on our preliminary assessment, we do not believe the
adoption of SFAS No. 159 will have a material impact on our financial position,
results of operations, or cash flows.





SFAS No.141R–In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), “Business Combinations” (“SFAS No. 141R”), which requires all business
combinations, whether full, partial, or step acquisitions, to reflect all assets
and liabilities of an acquired business at their fair values at the acquisition
date.  In subsequent periods, contingent liabilities will be measured at
the higher of their acquisition date fair value or the estimated amounts to be
realized.  SFAS No. 141R applies to all transactions or other events in
which an entity obtains control of one or more businesses.  SFAS No. 141R
is effective prospectively for fiscal years beginning after December 15,
2008.  Early adoption is not permitted.  We are currently
assessing the financial impact the adoption of SFAS No. 141R will have on
our financial position, results of operations, and cash flows.





SFAS No. 160 –In December 2007, the FASB
issued Statement of Financial Accounting Standards No. 160, “Noncontrolling
Interests in Consolidated Financial Statements” (“SFAS No.
160”).  SFAS No. 160 amends Accounting Research Bulletin No. 51
“Consolidated Financial Statements,” and Financial Accounting Standards Board
Statement No. 128, “Earnings Per Share.”  A noncontrolling interest is
defined in SFAS No. 160 as the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent.  SFAS No. 160
states that accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a component of
equity.  SFAS No. 160 applies to all entities that prepare consolidated
financial statements, except not-for-profit organizations.  SFAS No.
160 is effective prospectively for fiscal years beginning after
December 15, 2008.  We are currently assessing the financial impact
the adoption of SFAS No. 160 will have on our consolidated financial position,
results of operations, and cash flows.





3.
            CONCENTRATIONS
      OF RISK





General - 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 $507.5 million at December 31, 2007, have a
fixed-to-floating debt ratio of 29% fixed-rate debt to 71% floating-rate debt.
The impact of a one-point effective interest rate change on the $217.5 million
balance of variable-rate financial instruments at December 31, 2007 would be
approximately $1.3 million on our results of operations, after taxes, for the
year ended December 31, 2007, or approximately $0.03 per diluted
share.





F-12
 Table of Contents





At
December 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.  Our fixed-rate notes receivable are subject to interest rate
risk and will decrease in fair value if market rates increase, which may
negatively impact our ability to sell our fixed-rate notes in the
marketplace.  A hypothetical one-point interest rate increase in the
marketplace at December 31, 2007 would result in a fair value decrease of
approximately $11.6 million on our notes receivable portfolio.





Credit Risk— We are exposed
to on-balance-sheet credit risk related to our notes receivable. We are exposed
to off-balance-sheet credit risk related to notes sold.





We offer
financing to the buyers of Vacation Intervals at our resorts. These buyers
generally make a down payment of 10% to 15% of the purchase price and deliver a
promissory note to us for the balance. The promissory notes generally bear
interest at a fixed rate, are payable over a seven to ten year period, and are
secured by a first mortgage on the Vacation Interval. We bear the risk of
defaults on these promissory notes. Although we prescreen prospects via credit
scoring techniques in the early stages of the marketing and sales process, we
generally do not perform a detailed credit history review of our
customers. Due to the state of the economy in general, and recent
deterioration of the residential real estate market and sub-prime mortgage
markets, the risk of Vacation Interval defaults has heightened.





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 71% 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.  Although interest
rates have recently been trending downward, 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 potential increases in interest rates, we have executed two
interest rate swaps related to our conduit loan with SF-II, with fixed rates of
7.04% and 7.90%, for a total notional amount of $21.3 million at December 31,
2007.  Such interest rate swaps expire between September 2011 and
March 2014.  Our variable funding note (“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 December
31, 2007 was $59.3 million.  Such VFN will mature in September
2011.





In
addition, the Series 2005-A Notes related to our off-balance-sheet special
purpose finance subsidiary, SF-III, with a balance of $29.9 million at December
31, 2007, bear interest at a blended fixed rate of 5.4%.





Availability of Funding Sources —We fund substantially all of our 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 collections on 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 condition.





In the
first quarter of 2007, we consolidated our debt with Textron Financial
Corporation (“Textron”) into one revolving loan. As a result of this amendment,
the funding period on the consolidated debt was extended from June 2008 to
January 2010, with revised maturity dates of January 31, 2013 for the
receivables component and January 31, 2012 on both the acquisition and inventory
components. In addition, the interest rates previously charged have been
reduced.





Geographic Concentration —
Our notes receivable and Vacation Interval inventories are primarily originated
in Texas, Missouri, Illinois, Massachusetts, Georgia, and Florida. Risks
inherent in such concentrations are:





·
            regional
      and general economic stability, which affects property values and the
      financial stability of the borrowers,
and


·
            the
      continued popularity of our resort destinations, which affects the
      marketability of our products and the collection of notes
      receivable.





F-13
 Table of Contents




4.
            NOTES
      RECEIVABLE





We
provide financing to the purchasers of Vacation Intervals in the form of notes
receivable, which are collateralized by their interest in such Vacation
Intervals. Such notes receivable generally have initial terms of seven to ten
years. The average yield on outstanding notes receivable at December 31, 2007
and 2006 was approximately 16.3% and 15.7%, respectively, with individual rates
ranging from 0% to 17.9%.  Notes receivable with interest rates of 0%
originated primarily between 1997 and 2003, and have an outstanding balance at
December 31, 2007 of $102,000. In connection with the sampler program, we
routinely enter into notes receivable with terms of 10 months. Notes receivable
from sampler sales were $3.1 million and $3.4 million at December 31, 2006 and
2007, respectively, and are non-interest bearing.





Once a
note becomes 90 days delinquent, the accrual of interest income ceases until
collection is deemed probable.  We ceased accruing interest on
delinquent notes of $38.9 million and $46.8 million as of December 31, 2006 and
2007, respectively, as collection of interest on such notes was deemed
improbable.





Notes
receivable are scheduled to mature as follows at December 31, 2007 (in
thousands):





2008
            
            $
            40,8182009
            
            
            40,4922010
            
            
            44,2682011
            
            
            47,9962012
            
            
            51,224Thereafter
            
            
            134,237359,035Less
      allowance for uncollectible notes
            
            
            (69,128
            )Notes
      receivable, net
            
            $
            289,907





There
were no notes sold with recourse during the years ended December 31, 2005, 2006,
and 2007.





During
2005, we sold $8.0 million of notes receivable to SF-I and recognized a pre-tax
gain of $669,000. In conjunction with this sale, we received cash consideration
of $6.0 million, which was primarily used to pay down borrowings under our
revolving loan facilities. SF-I funded all of these purchases through advances
under a credit agreement arranged for this purpose.





During
2005, we consummated a securitization transaction with SF-III, which is a
qualified special purpose entity formed for the purpose of issuing $108.7
million of its Series 2005-A Notes in a private placement, which were issued in
four classes  ranging from Class A through Class D notes with a
blended fixed rate of 5.4%.  In connection with this transaction, we
sold SF-III $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.  This transaction
qualified as a sale for accounting purposes. The Series 2005-A Notes are secured
by timeshare receivables we sold to SF-III. The proceeds from the sale of the
timeshare receivables to SF-III were used to fully pay off the credit facility
of SF-I and to pay down amounts we owed under our senior credit
facilities.  Simultaneous with the sale of the timeshare receivables
to SF-III, SF-I was dissolved, and notes receivable net of allowance for
uncollectible notes of $62.9 million and notes payable of $50.4 million were
assumed from SF-I, along with other assets, liabilities, and equity of $12.5
million.  The timeshare receivables we sold to SF-III are without
recourse, except for breaches of certain representations and warranties at the
time of sale. Pursuant to the terms of an agreement, we are responsible for
servicing these timeshare receivables and receive fees for our services. As such
fees approximate both our internal cost of servicing such timeshare receivables
and fees a third party would charge to service such receivables, the related
servicing asset or liability was estimated to be insignificant.





At
December 31, 2007, SF-III held notes receivable totaling $37.2 million, with
related borrowings of $29.9 million. For servicing the timeshare receivables, we
receive a fee equal to 1.75% of eligible receivables held by SF-III. Such fees
were $1.1 million, $1.5 million and $854,000 for the years ended December 31,
2005, 2006, and 2007, respectively. We also serviced notes receivable sold to
SF-I for a fee of 1% of eligible receivables held by SF-I. We received fees of
$355,000 for the year ended December 31, 2005 for servicing those
receivables.





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
foreclosed Vacation Intervals for an amount equal to the net fair market value
of such Vacation Intervals, which may not be less than fifteen percent of the
original acquisition price that the customer paid for the Vacation
Interval.  For the years ended December 31, 2005, 2006, and 2007, we
paid $386,000, $2.1 million, and $1.2 million, respectively, to repurchase the
Vacation Intervals securing defaulted contracts to facilitate the re-marketing
of those Vacation Intervals. We had a similar arrangement in place with SF-I in
regard to repurchasing the Vacation Intervals securing defaulted contracts. For
the year ended December 31, 2005, we paid $988,000 at public auction to
repurchase defaulted Vacation Intervals from SF-I.





F-14
 Table of Contents





In the
event cash flows from the notes receivable held by the special purpose entities
are sufficient to pay all debt service obligations, fees, and expenses, we may
receive distributions from the special purpose entities. For the year ended
December 31, 2005, we received $4.3 million in cash distributions from SF-I. We
received distributions of $1.6 million, $16.6 million, and $8.6 million from
SF-III during the years 2005, 2006, and 2007, respectively.





We
consider accounts over 60 days past due to be delinquent. As of December 31,
2007, $6.0 million of notes receivable, net of accounts charged off, were
considered delinquent. An additional $25.2 million of notes receivable, of which
$22.5 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.





The
activity in gross notes receivable is as follows for the years ended December
31, 2005, 2006, and 2007 (in thousands):





2005
            
            
            2006
            
            
            2007Balance,
      beginning of period
            
            $
            248,972
            
            
            $
            230,051
            
            
            $
            297,835Sales
            
            
            142,984
            
            
            
            164,208
            
            
            
            181,048Collections
            
            
            (64,640
            )
            
            
            (67,786
            )
            
            
            (80,787
            )Receivables
      charged off, gross
            
            
            (30,108
            )
            
            
            (28,638
            )
            
            
            (39,061
            )Receivables
      received via dissolution of SF-I
            
            
            73,687
            
            
            
            —
            
            
            
            —Sold
      notes receivable
            
            
            (140,844
            )
            
            
            —
            
            
            
            —Balance,
      end of period
            
            $
            230,051
            
            
            $
            297,835
            
            
            $
            359,035





Prior to
the adoption of SFAS No. 152, we provided for estimated Vacation Interval
defaults at the time the Vacation Interval revenue was recorded by a charge to
the provision for uncollectible notes and an increase to the allowance for
uncollectible notes. The provision was calculated as the estimated future losses
for newly originated Vacation Intervals offset by estimated future recoveries of
inventory. Beginning January 1, 2006 with the adoption of SFAS No. 152, we now
record estimated uncollectible revenue as a reduction to Vacation Interval
sales. The estimated uncollectible revenue represents gross losses for newly
originated Vacation Interval sales.  It does not include an offset for
estimated inventory recoveries, which is now a component of the relative sales
value method in determining cost of sales.





The
activity in the allowance for uncollectible notes is as follows for the years
ended December 31, 2005, 2006, and 2007 (in thousands):





2005
            
            
            2006
            
            
            2007Balance,
      beginning of period
            
            $
            52,506
            
            
            $
            52,479
            
            
            $
            68,118Reclassification
      of estimated inventory recoveries on future charge offs
            
            
            —
            
            
            
            11,786
            
            
            
            —Estimated
      uncollectible revenue
            
            
            —
            
            
            
            32,491
            
            
            
            40,071Provision
      for uncollectible notes
            
            
            23,649
            
            
            
            —
            
            
            
            —Receivables
      charged off, gross
            
            
            (30,108
            )
            
            
            (28,638
            )
            
            
            (39,061
            )Receivables
      charged off, inventory recoveries
            
            
            9,390
            
            
            
            —
            
            
            
            —Receivables
      charged off, sales provision
            
            
            2,629
            
            
            
            —
            
            
            
            —Allowance
      received via dissolution of SF-I
            
            
            10,803
            
            
            
            —
            
            
            
            —Allowance
      related to notes sold
            
            
            (16,390
            )
            
            
            —
            
            
            
            —Balance,
      end of period
            
            $
            52,479
            
            
            $
            68,118
            
            
            $
            69,128





The
allowance for uncollectible notes was 22.9% and 19.3% of gross notes receivable
as of December 31, 2006 and 2007, respectively. 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.





5.
            INVENTORIES





Inventories
consist of the following at December 31, 2006 and 2007 (in
thousands):





2006
            
            
            2007Timeshare
      units
            
            $
            82,892
            
            
            $
            96,869Amenities
            
            
            48,001
            
            
            
            52,390Land
            
            
            16,132
            
            
            
            28,504Other
            
            
            734
            
            
            
            1,425Total
            
            $
            147,759
            
            
            $
            179,188





Realization
of inventories is dependent upon execution of our long-term sales plan for each
resort, which extends for up to fifteen years. Such sales plans depend upon our
ability to obtain financing to facilitate the build-out of each resort and
marketing of the Vacation Intervals over the planned time period.





F-15
 Table of Contents





6.
            LAND,
      EQUIPMENT, BUILDINGS, AND LEASEHOLD
IMPROVEMENTS





Land,
equipment, buildings, and leasehold improvements consist of the following at
December 31, 2006 and 2007 (in thousands):





2006
            
            
            2007Land
            
            $
            2,734
            
            
            $
            2,734Vehicles
      and equipment
            
            
            9,457
            
            
            
            9,911Office
      equipment and furniture
            
            
            34,091
            
            
            
            36,375Buildings
      and leasehold improvements
            
            
            19,454
            
            
            
            33,64065,736
            
            
            
            82,660Less
      accumulated depreciation
            
            
            (37,696
            )
            
            
            (41,095
            )Land,
      equipment, buildings, and leasehold improvements, net
            
            $
            28,040
            
            
            $
            41,565





Depreciation
expense for the years ended December 31, 2005, 2006, and 2007 was $2.7 million,
$2.5 million, and $3.5 million, respectively, which includes amortization of
equipment acquired under capital leases.





7.
            INCOME
      TAXES





Income
tax expense from continuing operations consists of the following components for
the years ended December 31, 2005, 2006 and 2007 (in thousands):





2005
            
            
            2006
            
            
            2007Current
      income tax expense – Federal
            
            $
            —
            
            
            $
            5,025
            
            
            $
            3,836Current
      income tax expense – State
            
            
            201
            
            
            
            179
            
            
            
            782Total
      current income tax expense
            
            
            201
            
            
            
            5,204
            
            
            
            4,618Deferred
      income tax expense – Federal
            
            
            8,658
            
            
            
            7,811
            
            
            
            11,391Deferred
      income tax expense – State
            
            
            866
            
            
            
            1,387
            
            
            
            1,389Total
      deferred income tax expense
            
            
            9,524
            
            
            
            9,198
            
            
            
            12,780Total
      income tax expense
            
            $
            9,725
            
            
            $
            14,402
            
            
            $
            17,398





A
reconciliation of income tax expense on reported pre-tax income from continuing
operations at statutory rates to actual income tax expense for the years ended
December 31, 2005, 2006, and 2007 is as follows (in thousands):





2005
            
            
            2006
            
            
            2007Dollars
            
            
            Rate
            
            
            Dollars
            
            
            Rate
            
            
            Dollars
            
            
            RateIncome
      tax expense at statutory rates
            
            $
            11,253
            
            
            
            35.0
            %
            
            $
            13,093
            
            
            
            35.0
            %
            
            $
            15,786
            
            
            
            35.0
            %State
      income taxes, net of Federal income tax benefit
            
            
            1,125
            
            
            
            3.5
            %
            
            
            1,309
            
            
            
            3.5
            %
            
            
            1,579
            
            
            
            3.5
            %Reconciliation
      to prior year tax return
            
            
            —
            
            
            
            0.0
            %
            
            
            (527
            )
            
            
            (1.5
            )%
            
            
            —
            
            
            
            0.0
            %Permanent
      differences
            
            
            (3,094
            )
            
            
            (9.7
            )%
            
            
            96
            
            
            
            0.3
            %
            
            
            77
            
            
            
            0.2
            %Other
            
            
            441
            
            
            
            1.4
            %
            
            
            431
            
            
            
            1.2
            %
            
            
            (44
            )
            
            
            (0.1
            )%Total
      income tax expense
            
            $
            9,725
            
            
            
            30.2
            %
            
            $
            14,402
            
            
            
            38.5
            %
            
            $
            17,398
            
            
            
            38.6
            %





Deferred
income tax assets and liabilities as of December 31, 2006 and 2007 are as
follows (in thousands):





2006
            
            
            2007Deferred
      tax liabilities:Depreciation
            
            $
            —
            
            
            $
            850Installment
      sales income
            
            
            88,689
            
            
            
            99,827Total
      deferred tax liabilities
            
            
            88,689
            
            
            
            100,677Deferred
      tax assets:Net
      operating loss carryforward – pre exchange offer
            
            
            13,939
            
            
            
            8,635Net
      operating loss carryforward – post exchange offer
            
            
            48,578
            
            
            
            47,682AMT
      tax credit
            
            
            8,489
            
            
            
            13,627Other
            
            
            —
            
            
            
            270Total
      deferred tax assets
            
            
            71,006
            
            
            
            70,214Net
      deferred tax liability
            
            $
            17,683
            
            
            $
            30,463





We report
substantially all Vacation Interval sales, which we finance, on the installment
method for federal income tax purposes. Under the installment method, we do not
recognize income on sales of Vacation Intervals until collections, such as down
payments and installment payments, are received.   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 otherwise not subject to tax in a particular year, no
interest is imposed since the interest is based on the amount of tax paid in
that year. The consolidated financial statements do not contain an accrual for
any interest expense that would be paid on the deferred taxes related to the
installment method. The amount of interest expense is not estimable as of
December 31, 2007.




F-16
 Table of Contents




We have
been subject to Alternative Minimum Tax (“AMT”) as a result of the deferred
income that results from the installment sales treatment of Vacation Interval
sales for regular tax purposes. Payment of AMT creates a deferred tax asset in
the form of a minimum tax credit, which, unless otherwise limited, reduces any
future tax liability from regular federal income tax. This deferred tax asset
has an unlimited carryover period.  The AMT credit can be utilized to
the extent regular tax exceeds AMT tax liability for a given year.  We
estimate our AMT liability for 2007 is $5.5 million, with the result that we
will have total minimum tax credit carryforwards of $13.6 million as of December
31, 2007. We also anticipate that we will pay significant AMT in future
years.





We
applied for and received refunds of AMT of $8.3 million and $1.6 million during
2001 and 2002, respectively, as the result of the carryback of our 2000 AMT loss
to 1999, 1998, and 1997.  Due to AMT losses, including carryforwards,
we did not have any AMT liability in 2001 and 2002. Therefore, our current
minimum tax credits are not limited by the ownership change discussed
below.





Our
federal net operating losses (“NOL”) expire between 2020 and 2021. Realization
of deferred tax assets arising from the NOL is dependent on generating
sufficient taxable income prior to the expiration of the loss
carryforwards.  It is more likely than not, the NOL and AMT
carryforwards will be realized.





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 $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 $22.7 million
of our net operating loss carryforwards as of December 31, 2007 are subject to
the Section 382 limitations.





The
following table summarizes approximate net operating loss carryforwards and
related expiration dates at December 31, 2007 (in thousands):





Expiration
      Dates2020
            
            $
            128,0172021
            
            
            27,455$
            155,472




F-17
 Table of Contents





8.
            DEBT





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





2006
            
            
            2007
            
            
            RevolvingTerm
            
            Maturity
            
            InterestRate$100
      million Textron receivable-based revolver ($100 million maximum combined
      receivable, inventory and acquisition commitments, see inventory /
      acquisition component below).
            
            $
            28,903
            
            
            $
            63,119
            
            
            1/31/10
            
            1/31/13
            
            Prime$50
      million CapitalSource receivable-based revolver
            
            
            22,831
            
            
            
            14,122
            
            
            4/29/08
            
            4/29/08
            
            Prime
      + 0.75%$35
      million Wells Fargo Foothill receivable-based revolver
            
            
            93
            
            
            
            8,044
            
            
            12/31/08
            
            12/31/11
            
            Prime$150
      million SF-IV receivable-based revolver
            
            
            —
            
            
            
            59,268
            
            
            9/3/09
            
            9/3/11
            
            LIBOR
      + 1.25%$37.5
      million Liberty Bank receivable-based revolver
            
            
            —
            
            
            
            9,860
            
            
            9/28/09
            
            9/28/12
            
            LIBOR
      + 2.40%$66.4
      million Textron receivable-based non-revolving conduit
loan
            
            
            25,090
            
            
            
            13,489
            
            
            —
            
            3/22/14
            
            7.035%$26.3
      million Textron receivable-based non-revolving conduit
loan
            
            
            14,210
            
            
            
            7,765
            
            
            —
            
            9/22/11
            
            7.90%$128
      million SF-V receivable-based non-revolver
            
            
            113,138
            
            
            
            68,761
            
            
            —
            
            7/16/18
            
            6.70%$10
      million Textron inventory loan agreement
            
            
            10,000
            
            
            
            —
            
            
            (a)
            
            (a)
            
            LIBOR
      + 3.25%$6
      million Textron inventory loan agreement
            
            
            5,000
            
            
            
            —
            
            
            (a)
            
            (a)
            
            Prime
      + 3.00%$5
      million Textron inventory loan agreement
            
            
            1,115
            
            
            
            —
            
            
            (a)
            
            (a)
            
            Prime
      + 3.00%Textron
      inventory / acquisition loan agreement (see receivable- based revolver
      above)
            
            
            —
            
            
            
            30,005
            
            
            1/31/10
            
            1/31/12
            
            Prime
      + 1.00%$30
      million CapitalSource inventory loan agreement
            
            
            18,876
            
            
            
            20,091
            
            
            4/29/09
            
            4/29/11
            
            Prime
      + 1.50%$15
      million Wells Fargo Foothill inventory loan agreement
            
            
            5,985
            
            
            
            12,982
            
            
            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%
            
            
            7,590
            
            
            
            6,970
            
            
            —
            
            various
            
            variousTotal
      notes payable
            
            
            252,831
            
            
            
            314,476Capital
      lease obligations
            
            
            1,719
            
            
            
            1,722
            
            
            —
            
            various
            
            variousTotal
      notes payable and capital lease obligations
            
            
            254,550
            
            
            
            316,1986.0%
      senior subordinated notes, due 2007
            
            
            3,796
            
            
            
            —
            
            
            —
            
            4/1/07
            
            6.00%101⁄2%
      senior subordinated notes, due 2008
            
            
            2,146
            
            
            
            2,146
            
            
            —
            
            4/1/08
            
            10.50%8.0%
      senior subordinated notes, due 2010
            
            
            24,671
            
            
            
            24,671
            
            
            —
            
            4/1/10
            
            8.00%Interest
      on the 6.0% senior subordinated notes, due 2007
            
            
            854
            
            
            
            —
            
            
            —
            
            4/1/07
            
            6.00%Total
      senior subordinated notes
            
            
            31,467
            
            
            
            26,817Total
            
            $
            286,017
            
            
            $
            343,015





(a)
            During
      the first quarter of 2007, the Textron receivable-based revolver and
      inventory debt were consolidated.





At
December 31, 2007, our senior credit facilities provided for loans of up to
$507.5 million, of which $200.0 million was available for future
advances.  At December 31, 2007, the LIBOR rate on our senior credit
facilities was 4.60% (1 month) and the Prime rate on these facilities was
7.25%.





During
2006, we executed a $100 million revolving senior credit facility through a
newly-formed, wholly-owned and consolidated special purpose finance subsidiary,
SF-IV.  SF-IV was formed for the purpose of issuing a $100 million
variable funding note to UBS Real Estate Securities Inc.
(“UBS”).  During 2006, the facility was amended to increase the
availability from $100 million to $125 million, extend the funding period from
March 2007 to December 2008, and reduce the interest rate on advances from LIBOR
plus 1.5% to LIBOR plus 1.25%.  The facility was further amended in
September 2007 to increase the availability from $125 million to $150 million
and to extend the funding period from December 2008 to September
2009.  The maturity date of the amended facility was extended to
September 2011. The VFN is secured by customer notes receivable sold to
SF-IV.  Proceeds from the sale of customer notes receivable to SF-IV
are used to fund normal business operations and for general working capital
purposes. Pursuant to the terms of an agreement, we will continue servicing
these customer notes receivable and receive fees for our services.





During
2006, we executed a $128 million term securitization transaction through a
newly-formed, wholly-owned and consolidated special purpose finance subsidiary,
SF-V.  SF-V was formed for the purpose of issuing $128 million of its
Series 2006-A Notes in a private offering and sale through UBS. The Series
2006-A Notes were issued in seven classes ranging from Class A through Class G
notes with a blended fixed rate of 6.7%.  The Class A through Class G
notes were rated “Aaa,” “Aa2,” “A2,” “Baa1,” “Baa2,” “Baa3,” and “Ba2,”
respectively, by Moody’s Investors Service, Inc., and mature in July
2018.  The Series 2006-A Notes are secured by customer notes
receivable sold to SF-V by SF-IV and Silverleaf in three separate transactions
from August 2006 to November 2006.  The original amount of notes
receivable purchased by SF-V to secure the Series 2006-A Notes was $155.1
million and the balance of eligible notes receivable pledged as collateral at
December 31, 2007 was $80.4 million. The proceeds from the sale of the customer
notes receivable to SF-V were primarily used to pay down consolidated
indebtedness to senior lenders. All customer notes receivable purchased by SF-V
were acquired without recourse, except in the case of breaches of customary
representations and warranties made in connection with the sale of the notes.
Pursuant to the terms of an agreement, we will continue servicing these customer
notes receivable and receive fees for our services.





F-18
 Table of Contents





In
February 2007, we executed an amended loan agreement with Textron to consolidate
our receivables and inventory financing arrangements into one facility, with an
additional financing arrangement included for acquisitions. The maximum
aggregate commitment of Textron is $100 million, which can be borrowed under the
receivables financing arrangement provided we have no borrowings under either of
the inventory or acquisitions financing arrangements.  The maximum
commitment with respect to the inventory and acquisition financing arrangements
was set at $40 million and $20 million, respectively, with the maximum aggregate
commitment on the inventory and acquisition components combined being $40
million.  In October 2007, we further amended the agreement to
increase our inventory financing arrangement from $40 million to $50
million.  Under the amended agreement, the maximum commitment with
respect to the inventory and acquisition financing arrangements were set at $50
million and $20 million, respectively, with the maximum aggregate commitment on
the inventory and acquisition components combined being $50
million.  The interest rate on the receivables component was reduced
from Prime plus 1% with a 6% floor to Prime with no floor. The interest rate on
advances under the inventory component and the acquisitions component of the
consolidated debt are now Prime plus 1%. The interest rates charged under our
prior inventory loan agreements with Textron were Prime plus 3% and LIBOR plus
3.25%.  The funding period was extended from June 2008 to January
2010. The receivables component matures January 31, 2013, and the acquisition
and inventory components each mature on January 31, 2012.





In
September 2007, we entered into a $37.5 million revolving loan agreement with
Liberty Bank and other lenders. The loan is secured by customer notes receivable
at an advance rate of up to 75% of the aggregate outstanding principal balance
of all eligible notes receivable pledged as security.  The revolving
loan period will expire on September 28, 2009, and the principal balance of the
loan facility will be due on September 28, 2012, or if the revolving period is
extended, 36 months from the expiration of the revolving period.  The
outstanding principal balance on the facility will bear interest at LIBOR plus
2.40%.  Proceeds from the loan will be used to fund normal business
operations and for general working capital purposes.





Notes
payable secured by customer notes receivable require that collections from
customers be remitted to our senior lenders upon receipt. In addition, we are
required to calculate the appropriate “Borrowing Base” for each note payable
monthly.  Such Borrowing Base determines whether the loans are
collateralized in accordance with the applicable loan agreements and whether
additional amounts can be borrowed.  In preparing the monthly
Borrowing Base reports for our senior lenders, we have classified certain
customer notes as eligible for Borrowing Base that might be considered
ineligible in accordance with the loan agreements. Such potentially ineligible
notes included in the Borrowing Base relate to a) cancelled notes from customers
who have upgraded to a higher value product and b) notes that have been subject
to payment concessions.





We have
developed programs under which customers may be granted payment concessions in
order to encourage delinquent customers to make additional payments. The effect
of these concessions is to extend the term of the customer notes. Upon granting
a concession, we consider the customer account to be current. Under our notes
payable agreements, customer notes that are less than 60 days past due are
considered eligible as Borrowing Base. As of December 31, 2006 and 2007, a total
of $24.8 million and $22.5 million of customer notes, respectively, have been
considered eligible for Borrowing Base purposes which would have been considered
ineligible had payment concessions and the related reclassification as current
not been granted.  In addition, as of December 31, 2006 and 2007, $2.5
million and $2.1 million, respectively, of cancelled notes from customers who
have upgraded to a different product have been treated as eligible for Borrowing
Base purposes.





Principal
maturities of notes payable, capital lease obligations, and senior subordinated
notes are as follows at December 31, 2007 (in thousands):





2008
            
            $
            18,9962009
            
            
            1,6592010
            
            
            38,4522011
            
            
            95,8102012
            
            
            40,160Thereafter
            
            
            147,938Total
            
            $
            343,015





Total
interest expense and lender fees for the years ended December 31, 2005, 2006,
and 2007 was $17.3 million, $21.7 million, and $24.6 million, respectively.
Interest of $1.1 million, $869,000 million, and $2.1 million was capitalized to
inventory during the years ended December 31, 2005, 2006, and 2007,
respectively.





As of
December 31, 2007, eligible customer notes receivable with a face amount of
$307.7 million and interval inventory of $55.2 million were pledged as
collateral.





Financial
Covenants Under Senior Credit Facilities.





The
Company’s senior credit facilities provide certain financial covenants that we
must satisfy.  Any failure to comply with the financial covenants in
any single loan agreement will result in a cross default under the various
facilities.  As of and for the years ended December 31, 2005, 2006,
and 2007, we have been in full compliance with our debt covenants in our credit
facilities with all of our senior lenders.





F-19
 Table of Contents





Certain
of our debt agreements include restrictions on the Company's ability to pay
dividends based on minimum levels of net income and cash flow. The debt
agreements contain covenants including requirements that the Company (i)
preserve and maintain the collateral securing the loans; (ii) pay all taxes and
other obligations relating to the collateral; and (iii) refrain from selling or
transferring the collateral or permitting any encumbrances on the collateral.
The debt agreements also contain restrictive covenants, which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
the assets of the Company, a merger, consolidation, or reorganization of the
Company, or other changes of control of the ownership of the Company, would
constitute an event of default and permit our senior lenders to accelerate the
maturity thereof.





Such
credit facilities also contain operating covenants as of December 31, 2007,
requiring us to (i) maintain a minimum tangible net worth, the most restrictive
being to maintain a minimum tangible net worth at all times greater than the
tangible net worth as of December 31, 2004, or $132.1 million, plus 50% of the
aggregate amount of net income after December 31, 2004, maintain sales and
marketing expenses as a percentage of Vacation Interval sales below 55% for the
latest rolling 12 months (two senior lenders have increased such ratio to 57% as
of the last day of each fiscal quarter), maintain notes receivable delinquency
rate below 10%, maintain a minimum interest coverage ratio of 1.25 to 1 for the
latest rolling 12 months, the latest quarter, and average of the last four
quarters, maintain positive net income for each year end, and for any two
consecutive fiscal quarters, maintain a leverage ratio of at least 6.0 to 1, and
maintain a minimum weighted average FICO Credit Bureau Score of 640 for all
fiscal calendar quarter sales with respect to which a FICO score can be
obtained; (ii) maintain our legal existence and be in good standing in any
jurisdiction where we conduct business; (iii) maintain our management agreement
with our Existing Resorts; and (iv) refrain from modifying or terminating
certain timeshare documents. The credit facilities also include customary events
of default, including, without limitation (i) failure to pay principal,
interest, or fees when due, (ii) untruth of any representation of warranty,
(iii) failure to perform or timely observe covenants, (iv) defaults under other
indebtedness, and (v) bankruptcy.  At December 31, 2007, we are in
compliance with these covenants.





9.
            COMMITMENTS
      AND CONTINGENCIES





Litigation -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 expected 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 incur other expenditures that could be materially adverse
to our business, results of operations, or financial position.





We were
the plaintiff in a suit filed in the U.S. District Court for the District of
Massachusetts.  The case was styled Silverleaf Resorts, Inc. v.
Berkshire Wind Power, LLC, Civil Action No. 06-30152.  We
initiated this lawsuit because the defendant was 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.  Prior to commencement of this
litigation, we were in the initial stages of developing this tract of land. Our
concern was that if the defendant was ultimately successful in developing this
neighboring site in accordance with its plans, the proximity of such a wind farm
facility to our property line could adversely affect our future development
plans for our property.  Accordingly, we sought to permanently enjoin
the construction of the wind farm facility unless certain of its proposed
turbines were set back further from our property line on the grounds that, among
other things, as proposed it would have constituted a nuisance and would have
unreasonably interfered with the reasonable use and enjoyment of our property.
Alternatively, we requested damages for the prospective nuisance.  The
defendant asserted that we should be responsible for certain costs, including
the costs to take the depositions of the defendant's experts.  We asserted
that the defendant should pay the costs of the depositions of our
experts.  The court originally scheduled a trial for May 21, 2007 on
the issue of our request for an injunction, but postponed the trial until
November 13, 2007 to allow the parties time to resolve their
differences.  Continuing settlement discussions between the parties
were unsuccessful and in October 2007, we moved to dismiss this action without
prejudice.  The defendant opposed our motion to dismiss unless the
dismissal was with prejudice or, alternatively, that the defendant was allowed
to recover certain statutory costs.  On February 29, 2008, the court
allowed our Motion to Dismiss without prejudice on our outstanding nuisance
claim, ruling that the parties should bear their own cost, expenses, and
attorney’s fees.  Final judgment dismissing the suit was also entered
on February 29, 2008.





F-20
 Table of Contents





We are
also a co-plaintiff with two other parties in a related matter brought in
the Land Court Department of the Trial Court of the Commonwealth of
Massachusetts, styled as Silverleaf Resorts, Inc., et al. v.
Zoning Board of Appeals of the Town of Lanesborough, et al.,Civil Action
No. 07 MISC 351155.  In this action, we and our co-plaintiffs have
challenged the validity of a special permit issued by the Lanesborough Zoning
Board of Appeals to Berkshire Wind Power, LLC, for a portion of a road needed to
access the wind farm facility that is the subject of the U.S. District Court
Action.  We seek a court decree that the special permit granted Berkshire
Wind expired from non-use and is therefore no longer valid. The case is now in
fast track discovery, but no final trial date has been set.





Leases and Other Contractual
Commitments -We have entered into noncancelable operating leases
covering office and storage facilities and equipment, which will expire at
various dates through 2015. The total rental expense charged to operations
during the years ended December 31, 2005, 2006, and 2007 was $2.2 million, $2.7
million, and $3.6 million, respectively. We have also acquired equipment by
entering into capital leases.





The
following table summarizes our scheduled contractual commitments as of December
31, 2007 (in thousands):





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            ThereafterLong-term
      debt
            
            $
            42,362
            
            
            $
            24,516
            
            
            $
            60,527
            
            
            $
            113,500
            
            
            $
            51,404
            
            
            $
            175,739Capital
      leases
            
            
            778
            
            
            
            698
            
            
            
            291
            
            
            
            104
            
            
            
            9
            
            
            
            —Operating
      leases
            
            
            2,653
            
            
            
            2,322
            
            
            
            1,513
            
            
            
            956
            
            
            
            466
            
            
            
            717Construction
      commitments
            
            
            19,151
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            $
            64,944
            
            
            $
            27,536
            
            
            $
            62,331
            
            
            $
            114,560
            
            
            $
            51,879
            
            
            $
            176,456





Long-term
debt includes $126.8 million of future interest, using an approximate interest
rate of 7.6%, which is our weighted average cost of borrowings at December 31,
2007.  Capital leases include $157,000 of future interest, using an
approximate interest rate of 6.1%, which is our weighted average cost of
borrowings on our capital lease obligations at December 31, 2007. We also have a
$15.7 million demand note with SF-II, our wholly owned on-balance-sheet conduit
financing subsidiary, which is excluded from long-term debt as the note
represents only a potential, future cash outlay and is eliminated on a
consolidated basis.





Equipment
acquired under capital leases consists of the following at December 31, 2006 and
2007 (in thousands):





2006
            
            
            2007Amount
      of equipment under capital leases
            
            $
            2,006
            
            
            $
            2,362Less
      accumulated depreciation
            
            
            (237
            )
            
            
            (470
            )$
            1,769
            
            
            $
            1,892





At
December 31, 2007, we had notes receivable (including notes unrelated to
Vacation Intervals) in the approximate principal amount of $359.0 million with
an allowance for uncollectible notes of $69.1 million.





Employment Agreements -Periodically, we enter into employment agreements with certain executive
officers, which provide for minimum annual base salaries and other fringe
benefits as determined by our Board of Directors. Certain of these agreements
provide for bonuses based on our operating results. The agreements have varying
terms of up to three years and typically can be terminated by either party upon
30 days notice, subject to severance provisions. Certain employment agreements
provide that such person will not directly or indirectly compete with the
Company in any county in which it conducts its business or markets its products
for a period of two years following the termination of the agreement. These
agreements also provide that such persons will not influence any employee or
independent contractor to terminate its relationship with us or disclose any of
our confidential information.





10.
            EQUITY





Our stock
option plans provide for the award of nonqualified stock options to directors,
officers, and key employees, and the grant of incentive stock options to
salaried key employees. Nonqualified stock options provide for the right to
purchase common stock at a specified price which may be less than or equal to
fair market value on the date of grant (but not less than par value).
Nonqualified stock options may be granted for any term and upon such conditions
determined by our Board of Directors.





At
December 31, 2007, we have options outstanding under two stock-based
compensation plans. Outstanding options have a graded vesting schedule, with
equal installments of shares vesting through three years from the original grant
date. These options are exercisable at prices ranging from $0.29 to $25.50 per
share and expire 10 years from the date of grant.




F-21
 Table of Contents





Stock
option transactions during 2005, 2006, and 2007 are summarized as
follows:





2005
            
            
            2006
            
            
            2007Number
      of Shares
            
            
            Weighted
      Average Price per
    Share
            
            
            Number
      of Shares
            
            
            Weighted
      Average Price per
    Share
            
            
            Number
      of Shares
            
            
            Weighted
      Average Price per
    ShareOptions
      outstanding, beginning of year
            
            
            3,651,647
            
            
            $
            3.60
            
            
            
            3,137,657
            
            
            $
            4.20
            
            
            
            2,823,807
            
            
            $
            4.63Granted
            
            
            267,000
            
            
            $
            1.62
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            —Exercised
            
            
            (634,066
            )
            
            $
            0.32
            
            
            
            (313,850
            )
            
            $
            0.32
            
            
            
            (10,000
            )
            
            $
            0.32Expired
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            (299,000
            )
            
            $
            16.04Forfeited
            
            
            (146,924
            )
            
            $
            1.33
            
            
            
            —
            
            
            $
            —
            
            
            
            (1,000
            )
            
            $
            23.47Options
      outstanding, end of year
            
            
            3,137,657
            
            
            $
            4.20
            
            
            
            2,823,807
            
            
            $
            4.63
            
            
            
            2,513,807
            
            
            $
            3.28Exercisable,
      end of year
            
            
            2,356,105
            
            
            $
            5.34
            
            
            
            2,645,807
            
            
            $
            4.83
            
            
            
            2,424,807
            
            
            $
            3.34





For stock
options outstanding at December 31, 2007:





Range of Exercise Prices
            
            
            Number
      of OptionsOutstanding
            
            
            Weighted
      Average Exercise Priceper
      Option
            
            
            Weighted
      Average Remaining Life in
      Years
            
            
            Number
      of Options Exercisable
            
            
            Weighted
      Average Exercise Price of Options Exercisable$
            16.00
      - $25.50
            
            
            
            343,500
            
            
            $
            17.28
            
            
            
            0.3
            
            
            
            343,500
            
            
            $
            17.28$
            7.31
      - $7.31
            
            
            
            148,500
            
            
            
            7.31
            
            
            
            2.0
            
            
            
            148,500
            
            
            
            7.31$
            3.59
      - $3.69
            
            
            
            75,000
            
            
            
            3.64
            
            
            
            2.8
            
            
            
            75,000
            
            
            
            3.64$
            1.62
      - $1.62
            
            
            
            267,000
            
            
            
            1.62
            
            
            
            7.8
            
            
            
            178,000
            
            
            
            1.62$
            0.29
      - $0.32
            
            
            
            1,679,807
            
            
            
            0.31
            
            
            
            5.4
            
            
            
            1,679,807
            
            
            
            0.31Total
            
            
            
            2,513,807
            
            
            
            
            
            
            
            
            
            
            
            2,424,807





The
aggregate intrinsic value of our outstanding and exercisable stock options at
December 31, 2007 is $7.2 million and $7.0 million, respectively, with weighted
average remaining lives of 5.6 years and 5.5 years, respectively.  The
intrinsic value of stock options exercised during each of the three years ended
December 31, 2005, 2006, and 2007 was $1.1 million, $1.1 million and $54,000,
respectively.





We
adopted SFAS No. 123R 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. The fair value of the stock options granted
is estimated using the following weighted average assumptions: expected
volatility ranging from 143.2% to 264.4% for all grants, risk-free interest
rates which vary for each grant and range from 4.1% to 12.2%, expected life of 7
years for all grants, estimated forfeiture rate of zero for all grants, and no
distribution yield for all grants.





Compensation
cost will be recognized for any stock option grants issued, modified,
repurchased, or canceled after December 31, 2005. We recognized $252,000 and
$142,000 of stock-based compensation expense for the years ended December 31,
2006 and 2007, respectively.  At December 31, 2007, unamortized
compensation expense related to stock options granted prior to 2006 was $88,000,
which will be fully recognized by August 31, 2008.





The
following table illustrates the effect on net income and net income per share
had we applied the fair-value recognition provisions of SFAS No. 123 to our
outstanding stock option grants as of December 31, 2005, prior to the adoption
of SFAS No. 123R (in thousands, except per share amounts):





Net
      income — as reported
            
            $
            23,167Deduct:
      Stock-based compensation expense computed under the fair value method, net
      of tax
            
            
            (278
            )Net
      income — pro forma
            
            $
            22,889Net
      income per share, basicAs
      reported
            
            $
            0.63Pro
      forma
            
            $
            0.62Net
      income per share, dilutedAs
      reported
            
            $
            0.59Pro
      forma
            
            $
            0.59





The fair
value of the stock options granted during 2005 was $1.59. There were no stock
options granted during 2006 or 2007.





F-22
 Table of Contents





11.
            DISCONTINUED
      OPERATIONS





In
accordance with SFAS No. 144, the water and utility property assets and
liabilities were designated as held for sale effective December 31, 2004. In
accordance with the provisions of SFAS No. 144, the results of operations of
these properties are included in income from discontinued
operations.





On March
11, 2005, we sold the water distribution and waste water treatment utilities
assets at eight of our timeshare resorts for $13.1 million, which resulted in a
gain of $879,000 once all conditions of the sale were met.  Certain of
the purchasers entered into a services agreement to provide uninterrupted water
supply and waste water treatment services to our eight timeshare resorts to
which the sold utility assets relate.  The purchasers charge our
timeshare resorts the tariffed rate for those utility services that are
regulated by the states in which the resorts are located.  For any
unregulated utility services, the purchasers charge a rate set in accordance
with the ratemaking procedures of the Texas Commission on Environmental
Quality.  The proceeds of our sale of these utility assets were used
to reduce senior debt in accordance with our loan agreements with our senior
lenders.





Our
agreement with the purchasers contains provisions relating to the required
post-closing receipt of customary governmental approvals from utility regulators
in Missouri and Texas. During 2005, the purchasers received governmental
approval from the utility regulators in Missouri. Approval from the utility
regulators in Texas is still pending, with a deadline for obtaining such
approvals extended to June 2008.  If the purchasers do not receive
required approvals by such date or if the deadline for obtaining such approvals
is not extended, the Texas assets will be reconveyed to us, the sale will be
rescinded, and we will be obligated to return to the purchasers $6.2 million of
the purchase price attributable to such assets.





12.
            RELATED
      PARTY TRANSACTIONS





At
December 31, 2007, the Club at each timeshare resort (other than Orlando Breeze)
operates through a centralized organization provided by Silverleaf Club to
manage the resorts on a collective basis. Each timeshare owners’ association
(except for the Club at Orlando Breeze) has entered into a management agreement
with Silverleaf Club, which authorizes the Clubs to manage the Existing Resorts.
Silverleaf Club has in turn entered into a management agreement with the
Company, whereby we supervise the management and operations of the Existing
Resorts. Orlando Breeze has its own club, Orlando Breeze Resort Club, which is
operated independently of Silverleaf Club.  However, we supervise the
management and operation of the Orlando Breeze Resort Club under the terms of a
written agreement as well.  Our management agreements with Silverleaf
Club and Orlando Breeze Resort Club provide for a maximum management fee equal
to 15% of gross revenues of either Silverleaf Club or Orlando Breeze Resort
Club, but our right to receive such a fee on an annual basis is limited to the
net income of Silverleaf Club or Orlando Breeze Resort Club.  However,
if we do not receive the maximum fee, such deficiency is deferred for payment to
succeeding years, subject again to the annual net income
limitation.  During the third quarter of 2007, the Silverleaf Club
management agreement’s term was extended through March 2020 and continues
year-to-year thereafter unless cancelled by either party.  The Orlando
Breeze Resort Club management agreement’s amended term expires January 2011 and
continues in successive 3-year terms thereafter, unless cancelled by either
party.  During the years ended December 31, 2005, 2006, and 2007, we
recorded management fee income of $1.9 million, $1.9 million, and $2.7 million,
respectively, related to Silverleaf Club.  During the year ended
December 31, 2007, we recorded management fee income of $135,000 related to
Orlando Breeze Resort Club. Prior to 2007, we did not receive payment of
management fees from Orlando Breeze Resort Club.





The
direct expenses of operating the resorts are paid by the Clubs. To the extent
the Clubs provide payroll, administrative, and other services that directly
benefit the Company, we are charged a separate allocation by the Clubs. During
the years ended December 31, 2005, 2006, and 2007, we incurred $266,000,
$312,000, and $406,000, respectively, of expenses under these agreements.
Likewise, to the extent we provide payroll, administrative, and other services
that directly benefit the Clubs, we charge a separate allocation to the
Clubs.  During the years ended December 31, 2005, 2006, and 2007, we
charged the Clubs $3.3 million, $3.3 million, and $3.6 million, respectively,
under these agreements.





The
following schedule represents amounts due from and to affiliates at December 31,
2006 and 2007 (in thousands):





2006
            
            
            2007Timeshare
      owners associations and other, net
            
            $
            880
            
            
            $
            604Amount
      due from Silverleaf Club
            
            
            371
            
            
            
            402Amount
      due from special purpose entities
            
            
            —
            
            
            
            352Total
      amounts due from affiliates
            
            $
            1,251
            
            
            $
            1,358Amount
      due to special purpose entities
            
            $
            246
            
            
            $
            —Total
      amounts due to affiliates
            
            $
            246
            
            
            $
            —




F-23
 Table of Contents





In
December 2007, we sold approximately 5.7 acres of land located in Wood County,
Texas, to Mr. Robert E. Mead, our Chief Executive Officer, for
$244,000.  Our basis in this tract of land was zero, thus we recorded
a gain of $242,000, which represents the sales price, net of closing costs. The
aggregate market value of our ownership interests and other rights in this tract
of land was determined to be $244,000 at May 7, 2007 based upon an appraisal
from an independent appraisal firm.  This transaction was approved by
the Board of Directors, with Mr. Mead abstaining.





During
2005, we retained the services of TradeMark Consulting, Co. (“TradeMark”), a
consulting company owned and operated by Thomas J. Morris, who became one of our
executive officers in August 2005. Mr. Morris entered into an employment
agreement with us which provided that the Independent Contractor Consulting
Agreement (“Consulting Agreement”) we had with Trademark would not be affected
by the employment agreement and that Mr. Morris’ operation of such company would
not be a violation of the noncompetition provisions of his employment agreement.
The Consulting Agreement provided for certain bonuses to be paid upon
Silverleaf’s completion of specified financing transactions. Pursuant to the
Consulting Agreement, as amended, with TradeMark, we paid TradeMark $375,324 in
fees and other contractual payments related to services rendered before Mr.
Morris commenced employment with the Company.  We paid Mr. Morris’
company a bonus of $100,000 in 2006 as a result of the completion of a financing
transaction on March 2, 2006.  The Consulting Agreement terminated on
March 15, 2006.





13.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The
carrying value of cash and cash equivalents, other receivables, amounts due from
or to affiliates, and accounts payable and accrued expenses approximates fair
value due to the relatively short-term nature of the financial instruments. The
carrying value of the notes receivable approximates fair value because the
weighted average interest rate on the portfolio of notes receivable approximates
current interest rates charged on similar current notes receivable. The carrying
value of notes payable and capital lease obligations approximates their fair
value because the interest rates on these instruments are adjustable or
approximate current interest rates charged on similar current
borrowings.





Our
senior subordinated notes of $31.5 million and $26.8 million as of December 31,
2006 and 2007, respectively, had estimated fair values of approximately $19.7
million and $16.8 million, respectively, based on the market value of notes
exchanged in the Exchange Offer in 2002. However, these notes were not traded on
a regular basis and were therefore subject to large variances in offer prices.
Accordingly, the estimated fair value may not be indicative of the amount at
which a transaction could be completed.





Considerable
judgment is required to interpret market data to develop estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts we could realize in a current market exchange. The use
of different market assumptions and estimation methodologies may have a material
effect on the estimated fair value amounts.





14.
            SUBSIDIARY
      GUARANTEES





All
subsidiaries of the Company, except SF-II, SF-III, SF-IV, and SF-V, have
guaranteed our senior subordinated notes of $26.8 million at December 31, 2007.
Separate financial statements and other disclosures concerning these
guaranteeing subsidiaries are not presented herein because such guarantees are
full and unconditional and joint and several, and such subsidiaries represent
wholly-owned subsidiaries of the Company.  In addition, these
subsidiaries had nominal balance sheets at December 31, 2006 and 2007, and no
operations for the years ended December 31, 2005, 2006, and 2007.





15.
            401(k)
      PLAN





Our
401(k) plan (the “Plan”), a qualified defined contribution retirement plan,
covers employees 21 years of age or older who have completed six months of
service. The Plan allows eligible employees to defer receipt of up to 15% of
their compensation and contribute such amounts to various investment funds.
Employee contributions vest immediately. We are not required by the Plan to
match employee contributions, however, we may do so on a discretionary basis. We
incurred nominal administrative costs related to maintaining the Plan and made
no contributions to the Plan during the years ended December 31, 2005, 2006, and
2007.





F-24
 Table of Contents





16.
            SELECTED
      QUARTERLY FINANCIAL DATA
(UNAUDITED)





Selected
quarterly financial data for 2006 and 2007 is set forth below (in thousands,
except per share amounts):





First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            QuarterTotal
      revenues2007
            
            $
            58,826
            
            
            $
            63,853
            
            
            $
            67,535
            
            
            $
            64,8162006
            
            $
            45,672
            
            
            $
            53,033
            
            
            $
            56,100
            
            
            $
            52,078Total
      costs and operating expenses2007
            
            $
            48,151
            
            
            $
            51,289
            
            
            $
            53,719
            
            
            $
            56,7692006
            
            $
            35,566
            
            
            $
            42,041
            
            
            $
            46,264
            
            
            $
            45,603Net
      income2007
            
            $
            6,565
            
            
            $
            7,727
            
            
            $
            8,497
            
            
            $
            4,9152006
            
            $
            6,215
            
            
            $
            6,760
            
            
            $
            6,049
            
            
            $
            3,982Net
      income per common share: basic2007
            
            $
            0.17
            
            
            $
            0.20
            
            
            $
            0.22
            
            
            $
            0.132006
            
            $
            0.17
            
            
            $
            0.18
            
            
            $
            0.16
            
            
            $
            0.11Net
      income per common share: diluted2007
            
            $
            0.17
            
            
            $
            0.20
            
            
            $
            0.22
            
            
            $
            0.122006
            
            $
            0.16
            
            
            $
            0.17
            
            
            $
            0.15
            
            
            $
            0.10






F-25