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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB (Mark One) þ
    
    Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2005 o
    
    Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from _______________ to ______________. Commission file number 0-18808 Great Western Land and Recreation, Inc.  Nevada
    
    13-3530765(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer
Identification No.)
 7373 N. Scottsdale Road, Suite C-140
Scottsdale, AZ 85253
(480) 949-6007
(Address and telephone number of principal executive offices) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
þ       No o The number of shares of the registrants Common Stock outstanding at May 6, 2005 was 21,265,973.




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##### Table of Contents



GREAT WESTERN LAND AND RECREATION, INC. CONTENTS PAGEPart IFinancial InformationItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis
    
    
    15Item 3. Controls and Procedures
    
    
    19Part IIOther InformationItem 1. Legal Proceedings
    
    
    20Item 2. Changes in Securities and Use of Proceeds
    
    
    20Item 3. Defaults Upon Senior Securities
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    22EX-31.1EX-31.2EX-32.1EX-32.2
 2




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BUSINESS RISKS AND FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-QSB includes forward-looking statements. Forward-looking
statements are often characterized by the use of words such as may, believes, plans, will,
anticipates, estimates, expects, or intends or by discussions of strategy, plans or
intentions. All forward-looking statements in this Form 10-QSB are made based on our current
expectations and estimates, which involve risks, uncertainties and other factors that could cause
results to differ materially from those expressed in forward-looking statements. You are cautioned
not to place undue reliance on any such forward-looking statements. We have no obligation to
publicly release the result of any revisions that may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the date of such
statements. Forward-looking statements involve a number of risks and uncertainties including, but
not limited to, general economic conditions, the cyclical nature of the real estate market,
competitive factors, our ability to locate new projects and to finance the acquisition and
development of these projects on acceptable terms, possible delays in bringing our projects to
market, the availability of qualified third-party contractors, our exposure to changes in interest
rates, demand for new housing starts, the availability of finished lots within a particular area
and the cost of compliance with government regulations. 3




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PART I FINANCIAL INFORMATION 
 Item 1.Financial Statements GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED BALANCE SHEET March 31,2005(unaudited)ASSETSCash and cash equivalents
    
    $
    417,562Notes receivable
    
    
    725,148Land held for development and sale
    
    
    13,261,141Receivable from related entities
    
    
    26,907Property and equipment, net of accumulated
depreciation of $84,973
    
    
    129,980Other
    
    
    532,691$
    15,093,429LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesNotes payable
    
    $
    6,560,368Subordinated debt
    
    
    3,504,329Payable to related entities
    
    
    949,059Accounts payable and other accrued liabilities
    
    
    601,592Total liabilities
    
    
    11,615,348Minority interest
    
    
    34,503Stockholders equityPreferred stock, $0.001 par value; 10,000,000 shares authorized;27,069
shares issued and outstanding; 20,000 additional shares issued,held by a subsidiary and
reported as treasury shares; liquidation value  $1,987,900
    
    
    1,833,753Common stock, $0.001 par value; 45,000,000 shares
authorized;21,265,973 shares issued and outstanding
    
    
    21,265Additional paid-in capital
    
    
    2,583,843Accumulated other comprehensive loss
    
    
    (733
    )Accumulated deficit
    
    
    (994,550
    )Total stockholders equity
    
    
    3,443,578$
    15,093,429
 The accompanying notes are an integral part of this consolidated financial statement. 4




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GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three months ended March 31,
    
    
    Six months ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Real estate sales
    
    $
    646,493
    
    
    $
    520,747
    
    
    $
    1,553,868
    
    
    $
    809,623Cost of real estate sales
    
    
    415,631
    
    
    
    215,313
    
    
    
    834,844
    
    
    
    358,617Gross profit
on real estate sales
    
    
    230,862
    
    
    
    305,434
    
    
    
    719,024
    
    
    
    451,006Operating, selling, general and administrative expense
    
    
    500,554
    
    
    
    406,903
    
    
    
    967,209
    
    
    
    823,065Loss from operations
    
    
    (269,692
    )
    
    
    (101,469
    )
    
    
    (248,185
    )
    
    
    (372,059
    )Other income (expense)Interest expense
    
    
    (93,908
    )
    
    
    (114,307
    )
    
    
    (174,170
    )
    
    
    (211,739
    )Interest income
    
    
    8,985
    
    
    
    2,298
    
    
    
    17,309
    
    
    
    4,397Sale of investment in Laguna at Arrowhead Apartments, LLC
    
    
    878,148
    
    
    
    
    
    
    
    878,148
    
    
    
    Other income
    
    
    20,213
    
    
    
    28,111
    
    
    
    59,214
    
    
    
    38,585813,438
    
    
    
    (83,898
    )
    
    
    780,501
    
    
    
    (168,757
    )Income (loss) from continuing operations
    
    
    543,746
    
    
    
    (185,367
    )
    
    
    532,316
    
    
    
    (540,816
    )Loss from discontinued operations
    
    
    (15,441
    )
    
    
    (27,273
    )
    
    
    (84,211
    )
    
    
    (43,979
    )Net income (loss)
    
    
    528,305
    
    
    
    (212,640
    )
    
    
    448,105
    
    
    
    (584,795
    )Less: Preferred stock dividends applicable to the period
    
    
    (25,036
    )
    
    
    (11,815
    )
    
    
    (41,466
    )
    
    
    (23,630
    )Net income
(loss) available for common stock
    
    $
    503,269
    
    
    $
    (224,455
    )
    
    $
    406,639
    
    
    $
    (608,425
    )Basic and diluted income (loss) per common and common equivalent shareIncome (loss) from continuing operations
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) per common and common equivalent share
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )Weighted average common and common
equivalent shares outstandingBasic
    
    
    21,184,862
    
    
    
    20,885,399
    
    
    
    21,141,548
    
    
    
    20,868,915Diluted
    
    
    25,193,012
    
    
    
    20,885,399
    
    
    
    23,904,095
    
    
    
    20,868,915
 The accompanying notes are an integral part of these consolidated financial statements. 5




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GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(unaudited) AccumulatedOtherAdditional
    
    
    compre-
    
    
    
    
    
    
    Compre-Preferred Stock
    
    
    Common Stock
    
    
    paid-in
    
    
    hensive
    
    
    Accumulated
    
    
    hensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    loss
    
    
    deficit
    
    
    incomeBalance, September 30, 2004
    
    
    22,580
    
    
    $
    1,390,617
    
    
    
    21,008,399
    
    
    $
    21,008
    
    
    $
    2,576,898
    
    
    $
    (733
    )
    
    $
    (1,442,655
    )
    
    $
    Issuance of preferred stock in exchange
for land
    
    
    4,489
    
    
    
    411,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of discount on
preferred stock
    
    
    
    
    
    
    31,592
    
    
    
    
    
    
    
    
    
    
    
    (31,592
    )
    
    
    
    
    
    
    
    
    
    
    Stock option excercises
    
    
    
    
    
    
    
    
    
    
    257,574
    
    
    
    257
    
    
    
    38,537
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448,105
    
    
    
    448,105Comprehensive
income for the
six months ended
March 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    448,105Balance, March 31, 2005
    
    
    27,069
    
    
    $
    1,833,753
    
    
    
    21,265,973
    
    
    $
    21,265
    
    
    $
    2,583,843
    
    
    $
    (733
    )
    
    $
    (994,550
    )
 The accompanying notes are an integral part of this consolidated financial statement. 6




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GREAT WESTERN LAND AND RECREATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six months ended March 31,2005
    
    
    2004Net cash used in operating activities
    
    $
    (2,084,800
    )
    
    $
    (1,886,289
    )Cash flows provided by (used in) investing activitiesCollection of receivable from related entities
    
    
    6,960
    
    
    
    18,626Purchases of property and equipment
    
    
    (52,176
    )
    
    
    (37,721
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    40,000Net cash
provided by (used in) investing activities
    
    
    (45,216
    )
    
    
    20,905Cash flows from financing activitiesIssuance of notes payable
    
    
    1,890,510
    
    
    
    2,679,904Principal payment on notes of discontinued operations
    
    
    (9,262
    )
    
    
    Payments on notes payable
    
    
    (952,209
    )
    
    
    (995,869
    )Issuance of note payable to related entity
    
    
    
    
    
    
    150,000Decrease in payable to related entities
    
    
    (72,151
    )
    
    
    (18,245
    )Decrease in subordinated debt
    
    
    
    
    
    
    (324,423
    )Proceeds from stock options exercised
    
    
    15,001
    
    
    
    Net cash provided by financing activities
    
    
    871,888
    
    
    
    1,491,367Net decrease in cash and cash equivalents
    
    
    (1,258,128
    )
    
    
    (374,017
    )Cash and cash equivalents at beginning of period
    
    
    1,675,690
    
    
    
    1,100,844Cash and cash equivalents at end of period
    
    $
    417,562
    
    
    $
    726,827Supplemental disclosure of cash flow information:Cash paid during the period for interest, net of amount capitalized
    
    $
    60,740
    
    
    $
    10,599Noncash investing and financing activitiesAccrued interest capitalized included in debt
    
    
    73,904
    
    
    
    57,528Transfer of Wagon Bow ranch land in exchange for minority interest in
Houston Warren Ranch, LLC
    
    
    
    
    
    
    15,614Preferred stock issued in exchange for land
    
    
    411,544
    
    
    
    678,581Common stock issued in exchange for 47.5% minority interest in Firebird
Financial, LLC and an option to purchase land
    
    
    
    
    
    
    15,000Subordinated debt issued in exchange for land
    
    
    150,000
    
    
    
    Sale of investment in #22 Stafford Springs in exchange for a note recievable
    
    
    289,500
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements. 7




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GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) NOTE A  BACKGROUND AND BASIS OF PRESENTATION The accompanying consolidated
financial statements as of March 31, 2005 and for the three month and
six month periods ended March 31, 2005 and 2004 include the accounts of Great Western Land and
Recreation, Inc. and its wholly- and majority-owned subsidiaries (collectively, the Company).
Great Western Land and Recreation and its consolidated subsidiaries are collectively referred to as
the Company. Investments in companies that represent 20% to 50% of the ownership interest are
accounted for on the equity method unless the Company is deemed to control the investee.
Investments in companies that represent less than a 20% ownership interest are accounted for on the
cost basis. All material intercompany accounts and transactions have been eliminated. The Company is engaged principally in the acquisition, development and sale of land located in
Houston and College Station, Texas, Phoenix and Glendale, Arizona and certain country areas of New
Mexico and Arizona. Transactions include both retail and non-retail land sales, depending upon the
progress of the development and sub-division process. Great Western Land & Recreation, Inc. is incorporated in the state of Nevada. The accompanying unaudited financial information reflects all adjustments, consisting only of
normal recurring adjustments, that are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. Such financial information should be
read in conjunction with the consolidated financial statements and related notes as of September
30, 2004 included in Form 10-KSB filed with the SEC on January 19, 2005. The Company maintains its records and prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America for real estate
operations. In preparing financial statements in conformity with accounting principles generally
accepted in the United States of America, management is responsible for making estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and reported amounts of
revenues and expenses during the reported period. Actual results could differ from those estimates. NOTE B  STOCK BASED COMPENSATION The Company accounts for its stock option plan under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to Employeesand related Interpretations using the
intrinsic value based method. No stock-based employee compensation cost is reflected in net
earnings, as all options granted under this plan had an exercise price equal to the market value of
the underlying common stock on the date of grant. The following table illustrates the effect on
net earnings and earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation for the three month and six month periods ended March 31, 2005 and 2004. Three months ended March 31,
    
    
    Six months ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss) as reported
    
    $
    528,305
    
    
    $
    (212,640
    )
    
    $
    448,105
    
    
    $
    (584,795
    )Deduct: Total stock-based employee compensation expense
determined under fair value based method (1)
    
    
    (16,064
    )
    
    
    (2,313
    )
    
    
    (32,072
    )
    
    
    (4,992
    )Pro forma net income (loss)
    
    $
    512,241
    
    
    $
    (214,953
    )
    
    $
    416,033
    
    
    $
    (589,787
    )Income (loss) per share:Basic and diluted  as reported
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )Basic and diluted  pro forma
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.02
    
    
    $
    (0.03
    )
 8




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(1)
    
    The fair value method amortizes the estimated fair value of the options at date of grant
over the vesting period. The fair value of these options was estimated at the date of grant
assuming a risk-free interest rate of 4.88%, an expected option life of 10 years with no
dividends. The expected option life is based on all options being exercised just prior to
expiration. NOTE C  NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) less preferred stock
dividends applicable to the period by the weighted average common shares outstanding during the
period. Diluted net income (loss) per share is similar to basic
earnings income (loss) per share except that the weighted
average of common shares outstanding is increased to include the
number of additional shares that would have been outstanding if the
dilutive potential common shares, such as options and convertible
preferred stock, had been exercised. NOTE D  INVESTMENT IN UNCONSOLIDATED COMPANY Laguna Investments L.L.C. On September 19, 1997, Laguna Investments L.L.C. (Laguna Investments), a subsidiary of the
Company, acquired a 25.52% ownership in Laguna at Arrowhead Apartments L.L.C. (Laguna), which
owns an apartment complex in Phoenix, Arizona. On December 30, 2002, the Company sold a 7.1%
interest in Laguna Investments to Lafayette Financial Services, L.L.C. (Lafayette) for $35,500 in
partial payment of the note payable to Lafayette. Lafayette is 50% owned by the Chairman of the
Companys Board of Directors with the remaining ownership balance belonging to one outside
investor. On September 29, 2003, the Company sold an additional 6.37% interest in Laguna
Investments to Lafayette for $31,855, also in partial payment of the note payable to Lafayette. On
September 29, 2003, the Company also sold a 3.0% interest in Laguna Investments to Torok Partners,
LLC for $15,000 in exchange for Torok Partners minority interest in one of the Companys projects.
Torok Partners is controlled by the Chairman of the Companys Board of Directors. As a result of
these transactions, at December 31, 2004, the Company owned 83.53% of Laguna Investments, which
represented a 21.32% interest in Laguna. The investment in Laguna was accounted for using the equity method. Under the equity method, the
Companys investment balance equaled the Companys original cost adjusted for its equity interest
in the earnings and losses of Laguna since the date of acquisition. At December 31, 2004 the
Companys investment balance in Laguna was $-0-. On February 14, 2005 the sale of Laguna at Arrowhead Ranch Apartments closed. The Company received
cash proceeds of $878,148 and recorded a gain for the same amount. According to the management company
for Laguna at Arrowhead Ranch Apartments, this sum represents approximately 98% of the expected
total distribution from the sale. The remainder will be distributed as the affairs of Laguna at
Arrowhead Ranch Apartments are finalized. NOTE E  RELATED ENTITIES Related entity receivables/payables are as follows at March 31, 2005: Receivable from related entities:Minority investor in Houston Warren Ranch Partners, LLC (2)
    
    $
    18,875Other
    
    
    8,032$
    26,907Payable to related entities:Minority investors in Glendale Condominiums, LLC (1)
    
    $
    779,684Minority investors in Villa Maria, LLC (3)
    
    
    169,375$
    949,059
 The subordinated debt is also due to a related entity. See Note F for further discussion.   (1)
    
    The Company has a 70% interest in Glendale Condominiums, LLC. The land for the project was
purchased from an individual and a trust who own the other 30% of the project. The payable
represents the balance due, including interest at 8% per annum, for this 9




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purchase. Principal
and interest are due quarterly from September 2008 through September 2018. The land cost and
preliminary development costs for this project total $4,027,349 at March 31, 2005 and are
included in land held for development and sale.(2)
    
    The Company has a total interest of 70% in Houston Warren Ranch Partners, LLC (Warren
Ranch) which is derived from its 55% direct ownership in Warren Ranch as well as a 15%
indirect interest from its one third ownership in Jessica Star Partners, LLC. Jessica Star
Partners, LLC owns 45% of Warren Ranch and consists of the following members owning a one
third interest in the company: Great Western Land & Recreation, Inc., the Chairman of Great
Westerns Board of Directors and Brad Dill of BD Realty. The note receivable from Jessica Star
Partners, LLC bears interest at 10%, with principal and interest due on September 24, 2004.
The Company is currently seeking either repayment or an extension of this loan. During the
six months ended March 31, 2005 the Company paid BD Realty $54,893 in fees related to the
development of Mallard Crossing and Westchester Lakes, as well as rent on the Houston Office
which is leased from them.(3)
    
    The Company has an 82.5% interest in Villa Maria, LLC, which is constructing a condominium
project in College Station, Texas called Woodland Court. The remaining 17.5% is owned by
minority investors, consisting of three members of the Companys Board of Directors. The
payable represents the balance due to these investors. Interest on this balance accrues at 10%
per annum, with principal and interest due at the end of the project. NOTE F  SUBORDINATED DEBT The Companys operations have been partially financed with periodic advances in prior years from
Amortibanc Investments, LLC, the majority stockholder of the Company. The advances are subordinate
to the Companys bank financing and bear interest at 4% to 10%. The interest accrued on these
advances has typically been added to the subordinated debt. Payments on the debt are made only when
cash flow from a land sale, after payment of bank debt, exceeds the Companys operating cash
requirements. This determination of operating cash requirements is made by the Companys
management, however under the terms of the bank loan the Company obtained to finance the Woodland
Court condominium project, the outstanding balance of the subordinated debt may not be less than
$3,000,000. On October 31, 2003, the Company made a payment of $378,587. Also included in
subordinated debt are note payables related to the purchase of land in College Station, Texas for
the Woodland Court condominium project and in Houston, Texas for the Bella Vista townhome project.
The note related to Woodland Court bears interest at 5.0% and is subordinate to other loans on the
property. Principal on the note is due on April 1, 2009, with interest payments due quarterly.
The balance due on this note, including accrued interest, is $70,875 at March 31, 2005. The note
related to Bella Vista townhomes bears interest at 7.0% and is subordinate to other loans on the
property. Principal on the note is due on March 10, 2007, with interest payments due monthly. The
balance due on this note, including accrued interest, is $150,000 at March 31, 2005. NOTE G  COMMITMENTS AND CONTINGENCIES The Company has sold notes receivable with repayment terms of up to 20 years, with recourse upon
nonpayment by the debtor, of $215,167 and $212,588 during the six months ended March 31, 2005 and
March 31, 2004, respectively. The remaining balances due, with recourse, of all notes sold are
$1,654,102 as of March 31, 2005. Fifteen percent of the note sales proceeds are retained by the purchaser of the notes as a
nonpayment reserve and returned to the Company when the original land purchasers pay off the note
balances. The reserve balance was $252,825 at March 31, 2005, and is included in other assets, net
of an allowance established for recourse chargeback of $31,286. If the Company incurs a chargeback,
ownership of the original land sold will revert to the Company and can be resold to help recover
any losses incurred by the Company as a result of the chargeback. During the six month period ended
March 31, 2005, the Company received no chargebacks. From time-to-time the Company is involved in litigation arising in the normal course of business.
Based on information currently available, management does not believe that the ultimate resolution
of any such matters will have a material adverse effect on the Companys financial condition,
results of operations or cash flow. The Company entered into a five-year employment agreement with its CEO during 2001. In the event
the Company consummates an acquisition (as defined in the agreement) during the terms of the
agreement, the contract provides for salary increases and issuance of
options to acquire a total of 600,000 common shares of the surviving corporation at a price not to
exceed the fair market value of such shares on the closing date of the acquisition. The agreement
also provides for severance payments upon termination in the amount of the total compensation for
the remainder of the contract terms and a consulting arrangement upon retirement of the CEO. NOTE H  PREFERRED STOCK 10




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The Company has authorized five series of preferred stock: Series A Cumulative Convertible
Preferred Stock (Series A Preferred), Series B Cumulative Convertible Preferred Stock (Series B
Preferred), Series C Cumulative Convertible Preferred Stock (Series C Preferred), Series D
Cumulative Convertible Preferred Stock (Series D Preferred) and Series E Cumulative Convertible
Preferred Stock (Series E Preferred). As of March 31, 2005, there were 14,380 shares of Series A
Preferred, 8,200 shares of Series C Preferred, 2,454 shares of Series D Preferred and 2,035 shares
of Series E Preferred issued and outstanding. As of March 31, 2005, 20,000 shares of Series B
Preferred have been issued and are held by a subsidiary of the Company. Series A Preferred Stock Effective June 28, 2002, the Company issued 14,380 shares of Series A Preferred with a liquidation
value of $719,000. The Series A Preferred is senior to the Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, and is not redeemable at a fixed or determinable price
or on a fixed or determinable date or upon the occurrence of any event that is not solely within
the Companys control. It is convertible by the holder at any time into shares of the Companys
common stock at a price equal to the average market price of the Companys common stock for the
thirty business days immediately preceding the conversion, and is redeemable by the Company at any
time after one year from the date of issuance. The Series A Preferred has a cumulative dividend,
payable semi-annually at the following rates: First year from the date of issuance
    
    0% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    4% per annumFourth year from the date of issuance
    
    5% per annumFifth year from the date of issuance
    
    6% per annumThereafter
    
    7% per annum
 As the Series A Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $114,071, which is being amortized to additional paid in
capital over the period of increasing dividend rates of the stock. The balance of the Series A
Preferred (net of unamortized discount) was $698,944 at March 31, 2005. At March 31, 2005,
dividends in arrears totaled $35,950, or $2.50 per share. Series B Preferred Stock Effective June 1, 2004, the Company issued 20,000 shares of Series B Preferred with a liquidation
value of $1,000,000 to Houston Warren Ranch Partners, LLC, a majority-owned subsidiary of the
Company. The Series B Preferred was then pledged by Houston Warren Ranch Partners, LLC as
collateral on a loan. The Series B Preferred ranks junior to the Series A Preferred, but is senior
to the Series C Preferred, Series D Preferred and Series E Preferred, and is not redeemable at a
fixed or determinable price or on a fixed or determinable date or upon the occurrence of any event
that is not solely within the Companys control. It is convertible by the holder at any time into
shares of the Companys common stock at a price equal to the average market price of the Companys
common stock for the thirty business days immediately preceding the conversion, and is redeemable
by the Company at any time after one year from the date of issuance. The Series B Preferred has a
cumulative dividend, payable semi-annually at the following rates: First year from the date of issuance
    
    2.0% per annumSecond year from the date of issuance
    
    3.0% per annumThird year from the date of issuance
    
    3.5% per annumThereafter
    
    4.0% per annum
 As a majority-owned subsidiary of the Company, the accounts of Houston Warren Ranch Partners, LLC
are included in the accompanying consolidated financial statements. Accordingly, the shares and
dividends of Series B Preferred owned by Houston Warren Ranch Partners, LLC are not reported in the
accompanying consolidated balance sheet. Series C Preferred Stock Effective March 31, 2004, the Company issued 8,200 shares of Series C Preferred with a liquidation
value of $820,000. The shares were issued in exchange for land with a fair market value of
$678,581. The Series C Preferred ranks junior to the Series A Preferred and to the Series B
Preferred, but is senior to Series D Preferred and Series E Preferred, and is not redeemable at a
fixed or determinable price on a fixed or determinable date or upon the occurrence of any event
that is not solely within the Companys control. It is convertible by the holder at any time into
shares of the Companys common stock at the following prices: 11




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First year from the date of issuance
    
    $1.00 per share of common stockSecond through fourth years from the date of issuance
    
    $2.00 per share of common stockThereafter
    
    $3.50 per share of common stock
 The Series C Preferred is redeemable by the Company at any time after five years from the date of
issuance. It has a cumulative dividend, payable semi-annually at the following rates: First year from the date of issuance
    
    1% per annumSecond year from the date of issuance
    
    2% per annumThird year from the date of issuance
    
    3% per annumFourth year from the date of issuance
    
    4% per annumFifth year from the date of issuance
    
    5% per annumThereafter
    
    7% per annum
 As the Series C Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $141,419, which is being amortized to additional paid-in
capital over the period of increasing dividend rate of the stock. The balance of the Series C
Preferred was $723,625 at March 31, 2005. At March 31, 2005 dividends in arrears totaled $8,200 or
$1.00 per share. Series D Preferred Stock Effective March 31, 2005, the Company issued 2,454 shares of Series D Preferred with a liquidation
value of $245,400. The shares and cash of $253,641were issued in exchange for land with a fair
market value of $481,200. The Series D Preferred ranks junior to the Series A Preferred, Series B
Preferred and to the Series C Preferred and is not redeemable at a fixed or determinable price on a
fixed or determinable date or upon the occurrence of any event that is not solely within the
Companys control. It is convertible by the holder at any time into shares of the Companys common
stock at a collar price of $0.98. The collar price is the average of the reported closing price on
the market where the stock is traded over the five (5) working days before the issuance date and
five (5) working days after the issuance date, as such closing prices reported on Yahoo. The Series D Preferred is redeemable by the Company at any time after five years from the date of
issuance. It has a cumulative dividend, payable semi-annually at the following rates: First year from the date of issuance
    
    $2.00 per annumSecond year from the date of issuance
    
    $3.00 per annumThird year from the date of issuance
    
    $3.50 per annumFourth year from the date of issuance
    
    $4.00 per annumFifth year from the date of issuance
    
    $4.50 per annumThereafter
    
    $5.00 per annum
 As the Series D Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $17,841, which is being amortized to additional paid-in
capital over the period of increasing dividend rate of the stock. The balance of the Series D
Preferred was $227,599 at March 31, 2005. At March 31, 2005 there were no dividends in arrears. Series E Preferred Stock Effective March 31, 2005, the Company issued 2,035 shares of Series E Preferred with a liquidation
value of $203,500. The shares and cash of $215,609 were issued in exchange for land with a fair
market value of $399,594. The Series E Preferred ranks junior to the Series A Preferred, the Series
B Preferred, the Series C Preferred and to the Series D Preferred and is not redeemable at a fixed
or determinable price on a fixed or determinable date or upon the occurrence of any event that is
not solely within the Companys control. It is convertible by the holder at any time into shares of
the Companys common stock at a collar price of $0.98. The collar price is the average of the
reported closing price on the market where the stock is traded over the five (5) working days
before the issuance date and five (5) working days after the issuance date, as such closing prices
reported on Yahoo. The Series E Preferred is redeemable by the Company at any time after five years from the date of
issuance. It has a cumulative dividend, payable semi-annually at the following rates 12




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##### Table of Contents



First year from the date of issuance
    
    $1.00 per annumSecond year from the date of issuance
    
    $2.00 per annumThird year from the date of issuance
    
    $3.00 per annumFourth year from the date of issuance
    
    $4.00 per annumFifth year from the date of issuance
    
    $4.50 per annumThereafter
    
    $5.00 per annum
 As the Series E Preferred has an increasing dividend rate, it was initially recorded at its fair
value at the date of its issuance by discounting the preferred stock using managements estimate of
the current market rate for dividend yields and comparing it to the actual dividend rate of the
stock. This resulted in a discount of $19,515, which is being amortized to additional paid-in
capital over the period of increasing dividend rate of the stock. The balance of the Series E
Preferred was $183,985 at March 31, 2005. At March 31, 2005 there were no dividends in arrears. NOTE I  STOCK OPTION PLAN The Company has established a 2001 stock option plan and has reserved 3,500,000 shares to be issued
under the plan. All employees are eligible to participate in this plan and participants shall be
selected by an Administrative Committee consisting of not less than three members of the Companys
Board of Directors. The options generally vest over a period of 3 years, however certain options
granted to employees vest sooner. The options expire no more than 10 years from the date of grant.
Upon termination of an option holders employment, all unvested options will immediately terminate
and vested options will generally remain exercisable for a period of three months after date of
termination (one year in case of disability or death). The options issued in 2005 were at exercise
prices which approximated the fair market value of the Companys common stock at the date of grant.
Fair value was determined by the most recent closing price for the Companys common shares on the
over-the-counter bulletin board on the date of grant. At March 31, 2005 options for 1,706,500
shares of common stock were available for issuance under the plan, respectively. Additional
information with respect to stock option plan activity is as follows: Outstanding OptionsWeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceSeptember 30, 2004
    
    
    2,289,500
    
    
    $
    0.24Grants
    
    
    370,000
    
    
    $
    0.40Exercises
    
    
    (257,574
    )
    
    $
    0.15Cancellations
    
    
    (192,426
    )
    
    $
    0.15March 31, 2005
    
    
    2,209,500
    
    
    $
    0.28
 Outstanding options expire at various dates through January 2015. The weighted-average exercise
price of options which were exercisable at March 31, 2005 was $0.25. Options outstanding and
options exercisable at March 31, 2005 are as follows: Outstanding Options
    
    
    Exercisable OptionsWeighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Average
    
    
    Number
    
    
    AverageExercise
    
    of
    
    
    Contractual
    
    
    of
    
    
    ContractualPrices
    
    Shares
    
    
    Life (in years)
    
    
    Shares
    
    
    Life (in years)$      0.15
    
    
    877,000
    
    
    
    7.0
    
    
    
    810,333
    
    
    
    7.0$      0.31
    
    
    750,000
    
    
    
    9.4
    
    
    
    550,000
    
    
    
    9.4$      0.35
    
    
    100,000
    
    
    
    9.3
    
    
    
    
    
    
    
    $      0.36
    
    
    50,000
    
    
    
    9.6
    
    
    
    
    
    
    
    $      0.40
    
    
    300,000
    
    
    
    9.7
    
    
    
    67,000
    
    
    
    9.7$      0.46
    
    
    20,000
    
    
    
    9.8
    
    
    
    
    
    
    
    $      0.65
    
    
    50,000
    
    
    
    9.1
    
    
    
    
    
    
    
    $      0.80
    
    
    62,500
    
    
    
    4.6
    
    
    
    62,500
    
    
    
    4.62,209,500
    
    
    
    
    
    
    
    1,489,833
 13




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NOTE J INCOME TAXES Income taxes are accounted for using the asset and liability method. Under this method, deferred
income tax assets and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided for deferred tax assets for which realization is
dependent on future taxable income. During the three month and six month periods ended March 31,
2005, there was no income tax liability or expense due to the utilization of prior year net loss
carryforwards for which a valuation allowance had been provided. NOTE K  RELATED PARTY TRANSACTIONS In December 2003, three members of the Companys Board of Directors invested a total of $150,000 in
exchange for a subordinated note payable from Villa Maria, LLC and a 17.5% minority interest in
Villa Maria, LLC. The Company currently owns the remaining 82.5% of
Villa Maria, LLC. Villa Maria, LLC is constructing Woodland Court, a planned 43-unit
condominium project located in College Station, Texas. Interest on the $150,000 balance accrues at
10% per annum, with principal and interest due at the end of the project (see Note E). The Company
believes that the terms of the subordinated note payable are at least as good as it could have
obtained through arms-length negotiations. NOTE L  DISCONTINUED OPERATIONS Effective July 8, 2003, the Company agreed to become a general partner and acquire a 34% interest
in #22 Stafford Springs LTD (Stafford Springs) for $525,000. Stafford Springs owns the Summer
Park Duplexes, a 168-unit, HUD-financed, manufactured housing duplex rental community in Stafford,
Texas. The Company recorded this investment in Stafford Springs as a deposit pending approval by
HUD of the general partnership ownership transfer. The Company has recorded its 34% of Stafford
Springs losses since July 8, 2003. The Company was notified by HUD , effective November 8, 2004, that the Company had been approved as
the general partner of Stafford Springs. As general partner, the Company was deemed to control
Stafford Springs and has therefore consolidated Stafford Springs in the accompanying financial
statements since November 8, 2004. The Company, as of December 31, 2004 has adopted a plan to sell its interest in Stafford Spring.
On February 10, 2005, the Company sold the limited liability companies (the Stafford LLCs)
through which it held its general and limited partnership interest in Stafford Springs. The
Stafford LLCs were sold to Lafayette Financial Services, LLC (Lafayette). Lafayette is owned by
the Chairman of the Companys board of directors and an unrelated party. The consideration for the
sale was $17,000 in cash and an earn-out agreement through which the Company will receive 33% of
the proceeds of a future sale of the Summer Park Duplexes. The Company therefore no longer has any
ownership interest in Stafford Springs. Subsequently, Lafayette was successful in selling its membership interests in Summer Park and
Stafford Springs. The Company is a beneficiary of 33% of the proceeds from a cash flow note, which
Lafayette received in connection with the sale. The Company will also act as the collection agent
for the note. The note in the amount is $666,000 is due at maturity
with interest being paid as cash is available. A summary of loss from discontinued operations is as follows: Three months ended
March 31,

    
    
    Six months ended
March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Sales
    
    $
    128,165
    
    
    $
    
    
    
    $
    302,849
    
    
    $
    Operating expenses
    
    
    (175,441
    )
    
    
    
    
    
    
    (469,675
    )
    
    
    Minority interest
    
    
    31,836
    
    
    
    
    
    
    
    111,219
    
    
    
    (15,441
    )
    
    
    
    
    
    
    (55,608
    )
    
    
    Equity in operating losses of Stafford Springs prior to consolidation
    
    
    
    
    
    
    (27,273
    )
    
    
    (28,603
    )
    
    
    (43,979
    )Loss from discontinued operations
    
    $
    (15,441
    )
    
    $
    (27,273
    )
    
    $
    (84,211
    )
    
    $
    (43,979
    )
 14




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##### Table of Contents



NOTE M  RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued Statement of Financial Accounting Standards No 123®,
Share Based Payment (SFAS 123®). This statement requires companies to
recognize the compensation cost related to share-based payment transactions,
including stock options, in their financial statements based on the fair market
value of the equity or liability instruments issued. The
effective date of SFAS 123® will be the interim reporting period ended March 31, 2006.
See Note A(11) for pro forma information on the effect on net earnings
and earnings per share if the Company had applied the fair value recognition
provisions of SFAS 123® as of March 31, 2005. NOTE N  SUBSEQUENT EVENT On April 27, 2005 the Company sold its Phoenix Wright Place townhome project, which it held in a
wholly owned subsidiary, Phoenix Wright Place, LLC. The property was sold to an unrelated party
for $165,000 in cash and resulted in a $29,736 gain. This sale will be accounted for in the
Companys financial statements for the quarter ending June 30, 2005. 15




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Item 2.Managements Discussion and Analysis The following discussion includes forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from the results contemplated by these forward-looking
statements due to certain factors, including those discussed below, elsewhere in this Form 10-QSB
and in the Companys other filings with the SEC. Overview Great Western Land and Recreation, Inc. (we or the Company) is incorporated in the state of
Nevada. We acquire, develop, market, sell and finance residential and recreational property in the
southwestern United States, with over 10,000 acres in various stages of development. Our properties
are located in Arizona, Texas and New Mexico and consist of a variety of lifestyle choices
including townhomes and condominiums for first-time homebuyers, vacant lots for commercial
homebuilders and ranch lots for those seeking recreational and investment properties. Over the
years, we have developed a number of subdivision projects in the Houston area, with additional
subdivision projects currently in various stages of development. Subdivided residential lots are
marketed principally to builders seeking to build homes in quality residential settings in the low-
to mid-price range. Our ranch properties are marketed to purchasers seeking a long-term investment
in up-scale vacant ranch land. In addition, we engage in ranching and agricultural activities on
some of our properties until the properties are either developed or sold. These activities include
the planting of tree farms, and the leasing of ranch property for cattle grazing. As an additional
marketing incentive to customers for our recreational land, we offer financing on individual
purchases of ranch lots. The majority of these loans are then sold to third parties. Results of Operations Three months ended March 31, 2005 (second quarter of fiscal 2005) compared to the three months
ended March 31, 2004 (second quarter of fiscal 2004) RealEstate Sales.Real estate sales increased $125,746 or 24.1% to $646,493 in the second quarter
of fiscal 2005 from $520,747 in the second quarter of fiscal 2004. This increase was principally
the result of increases in residential lot sales of $180,000 and sales of our Glendale Springs
Condominiums of $148,000, offset by decreases in ranch land sales of $125,418. The increase in
residential lot sales was a result of our bulk sale of remaining lots at our Coventry subdivision
in Houston. The decline in ranch land sales was due to the elimination of Willow Springs Ranch
from our ranch inventory as the result of the sale of the majority of the ranch in September 2004.
We expect that our Glendale Springs Condominiums to continue with sales throughout the year with
both phases of the project selling out by calendar year end. We also expect Woodland Court, a
planned 43-unit condominium project located in College Station, Texas, to begin generating revenue
in the spring of 2005. In addition, Mallard Crossing and Westchester Lakes, two new large
residential developments in the Houston metro area, are expected to begin generating revenue in
late calendar 2005 and mid 2006, respectively. Gross margins for the current quarter were lower due to losses incurred on the sale of one of our
condominium units at Glendale Springs Condominiums along with the discount offered on the bulk sale
of the remaining lots at our Coventry subdivision. The losses incurred at our Glendale Springs
Condominiums are due to the increased costs incurred during construction that resulted from
numerous construction delays imposed on us by the city. Our land, lot and condominium sales are affected by numerous factors including mortgage interest
rates, demand for new housing starts and the availability of finished lots within a particular
area. Generally, the pace of sales and the price per lot increase over the life of a project as
developments gain popularity and as contract price escalators become effective. Cost of land and lot sales.Cost of land and lot sales increased $200,318, or 93%, to $415,631 in
the second quarter of fiscal 2005 from $215,313 in the second quarter of fiscal 2004. As a
percentage of land and lot sales, the cost of land and lot sales increased to 64% in the second
quarter of fiscal 2005 from 41% in the second quarter of fiscal 2004. This was primarily due to
the increased costs incurred on our Glendale Springs Condominiums and the discount offered on the
bulk sale of lots at our Coventry subdivision. Operating, selling, general and administrative expenses.Operating, selling, general and
administrative expenses increased $93,651, or 23%, to $500,554 in the second quarter of fiscal 2005
from $406,903 in the second quarter of fiscal 2004. The increase was primarily due to increases in
salaries of $90,478 offset by decreases in other expenses. Salaries and payroll taxes increased
due to higher staffing levels this quarter. Interest expense.Interest expense decreased $20,399 to $93,908 in the second quarter of fiscal
2005 from $114,307 in the second quarter of fiscal 2004. The decrease was primarily due to the
sale of substantially all of the Willow Springs Ranch and the payoff of the related indebtedness. 16




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##### Table of Contents



Interest income.Interest income increased $6,687 to $8,985 in the second quarter of fiscal 2005
from $2,298 in the second quarter of fiscal 2004 due to higher outstanding balances on notes
receivable. Sale of investment in Laguna at Arrowhead Apartments, LLC.On February 14, 2005 we recognized a
gain of $878,148 due to the sale of our investment in Laguna at Arrowhead Ranch Apartments. Other income.Other income was $20,213 in the second quarter of fiscal 2005 compared to $28,111 in
the second quarter of fiscal 2004. Loss from discontinued operations.We were notified by HUD, effective November 8, 2004, that we
had been approved as the general partner of Stafford Springs. We were therefore deemed to control
Stafford Springs and have therefore consolidated Stafford Springs in our financial statements since
November 8, 2004. On February 10, 2005, we sold the limited liability companies (the Stafford LLCs) through which
we held our general and limited partnership interests in Stafford Springs. From November 8, 2004 up
to the sale on February 10, 2005 the assets and liabilities of Stafford Springs were reflected as
held for sale in our balance sheet, and the operations of Stafford Springs are classified as
discontinued operations in our statements of operations. The loss from discontinued operations was
$15,441 and $27,273 for the three month periods ended March 31, 2005 and 2004, respectively. The Stafford LLCs were sold to Lafayette Financial Services, LLC (Lafayette). Lafayette is owned
by the Chairman of the Companys board of directors and an unrelated party. The consideration for
the sale was $17,000 in cash and an earn-out agreement through which the Company will receive 33%
of the proceeds of a future sale of the Summer Park Duplexes. The Company therefore no longer has
any ownership interest in Stafford Springs. Net income (loss).In the second quarter of fiscal 2005 we had net income of $528,305 compared to a
net loss of $212,640 in the second quarter of fiscal 2004. This increase is primarily due to the
sale of our investment in Laguna at Arrowhead Ranch Apartments on February 14, 2005 on which we
recognized a gain of $878,148. Six months ended March 31, 2005 (first six months of fiscal 2005) compared to the six months ended
March 31, 2004 (first six months of fiscal 2004) Real estate sales.Real estate sales increased $744,245 or 92% to $1,553,868 in the first six
months of fiscal 2005 from $809,623 in the first six months of fiscal 2004. This increase was the
result of increases in ranch land sales of $318,605, residential lot sales of $277,640 and a sale
of our Glendale Springs Condominiums of $148,000. The increase in residential lot sales was a
result of our bulk sale of remaining lots at our Coventry subdivision in Houston in the second
quarter of fiscal 2005. We expect that our Glendale Springs Condominiums to continue with sales
throughout the year with both phases of the project selling out by calendar year end. We also
expect Woodland Court, a planned 43-unit condominium project located in College Station, Texas, to
begin generating revenue in the summer of 2005. In addition, Mallard Crossing and Westchester
Lakes, two new large residential developments in the Houston metro area, are expected to begin
generating revenue in late calendar 2005. Gross margins were lower due to the loss incurred on the sale of one of our condominium units at
Glendale Springs Condominiums along with the discount offered on the bulk sale of the remaining
lots at our Coventry subdivision. The losses incurred at our Glendale Springs Condominiums are due
to the increased costs incurred during construction that resulted from numerous construction delays
imposed on us by the city. Our land and lot sales are affected by numerous factors including mortgage interest rates, demand
for new housing starts and the availability of finished lots within a particular area. Generally,
the pace of sales and the price per lot increase over the life of a project as developments gain
popularity and as contract price escalators become effective. Cost of real estate sales.Cost of real estate sales increased $476,227, or 133%, to $834,844 in
the first six months of fiscal 2005 from $358,617 in the first six months of fiscal 2004. As a
percentage of real estate sales, the cost of real estate sales increased to 54% in the first six
months of fiscal 2005 from 44% in the first six months of fiscal 2004. This was primarily due to
the increased costs of sales incurred on our Glendale Springs Condominiums and the discount offered
on the bulk sale of lots at our Coventry subdivision. Operating, selling, general and administrative expenses.Operating, selling, general and
administrative expenses increased $144,144, or 17.5%, to $967,209 in the first six months of fiscal
2005 from $823,065 in the first six months of fiscal 2004. The increase was primarily due to
increases in salaries of $129,998 and payroll taxes of $24,124, partially offset by overall
decreases in all other 17




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##### Table of Contents



operating expenses of $9,978. Salaries and payroll taxes increased due to higher staffing levels
in the first six months of fiscal 2005 as well as compensation of $23,793 related to a cashless
option exercise for shares of our common stock. Interest expense.Interest expense decreased $37,569 to $174,170 in the first six months of fiscal
2005 from $211,739 in the first six months of fiscal 2004. The decrease was primarily due to the
sale of substantially all of the Willow Springs Ranch and the payoff of the related indebtedness. Interest income.Interest income increased $12,912 to $17,309 in the first six months of fiscal
2005 from $4,397 in the first six months of fiscal 2004 due to higher outstanding balances on notes
receivable. Sale of investment in Laguna at Arrowhead Apartments, LLC.On February 14, 2005 we recognized a
gain of $878,148 due to the sale of our investment in Laguna at Arrowhead Ranch Apartments. Other income.Other income was $59,214 in the first six months of fiscal 2005 compared to $38,585
in the first six months of fiscal 2004. Loss from discontinued operations.We were notified by HUD, effective November 8, 2004, that we
had been approved as the general partner of Stafford Springs. We were therefore deemed to control
Stafford Springs and have therefore consolidated Stafford Springs in our financial statements since
November 8, 2004. On February 10, 2005, we sold the limited liability companies (the Stafford LLCs) through which
we held our general and limited partnership interests in Stafford Springs. From November 8, 2004 up
to the sale on February 10, 2005 the assets and liabilities of Stafford Springs were reflected as
held for sale in our balance sheet, and the operations of Stafford Springs are classified as
discontinued operations in our statements of operations. The loss from discontinued operations was
$84,211 and $43,979 for the first six months of fiscal 2005 and 2004, respectively. The Stafford LLCs were sold to Lafayette Financial Services, LLC (Lafayette). Lafayette is owned
by the Chairman of the Companys board of directors and an unrelated party. The consideration for
the sale was $17,000 in cash and an earn-out agreement through which the Company will receive 33%
of the proceeds of a future sale of the Summer Park Duplexes. The Company therefore no longer has
any ownership interest in Stafford Springs. Net income (loss).In the first six months of fiscal 2005 we had net income of $448,105 compared to
a net loss of $584,795 in the first six months of fiscal 2004. This increase is primarily due to
the sale of Laguna at Arrowhead Ranch Apartments on February 14, 2005. Liquidity and Capital Resources In this section of the management discussion and analysis segment, we discuss:  
    sources and uses of cash, and significant factors that influence both;
    our analysis of our cash flows for the first six months of fiscal 2005; and
    our commitments and contractual obligations. All of these factors are important to obtain an understanding of our ability to meet our current
obligations, to fund working capital, to finance the acquisition and development of new projects
and to pay down existing debt. Sources and uses of cash. We require cash to fund our operating expenses, to finance the
acquisition and development of new projects and to pay debt service. Our principal sources of
liquidity are cash on hand, cash generated from land and lot sales, cash generated from bulk land
sales, collections on notes receivable, refinancings and funds from external borrowings. We may
also raise additional funding through future equity offerings, subject to market conditions. We believe that the key factors that could affect sources of cash include:  
    factors that affect our results of operations and cash flows, including reduced demand
for land resulting from the economic slowdown, competitive pricing pressures; and 18




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
    factors that affect our access to bank financing that could impair our ability to obtain
needed financing on acceptable terms to finance the acquisition and development of new
projects. 19




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Analysis of cash flows.Cash flow information for the six months ended March 31, 2005 and 2004
follows: Six months ended March 31,2005
    
    
    2004Unaudited
    
    
    UnauditedNet cash used in operating activities
    
    $
    (2,084,800
    )
    
    $
    (1,886,289
    )Cash flows provided by (used in) investing activitiesCollection of receivable from related entities
    
    
    6,960
    
    
    
    18,626Purchases of property and equipment
    
    
    (52,176
    )
    
    
    (37,721
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    40,000Net cash provided by (used in) investing activities
    
    
    (45,216
    )
    
    
    20,905Cash flows from financing activitiesIssuance of notes payable
    
    
    1,890,510
    
    
    
    2,679,904Principal payment on discontinued operiations
    
    
    (9,262
    )
    
    
    Payments on notes payable
    
    
    (952,209
    )
    
    
    (995,869
    )Issuance of note payable to related entities
    
    
    
    
    
    
    150,000Decrease in payable to related entity
    
    
    (72,151
    )
    
    
    (18,245
    )Decrease in subordinated debt
    
    
    
    
    
    
    (324,423
    )Proceeds from stock options excercised
    
    
    15,001
    
    
    
    Net cash provided by financing activities
    
    
    871,888
    
    
    
    1,491,367Net decrease in cash and cash equivalents
    
    
    (1,258,128
    )
    
    
    (374,017
    )Cash and cash equivalents at beginning of period
    
    
    1,675,690
    
    
    
    1,100,844Cash and cash equivalents at end of period
    
    $
    417,562
    
    
    $
    726,827
 Cash flow activity for the six months ended March 31, 2005 (first six months of fiscal 2005).As
of March 31, 2005, we had cash and cash equivalents of $417,562, a decrease of $1,258,128 from the
September 30, 2004 balance. This compares to a decrease in cash and cash equivalents of $374,017
in the first six months of fiscal 2004. Cash flow used in operating activities was $2,084,800 for the first six months of fiscal 2005
compared to $1,886,289 of cash used in the first six months of fiscal 2004, an increase in cash
outflows of $198,511. Factors causing decreased cash inflows from operating activities in the
first six months of fiscal 2005 as compared to the first six months of fiscal 2004 include:  
    Land held for development and sale increased $2,083,135 in the first six months of
fiscal 2005 compared to an increase of $1,209,196 in the first six months of fiscal 2004.
The increase of $873,939 is primarily due to the acquisitions of properties in College
Station, Texas and Houston, Texas along with the capitalization of development costs
related to our condominium project in Glendale, Arizona, our condominium project in College
Station, Texas, and our Mallard Crossing and Westchester Lakes projects in the Houston area
for a residential lot development. Construction costs for the Glendale and College Station
projects are being funded primarily through bank loans. These were partially offset by the following factors:  
    Net earnings in the first six months of fiscal 2005 of $448,105 compared to net losses
of $584,795 in the first six months of fiscal 2004. The increase in earnings of $1,032,900
was a direct result of the sale of our investment in the Laguna at Arrowhead Ranch
Apartments on February 14, 2005. Looking forward, we expect cash flow from operations to increase over the next twelve months,
because of several new projects that will come on-line during the next twelve months. Net cash used in investing activities was $45,216 in the first six months of fiscal 2005 compared
to cash provided of $20,905 in the first six months of fiscal 2004. Collections of receivables
from related entities decreased $11,666 in the first six months of fiscal 2005 compared to the
first six months of fiscal 2004. We purchased $52,176 of property and equipment in the first six
months of fiscal 2005 compared to $37,721 in the first six months of fiscal 2004. We also did not
sell any property and equipment in the first six months of fiscal 2005 compared to $40,000 of
proceeds received in the first six months of fiscal 2004. We are not planning any 20




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significant purchases of property and equipment for the remainder of the fiscal year. Net cash provided by financing activities was $871,888 in the first six months of fiscal 2005
compared to cash provided of $1,491,367 in the first six months of fiscal 2004. During the first
six months of fiscal 2005, additional borrowings totaled $1,890,510 compared to $2,679,904 in the
first six months of fiscal 2004. The borrowings in fiscal 2005 consisted primarily of $738,443 for
the acquisition of properties in College Station, Texas and Houston, Texas, $830,171 related to
construction on Phase I of the Glendale project and on the Woodland Court project, both expected to
continue through 2005. We also borrowed $240,060 to fund our development of both 200 acres and 476
acres in the Houston area for a residential lot development called Westchester Lakes and Mallard
Crossing, respectively. Development activity at both Westchester Lakes and Mallard Crossing is
expected to begin late this year. Payments on notes payable totaled $952,209 in the first six
months of fiscal 2005 compared to $995,869 in the first six months of fiscal 2004. Principal
payments on our notes are made primarily through the payment of release prices as lots are sold,
and also included $144,000 which was not related to the sale of lots. There were no payments made towards subordinated debt in the first six months of fiscal 2005,
compared the payments of $378,587 in the first six months of fiscal 2004. Contractual obligations. Our long-term debt includes notes payable of $6,560,368 and subordinated
debt of $3,504,329. Other than two vehicle loans, all of the notes payable were incurred to finance
the development of our real estate projects. Principal payments on those notes payable are
primarily made as lots are sold, although minimum principal payments are also required on certain
loans. Included in notes payable is $2,417,736 of acquisition and development loans used to
purchase and develop two large parcels of land (480 acres and 200 acres) in the Houston metro area
for two new subdivisions. Also included is the note payable of $848,231 to finance our Wagon Bow
Ranch in northern Arizona. In addition, our construction loan for a condominium project in
Glendale, Arizona requires periodic advances by the Company into a borrowers funds account
maintained by the bank. The borrowers funds account is used for the payment of construction costs.
As of March 31, 2005, construction on one 8-unit building was complete. The remaining five
buildings in this phase of the project are expected to begin construction at various dates through
2005. Payments on the subordinated debt are made only when cash flow from a land sale, after payment of
bank debt, exceeds our operating cash requirements. This determination of operating cash
requirements is made by our management. On June 28, 2002, Amortibanc, our majority stockholder,
contributed $719,000 of capital to the Company through the conversion of subordinated debt to
preferred stock. The preferred stock is convertible into shares of our common stock, and has a
cumulative dividend, payable semi-annually. The dividend rate is 0% for the first year from the
date of issuance, and escalates each year until it reaches 7% in the sixth year from the date of
issuance. On September 29, 2003, Amortibanc contributed an additional $293,106 of capital to the
company through the conversion of subordinated debt to equity. In the normal course of our business, we have also entered into various operating leases for
equipment and vehicles. Our primary future cash needs, both in the short term and in the long-term will focus on funding
operating expenses, financing the acquisition and development of new projects and paying debt
service. To meet our cash flow needs during fiscal 2005 it will be necessary to supplement the land
and lot sales with bulk sales of ranch property, or additional borrowings. Although there can be no
assurances, management believes that cash flow from operations coupled with existing cash and cash
equivalent balances, proceeds from bulk sales of property or the sale of one or more notes
receivable, along with borrowings from banks and other financial institutions will generate
sufficient cash to fund our operating and cash flow needs for the next twelve months. To the extent
that actual results or events differ from our financial projections, our liquidity may be adversely
affected. We project that our capital expenditures for property and development, net of amounts funded by
development loans, will be approximately $1.0 million for the remainder of fiscal 2005. The
remainder will be borrowed from banks and other financial institutions. As part of our business
strategy, we continuously review acquisition opportunities and proposals. We expect to finance any
future acquisitions with additional equity and debt financing, to the extent available on
attractive terms. We hold $435,648 of third party notes receivable from the sale of property. These notes are secured
by the property sold and bear interest at 9.5% per year. We evaluate the collectibility of these
notes based on the payment history and the value of the collateral, and charge off any
uncollectible balances. Item 3. Quantitative
and Qualitative Disclosures about Market Risks We do not have any derivative
financial instruments as of March 31, 2005. We have entered into
loan agreements and accepted notes receivable in partial payment of
land sales that subject our portfolio to interest rate risk. At
March 31, 2005, we held notes receivable in the amount of $725,148 that we expect to hold until maturity. An increase in
interest rates would result in a decline in the market value of these notes but no reserve for this contingency is considered
necessary as we intend to hold these notes until maturity. These notes currently bear interest at or
 near market rates. Item 4. Controls and
Procedures We carried out an evaluation,
under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15(b). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that,
as of the end of the period covered in this report, our disclosure
controls and procedures were effective to ensure that information
required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the required time periods and is accumulated and
communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. Our auditors have advised us
of the existence of certain material weaknesses in our internal
controls primarily due to a lack of segregation of duties because of
the small size of our staff. Our management is evaluating possible
corrective actions. During the six months ended March 31, 2005
no change occurred in the Companys internal controls over
financial reporting that materially affected or is likely to
materially affect the Companys internal control over financial
reporting. 21




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PART II: OTHER INFORMATION 
 Item 1.Legal Proceedings We are not a party to any pending legal proceedings other than routine litigation incidental
to our business, and to the best of our knowledge, no other litigation against us has been
threatened. 
 Item 2.Changes in Securities and Use of Proceeds We have not materially modified the instruments defining the rights of our security holders
during the reporting period. 
 Item 3.Defaults Upon Senior Securities Not Applicable. 
 Item 4.Submission of Matters to a Vote of Security Holders Not Applicable. 
 Item 5.Other Information Not Applicable 
 Item 6.Exhibits and Reports on Form 8-K (a) Exhibits ExhibitNo.31.1
    
    Certification by Jay N. Torok pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification by Jay N. Torok pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification by Jay N. Torok pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 200232.2
    
    Certification by Jay N. Torok pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002
 (b) Reports on Form 8-K On March 3, 2005, a Form 8-K was filed to report the news release of the Companys results for the
quarter ended December 31, 2004.
On March 17, 2005, a Form 8-K was filed to report the purchase of land in the Galleria section of
Houston.
On April 29, 2005 a Form 8-K was filed to report that Jerome L. Joseph had left his position as the
Companys Chief Financial Officer effective April 25, 2005. 22




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized. GREAT WESTERN LAND AND RECREATION, INC.
(Registrant)Date: May 16, 2005
    
    By /s/ Jay N. TorokJay N. Torok
Chief Executive Officer and Principal Financial Officer
(see explanatory note)
 Explanatory note: Jerome L. Joseph left his position as Chief Financial Officer effective April 25,
2005. Jay N. Torok has been appointed by the Companys Board of Directors to act as the Principal
Financial Officer for purposes of filing this report. 23