UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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


SECURITIES
EXCHANGE ACT OF 1934




For the fiscal
year ended September 30, 2009.







OR


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


SECURITIES
EXCHANGE ACT OF 1934





Commission
file number: 000-23819




GREEN
BUILDERS, INC.


(Exact
Name of Registrant as Specified in Its Charter)




Texas
            
            76-0547762(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S
      Employer Identification No.)8121
      Bee Cave Rd., Austin, TX
            
            78746(Address
      of Principal Executive Offices)
            
            (Zip
      Code)512-732-0932(Registrant’s
      Telephone Number, including area
code)







Securities
registered pursuant to Section 12(b) of the Act:





Title of Each Class
            Name of Each Exchange on Which
      RegisteredCommon
      Stock, par value $0.001 per share
            Pink
      Sheets





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   xNo




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




 ̈   Yes   xNo




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.




x   Yes    ̈No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-K (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).




 ̈   Yes     ̈No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of 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.




 ̈   Yes   xNo









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


Large accelerated
      filer
              o
              Accelerated
      filer
              oNon-accelerated
      filer
              o
              Smaller reporting
      company
              x


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




 ̈   Yes   xNo




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based upon the closing sale price of its
common stock on December 16, 2009 was approximately $1,257,713 (For purposes of
this calculation, affiliates represent only holders of more than 10% of Green
Builders, Inc. common stock and common stock held by Directors and
Officers).




As of
December 16, 2009 the registrant had 23,135,539 outstanding shares of common
stock.




DOCUMENTS
INCORPORATED BY REFERENCE




Portions
of the registrants definitive proxy statement for the registrant’s 2010 Annual
Meeting of Shareholders are incorporated by reference in the Part III of this
Annual Report













TABLE OF CONTENTS




Item 1.
              Description of Business
              2Item 1B.
              Unresolved Staff Comments
              16Item 2.
              Description of Property
              16Item 3.
              Legal Proceedings
              16Item 4.
              Submission of Matters to a Vote of Security
      Holders
              16Item 5.
              Market for Common Equity and Related Stockholder
      Matters
              17Item 6.
              Selected Financial Data
              18Item 7.
              Management’s Discussion and Analysis or Plan of
      Operation.
              18Item 8.
              Financial Statements
              27Item 9.
              Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
              27Item 9A.
              Controls and Procedures
              27Item 9B.
              Other Information
              28Item 10.
              Directors, Executive Officers, Promoters and Control Persons
      and Corporate Governance; Compliance with
                Section 16(a) of the Exchange Act
              29Item 11.
              Executive Compensation
              29Item 12.
              Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
              29Item 13.
              Certain Relationships and Related Transactions, and Director
      Independence
              29Item 14.
              Principal Accountant Fees and Services
              29Item 15.
              Exhibits and Financial Statement Schedules
              30
    
 Table of Contents





CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
Annual Report on Form 10-K for Green Builders, Inc. (“we,” “us,” or the
“Company”) contains forward-looking statements.  You can identify
these statements by forward-looking words such as “may,” “will,” “expect,”
“intend,” “anticipate,” “believe,” “estimate,” and “continue” or similar
words.  Forward-looking statements include information concerning
possible or assumed future business success or financial results.  You
should read statements that contain these words carefully because they discuss
future expectations and plans, which contain projections of future results of
operations or financial conditions or state other forward-looking information.
We believe that it is important to communicate future expectations to investors.
However, there may be events in the future that we are not able to accurately
predict or control. Accordingly, we do not undertake any obligation to
update any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.




By their
very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that outcomes implied by
forward-looking statements will not be achieved. We caution readers not to place
undue reliance on these statements as a number of important factors could cause
the actual results to differ materially from the beliefs, plans, objectives,
expectations and anticipations, estimates and intentions expressed in such
forward-looking statements.




Copies of
our public filings are available at www.greenbuildersinc.com  and
on EDGAR at www.sec.gov.




Whenever
we refer in this filing to “Green Builders,” “the Company,” “we,” “us,” or
“our,” we mean Green Builders, Inc., a Texas corporation, and, unless the
context indicates otherwise, its predecessors and subsidiaries, including its
wholly owned subsidiaries, Wilson Family Communities, Inc., a Delaware
corporation(“WFC”), GB Operations,
Inc., a Texas corporation (“Green Builders”) and its predecessor company, Athena
Equity Partners (“Athena”).  All references in this report to “$” or
“dollars” are to United States of America currency.  References to
“fiscal 2008” means our fiscal year ended September 30, 2008 and references to
“fiscal 2009” means our fiscal year ending September 30, 2009.




1
 Table of Contents





PART
I




Item 1.Business.




Overview




Green
Builders, Inc. (“we,” “us,” or the “Company”) is a Texas corporation formerly
known as Wilson Holdings, Inc.  Effective April 4, 2008, Wilson
Holdings, Inc, a Nevada corporation, completed its reincorporation to the State
of Texas pursuant to the Plan of Conversion as ratified by the shareholders at
the 2008 annual meeting of shareholders held on April 3, 2008.  As
part of the reincorporation, a new Certificate of Formation was adopted and
Wilson Holdings, Inc.’s corporate name was changed to Green Builders, Inc., and
the Certificate of Formation now governs the rights of holders of the Company’s
common stock.  The Company has been using the name “Green Builders” in
its regular business operations since June 2007 and plans to continue to do
so.




Effective
October 11, 2005 pursuant to an Agreement and Plan of Reorganization dated as of
September 2, 2005 by and among Wilson Holdings, Inc., a Delaware corporation, a
majority of its stockholders, Wilson Family Communities, Inc., a Delaware
corporation (“WFC”) and Wilson Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, WFC and Wilson Acquisition Corp. merged
and WFC became a wholly-owned subsidiary of the Company.




The
financial statements are presented on a going concern basis.  The
Company has experienced significant losses and expects to continue to generate
negative cash flows.  This raises substantial doubt about its ability
to continue as a going concern.  The Company’s ability to continue as
a going concern will depend upon its ability to restructure its existing debt
and obtain additional capital.  Failure to restructure and obtain
additional capital would result in a depletion of its available
funds.




Until
October 12, 2009 our common stock was listed on the NYSE Amex (the
“Exchange”).  On January 23, 2009, we received notice that we were not
in compliance with the Exchange’s continued listing standards under
Sections 1003(a)(i), 1003(a)(ii), 1003(a)(iii), and 1003(a)(iv) of the NYSE Amex
Company Guide (the “Company Guide”).  On February 23, 2009 we
submitted a plan of compliance to the Exchange.  On April 24, 2009 the
Exchange notified us that it had accepted our plan for regaining compliance with
the Exchange’s continued listing standards and granted us an extension until
July 23, 2009 to regain compliance with Section 1003(a)(iv) and until July 23,
2010 to regain compliance with Section 1003(a)(i), Section 1003(a)(ii), and
Section 1003(a)(iii) of the Company Guide.  We did not make
satisfactory progress consistent with the plan presented to the Exchange and as
such our Board of Directors (the “Board”) authorized the voluntary delisting of
our common stock from the Exchange.  We filed a Form 25 with the SEC
relating to the delisting of our common stock on October 2, 2009. The delisting
became effective on October 12, 2009 and our common stock began trading on the
Pink Sheets on October 12, 2009.




On
November 18, 2009 the Company filed an Information Statement to inform our
shareholders of the approval by the Board at a meeting held on
November13, 2009
of amendments to our Certificate of Formation to effect a reverse stock split of
our Common Stock followed immediately by a forward stock split of our Common
Stock (the “Reverse/Forward Stock Split”).  As a result of the
Reverse/Forward Stock Split,  the Company anticipates that
shareholders owning fewer than 500 shares of our Common Stock will be cashed out
at a price of $0.26 per share, and the holdings of all other shareholders will
remain unchanged.




The
intended effect of the Reverse/Forward Stock Split is to reduce the number of
record holders of our Common Stock to fewer than 300 so that we will be eligible
to terminate the public registration of our Common Stock under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).  Provided that
the Reverse/Forward Stock Split has the intended effect, we will file to
deregister our Common Stock with the Securities and Exchange Commission (the
“Commission”).  In such case the Company will no longer be required to
file periodic reports with the Commission, although the Company intends to
continue to provide sufficient information through the Pink Sheets News Service
to allow its Common Stock to continue trading on the Pink Sheets.





Industry
Overview





From late
2007 through September 30, 2009 our business has been significantly impacted by
the continued deterioration of the real estate and homebuilding
industry.  Deteriorating market conditions, turmoil in the mortgage
and credit markets and increased price competition have continued to negatively
impact the Company during fiscal year 2009.  We believe this slowdown
is attributable to a decline in consumer confidence, the inability of some
buyers to sell their current homes and the direct and indirect impact of the
well-publicized turmoil in the mortgage and credit markets.  We
believe that sales of new homes in the Central Texas area will continue to be
challenging in fiscal year 2010 and may continue to deteriorate due to the lack
of job growth both in Central Texas and nationwide.




2
 Table of Contents




The real
estate industry is fragmented and highly competitive.  We compete with
numerous developers, builders and others for the acquisition of property and
with local, regional and national developers, homebuilders and others with
respect to the sale of residential lots.  Additionally we compete with
local, regional and national homebuilders in the sale of new homes, and with
homebuilders and developers for raw materials, skilled labor, and to obtain
financing on commercially reasonable terms.  Most of our competitors
have substantially greater financial resources than we do, as well as much
larger staffs.




Strategy




Our
business has been significantly impacted by the continued deterioration of the
real estate industry and job market.  We believe that real estate
market conditions will continue to be challenging and may deteriorate further in
fiscal 2010.  During this downtown our current strategy will be to
strengthen our financial condition and balance sheet by reducing debt where
possible.  We are also working to reduce our costs where possible
through reductions in labor force, homebuilding direct costs, general and
administrative and sales and marketing costs and through the deregistration of
our Common Stock and ceasing of our reporting obligations pursuant to the
Securities Exchange Act of 1934.  Our business strategy is currently
focused on the below segments:




·
            Homebuilding
      and related services;




·
            Land
      acquisition, development and related services;
  and




·
            Green
      remodeling




Homebuilding
and Related Services




Our
strategy is to build affordable, sustainable homes that deliver significant
energy and cost savings in home maintenance and operation.  Green building
today is most often thought of in terms of products and
technology.  True green building demands an integrated approach to the
entire business from land planning and plan design to administration procedures
and field processes.  We have been nationally recognized and won awards
including the 2008 NAHB Green Builder Award Winner for Single Family Affordable
Home of the Year and the 2008 Texas Association of Builder’s Star Award for
Green Builder Advocate of the Year.  We start the homebuilding process
by implementing green practices and products that are both affordable, and work
together as a system to deliver a sustainable value for the
customer.  In our homebuilding activities, we follow earth-friendly
and efficient processes such as:




·
            considering
      employees’ attitude and awareness of efficiency in their work space,
      processes and daily routines;




·
            day
      to day operations are conducted by fully integrated systems that include
      wireless field communications including real time scheduling updates,
      auto-pay approval and variance purchase order
  request;




·
            system
      set up to do centralized purchasing, estimating and accounting if
      operations are expanded into additional
markets;




·
            partnering
      with vendors and trades in the field to eliminate waste, and create
      earth-friendly processes and procedures for job sites that are efficient
      and mutually beneficial;




·
            incorporating
      sustainable building practices and energy-saving systems that respond to
      the demands of a particular environment in a specific
    region;




·
            emphasizing
      job-site awareness, supervision and communication pursuing earth-friendly
      procedures;




·
            exploring
      earth-friendly options for consumer choice, efficient applications and
      implementations;




·
            emphasizing
      lot and site considerations, home orientations, sustainable lot
      improvements, low-maintenance landscaping and energy, water, green
      materials and methods;




·
            verifying
      our homes using third party certifications that includes Energy Star model
      green home building; and




·
            using
      environmentally-friendly products.




Land
Acquisition and Development




Historically
our plan for land development was to secure land based on our understanding of
population growth patterns and infrastructure development.  Due to the
current downturn of the real estate industry and overall economy we are focusing
on improving our balance sheet and leverage by reducing land positions where
possible.




3
 Table of Contents




Our
anticipated land sales will include sections of lots that are ready for
immediate home construction with all infrastructures in place, as well as
sections of lots that have all necessary approvals to begin construction but
have yet to be physically improved.While we
anticipate that the majority of our revenues will come from sales to national
and regional homebuilders, we also expect additional revenues from the sale of
lots and homebuilding services to smaller, local builders.




In tandem
with our land acquisition efforts and based upon our strategic market analysis,
we plan to subcontract for the preparation of land for development. We seek to
add value to the land through the process of development, which may include
permitting and constructing water and wastewater infrastructure, master-planning
of the community, and the construction of roads and community amenities. We also
plan to sell entitled land to others for development. Entitled land is land
subject to development agreements, tentative maps or recorded plats, depending
on the jurisdiction within which the land is located.




Green
Remodeling




In
November 2008 we expanded our services to include “green” remodeling of existing
homes.  We have taken a comprehensive approach to engaging in the
green remodeling business and offer customers a “one-stop” process for updating
their existing home with a focus on energy efficiency.  Our green
remodeling program currently caters to existing homeowners in the Austin, Texas
area who want to reduce home energy demands and utility bills, lessen home
maintenance costs and increase the comfort of their
home.  Substantially all of our construction work has been and will
continue to be performed by subcontractors.  By subcontracting out the
work, there is limited additional capital required to enter this business
line.  We also feel that entering into remodeling will help us
supplement revenue during this slowdown in the real estate
industry.




Current
Market and Current Properties




Our
activities are in the geographical central Texas area, which we define as
encompassing the Austin Metropolitan Statistical Area.  This
geographic concentration makes our operations more vulnerable to local economic
downturns than those of larger, more diversified companies.




Details
of the properties we own or have options to purchase are set forth
below:




Name
      of Project
            Date
      Purchased/
              Optioned
            Location
            Finished
              Lots
            Approximate
      Undeveloped
              Acreage
            Approximate
              Acreage
              Under
      OptionRutherford
      West
            June
      30, 2005
            Northern
      Hays County, Texas, Hays Independent School District
            33
            538
            -Georgetown
      Village
            August
      22, 2005
            The
      City of Georgetown, Texas, Georgetown Independent School
      District
            115
            151
            387Villages
      of New Sweden
            October
      18, 2005
            Eastern
      Travis County, Texas, Pflugerville Independent School
    District
            -
            453
            -Elm
      Grove
            December
      15, 2005
            The
      City of Buda, Texas, Hays Independent School District
            60
            30
            -





Rutherford West– Rutherford
West is a residential community located southwest of Austin, Texas in the city
of Driftwood, Texas.  Rutherford West is planned as an
“earth-friendly” acreage development and each lot includes a deed restricted
conservation easement.  We commenced the development of this project
in October 2006.  We have completed development on a total of 58 lots
in Phase 1 and have 33 lots remaining in this Phase.  The developed
finished lots are financed through a lot development loan as part of our secured
syndicate bank debt facility led by RBC Bank.  We believe the current
value of these lots exceeds the amount we owe and that we will be able to sell
these lots.  The principal balance at September 30, 2009 of these
remaining finished lots is approximately $1.3 million. We own 538 acres of
undeveloped land.  This land is financed through a $7.3 million land
loan with Graham Mortgage Capital.  In January 2009, we entered into
an agreement with Graham Mortgage Capital to modify the loan agreement
(discussed in detail below).  Provided we make the required interest
payments, property tax payments, and the land is not sold, the agreement allows
us to Deed (in Lieu of Foreclosure) the property back to Graham Mortgage on or
before December 31, 2009 with no deficiency.   We expect that the
Graham Mortgage Capital loan will be settled via Deed (in Lieu of Foreclosure)
of the acreage.




4
 Table of Contents




Georgetown Village–Georgetown Village is a
mixed use master-planned development in Williamson County, located north of
Austin, Texas in Georgetown, Texas.  We purchased the land for this
project pursuant to an option contract in August 2005.  Under the
option contract we are required to purchase a minimum of 30 acres per year
through 2017.  We own approximately 151 acres of undeveloped land as
of September 30, 2009.  We commenced the development of this project
in January 2006.  We have completed development on a total of 120 lots
in Section 6 and 100 lots in Section 9.  We have 115 lots
remaining.  Both Section 6 and Section 9 developed lots are financed
through a lot development loan as part of our secured syndicate bank debt
facility led by RBC Bank.  We believe that the current value of these
lots exceeds the amount we owe and that we will be able to sell these
lots.  The principal balance at September 30, 2009 of these remaining
finished lots is approximately $3.5 million. In addition the undeveloped land is
financed through this facility.   The principal balance at
September 30, 2009 of this land loan is approximately $810,000.  We
believe that the current value of this land exceeds the amount we owe and that
we will be able to sell this land.




Villages of New Sweden–New Sweden is a master
planned mixed-use community presently undeveloped, contemplated to include
single family residential homes, commercial properties, an onsite school, an
amenity center, a fire station, and an open green space in the Pflugerville,
Texas school district.  We purchased the land for this project in
October 2005 with a combination of bank financing, seller financing and cash on
hand.  The property was pledged as collateral for a $4.7 million land
loan with Graham Mortgage and seller-financed notes totaling $2.5
million.  In January 2009, we entered into an agreement with Graham
Mortgage Capital to modify the loan agreement (discussed in detail
below).  Provided we make the required interest payments, property tax
payments, and the land is not sold, the agreement allows us to Deed (in Lieu of
Foreclosure) the property back to Graham Mortgage on or before December 31, 2009
with no deficiency.  The seller-financed notes are nonrecourse
notes.  One of the seller financed notes secured by a deed for
approximately 69 acres with a principal balance of $601,625 foreclosed on the
property on September 1, 2009.  The other three remaining seller
finance notes, with an aggregate principal balance of $1.9 million, foreclosed
on the property on December 1, 2009.  We expect that the Graham
Mortgage Capital loan will be settled via Deed (in Lieu of Foreclosure) of the
acreage.




Elm Grove– Elm Grove is a
residential project located south of Austin, Texas in the city of Buda,
Texas.  The master plan includes single-family residential and open
green space all within walking distance to Elm Grove elementary
school.  We acquired the first phase of land for this project in
December 2006 with a combination of bank financing and cash on
hand.  Development of this project commenced May 2007.  We
have completed development on a total of 105 lots in Phase 1 and have 60 lots
remaining in this Phase.  The developed finished lots are financed
through a lot development loan as part of our secured syndicate bank debt
facility led by RBC Bank.  The principal balance at September 30, 2009
of these remaining finished lots is approximately $1.7 million.  We believe
that the current value of these lots exceeds the amount we owe and that we will
be able to sell these lots.  We own 30 acres of undeveloped
land.  In addition the undeveloped land is financed through this
facility.  The principal balance at September 30, 2009 of this land
loan is approximately $630,000.  We believe that the current value of
this land exceeds the amount we owe and that we will be able to sell this
land.






Water
District Receivables




A Water
Control and Improvement District or a Municipal Utility District No. 1
(collectively a “District”), is a political subdivision of the State of Texas,
subject to the oversight of the Texas Environmental Quality Commission, or
TCEQ.




Districts,
by definition, may in engage in some, or all, of the following: residential and
commercial supply of water and wastewater services, solid waste disposal,
wastewater treatment, conservation, irrigation, drainage, fire fighting,
emergency services, and recreational facilities. Texas law gives a District the
power to incur debt, levy taxes, charge for specific services, and adopt rules
for those services, enter into contracts, obtain easements, and condemn
property.




Typically,
Districts are formed by real estate developers in areas where the provision of
utility services will not otherwise be furnished by another public or private
entity (e.g., an area outside the geographic confines of a city or village, or a
rural area). Funding for a District’s initial creation and operating costs and
for its infrastructure (e.g. pipelines, water storage plants, and treatments
facilities or payments for capacity in such facilities under wholesale supply
agreements with third parties) usually comes from the developer because the
District has no funds available for these purposes when it is first
created.  In certain Districts (as further discussed below), a
developer may also fund, and receive payment from the District for, costs of
land set aside for endangered species protection.  Once a critical
mass of taxable property (usually residential houses) is constructed in a
District, the District is able to provide its own financing for operating costs;
however, the developer often continues to provide funding for infrastructure
through the period of full build-out of the District.




Any
creation, operating and infrastructure costs of a District paid by the developer
are repaid by the District from time to time pursuant to a reimbursement
agreement whereby the District issues its bonds payable from ad valorem taxes on
property in the District and uses the bond proceeds to repay the developer’s
costs for these District items.  Issuance of the District’s bonds is
subject to prior review and approval by the TCEQ and the Texas Attorney
General’s office.




5
 Table of Contents




The time
period for issuance of a District’s bonds (which are issued in installments over
a period of many years usually continuing through the period of full build out
of the District) and the consequent recovery period of the developer’s costs for
a District can be over either a long or short period of time. Residential
developments that grow more slowly will, accordingly, result in a more extended
period of time for the recovery of the District’s initial creation and operating
costs.  And, since the full recovery of all the developer’s costs for
infrastructure during the full build out of the District goes on for the life of
the subdivision development, the pace at which the District issues its bond
installments from time to time (and the corresponding recovery of the
developer’s costs incurred for infrastructure from time to time during the build
out period) is closely related to the pace at which houses (and corresponding
taxable property value) are added in the District.




A
District typically charges its customers for the following
services:




·
            an
      initial tap fee ranging from approximately $600 to $2,000 to cover the
      cost of installing the water and sewer
tap;




·
            an
      annual ad valorem tax to recover its annual operating costs and to pay
      debt service on any District bonds which have been issued;
    and




·
            monthly
      fees for water and wastewater services, based primarily on a consumption
      model.




The costs
for these services are determined by the District.  These tap fee and
monthly service costs are in addition to the developer-funded creation,
operating and infrastructure costs described above.




District
operations are usually geographically limited to the lands within the District
which pay District ad valorem property taxes. If a nearby area lacks any utility
service, a District could annex that area or otherwise provide service to it
subject to reaching an equitable agreement with the owner of the land to be
annexed or otherwise served and meeting certain state law requirements. However,
Districts rarely agree to expand their services unless the original developer is
agreeable and the owner of the annexed land is willing to enter into a
reimbursement agreement similar to the one the original developer signed with
the District.




We
currently have the community of Villages of New Sweden planned that is within
the boundaries of New Sweden Municipal Utility District No. 1 and the community
of Rutherford West planned in Greenhawe Water Control and Improvement District
No. 2. We incur development costs for the initial creation and operating costs
of these Districts and continuing costs for the water, sewer and drainage
infrastructure for these Districts. Also, in the case of Greenhawe Water Control
and Improvement District No. 2, we have paid for property set aside by us for
the preservation of endangered species and that District will reimburse those
costs from future District bond sales, too.  At this time, we estimate
that we will recover approximately 50 to 100% of eligible initial creation and
operating costs spent through September 2009 at such time as each District
issues its first bond issue. Usually a District issues its first bond issue only
after completion of construction of approximately 200 houses.  We have
completed Phase 1 for the Rutherford West project and have approximately $1.1
million of water district reimbursements included in inventory that we
anticipate will be collected from bond issuances made by such
District.  When the reimbursements are received we will record them as
reductions of the related asset’s balance.  The Districts will pay for
property set aside for the preservation of endangered species, greenbelts and
similar uses.  To the extent that the estimates are dramatically
different from the actual facts, it could have a material effect on our
financial statements.  In July 2009, the WCID for the Rutherford West
project had its first bond issuance; we received reimbursements of approximately
$470,000.  We expect to recover costs from Rutherford West Phase
1.  We do not expect to cover costs incurred for the New Sweden
project.  We have already taken an impairment charge for the costs
incurred on the New Sweden project.




Regulation




The
residential homebuilding and land development industries are also subject to a
variety of local, state and federal statutes, ordinances, rules and regulations
concerning the protection of health and the environment. These environmental
laws include such areas as storm water and surface water management, soil,
groundwater and wetlands protection, subsurface conditions and air quality
protection and enhancement. Environmental laws and existing conditions may
result in delays, may cause us to incur substantial compliance and other costs
and may prohibit or severely restrict homebuilding activity in environmentally
sensitive regions or areas.




6
 Table of Contents




We must
obtain the approval of numerous governmental authorities that regulate such
matters as land use and level of density, the installation of utility services,
such as water and waste disposal, and the dedication of acreage for open space,
parks, schools and other community purposes. If these authorities determine that
existing utility services will not adequately support proposed development,
building moratoria may be imposed. As a result, we use substantial resources to
evaluate the impact of government restrictions imposed upon new residential
development. Furthermore, as local circumstances or applicable laws change, we
may be required to obtain additional approvals or modifications of approvals
previously obtained or we may be forced to stop work. These increasing
regulations may result in a significant increase in resources between our
initial acquisition of land and the commencement and the completion of
developments. In addition, the extent to which we participate in land
development activities subjects us to greater exposure to regulatory
risks.




Employees




On
September 30, 2009 we had 13 full time employees. None of our employees are
represented by a labor union and we consider our relations with our employees to
be good.








7
 Table of Contents




Item
1A.Risk
Factors




Set forth
below and elsewhere in this Annual Report and in other documents we file with
the Commission are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward looking
statements contained in this Annual Report.  Prospective and existing
investors are strongly urged to carefully consider the various cautionary
statements and risks set forth in this Annual Report and our other public
filings.





Risks
Related to Our Business




Our
ability to sustain operations is dependent upon our ability to obtain additional
capital and renegotiate our current debt.




Our
independent registered public accounting firm has issued its report, which
includes an explanatory paragraph for a going concern uncertainty on our
financial statements as of September 30, 2009. Our ability to continue as a
going concern is heavily dependent upon our ability to obtain additional capital
and to restructure our existing debt to sustain operations. Currently, we have
no commitments to obtain additional capital, and there can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all.
If we are unsuccessful in obtaining adequate loans, obtaining waivers for our
noncompliance with our debt holders or raising additional capital, this could
require us to abandon some of our development activities, including the
development of subdivisions and entitling of land for development; forfeit
option fees and deposits and be forced to liquidate a substantial portion of our
asset holdings at unfavorable prices.




Our
current operating business has a limited operating history and
revenues




In
October 2005, we acquired Wilson Family Communities, Inc. which has a limited
operating history.  In addition, we commenced our homebuilding
operations in June 2007.  While members of our management team have
extensive experience in real estate development and homebuilding, our company
has a limited operating history and there is no assurance that we will be
successful.  Accordingly, our business is subject to substantial risks
inherent in the commencement of a new business enterprise in an intensely
competitive industry.  Through September 30, 2009, our company has
incurred cumulative net losses.




There can
be no assurance that we will be able to successfully acquire, develop and/or
market land, build homes, generate revenues, or ever operate on a profitable
basis. Any investment in our company should be considered a high-risk investment
because the investor will be placing funds at risk in a company with unknown
costs, expenses, competition, and other problems to which new ventures are often
subject. Investors should not invest in our company unless they can afford to
lose their entire investment.




We
are not in compliance with certain covenants under our Credit
Facility.  We have obtained forbearance for these
covenants.  In the event that we are not able to regain compliance or
obtain future forbearance for these covenants, we may be required to repay
amounts owed under the Credit Facility and additional amounts owed under our
securities purchase agreements, which could harm our business.




We are
out of compliance with certain covenants under the terms of a Credit
Facility.  We have obtained forbearance for these
covenants.  If we are unable to regain compliance our obligation to
repay indebtedness outstanding under the facility could be accelerated in full.
We may not have or may not be able to obtain sufficient funds to satisfy all
repayment obligations. If we are unable to repay these obligations our business
would suffer.




Our
non-compliance with the terms of the Credit Facility could trigger
cross-defaults under our Securities Purchase Agreements.  In December
2005 and September 2006, we entered into Securities Purchase Agreements with
certain investors for the sale of Convertible Promissory
Notes.  Pursuant to the cross-default provisions of the Securities
Purchase Agreements, a default under our Credit Facility triggers defaults
under the Securities Purchase Agreements.  In the event that our
non-compliance with the Credit Facility continues, the holders of a majority of
the Notes issued under the Securities Purchase Agreement could elect to demand
the acceleration of all amounts owed under these Notes.  We do not
have the cash available to repay these amounts or the amounts owed under the
Credit Facility.  We have discussed our non-compliance with certain
investors under the Securities Purchase Agreements but these Note
holders have not initiated the process under the Securities Purchase
Agreements that would allow them to accelerate our obligations under the
Securities Purchase Agreements or take any other remedial action.  We
intend to negotiate with all investors under our Securities Purchase Agreements
to reach a mutually satisfactory resolution and we intend to cooperate with the
Credit Facility lenders to regain compliance with the terms of the credit
facility and negotiate a new credit facility.  If we are unable to
negotiate successfully with the Securities Purchase Agreement investors and/or
are unable to regain compliance with the terms of the credit facility or enter
into a replacement facility, all amounts due under the Securities Purchase
Agreements may be accelerated.  We would be unable to pay such amounts
and our business would suffer.




8
 Table of Contents




We are
currently in default under our Convertible Promissory Notes.





On
December 1, 2009 we were required to make an interest payment of
$250,000 on certain promissory notes issued pursuant to a Securities Purchase
Agreement dated as of December 19, 2005 (the "2005 Purchase
Agreement").  We did not make this interest payment on December 1,
2009, but are seeking agreement from our lenders under the 2005
Purchase Agreement that the failure to pay interest on December 1, 2009 will not
be deemed an event of default. We are
currently in default under the promissory notes because of our failure to
make the interest payment that was due on December 1, 2009. As a result, the
holders of the promissory notes have the right to accelerate all
amounts of indebtedness outstanding thereunder.  If such demand was
made, we would be unable to repay the default amount, and the holders could
commence legal action against us.  Any such action could impose significant
costs on us and require us to curtail or cease operations.  Though we are
in regular communication with the holders of the promissory notes under the 2005
Purchase Agreement, and none of them have demanded payment or exercised other
remedies due to our current default, we can give no assurances that the holders
will not exercise their remedies in the future.




We
have incurred a significant amount of debt but will require additional
substantial capital to continue to pursue our operating strategy.




We had
approximately $1.2 million in cash and cash equivalents at September 30,
2009.  We have $23.2 million in secured borrowings as of September 30,
2009.  Approximately $11.2 million of this amount was borrowed at
interest rates of prime plus 0.00% to 2.00% that adjust in relation to the prime
rate. If the prime rate were to significantly increase, we will be required to
pay additional amounts in interest under our outstanding notes and line of
credit and our financial results could suffer.




We have
issued and sold an aggregate of $16.5 million in principal amount of convertible
promissory notes since December 2005. These notes bear interest at a fixed rate
of 5.0% per annum, with the principal amount of such notes convertible into
shares of our common stock at the rate of one share per $2.00 of principal,
which conversion rate is subject to proportionate adjustment for stock splits,
stock dividends and recapitalizations as well as an anti-dilution adjustment
which will apply if we sell shares of our common stock in the future at a price
per share of less than $2.00, provided that such conversion rate may not be
reduced below a rate of one share of common stock for each $1.00 of note
principal.




Our
growth plans will require substantial amounts of cash for earnest money
deposits, land purchases, development costs and interest payments, and
homebuilding costs. Until we begin to sell an adequate number of lots and homes
to cover our monthly operating expenses, costs associated with our sales,
marketing and general and administrative activities will deplete cash. Our
Certificate of Formation contains no limits on the amount of indebtedness we may
incur.




Land and
homes under construction comprise the majority of our assets.  The
real estate industry in general and our assets specifically experienced
unprecedented declines in both value and sales value.  Any further
declines in value could cause our debt to be called, requiring liquidation of
assets to satisfy our debt obligations or the use of our cash.  It
could also be difficult for us to liquidate our assets, to raise cash and to pay
off debts, which could have a material adverse effect.




Demand
for new homes is sensitive to economic conditions over which we have no
control.




Demand
for homes is sensitive to changes in economic conditions such as the level of
employment, consumer confidence, consumer income, the availability of financing
and interest rate levels. If mortgage interest rates increase or if any of these
other economic factors adversely change nationally, or in the market in which we
operate, the ability or willingness of prospective buyers to purchase new homes
could be adversely affected.




Our
results of operations and financial condition are greatly affected by the
performance of the real estate industry.




Our real
estate activities are subject to numerous factors beyond our control, including
local real estate market conditions, substantial existing and potential
competition, general national, regional and local economic conditions,
fluctuations in interest rates and mortgage availability and changes in
demographic and environmental conditions. Real estate markets have historically
been subject to strong periodic cycles driven by numerous factors beyond the
control of market participants.




Real
estate investments often cannot easily be converted into cash and market values
may be adversely affected by these economic circumstances, market fundamentals,
competition and demographic conditions. Because of the effect these factors have
on real estate values, it is difficult to predict with certainty the level of
future sales or sales prices that will be realized for individual
assets.




Our real
estate operations are also dependent upon the availability and cost of mortgage
financing for potential customers, to the extent they finance their purchases,
and for buyers of the potential customers’ existing residences.




9
 Table of Contents




Inflation
can adversely affect us, particularly in a period of declining home sale
prices.




Inflation
can have a long-term impact on us because increasing costs of land, materials
and labor may require us to attempt to increase the sale prices of homes in
order to maintain satisfactory margins.




We
face significant competition in our efforts to sell homes.




The
homebuilding industry is highly competitive. We compete with numerous national,
regional and local homebuilders. This competition with other homebuilders could
reduce the number of homes we deliver, or cause us to accept reduced margins in
order to maintain sales volume.  Many of our competitors have greater
financial resources and are less leveraged than us, which may position them to
compete more effectively on price.  We also compete with the resale of
existing homes, including foreclosed homes, sales by housing speculators and
available rental housing.




We
have incurred a significant amount of debt and our ability to repay this debt
could be significantly impacted by the market for new hones.




We have
incurred significant amounts of debt to finance the purchase of land for
development and to fund our operations.  Land and homes under
construction comprise the majority of our assets and these assets are less
valuable due to the downturn in the housing and real estate
market.  In addition, due to this downturn the rate at which we have
sold new homes has been significantly slower than we have
anticipated.  The interest and principal repayment obligations of our
capital structure have required us to try to renegotiate our existing agreements
with certain of our lenders.  If we are unable to renegotiate these
agreements and if the weakness in housing and real estate market continues, we
may be unable to repay our debt obligations on time or at all.




We
may seek additional credit lines to finance land purchases and development
costs.




Through
September 30, 2009, we have closed on four major land development projects. The
majority of our expenditures in the past have been for inventory, consisting of
land, land development and land options. To secure additional inventory, we will
be required to put up earnest money deposits, make cash down payments, and
acquire acreage tracts and pay for certain land development activities costing
several million dollars. This amount includes the development of land, including
costs for the installation of water, sewage, streets and common areas. In the
normal course of business, we enter into various land purchase option agreements
that require earnest money deposits.




Should
our financing efforts be insufficient to execute our business plan, we may be
required to seek additional sources of capital, which may include partnering
with one or more established operating companies that are interested in our
emerging business or entering into joint venture arrangements for the
development of certain of our properties. However, if we were required to resort
to partnering or joint venture relationships as a means to raise needed capital
or reduce our cost burden, we likely will be required to cede some control over
our activities and negotiate our business plan with our business or joint
venture partners.




We
are vulnerable to concentration risks because our initial operations have been
limited to the central Texas area and we have focused on the residential rather
than commercial market.




Our real
estate activities have to date been conducted entirely in the central Texas
region, which we define as encompassing the Austin Metropolitan Statistical Area
(“MSA”). This geographic concentration, combined with a limited number of
projects that we plan to pursue, make our operations more vulnerable to local
economic downturns and adverse project-specific risks than those of larger, more
diversified companies.




The
performance of the central Texas economy will affect our sales and,
consequently, the underlying values of our properties. For example, the economy
in the Austin MSA is heavily influenced by conditions in the technology
industries. During periods of weakness or instability in technology industries,
we may experience reduced sales, which can significantly affect our financial
condition and results of operations.




In
addition, we have focused our development efforts on residential rather than
commercial properties. Economic shifts affect residential and commercial
property markets, and thus our business, in different ways. A developer with
diversified projects in both sectors may be better able to survive a downturn in
the residential market if the commercial market remains strong. Our focus on the
residential sector can make us more vulnerable than a diversified
developer.




Fluctuations
in market conditions may affect our ability to sell our land at expected prices,
if at all, which could adversely affect our revenues, earnings and cash
flows.




We are
subject to the potential for significant fluctuations in the market value of our
land inventories.  Our land and homes under development represent our
primary assets.  There is a lag between the time we acquire control of
undeveloped land and the time that we can improve that land for sale to home
builders or begin building homes. This lag time varies from site to site as it
is impossible to determine in advance the length of time it will take to obtain
government approvals and permits. The risk of owning undeveloped land can be
substantial as the market value of undeveloped land can fluctuate significantly
as a result of changing economic and market conditions. Inventory carrying costs
can be significant and can result in losses in a poorly performing development
or market. Material write-downs of the estimated value of our land inventories
could occur if market conditions deteriorate or if we purchase land at higher
prices during stronger economic periods and the value of those land inventories
subsequently declines during weaker economic periods. We could also be forced to
sell land or lots for prices that generate lower profit than we anticipate, and
may not be able to dispose of an investment in a timely manner when we find
dispositions advantageous or necessary. Furthermore, a decline in the market
value of our land inventories may give rise to a breach of financial covenants
contained in our credit facilities, which could cause a default under one or
more of those credit facilities.




10
 Table of Contents




Homebuilding
is subject to warranty and liability claims in the ordinary course of business
that can be significant.





As a
homebuilder, we are subject to home warranty and construction defect claims
arising in the ordinary course of business. We are also subject to liability
claims arising in the course of construction activities. We record warranty and
other reserves for the homes we sell based on historical experience in our
markets and our judgment of the qualitative risks associated with the types of
homes built. We have, and many of our subcontractors have, general liability,
property, errors and omissions, workers compensation and other business
insurance. These insurance policies protect us against a portion of our risk of
loss from claims, subject to certain self-insured retentions, deductibles and
other coverage limits. However, because of the uncertainties inherent in these
matters, we cannot provide assurance that our insurance coverage or our
subcontractor arrangements will be adequate to address all warranty,
construction defect and liability claims in the future. Additionally, the
coverage offered by and the availability of general liability insurance for
construction defects are currently limited and costly. There can be no assurance
that coverage will not be further restricted and become even more
costly.




We
may be subject to risks as a result of our entry into joint
ventures.




We have
made the decision to be very selective in our immediate growth plans and may
seek joint venture partners for both future and existing land transactions.
While joint ventures by their very nature tend to have a lower pure dollar
margin they also transfer risk to the joint venture entity thus helping preserve
the viability of our company. However, to the extent that we undertake joint
ventures to develop properties or conduct our business, we may be liable for all
obligations incurred by the joint venture, even though such obligations may not
have been incurred by us, and our share of the potential profits from such joint
venture may not be commensurate with our liability. Moreover, we will be exposed
to greater risks in joint ventures should our co-ventures’ financial condition
become impaired during the term of the joint venture, as creditors will
increasingly look to our company to support the operations and fund the
obligations of the joint venture.




Our
operations are subject to weather-related risks.




Our land
development operations and the demand for our homebuilder services may be
adversely affected from time to time by weather conditions that damage property.
The central Texas region is prone to tornados, hurricanes entering from the Gulf
of Mexico, floods, hail storms, severe heat and droughts.  We maintain only
limited insurance coverage to protect the value of our assets against natural
disasters. Additionally, weather conditions can and have delayed our development
and construction projects by weeks or months, which could delay and decrease our
anticipated revenues. To the extent we encounter significant weather-related
delays, our business would suffer.




The availability of water could delay
or increase the cost of land development and adversely affect our future
operating results.




The
availability of water is becoming an increasingly difficult issue in the central
Texas region and other areas of the southwestern United States. Many
jurisdictions are now requiring that builders provide detailed information
regarding the source of water for any new community that they intend to develop.
Similarly, the availability of treatment facilities for sanitary sewage is a
growing concern. Many urban areas have insufficient resources to meet the demand
for waste-water and sanitary sewage treatment. To the extent we are unable to
find satisfactory solutions to these issues with respect to future development
projects, our operations could be adversely affected.




If
our customers are not able to obtain suitable financing, our business may
decline.




Our
business and earnings also depend on the ability of our potential customers to
obtain mortgages for the purchase of our homes. The uncertainties created by
recent events in the sub-prime mortgage market and their impact on the overall
mortgage market, including the tightening of credit standards, could adversely
affect the ability of our customers to obtain financing for a home purchase,
thus preventing our potential customers from purchasing our homes. If our
potential customers or the buyers of our customers’ current homes are not able
to afford or obtain suitable financing under such circumstances, our sales and
revenues could decline. Similar risks apply to those buyers who are in our
backlog of homes to be delivered. If our customers cannot obtain suitable
financing in order to purchase our homes, our sales and profitability could be
materially affected.




11
 Table of Contents




We
are a small company and have a correspondingly small financial and accounting
organization. Being a public company may strain our resources, divert
management’s attention and affect our ability to attract and retain qualified
directors.




We are a
small company with finance and accounting organization that we believe is an
appropriate size to support our current operations; however, the rigorous
demands of being a public reporting company may lead to a determination that our
finance and accounting group is undersized.  In addition, our
President and Chief Executive Officer is our majority shareholder and controls
the company. He also has significant control over our daily operations and we
are required to implement proper and effective controls and procedures due to
the extent of his control over the company.




As a
public company, we are subject to the reporting requirements of the Securities
Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.  The
requirements of these laws and  the rules and regulations promulgated
thereunder entail significant accounting, legal and financial compliance costs,
and have made, and will continue to make, some activities more difficult, time
consuming or costly and  may place significant strain on our
personnel, systems and  resources.  As a result,
management’s attention may be diverted from other business concerns, which could
have a material adverse effect on our business, financial condition and results
of operations.  The size of our financial and accounting organization
has resulted in a significant deficiency in our internal control over financial
reporting as reported in our Annual Report on Form 10-K for the year ended
September 30, 2009.




In
addition, these rules and regulations to which we are subject have made it more
difficult and more expensive for us to  maintain director and officer
liability insurance, and in the future we may be  required to accept
reduced coverage or incur substantially higher costs to  maintain such
coverage. If we are unable to maintain adequate director and officer insurance,
our ability to recruit and retain qualified officers and directors, especially
those directors who may be deemed independent, will be significantly
curtailed.




We
depend on our key personnel to manage our business effectively.




We
believe our future success will depend in large part upon our ability to attract
and retain highly skilled managerial, sales, and marketing personnel. In
particular, due to the relatively early stage of our business, we believe that
our future success is dependent on Clark N. Wilson, our Chief Executive Officer
and the founder of WFC, to provide the necessary leadership to execute our
growth plans. The loss of the services of Mr. Wilson or the inability to attract
or retain qualified personnel in the future or delays in hiring required
personnel will impede our ability to become profitable.






Regulatory
Risks




Our
operations are subject to an intensive regulatory approval process, including
governmental and environmental regulation, which may delay, increase the cost
of, prohibit or severely restrict our development projects and reduce our
revenues and cash flows.




We are
subject to extensive and complex laws and regulations that affect the land
development process. Before we can develop a property, we must obtain a variety
of approvals from local, state and federal governmental agencies with respect to
such matters as zoning, density, parking, subdivision, site planning and
environmental issues. Certain of these approvals are discretionary by nature.
Because certain government agencies and special interest groups have in the past
expressed concerns about development plans in or near the central Texas region,
our ability to develop these properties and realize future income from them
could be delayed, reduced, made more expensive or prevented
altogether.




Real
estate development is subject to state and federal regulations as well as
possible interruption or termination because of environmental considerations,
including, without limitation, air and water quality and the protection of
endangered species and their habitats. We are making and will continue to make
expenditures and other accommodations with respect to our real estate
development for the protection of the environment. Emphasis on environmental
matters may result in additional costs to us in the future or a reduction in the
amount of acreage that we can use for development or sales
activities.




We
are subject to risks related to environmental damages.




We may be
required to undertake expensive and time-consuming clean-up or remediation
efforts in the event that we encounter environmental hazards on the lots we own,
even if we were not originally responsible for or aware of such hazards. In the
event we are required to undertake any such remediation activities, our business
could suffer.




12
 Table of Contents




Federal
laws and regulations that adversely affect liquidity in the secondary mortgage
market could hurt our business.




Recent
federal laws and regulations could have the effect of curtailing the activities
of the Federal National Mortgage Association (Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie Mac). These organizations provide significant
liquidity to the secondary mortgage market. Any curtailment of their activities
could increase mortgage interest rates and increase the effective cost of our
homes, which could reduce demand for our homes and adversely affect our results
of operations.




The
federal financial institution agencies recently issued their final Interagency
Guidance on Nontraditional Mortgage Products (“Guidance”). This Guidance applies
to credit unions, banks and savings associations and their subsidiaries, and
bank and savings association holding companies and their subsidiaries. Although
the Guidance does not apply to independent mortgage companies, it likely will
affect the origination operations of many mortgage companies that broker or sell
nontraditional mortgage loan products to such entities. This Guidance could
reduce the number of potential customers who could qualify for loans to purchase
homes from us and others.




Compliance
with federal, state and local regulations related to our business could create
substantial costs both in time and money, and some regulations could prohibit or
restrict some homebuilding ventures.




We are
subject to extensive and complex laws and regulations that affect the land
development and homebuilding process, including laws and regulations related to
zoning, permitted land uses, levels of density, building design, elevation of
properties, water and waste disposal and use of open spaces. In addition, we are
subject to laws and regulations related to workers’ health and safety. We also
are subject to a variety of local, state and federal laws and regulations
concerning the protection of health and the environment. We may be required to
pay environmental impact fees, use energy-saving construction materials and give
commitments to municipalities to provide certain infrastructure such as roads
and sewage systems. We generally are required to obtain permits, entitlements
and approvals from local authorities to commence and carry out residential
development or home construction. Such permits, entitlements and approvals may,
from time-to-time, be opposed or challenged by local governments, neighboring
property owners or other interested parties, adding delays, costs and risks of
non-approval to the process. Our obligation to comply with the laws and
regulations under which we operate, and our obligation to ensure that our
employees, subcontractors and other agents comply with these laws and
regulations, could result in delays in construction and land development, cause
us to incur substantial costs and prohibit or restrict land development and
homebuilding activity in certain areas in which we operate.




Tax
law changes could make home ownership more expensive or less
attractive.




Significant
expenses of owning a home, including mortgage interest expense and real estate
taxes, generally are deductible expenses for the purpose of calculating an
individual’s federal, and in some cases state, taxable income, subject to
various limitations under current tax law and policy. If the federal government
or a state government changes income tax laws, as has been discussed recently,
to eliminate or substantially reduce these income tax deductions, then the
after-tax cost of owning a new home would increase substantially. This could
adversely impact demand for, and/or sales prices of, new homes.






Risks
Related to Investment in Our Securities




We
delisted our shares of common stock from the NYSE Amex, which may adversely
affect, the market price of and trading market for our common
stock.





On September 21, 2009, our Board of
Directors approved the filing of a Form 25 with the Commission to
voluntarily delist the Company’s common stock from the NYSE Amex, LLC (the
“Exchange”).  On October 12, 2009 the delisting from the Exchange
became effective and our common stock began trading on the Pink Sheets under the
ticker symbol GRBU.





The delisting of our common stock from
the Exchange may impair the ability of our shareholders to buy and sell our
common stock and could have an adverse effect on the market price and the
trading market for our common stock. In addition, the delisting of our common
stock from the Exchange could significantly impair our ability to raise capital
should we desire to do so in the future or to utilize our common stock as
consideration in acquisitions.




13
 Table of Contents




We
have recently taken action to deregister our common stock under the Securities
Exchange Act of 1934. If the deregistration is completed, we will no longer be
subject to the periodic reporting requirements of the Securities and Exchange
Commission.





In November 2009, our Board of
Directors approved amendments to our Certificate of Formation to effect a
reverse stock split of our common stock followed immediately by a forward stock
split of our common stock (the “Reverse/Forward Stock Split”).  We
have filed an information statement on Schedule 14-C and a transaction
statement on Schedule 13E-3 with the Commission to allow us to take this
action.  In the event that we effect the Reverse/Forward Stock Split,
we anticipate that our shareholders owning fewer than 500 shares of our common
stock will be cashed out at a price of $0.26 per share, and the holdings of all
other shareholders will remain unchanged.  In effecting this
transaction, we intend to reduce the number of record holders of our common
stock below 300 so that we may terminate the public registration of our common
stock under the Exchange Act. We are considering this going private transaction
in order to reduce the costs of our compliance with the reporting requirements
of the Exchange Act and the potential additional costs of complying with the
internal control provisions of Section 404 of the Sarbanes-Oxley Act. In the
event that we proceed with the Reverse/Forward Stock Split and the
contemplated deregistration is consummated, we will no longer be subject to
public reporting requirements under the Exchange Act, including any requirements
to file annual reports on Form 10-K, quarterly reports on Form 10-Q, or current
reports on Form 8-K.  Consequently, following any such deregistration,
we will have no obligation to make available to the public current financial or
other information concerning our company, except such information, if any, as we
may choose to voluntarily disclose or be required to disclose pursuant to
applicable legal or contractual requirements.





The
liquidity of our shares of common stock will be adversely affected by our plan
to deregister.





If we are
successful in our plan to terminate the registration of our common stock under
the Exchange Act, our common stock may continue to be quoted over-the-counter on
the Pink Sheets if market makers continue to make a market in the Company's
shares.  However, the Company can provide no assurance that trading in
its common stock will continue on the Pink Sheets or otherwise. Moreover,
following the termination of the registration of our common stock, our common
stock may become more illiquid, which could negatively impact market prices for
the Company's common stock and make it more difficult for shareholders to sell
their shares.  In addition, once we complete the deregistration of our
common stock under the Exchange Act, we will no longer be required to file
periodic and other reports with the Commission. As a consequence, there may be
little if any public information available about the Company's business,
operations, financial condition, results of operations or other
matters.





We
may not complete the contemplated deregistration of our common
stock.





We have filed a preliminary information
statement with the Commission under the Exchange Act that describes the
Reverse/Forward Stock Split and our reasons for the going private
transaction.  Following completion of review by the Commission, we
intend to distribute a definitive information statement to our shareholders and
to effect the Reverse/Forward Stock Split 20 days following this distribution.
We may not be able to complete the deregistration of our common stock in a
timely manner due to Commission filing requirements or for other reasons, which
could cause us to abandon the Reverse/Forward Stock Split. In the event that our
deregistration is delayed or we are not otherwise able to effect the
contemplated Reverse/Forward Stock Split, we would not proceed with the going
private transaction and we would remain as a public company.  In
addition, investors owning fewer than 500 shares of our common stock would not
receive $0.26 per share if the Reverse/Forward Stock Split is not
consummated.  In addition, we may amend the terms of the
Reverse/Forward Stock Split such that the share ownership threshold at which a
shareholder would be cashed out may be lower than 500 shares and/or the price at
which shareholders are cash out may be higher or lower than $0.26 per
share.




Our
company is a holding company, and the obligations of our company are subordinate
to those of our operating subsidiary.




Our
company is a holding company with no material assets other than our equity
interest in our wholly owned subsidiary, Wilson Family Communities, or WFC. WFC
conducts substantially all of our operations and directly owns substantially all
of our assets. WFC also has entered into a credit facility to finance the
purchase of some of our land holdings and this credit facility is secured by the
assets of WFC.  The holding company structure places any obligations
of Green Builders subordinate to those of our operating subsidiary, WFC.
Therefore, in the event of liquidation, creditors of WFC would be repaid prior
to any distribution to the stockholders of Green Builders. After the repayment
of all obligations incurred by WFC and the repayment of all obligations of Green
Builders, any remaining assets could then be distributed to Green Builders as
the holder of all shares of common stock of WFC and subsequently would be
distributed among the holders of our common stock.




Our
largest stockholder, who is also our President and Chief Executive Officer, will
continue to control our company.




Clark N.
Wilson, our President and Chief Executive Officer, owns or controls
approximately 59% of our issued and outstanding common stock.  This
ownership position will provide Mr. Wilson with the voting power to
significantly influence the election of all members of our Board of Directors
and, thereby, to exert substantial control over all corporate actions and
decisions for an indefinite period.




14
 Table of Contents




We
issued $16.5 million in convertible notes and if these notes are converted into
shares of common stock, or if the warrants issued in conjunction with such notes
are exercised, our stockholders would suffer substantial dilution.




In
December 2005 and September 2006, we issued convertible promissory notes which
may be converted, at the election of the holders of the notes, into shares of
our common stock at a conversion price of $2.00 per share. In conjunction with
these note financings, we also issued warrants to the purchasers which have
vested and to the placement agent evidencing the right to purchase an aggregate
of 1,143,125 shares of our common stock at an exercise price of $2.00 per share.
While the holders of these notes and warrants have not indicated to us that they
plan to convert their notes into, or exercise their warrants for, shares of our
common stock, in the event they elect to do so we would be required to issue up
to 8,250,000 additional shares of our common stock in conversion of the notes
and 1,143,125 shares of our common stock upon exercise of the warrants, which
would be dilutive to our existing stockholders. Each convertible note is
convertible into shares of our common stock at the option of the holder. The
conversion price is subject to adjustment for stock splits, reverse stock
splits, recapitalizations and similar corporate actions. An anti-dilution
adjustment in the conversion price, and the corresponding rate at which the
convertible notes may be converted into shares of our common stock, also is
triggered upon the issuance of certain equity securities or equity-linked
securities with a conversion price, exercise price or share price of less than
$2.00 per share, provided that the conversion price cannot be lower than $1.00
per share.




Our
stock price may make it difficult to raise capital through the sale of our
common stock.





Our
common stock has recently traded below $1.00 per share.  Certain
investors are limited in their ability to purchase shares of common stock of
issuers that are below $1.00 per share which may limit our ability to raise
additional capital through the sale of common stock.





Future
sales or the potential for sale of a substantial number of shares of our common
stock could cause the trading price of our common stock to decline and could
impair our ability to raise capital through subsequent equity
offerings.




Sales of
a substantial number of shares of our common stock in the public markets, or the
perception that these sales may occur, could cause the market price of our stock
to decline and could materially impair our ability to raise capital through the
sale of additional equity securities. For example, the grant of a large number
of stock options or other securities under an equity incentive plan or the sale
of our equity securities in private placement transactions at a discount from
market value could adversely affect the market price of our common
stock.




The
market for penny stocks has suffered in recent years from patterns of fraud and
abuse.





Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and
abuse.  Such patterns include:





1.
Control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;





2.
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases;





3. Boiler
room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced salespersons;





4.
Excessive and undisclosed bid-ask differential and markups by selling
broker-dealers; and





5. The
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequential investor
losses.





Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our
securities.  The occurrence of these patterns or practices could
increase the volatility of our share price.





We
have anti-takeover provisions that could discourage, delay or prevent our
acquisition.




Provisions
of our Certificate of Formation and bylaws could have the effect of
discouraging, delaying or preventing a merger or acquisition that a stockholder
may consider favorable. Our authorized but unissued shares of common stock are
available for our Board of Directors to issue without stockholder approval. We
may use these additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of our authorized but unissued shares of
common stock could render it more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or other
transaction. In the future, we may elect to amend our Certificate of Formation
to provide for authorized but unissued shares of preferred stock that would be
issuable at the discretion of the Board of Directors. We can amend and restate
our Certificate of Formation by action of the Board of Directors and the written
consent of a majority of stockholders.




15
 Table of Contents




Item 1B.Unresolved Staff
Comments.




Not
applicable




Item 2.   Properties




Our
corporate office, which we lease from a third party, contains approximately
5,000 square feet, and is located in Austin, Texas.  We believe this
facility is adequate to meet our requirements at our current level of business
activity.






Item 3.   Legal
Proceedings




We are
not a party to any legal proceedings.






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





(a) On
September 4, 2009 the Company filed a definitive information statement with the
Commission notifying the holders of our common stock of action taken by written
consent of the holders of a majority of the Company’s voting power on September
4, 2009 (the “Action by Written Consent”).




(b) The
following matters were approved by the Action by Written Consent:





Election
of the following three (3) directors to hold office until the next annual
stockholder’s meeting or until their respective successors are duly elected or
appointed:




Votes
      For
            
            Withhold
            
            Votes
              Abstain
            
            Broker
              Non-VotesClark
      N. Wilson
            
            12,460,826
            
            -
            
            -
            
            -Jay
      Gouline
            
            12,460,826
            
            -
            
            -
            
            -William
      Weber
            
            12,460,826
            
            -
            
            -
            
            -







16
 Table of Contents





PART
II




Item 5.       Market
for  Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities




From May 17, 2007 until October 12,
2009 our common stock traded on the NYSE Amex.  On October 2, 2009 the
Company filed a Form 25 with the Commission in order to effect the voluntary
delisting of our common stock from the NYSE Amex due to the Company’s
non-compliance with certain listing standards of the NYSE Amex.  The
delisting became effective on October 12, 2009.  Our common stock
began trading on the Pink Sheets on October 12, 2009.





The following is a schedule of the
reported high and low closing bid quotations per share for our Common Stock
during the period from October 1, 2007 through September 30, 2009 all of which
quotations represent prices between dealers, do not include retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions:


High
              
              
              LowFiscal
      Year Ended 2008First
      Quarter
              
              $
              2.00
              
              
              $
              0.81Second
      Quarter
              
              $
              1.35
              
              
              $
              0.85Third
      Quarter
              
              $
              1.50
              
              
              $
              0.85Fourth
      Quarter
              
              $
              1.20
              
              
              $
              0.59Fiscal
      Year Ended 2009First
      Quarter
              
              $
              0.66
              
              
              $
              0.12Second
      Quarter
              
              $
              0.40
              
              
              $
              0.15Third
      Quarter
              
              $
              0.52
              
              
              $
              0.19Fourth
      Quarter
              
              $
              0.35
              
              
              $
              0.15


The last
reported sale price of our common stock on the Pink Sheets on December 16, 2009
was $0.13 per share. According to the records of our transfer agent, there were
approximately 328 record holders of our common stock as of December 16,
2009.




Dividends




We have
not declared or paid any dividends, and do not intend to pay any dividends in
the foreseeable future, with respect to our common stock. Any future decision to
pay dividends on our common stock will be at the discretion of our Board of
Directors and will depend upon our financial condition, results of operations,
capital requirements and other factors our Board of Directors may deem
relevant.




Recent
Sales of Unregistered Securities




We did
not sell any unregistered securities in the period covered by this
report.




Issuer
Repurchases of Equity Securities




We did
not repurchase any shares of our common stock during the fourth quarter of the
year ended September 30, 2009.




Equity
Compensation Plans




The
following table provides information as of September 30, 2009 with respect to
compensation plans under which our equity securities are authorized for
issuance.




Equity
      Compensation Plan InformationPlan
      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
            
            
            566,563
            
            
            $
            2.04
            
            
            
            1,933,437Equity
      compensation plans not approved by security holders
            
            
            -
            
            
            
            -
            
            
            
            -





17
 Table of Contents




Item6.Selected
Financial Data




Not
Applicable.




Item 7.Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.




This
discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. When used herein, the words
“believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,”
“will,” “could,” “should,” “future,” “potential,” “estimate,” or the negative of
such terms and similar expressions as they relate to us or our management are
intended to identify forward-looking statements.  Actual results and
the timing of events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
herein.  These risks and uncertainties are beyond our control and, in
many cases, we cannot predict the risks and uncertainties that could cause our
actual results to differ materially from those indicated by the forward-looking
statements.  Historical results and percentage relationships among any
amounts in our consolidated financial statements are not necessarily indicative
of trends in operating results for any future periods.




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
accompanying notes included elsewhere in this document.




Overview




We are a
real estate development and homebuilding company.  We commenced our
homebuilding operations in June 2007 with the purchase of Green Builders,
Inc.  We build energy efficient homes in Austin, Texas and we make it
a priority to fully utilize sustainable building practices and to use
earth-friendly products and materials.




From late
2007 through September 30, 2009 our business has been significantly impacted by
the continued deterioration of the real estate and homebuilding
industry.  Deteriorating market conditions, turmoil in the mortgage
and credit markets and increased price competition have continued to negatively
impact the Company during fiscal year 2009.  We believe that sales of
new homes in the Central Texas area may continue to be slow in fiscal year
2010.  We believe this slowdown is attributable to a decline in
consumer confidence, the inability of some buyers to sell their current homes
and the direct and indirect impact of the well-publicized turmoil in the
mortgage and credit markets.




In June
2007 we purchased Green Builders, Inc. and commenced our homebuilding operations
under that name.  Our strategy is to build homes that are
environmentally responsible, resource efficient and consistent with local
style.  Substantially all of our construction work is performed by
subcontractors who are retained for specific subdivisions pursuant to contracts
entered in.  We intend to build homes on some of the lots we currently
have completed and sell those as finished homes as well as continue to sell lots
to other builders.  In November 2008 we updated our homebuilding
services to include “build on your lot”.  “Build on your lot” allows
customers to build our existing plans on lots that they own.




Prior to
our acquisition of Green Builders, Inc., we were solely focused on the
acquisition of undeveloped land that we believed, based on our research of
population growth patterns and infrastructure development, was strategically
located.  We have funded these acquisitions primarily with bank debt
and cash we raised from financing activities.  We currently have
completed 220 lots in Georgetown Village, 105 lots in Elm Grove and 58 lots in
Rutherford West.  We have purchased approximately 184 acres in
Georgetown Village, 522 acres in New Sweden, 60 acres in Elm Grove, and 736
acres in Rutherford West.  We are expecting to sell the remaining 453
acres in New Sweden via a combination of foreclosure and deed in lieu of
foreclosure.  We are expecting to sell 538 acres in Rutherford West
via deed in lieu of foreclosure.  We plan to continue to sell and
develop the remaining properties.  This portion of our business focus
has required the majority of our financial resources.  Due to the
continued deterioration of the homebuilding industry and based on our current
liquidity, we are currently in negotiations to dispose of some of our land
positions including but not limited to deed in lieu of foreclosure of these
assets.




In tandem
with our land acquisition efforts and based upon our strategic market analysis,
we also prepare land for homebuilding.  A focus of our business had
been the sale of developed lots to homebuilders, including national
homebuilders.  Due to deteriorating conditions in the homebuilding
industry both nationally and to a lesser extent locally, beginning in the second
quarter of 2007 and continuing through September 30, 2009, demand for finished
lots by national homebuilders has been, and we expect will continue to be,
significantly reduced.  As a result, orders placed for some of our
finished lots were cancelled.  We elected to retain some of our lots
for use in our homebuilding business.  We believed that retaining some
of our lots for use in homebuilding activities would have allowed us to generate
homebuilding revenue to replace some of the revenue from the loss of sales of
these finished lots.  Our current focus is to pursue lot sales
contracts with both national and regional builders to pay down debt and improve
our balance sheet.




18
 Table of Contents





In
November 2008 we expanded our services to include “green” remodeling of existing
homes.  We have taken a comprehensive approach to engaging in the
green remodeling business and offer customers a “one-stop” process for updating
their existing home with a focus on energy efficiency.  Our green
remodeling program currently caters to existing homeowners in the Austin, Texas
area who want to reduce home energy demands and utility bills, lessen home
maintenance costs and increase the comfort of their home.  Initially,
substantially all of our construction work has been and will be performed by
subcontractors.  By subcontracting out the work, there is limited
additional capital required to enter this business line.  We also feel
that entering into remodeling will help us supplement revenue during this
slowdown in the real estate industry.




Reverse/Forward
Split




On
November 18, 2009 we filed an information statement to inform our shareholders
of the approval by our Board of Directors at a meeting held on
November13, 2009
of amendments to our Certificate of Formation to effect a reverse stock split of
our common stock followed immediately by a forward stock split of our common
stock (the “Reverse/Forward Stock Split”).  If it is consummated, the
Reverse/Forward Split will result in shareholders owning fewer than 500 shares
of our common stock being cashed out at a price of $0.26 per share, and the
holdings of all other shareholders remaining unchanged.  We estimate
that it will cost approximately $10,300 to cash out the fractional shares and
that we will incur approximately $32,500 in advisory, legal, financial and other
costs in connection with the Reverse/Forward Split.




The
intended effect of the Reverse/Forward Stock Split is to reduce the number of
record holders of our common stock to fewer than 300 so that we will be eligible
to terminate the public registration of our common stock under the Exchange
Act.  Provided that the Reverse/Forward Stock Split has the intended
effect, we will file to deregister our common stock with the Commission. We will
in such case no longer be required to file periodic reports with the Commission,
although we intend to continue to provide sufficient information through the
Pink Sheets News Service to allow our common stock to continue trading on the
Pink Sheets.  We estimate that our annual savings will be
approximately $400,000.







Comparison
of Year Ended September 30, 2009 and 2008






Year
      Ended
                September
      30,
                2009
              
              
              Year
      Ended
                September
      30,
                2008
              
              
              Change
              
              
              Change
      %RevenuesHomebuilding
      and related services revenues
              
              $
              12,601,829
              
              
              $
              6,042,311
              
              
              $
              6,559,518
              
              
              
              109
              %Land
      revenues
              
              
              1,565,122
              
              
              
              2,950,894
              
              
              
              (1,385,772
              )
              
              
              -47
              %Remodeling
      revenues
              
              
              349,485
              
              
              
              -
              
              
              
              349,485
              
              
              
              n/aGross
      ProfitHomebuilding
      and related services gross profit
              
              
              1,811,566
              
              
              
              662,604
              
              
              
              1,148,962
              
              
              
              173
              %Land
      gross profit
              
              
              333,411
              
              
              
              830,624
              
              
              
              (497,213
              )
              
              
              -60
              %Remodeling
      gross profit
              
              
              61,806
              
              
              
              -
              
              
              
              61,806
              
              
              
              n/aInventory
      impairments and land option cost write-offs
              
              
              (4,283,501
              )
              
              
              (5,887,924
              )
              
              
              1,604,423
              
              
              
              27
              %Costs
      & ExpensesOperating
      expenses
              
              
              4,560,906
              
              
              
              6,986,961
              
              
              
              (2,426,055
              )
              
              
              -35
              %Operating
      Loss
              
              
              (6,637,624
              )
              
              
              (11,381,657
              )
              
              
              4,744,033
              
              
              
              42
              %Net
      Loss
              
              $
              (10,237,341
              )
              
              $
              (14,832,608
              )
              
              $
              4,595,267
              
              
              
              31
              %


Results of
Operations




Homebuilding
and Related Services Revenues




Background –Homebuilding and
related services revenues consists of revenues from home sales.  Prior
to fiscal 2008, all home sales were generated by our homebuilder customers
utilizing our homebuilder services.  In June 2007 we acquired Green
Builders, Inc. and commenced our homebuilding activities.  We sell
homes in the Austin, Texas area for prices ranging from $170,000 to
$450,000.




For the
year ended September 30, 2009 we had 48 home sales and 15
cancellations.  We had 50 home closings.  At September 30,
2009 we had one completed speculative unit, two models and 12 units in
backlog.  For the year ended September 30, 2008 we had 68 home sales
and 13 cancellations.  We had 26 home closings.  We had 13
completed speculative units, one speculative unit under construction, seven
completed models, and 29 units in backlog.  Backlog is defined as homes
under contract but not yet delivered to our home buyers.




19
 Table of Contents





For the
year ended September 30, 2009, we have seen a decrease in net homebuilding sales
volume.  Deteriorating market conditions, turmoil in the credit
markets and increased price competition have continued to negatively impact the
Company during fiscal year 2009.  It is our opinion that this is
primarily due to decreased consumer confidence in the economy and real estate
market.  We believe that the turmoil in the credit and mortgage market
combined with national publicity of significantly deteriorating general and
economic conditions has caused a lack of urgency for buyers.  We
expect that home sales will continue to be slow throughout fiscal
2010.  In accordance with these anticipated market conditions, our
strategy is to build a limited number of speculative units per community and
build the majority of our homes after a contract is entered into with a
homebuyer.




Revenues - During the year
ended September 30, 2009, home sales accounted for approximately 87% of
revenues.  For the year ended September 30, 2009 we had 50 home
closings at an average sales price of $252,000.  During the year ended
September 30, 2008 we had 26 home closings at an average sales price of
$232,000.  The increase in average sales price is due to an
increase in built to order houses versus speculative houses in prior
year.




Impairments – The Company
recorded impairments of $452,752 during the year ended September 30, 2009
compared to impairments of $848,000 for the year ended September 30,
2008.  In accordance with FASB guidance, the Company performs an
inventory impairment analysis on a quarterly basis.  If impairment
indicators are present, impairment charges are required to be recorded if the
fair value is less than the cost recorded.  The Company’s determination of
fair value is primarily based on discounting the estimated cash flows.
 Estimated cash flows are based on recent offers and comparable sales of
lots and land under existing and anticipated market conditions.




Gross Profit- Gross profit
percentage before impairments was 14% for the year ended September 30, 2009
compared to 11% for the year ended September 30, 2008.  The increase
in gross margin percentage is due to an increase in built to order houses versus
speculative houses in prior year.  In addition there was a decrease in
material and labor costs for homebuilding since September 30, 2008.






Land
and Land Development Revenues




Background – Land sales
revenues consists of revenues from the sale of undeveloped land and developed
lots.  Developing finished lots from raw land takes approximately one
to three years. In response to the slowdown in the national housing market and
the reduction in demand for finished lots, we changed our strategy and have
elected to use some of  our developed lots for our own homebuilding
operations.  We may still sell our lots to national, regional and
local homebuilders that may purchase anywhere from five to one hundred or more
lots at a time. The delivery of these lots would likely be scheduled over
periods of several months or years.




Revenues – Revenues from the
sale of land decreased by 47% during the year ended September 30, 2009 compared
to the year ended September 30, 2008.  During the year ended September
30, 2009 we closed on a 10 acre tract of land for approximately $635,000
compared with a 5 acre tract of land closed during the year ended September 30,
2008 for approximately $349,000.  During the year ended September 30,
2009, we closed 21 finished lots at an average sales price of $44,200 as
compared to 45 finished lots at an average sales price of $58,000 for the year
ended September 30, 2008.  The decrease in lot and land development
revenues in 2009 was due to the cancellation of lot sales contracts from
regional and local homebuilders during the last twelve months.  We
believe that the decrease in sales price is due to a decrease in demand for
finished lots by regional and local homebuilders which has reduced prices for
developed land.




Impairments –We recorded
impairments of $3.8 million for the year ended September 30, 2009 compared to
impairments of $5 million for the year ended September 30, 2008. In
accordance with FASB guidance, we perform an inventory impairment analysis on a
quarterly basis.  If impairment indicators are present, impairment
charges are required to be recorded if the fair value is less than the cost
recorded.  Our determination of fair value is primarily based on
discounting the estimated cash flows.  Estimated cash flows are based
on recent offers and comparable sales of lots and land under existing and
anticipated market conditions.




Gross Profit – Gross profit
percentage before impairments was 21% for the year ended September 30, 2009
compared to 28% for the same period in 2008.  The decrease is
partially attributable to a 5 acre tract of land that was sold with a 65% gross
profit percentage during the fiscal year ended 2008.  In addition for
the fiscal year ended 2009, the Company recorded a loss for five lots
sold.






Remodeling
Revenues




Background –Remodeling
revenues consists of revenues from the sale of remodeling and construction
contracts.  In November 2008 we expanded our services to include
remodeling services for existing homes.




Revenues –During the year
ended September 30, 2009 we had $349,000 in remodeling revenues, compared with
no remodeling revenue for the same period in 2008.  Remodeling
revenues were primarily composed of one large construction
contract.




20
 Table of Contents





Gross Profit –Gross profit
percentage was 18% for remodeling services for the year ended September 30,
2009.






General
and Administrative Expenses






Breakdown
      of G&A Expenses
              
              Year
      Ended
                September
      30,2009
              
              
              Year
      Ended
                September
      30,
                2008
              
              
              Change
              
              
              Change
      %Salaries,
      benefits, payroll taxes and related emp. exps.
              
              $
              947,053
              
              
              $
              1,615,182
              
              
              $
              (668,129
              )
              
              
              -41
              %Stock
      compensation expense
              
              
              153,542
              
              
              
              834,599
              
              
              
              (681,057
              )
              
              
              -82
              %Legal,
      accounting, auditing, consultants, and investor relations
              
              
              350,680
              
              
              
              958,219
              
              
              
              (607,539
              )
              
              
              -63
              %General
      overhead, including office expenses, insurance, and travel
              
              
              570,245
              
              
              
              857,211
              
              
              
              (286,966
              )
              
              
              -33
              %Restructuring
      expenses
              
              
              138,304
              
              
              
              -
              
              
              
              138,304
              
              
              
              n/aAmortization
      of subordinated debt costs and transaction costs
              
              
              237,012
              
              
              
              237,012
              
              
              
              -
              
              
              
              0
              %Total
      G&A
              
              $
              2,396,836
              
              
              $
              4,502,223
              
              
              $
              (2,105,387
              )
              
              
              -47
              %


General
and administrative expenses are composed primarily of salaries of general and
administrative personnel and related employee benefits and taxes, accounting and
legal expenses, and general office expenses and insurance.  During the
fiscal year ended September 30, 2009 and 2008, salaries, benefits, taxes and
related employee expenses totaled approximately $947,000 and $1,615,000,
respectively, and represented approximately 40% and 36%, respectively, of total
general and administrative expenses for the periods.  The decrease for
the year is due to a decrease in approximately 40% of personnel from September
30, 2008 to September 30, 2009.




Legal,
accounting, audit, consulting and investor relations expense totaled $350,680
and $958,219 for the year ended September 30, 2009 and 2008,
respectively.  General overhead, including office expenses, insurance,
and travel totaled $570,245 and $857,211 for the year ended September 30,
2009 and 2008, respectively.  The decrease in these general and
administrative costs primarily resulted from our initiative to control
costs.




Restructuring
expenses relate to expenses incurred to restructure our debt agreement with
Graham Mortgage Capital and our syndicate of banks.  In the prior year
we incurred no expenses for restructuring.




Sales
and Marketing Expenses




Sales
expenses include selling costs, commissions, salaries and related taxes and
benefits, finished inventory maintenance and property tax
expense.  Marketing activities including websites, brochures,
catalogs, signage, billboards, and market research, all of which benefit our
corporate presence and are not included as homebuilding cost of
sales.  During the year ended September 30, 2009 the Company impaired
approximately $227,000 for its sales office trailer costs.  Sales and
marketing expenses as a percentage of revenues before the impairment of the
sales office was 13% and 24% for the year ended September 30, 2009 and 2008,
respectively.




Impairment
of Intangible Assets




We
account for intangible assets in accordance with FASB guidance that
definite-lived intangibles are to be amortized over their estimated useful lives
and are to be evaluated for impairment annually, or more frequently if
impairment indicators are present, using a process similar to that used to test
other long-lived assets for impairment.  During the year ended
September 30, 2008 we recorded an impairment charge of approximately $293,000
related to the trademark name of Green Builders, Inc.  No impairments
for intangible assets were recorded during the year ended September 30,
2009.




Troubled
Debt Restructuring





In July
2009 we received a notice of foreclosure sale from our lender under a promissory
note dated October 12, 2006 in the original principal amount of $601,625,
informing us that default had occurred under such promissory note. The
promissory note was secured by a deed of trust creating a lien upon a 69.11 acre
tract of land in our New Sweden project. The foreclosure sale was held on
September 1, 2009.  The note was a nonrecourse note and the gain
resulting from the foreclosure was calculated as follows:




21
 Table of Contents





Carrying
      amount of debt settled in full
              
              $
              601,625Cancellation
      of accrued interest
              
              
              51,982Debt
      settlement amount
              
              
              653,607Carrying
      amount of asset
              
              
              525,282Gain
      on troubled debt restructuring
              
              $
              128,325
 Interest
Expense and Other Income






Year
      Ended September 30,
                2009
              
              
              Year
      Ended
                September
      30,2008
              
              
              Change
              
              
              Change
      %Interest
      expense - convertible debt
              
              $
              825,000
              
              
              $
              833,450
              
              
              
              (8,450
              )
              
              
              -1
              %Interest
      discount expense - convertible debt
              
              
              558,348
              
              
              
              558,348
              
              
              
              -
              
              
              
              0
              %Interest
      expense - land and development loans
              
              
              2,535,091
              
              
              
              2,357,559
              
              
              
              177,532
              
              
              
              8
              %Interest
      income and misc income
              
              
              (190,397
              )
              
              
              (298,406
              )
              
              
              108,009
              
              
              
              36
              %Total
      interest and other expense and income
              
              $
              3,728,042
              
              
              $
              3,450,951
              
              
              
              277,091
              
              
              
              8
              %
 Interest
expense for land and development loans increased by approximately $178,000 for
the year ended September 30, 2009 over the same period in 2008.  The
increase is primarily attributable to the increase of interest expense for
property not under development and an increase in interest expense from 12.5% to
14% for our Rutherford West and New Sweden properties.  The decrease
in interest income is due to a decline in interest earned on our reduced cash
balances.


Going
Concern Liquidity and Capital Resources




On
September 30, 2009, we had approximately $1.2 million in cash and cash
equivalents.  Our current operations and future growth will require
substantial amounts of cash for earnest money deposits, development costs,
interest payments and homebuilding costs.  Until we begin to sell an
adequate number of lots and homes to cover our monthly operating expenses, sales
and marketing expenses, general and administrative costs, and interest payments,
cash will continue to be depleted.  Due to current market conditions
and slow home and land sales, we anticipate that we will need additional capital
to support operations for the next twelve months.  We can not provide
any assurance that we will be successful in obtaining additional capital on
acceptable terms or at all.




Land and
homes under construction comprise the majority of our assets.  These
assets have suffered devaluation due to the downturn in the housing and real
estate market for central Texas.  We are currently in negotiations to
dispose of some of our current land positions, but there is no assurance that we
will be successful in selling these land positions at an acceptable price or at
all.   If we are not able to sell the New Sweden and Rutherford
West tracts of land by December 31, 2009 we will deed in lieu of foreclosure the
land back to our lender. We are considering selling tracts of commercial and
residential land in order to increase sales revenues and increase
cash.




On June
29, 2007, we entered into a $55 million revolving credit facility (the “Credit
Facility”) with a syndicate of banks led by RBC Bank (formerly RBC Centura
Bank), as administrative agent pursuant to a Borrowing Base Loan Agreement (the
“Loan Agreement”).  International Bank of Commerce, Laredo, Texas
(“IBC Bank”) and Franklin Bank, S.S.B. (“Franklin Bank”) are the other two banks
that make up the syndicate of banks.  Our obligations under the Credit
Facility are secured by the assets of each subdivision to be
developed.  The Company has guaranteed the obligations of WFC under
the Credit Facility.




In June
2008 the Credit Facility was reduced to $30 million.  We received
notification on November 7, 2008 that Franklin Bank was closed by the Texas
Department of Savings and Mortgage Lending and the Federal Deposit Insurance
Corporation (the “FDIC”) was named Receiver.  On November 5, 2009, we
received notice that the FDIC debt was bought by LNV Corporation.




On May
14, 2009, we entered into a Fourth Agreement to Modify Loan Documents (the
“Modification”) of the Credit Facility.  The Modification modified the
terms of the Loan Agreement by reducing the loan commitment amount pursuant to
the Loan Agreement from $30,000,000 to $10,846,163.  The Modification
extended the maturity of the master line of credit issued pursuant to the Loan
Agreement (the “Master Line”) until March 31, 2011.  The Modification
revised the interest rate of the Credit Facility from prime plus .25%, with a
floor of 5.5% to libor plus 3.5%, with a floor of 6%.   At
September 30, 2009 we had $9.3 million outstanding under the Master Line and
have drawn all the remaining loan commitments from the Credit
Facility.




22
 Table of Contents




The
Modification also revised certain covenants contained in the Loan
Agreement.  The terms of the Modification:




·
            require
      WFC to maintain a minimum net worth of $7,000,000, including subordinated
      debt,  although the minimum net worth may be reduced to an
      amount not less than $5,000,000 upon the sale and close of escrow any land
      owned by WFC which causes WFC to be in violation of the $7,000,000 minimum
      net worth covenant;




·
            prohibit
      WFC’s ratio of debt to equity from exceeding 3.00 to
  1.00;




·
            require
      WFC to maintain working capital of at least
  $5,000,000;




·
            require
      WFC to make certain quarterly principal reduction payments;
      and




·
            require
      WFC to maintain cash of not less than
$500,000.




The
Modification also contains a waiver for certain inventory covenants contained in
the original Loan Agreement with which WFC was not in compliance prior to the
date of the Modification.  This includes a waiver of the following
covenants until the dates noted below:




·
            the
      spec home limitation covenant until March 31,
  2011;




·
            the
      developed lot limitation covenant until March 31,
  2011;




·
            the
      land, lots under development and developed lot limitation covenant until
      March 31, 2011;




·
            the
      entitled land and pods limitation covenant until March 31,
      2011;




·
            the
      entitled land, pods, lots under development, and developed lots limitation
      covenant until March 31, 2011; and




·
            the
      land, pods lots under development, developed lots and spec home limitation
      covenant until March 31, 2011.




Pursuant
to the Modification, WFC is required to reduce the outstanding principal amount
under the Master Line to approximately $9 million by September 30, 2009, $6
million by December 31, 2010 and to repay the Master Line in full by March 31,
2011.




WFC is
not currently in compliance with the revised covenants of the
Modification.  Per the Modification, WFC was required to have an
outstanding principal balance of $9 million at September 30,
2009.  WFC’s principal balance at September 30, 2009 was approximately
$9.3 million.  WFC received forbearance, giving WFC until October 31,
2009 to be in compliance with the required principal reduction.  At
October 31, 2009 WFC’s principal balance was approximately $8.7
million.




At
September 30, 2009 WFC was not in compliance with the net worth covenant, the
debt to equity covenant, and working capital covenant.  WFC received
forbearance, giving WFC until December 31, 2009 to be in compliance with these
covenants.  If WFC continues to be out compliance with these
covenants, WFC’s obligation to repay indebtedness outstanding under the Credit
Facility, its term loans, and its outstanding note indentures could be
accelerated in full. We can give no assurance that in such an event, we would
have, or be able to obtain, sufficient funds to pay all debt required to
repay.  It is anticipated by our management that we will no
longer have access to this line of credit to construct homes for
sale.




We are
not aware of any financial issues with RBC Bank or IBC Bank, two of our
syndicate banks.




In
December 2005 and September 2006, we entered into Securities Purchase Agreements
with certain investors for the sale of Convertible Promissory
Notes.  Pursuant to the cross-default provisions of the Securities
Purchase Agreements, a default under our Credit Facility triggers defaults under
the Securities Purchase Agreements.  In the event that our
non-compliance with the Credit Facility continues, the holders of a majority of
the Notes issued under the Securities Purchase Agreement could elect to demand
the acceleration of all amounts owed under these Notes.  We do not
have the cash available to repay these amounts or the amounts owed under the
Credit Facility.  We intend to negotiate with all investors under our
Securities Purchase Agreements to reach a mutually satisfactory resolution and
we intend to cooperate with the Credit Facility lenders to regain compliance
with the terms of the Credit Facility.




On
December 1, 2009 we were required to make our semi-annual interest payments to
the noteholders of the 2005 Convertible Promissory Notes.  We did not
make the required $250,000 interest payments on December 1, 2009.  We
are currently in negotiations with the noteholders to forbear from exercising
the remedies under the agreement due the our failure to make the interest
payments when due on December 1, 2009.  We can not make any assurances
that we will reach an agreement with these noteholders.




23
 Table of Contents




In
January 2009, we entered into an agreement with Graham Mortgage Capital to
modify the debt agreement for the $7.3 million loan for property in Rutherford
West and the $4.7 million loan for New Sweden.  As of September 30,
2009 we had $1,049,375 in accrued interest for the Rutherford West loan and
$675,624 in accrued interest for the New Sweden loan.  The agreement
allows deferral of the $1,037,208 and $667,792 of accrued interest until
December 31, 2009 or until the property is sold.  Effective January 1,
2009, we began paying 2% interest on each loan (“Modified Interest Payment”) and
is accruing an additional 12% interest on the loan.  In exchange for
entering into the agreement we will issue a warrant for the purchase of 1.5% of
the issued and outstanding shares of our common stock at December 31,
2009.  The warrant will have a $5.00 strike price and can be exercised
from January 1, 2010 through December 31, 2012.  We are required to
make monthly payments for 1/12th of the estimated 2009 property
taxes.  The agreement calls for us to list the property and retain a
broker to market the property.   In the event we receive an offer
for a price less than sufficient to satisfy the Graham Mortgage Capital note
payment, we must notify the lender who will at its sole discretion accept or
reject the offer.  In the event that the property is not sold by
December 31, 2009, the Deed (in Lieu of Foreclosure) will be released, and
provided that all Modified Interest Payments and real estate taxes for 2009
which are due on January 31, 2010 have been paid, the corporate guaranty will be
returned, and the borrower and holder shall exchange mutual
releases.




On March
12, 2009 we entered into an agreement with LNZCO to provide between $1 and $2
million in financing for the construction of single family
residences.  Each promissory note issued thereunder bears interest at
a rate of prime plus 5.0%, has a one point origination fee, and matures one year
from the date of issuance.  We have issued a promissory note for
construction loans totaling approximately $1.8 million to LNZCO.  In
June 2009, we issued a promissory note to LNZCO for approximately $330,000 for
the purchase of approximately 32 acres of commercial land in Georgetown
Village.  The promissory note bears interest at a rate of 10%, had a
two point origination fee, matures one year from the date of issuance and can be
extended for an additional 12 months for an additional two point extension
fee.  We had borrowings outstanding of approximately $80,000 for a
land loan from LNZCO at September 30, 2009. We can not provide any
assurances that we will receive financing for the construction of new single
family residences from LNZCO.  See footnote 2.  We can give no
assurance that in such an event, we would have adequate capital to construct
homes.






Off-Balance
Sheet Arrangements




As of
September 30, 2009, we had no off-balance sheet arrangements.






Critical
Accounting Policies and Estimates




The SEC
defines “critical accounting policies” as those that require application of
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.  Our accounting
policies are more fully described in the notes to our consolidated financial
statements.




As
discussed in the notes to the consolidated financial statements, the preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions about future events that affect the amounts reported in our
consolidated financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
could differ from those estimates, and such differences may be material to our
consolidated financial statements. Listed below are those policies and estimates
that we believe are critical and require the use of significant judgment in
their application.






Inventory




Inventory
is stated at cost unless it is determined to be impaired, in which case the
impaired inventory would be written down to the fair value.  Inventory
costs include land, land development costs, deposits on land purchase contracts,
model home construction costs, homebuilding costs, interest and real estate
taxes incurred during development and construction phases.






Revenue
Recognition




Revenues
for land and homebuilding sales are recognized when the properties are sold,
when the risks and rewards of ownership are transferred to the buyer and when
the consideration has been received, or the title company has processed
payment.  Revenues from remodeling contracts will be recognized under
the completed contract method or percentage of completion
method.  Homebuilding revenues will be categorized as homebuilding
revenues, revenues from property sales or options will be categorized as land
sales, and revenues from remodeling contracts will be categorized as remodeling
revenues.




24
 Table of Contents




Use
of Estimates




We have
estimated and accrued liabilities for real estate property taxes on our
purchased land in anticipation of development, and other liabilities including
the beneficial conversion liability and the fair value of warrants and
options.  To the extent that the estimates are different than the
actual amounts, it could have a material effect on the financial
statements.






Municipal
Utility and Water District Receivables




We
currently have planned the community of Villages of New Sweden within the
boundaries of New Sweden Municipal Utility District No. 1 and the community of
Rutherford West in Greenhawe Water Control and Improvement District No. 2 (each
a “District” and together the “Districts”).  We incur development
costs for the initial creation and operating costs of these Districts and
continuing costs for the water, sewer and drainage infrastructure for these
Districts.  The Districts will issue bonds to repay us, once the
property has sufficient assessed value for the District taxes to repay the
bonds. As the project is completed and homes are sold within the Districts, the
assessed value increases.  It can take several years before the
assessed value is able to provide sufficient tax revenue for us to recapture its
costs. We estimate that we will recover approximately 50 to 100% of eligible
initial creation and operating costs spent through September 30, 2009 for costs
spent for Rutherford West Phase 1.  We have completed Phase 1 for the
Rutherford West project and have approximately $1.1 million of water district
reimbursements included in inventory that we anticipate will be collected from
bond issuances made by such District.  When the reimbursements are
received we will record them as reductions of the related asset’s balance.
Usually, a District issues its first bond issue only after completion of
construction of approximately 200 houses.  The Districts will pay for
property set aside for the preservation of endangered species, greenbelts and
similar uses.  To the extent that the estimates are dramatically
different from the actual facts, it could have a material effect on our
financial statements.   In July 2009, the WCID for the Rutherford
West project had its first bond issuance; we received reimbursements of
approximately $470,000.  We expect to recover costs from Rutherford
West Phase 1.  We do not expect to recover costs for the New Sweden
project.  We have taken an impairment charge for costs incurred for
the New Sweden project.






Concentrations




Our
current activities are currently in the geographical area of central Texas,
which we define as encompassing the Austin Metropolitan Statistical Area. This
geographic concentration makes our operations more vulnerable to local economic
downturns than those of larger, more diversified companies.






Recent
Accounting Pronouncements




The
Company has incorporated authoritative guidance issued by the Financial
Accounting Standard Board (“FASB”) for fair value measurement, except as it
applies to the nonfinancial assets and nonfinancial liabilities as discussed
further in the authoritative guidance.  The guidance provides a framework
for measuring fair value under GAAP. The guidance defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. The guidance requires that valuation techniques maximize the
use of observable inputs and minimize the use of unobservable inputs. The
guidance also establishes a fair value hierarchy which prioritizes the valuation
inputs into three broad levels. Based on the underlying inputs, each fair value
measurement in its entirety is reported in one of the three levels. These levels
are:




•
            
            Level
      1 – Valuation is based upon quoted prices for identical instruments traded
      in active markets. Level 1 assets and liabilities include debt and equity
      securities traded in an active exchange market, as well as U.S. Treasury
      securities.





•
            
            Level
      2 – Valuation is based upon quoted prices for similar instruments in
      active markets, quoted prices for identical or similar instruments in
      markets that are not active, and model based valuation techniques for
      which all significant assumptions are observable in the market or can be
      corroborated by observable market data for substantially the full term of
      the assets or liabilities.





•
            
            Level
      3 – Valuation is determined using model-based techniques with significant
      assumptions not observable in the market. These unobservable assumptions
      reflect the Company’s own estimates of assumptions that market
      participants would use in pricing the asset or liability. Valuation
      techniques include the use of third party pricing services, option pricing
      models, discounted cash flow models and similar
  techniques.





25
 Table of Contents




In
October 2008, FASB issued authoritative guidance for the fair value of a
financial asset when the market for that asset is not active.  This
guidance clarifies the application of fair value in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. Even in times of market dislocation, it is not appropriate to conclude
that all market activity represents forced liquidations or distressed sales.
However, it is also not appropriate to automatically conclude that any
transaction price is determinative of fair value. Determining fair value in a
dislocated market depends on the facts and circumstances and may require the use
of significant judgment about whether individual transactions are forced
liquidations or distressed sales. In determining fair value for a financial
asset, the use of a reporting entity's own assumptions about future cash flows
and appropriately risk-adjusted discount rates is acceptable when relevant
observable inputs are not available. Regardless of the valuation technique used,
an entity must include appropriate risk adjustments that market participants
would make for nonperformance and liquidity risks.




The initial adoption of the provisions the authoritative guidance did not have a
material effect on the Company’s financial statements.




The fair
values do not necessarily represent the amounts that may be ultimately realized
due to the occurrence of future circumstances that cannot be reasonably
determined.  Because of the inherent uncertainty of valuation, those
estimated values may be materially higher or lower than the values that would
have been used had a ready market for the securities existed.  Accordingly,
the degree of judgment exercised by the Company in determining fair value is
greatest for securities categorized in Level 3.  In certain cases, the
inputs used to measure fair value may fall into different levels of the
fair value hierarchy.  In such cases, for disclosure purposes, the
level in the fair value hierarchy within which the fair value measurement in its
entirety falls is determined based on the lowest level input that is significant
to the fair value measurement.




Fair
value is a market-based measure considered from the perspective of a market
participant rather than an entity-specific measure.  Therefore, even when
market assumptions are not readily available, the Company’s own assumptions are
set to reflect those that market participants would use in pricing the asset or
liability at the measurement date.  The Company uses prices and inputs that
are current as of the measurement date, including periods of market
dislocation.  In periods of market dislocation, the observability of prices
and inputs may be reduced for many securities.  This condition could cause
a security to be reclassified to a lower level within the fair value
hierarchy.




Inventory
is initially recorded at cost and is subsequently recorded at lower of cost or
fair value.  Fair value is determined by the Company based on a number of
factors, including: sales to unrelated new investors, comparable sales, and
discounted cash flow models. Because of the inherent uncertainty of these
valuations, the estimated values may differ from the actual fair values that may
or may not be ultimately realized.




In February 2007, the FASB issued authoritative guidance for the fair
value option of financial assets and financial liabilities.  This
guidance permits entities to measure many financial assets and financial
liabilities at fair value.  Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings.  This
guidance is effective for fiscal years beginning with its fiscal year
2009.  The standard is not expected to have a material impact on the
Company’s financial position and results of operations.




In
May 2009, the FASB issued authoritative guidance for subsequent
events.  This guidance establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this standard sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  This guidance is effective for
financial statements issued for fiscal years and interim periods beginning after
June 15, 2009.




In June
2009, the FASB issued guidance to revise the approach to determine when a
variable interest entity (VIE) should be consolidated. The new consolidation
model for VIEs considers whether the Company has the power to direct the
activities that most significantly impact the VIE’s economic performance and
shares in the significant risks and rewards of the entity. The guidance on VIE’s
requires companies to continually reassess VIEs to determine if consolidation is
appropriate and provide additional disclosures. The guidance is effective for
the Company’s 2011 fiscal year. The Company is currently evaluating the impact
of adoption of this authoritative guidance on its consolidated financial
statements.




26
 Table of Contents




In
June 2009, the FASB issued authoritative guidance establishing the FASB
Accounting Standards Codification as the source of authoritative nongovernmental
GAAP, except for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. All other nongrandfathered,
non-SEC accounting literature not included in the Codification will become
nonauthoritative. This standard is effective for financial statements issued for
fiscal years and interim periods ending after September 15,
2009.  As the Codification was not intended to change or alter
existing GAAP, it did not have an impact on the Company’s consolidated financial
statements.






Item 8.         Financial
Statements and Supplementary Data




The
Financial Statements required by this item are included in Part III, Item 15 and
are presented beginning on Page F-1.






Item 9.         Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure




None.






Item 9A.      Controls and
Procedures






Evaluation
of Effectiveness of Disclosure Controls and Procedures




Our
management, including our principal executive officer and our principal
financial officer, have evaluated our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the period
ended September 30, 2009, the period covered by this Annual Report on Form
10-K.  Based upon that evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures were not effective as of September 30, 2009 due to the significant
deficiency described below.






Management’s
Annual Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Exchange Act.  Internal control over financial reporting is
a process to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles.




Our
management conducted an assessment of the effectiveness of our internal control
over financial reporting as of September 30, 2009 based on the framework set
forth in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent
limitations.  Internal control over financial reporting is a process
that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures.  Because of
such limitations, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting.  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.




A
material weakness in internal control over financial reporting is defined by the
Public Company Accounting Oversight Board’s Audit Standard No. 5 as a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.  A significant deficiency is
a deficiency, or a combination of deficiencies, in internal control over
financial reporting that is less severe than a material weakness, yet important
enough to merit attention by those responsible for oversight of our financial
reporting.




Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting.  Based on our evaluation, management
concluded that our internal control over financial reporting was not effective
as of September 30, 2009.  Management’s assessment identified the
following significant deficiency in internal control over financial
reporting:




Our
management determined that our company does not have sufficient dedicated
accounting and finance staff to keep abreast of developing U.S. GAAP and SEC
reporting matters in order to proactively assess the impact of business
developments on financial reporting.




27
 Table of Contents




This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal controls over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Commission that permit the Company to provide only management’s report in this
Annual Report.






Remediation
Plans





In order
to address and correct the deficiency identified above, our management has taken
and will continue to take corrective actions including, where appropriate: (i)
strengthening the expertise in critical accounting and financial reporting
positions and (ii) implementing new controls and procedures to assure the
effectiveness of our internal control over financial
reporting.






Changes
in Internal Control Over Financial Reporting




There
have been no changes in our internal controls over financial reporting during
the quarter ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.






Item 9B. Other
Information.




None.








28
 Table of Contents





PART
III




If the
Company’s common stock continues to be registered under the Exchange Act 120
days after the fiscal year covered by this Annual Report, Items 10 through 14
will be included in our proxy statement for our 2010 Annual Meeting of
Shareholders, and are incorporated herein by reference.






Item 10.  Directors, Executive Officers and Corporate
Governance




The
information required by this Item will be included under the section captioned
“Election of Directors “ in our Proxy Statement for the 2010 Annual Meeting of
Shareholders, which information is incorporated into this Annual Report by
reference.






Item 11.  Executive Compensation




The
information required by this Item will be included under the sections captioned
“Executive Compensation” and “Certain Relationships and Related Transactions” in
our Proxy Statement for the 2010 Annual Meeting of Shareholders, which
information is incorporated into this Annual Report by reference.






Item 12.  Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters




The
information required by this Item will be included under the section captioned
“Security Ownership of Certain Beneficial Owners and Management” in our Proxy
Statement for the 2010 Annual Meeting of Shareholders, which information is
incorporated into this Annual Report by reference.






Item 13.  Certain Relationships and Related Transactions,
and Director Independence




The
information required by this Item will be included under the section captioned
“Certain Relationships and Related Transactions” in our Proxy Statement for the
2010 Annual Meeting of Shareholders, which information is incorporated into this
Annual Report by reference.






Item14.  Principal Accountant Fees and
Services




Information
required by this Item will be included under the section captioned “Ratification
of the Appointment of the Independent Auditors” in our Proxy Statement for the
2010 Annual Meeting of Shareholders, which information is incorporated into this
Annual Report by reference.






29
 Table of Contents








PART
IV




Item 15.       Exhibits and
Financial Statement Schedules







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




1.
              The following
      consolidated financial statements of Green Builders, Inc. are included as
      follows:





Report
      of Independent Registered Public Accounting Firm
            
            F-1Balance
      Sheets
            
            F-2Statements
      of Operations
            
            F-3Statements
      of Stockholders’ Equity
            
            F-4Statements
      of Cash Flows
            
            F-5Notes
      to Financial Statements
            
            F-6






2.
            Financial Statement
      SchedulesFinancial Statement
      Schedules not included below have been omitted because they are not
      required or not applicable, or because the required information is shown
      in the financial statements or notes thereto.3.
            Exhibits








Exhibit
      No.
              
              Description3.1
              
              Bylaws
      of Registrant (filed as Exhibit 3.1 to Registrant’s Quarterly Report on
      Form 10-QSB for the quarter ended March 31, 2008 and incorporated herein
      by reference)3.2
              
              Registrant’s
      Certificate of Formation dated April 3, 2008 (filed as Exhibit 3.1 to the
      Registrant’s Current Report on Form 8-K dated April 9, 2009 and
      incorporated herein by reference)3.3
              
              Certificate
      of Amendment to Registrant’s Certificate of Formation dated April 3, 2008
      (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated
      April 9, 2009 and incorporated herein by reference)4.2
              
              Underwriter
      Warrant issued by Registrant to Capital Growth Financial, LLC (filed as
      Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File
      No. 333-140747) (the “2007 S-1”) and incorporated herein by
      reference)10.1+
              
              Registrant’s
      2005 Stock Option/Stock Issuance Plan (filed as Exhibit 10.3 to
      Registrant’s Current Report on Form 8-K dated October 11, 2005 and
      incorporated herein by reference)10.2+
              
              Amendment
      No. 1 to Registrant’s 2005 Stock Option/Stock Issuance Plan (filed as
      Exhibit 10.2 to the 2007 S-1 and incorporated herein by
      reference)10.3
              
              Registration
      Rights Agreement by and among the Registrant and the purchasers of
      Registrant’s Convertible Notes issued December 19, 2005 (filed as Exhibit
      10.2 to Registrant’s Current Report on Form 8-K dated December 19, 2005
      and incorporated herein by reference)10.4
              
              Form
      of Warrant issued to Purchasers of Convertible Notes dated December 19,
      2005 (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K
      dated December 19, 2005 and incorporated herein by
    reference)10.5
              
              Registration
      Rights Agreement dated September 29, 2006 by and among the Registrant and
      the purchasers of the Registrant’s Convertible Notes issued September 29,
      2006 (filed as Exhibit 10.2 to Registrants Current Report on Form 8-K
      dated October 4, 2006 and incorporated herein by
  reference)10.6
              
              Form
      of Warrant issued to Purchasers of Convertible Notes dated September 29,
      2006 (filed as Exhibit 10.3 to Registrants Current Report on Form 8-K
      dated October 4, 2006 and incorporated herein by
  reference)
  30
 Table of Contents
  10.7+
              
              Employment
      Letter Agreement dated February 14, 2007 by and between Registrant and
      Clark Wilson (filed as Exhibit 10.10 to Registrant’s Annual Report on Form
      10-KSB for the year ended December 31, 2006 and incorporated herein by
      reference)10.8
              
              Borrowing
      Base Loan Agreement by and between Wilson Family Communities, Inc, and RBC
      Centura Bank, with Franklin Bank SSB and International Bank of Commerce as
      co-lenders dated June 30, 2007 (filed as Exhibit 10.1 to the Registrant’s
      Quarterly Report on Form 10-QSB for the quarter ended June 30, 2007 and
      incorporated herein by reference)10.9
              
              Amendment
      to Modify Loan Agreements by and between Wilson Family Communities, Inc,
      RBC Bank (USA), Franklin Bank SSB and International Bank of Commerce dated
      June 23, 2008 (filed as Exhibit 10.1 to the Registrant’s Current Report on
      Form 8-K dated June 27, 2008 and incorporated herein by
      reference)10.10
              
              Second
      Amendment to Modify Loan Agreements by and between Wilson Family
      Communities, Inc, RBC Bank (USA), Franklin Bank SSB and International Bank
      of Commerce dated July 2, 2008 (filed as Exhibit 10.1 to the Registrant’s
      Current Report on Form 8-K dated July 3, 2008 and incorporated herein by
      reference)10.11
              
              Fourth
      Amendment to Modify Loan Agreements by and between Wilson Family
      Communities, Inc, RBC Bank (USA), International Bank of Commerce and
      Federal Deposit Insurance Corporation, as receiver for Franklin Bank SSB,
      dated May 11, 2009 (filed as Exhibit 10.6 to the Registrant’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2009 and incorporated
      herein by reference)10.12
              
              Modification
      and Forbearance Agreement between the Registrant, Wilson Family
      Communities, Inc. and Graham Mortgage Corporation dated January 12, 2009
      (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
      dated January 15, 2009 and incorporated herein by
    reference)10.13
              
              Modification
      and Forbearance Agreement between the Registrant, Wilson Family
      Communities, Inc. and Graham Mortgage Corporation dated January 12, 2009
      (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
      dated January 15, 2009 and incorporated herein by
    reference)10.14
              
              Form
      of Construction Loan Agreement (filed as Exhibit 10.1 to the Registrant’s
      Current Report on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)10.15
              
              Form
      of Promissory Note (filed as Exhibit 10.2 to the Registrant’s Current
      Report on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)10.16
              
              Form
      of Deed of Trust (filed as Exhibit 10.3 to the Registrant’s Current Report
      on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)21*
              
              Subsidiaries
      of Registrant24*
              
              Power
      of Attorney (included in signature page).31.1*
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive
      Officer31.2*
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer32.1*
              
              Section
      1350 Certification of Principal Executive Officer and Principal Financial
      Officer


* Filed herewith


+ Indicates a management contract or compensatory plan or
arrangement.






31
 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.






GREEN
      BUILDERS, INC.Date:
      December 17, 2009
              By:
              /s/ ClarkN.
      WilsonClarkN.
WilsonPresident
      and Chief Executive Officer







Date:
      December 17, 2009
              By:
              /s/ Cindy
      HammesCindy
      HammesPrincipal
      Financial Officer and Principal Accounting Officer





Power
of Attorney




KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
severally constitutes and appoints, Clark Wilson and Cindy Hammes, and each or
any of them, his true and lawful attorney-in-fact and agent, each with the power
of substitution and resubstitution, for him in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.  Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
indicated on December 17, 2009.







Name
            
            Title/s/
      Clark N.WilsonClark
      N.Wilson
            
            President,
      Chief Executive Officer and Director(Principal
      Executive Officer)/s/
      Cindy Hammes
            
            Principal
      Financial OfficerCindy
      Hammes/s/
      Jay Gouline
            
            DirectorJay
      Gouline/s/
      William E Weber
            
            DirectorWilliam
      E Weber





32
 Table of Contents





EXHIBIT
INDEX




LIST
OF EXHIBITS







Exhibit
      No.
              
              Description3.1
              
              Bylaws
      of Registrant (filed as Exhibit 3.1 to Registrant’s Quarterly Report on
      Form 10-QSB for the quarter ended March 31, 2008 and incorporated herein
      by reference)3.2
              
              Registrant’s
      Certificate of Formation dated April 3, 2008 (filed as Exhibit 3.1 to the
      Registrant’s Current Report on Form 8-K dated April 9, 2009 and
      incorporated herein by reference)3.3
              
              Certificate
      of Amendment to Registrant’s Certificate of Formation dated April 3, 2008
      (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated
      April 9, 2009 and incorporated herein by reference)4.2
              
              Underwriter
      Warrant issued by Registrant to Capital Growth Financial, LLC (filed as
      Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 (File
      No. 333-140747) (the “2007 S-1”) and incorporated herein by
      reference)10.1+
              
              Registrant’s
      2005 Stock Option/Stock Issuance Plan (filed as Exhibit 10.3 to
      Registrant’s Current Report on Form 8-K dated October 11, 2005 and
      incorporated herein by reference)10.2+
              
              Amendment
      No. 1 to Registrant’s 2005 Stock Option/Stock Issuance Plan (filed as
      Exhibit 10.2 to the 2007 S-1 and incorporated herein by
      reference)10.3
              
              Registration
      Rights Agreement by and among the Registrant and the purchasers of
      Registrant’s Convertible Notes issued December 19, 2005 (filed as Exhibit
      10.2 to Registrant’s Current Report on Form 8-K dated December 19, 2005
      and incorporated herein by reference)10.4
              
              Form
      of Warrant issued to Purchasers of Convertible Notes dated December 19,
      2005 (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K
      dated December 19, 2005 and incorporated herein by
    reference)10.5
              
              Registration
      Rights Agreement dated September 29, 2006 by and among the Registrant and
      the purchasers of the Registrant’s Convertible Notes issued September 29,
      2006 (filed as Exhibit 10.2 to Registrants Current Report on Form 8-K
      dated October 4, 2006 and incorporated herein by
  reference)10.6
              
              Form
      of Warrant issued to Purchasers of Convertible Notes dated September 29,
      2006 (filed as Exhibit 10.3 to Registrants Current Report on Form 8-K
      dated October 4, 2006 and incorporated herein by
  reference)10.7+
              
              Employment
      Letter Agreement dated February 14, 2007 by and between Registrant and
      Clark Wilson (filed as Exhibit 10.10 to Registrant’s Annual Report on Form
      10-KSB for the year ended December 31, 2006 and incorporated herein by
      reference)10.8
              
              Borrowing
      Base Loan Agreement by and between Wilson Family Communities, Inc, and RBC
      Centura Bank, with Franklin Bank SSB and International Bank of Commerce as
      co-lenders dated June 30, 2007 (filed as Exhibit 10.1 to the Registrant’s
      Quarterly Report on Form 10-QSB for the quarter ended June 30, 2007 and
      incorporated herein by reference)10.9
              
              Amendment
      to Modify Loan Agreements by and between Wilson Family Communities, Inc,
      RBC Bank (USA), Franklin Bank SSB and International Bank of Commerce dated
      June 23, 2008 (filed as Exhibit 10.1 to the Registrant’s Current Report on
      Form 8-K dated June 27, 2008 and incorporated herein by
      reference)10.10
              
              Second
      Amendment to Modify Loan Agreements by and between Wilson Family
      Communities, Inc, RBC Bank (USA), Franklin Bank SSB and International Bank
      of Commerce dated July 2, 2008 (filed as Exhibit 10.1 to the Registrant’s
      Current Report on Form 8-K dated July 3, 2008 and incorporated herein by
      reference)10.11
              
              Fourth
      Amendment to Modify Loan Agreements by and between Wilson Family
      Communities, Inc, RBC Bank (USA), International Bank of Commerce and
      Federal Deposit Insurance Corporation, as receiver for Franklin Bank SSB,
      dated May 11, 2009 (filed as Exhibit 10.6 to the Registrant’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2009 and incorporated
      herein by reference)10.12
              
              Modification
      and Forbearance Agreement between the Registrant, Wilson Family
      Communities, Inc. and Graham Mortgage Corporation dated January 12, 2009
      (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
      dated January 15, 2009 and incorporated herein by
    reference)
  33
 Table of Contents
  10.13
              
              Modification
      and Forbearance Agreement between the Registrant, Wilson Family
      Communities, Inc. and Graham Mortgage Corporation dated January 12, 2009
      (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
      dated January 15, 2009 and incorporated herein by
    reference)10.14
              
              Form
      of Construction Loan Agreement (filed as Exhibit 10.1 to the Registrant’s
      Current Report on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)10.15
              
              Form
      of Promissory Note (filed as Exhibit 10.2 to the Registrant’s Current
      Report on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)10.16
              
              Form
      of Deed of Trust (filed as Exhibit 10.3 to the Registrant’s Current Report
      on Form 8-K dated March 17, 2009 and incorporated herein by
      reference)21*
              
              Subsidiaries
      of Registrant24*
              
              Power
      of Attorney (included in signature page).31.1*
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive
      Officer31.2*
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer32.1*
              
              Section
      1350 Certification of Principal Executive Officer and Principal Financial
      Officer


* Filed herewith


+ Indicates a management contract or compensatory plan or
arrangement.








34
 Table of Contents




Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and Stockholders




Green
Builders, Inc.




We have
audited the accompanying balance sheets of Green Builders, Inc. (the “Company”) as of September
30, 2009 and 2008 and the related statements of operations, and stockholders’
equity, and cash flows for the years then ended.  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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of September 30,
2009 and 2008 and the results of their operations and their cash flows for the
year’s then ended in conformity with generally accepted accounting principles in
the United States of America.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Notes 1 and 2
to the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





PMB
HELIN DONOVAN, LLP






/s/
      PMB Helin Donovan,
      LLPAustin,
      TexasDecember
      17, 2009


F-1
 Table of Contents





GREEN
      BUILDERS, INC.Balance
      SheetsAs
      of September 30, 2009 and September 30, 2008September
      30, 2009
              
              
              September
      30, 2008Cash
      and cash equivalents
              
              $
              1,152,875
              
              
              
              3,711,180InventoryLand
      and land development
              
              
              26,398,043
              
              
              
              32,738,655Homebuilding
      inventories
              
              
              2,079,143
              
              
              
              8,204,129Total
      inventory
              
              
              28,477,186
              
              
              
              40,942,784Other
      assets
              
              
              129,751
              
              
              
              478,420Debt
      Issuance costs, net of amortization
              
              
              791,194
              
              
              
              1,028,206Property,
      and equipment, net of accumulated depreciation and amortization of
                $407,925
      and $32,294, respectively
              
              
              600,786
              
              
              
              1,418,588Total
      assets
              
              $
              31,151,792
              
              
              
              47,579,178LIABILITIES
      AND STOCKHOLDERS' DEFICITAccounts
      payable
              
              $
              685,397
              
              
              
              1,690,763Accrued
      real estate taxes payable
              
              
              238,580
              
              
              
              697,699Accrued
      liabilities and expenses
              
              
              404,043
              
              
              
              421,385Accrued
      interest
              
              
              2,100,996
              
              
              
              528,683Deferred
      revenue
              
              
              14,891
              
              
              
              31,135Lines
      of credit
              
              
              9,397,258
              
              
              
              15,779,310Notes
      payable
              
              
              13,872,995
              
              
              
              14,474,620Subordinated
      convertible debt, net of $2,128,524 and $2,686,872 discount,
                respectively
              
              
              14,371,476
              
              
              
              13,813,128Total
      liabilities
              
              
              41,085,636
              
              
              
              47,436,723STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value, 100,000,000 shares authorized and
                23,135,539
      shares issued and outstanding, respectively
              
              
              23,136
              
              
              
              23,136Additional
      paid in capital
              
              
              28,110,945
              
              
              
              27,949,903Retained
      deficit
              
              
              (38,067,925
              )
              
              
              (27,830,584
              )Total
      stockholders' deficit
              
              
              (9,933,844
              )
              
              
              142,455Commitments
      and contingencies
              
              
              -
              
              
              
              -Total
      liabilities and stockholders' deficit
              
              $
              31,151,792
              
              
              
              47,579,178
 
 See
accompanying notes to the financial statements.





F-2
 Table of Contents





GREEN
      BUILDERS, INC.Statements
      of OperationsYear
      Ended September 30, 2009 and 2008Year
      Ended
                September
      30,
                2009
              
              
              Year
      Ended
                September
      30,
                2008Revenues:Homebuilding
      and related services
              
              $
              12,601,829
              
              
              
              6,042,311Land
      sales
              
              
              1,565,122
              
              
              
              2,950,894Remodeling
      revenues
              
              
              349,485
              
              
              
              -Total
      revenues
              
              
              14,516,436
              
              
              
              8,993,205Cost
      of revenues:Homebuilding
      and related services
              
              
              10,790,263
              
              
              
              5,379,707Land
      sales
              
              
              1,231,711
              
              
              
              2,120,270Remodeling
              
              
              287,679
              
              
              
              -Inventory
      impairments and land option cost write-offs
              
              
              4,283,501
              
              
              
              5,887,924Total
      cost of revenues
              
              
              16,593,154
              
              
              
              13,387,901Total
      gross profit
              
              
              (2,076,718
              )
              
              
              (4,394,696
              )Costs
      and expenses:Corporate
      general and administration
              
              
              2,396,836
              
              
              
              4,502,223Sales
      and marketing
              
              
              2,164,070
              
              
              
              2,192,046Impairment
      of intangible assets
              
              
              -
              
              
              
              292,692Total
      costs and expenses
              
              
              4,560,906
              
              
              
              6,986,961Operating
      loss
              
              
              (6,637,624
              )
              
              
              (11,381,657
              )Other
      income (expense):Gain
      on restrucured debt
              
              
              128,325
              
              
              
              -Interest
      and other income
              
              
              190,397
              
              
              
              298,406Interest
      expense
              
              
              (3,918,439
              )
              
              
              (3,749,357
              )Total
      other expense
              
              
              (3,599,717
              )
              
              
              (3,450,951
              )Income
      before income taxes
              
              
              (10,237,341
              )
              
              
              (14,832,608
              )Provision
      for income taxes
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (10,237,341
              )
              
              
              (14,832,608
              )Basic
      and diluted loss per share
              
              $
              (0.44
              )
              
              
              (0.64
              )Basic
      and diluted weighted average common shares outstanding
              
              
              23,135,539
              
              
              
              23,135,539
 
 See
accompanying notes to the financial statements.





F-3
 Table of Contents




GREEN
      BUILDERS, INC.Statements
      of Stockholders' EquityFor
      the Year Ended September 30, 2009 and 2008Common
      StockShares
              
              
              Amount
              
              
              Additional
      Paid In
                Capital
              
              
              Accumulated
                Deficit
              
              
              TotalBalances
      at September 30, 2007
              
              
              23,135,539
              
              
              $
              23,136
              
              
              $
              27,040,304
              
              
              $
              (12,997,976
              )
              
              $
              14,065,464Stock-based
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              834,599
              
              
              
              -
              
              
              
              834,599Services
      provided without compensation by principal shareholder
              
              
              -
              
              
              
              -
              
              
              
              75,000
              
              
              
              -
              
              
              
              75,000Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (14,832,608
              )
              
              
              (14,832,608
              )Balances
      at September 30, 2008
              
              
              23,135,539
              
              
              $
              23,136
              
              
              
              27,949,903
              
              
              
              (27,830,584
              )
              
              
              142,455Stock-based
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              153,542
              
              
              
              -
              
              
              
              153,542Services
      provided without compensation by principal shareholders
              
              
              -
              
              
              
              -
              
              
              
              7,500
              
              
              
              -
              
              
              
              7,500Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,237,341
              )
              
              
              (10,237,341
              )Balances
      at September 30, 2009
              
              
              23,135,539
              
              
              $
              23,136
              
              
              $
              28,110,945
              
              
              $
              (38,067,925
              )
              
              $
              (9,933,844
              )





See
accompanying notes to the financial statements.





F-4
 Table of Contents





GREEN
      BUILDERS, INC.Statements
      of Cash FlowsYear
      Ended September 30, 2009 and 2008Year
      Ended September
                30,
      2009
              
              
              Year
      Ended September
                30,
      2008Cash
      flows from operating activities:Net
      loss
              
              $
              (10,237,341
              )
              
              
              (14,832,608
              )Non
      cash adjustments:Amortization
      of convertible debt discount
              
              
              558,348
              
              
              
              558,348Amortization
      of debt issuance costs
              
              
              237,012
              
              
              
              237,012Stock-based
      compensation expense
              
              
              153,542
              
              
              
              834,599Services
      provided without compensation by principal shareholders
              
              
              7,500
              
              
              
              75,000Depreciation
      and amortization
              
              
              561,790
              
              
              
              407,072Inventory
      impairments and land option cost write-offs
              
              
              4,283,501
              
              
              
              5,887,924Impairment
      of intangible assets
              
              
              -
              
              
              
              292,692Impairment
      of sales office trailer
              
              
              227,044
              
              
              
              -Adjustments
      to reconcile net loss to net cash used in operating
      activities:Decrease
      (increase) in total inventory
              
              
              8,182,097
              
              
              
              (11,523,593
              )Decrease
      (increase) in other assets
              
              
              300,332
              
              
              
              (372,416
              )Increase
      (decrease) in accounts payable
              
              
              (1,005,366
              )
              
              
              286,612Increase
      (decrease) in real estate taxes payable
              
              
              (459,119
              )
              
              
              292,639Increase
      (decrease) in accrued expenses
              
              
              (17,342
              )
              
              
              206,013Decrease
      in deferred revenue
              
              
              (16,244
              )
              
              
              (128,246
              )Increase
      in accrued interest
              
              
              1,572,313
              
              
              
              63,874Net
      cash provided by (used in) operating activities
              
              
              4,348,067
              
              
              
              (17,715,078
              )Cash
      flows from investing activities:Disposal
      (purchase) of fixed assets, net
              
              
              77,305
              
              
              
              (1,262,528
              )Net
      cash provided by (used in) investing activities
              
              
              77,305
              
              
              
              (1,262,528
              )Cash
      flows from financing activities:Issuances
      of notes payable
              
              
              -
              
              
              
              4,923,728Issuances
      and repayments of lines of credit, net
              
              
              (6,382,052
              )
              
              
              12,558,252Repayments
      of notes payable
              
              
              (601,625
              )
              
              
              (7,866,408
              )Net
      cash provided by (used in) financing activities
              
              
              (6,983,677
              )
              
              
              9,615,572Net
      decrease in cash and cash equivalents
              
              
              (2,558,305
              )
              
              
              (9,362,034
              )Cash
      and cash equivalents at beginning of period
              
              
              3,711,180
              
              
              
              13,073,214Cash
      and cash equivalents at end of period
              
              $
              1,152,875
              
              
              
              3,711,180Cash
      paid for interest
              
              $
              1,689,178
              
              
              
              3,251,047
 
 See
accompanying notes to the financial statements.





F-5
 Table of Contents





1.       
Organization and Business
Activity




Green
Builders, Inc., (“we”, “us” or the “Company”), is a Texas corporation formerly
known as Wilson Holdings, Inc.  Effective April 4, 2008, Wilson
Holdings, Inc, a Nevada corporation, completed its reincorporation to the State
of Texas pursuant to the Plan of Conversion as ratified by the shareholders at
the 2008 annual meeting of shareholders held on April 3, 2008.  As
part of the reincorporation, a new Certificate of Formation was adopted and
Wilson Holdings, Inc.’s corporate name was changed to Green Builders, Inc., and
the Certificate of Formation now governs the rights of holders of the Company’s
common stock.  The Company has been using the name “Green Builders” in
its regular business operations since June 2007 and plans to continue to do
so.




Effective
October 11, 2005 pursuant to an Agreement and Plan of Reorganization dated as of
September 2, 2005 by and among Wilson Holdings, Inc., a Delaware corporation, a
majority of its stockholders, Wilson Family Communities, Inc., a Delaware
corporation (“WFC”) and Wilson Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, WFC and Wilson Acquisition Corp. merged
and WFC became a wholly-owned subsidiary of the Company.




The
financial statements are presented on a going concern basis.  The
Company has experienced significant losses and expects to continue to generate
negative cash flows.  This raises substantial doubt about its ability
to continue as a going concern.  The Company’s ability to continue as
a going concern will depend upon its ability to restructure its existing debt
and obtain additional capital.  Failure to restructure and obtain
additional capital would result in a depletion of its available
funds.




Until
October 12, 2009 the Company’s common stock traded on the NYSE Amex (the
“Exchange”).  On January 23, 2009, the Company received notice that it
was not in compliance with the Exchange’s continued listing standards under
Sections 1003(a)(i), 1003(a)(ii), 1003(a)(iii), and 1003(a)(iv) of the NYSE Amex
Company Guide (the “Company Guide”).  On February 23, 2009 the Company
submitted a plan of compliance to the Exchange.  On April 24, 2009 the
Exchange notified the Company that it had accepted its plan for regaining
compliance with the Exchange’s continued listing standards and granted the
Company an extension until July 23, 2009 to regain compliance with Section
1003(a)(iv) and until July 23, 2010 to regain compliance with Section
1003(a)(i), Section 1003(a)(ii), and Section 1003(a)(iii) of the Company
Guide.  The Company did not make satisfactory progress consistent with
the plan presented to the Exchange and as such the Company’s Board of Directors
(the “Board”) authorized the voluntary delisting of the Company’s common stock
from the Exchange.  The Company filed a Form 25 with the SEC relating
to the delisting of its common stock on October 2, 2009. The delisting became
effective on October 12, 2009 and the Company’s common stock began trading on
the Pink Sheets on October 12, 2009.




On
November 18, 2009 the Company filed an Information Statement to inform our
shareholders of the approval by the Board at a meeting held on
November13, 2009
of amendments to our Certificate of Formation. to effect a reverse stock split
of our common stock followed immediately by a forward stock split of our common
stock (the “Reverse/Forward Stock Split”).  If the Reverse/Forward
Stock Split is consummated, shareholders owning fewer than 500 shares of our
common stock will be cashed out at a price of $0.26 per share, and the holdings
of all other shareholders will remain unchanged.  The Company
estimates that it will cost approximately $10,300 to cash out the fractional
shares and that it will incur approximately $32,500 in advisory, legal,
financial and other costs in connection with the Reverse/Forward
Split.




The
intended effect of the Reverse/Forward Stock Split is to reduce the number of
record holders of our common stock to fewer than 300 so that we will be eligible
to terminate the public registration of our common stock under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).  Provided that
the Reverse/Forward Stock Split has the intended effect, the Company will file
to deregister our Common Stock with the Securities and Exchange Commission (the
“Commission”).  The Company will in such case no longer be required to
file periodic reports with the Commission, although it intends to continue to
provide sufficient information through the Pink Sheets News Service to allow its
Common Stock to continue trading on the Pink Sheets.







2.       
Going
ConcernLiquidity and Capital Resources




On
September 30, 2009, the Company had approximately $1.2 million in cash and cash
equivalents.  The Company’s current operations and future growth will
require substantial amounts of cash for earnest money deposits, development
costs, interest payments and homebuilding costs.  Until the Company
begins to sell an adequate number of lots and homes to cover its monthly
operating expenses, sales and marketing expenses, general and administrative
costs, and interest payments, cash will continue to be depleted.  Due
to current market conditions and slow home and land sales, it is anticipated
that the Company will need additional capital to support operations for the next
twelve months.  The Company can not provide any assurance that it will
be successful in obtaining additional capital.




F-6
 Table of Contents





Land and
homes under construction comprise the majority of the Company’s
assets.  These assets have suffered devaluation due to the downturn in
the housing and real estate market for central Texas.  The Company is
currently in negotiations to dispose of some of its current land positions, but
there is no assurance that we will be successful in selling these land positions
at an acceptable price or at all.  If the Company is not able to sell
the New Sweden and Rutherford West tracts of land by December 31, 2009 it will
deed in lieu of foreclosure the land back to our lender.  The Company
is considering selling tracts of commercial and residential land in order to
increase sales revenues and increase cash.




On June
29, 2007, the Company entered into a $55 million revolving credit facility (the
“Credit Facility”) with a syndicate of banks led by RBC Bank (formerly RBC
Centura Bank), as administrative agent pursuant to a Borrowing Base Loan
Agreement (the “Loan Agreement”).  International Bank of Commerce,
Laredo, Texas (“IBC Bank”) and Franklin Bank, S.S.B. (“Franklin Bank”) are the
other two banks that make up the syndicate of banks.  The Company’s
obligations under the Credit Facility are secured by the assets of each
subdivision to be developed.  Green Builders has guaranteed the
obligations of WFC under the Credit Facility.




In June
2008 the Credit Facility was reduced to $30 million.  The Company
received notification on November 7, 2008 that Franklin Bank was closed by the
Texas Department of Savings and Mortgage Lending and the Federal Deposit
Insurance Corporation (the “FDIC”) was named Receiver.  On November 5,
2009, the Company received notice that the FDIC debt was bought by LNV
Corporation.




On May
14, 2009, the Company entered into a Fourth Agreement to Modify Loan Documents
(the “Modification”) of the Credit Facility.  The Modification
modified the terms of the Loan Agreement by reducing the loan commitment amount
pursuant to the Loan Agreement from $30 million to $10.8 million.  The
Modification extended the maturity of the master line of credit issued pursuant
to the Loan Agreement (the “Master Line”) until March 31, 2011.  The
modification agreement revised the interest rate of the facility from prime plus
..25%, with a floor of 5.5% to libor plus 3.5%, with a floor of 6%.  At
September 30, 2009 the Company had $9.3 million outstanding under the Master
Line and has drawn all the remaining loan commitments from the Credit
Facility.






The
Modification also revised certain covenants contained in the Loan
Agreement.  The terms of the Modification are:




·
            require
      WFC to maintain a minimum net worth of $7,000,000, including subordinated
      debt,  although the minimum net worth may be reduced to an
      amount not less than $5,000,000 upon the sale and close of escrow any land
      owned by WFC which causes WFC to be in violation of the $7,000,000 minimum
      net worth covenant;




·
            prohibit
      WFC’s ratio of debt to equity from exceeding 3.00 to
  1.00;




·
            require
      WFC to maintain working capital of at least
  $5,000,000;




·
            require
      WFC to make certain quarterly principal reduction payments;
      and




·
            require
      WFC to maintain cash of not less than
$500,000.




The
Modification also contains a waiver for certain inventory covenants contained in
the original Loan Agreement with which WFC was not in compliance prior to the
date of the Modification.  This includes a waiver of the following
covenants until the dates noted below:




·
            the
      spec home limitation covenant until March 31,
  2011;




·
            the
      developed lot limitation covenant until March 31,
  2011;




·
            the
      land, lots under development and developed lot limitation covenant until
      March 31, 2011;




·
            the
      entitled land and pods limitation covenant until March 31,
      2011;




·
            the
      entitled land, pods, lots under development, and developed lots limitation
      covenant until March 31, 2011; and




F-7
 Table of Contents




·
            the
      land, pods lots under development, developed lots and spec home limitation
      covenant until March 31, 2011.




Pursuant
to the Modification, WFC will be required to reduce the outstanding principal
amount under the Master Line to approximately $9 million by September 30, 2009,
$6 million by December 31, 2010 and to repay the Master Line in full by March
31, 2011.




WFC is
not currently in compliance with the revised covenants of the
Modification.  Per the Modification, WFC was required to have an
outstanding principal balance of $9 million at September 30,
2009.  WFC’s principal balance at September 30, 2009 was approximately
$9.3 million.  The Company received forbearance, giving the Company
until October 31, 2009 to be in compliance with the required principal
reduction.  At October 31, 2009 WFC’s principal balance was
approximately $8.7 million.




At
September 30, 2009 WFC was not in compliance with the net worth covenant, the
debt to equity covenant, and working capital covenant.  The Company
received forbearance, giving WFC until December 31, 2009 to be in
compliance with these covenants.  If WFC is unable to be in
compliance with these covenants, the Company's obligation to repay
indebtedness outstanding under the Credit Facility, its term loans, and its
outstanding note indentures could be accelerated in full. The Company can give
no assurance that in such an event, it would have, or be able to obtain,
sufficient funds to pay all debt required to repay.  It is anticipated
by the Company’s management that the Company will no longer have access to this
line of credit to construct homes for sale.




In
December 2005 and September 2006, the Company entered into Securities Purchase
Agreements with certain investors for the sale of Convertible Promissory
Notes.  Pursuant to the cross-default provisions of the Securities
Purchase Agreements, a default under its Credit Facility triggers defaults under
the Securities Purchase Agreements.  In the event that the Company’s
non-compliance with the Credit Facility continues, the holders of a majority of
the Notes issued under the Securities Purchase Agreement could elect to demand
the acceleration of all amounts owed under these Notes.  The Company
does not have the cash available to repay these amounts or the amounts owed
under the Credit Facility.  The Company intends to negotiate with all
investors under the Securities Purchase Agreements to reach a mutually
satisfactory resolution and the Company intends to cooperate with the Credit
Facility lenders to regain compliance with the terms of the Credit
Facility.




On
December 1, 2009 the Company was required to make its semi-annual interest
payments due to the holders of its 2005 Convertible Promissory
Notes.  The Company did not make the required $250,000 interest
payments on December 1, 2009.  The Company is currently in
negotiations with the noteholders to forbear from exercising the remedies under
the agreement due the Company’s failure to make the interest payments when due
on December 1, 2009.  The Company can not make any assurances that it
will reach an agreement with these noteholders.




On March
12, 2009 the Company entered into an agreement with LNZCO, LLC (“LNZCO”)
pursuant to which LNZCO will provide between $1 and $2 million in financing for
the construction of single family residences.  Each promissory note
issued thereunder bears interest at a rate of prime plus 5.0%, has a one point
origination fee, and matures one year from the date of issuance.  The
Company has issued promissory notes for construction loans totaling
approximately $1.8 million to LNZCO.  In June 2009, the Company issued
a promissory note to LNZCO for approximately $330,000 for the purchase of
approximately 32 acres of commercial land in Georgetown Village.  This
promissory note bears interest at a rate of 10%, had a two point origination
fee, matures one year from the date of issuance and can be extended for an
additional 12 months for an additional two point extension fee.  The
Company had borrowings outstanding of approximately $80,000 from LNZCO at
September 30, 2009.  The Company can not
provide any assurances that it will receive additional promissory notes for
financing construction of new single family residences from
LNZCO.  The Company can give no assurance that in such an event, the
Company would have adequate capital to construct homes.






3.      
Summary of
Significant Accounting Policies




a.     Basis
of Accounting


These
financial statements are presented on the accrual basis of accounting in
accordance with U.S. generally accepted accounting principles whereby revenues
are recognized in the period earned and expenses when incurred.  The
Company has evaluated subsequent events through the time of filing these
financial statements with the Commission on December 17, 2009.




F-8
 Table of Contents




b.     Cash
and Cash Equivalents


For
purposes of the statements of cash flows, the Company considers all short term,
highly liquid investments with an original maturity of three months or less to
be cash and cash equivalents.






c.     Inventory


Inventory
is stated at cost unless it is determined to be impaired, in which case the
impaired inventory would be written down to the fair value.  Inventory
costs include land, land development costs, deposits on land purchase contracts,
model home construction costs, homebuilding costs, interest and real estate
taxes incurred during development and construction phases.






d.     Land
Held Under Option Agreements, Not Owned


In order
to ensure the future availability of land for development, the Company entered
into lot option purchase agreements with unaffiliated third parties. Under the
agreements, the Company pays a stated deposit in consideration for the right to
purchase land at a future time, usually at predetermined prices or percentage of
proceeds as homes are sold. These options generally do not contain performance
requirements from the Company nor obligate the Company to purchase the land. Lot
option payments are initially capitalized as inventory costs.  If the
lot option is exercised the option cost is included in the cost of the land
acquired.  At the earlier of the time that it is determined that the
lot option will not be exercised or, at the date the lot option expires, the
cost of the lot option will be expensed.  Earnest money deposits for
land costs and development costs on land under option, not owned, totaled
approximately $175,000 and $575,000 at September 30, 2009 and 2008,
respectively, all of which is non-refundable if the Company does not exercise
the option and purchase the land.  The $175,000 of earnest money
outstanding at September 30, 2009 is for the Georgetown Village option contract
which requires the Company to takedown 30 acres of land each year from May 2010
through May 2017.  The earnest money will be applied to the purchase
price for the final takedown of land.   The expiration date of
the earnest money deposit is May 2017.






e.     Interest
and Real Estate Taxes


Interest
and real estate taxes attributable to land and homes are capitalized as
inventory while they are being actively developed.   As of
September 30, 2009 and 2008 there was approximately $333,000 and $557,000,
respectively of real estate taxes in inventory.  As of September 30,
2009 and 2008 there was approximately $790,000 and $971,000, respectively of
interest in inventory.  During the year ended September 30, 2009 and
2008 there was approximately $65,000 and $333,000, respectively of interest
capitalized.   During the year ended September 30, 2009 and 2008
there was approximately $221,000 and $44,000, respectively of property taxes
capitalized.






f.     Warranty
Costs


The
Company provides homebuyers with a one-year limited warranty for workmanship and
materials, a two-year warranty for mechanicals, and a ten-year limited warranty
for structural items. Since the Company subcontracts its homebuilding work to
subcontractors who typically provide it with an indemnity and a certificate of
insurance prior to receiving payments for their work, claims relating to
workmanship and materials are generally the primary responsibility of the
subcontractors. Warranty liabilities have been established by charging cost of
sales for each home delivered. The amount reserved is based on industry wide
historical experience.  Below is a summary of the warranty accrual
account for the year ended September 30, 2009 and 2008.




Year
      Ended
                September
      30,
                2009
              
              
              Year
      Ended September 30,
                2008Warranty
      reserve, beginning of year
              
              
              60,980
              
              
              
              -Warranties
      issued
              
              
              126,846
              
              
              
              61,126Payments
      for warranty work
              
              
              (15,373
              )
              
              
              (146
              )Warranty
      reserve, end of year
              
              
              172,453
              
              
              
              60,980


g.    Revenue
Recognition


Revenues
from homebuilding and land development sales are recognized when the properties
associated with the services are sold, when the risks and rewards of ownership
are transferred to the buyer and when the consideration has been received, or
the title company has processed payment.  Revenues from remodeling
contracts will be recognized under the completed contract method or percentage
of completion method.  Homebuilding revenues will be categorized as
homebuilding revenues, revenues from property sales or options will be
categorized as land sales, and revenues from remodeling contracts will be
categorized as remodeling revenues.




F-9
 Table of Contents




h.     Income
Taxes


Prior to
the merger of Athena with WFC at May 31, 2005, Athena was a partnership and
therefore did not have income taxes as the income and losses passed through to
the partners. Since the merger, income taxes are accounted for in accordance
with FASB guidance which defines that deferred tax assets and liabilities are
determined based on temporary differences between financial reporting carrying
amounts of existing assets and liabilities and their respective tax bases and
net operating loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates will be recognized in the period that includes the enactment
date.  A valuation allowance is recorded for the entire deferred tax
assets due to the uncertainty of the net realizable value of the
asset.






i.      Advertising


The
Company has incurred advertising and marketing costs as part of the sales
efforts to market the real estate for sale and services offered. The costs
include the cost of developing the Company’s website (greeenbuildersinc.com),
public relations, media advertising, brochures and mail out
documents.  For the year ended September 30, 2009 the Company incurred
approximately $167,000 of advertising expenses compared to $173,000 for the same
period in 2008.






j.      Property
and Equipment


Property
and equipment, which included model home furnishings and sales office costs of
approximately $452,000 and $1.2 million at September 30, 2009 and 2008,
respectively, is carried at cost less accumulated depreciation. Depreciation and
amortization is recorded over the estimated useful life of the
asset.  For the year ended September 30, 2009 the Company recorded a
$227,000 impairment for its sales office.  Depreciation expense was
approximately $513,000 and $99,000 for 2009 and 2008, respectively.






k.     Use
of Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Accordingly, actual results could differ
from those estimates.




The
Company has estimated and accrued liabilities for real estate property taxes on
its purchased land in anticipation of development, and other liabilities
including the beneficial conversion liability, the fair value of warrants and
options.  To the extent that the estimates are dramatically different
to the actual amounts, it could have a material effect on the financial
statements.






l.      Municipal
Utility and Water District Receivables


The
Company owns one property located in a Municipal Utility District (MUD) and one
property located in a Water Control and Improvement District (WCID)
(collectively, the “Districts”). The Company incurs development costs for water,
sewage lines and associated treatment plants and other development costs and
fees for these properties. Under agreements with the Districts, the Company
expects to be reimbursed partially for the above development costs. The
Districts will issue bonds to repay the Company, once the property has
sufficient assessed value for the District taxes to repay the bonds. As the
project is completed and homes are sold within the Districts, the assessed value
increases. It can take several years before the assessed value is sufficient to
provide sufficient tax revenue for the Company to recapture its
costs.  The Company has estimated that it will recover approximately
50% to 100% of eligible costs spent through September 30, 2009.  The
Company has completed Phase 1 for the Rutherford West (as defined herein)
project and has approximately $1.1 million of Water Control and Improvement
District reimbursements included in inventory that it anticipates it will
collect from bond issuances made by the district.  When the
reimbursements are received they will be recorded as reductions in the related
asset’s balance.  The Districts will pay for property set aside for
the preservation of endangered species, greenbelts and similar
uses.  To the extent that the estimated reimbursements are
dramatically different from the actual reimbursements, it could have a material
effect on the Company’s financial statements.  In July 2009, the WCID
for the Rutherford West project had its first bond issuance, the Company
received reimbursements of approximately $470,000.  The Company
expects to recover costs from Rutherford West Phase 1, but does not expect to
cover costs incurred for the New Sweden development.  The Company has
already taken an impairment charge for the costs incurred on the New Sweden
project.




F-10
 Table of Contents




m.    Impairment
of Long-Lived Assets


The
Company reviews its long-lived assets, which consist primarily of equipment,
software, and real estate inventory for impairment according to whenever events
or changes incircumstances
indicate.




Inventory
is stated at the lower of cost (including direct construction costs, capitalized
interest and real estate taxes) or fair value less cost to sell. Equipment and
software is carried at cost less accumulated depreciation. The Company assesses
these assets for recoverability in accordance with FASB guidance that requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs and expenses and other factors. If
long-lived assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.  The Company recorded inventory impairments
and write-offs of land option contracts of $4.2 million and $5.9 million for the
year ended September 30, 2009 and 2008, respectively.






n.     Intangible
Assets


The
Company accounts for intangible assets in accordance with FASB guidance that
definite-lived intangibles are amortized over their estimated useful lives and
are evaluated for impairment annually, or more frequently if impairment
indicators are present, using a process similar to that used to test other
long-lived assets for impairment.  During the year ended September 30,
2008 the Company recorded an impairment charge of approximately $293,000 related
to the trademark name of Green Builders, Inc.   The Company did
not record any impairment charges for the year ended September 30,
2009.






o.     Loss
per Common Share


Earnings
per share is accounted for in accordance with FASB guidance which requires a
dual presentation of basic and diluted earnings per share on the face of the
statements of earnings.  Basic loss per share is based on the weighted
effect of common shares issued and outstanding, and is calculated by dividing
net loss by the weighted average shares outstanding during the period. Diluted
loss per share is calculated by dividing net loss by the weighted average number
of common shares used in the basic loss per share calculation plus the number of
common shares that would be issued assuming exercise or conversion of all
potentially dilutive common shares outstanding.




The
Company has issued stock options and warrants convertible into shares of common
stock. These shares and warrants have been excluded from loss per share for the
year ended September 30, 2009 and 2008 because the effect would be anti-dilutive
as summarized in the table below:




Year
      Ended
                September
      30, 2009
              
              
              Year
      Ended
                September
      30, 2008Stock
      options
              
              
              566,563
              
              
              
              1,474,083Common
      stock warrants
              
              
              1,837,191
              
              
              
              1,143,125Subordinated
      convertible debt warrants
              
              
              8,250,000
              
              
              
              8,250,000Total
              
              
              10,653,754
              
              
              
              10,867,208
  F-11
 Table of Contents


p.     Financial
Instruments and Credit Risk


Financial
instruments that potentially subject the Company to credit risk include cash and
cash equivalents.  Cash is deposited in demand accounts in federally
insured domestic institutions to minimize risk.  Although the balances
in these accounts exceed the federally insured limit by $889,000 at September
30, 2009, the Company has not incurred losses related to these deposits. Cash
equivalents consist of money market accounts and are typically held in accounts
with investment brokers or banks which are secured with high quality short
maturity investment securities.




The
amounts reported for cash and cash equivalents, notes payable, accounts payable,
accrued liabilities, and line of credit are considered to approximate their
market values based on comparable market information available at the respective
balance sheet dates and their short-term nature.






q.     Concentrations


The
Company’s activities are currently in the geographical area of central Texas,
which is defined as encompassing the Austin MSA.  This geographic
concentration makes its operations more vulnerable to local economic downturns
than those of larger, more diversified companies.






r.     Subordinated
Convertible Debt


The
subordinated convertible debt and the related warrants have been accounted for
in accordance with FASB guidance.  The relative fair value of the
warrants have been recorded at a discount to the related convertible
debt.  The discount is amortized over the life of the
note.






s.     Stock-Based
Compensation


The
Company measures and recognizes compensation expense based on the following: (a)
compensation expense for all share-based awards granted prior to, but not yet
vested as of December 31, 2005, based on the grant date fair value
estimated in accordance with the original provisions of the FASB guidance for
accounting for stock-based compensation, and (b) compensation expense for all
share-based awards granted subsequent to January 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of the updated
FASB guidance for accounting for stock-based
compensation.






t.      Adoption
of New Accounting Pronouncements


Effective
October 1, 2008, we adopted the FASB’s authoritative guidance for fair
value measurements of certain financial instruments.  The guidance provides
a framework for measuring fair value under GAAP. The guidance defines fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. The guidance requires that valuation techniques maximize the
use of observable inputs and minimize the use of unobservable inputs. The
guidance also establishes a fair value hierarchy which prioritizes the valuation
inputs into three broad levels. Based on the underlying inputs, each fair value
measurement in its entirety is reported in one of the three levels. These levels
are:




·
              Level
      1 – Valuation is based upon quoted prices for identical instruments traded
      in active markets. Level 1 assets and liabilities include debt and equity
      securities traded in an active exchange market, as well as U.S. Treasury
      securities.
  ·
                  Level
      2 – Valuation is based upon quoted prices for similar instruments in
      active markets, quoted prices for identical or similar instruments in
      markets that are not active, and model based valuation techniques for
      which all significant assumptions are observable in the market or can be
      corroborated by observable market data for substantially the full term of
      the assets or
liabilities.
 ·
                      Level
      3 – Valuation is determined using model-based techniques with significant
      assumptions not observable in the market. These unobservable assumptions
      reflect the Company’s own estimates of assumptions that market
      participants would use in pricing the asset or liability. Valuation
      techniques include the use of third party pricing services, option pricing
      models, discounted cash flow models and similar
      techniques.


F-12
 Table of Contents




In
October 2008, FASB issued authoritative guidance for the fair value of a
financial asset when the market for that asset is not active.  This
guidance clarifies the application of fair value in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. Even in times of market dislocation, it is not appropriate to conclude
that all market activity represents forced liquidations or distressed sales.
However, it is also not appropriate to automatically conclude that any
transaction price is determinative of fair value. Determining fair value in a
dislocated market depends on the facts and circumstances and may require the use
of significant judgment about whether individual transactions are forced
liquidations or distressed sales. In determining fair value for a financial
asset, the use of a reporting entity's own assumptions about future cash flows
and appropriately risk-adjusted discount rates is acceptable when relevant
observable inputs are not available. Regardless of the valuation technique used,
an entity must include appropriate risk adjustments that market participants
would make for nonperformance and liquidity risks.





The
initial adoption of the provisions the authoritative guidance did not have a
material effect on the Company’s financial statements.





The fair
values do not necessarily represent the amounts that may be ultimately realized
due to the occurrence of future circumstances that cannot be reasonably
determined.  Because of the inherent uncertainty of valuation, those
estimated values may be materially higher or lower than the values that would
have been used had a ready market for the securities existed.  Accordingly,
the degree of judgment exercised by the Company in determining fair value is
greatest for securities categorized in Level 3.  In certain cases, the
inputs used to measure fair value may fall into different levels of the
fair value hierarchy.  In such cases, for disclosure purposes, the
level in the fair value hierarchy within which the fair value measurement in its
entirety falls is determined based on the lowest level input that is significant
to the fair value measurement.





Fair
value is a market-based measure considered from the perspective of a market
participant rather than an entity-specific measure.  Therefore, even when
market assumptions are not readily available, the Company’s own assumptions are
set to reflect those that market participants would use in pricing the asset or
liability at the measurement date.  The Company uses prices and inputs that
are current as of the measurement date, including periods of market
dislocation.  In periods of market dislocation, the observability of prices
and inputs may be reduced for many securities.  This condition could cause
a security to be reclassified to a lower level within the fair value
hierarchy.





Inventory
is initially recorded at cost and is subsequently recorded at lower of cost or
fair value.  Fair value is determined by the Company based on a number of
factors, including: sales to unrelated new investors, comparable sales, and
discounted cash flow models. Because of the inherent uncertainty of these
valuations, the estimated values may differ from the actual fair values that may
or may not be ultimately realized.








In
February 2007, the FASB issued authoritative guidance for the fair value option
of financial assets and financial liabilities.  This guidance permits
entities to measure many financial assets and financial liabilities at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings.  This guidance is
effective for fiscal years beginning with its fiscal year 2009.  The
standard is not expected to have a material impact on the Company’s financial
position and results of operations.





In
May 2009, the FASB issued authoritative guidance for subsequent
events.  This guidance establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this standard sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  This guidance is effective for
financial statements issued for fiscal years and interim periods beginning after
June 15, 2009.





In June
2009, the FASB issued guidance to revise the approach to determine when a
variable interest entity (VIE) should be consolidated. The new consolidation
model for VIEs considers whether the Company has the power to direct the
activities that most significantly impact the VIE’s economic performance and
shares in the significant risks and rewards of the entity. The guidance on VIE’s
requires companies to continually reassess VIEs to determine if consolidation is
appropriate and provide additional disclosures. The guidance is effective for
the Company’s 2011 fiscal year. The Company is currently evaluating the impact
of adoption of this authoritative guidance on its consolidated financial
statements.





F-13
 Table of Contents




In
June 2009, the FASB issued authoritative guidance establishing the FASB
Accounting Standards Codification as the source of authoritative nongovernmental
GAAP, except for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. All other nongrandfathered,
non-SEC accounting literature not included in the Codification will become
nonauthoritative. This standard is effective for financial statements issued for
fiscal years and interim periods ending after September 15,
2009.  As the Codification was not intended to change or alter
existing GAAP, it did not have an impact on the Company’s consolidated financial
statements.







4.Inventory




The
Company’s land and land development inventory includes land costs, prepaid
development costs, development costs, option money and earnest money on land
purchase options.  Homebuilding inventory represents model homes,
speculative homes, and units sold and under construction.  Earnest
money deposits for land costs and development costs on land under option, not
owned, totaled approximately $175,000 and $575,000 at September 30, 2009 and
2008 respectively, all of which is non-refundable if the Company does not
exercise the option and purchase the land.




At
September 30, 2008, the Company had earnest money capitalized of $400,000 for
the remaining 30 acres under option in Elm Grove (as defined
herein).  The Company’s original land purchase contract called for a
purchase of the remaining acreage in December 2008.  During the year
ended September 30, 2009, the Company received an extension to purchase the land
in October 2009 due to issues created by another developer that altered the
approved preliminary plat and the manner in which the land was represented to
the Company.  During the year ended September 30, 2009 the Company
negotiated a settlement agreement with the seller and the
developer.  As part of the settlement agreement the Company was to
recover the $400,000 in earnest money in exchange for a release of the option
and extending an easement on the Company’s current section of
property.  The Company reduced the inventory for Elm Grove by
$400,000.  The Company received $344,000 of the settlement
agreement.  The remaining $56,000 is scheduled to be paid in fiscal
year 2010.




The
remaining $175,000 of earnest money is for the Georgetown Village (as defined
herein) option contract which requires the Company to takedown 30 acres of land
each year from May 2010 through May 2017.  The earnest money will be
applied to the purchase price for the final takedown of land.




As of
September 30, 2009 the Company owned approximately 1,172 unfinished acres of
property.  During the year ended September 30, 2009. the Company
purchased approximately 32 acres of commercial land in Georgetown
Village.  The following is a description of the property completed,
owned or under contract by the Company as of September 30, 2009:




Rutherford West– Rutherford
West is a residential community located southwest of Austin, Texas in the city
of Driftwood. Rutherford West is planned as an “earth-friendly” acreage
development and each lot includes a deed restricted conservation
easement.  The Company commenced the development of this project in
October 2006 and has completed development on a total of 58 lots in Phase
1.




Georgetown Village–Georgetown Village is a
mixed use master-planned development in Williamson County, located north of
Austin, Texas in Georgetown.  The Company purchased the land for this
project pursuant to an option contract in August 2005.  Under the
option contract the Company is required to purchase a minimum of 30 acres during
May of each year through 2017.  The Company acquired approximately 32
acres in June 2009 for $13,500 per acre.  The Company commenced the
development of this project in January 2006.  The Company completed
development on a total of 220 lots in Georgetown Village.




Villages of New Sweden–New Sweden is a master
planned mixed-use community which includes single family residential homes,
commercial properties, an onsite school, an amenity center, a fire station, and
an open green space in the Pflugerville, Texas school district.  The
Company purchased the land for this project in October 2005 with a combination
of bank financing, seller financing and cash on hand.   The Company
has not developed any lots in New Sweden.




Elm Grove– Elm Grove is a
residential project located south of Austin, Texas in the city of
Buda.  The master plan includes single-family residential lots and
open green space all within walking distance of Elm Grove elementary
school.  The Company acquired the first phase of land for this project
in December 2006.  The Company has completed development on a total of
105 lots in Phase 1.




F-14
 Table of Contents




In
January 2009, the Company entered into an agreement with Graham Mortgage Capital
to modify the debt agreement for the $7.3 million loan for property in
Rutherford West and the $4.7 million loan for New Sweden.  As of
September 30, 2009 the Company had $1,049,375 in accrued interest payable for
the Rutherford West loan and $675,624 in accrued interest payable for the New
Sweden loan.  The agreement allows deferral of the $1,037,208 and
$667,792 of accrued interest until December 31, 2009 or until the property is
sold.  Effective January 1,2009,
the Company began paying 2% interest on each loan (“Modified Interest Payment”)
and is accruing an additional 12% interest on the loan.  In exchange
for entering into the agreement the Company will issue a warrant for the
purchase of 1.5% of the issued and outstanding shares of the Company’s common
stock at December 31, 2009.  The warrant will have a $5.00 strike
price and can be exercised from January 1, 2010 through December 31,
2012.  The Company is required to make monthly payments for 1/12th of
the estimated 2009 property taxes.  The agreement calls for the
Company to list the property and retain a broker to market the
property.   In the event the Company receives an offer for a
price less than sufficient to satisfy the Graham Mortgage Capital note payment,
the Company must notify the lender who will at its sole discretion accept or
reject the offer.  In the event that the property is not sold by
December 31, 2009, the Deed (in Lieu of Foreclosure) will be released, and
provided that all Modified Interest Payments and real estate taxes for 2009
which are due on January 31, 2010 have been paid, the corporate guaranty will be
returned, and the borrower and holder shall exchange mutual
releases.   It is anticipated that the Company will Deed (in Lieu
of Foreclosure) the property, subject to the debt to Graham Mortgage Capital as
of December 31, 2009.




Below is
the gain that the Company would recognize if the Rutherford West land is deeded
back (in Lieu of Foreclosure) to Graham Mortgage Capital:




Carrying
      amount of debt
                
                $
                7,300,000Carrying
      amount of accrued interest
                
                
                1,037,208Debt
      settlement amount
                
                
                8,337,208Carrying
      amount of asset
                
                
                7,453,139Potential
      gain on troubled debt
                
                $
                884,069


Below is
the gain that the Company would recognize if the New Sweden land is deeded back
(in Lieu of Foreclosure) to Graham Mortgage Capital:


Carrying
      amount of debt
              
              $
              4,700,000Carrying
      amount of accrued interest
              
              
              667,792Debt
      settlement amount
              
              
              5,367,792Carrying
      amount of asset
              
              
              5,238,300Potential
      gain on troubled debt
              
              $
              129,492


In July
2009 the Company received a notice of foreclosure sale from its lender under a
promissory note dated October 12, 2006 in the original principal amount of
$601,625, informing the Company that default had occurred under such promissory
note. The promissory note was secured by a deed of trust creating a lien upon a
69.11 acre tract of land in the New Sweden project. The foreclosure sale was
held on September 1, 2009.  The note was a nonrecourse note and a gain
was recorded (see note 15).




In
November 2009, the Company received a notice of foreclosure sale from each of
the three remaining lenders for the New Sweden tract.  The promissory
notes are secured by a deed of trust creating a lien upon the 166.47 acres
of tract of land in the Company’s New Sweden project. 
The foreclosure sale for each of these notes occurred on December 1,
2009.  Below is a calculation of the gain on foreclosure of the 166.47
acres in New Sweden that will be recorded in fiscal year 2010:




Carrying
      amount of debt
              
              $
              1,872,996Carrying
      amount of accrued interest
              
              
              159,517Debt
      settlement amount
              
              
              2,032,513Carrying
      amount of asset
              
              
              1,635,322Potential
      gain on troubled debt
              
              $
              397,191




The
Company performs an inventory impairment analysis on a quarterly
basis.  If impairment indicators are present, impairment charges are
required to be recorded if the fair value is less than the cost recorded. 
The Company’s determination of fair value is primarily based on discounting the
estimated cash flows.  Estimated cash flows are based on recent offers and
comparable sales of real estate under existing and anticipated market
conditions.  The Company recorded impairments of $3.8 million for land
development and $453,000 for homebuilding during the year ended September 30,
2009.




F-15
 Table of Contents




The
Company’s assets and liabilities recorded at fair value have been categorized
based upon a fair value hierarchy in accordance with FASB guidance.





The
following table presents information about the Company’s assets and liabilities
measured at fair value as ofSeptember 30, 2009:




Significant
                
                
                ImpairmentUnobservable
                
                
                ChargesInputs
                
                
                Year
      Ended(Level
      3)
                
                
                September
      30, 2009Land
      and Land Development
                
                $
                10,863,346
                
                
                $
                3,830,749Homebuilding
      Costs
                
                
                1,224,816
                
                
                
                452,752Total
      Inventory
                
                $
                12,088,162
                
                
                $
                4,283,501






Assets
are considered Level 3 when their values are determined using pricing models,
discounted cash flow methodologies or similar techniques and at least one
significant model assumption or input is unobservable. Level 3 assets also
include those for which the determination of fair value requires significant
management judgment or estimation. The notion of unobservable inputs is intended
to allow for situations in which there is little, if any, market activity for
the asset or liability at the measurement date. In those situations, the
reporting entity need not undertake all possible efforts to obtain information
about market participant assumptions. However, the reporting entity must not
ignore information about market participant assumptions that is reasonably
available without undue cost and effort.




The table
below presents reconciliation for all assets and liabilities measured and
recognized at fair value on a recurring basis using significant unobservable
inputs (Level 3) during 2009.  The
transfer into Level 3 represents the inventory that the Company took impairments
on in the current fiscal year.




Level 3 Instruments
      Only
              
              InventoryBalance,
      October 1, 2009Total
      realized and unrealized gains (losses):Included
      in earnings
              
              $
              (4,283,501
              )Included
      in other comprehensive income
              
              
              -Purchases,
      issuances and settlements
              
              
              -Transfers
      into Level 3
              
              
              16,371,663Balance,
      September 30, 2009
              
              $
              12,088,162


The
unrealized gains and losses are included in inventory impairments and land
option write-offs in the statement of operations.




The fair
value measurement of the Company’s inventory, using present value, capture the
following elements from the perspective of market participants as of the
measurement date:




§
            An
      estimate of future cash flows for the asset being
  measured.





§
            Expectations
      about possible variations in the amount and/or timing of the cash flows
      representing the uncertainty inherent in the cash
  flows.





§
            The
      time value of money, represented by the rate on risk-free monetary assets
      that have maturity dates or durations that coincide with the period
      covered by the cash flows (risk-free interest
  rate).





§
            The
      price for bearing the uncertainty inherent in the cash flows (risk premium
      or credit spread).





§
            Other
      case-specific factors that would be considered by market
      participants.





The
Company utilized a 14% discount rate for determining fair value for the year
ended September 30, 2009.




F-16
 Table of Contents




Below is
a summary of the property completed, owned or under contract by the Company at
September 30, 2009.  Land and land development inventory includes land
costs, prepaid development costs, development costs, option money and earnest
money on land purchase options.  Homebuilding inventory represents
model homes, speculative homes under construction, units sold and under
construction, and capitalized indirect costs.


Property
                
                
                Unsold
                  Finished
      Lots/Homes
                
                
                
                Owned
                  Unfinished
      Acreage
                
                
                
                Approximate
      Acreage Under Option
                
                
                
                Inventory
      Costs at
                  September
      30, 2009
                  (In
      thousands)Land
      and Land Development
                
                
                216
                
                
                
                1,172
                
                
                
                387
                
                
                $
                26,398Homebuilding
                
                
                8
                
                
                
                -
                
                
                
                -
                
                
                $
                2,079Total
      Inventory
                
                
                224
                
                
                
                1,172
                
                
                
                387
                
                
                $
                28,477


Below is
a summary of the property completed, owned or under contract by the Company at
September 30, 2008:




Property
                
                
                Unsold
                  Finished
      Lots/Homes
                
                
                
                Owned
                  Unfinished
                  Acreage
                
                
                
                Approximate
      Acreage Under Option
                
                
                
                Inventory
      Costsat
                    September
      30, 2008(In
      thousands)Land
      and Land Development
                
                
                237
                
                
                
                1,209
                
                
                
                450
                
                
                $
                32,739Homebuilding
                
                
                14
                
                
                
                -
                
                
                
                -
                
                
                $
                8,204Total
      Inventory
                
                
                251
                
                
                
                1,209
                
                
                
                450
                
                
                $
                40,943


6.      
Operating and Reporting
Segments




The
Company has three reporting segments: (i) homebuilding and related services,
(ii) land sales and (iii) remodeling sales. The Company’s reporting segments are
strategic business units that offer different products and services. The
homebuilding and related services segment includes home sales.  Land
sales consist of land in various stages of development sold, including finished
lots.  Remodeling includes remodeling products and
services.  The Company charges identifiable direct expenses and
interest to each segment and allocates corporate expenses and interest based on
an estimate of each segment’s relative use of those expenses.




The
following table presents segment operating results before taxes for the year
ended September 30, 2009 and nine months ended September 30, 2008




Year
      Ended September 30, 2009
              
              
              Year
      Ended September 30, 2008Homebuilding
                Sales
              
              
              Land
      Sales
              
              
              Remodeling
                Sales
              
              
              Total
              
              
              Homebuilding
                Sales
              
              
              Land
      Sales
              
              
              TotalRevenues
      from external customers
              
              
              12,601,829
              
              
              $
              1,565,122
              
              
              $
              349,485
              
              
              $
              14,516,436
              
              
              $
              6,042,311
              
              
              
              2,950,894
              
              
              
              8,993,205Costs
      and expenses:Cost
      of revenues
              
              
              10,790,263
              
              
              
              1,231,711
              
              
              
              287,679
              
              
              
              12,309,653
              
              
              
              5,379,707
              
              
              
              2,120,270
              
              
              
              7,499,977Impairment
      and write-offs
              
              
              452,752
              
              
              
              3,830,749
              
              
              
              -
              
              
              
              4,283,501
              
              
              
              847,770
              
              
              
              5,040,154
              
              
              
              5,887,924Selling,
      general and administrative
              
              
              2,864,267
              
              
              
              1,154,636
              
              
              
              28,161
              
              
              
              4,047,064
              
              
              
              4,465,271
              
              
              
              2,129,608
              
              
              
              6,594,879Depreciation
      Expense
              
              
              477,255
              
              
              
              36,587
              
              
              
              
              
              
              
              513,842
              
              
              
              77,670
              
              
              
              21,720
              
              
              
              99,390Loss
      on intangible assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              292,692
              
              
              
              -
              
              
              
              292,692Foreclosure
      of Assets
              
              
              -
              
              
              
              (128,325
              )
              
              
              -
              
              
              
              (128,325
              )
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      & other income
              
              
              (171,357
              )
              
              
              (19,040
              )
              
              
              -
              
              
              
              (190,397
              )
              
              
              (164,123
              )
              
              
              (134,283
              )
              
              
              (298,406
              )Interest
      expense
              
              
              947,530
              
              
              
              2,970,909
              
              
              
              -
              
              
              
              3,918,439
              
              
              
              912,440
              
              
              
              2,836,917
              
              
              
              3,749,357Total
      costs and expenses
              
              
              15,360,710
              
              
              
              9,077,227
              
              
              
              315,840
              
              
              
              24,753,777
              
              
              
              11,811,427
              
              
              
              12,014,386
              
              
              
              23,825,813Profit
      or Loss before taxes
              
              
              (2,758,881
              )
              
              $
              (7,512,105
              )
              
              $
              33,645
              
              
              $
              (10,237,341
              )
              
              $
              (5,769,116
              )
              
              
              (9,063,492
              )
              
              
              (14,832,608
              )Segment
      Assets
              
              
              3,803,496
              
              
              $
              27,348,684
              
              
              $
              (388
              )
              
              $
              31,151,792
              
              
              $
              12,498,672
              
              
              
              35,080,506
              
              
              
              47,579,178


7.       
Related Party
Transactions




Consulting
Arrangement with Audrey Wilson




In
February 2007 the Company entered into a consulting agreement with Audrey
Wilson, the wife of Clark N. Wilson, its President and Chief Executive Officer.
Pursuant to the consulting agreement, the Company agreed to pay Ms. Wilson
$10,000 per month for a maximum of six months.  Ms. Wilson agreed to
devote at least twenty-five hours per week assisting the Company with the
following activities: (i) the establishment of “back-office” processes for
homebuilding activities, including procurement, sales and marketing and other
related activities, and (ii) developing the Company’s marketing
strategy.  Subsequent to the completion of the six month period in
July 2007, Ms. Wilson continued to provide consulting services to the Company at
no cost to the Company.  On May 13, 2008, the Company entered into a
new agreement with Ms. Wilson in which she was to be paid $10,000 per month for
a maximum of 12 months.  In an effort to reduce Company expenditures
as of December 31, 2008, Ms. Wilson continued to provide consulting services at
no cost to the Company. The Company paid Ms. Wilson $30,000 for services
performed in the three months ended December 31, 2008 and has not paid her since
that time.  In accordance with Staff Accounting Bulletin 5A, for the
year ended September 30, 2009 the Company recorded $7,500 as compensation
expense and credited equity for services recorded at fair market
value.




F-17
 Table of Contents





Financing
with LNZCO, LLC






On March
12, 2009 the Company entered into an agreement with LNZCO to provide between $1
and $2 million in financing for the construction of single family
residences.  Each promissory note issued pursuant to the agreement
bears interest at a rate of prime plus 5.0%, has a one point origination fee,
and matures in one year.  The loan for each residence is 65% of the
sales price of the associated improved property.   In June 2009,
the Company issued a promissory note to LNZCO for approximately $330,000 for the
purchase of approximately 32 acres of commercial land in Georgetown
Village.  The promissory note bears interest at a rate of 10%, had a
two point origination fee, matures one year from the date of issuance and can be
extended for an additional 12 months for an additional two point extension
fee.  The Company had borrowings of approximately $80,000 from LNZCO
at September 30, 2009.  LNZCO is wholly-owned by the Lindsey May
Kathryn Wilson 1995 Trust, the beneficiaries of which are the minor children of
Clark Wilson, the President and Chief Executive Officer of the
Company.  The Company’s Audit Committee reviewed the proposed terms
from LNZCO and compared them to the terms of other financing arrangements
available to WFC at this time.  The Audit Committee of the Company’s
Board of Directors determined that LNZCO could provide the most favorable
financing terms to WFC and approved the LNZCO terms as being fair as to the
Company and WFC as of the time of authorization.




Vendor
Payments




The
Company has entered into contractual work agreements with Wilson
Roofing.  Wilson Roofing is owned by relatives of Clark N. Wilson, the
Company’s President and Chief Executive Officer.  The Company paid
Wilson Roofing approximately $220,000 and $360,000 for the year ended September
30, 2009 and 2008, respectively.   Management believes that
services were provided at fair market value.




8.       
Commitments and
Contingencies






Options
Purchase Agreements




In order
to ensure the future availability of land for development and homebuilding, the
Company plans to enter into lot-option purchase agreements with unaffiliated
third parties. Under the proposed option agreements, the Company pays a stated
deposit in consideration for the right to purchase land at a future time,
usually at predetermined prices or a percentage of proceeds as homes are sold.
These options generally do not contain performance requirements from the Company
nor do they obligate the Company to purchase the land. In order for the Company
to start or continue the development process on optioned land, it may incur
development costs on land it does not own before it exercises its option
agreement.






Lease
Obligations




In
September 2006, the Company entered into an agreement to lease approximately
5,000 square feet for its corporate offices, which it began occupying on
October 1, 2006.  The lease requires monthly payments of
approximately $10,000 per month for 36 months.  In September 2009, the
Company entered into a three month lease extension requiring monthly payments of
approximately $8,900.




The
Company entered into sale/leaseback agreements for three of its model
homes.  Two of the contracts were entered into in August 2008 and one
in September 2008.  The leasebacks of the three model homes require
monthly payments of approximately $7,300 per month for 24 months.  The
Company also has office equipment leases and job trailer leases. The Company’s
future minimum lease payments for future fiscal years are as
follows:




2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            2014Lease
      obligations
            
            $
            114,659
            
            
            
            240
            
            
            
            240
            
            
            
            240
            
            
            
            240




F-18
 Table of Contents




Employment
Agreement with Clark Wilson




On
February 14, 2007, the Company entered into an employment agreement with Clark
N. Wilson, its President and Chief Executive Officer. In the event of the
involuntary termination of Mr. Wilson’s service with the Company, the agreement
provides for monthly payments equal to Mr. Wilson’s monthly salary payments to
continue for 12 months. The agreement contains a provision whereby Mr. Wilson is
not permitted to be employed in any position in which his duties and
responsibilities comprise of residential land development and homebuilding in
Texas or in areas within 200 miles of any city in which the Company is
conducting land development or homebuilding operations at the time of such
termination of employment for a period of one year from the termination of his
employment, if such termination is voluntary or for cause, or involuntary and in
connection with a corporate transaction.







9.       
Income Taxes




A
reconciliation of expected income tax benefit (computed by applying a statutory
income tax rate of 34% to income before income tax expense) to total tax expense
(benefit) in the accompanying consolidated statements of operations
follows:






Year
      Ended
                September30,
      2009
              
              
              Year
      Ended
                September
      30, 2008Tax
      benefit at Statutory Rate (34%)
              
              $
              3,480,695
              
              
              
              5,043,087State
      income tax benefit
              
              
              -
              
              
              
              11,898Impairment
      of intangible assets
              
              
              -
              
              
              
              (99,515
              )Other
              
              
              (976
              )
              
              
              4,490Net
      increase in valuation allowance
              
              
              (3,479,719
              )
              
              
              (4,941,655
              )Provision
      for Income Taxes
              
              $
              -
              
              
              
              18,305


The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities at September 30, 2009 and September 30, 2008
are as follows:






Year
      Ended
                September
      30, 2009
              
              
              Year
      Ended
                September
      30, 2008Deferred
      tax assets (liabilities)Deferred
      stock compensation
              
              $
              705,128
              
              
              
              652,924Inventory
      adjustment
              
              
              3,046,450
              
              
              
              1,957,805Other
      temporary differences
              
              
              36,798
              
              
              
              (11,712
              )Net
      operating loss carryforwards
              
              
              9,292,613
              
              
              
              7,002,252Valuation
      allowance
              
              
              (13,080,989
              )
              
              
              (9,601,269
              )Net
      deferred tax asset (liability)
              
              $
              -
              
              
              
              -


In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the lack of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will not realize the benefits of these
deductible differences. The Company has provided a 100% valuation allowance on
its deferred tax assets.




For the
years ended September 30, 2009 and September 30, 2008, the Company had net
operating loss carryforwards of approximately $27.3 million and $20.6 million,
respectively, which begin to expire in 2025 if not utilized. The Internal
Revenue Code Section 382 limits net operating loss carryforwards when an
ownership change of more than fifty percent of the value of the stock in a loss
corporation occurs within a three-year period. Accordingly, the ability to
utilize net operating loss carryforwards may be significantly
restricted.




F-19
 Table of Contents




Effective
January 1, 2007, the Company adopted the guidance from FASB for accounting for
income taxes.  This guidance prescribes a comprehensive model for
recognizing, measuring, presenting and disclosing in the financial statements
tax positions taken or expected to be taken on a tax return, including the
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements.  The cumulative effect of
adopting this guidance had no impact on the Company’s beginning retained
earnings as of January 1, 2007.  The company has analyzed its tax
positions and concluded that there is no current effect from the application of
this guidance.  The Company’s income tax returns are not currently
under examination by the Internal Revenue Service or other tax
authorities.  The Company does not foresee any recognition of any
unrecognized tax benefits during the next twelve months.




10.    
Indebtedness




The
following schedule lists the Company’s notes payable and lines of credit
balances at September 30, 2009 and 2008.




Rate
              
              Status
              Maturity
      Date
              
              Balance
      at
                9/30/2009
              
              
              Balance
      at
                9/30/2008(In
      thousands)a
              
              Notes
      payable, land
              
              14.00%
              
              Modification
                Agreement
      entered
                January
      2009
              Dec-31-09
              
              $
              4,700
              
              
              
              4,700b
              
              Notes
      payable, land
              
              14.00%
              
              Modification
                Agreement
      entered
                January
      2009
              Dec-31-09
              
              
              7,300
              
              
              
              7,300c
              
              Notes
      payable, seller financed
              
              7.00%
              
              Default
              Oct.
      2010/11
              
              
              1,873
              
              
              
              2,475d
              
              Line
      of Credit, $10.8 million facility, land, land development, and
      homebuilding
              
              Libor+3.5%
              
              Forbearance
      on
                covenants
      through
                December
      31, 2009
              Mar-31-11
              
              
              9,317
              
              
              
              15,779e
              
              $1-2
      million in financing, homebuilding and land
              
              Prime+5%
      & 10%
              
              Entered
      March 2009
              
              
              
              80
              
              
              
              -f
              
              2005
      $10 million, Subordinated convertible notes, net of discount of $284
      thousand and $372 thousand, respectively
              
              5.00%
              
              Default
      as of
                December
      1, 2009
              Dec-1-12
              
              
              9,716
              
              
              
              9,628g
              
              2006
      $6.50 million, Subordinated convertible notes, net of discount of $1,844
      and $2,314 thousand respectively
              
              5.00%
              
              Default
      as of
                December
      1, 2009
              Sep-1-13
              
              
              4,656
              
              
              
              4,185Total
              
              
              
              
              $
              37,642
              
              
              
              44,067


(a)      In
March 2007, the Company secured a $4.7 million term land loan to finance the New
Sweden project which is approximately 522 acres of land in Travis
County.  The loan is secured by the underlying land and is guaranteed
by the Company.  In January 2009, the Company entered into an
agreement with Graham Mortgage Capital to modify the debt agreement for the
loan.  Effective January 1,2009,
the Company began paying the modified interest payment of 2% on each loan and
will accrue an additional 12% interest on the loan. As of September 30, 2009 the
Company had $675,625 in accrued interest under the note.  The
agreement allows deferral of $667,791 of accrued interest until December 31,
2009 or until the property is sold.  In exchange for entering into the
agreement the Company will issue a warrant for the purchase of 1.5% of the
issued and outstanding shares of the Company’s common stock at December 31,
2009.  The warrant has a $5.00 strike price and can be exercised from
January 1, 2010 through December 31, 2012.  The warrant was valued
based on the fair value of the Company’s common stock on the issuance date
of  $0.23 per share, using a Black-Scholes approach, risk free
interest rate of 3.04%; dividend yield of 0%; weighted-average expected life of
the warrant of 4 years; and a 60% volatility factor, resulting in an immaterial
value. The Company is required to make monthly payments for 1/12th of
the estimated 2009 property taxes.  The agreement calls for the
Company to list the property and retain a broker to market the
property.  In the event the Company receives an offer for a price less
than sufficient to satisfy the note payment, the Company must notify the lender
who will at its sole discretion accept or reject the offer.  In the
event that the property is not sold by December 31, 2009, the Deed (in Lieu of
Foreclosure) will be released, and provided that all Modified Interest Payments
and real estate taxes for 2009 which are due on January 31, 2010 have been paid,
the corporate guaranty will be returned, and the borrower and holder shall
exchange mutual releases.   It is anticipated that this loan will
be settled via Deed (in Lieu of Foreclosure).




F-20
 Table of Contents




(b)           
In February 2007 the Company secured a $7.3 million land loan to finance the
Rutherford West project which is approximately 538 acres in Hays
County.  The loan is secured by the underlying land and is guaranteed
by the Company.  In January 2009, the Company entered into an
agreement with Graham Mortgage Capital to modify the debt agreement for the loan
for Rutherford West.   Effective January 1,2009,
the Company began paying the modified interest payment of 2% on each loan and
will accrue an additional 12% interest on the loan.  As of September
30, 2009 the Company had $1,049,375 in accrued interest under the note. The
agreement allows the deferral of $1,037,208 of the accrued interest until
December 31, 2009 or until the property is sold.  In exchange for
entering into the agreement the Company issued a warrant for the purchase of
1.5% of the issued and outstanding shares of the Company’s common stock at
December 31, 2009.  The warrant has a $5.00 strike price and can be
exercised from January 1, 2010 through December 31, 2012.  The warrant
was valued based on the fair value of the Company’s common stock on the issuance
date of  $0.23 per share, using a Black-Scholes approach, risk free
interest rate of 3.04%; dividend yield of 0%; weighted-average expected life of
the warrant of 4 years; and a 60% volatility factor, resulting in an immaterial
value.  The Company is required to make monthly payments for 1/12th of
the estimated 2009 property taxes.  The agreement calls for the
Company to list the property and retain a broker to market the
property.  In the event the Company receives an offer for a price less
than sufficient to satisfy the note payment, the Company must notify the Lender
who will at its sole discretion accept or reject the offer.  In the
event that the property is not sold by December 31, 2009, the Deed (in Lieu of
Foreclosure) will be released, and provided that all Modified Interest Payments
and real estate taxes for 2009 which are due on January 31, 2010 have been paid,
the corporate guaranty will be returned, and the borrower and holder shall
exchange mutual releases.   It is anticipated that this loan will
be settled via Deed (in Lieu of Foreclosure).




(c)           As
part of the purchase of the New Sweden project in Travis County described above,
the Company entered into four notes payable, seller financed with a cumulative
balance of approximately $2.5 million.  The terms of the notes were
modified in October 2007 with the principal payments extended for one
year.  The revised terms of the notes payable called for quarterly
interest payments commencing October 12, 2007 and principal payments of $1.4
million in October 2010 and $1 million due in October 2011.  At
September 30, 2009 three of the notes payable are remaining.  The
notes have a cumulative balance of $1.9 million are at an interest rate of
7%.  The fourth note payable issued for approximately $600,000 was
foreclosed on September 1, 2009.  The Company recorded a gain on the
foreclosure of approximately $128,000 (see Note 15).  The Company has
not made interest payments since October 2008 and is currently in default on the
loans.  In November 2009, the Company received a notice of foreclosure
sale from each of the three remaining lenders.  The promissory notes
are secured by a deed of trust creating a lien upon the 166.47 acres
of tract of land in the Company’s New Sweden project. 
The foreclosure sale for each of these notes occurred on December 1,
2009.  Each of the promissory notes described above are non-recourse
notes. The Company is currently holding the properties securing each such
promissory note on its books for less than the amount owed.  As such,
the Company will recognize a gain in fiscal year 2010.




(d)           In
June 2007 the Company established the Credit Facility with a syndicate of banks
in the amount of $55 million.  In June 2008 the Credit Facility was
reduced to $30 million.  The Company received notification on November
7, 2008 that Franklin Bank, one of the syndicate banks, was closed by the Texas
Department of Savings and Mortgage Lending and the FDIC was named
Receiver.   On May 14, 2009, the Company entered into a
Modification of the Credit Facility.   The Modification modified
the terms of the Loan Agreement by reducing the loan commitment amount pursuant
to the Loan Agreement from $30 million to $10.8 million.  As of
September 30, 2009, the Company has approximately $9.3 million in borrowings.
The Company is currently out of compliance with certain covenants under the loan
agreement.




(e)           
In March 2009 the Company entered into an agreement with LNZCO pursuant to
which  LNZCO will provide between $1 and $2 million in financing for
the construction of single family residences.  Each promissory note
issued pursuant to such agreement bears interest at a rate of prime plus 5.0%,
has a one point origination fee, and matures in one year.  In June
2009, the Company issued a promissory note to LNZCO for approximately $330,000
for the purchase of approximately 32 acres of commercial land in Georgetown
Village.  The promissory note bears interest at a rate of 10%, had a
two point origination fee, and matures one year from the date of issuance and
can be extended for an additional 12 months for an additional two point
extension fee.  The Company currently has approximately $80,000 in
borrowings from LNZCO.




(f)            
On December 19, 2005, the Company issued $10 million in aggregate principal
amount of 5% subordinated convertible debt due December 1, 2012 to certain
purchasers. The following are the key features of the subordinated convertible
debt: interest accrues on the principal amount of the subordinated convertible
debt at a rate of 5% per annum and the debt is payable semi-annually on June 1
and December 1 of each year. The subordinated convertible debt is due on
December 1, 2012 and is convertible, at the option of the holder, into shares of
our common stock at a conversion price of $2.00 per share. The conversion price
is subject to adjustment for stock splits, reverse stock splits,
recapitalizations and similar corporate actions. An adjustment in the conversion
price is also triggered upon the issuance of certain equity or equity-linked
securities with a conversion price, exercise price, or share price less than
$2.00 per share. The anti-dilution provisions state the conversion price cannot
be lower than $1.00 per share.




F-21
 Table of Contents




The
Company may redeem all or a portion of the subordinated convertible debt after
December 1, 2008 at a redemption price that incorporates a premium that ranges
from 3% to 10% during the period beginning December 1, 2008 and ending on the
due date. The subordinated convertible debt has a registration rights agreement
whereby the Company filed a registration statement registering the resale of the
underlying shares with the Commission.  The Company must maintain the
registration statement in an effective status until the earlier to occur of (i)
the date after which all the registrable shares registered thereunder shall have
been sold and (ii) the second anniversary the date on which each warrant has
been exercised in full and after which by the terms of such Warrant there are no
additional warrant shares as to which the warrant may become exercisable;
provided that in either case, such date shall be extended by the amount of time
of any suspension period. Thereafter the Company shall be entitled to withdraw
the registration statement, and upon such withdrawal and notice to the
investors, the investors shall have no further right to offer or sell any of the
registrable shares pursuant to the registration statement. The registration
statement filed pursuant to the registration rights agreement was declared
effective by the Commission on August 1, 2006.




The
Company also issued warrants to purchase an aggregate of 750,000 shares of
common stock to the purchasers of the subordinated convertible debt, 562,500
shares of which vested and remain exercisable and the remaining shares will
never vest.   The warrants were valued based on the fair value of
the Company’s common stock on the issuance date of $1.60 per
share.  The warrants are recorded as part of the debt discount and an
increase in additional paid in capital, and amortized over the 7-year life of
the notes using the straight-line rate method.






Subordinated
Convertible Notes Issued December 19, 2005 at September 30, 2009 and September
30, 2008:




September
      30,
              2009
            
            
            September
      30,
              2008Notional
      balance
            
            $
            10,000,000
            
            
            
            10,000,000Unamortized
      discount
            
            
            (284,392
            )
            
            
            (371,896
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            9,715,608
            
            
            
            9,628,104




On
December 1, 2009 the Company was required to make its semi-annual interest
payments due to the noteholders of its 2005 Subordinated Convertible
Debt.  The Company did not make the required $250,000 interest
payments on December 1, 2009.  The Company is currently in
negotiations with the noteholders to forbear from exercising the remedies under
the agreement due the Company’s failure to make the interest payments when due
on December 1, 2009.  The Company can not make any assurances that it
will reach an agreement with these noteholders.






(g)          
On September 29, 2006, the Company issued capital of $6.5 million in aggregate
principal amount of 5% subordinated convertible debt due September 1,
2013.  The following are the key features of the subordinated
convertible debt: interest accrues on the principal amount of the subordinated
convertible debt at a rate of 5% per annum, payable semi-annually on March 1 and
September 1 of each year. The subordinated convertible debt is due on September
1, 2013 and is convertible, at the option of the holder, into shares of common
stock at a conversion price of $2.00 per share. The conversion price is subject
to adjustment for stock splits, reverse stock splits, recapitalizations and
similar corporate actions. An adjustment in the conversion price is also
triggered upon the issuance of certain equity or equity-linked securities with a
conversion price, exercise price, or share price less than $2.00 per share. The
anti-dilution provisions state the conversion price cannot be lower than $1.00
per share.




The
Company may redeem all or a portion of the subordinated convertible debt after
September 1, 2009 at a redemption price that incorporates a premium that ranges
from 3% to 10% during the period beginning September 1, 2009 and ending on the
due date. The subordinated convertible debt has a registration rights agreement
whereby the Company filed a registration statement registering the resale of the
underlying shares with the SEC.  The Company must maintain the
registration statement in an effective status until the earlier to occur of (i)
the date after which all the registrable shares registered thereunder shall have
been sold and (ii) the second anniversary of the later to occur of (a) the
closing date, and (b) the date on which each warrant has been exercised in full
and after which by the terms of such warrant there are no additional warrant
shares as to which the warrant may become exercisable; provided that in either
case, such date shall be extended by the amount of time of any suspension
period. Thereafter the Company shall be entitled to withdraw the registration
statement, and upon such withdrawal and notice to the investors, the investors
shall have no further right to offer or sell any of the registrable shares
pursuant to the registration statement.




The
Company also issued warrants to purchase an aggregate of 506,250 shares of
common stock to the purchasers of the subordinated convertible debt, 379,688
shares of which vested and remain exercisable and the remaining shares will
never vest.   The warrants were valued based on the fair value of
the Company’s common stock on the issuance date of $1.91 per
share.




F-22
 Table of Contents





Subordinated
Convertible Notes Issued September 29, 2006 at September 30, 2009 and September
30, 2008:




September
      30,
              2009
            
            
            September
      30,
              2008Notional
      balance
            
            $
            6,500,000
            
            
            
            6,500,000Unamortized
      discount
            
            
            (1,844,132
            )
            
            
            (2,314,976
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            4,655,868
            
            
            
            4,185,024







11.    
Common Stock




The
Company is authorized to issue 100,000,000 shares of common
stock.  Each common stockholder is entitled to one vote per share of
common stock owned.






12.    
Common Stock Option / Stock
Incentive Plan




In August
2005, the Company adopted the Wilson Family Communities, Inc. 2005 Stock
Option/Stock Issuance Plan (the “Plan”). The Plan contains two separate equity
programs: (i) the Option Grant Program under which eligible persons may, at the
discretion of the plan administrator, be granted options to purchase shares of
common stock and (ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the plan administrator, be issued shares of common
stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered to the Company or any parent or subsidiary. The
market value of the shares underlying option issuance prior to the merger of the
Company and WFC was determined by the Board as of the grant date. This Plan was
assumed by Green Builders, Inc. The fair value of the options granted under the
Plan was determined by the Board prior to the merger of the Company and
WFC.




The Board
is the plan administrator and has full authority (subject to provisions of the
plan) and it may delegate a committee to carry out the functions of the
administrator. Persons eligible to participate in the plan are employees,
non-employee members of the Board or members of the board of directors of any
parent or subsidiary.




The stock
issued under the Plan shall not exceed 2,500,000 shares. Unless terminated at an
earlier date by action of the Board, the Plan terminates upon the earlier of (i)
the expiration of the ten year period measured from the date the Plan was
adopted by the Board or (ii) the date on which all shares available for issuance
under the Plan have been issued as fully-vested shares.




The
Company had 1,933,437 shares of common stock available for future grants under
the Plan at September 30, 2009.  Compensation expense related to the
Company’s share-based awards for the year ended September 30, 2009 and 2008 was
approximately $154,000 and $835,000, respectively.   These
options are issued pursuant to the Plan and are reflected in the disclosures
below.




During
the year ended September 30, 2009, the Company issued options to purchase shares
of common stock at exercise prices between $.19 and $0.47 per share. Using the
Black-Scholes pricing model with the following weighted-average assumptions:
interest rate of 3.18%; dividend yields of 0%; weighted average expected life of
options of 5 years; and a 60% volatility factor, management estimated the fair
market value of the grants to be between $0.13 to $0.25 per share. Management
estimated the volatility factor based on an average of comparable companies due
to its limited trading history.




A summary
of activity in common stock options for the year ended September 30, 2009 is as
follows:






Share
      Roll
              
              
              Ranges
Of
              
              
              Weighted-AverageForward
              
              
              Exercise
      Prices
              
              
              Exercise
      PriceBalance September 30, 2007
              
              
              1,835,000
              
              
              $1.65
      - $3.25
              
              
              $2.24Granted
              
              
              290,000
              
              
              $0.80
      - $1.78
              
              
              $1.37Forfeited
              
              
              (650,917
              )
              
              $0.86
      - $3.25
              
              
              $1.93Balance
      September 30, 2008
              
              
              1,474,083
              
              
              $0.80
      - $3.25
              
              
              $2.52Grants
              
              
              85,000
              
              
              $0.19
      - $0.47
              
              
              $0.32Forfeited
              
              
              (992,520
              )
              
              $0.23
      - $3.25
              
              
              $2.61Balance
      September 30, 2009
              
              
              566,563
              
              
              $0.19
      - $3.25
              
              
              $2.04


F-23
 Table of Contents





The
following is a summary of options outstanding and exercisable at September 30,
2009:


Outstanding
              VestedWeighted
              
              
              WeightedNumber
      of
              Average
              
              
              AverageShares
      Subject to
              Remaining
              Weighted
              
              Remaining
              WeightedOptions
              Contractual
      Life
              Average
      Exercise
              Number
      of
              Contractual
      Life
              Average
      ExerciseOutstanding
              (in
      years)
              Price
              Vested
      Shares
              (in
      years)
              Price566,563
              7.26
              2.04
              396,968
              7.25
              2.24


At
September 30, 2009, there was approximately $144,000 of unrecognized
compensation expense related to unvested share-based awards granted under the
Company’s Stock Option Plan.  In February 2007, the Company’s Board
approved an 819,522 share increase in the number of shares issuable pursuant to
its option plan for a total of 2,500,000 shares issuable under the
plan.




13.    
Employee Benefits




In 2006,
the Company instituted a defined contribution plan under section 401(k) of the
Internal Revenue Code. The plan allows all employees who are over 21 years old
to defer a predetermined portion of their compensation for federal income tax
purposes. The Company will match 100% up to the first 4% of the employee’s
contribution subject to Internal Revenue Service limitations.  The
Company contributed approximately $41,000 and $42,000 for the year ended
September 30, 2009 and 2008, respectively.




14.    
Intangible Assets




The Company reviews
intangible assets for impairment.  Due to the fact that the Company
has had a history of losses and the overall business is threatened by the
unprecedented downtown in the economy the Company took a full impairment for the
trademark name of Green Builders, Inc. for the year ended September 30,
2008.




15.    
Troubled Debt
Restructuring




In July
2009 the Company received a notice of foreclosure sale from its lender under a
promissory note dated October 12, 2006 in the original principal amount of $
601,625, informing the Company that default had occurred under such promissory
note. The promissory note was secured by a deed of trust creating a lien upon a
69.11 acre tract of land in our New Sweden project. The foreclosure sale was
held on September 1, 2009.  The note was a nonrecourse note and the
gain resulting from the foreclosure was calculated as follows:




Carrying
      amount of debt settled in full
              
              $
              601,625Cancellation
      of accrued interest
              
              
              51,982Debt
      settlement amount
              
              
              653,607Carrying
      amount of asset
              
              
              525,282Gain
      on troubled debt restructuring
              
              $
              128,325





16.    
Quarterly Results
(Unaudited)




The
following tables set forth selected quarterly consolidated statements of
operations information for the quarters ended December 31, 2007 through
September 30, 2009.




Dec.
      31,
              
              
              March
      31,
              
              
              June
      30,
              
              
              Sept,
      30,
              
              
              Dec.
      31,
              
              
              March
      31,
              
              
              June
      30,
              
              
              Sept,
      30,2007
              
              
              2008
              
              
              2008
              
              
              2008
              
              
              2008
              
              
              2009
              
              
              2009
              
              
              2009(In
      thousands)Sales
              
              $
              1,108
              
              
              
              1,142
              
              
              
              3,464
              
              
              
              3,279
              
              
              
              4,583
              
              
              
              3,193
              
              
              
              3,700
              
              
              
              3,041Gross
      profit
              
              $
              399
              
              
              
              514
              
              
              
              378
              
              
              
              (5,686
              )
              
              
              536
              
              
              
              474
              
              
              
              (3,629
              )
              
              
              542Operating
      expenses
              
              $
              1,536
              
              
              
              1,450
              
              
              
              1,602
              
              
              
              2,399
              
              
              
              1,312
              
              
              
              894
              
              
              
              1,152
              
              
              
              1,202Operating
      loss
              
              $
              (1,137
              )
              
              
              (936
              )
              
              
              (1,224
              )
              
              
              (8,085
              )
              
              
              (776
              )
              
              
              (420
              )
              
              
              (4,781
              )
              
              
              (660
              )Net
      loss
              
              $
              (2,357
              )
              
              
              (1,646
              )
              
              
              (2,023
              )
              
              
              (8,807
              )
              
              
              (1,661
              )
              
              
              (1,407
              )
              
              
              (5,678
              )
              
              
              (1,491
              )Basic
      and diluted loss
                per
      share
              
              $
              (0.10
              )
              
              
              (0.07
              )
              
              
              (0.09
              )
              
              
              (0.38
              )
              
              
              (0.07
              )
              
              
              (0.06
              )
              
              
              (0.25
              )
              
              
              (0.06
              )
  F-24
 Table of Contents





17.    
Subsequent Events




In
November 2009 Green Builders, Inc. the Company received a notice of foreclosure
sale from its lender under a promissory note dated October 12, 2006 in the
original principal amount of $814,258, informing the Company that default has
occurred under such promissory note.  The promissory note is secured
by a deed of trust creating a lien upon a 66.47 acre tract of
land in the Company’s New Sweden project.  The Company has not
made interest payments on the promissory note since October 2008 which triggered
the event of default.  The foreclosure sale was held on December 1,
2009.





In
November 2009 the Company received notice of foreclosure sale from its lender
under a promissory note dated October 12, 2006 in the original principal amount
of $600,490, informing the Company that a default has occurred under such
promissory note.  The promissory note is secured by a deed of trust
creating a lien upon a 62.59 acre tract of land in the Company’s New Sweden
project.  The Company has not made interest payments on the promissory
note since October 2008 which triggered the event of default.  The
foreclosure sale was held on December 1, 2009.





In
November 2009 the Company received notice of foreclosure sale from its lender
under a promissory note dated October 12, 2006 in the original principal amount
of $458,248, informing the Company that a default has occurred under such
promissory note.  The promissory note is secured by a deed of trust
creating a lien upon a 37.41 acre tract of land in the Company’s New Sweden
project.  The Company has not made interest payments on the promissory
note since October 2008 which triggered the event of default.  The
foreclosure sale was held on December 1, 2009.





Each of
the promissory notes described above are nonrecourse notes. The Company is
currently holding the properties securing each such promissory note on its books
for less than the amount owed.  As such, when these properties were
foreclosed the Company recognized a gain.  See footnote 4 for the
calculation of the gain.





On
December 1, 2009 the Company was required to make its semi-annual interest
payments due to the noteholders of its 2005 Subordinated Convertible
Debt.  The Company did not make the required $250,000 interest
payments on December 1, 2009.  The Company is currently in
negotiations with the noteholders to forbear from exercising the remedies under
the agreement due the Company’s failure to make the interest payments when due
on December 1, 2009.  The Company can not make any assurances that it
will reach an agreement with these noteholders.