UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
   FORM
10-QSB
  x
            
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE
      ACTOF
      1934For
      the quarterly period ended:  JUNE 30, 2008o
            
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934For
      the transition period from
            
            to
  Commission file number:
000-23819
 ———————————
  GREEN
      BUILDERS, INC.(Exact Name of Small
      Business Issuer as Specified in Its
Charter)
 Texas
            
            76-0547762(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S
      Employer Identification No.)8121
      Bee Caves Rd., Austin, TX 78746(Address
      of Principal Executive Offices)512-732-0932(Issuer's
      Telephone Number)(Former
      Name)
   Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter time
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
  Yes xNo o
  Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act):
  Yes o   No x
  State the number of shares
outstanding of each of the issuer’s classes of common equity as of the latest
practicable date: As of August 13, 2008, the registrant
had 23,135,539 shares of common stock, par value $0.001,
outstanding.
  Transitional
Small Business Issuer Disclosure Format:  Yes oNo x
  
 
 Index
   PART I –
      FINANCIAL INFORMATIONItem 1.
            Financial
      Statements
            1Item 2.
            Management’sDiscussion and Analysis or Plan of
      Operation
            20Item 3.
            Controls and
      Procedures
            29PART II –
      OTHER INFORMATIONItem 1.
            Legal
      Proceedings
            30Item 2.
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            30Item 3.
            Defaults Upon
      Senior Securities
            30Item 4.
            Submission of
      Matters to a Vote of Security Holders
            30Item 5.
            Other
      Information
            31Item 6.
            Exhibits
            31
 
  i
 Table of Contents
    CAUTION
REGARDING FORWARD-LOOKING INFORMATION
  This
Quarterly Report on Form 10-QSB 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.
  Forward-looking
statements and information are based on current beliefs as well as assumptions
made by, and information currently available to, us concerning anticipated
financial performance, business prospects and strategies. Although management
considers these assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect. The forward-looking statements
in this Quarterly Report on Form 10-QSB are made as of the date it was issued
and we do not undertake any obligation to update publicly or to revise any of
the included forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable law.
 
 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.
 
 Please
see Part 1, Item 1A – “Risk Factors” of our Annual Report on Form 10-KSB for the
transitional period ended September 30, 2007, as well as the “Risk Factors”
contained in Part I, Item 2 – “Management’s Discussion and Analysis or Plan of
Operation” in this quarterly report on Form 10-QSB.  In addition, new
risk factors emerge from time to time and it is not possible for us to predict
all such factors, nor to assess the impact such factors might have on our
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual
results.
  Whenever
we refer in this report 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 and GB Operations, Inc, a Texas corporation.
  ii
 Table of Contents
  Item
1.      Financial Statements
 
 GREEN BUILDERS, INC.Consolidated
      Balance SheetsAs
      of June 30, 2008 and September 30, 2007(Unaudited)June
      30, 2008
              
              
              September
      30, 2007Cash
      and cash equivalents
              
              $
              4,802,649
              
              
              
              13,073,214Restricted
      cash
              
              
              179,401
              
              
              
              -InventoryLand
      and land development
              
              
              39,008,507
              
              
              
              32,463,411Homebuilding
      inventories
              
              
              9,863,849
              
              
              
              2,843,704Total
      inventory
              
              
              48,872,357
              
              
              
              35,307,116Other
      assets
              
              
              983,254
              
              
              
              729,471Debt
      issuance costs, net of amortization
              
              
              1,087,459
              
              
              
              1,265,218Equipment
      and software, net of accumulated depreciation and amortization of
                $66,882
      and $32,294, respectively
              
              
              291,563
              
              
              
              232,357Total
      assets
              
              
              56,216,682
              
              
              
              50,607,375LIABILITIES
      AND STOCKHOLDERS' EQUITYAccounts
      payable
              
              
              1,994,504
              
              
              
              1,404,151Accrued
      real estate taxes payable
              
              
              755,459
              
              
              
              405,060Accrued
      liabilities and expenses
              
              
              453,320
              
              
              
              215,372Accrued
      interest
              
              
              233,170
              
              
              
              464,809Deferred
      revenue
              
              
              -
              
              
              
              159,381Notes
      payable and lines of credit
              
              
              30,232,825
              
              
              
              20,638,358Subordinated
      convertible debt, net of $2,826,459 and $3,245,220 discount,
                respectively
              
              
              13,673,541
              
              
              
              13,254,780Total
      liabilities
              
              
              47,342,818
              
              
              
              36,541,911STOCKHOLDERS'
      EQUITYCommon
      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
              
              
              27,874,211
              
              
              
              27,040,304Retained
      deficit
              
              
              (19,023,483
              )
              
              
              (12,997,976
              )Total
      stockholders' equity
              
              
              8,873,864
              
              
              
              14,065,464Commitments
      and contingencies
              
              
              -
              
              
              
              -Total
      liabilities and stockholders' equity
              
              $
              56,216,682
              
              
              
              50,607,375
   See
accompanying notes to the consolidated financial statements.
  1
 Table of Contents
   GREEN
      BUILDERS, INC.Consolidated
      Statements of OperationsFor
      the Three and Nine Months Ended June 30, 2008 and
  2007Three
      Months Ended June 30,
              
              
              Nine
      Months Ended June 30,2008
              
              2007
              
              
              2008
              
              2007(Unaudited)
              
              (Unaudited)
              
              
              (Unaudited)
              (Unaudited)Revenues:Homebuilding
      and related services
              $
              2,754,424
              
              320,000
              
              
              3,238,934
              
              2,150,165Land
      sales
              
              709,345
              
              1,064,178
              
              
              2,474,693
              
              2,471,048Total
      revenues
              
              3,463,769
              
              1,384,178
              
              
              5,713,627
              
              4,621,213Cost
      of revenues:Homebuilding
      and related services
              2,540,740
              
              206,038
              
              
              2,946,298
              
              1,549,091Land
      sales
              
              544,997
              
              2,001,031
              
              
              1,476,536
              
              3,250,409Total
      cost of revenues
              
              3,085,738
              
              2,207,069
              
              
              4,422,835
              
              4,799,500Gross
      profit:Homebuilding
      and related services
              213,684
              
              113,962
              
              
              292,636
              
              601,074Land
      sales
              
              164,347
              
              (936,853)
              
              
              998,157
              
              (779,360)Total
      gross profit
              
              378,031
              
              (822,891)
              
              
              1,290,793
              
              (178,287)Costs
      and expenses:Corporate
      general and administration
              964,714
              
              1,547,094
              
              
              3,594,672
              
              3,528,582Sales
      and marketing
              
              637,455
              
              284,259
              
              
              1,394,003
              
              733,038Total
      costs and expenses
              
              1,602,169
              
              1,831,353
              
              
              4,988,675
              
              4,261,620Operating
      loss
              
              (1,224,138)
              
              (2,654,244)
              
              
              (3,697,882)
              
              (4,439,907)Other
      income (expense):Loss
      on fair value of derivatives
              
              -
              
              -
              
              
              -
              
              (5,076,957)Interest
      and other income
              
              110,788
              
              102,386
              
              
              269,746
              
              180,379Interest
      expense
              
              (909,356)
              
              (763,911)
              
              
              (2,597,370)
              
              (2,100,655)Total
      other expense
              
              (798,568)
              
              (661,525)
              
              
              (2,327,624)
              
              (6,997,233)Net
      loss
              $
              (2,022,707)
              
              (3,315,769)
              
              
              (6,025,506)
              
              (11,437,140)Basic
      and diluted loss per share
              $
              (0.09)
              
              (0.16)
              
              
              (0.26)
              
              (0.61)Basic
      and diluted weighted average common
                shares
      outstanding
              23,135,539
              
              20,568,871
              
              
              23,135,539
              
              18,777,011
   See
accompanying notes to the consolidated financial statements.
   2
 Table of Contents
 
 GREEN
      BUILDERS, INC.Consolidated
      Statements of Cash FlowsFor
      the Nine Months Ended June 30, 2008 and 20072008
              
              
              2007(Unaudited)
              
              
              (Unaudited)Cash
      flows from operating activities:Net
      loss
              
              $
              (6,025,506
              )
              
              
              (11,437,140
              )Non
      cash adjustments:Loss
      on fair value of derivatives
              
              
              -
              
              
              
              5,076,957Amortization
      of convertible debt discount
              
              
              418,761
              
              
              
              777,990Amortization
      of debt issuance costs
              
              
              177,759
              
              
              
              191,689Stock-based
      compensation expense
              
              
              758,907
              
              
              
              399,909Services
      provided without compensation by principal shareholders
              
              
              75,000
              
              
              
              -Depreciation
      and amortization
              
              
              332,805
              
              
              
              61,398Loss
      on land option purchase
              
              
              
              
              
              
              1,254,968Adjustments
      to reconcile net loss to net cash used in operating
      activities:
              
              
              
              -Increase
      in total inventory
              
              
              (13,565,241
              )
              
              
              (5,552,323
              )Increase
      in other assets
              
              
              (553,264
              )
              
              
              (234,895
              )Increase
      in accounts payable
              
              
              590,353
              
              
              
              264,282Increase
      in real estate taxes payable
              
              
              350,399
              
              
              
              418,161Increase  in
      accrued expenses
              
              
              237,947
              
              
              
              286,936Increase
      in restricted cash
              
              
              (179,401
              )
              
              
              -Decrease
      in deferred revenue
              
              
              (159,381
              )
              
              
              9,821Increase
      (decrease) in accrued interest
              
              
              (231,639
              )
              
              
              186,830Net
      cash used in operating activities
              
              
              (17,772,501
              )
              
              
              (8,295,417
              )Cash
      flows from investing activities:Purchase
      of fixed assets
              
              
              (92,530
              )
              
              
              (24,057
              )Cash
      paid for Green Builders, Inc
              
              
              -
              
              
              
              (32,919
              )Net
      cash used in investing activities
              
              
              (92,530
              )
              
              
              (56,976
              )Cash
      flows from financing activities:Issuances
      (repayments) of notes payable and lines of credit, net
              
              
              9,594,466
              
              
              
              1,496,481Proceeds
      from issuance of subordinated conv debt
              
              
              -
              
              
              
              250,000Common
      stock sales, net of transaction costs
              
              
              -
              
              
              
              13,739,347Cash
      paid for debt issuance costs
              
              
              -
              
              
              
              (41,172
              )Net
      cash provided by financing activities
              
              
              9,594,466
              
              
              
              15,444,656Net
      decrease in cash and cash equivalents
              
              
              (8,270,565
              )
              
              
              7,092,263Cash
      and cash equivalents at beginning of period
              
              
              13,073,214
              
              
              
              8,803,777Cash
      and cash equivalents at end of period
              
              $
              4,802,649
              
              
              
              15,896,040Cash
      paid for interest
              
              $
              2,574,671
              
              
              
              1,717,088Cash
      paid for income taxes
              
              $
              -
              
              
              
              -Non
      cash in financing activities:Assets
      and Liabilities acquired from Green Builders, Inc.Accounts
      Receivable
              
              $
              -
              
              
              
              2,900Accounts
      Payable
              
              $
              -
              
              
              
              6,190Issuance
      of common stock for notes payable, cancellation of notes payable
      in
                exchange
      for cancellation of subordinated debt
              
              $
              -
              
              
              
              250,000
   See
accompanying notes to the consolidated financial statements.
  3
 Table of Contents
  (1)         
Organization and Business Activity
  Green
Builders, Inc., (the “Company”), is a Texas corporation formerly known as Wilson
Holdings, Inc, a Nevada corporation.  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 will now govern 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 will continue
to do so.  Effective April 8, 2008, the Company’s common stock began
trading under the symbol “GBH” on the American Stock Exchange.
  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
consolidated financial statements and the notes of the Company for the three
months and nine months ending June 30, 2008 and 2007 have been prepared by
management without audit pursuant to rules and regulations of the Securities
Exchange Commission and should be read in conjunction with the September 30,
2007 audited financials statements contained in the Company’s Annual Report on
10-KSB for the transitional period from January 1, 2007 to September 30,
2007.  In the opinion of management, all normal, recurring adjustments
necessary for the fair presentation of such financial information have been
included. 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 amounts reported in
the financial statements and accompanying notes. Certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted.
  (2)          
Summary of Significant Accounting Policies
  (a)           Revenue
Recognition
  Revenues
from property sales are recognized in accordance with SFAS No. 66, “Accounting
for Sales of Real Estate.”  Revenues from land development services to
builders 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.  For projects that are consolidated, homebuilding revenues
and services will be categorized as homebuilding revenues and revenues from
property sales or options will be categorized as land sales.
  (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.
  The
Company has restricted cash of $179,401 with a financial institution as part of
a letter of credit issued for Georgetown Village development.
  (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 market
value.  Inventory costs include land, land development costs, deposits
on land purchase contracts, model home construction costs, capitalized interest,
real estate taxes incurred during development and construction phases, and
homebuilding costs.  No significant impairments of inventory were
recorded in 2007 or 2008.
  (d)           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.
  4
 Table of Contents
  (e)           Municipal
Utility and Water District Reimbursements
  The
Company owns one property located in a Municipal Utility District (MUD) and one
property located in a Water Control and Improvement District (WCID). The Company
incurs development costs for water, sewage lines and associated treatment plants
and other development costs and fees for these properties. Under the agreement
with the districts, the Company expects to be reimbursed partially for the above
developments 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 District, 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 June 30, 2008.  The
Company has completed Phase 1 for the Rutherford West project and has
approximately $980,000 of Water Control and Improvement District reimbursements
included in inventory that it anticipates it will collect from bond issuances
made by the district.  The Company anticipates the first reimbursement
will be approximately $500,000 in March 2009.  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 to the actual
reimbursements, it could have a material effect on our financial
statements.
  (f)           Subordinated
Convertible Debt
  The
company’s subordinated convertible debt and the related warrants have been
accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,” EITF No. 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” EITF 00-27, “Application of issue 98-5 to Certain
Convertible Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt
Instrument’ in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19
updated with FSP EITF 00-19-2,  “Accounting for Registration Payment
Arrangements”.
  (g)           Loss
Per Common Share
  Earnings
per share is accounted for in accordance with SFAS No. 128, “Earnings per
Share,” 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 at June
30, 2008 and 2007 because the effect would be anti-dilutive as summarized in the
table below:
  June
      30,2008
              
              
              2007Stock
      options
              
              
              1,616,148
              
              
              
              1,710,000Common
      stock warrants
              
              
              1,143,125
              
              
              
              1,143,125Subordinated
      convertible debt warrants
              
              
              8,250,000
              
              
              
              8,375,000Total
              
              
              11,009,273
              
              
              
              11,228,125
  5
 Table of Contents
  (h)          Reclassification
  Certain
prior period amounts have been reclassified to conform to current period
presentation.
   (i)           Adoption
of New Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair
value to measure assets and liabilities. The standard also responds to
investors’ request for expanded information about the extent to which a company
measures assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. SFAS 157
will be effective for the Company’s fiscal year beginning October 1, 2008. The
Company is currently reviewing the effect SFAS 157 will have on its
financial statements.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — Including an amendment of
FASB Statement No. 115.” The statement permits entities to choose to
measure certain financial assets and liabilities at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
reported in earnings. SFAS No. 159 will be effective for the Company’s
fiscal year beginning October 1, 2008. The Company is currently evaluating the
impact of the adoption of SFAS No. 159; however, it is not expected to
have a material impact on the Company’s consolidated financial position, results
of operations or cash flows.
  In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" (FAS
141(R)), which establishes accounting principles and disclosure requirements for
all transactions in which a company obtainscontrol over another
business.  SFAS 141R is effective for business combinations that close
on or after December 1, 2009. The Company does not expect the adoption of
SFAS 141R to have a material effect on its consolidated financial
statements.
  In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" (FAS 160), which prescribes the accounting by
a parent company for minority interests held by other parties in a subsidiary of
the parent company.  SFAS 160 is effective for the Company’s fiscal
year beginning December 1, 2009. The Company is evaluating the impact the
adoption of SFAS 160 will have on its consolidated financial
statements.
  In March
2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and
Hedging Activities – an amendment of FASB Statement No. 133, (“SFAS 161”). SFAS
161 expands the disclosure requirements in SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, regarding an entity’s derivative instruments
and hedging activities. SFAS 161 is effective for the Company’s fiscal year
beginning December 1, 2008. The Company does not expect the adoption of
SFAS 161 to have a material effect on its consolidated financial
statements.
   (3)         Liquidity
and Capital Resources
  Liquidity
  At June
30, 2008, the Company had approximately $4.9 million in cash and cash
equivalents. The Company completed a public offering of common stock in May
2007, resulting in net proceeds of approximately $14 million.
  On June
29, 2007, Green Builders 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.  The Credit Facility allows the
Company to obtain revolving credit loans and provides for the issuance of
letters of credit. The amount available at any time under the Credit Facility
for revolving credit loans or the issuance of letters of credit is determined by
a borrowing base. The borrowing base is calculated as the sum of the values for
homes and lots in the subdivision to be developed as agreed to by the Company
and the agent.  The Company’s obligations under the Credit Facility
will be secured by the assets of each subdivision to be developed with the
proceeds of loans available under the Credit Facility.
  On June
23, 2008, the Company entered into an Agreement to Modify the Loan
Documents. The Modification Agreement modified the terms of the Loan Agreement
by reducing the loan commitment amount from $55 million to $30 million, changing
the guarantor under the loan from Wilson Holdings, Inc. (our predecessor entity)
to the Company, and modifying certain limitations under the Loan
Agreement.
  6
 Table of Contents
  The
initial maturity date for the Credit Facility was June 29, 2008.  On
July 2, 2008, the Company entered into a Second Agreement to Modify Loan
Documents.  The Modification Agreement modified the terms of the Loan
Agreement by (i) extending the loan termination date from June 29, 2008 to
August 29, 2008, (ii) forbearing our non-compliance with (A) the existing Spec
Home limitation set forth in the Loan Agreement and (B) the developed lot
limitation set forth in the Loan Agreement, both through August 29, 2008, and
(iii) clarifying that in spite of such non-compliance that we will continue to
be entitled to borrow funds pursuant to the Loan Agreement.  No
payments were made in consideration for the Modification Agreement.
  The
facility will be reviewed by our syndicate of banks and renewed for successive
monthly periods, so long as the following items have been
satisfied:  no event of default shall exist, no material adverse
effect in the financial condition, operations, business or management of Green
Builders shall exist and extension fees in the amount determined by the agent
and all costs associated incurred in connection with the proposed extension must
be paid.  The final borrowing base calculation will be made twelve
months prior to the termination of the Credit Facility and no borrowings may be
made in excess of such amount.  As of June 30, 2008, the Credit
Facility has loaned the Company approximately $15.8 million and has issued a
$179 thousand letter of credit.
  Outstanding
borrowings under the Credit Facility bear interest at the prime rate plus 0.25%,
with a floor of 5.5%.  The Company is charged a letter of credit fee
equal to 1.10% of each letter of credit issued under the Credit Facility. The
Credit Facility may be prepaid without premium or penalty.  Quarterly
principal reductions will be required during the final 12 months of the
term.
  The
Company’s growth will require substantial amounts of cash for earnest money
deposits, land purchases, development costs, interest payments and homebuilding
costs. Until we begin to sell an adequate number of lots and homes to cover
monthly operating expenses, our sales, marketing, general and administrative
costs will deplete cash. To maintain its liquidity, the Company has financed the
majority of its land and development activities with debt, and believes it can
continue to do so in the future through a combination of conventional and
subordinated convertible debt, joint venture financing, sales of selected lot
positions, sales of land and lot options.  The Company may be required
to raise additional capital and/or enter into joint ventures to support growth
and operations for the next twelve months.
  Capital
Resources
  The
Company has raised approximately $16.5 million of subordinated convertible debt,
and approximately $14 million in a public offering of the Company’s common stock
completed in May 2007. The Company also has a $30 million revolving Credit
Facility mentioned previously.
  Due to
current conditions in the market, the Company has seen a slowdown in revenue
from home and lot sales.  The Company anticipates that it will incur
significant losses in 2008.  Due to current market conditions and slow
home and land sales, the Company may need to raise additional capital and/or
enter into joint ventures to support future growth and current operations for
the next twelve months.  See risk factors below.
  Land and
homes under construction compose the majority of the Company’s assets, which
could suffer devaluation if the housing and real estate market suffers a
significant downturn due to interest rate increases or other
reasons.  If we are not in compliance with our debt covenants, we may
be required to repay our debt sooner than anticipated requiring liquidation of
assets or the use of cash to satisfy its debt obligations.  A
significant downturn could also make it more difficult for the Company to
liquidate assets, to raise cash and to pay off debts, which could have a
material adverse effect.
   (4)        
  Inventory
  The
Company’s land inventory includes real estate held for sale or under development
and earnest money on land purchase options. Construction in progress includes
development costs, prepaid development costs, and development costs on land
under option but not owned. Homebuilding inventory represents speculative homes
under construction.  The Company expects the homebuilding inventory to
increase as it continues to build in its current communities and as it looks to
build in additional communities.
  Earnest
money deposits for land costs and development costs on land under option, not
owned, totaled approximately $695,000 at June 30, 2008 and September 30, 2007,
of which approximately $645,000 is non-refundable if the Company does not
exercise the option and purchase the land.
  7
 Table of Contents
  As of
June 30, 2008 the Company owned approximately 1,191 acres of unfinished
acreage.   The Company completed Section 9 of Georgetown Village
in June 2008.  In addition, the Company completed Phase 1 in
Rutherford West in 2007 and Phase 6 in Georgetown Village in 2006.
  In April
2007, 10 acres of the Company’s Highway 183 project was condemned by the State
of Texas.  In July 2007 the Company received final judgment from the
State of Texas and received proceeds of approximately $410,000 for the condemned
land.  The Company sold and closed the remaining 5 acres in December
2007 for approximately $190,000.
  Effective
July 2007, the Company temporarily suspended development of phases 2 through 5
of Rutherford West.  From that date, all interest costs related to
holding this property has been recorded as an expense.
  Below is
a summary of the property completed, owned or under contract by the Company at
June 30, 2008:
  
 Property
            
            Finished
      Lots/Homes
            
            
            Owned
              Unfinished
      Acreage
            
            
            Approximate
              Acreage
      Under
              Option
            
            
            Land
      and Project Costs
              at
      June 30, 2008
              (in
      thousands)
            
            Texas
              CountyRutherford
      West
            
            
            42
            
            
            
            521
            
            
            
            n/a
            
            
            
            12,268
            
            HaysGeorgetown
      Village
            
            
            135
            
            
            
            119
            
            
            
            419
            
            
            
            10,282
            
            WilliamsonVillages
      of New Sweden
            
            
            -
            
            
            
            521
            
            
            
            -
            
            
            
            10,955
            
            TravisElm
      Grove
            
            
            83
            
            
            
            30
            
            
            
            31
            
            
            
            5,349
            
            HaysOther
      land projects
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            155Sub-total
      land
            
            
            260
            
            
            
            1,191
            
            
            
            450
            
            
            
            39,009Homebuilding
      inventory
            
            
            13
            
            
            
            -
            
            
            
            -
            
            
            
            9,864Total
      inventory
            
            
            273
            
            
            
            1,191
            
            
            
            450
            
            
            
            48,872
 
 
 Below is
a summary of the property completed, owned or under contract by the Company at
September 30, 2007:
  Property
            
            Finished
      Lots/Homes
            
            
            Owned
              Unfinished
      Acreage
            
            
            Approximate
              Acreage
      Under
              Option
            
            
            Land
      and Project Costs
              at
      Sept. 30, 2007
              (in
      thousands)
            
            Texas
              CountyRutherford
      West
            
            
            54
            
            
            
            521
            
            
            
            n/a
            
            
            $
            12,369
            
            HaysHighway
      183
            
            
            -
            
            
            
            5
            
            
            
            n/a
            
            
            
            113
            
            TravisGeorgetown
      Village
            
            
            50
            
            
            
            149
            
            
            
            419
            
            
            
            6,199
            
            WilliamsonVillages
      of New Sweden
            
            
            -
            
            
            
            521
            
            
            
            -
            
            
            
            10,716
            
            TravisElm
      Grove
            
            
            -
            
            
            
            30
            
            
            
            61
            
            
            
            3,011
            
            HaysOther
      land projects
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            55Sub-total
      land
            
            
            104
            
            
            
            1,226
            
            
            
            480
            
            
            $
            32,463Homebuilding
      inventory
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,844Total
      inventory
            
            
            104
            
            
            
            1,226
            
            
            
            480
            
            
            $
            35,307
 
 (5)         
Consolidation of Variable Interest Entities
  At
December 31, 2006, the Company determined it was the primary beneficiary in
certain homebuilder agreements as defined under FASB Interpretation No. 46(R)
(“FIN 46(R)”), “Consolidation of Variable Interest Entities” (VIEs), because the
Company has a significant, but less than controlling, interest in certain
entities also party to the homebuilder agreements. The results of these clients
have been consolidated into its financial statements for the three and nine
months ended June 30, 2007.
  On June
19, 2007, the Company purchased one of its VIEs, Green Builders, Inc, now a
wholly owned subsidiary of the Company, and commenced homebuilding operations
under the name Green Builders.  The Company ceased providing services
to its homebuilder clients and terminated its relationship with its final
homebuilder client on August 2, 2007 subsequent to the sale of all the homes for
which the Company had guaranteed the loans.  There was no
consolidation of VIEs for the three months and nine months ended June 30,
2008.
  8
 Table of Contents
   Below
is a summary of the effect of the consolidation of these entities for the three
months ended June 30, 2007.
  Three
      Months Ended June 30, 2007WFC
              
              
              VIEs
              
              
              
              Consolidating
      entries
              
              
              ConsolidatedRevenues
              
              
              1,080,288
              
              
              
              320,000
              
              (a)
              
              
              (16,110
              )
              
              
              1,384,178ExpensesCost
      of Revenues
              
              
              2,001,031
              
              
              
              222,148
              
              (a)
              
              
              (16,110
              )
              
              
              2,207,069General,
      administrative, sales and marketing
              
              
              1,758,571
              
              
              
              83,912
              
              (b)
              
              
              (11,130
              )
              
              
              1,831,353Costs
      and expenses before interest
              
              
              3,759,602
              
              
              
              306,060
              
              
              
              
              (27,240
              )
              
              
              4,038,422Operating
      income/(loss)
              
              
              (2,679,314
              )
              
              
              13,940
              
              
              
              
              11,130
              
              
              
              (2,654,244
              )
  (a)
            Eliminates
      WFC revenues in VIE expenses, eliminates VIE expenses in
    WFC.
 
 
 Below is
a summary of the effect of the consolidation of these entities for the nine
months ended June 30, 2007.
  Nine
      Months Ended June 30, 2007WFC
                
                
                VIEs
                
                
                
                Consolidating
      entries
                
                
                ConsolidatedRevenues
                
                
                2,819,127
                
                
                
                2,150,165
                
                (a)
                
                
                (348,079
                )
                
                
                4,621,213ExpensesCost
      of Revenues
                
                
                3,343,802
                
                
                
                1,811,265
                
                (a)
                
                
                (355,567
                )
                
                
                4,799,501General,
      administrative, sales and marketing
                
                
                3,928,446
                
                
                
                377,949
                
                
                
                
                (44,774
                )
                
                
                4,261,620Costs
      and expenses before interest
                
                
                7,272,248
                
                
                
                2,189,214
                
                
                
                
                (400,341
                )
                
                
                9,061,121Operating
      income/(loss)
                
                
                (4,453,121
                )
                
                
                (39,049
                )
                
                
                
                52,262
                
                
                
                (4,439,908
                )
 
  
 (b)
            Eliminates
      WFC revenues in VIE expenses, eliminates VIE expenses in
    WFC.
   (6)         
 Operating and Reporting Segments
  The
Company has two reporting segments: homebuilding and related services, and land
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 and services provided to homebuilders. The Company is
required to consolidate its homebuilder services clients per FIN 46(R). The
Company identifies the clients it consolidates as “VIEs.” Land sales consist of
land in various stages of development sold, including finished lots. 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. Depreciation expense is included in selling, general and
administrative and is immaterial.
  The
following table presents segment operating results before taxes for the three
months ended June 30, 2008 and 2007:
  2008
              
              
              2007Homebuilding
                and
      Related
                Services
              
              
              Land
      Sales
              
              
              Total
              
              
              Homebuilding
                and
      Related
                Services
              
              
              Land
      Sales
              
              
              TotalRevenues
      from external customers
              
              $
              2,754,424
              
              
              
              709,345
              
              
              
              3,463,769
              
              
              
              320,000
              
              
              
              1,064,178
              
              
              
              1,384,178Costs
      and expenses:
              
              
              -
              
              
              
              -Cost
      of revenues
              
              
              2,540,740
              
              
              
              544,997
              
              
              
              3,085,738
              
              
              
              206,038
              
              
              
              2,001,031
              
              
              
              2,207,069Selling,
      general and administrative
              
              
              1,101,337
              
              
              
              500,832
              
              
              
              1,602,169
              
              
              
              1,198,281
              
              
              
              633,072
              
              
              
              1,831,353Loss
      on fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      & other income
              
              
              (60,933
              )
              
              
              (49,854
              )
              
              
              (110,788
              )
              
              
              (47,648
              )
              
              
              (54,738
              )
              
              
              (102,386
              )Interest
      expense
              
              
              202,138
              
              
              
              707,218
              
              
              
              909,356
              
              
              
              276,853
              
              
              
              487,058
              
              
              
              763,911Total
      costs and expenses
              
              
              3,783,282
              
              
              
              1,703,193
              
              
              
              5,486,475
              
              
              
              1,633,524
              
              
              
              3,066,423
              
              
              
              4,699,947Loss
      before taxes
              
              $
              (1,028,858
              )
              
              
              (993,849
              )
              
              
              (2,022,707
              )
              
              
              (1,313,524
              )
              
              
              (2,002,245
              )
              
              
              (3,315,769
              )Segment
      Assets
              
              $
              14,207,313
              
              
              
              42,009,369
              
              
              
              56,216,682
              
              
              
              9,907,341
              
              
              
              39,697,025
              
              
              
              49,604,366Capital
      expenditures
              
              $
              18,460
              
              
              
              2,051
              
              
              
              20,511
              
              
              
              9,878
              
              
              
              -
              
              
              
              9,878
  9
 Table of Contents
  The following table
presents segment operating results before taxes for the nine months ended June
30, 2008 and 2007:
  2008
              
              
              2007Homebuilding
                and
      Related
                Services
              
              
              Land
      Sales
              
              
              Total
              
              
              Homebuilding
                and
      Related
                Services
              
              
              Land
      Sales
              
              
              TotalRevenues
      from external customers
              
              $
              3,238,934
              
              
              
              2,474,693
              
              
              
              5,713,627
              
              
              
              2,150,165
              
              
              
              2,471,048
              
              
              
              4,621,213Costs
      and expenses:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -Cost
      of revenues
              
              
              2,946,298
              
              
              
              1,476,536
              
              
              
              4,422,835
              
              
              
              1,549,092
              
              
              
              3,250,408
              
              
              
              4,799,501Selling,
      general and administrative
              
              
              3,361,690
              
              
              
              1,626,985
              
              
              
              4,988,675
              
              
              
              2,686,503
              
              
              
              1,575,118
              
              
              
              4,261,620Loss
      on fair value of derivatives
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,076,957
              
              
              
              5,076,957Interest
      & other income
              
              
              (148,360
              )
              
              
              (121,386
              )
              
              
              (269,746
              )
              
              
              (59,648
              )
              
              
              (120,731
              )
              
              
              (180,379
              )Interest
      expense
              
              
              623,655
              
              
              
              1,973,715
              
              
              
              2,597,370
              
              
              
              1,251,365
              
              
              
              849,290
              
              
              
              2,100,655Total
      costs and expenses
              
              
              6,783,283
              
              
              
              4,955,851
              
              
              
              11,739,134
              
              
              
              5,427,312
              
              
              
              10,631,042
              
              
              
              16,058,354Loss
      before taxes
              
              $
              (3,544,349
              )
              
              
              (2,481,158
              )
              
              
              (6,025,506
              )
              
              
              (3,277,147
              )
              
              
              (8,159,994
              )
              
              
              (11,437,141
              )Segment
      Assets
              
              $
              14,207,313
              
              
              
              42,009,369
              
              
              
              56,216,682
              
              
              
              9,907,341
              
              
              
              39,697,025
              
              
              
              49,604,366Capital
      expenditures
              
              $
              83,277
              
              
              
              9,253
              
              
              
              92,530
              
              
              
              147,344
              
              
              
              (67,050
              )
              
              
              80,294
   (7)          
Related Party Transactions
  Issuance
of Convertible Debt
  Barry A.
Williamson is a member of our board of directors and, until January 31,
2006, was a member of the board of directors of Tejas Incorporated, the parent
company of our Placement Agent for the sale of our convertible notes.
Mr. Williamson was re-elected to the board of directors of Tejas
Incorporated in November 2006.
  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
$11,000 per month for 36 months. The lease was with a subsidiary of Tejas
Incorporated until January 2008.  In January 2008 the building being
leased was bought by an unrelated party.  The Company believes that
the lease is paid at fair market value for similar space in the Austin, Texas
commercial real estate market.
  In
December 2006, Tejas Securities Group, Inc. exercised 535,000 warrants,
exercisable at $2.00 per share, in a cashless exercise netting the warrant
holder 348,913 shares of common stock.
  Consulting
Arrangement with Audrey Wilson
  In
February 2007 the Company entered into a consulting agreement with Audrey
Wilson, the wife of Clark N. Wilson, our President and Chief Executive Officer.
Pursuant to the consulting agreement, the Company has 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 our marketing strategy for marketing and
sale of land to homebuilders.  Subsequent to the completion of the six
month period in July 2007, Ms. Wilson continues to provide consulting services
to the Company at no cost to the Company.  In accordance with Staff
Accounting Bulletin 5A, for the nine months ended June 30, 2008, the Company has
recorded $75,000 as compensation expense and credited equity for three months of
services recorded at fair market value. On May 13, 2008, the consulting
agreement was re-instated and Ms. Wilson will be paid $10,000 per month for a
maximum of 12 months.  The company paid Audrey Wilson $5,000 for the
nine months ended June 30, 2008.
  Vendor
Payments
  The
Company has entered into contractual work agreements with Wilson
Roofing.  Wilson Roofing is owned by relatives of Clark N. Wilson, our
President and Chief Executive Officer.  The company paid Wilson
Roofing approximately $50,000 and $266,000 for the three and nine months ended
June 30, 2008.  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 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.   In the next twelve months, the Company has a land
option takedown for Phase 3 of Elm Grove Development in December
2008.   The purchase price of the land is $1.26 million, of which
the Company has $400,000 in earnest money already down.  The Company
anticipates financing the purchase through a land loan with its credit facility
with RBC.
  10
 Table of Contents
  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
$11,000 per month through October 2009. The Company also has office equipment
leases and trailers. The Company’s future minimum lease payments for future
fiscal years are as follows:
  2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012Lease
      obligations
            
            $
            38,754
            
            
            $
            152,001
            
            
            $
            17,097
            
            
            $
            240
            
            
            $
            240
  Employment
Agreements with Executive Officers
  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 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.
  Consulting
Arrangement with Arun Khurana
  On
September 18, 2007, the Company entered into a consulting agreement with Arun
Khurana, its Vice President and Chief Financial Officer, pursuant to which Mr.
Khurana will transition from his position as an executive officer of the Company
into a consulting role, beginning December 31, 2007 and ending on October 31,
2008.  The transition into a consulting role is a part of the
Company’s efforts to reduce its expenditures through fiscal 2008 as the Company
has decided to focus its efforts on commencing its homebuilding
operations.
  Pursuant
to the consulting agreement, during the consulting term Mr. Khurana will (i)
review and provide comments on the Company’s periodic filings with the
Securities and Exchange Commission, (ii) advise the Company on its
Sarbanes-Oxley Act compliance and implementation efforts,  (iii)
advise the Company regarding financing and joint venture matters, and (iv)
transition his responsibilities to the Vice President of Finance of the
Company.  During the consulting term, Mr. Khurana will receive a
consulting fee of $11,500 per month and all his unvested options to purchase the
Company’s common stock vested in full on October 31, 2007.
  (9)
            Indebtedness
  Revolving
Credit Facility
  On June
29, 2007, Wilson Family Communities entered into a $55 million revolving credit
facility with a syndicate of banks led by RBC Bank (formerly RBC Centura Bank),
as administrative agent.  The Credit Facility allows the Company to
obtain revolving credit loans and provides for the issuance of letters of
credit.   Green Builders has guaranteed the obligations of Wilson
Family Communities under the Credit Facility. The amount available at any
time under the Credit Facility for revolving credit loans or the issuance of
letters of credit is determined by a borrowing base. The borrowing base is
calculated as the sum of the values for homes and lots in the subdivision to be
developed as agreed to by the Company and the agent.  The Company’s
obligations under the Credit Facility will be secured by the assets of each
subdivision to be developed with the proceeds of loans available under the
Credit Facility.
  On June
23, 2008, the Company entered into an Agreement to Modify Loan Documents.
The Modification Agreement modified the terms of the Loan Agreement by reducing
the loan commitment amount from $55 million to $30 million, changing the name of
the guarantor under the loan from Wilson Holdings, Inc. (our predecessor entity)
to the Company, and modifying certain limitations under the Loan
Agreement.
  11
 Table of Contents
  The
initial maturity date for the Credit Facility was June 29, 2008.  On
July 2, 2008, the Company entered into a Second Agreement to Modify Loan
Documents.  The Modification Agreement modified the terms of the Loan
Agreement by (i) extending the loan termination date from June 29, 2008 to
August 29, 2008, (ii) forbearing our non-compliance with (A) the existing Spec
Home limitation set forth in the Loan Agreement and (B) the developed lot
limitation set forth in the Loan Agreement, both through August 29, 2008, and
(iii) clarifying that in spite of such non-compliance that we will continue to
be entitled to borrow funds pursuant to the Loan
Agreement.
  The
facility will be reviewed by our syndicate of banks and renewed for successive
monthly periods, so long as the following items have been
satisfied:  no event of default shall exist, no material adverse
effect in the financial condition, operations, business or management of Green
Builders shall exist and extension fees in the amount determined by the agent
and all costs associated incurred in connection with the proposed extension must
be paid.  The final borrowing base calculation will be made twelve
months prior to the termination of the Credit Facility and no
borrowings may be made in excess of such amount.  As of June 30, 2008,
the Credit Facility has loaned the Company approximately $15.8 million and has
issued a $179,000 letter of credit.
  Outstanding
borrowings under the Credit Facility bear interest at the prime rate plus 0.25%,
with a floor of 5.5%.  The Company is charged a letter of credit fee
equal to 1.10% of each letter of credit issued under the Credit Facility. The
Credit Facility may be prepaid without premium or penalty.  Quarterly
principal reductions will be required during the final 12 months of the
term.
  The
credit facility contains customary terms and covenants limiting the Company’s
ability to take certain actions, including terms that limit the Company’s
ability to place liens on property, pay dividends and other restrictions and
payments.
 
 The
Credit Facility contains customary covenants limiting our ability to take
certain actions, including covenants that:
  ·
            affect
      how the Company can develop our
properties;
  ·
            limit
      the ability to pay dividends and other restricted
  payments;
  ·
            limit
      the ability to place liens on its
property;
  ·
            limit
      the ability to engage in mergers and acquisitions and dispositions of
      assets;
  ·
            require
      the Company to maintain a minimum net worth of $20,000,000, including
      subordinated debt (although the minimum net worth may be $17,000,000 for
      one quarter);
  ·
            prohibit
      the ratio of debt (excluding convertible debt) to equity (including
      convertible debt) from exceeding (A) 1.75 to 1.0 prior to September 30,
      2007, (B) 1.85 to 1.0 from September 30, 2007 until March 30, 2008 and (C)
      2.0 to 1.0 thereafter;
  ·
            require
      the Company to maintain working capital of at least $15,000,000;
      and
  ·
            limit
      the number of completed speculative homes to 12% of the total borrowing
      base available for homes.
  An event
of default will occur under the credit facility if certain events occur,
including the following:
 
 ·
            a
      failure to pay principal or interest on any loan under the credit
      facility;
 ·
            the
      inaccuracy of a representation or warranty when made;
 ·
            the
      failure to observe or perform covenants or agreements;
 ·
            an
      event of default beyond any applicable grace period with respect to any
      other indebtedness;
 ·
            the
      commencement of proceedings under federal, state or foreign bankruptcy,
      insolvency, receivership or similar laws;
 ·
            a
      condition where any loan document, or any lien created thereunder, ceases
      to be in full force and effect;
 ·
            the
      entry of a judgment greater than $1,000,000 that remains undischarged;
      or
 ·
            a
      change of control.
  12
 Table of Contents
  If an
event of default occurs under the credit facility, then the lenders may: (1)
terminate their commitments under the credit facility; (2) declare any
outstanding indebtedness under the credit facility to be immediately due and
payable; and (3) foreclose on the collateral securing the
obligations.
  The
Company is currently out of compliance with the terms of the Borrowing Base
Agreement due to the total number of completed speculative homes that were
included in the “eligible property” as of June 30, 2008.  The loan
agreement requires that the Company may not exceed more than 12% of the total
borrowing base available for homes then included in homes defined as “eligible
property.” “Eligible Property” is defined as homes that meet the requirements of
the borrowing base agreement for financing under the Master Line and calculation
of borrowing availability.  The Company is also not in compliance with
its developed lot loan covenant.  The loan agreement requires that not
more than twenty percent (20%) of the “eligible property” owned by Borrower
shall consist of developed lots.  The Company is operating under
a waiver for both covenants; the waiver expires August 29th,
2008.   In addition, the Company is not in compliance with an
additional developed lot and land covenant.  The loan agreement
requires that not more than seventy percent (70%) of the company’s tangible
assets be in the form of developed lots and land. We are
currently in discussions with our lenders regarding this matter and we expect
that our lenders will waive our non-compliance with this covenant until such
time as we enter into an extension and amendment of our Credit Facility.
If the Company is unable to comply with any one or more of these financial
covenants, and is unable to obtain a waiver for the non-compliance, the Company
could be precluded from incurring additional borrowings and its obligation to
repay indebtedness outstanding under the facility 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 satisfy all repayment
obligations.
  The above
description of the material terms of the credit facility is not a complete
statement of the parties’ rights and obligations with respect to such
transactions. The above statements are qualified in their entirety by reference
to the Borrowing Base Loan Agreement executed in connection with the credit
facility, a copy of which is filed with the Company’s Form 10-QSB for the
quarterly period ending June 30, 2007.  Amendments to these agreements
were filed as exhibits to the Company’s Current Reports on Form 8-K filed June
23, 2008 and July 3, 2008.
  The
following schedule lists the Company’s notes payable and lines of credit
balances at June 30, 2008 and September 30, 2007:
  In
      Thousands
              Rate
              Maturity
      Date
              
              6/30/2008
              9/30/2007a
              Line
      of Credit, $3 million, development
              Prime+.50%
              Mar-1-08
              $
              -
              472b
              Notes
      payable, land
              12.50%
              Mar-1-09
              
              4,700
              4,700c
              Notes
      payable, seller financed
              7%
      & Prime + 2%
              Oct.
      2010/11
              
              2,475
              2,475d
              Notes
      payable, land
              12.50%
              Mar-1-09
              
              7,300
              7,300e
              Notes
      payable, development
              Prime+.50%
              Feb-1-10
              
              -
              1,502f
              Notes
      payable, land and development
              Prime+3.00%
              Feb-1-09
              
              -
              1,440g
              Line
      of Credit, $30 million facility, land, land development, and
      homebuilding
              Prime+.25%
              Aug-31-08
              
              15,758
              2,749i
              2005
      $10 million, Subordinated convertible notes, net of discount of $393
      thousand
                  and
      $459 thousand, respectively
              5.00%
              Dec-1-12
              
              9,606
              9,541j
              2006
      $6.50 million, Subordinated convertible notes, net of discount of $2,433
      and
                  $2,786
      thousand respectively
              5.00%
              Sep-1-13
              
              4,067
              3,714Total
              
              $
              43,906
              33,893
  (a)             
  In March 2006 the Company secured a $3.0 million line of credit
development loan, maturing on March 30, 2008, at prime plus 0.50% with a
minimum floor of 7.00%, and interest payable monthly. The loan was secured by
property being developed totaling approximately 32.6 acres located in Williamson
County.  The loan was paid in December 2007 and the lots were
refinanced as a developed lot loan with our $30 million credit
facility
  (b)           
   In March 2007, the Company secured a $4.7 million term land
loan maturing March 2009.  The loan is secured by land of 534 acres
located in eastern Travis County. The interest rate on the loan is 12.5%, with
interest payable monthly.  The loan has no financial
covenants.
  (c)            
   As part of the purchase of 534 acres in Travis County
described above, the Company entered into four notes payable, seller financed
with a cumulative balance of approximately $2.5 million. Three of the notes
payable with a cumulative balance of $1.9 million are at an interest rate of
7.0% and the fourth note payable issued for approximately $600,000 is at an
interest rate of prime rate with an anniversary date of October 28 of each year
plus 2.0%. The terms of the note were modified in October 2007 with the
principal payments extended for one year.  The revised terms of the
notes payable now call for quarterly interest payments commencing October 12,
2007 and principal payments of $1.4 million in October 2010 and $1.0 million due
in October 2011.
  13
 Table of Contents
  (d)              
 In February 2007 the company secured a loan of approximately $7.3 million
to finance approximately 538 acres. The interest rate is 12.5% annually and
requires monthly interest payments, with a maturity of two years and is
renewable for an additional year for a 1% loan fee. The loan is secured by the
underlying land.
  (e)              
 In February 2007 the Company obtained a development loan of approximately
$4.6 million. The loan matures on February 1, 2010 and requires quarterly
interest payments and principal pay downs as lots are sold. The loan is secured
by the property being developed at an interest rate of prime plus
0.50%.  The loan was paid in December 2007 and the lots were
refinanced as a developed lot loan with our $30 million credit
facility
  (f)             
  In February 2007 the Company obtained a development loan of
approximately $3.1 million to develop approximately 30 acres. The loan has an
interest rate of prime plus 3.00%, with interest payable monthly. The loan was
paid in December 2007 and the lots were refinanced as a developed lot loan with
our $30 million credit facility.
  (g)           
   In June 2007 the Company established a $55 million credit
facility with a syndicate of banks.  In June 2008 the credit facility
was reduced to $30 million.  The Company currently has approximately
$15.8 million in borrowing for land and home construction.
   Subordinated
Convertible Debt
  The
Company accounts for all derivative financial instruments in accordance with
SFAS No. 133. Prior to 2007, derivative financial instruments were recorded as
liabilities in the consolidated balance sheet and measured at fair value. The
Company accounted for the various embedded derivative features as being bundled
together as a single, compound embedded derivative instrument that was
bifurcated from the debt host contract, referred to as the “single compound
embedded derivatives.”  The single compound embedded derivative
features include within the convertible note the conversion feature, the early
redemption option and the fixed price conversion adjustment. The initial value
of the single compound embedded derivative liability was bifurcated from the
debt host contract and recorded as a derivative liability, which resulted in a
reduction of the initial carrying amount (as unamortized discount) of the
convertible notes. The unamortized discount was amortized using the
straight-line method over the life of the convertible note, or 7 years. The
penalty warrants were valued based on the fair value of the Company’s common
stock on the issuance date using a Black-Scholes valuation model and the
unamortized discount was to be amortized as interest expense over the 7-year
life of the notes using the straight-line method. In January 2007, the Company
adopted FSP EITF 00-19-2.  Prior to adoption of FSP EITF 00-19-2, the
uncertainty of a successful registration of the shares underlying the
subordinated convertible debt required that the freestanding and embedded
derivatives be characterized as derivative liabilities. FSP EITF 00-19-2
specifically addressed the accounting for a registration rights agreement and
the requirement to classify derivative instruments subject to registration
rights agreements as liabilities was withdrawn.  The Company
re-evaluated its accounting for the subordinated debt transaction and determined
that the liability for the penalty warrants be included in the allocation of the
proceeds to the various components of the transaction according to paragraph 16
of APB Opinion No. 14, “Accountingfor Convertible Debt
and Debt issued with Stock Purchase Warrants.”The Company also
determined the notes contained a beneficial conversion feature under Issues 98-5
and 00-27, and used the effective conversion price based on the proceeds
allocated to the convertible instrument to compute the intrinsic value of the
embedded conversion option. The Company recalculated the discount on the
convertible debt at its intrinsic value and re-characterized the freestanding
and embedded derivatives as equity. The previous valuation adjustments of the
derivative liabilities were reversed and the amortization of the discounts was
adjusted based upon the recalculation. Per FSP EITF 00-19-2, the Company was
permitted to adjust the previous amounts as a cumulative accounting
adjustment.
  The net
effect of the change increased the net carrying amount of the subordinated
convertible debt and eliminated the derivative liabilities. There was also an
increase of $4.8 million in total stockholders’ equity.  During the
year ended December 31, 2006, the Company recognized approximately $8.5 million
of loss on fair value of derivatives related to the subordinated convertible
debt. For the nine months ended June 30, 2007, the Company recognized a loss of
$5,076,957 on fair value of derivates related to the subordinated convertible
debt.  Under the new FSP EITF 00-19-2 the derivatives were eliminated
and hence there will no longer be gains and losses related to the current
subordinated convertible debt.
  14
 Table of Contents
  2005,
$10MM, 5%, Subordinated Convertible Debt
  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
May 1 and December 1 of each year, with interest payments beginning
on June 1, 2006. 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.
  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. In addition, the redemption price will include any
accrued but unpaid interest on the subordinated convertible debt. Upon a change
in control event, each holder of the subordinated convertible debt may require
us to repurchase some or all of its subordinated convertible debt at a purchase
price equal to 100% of the principal amount of the subordinated convertible debt
plus accrued and unpaid interest. The due date may accelerate in the event the
Company commences any case relating to bankruptcy or insolvency, or related
events of default. The Company’s assets will be available to pay obligations on
the subordinated convertible debt only after all senior indebtedness has been
paid.
  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 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 SEC 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 which vested and the remaining shares will never vest.  The
warrants were exercisable only upon the occurrence of certain events and then
only in the amount specified as follows: (i) with respect to 25% of the warrant
shares, on February 3, 2006 if the registration statement shall not have
been filed with the SEC by such date (the Company filed a Form SB-2 registration
statement on February 2, 2006); (ii) with respect to an additional 25% of
the warrant shares, on April 19, 2006 if the registration statement shall
not have been declared effective by the SEC by such date; (iii) with respect to
an additional 25% of the warrant shares, on May 19, 2006 if the
registration statement shall not have been declared effective by the SEC by such
date; and (iv) with respect to the final 25% of the warrant shares, on
June 18, 2006 if the registration statement shall not have been declared
effective by the SEC by such date. Management has recorded the fair value of
these warrants due to the uncertainty surrounding the timeline of getting the
registration statement effected and the high probability that these warrants
would be issued.  The shelf registration statement relating to these
warrants was declared effective on August 1, 2006 and 562,500 of these
warrants have vested and the remaining 187,500 warrants will never
vest.
  The
penalty warrants were valued based on the fair value of the Company’s common
stock on the issuance date of $1.60, using a Black-Scholes approach, risk free
interest rate of 4.25%; dividend yield of 0%; weighted-average expected life of
the warrants of 10 years; and a 60% volatility factor, resulting in an allocated
value of approximately $613,000. The penalty 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.
  The
Company also incurred closing costs of $588,000 which included placement agent
fees of $450,000 plus reimbursement of expenses to the placement agent of
$125,000, plus 750,000 fully vested warrants to purchase Company’s common stock
at $2.00 per share with a 10 year exercise period, valued at $829,000, for a
total of $1.4 million, recorded as debt issuance costs, to be amortized over the
7-year life of the notes using the straight line method. These warrants were
valued based on the fair value of the Company’s common stock of $1.60, using a
Black-Scholes valuation model, at a $2.00 exercise price, risk free interest
rate of 4.25%; dividend yield of 0%; weighted-average expected life of warrants
of 10 years; and a 60% volatility factor.
  15
 Table of Contents
  Subordinated
Convertible Note at June 30, 2008 and September 30, 2007:
  June
      30,
              2008
            
            
            September
      30,
              2007Notional
      balance
            
            $
            10,000,000
            
            
            
            10,000,000Unamortized
      discount
            
            
            (393,772
            )
            
            
            (459,400
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            9,606,228
            
            
            
            9,540,600
 
 2006,
$6.5MM, 5%, Subordinated Convertible Debt
  On
September 29, 2006, the Company raised capital of $6.75 million in
aggregate principal amount of 5% subordinated convertible debt due
September 1, 2013, to certain purchasers. As of December 31, 2006,
$6.75 million had been received in cash, the remaining $250,000 was a receivable
from an owner of land that the Company had under option to
purchase.  During the quarter ended June 2007, the Company did not
exercise its option to purchase the land and therefore does not expect to
receive the additional $250,000.   In addition, during the
quarter ended June 30, 2007, one of our convertible debt holders who is also the
seller of Bohl’s tract purchased common stock with a promissory
note.  Under the terms of the promissory note, should the Company not
exercise the option to purchase the Bohl’s tract the convertible debt would be
used for repayment of the promissory note.  As the Company did not
exercise the option to purchase Bohl’s tract the promissory note was repaid from
the repayment of the convertible debt.  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, with interest
payments beginning on March 1, 2006. 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. In addition, the redemption price will include any
accrued but unpaid interest on the subordinated convertible debt. Upon a change
in control event, each holder of the subordinated convertible debt may require
us to repurchase some or all of its subordinated convertible debt at a purchase
price equal to 100% of the principal amount of the subordinated convertible debt
plus accrued and unpaid interest. The due date may accelerate in the event the
Company commences any case relating to bankruptcy or insolvency, or related
events of default. The Company’s assets will be available to pay obligations on
the subordinated convertible debt only after all senior indebtedness has been
paid.
  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. The
warrants are exercisable only upon the occurrence of certain events and then
only in the amount specified as follows: (i) with respect to 25% of the warrant
shares, on November 13, 2006 if the registration statement shall not have
been filed with the SEC by such date (the Company filed a Form SB-2 registration
statement on October 16, 2006); (ii) with respect to an additional 25% of
the warrant shares, on January 27, 2007 if the registration statement shall
not have been declared effective by the SEC by such date; (iii) with respect to
an additional 25% of the warrant shares, on February 26, 2007 if the
registration statement shall not have been declared effective by the SEC by such
date; and (iv) with respect to the final 25% of the warrant shares, on
March 28, 2007 if the registration statement shall not have been declared
effective by the SEC by such date. The Company met certain of these milestones
and has recorded 75% of the fair value of these warrants but the registration
statement was not declared effective by the SEC prior to March 28, 2007 and
therefore 75% of the warrant shares have vested and remain exercisable. The
Company also incurred closing costs of $140,000, including placement agent fees
of approximately $70,000 plus reimbursement of expenses to the placement agent
of $25,000, for a total of $95,000 to the placement agent, recorded as debt
issuance costs, to be amortized over the 7-year life of the notes using the
straight-line rate method.
  16
 Table of Contents
  The
issuance of the debt resulted in an embedded beneficial conversion feature
valued at approximately $2.5 million, which will be 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.
  The
penalty warrants were based on the fair value of the Company’s common stock on
the issuance date of $1.91, using a Black-Scholes approach, risk free interest
rate of 4.64%; dividend yield of 0%; weighted-average expected life of the
warrants of 10 years; and a 60% volatility factor. The allocated value of the
penalty warrants totaled approximately $846,000 and 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.
  Convertible
Note at June 30, 2008 and September 30, 2007:
  June
      30,
              2008
            
            
            September
      30,
              2007Notional
      balance
            
            $
            6,500,000
            
            
            
            6,500,000Unamortized
      discount
            
            
            (2,432,687
            )
            
            
            (2,785,820
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            4,067,313
            
            
            
            3,714,180
  (10)         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.
  The
Company sold 5,000,000 shares of common stock in a public offering at $3.25 per
share that closed on May 19, 2007 and concurrently began trading on the American
Stock Exchange under the symbol “WIH.” The stock is now being traded under the
ticker symbol “GBH.”  The Company incurred the following transaction
costs related to the financing:
  (In
      thousands)Cash
      paid to investment banker for underwriting and other fees
            
            $
            1,219Legal,
      printing, accounting and stock exchange registration fees
            
            
            497Travel
      and selling related costs
            
            
            503Warrants
      to purchase 500,000 shares at $4.06 with a fair value based on the
      Black-Scholes
              option
      pricing model with a risk free interest rate of 4.64%; dividend yield of
      0%;
              weighted-average
      expected life of the warrants of 1 years; and a 60% volatility factor at
              $0.56
      per warrant.
            
            
            280Total
      expenses
            
            $
            2,499
  During
June 2007, the Company issued 80,000 shares of common stock for the purchase of
Green Builders, Inc.
  (11)         Common
Stock Option / Stock Incentive Plan
  In August
2005, the Company adopted the 2005 Stock Option/Stock Issuance Plan (the “Stock
Option Plan”). The plan contains two separate equity programs: 1) the Option
Grant Program for eligible persons at the discretion of the plan administrator
to be granted options to purchase shares of common stock, and 2) 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 of Directors as of the grant date. This plan was assumed by WFC. The fair
value of the options granted under the plan was determined by the Board of
Directors 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.
  17
 Table of Contents
  The stock
issued under the Stock Option Plan shall not exceed 2,500,000 shares. Unless
terminated at an earlier date by action of the Board of Directors, the Stock
Option Plan terminates upon the earlier of (1) the expiration of the ten year
period measured from the date the Stock Option Plan is adopted by the Board or
(2) the date on which all shares available for issuance under the Stock Option
Plan shall have been issued as fully-vested shares.
  The
Company had 883,852 shares of common stock available for future grants under the
Stock Option Plan at June 30, 2008.  Compensation expense related to
the Company’s share-based awards for the three months ended June 30, 2008 and
2007 was approximately $83,000 and $165,000, respectively.  For the
nine months ended June 30, 2008 and 2007 the Compensation expense related to the
Company’s share-based awards was approximately $759,000 and $400,000,
respectively.
  Before
January 1, 2006, options granted to non-employees were recorded at fair
value in accordance with SFAS No. 123 and EITF 96-18. These options are issued
pursuant to the Stock Option Plan and are reflected in the disclosures
below.
  During
the three months ended June 30, 2008, the Company issued options to purchase
45,000 shares of common stock at an exercise price of $0.86 per share which was
equal to the closing price of our common stock as reported on the American Stock
Exchange on the date of grant. Using the Black-Scholes pricing model with the
following weighted-average assumptions: risk free interest rate of 4.64%;
dividend yields of 0%; weighted average expected life of options of 5 years; and
a 60% volatility factor.  Based on these assumptions, management
estimated the fair market value of the grants to be $0.48 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 three months and nine months ended
June 30, 2008 are as follows:
  Range ofShare
    Roll
              
              
              Exercise
      Prices
              
              
              Weighted
    AvgForward
              
              
              
              (1)
              
              
              Exc
PriceBalance
      September 30, 2007
              
              
              1,835,000
              
              
              $
              1.65-3.25
              
              
              $
              2.50Granted
              
              
              230,000
              
              
              $
              0.91-1.78
              
              
              $
              1.50Forfeited
              
              
              (411,667
              )
              
              $
              0.93-3.25
              
              
              $
              1.82Balance
      March 31, 2008
              
              
              1,653,333
              
              
              $
              0.91-3.25
              
              
              $
              2.54Grants
              
              
              45,000
              
              
              $
              0.86
              
              
              $
              0.86Forfeited
              
              
              (82,185
              )
              
              $
              0.86-3.25
              
              
              $
              1.92Balance
      June 30, 2008
              
              
              1,616,148
              
              
              $
              0.86-3.25
              
              
              $
              2.52
 (1) For
each option, the exercise price per share was equal to the closing price of our
common stock as reported on the American Stock Exchange on the date of
grant.
  The
following is a summary of options outstanding and exercisable at June 30,
2008:
 Outstanding
              VestedWeightedAverageNumber
      of Shares
              Weighted
      Average
              Weighted
              
              Remaining
              WeightedSubject
      to Options
              Remaining
      Contractual Life
              Average
              Number
      of
              Contractual
              AverageOutstanding
              (in
      years)
              Exercise
      Price
              Vested
      Shares
              Life
      (in years)
              Exercise
      Price1,616,148
              6.03
              $          
      2.52
              1,127,647
              4.84
              2.70
 At June
30, 2008, there was approximately $781,000 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.
  18
 Table of Contents
  (12)         Purchase
of Green Builders, Inc.
  On June
19, 2007, the Company purchased Green Builders, Inc. for $65,000 in cash and
80,000 shares of the Company’s common stock which was valued at $2.70 per share
on the date of the transaction. The total purchase price for the acquisition was
approximately $281,000.  In addition the Company spent approximately
$24,000 in legal fees for the purchase.  The Company allocated the
purchase price and legal fees to trademark with indefinite life in accordance
with SFAS 142.
  Cash
            
            $
            17,081Accounts
      Receivable
            
            
            2,900Accounts
      Payable
            
            
            (6,190
            )Trademarks
            
            
            292,691Others
            
            
            (9,276
            )$
            297,206
  In
conjunction with the acquisition, the Company increased the size of its Board of
Directors from four to five persons, and appointed Victor Ayad as a director of
the Company. Mr. Ayad was the President and sole shareholder of Green Builders,
Inc. prior to the acquisition. The pro forma effect of the acquisition on the
Company’s income was not material and is already consolidated into the Company’s
results as a VIE under FIN 46(R).
  
  19
 Table of Contents
 
 
 It em
2.      Management’s Discussion and Analysis or
Plan of Operation
 
 The
following discussion and analysis or plan of operation should be read in
conjunction with the condensed consolidated financial statements and related
notes thereto included elsewhere in this report. This discussion contains
forward-looking statements. Please see the “Caution Regarding Forward-Looking
Information; Risk Factors” above and “Risk Factors” below for a discussion of
the uncertainties, risks and assumptions associated with these
statements.
 
 Overview
  Green
Builders, Inc., (the “Company”), is a Texas corporation formerly known as Wilson
Holdings, Inc, a Nevada corporation.  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 will now govern 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 will continue
to do so.  Effective April 8, 2008, the Company’s common stock began
trading under the symbol “GBH” on the American Stock Exchange.
  Historically
our business plan was focused on the acquisition of undeveloped land that we
believe, based on our understanding of population growth patterns and
infrastructure development, is strategically located.  This portion of
our business focus has required, and is expected to continue to require, the
majority of our financial resources.  The Company is actively pursing
placing its land positions into joint ventures to limit that amount of capital
required for these assets.  We have funded these acquisitions
primarily with bank debt and cash from capital raises.  In tandem with
our land acquisition efforts and based upon our strategic market analysis, we
also prepare land for homebuilding.  We commenced homebuilding
activities in June 2007.  We believe that as the central Texas economy
expands, the strategic land purchases, land development activities and
homebuilding activities will enable us to capitalize on the new growth centers
we expect will be created.
  A primary
focus of our business has been the sale of developed lots to homebuilders,
including national homebuilders.  Due to deteriorating conditions in
the market for homes and in the homebuilding industry both nationally and to a
lesser extent locally, during the second quarter of 2007 and continuing through
August 2008, demand for finished lots by national homebuilders is 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 new homebuilding business (described
below).  We believe retaining some of our lots for use in homebuilding
activities will allow us to generate homebuilding revenue to replace revenue
from the loss of sales of these finished lots.  We will continue to
pursue lot sales contracts with both national and regional
builders.
  In June
2007 we purchased Green Builders, Inc. and commenced our homebuilding operations
under that name.  We are in the process of developing the Green
Builders brand.  Our strategy is to build homes that are
environmentally responsible, resource efficient and consistent with local
style.  Our home designs will be selected and prepared for each of our
markets based on local community tastes and the preferences of homebuyers.
Substantially all of our construction work will be performed by subcontractors
who will be retained for specific subdivisions pursuant to contracts entered in
2007 and 2008.  We intend to build homes on the majority of the lots
we currently have under development and sell those finished homes.  In
order to expand the business and increase home closings in future years, we have
entered into a purchase lot contract that would allow us to purchase
finished lots beginning in fiscal year 2009.  Furthermore, we
are currently negotiating with other developers to enter into
agreements that would give us the option to purchase additional finished lots
in the future.
  Although
central Texas has been less affected than other areas, national real estate
trends have an impact on home buyers and lenders and we believe that sales of
new homes in our market will continue to decline in fiscal year
2008.  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.  Due to current market conditions, we
believe that we will see a reduction in revenue from home and lot sales in
fiscal 2008.  We are considering selling tracts of commercial and
residential land in order to raise additional cash.
  We are
actively pursing entering into joint venture arrangements with other land
developers and builders in order to preserve cash in case the slowdown continues
to impact our business for a long time.
  20
 Table of Contents
  Results
of Operations
  Three
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              Change
                %(in
      thousands)RevenuesHomebuilding
      and related services revenues
              
              $
              2,754
              
              
              $
              320
              
              
              $
              2,434
              
              
              %
              761Land
      revenues
              
              
              709
              
              
              
              1,064
              
              
              
              (355
              )
              
              
              (33
              )Gross
      ProfitHomebuilding
      and related services gross profit
              
              
              214
              
              
              
              114
              
              
              
              100
              
              
              
              88Land
      gross profit
              
              
              164
              
              
              
              (937
              )
              
              
              1,101
              
              
              
              118Costs
      & ExpensesOperating
      expenses
              
              
              1,602
              
              
              
              1,831
              
              
              
              (229
              )
              
              
              (13
              )Operating
      Income (Loss)
              
              
              (1,224
              )
              
              
              (2,654
              )
              
              
              1,430
              
              
              
              54Net
      Income (Loss)
              
              $
              (2,023
              )
              
              $
              (3,316
              )
              
              $
              1,293
              
              
              %
              39
  Nine
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              Change
                %(in
      thousands)RevenuesHomebuilding
      and related services revenues
              
              $
              3,239
              
              
              $
              2,150
              
              
              $
              1,089
              
              
              %
              51Land
      revenues
              
              
              2,475
              
              
              
              2,471
              
              
              
              4
              
              
              
              0Gross
      ProfitHomebuilding
      and related services gross profit
              
              
              293
              
              
              
              601
              
              
              
              (308
              )
              
              
              (51
              )Land
      gross profit
              
              
              998
              
              
              
              (779
              )
              
              
              1,778
              
              
              
              228Costs
      & ExpensesOperating
      expenses
              
              
              4,989
              
              
              
              4,262
              
              
              
              727
              
              
              
              17Operating
      Income (Loss)
              
              
              (3,698
              )
              
              
              (4,440
              )
              
              
              742
              
              
              
              17Net
      Income (Loss)
              
              $
              (6,026
              )
              
              $
              (11,437
              )
              
              $
              5,412
              
              
              %
              47
 Homebuilding
and Related Services
  Background- Homebuilding and
related services revenue consists of revenue from home sales and from providing
services to our homebuilder customers.  Prior to fiscal year 2008, all
home sales were generated by our homebuilder customers utilizing our homebuilder
services.  We ceased providing services to homebuilder customers in
August 2007 and any future revenues from home sales will be from the sale of
homes we build through our Green Builders brand.  We consolidate our
homebuilder customers into our operating results based on accounting
requirements according to FIN 46(R) and refer to these homebuilder customers as
Variable Interest Entities, or VIEs.
  Revenues - During the three
months ended June 30, 2008, we had revenues from homebuilding of $2.8
million.  For the three months ended June 30, 2007, all of the
homebuilding revenues were generated by one VIE consolidated into our operating
results.  The increase in revenues was primarily due to our transition
into homebuilding and away from providing services to homebuilder
customers.
  21
 Table of Contents
  Gross Profit- Gross Profit on
homebuilding and related services increased by $100,000 for the three months
ended June 30, 2008, compared to the same period in 2007 due to the increase in
sales during the period.  Gross margins decreased compared to last
year primarily due to higher sales incentives offered to
homebuyers.
  In
June 2007 we acquired Green Builders and have commenced our homebuilding
activities.  We plan to sell homes in the Austin, Texas area for
prices ranging from $180,000 to $600,000.  For the three months ended
June 30, 2008 we were actively building in three communities and had a total of
27 sales and 12 closings.  We have 12 completed speculative units,
seven speculative units under construction, nine completed models, and 16 units
in backlog.  Backlog is defined as homes under contract but
not yet delivered to our home buyers.Although we feel that
the central Texas market is relatively strong, we believe that the turmoil in
the mortgage market combined with national publicity of a potential recession
has caused a lack of urgency for buyers.  As such, sales and sales
revenues were lower than anticipated for the three months ended June 30, 2008
and we expect that they will continue to be slow throughout fiscal year
2008.  In accordance with these expected 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.
  Land and Land
Development
  Background – Land sales
revenue 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 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 –Revenue from the
sale of land decreased 33% during the three months ended June 30, 2008 compared
to the same period in 2007.  For the three months ended June 30, 2008,
land sale revenues came from the sale of developed finished lots in the
Georgetown Village project, located in the City of Georgetown,
Texas.  The decrease compared to the same period in 2007 was primarily
due to the decrease in land sales in the Rutherford West
project.   In addition revenues declined due to the defaulting of
a regional builder for a contract in the Georgetown Village
project.
  Gross Profit- Gross profit on
land and land development increased by $1.1 million for the three months ended
June 30, 2008 compared to the same period in 2007 due to previously written off
expenses for the Bohl’s Tract in 2007.
  We are
considering selling tracts of undeveloped or developed land in order to increase
revenue from the sale of land in 2008 to counteract the anticipated slowdown in
revenue from homebuilding activity.  We anticipate that sales from
developed lots will be slow in fiscal 2008 due to the decreased demand for
finished lots from national homebuilders.
   General
and Administrative Expenses
    Three
      Months Ended June 30Breakdown
      of G&A Expenses
              
              2008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeSalaries,
      benefits, payroll taxes and related emp. exps.
              
              $
              378,841
              
              
              $
              473,788
              
              
              
              (94,947
              )
              
              
              -20
              %Stock
      compensation expense
              
              
              83,272
              
              
              
              165,000
              
              
              
              (81,728
              )
              
              
              -50
              %Legal,
      accounting, auditing, and investor relations
              
              
              114,968
              
              
              
              222,658
              
              
              
              (107,690
              )
              
              
              -48
              %Consultants
              
              
              83,903
              
              
              
              189,340
              
              
              
              (105,437
              )
              
              
              -56
              %General
      overhead, including office expenses, insurance, and travel
              
              
              241,479
              
              
              
              404,500
              
              
              
              (163,021
              )
              
              
              -40
              %Amortization
      of subordinated debt costs and transaction costs
              
              
              62,385
              
              
              
              91,808
              
              
              
              (29,423
              )
              
              
              -32
              %Total
      G&A
              
              $
              964,848
              
              
              $
              1,547,094
              
              
              
              (582,246
              )
              
              
              -38
              %
  22
 Table of Contents
  Nine
      Months Ended June 30Breakdown
      of G&A Expenses
              
              2008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeSalaries,
      benefits, payroll taxes and related emp. exps.
              
              $
              1,256,820
              
              
              $
              1,081,318
              
              
              
              175,502
              
              
              
              16
              %Stock
      compensation expense
              
              
              758,907
              
              
              
              399,909
              
              
              
              358,998
              
              
              
              90
              %Legal,
      accounting, auditing, and investor relations
              
              
              471,940
              
              
              
              518,399
              
              
              
              (46,459
              )
              
              
              -9
              %Consultants
              
              
              224,709
              
              
              
              251,913
              
              
              
              (27,204
              )
              
              
              -11
              %General
      overhead, including office expenses, insurance, and travel
              
              
              704,670
              
              
              
              800,535
              
              
              
              (95,865
              )
              
              
              -12
              %Amortization
      of subordinated debt costs and transaction costs
              
              
              177,759
              
              
              
              476,509
              
              
              
              (298,750
              )
              
              
              -63
              %Total
      G&A
              
              $
              3,594,805
              
              
              $
              3,528,583
              
              
              
              66,222
              
              
              
              2
              %
   General
and administrative expenses are composed primarily of salaries of general and
administrative personnel and related employee benefits and taxes. During the
three months ended June 30, 2008 and 2007, salaries, benefits, taxes and related
employee expenses totaled approximately $379,000 and $474,000, respectively, and
represented approximately 40% and 31%, respectively, of total general and
administrative expenses for the periods. The decrease for the three months ended
is due to an entry for a bonus accrual for $189,000 that was not paid out,
offset by an increase in expenses for additional headcount to support the
homebuilding business.
  Stock
compensation expense was approximately $83,000 and $165,000 for the three months
ended June 30, 2008 and 2007, respectively.  The decrease in stock
compensation expense for the three months June 30, 2008 was due to the
acceleration of our former CFO’s stock option expense recognized in prior
quarters.
  Legal,
accounting, audit and investor relations expense totaled $114,000 and $223,000
for the three months ended June 30, 2008 and 2007, respectively.  For
the three months ended June 30, 2008, the decrease in legal, accounting, audit,
and investor relations expenses was due to the expenses in prior quarter to set
up our homebuilding business.
  Consultant
expenses were approximately $84,000 and $189,000 for the three months ended June
30, 2008 and 2007, respectively.  These expenses decreased due to a
decrease in consulting services for the development of our homebuilding
activities.
  General
overhead expenses, including rent, office expenses and insurance totaled
$242,000 and $405,000 for the three months ended June 30, 2008 and 2007,
respectively.  The decrease was due to approximately $175,000 write-down of
assets relating to the termination of our homebuilder services client recorded
in the three months June 30, 2007.
  Amortization
of subordinated convertible debt issuance costs and transaction costs was
approximately $62,000 and $92,000 for the three months ended June 30, 2008 and
2007.  This decrease is attributable due to the adoption of FSP
00-10-2.
   Selling
and Marketing Expenses
  Three
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeSalaries
      and related employee expenses
              
              $
              34,565
              
              
              $
              14,963
              
              
              
              19,602
              
              
              
              131
              %Advertising,
      public relations, and marketing
              
              
              465,564
              
              
              
              106,015
              
              
              
              359,549
              
              
              
              339
              %Commisions
      and closing expenses
              
              
              137,326
              
              
              
              163,281
              
              
              
              (25,955
              )
              
              
              -16
              %Selling
      and Marketing Expenses
              
              $
              637,455
              
              
              $
              284,259
              
              
              
              353,196
              
              
              
              124
              %
   Nine
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeSalaries
      and related employee expenses
              
              $
              107,060
              
              
              $
              101,366
              
              
              
              5,694
              
              
              
              6
              %Advertising,
      public relations, and marketing
              
              
              1,077,137
              
              
              
              210,970
              
              
              
              866,167
              
              
              
              411
              %Model
      expenditures
              
              
              
              
              
              
              59,217
              
              
              
              (59,217
              )
              
              
              -100
              %Commisions
      and closing expenses
              
              
              209,806
              
              
              
              361,484
              
              
              
              (151,678
              )
              
              
              -42
              %Selling
      and Marketing Expenses
              
              $
              1,394,003
              
              
              $
              733,037
              
              
              
              660,966
              
              
              
              90
              %
  Sales and
marketing expenses include selling costs, salaries and related taxes and
benefits, marketing activities including websites, brochures, catalogs, signage,
and billboards, and market research, all of which benefit our corporate presence
and are not included as homebuilding cost of sales.  The increase was
due to increased marketing expenses to help develop our homebuilding business,
increase awareness of our brand through development of our website, advertising,
public relations, and community marketing initiatives and to sell our existing
inventory.
  23
 Table of Contents
 
 We expect
to see a decline in advertising, public relations, and marketing costs in the
next twelve months due to the fact that the major start-up costs of building our
brand through the website, through an advertising campaign, and public relations
have been completed.
  Interest
and Other Expense and Income
   Three
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeLoss
      on fair value of derivatives
              
              $
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              0
              %Interest
      expense - convertible debt
              
              
              206,258
              
              
              
              210,313
              
              
              
              (4,055
              )
              
              
              -2
              %Interest
      discount expense - convertible debt
              
              
              139,587
              
              
              
              321,464
              
              
              
              (181,877
              )
              
              
              -57
              %Interest
      expense - land and development loans
              
              
              563,511
              
              
              
              232,134
              
              
              
              331,377
              
              
              
              143
              %Interest
      income and misc income
              
              
              (110,788
              )
              
              
              (102,386
              )
              
              
              (8,402
              )
              
              
              8
              %Total
      interest and other expense and income
              
              $
              798,568
              
              
              $
              661,525
              
              
              
              137,043
              
              
              
              21
              %
   Nine
      Months Ended June 302008
              
              
              2007
              
              
              Change
              
              
              %
      ChangeLoss
      on fair value of derivatives
              
              $
              -
              
              
              $
              5,076,957
              
              
              
              (5,076,957
              )
              
              
              -100
              %Interest
      expense - convertible debt
              
              
              627,197
              
              
              
              628,994
              
              
              
              (1,797
              )
              
              
              0
              %Interest
      discount expense - convertible debt
              
              
              418,761
              
              
              
              777,991
              
              
              
              (359,230
              )
              
              
              -46
              %Interest
      expense - land and development loans
              
              
              1,551,412
              
              
              
              693,671
              
              
              
              857,741
              
              
              
              124
              %Interest
      income and misc income
              
              
              (269,746
              )
              
              
              (180,379
              )
              
              
              (89,367
              )
              
              
              50
              %Total
      interest and other expense and income
              
              $
              2,327,624
              
              
              $
              6,997,234
              
              
              
              (4,669,610
              )
              
              
              -67
              %
   Interest
expense for land and development loans increased by approximately $331,000 for
the three months ended June 30, 2008 over the same period in
2007.  The increase is attributable to our determination to expense,
rather than to capitalize, interest related to property temporarily not under
development. In addition, discount expense for the convertible debt
decreased due to the adoption of FSP 00-10-2.
  Financial
Condition and Capital Resources
  Liquidity
  On June
30, 2008 we had approximately $4.9 million in cash and cash equivalents. We
completed a public offering of our common stock in May 2007, resulting in net
proceeds to us of approximately $14 million.
  On June
29, 2007, Wilson Family Communities 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.  The credit
facility was reduced to $30 million in June 2008.  Green Builders has
guaranteed the obligations of Wilson Family Communities under the Credit
Facility.  The Credit Facility allows us to obtain revolving credit loans
and provides for the issuance of letters of credit. The amount available at any
time under the Credit Facility for revolving credit loans or the issuance of
letters of credit is determined by a borrowing base. The borrowing base is
calculated as the sum of the values for homes and lots in the subdivision to be
developed as agreed by us and the agent. Our obligations under the
Credit Facility will be secured by the assets of each subdivision to be
developed with the proceeds of loans available under the Credit
Facility.
  The
initial maturity date for the Credit Facility was June 29, 2008.  On July
2, 2008, we entered into an agreement to modify the loan documents and extend
the maturity date to August 29, 2008.  The facility will be
reviewed by our syndicate of banks and renewed for successive 12 month
periods, so long as the following items have been satisfied:  no event
of default shall exist, no material adverse effect in our financial condition,
operations, business or management shall exist and extension fees in the amount
determined by the agent and all costs associated incurred in connection with the
proposed extension must be paid.  The final borrowing base calculation
will be made twelve months prior to the termination of the Credit Facility and
no borrowings may be made in excess of such amount. As June 30, 2008, the Credit
Facility has loaned approximately $15.8 million and issued a $179,000 letter of
credit.  We are not currently in compliance with certain of the covenants
under the facility as describe in more detail below. Although we are currently
negotiating with our banks, this non-compliance may cause the syndicate of banks
not to renew this line of credit upon its maturity on August, 29,
2008.
  24
 Table of Contents
  Outstanding
borrowings under the Credit Facility bear interest at the prime rate plus
0.25%, with a floor of 5.5%.  We are charged a letter of credit fee
equal to 1.10% of each letter of credit issued under the Credit Facility. We may
elect to prepay the Credit Facility at any time without premium or
penalty. Quarterly principal reductions are required during the final 12
months of the term.
  The
Credit Facility contains customary covenants limiting our ability to take
certain actions, including covenants that
  ·
            affect
      how we can develop our properties;
  ·
            limit
      the ability to pay dividends and other restricted
  payments;
  ·
            limit
      the ability to place liens on its
property;
  ·
            limit
      the ability to engage in mergers and acquisitions and dispositions of
      assets;
  ·
            require
      the Company to maintain a minimum net worth of $20,000,000, including
      subordinated debt (although the minimum net worth may be $17,000,000 for
      one quarter);
  ·
            prohibit
      the ratio of debt (excluding convertible debt) to equity (including
      convertible debt) from exceeding (A) 1.75 to 1.0 prior to September 30,
      2007, (B) 1.85 to 1.0 from September 30, 2007 until March 30, 2008 and (C)
      2.0 to 1.0 thereafter;
  ·
            require
      the Company to maintain working capital of at least $15,000,000;
      and
  ·
            limit
      the number of completed speculative homes to 12% of the total borrowing
      base available for homes.
  An event
of default will occur under the Credit Facility if certain events occur,
including the following:
  ·
            a
      failure to pay principal or interest on any loan under the Credit
      Facility;
  ·
            the
      inaccuracy of a representation or warranty when
  made;
  ·
            the
      failure to observe or perform covenants or
  agreements;
  ·
            an
      event of default beyond any applicable grace period with respect to any
      other indebtedness;
  ·
            the
      commencement of proceedings under federal, state or foreign bankruptcy,
      insolvency, receivership or similar
laws;
  ·
            any
      loan document, or any lien created thereunder, ceases to be in full force
      and effect;
  ·
            the
      entry of a judgment greater than $1,000,000 that remains undischarged;
      or
  ·
            a
      change of control.
  If an
event of default occurs under the Credit Facility, then the lenders may: (1)
terminate their commitments under the Credit Facility; (2) declare any
outstanding indebtedness under the Credit Facility to be immediately due and
payable; and (3) foreclose on the collateral securing the
obligations.
  We are
currently out of compliance with the terms of the Borrowing Base Agreement under
the Credit Facility due to the total number of completed speculative homes and
land and lot inventory that were included in the definition of “eligible
property” as of June 30, 2008 and are operating under a wavier which expires
August 29, 2008.  Per the Borrowing Base Agreement, we may not exceed
more than 12% of the total borrowing base available for homes then included in
homes defined as “eligible property.” “Eligible Property” is defined as homes
that meet the requirements of the borrowing base agreement for financing under
the Master Line and calculation of borrowing availability.  In addition, we are
not in compliance with an additional developed lot and land covenant. The loan
agreement requires that not more than seventy percent (70%) of our tangible
assets be in the form of developed lots and land. We are currently in discussion
with our lenders regarding this matter and we expect that our lenders will waive
our non-compliance with this covenant until such time as we enter into an
extension and amendment of our Credit Facility.If we are unable to
comply with any one or more of these financial covenants, and are unable to
obtain a waiver for the noncompliance, we could be precluded from incurring
additional borrowings and our obligation to repay indebtedness outstanding under
the facility, our term loans, and our outstanding note indentures could be
accelerated in full. In addition, the
banks may elect not to extend the term of the line of credit when it matures on
August 29,
2008.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.
  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 of
the 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.
  25
 Table of Contents
  Our
growth will require substantial amounts of cash for earnest money deposits, land
purchases, 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, our sales, marketing, general and administrative costs will
deplete cash.   Due to current market conditions and slow home
and land sales, we may need to additional capital and are actively looking into
joint ventures to support future growth and current operations for the next
twelve months.
  Capital
Resources
  We have
raised approximately $16.5 million of subordinated convertible debt, and
approximately $14 million in a public offering of the Company’s common stock
completed in May 2007.  The Company entered into a $55 million
revolving Credit Facility that was reduced to $30 million in June
2008.
  Due to a
change in market conditions discussed above and a longer than expected
acceleration of homebuilding operations, our financial projections have
changed.  We are considering selling tracts of commercial and
residential land in order to increase sales revenues and increase
cash.  We expect that we will incur significant losses in
2008.  Due to current market conditions and slow home and land sales,
we may need to raise additional capital and are actively looking into entering
joint ventures with our land to support future growth and current operations for
the next twelve months.
  Land
and homes under construction comprise the majority of our assets. These assets
could suffer devaluation if the housing and real estate market for central Texas
suffers a significant downturn.  Our debt secured by our real estate
holdings might then be called which may require us to liquidate assets to
satisfy our debt obligations.  A significant downturn could also make
it more difficult for us to liquidate assets, to raise cash and to pay off
debts, which could have a material adverse effect on the Company.
  Off-Balance
Sheet Arrangements
  As of
June 30, 2008, 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.
  Consolidation
of Variable Interest Entities
  We offer
certain homebuilder clients surety for their interim construction loans and cash
advances to facilitate sales of our residential lots. We may be considered the
primary beneficiary as defined under FASB Interpretation No. 46(R) (“FIN
46(R)”), “Consolidation of Variable Interest Entities” (VIE), and the Company
may have a significant, but less than controlling, interest in the entities. We
account for each of these entities in accordance with FIN 46(R). Management uses
its judgment when determining if we are the primary beneficiary of, or have a
controlling interest in, any of these entities. Factors considered in
determining whether we have significant influence or has control include risk
and reward sharing, experience and financial condition of the other partners,
voting rights, involvement in day-to-day capital and operating decisions and
continuing involvement.
  26
 Table of Contents
  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 market
value.  Inventory costs include land, land development costs, deposits
on land purchase contracts, model home construction costs, advances to builders
and real estate taxes incurred during development and construction
phases.
  Revenue
Recognition
  Revenues
from property sales are recognized in accordance with SFAS No. 66, “Accounting
for Sales of Real Estate.” Revenues from land development services to builders
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. For
projects that are consolidated, homebuilding revenues and services will be
categorized as homebuilding revenues and revenues from property sales or options
will be categorized as land sales.
  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 Reimbursements
  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.  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
District, the assessed value increases.  It can take several years
before the assessed value is sufficient 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 June 30,
2008  We have completed Phase 1 for the Rutherford West project and
have approximately $980,000 of water district reimbursements included in
inventory that we anticipate will be collected from bond issuances made by the
District.  We anticipate the first reimbursement will be approximately
$500,000 in March 2009. 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.
  Convertible
Debt
  The
subordinated convertible debt and the related warrants have been accounted for
in accordance with Emerging Issues Task Force (EITF) No. 98-5, “Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios”, EITF No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” EITF 00-27, “Application of issue 98-5 to Certain Convertible
Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt Instrument’
in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated Damages Clause
on a Freestanding Financial Instrument Subject to Issue No. 00-19” updated with
FSP EITF 00-19-2”, Accounting for Registration Payment
Arrangements.
  27
 Table of Contents
  Recent
Accounting Pronouncements
  See Note
2 of our condensed consolidated financial statements included under Item 1
of this Report for a discussion of new accounting pronouncements applicable to
our company.
   Risk
Factors
  We
are exposed to certain risks and uncertainties that could have a material
adverse impact on our business, financial condition and operating results. Our
annual report on Form 10-KSB for the transition period ended September 30, 2007
described various risk factors applicable to our business in Part I, Item 1
“Risk Factors”.   The risks and uncertainties described in our
Form 10-KSB are not the only ones we face. Additional risks and uncertainties
that we do not presently know, or that we currently view as immaterial, may also
impair our business operations. This report is qualified in its entirety by
these risk factors.
  The
actual occurrence of any of the risks described in our Form 10-KSB could
materially harm our business, financial condition and results of operations. In
that case, the trading price of our common stock could decline.
 
 We
were required to obtain a waiver of non-compliance with certain covenants under
our borrowing base agreement.  In the event that we are not able to
regain compliance with the covenant and the lender declines to waive our
non-compliance in the future, we may be required to repay amounts owed under the
line of credit and additional amounts owed under our securities purchase
agreements, which could harm our business.
  We are
currently out of compliance with the terms of our Borrowing Base Agreement due
to the total number of completed speculative home and developed lots that were
included in the definition of “eligible property” as of June 30, 2008 and we are
operating under a wavier which expires August 29, 2008. In
addition, we are not in compliance with an additional developed lot and land
covenant.  The loan agreement requires that not more than seventy
percent (70%) of our tangible assets be in the form of developed lots and
land.  We are currently in discussions with our lenders regarding this
matter and we expect that our lenders will waive our non-compliance with this
covenant until such time as we enter into an extension and amendment of our
Credit Facility.  If we are unable to comply with any one or more of
these financial covenants and are unable to obtain a waiver for the
non-compliance, we could be precluded from incurring additional borrowings and
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 Borrowing
Base Agreement may 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 of the 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.  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, all
amounts due under the Securities Purchase Agreements may be
accelerated.  We would be unable to pay such amounts and our business
would suffer.
  If
we are unable to generate sufficient cash from operations or secure additional
borrowings or raise additional capital, we may find it necessary to curtail our
development activities.
 
 Our
performance continues to be substantially dependent on future cash flows from
real estate financing and sales and there can be no assurance that we will
generate sufficient cash flow or otherwise obtain sufficient funds to meet the
expected development plans for our current and future properties. If we are
unsuccessful in obtaining adequate loans or in generating positive cash flows,
we could be forced to sell equity securities to raise additional
funds.  There is no assurance that such financing would be available
or that the terms of the financing would be acceptable to us.  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; default on loans; violate covenants with our current
lenders and convertible note holders thereby putting us in default; and possibly
be forced to liquidate a substantial portion of our asset holdings at
unfavorable prices.
  28
 Table of Contents
  Item 3.   
Controls
and Procedures
 Our
management, including our principal executive officer and our principal
accounting officer, have evaluated our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended), as of the period ended June 30, 2008, the period covered by this
Quarterly Report on Form 10-QSB. Based upon that evaluation, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures were effective as of June 30, 2008 to ensure
that the information required to be disclosed in the reports we file under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized,
and reported within the time periods specified by the rules and forms of the
Securities and Exchange Commission.
   Changes
in Internal Control Over Financial Reporting
  There
were no changes in our internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting during the three months ended June 30,
2008.
  As
disclosed in our Annual Report on Form 10-KSB for the transitional period from
January 1, 2007 to September 30, 2007, Arun Khurana transitioned from his role
as our principal financial officer to a consulting role with the
company.
  We will be required to be in compliance
with Sarbanes Oxley Section 404 certification requirements relating to internal
controls for the fiscal year ended September 30, 2008.  We have
recently commenced our homebuilding operations.  We have also recently
implemented a new enterprise-wide information technology system.  We
are continuing to work with our Audit Committee to implement internal controls
due to the above noted activities.  Any failure to develop adequate
these internal controls would be likely to result in a material weakness in our
internal control.
 
 29
 Table of Contents
  PART II– OTHER INFORMATION
   Item 1.   
Legal
Proceedings
 None.
   Item 2.   
Unregistered
Sales of Equity Securities and Use of Proceeds
 None.
   Item 3.   
Defaults
Upon Senior Securities
 None.
   Item 4.   
Submission
of Matters to a Vote of Security Holders
  On April
3, 2008, we held our Annual Meeting of Shareholders.  The matters
voted upon at the meeting and the results of those votes were as
follows:
  Proposal
1:            Election
of Directors.
  Name
            Total
      Votes For
              Director
            Total
      Votes Withheld
              From
      DirectorClark
      N. Wilson
            21,837,338
            100Victor
      Ayad
            21,837,338
            100Jay
      Gouline
            21,837,338
            100Sidney
      Christopher Ney
            21,837,338
            100Barry
      Williamson
            21,837,338
            100
 
  Proposal
2:           
Approval of the reincorporation of the Company in Texas.
  Total
      Votes For
              Proposal
      2
            Total
      Votes Against
              Proposal
      2
            Total
      Votes Abstaining
              From
      Proposal 218,871,986
            1,000
            100
 
  Proposal
3:           Amendment
to the Company’s Certificate of Formation to change the name of the Company to
Green Builders, Inc.
  Total
      Votes For
              Proposal
      3
            Total
      Votes Against
              Proposal
      3
            Total
      Votes Abstaining
              From
      Proposal 321,757,416
            79,922
            100
 
  Proposal
4:          
Ratification of the appointment of PMB Helin Donovan, LLP as independent
auditors for the fiscal year ending September 30, 2008.
  Total
      Votes For
              Proposal
      4
            Total
      Votes Against
              Proposal
      4
            Total
      Votes Abstaining
              From
      Proposal 421,836,095
            1,234
            100
  30
 Table of Contents
  Item 5.   
Other
Information
 None.
   Item 6.Exhibits
 Exhibit
      No.
            Description10.1
            Agreement
      to Modify Loan Documents (filed as Exhibit 10.1 to Registrant’s Current
      Report on Form 8-K dated June 23, 2008 and incorporated herein by
      reference)10.2
            Consulting
      Agreement by and between the Company and Audrey Wilson, dated May 13,
      2008.4.1
            Specimen
      certificate for shares of Common Stock of Registrant (filed as Exhibit 4.1
      to Registrant’s Registration Statement on Form S-1 (File No. 333-140747)
      and incorporated herein by reference)31.1
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002
 
   31
 Table of Contents
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
   GREEN
      BUILDERS, INC.August
      14, 2008
              /s/ 
      Clark WilsonClark
      WilsonPresident
      and Chief Executive Officer
    32
 Table of Contents
 EXHIBIT
INDEX
 LIST OF
EXHIBITS
 
 Exhibit
      No.
            Description10.1
            Agreement
      to Modify Loan Documents (filed as Exhibit 10.1 to Registrant’s Current
      Report on Form 8-K dated June 23, 2008 and incorporated herein by
      reference)10.2
            Consulting
      Agreement by and between the Company and Audrey Wilson, dated May 13,
      2008.4.1
            Specimen
      certificate for shares of Common Stock of Registrant (filed as Exhibit 4.1
      to Registrant’s Registration Statement on Form S-1 (File No. 333-140747)
      and incorporated herein by reference)31.1
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002
 
   33