UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q


(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended December 31,
2009




Or


 ̈
            TRANSITION
      REPORT PURSUANT TO 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 registrant as specified in its charter)


Texas
            
            76-0547762(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)8121
      Bee Caves Road, Austin, Texas
            
            78746(Address
      of principal executive offices)
            
            (Zip
      Code)




(512)
732-0932


(Registrant’s
telephone number, including area code)




(Former
name, former address and former fiscal year, if changed since last
report)


N/A




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     x   Yes      ̈   No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   ̈    No  
 ̈




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




Large
      Accelerated Filer
            
             ̈
            
            
            
            Accelerated
      Filer
            
             ̈Non-Accelerated
      Filer
            
             ̈
            
            
            
            Smaller
      Reporting Company
            
            x




Indicate
by check mark whether the registrant is a Shell Company (as defined in Rule
12b-2 of the Exchange Act).      ̈   Yes     x   No




APPLICABLE
ONLY TO CORPORATE ISSUERS:


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





The
number of shares of common stock, par value of $0.001 per share, outstanding at
February 12, 2009 was 23,135,539.














INDEX





PART I – FINANCIAL
    INFORMATIONItem 1. Financial Statements
      (Unaudited):
            
            1Item 2. Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
            
            20Item 3.  Quantitative and
      Qualitative Disclosure abut Market Risk
            
            30Item 4T. Controls and
      Procedures
            
            30PART II – OTHER INFORMATIONItem 1. Legal
      Proceedings
            
            31Item 1A. Risk
      Factors
            
            31Item 2. Unregistered Sales of
      Equity Securities and Use of Proceeds.
            
            31Item 3. Defaults Upon Senior
      Securities.
            
            31Item 4. Submission of Matters to a
      Vote of Security Holders.
            
            31Item 5. Other
      Information.
            
            31Item 6.
      Exhibits.
            
            32Signatures and
      Certifications
            
            33




Table of Contents




CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS




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




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




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




Please
see “Part I, Item 1A—Risk Factors” of our annual report on Form 10-K for
the year ended September 30, 2009, for further discussion regarding our exposure
to risks. Additionally, 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 filing to “Green Builders,” “the Company,” “we,” “us,” or
“our,” we mean Green Builders, Inc., a Texas corporation, and, unless the
context indicates otherwise, our predecessors and subsidiaries, including our
wholly owned subsidiaries, Wilson Family Communities, Inc., a Delaware
corporation(“WFC”),
and  GB Operations, Inc., a Texas corporation (“GB
Operations”).  All references in this report to “$” or “dollars” are
to United States of America currency.  References to “fiscal 2009”
means our fiscal year ended September 30, 2009 and references to “fiscal 2010”
means our fiscal year ending September 30, 2010.








Table of Contents




PART
I – FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




GREEN
      BUILDERS, INC.Balance
      SheetsAs
      of December 31, 2009 and September 30, 2009December
      31, 2009
              
              
              September
      30, 2009Cash
      and cash equivalents
              
              $
              576,945
              
              
              
              1,152,875InventoryLand
      and land development
              
              
              11,479,392
              
              
              
              26,398,043Homebuilding
      inventories
              
              
              1,032,259
              
              
              
              2,079,143Total
      inventory
              
              
              12,511,651
              
              
              
              28,477,186Other
      assets
              
              
              152,825
              
              
              
              129,751Debt
      issuance costs, net of amortization
              
              
              731,941
              
              
              
              791,194Property,
      and equipment, net of accumulated depreciation and
      amortization
              
              
              293,938
              
              
              
              600,786Total
      assets
              
              $
              14,267,300
              
              
              
              31,151,792LIABILITIES
      AND STOCKHOLDERS' DEFICITAccounts
      payable
              
              $
              571,796
              
              
              
              685,397Accrued
      real estate taxes payable
              
              
              246,265
              
              
              
              238,580Accrued
      liabilities and expenses
              
              
              369,304
              
              
              
              404,043Accrued
      interest
              
              
              414,800
              
              
              
              2,100,996Deferred
      revenue
              
              
              10,829
              
              
              
              14,891Lines
      of credit
              
              
              7,842,491
              
              
              
              9,397,258Notes
      payable
              
              
              -
              
              
              
              13,872,995Subordinated
      convertible debt, net of $1,988,937 and $2,128,524 discount,
      respectively
              
              
              14,511,063
              
              
              
              14,371,476Total
      liabilities
              
              
              23,966,548
              
              
              
              41,085,636STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value, 100,000,000 shares authorized and
                23,135,539
      shares issued and outstanding, respectively
              
              
              23,136
              
              
              
              23,136Additional
      paid in capital
              
              
              28,142,691
              
              
              
              28,110,945Retained
      deficit
              
              
              (37,865,075
              )
              
              
              (38,067,925
              )Total
      stockholders' deficit
              
              
              (9,699,248
              )
              
              
              (9,933,844
              )Commitments
      and contingencies
              
              
              -
              
              
              
              -Total
      liabilities and stockholders' deficit
              
              $
              14,267,300
              
              
              
              31,151,792


See
accompanying notes to the financial statements.




1
 Table of Contents




GREEN
      BUILDERS, INC.Statements
      of OperationsThree
      Months Ended December 31, 2009 and 2008Three
      Months Ended December 31, 2009
              
              
              Three
      Months Ended December 31, 2008Revenues:Homebuilding
      and related services
              
              $
              2,377,624
              
              
              
              4,236,720Land
      sales
              
              
              551,142
              
              
              
              346,146Total
      revenues
              
              
              2,928,766
              
              
              
              4,582,866Cost
      of revenues:Homebuilding
      and related services
              
              
              2,095,116
              
              
              
              3,762,855Land
      sales
              
              
              445,789
              
              
              
              272,232Inventory
      impairments and land option cost write-offs
              
              
              -
              
              
              
              11,900Total
      cost of revenues
              
              
              2,540,905
              
              
              
              4,046,987Total
      gross profit
              
              
              387,861
              
              
              
              535,879Costs
      and expenses:Corporate
      general and administration
              
              
              440,113
              
              
              
              818,289Sales
      and marketing
              
              
              690,660
              
              
              
              493,914Total
      costs and expenses
              
              
              1,130,773
              
              
              
              1,312,203Operating
      loss
              
              
              (742,912
              )
              
              
              (776,324
              )Other
      income (expense):Gain
      on restrucured debt
              
              
              1,672,353
              
              
              
              -Interest
      and other income
              
              
              14,208
              
              
              
              97,843Interest
      expense
              
              
              (740,799
              )
              
              
              (982,622
              )Total
      other expense
              
              
              945,762
              
              
              
              (884,779
              )Income
      before income taxes
              
              
              202,850
              
              
              
              (1,661,103
              )Provision
      for income taxes
              
              
              -
              
              
              
              -Net
      income (loss)
              
              $
              202,850
              
              
              
              (1,661,103
              )Basic
      and diluted loss per share
              
              $
              0.01
              
              
              
              (0.07
              )Basic
      and diluted weighted average common shares outstanding
              
              
              23,135,539
              
              
              
              23,135,539


See
accompanying notes to the financial statements.




2
 Table of Contents






GREEN
      BUILDERS, INC.Statements
      of Cash FlowsThree
      Months Ended December 31, 2009 and 2008Three
      Months Ended
                December
      31, 2009
              
              
              Three
      Months Ended
                December
      31, 2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              202,850
              
              
              
              (1,661,103
              )Non
      cash adjustments:Amortization
      of convertible debt discount
              
              
              139,587
              
              
              
              139,587Amortization
      of debt issuance costs
              
              
              59,253
              
              
              
              59,253Stock-based
      compensation expense
              
              
              31,746
              
              
              
              42,286Depreciation
      and amortization
              
              
              70,346
              
              
              
              97,013Inventory
      impairments and land option cost write-offs
              
              
              -
              
              
              
              11,900Gain
      on troubled debt restructuring, net
              
              
              (1,672,353
              )
              
              
              -Impairment
      of sales office trailer
              
              
              208,740
              
              
              
              -Adjustments
      to reconcile net loss to net cash used in operating
      activities:Decrease
      in total inventory
              
              
              1,638,525
              
              
              
              2,171,213Decrease
      (increase) in other assets
              
              
              (23,074
              )
              
              
              277,473Decrease
      in accounts payable
              
              
              (113,601
              )
              
              
              (869,699
              )Increase
      in real estate taxes payable
              
              
              7,685
              
              
              
              65,414Increase
      (decrease) in accrued expenses
              
              
              (34,739
              )
              
              
              172,315Decrease
      in deferred revenue
              
              
              (4,062
              )
              
              
              (4,061
              )Increase
      (decrease) in accrued interest
              
              
              440,172
              
              
              
              371,209Net
      cash provided by (used in) operating activities
              
              
              951,075
              
              
              
              872,800Cash
      flows from investing activities:Disposal
      of fixed assets, net
              
              
              27,762
              
              
              
              (7,157
              )Net
      cash provided by (used in) investing activities
              
              
              27,762
              
              
              
              (7,157
              )Cash
      flows from financing activities:Issuances
      and repayments of lines of credit, net
              
              
              (1,554,767
              )
              
              
              (2,407,663
              )Net
      cash provided by (used in) financing activities
              
              
              (1,554,767
              )
              
              
              (2,407,663
              )Net
      decrease in cash and cash equivalents
              
              
              (575,930
              )
              
              
              (1,542,020
              )Cash
      and cash equivalents at beginning of period
              
              
              1,152,875
              
              
              
              3,711,180Cash
      and cash equivalents at end of period
              
              $
              576,945
              
              
              
              2,169,160Cash
      paid for interest
              
              $
              136,976
              
              
              
              464,745Supplemental
      disclosure for non-cash activity:Reduction
      in inventory in connection with troubled debt
restructuring
              
              $
              14,327,011
              
              
              
              -Reduction
      in notes payable in connection with troubled debt
      restructuring
              
              $
              13,872,996
              
              
              
              -Reduction
      in accrued interest in connection with troubled debt
      restructuring
              
              $
              2,126,368
              
              
              
              -


See
accompanying notes to the financial statements.




3
 Table of Contents




(1)         Organization
and Business Activity




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




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




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




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




On
January 29, 2010 the Company filed a definitive information statement to inform
our shareholders of (i) the approval by the Board at a meeting held on
November13, 2009
of amendments to our Certificate of Formation to effect a reverse stock split of
our Common Stock followed immediately by a forward stock split of our Common
Stock (the “Reverse/Forward Stock Split”), and (ii) our receipt of a
written consent dated January 28, 2010, approving such amendment by shareholders
holding 53.9% of the voting power of all of our shareholders entitled to vote on
the matter as of November17, 2009 (the “Record
Date”).  The Certificates of Amendment shall be filed with the
Secretary of State of the State of Texas on or after February 19, 2010, (20
calendar days following the date the information statement was first mailed to
our shareholders) and will become effective immediately
thereafter.  As a result of the Reverse/Forward Stock Split,
shareholders owning fewer than 500 shares of our Common Stock will be cashed out
at a price of $0.26 per share, and the holdings of all other shareholders will
remain unchanged.   The Board may elect to terminate the
Reverse/Forward Stock Split prior to the effective date.




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




4
 Table of Contents




(2)         Going
Concern Liquidity and Capital Resources




Liquidity and
Capital Resources




On
December 31, 2009, the Company had approximately $577,000 in cash and cash
equivalents.  The Company’s current operations and future growth will
require substantial amounts of cash for earnest money deposits, development
costs, interest payments and homebuilding costs.  Until the Company
begins to sell an adequate number of lots and homes to cover its monthly
operating expenses, sales and marketing expenses, general and administrative
costs, and interest payments, cash will continue to be depleted.  Due
to current market conditions and slow home and land sales, it is anticipated
that the Company will need additional capital to support operations for the next
twelve months.  The Company can not provide any assurance that it will
be successful in obtaining additional capital.




Land and
homes under construction comprise the majority of the Company’s
assets.  These assets have suffered devaluation due to the downturn in
the housing and real estate market for central Texas.  The Company is
considering selling tracts of commercial and residential land in order to
increase sales revenues and cash.




Line
of Credit




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




In June 2008 the Credit Facility was
reduced to $30 million.  On May 14, 2009, the Company entered into a
Fourth Agreement to Modify Loan Documents (the “Modification”) of the Credit
Facility.  The Modification modified the terms of the Loan Agreement
by reducing the loan commitment amount pursuant to the Loan Agreement from $30
million to $10.8 million.  The Modification extended the maturity of
the master line of credit issued pursuant to the Loan Agreement (the “Master
Line”) until March 31, 2011.  The modification agreement amended the
interest rate of the facility from prime plus .25%, with a floor of 5.5%, to
libor plus 3.5%, with a floor of 6%.  At December 31, 2009 the Company
had $7.6 million outstanding under the Master Line and has drawn all the
remaining loan commitments from the Credit Facility.




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




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




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




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




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




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




5
 Table of Contents




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




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




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




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




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




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




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




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




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




LNZCO
Line




On March
12, 2009 the Company entered into an agreement with LNZCO, LLC (“LNZCO”)
pursuant to which LNZCO agreed to provide it with between $1 and $2
million  of  financing for the construction of single family
residences.  Each promissory note issued thereunder bears interest at a
rate of prime plus 5.0%, has a one point origination fee, and matures one year
from the date of issuance.  In aggregate the Company has issued promissory
notes for home construction loans totaling approximately $2.9 million to
LNZCO.  At December 31, 2009 the Company had promissory notes in the
principal amount of $816,000 held by LNZCO issued for home
construction loans, with $148,000 drawn on these notes.  In addition
to the construction line, LNZCO has loaned the Company an aggregate of $365,000
to purchase land in the Georgetown Village community, with $117,000 of
that amount outstanding at December 31, 2009.  Each promissory note
issued thereunder bears interest at a rate of 10%,  has a two point
origination fee, and  a maturity date of one year from the date of
issuance  which can be extended for an additional 12 months for
an additional two point extension fee.  The Company can not provide any
assurances that it will receive additional promissory notes for financing
construction of new single family residences from LNZCO.  The Company can
give no assurance that in such an event, the Company would have adequate capital
to construct homes.




Convertible
Promissory Notes




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




6
 Table of Contents




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




(3)           Summary
of Significant Accounting Policies




(a)           Revenue
Recognition




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




(b)           Cash
and Cash Equivalents




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




(c)           Inventory




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




(d)           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 fair value of warrants and
options.  To the extent that the estimates are dramatically different
from the actual amounts, such differences could have a material effect on the
financial statements.




(e)           Water
District Receivables




The
Company owns 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 agreements with the WCID, the Company expects to be reimbursed
partially for the above development costs. The WCID will issue bonds to repay
the Company, once the property has sufficient assessed value for the WCID 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 December 31,
2009.  The Company has completed Phase 1 for the Rutherford West (as
defined herein) project and has approximately $1 million of WCID reimbursements
included in inventory that it anticipates it will collect from bond issuances
made by the district.  When the reimbursements are received they will
be recorded as reductions in the related asset’s balance.  The
district will pay for property set aside for the preservation of endangered
species, greenbelts and similar uses.  To the extent that the
estimated reimbursements are dramatically different from the actual
reimbursements, such differences could have a material effect on the Company’s
financial statements.  In July 2009, the WCID for the Rutherford West
project had its first bond issuance, the Company received reimbursements of
approximately $470,000.




7
 Table of Contents




(f)           Subordinated
Convertible Debt




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




(g)           Loss
per Common Share




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




The
Company has issued stock options and warrants convertible into shares of common
stock. These shares and warrants have been excluded from loss per share for the
three months ended December 31, 2009 and 2008 because the effect would be
anti-dilutive as summarized in the table below:






Three
      Months Ended December 31, 2009
              
              
              Three
      Months Ended December 31, 2008Stock
      options
              
              
              485,979
              
              
              
              1,090,000Common
      stock warrants
              
              
              1,837,191
              
              
              
              1,143,125Convertible
      promissory note warrants
              
              
              8,250,000
              
              
              
              8,250,000Total
              
              
              10,573,170
              
              
              
              10,483,125


(h)         Property
and Equipment




Property
and equipment, which included model home furnishings and sales office costs is
carried at cost less accumulated depreciation. Depreciation and amortization is
recorded over the estimated useful life of the asset.  For the three
months ended December 31, 2009 the Company recorded a $209,000 impairment for
its sales office.




(i)           Adoption
of New Accounting Pronouncements




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




8
 Table of Contents




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





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





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




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





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





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





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




9
 Table of Contents




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





In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about
Fair Value Measurements,” which requires additional disclosures related to
transfers between levels in the hierarchy of fair value
measurement.




(4)         Inventory




The
Company’s land and land development inventory includes land costs, prepaid
development costs, development costs, option money and earnest money on land
purchase options.  Homebuilding inventory represents model homes,
speculative homes, and units sold and under construction.  Earnest
money deposits for land costs and development costs on land under option, not
owned, totaled approximately $175,000 at December 31, 2009 and September 30,
2009 respectively, all of which is non-refundable if the Company does not
exercise the option and purchase the land.  The $175,000 of earnest
money is for the Georgetown Village (as defined herein) option contract which
requires the Company to takedown 30 acres of land each year from May 2010
through May 2017.  The earnest money will be applied to the purchase
price for the final takedown of land.




As of
December 31, 2009 the Company owned approximately 181 unfinished acres of
property.  The following is a description of the property completed,
owned or under contract by the Company as of December 31, 2009:




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




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




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




In
January 2009, the Company entered into an agreement with Graham Mortgage Capital
(“Graham”)  to modify the debt agreement for the $7.3 million loan for
property in Rutherford West and the $4.7 million loan for New
Sweden.  Effective January 1, 2009, the Company began paying 2%
interest on each loan (“Modified Interest Payment”) and accrued an additional
12% interest on the loan.  Per the agreement, in the event that the
property was not sold by December 31, 2009 and provided that all Modified
Interest Payments and real estate taxes for 2009 had been paid,  the
Company and Graham would exchange mutual releases, the corporate guaranty would
be returned, and the Deed (in Lieu of Foreclosure) would be
released.   On December 31, 2009 the Company and Graham exchanged
mutual releases.  The property was deeded (in Lieu of Foreclosure)
back to Graham.   The Company issued two separate warrants for
the purchase 347,033 shares of the Company’s commons stock for each tract of
land that was deeded back.  The warrants have a $5.00 strike price and
can be exercised from January 1, 2010 through December 31, 2012.  The
Company recorded a gain from the deed at December 31, 2009 (see note
11).




10
 Table of Contents




In
November 2009, the Company received a notice of foreclosure sale from each of
the three remaining lenders for the New Sweden tract.  The promissory
notes are secured by a deed of trust creating a lien upon the 166.47 acres
of tract of land in the Company’s New Sweden project. 
The foreclosure sale for each of these notes occurred on December 1,
2009.  The
note was a nonrecourse note and a gain was recorded when the acreage was
foreclosed (see note 11).






The
Company performs an inventory impairment analysis on a quarterly
basis.  If impairment indicators are present, impairment charges are
required to be recorded if the fair value is less than the cost recorded. 
The Company’s determination of fair value is primarily based on discounting the
estimated cash flows.  The Company utilized a 14% discount rate for
determining fair value for the three months ended December 31,
2009.  Estimated cash flows are based on recent offers and comparable
sales of real estate under existing and anticipated market
conditions.  The Company did not record any impairments for the three
months ended December 31, 2009.





Below is
a summary of the property completed, owned or under contract by the Company at
December 31, 2009.  Land and land development inventory includes land
costs, prepaid development costs, development costs, option money and earnest
money on land purchase options.  Homebuilding inventory represents
model homes, speculative homes under construction, units sold and under
construction, and capitalized indirect costs.






Property
              Unsold
                Finished
                Lots/Homes
              Owned
                Unfinished
                Acreage
              Approximate
                AcreageUnder
                Option
              Inventory
      Costs at
                December
      31, 2009

                  (In
      thousands)Land
      and Land Development
              94
              167
              394
              $11,479Homebuilding
              1
              -
              -
              $1,032Total
      Inventory
              95
              167
              394
              $12,512





Below is
a summary of the property completed, owned or under contract by the Company at
September 30, 2009:









Property
              Unsold
                Finished
                Lots/Homes
              Owned
                Unfinished
                Acreage
              Approximate
                Acreage
      Under
                Option
              Inventory
      Costs at
                September
      30, 2009

                  (In
      thousands)Land
      and Land Development
              216
              1,158
              394
              $26,398Homebuilding
              8
              -
              -
              $2,079Total
      Inventory
              224
              1,158
              394
              $28,477




(5)         Operating
and Reporting Segments




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




11
 Table of Contents




The
following table presents segment operating results before taxes for the three
months ended December 31, 2009 and 2008.




Three
      Months Ended December 31, 2009
              
              
              Three
      Months Ended December 31, 2008Homebuilding
      Sales
              
              
              Land
      Sales
              
              
              Total
              
              
              Homebuilding
      Sales
              
              
              Land
      Sales
              
              
              TotalRevenues
      from external customers
              
              
              2,377,624
              
              
              $
              551,142
              
              
              $
              2,928,766
              
              
              $
              4,236,720
              
              
              
              346,146
              
              
              
              4,582,866Costs
      and expenses:Cost
      of revenues
              
              
              2,095,116
              
              
              
              445,789
              
              
              
              2,540,905
              
              
              
              3,762,855
              
              
              
              272,232
              
              
              
              4,035,087Impairment
      and write-offs
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              11,900
              
              
              
              -
              
              
              
              11,900Selling,
      general and administrative
              
              
              890,411
              
              
              
              240,362
              
              
              
              1,130,773
              
              
              
              857,200
              
              
              
              455,003
              
              
              
              1,312,203Foreclosure
      of Assets
              
              
              -
              
              
              
              (1,672,353
              )
              
              
              (1,672,353
              )
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      & other income
              
              
              (12,787
              )
              
              
              (1,421
              )
              
              
              (14,208
              )
              
              
              (53,814
              )
              
              
              (44,029
              )
              
              
              (97,843
              )Interest
      expense
              
              
              204,628
              
              
              
              536,171
              
              
              
              740,799
              
              
              
              258,062
              
              
              
              724,560
              
              
              
              982,622Total
      costs and expenses
              
              
              3,177,368
              
              
              
              (451,452
              )
              
              
              2,725,916
              
              
              
              4,836,203
              
              
              
              1,407,766
              
              
              
              6,243,969Profit
      or Loss before taxes
              
              
              (799,744
              )
              
              $
              1,002,594
              
              
              $
              202,850
              
              
              $
              (599,483
              )
              
              
              (1,061,620
              )
              
              
              (1,661,103
              )Segment
      Assets
              
              
              2,085,863
              
              
              $
              12,181,437
              
              
              $
              14,267,300
              
              
              $
              9,585,203
              
              
              
              33,842,260
              
              
              
              43,427,463Capital
      expenditures
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              7,157
              
              
              
              -
              
              
              
              7,157








(6)         Related
Party Transactions




Consulting
Arrangement with Audrey Wilson




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




Financing
with LNZCO, LLC





On March
12, 2009 the Company entered into an agreement with LNZCO, LLC (“LNZCO”)
pursuant to which LNZCO agreed to provide it with between $1 and $2
million  of  financing for the construction of single family
residences.  Each promissory note issued thereunder bears interest at a
rate of prime plus 5.0%, has a one point origination fee, and matures one year
from the date of issuance.  In aggregate the Company has issued promissory
notes for home construction loans totaling approximately $2.9 million to
LNZCO.  At December 31, 2009 the Company had promissory notes in the
principal amount of $816,000 held by LNZCO issued for home
construction loans, with $148,000 drawn on these notes.  In addition
to the construction line, LNZCO has loaned the Company an aggregate of $365,000
to purchase land in the Georgetown Village community, with $117,000 of
that amount outstanding at December 31, 2009.  Each promissory note
issued thereunder bears interest at a rate of 10%,  has a two point
origination fee, and  a maturity date of one year from the date of
issuance  which can be extended for an additional 12 months for
an additional two point extension fee.  The Company can not provide any
assurances that it will receive additional promissory notes for financing
construction of new single family residences from LNZCO.  LNZCO is
wholly-owned by the Lindsey May Kathryn Wilson 1995 Trust, the beneficiaries of
which are the minor children of Clark Wilson, the President and Chief Executive
Officer of the Company.  The Company’s Audit Committee reviewed the
proposed terms from LNZCO and compared them to the terms of other financing
arrangements available to WFC at this time.  The Audit Committee of
the Company’s Board of Directors determined that LNZCO could provide the most
favorable financing terms to WFC and approved the LNZCO terms as being fair as
to the Company and WFC as of the time of authorization.




12
 Table of Contents





Vendor
Payments




The
Company has entered into contractual work agreements with Wilson
Roofing.  Wilson Roofing is owned by relatives of Clark N. Wilson, the
Company’s President and Chief Executive Officer.  The Company paid
Wilson Roofing approximately $55,000 and $101,000 for the three months ended
December 31, 2009 and 2008, respectively.   Management believes
that services were provided at fair market value.





(7)         Commitments
and Contingencies




Options
Purchase Agreements




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







Lease
Obligations




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




2010
            
            
            2011
            
            2012
            2013
            2014Lease
      obligations
            
            $
            67,186
            
            
            
            740
            
            240
            240
            240






Employment
Agreement with Clark Wilson




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





13
 Table of Contents






(8) Indebtedness




The
following schedule lists the Company’s notes payable and lines of credit
balances at December 31, 2009 and September 30, 2008.


Rate
              Status
              Maturity
                Date
              
              Balance
      at 12/31/2009
              Balance
      at 9/30/2009(In
      thousands)a
              Notes
      payable, land
              14.00%
              
              Dec-31-09
              $
              -
              4,700b
              Notes
      payable, land
              14.00%
              
              Dec-31-09
              
              -
              7,300c
              Notes
      payable, seller financed
              7.00%
              
              Dec-1-09
              
              -
              1,873d
              Line
      of Credit, $10.8 million facility, land, land development, and
      homebuilding
              Prime+.25%
              Default
              Mar-31-11
              
              7,578
              9,317e
              $1-2
      million in financing, homebuilding and land
              Prime+5%
      & 10%
              Entered
      March 2009
              
              
              265
              80f
              2005
      $10 million, Subordinated convertible notes, net of discount of $284
      thousand and $372 thousand, respectively
              5.00%
              Default
      as of December 1, 2009
              Dec-1-12
              
              9,737
              9,716g
              2006
      $6.50 million, Subordinated convertible notes, net of discount of $1,844
      and $2,314 thousand respectively
              5.00%
              Default
      as of December 1, 2009
              Sep-1-13
              
              4,774
              4,656Total
              
              
              $
              22,354
              37,642






(a)           In
March 2007, the Company secured a $4.7 million term land loan with Graham to
finance 522 acres of land in Travis Country for the New Sweden
development.  In January 2009, the Company entered into an agreement
with Graham to modify the debt agreement.  Effective January 1, 2009,
the Company began paying 2% interest on each loan (“Modified Interest Payment”)
and accrued an additional 12% interest on the loan.  Per the
agreement, in the event that the property was not sold by December 31, 2009 and
provided that all Modified Interest Payments and real estate taxes for 2009 had
been paid,  the Company and Graham would exchange mutual releases, the
corporate guaranty would be returned, and the Deed (in Lieu of Foreclosure)
would be released.   At December 31, 2009 the Company and Graham
exchanged mutual releases.  The property was deeded (in Lieu of
Foreclosure) back to Graham.   The Company issued a warrant for
the purchase of 347,033 shares of the Company’s common stock.  The
warrant has a $5.00 strike price and can be exercised from January 1, 2010
through December 31, 2012.   The warrant was valued based on the
fair value of the Company’s common stock on the issuance date
of  $0.10 per share, using a Black-Scholes approach, risk free
interest rate of 2.69%; dividend yield of 0%; weighted-average expected life of
the warrant of 3 years; and a 60% volatility factor, resulting in an
immaterial value.




(b)           In
February 2007 the Company secured a $7.3 million land loan to finance the
Rutherford West project which is approximately 538 acres in Hays
County.  In January 2009, the Company entered into an agreement with
Graham to modify the debt agreement.  Effective January 1, 2009, the
Company began paying 2% interest on each loan (“Modified Interest Payment”) and
accrued an additional 12% interest on the loan.  Per the agreement, in
the event that the property was not sold by December 31, 2009 and provided that
all Modified Interest Payments and real estate taxes for 2009 had been paid, the
Company and Graham would exchange mutual releases, the corporate guaranty would
be returned, and the Deed (in Lieu of Foreclosure) would be
released.   At December 31, 2009 the Company and Graham exchanged
mutual releases.  The property was deeded (in Lieu of Foreclosure)
back to Graham.   The Company issued a warrant for the purchase
of 347,033 shares of the Company’s common stock.  The warrant has a
$5.00 strike price and can be exercised from January 1, 2010 through December
31, 2012.   The warrant was valued based on the fair value of the
Company’s common stock on the issuance date of  $0.10 per share, using
a Black-Scholes approach, risk free interest rate of 2.69%; dividend yield of
0%; weighted-average expected life of the warrant of 3 years; and a 60%
volatility factor, resulting in an immaterial value.




14
 Table of Contents




(c)           As
part of the purchase of the New Sweden project in Travis County described above,
the Company entered into four notes payable, seller financed with a cumulative
balance of approximately $2.5 million.  At September 30, 2009 three of
the notes payable were remaining.  The notes have a cumulative balance
of $1.9 million and are at an interest rate of 7%.  In November 2009,
the Company received a notice of foreclosure sale from each of the three
remaining lenders.  The promissory notes are secured by a deed of
trust creating a lien upon the 166.47 acres of tract of land in
the Company’s New Sweden project.  The foreclosure sale for each of
these notes occurred on December 1, 2009.  Each of the promissory
notes described above are non-recourse notes.




(d)           In
June 2007 the Company established the Credit Facility with a syndicate of banks
in the amount of $55 million.  On May 14, 2009, the Company entered
into a Modification of the Credit Facility.   The Modification
modified the terms of the Loan Agreement by reducing the loan commitment amount
pursuant to the Loan Agreement from $30 million to $10.8 million.  As
of December 31, 2009, the Company has approximately $7.6 million in borrowings.
The Company is currently out of compliance with certain covenants under the loan
agreement (as described in Note 2 above).




(e)           On
March 12, 2009 the Company entered into an agreement with LNZCO, LLC (“LNZCO”)
pursuant to which LNZCO agreed to provide it with between $1 and $2
million  of  financing for the construction of single family
residences.  Each promissory note issued thereunder bears interest at a
rate of prime plus 5.0%, has a one point origination fee, and matures one year
from the date of issuance.  In aggregate the Company has issued promissory
notes for home construction loans totaling approximately $2.9 million to
LNZCO.  At December 31, 2009 the Company had promissory notes in the
principal amount of $816,000 held by LNZCO issued for home
construction loans, with $148,000 drawn on these notes.  In addition
to the construction line, LNZCO has loaned the Company an aggregate of $365,000
to purchase land in the Georgetown Village community, with $117,000 of
that amount outstanding at December 31, 2009.  Each promissory note
issued thereunder bears interest at a rate of 10%,  has a two point
origination fee, and  a maturity date of one year from the date of
issuance  which can be extended for an additional 12 months for
an additional two point extension fee.  The Company can not provide any
assurances that it will receive additional promissory notes for financing
construction of new single family residences from LNZCO.  The Company can
give no assurance that in such an event, the Company would have adequate capital
to construct homes.




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




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




15
 Table of Contents




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




Subordinated
Convertible Notes Issued December 19, 2005 at December 31, 2009 and September
30, 2009:




December
      31,
              2009
            
            
            September
      30,
              2009Notional
      balance
            
            $
            10,000,000
            
            
            
            10,000,000Unamortized
      discount
            
            
            (262,516
            )
            
            
            (284,392
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            9,737,484
            
            
            
            9,715,608




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




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




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




16
 Table of Contents




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




Subordinated
Convertible Notes Issued September 29, 2006 at December31, 2009 and September
30, 2009




December
      31,
              2009
            
            
            September
      30,
              2009Notional
      balance
            
            $
            6,500,000
            
            
            
            6,500,000Unamortized
      discount
            
            
            (1,726,421
            )
            
            
            (1,844,132
            )Subordinated
      convertible debt balance, net of unamortized discount
            
            $
            4,773,579
            
            
            
            4,655,868




(9)         Common
Stock




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




(10)         Common
Stock Option / Stock Incentive Plan




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




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




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




The
Company had 2,014,021 shares of common stock available for future grants under
the Plan at December 31, 2009.  Compensation expense related to the
Company’s share-based awards for the three months ended December 31, 2009 and
2008 was approximately $32,000 and $42,000, respectively.   At
December 31, 2009, there was approximately $103,000 of unrecognized compensation
expense related to unvested share-based awards granted under the Company’s Stock
Option Plan.  These options are issued pursuant to the Plan and are
reflected in the disclosures below.




17
 Table of Contents




The
Company did not issue any options to purchase common stock during the three
months ended December 31, 2009.  A summary of activity in common stock
options for the three months ended December 31, 2009 is as follows:




Share
      Roll
                  
                  
                  Ranges
Of
                  
                  
                  Weighted-AverageForward
                  
                  
                  Exercise
      Prices
                  
                  
                  Exercise
      PriceBalance September 30, 2009
                  
                  
                  566,563
                  
                  
                  $0.19
      - $3.25
                  
                  
                  $2.04Granted
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Forfeited
                  
                  
                  (80,584
                  )
                  
                  $0.19
      - $3.25
                  
                  
                  $2.45Balance
      December 31, 2009
                  
                  
                  485,979
                  
                  
                  $0.23
      - $3.25
                  
                  
                  $2.14


The
following is a summary of options outstanding and exercisable at December 31,
2009:


Outstanding
                VestedWeighted
                
                
                WeightedNumber
      of
                Average
                
                
                AverageShares
      Subject to
                Remaining
                Weighted
                
                Remaining
                WeightedOptions
                Contractual
      Life
                Average
      Exercise
                Number
      of
                Contractual
      Life
                Average
      ExerciseOutstanding
                (in
      years)
                Price
                Vested
      Shares
                (in
      years)
                Price485,979
                6.69
                $2.14
                380,083
                6.39
                $2.24




(11)         Troubled
Debt Restructuring




In
November 2009, the Company received a notice of foreclosure sale from each of
the three remaining lenders for the New Sweden tract.  The promissory
notes are secured by a deed of trust creating a lien upon the 166.47 acres
of tract of land in the Company’s New Sweden project. 
The foreclosure sale for each of these notes occurred on December 1,
2009.  The
note was a nonrecourse note and the gain resulting from the foreclosure was
calculated as follows:




Carrying
      amount of debt settled in full
                
                $
                1,872,996Cancellation
      of accrued interest
                
                
                181,368Debt
      settlement amount
                
                
                2,054,364Carrying
      amount of asset
                
                
                1,635,323Gain
      on restructured debt
                
                $
                419,041


In
January 2009, the Company entered into an agreement with Graham to modify the
debt agreement for the $7.3 million loan for property in Rutherford West and the
$4.7 million loan for New Sweden.  Effective January 1, 2009, the
Company began paying 2% interest on each loan (“Modified Interest Payment”) and
accrued an additional 12% interest on the loan.  Per the agreement, in
the event that the property was not sold by December 31, 2009 and provided that
all Modified Interest Payments and real estate taxes for 2009 had been
paid,  the Company and Graham would exchange mutual releases, the
corporate guaranty would be returned, and the Deed (in Lieu of Foreclosure)
would be released.   As of December 31, 2009 the Company and
Graham exchanged mutual releases and the property was deeded (in Lieu of
Foreclosure) back to Graham.




The gain
resulting from the deed (in Lieu of Foreclosure) from the Rutherford West
project was calculated as follows:




18
 Table of Contents




Carrying
      amount of debt
              
              $
              7,300,000Carrying
      amount of accrued interest
              
              
              1,183,208Debt
      settlement amount
              
              
              8,483,208Carrying
      amount of asset
              
              
              7,453,388Gain
      on restructured debt
              
              $
              1,029,820




The gain resulting from the deed (in
Lieu of Foreclosure) from the New Sweden project was calculated as
follows:




Carrying
      amount of debt
              
              $
              4,700,000Carrying
      amount of accrued interest
              
              
              761,792Debt
      settlement amount
              
              
              5,461,792Carrying
      amount of asset
              
              
              5,238,300Gain
      on restructured debt
              
              $
              223,492




















19
 Table of Contents




ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




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




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
accompanying notes included in Item 1 of this report.




OVERVIEW




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




From late
2007 through December 31, 2009 our business has been significantly impacted by
the deterioration of the real estate and homebuilding
industry.  Deteriorating market conditions, turmoil in the mortgage
and credit markets and increased price competition have negatively impacted us
from late 2007 through fiscal year 2010.   Although there have
been some indictors of stabilization within the real estate and homebuilding
market we have continued to see slow sales due to capital resource constraints
(discussed below).




In June
2007 we purchased Green Builders, Inc. and commenced our homebuilding operations
under that name.  Our strategy is to build homes that are
environmentally responsible, resource efficient and consistent with local
style.  Substantially all of our construction work is performed by
subcontractors who are retained for specific subdivisions pursuant to contracts
we have entered into with the subcontractors.  We intend to build
homes on some of the lots we currently have completed that are ready for
homebuilding activities and sell those as finished homes as well as continue to
sell lots to other builders.




Prior to
our acquisition of Green Builders, we were solely focused on the acquisition of
undeveloped land that we believed, based on our research of population growth
patterns and infrastructure development, was strategically
located.  We have funded these acquisitions primarily with bank debt
and cash we raised from financing activities.  As of December 31, 2009
we have completed 220 lots in Georgetown Village, 105 lots in Elm Grove and 58
lots in Rutherford West.  We have purchased approximately 184 acres in
Georgetown Village, 522 acres in New Sweden, 60 acres in Elm Grove, and 736
acres in Rutherford West.  We sold 522 acres in New Sweden via a
combination of foreclosure and deed in lieu of foreclosure.  We sold
538 acres in Rutherford West via deed in lieu of foreclosure.  We plan
to continue to sell and develop the remaining properties.  This
portion of our business focus has required the majority of our financial
resources.




In
January 2009, we entered into an agreement with Graham to modify the debt
agreement for the $7.3 million loan for property in Rutherford West and the $4.7
million loan for New Sweden.  Effective January 1, 2009, we began
paying 2% interest on each loan (“Modified Interest Payment”) and accrued an
additional 12% interest on the loan.  Per the agreement, in the event
that the property was not sold by December 31, 2009 and provided that all
Modified Interest Payments and real estate taxes for 2009 had been paid, we
would exchange mutual releases with Graham, the corporate guaranty would be
returned, and the Deed (in Lieu of Foreclosure) would be
released.   As of December 31, 2009 we exchanged mutual releases
with Graham and the property was deeded (in Lieu of Foreclosure) back to
Graham.




20
 Table of Contents




In tandem
with our land acquisition efforts and based upon our strategic market analysis,
we also prepare land for homebuilding.  A focus of our business had
been the sale of developed lots to homebuilders, including national
homebuilders.  Due to deteriorating conditions in the homebuilding
industry both nationally and to a lesser extent locally, beginning in the second
quarter of 2007 and continuing through December 31, 2009, demand and pricing for
finished lots by national homebuilders has been, and we expect will continue to
be, significantly reduced.  We elected to retain some of our lots for
use in our homebuilding business.  We believed that retaining some of
our lots for use in homebuilding activities would have allow us to generate
homebuilding revenue to replace some of the revenue from the loss of sales of
these finished lots.  Our current focus is to pursue lot sales
contracts with both national and regional builders to pay down debt and improve
our balance sheet.




Reverse/Forward
Split




On
January 29, 2010 we mailed a definitive information statement to inform our
shareholders of (i) the approval by the Board at a meeting held on November
14, 2009 of amendments to our Certificate of Formation to effect a reverse stock
split of our common stock followed immediately by a forward stock split of our
common stock (the “Reverse/Forward Stock Split”), and (ii) our receipt of a
written consent dated January 28, 2010 approving such amendment by shareholders
holding 53.9% of the voting power of all of our shareholders entitled to vote on
the matter as of November13, 2009.  The
Certificates of Amendment shall be filed with the Secretary of State of the
State of Texas on or after February 19, 2010, (20 calendar days following the
date the information statement was first mailed to our shareholders) and will
become effective immediately thereafter.  As a result of the
Reverse/Forward Split shareholders owning fewer than 500 shares of our common
stock will be cashed out at a price of $0.26 per share, and the holdings of all
other shareholders will remain unchanged.




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










21
 Table of Contents




Comparison
of Three Months Ended December 31, 2009 and 2008




Three
      Months Ended December 31, 2009
              
              
              Three
      Months Ended December 31, 2008
              
              
              Change
              
              
              Change
      %RevenuesHomebuilding
      and related services revenues
              
              $
              2,377,624
              
              
              $
              4,236,720
              
              
              $
              (1,859,096
              )
              
              
              -44
              %Land
      revenues
              
              
              551,142
              
              
              
              346,146
              
              
              
              204,996
              
              
              
              59
              %Gross
      ProfitHomebuilding
      and related services gross profit
              
              
              282,508
              
              
              
              473,865
              
              
              
              (191,357
              )
              
              
              -40
              %Land
      gross profit
              
              
              105,353
              
              
              
              73,914
              
              
              
              31,439
              
              
              
              43
              %Inventory
      impairments and land option cost write-offs
              
              
              -
              
              
              
              (11,900
              )
              
              
              11,900
              
              
              
              100
              %Costs
      & ExpensesOperating
      expenses
              
              
              1,130,773
              
              
              
              1,312,203
              
              
              
              (181,430
              )
              
              
              -14
              %Operating
      Loss
              
              
              (742,912
              )
              
              
              (776,324
              )
              
              
              33,412
              
              
              
              4
              %Net
      Profit (Loss)
              
              $
              202,850
              
              
              $
              (1,661,103
              )
              
              $
              1,863,953
              
              
              
              112
              %






Results
of Operations




Homebuilding
and Related Services Revenues




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




For the
three months ended December 31, 2009 we had twelve home sales and three
cancellations, for a total of nine net sales.  We had ten home
closings.  Revenue is not recognized until a home closing is
finalized.  At December 31, 2009 we had one completed model and eleven
units in backlog.  For the three months ended December 31, 2008 we had
twelve home sales and seven cancellations for a total of five net
sales.  We had seventeen home closings.  At December 31,
2008, we had eight completed speculative units, two speculative units under
construction, seven completed models, and 19 units in
backlog.   Backlog is defined as homes under contract but not yet
delivered to our home buyers.




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




Revenues - During the three
months ended December 31, 2009, home sales accounted for approximately 81% of
revenues.  For the three months ended December 31, 2009 we had ten
home closings at an average sales price of $237,000.  During the three
months ended December 31, 2008, home sales accounted for approximately 93% of
revenues.  For the three months ended December 31, 2008 there were
seventeen home closings with an average sales price of $249,000.




Impairments –We did not
record any impairments for homebuilding for the three months ended December 31,
2009.  We recorded $11,900 of impairments for homebuilding for the
three months ended December 31, 2008.   In accordance with
authoritative guidance, we perform an inventory impairment analysis on a
quarterly basis.  If impairment indicators are present, impairment
charges are required to be recorded if the fair value of the inventory is less
than the cost recorded.  Our determination of fair value is primarily based
on discounting the estimated future cash flows.  Estimated cash flows are
based on recent offers and comparable sales of lots and land under existing and
anticipated market conditions.




22
 Table of Contents




Gross Profit- Gross profit
percentage before impairments was 12% for the year ended December 31, 2009
compared to 11% for the three months ended December 31, 2008.




Land
and Land Development Revenues




Background – Land sales
revenues consists of revenues from the sale of undeveloped land and developed
lots.  Developing finished lots from raw land takes approximately one
to three years. In response to the slowdown in the national housing market and
the reduction in demand for finished lots, we changed our strategy and have
elected to use some of our developed lots for our own homebuilding
operations.  We believed that retaining some of our lots for use in
homebuilding activities would have allowed us to generate homebuilding revenue
to replace some of the revenue from the loss of sales of these finished
lots.  Our current focus is to pursue lot sales contracts with both
national and regional builders to pay down debt and improve our balance
sheet.




Revenues – Revenues from the
sale of land increased by 59% during the three months ended December 31, 2009
compared to the three months ended December 31, 2008.  During the
three months ended December 31, 2009 we closed thirteen finished lots as
compared to six finished lots for the three months ended December 31,
2008.




Impairments –We did not
record impairments for land and land development for the three months ended
December 31, 2009 and 2008.  In accordance with authoritative
guidance, we perform an inventory impairment analysis on a quarterly
basis.  If impairment indicators are present, impairment charges are
required to be recorded if the fair value is less than the cost recorded. 
Our determination of fair value is primarily based on discounting the estimated
cash flows.  Estimated cash flows are based on recent offers and
comparable sales of lots and land under existing and anticipated market
conditions.




Gross Profit – Gross profit
percentage before impairments was 19% for the three months ended December 31,
2009 compared to 21% for the same period in 2008.




General
and Administrative Expenses




Breakdown
      of G&A Expenses
              
              Three
      Months Ended December 31, 2009
              
              
              Three
      Months
                Ended
      December
                31,
      2008Salaries,
      benefits, payroll taxes and related emp. exps.
              
              $
              181,398
              
              
              $
              283,963Stock
      compensation expense
              
              
              31,746
              
              
              
              42,286Legal,
      accounting, auditing, consultants, and investor relations
              
              
              60,014
              
              
              
              122,721General
      overhead, including office expenses, insurance, and travel
              
              
              107,702
              
              
              
              140,580Restructuring
      expenses
              
              
              -
              
              
              
              169,486Amortization
      of subordinated debt costs and transaction costs
              
              
              59,253
              
              
              
              59,253Total
      G&A
              
              $
              440,113
              
              
              $
              818,289




General
and administrative expenses are composed primarily of salaries of general and
administrative personnel and related employee benefits and taxes, accounting and
legal expenses, and general office expenses and insurance.  During the
three months ended December 31, 2009 and 2008, salaries, benefits, taxes and
related employee expenses totaled approximately $181,000 and $284,000,
respectively, and represented approximately 41% and 35%, respectively, of total
general and administrative expenses.  The decrease for the year is due
to a decrease in approximately 50% of personnel from December 31, 2009 to
December 31, 2008.




Legal,
accounting, audit, consulting and investor relations expense totaled $60,000 and
$123,000 for the three months ended December 31, 2009 and 2008,
respectively.  General overhead, including office expenses, insurance,
and travel totaled $107,000 and $141,000 for the three months ended December 31,
2009 and 2008, respectively.  The decrease in these general and
administrative costs primarily resulted from our initiative to control
costs.




23
 Table of Contents




Restructuring
expenses incurred for the three months ended December 31, 2008 related to
restructuring our debt agreement with Graham and our credit
facility.




Sales
and Marketing Expenses




Sales
expenses include selling costs, commissions, salaries and related taxes and
benefits, finished inventory maintenance and property tax
expense.  Marketing activities including websites, brochures,
catalogs, signage, billboards, and market research, all of which benefit our
corporate presence and are not included as homebuilding cost of
sales.  During the three months ended December 31, 2009 we impaired
approximately $209,000 for our sales office trailer costs.  Sales and
marketing expenses as a percentage of revenues before the impairment of the
sales office was 17% and 11% for the three months ended December 31, 2009 and
2008, respectively.




Troubled
Debt Restructuring





In
November 2009, we received a notice of foreclosure sale from each of our three
remaining lenders for the New Sweden tract.  The promissory notes are
secured by a deed of trust creating a lien upon the 166.47 acres
of tract of land in the New Sweden project.  The
foreclosure sale for each of these notes occurred on December 1,
2009.  The
note was a nonrecourse note and the gain resulting from the foreclosure was
calculated as follows:




Carrying
      amount of debt settled in full
              
              $
              1,872,996Cancellation
      of accrued interest
              
              
              181,368Debt
      settlement amount
              
              
              2,054,364Carrying
      amount of asset
              
              
              1,635,323Gain
      on restructured debt
              
              $
              419,041





In
January 2009, we entered into an agreement with Graham to modify the debt
agreement for the $7.3 million loan for property in Rutherford West and the $4.7
million loan for New Sweden.  Effective January 1, 2009,we began
paying 2% interest on each loan (“Modified Interest Payment”) and accrued an
additional 12% interest on the loan.  Per the agreement, in the event
that the property was not sold by December 31, 2009 and provided that all
Modified Interest Payments and real estate taxes for 2009 had been paid, we
would exchange mutual releases with Graham, the corporate guaranty would be
returned, and the Deed (in Lieu of Foreclosure) would be
released.   As of December 31, 2009 we exchanged mutual releases
with Graham and the property was deeded (in Lieu of Foreclosure) back to
Graham.




The gain
resulting from the deed (in Lieu of Foreclosure) from the Rutherford West
project was calculated as follows:


Carrying
      amount of debt
                
                $
                7,300,000Carrying
      amount of accrued interest
                
                
                1,183,208Debt
      settlement amount
                
                
                8,483,208Carrying
      amount of asset
                
                
                7,453,388Gain
      on restructured debt
                
                $
                1,029,820


The gain resulting from the deed (in
Lieu of Foreclosure) from the New Sweden project was calculated as
follows:




24
 Table of Contents





Carrying
      amount of debt
              
              $
              4,700,000Carrying
      amount of accrued interest
              
              
              761,792Debt
      settlement amount
              
              
              5,461,792Carrying
      amount of asset
              
              
              5,238,300Gain
      on restructured debt
              
              $
              223,492





Interest
Expense and Income




Three
      Months Ended December 31, 2009
              
              
              Three
      Months Ended December 31, 2008
              
              
              Change
              
              
              Change
      %Interest
      expense - convertible debt
              
              $
              206,250
              
              
              $
              206,250
              
              
              
              -
              
              
              
              0
              %Interest
      discount expense - convertible debt
              
              
              139,587
              
              
              
              139,587
              
              
              
              -
              
              
              
              0
              %Interest
      expense - land and development loans
              
              
              423,378
              
              
              
              636,785
              
              
              
              (213,407
              )
              
              
              -34
              %Interest
      income and misc income
              
              
              (14,208
              )
              
              
              (97,843
              )
              
              
              83,635
              
              
              
              85
              %Total
      interest and other expense and income
              
              $
              755,007
              
              
              $
              884,779
              
              
              
              (129,772
              )
              
              
              -15
              %




Interest
expense for land and development loans decreased primarily to our decrease in
debt outstanding from December 31, 2008 to December 31,
2009.   During the three months ended December 31, 2009 we
retired approximately $14 million in debt for the New Sweden and Rutherford West
projects.   In addition, we decreased our debt outstanding by
approximately $6 million from December 31, 2008 to December 31,
2009.




Interest
and other income decreased $84,000 for the three months ended December 31, 2009,
as compared to the same period of 2008.  During the three months ended
December 31, 2008, we recognized $81,000 in other income for the forfeiture of
an earnest money deposit from the cancellation of a lot sales contract in
Georgetown Village.




Going
Concern Liquidity and Capital Resources




On
December 31, 2009, we had approximately $576,000 in cash and cash
equivalents.  Our current operations and future growth will require
substantial amounts of cash for earnest money deposits, development costs,
interest payments and homebuilding costs.  Until we begin to sell an
adequate number of lots and homes to cover our monthly operating expenses, sales
and marketing expenses, general and administrative costs, and interest payments,
cash will continue to be depleted.  Due to current market conditions
and slow home and land sales, we anticipate that we will need additional capital
to support operations for the next twelve months.  We can not provide
any assurance that we will be successful in obtaining additional capital on
acceptable terms or at all.  We do not have access to capital under
our Credit Facility (described below).




Land and
homes under construction comprise the majority of our assets.  These
assets have suffered devaluation due to the downturn in the housing and real
estate market for central Texas.  We are considering selling tracts of
commercial and residential land in order to increase sales revenues and increase
cash.




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





On May
14, 2009, we entered into a Fourth Agreement to Modify Loan Documents (the
“Modification”) of the Credit Facility.  The Modification modified the
terms of the Loan Agreement by reducing the loan commitment amount pursuant to
the Loan Agreement to $10,846,163.  The Modification extended the
maturity of the master line of credit issued pursuant to the Loan Agreement (the
“Master Line”) until March 31, 2011.  The Modification revised the
interest rate of the Credit Facility from prime plus .25%, with a floor of 5.5%,
to libor plus 3.5%, with a floor of 6%.   At December 31, 2009 we
had $7.6 million outstanding under the Master Line and have drawn all the
remaining loan commitments from the Credit Facility.





25
 Table of Contents





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




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




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




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




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




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




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




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




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




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




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




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




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




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




At
December 31, 2009 WFC was not in compliance with the net worth covenant and
working capital covenant.  If WFC continues to be out compliance with
these covenants and does not receive forbearance for these covenants, WFC’s
obligation to repay indebtedness outstanding under the Credit Facility, its term
loans, and its outstanding note indentures could be accelerated in full. WFC 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 be repaid.   It is
anticipated by our management that we will no longer have access to this line of
credit to construct homes for sale.




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




26
 Table of Contents




LNZCO
line




On March
12, 2009 we entered into an agreement with LNZCO, LLC (“LNZCO”) pursuant to
which LNZCO agreed to provide us with between $1 and $2
million of financing for the construction of single family
residences.  Each promissory note issued thereunder bears interest at a
rate of prime plus 5.0%, has a one point origination fee, and matures one year
from the date of issuance.  In aggregate we have issued promissory notes
for home construction loans totaling approximately $2.9 million to LNZCO. 
At December 31, 2009 we had promissory notes in the principal amount of
$816,000 held by LNZCO issued for home construction loans, with
$148,000 drawn on these notes.  In addition to the construction line,
LNZCO has loaned us an aggregate of $365,000 to purchase land in
the Georgetown Village community, with $117,000 of that amount
outstanding at December 31, 2009.  Each promissory note issued thereunder
bears interest at a rate of 10%, has a two point origination fee,
and a maturity date of one year from the date of
issuance which can be extended for an additional 12 months for an
additional two point extension fee.  We can not provide any assurances
that we will receive financing for the construction of new single family
residences from LNZCO.  We can give no assurance that in such an
event, we would have adequate capital to construct homes.




Convertible
Promissory Notes




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




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




Graham
Mortgage Capital Notes




In
January 2009, we entered into an agreement with Graham to modify the debt
agreement for the $7.3 million loan for property in Rutherford West and the $4.7
million loan for New Sweden.  Effective January 1, 2009,we began
paying 2% interest on each loan (“Modified Interest Payment”) and accrued an
additional 12% interest on the loan.  Per the agreement, in the event
that the property was not sold by December 31, 2009 and provided that all
Modified Interest Payments and real estate taxes for 2009 had been
paid,  we would exchange mutual releases with Graham, the corporate
guaranty would be returned, and the Deed (in Lieu of Foreclosure) would be
released.   As of December 31, 2009 we exchanged mutual releases
with Graham.  The property was deeded (in Lieu of Foreclosure) back to
Graham.   See footnote 11.




Off-Balance
Sheet Arrangements




As of
December 31, 2009, we had no off-balance sheet arrangements.




27
 Table of Contents




Critical
Accounting Policies and Estimates




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




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




Inventory




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




Revenue
Recognition




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




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.




Water
District Receivables




Rutherford
West project is located in Greenhawe Water Control and Improvement District No.
2 (“District”).  We incurred development costs for the initial
creation and operating cost of the District and continuing costs for the water,
sewer and drainage infrastructure for the District.  The District 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 able to provide sufficient tax
revenue for us to recapture its costs. We estimate that we will recover
approximately 50 to 100% of eligible initial creation and operating costs spent
through December 31, 2009 for costs spent for Rutherford West Phase
1.  We have completed Phase 1 for the Rutherford West project, and we
have approximately $1 million of water district reimbursements included in
inventory that we anticipate will collect from bond issuances made by such
District.  When the reimbursements are received we will record them as
reductions of the related asset’s balance. Usually, a District issues its first
bonds issue only after completion of construction of approximately 200
houses.  The District 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,
such differences could have a material effect on our financial
statements.   In July 2009, the WCID for the Rutherford West
project had its first bond issuance; we received reimbursements of approximately
$470,000.  We expect to recover costs from Rutherford West Phase
1.




28
 Table of Contents





Concentrations




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




Recent
Accounting Pronouncements




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




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





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





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




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




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


29
 Table of Contents


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


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





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





In
January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about
Fair Value Measurements,” which requires additional disclosures related to
transfers between levels in the hierarchy of fair value
measurement.






ITEM
3.                     QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET  RISK




Not
applicable.





ITEM
4T.                   CONTROLS AND
PROCEDURES




Evaluation
of Effectiveness of Disclosure Controls and Procedures




Our
management, including our principal executive officer and our principal
financial officer, have evaluated our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended), as of the period ended December 31, 2009, the period covered by
this Quarterly Report on Form 10-Q.  Based upon that evaluation, our
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures were not effective as of September 30,
2009 due to the significant deficiency described in our Annual Report on Form
10-K for the fiscal year ended September 30, 2009 filed December 17,
2009.




Changes
in Internal Control Over Financial Reporting




There
have been no changes in our internal controls over financial reporting during
our most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.




30
 Table of Contents




PART II - OTHER INFORMATION





ITEM
1.                   LEGAL PROCEEDINGS




We are
involved in lawsuits and other contingencies in the ordinary course of business.
While the outcome of such contingencies cannot be predicted with certainty, we
believe that the liabilities arising from these matters will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows. However, to the extent the liability arising from the ultimate
resolution of any matter exceeds our estimates reflected in the recorded
reserves relating to such matter, we could incur additional charges that could
be significant.




ITEM 1A.  
               RISK FACTORS




We
previously disclosed risk factors under in our annual report on Form 10-K for
the year ended September 30, 2009.  There have been no material
changes to these risk factors.




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




None.





ITEM
5.                    
OTHER INFORMATION




None.






31
 Table of Contents




ITEM 6.   EXHIBITS




Exhibit
      No.
            Description31.2
            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
















32
 Table of Contents





SIGNATURE




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.




GREEN
      BUILDERS, INC.Date:
      February 12, 2010
            By:
            /s/  Clark
      WilsonClark
      WilsonPresident
      and Chief Executive Officer
              (Principal
      Executive Officer)





Date:
      February 12, 2010
            By:
            /s/  Cindy
      HammesCindy
      HammesVP
      of Finance
              (Principal
      Financial Officer)













33
 Table of Contents




EXHIBIT
INDEX




Exhibit
      No.
            Description31.2
            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
















34