**UNITED
      STATES**
 **SECURITIES
      AND EXCHANGE COMMISSION**
 **Washington,
      D.C. 20549**
 **______________**
  **FORM
      10-QSB**
  ý
            
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**
              **EXCHANGE
                ACTOF 1934**FOR
                THE QUARTERLY PERIOD ENDED: JUNE 30, 2007**o**
            
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE**
              **SECURITIES
                EXCHANGE ACT OF 1934**Forthe transition period from _______ to
                _______
  Commission
      file number: 000-23819
  ———————————
  **WILSON
                HOLDINGS, INC.**(Name
                of small business issuer in its charter)
  **Nevada**
            
            **76-0547762**(State
                or other jurisdiction of
              Incorporation
                or organization)
            
            (I.R.S
                Employer Identification No.)**8121
                Bee Caves Rd., Austin, TX 78746**(Address
                of Principal Executive Offices)
  **512-732-0932**(Issuer's
                  Telephone Number)
 
 Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter time
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for past 90 days.
  Yes
ýNo
o
  Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act):
  Yes
      o   No
x
  **State
      the number of shares outstanding of each of the issuer’s classes of common
      equity as of the latest practicable date:** **As of August 8,
      2007, the registrant had 23,135,538 shares of common stock, par value $0.001,
      outstanding.**
  Transitional
      Small Business Issuer Disclosure Format:  YesoNoý
  
  i
  Index
  **PART
      I – FINANCIAL
      INFORMATION**
  Item
                1.
            Financial
                Statements
            1
 
 Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            21
 
 Item
                3.
            Controls
                and
                Procedures
            34
  **PART
      II – OTHER
      INFORMATION**
  Item
                1.
            Legal
                Proceedings
            35
 
 Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            35
 
 Item
                3.
            Defaults
                Upon
                Senior Securities
            35
 
 Item
                4.
            Submission
                of
                Matters to a Vote of Security Holders
            35
 
 Item
                5.
            Other
                Information
            35
 
 Item
                6.
            Exhibits
            35
   ii
  INTRODUCTORY
      NOTE
  This
      Report on Form 10-QSB for Wilson Holdings, Inc. (“we,” “us,” or the “Company”)
      may contain 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
      condition 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.
  The
      forward-looking statements included herein are based on current expectations
      that involve a number of risks and uncertainties set forth under “Risk Factors”
in our Form 10-KSB, as well as in our Registration Statement on Form S-1 (File
      No. 333-140747) and any other periodic reports filed with the Securities and
      Exchange Commission. Accordingly, to the extent that this Quarterly Report
      contains forward-looking statements regarding the financial condition, operating
      results, business prospects or any other aspect of the Company, please be
      advised that the Company’s actual financial condition, operating results and
      business performance may differ materially from that projected or estimated
      by
      the Company in forward-looking statements.
  *Whenever
      we refer in this report to “Wilson Holdings,” “the Company,” “we,” “us,” or
“our,” we mean Wilson Holdings, Inc., a Nevada corporation, and, unless the
      context indicates otherwise, its predecessors and subsidiaries, including its
      wholly-owned subsidiaries, Wilson Family Communities, Inc., a Delaware
      corporation and Green Builders, Inc., a Texas corporation.*
  iii
 Table
          of Contents
  Item
      1.Financial
      Statements
 Consolidated
                Balance SheetsAs
                of June 30, 2007 and December 31, 2006(Unaudited)June
                30,
            
            
            December
                31,ASSETSCash
                and cash equivalents
            
            $
            15,896,038
            
            
            
            2,673,056Restricted
                cash
            
            
            -
            
            
            
            2,192,226InventoryLand
            
            
            20,201,006
            
            
            
            20,735,131Construction
                in progress
            
            
            11,525,985
            
            
            
            10,020,847Total
                inventory
            
            
            31,726,991
            
            
            
            30,755,978Other
                assets
            
            
            611,649
            
            
            
            196,195Debt
                issuance costs, net of amortization
            
            
            1,324,471
            
            
            
            1,458,050Equipment
                and software, net of accumulated depreciation and
              amortization
                of $27,746 and $46,358, respectively
            
            
            45,217
            
            
            
            97,956Total
                assets
            
            
            49,604,366
            
            
            
            37,373,461LIABILITIES
                AND STOCKHOLDERS' EQUITYAccounts
                payable
            
            
            810,755
            
            
            
            1,376,117Accrued
                real estate taxes payable
            
            
            567,023
            
            
            
            454,764Accrued
                liabilities and expenses
            
            
            1,106,283
            
            
            
            529,090Accrued
                interest
            
            
            387,228
            
            
            
            302,555Deferred
                revenue
            
            
            21,044
            
            
            
            11,223Lines
                of credit
            
            
            1,149,342
            
            
            
            6,436,706Notes
                payable
            
            
            16,879,516
            
            
            
            9,466,621Notes
                payable, related party
            
            
            279,800
            
            
            
            279,800Subordinated
                convertible debt, net of $3,384,807 and $5,224,502
              discount,
                respectively
            
            
            13,115,193
            
            
            
            8,395,876Derivative
                liability, convertible note compound embedded derivative
            
            
            -
            
            
            
            7,462,659Derivative
                liability, contingent warrants issued to subordinated
              convertible
                debt holders
            
            
            -
            
            
            
            1,883,252Total
                liabilities
            
            
            34,316,184
            
            
            
            36,598,663STOCKHOLDERS'
                EQUITYCommon
                stock, $0.001 par value, 100,000,000 and 80,000,000 shares
              authorized,
                respectively, 23,135,538 and 18,055,538 shares issued and
              outstanding
                at June 30, 2007 and December 31, 2006, respectively
            
            
            23,136
            
            
            
            18,056Additional
                paid in capital
            
            
            26,636,924
            
            
            
            16,809,885Retained
                deficit
            
            
            (11,371,878
            )
            
            
            (16,053,143
            )Total
                stockholders' equity
            
            
            15,288,182
            
            
            
            774,798Total
                liabilities and stockholders' equity
            
            $
            49,604,366
            
            
            
            37,373,461
  See
      accompanying notes to the consolidated financial statements.
   1
 Table
          of Contents
  **WILSON
                HOLDINGS, INC.**Consolidated
                Statements of OperationsFor
                the Three Months and Six Months Ended June 30, 2007 and
                2006
 Three
                Months Ended June 30,
            
            
            Six
                Months Ended June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)Revenues:Homebuilding
                and related services
            
            $
            320,000
            
            
            
            2,284,972
            
            
            
            1,117,506
            
            
            
            2,701,972Land
                sales
            
            
            1,064,178
            
            
            
            50,000
            
            
            
            2,033,907
            
            
            
            666,000Total
                revenues
            
            
            1,384,178
            
            
            
            2,334,972
            
            
            
            3,151,413
            
            
            
            3,367,972Cost
                of revenues:Homebuilding
                and related services
            
            
            230,287
            
            
            
            1,892,654
            
            
            
            866,426
            
            
            
            2,224,444Land
                sales
            
            
            2,039,052
            
            
            
            23,859
            
            
            
            2,881,206
            
            
            
            351,155Total
                cost of revenues
            
            
            2,269,339
            
            
            
            1,916,513
            
            
            
            3,747,632
            
            
            
            2,575,599Gross
                profit:Homebuilding
                and related services
            
            
            89,713
            
            
            
            392,318
            
            
            
            251,080
            
            
            
            477,528Land
                sales
            
            
            (974,874
            )
            
            
            26,141
            
            
            
            (847,299
            )
            
            
            314,845Total
                gross profit
            
            
            (885,161
            )
            
            
            418,459
            
            
            
            (596,219
            )
            
            
            792,373Costs
                and expenses:Corporate
                general and administration
            
            
            1,547,094
            
            
            
            1,211,489
            
            
            
            2,545,426
            
            
            
            2,201,715Sales
                and marketing
            
            
            221,989
            
            
            
            229,010
            
            
            
            295,582
            
            
            
            358,093Total
                costs and expenses
            
            
            1,769,083
            
            
            
            1,440,499
            
            
            
            2,841,008
            
            
            
            2,559,808Operating
                loss
            
            
            (2,654,244
            )
            
            
            (1,022,040
            )
            
            
            (3,437,227
            )
            
            
            (1,767,435
            )Other
                income (expense):Loss
                on fair value of derivatives
            
            
            -
            
            
            
            (2,587,500
            )
            
            
            -
            
            
            
            (2,932,500
            )Interest
                and other income
            
            
            102,386
            
            
            
            108,831
            
            
            
            150,243
            
            
            
            205,786Interest
                expense
            
            
            (763,911
            )
            
            
            (558,184
            )
            
            
            (1,382,926
            )
            
            
            (1,072,656
            )Total
                other expenses, net
            
            
            (661,525
            )
            
            
            (3,036,853
            )
            
            
            (1,232,683
            )
            
            
            (3,799,370
            )Net
                loss
            
            $
            (3,315,769
            )
            
            
            (4,058,893
            )
            
            
            (4,669,910
            )
            
            
            (5,566,805
            )Basic
                and diluted loss per share
            
            $
            (0.16
            )
            
            
            (0.23
            )
            
            
            (0.24
            )
            
            
            (0.31
            )Basic
                and diluted weighted average common shares outstanding
            
            
            20,568,871
            
            
            
            17,706,625
            
            
            
            19,312,205
            
            
            
            17,706,625
  See
      accompanying notes to the consolidated financial statements.
   2
 Table
          of Contents
 **WILSON
                HOLDINGS, INC.**Consolidated
                Statements of Cash FlowsFor
                the Six Months Ended June 30, 2007 and
                2006
 2007
            
            
            2006(Unaudited)
            
            
            (Unaudited)Cash
                flows from operating activities:Net
                loss
            
            $
            (4,669,910
            )
            
            
            (5,566,805
            )Non
                cash adjustments:Loss
                on fair value of derivatives
            
            
            -
            
            
            
            2,932,500Amortization
                of convertible debt discount
            
            
            396,643
            
            
            
            357,321Amortization
                of debt issuance costs
            
            
            133,579
            
            
            
            105,099Stock-based
                compensation expense
            
            
            204,550
            
            
            
            202,886Depreciation
                and amortization
            
            
            50,761
            
            
            
            31,474Loss
                on land option purchase
            
            
            1,254,968Adjustments
                to reconcile net loss to net cash used in
              operating
                activities:Increase
                in total inventory
            
            
            (2,225,981
            )
            
            
            (6,794,624
            )Increase
                in other assets
            
            
            (154,519
            )
            
            
            (30,245
            )(Decrease)
                increase in accounts payable
            
            
            (565,362
            )
            
            
            700,857Increase
                in real estate taxes payable
            
            
            112,259
            
            
            
            118,581Increase
                in accrued expenses
            
            
            577,193
            
            
            
            163,388Increase
                in deferred revenue
            
            
            9,821
            
            
            
            -Increase
                in accrued interest
            
            
            84,673
            
            
            
            (145,815
            )Net
                cash used in operating activities
            
            
            (4,791,325
            )
            
            
            (7,925,383
            )Cash
                flows from investing activities:Loss
                on disposal of fixed assets
            
            
            (9,878
            )
            
            
            (161,289
            )Cash
                paid for Green Builders, Inc.
            
            
            (32,919
            )
            
            
            -Net
                cash used in investing activities
            
            
            (42,797
            )
            
            
            (161,289
            )Cash
                flows from financing activities:Decrease
                in restricted cash
            
            
            2,192,226
            
            
            
            -Issuances
                (repayments) of notes payable, net
            
            
            7,412,895
            
            
            
            (903,579
            )(Repayments)
                advances on lines of credit, net
            
            
            (5,287,364
            )
            
            
            3,620,921Cash
                paid for debt issuance costs
            
            
            -
            
            
            
            (58,516
            )Common
                stock sales, net of transaction costs
            
            
            13,739,347
            
            
            
            -Net
                cash provided by financing activities
            
            
            18,057,104
            
            
            
            2,658,826Net
                increase (decrease) in cash and cash equivalents
            
            
            13,222,982
            
            
            
            (5,427,846
            )Cash
                and cash equivalents at beginning of period
            
            
            2,673,056
            
            
            
            10,019,816Cash
                and cash equivalents at end of period
            
            $
            15,896,038
            
            
            
            4,591,970Cash
                paid for interest
            
            $
            1,262,341
            
            
            
            817,211Non
                cash investing in financing activities:Assets
                and Liabilities acquired in Green Builders, IncAccounts
                Receivable
            
            $
            2,900
            
            
            
            -Accounts
                Payable
            
            $
            6,190
            
            
            
            -Issuance
                of common stock for notes payable, cancellation of
              notes
                payable in exchange for cancellation of subordinated debt
            
            $
            250,000
            
            
            
            -Cash
                paid for income taxes
            
            $
            -
            
            
            
            -
  See
      accompanying notes to the consolidated financial statements.
  3
 Table
          of Contents
 **WILSON
                HOLDINGS, INC.**Statements
                of Stockholders' EquitySix
                Months Ended June 30, 2007 and 2006
 **Common
                    Stock**Shares
                
                Amount
                
                Additional
                    PaidIn Capital
                
                AccumulatedDeficit
                
                Total**Balances
                    at December 31, 2006**
                18,055,538
                $
                18,056
                $
                16,809,885
                $
                (16,053,143)
                $
                774,798Cumulative
                    adjustment for restatement per FSP 00-19-2
                -
                $
                
                $
                (4,577,938)
                $
                9,351,175
                $
                4,773,237Stock-based
                    compensation expense
                -
                
                -
                
                204,550
                
                -
                
                204,550Sale
                    of common stock, net of transaction costs
                5,000,000
                
                5,000
                
                13,984,347
                
                -
                
                13,989,347Issuance
                    of common stock for purchase of Green Builders, Inc., net of
                    transaction
                    costs
                80,000
                
                80
                
                216,080
                
                -
                
                216,160Net
                    loss
                -
                
                -
                
                -
                
                (4,669,910)
                
                (4,669,910)**Balances
                    at June 30, 2007**
                23,135,538
                $
                23,136
                $
                26,636,924
                $
                (11,371,878)
                $
                15,288,182
 See
      accompanying notes to the consolidated financial statements.
  4
 Table
          of Contents
  **(1)         Organization
      and Business Activity**
  Wilson
      Holdings, Inc., (the “Company”) is a Nevada corporation formerly known as Cole
      Computer Corporation, a Nevada corporation. 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 and a majority of its stockholders, Wilson Acquisition Corp., a
      Delaware corporation and now, a Subsidiary of the Company and Wilson Family
      Communities, Inc., a Delaware corporation (“WFC”), Wilson Acquisition Corp. and
      WFC merged and WFC became a wholly-owned Subsidiary of the Company.
  The
      consolidated financial statements and the notes of the Company as of June 30,
      2007 and for the three months and six months ending June 30, 2007 and 2006
      have
      been prepared by management without audit, pursuant to rules and regulations
      of
      the Securities Exchange Commission and should be read in conjunction with the
      December 31, 2006 audited financials statements contained in the Company’s Form
      10-KSB, filed February 16, 2007. In the opinion of management, all normal,
      recurring adjustments necessary for the fair presentation of such financial
      information have been included. The preparation of financials statements in
      conformity with accounting principles generally accepted in the United States
      of
      America requires management to make estimates and assumptions that affect the
      amounts reported in the financial statements and accompanying notes. Certain
      information and footnote disclosures normally included in the annual financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America have been condensed or omitted.
  **(2)         Summary
      of Significant Accounting Policies**
  ***(a)           Revenue
      Recognition***
  Revenues
      from property sales are recognized in accordance with SFAS No. 66, “Accounting
      for Sales of Real Estate.” Revenues from land development services to builders
      are recognized when the properties associated with the services are sold, when
      the risks and rewards of ownership are transferred to the buyer and when the
      consideration has been received, or the title company has processed payment.
      For
      projects that are consolidated, homebuilding revenues and services will be
      categorized as homebuilding revenues and revenues from property sales or options
      will be categorized as land sales.
  ***(b)           Use
      of Estimates***
  The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Accordingly, actual results could differ from
      those
      estimates.
  The
      Company has estimated and accrued liabilities for real estate property taxes
      on
      its purchased land in anticipation of development, and other liabilities
      including the beneficial conversion liability, the fair value of warrants and
      options. To the extent that the estimates are different to the actual amounts,
      it could have a material effect on the financial statements.
  The
      Company has two of its properties that are in Municipal Utility Districts
      (MUDs). The Company incurs development costs for water, sewage lines and
      associated treatment plants and other development costs and fees for these
      properties. Under the agreement with the MUDs, the Company expects to be
      reimbursed partially for the above developments costs. The MUDs will issue
      bonds
      to repay the Company, once there is enough assessed value on the property for
      the MUD taxes to repay the bonds. As homes are sold within the MUD, the assessed
      value increases. It can take several years before there is enough assessed
      value
      to recapture the costs. The Company has estimated that it will recover
      approximately 50% to 70% of eligible costs spent. In some circumstances, the
      MUDs will pay for property set aside for the preservation of endangered species,
      greenbelts and similar uses.  To the extent that the estimates are
      different to the actual amounts, it could have a material effect on the
      financial statements.
  5
 Table
          of Contents
  ****(2)**         **Summary
      of Significant Accounting Policies (Continued)**
  ***(c)           Adoption
      of New Accounting Pronouncements***
  In
      January 2007, the Company adopted FASB Staff Position (FSP) No. EITF 00-19-2,
      (“FSP EITF 00-19-2”), Accounting for Registration Payment Arrangements. This
      addresses an issuer’s accounting for registration payment arrangements and
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, Accounting for Contingencies. The guidance in No. EITF
      00-19-2 amends FASB Statements No. 133, Accounting for Derivative Instruments
      and Hedging Activities, and No. 150, Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity, and FASB
      Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for
      Guarantees, Including Indirect Guarantees of Indebtedness of Others, to include
      scope exceptions for registration payment arrangements. The No. EITF 00-19-2
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable
      generally accepted accounting principles (GAAP) without regard to the contingent
      obligation to transfer consideration pursuant to the registration payment
      arrangement. This pronouncement shall be effective immediately for registration
      payment arrangements and the financial instruments subject to those arrangements
      that are entered into or modified subsequent to the date of issuance of this
      pronouncement, or for financial statements issued for fiscal years beginning
      after December 15, 2006, and interim periods within those fiscal
      years.
  The
      cumulative effect of the re-characterization of the derivative liabilities
      is
      shown in the table below:
  As
                filed
              December
                31, 2006
            
            
            Cumulativeeffect
                of re-characterizationof derivativeliabilities
            
            
            Net
                effect of re-characterizationLIABILITY
                ACCOUNTSSubordinated
                convertible debt, net of discount, respectively
            
            $
            8,395,876
            
            
            
            4,572,674
            
            
            
            12,968,550Derivative
                liability, convertible note compound embedded derivative
            
            
            7,462,659
            
            
            
            (7,462,659
            )
            
            
            -Derivative
                liability, contingent warrants issued to subordinated convertible
                debt
                holders
            
            
            1,883,252
            
            
            
            (1,883,252
            )
            
            
            -Total
                debt, net of discount and derivative liabilities
            
            
            17,741,787
            
            
            
            (4,773,237
            )
            
            
            12,968,550STOCKHOLDERS'
                EQUITY ACCOUNTSCommon
                stock
            
            
            18,056
            
            
            
            -
            
            
            
            18,056Additional
                paid in capital
            
            
            16,809,885
            
            
            
            (4,577,938
            )
            
            
            12,231,947Retained
                deficit
            
            
            (16,053,143
            )
            
            
            9,351,175
            
            
            
            (6,701,968
            )Total
                stockholders' equity
            
            $
            774,798
            
            
            
            4,773,237
            
            
            
            5,548,035
  ***(d)           Subordinated
      Convertible Debt***
  The
      subordinated convertible debt and the related warrants have been accounted
      for
      in accordance with Emerging Issues Task Force (EITF) No. 98-5, “Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”, EITF No. 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock,” EITF 00-27, “Application of issue 98-5 to Certain Convertible
      Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt Instrument’
in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated Damages Clause
      on a Freestanding Financial Instrument Subject to Issue No. 00-19” updated with
      FSP EITF 00-19-2”, Accounting for Registration Payment
      Arrangements.
  6
 Table
          of Contents
  **(2)         Summary
      of Significant Accounting Policies (Continued)**
  ***(e)           Loss
      per Common Share***
  Earnings
      per share is accounted for in accordance with SFAS No. 128, “Earnings per
      Share,” which require 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, warrants convertible into shares of common
      stock. These shares and warrants have been excluded from loss per share at
      June 30, 2007 and 2006 because the effect would be anti-dilutive as
      summarized in the table below:
  June
                30,2007
            
            
            2006Stock
                options
            
            
            1,710,000
            
            
            
            820,000Common
                stock warrants
            
            
            1,143,125
            
            
            
            1,312,500Total
            
            
            2,853,125
            
            
            
            2,132,500
  **(3)          
      Liquidity and Capital Resources**
  *Liquidity*
  At
      June
      30, 2007 the Company had approximately $15.9 million in cash and cash
      equivalents. The Company completed a successful public offering of the Company’s
      common stock in May 2007, netting the Company approximately $14 million of
      cash.
  On
      June
      29, 2007, the Company, entered into a three-year $55 million revolving credit
      facility with a syndicate of banks led by RBC Centura Bank, as administrative
      agent.  The company has guaranteed all of its obligations under the
      Credit Facility.  The obligations of the Company under the Credit
      Facility will be secured by assets of each subdivision to be developed with
      the
      proceeds of loans available under the Credit Facility.  The company
      currently has no borrowings under the Credit Facility.
  The
      Credit Facility allows the Company to obtain revolving credit loans and provides
      for the issuance of letters of credit. The amount available at any time under
      the Credit Facility for revolving credit loans or the issuance of letters of
      credit is determined by a borrowing base. The borrowing base is calculated
      as
      the sum of the values for homes and lots in the subdivision to be developed
      as
      agreed to by the Company and the agent.
  Outstanding
      borrowings under the Credit Facility will bear interest at the prime rate plus
      0.25%. The Company is charged a letter of credit fee equal to 1.10% of each
      letter of credit issued under the Credit Facility. The Company may elect to
      prepay the Credit Facility at any time without premium or penalty.
  The
      Credit Facility contains customary covenants limiting our ability to take
      certain actions, including covenants that:
  ·
            require
                the Company to maintain a
                minimum net worth of $20,000,000, including subordinated debt (although
                the minimum net worth may be $17,000,000 for one
                quarter);
  ·
            prohibit
                the Company’s ratio of
                debt to equity from exceeding (A) 1.75 to 1.0 prior to September
                30, 2007,
                (B) 1.85 to 1.0 from September 30, 2007 until March 30, 2008 and
                (C) 2.0
                to 1.0 thereafter; and
  ·
            require
                the Company to maintain
                working capital of at least
                $15,000,000.
  An
      event
      of default will occur under the Credit Facility if certain events occur,
      including the following:
  ·
            a
                failure to pay principal or
                interest on any loan under the Credit
                Facility;
  ·
            the
                inaccuracy of a
                representation or warranty when
                made;
   7
 Table
          of Contents
  ·
            the
                failure to observe or perform
                covenants or agreements;
  ·
            an
                event of default beyond any
                applicable grace period with respect to any other
                indebtedness;
  ·
            the
                commencement of proceedings
                under federal, state or foreign bankruptcy, insolvency, receivership
                or
                similar laws;
  ·
            any
                loan document, or any lien
                created thereunder, ceases to be in full force and effect;
                or
  ·
            the
                entry of a judgment greater
                than $1,000,000 that remains undischarged;
                or
  ·
            a
                change of
                control.
  If
      an
      event of default occurs under the Credit Facility, then the lenders may: (1)
      terminate their commitments  under the Credit Facility; (2) declare
      any outstanding indebtedness under the Credit Facility to be immediately due
      and
      payable; and (3) foreclose on the collateral securing the
      obligations.
  The
      Company’s growth will require substantial amounts of cash for earnest money
      deposits, land purchases, development costs, interest payments and homebuilding
      costs. Until it begins to sell an adequate number of lots and homes to cover
      monthly operating expenses, sales, marketing, general and administrative costs
      will deplete cash.
  To
      maintain its liquidity, the Company have financed the majority of our land
      and
      development activities with debt, and believes it can continue to do so in
      the
      future through a combination of conventional and subordinated convertible debt,
      joint venture financing, sales of selected lot positions, sales of land and
      lot
      options, and by raising additional equity.
  *Capital
      Resources*
  The
      Company has raised approximately $16.8 million of subordinated convertible
      debt,
      and approximately $14 million in a public offering of the Company’s common stock
      completed in May 2007. The Company also entered into a three-year $55 million
      revolving credit facility with a syndicate of banks mentioned previously. The
      Credit Facility may be increased to $100 million with the consent of the
      lenders.
  In
      May
      2007 the Company did not exercise a land purchase option to purchase the Bohls
      tract of approximately 428 acres for approximately $7.2 million. The Company’s
      decision not to exercise the option was based on the following
      factors:
  ·
            Due
                to the current market conditions in the homebuilding industry, revenue
                projections for sale of residential lots to other homebuilders has
                substantially declined. The Company concluded that it currently has
                adequate single-family lots, excluding the Bohls tract. Therefore,
                the
                Company entered into negotiations with sellers of the Bohls tract
                to
                renegotiate the purchase price and other significant terms of the
                contract
                to purchase the property. The discussions are ongoing, however, the
                option
                expired in June 2007. The Company recorded a loss provision of
                approximately $1.3 million relating to development costs incurred
                on the
                tract and expenses expected to be incurred due to the expiration
                of the
                option period.
 
 ·
            The
                Company commenced homebuilding under Green Builders, Inc. effective
                June
                20, 2007 and plans to build and sell homes in the Central Texas area,
                initially in Austin, Texas, for prices ranging from $200 thousand
                to $600
                thousand.
  Due
      to
      factors stated above, weather related delays and longer than expected ramp
      up of
      homebuilding operations, the Company’s financial projections have changed. The
      Company expects to incur significant losses for the third and fourth quarters
      of
      2007 and first quarter of 2008. The Company does not expect to be cash flow
      positive from operations until 2008.
 
 The
      Company believes that capital raised, the closing of the revolving credit
      facility and future land and home sales and financing will provide adequate
      capital resources for the next twelve months, but the Company may be required
      to
      raise additional capital in 2008.
  8
 Table
          of Contents
  Land
      and
      homes under construction comprises the majority of the Company’s assets, which
      could suffer devaluation if the housing and real estate market suffers a
      significant downturn due to interest rate increases or other reasons. The
      Company’s debt might then be called, requiring liquidation of assets to satisfy
      its debt obligations or the use of its cash. A significant downturn could also
      make it more difficult for the Company to liquidate assets, to raise cash and
      to
      pay off debts, which could have a material adverse effect.
  **(4)          
      Inventory**
  The
      Company’s land inventory includes real estate held for sale or under development
      and earnest money on land purchase options. Construction in progress includes
      development costs, prepaid development costs, and development costs on land
      under option but not owned. Homebuilding inventory represents one completed
      home
      of our homebuilder client of approximately $139 thousand and for costs incurred
      since the Company began homebuilding. The Company expects the homebuilding
      inventory to increase as it begins to build model homes and homes for
      sale.
  Earnest
      money deposits for land costs and development costs on land under option, not
      owned, totaled $351 thousand and $451 thousand at June 30, 2007 and December
      31,
      2006, respectively, all of which is non-refundable if the Company does not
      exercise the option and purchase the land.
  As
      of
      June 30, 2007 it had approximately 2,014 acres of land with approximately 761
      acres under development and construction in Hays County, Travis County and
      Williamson County, Texas. During June 2007, the Company chose not to exercise
      the option on the Bohls Ranch tract of approximately 428 acres and took a charge
      of approximately $1.3 million against income for prepaid development
      costs.
  Below
      is
      a summary of the property that is owned or under contract by the Company at
      June
      30, 2007:
 Property
              
              ApproximateAcreage
              
              
              ApproximateOwnedAcreage
              
              
              ApproximateAcreage
                  UnderOption
              
              
              Land
                  and Project Costsat June 30, 2007
                In
                  thousands
              
              
              Approximate
                Acreage
                  underDevelopment
              
              TexasCountyRutherford
                  West
              
              
              682
              
              
              
              682
              
              
              
              n/a
              
              
              $
              12,640
              
              
              
              682
              
              HaysHighway
                  183
              
              
              15
              
              
              
              15
              
              
              
              n/a
              
              
              
              379
              
              
              
              -
              
              TravisGeorgetown
                  Village
              
              
              692
              
              
              
              81
              
              
              
              583
              
              
              
              5,662
              
              
              
              49
              
              WilliamsonVillages
                  of New Sweden
              
              
              534
              
              
              
              534
              
              
              
              -
              
              
              
              10,626
              
              
              
              -
              
              TravisElm
                  Grove
              
              
              91
              
              
              
              30
              
              
              
              61
              
              
              
              2,140
              
              
              
              30
              
              HaysOther
                  land projects
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              53
              
              
              
              -Sub-total
                  land
              
              
              2,014
              
              
              
              1,342
              
              
              
              644
              
              
              
              31,500
              
              
              
              761Homebuilding
                  inventory
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              227
              
              
              
              -Total
                  inventory
              
              
              2,014
              
              
              
              1,342
              
              
              
              644
              
              
              $
              31,727
              
              
              
              761
  At
        December 31, 2006, it had approximately 2,430 acres of land under contract,
        including 749 acres under development and construction in Hays County, Travis
        County and Williamson County, Texas.
  Below
        is
        a summary of the property that is owned or under contract by the Company
        at
        December 31, 2006:
 Property
              
              Approximate
                  Acreage
              
              
              Approximate
                  Owned Acreage
              
              
              ApproximateAcreage
                  UnderOption
              
              
              Land
                  and Project Costsat December 31, 2006
                In
                  thousands
              
              
              ApproximateAcreage
                  under Development
              
              Texas
                  CountyRutherford
                  West
              
              
              697
              
              
              
              697
              
              
              
              n/a
              
              
              $
              11,251
              
              
              
              697
              
              HaysHighway
                  183
              
              
              15
              
              
              
              15
              
              
              
              n/a
              
              
              
              377
              
              
              
              -
              
              TravisGeorgetown
                  Village
              
              
              665
              
              
              
              52
              
              
              
              613
              
              
              
              5,342
              
              
              
              52
              
              WilliamsonVillages
                  of New Sweden
              
              
              534
              
              
              
              534
              
              
              
              -
              
              
              
              10,120
              
              
              
              -
              
              TravisElm
                  Grove
              
              
              91
              
              
              
              30
              
              
              
              61
              
              
              
              1,755
              
              
              
              -
              
              HaysBohls
                  Ranch
              
              
              428
              
              
              
              -
              
              
              
              428
              
              
              
              1,011
              
              
              
              -
              
              TravisOther
                  land projects
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              52Sub-total
                  land
              
              
              2,430
              
              
              
              1,328
              
              
              
              1,102
              
              
              
              29,908
              
              
              
              749Homebuilding
                  inventory
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              848
              
              
              
              -Total
                  inventory
              
              
              2,430
              
              
              
              1,328
              
              
              
              1,102
              
              
              $
              30,756
              
              
              
              749
  The
      land
      costs in the above projects are Rutherford West, approximately $9.3 million,
      Highway 183 is all land, Georgetown Village, approximately $1.5 million and
      Elm
      Grove, approximately $1.3 million. All other land and project costs for listed
      properties are associated with earnest money deposits, feasibility and
      development.
  9
 Table
          of Contents
  (5)              Consolidation
      of Variable Interest Entities
  The
      Company exercises significant influence over, but holds no controlling interest
      in our homebuilder clients. It bears the majority of the rewards and risk of
      loss. At December 31, 2006, the Company determined it was the primary
      beneficiary in certain homebuilder agreements as defined under FASB
      Interpretation No. 46(R) (“FIN 46(R)”), “Consolidation of Variable Interest
      Entities” (VIEs), that it has a significant, but less than controlling, interest
      in the entities. The results of these clients have been consolidated into its
      financial statements.
  Below
      is
      a summary of the effect of the consolidation of these entities for the three
      months ended June 30, 2007 and 2006:
  Three
                Months Ended June 30, 2007WFC
            
            
            VIEs
            
            
            
            Consolidating
                entries
            
            
            ConsolidatedRevenues
            
            
            1,080,288
            
            
            
            320,000
            
            (a)
            
            
            (16,110
            )
            
            
            1,384,178ExpensesCost
                of Revenues
            
            
            2,039,052
            
            
            
            246,397
            
            (a)
            
            
            (16,110
            )
            
            
            2,269,339General,
                administrative, sales and marketing
            
            
            1,720,550
            
            
            
            59,663
            
            (b)
            
            
            (11,130
            )
            
            
            1,769,083Costs
                and expenses before interest
            
            
            3,759,602
            
            
            
            306,060
            
            
            
            
            (27,240
            )
            
            
            4,038,422Operating
                income/(loss)
            
            
            (2,679,314
            )
            
            
            13,940
            
            
            
            
            11,130
            
            
            
            (2,654,244
            )
   Three
                Months Ended June 30, 2006WFC
            
            
            VIEs
            
            
            
            Consolidating
                entries
            
            
            ConsolidatedRevenues
            
            
            394,025
            
            
            
            2,296,972
            
            (a)
            
            
            (356,025
            )
            
            
            2,334,972ExpensesCost
                of revenues
            
            
            212,864
            
            
            
            2,059,674
            
            (a)
            
            
            (356,025
            )
            
            
            1,916,513General,
                administrative, sales and marketing
            
            
            1,233,466
            
            
            
            132,615
            
            (b)
            
            
            74,418
            
            
            
            1,440,499Costs
                and expenses before interest
            
            
            1,446,330
            
            
            
            2,192,289
            
            
            
            
            (281,607
            )
            
            
            3,357,012Operating
                income/(loss)
            
            
            (1,052,305
            )
            
            
            104,683
            
            
            
            
            (74,418
            )
            
            
            (1,022,040
            )
 
 (a)
            Eliminates
                WFC revenues in VIE expenses, eliminates VIE expenses in
                WFC.
 (b)
            Gain
                of VIE.
  Below
      is
      a summary of the effect of the consolidation of these entities for the six
      months ended June 30, 2007 and 2006:
  Six
                Months Ended June 30, 2007WFC
            
            
            VIEs
            
            
            
            Consolidating
                entries
            
            
            ConsolidatedRevenues
            
            
            2,113,828
            
            
            
            1,117,506
            
            (a)
            
            
            (79,921
            )
            
            
            3,151,413ExpensesCost
                of Revenues
            
            
            2,881,206
            
            
            
            946,347
            
            (a)
            
            
            (79,921
            )
            
            
            3,747,632General,
                administrative, sales and marketing
            
            
            2,712,274
            
            
            
            139,864
            
            (b)
            
            
            (11,130
            )
            
            
            2,841,008Costs
                and expenses before interest
            
            
            5,593,480
            
            
            
            1,086,211
            
            
            
            
            (91,051
            )
            
            
            6,588,640Operating
                income/(loss)
            
            
            (3,479,652
            )
            
            
            31,295
            
            
            
            
            11,130
            
            
            
            (3,437,227
            )
  
 Six
                Months Ended June 30, 2006WFC
            
            
            VIEs
            
            
            
            Consolidating
                entries
            
            
            ConsolidatedRevenues
            
            
            1,191,987
            
            
            
            2,713,972
            
            (a)
            
            
            (537,987
            )
            
            
            3,367,972ExpensesCost
                of revenues
            
            
            685,672
            
            
            
            2,427,914
            
            (a)
            
            
            (537,987
            )
            
            
            2,575,599General,
                administrative, sales and marketing
            
            
            2,241,615
            
            
            
            204,956
            
            (b)
            
            
            113,237
            
            
            
            2,559,808Costs
                and expenses before interest
            
            
            2,927,287
            
            
            
            2,632,870
            
            
            
            
            (424,750
            )
            
            
            5,135,407Operating
                income/(loss)
            
            
            (1,735,300
            )
            
            
            81,102
            
            
            
            
            (113,237
            )
            
            
            (1,767,435
            )
 
 (a)
      Eliminates WFC revenues in VIE expenses, eliminates VIE expenses in
      WFC.
 (b)
      Loss
      of VIE.
  10
 Table
          of Contents
  The
      Company terminated its relationship with its one remaining homebuilder client
      in
      June 2007. The client currently has one home constructed but unsold that is
      consolidated into the Company’s results. The Company has made a provision for
      losses from terminating this relationship of approximately $200
      thousand.
  **(6)          
      Operating and Reporting Segments**
  The
      Company has two reporting segments: Homebuilding and Related Services, and
      Land
      Sales. The Company’s reporting segments are strategic business units that offer
      different products and services. The homebuilding and related services segment
      includes home sales and services provided to homebuilders. The Company is
      required to consolidate its homebuilder services clients per FIN 46(R). The
      Company identifies the clients it consolidates as “VIEs”. Land sales consist of
      land in various stages of development sold, including finished lots. The Company
      eliminates land sales to its homebuilder clients. The Company charges
      identifiable direct expenses and interest to each segment and allocate corporate
      expenses and interest based on an estimate of each segment’s relative use of
      those expenses. Depreciation expense is included in selling, general and
      administrative and is immaterial.
  The
      following table presents segment operating results before taxes for the three
      months ended June 30, 2007 and 2006:
  **2007**
            
            
            **2006****Homebuilding
                and Related Services**
            
            
            **Land
                Sales**
            
            
            **Total**
            
            
            **Homebuilding
                and Related Services**
            
            
            **Land
                Sales**
            
            
            **Total**Revenues
                from external customers
            
            $
            320,000
            
            
            
            1,064,178
            
            
            
            1,384,178
            
            
            
            2,284,972
            
            
            
            50,000
            
            
            
            2,334,972Costs
                and expenses:Cost
                of revenues
            
            
            230,287
            
            
            
            2,039,052
            
            
            
            2,269,339
            
            
            
            1,892,654
            
            
            
            23,859
            
            
            
            1,916,513Selling,
                general and administrative
            
            
            1,174,032
            
            
            
            595,051
            
            
            
            1,769,083
            
            
            
            945,065
            
            
            
            495,434
            
            
            
            1,440,499Loss
                on fair value of derivatives
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,587,500
            
            
            
            2,587,500Interest
                & other income
            
            
            (47,648
            )
            
            
            (54,738
            )
            
            
            (102,386
            )
            
            
            (10
            )
            
            
            (108,821
            )
            
            
            (108,831
            )Interest
                expense
            
            
            276,853
            
            
            
            487,058
            
            
            
            763,911
            
            
            
            248,028
            
            
            
            310,156
            
            
            
            558,184Total
                costs and expenses
            
            
            1,633,524
            
            
            
            3,066,423
            
            
            
            4,699,947
            
            
            
            3,085,737
            
            
            
            3,308,128
            
            
            
            6,393,865Loss
                before taxes
            
            $
            (1,313,524
            )
            
            
            (2,002,245
            )
            
            
            (3,315,769
            )
            
            
            (800,765
            )
            
            
            (3,258,128
            )
            
            
            (4,058,893
            )Segment
                Assets
            
            $
            9,907,341
            
            
            
            39,697,025
            
            
            
            49,604,366
            
            
            
            7,160,909
            
            
            
            18,833,779
            
            
            
            25,994,688Capital
                expenditures
            
            $
            9,878
            
            
            
            -
            
            
            
            9,878
            
            
            
            -
            
            
            
            10,170
            
            
            
            10,170
  The
      following table presents segment operating results before taxes for the six
      months ended June 30, 2007 and 2006:
  **2007**
            
            
            **2006****Homebuilding
                and Related Services**
            
            
            **Land
                Sales**
            
            
            **Total**
            
            
            **Homebuilding
                and Related Services**
            
            
            **Land
                Sales**
            
            
            **Total**Revenues
                from external customers
            
            $
            1,117,506
            
            
            
            2,033,907
            
            
            
            3,151,413
            
            
            
            2,701,972
            
            
            
            666,000
            
            
            
            3,367,972Costs
                and expenses:Cost
                of revenues
            
            
            866,426
            
            
            
            2,881,206
            
            
            
            3,747,632
            
            
            
            2,224,444
            
            
            
            351,155
            
            
            
            2,575,599Selling,
                general and administrative
            
            
            1,811,606
            
            
            
            1,029,402,
            
            
            
            2,841,008
            
            
            
            1,658,076
            
            
            
            901,732
            
            
            
            2,559,808Loss
                on fair value of derivatives
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,932,500
            
            
            
            2,932,500Interest
                & other income
            
            
            (73,559
            )
            
            
            (76,684
            )
            
            
            (150,243
            )
            
            
            (10
            )
            
            
            (205,776
            )
            
            
            (205,786
            )Interest
                expense
            
            
            448,982
            
            
            
            933,944
            
            
            
            1,382,926
            
            
            
            364,479
            
            
            
            708,177
            
            
            
            1,072,656Total
                costs and expenses
            
            
            3,053,455
            
            
            
            4,767,868
            
            
            
            7,821,323
            
            
            
            4,246,989
            
            
            
            4,687,788
            
            
            
            8,934,777Loss
                before taxes
            
            $
            (1,935,949
            )
            
            
            (2,733,961
            )
            
            
            (4,669,910
            )
            
            
            (1,545,017
            )
            
            
            (4,021,788
            )
            
            
            (5,566,805
            )Segment
                Assets
            
            $
            9,907,341
            
            
            
            39,697,025
            
            
            
            49,604,366
            
            
            
            7,160,909
            
            
            
            18,833,779
            
            
            
            25,994,688Capital
                expenditures
            
            $
            9,878
            
            
            
            -
            
            
            
            9,878
            
            
            
            -
            
            
            
            161,289
            
            
            
            161,289
  **(7)          Related
      Party Transactions**
  In
      March
      of 2005, some of the trusts belonging to the Wilson family purchased a note
      for
      approximately $280 thousand from a third party that is secured by approximately
      15 acres of land. At the time of purchase, the terms of the note payable to
      the
      trusts belonging to family members of Clark Wilson remained the same at 8%
      per
      annum but the maturity date was changed from October 7, 2005 to
      April 4, 2006 when the entire principal and interest would be due
      and
      payable. On March 29, 2006, the note was extended for two years, changing
      the maturity date to April 4, 2008.
  11
 Table
          of Contents
  *Issuance
      of Convertible Debt*
  As
      part
      of the December 2005 subordinated convertible debt issuance discussed in
      Note 10, an existing common stock investor purchased $800 thousand of the $10
      million of subordinated convertible debt that was issued. As part of the
      subordinated convertible debt in 2006 discussed in Note 10, existing common
      stock investors purchased $1.0 million of the $6.75 million subordinated
      convertible debt that was issued.
  In
      connection with the placement of an additional $6.75 million of the Company’s
      convertible promissory notes in September 2006, it entered into an additional
      agreement with Tejas Securities Group, Inc. pursuant to which Tejas served
      as
      the Company’s Placement Agent in connection with the offering. Pursuant to this
      agreement, the Company paid Tejas commissions of $70 thousand and reimbursed
      the
      Placement Agent for its expenses. John J. Gorman is the Chairman of the Board
      of
      the Placement Agent and of Tejas Incorporated (Tejas), the parent company of
      the
      Placement Agent. Mr. Gorman is the beneficial owner of 4,088,963 shares of
      our common stock. Clark N. Wilson, who serves as our President and Chief
      Executive Officer and is a director of the Company, has served on the board
      of
      directors of Tejas Incorporated, since October 1999, and is compensated for
      such
      service. Mr. Wilson owns 1,000 shares of Tejas Incorporated common stock
      and options to purchase an additional 10,000 shares of common
      stock.  Our largest stockholder, who is also our President and Chief
      Executive Officer, will continue to control our company.
  Barry A.
      Williamson is a member of our Board of Directors and, until January 31,
      2006 was a member of the Board of Directors of Tejas Incorporated, the parent
      company of our Placement Agent for the sale of our convertible notes.
      Mr. Williamson was re-elected to the Board of Directors of Tejas
      Incorporated in November 2006.
  In
      September 2006, the Company entered into an agreement to lease approximately
      5,000 square feet for its corporate offices, which it began occupying on
      October 1, 2006. The lease requires monthly payments of approximately $10
      thousand per month for 36 months. The lease is with an affiliate of Tejas
      Incorporated. The Company believes that the lease is at fair market value for
      similar space in the Austin, TX commercial real estate market.
  In
      September 2006, the Company’s Chairman and Chief Executive Officer purchased
      $250 thousand of subordinated convertible debt under the same terms and
      conditions as the others participating in the issuance.
  In
      December 2006, Tejas Securities Group, Inc. exercised 535,000 warrants that
      were
      exercisable at $2.00 per share, in a cashless exercise netting the warrant
      holder 348,913 shares of common stock.
  **(8)          Commitments
      and Contingencies**
  *Options
      Purchase Agreements*
  In
      order
      to ensure the future availability of land for development and homebuilding,
      the
      Company plans to enter into lot-option purchase agreements with unaffiliated
      third parties. Under the proposed option agreements, the Company pays a stated
      deposit in consideration for the right to purchase land at a future time,
      usually at predetermined prices or a percentage of proceeds as homes are sold.
      These options generally do not contain performance requirements from the Company
      nor obligate the Company to purchase the land. In order for the Company to
      start
      or continue the development process on optioned land, it may incur development
      costs on land it does not own, before it exercises its option agreement.
  *Non-Compete*
  Clark
      Wilson, the Company’s chief executive officer, served as the President and Chief
      Executive Officer of Clark Wilson Homes, Inc., a subsidiary of Capital Pacific
      Holdings, from 1994 to 2002. Pursuant to an agreement executed in connection
      with the sale of Clark Wilson Homes to J.M. Peters Company in 1994, Mr. Wilson
      agreed not to engage in the businesses of acquisition, ownership, development,
      construction or sale of dwelling units in certain portions of the United States
      in which the Company plan to do business, including the Central Texas region,
      as
      well as in any other county in the United States in which J.M. Peters Company
      conducts business.  By its terms, any non-competition agreement
      between Mr. Wilson and Capital Pacific expired in June 2007.
  12
 Table
          of Contents
  Lease
      Obligations
 In
      September 2006, the Company entered into an agreement to lease approximately
      5,000 square feet for its corporate offices, which it began occupying on
      October 1, 2006. The lease requires monthly payments of approximately $10
      thousand per month for 36 months. The Company also has other office equipment
      leases. The Company’s future minimum lease payments are as follows:
  2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            ThereafterLease
                obligations
            
            $
            67,333
            
            
            
            134,676
            
            
            
            97,077
            
            
            
            3,962
            
            
            
            240
            
            
            
            -
  *Severance
      Agreement*
  During
      2006, the Company entered into an employment agreement with Daniel Allen, Chief
      Financial Officer. The employment agreement provided for payment of severance
      benefits where the termination is without cause. The severance benefits included
      payment of one year of base salary; continue to provide health benefits for
      a
      period of twelve months, and acceleration of vesting of stock options issued
      to
      him. Mr. Allen involuntarily resigned from the Company effective
      November 9, 2006. Effective November 9, 2006 the Company has continued
      to pay for Mr. Allen’s salary and benefits. At June 30, 2007 and
      December 31, 2006, the Company had approximately $85,035 thousand and
      approximately $180 thousand, respectively, accrued for this
      contingency.
  *Employment
      Agreements with Executive Officers*
  On
      February 14, 2007, the Company entered into an employment agreement with Clark
      N. Wilson, its President and Chief Executive Officer. In the event of the
      involuntary termination of Mr. Wilson’s service with the Company, the
      agreement provides for monthly payments equal to Mr. Wilson’s monthly
      salary payments to continue for 12 months. The agreement contains a provision
      whereby Mr. Wilson is not permitted to be employed in any position in which
      his duties and responsibilities comprise residential land development and
      homebuilding in Texas or in areas within 200 miles of any city in which the
      Company is conducting land development or homebuilding operations at the time
      of
      such termination of employment for a period of one year from the termination
      of
      his employment, if such termination is voluntary or for cause, or involuntary
      and in connection with a corporate transaction.
  On
      February 14, 2007, the Company entered into an employment agreement with Arun
      Khurana, its Chief Financial Officer. The agreement contains a provision whereby
      Mr. Khurana is not permitted to be employed in any position in which his
      duties and responsibilities comprise residential land development and
      homebuilding in Texas or in areas within 200 miles of any city in which the
      Company is conducting land development or homebuilding operations at the time
      of
      such termination of employment for a period of one year from the termination
      of
      his employment, if such termination is voluntary or for cause, or involuntary
      and in connection with a corporate transaction. Mr. Khurana’s employment is
      not restricted as to the provision of financial and accounting services. In
      the
      event of the involuntary termination of Mr. Khurana’s service with the
      Company, the agreement provides for monthly payments equal to Mr. Khurana’s
      monthly salary payments to continue for twelve months, the continuation of
      his
      benefits (including health insurance) for twelve months, and the immediate
      vesting of Mr. Khurana’s options to purchase our common stock.
  *Consulting
      Arrangement with Audrey Wilson*
  In
      March
      2007 the Company entered into a consulting agreement with Audrey Wilson, the
      wife of Clark N. Wilson, our President and Chief Executive Officer. Pursuant
      to
      the consulting agreement, the Company has agreed to pay Ms. Wilson $10,000
      per
      month for a maximum of 6 months. Ms. Wilson has agreed to devote at least
      twenty-five hours per week assisting the Company with the following activities:
      (i) the establishment of “back-office” processes for homebuilding activities,
      including procurement, sales and marketing and other related activities, and
      (ii) developing our marketing strategy for marketing and sale of land to
      homebuilders. The Company can end our consulting relationship with Ms. Wilson
      at
      any time by giving Ms. Wilson 30 days notice. The Company believes that the
      services Ms. Wilson is providing to the Company are being provided at fair
      market value.
  **(9)**
            **Indebtedness**
  *Revolving
      Credit Facility*
  On
      June
      29, 2007, the Company, entered into a three-year $55 million revolving credit
      facility with a syndicate of banks led by RBC Centura Bank, as administrative
      agent. The obligations of WFC under the credit facility will be secured by
      the
      assets of each subdivision to be developed with the proceeds of loans available
      under the credit facility.
      WFC currently has no borrowings outstanding under the credit facility. The
      credit facility may be increased to $100 million with the consent of the lenders
      thereunder.
  13
 Table
          of Contents
  The
      credit facility allows the Company to obtain revolving credit loans and provides
      for the issuance of letters of credit. The amount available at any time under
      the credit facility for revolving credit loans or the issuance of letters of
      credit is determined by a borrowing base. The borrowing base is calculated
      as
      the sum of the values for homes and lots in the subdivision to be developed
      as
      agreed to by WFC and the agent.
  Outstanding
      borrowings under the credit facility will bear interest at the prime rate plus
      0.25%. WFC is charged a letter of credit fee equal to 1.10% of each letter
      of
      credit issued under the credit facility. WFC may elect to prepay the credit
      facility at any time without premium or penalty.
  The
      credit facility contains customary terms and covenants limiting the Company’s
      ability to take certain actions, including terms that limit the Company’s
      ability to place liens on property, pay dividends and other restrictions and
      payments.  The covenants are as follows:
  ·
            require
                the Company to maintain a minimum net worth of $20,000,000, net worth
                includes subordinated debt (although the minimum net worth may be
                $17,000,000 for one quarter);
 ·
            prohibit
                the Company’s ratio of debt to equity from exceeding (A) 1.75 to 1.0 prior
                to September 30, 2007, (B) 1.85 to 1.0 from September 30, 2007 until
                March
                30, 2008 and (C) 2.0 to 1.0 thereafter;
                and
 ·
            require
                the Company to maintain working capital of at least
                $15,000,000.
 
 An
      event
      of default will occur under the credit facility if certain events occur,
      including the following:
 ·
            a
                failure to pay principal or interest on any loan under the credit
                facility;
 ·
            the
                inaccuracy of a representation or warranty when
                made;
 ·
            the
                failure to observe or perform covenants or
                agreements;
 ·
            an
                event of default beyond any applicable grace period with respect
                to any
                other indebtedness;
 ·
            the
                commencement of proceedings under federal, state or foreign bankruptcy,
                insolvency, receivership or similar
                laws;
 ·
            a
                condition where any loan document, or any lien created thereunder,
                ceases
                to be in full force and effect;
 ·
            the
                entry of a judgment greater than $1,000,000 that remains undischarged;
                or
 ·
            a
                change of control.
  If
      an
      event of default occurs under the credit facility, then the lenders may: (1)
      terminate their commitments under the credit facility; (2) declare any
      outstanding indebtedness under the credit facility to be immediately due and
      payable; and (3) foreclose on the collateral securing the
      obligations.
  The
      above
      description of the material terms of the credit facility is not a complete
      statement of the parties’ rights and obligations with respect to such
      transactions. The above statements are qualified in their entirety by reference
      to the Borrowing Base Loan Agreement executed in connection with the credit
      facility, a copy of which is filed with the Company's quarterly report for
      the
      second quarter of 2007.
  The
      following schedule lists the Company’s notes payable and lines of credit
      balances at June 30, 2007 and December 31, 2006:
  In
                Thousands
            
            Rate
            Maturity
                Date
            
            2007
            2006Line
                of Credit, $3 million, development
            a
            Prime
                +.50%
            Mar-1-08
            $
            1,019
            2,250Line
                of Credit, $15.5 million, purchase and development
            b
            Prime
                +2.00%
            Oct-1-08
            
            -
            3,587Notes
                payable, land
            c
            12.50%
            Mar-1-09
            
            4,700
            n/aNotes
                payable, seller financed
            d
            7.0%
            Oct.
                2009/10
            
            2,474
            2,474Line
                of Credit, $5 million / $10 million, land and construction
            e
            Prime
                +.50%
            Feb-6-08
            
            130
            600Notes
                payable, land
            f
            Prime
                +.75%
            Jun-1-08
            
            -
            6,200Notes
                payable, land
            g
            12.50%
            Mar-1-09
            
            7,300
            n/aNotes
                payable, development
            h
            Prime
                +.50%
            Feb-1-10
            
            1,750
            n/aNotes
                payable, family trust
            i
            8.0%
            Apr-1-08
            
            280
            280Notes
                payable, land, due
            j
            Prime
                +.75%
            Dec-1-09
            
            -
            792Notes
                payable, land and development
            k
            Prime
                +3.00%
            Feb-1-09
            
            655
            n/a2005
                $10 million, Subordinated convertible notes, net of discount of $481
                thousand and $4,288 thousand, respectively
            
            5.0%
            Dec-1-12
            
            9,519
            5,7122006
                $6.50 / $6.75 million, Subordinated convertible notes, net of discount
                of
                $2,903 and $4,066 thousand respectively
            
            5.0%
            Sep-1-13
            
            3,485
            2,684Total
            
            $
            31,312
            24,579
  14
 (a)              In
      March 2006, the Company secured a $3.0 million line of credit, development
      loan,
      maturing on March 30, 2008, at prime plus 0.50% with a minimum floor of
      7.00%, and interest payable monthly. The loan is secured by property being
      developed into single-family home lots, totaling approximately 32.6 acres
      located in Williamson County, Texas. Each of the lots will be released upon
      payment to the bank of either 125% of the loan basis or 90% of the net sales
      proceeds for each lot to be released. The Company must make cumulative principal
      reductions in the aggregate amount of approximately $494 thousand every three
      months in the calendar year beginning at the end of the first calendar month
      in
      which the completion date occurs, which was during July 2006.
  (b)              During
      October 2006, the Company secured a $15.5 million line of credit for the
      purchase and development of approximately 534 acres located in eastern Travis
      County and subsequently closed on the purchase of the property. The first phase
      of the loan is $10.2 million and covers the purchase, a portion of the first
      two
      phases of construction, offsite utilities and provides letters of credit
      totaling $4.3 million, required for the development of municipal utility
      facilities, at the bank’s prime rate plus 0.50%, and is secured by the
      underlying property. Loan origination fees were 1% of the $10.2 million. The
      debt has financial covenants which (1) require the Company to keep a debt to
      equity ratio of 2:1, and (2) keep liquid assets in excess of $7 million, except
      for 2006 and first and second quarters of 2007 in which it is required to
      maintain $4 million in liquid assets, which includes $2.2 million of restricted
      cash, in the financial institution. During February 2007, the Company obtained
      a
      release from the bank whereby its restricted cash was released, except for
      $315
      thousand, and financial covenants for the third quarter of 2007 were modified
      requiring the Company to keep liquid assets of only $4 million. Interest is
      payable quarterly, commencing January 2007. Principal is payable in quarterly
      installments commencing 90 days after completion of construction which is
      projected to be during 2007. The required pay down amount under the loan is
      equal to 75% of gross sales price as set forth in the Company’s contracts for
      sales of lots. Its current projects require pay down amounts of approximately
      $600 thousand per quarter. The purchase price of the property was approximately
      $8.5 million, with $2.5 million of owner financing, $3.6 million from the bank
      loan and cash from us of approximately $2.4 million. The Company has invested
      an
      additional amount for development of the property of approximately $1.9 million.
      This note was refinanced and paid off in March 2007 (c). Also, as part of the
      purchase of 534 acres in Travis County, the Company entered into four notes
      payable, seller financed due 2009 and 2010, with a cumulative balance of
      approximately $2.5 million.
  (c)              In
      March 2007, the company replaced the $15.5 million line of credit (b) with
      a
      $4.7 million term loan maturing March 2009. The interest rate on the loan is
      12.5%, with interest payable monthly.  The loan has no financial
      covenants and is secured by the underlying property described above. The Company
      intends to refinance this loan with the $55 million credit
      facility.
  (d)              As
      part of the purchase of 534 acres in Travis County described above, the Company
      entered into four notes payable, seller financed, due 2009 and 2010, with a
      cumulative balance of approximately $2.5 million. The notes payable have a
      maturity date of October 12, 2010. Three of the notes payable with a
      cumulative balance of $1.9 million are at an interest rate of 7.0% and the
      fourth note payable issued for approximately $600 thousand is at an interest
      rate of the Wall Street Journal’s prime rate plus 2.0%. The terms of the notes
      payable call for annual principal repayments of $1.1 million in 2007, $0.3
      million in 2008, $500 thousand in 2009 and $500 thousand in 2010, payable on
      October 12. The notes can be prepaid at anytime without penalty and are
      secured by the real estate purchased.
  (e)              The
      Company had a $5 million master construction line of credit that matured on
      January 11, 2007, used by one of its homebuilding clients. Under the
      agreement, the Company, as Guarantor, is subject to certain covenants. Among
      others, the Company must maintain a minimum tangible net worth of $2.5 million,
      its debt to equity ratio shall not exceed 7.5 to 1 as of the end of any calendar
      quarter, and Mr. Clark Wilson must remain active in the day to day business
      management affairs of the Company. The Company complied with the above loan
      covenants. During February 2007, the line of credit was replaced by a $10
      million line of credit for land and home construction under the same terms
      with
      a maturity date of February 6, 2008. The Company intends to refinance this
      loan
      with the $55 million credit facility.
  (f)              In
      June 2005, the Company issued notes payable of approximately $6.9 million with
      a
      maturity date of June 30, 2006 at an escalating interest rate for
      approximately 74% of 736 acres of land. These notes had a total balance of
      approximately $6.7 million at December 31, 2005. The Company reduced the
      principal balance through sales of acreage tracts to approximately $6.2 million
      and during June 2006, it refinanced the notes payable, land, with a new lender.
      The terms of the new loan include a $6.2 million principal balance, an interest
      rate indexed to the New York prime rate plus 0.75% per annum with a floor of
      7.0%, a term not to exceed 24 months or June 2008, and required principal
      reductions of $800 thousand per quarter beginning June 12, 2007. Principal
      reductions from sales of the real estate are credited towards the $800 thousand
      per quarter requirement. This loan was refinanced in February
      2007.
  15
 Table
          of Contents
  (g)              On
      February 13, 2007 the Company refinanced its land obligation on a land loan
      of approximately $6.2 million and obtained a new loan of approximately $7.2
      million to finance approximately 538 acres. The interest rate is 12.5% annually
      and requires monthly interest payments, with a maturity of two years and is
      renewable for an additional year for a 1% loan fee. The loan is secured by
      the
      underlying land. The Company intends to refinance this loan with the $55 million
      credit facility.
  (h)              On
      February 9, 2007, the Company obtained a development loan of approximately
      $4.6
      million. The loan matures on February 1, 2010 and requires quarterly interest
      payments and principal pay downs as lots are sold. The loan is secured by the
      property being developed at an interest rate of prime plus 0.50%. The Company
      intends to refinance this loan with the $55 million credit
      facility.
  (i)              In
      October 2003, a predecessor entity of the Company exchanged notes payable of
      approximately $280 thousand and approximately $95 thousand in cash for
      approximately 15 acres of land in Travis County, Texas. Interest on the note
      was
      8% per annum, payable quarterly with a maturity date of October 7, 2008. In
      March of 2005, the note was purchased by trusts belonging to some members of
      Clark Wilson’s family. The interest rate remained the same at 8% per annum but
      the maturity date changed to April 4, 2006. In March 2006, the Company
      renegotiated an extension on the notes payable, family trust, 8%, due April
      2008. All other terms remained the same.
  (j)              In
      December of 2006, the Company paid cash and issued notes payable, land, due
      2009, a long-term note payable of $792 thousand with a maturity date of
      December 21, 2007 at an interest rate of the bank’s prime rate plus 0.5%
      (currently 8.75%) for the purchase of approximately 30 acres of land. The terms
      of the note payable called for interest only payable quarterly, and the balance
      of the principal and accrued interest due and payable upon maturity. It is
      secured by the real estate purchased. This note was replaced in February
      2007.
  (k)              This
      property was refinanced in February 2007 with a land purchase and development
      loan of approximately $3.1 million. The loan matures in February 2009, with
      two
      six-month extensions, at an interest rate of prime plus 3.00%, with interest
      payable monthly.
  In
      September 2005, the Company secured a $2 million one-year line of credit master
      construction loan that provides for draws and repayments for construction and
      lots. Interest is payable monthly and each draw must be repaid within one year.
      At December 31, the interest rate on borrowings was 7.25% per annum. Loans
      made on specific lots and construction is collateralized by such property and
      construction with interest due monthly. Mr. Wilson personally guaranteed
      the Loan. The Company had drawn approximately $254 thousand against the loan
      at
      December 31, 2005 which was the balance owed. During May 2006, the lending
      institution released Mr. Wilson’s personal guarantee and extended the
      maturity date to April 2007. As of March 31, 2007 the balance owed on the
      line is zero and the Company does not intend to replace the line at this
      time.
  *Subordinated
      Convertible Debt*
  The
      Company accounts for all derivative financial instruments in accordance with
      SFAS No. 133. Prior to 2007, derivative financial instruments were recorded
      as
      liabilities in the consolidated balance sheet and measured at fair value. The
      Company accounted for the various embedded derivative features as been bundled
      together as a single, compound embedded derivative instrument that was
      bifurcated from the debt host contract, referred to as the “single compound
      embedded derivatives.”  The single compound embedded derivative
      features include the conversion feature within the convertible note, the early
      redemption option and the fixed price conversion adjustment. The initial value
      of the single compound embedded derivative liability was bifurcated from the
      debt host contract and recorded as a derivative liability, which resulted in
      a
      reduction of the initial carrying amount (as unamortized discount) of the
      convertible notes. The unamortized discount was amortized using the
      straight-line method over the life of the convertible note, or 7 years. The
      penalty warrants were valued based on the fair value of the Company’s common
      stock on the issuance date using a Black-Scholes valuation model and the
      unamortized discount was to be amortized as interest expense over the 7-year
      life of the notes using the straight-line method.
  In
      January 2007, the Company adopted “FSP EITF 00-19-2” as discussed in Note
      2.
  16
 Table
          of Contents
  Prior
      to
      adoption of FSP EITF 00-19-2, the uncertainty of a successful registration
      of
      the shares underlying the subordinated convertible debt, required that the
      freestanding and embedded derivatives be characterized as derivative
      liabilities. FSP EITF 00-19-2 specifically addressed the accounting for a
      registration rights agreement and the requirement to classify derivative
      instruments subject to registration rights agreements as liabilities was
      withdrawn.  The Company re-evaluated it’s accounting for the
      subordinated debt transaction and determined that the liability for the penalty
      warrants be included in the allocation of the proceeds to the various components
      of the transaction according to paragraph 16 of APB Opinion No. 14,
*Accounting for Convertible Debt and Debt issued with Stock Purchase
      Warrants.*The Company also determined the notes contained a beneficial
      conversion feature under Issues 98-5 and 00-27, and used the effective
      conversion price based on the proceeds allocated to the convertible instrument
      to compute the intrinsic value of the embedded conversion option. The Company
      recalculated the discount on the convertible debt at its intrinsic value and
      re-characterized the freestanding and embedded derivatives as equity. The
      previous valuation adjustments of the derivative liabilities were reversed
      and
      the amortization of the discounts was adjusted based upon the recalculation.
      Per
      FSP EITF 00-19-2, the Company was permitted to adjust the previous amounts
      as a
      cumulative accounting adjustment.
  The
      net
      effect of the change increased the net carrying amount of the subordinated
      convertible debt, eliminated the derivative liabilities, There was also an
      increase of $4.8 million in total stockholders’ equity.   During
      the year ended December 31, 2006, the Company recognized approximately $8.5
      million of loss on fair value of derivatives related to the subordinated
      convertible debt. Under the new FSP EITF 00-19-2 the derivatives were eliminated
      and hence there will no longer be gains and losses related to the current
      subordinated convertible debt.
  *2005,
      $10MM, 5%, Subordinated Convertible Debt.*
  On
      December 19, 2005, the Company issued $10 million in aggregate principal
      amount of 5% subordinated convertible debt due December 1, 2012 to certain
      purchasers. The following are the key features of the subordinated convertible
      debt: Interest accrues on the principal amount of the subordinated convertible
      debt at a rate of 5% per annum, the debt is payable semi-annually on May 1
      and December 1 of each year, with interest payments beginning on
      June 1, 2006. The subordinated convertible debt is due on December 1,
      2012 and is convertible, at the option of the holder, into shares of our common
      stock at a conversion price of $2.00 per share. The conversion price is subject
      to adjustment for stock splits, reverse stock splits, recapitalizations and
      similar corporate actions. An adjustment in the conversion price is also
      triggered upon the issuance of certain equity or equity-linked securities with
      a
      conversion price, exercise price, or share price less than $2.00 per share.
      The
      anti-dilution provisions state the conversion price cannot be lower than $1.00
      per share.
  The
      Company may redeem all or a portion of the subordinated convertible debt after
      December 1, 2008 at a redemption price that incorporates a premium that
      ranges from 3% to 10% during the period beginning December 1, 2008 and
      ending on the due date. In addition, the redemption price will include any
      accrued but unpaid interest on the subordinated convertible debt. Upon a change
      in control event, each holder of the subordinated convertible debt may require
      us to repurchase some or all of its subordinated convertible debt at a purchase
      price equal to 100% of the principal amount of the subordinated convertible
      debt
      plus accrued and unpaid interest. The due date may accelerate in the event
      the
      Company commences any case relating to bankruptcy or insolvency, or related
      events of default. The Company’s assets will be available to pay obligations on
      the subordinated convertible debt only after all senior indebtedness has been
      paid.
  The
      subordinated convertible debt has a registration rights agreement whereby the
      Company must use its best efforts to have its associated registration statement
      effective not later than 120 days after the closing (December 19, 2005).
      Further, the Company must maintain the registration statement in an effective
      status until the earlier to occur of (i) the date after which all the
      registrable shares registered thereunder shall have been sold and (ii) the
      second anniversary of the later to occur of (a) the closing date, and (b) the
      date on which each warrant has been exercised in full and after which by the
      terms of such Warrant there are no additional warrant shares as to which the
      warrant may become exercisable; provided that in either case, such date shall
      be
      extended by the amount of time of any suspension period. Thereafter the Company
      shall be entitled to withdraw the registration statement, and upon such
      withdrawal and notice to the investors, the investors shall have no further
      right to offer or sell any of the registrable shares pursuant to the
      registration statement. The registration statement filed pursuant to the
      registration rights agreement was declared effective by the SEC on
      August 1, 2006.
  17
 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 were vested on June 30, 2006. The warrants were
      exercisable only upon the occurrence of certain events and then only in the
      amount specified as follows: (i) with respect
      to 25% of the warrant shares, on February 3, 2006 if the registration
      statement shall not have been filed with the SEC by such date (the Company
      filed
      a Form SB-2 registration statement on February 2, 2006); (ii) with respect
      to an additional 25% of the warrant shares, on April 19, 2006 if the
      registration statement shall not have been declared effective by the SEC by
      such
      date; (iii) with respect to an additional 25% of the warrant shares, on
      May 19, 2006 if the registration statement shall not have been declared
      effective by the SEC by such date; and (iv) with respect to the final 25% of
      the
      warrant shares, on June 18, 2006 if the registration statement shall not
      have been declared effective by the SEC by such date. Management has recorded
      the fair value of these warrants due to the uncertainty surrounding the timeline
      of getting the registration statement effected and the high probability that
      these warrants would be issued. The Company received notice that the shelf
      registration relating to these warrants was declared effective on August 1,
      2006 and 562,500 of these warrants have vested and the remaining 187,500
      warrants will never vest.
  The
      penalty warrants were valued based on the fair value of the Company’s common
      stock on the issuance date of $1.60, using a Black-Scholes approach, risk free
      interest rate of 4.25%; dividend yield of 0%; weighted-average expected life
      of
      the warrants of 10 years; and a 60% volatility factor, resulting in an allocated
      value of approximately $613 thousand. The penalty warrants are recorded as
      part
      of the debt discount and an increase in additional paid in capital, and
      amortized over the 7-year life of the notes using the straight-line rate
      method.
  The
      Company also incurred closing costs of $588 thousand which included placement
      agent fees of $450 thousand, plus, reimbursement of expenses to the placement
      agent of $125 thousand, plus 750,000 fully vested warrants to purchase the
      Company’s common stock at $2.00 per share with a 10 year exercise period, valued
      at $829 thousand, for a total of $1.4 million, recorded as debt issuance costs,
      to be amortized over the 7-year life of the notes using the straight line
      method. These warrants were valued based on the fair value of the Company’s
      common stock of $1.60, using a Black-Scholes valuation model, at a $2.00
      exercise price, risk free interest rate of 4.25%; dividend yield of 0%;
      weighted-average expected life of warrants of 10 years; and a 60% volatility
      factor.
  *Subordinated
      Convertible Note at June 30, 2007 and at December 31,
      2006*
  2007
            
            
            2006Notional
                balance
            
            $
            10,000,000
            
            
            
            10,000,000Unamortized
                discount
            
            
            (481,276
            )
            
            
            (4,287,857
            )Subordinated
                convertible debt balance, net of unamortized discount
            
            $
            9,518,724
            
            
            
            5,712,143
 
 *2006,
      $6.75MM, 5%, Subordinated Convertible Debt*
  On
      September 29, 2006, the Company raised capital of $6.75 million in
      aggregate principal amount of 5% subordinated convertible debt due
      September 1, 2013, to certain purchasers. As of December 31, 2006,
      $6.75 million had been received in cash, the remaining $250 thousand was a
      receivable from an owner of land that the Company had under option to
      purchase.  During the quarter ended June 2007, the Company did not
      exercise its option to purchase the land and therefore does not expect to
      receive the additional $250 thousand.   In addition, during the
      quarter ended June 30, 2007, one of our convertible debt holders who is also
      the
      seller of Bohl’s tract purchased common stock with a promissory
      note.  Under the terms of the promissory note, should the Company not
      exercise the option to purchase the Bohl’s tract the convertible debt would be
      used for repayment of the promissory note.  As the Company did not
      exercise the option to purchase Bohl’s tract the promissory note was repaid from
      the proceeds of the convertible debt.  The following are the key
      features of the subordinated convertible debt: Interest accrues on the principal
      amount of the subordinated convertible debt at a rate of 5% per annum, the
      interest is payable semi-annually on February 1 and September 1 of
      each year, with interest payments beginning on February 1, 2006. The
      subordinated convertible debt is due on September 1, 2013 and is
      convertible, at the option of the holder, into shares of common stock at a
      conversion price of $2.00 per share. The conversion price is subject to
      adjustment for stock splits, reverse stock splits, recapitalizations and similar
      corporate actions. An adjustment in the conversion price is also triggered
      upon
      the issuance of certain equity or equity-linked securities with a conversion
      price, exercise price, or share price less than $2.00 per share. The
      anti-dilution provisions state the conversion price cannot be lower than $1.00
      per share.
  The
      Company may redeem all or a portion of the subordinated convertible debt after
      September 1, 2009 at a redemption price that incorporates a premium that
      ranges from 3% to 10% during the period beginning September 1, 2009 and
      ending on the due date. In addition, the redemption price will include any
      accrued but unpaid interest on the subordinated convertible debt. Upon a change
      in control event, each holder of the subordinated convertible debt may
      require us to repurchase some or all of its subordinated convertible debt at
      a
      purchase price equal to 100% of the principal amount of the subordinated
      convertible debt plus accrued and unpaid interest. The due date may accelerate
      in the event the Company commences any case relating to bankruptcy or
      insolvency, or related events of default. The Company’s assets will be available
      to pay obligations on the subordinated convertible debt only after all senior
      indebtedness has been paid.
 18
 Table
          of Contents
  The
      subordinated convertible debt has a registration rights agreements (RRA),
      whereby the Company must use its best efforts to have its associated
      registration statement effective not later than 120 days after the closing
      (i.e., January 27, 2007). Further, the Company must maintain the
      registration statement in an effective status until the earlier to occur of
      (i)
      the date after which all the registrable shares registered thereunder shall
      have
      been sold and (ii) the second anniversary of the later to occur of (a) the
      closing date, and (b) the date on which each warrant has been exercised in
      full
      and after which by the terms of such warrant there are no additional warrant
      shares as to which the warrant may become exercisable; provided that in either
      case, such date shall be extended by the amount of time of any suspension
      period. Thereafter the Company shall be entitled to withdraw the registration
      statement, and upon such withdrawal and notice to the investors, the investors
      shall have no further right to offer or sell any of the registrable shares
      pursuant to the registration statement.
  The
      Company also issued warrants to purchase an aggregate of 506,250 shares of
      common stock to the purchasers of the subordinated convertible debt. The
      warrants are exercisable only upon the occurrence of certain events and then
      only in the amount specified as follows: (i) with respect to 25% of the warrant
      shares, on November 13, 2006 if the registration statement shall not have
      been filed with the SEC by such date (the Company filed a Form SB-2 registration
      statement on October 16, 2006); (ii) with respect to an additional 25% of
      the warrant shares, on January 27, 2007 if the registration statement shall
      not have been declared effective by the SEC by such date; (iii) with respect
      to
      an additional 25% of the warrant shares, on February 26, 2007 if the
      registration statement shall not have been declared effective by the SEC by
      such
      date; and (iv) with respect to the final 25% of the warrant shares, on
      March 28, 2007 if the registration statement shall not have been declared
      effective by the SEC by such date. Management has recorded 75% of the fair
      value
      of these warrants since it has filed the initial registration in (i) above
      so
      the first 25% of the warrants don’t vest, and due to the uncertainty surrounding
      the timeline of getting the registration statement effected and the high
      probability that the remaining warrants would be issued.
  The
      Company also incurred closing costs of $140 thousand, including placement agent
      fees of approximately $70 thousand, plus, reimbursement of expenses to the
      placement agent of $25 thousand, for a total of $95 thousand to the placement
      agent, recorded as debt issuance costs, to be amortized over the 7-year life
      of
      the notes using the straight-line rate method.
  The
      issuance of the debt resulted in an embedded beneficial conversion feature
      valued at approximately $2.5 million, which will be recorded as part of the
      debt
      discount and an increase in additional paid in capital, and amortized over
      the
      7-year life of the notes using the straight-line rate method.
  The
      penalty warrants were valued based on the fair value of the Company’s
      common stock on the issuance date of $1.91, using a Black-Scholes approach,
      risk
      free interest rate of 4.64%; dividend yield of 0%; weighted-average expected
      life of the warrants of 10 years; and a 60% volatility factor. The allocated
      value of the penalty warrants totaled approximately $846 thousand and are
      recorded as part of the debt discount and an increase in additional paid in
      capital, and amortized over the 7-year life of the notes using the straight-line
      rate method.
  *Convertible
      Note at June 30, 2007 and December 31, 2006:*
  2007
            
            
            2006Notional
                balance
            
            $
            6,500,000
            
            
            
            6,750,000Unamortized
                discount
            
            
            (2,903,531
            )
            
            
            (4,066,267
            )Subordinated
                convertible debt balance, net of unamortized discount
            
            $
            3,596,469
            
            
            
            2,683,733
  **(10)         Common
      Stock**
  The
      Company is authorized to issue 100,000,000 shares of common stock. Each common
      stockholder is entitled to one vote per share of common stock
      owned.
  19
 Table
          of Contents
  The
      Company sold 5,000,000 shares of common stock in a public offering at $3.25
      per
      share that closed on May 19, 2007 and concurrently began trading on the American
      Stock Exchange under the symbol “WIH”. Related to the financing, the Company
      incurred the following transaction costs:
  (In
                thousands)Cash
                paid to investment banker for underwriting and other fees
            
            $
            1,219Legal,
                printing, accounting and stock exchange registration fees
            
            
            544Travel
                and selling related costs
            
            
            503Warrants
                to purchase 500,000 shares at $4.06 with a fair value based on the
                Black-Scholes option pricing model with a risk free interest rate
                of
                4.64%; dividend yield of 0%;weighted-average expected life of the
                warrants of 1 years; and a 60% volatility factor at $0.56 per
                warrant.
            
            
            280Total
                expenses
            
            $
            2,546
  During
      June 2007, the Company issued 80,000 shares of Common Stock for the purchase
      of
      Green Builders, Inc.
  **(11)        Common
      Stock Option / Stock Incentive Plan**
  In
      August
      2005, the Company adopted the “Wilson Family Communities, Inc. 2005 Stock
      Option/Stock Issuance Plan”, the “Stock Option Plan.” The plan contains two
      separate equity programs: 1) the Option Grant Program for eligible persons
      at
      the discretion of the plan administrator, be granted options to purchase shares
      of common stock and 2) the Stock Issuance Program under which eligible persons
      may, at the discretion of the plan administrator, be issued shares of common
      stock directly, either through the immediate purchase of such shares or as
      a
      bonus for services rendered to the Company or any parent or subsidiary. The
      market value of the shares underlying option issuance prior to the Merger was
      determined by the Board of Directors as of the grant date. This plan was assumed
      by Wilson Holdings, Inc. at the time of the merger of the Company and WFC.
      The
      fair value of the options granted under the plan was determined by the Board
      of
      Directors (“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 Stock Option Plan shall not exceed 2,500,000 shares. Unless
      terminated at an earlier date by action of the Board of Directors, the Plan
      terminates upon the earlier of (1) the expiration of the ten year period
      measured from the date the Plan is adopted by the Board or (2) the date on
      which
      all shares available for issuance under the Plan shall have been issued as
      fully-vested shares.
  The
      Company had 790,000 shares of common stock available for future grants under
      the
      Plan at June 30, 2007. Compensation expense related to the Company’s
      share-based awards for the six months ended June 30, 2007 and 2006 was
      approximately $205 thousand and $203 thousand, respectively.
  Before
      January 1, 2006, options granted to non-employees were recorded at fair
      value in accordance with SFAS No. 123 and EITF 96-18. These options are issued
      pursuant to the Plan and are reflected in the disclosures below.
  During
      the six months ended June 30, 2007, the Company issued options to purchase
      975,000 shares of common stock at exercise prices of ranging from $3.25 to
      2.85
      per share. Using the Black-Scholes pricing model with the following
      weighted-average assumptions: risk free interest rate of 4.64%; dividend yields
      of 0%; weighted average expected life of options ranging from 1 to 4 years;
      and
      a 60% volatility factor, management estimated the fair market value of the
      grants to range from $0.82 to $1.63 per share. Management estimated the
      volatility factor based on an average of comparable companies due to its limited
      trading history.
  A
      summary
      of activity in common stock options for the years ended December 31, 2006
      and the six months ended June 30, 2007 are as follows:
  Shares
            
            
            Range
                of Exercise
              Prices
            
            
            Weighted-Average
                Exercise PriceOptions
                outstanding, December 31, 2006
            
            
            925,000
            
            
            $
            2.00
                - $2.26
            
            
            $
            2.17Options
                granted
            
            
            975,000
            
            
            $
            2.85
                - $3.25
            
            
            $
            3.17Options
                exercised
            
            
            -
            
            
            
            -
            
            
            
            -Options
                forfeited
            
            
            (190,000
            )
            
            $
            2.00
                - $2.26
            
            
            $
            2.07Options
                outstanding, June 30, 2007
            
            
            1,710,000
            
            
            $
            2.00
                - $3.25
            
            
            $
            2.75Add:
                Available for issuance
            
            
            790,000Total
                available under plan
            
            
            2,500,000
  20
 Table
          of Contents
  The
      following is a summary of options outstanding and exercisable at June 30,
      2007:
  Outstanding
            Vested
                and OutstandingNumber
                of SharesSubject to OptionsOutstanding
            Weighted
                AverageRemaining ContractualLife (in years)
            WeightedAverageExercise
                Price
            Number
                ofVestedShares
            Weighted
                AverageRemaining ContractualLife (in years)
            WeightedAverageExercise
                Price1,710,000
            9.3
            $2.75
            345,833
            8.5
            $2.05
 
 At
      June
      30, 2007, there was approximately $1.6 million of unrecognized compensation
      expense related to unvested share-based awards granted under the Company’s stock
      option plan. That expense is expected to be recognized over a weighted-average
      period of 3.4 years.  In February 2007, the Company’s Board approved a
      819,522 share increase in the number of shares issuable pursuant to its option
      plan for a total of 2,500,000 shares issuable under the plan.  This
      increase will be effective when approved by the Company’s
      shareholders.
  **(12)        Purchase
      of Green Builders, Inc.**
  On
      June
      19, 2007, the Company purchased Green Builders, Inc. for $65 thousand of cash
      and issued 80,000 shares of the Company’s common stock valued at $2.70 per share
      on the date of the transaction. The total purchase price for the acquisition
      was
      approximately $281 thousand. The Company allocated the purchase price to
      trademark with indefinite life in accordance with SFAS 142.
  Cash
            
            $
            17,081Accounts
                Receivable
            
            
            2,900Accounts
                Payable
            
            
            (6,190
            )Trademarks
            
            
            275,985Others
            
            
            (8,776
            )$
            281,000
  In
      connection with the acquisition, the Company increased the size of its Board
      of
      Directors from four to five persons, and appointed Victor Ayad as a director
      of
      the Company. Mr. Ayad was the President and sole shareholder of Green Builders,
      Inc. prior to the acquisition. The pro forma effect of the acquisition on the
      Company’s income was not material and is already consolidated into the Company’s
      results as a VIE under FIN 46(R).
   21
 Table
          of Contents
  **Item
      2.     Management’s Discussion and
      Analysis or Plan of Operations**
 
 *The
      information presented in this section should be read in conjunction with our
      audited financial statements and related notes for the periods ended December
      31, 2006 and 2005 included in our Form 10-KSB, as well as the information
      contained in the financial statements, including the notes thereto, appearing
      in
      Part 1 of this report. This report contains forward-looking statements, within
      the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
      the
      Securities Exchange Act of 1934, that involve risks and uncertainties. Our
      expectations with respect to future results of operations that may be embodied
      in oral and written forward-looking statements, including any forward looking
      statements that may be included in this report, are subject to risks and
      uncertainties that must be considered when evaluating the likelihood of our
      realization of such expectations. Our actual results could differ materially.
      The words “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar
      phrases as they relate to us are intended to identify such 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 in the section entitled “Risk
      Factors” and in our Registration Statement on Form S-1 (File No.
      333-140747).*
  **Overview**
  Our
      business plan focuses on the acquisition of undeveloped land that we believe,
      based on our understanding of population growth patterns and infrastructure
      development, is strategically located.  This portion of our business
      focus has required, and is expected to continue to require, the majority of
      our
      financial resources.  We have funded these acquisitions primarily with
      bank debt.  In tandem with our land acquisition efforts, and based
      upon our strategic market analysis, we also prepare land for homebuilding.
      We
      believe that as the central Texas economy expands, our strategic land purchases,
      land development activities and our homebuilding activities that we have
      recently commenced will enable us to capitalize on the new growth centers we
      expect will be created.
  We
      commenced our homebuilding operations in June 2007 with the purchase of Green
      Builders, Inc.  We are in the process of developing the Green Builders
      brand and developing our homebuilding strategy.  Our strategy is to
      build homes that are environmentally responsible, resource efficient and
      consistent with local style. We will build homes on the majority of the lots
      that we currently have under development.  We may build on lots that
      we purchase from other land builders or developers. We plan on continuing to
      acquire and develop land and sell some of those lots to
      homebuilders.  Our home designs will be selected and prepared for each
      of our markets based on local community tastes and the preferences of
      homebuyers. Substantially all of our construction work will be performed by
      subcontractors. Subcontractors will be retained for specific subdivisions
      pursuant to contracts which we plan to enter into during 2007.
  We
      have
      derived revenue from the sale of real estate and residential lots, and from
      services provided to homebuilder clients. We exercise significant influence
      over, but hold no controlling interest in, homebuilder clients, but we may
      retain the majority of the risk of loss. At June 30, 2007 and December 31,
      2006,
      we determined that we were the primary beneficiary in certain homebuilder
      agreements, as defined under FASB Interpretation No. 46(R), or FIN 46(R),
      entitled “Consolidation of Variable Interest Entities”, where we have a
      significant, but less than controlling, interest in our clients. In accordance
      with FIN 46(R), the results of these clients have been consolidated into our
      financial statements.  A primary focus of our business has been the
      sale of developed lots to homebuilders, including national
      homebuilders.  During the second quarter of 2007, demand for finished
      lots from national homebuilders was reduced and orders placed for some of our
      finished lots were cancelled.  We believe that retaining these lots
      for use by our new homebuilding business is the most efficient use of our
      finished lots and will allow us to generate homebuilding revenue to replace
      revenue from the loss of sales of these finished lots.  We believe
      that national homebuilders are trying to reduce their real estate holdings
      and
      their demand for real estate has been reduced  in all parts of the
      country, including areas which have been less affected from the recent slowdown
      in housing starts, such as Central Texas.
  In
      May
      2007 we elected to not exercise a land purchase option to purchase the Bohls
      tract of approximately 428 acres for approximately $7.2 million located in
      central Texas.  Instead, we are focusing our resources on the
      development of our homebuilding business.  Due to the current market
      conditions in the homebuilding industry, revenue projections for sale of
      residential lots to other homebuilders has substantially declined. We concluded
      that we currently have adequate single-family lots for our needs, excluding
      the
      Bohls tract. Therefore, we are attempting to renegotiate the purchase price
      and
      other significant terms of the contract to purchase the property with the
      sellers of the Bohls tract.  While these discussions are ongoing, our
      land purchase option expired in June 2007.
   22
 Table
          of Contents
  In
      October 2005, we merged with Wilson Family Communities, Inc., or WFC. WFC was
      formed early in 2005 with the intention of focusing on acquiring and developing
      residential land in the central Texas region. In May 2005, WFC merged with
      a
      limited partnership that had engaged in various land acquisition and development
      services.
  **Results
      of Operations**
  SELECTED
                FINANCIAL DATAThree
                Months Ended June 30,
            
            
            Six
                Months Ended June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Sales
            
            $
            1,384,178
            
            
            
            2,334,972
            
            
            
            3,151,413
            
            
            
            3,367,972Gross
                profit (loss)
            
            $
            (885,161
            )
            
            
            418,459
            
            
            
            (596,219
            )
            
            
            792,373Operating
                expenses
            
            $
            1,769,083
            
            
            
            1,440,499
            
            
            
            2,841,008
            
            
            
            2,559,808Operating
                loss
            
            $
            (2,654,244
            )
            
            
            (1,022,040
            )
            
            
            (3,437,227
            )
            
            
            (1,767,435
            )Net
                loss
            
            $
            (3,315,769
            )
            
            
            (4,058,893
            )
            
            
            (4,669,910
            )
            
            
            (5,566,805
            )
  ***Homebuilding
      and Related Services Revenues***
  *Background*
      - Homebuilding and related services consists of home sales and homebuilder
      services. Historically, all of the home sales have been generated by our clients
      utilizing our homebuilder services. We consolidate these clients into our
      operating results based on accounting requirements according to FIN 46(R) and
      refer to these clients as Variable Interest Entities, or VIEs.
  *Revenues*
      - During the three months and six months ended June 30, 2007, home sales
      declined approximately 86% and 59%, respectively, from the same periods in
      2006,
      primarily due to the reduced home sales from our VIEs.  Homebuilding
      services declined during the three months ended June 30, 2007 by approximately
      40% as our one remaining homebuilder client depleted their
      inventory.  All homebuilding and related services for the three months
      and six months ended June 30, 2007 were generated with one homebuilder client.
      This client, as stated previously, is not starting any new homes.  In
      June 2007 we acquired Green Builders, Inc. and have commenced our homebuilding
      activities under the name “Green Builders, Inc.”
  As
      of
      June 30, 2007, we were providing homebuilder services to only one client that
      was not starting any new homes. We have a receivable of approximately $175
      thousand of principal and interest advanced by us to the client in
      2006.  We had made a contingency allowance of approximately $50
      thousand in 2006 and we recorded approximately $125 thousand of additional
      loss
      contingency related to the client’s debt in the second quarter of 2007.
  *Outlook*
      - As noted in above, we have just recently commenced our own homebuilding
      activities through our Green Builders, Inc. acquisition and do not expect any
      additional homebuilding or related services revenue through our
      VIE’s.  We are in the process of developing the Green Builders brand
      and developing our homebuilding strategy.  Our strategy is to build
      homes that are environmentally responsible, resource efficient and built
      consistently with local styles and standards.  We intended to begin
      our homebuilding activities in late July 2007 but due to severe weather problems
      in the Central Texas area, including record rainfall amounts, we have been
      unable to start building on our finished lots.  To date, we have
      commenced construction of 15 homes and we expect that we will begin building
      approximately 40 homes during 2007.
  **Land
      Sales**
  *Background*–
      Land sales revenue consists of revenues from the sale of developed
      lots.  Developing finished lots from land takes approximately one to
      three years. We may sell our lots to national, regional and local homebuilders
      that may purchase anywhere from five to one hundred or more lots at a time,
      although delivery of lots would be scheduled over several months, or we may
      use
      our developed lots for our own homebuilding operations.
  *Revenues*–
      Revenues from land sales increased approximately 77% and 65% for the three
      months and six months ended June 30, 2007, respectively, from the same periods
      in 2006, primarily to the completion and sale of residential lots. Gross profit
      as a percentage of total land revenues declined over the same period in the
      prior year due to the low volume and mix of land sold. Land sales during the
      same periods of 2006 consisted of a land purchase option and undeveloped acreage
      tracts with lower cost of sales, whereas the current year land sales were
      primarily single family lots.
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  *Cost
      of Sales* - In May 2007 we did not exercise a land purchase option to
      purchase the Bohls tract of approximately 428 acres for approximately $7.2
      million. Our decision not to exercise the option was based on the
      following.   Due to the current market conditions in the
      homebuilding industry, revenue projections for sale of residential lots to
      other
      homebuilders has substantially declined. We concluded that we currently have
      adequate single-family lots, excluding the Bohls tract. Therefore, We entered
      into negotiations with sellers of the Bohls tract to renegotiate the purchase
      price and other significant terms of the contract to purchase the property.
      The
      discussions are ongoing, however, the option expired in June 2007. We recorded
      a
      loss provision of approximately $1.3 million relating to development expenses
      incurred on the tract and expenses expected to be incurred due to the expiration
      of the option period.  We commenced homebuilding under Green Builders,
      Inc. effective June 20, 2007 and plan to develop lots and build environmentally
      responsive, resource efficient and culturally sensitive. We are in the process
      of developing standards for “green homebuilding” and plan to sell homes in
      Central Texas, initially in the Austin, Texas, for prices ranging from $200
      thousand to $600 thousand.
  *Outlook*–We
      believe that national homebuilders are trying to reduce their real estate
      holdings and their demand for real estate has been reduced in all parts of
      the
      country, including areas which have been less affected from the recent slowdown
      in housing starts.  This has impacted central Texas although housing
      starts have declined by eight percent from the prior year.  In
      addition, our entry into the homebuilding market could negatively impact our
      lot
      sales to third party builders as we will retain more of our developed lots
      for
      use for our homebuilding operations.
  **Costs
      and Expenses**
  ***General
      and Administrative Expenses***
  General
      and administrative expenses are composed primarily of salaries of general and
      administrative personnel and related employee benefits and taxes, accounting
      and
      legal, and general office expenses and insurance.
  During
      the three months ended June 30, 2007 and 2006, salaries, benefits, taxes and
      related employee expenses totaled approximately $474 thousand and $356 thousand,
      respectively, and represented approximately 31% and 29%, respectively, of total
      general and administrative expenses for the periods. The increase was primarily
      for the provision for bonuses of approximately $189 thousand during 2007. During
      the six months ended June 30, 2007 and 2006, salaries, benefits, taxes and
      related employee expenses totaled approximately $840 thousand and $735 thousand,
      respectively, and represented approximately 33% and 33%, respectively, of total
      general and administrative expenses for the periods. The increase was primarily
      for the provision for bonuses of approximately $189 thousand during
      2007.
  Legal,
      accounting, audit and transaction expense, which includes the expense of filing
      our registration statements and other SEC filings, totaled approximately $223
      thousand and $305 thousand, respectively, in the three months ended June 30,
      2007 and 2006. For the six months ended June 30, 2007 and 2006, the expenses
      were approximately $382 thousand and $488 thousand, respectively, due primarily
      for expenses relating to the 2007 offering that were a reduction in net proceeds
      versus expenses in the same periods the prior year.
  The
      remaining expenses increased primarily because of an approximately $125 thousand
      loss provision relating to the termination of our homebuilder services client
      in
      the three months and six months ended June 30, 2007. There were also increases
      in rent, insurance and other general office expenses offset by reductions in
      costs related to servicing homebuilder clients in prior periods. We expect
      an
      increase in general office expenses, salaries and related expenses as we ramp
      up
      our homebuilding operations.
  Stock
      compensation expense for the three months ended June 30, 2007 and 2006 was
      approximately $165 thousand and $122 thousand, respectively, and approximately
      $205 thousand and $203 thousand, respectively for the six months ended June
      30,
      2007 and 2006.
  Depreciation
      expense included in general and administrative expenses was approximately $20
      thousand and $31 thousand, respectively, for the six months ended June 30,
      2007
      and 2006 and approximately $267 thousand and $105 thousand, respectively for
      the
      same periods for amortization of subordinated debt issuance costs
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  We
      expect
      total general and administrative expenses to increase over the next year as
      we
      ramp up the homebuilding business.
  ***Sales
      and Marketing Expenses***
  Sales
      and
      marketing expenses include salaries and related taxes and benefits, marketing
      activities including website, brochures, catalogs, signage, and billboards,
      and
      market research that benefit our corporate presence and are not included as
      homebuilding cost of sales.
  We
      expect
      sales and marketing expenses to increase substantially as continue to ramp
      up
      our homebuilding business and develop our green building strategy and corporate
      branding.
  ***Interest
      Expense and Income***
  Interest
      expense for the three months and six months ended June 30, 2007 and 2006,
      increased by approximately $102 thousand and $207 thousand, respectively, and
      was related to the increased subordinated convertible debt issued in September
      2006 and the increase in property not under development. Included in the
      interest expense was amortization of subordinated convertible debt. For the
      six
      months ended June 30, 2007 and 2006, the amortization expense of the
      subordinated debt discount was approximately $397 thousand and $357 thousand,
      respectively. The 2007 reduction was due to the change in accounting for the
      subordinated convertible debt. We expect our interest expense to decrease on
      land and development due to our new line of credit. To the extent we purchase
      additional land that we hold for future development, our interest expenses
      will
      increase.
  Interest
      and other income increased for the six months ended June 30, 2007 over the
      same
      period in 2006 due to the increase in cash from our public offering in May
      2007
      and consisted of interest earned on our cash and cash equivalents and immaterial
      amounts of miscellaneous other income.
  **Financial
      Condition and Capital Resources**
  ***Liquidity***
  At
      June
      30, 2007 we had approximately $15.9 million in cash and cash equivalents. We
      completed a successful public offering of the Company’s common stock in May
      2007, netting us approximately $14 million of cash.
  On
      June
      29, 2007, WFC entered into a three-year $55 million revolving credit facility
      with a syndicate of banks led by RBC Centura Bank, as administrative
      agent.  We have guaranteed all of the obligations of WFC under the
      Credit Facility. The obligations of WFC under the Credit Facility will be
      secured by the assets of each subdivision to be developed with the proceeds
      of
      loans available under the Credit Facility. We currently have no borrowings
      outstanding under the Credit Facility.
  The
      Credit Facility allows WFC to obtain revolving credit loans and provides for
      the
      issuance of letters of credit. The amount available at any time under the Credit
      Facility for revolving credit loans or the issuance of letters of credit is
      determined by a borrowing base. The borrowing base is calculated as the sum
      of
      the values for homes and lots in the subdivision to be developed as agreed
      to by
      the WFC and the agent.
  Outstanding
      borrowings under the Credit Facility will bear interest at the prime rate plus
      0.25%. WFC is charged a letter of credit fee equal to 1.10% of each letter
      of
      credit issued under the Credit Facility. WFC may elect to prepay the Credit
      Facility at any time without premium or penalty.
  The
      Credit Facility contains customary covenants limiting our ability to take
      certain actions, including covenants that
  ·
            affect
                how we can develop WFC’s
                properties;
  ·
            limit
                WFC’s ability to pay dividends and other restricted payments;
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  ·
            limit
                WFC’s ability to place
                liens on its property;
  ·
            limit
                WFC’s ability to engage in
                mergers and acquisitions and dispositions of
                assets;
  ·
            require
                WFC to maintain a minimum
                net worth of $20,000,000, including subordinated debt (although the
                minimum net worth may be $17,000,000 for one
                quarter);
  ·
            prohibit
                WFC’s ratio of debt to
                equity from exceeding (A) 1.75 to 1.0 prior to September 30, 2007,
                (B)
                1.85 to 1.0 from September 30, 2007 until March 30, 2008 and (C)
                2.0 to
                1.0 thereafter; and
  ·
            require
                WFC to maintain working
                capital of at least
                $15,000,000.
  An
      event
      of default will occur under the Credit Facility if certain events occur,
      including the following:
  ·
            a
                failure to pay principal or
                interest on any loan under the Credit
                Facility;
  ·
            the
                inaccuracy of a
                representation or warranty when
                made;
  ·
            the
                failure to observe or perform
                covenants or agreements;
  ·
            an
                event of default beyond any
                applicable grace period with respect to any other
                indebtedness;
  ·
            the
                commencement of proceedings
                under federal, state or foreign bankruptcy, insolvency, receivership
                or
                similar laws;
  ·
            any
                loan document, or any lien
                created thereunder, ceases to be in full force and
                effect;
  ·
            the
                entry of a judgment greater
                than $1,000,000 that remains undischarged;
                or
  ·
            a
                change of
                control.
  If
      an
      event of default occurs under the Credit Facility, then the lenders may: (1)
      terminate their commitments under the Credit Facility; (2) declare any
      outstanding indebtedness under the Credit Facility to be immediately due and
      payable; and (3) foreclose on the collateral securing the
      obligations.
  Our
      growth will require substantial amounts of cash for earnest money deposits,
      land
      purchases, development costs, interest payments and homebuilding costs. Until
      we
      begin to sell an adequate number of lots and homes to cover monthly operating
      expenses, sales, marketing, general and administrative costs will deplete
      cash.
  To
      maintain our liquidity, we have financed the majority of our land and
      development activities with debt and believe we can continue to do so in the
      future through a combination of conventional and subordinated convertible debt,
      joint venture financing, sales of selected lot positions, sales of land and
      lot
      options, and by raising additional equity.
  ***Capital
      Resources***
  We
      have
      raised approximately $16.8 million of subordinated convertible debt, and
      approximately $14 million in a public offering of the Company’s common stock
      completed in May 2007. We also entered into a three-year $55 million revolving
      credit facility with a syndicate of banks mentioned previously. The Credit
      Facility may be increased to $100 million with the consent of the
      lenders.
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  In
      May
      2007 we did not exercise a land purchase option to purchase the Bohls tract
      of
      approximately 428 acres for approximately $7.2 million. Our decision not to
      exercise the option was based on the following factors:
  ·
            Due
                to the current market conditions in the homebuilding industry, revenue
                projections for sales of residential lots to other homebuilders has
                substantially declined. We concluded that we currently have adequate
                single-family lots for our needs, excluding the Bohls tract. Therefore,
                we
                are attempting to renegotiate the purchase price and other significant
                terms of the contract with the seller of the Bohls tract. While these
                discussions are ongoing the option expired in June 2007. We recorded
                a
                loss provision of approximately $1.3 million relating to development
                costs
                incurred on the tract and expenses expected to be incurred due to
                the
                expiration of the option period.
  ·
            We
                commenced homebuilding under Green Builders, Inc. in June 2007 and
                plan to
                build and sell homes in the Central Texas area, initially in Austin,
                Texas, for prices ranging from $200 thousand to $600
                thousand.
  Due
      to
      factors stated above, weather related delays and longer than expected ramp
      up of
      homebuilding operations our financial projections have changed. We expect to
      incur significant losses for the third and fourth quarters of 2007 and first
      quarter of 2008. We do not expect to be cash flow positive from operations
      until
      2008.
  We
      believe that the capital we raised in May 2007, the closing of the revolving
      credit facility and future land and home sales and financing will provide
      adequate capital resources for the next twelve months, but we may be required
      to
      raise additional capital in 2008.
  Land
      and
      homes under construction comprise the majority of the Company’s assets. These
      assets could suffer devaluation if the housing and real estate market suffers
      a
      significant downturn, due to interest rate increases or other reasons. Our
      debt
      might then be called, requiring liquidation of assets to satisfy our debt
      obligations or the use of our cash. A significant downturn could also make
      it
      more difficult for us to liquidate assets, to raise cash and to pay off debts,
      which could have a material adverse effect.
  **Off-Balance
      Sheet Arrangements**
  As
      of
      June 30, 2007, we had no off-balance sheet arrangements.
  **Critical
      Accounting Policies and Estimates**
  Our
      accounting policies are more fully described in the notes to our consolidated
      financial statements.
  As
      discussed in the notes to the consolidated financial statements, the preparation
      of financial statements in conformity with accounting principles generally
      accepted in the United States of America requires management to make estimates
      and assumptions about future events that affect the amounts reported in our
      consolidated financial statements and accompanying notes. Future events and
      their effects cannot be determined with absolute certainty. Therefore, the
      determination of estimates requires the exercise of judgment. Actual results
      could differ from those estimates, and such differences may be material to
      our
      consolidated financial statements. Listed below are those policies and estimates
      that we believe are critical and require the use of significant judgment in
      their application.
  ***Consolidation
      of Variable Interest Entities***
  We
      offer
      certain homebuilder clients surety for their interim construction loans and
      cash
      advances to facilitate sales of our residential lots. We may be considered
      the
      primary beneficiary as defined under FASB Interpretation No. 46(R) (“FIN
      46(R)”), “Consolidation of Variable Interest Entities” (VIE), and the Company
      may have a significant, but less than controlling, interest in the entities.
      We
      account for each of these entities in accordance with FIN 46(R). Management
      uses
      its judgment when determining if we are the primary beneficiary of, or have
      a
      controlling interest in, any of these entities. Factors considered in
      determining whether we have significant influence or has control include risk
      and reward sharing, experience and financial condition of the other partners,
      voting rights, involvement in day-to-day capital and operating decisions and
      continuing involvement.
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 Table
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  ***Inventory***
  Inventory
      is stated at cost unless it is determined to be impaired, in which case the
      impaired inventory would be written down to the fair market
      value.  Inventory costs include land, land development costs, deposits
      on land purchase contracts, model home construction costs, advances to builders
      and capitalized interest and real estate taxes incurred during development
      and
      construction phases.
  ***Revenue
      Recognition***
  Revenues
      from property sales are recognized in accordance with SFAS No. 66, “Accounting
      for Sales of Real Estate.” Revenues from land development services to builders
      are recognized when the properties associated with the services are sold, when
      the risks and rewards of ownership are transferred to the buyer and when the
      consideration has been received, or the title company has processed payment.
      For
      projects that are consolidated, homebuilding revenues and services will be
      categorized as homebuilding revenues and revenues from property sales or options
      will be categorized as homebuilding revenues and revenues from property sales
      or
      options will be categorized as land sales.
  ***Use
      of Estimates***
  We
      have
      estimated and accrued liabilities for real estate property taxes on our
      purchased land in anticipation of development, and other liabilities including
      the beneficial conversion liability, the fair value of warrants and
      options.  To the extent that the estimates are different to the actual
      amounts, it could have a material effect on the financial
      statements.
  We
      have
      two properties that are in Municipal Utility Districts, or MUDs. We incur
      development costs for water, sewage lines and associated treatment plants and
      other development costs and fees for these properties. Under the agreement
      with
      the MUDs, we expect to be reimbursed partially for the above developments costs.
      The MUDs will issue bonds to repay us once there is enough assessed value on
      the
      property for the MUD taxes to repay the bonds. As homes are sold, the assessed
      value increases in the MUD. It can take several years before there is enough
      assessed value to recapture the costs. We estimate that we will recover
      approximately 50% to 70% of eligible costs. In some circumstances, the MUDs
      will
      pay for property set aside for the preservation of endangered species,
      greenbelts and similar uses. To the extent that the estimates are different
      to
      the actual amounts, it could have a material effect on the financial
      statements.
  ***Concentrations***
  Our
      current activities are limited to the geographical area of central Texas, which
      we define as encompassing the Austin Metropolitan Statistical Area, or Austin
      MSA, and the San Antonio Metropolitan Statistical Area, or San Antonio MSA.
      This
      geographic concentration makes our operations more vulnerable to local economic
      downturns than those of larger, more diversified companies.
  We
      are
      also dependent upon a limited number of homebuilder services customers which
      are
      subject to numerous uncertainties related to homebuilding including weather
      delays and damage, labor and material shortages, insufficient capital, materials
      theft or poor workmanship. Revenues from one homebuilder customer accounted
      for
      100% of our total homebuilding revenue for the three months and six months
      ended
      June 30, 2007.
  ***Convertible
      Debt***
  The
      subordinated convertible debt and the related warrants have been accounted
      for
      in accordance with Emerging Issues Task Force (EITF) No. 98-5, “Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios”, EITF No. 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock,” EITF 00-27, “Application of issue 98-5 to Certain Convertible
      Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt Instrument’
in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated Damages Clause
      on a Freestanding Financial Instrument Subject to Issue No. 00-19” updated with
      FSP EITF 00-19-2”, Accounting for Registration Payment
      Arrangements.
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 Table
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  ***Risk
        Factors***
  An
        investment in our common stock involves risks.  Any of the following
        risks, as well as other risks and uncertainties, could harm our business
        and
        financial results and cause the value of our securities to decline, which
        in
        turn could
        cause investors to lose all or part of their investment in us.  The
        risks below are not the only ones we face.  Additional risks not
        currently known to us, or that we currently deem immaterial also may impair
        our
        business.
 **Risks
      Related to Our Business**
  **Our
      current operating business has a limited operating history and
      revenues.**
  In
      October 2005, we acquired Wilson
      Family Communities, Inc., or WFC, which has a limited operating history.
      Accordingly, our business is subject to substantial risks inherent in the
      commencement of a new business enterprise in an intensely competitive industry.
      The business of WFC was conducted, beginning in 2002, by Athena Equity
      Partners-Hays, L.P., or Athena, to engage in land acquisition and development
      and, beginning in 2005, to provide homebuilder services. Prior to its merger
      with WFC, Athena did not generate significant revenues, and, through March
      31,
      2007, our company has generated revenues of only approximately $8.8 million
      and
      has incurred cumulative net losses of approximately $17.0
      million.
  There
      can
      be no assurance that we will be able to successfully acquire, develop and/or
      market land, develop and market our homebuilder services, commence our
      homebuilding activities, generate revenues, or ever operate on a profitable
      basis. We currently have only one active homebuilder for our homebuilder
      services and are evaluating whether to continue providing services to
      homebuilders. Any investment in our company should be considered a high-risk
      investment because the investor will be placing funds at risk in a company
      with
      unknown costs, expenses, competition, and other problems to which new ventures
      are often subject. Investors should not invest in our company unless they can
      afford to lose their entire investment.
  **We
      have recently commenced our homebuilding operations and there is no assurance
      that we will be successful.**
  In
      June
      2007 we commenced our homebuilding operations. To date, we have started the
      construction of 15 homes. There is no assurance that our homebuilding operations
      will result in revenues or allow us to become profitable. Homebuilding is a
      competitive industry and we must compete with many other homebuilders, many
      of
      them with significantly greater resources than us.
  **We
      have incurred a significant amount of debt, but will require additional
      substantial capital to continue to pursue our operating
      strategy.**
  We
      had approximately $15.9 million in
      cash and cash equivalents at June 30, 2007. We have secured lines of credit
      totaling approximately $55 million. No amounts were drawn against these lines
      of
      credit as of June 30, 2007. Approximately $130,000 of the notes payable relate
      to variable interest entities, or VIEs, that had drawn on the lines of credit,
      which we have guaranteed, to build homes that will be repaid as the completed
      homes are sold.
  We
      have
      issued and sold an aggregate of $16.75 million in principal amount of
      convertible promissory notes since December 2005. These notes bear interest
      at a
      fixed rate of 5.0% per annum, with the principal amount of such notes
      convertible into shares of our common stock at the rate of one share per $2.00
      of principal, which conversion rate is subject to proportionate adjustment
      for
      stock splits, stock dividends and recapitalizations as well as a “ratchet”
adjustment which will apply if we sell shares of our common stock in the future
      at a price per share of less than $2.00, provided that such conversion rate
      may
      not be reduced below a rate of one share of common stock for each $1.00 of
      note
      principal.
  Our
      growth plans will require substantial amounts of cash for earnest money
      deposits, land purchases, development costs and interest payments, and to
      provide financing or surety services to our homebuilder clients. Until we begin
      to sell an adequate number of lots and services to cover our monthly operating
      expenses, costs associated with our sales, marketing and general and
      administrative activities will deplete cash. Our articles of incorporation
      contain no limits on the amount of indebtedness we may incur.
  **We
      are seeking additional credit lines to finance land purchases and development
      costs.**
  Through
      June 30, 2007, we have closed on four major land development projects. The
      majority of our expenditures in the past have been for inventory, consisting
      of
      land, land development and land options totaling over $3.2 million as of June
      30, 2007. To secure additional inventory, we will be required to put up earnest
      money deposits, make cash down payments, acquire acreage tracts and pay for
      certain land development activities costing several million dollars. This amount
      includes the development of land, including costs for the installation of water,
      sewage, streets and common areas. In the normal course of business, we enter
      into various land purchase option agreements that require earnest money
      deposits. In order for us to start or continue the development process, we
      may
      incur development costs before we exercise an option agreement. We currently
      have approximately $351,000 in capitalized development costs, earnest money
      and
      deposits outstanding of which the entire amount would be forfeited and expensed
      if we were to cancel all of these agreements.
  Should
      our financing efforts be insufficient to execute our business plan, we may
      be
      required to seek additional sources of capital, which may include partnering
      with one or more established operating companies that are interested in our
      emerging business or entering into joint venture arrangements for the
      development of certain of our properties. However, if we were required to resort
      to partnering or joint venture relationships as a means to raise needed capital
      or reduce our cost burden, we likely will be required to cede some control
      over
      our activities and negotiate our business plan with our business or joint
      venture partners. 29
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  **We
      are vulnerable to concentration risks because our initial operations have been
      limited to the central Texas area.**
  Our
      real
      estate activities have to date been conducted almost entirely in the central
      Texas region, which we define as encompassing the Austin Metropolitan
      Statistical Area, or Austin MSA, and the San Antonio Metropolitan Statistical
      Area, or San Antonio MSA. This geographic concentration, combined with a limited
      number of projects that we plan to pursue, make our operations more vulnerable
      to local economic downturns and adverse project-specific risks than those of
      larger, more diversified companies.
  The
      performance of the central Texas economy will affect our sales and,
      consequently, the underlying values of our properties. For example, the economy
      in the Austin MSA is heavily influenced by conditions in the technology
      industries. During periods of weakness or instability in technology industries,
      we may experience reduced sales, particularly with respect to “high-end”
properties, which can significantly affect our financial condition and results
      of operations. The San Antonio MSA economy is dependent on the service industry
      (including tourism), government/military and businesses specializing in
      international trade. To the extent there is a significant reduction in tourism
      or in staffing levels of military or other government employers in the San
      Antonio MSA, we would expect to see reduced sales of lower priced homes due
      to a
      likely reduction in lower paying tourism- and government-related jobs.
  **Fluctuations
      in market conditions may affect our ability to sell our land at expected prices,
      if at all, which could adversely affect our revenues, earnings and cash
      flows.**
  We
      are
      subject to the potential for significant fluctuations in the market value of
      our
      land inventories. There is a lag between the time we acquire control of
      undeveloped land and the time that we can improve that land for sale to home
      builders. This lag time varies from site to site as it is impossible to
      determine in advance the length of time it will take to obtain government
      approvals and permits. The risk of owning undeveloped land can be substantial
      as
      the market value of undeveloped land can fluctuate significantly as a result
      of
      changing economic and market conditions. Inventory carrying costs can be
      significant and can result in losses in a poorly performing development or
      market. Material write-downs of the estimated value of our land inventories
      could occur if market conditions deteriorate or if we purchase land at higher
      prices during stronger economic periods and the value of those land inventories
      subsequently declines during weaker economic periods. We could also be forced
      to
      sell land or lots for prices that generate lower profit than we anticipate,
      and
      may not be able to dispose of an investment in a timely manner when we find
      dispositions advantageous or necessary. Furthermore, a decline in the market
      vale of our land inventories may give rise to a breach of financial covenants
      contained in our credit facilities, which could cause a default under one or
      more of those credit facilities.
  **Our
      operations are subject to an intensive regulatory approval process, including
      governmental and environmental regulation, which may delay, increase the cost
      of, prohibit or severely restrict our development projects and reduce our
      revenues and cash flows.**
  We
      are
      subject to extensive and complex laws and regulations that affect the land
      development process. Before we can develop a property, we must obtain a variety
      of approvals from local, state and federal governmental agencies with respect
      to
      such matters as zoning, density, parking, subdivision, site planning and
      environmental issues. Certain of these approvals are discretionary by nature.
      Because certain government agencies and special interest groups have in the
      past
      expressed concerns about development plans in or near the central Texas region,
      our ability to develop these properties and realize future income from them
      could be delayed, reduced, made more expensive or prevented
      altogether.
  Real
      estate development is subject to state and federal regulations as well as
      possible interruption or termination because of environmental considerations,
      including, without limitation, air and water quality and the protection of
      endangered species and their habitats. We are making and will continue to make
      expenditures and other accommodations with respect to our real estate
      development for the protection of the environment. Emphasis on environmental
      matters may result in additional costs to us in the future or a reduction in
      the
      amount of acreage that we can use for development or sales
      activities.
  **We
      may be subject to risks as a result of our entry into joint
      ventures.**
  To
      the
      extent that we undertake joint ventures to develop properties or conduct our
      business, we may be liable for all obligations incurred by the joint venture,
      even though such obligations may not have been incurred by us, and our share
      of
      the potential profits from such joint venture may not be commensurate with
      our
      liability. Moreover, we will be exposed to greater risks in joint ventures
      should our co-venturers’ financial condition become impaired during the term of
      the joint venture, as creditors will increasingly look to our company to support
      the operations and fund the obligations of the joint
      venture.
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  **Our
      operations are subject to weather-related risks.**
  Our
      land
      development operations and the demand for our homebuilder services may be
      adversely affected from time to time by weather conditions that damage property.
      The central Texas region is prone to tornados, hurricanes entering from the
      Gulf
      of Mexico, floods, hail storms, severe heat and droughts.  In 2007,
      the central Texas region has received significant levels of rain that have
      delayed and in some cases stopped construction projects.  We maintain
      only limited insurance coverage to protect the value of our assets against
      natural disasters. Additionally, weather conditions can and have delayed our
      development and construction projects by weeks or months which could delay
      and
      decrease our anticipated revenues. To the extent we encounter significant
      weather-related delays, our business would suffer.
  **The
      availability of water could delay or increase the cost of land development
      and
      adversely affect our future operating results.**
  The
      availability of water is becoming an increasingly difficult issue in the central
      Texas region and other areas of the Southwestern United States. Many
      jurisdictions are now requiring that builders provide detailed information
      regarding the source of water for any new community that they intend to develop.
      Similarly, the availability of treatment facilities for sanitary sewage is
      a
      growing concern. Many urban areas have insufficient resources to meet the demand
      for waste-water and sanitary sewage treatment. To the extent we are unable
      to
      find satisfactory solutions to these issues with respect to future development
      projects, our operations could be adversely affected.
  **We
      are subject to risks related to environmental damages.**
  We
      may be
      required to undertake expensive and time-consuming clean-up or remediation
      efforts in the event that we encounter environmental hazards on the lots we
      own,
      even if we were not originally responsible for or aware of such hazards. In
      the
      event we are required to undertake any such remediation activities, our business
      could suffer.
  **We
      are at risk of loss for loans or advances to our
      customers.**
  To
      the
      extent we offer surety or financing to our homebuilder customers, we could
      suffer losses if the funds advanced are not used for their intended purposes
      and
      we are forced to exercise legal remedies or incur expenses to recoup our
      collateral. Although we closely monitor the activities for which the money
      is
      intended, it is possible for the funds to be wasted or misappropriated. We
      do
      not believe we are required to obtain any license to provide these loans or
      advances, nor are we limited by our charter on the amount of surety or financing
      we can offer, but regulatory changes could require that we do so in the
      future.
  **We
      are a small company and have a correspondingly small financial and accounting
      organization. Being a public company may strain our resources, divert
      management’s attention and affect our ability to attract and retain qualified
      directors.**
  We
      are a
      small company with a finance and accounting organization that we believe is
      of
      appropriate size to support our current operations; however, the rigorous
      demands of being a public reporting company may lead to a determination that
      our
      finance and accounting group is undersized. As a public company, we are subject
      to the reporting requirements of the Securities Exchange Act of 1934 and the
      Sarbanes-Oxley Act of 2002. The requirements of these laws and the rules and
      regulations promulgated thereunder entail significant accounting, legal and
      financial compliance costs, and have made, and will continue to make, some
      activities more difficult, time consuming or costly and may place significant
      strain on our personnel, systems and resources.
  The
      Securities Exchange Act requires, among other things, that we maintain effective
      disclosure controls and procedures and internal control over financial
      reporting. In order to maintain and improve the effectiveness of our disclosure
      controls and procedures and internal control over financial reporting,
      significant resources and management oversight are required. As a result,
      management’s attention may be diverted from other business concerns, which could
      have a material adverse effect on our business, financial condition and results
      of operations.
  These
      rules and regulations also have made it more difficult and more expensive for
      us
      to maintain director and officer liability insurance, and in the future we
      may
      be required to accept reduced coverage or incur substantially higher costs
      to
      maintain such coverage. If we are unable to maintain adequate director and
      officer insurance, our ability to recruit and retain qualified officers and
      directors, especially those directors who may be deemed independent, will be
      significantly curtailed.
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  **We
      depend on our key personnel to manage our business
      effectively.**
  We
      believe our future success will depend in large part upon our ability to attract
      and retain highly skilled managerial and sales and marketing personnel. In
      particular, due to the relatively early stage of our business, we believe that
      our future success is highly dependent on Clark N. Wilson, our chief executive
      officer and the founder of WFC, to provide the necessary leadership to execute
      our growth plans. Although we intend to acquire a key-man life insurance policy
      for Mr. Wilson, the loss of the services of any of our key employees, the
      inability to attract or retain qualified personnel in the future or delays
      in
      hiring required personnel, and in particular sales personnel, could impede
      our
      ability to expand our sales and marketing activities as desired, and negatively
      impact our profitability.
  **We
      have borrowed money at floating interest rates and if interest rates were to
      significantly increase, our financial results could
      suffer.**
  We
      have
      borrowed approximately $4.0 million at interest rates of prime plus 0.50% to
      2.00% that adjust in relation to the prime rate. If the prime rate were to
      significantly increase, we will be required to pay additional amounts in
      interest under these notes and line of credit and our financial results could
      suffer.
  **We
      are vulnerable to concentration risks because we intend to focus on the
      residential rather than commercial market.**
  We
      intend
      to focus on residential rather than commercial properties. Economic shifts
      affect residential and commercial property markets, and thus our business,
      in
      different ways. A developer with diversified projects in both sectors may be
      better able to survive a downturn in the residential market if the commercial
      market remains strong. Our focus on the residential sector can make us more
      vulnerable than a diversified developer.
  **Our
      growth strategy to expand into new geographic areas poses
      risks.**
  We
      may
      expand our business into new geographic areas outside of the central Texas
      region. We will face additional risks if we expand our operations in geographic
      areas or climates in which we do not have experience, including:
  ·
            adjusting
                our land development
                methods to different geographies and
                climates;
  ·
            obtaining
                necessary entitlements
                and permits under unfamiliar regulatory
                regimes;
  ·
            attracting
                potential customers in
                a market in which we do not have significant experience;
                and
  ·
            the
                cost of hiring new employees and increased infrastructure
                costs.
  We
      may
      not be able to successfully manage the risks of such an expansion, which could
      have a material adverse effect on our revenues, earnings, cash flows and
      financial condition.
  **If
      we are unable to generate sufficient cash from operations or secure additional
      borrowings, we may find it necessary to curtail our development
      activities.**
  Our
      performance continues to be substantially dependent on future cash flows from
      real estate financing and sales and there can be no assurance that we will
      generate sufficient cash flow or otherwise obtain sufficient funds to meet
      the
      expected development plans for our current and future properties. If we are
      unsuccessful in obtaining adequate loans or in generating positive cash flows,
      we could be forced to: abandon some of our development activities, including
      the
      development of sub-divisions and entitling of land for development; forfeit
      option fees and deposits; default on loans; violate covenants with our current
      lenders and convertible note holders thereby putting us in default; and possibly
      be forced to liquidate a substantial portion of our asset holdings at
      unfavorable prices.
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  **Our
        results of operations and financial condition are greatly affected by the
        performance of the real estate industry.**
  Our
      real
      estate activities are subject to numerous factors beyond our control, including
      local real estate market conditions, substantial existing and potential
      competition, general national, regional and local economic conditions,
      fluctuations in interest rates and mortgage availability and changes in
      demographic and environmental conditions. Real estate markets have historically
      been subject to strong periodic cycles driven by numerous factors beyond the
      control of market participants.
  Real
      estate investments often cannot easily be converted into cash and market values
      may be adversely affected by these economic circumstances, market fundamentals,
      competition and demographic conditions. Because of the effect these factors
      have
      on real estate values, it is difficult to predict with certainty the level
      of
      future sales or sales prices that will be realized for individual
      assets.
  Our
      real
      estate operations are also dependent upon the availability and cost of mortgage
      financing for potential customers, to the extent they finance their purchases,
      and for buyers of the potential customers’ existing residences.
  **Risks
      Related to Investment in Our Securities**
  **Our
      company is a holding company, and the obligations of our company are subordinate
      to those of our operating subsidiary.**
  Our
      company is a holding company with no material assets other than our equity
      interest in our wholly owned subsidiary, Wilson Family Communities, or WFC.
      WFC
      conducts substantially all of our operations and directly owns substantially
      all
      of our assets. WFC also has entered into a credit facility to finance the
      purchase of some of our land holdings and this credit facility is secured by
      the
      assets of WFC.  The holding company structure places any obligations
      of Wilson Holdings subordinate to those of our operating subsidiary, WFC.
      Therefore, in the event of a liquidation, creditors of WFC would be repaid
      prior
      to any distribution to the creditors or stockholders of Wilson Holdings.
      After the repayment of all obligations incurred by WFC and the repayment of
      all
      obligations of Wilson Holdings, any remaining assets could then be distributed
      to Wilson Holdings as the holder of all shares of common stock of WFC and in
      the
      event of our liquidation subsequently would be distributed among the holders
      of
      our common stock.
  **Our
      largest stockholder, who is also our President and Chief Executive Officer,
      will
      continue to control our company.**
  Clark
      N.
      Wilson, our President and Chief Executive Officer, owns or controls
      approximately 59% of our issued and outstanding common stock.  This
      ownership position will provide Mr. Wilson with the voting power to
      significantly influence the election of all members of our Board of Directors
      and, thereby, to exert substantial control over all corporate actions and
      decisions for an indefinite period.
  **We
      issued $16.75 million in convertible notes and if these notes are converted
      into
      shares of common stock, or if the warrants issued in conjunction with such
      notes
      are exercised, our stockholders would suffer substantial
      dilution.**
  In
      December 2005 and September 2006, we issued convertible promissory notes which
      may be converted, at the election of the holders of the notes, into shares
      of
      our common stock at a conversion price of $2.00 per share. In conjunction with
      these note financings, we also issued warrants to the purchasers which have
      vested and to the placement agent evidencing the right to purchase an aggregate
      of 1,157,187 shares of our common stock at an exercise price of $2.00 per share.
      While the holders of these notes and warrants have not indicated to us that
      they
      plan to convert their notes into, or exercise their warrants for, shares of
      our
      common stock, in the event they elect to do so we would be required to issue
      up
      to 8,375,000 additional shares of our common stock in conversion of the notes
      and 1,157,187 shares of our common stock upon exercise of the warrants, which
      would be dilutive to our existing stockholders. Each convertible note is
      convertible into shares of our common stock at the option of the holder. The
      conversion price is subject to adjustment for stock splits, reverse stock
      splits, recapitalizations and similar corporate actions. A “ratchet” adjustment
      in the conversion price, and the corresponding rate at which the convertible
      notes may be converted into shares of our common stock, also is triggered upon
      the issuance of certain equity securities or equity-linked securities with
      a
      conversion price, exercise price or share price of less than $2.00 per share,
      provided, that the conversion price cannot be lower than $1.00 per
      share.
  **Future
      sales or the potential for sale of a substantial number of shares of our common
      stock could cause the trading price of our common stock to decline and could
      impair our ability to raise capital through subsequent equity
      offerings.**
  Sales
      of
      a substantial number of shares of our common stock in the public markets, or
      the
      perception that these sales may occur, could cause the market price of our
      stock
      to decline and could materially impair our ability to raise capital through
      the sale of additional equity securities. For example, the grant of a large
      number of stock options or other securities under an equity incentive plan
      or
      the sale of our equity securities in private placement transactions at a
      discount from market value could adversely affect the market price of our common
      stock.
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  **We
      have anti-takeover provisions that could discourage, delay or prevent our
      acquisition.**
  Provisions
      of our articles of incorporation and bylaws could have the effect of
      discouraging, delaying or preventing a merger or acquisition that a stockholder
      may consider favorable. Our authorized but unissued shares of common stock
      are
      available for our board to issue without stockholder approval. We may use these
      additional shares for a variety of corporate purposes, including future public
      offerings to raise additional capital, corporate acquisitions and employee
      benefit plans. The existence of our authorized but unissued shares of common
      stock could render it more difficult or discourage an attempt to obtain control
      of us by means of a proxy context, tender offer, merger or other transaction.
      In
      the future, we may elect to amend our charter to provide for authorized but
      unissued shares of preferred stock that would be issuable at the discretion
      of
      the Board of Directors. We can amend and restate our charter by action of the
      Board of Directors and the written consent of a majority of stockholders.
  We
      may
      become subject to Nevada’s Control Share Acquisition Act (Nevada Revised
      Statutes 78.378 -78.3793), which prohibits an acquirer, under certain
      circumstances, from voting shares of a corporation’s stock after crossing
      specific threshold ownership percentages, unless the acquirer obtains the
      approval of the issuing corporation’s stockholders. The first such threshold is
      the acquisition of at least one-fifth but less that one-third of the outstanding
      voting power. Wilson Holdings may become subject to Nevada’s Control Share
      Acquisition Act if it has 200 or more stockholders of record at least 100 of
      whom are residents of the State of Nevada and does business in the State of
      Nevada directly or through an affiliated corporation. Currently, we do not
      conduct business in the State of Nevada directly or through an affiliated
      corporation.
  As
      a
      Nevada corporation, we also are subject to Nevada’s Combination with Interested
      Stockholders Statute (Nevada Revised Statutes 78.411 - 78.444) which prohibits
      an “interested stockholder” from entering into a “combination” with the
      corporation, unless certain conditions are met. An “interested stockholder” is a
      person who, together with affiliates and associates, beneficially owns (or
      within the prior three years, did beneficially own) 10 percent or more of the
      corporation’s voting stock.
  Clark
      N.
      Wilson, our President and Chief Executive Officer, also owns approximately
      59%
      of our issued and outstanding common stock. All of these factors may decrease
      the likelihood that we would be, or the perception that we can be, acquired,
      which may depress the market price of our common stock.
  **Item
                3.**
            **Controls
                and
                Procedures**
  Our
      management, including our Chief Executive Officer and our Chief 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 June 30, 2007, the period covered by this
      Quarterly Report on Form 10-QSB. Based upon that evaluation, our principal
      executive officer and principal financial officer have concluded that our
      disclosure controls and procedures were effective as of June 30, 2007 to ensure
      the timely collection, evaluation and disclosure of information relating to
      our
      company that would potentially be subject to disclosure under the Securities
      Exchange Act of 1934, as amended, and the rules and regulations promulgated
      thereunder is recorded, processed, summarized and reported within the time
      periods specified in Securities and Exchange Commission rules and
      forms.
  **Changes
      in Internal Control Over Financial Reporting**
 
 There
      were no changes in our internal controls over financial reporting that have
      materially affected, or are reasonably likely to materially affect, our internal
      controls over financial reporting during the three months ended June 30,
      2007.
  The
      Company is required to be in compliance with Sarbanes Oxley Section 404
      certification requirements relating to internal controls for the year ending
      December 31, 2007.  Beginning in June 2007, we have commenced our
      homebuilding activities, are in the process of implementing a new enterprise
      wide information technology system, and have experienced turnover in the
      accounting and finance departments.  We are working with our Audit
      Committee on implementing internal controls in the activities and hiring of
      qualified personnel in accounting and finance department. Any failure to develop
      adequate internal control and hiring of qualified accounting personnel may
      result in a “material weakness” in the Company’s internal control relating to
      the above activities.
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 Table
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  **PART
      II – OTHER INFORMATION**
  **Item
                1.**
            **Legal
                Proceedings**
 None.
  **Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**
 None.
  **Item
                3.**
            **Defaults
                Upon Senior Securities**
 None.
  **Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**
 None.
  **Item
                5.**
            **Other
                Information**
 None.
  **Item
                6.**
            **Exhibits**
  Exhibit
                No.
            Description3.1
            Amended
                and Restated Bylaws of Registrant (filed as Exhibit 3.1 to Registrant’s
                CurrentReport on Form 8-K dated July 19, 2006 and incorporated herein
                by reference)3.2
            Amended
                and restated Articles of Incorporation of Registrant (filed as Exhibit
                3.6
                to theRegistrant’s Registration Statement on Form SB-2 (File No.
                333-131486) and incorporated herein by reference)4.1
            Specimen
                certificate for shares of Common Stock of Registrant (filed as Exhibit
                4.1
                toRegistrant’s Registration Statement on Form S-1 (File No.
                333-140747) (the “Form S-1”)and incorporated herein by
                reference)10.1
            Borrowing
                Base Loan Agreement by and between Wilson Family Communities, Inc.
                andRBC Centura Bank, with Franklin Bank SSB and International
                Bank of
                Commerce as co-lenders, dated June 30, 200731.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002
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 Table
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  **SIGNATURES**
 
 In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.
  **WILSON
                HOLDINGS, INC.**August
                  14, 2007
            By:
            /s/ Clark
              WilsonClark
              WilsonPresident
              and Chief Executive Officer
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  EXHIBIT
      INDEX
 LIST
      OF
      EXHIBITS
 
 Exhibit
                No.
            Description3.1
            Amended
                and Restated Bylaws of Registrant (filed as Exhibit 3.1 to Registrant’s
                CurrentReport on Form 8-K dated July 19, 2006 and incorporated herein
                by reference)3.2
            Amended
                and restated Articles of Incorporation of Registrant (filed as Exhibit
                3.6
                to the Registrant’s Registration Statement on Form SB-2 (File No.
                333-131486) and incorporatedherein by reference)4.1
            Specimen
                certificate for shares of Common Stock of Registrant (filed as Exhibit
                4.1
                to Registrant’s Registration Statement on Form S-1 (File No.
                333-140747) (the “Form S-1”) and incorporated herein by
                reference)10.1
            Borrowing
                Base Loan Agreement by and between Wilson Family Communities, Inc
                and
                RBC Centura Bank, with Franklin Bank SSB and International
                Bank of
                Commerce as co-
              lenders
                dated June, 30, 200731.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002
   37