UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  
  FORM
10-Q
 
  (Mark One)x
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the quarterly period
endedMarch 31,
2009
  Or
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the transition period from ___ to____
  Commission file
number: 000-23819
 
 GREEN BUILDERS,
INC.
 (Exact
name of registrant as specified in its charter)
  Texas
                  76-0547762(State
      or other jurisdiction ofincorporation
      or organization)
                  (I.R.S.
      EmployerIdentification
      No.)8121
      Bee Caves Road, Austin, Texas
                  78746(Address
      of principal executive offices)
                  (Zip
      Code)
  (512)
732-0932
 (Registrant’s
telephone number, including area code)
  (Former
name, former address and former fiscal year, if changed since last
report)
 N/A
  Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     x   Yes      ̈   No
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes   ̈    No  
 ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definitions of “accelerated
filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one)
  Large
      Accelerated Filer
                               ̈
                              Accelerated
      Filer
                               ̈Non-Accelerated
      Filer
                               ̈
                              Smaller
      Reporting Company
                              x
  Indicate
by check mark whether the registrant is a Shell Company (as defined in Rule
12b-2 of the Exchange Act).      ̈   Yes     x   No
  APPLICABLE
ONLY TO CORPORATE ISSUERS:
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 The
number of shares of common stock, par value of $0.001 per share, outstanding at
May 14, 2009 was 23,135,539.
 
 Table of Contents
  Tableof Contents
 
 PART I – FINANCIAL
      INFORMATION
                                                                                            PageItem
      1.
                                                                                            Financial Statements
      (Unaudited)
                                                                                            3Item
      2.
                                                                                            Management's Discussion and Analysis
      of Financial Condition and Results of
Operations
                                                                                            18Item
      4T.
                                                                                            Controls and
      Procedures
                                                                                            24PART II – OTHER
      INFORMATIONItem 1.
                                                                                            Legal
      Proceedings
                                                                                            25Item 1A.
                                                                                            Risk
    Factors
                                                                                            25Item
      2.
                                                                                            Unregistered Sales of Equity
      Securities and Use of Proceeds
                                                                                            26Item 3.
                                                                                            Defaults Upon Senior
      Securities
                                                                                            26Item
      4.
                                                                                            Submission of Matters to a Vote of
      Security Holders
                                                                                            26Item
      5.
                                                                                            Other
      Information
                                                                                            26Item
      6.
                                                                                            Exhibits
                                                                                            27Signatures and
      Certifications
                                                                                            28
 
 CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING
STATEMENTS
  This
Quarterly Report on Form 10-Q for Green Builders, Inc. (“we,” “us,” or the
“Company”) contains forward-looking statements.  You can identify
these statements by forward-looking words such as “may,” “will,” “expect,”
“intend,” “anticipate,” “believe,” “estimate,” and “continue” or similar
words.  Forward-looking statements include information concerning
possible or assumed future business success or financial results.  You
should read statements that contain these words carefully because they discuss
future expectations and plans, which contain projections of future results of
operations or financial conditions or state other forward-looking information.
We believe that it is important to communicate future expectations to investors.
However, there may be events in the future that we are not able to accurately
predict or control. Accordingly, we do not undertake any obligation to update
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
  By their
very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that outcomes implied by
forward-looking statements will not be achieved. We caution readers not to place
undue reliance on these statements as a number of important factors could cause
the actual results to differ materially from the beliefs, plans, objectives,
expectations and anticipations, estimates and intentions expressed in such
forward-looking statements.
  Copies of
our public filings are available at www.greenbuildersinc.com  and
on EDGAR at www.sec.gov.
  Please
see “Part I, Item 1—Risk Factors” of our annual report on Form 10-KSB for
the year ended September 30, 2008, for further discussion regarding our exposure
to risks. Additionally, new risk factors emerge from time to time and it is not
possible for us to predict all such factors, nor to assess the impact such
factors might have on our business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
 
 Whenever
we refer in this filing to “Green Builders,” “the Company,” “we,” “us,” or
“our,” we mean Green Builders, Inc., a Texas corporation, and, unless the
context indicates otherwise, its predecessors and subsidiaries, including its
wholly owned subsidiaries, Wilson Family Communities, Inc., a Delaware
corporation(“WFC”),
and  GB Operations, Inc., a Texas corporation (“GB
Operations”).  All references in this report to “$” or “dollars” are
to United States of America currency.  References to “fiscal 2008”
means our fiscal year ended September 30, 2008 and references to “fiscal 2009”
means our fiscal year ending September 30, 2009.
 
 Table of Contents
  PARTI – FINANCIAL INFORMATION
  ITEM1. FINANCIAL STATEMENTS
   GREEN
BUILDERS, INC.
 Balance
Sheets
 As
of March 31, 2009 and September 30, 2008
 March
      31, 2009
                                    
                                    
                                    September
      30, 2008(Unaudited)Cash
      and cash equivalents
                                    
                                    $
                                    1,391,819
                                    
                                    
                                    
                                    3,711,180InventoryLand
      and land development
                                    
                                    
                                    31,820,538
                                    
                                    
                                    
                                    32,738,655Homebuilding
      inventories
                                    
                                    
                                    4,739,859
                                    
                                    
                                    
                                    8,204,129Total
      inventory
                                    
                                    
                                    36,560,397
                                    
                                    
                                    
                                    40,942,784Other
      assets
                                    
                                    
                                    89,885
                                    
                                    
                                    
                                    478,420Debt
      Issuance costs, net of amortization
                                    
                                    
                                    909,700
                                    
                                    
                                    
                                    1,028,206Property
      and equipment, net of accumulated depreciation and amortization of
      $210,315 and $84,005, respectively
                                    
                                    
                                    1,299,435
                                    
                                    
                                    
                                    1,418,588Total
      assets
                                    
                                    
                                    40,251,236
                                    
                                    
                                    
                                    47,579,178LIABILITIES
      AND STOCKHOLDERS' DEFICITAccounts
      payable
                                    
                                    
                                    617,574
                                    
                                    
                                    
                                    1,690,763Accrued
      real estate taxes payable
                                    
                                    
                                    131,666
                                    
                                    
                                    
                                    697,699Accrued
      liabilities and expenses
                                    
                                    
                                    533,393
                                    
                                    
                                    
                                    421,385Accrued
      interest
                                    
                                    
                                    1,357,559
                                    
                                    
                                    
                                    528,683Deferred
      revenue
                                    
                                    
                                    23,013
                                    
                                    
                                    
                                    31,135Lines
      of credit
                                    
                                    
                                    11,860,002
                                    
                                    
                                    
                                    15,779,310Notes
      payable
                                    
                                    
                                    14,474,620
                                    
                                    
                                    
                                    14,474,620Subordinated
      convertible debt, net of $2,407,698 and $2,686,872 discount,
      respectively
                                    
                                    
                                    14,092,302
                                    
                                    
                                    
                                    13,813,128Total
      liabilities
                                    
                                    
                                    43,090,129
                                    
                                    
                                    
                                    47,436,723STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value, 100,000,000 shares authorized and 23,135,539
      shares issued and outstanding, respectively
                                    
                                    
                                    23,136
                                    
                                    
                                    
                                    23,136Additional
      paid in capital
                                    
                                    
                                    28,036,212
                                    
                                    
                                    
                                    27,949,903Retained
      deficit
                                    
                                    
                                    (30,898,241
                                    )
                                    
                                    
                                    (27,830,584
                                    )Total
      stockholders' deficit
                                    
                                    
                                    (2,838,893
                                    )
                                    
                                    
                                    142,455Commitments
      and contingencies
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Total
      liabilities and stockholders' deficit
                                    
                                    $
                                    40,251,236
                                    
                                    
                                    
                                    47,579,178
  See
accompanying notes to the financial statements.
  3
 Table of Contents
 
 GREENBUILDERS, INC.
 Statements of Operations For
the Three and Six Months Ended March 31, 2009 and 2008
  (Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)Three
      Months Ended March 31, 2009
                                                
                                                
                                                Three
      Months Ended March 31, 2008
                                                
                                                
                                                Six
      Months Ended March 31, 2009
                                                
                                                
                                                Six
      Months Ended March 31, 2008Revenues:Homebuilding
      and related services
                                                
                                                $
                                                3,145,323
                                                
                                                
                                                
                                                484,511
                                                
                                                
                                                
                                                7,381,773
                                                
                                                
                                                
                                                484,511Land
      sales
                                                
                                                
                                                47,000
                                                
                                                
                                                
                                                657,036
                                                
                                                
                                                
                                                393,146
                                                
                                                
                                                
                                                1,765,348Remodeling
      revenues
                                                
                                                
                                                270
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                540
                                                
                                                
                                                
                                                -Total
      revenues
                                                
                                                
                                                3,192,593
                                                
                                                
                                                
                                                1,141,547
                                                
                                                
                                                
                                                7,775,459
                                                
                                                
                                                
                                                2,249,859Cost
      of revenues:Homebuilding
      and related services
                                                
                                                
                                                2,674,477
                                                
                                                
                                                
                                                405,558
                                                
                                                
                                                
                                                6,436,732
                                                
                                                
                                                
                                                405,558Land
      sales
                                                
                                                
                                                32,690
                                                
                                                
                                                
                                                222,484
                                                
                                                
                                                
                                                304,922
                                                
                                                
                                                
                                                931,539Remodeling
                                                
                                                
                                                300
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                900
                                                
                                                
                                                
                                                -Inventory
      impairments and land option cost write-offs
                                                
                                                
                                                11,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                22,900
                                                
                                                
                                                
                                                -Total
      cost of revenues
                                                
                                                
                                                2,718,467
                                                
                                                
                                                
                                                628,042
                                                
                                                
                                                
                                                6,765,454
                                                
                                                
                                                
                                                1,337,097Total
      gross profit
                                                
                                                
                                                474,126
                                                
                                                
                                                
                                                513,505
                                                
                                                
                                                
                                                1,010,005
                                                
                                                
                                                
                                                912,762Costs
      and expenses:Corporate
      general and administration
                                                
                                                
                                                532,810
                                                
                                                
                                                
                                                949,243
                                                
                                                
                                                
                                                1,351,099
                                                
                                                
                                                
                                                2,629,957Sales
      and marketing
                                                
                                                
                                                361,453
                                                
                                                
                                                
                                                501,250
                                                
                                                
                                                
                                                855,367
                                                
                                                
                                                
                                                756,549Total
      costs and expenses
                                                
                                                
                                                894,263
                                                
                                                
                                                
                                                1,450,493
                                                
                                                
                                                
                                                2,206,466
                                                
                                                
                                                
                                                3,386,506Operating
      loss
                                                
                                                
                                                (420,137
                                                )
                                                
                                                
                                                (936,988
                                                )
                                                
                                                
                                                (1,196,461
                                                )
                                                
                                                
                                                (2,473,744
                                                )Other
      income (expense):Interest
      and other income
                                                
                                                
                                                12,987
                                                
                                                
                                                
                                                65,763
                                                
                                                
                                                
                                                110,830
                                                
                                                
                                                
                                                158,958Interest
      expense
                                                
                                                
                                                (999,404
                                                )
                                                
                                                
                                                (774,437
                                                )
                                                
                                                
                                                (1,982,026
                                                )
                                                
                                                
                                                (1,688,014
                                                )Total
      other expense
                                                
                                                
                                                (986,417
                                                )
                                                
                                                
                                                (708,674
                                                )
                                                
                                                
                                                (1,871,196
                                                )
                                                
                                                
                                                (1,529,056
                                                )Income
      before income taxes
                                                
                                                
                                                (1,406,554
                                                )
                                                
                                                
                                                (1,645,662
                                                )
                                                
                                                
                                                (3,067,657
                                                )
                                                
                                                
                                                (4,002,800
                                                )Provision
      for income taxes
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
      loss
                                                
                                                $
                                                (1,406,554
                                                )
                                                
                                                
                                                (1,645,662
                                                )
                                                
                                                
                                                (3,067,657
                                                )
                                                
                                                
                                                (4,002,800
                                                )Basic
      and diluted loss per share
                                                
                                                $
                                                (0.06
                                                )
                                                
                                                
                                                (0.07
                                                )
                                                
                                                
                                                (0.13
                                                )
                                                
                                                
                                                (0.17
                                                )Basic
      and diluted weighted average common shares outstanding
                                                
                                                
                                                23,135,539
                                                
                                                
                                                
                                                23,135,539
                                                
                                                
                                                
                                                23,135,539
                                                
                                                
                                                
                                                23,135,539
 
  See
accompanying notes to the financial statements.
  4
 Table of Contents
  GREENBUILDERS, INC.
 Statements
of Cash Flows
 For
the Six Months Ended March 31, 2009 and 2008
  Six
      Months Ended March 31, 2009
                                              
                                              
                                              Six
      Months Ended March 31, 2008(Unaudited)
                                              
                                              
                                              (Unaudited)Cash
      flows from operating activities:Net
      loss
                                              
                                              $
                                              (3,067,657
                                              )
                                              
                                              
                                              (4,002,800
                                              )Non
      cash adjustments:Amortization
      of convertible debt discount
                                              
                                              
                                              279,174
                                              
                                              
                                              
                                              279,174Amortization
      of debt issuance costs
                                              
                                              
                                              118,506
                                              
                                              
                                              
                                              118,506Stock-based
      compensation expense
                                              
                                              
                                              78,809
                                              
                                              
                                              
                                              675,635Services
      provided without compensation by principal shareholders
                                              
                                              
                                              7,500
                                              
                                              
                                              
                                              60,000Depreciation
      and amortization
                                              
                                              
                                              173,635
                                              
                                              
                                              
                                              192,722Inventory
      impairments and land option cost write-offs
                                              
                                              
                                              22,900
                                              
                                              
                                              
                                              -Adjustments
      to reconcile net loss to net cash used in operating
      activities:Decrease
      (increase) in total inventory
                                              
                                              
                                              4,359,487
                                              
                                              
                                              
                                              (12,946,240
                                              )Decrease
      (increase) in other assets
                                              
                                              
                                              341,210
                                              
                                              
                                              
                                              (147,166
                                              )Increase
      (decrease) in accounts payable
                                              
                                              
                                              (1,073,189
                                              )
                                              
                                              
                                              2,615,024Increase
      (decrease) in real estate taxes payable
                                              
                                              
                                              (566,033
                                              )
                                              
                                              
                                              19,306Increase
      in accrued expenses
                                              
                                              
                                              112,008
                                              
                                              
                                              
                                              229,197Decrease
      in deferred revenue
                                              
                                              
                                              (8,122
                                              )
                                              
                                              
                                              (159,381
                                              )Increase
      (decrease) in accrued interest
                                              
                                              
                                              828,876
                                              
                                              
                                              
                                              (254,570
                                              )Net
      cash provided by (used in) operating activities
                                              
                                              
                                              1,607,104
                                              
                                              
                                              
                                              (13,320,593
                                              )Cash
      flows from investing activities:Purchase
      of fixed assets
                                              
                                              
                                              (7,157
                                              )
                                              
                                              
                                              (72,019
                                              )Net
      cash used in investing activities
                                              
                                              
                                              (7,157
                                              )
                                              
                                              
                                              (72,019
                                              )Cash
      flows from financing activities:Decrease
      in restricted cash
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (117,603
                                              )Issuances
      of notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,962,730Issuances
      and repayments of lines of credit, net
                                              
                                              
                                              (3,919,308
                                              )
                                              
                                              
                                              9,200,459Repayments
      of notes payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,942,679
                                              )Net
      cash provided by (used in) financing activities
                                              
                                              
                                              (3,919,308
                                              )
                                              
                                              
                                              10,102,907Net
      decrease in cash and cash equivalents
                                              
                                              
                                              (2,319,361
                                              )
                                              
                                              
                                              (3,289,705
                                              )Cash
      and cash equivalents at beginning of period
                                              
                                              
                                              3,711,180
                                              
                                              
                                              
                                              13,073,214Cash
      and cash equivalents at end of period
                                              
                                              $
                                              1,391,819
                                              
                                              
                                              
                                              9,783,509Cash
      paid for interest
                                              
                                              $
                                              850,533
                                              
                                              
                                              
                                              1,829,188
 See
accompanying notes to the financial statements.
  5
 Table of Contents
 
  (1)         Organization
and Business Activity
  Green
Builders, Inc., (the “Company”), is a Texas corporation formerly known as Wilson
Holdings, Inc.  Effective April 4, 2008, Wilson Holdings, Inc, a
Nevada corporation, completed its reincorporation to the State of Texas pursuant
to the Plan of Conversion as ratified by the shareholders at the 2008 annual
meeting of shareholders held on April 3, 2008.  As part of the
reincorporation, a new Certificate of Formation was adopted and Wilson Holdings,
Inc.’s corporate name was changed to Green Builders, Inc., and the Certificate
of Formation will now govern the rights of holders of the Company’s common
stock.  The Company has been using the name “Green Builders” in its
regular business operations since June 2007 and will continue to do
so.  Effective April 8, 2008, the Company’s common stock began trading
under the symbol “GBH” on the NYSE Amex LLC (formerly the American Stock
Exchange) “the “Exchange”.
  Effective
October 11, 2005 pursuant to an Agreement and Plan of Reorganization dated as of
September 2, 2005 by and among Wilson Holdings, Inc., a Delaware corporation, a
majority of its stockholders, Wilson Family Communities, Inc., a Delaware
corporation (“WFC”) and Wilson Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, WFC and Wilson Acquisition Corp. merged
and WFC became a wholly-owned subsidiary of the Company.
  The
financial statements are presented on a going concern basis.  The
Company has experienced significant losses and expects to continue to generate
negative cash flows from operations.  This raises substantial doubt
about its ability to continue as a going concern.  The Company’s
ability to continue as a going concern will depend upon its ability to
restructure its existing debt and obtain additional capital.  Failure
to restructure and obtain additional capital would result in a depletion of its
available funds.
  On
January 23, 2009, the Company received notice from the staff of the Exchange
that it was not considered to be in compliance with Section 1003(a)(i) of
the Exchange’s Company Guide (the “Company Guide”) because it
reported stockholders' equity of less than $2,000,000 and losses from
continuing operations and net losses in two of its three most recent fiscal
years; it was not considered to be in compliance with Section 1003(a)(ii) of the
Company Guide because it reported stockholders’ equity of less than $4,000,000
and losses from continuing operations and net losses in three of its four most
recent fiscal years; it was not considered to be in compliance with Section
1003(a)(iii) of the Company Guide because it reported stockholders’ equity of
less than $6,000,000 and losses from continuing operations and net losses in its
five most recent fiscal years; and it was not considered to be in
compliance with Section 1003(a)(iv) of the Company Guide because it had
sustained losses which were so substantial in relation to its overall
operations or its existing financial resources, or its financial condition
had become so impaired that it appeared questionable, in the opinion of the
Exchange, as to whether the Company would be able to continue operations
and/or meet its obligations as they mature.
  On
February 23, 2009 the Company submitted a plan of compliance to the
Exchange.  On April 24, 2009 the Exchange notified the Company that it
had accepted its plan for regaining compliance with the continued listing
requirements and granted the Company an extension until July 23, 2009 to become
compliant with Section 1003 (a)(iv) and until July 23, 2010 to regain compliance
with Section 1003(a)(i), Section 1003 (a)(ii), and Section 1003(a)(iii) of the
continued listing standards.  The Company will be subject to periodic
review by the Exchange staff during the extension periods.  If the
Company fails to make progress consistent with the plan or to regain compliance
with the continued listing standards by the end of the applicable extension
period, the Company could be delisted from the Exchange.
  (2)         Liquidity
and Capital Resources
  Liquidity
  The
Company’s growth will require substantial amounts of cash for earnest money
deposits, development costs, interest payments and homebuilding costs. Until the
Company begins to sell an adequate number of lots and homes to cover its monthly
operating expenses, sales and marketing, general and administrative costs will
deplete cash.   Due to current market conditions and slow home
and land sales, the Company will need to obtain additional
capital.  In addition the Company is seeking additional capital to
support future growth and current operations for the next twelve
months.
  On March
31, 2009 the Company had approximately $1.4 million in cash and cash
equivalents. The Company completed a public offering of its common stock in May
2007, resulting in net proceeds of approximately $14 million.
  6
 Table of Contents
  On June
29, 2007, Wilson Family Communities entered into a $55 million revolving credit
facility (the “Credit Facility”) with a syndicate of banks led by RBC Bank
(formerly RBC Centura Bank), as administrative agent pursuant to a Borrowing
Base Loan Agreement (the “Loan Agreement”). International Bank of Commerce,
Laredo, Texas (“IBC Bank”) and Franklin Bank, S.S.B. (“Franklin Bank”) are the
other two banks that make up the syndicate of banks.  The Credit
Facility was reduced to $30 million in June 2008.  The initial
maturity date for the Credit Facility was June 29, 2008.  The Company
entered into an agreement to extend the maturity date to October 1,
2008.  On October 1, 2008, the Credit Facility expired pursuant to its
terms.  Although the Company is currently out of compliance with
certain covenants set forth in the Borrowing Base Agreement under the Loan
Agreement, RBC and IBC have continued to make amounts available to WFC pursuant
to the Credit Facility for loans made prior to the expiration of the
facility.   The Company received notification on November 7, 2008
that Franklin Bank was closed by the Texas Department of Savings and Mortgage
Lending and the Federal Deposit Insurance Corporation (the “FDIC”) was named
Receiver.
  Green
Builders has guaranteed the obligations of WFC under the Credit
Facility.  The amount available at any time under the Credit Facility
for revolving credit loans or the issuance of letters of credit is determined by
a borrowing base. The borrowing base is calculated as the sum of the values for
homes and lots in the subdivision to be developed as agreed by WFC and the
agent.  The Company’s obligations under the Credit Facility will be
secured by the assets of each subdivision to be developed with the proceeds of
loans available under the Credit Facility.
  Outstanding
borrowings under the Credit Facility bear interest at the prime rate plus 0.25%,
with a floor of 5.5%.  The Company is charged a letter of credit fee
equal to 1.10% of each letter of credit issued under the Credit Facility. The
Company may elect to prepay the Credit Facility at any time without premium or
penalty.  Quarterly principal reductions are required during the final
12 months of the term.
  The
Credit Facility contains customary covenants limiting the ability to take
certain actions.  At March 31, 2009 the Company was not in compliance
with the tangible net worth, the ratio of debt to equity, working capital,
number of completed speculative homes and number of land and developed lot loans
covenants.   On May 14, 2009 the Company entered into a Fourth
Agreement to Modify Loan Documents (“Modification”).   See Part
I, Item 1, “Financial Statements, Footnote 12” and Part II, Item 5, “Other
Information” for a description of the modification.
  Capital
Resources
  The
Company has raised approximately $16.5 million of subordinated convertible debt,
and approximately $14 million in a public offering of its common stock completed
in May 2007.  The Company entered into a $55 million revolving Credit
Facility that was reduced to $30 million in June 2008.  The initial
maturity date for the Credit Facility was June 29, 2008.  The Company
entered into an agreement to extend the maturity date to October 1,
2008.  On October 1, 2008, the Credit Facility expired pursuant to its
terms.  Although WFC is currently out of compliance with certain
covenants set forth in the Borrowing Base Agreement under the Loan Agreement,
RBC and IBC have continued to make amounts available to WFC pursuant to the Loan
Agreement for loans made prior to the expiration of the facility.  We
were notified on November 7, 2008 that Franklin Bank was closed by the Texas
Department of Savings and Mortgage Lending and the FDIC was named
receiver.   Land and homes under construction comprise the
majority of the Company’s assets. These assets have suffered devaluation due to
the downturn in the housing and real estate market for central
Texas.   The Company is considering selling tracts of commercial
and residential land in order to increase sales revenues and increase
cash.  The Company expects to incur losses in 2009.  Due to
current market conditions and slow home and land sales, it is anticipated that
the Company will need additional capital to support operations for the next
twelve months.  In March 2009 the Company entered into an agreement with
LNZCO to provide up to $2 million in financing for homebuilding
construction.  See Part I, Item 1, “Financial Statements, Footnote 7”
for a description of the financing agreement.
  (3)           Summary
of Significant Accounting Policies
 
 (a)           Revenue
Recognition
  Revenues
from property sales are recognized in accordance with SFAS No. 66, “Accounting
for Sales of Real Estate.”  Revenues from land development services to
builders are recognized when the properties associated with the services are
sold, when the risks and rewards of ownership are transferred to the buyer and
when the consideration has been received, or the title company has processed
payment.  For projects that are consolidated, homebuilding revenues
and services will be categorized as homebuilding revenues and revenues from
property sales or options will be categorized as land sales.
  (b)           Cash
and Cash Equivalents
  For
purposes of the statements of cash flows, the Company considers all short term,
highly liquid investments with an original maturity of three months or less to
be cash and cash equivalents.
  7
 Table of Contents
  (c)           Inventory
  Inventory
is stated at cost unless it is determined to be impaired, in which case the
impaired inventory would be written down to the fair market
value.  Inventory costs include land, land development costs, deposits
on land purchase contracts, model home construction costs, homebuilding costs,
interest and real estate taxes incurred during development and construction
phases.
  (d)           Use
of Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Accordingly, actual results could differ
from those estimates.
  The
Company has estimated and accrued liabilities for real estate property taxes on
its purchased land in anticipation of development, and other liabilities
including the beneficial conversion liability, the fair value of warrants and
options.  To the extent that the estimates are dramatically different
to the actual amounts, it could have a material effect on the financial
statements.
  (f)           Municipal
Utility and Water District Receivables
  The
Company owns one property located in a Municipal Utility District (MUD) and one
property located in a Water Control and Improvement District (WCID)
(collectively, the “Districts”). The Company incurs development costs for water,
sewage lines and associated treatment plants and other development costs and
fees for these properties. Under the agreement with the Districts, the Company expects
to be reimbursed partially for the above developments costs. The Districts will
issue bonds to repay the Company, once the property has sufficient assessed
value for the District taxes to repay the bonds. As the project is completed and
homes are sold within the Districts, the assessed value
increases. It can take several years before the assessed value is sufficient to
provide sufficient tax revenue for the Company to recapture its
costs.  The Company has estimated that it will recover approximately
50% to 100% of eligible costs spent through March 31, 2009.  The
Company has completed Phase 1 for the Rutherford West (as defined herein)
project and has approximately $1.1 million of Water Control and Improvement
District reimbursements included in inventory that it anticipates it will
collect from bond issuances made by the district.  When the
reimbursements are received they will be recorded as reductions in the related
asset’s balance. The Districts will pay for property set aside for the
preservation of endangered species, greenbelts and similar uses.  To
the extent that the estimated reimbursements are dramatically different to the
actual reimbursements, it could have a material effect on the Company’s
financial statements.
  (f)           Subordinated
Convertible Debt
  The
Company’s subordinated convertible debt and the related warrants have been
accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,” EITF No. 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” EITF 00-27, “Application of issue 98-5 to Certain
Convertible Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt
Instrument’ in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19
updated with FSP EITF 00-19-2,  “Accounting for Registration Payment
Arrangements”.
  (g)           Debt
Restructuring
  The Company’s debt restructuring
agreement has been accounted for in accordance with accordance with SFAS 15,
“Accounting by Debtors and Creditors for Troubled Debt
Restructuring”.  The Company has treated the related warrants issued
in accordance with “APB 14, “Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants”.
  (h)           Loss
per Common Share
  Earnings
per share are accounted for in accordance with SFAS No. 128, “Earnings per
Share,” which requires a dual presentation of basic and diluted earnings per
share on the face of the statements of earnings.  Basic loss per share
is based on the weighted effect of common shares issued and outstanding, and is
calculated by dividing net loss by the weighted average shares outstanding
during the period. Diluted loss per share is calculated by dividing net loss by
the weighted average number of common shares used in the basic loss per share
calculation plus the number of common shares that would be issued assuming
exercise or conversion of all potentially dilutive common shares
outstanding.
  8
 Table of Contents
  The
Company has issued stock options and warrants convertible into shares of common
stock. These shares and warrants have been excluded from loss per share at March
31, 2009 and 2008 because the effect would be anti-dilutive.  The
stock options and warrants are convertible into common stock as summarized in
the table below:
 
 March
      31, 2009
                            
                            
                            March
      31, 2008Stock
      options
                            
                            
                            579,800
                            
                            
                            
                            1,653,333Common
      stock warrants
                            
                            
                            1,837,191
                            
                            
                            
                            1,143,125Subordinated
      convertible debt warrants
                            
                            
                            8,250,000
                            
                            
                            
                            8,250,000Total
                            
                            
                            10,666,991
                            
                            
                            
                            11,046,458
 
  (i)           Adoption
of New Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. The
provisions of SFAS 157 are effective for the Company beginning with its fiscal
year 2009.  The adoption of this standard did not have a material
impact on the Company’s financial statements.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115.” The statement permits entities to choose to measure certain
financial assets and liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings.
SFAS No. 159 is effective in fiscal year 2009.  The adoption of this
standard did not have  a material impact on the Company’s financial
statements.
  In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (FAS
141(R)), which establishes accounting principles and disclosure requirements for
all transactions in which a company obtains control over another
business.  The Company is currently evaluating the impact of the
adoption of SFAS No. 141; however, it is not expected to have a material impact
on the Company’s consolidated financial position, results of operations or cash
flows.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (FAS 160), which prescribes the accounting by
a parent company for minority interests held by other parties in a subsidiary of
the parent company.  The Company is currently evaluating the impact of
the adoption of SFAS No. 160; however, it is not expected to have a material
impact on the Company’s consolidated financial position, results of operations
or cash flows.
  (4)         Inventory
  The
Company’s land and land development  inventory includes land costs,
prepaid development costs, development costs, option money and earnest money on
land purchase options.  Homebuilding inventory represents model homes,
speculative homes under construction and units sold and under
construction.  Earnest money deposits for land costs and development
costs on land under option, not owned, totaled approximately $575,000 at March
31, 2009 and September 30, 2008 respectively, of which all $575,000 is
non-refundable if the Company does not exercise the option and purchase the
land.
  Of the
earnest money capitalized, $400,000 is for the remaining 30 acres under option
in Elm Grove (as defined herein).   The purchase price is
approximately $1.3 million less the outstanding earnest
money.   The Company’s original land purchase contract called for
a purchase of the remaining acreage in December 2008.  During the
three months ended March 31, 2009, the Company received an extension to purchase
the land to October 2009 due to issues created by another developer that altered
the recorded plat and the manner in which the land was represented to the
Company.  The Company is in negotiations with the seller and the
developer regarding these issues and has hired a law firm to represent
them.  Pending the resolution of these  issues the Company
will maintain the earnest money on its balance sheet.
  The
remaining $175,000 of earnest money is for the Georgetown Village (as
defined herein) option contract which requires the Company to takedown 30 acres
of land each year from May 2009 through May 2017.  The earnest money
will be applied to the purchase price for the final takedown of
land.
  As of
March 31, 2009 the Company owned approximately 1,209 acres of unfinished
acreage.   Below is a description of the property completed,
owned or under contract by the Company as of March 31, 2009:
  9
 Table of Contents
  Rutherford West– Rutherford
West is a residential community located southwest of Austin, Texas. Rutherford
West is planned as an “earth-friendly” acreage development and each lot includes
a deed restricted conservation easement.  The Company commenced the
development of this project in October 2006 and has completed development on a
total of 58 lots in Phase 1.
  Georgetown Village–Georgetown Village
is a mixed use master-planned development in Williamson County, located
north of Austin, Texas in Georgetown.  The Company purchased the land
for this projectpursuant to
an option contract in August 2005.  Under the option contract the
Company is required to purchase a minimum of 30 acres during May of each year
through 2017.  The Company is required to purchase 30 acres in May
2009 for $13,500 per acre.  The Company commenced the development of
this project in January 2006.  The Company completed development on a
total of 120 lots in Section 6 and 100 lots in Section 9.
  Villages of New Sweden–New Sweden is a master
planned, mixed-use community which includes single family residential homes,
commercial properties, an onsite school, an amenity center, a fire station, and
an open green space in the Pflugerville, Texas school district.  The
Company purchased the land for this project in October 2005 with a combination
of bank financing, seller financing and cash on hand.
  Elm Grove– Elm Grove is a
residential project located south of Austin, Texas in the city of
Buda.  The master plan includes single-family residential lots and
open green space all within walking distance Elm Grove elementary
school.  The Company acquired the first phase of land for this project
in December 2006.  The Company has completed development on a total of
105 lots in Phase 1.
  In
January 2009, the Company entered into an agreement with Graham Mortgage Capital
to modify the debt agreement for the $7.3 million loan for Rutherford West and
the $4.7 million loan for New Sweden.  As of March 31, 2009 the
Company had $611,375 in accrued interest for the Rutherford West loan and
$393,625 in accrued interest for the New Sweden loan.  The agreement
allows deferral of the $599,208 and $385,792 of accrued interest until December
31, 2009 or until the property is sold.  Effective January 1,2009,
the Company began paying 2% interest on each loan (“Modified Interest Payment”)
and is accruing an additional 12% interest on the loan.  In exchange
for entering into the agreement the Company will issue a warrant for the
purchase of 1.5% of the issued and outstanding shares of the Company’s common
stock at December 31, 2009.  The warrants call for a $5.00 strike
price and can be exercised from January 1, 2010 through December 31,
2012.  The Company is required to make monthly payments for 1/12th of the
estimated 2009 property taxes.  The agreement calls for the Company to
list the property and retain a broker to market the
property.   In the event the Company receives an offer for a
price less than sufficient to satisfy the note payment, the Company must notify
the lender who will at its sole discretion accept or reject the
offer.  In the event that the property is not sold by December 31,
2009, the Deed (in Lieu of Foreclosure) will be released, and provided that all
Modified Interest Payments and real estate taxes for 2009 which are due on
January 31, 2010 have been paid, the corporate guaranty will be returned, and
the borrower and holder shall exchange mutual releases.
  The
Company performed an impairment analysis of its inventory at March 31,
2009.  The Company recorded impairments of $11,000 for its speculative
units during the quarter ended March 31, 2009.
  Below is a summary of the property
completed, owned or under contract by the Company at March 31, 2009.Land and land development
inventory includes land costs, prepaid development costs, development costs,
option money and earnest money on land purchase options.  Homebuilding
inventory represents model homes, speculative homes under construction, units
sold and under construction, and capitalized indirect
costs.
  Property
                                          
                                          Unsold
      Finished Lots/Homes
                                          
                                          
                                          Owned
      Unfinished Acreage
                                          
                                          
                                          Approximate
      Acreage Under Option
                                          
                                          
                                          Land
      and Homebuilding Costs at March 31, 2009
                                            (In
      thousands)
                                          
                                          Texas
      CountyRutherford
      West
                                          
                                          
                                          33
                                          
                                          
                                          
                                          538
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          9,770
                                          
                                          HaysGeorgetown
      Village
                                          
                                          
                                          125
                                          
                                          
                                          
                                          119
                                          
                                          
                                          
                                          419
                                          
                                          
                                          
                                          9,775
                                          
                                          WilliamsonVillages
      of New Sweden
                                          
                                          
                                          -
                                          
                                          
                                          
                                          522
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,479
                                          
                                          TravisElm
      Grove
                                          
                                          
                                          68
                                          
                                          
                                          
                                          30
                                          
                                          
                                          
                                          31
                                          
                                          
                                          
                                          4,792
                                          
                                          HaysOther
      land
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4Sub-total land
                                          
                                          
                                          226
                                          
                                          
                                          
                                          1,209
                                          
                                          
                                          
                                          450
                                          
                                          
                                          $
                                          31,820Rutherford
      West
                                          
                                          
                                          1
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          690
                                          
                                          HaysGeorgetown
      Village
                                          
                                          
                                          1
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,033
                                          
                                          WilliamsonElm
      Grove
                                          
                                          
                                          2
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,963
                                          
                                          HaysOther
      homebuilding
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          53Sub-total
      homebuilding
                                          
                                          
                                          4
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          4,740Total
      inventory
                                          
                                          
                                          230
                                          
                                          
                                          
                                          1,209
                                          
                                          
                                          
                                          450
                                          
                                          
                                          $
                                          36,560
   10
 Table of Contents
  Below is
a summary of the property completed, owned or under contract by the Company at
September 30, 2008:
  Property
                                            
                                            Unsold
      Finished Lots/Homes
                                            
                                            
                                            Owned
      Unfinished Acreage
                                            
                                            
                                            Approximate
      Acreage Under Option
                                            
                                            
                                            Land
      and Homebuilding Costs at March 31, 2009
                                              (In
      thousands)
                                            
                                            Texas
      CountyRutherford
      West
                                            
                                            
                                            33
                                            
                                            
                                            
                                            538
                                            
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            9,770
                                            
                                            HaysGeorgetown
      Village
                                            
                                            
                                            125
                                            
                                            
                                            
                                            119
                                            
                                            
                                            
                                            419
                                            
                                            
                                            
                                            9,775
                                            
                                            WilliamsonVillages
      of New Sweden
                                            
                                            
                                            -
                                            
                                            
                                            
                                            522
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,479
                                            
                                            TravisElm
      Grove
                                            
                                            
                                            68
                                            
                                            
                                            
                                            30
                                            
                                            
                                            
                                            31
                                            
                                            
                                            
                                            4,792
                                            
                                            HaysOther
      land
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4Sub-total land
                                            
                                            
                                            226
                                            
                                            
                                            
                                            1,209
                                            
                                            
                                            
                                            450
                                            
                                            
                                            $
                                            31,820Rutherford
      West
                                            
                                            
                                            1
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            690
                                            
                                            HaysGeorgetown
      Village
                                            
                                            
                                            1
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,033
                                            
                                            WilliamsonElm
      Grove
                                            
                                            
                                            2
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,963
                                            
                                            HaysOther
      homebuilding
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            53Sub-total
      homebuilding
                                            
                                            
                                            4
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            4,740Total
      inventory
                                            
                                            
                                            230
                                            
                                            
                                            
                                            1,209
                                            
                                            
                                            
                                            450
                                            
                                            
                                            $
                                            36,560
 (6)         Operating
and Reporting Segments
  The
Company has three reporting segments: (i) homebuilding and related services,
(ii) land sales and (iii) remodeling sales. The Company’s reporting segments are
strategic business units that offer different products and services. The
homebuilding and related services segment includes home sales.  Land
sales consist of land in various stages of development sold, including finished
lots.  Remodeling includes remodeling products and
services.  The Company charges identifiable direct expenses and
interest to each segment and allocates corporate expenses and interest based on
an estimate of each segment’s relative use of those expenses. Depreciation
expense is included in selling, general and administrative and is
immaterial.
  The
following table presents segment operating results before taxes for the three
and six months ended March 31, 2009 and 2008:
  Three
      Months Ended March 31, 2009
                                    
                                    
                                    Three
      Months Ended March 31, 2008Homebuilding
      Sales
                                    
                                    
                                    Land
      Sales
                                    
                                    
                                    Remodeling
      Sales
                                    
                                    
                                    Total
                                    
                                    
                                    Homebuilding
      Sales
                                    
                                    
                                    Land
      Sales
                                    
                                    
                                    TotalRevenues
      from external customers
                                    
                                    $
                                    3,145,323
                                    
                                    
                                    $
                                    47,000
                                    
                                    
                                    $
                                    270
                                    
                                    
                                    $
                                    3,192,593
                                    
                                    
                                    $
                                    484,511
                                    
                                    
                                    $
                                    657,036
                                    
                                    
                                    $
                                    1,141,547Costs
      and expenses:
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Cost
      of revenues
                                    
                                    
                                    2,674,477
                                    
                                    
                                    
                                    32,690
                                    
                                    
                                    
                                    300
                                    
                                    
                                    
                                    2,707,467
                                    
                                    
                                    
                                    405,558
                                    
                                    
                                    
                                    222,484
                                    
                                    
                                    
                                    628,042Impairment
      and write-offs
                                    
                                    
                                    11,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,000Selling,
      general and administrative
                                    
                                    
                                    658,538
                                    
                                    
                                    
                                    235,206
                                    
                                    
                                    
                                    519
                                    
                                    
                                    
                                    894,263
                                    
                                    
                                    
                                    987,295
                                    
                                    
                                    
                                    463,198
                                    
                                    
                                    
                                    1,450,493Interest
      & other income
                                    
                                    
                                    (45,933
                                    )
                                    
                                    
                                    32,946
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (12,987
                                    )
                                    
                                    
                                    (36,169
                                    )
                                    
                                    
                                    (29,594
                                    )
                                    
                                    
                                    (65,763
                                    )Interest
      expense
                                    
                                    
                                    246,011
                                    
                                    
                                    
                                    753,393
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    999,404
                                    
                                    
                                    
                                    231,307
                                    
                                    
                                    
                                    543,130
                                    
                                    
                                    
                                    774,437Total
      costs and expenses
                                    
                                    
                                    3,544,093
                                    
                                    
                                    
                                    1,054,235
                                    
                                    
                                    
                                    819
                                    
                                    
                                    
                                    4,599,147
                                    
                                    
                                    
                                    1,587,990
                                    
                                    
                                    
                                    1,199,218
                                    
                                    
                                    
                                    2,787,209Loss
      before taxes
                                    
                                    $
                                    (398,770
                                    )
                                    
                                    $
                                    (1,007,235
                                    )
                                    
                                    $
                                    (549
                                    )
                                    
                                    $
                                    (1,406,554
                                    )
                                    
                                    $
                                    (1,103,479
                                    )
                                    
                                    $
                                    (542,182
                                    )
                                    
                                    $
                                    (1,645,662
                                    )Segment
      Assets
                                    
                                    $
                                    7,279,875
                                    
                                    
                                    $
                                    32,971,361
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    40,251,236
                                    
                                    
                                    $
                                    16,016,768
                                    
                                    
                                    $
                                    44,272,702
                                    
                                    
                                    $
                                    60,289,470Capital
      expenditures
                                    
                                    $
                                    7,157
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    7,157
                                    
                                    
                                    $
                                    23,368
                                    
                                    
                                    $
                                    2,596
                                    
                                    
                                    $
                                    25,964
  Six
      Months Ended March 31, 2009
                                
                                
                                Six
      Months Ended March 31, 2008Homebuilding
      Sales
                                
                                
                                Land
      Sales
                                
                                
                                Remodeling
      Sales
                                
                                
                                Total
                                
                                
                                Homebuilding
      Sales
                                
                                
                                Land
      Sales
                                
                                
                                TotalRevenues
      from external customers
                                
                                
                                7,381,773
                                
                                
                                $
                                393,146
                                
                                
                                $
                                540
                                
                                
                                $
                                7,775,459
                                
                                
                                $
                                484,511
                                
                                
                                $
                                1,765,348
                                
                                
                                $
                                2,249,859Costs
      and expenses:Cost
      of revenues
                                
                                
                                6,436,732
                                
                                
                                
                                304,922
                                
                                
                                
                                900
                                
                                
                                
                                6,742,554
                                
                                
                                
                                405,558
                                
                                
                                
                                931,539
                                
                                
                                
                                1,337,097Impairment
      and write-offs
                                
                                
                                22,900
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,900Selling,
      general and administrative
                                
                                
                                1,502,861
                                
                                
                                
                                690,209
                                
                                
                                
                                13,396
                                
                                
                                
                                2,206,466
                                
                                
                                
                                2,260,354
                                
                                
                                
                                1,126,152
                                
                                
                                
                                3,386,506Interest
      & other income
                                
                                
                                (99,747
                                )
                                
                                
                                (11,083
                                )
                                
                                
                                -
                                
                                
                                
                                (110,830
                                )
                                
                                
                                (87,427
                                )
                                
                                
                                (71,531
                                )
                                
                                
                                (158,958
                                )Interest
      expense
                                
                                
                                504,073
                                
                                
                                
                                1,477,953
                                
                                
                                
                                -
                                
                                
                                
                                1,982,026
                                
                                
                                
                                421,517
                                
                                
                                
                                1,266,497
                                
                                
                                
                                1,688,014Total
      costs and expenses
                                
                                
                                8,366,819
                                
                                
                                
                                2,462,001
                                
                                
                                
                                14,296
                                
                                
                                
                                10,843,116
                                
                                
                                
                                3,000,002
                                
                                
                                
                                3,252,657
                                
                                
                                
                                6,252,659Loss
      before taxes
                                
                                
                                (985,046
                                )
                                
                                $
                                (2,068,855
                                )
                                
                                $
                                (13,756
                                )
                                
                                $
                                (3,067,657
                                )
                                
                                $
                                (2,515,491
                                )
                                
                                $
                                (1,487,309
                                )
                                
                                $
                                (4,002,800
                                )Segment
      Assets
                                
                                
                                7,279,875
                                
                                
                                $
                                32,971,361
                                
                                
                                $
                                -
                                
                                
                                $
                                40,251,236
                                
                                
                                $
                                16,016,768
                                
                                
                                $
                                44,272,702
                                
                                
                                $
                                60,289,470Capital
      expenditures
                                
                                
                                7,157
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                7,157
                                
                                
                                $
                                64,817
                                
                                
                                $
                                7,202
                                
                                
                                $
                                72,019
  11
 Table of Contents
  (7)         Related
Party Transactions
  Consulting
Arrangement with Audrey Wilson
  In
February 2007 the Company entered into a consulting agreement with Audrey
Wilson, the wife of Clark N. Wilson, its President and Chief Executive Officer.
Pursuant to the consulting agreement, the Company has agreed to pay Ms. Wilson
$10,000 per month for a maximum of six months.  Ms. Wilson agreed to
devote at least twenty-five hours per week assisting the Company with the
following activities: (i) the establishment of “back-office” processes for
homebuilding activities, including procurement, sales and marketing and other
related activities, and (ii) developing the Company’s marketing
strategy.  Subsequent to the completion of the six month period in
July 2007, Ms. Wilson continued to provide consulting services to the Company at
no cost to the Company.  In accordance with Staff Accounting Bulletin
5A, for the three months ended December 31, 2007, the Company recorded $30,000
as compensation expense and credited equity for services recorded at fair market
value. On May 13, 2008, the Company entered into a new agreement with Ms. Wilson
in which she was to be paid $10,000 per month for a maximum of 12
months.  In an effort to reduce Company expenditures as of December
31, 2008, Ms. Wilson will no longer be paid for any consulting services she
provides to the Company. The company paid Audrey Wilson $30,000 for services
performed in the three months ended December 31, 2008.  In accordance
with Staff Accounting Bulletin 5A, for the three months ended March 31, 2009 the
Company recorded $7,500 as compensation expense and credited equity for services
recorded at fair market value.
  Financing
with LNZCO, LLC
  On March
12, 2009 the Company entered into an agreement with LNZCO, LLC (“LNZCO”) that
LNZCO will provide between $1 and $2 million in financing for the construction
of single family residences.  Each promissory note bears interest at a
rate of prime plus 5.0%, has a one point origination fee, and matures in one
year.  The loan for each residence is 65% of the sales price of the
associated improved property.   The Company had borrowings of
$242,000 from LNZCO at March 31, 2009.
  LNZCO is
wholly-owned by the Lindsey May Kathryn Wilson 1995 Trust, the beneficiaries of
which are the minor children of Clark Wilson, the President and Chief Executive
Officer of the Company. The Company’s Audit Committee reviewed the proposed
terms of the Financing Agreements and compared them to the terms of other
financing arrangements available to WFC at this time.  The Audit
Committee of the Company’s Board of Directors determined that LNZCO could
provide the most favorable financing terms to WFC and approved the Financing
Agreements as being fair as to the Company and WFC as of the time of
authorization.
  Vendor
Payments
  The
Company has entered into contractual work agreements with Wilson
Roofing.  Wilson Roofing is owned by relatives of Clark N. Wilson, the
Company’s President and Chief Executive Officer.  The Company paid
Wilson Roofing approximately $31,000 and $132,000 for the three and six months
ended March 31, 2009.   The company paid Wilson Roofing
approximately $127,000 and $216,000 for the three and six months ended March 31,
2008.  Management believes that services were provided at fair market
value.
  (8)         Commitments
and Contingencies
  Options
Purchase Agreements
  In order
to ensure the future availability of land for development and homebuilding, the
Company plans to enter into lot-option purchase agreements with unaffiliated
third parties. Under the proposed option agreements, the Company pays a stated
deposit in consideration for the right to purchase land at a future time,
usually at predetermined prices or a percentage of proceeds as homes are sold.
These options generally do not contain performance requirements from the Company
nor obligate the Company to purchase the land. In order for the Company to start
or continue the development process on optioned land, it may incur development
costs on land it does not own before it exercises its option
agreement.
  Lease
Obligations
  In
September 2006, the Company entered into a 36 month 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 $12,000 per month.  In September 2008, the Company
subleased out approximately 1,626 square feet of the property.  The
sublease requires monthly payments to the Company for $5,000 per month for 12
months.  The Company entered into sale/leaseback agreements for three
of its model homes.  Two of the contracts were entered into in August
2008 and one in September 2008.  The leasebacks of the three model
homes require monthly payments of approximately $7,300 per month for 24
months.   The Company also has office equipment leases and job
trailer leases. The Company’s future minimum lease payments for future fiscal
years are as follows:
  2009
                                                              
                                                              
                                                              2010
                                                              
                                                              
                                                              2011
                                                              
                                                              
                                                              2012
                                                              
                                                              
                                                              2013Lease
      obligations
                                                              
                                                              $
                                                              107,015
                                                              
                                                              
                                                              87,534
                                                              
                                                              
                                                              
                                                              240
                                                              
                                                              
                                                              
                                                              240
                                                              
                                                              
                                                              
                                                              240
 
  12
 Table of Contents
  Employment
Agreements with Clark Wilson
  On
February 14, 2007, the Company entered into an employment agreement with Clark
N. Wilson, its President and Chief Executive Officer. In the event of the
involuntary termination of Mr. Wilson’s service with the Company, the agreement
provides for monthly payments equal to Mr. Wilson’s monthly salary payments to
continue for 12 months. The agreement contains a provision whereby Mr. Wilson is
not permitted to be employed in any position in which his duties and
responsibilities comprise of residential land development and homebuilding in
Texas or in areas within 200 miles of any city in which the Company is
conducting land development or homebuilding operations at the time of such
termination of employment for a period of one year from the termination of his
employment, if such termination is voluntary or for cause, or involuntary and in
connection with a corporate transaction.
  (9) Indebtedness
  The
following schedule lists the Company’s notes payable and lines of credit
balances at March 31, 2009 and September 30, 2008:
  In
      Thousands
                                    Rate
                                    Status
                                    Maturity
      Date
                                    
                                    3/31/2009
                                    9/30/2008Notes
      payable, land
                                    12.50%
                                    Modification
      Agreement entered January 2009
                                    Dec-31-09
                                    $
                                    4,700
                                    4,700Notes
      payable, seller financed
                                    7%
      & Prime + 2%
                                    Default
      as of October 2008
                                    Oct.
      2010/11
                                    
                                    2,475
                                    2,475Notes
      payable, land
                                    12.50%
                                    Modification
      Agreement entered January 2009
                                    Dec-31-09
                                    
                                    7,300
                                    7,300Line
      of Credit, $30 million facility, land, land development, and
      homebuilding
                                    Prime+.25%
                                    Expired
      as   October 2008
                                    Oct-1
      08
                                    
                                    11,618
                                    15,779Line
      of Credit, $2 million facility, homebuilding
                                    Prime+5%
                                    Entered
      March 2009
                                    
                                    
                                    242
                                    -2005
      $10 million, Subordinated convertible notes, net of discount of $350
      thousand and $372 thousand, respectively
                                    5.00%
                                    Cross-default
      as of March 2008
                                    Dec-1-12
                                    
                                    9,672
                                    9,6282006
      $6.50 million, Subordinated convertible notes, net of discount of $2,197
      and $2,314 thousand respectively
                                    5.00%
                                    Cross-default
      as of March 2008
                                    Sep-1-13
                                    
                                    4,420
                                    4,185Total
                                    
                                    
                                    $
                                    40,427
                                    44,067
  (a)           In
March 2007, the Company secured a $4.7 million term land loan to finance the New
Sweden project which is approximately 522 acres of land in
Travis County.     The loan is secured by the
underlying land and is guaranteed by the Company.    In
January 2009, the Company entered into an agreement with Graham Mortgage Capital
to modify the debt agreement for the loan.  Effective January 1,2009,
the Company began paying the Modified Interest Payment on each
loan  and will accrue an additional 12% interest on the loan. As of
March 31, 2009 the Company had $393,625 in accrued interest for New
Sweden.  The agreement allows deferral of $385,792 of the accrued
interest until December 31, 2009 or until the property is sold. In exchange for
entering into the agreement the Company will issue a warrant for the purchase of
1.5% of the issued and outstanding shares of the Company’s common stock at
December 31, 2009.  The warrants will call for a $5.00 strike price
and can be exercised from January 1, 2010 through December 31,
2012.  The warrants were valued based on the fair value of the
Company’s common stock on the issuance date of  $0.23, using a
Black-Scholes approach, risk free interest rate of 3.04%; dividend yield of 0%;
weighted-average expected life of the warrants of 4 years; and a 60% volatility
factor, resulting in an immaterial value. The Company is required to make
monthly payments for 1/12th of the
estimated 2009 property taxes.  The agreement calls for the Company to
list the property and retain a broker to market the
property.   In the event the Company receives an offer for a
price less than sufficient to satisfy the note payment, the Company must notify
the lender who will at its sole discretion accept or reject the
offer.  In the event that the property is not sold by December 31,
2009, the Deed (in Lieu of Foreclosure) will be released, and provided that all
Modified Interest Payments and real estate taxes for 2009 which are due on
January 31, 2010 have been paid, the corporate guaranty will be returned, and
the borrower and holder shall exchange mutual releases.
  13
 Table of Contents
  (b)           As
part of the purchase of 522 acres in Travis County described above, the
Company entered into four notes payable, seller financed with a cumulative
balance of approximately $2.5 million. Three of the notes payable with a
cumulative balance of $1.9 million are at an interest rate of 7.0% and the
fourth note payable issued for approximately $600,000 is at an interest rate of
prime rate with an anniversary date of October 28 of each year plus 2.0%. The
terms of the note were modified in October 2007 with the principal payments
extended for one year.  The revised terms of the notes payable now
call for quarterly interest payments commencing October 12, 2007 and principal
payments of $1.4 million in October 2010 and $1.0 million due in October
2011.  The Company has not made interest payments since October 2008
and is currently in default on the loan.  The Company is currently in
negotiations to dispose of the assets including but not limited to deed in lieu
of foreclosure of these assets.
  (c)           In
February 2007 the company secured a $7.3 million land loan to finance the
Rutherford West project which is approximately 538 acres in
Hays County.  The loan is secured by the underlying land and is
guaranteed by the Company.  In January 2009, the Company entered into
an agreement with Graham Mortgage Capital to modify the debt agreement for the
loan for Rutherford West.   Effective January 1,2009,
the Company began paying the modified interest payment on each loan and will
accrue an additional 12% interest on the loan.  As of March 31, 2009
the Company had $611,375 in accrued interest. The agreement allows deferral of
$599,208 of the accrued interest until December 31, 2009 or until the property
is sold.  In exchange for entering into the agreement the Company will
issue a warrant for the purchase of 1.5% of the issued and outstanding shares of
the Company’s common stock at December 31, 2009.  The warrants call
for a $5.00 strike price and can be exercised from January 1, 2010 through
December 31, 2012.  The warrants were valued based on the fair value
of the Company’s common stock on the issuance date of  $0.23, using a
Black-Scholes approach, risk free interest rate of 3.04%; dividend yield of 0%;
weighted-average expected life of the warrants of 4 years; and a 60% volatility
factor, resulting in an immaterial value.  The Company is required to
make monthly payments for 1/12th of the
estimated 2009 property taxes.  The agreement calls for the Company to
list the property and retain a broker to market the
property.   In the event the Company receives an offer for a
price less than sufficient to satisfy the note payment, the Company must notify
the Lender who will at its sole discretion accept or reject the
offer.  In the event that the property is not sold by December 31,
2009, the Deed (in Lieu of Foreclosure) will be released, and provided that all
Modified Interest Payments and real estate taxes for 2009 which are due on
January 31, 2010 have been paid, the corporate guaranty will be returned, and
the borrower and holder shall exchange mutual releases.
  (d)           In
June 2007 the Company established the  Credit Facility with a
syndicate of banks in the amount of $55 million.  In June 2008 the
Credit Facility was reduced to $30 million.  The Company has been out
of compliance with certain covenants under the loan agreement since March
2008.  On October 1, 2008 the line expired.  The Company
currently has approximately $11.6 million in borrowings for land and home
construction.  The Company is in negotiations with the banks to extend
the payoff of the current borrowings.  The Company has continued to
receive draws for its homebuilding loans.
  (e)           In
March 2009 the Company entered into an agreement with LNZCO pursuant to
which  LNZCO will provide between $1 and $2 million in financing for
the construction of single family residences.  Each promissory note
issued pursuant to such agreement bears interest at a rate of prime plus 5.0%,
has a one point origination fee, and matures in one year.  The loan
for each residence is 65% of the sales price of the associated improved
property.   The Company current has approximately $242,000 in
borrowings for home constructions.
  2005,
$10MM, 5%, Subordinated Convertible Debt
  On
December 19, 2005, the Company issued $10 million in aggregate principal amount
of 5% subordinated convertible debt due December 1, 2012 to certain purchasers.
The following are the key features of the subordinated convertible debt:
interest accrues on the principal amount of the subordinated convertible debt at
a rate of 5% per annum and the debt is payable semi-annually on May 1 and
December 1 of each year, with interest payments beginning on June 1, 2006. The
subordinated convertible debt is due on December 1, 2012 and is convertible, at
the option of the holder, into shares of our common stock at a conversion price
of $2.00 per share. The conversion price is subject to adjustment for stock
splits, reverse stock splits, recapitalizations and similar corporate actions.
An adjustment in the conversion price is also triggered upon the issuance of
certain equity or equity-linked securities with a conversion price, exercise
price, or share price less than $2.00 per share. The anti-dilution provisions
state the conversion price cannot be lower than $1.00 per share.
  The
Company may redeem all or a portion of the subordinated convertible debt after
December 1, 2008 at a redemption price that incorporates a premium that ranges
from 3% to 10% during the period beginning December 1, 2008 and ending on the
due date. The subordinated convertible debt has a registration rights agreement
whereby the Company filed a registration statement registering the resale of the
underlying shares with the Securities Exchange Commission (the
“SEC”).  The Company must maintain the registration statement in an
effective status until the earlier to occur of (i) the date after which all the
registrable shares registered thereunder shall have been sold and (ii) the
second anniversary the date on which each warrant has been exercised in full and
after which by the terms of such Warrant there are no additional warrant shares
as to which the warrant may become exercisable; provided that in either case,
such date shall be extended by the amount of time of any suspension period.
Thereafter the Company shall be entitled to withdraw the registration statement,
and upon such withdrawal and notice to the investors, the investors shall have
no further right to offer or sell any of the registrable shares pursuant to the
registration statement. The registration statement filed pursuant to the
registration rights agreement was declared effective by the SEC on August 1,
2006.
  The
Company also issued warrants to purchase an aggregate of 750,000 shares of
common stock to the purchasers of the subordinated convertible debt, 562,500
shares of which vested and remain exercisable and the remaining shares will
never vest.   The warrants were valued based on the fair value of
the Company’s common stock on the issuance date of $1.60.  The
warrants are recorded as part of the debt discount and an increase in additional
paid in capital, and amortized over the 7-year life of the notes using the
straight-line rate method.
  
 14
 Table of Contents
  Subordinated
Convertible Notes Issued December 19, 2005 at March 31, 2009 and September 30,
2008:
  March
      31, 2009
                    
                    
                    September
      30, 2008Notional
      balance
                    
                    $
                    10,000,000
                    
                    
                    
                    10,000,000Unamortized
      discount
                    
                    
                    (328,144
                    )
                    
                    
                    (371,986
                    )Subordinated
      convertible debt balance, net of unamortized discount
                    
                    $
                    9,671,856
                    
                    
                    
                    9,628,014
 
 2006,
$6.5MM, 5%, Subordinated Convertible Debt
  On
September 29, 2006, the Company raised capital of $6. 5 million in
aggregate principal amount of 5% subordinated convertible debt due September 1,
2013 The following are the key features of the subordinated convertible debt:
interest accrues on the principal amount of the subordinated convertible debt at
a rate of 5% per annum, payable semi-annually on March 1 and September 1 of each
year, with interest payments beginning on March 1, 2006. The subordinated
convertible debt is due on September 1, 2013 and is convertible, at the option
of the holder, into shares of common stock at a conversion price of $2.00 per
share. The conversion price is subject to adjustment for stock splits, reverse
stock splits, recapitalizations and similar corporate actions. An adjustment in
the conversion price is also triggered upon the issuance of certain equity or
equity-linked securities with a conversion price, exercise price, or share price
less than $2.00 per share. The anti-dilution provisions state the conversion
price cannot be lower than $1.00 per share.
  The
Company may redeem all or a portion of the subordinated convertible debt after
September 1, 2009 at a redemption price that incorporates a premium that ranges
from 3% to 10% during the period beginning September 1, 2009 and ending on the
due date. The subordinated convertible debt has a registration rights agreement
whereby the Company filed a registration statement registering the resale of the
underlying shares with the SEC.  The Company must maintain the
registration statement in an effective status until the earlier to occur of (i)
the date after which all the registrable shares registered thereunder shall have
been sold and (ii) the second anniversary of the later to occur of (a) the
closing date, and (b) the date on which each warrant has been exercised in full
and after which by the terms of such warrant there are no additional warrant
shares as to which the warrant may become exercisable; provided that in either
case, such date shall be extended by the amount of time of any suspension
period. Thereafter the Company shall be entitled to withdraw the registration
statement, and upon such withdrawal and notice to the investors, the investors
shall have no further right to offer or sell any of the registrable shares
pursuant to the registration statement.
  The
Company also issued warrants to purchase an aggregate of 506,250 shares of
common stock to the purchasers of the subordinated convertible debt, 379,688
shares of which vested and remain exercisable and the remaining shares will
never vest.   The warrants were valued based on the fair value of
the Company’s common stock on the issuance date of $1.91.
  Subordinated
Convertible Notes Issued September 29, 2006 at March 31, 2009 and September 30,
2008:
  March
      31, 2009
                    
                    
                    September
      30, 2008Notional
      balance
                    
                    $
                    6,500,000
                    
                    
                    
                    6,500,000Unamortized
      discount
                    
                    
                    (2,079,554
                    )
                    
                    
                    (2,314,976
                    )Subordinated
      convertible debt balance, net of unamortized discount
                    
                    $
                    4,420,446
                    
                    
                    
                    4,185,024
  (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.
  (11)        Common
Stock Option / Stock Incentive Plan
  In August
2005, the Company adopted the Wilson Family Communities, Inc. 2005 Stock
Option/Stock Issuance Plan or 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 of the
Company and WFC was determined by the Board of Directors (the “Board”) as of the
grant date. This plan was assumed by Green Builders, Inc. The fair value of the
options granted under the plan was determined by the Board prior to the merger
of the Company and WFC.
  15
 Table of Contents
  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, the Stock Option Plan
terminates upon the earlier of (1) the expiration of the ten year period
measured from the date the Stock Option Plan is adopted by the Board or (2) the
date on which all shares available for issuance under the Stock Option Plan
shall have been issued as fully-vested shares.
  The
Company had 1,890,000 shares of common stock available for future grants under
the Stock Option Plan at March 31, 2009.   Compensation expense
related to the Company’s share-based awards for the three months ended March 31,
2009 and 2008 was approximately $36,000 and $37,000,
respectively.   These options are issued pursuant to the Stock
Option Plan and are reflected in the disclosures below.
  During
the three months ended March 31, 2009, the Company issued options to purchase
shares of common stock at an exercise prices at $0.19 per share. Using the
Black-Scholes pricing model with the following weighted-average assumptions:
interest rate of 2.92%; dividend yields of 0%; weighted average expected life of
options of 5 years; and a 60% volatility factor, management estimated the fair
market value of the grants to be $0.10 per share. Management estimated the
volatility factor based on an average of comparable companies due to its limited
trading history.
  A summary
of activity in common stock options for the three months ended March 31,
2009:
  Share
      Roll Forward
                                
                                
                                Ranges
      Of Exercise Prices
                                
                                
                                Weighted-Average
      Exercise PriceBalance
      September 30, 2008
                                
                                
                                1,474,083
                                
                                
                                $
                                0.80
      - $3.25
                                
                                
                                $
                                2.52Granted
                                
                                
                                25,000
                                
                                
                                $
                                0.23
                                
                                
                                $
                                0.23Forfeited
                                
                                
                                (409,083
                                )
                                
                                $
                                0.44
      - $3.25
                                
                                
                                $
                                2.45Balance
      December 31, 2008
                                
                                
                                1,090,000
                                
                                
                                $
                                0.23
      - $3.25
                                
                                
                                $
                                2.50Granted
                                
                                
                                25,000
                                
                                
                                $
                                0.19
                                
                                
                                $
                                0.19Forfeited
                                
                                
                                (535,200
                                )
                                
                                $
                                0.44
      - $3.25
                                
                                
                                $
                                2.88Balance
      March 31, 2009
                                
                                
                                579,800
                                
                                
                                $
                                0.19
      - $3.25
                                
                                
                                $
                                2.05
  The
following is a summary of options outstanding and exercisable at March 31,
2009
  OutstandingNumber
      of Shares Subject to Options Outstanding
                          
                          
                          Weighted
      Average Remaining Contractual Life (in years)
                          
                          
                          Weighted
      Average Exercise Price
                          
                          
                          VestedNumber
      of Vested Shares
                          
                          
                          Weighted
      Average Remaining Contractual Life (in years)
                          
                          
                          Weighted
      Average Exercise Price579,800
                          
                          
                          
                          7.72
                          
                          
                          
                          2.05
                          
                          
                          
                          367,503
                          
                          
                          
                          7.33
                          
                          
                          
                          2.19
  At March
31, 2009, there was approximately $316,000 of unrecognized compensation expense
related to unvested share-based awards granted under the Company’s Stock Option
Plan.
  (12) Subsequent
Events
  On May
14, 2009, WFC entered into a Fourth Agreement to Modify Loan Documents (the
“Modification”) with the syndicate of banks led by RBC Centura Bank. The
Modification modified the terms of the Borrowing Base Loan Agreement dated as of
June 29, 2007 (the “Loan Agreement”) by reducing the loan commitment amount
pursuant to the Loan Agreement from $30,000,000 to $10,846,163.  The
Modification extended the maturity of the master line of credit issued pursuant
to the Loan Agreement (the “Master Line”) until March 31, 2011.  The
modification agreement revised the interest rate of the facility from prime plus
..25%, with a floor of 5.5% to libor plus 3.5%, with a floor of
6%.   At May 14, 2009 the Company has $10,807,956 outstanding
under the Master Line.
 
 16
 Table of Contents
  The
Modification Agreement also revised certain covenants contained in the original
agreement.  The terms of the Modification Agreement:
  ·
              require
      WFC to maintain a minimum net worth of $7,000,000, including subordinated
      debt,  although the minimum net worth may be reduced to an
      amount not less than $5,000,000 upon the sale and close of escrow any land
      owned by WFC which causes WFC to be in violation of the $7,000,000 minimum
      net worth covenant,
  ·
              prohibit
      WFC’s ratio of debt to equity from exceeding 3.00 to
  1.00;
  ·
              require
      WFC to maintain working capital of at least
  $5,000,000;
  ·
              require
      WFC to make certain quarterly principal reduction payments;
      and
  ·
              require
      WFC to maintain cash of not less than
$500,000.
  The
modification of the Loan Agreement also contains a waiver for certain inventory
covenants contained in the original Loan Agreement that WFC of which WFC was not
in compliance prior to the date of the Modification.   This
includes a waiver of the following covenants:
  ·
              the
      spec home limitation covenant until March 31,
  2011;
  ·
              the
      developed lot limitation covenant until March 31,
  2011;
  ·
              the
      land, lots under development and developed lot limitation covenant until
      March 31, 2011
  ·
              the
      entitled land and pods limitation covenant until March 31,
      2011;
  ·
              the
      entitled land, pods, lots under development, and developed lots limitation
      covenant until March 31, 2011; and
  ·
              the
      land, pods lots under development, developed lots and spec home limitation
      covenant until March 31, 2011.
  Pursuant
to the Modification, WFC will be required to reduce the outstanding principal
amount under the Master Line to approximately $9.0 million by September 30,
2009, $6.0 million by December 31, 2010 and to repay the Master Line in full by
March 31, 2011.
  WFC is
currently in compliance with the revised covenants of the Modification
Agreement.
  17
 Table of Contents
 
 ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 This
discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. When used herein, the words
“believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,”
“will,” “could,” “should,” “future,” “potential,” “estimate,” or the negative of
such terms and similar expressions as they relate to us or our management are
intended to identify forward-looking statements.  Actual results and
the timing of events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
herein.  These risks and uncertainties are beyond our control and, in
many cases, we cannot predict the risks and uncertainties that could cause our
actual results to differ materially from those indicated by the forward-looking
statements.  Historical results and percentage relationships among any
amounts in our consolidated financial statements are not necessarily indicative
of trends in operating results for any future periods.
  The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with “Selected Consolidated Financial
Information” and our financial statements and accompanying notes included
elsewhere in this document.
  Overview
  We are a
real estate development and homebuilding company.  We commenced our
homebuilding operations in June 2007 with the purchase of Green Builders,
Inc.  We build energy efficient homes in Austin, Texas and we make it
a priority to fully utilize sustainable building practices and to use
earth-friendly products and materials.
  From late
2007 through March 31, 2009 our business has been significantly impacted by the
continued deterioration of the real estate and homebuilding
industry.  Although central Texas has been less affected than other
areas, national real estate trends and global economic conditions have had a
significant impact on home buyers and lenders and we believe that sales of new
homes in our market may continue to decline in fiscal 2009.  We
believe this slowdown is attributable to a decline in consumer confidence, the
inability of some buyers to sell their current homes and the direct and indirect
impact of the well-publicized turmoil in the mortgage and credit
markets.
  In June
2007 we purchased Green Builders, Inc. and commenced our homebuilding operations
under that name.  Our strategy is to build homes that are
environmentally responsible, resource efficient and consistent with local
style.  Substantially all of our construction work is performed by
subcontractors who are retained for specific subdivisions pursuant to contracts
entered in.  We intend to build homes on some of the lots we currently
have completed and sell those as finished homes as well as continue to sell lots
to other builders.  We are currently exploring options with other
developers to enter into agreements that would give us the option to purchase
additional finished lots in the future. In November 2008 we updated our
homebuilding services to include “build on your lot”.  “Build on your
lot” allows customers to build our existing plans on lots that they
own.
  Prior to
our acquisition of Green Builders, we were solely focused on the acquisition of
undeveloped land that we believed, based on our research of population growth
patterns and infrastructure development, was strategically
located.  We have funded these acquisitions primarily with bank debt
and cash we raised from financing activities.  We currently have
completed 220 lots in Georgetown Village, 105 lots in Elm Grove and 58 lots
in Rutherford West.  This portion of our business focus has required
the majority of our financial resources.  Due to the continued
deterioration of the homebuilding industry and based on our current liquidity,
we are currently in negotiations to dispose of some of our land positions
including but not limited to deed in lieu of foreclosure of these
assets.
  In tandem
with our land acquisition efforts and based upon our strategic market analysis,
we also prepare land for homebuilding.  A focus of our business had
been the sale of developed lots to homebuilders, including national
homebuilders.  Due to deteriorating conditions in the homebuilding
industry both nationally and to a lesser extent locally, during the second
quarter of 2007 and continuing through March 31, 2009, demand for finished lots
by national homebuilders is, and we expect will continue to be, significantly
reduced.  As a result, orders placed for some of our finished lots
were cancelled.  We elected to retain some of our lots for use in our
homebuilding business.  We believe that retaining some of our lots for
use in homebuilding activities will allow us to generate homebuilding revenue to
replace some of the revenue from the loss of sales of these finished
lots.  We will continue to pursue lot sales contracts with both
national and regional builders.
  In
November 2008 we expanded our services to include “green” remodeling of existing
homes.  We have taken a comprehensive approach to engaging in the
green remodeling business and offer customers a “one-stop” process for updating
their existing home with a focus on energy efficiency.  Our green
remodeling program currently caters to existing homeowners in the Austin, Texas
area who want to reduce home energy demands and utility bills, lessen home
maintenance costs and increase the comfort of their home.  Initially
we anticipate that substantially all of our construction work will be performed
by subcontractors.  By subcontracting out the work, there is limited
additional capital required to enter this business line.  We also feel
that entering into remodeling will help us supplement revenue during this
slowdown in the real estate industry. To date we have received some energy audit
requests and are reviewing the results and discussing the next steps with our
customers.   At March 31, 2009 we had approximately $340,000 in
backlog for a signed contract for future remodeling contract work.
  18
 Table of Contents
  Results
of Operations
  Comparison
of Three Months Ended March 31, 2009 and 2008
  Three
      Months Ended March 31, 2009
                          
                          
                          Three
      Months Ended March 31, 2008
                          
                          
                          Change
                          
                          
                          Change
      %RevenuesHomebuilding
      and related services revenues
                          
                          $
                          3,145,323
                          
                          
                          $
                          484,511
                          
                          
                          $
                          2,660,812
                          
                          
                          
                          549
                          %Land
      revenues
                          
                          
                          47,000
                          
                          
                          
                          657,036
                          
                          
                          
                          (610,036
                          )
                          
                          
                          -93
                          %Remodeling
      revenues
                          
                          
                          270
                          
                          
                          
                          -
                          
                          
                          
                          270
                          
                          
                          
                          n/aGross
      ProfitHomebuilding
      and related services gross profit
                          
                          
                          470,846
                          
                          
                          
                          78,953
                          
                          
                          
                          391,893
                          
                          
                          
                          496
                          %Land
      gross profit
                          
                          
                          14,310
                          
                          
                          
                          434,552
                          
                          
                          
                          (420,242
                          )
                          
                          
                          -97
                          %Remodeling
      gross profit
                          
                          
                          (30
                          )
                          
                          
                          -
                          
                          
                          
                          (30
                          )
                          
                          
                          n/aInventory
      impairments and land option cost write-offs
                          
                          
                          (11,000
                          )
                          
                          
                          -
                          
                          
                          
                          (11,000
                          )
                          
                          
                          n/aCosts
      & ExpensesOperating
      expenses
                          
                          
                          894,263
                          
                          
                          
                          1,450,493
                          
                          
                          
                          (556,230
                          )
                          
                          
                          -38
                          %Operating
      Loss
                          
                          
                          (420,137
                          )
                          
                          
                          (936,988
                          )
                          
                          
                          516,851
                          
                          
                          
                          -55
                          %Net
      Loss
                          
                          $
                          (1,406,554
                          )
                          
                          $
                          (1,645,662
                          )
                          
                          $
                          239,108
                          
                          
                          
                          -15
                          %
   Six
      Months Ended March 31, 2009
                            
                            
                            Six
      Months Ended March 31, 2008
                            
                            
                            Change
                            
                            
                            Change
      %RevenuesHomebuilding
      and related services revenues
                            
                            $
                            7,381,773
                            
                            
                            $
                            484,511
                            
                            
                            $
                            6,897,262
                            
                            
                            
                            1424
                            %Land
      revenues
                            
                            
                            393,146
                            
                            
                            
                            1,765,348
                            
                            
                            
                            (1,372,202
                            )
                            
                            
                            -78
                            %Remodeling
      revenues
                            
                            
                            540
                            
                            
                            
                            -
                            
                            
                            
                            540
                            
                            
                            
                            n/aGross
      ProfitHomebuilding
      and related services gross profit
                            
                            
                            945,041
                            
                            
                            
                            78,953
                            
                            
                            
                            866,088
                            
                            
                            
                            1097
                            %Land
      gross profit
                            
                            
                            88,224
                            
                            
                            
                            833,809
                            
                            
                            
                            (745,585
                            )
                            
                            
                            -89
                            %Remodeling
      gross profit
                            
                            
                            (360
                            )
                            
                            
                            -
                            
                            
                            
                            (360
                            )
                            
                            
                            n/aInventory
      impairments and land option cost write-offs
                            
                            
                            (22,900
                            )
                            
                            
                            -
                            
                            
                            
                            (22,900
                            )
                            
                            
                            n/aCosts
      & ExpensesOperating
      expenses
                            
                            
                            2,206,466
                            
                            
                            
                            3,386,506
                            
                            
                            
                            (1,180,040
                            )
                            
                            
                            -35
                            %Operating
      Loss
                            
                            
                            (1,196,461
                            )
                            
                            
                            (2,473,744
                            )
                            
                            
                            1,277,283
                            
                            
                            
                            -52
                            %Net
      Loss
                            
                            $
                            (3,067,657
                            )
                            
                            $
                            (4,002,800
                            )
                            
                            $
                            935,143
                            
                            
                            
                            -23
                            %
   19
 Table of Contents
  Homebuilding
and Related Services Revenues
  Background –Homebuilding and
related services revenue consists of revenue from home sales.  Prior
to fiscal 2008, all home sales were generated by our homebuilder customers
utilizing our homebuilder services.  In June 2007 we acquired Green
Builders, Inc and commenced our homebuilding activities.  We sell
homes in the Austin, Texas area for prices ranging from $170,000 to
$550,000.  For the three months ended March 31, 2009 we had sixteen
home sales and four cancellations for a total of twelve net sales.  We
had twelve home closings.  Revenue is not recognized on the sale of a
home until closing..  At March 31, 2009, we had four speculative
units, seven completed models, and 17 units in backlog.  Backlog is
defined as homes under contract but not yet delivered to our home
buyers.  We believe that the turmoil in the mortgage market combined
with national publicity of significantly deteriorating general and economic
conditions has caused a lack of urgency for buyers.  We expect that
they will continue to be slow throughout fiscal 2009.  In accordance
with these anticipated market conditions, our strategy is to build a limited
number of speculative units per community and build the majority of our homes
after a contract is entered into with a homebuyer.
  Revenues – During the
three months ended March 31, 2009, home sales accounted for approximately 99% of
revenues.  For the three months ended March 31, 2009 there were twelve
home closings at an average sales price of $262,000.  During the three
months ended March 31, 2008 we had two home closings at an average sales price
of $242,000.
  Gross Profit – Gross
profit percentage before impairments was 15% for the three months ended March
31, 2009.  During the quarter we reviewed our homebuilding inventory
for impairments.  We determined that we had $11,000 in impairments on
speculative units.  The impairment analysis for each of our
communities generally assumed that sales prices in future periods would be equal
to current sold unit’s prices.
  Land
and Land Development
  Background – Land sales
revenue consists of revenues from the sale of undeveloped land and developed
lots.  Developing finished lots from raw land takes approximately one
to three years. In response to the slowdown in the national housing market and
the reduction in demand for finished lots, we changed our strategy and have
elected to use some of  our developed lots for our own homebuilding
operations.  We may still sell our lots to national, regional and
local homebuilders that may purchase anywhere from five to one hundred or more
lots at a time. The delivery of these lots would likely be scheduled over
periods of several months or years.
  Revenues –Revenues from the
sale of land decreased by 93% during the three months ended March 31, 2009
compared to the three months ended March 31, 2008.  During the three
months ended March 31, 2009 we closed one finished lot  as compared to
thirteen finished lots for the three months ended March 31,
2008.    The decrease in revenues in 2009 was due to the
cancellation of lot sales contracts from regional and local homebuilders during
the last twelve months.
  Gross Profit – Gross
profit as a percentage of revenues decreased for the three months ended March
31, 2009 compared to the same period in 2008.  The decrease in margin
percentage is due to a $240,000 refund of previously written off refunds of
Living Unit Equivalent (LUE) fees from the Bohl’s Tract.  Gross profit
percentage excluding the refund of LUE fees was 30% for the three months ended
March 31, 2009 and 2008.
  General
and Administrative Expenses
  Breakdown
      of G&A Expenses
                            
                            Three
      Months Ended March 31, 2009
                            
                            
                            Three
      Months Ended March 31, 2008
                            
                            
                            Change
                            
                            
                            Change
      %Salaries,
      benefits, payroll taxes and related emp. exps.
                            
                            $
                            226,523
                            
                            
                            $
                            375,230
                            
                            
                            $
                            (148,707
                            )
                            
                            
                            -40
                            %Stock
      compensation expense
                            
                            
                            36,523
                            
                            
                            
                            35,935
                            
                            
                            
                            588
                            
                            
                            
                            2
                            %Legal,
      accounting, auditing, consultants, and investor relations
                            
                            
                            86,311
                            
                            
                            
                            269,840
                            
                            
                            
                            (183,529
                            )
                            
                            
                            -68
                            %General
      overhead, including office expenses, insurance, and travel
                            
                            
                            111,160
                            
                            
                            
                            208,985
                            
                            
                            
                            (97,825
                            )
                            
                            
                            -47
                            %Restructuring
      expenses
                            
                            
                            13,040
                            
                            
                            
                            -
                            
                            
                            
                            13,040
                            
                            
                            
                            n/aAmortization
      of subordinated debt costs and transaction costs
                            
                            
                            59,253
                            
                            
                            
                            59,253
                            
                            
                            
                            -
                            
                            
                            
                            0
                            %Total
      G&A
                            
                            $
                            532,810
                            
                            
                            $
                            949,243
                            
                            
                            $
                            (416,433
                            )
                            
                            
                            -44
                            %
  Breakdown
      of G&A Expenses
                              
                              Six
      Months Ended March 31, 2009
                              
                              
                              Six
      Months Ended March 31, 2008
                              
                              
                              Change
                              
                              
                              Change
      %Salaries,
      benefits, payroll taxes and related emp. exps.
                              
                              $
                              510,486
                              
                              
                              $
                              877,979
                              
                              
                              $
                              (367,493
                              )
                              
                              
                              -42
                              %Stock
      compensation expense
                              
                              
                              78,809
                              
                              
                              
                              675,635
                              
                              
                              
                              (596,826
                              )
                              
                              
                              -88
                              %Legal,
      accounting, auditing, consultants, and investor relations
                              
                              
                              209,032
                              
                              
                              
                              494,646
                              
                              
                              
                              (285,614
                              )
                              
                              
                              -58
                              %General
      overhead, including office expenses, insurance, and travel
                              
                              
                              251,740
                              
                              
                              
                              463,191
                              
                              
                              
                              (211,451
                              )
                              
                              
                              -46
                              %Restructuring
      expenses
                              
                              
                              182,526
                              
                              
                              
                              -
                              
                              
                              
                              182,526
                              
                              
                              
                              n/aAmortization
      of subordinated debt costs and transaction costs
                              
                              
                              118,506
                              
                              
                              
                              118,506
                              
                              
                              
                              -
                              
                              
                              
                              0
                              %Total
      G&A
                              
                              $
                              1,351,099
                              
                              
                              $
                              2,629,957
                              
                              
                              $
                              (1,278,858
                              )
                              
                              
                              -49
                              %
   20
 Table of Contents
  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 March 31, 2009 and 2008, salaries, benefits, taxes and related
employee expenses totaled approximately $227,000 and $375,000, respectively, and
represented approximately 43% and 40%, respectively, of total general and
administrative expenses for the periods.  The decrease for the year is
due to a decrease in headcount from an average of 18 employees during the three
months ended March 31, 2008  to an average of 8 employees during the
three months ended March 31, 2009
  Legal,
accounting, audit, consulting and investor relation expense totaled $86,000 and
$270,000 for the three months ended March 31, 2009 and 2008,
respectively.  General overhead, including office expenses, insurance,
and travel totaled $111,000 and $209,000 for the three months ended March 31,
2009 and 2008, respectively.  The decrease in these general and
administrative costs resulted from our initiative to control costs.
  Restructuring
expenses relates to expenses incurred to restructure our debt agreement with
Graham Mortgage Capital and our syndicate of banks.  In the prior year
we incurred no expenses for restructuring.
  Sales
and Marketing Expenses
  Sales and
marketing expenses include selling costs, commissions, salaries and related
taxes and benefits, finished inventory maintenance and property tax expense,
marketing activities including websites, brochures, catalogs, signage, and
billboards, and market research, all of which benefit our corporate presence and
are not included as homebuilding cost of sales.  The increase was due
to an increase in commissions and closing costs due to an increase in
homebuilding revenue for the three months ended March 31, 2009.
  Interest
Expense and Income
  Three
      Months Ended March 31, 2009
                        
                        
                        Three
      Months Ended March 31, 2008
                        
                        
                        Change
                        
                        
                        Change
      %Interest
      expense - convertible debt
                        
                        $
                        206,250
                        
                        
                        $
                        214,689
                        
                        
                        
                        (8,439
                        )
                        
                        
                        -4
                        %Interest
      discount expense - convertible debt
                        
                        
                        139,587
                        
                        
                        
                        139,587
                        
                        
                        
                        -
                        
                        
                        
                        0
                        %Interest
      expense - land and development loans
                        
                        
                        653,567
                        
                        
                        
                        420,161
                        
                        
                        
                        233,406
                        
                        
                        
                        56
                        %Interest
      income and misc income
                        
                        
                        (12,987
                        )
                        
                        
                        (65,763
                        )
                        
                        
                        52,776
                        
                        
                        
                        -80
                        %Total
      interest and other expense and income
                        
                        $
                        986,417
                        
                        
                        $
                        708,674
                        
                        
                        
                        277,743
                        
                        
                        
                        39
                        %
  Six
      Months Ended March 31, 2009
                        
                        
                        Six
      Months Ended March 31, 2008
                        
                        
                        Change
                        
                        
                        Change
      %Interest
      expense - convertible debt
                        
                        $
                        412,500
                        
                        
                        $
                        420,939
                        
                        
                        
                        (8,439
                        )
                        
                        
                        -2
                        %Interest
      discount expense - convertible debt
                        
                        
                        279,174
                        
                        
                        
                        279,174
                        
                        
                        
                        -
                        
                        
                        
                        0
                        %Interest
      expense - land and development loans
                        
                        
                        1,290,352
                        
                        
                        
                        987,901
                        
                        
                        
                        302,451
                        
                        
                        
                        31
                        %Interest
      income and misc income
                        
                        
                        (110,830
                        )
                        
                        
                        (158,958
                        )
                        
                        
                        48,128
                        
                        
                        
                        -30
                        %Total
      interest and other expense and income
                        
                        $
                        1,871,196
                        
                        
                        $
                        1,529,056
                        
                        
                        
                        342,140
                        
                        
                        
                        22
                        %
  Interest
expense for land and development loans increased by approximately $233,000 for
the three months ended March 31, 2009 over the same period in
2008.  The increase is primarily attributable to expense of interest
expense for property not under development and an increase in interest expense
for Rutherford West and New Sweden property due to the increase in interest rate
from 12.5% to 14%.
  21
 Table of Contents
  Financial
Condition and Capital Resources
  Liquidity
  On March
31, 2009 we had $1.4 million in cash and cash equivalents.  We will
need to raise additional cash to continue our business, whether through the sale
of debt, equity, or combination thereof or through the sale of certain of our
assets.
  On June
29, 2007, WFC entered into a $55 million revolving credit facility (the “Credit
Facility”) with a syndicate of banks led by RBC Bank (formerly RBC Centura
Bank), as administrative agent pursuant to a Borrowing Base Loan Agreement (“the
Loan Agreement”).  IBC Bank and Franklin Bank, S.S.B. (“Franklin
Bank”) are the other two banks that make up the syndicate of
banks.  The Credit Facility was reduced to $30 million in June
2008.  The initial maturity date for the Credit Facility was June 29,
2008.  We entered into an agreement to extend the maturity date to
October 1, 2008.  On October 1, 2008, the Credit Facility expired
pursuant to its terms.  Although we are currently out of compliance
with certain covenants set forth in the Borrowing Base Agreement under the Loan
Agreement, the syndicate of banks has continued to make amounts available to WFC
pursuant to the Loan Agreement for loans made prior to the expiration of the
facility.  We were notified on November 7, 2008 that Franklin Bank was
closed by the Texas Department of Savings and Mortgage Lending and the Federal
Deposit Insurance Corporation (the “FDIC”) was named Receiver.
  Green
Builders has guaranteed the obligations of WFC under the Credit
Facility.  The amount available at any time under the Credit Facility
for revolving credit loans or the issuance of letters of credit is determined by
a borrowing base. The borrowing base is calculated as the sum of the values for
homes and lots in the subdivision to be developed as agreed by us and the
agent.  Our obligations under the Credit Facility are secured by the
assets of each subdivision that was to be developed with the proceeds of loans
available under the Credit Facility.
  Outstanding
borrowings under the Credit Facility bear interest at the prime rate plus 0.25%,
with a floor of 5.5%.  We are charged a letter of credit fee equal to
1.10% of each letter of credit issued under the Credit Facility. We may elect to
prepay the Credit Facility at any time without premium or
penalty.  Quarterly principal reductions are required during the final
12 months of the term.
  The
Credit Facility contains customary covenants limiting our ability to take
certain actions.   At March 31, 2009, we were not in compliance
with the terms of the Borrowing Base Agreement under the Credit
Facility.  We were not in compliance with the tangible net worth, the
ratio of debt to equity, working capital, number of completed speculative homes
and number of land and developed lot loans covenants.   On May
14, 2009 we entered into a Fourth Agreement to Modify Loan Documents
(“Modification”).  See Part I, Item 1, “Financial Statements, Footnote
12” and Part II, Item 5, “Other Information” for a description of the
modification.
  In March
2009 we entered into an agreement with LNZCO that LNZCO will provide
between $1 and $2 million in financing for the construction of single family
residences.  Each promissory note bears interest at a rate of prime
plus 5.0%, has a one point origination fee, and matures in one
year.  The loan for each residence is 65% of the sales price of the
associated improved property.
  Our
growth will require substantial amounts of cash for earnest money deposits,
development costs, interest payments and homebuilding costs. Until we begin to
sell an adequate number of lots and homes to cover our monthly operating
expenses, our sales, marketing, general and administrative costs will deplete
cash.  Due to current market conditions and slow home and land sales,
we will need to obtain additional capital.  We are currently in
negotiations to dispose of some of our current land positions, but there is no
assurance that we will be successful in selling these land positions at an
acceptable price or at all.   If we are not able to sell the New
Sweden and Rutherford West tracts of land by December 31, 2009
we  will deed in lieu of foreclosure the land back to our
lender   In addition we are seeking additional capital in the
form of debt or equity to support future growth and current
operations.  We do not have sufficient cash to continue operations for
the next twelve months.  We will need to raise additional cash to
continue our business, whether through the sale of debt, equity, or combination
thereof or through the sale of certain of our assets.
  22
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  Capital
Resources
  We have
raised approximately $16.5 million of subordinated convertible debt, and
approximately $14 million in a public offering of our common stock completed in
May 2007.  We entered into a $55 million revolving Credit Facility
that was reduced to $30 million in June 2008.   On October 1,
2008, the Credit Facility expired pursuant to its terms.  Although we
are currently out of compliance with certain covenants set forth in the
Borrowing Base Agreement under the Loan Agreement, RBC and IBC have continued to
make amounts available to WFC pursuant to the Loan Agreement for loans made
prior to the expiration of the facility.  We were notified on November
7, 2008 that Franklin Bank was closed by the Texas Department of Savings and
Mortgage Lending and the FDIC was named receiver.  We evaluate the
financial stability of the remaining syndicate banks making up the Credit
Facility and believe the remaining banks have the ability to satisfy their
obligations under the Credit Facility.  On May 14, 2009 we entered
into a Fourth Agreement to Modify Loan Documents
(“Modification”).   See Part I, Item 1, “Financial Statements,
Footnote 12” and Part II, Item 5, “Other Information” for a description of the
modification.
  In March
2009 we entered into an agreement with LNZCO to provide up to $2 million in
financing for homebuilding construction.
  Land and
homes under construction comprise the majority of our assets. These assets have
suffered devaluation due to the downturn in the housing and real estate market
for central Texas.  We are considering selling tracts of commercial
and residential land in order to increase sales revenues and increase
cash.  We are also in negotiations to deed in lieu of foreclosure some
of our land positions.  We expect that we will incur losses in
2009.  Due to current market conditions and slow home and land sales,
we anticipate that we will need additional capital to support operations for the
next twelve months.
  Off-Balance
Sheet Arrangements
  As of
March 31, 2009, we had no off-balance sheet arrangements.
  Critical
Accounting Policies and Estimates
  The SEC
defines “critical accounting policies” as those that require application of
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods.  Our accounting
policies are more fully described in the notes to our consolidated financial
statements.
  As
discussed in the notes to the consolidated financial statements, the preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions about future events that affect the amounts reported in our
consolidated financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
could differ from those estimates, and such differences may be material to our
consolidated financial statements. Listed below are those policies and estimates
that we believe are critical and require the use of significant judgment in
their application.
  Inventory
  Inventory
is stated at cost unless it is determined to be impaired, in which case the
impaired inventory would be written down to the fair market
value.  Inventory costs include land, land development costs, deposits
on land purchase contracts, model home construction costs, homebuilding costs,
interest and real estate taxes incurred during development and construction
phases.
  Revenue
Recognition
  Revenues
from property sales are recognized in accordance with SFAS No. 66, “Accounting
for Sales of Real Estate.” Revenues from land development services to builders
are recognized when the properties associated with the services are sold, when
the risks and rewards of ownership are transferred to the buyer and when the
consideration has been received, or the title company has processed payment. For
projects that are consolidated, homebuilding revenues and services will be
categorized as homebuilding revenues and revenues from property sales or options
will be categorized as land sales.
  Use
of Estimates
  We have
estimated and accrued liabilities for real estate property taxes on our
purchased land in anticipation of development, and other liabilities including
the beneficial conversion liability and the fair value of warrants and
options.  To the extent that the estimates are different than the
actual amounts, it could have a material effect on the financial
statements.
  23
 Table of Contents
  Municipal
Utility and Water District Receivables
  We
currently have planned the community of Villages of New Sweden within the
boundaries of New Sweden Municipal Utility District No. 1 and the community of
Rutherford West in Greenhawe Water Control and Improvement District No. 2 (each
a “District” and together the “Districts”).  We incur development
costs for the initial creation and operating costs of these Districts and
continuing costs for the water, sewer and drainage infrastructure for these
Districts.  The Districts will issue bonds to repay us, once the
property has sufficient assessed value for the District taxes to repay the
bonds. As the project is completed and homes are sold within the Districts, the
assessed value increases.  It can take several years before the
assessed value is sufficient to provide sufficient tax revenue for us to
recapture its costs. We estimate that we will recover approximately 50 to 100%
of eligible initial creation and operating costs spent through March 31, 2009
for costs spent for Rutherford West Phase 1.  We have completed Phase
1 for the Rutherford West project and have approximately $1.1million of water
district reimbursements included in inventory that we anticipate will be
collected from bond issuances made by such District.  When the
reimbursements are received we will record them as reductions of the related
asset’s balance. Usually, a District issues its first bond issue only after
completion of construction of approximately 200 houses.  The Districts
will pay for property set aside for the preservation of endangered species,
greenbelts and similar uses.  To the extent that the estimates are
dramatically different from the actual facts, it could have a material effect on
our financial statements.
  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.
  Debt
Restructuring
  The debt restructuring agreement has
been accounted for in accordance with accordance with SFAS 15, “Accounting by
Debtors and Creditors for Troubled Debt Restructuring”.  The related
warrants issued have been treated in accordance with “APB 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants”.
  Recent
Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 applies
under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. The
provisions of SFAS 157 are effective beginning with our fiscal year 2009. The
adoption of this standard did not have a material impact on our financial
statements.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115.” The statement permits entities to choose to measure certain
financial assets and liabilities at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in
earnings.  SFAS 159 is effective for our fiscal year
2009.   The adoption of this standard did not have a material
impact on our financial statements.
  In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (FAS
141(R)), which establishes accounting principles and disclosure requirements for
all transactions in which a company obtains control over another
business.  We are evaluating the impact of the adoption of SFAS No.
141; however, it is not expected to have a material impact on our consolidated
financial position, results of operations or cash flows.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (FAS 160), which prescribes the accounting by
a parent company for minority interests held by other parties in a subsidiary of
the parent company.  We are evaluating the impact of the adoption of
SFAS No. 160; however, it is not expected to have a material impact on our
consolidated financial position, results of operations or cash
flows.
 
 ITEM4T. CONTROLS
AND PROCEDURES
  Evaluation
of Effectiveness of Disclosure Controls and Procedures
  Our
management, including our principal executive officer and our principal
financial officer, have evaluated our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended), as of the period ended March 31, 2009, the period covered by this
Quarterly Report on Form 10-Q.  Based upon that evaluation, our
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures were not effective as of March 31,
2009 due to the significant deficiency described in our annual report filed
December 23, 2008.
  Changes
in Internal Control Over Financial Reporting
  There
have been no changes in our internal controls over financial reporting during
our most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.
  
 24
 Table of Contents
  PART II - OTHER
INFORMATION
  ITEM 1. LEGAL
PROCEEDINGS
  We are
involved in lawsuits and other contingencies in the ordinary course of business.
While the outcome of such contingencies cannot be predicted with certainty, we
believe that the liabilities arising from these matters will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows. However, to the extent the liability arising from the ultimate
resolution of any matter exceeds our estimates reflected in the recorded
reserves relating to such matter, we could incur additional charges that could
be significant.
  ITEM1A. RISK
FACTORS
  In
addition to the risk factors previously identified in our annual report on Form
10-K for the year ended September 30, 2008, we add the following risk
factors:
  We
are a small company and have a correspondingly small financial and accounting
organization. Being a public company may strain our resources, divert
management’s attention and affect our ability to attract and retain qualified
directors.
 
 We are a
small company with finance and accounting organization that we believe is an
appropriate size to support our current operations; however, the rigorous
demands of being a public reporting company may lead to a determination that our
finance and accounting group is undersized.  In addition, our
President and Chief Executive Officer is our majority shareholder and controls
the company. He also has significant control over our daily operations and we
are required to implement proper and effective controls and procedures due to
the extent of his control over the company.
  As a
public company, we are subject to the reporting requirements of the Securities
Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.  The
requirements of these laws and  the rules and regulations promulgated
thereunder entail significant accounting, legal and financial compliance costs,
and have made, and will continue to make, some activities more difficult, time
consuming or costly and  may place significant strain on our
personnel, systems and  resources.  As a result,
management’s attention may be diverted from other business concerns, which could
have a material adverse effect on our business, financial condition and results
of operations.  The size of our financial and accounting organization
has resulted in a significant deficiency in our internal control over financial
reporting as reported in our Annual Report on Form 10-KSB for the year ended
September 30, 2008.
  In
addition, these rules and regulations to which we are subject have made it more
difficult and more expensive for us to  maintain director and officer
liability insurance, and in the future we may be  required to accept
reduced coverage or incur substantially higher costs to  maintain such
coverage. If we are unable to maintain adequate director and officer insurance,
our ability to recruit and retain qualified officers and directors, especially
those directors who may be deemed independent, will be significantly
curtailed.
 
 If
we are unable to comply with the compliance plan that we submitted to, and that
was approved by, the NYSE Amex in connection with our failure to meet certain of
the NYSE Amex's continued listing standards, then our common stock could be
subject to delisting.
 
 Our
common stock is listed on the NYSE Amex (formerly the NYSE Alternext
US LLC) under the symbol “GBH.” All companies listed on NYSE Amex are required
to comply with certain continued listing standards, including maintaining
stockholders' equity at required levels, share price requirements and other
rules and regulations of the NYSE Amex. On January 23, 2009, we received notice
from the staff of the NYSE Amex indicating that we are not in compliance
with the continued listing standards under Section 1003(a)(i) of the
NYSE Amex's Company Guide (the "Company Guide")  because we
reported stockholders' equity of less than $2,000,000 and losses from
continuing operations and net losses in two of our three most recent
fiscal years; we are not considered to be in compliance with Section
1003(a)(ii) of the Company Guide because we reported stockholders’ equity
of less than $4,000,000 and losses from continuing operations and net losses in
three of our four most recent fiscal years; we are not considered
to be in compliance with Section 1003(a)(iii) of the Company Guide because we
reported stockholders’ equity of less than $6,000,000 and losses from continuing
operations and net losses in our five most recent fiscal
years; and we are not considered to be in compliance with Section
1003(a)(iv) of the Company Guide because we had sustained losses which
were so substantial in relation to our overall operations or our
existing financial resources, or our financial condition had become so
impaired that it appeared questionable, in the opinion of the NYSE
Amex, as to whether we would be able to continue operations and/or
meet our obligations as they mature. We were required to submit a
plan of compliance to the NYSE Amex by February 23, 2009.  We submitted
such a plan by the deadline, and on April 24, 2009 the NYSE Amex notified us
that the plan had been accepted, and granted us an extension until July 23, 2009
to regain compliance with Section 1003(a)(iv) and until July 23, 2010
to regain compliance with Section 1003(a)(i), Section 1003(a)(ii), and Section
1003(a)(iii) of the Company Guide.  The NYSE Alternext may seek to suspend
or delist our common stock if we are unable to regain compliance
with the Company Guide by the applicable deadlines. In addition, the NYSE
Amex has advised us that we should consider effecting a reverse stock split
to address our low stock price. Failure to effect a reverse split within a
reasonable amount of time could result in suspension or delisting of our common
stock.  If our common stock were suspended or delisted it could
materially adversely affect its market value and liquidity.
 
 If
we fail to develop or maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our financial
results or prevent fraud. As a result, current and potential shareholders could
lose confidence in our financial reporting, which would harm the value of our
shares.
 
 Effective
internal controls over financial reporting are necessary for us to provide
reliable financial reports, effectively prevent fraud and operate as a public
company. If we cannot provide reliable financial reports or prevent fraud, our
reputation and operating results would be harmed. We have, in the past,
discovered and may, in the future, discover areas of our internal controls over
financial reporting that need improvement. As a U.S. public company, we are
subject to the reporting requirements of the Sarbanes-Oxley Act of 2002. We are
required to annually assess and report on our internal controls over financial
reporting. If we are unable to adequately establish or improve our internal
controls over financial reporting, we may report that our internal controls are
ineffective and our external auditors will not be able to issue an unqualified
opinion on the effectiveness of our internal controls. Ineffective internal
controls over financial reporting could also cause investors to lose confidence
in our reported financial information, which would likely have a negative effect
on the trading price of our securities or could affect our ability to access the
capital markets and which could result in regulatory proceedings against us by,
among others, the SEC.
 
 25
 Table of Contents
 
 ITEM2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  None.
  ITEM3. DEFAULTS
UPON SENIOR SECURITIES
  None.
  ITEM4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
  None.
  ITEM5. OTHER
INFORMATION
  On May
14, 2009, WFC entered into a Fourth Agreement to Modify Loan Documents (the
“Modification”) with the syndicate of banks led by RBC Centura Bank. The
Modification modified the terms of the Borrowing Base Loan Agreement dated as of
June 29, 2007 (the “Loan Agreement”) by reducing the loan commitment amount
pursuant to the Loan Agreement from $30,000,000 to $10,846,163.  The
Modification extended the maturity of the master line of credit issued pursuant
to the Loan Agreement (the “Master Line”) until March 31, 2011.  The
modification agreement revised the interest rate of the facility from prime plus
..25%, with a floor of 5.5% to libor plus 3.5%, with a floor of
6%.   At May 14, 2009 the Company has $10,807,956 outstanding
under the Master Line.
 
 The
Modification Agreement also revised certain covenants contained in the original
agreement.  The terms of the Modification Agreement:
  ·
              require
      WFC to maintain a minimum net worth of $7,000,000, including subordinated
      debt, although the minimum net worth may be reduced to an amount not less
      than $5,000,000 upon the sale and close of escrow any land owned by WFC
      which causes WFC to be in violation of the $7,000,000 minimum net worth
      covenant,
  ·
              prohibit
      WFC’s ratio of debt to equity from exceeding 3.00 to
  1.00;
  ·
              require
      WFC to maintain working capital of at least
  $5,000,000;
  ·
              require
      WFC to make certain quarterly principal reduction payments;
      and
  ·
              require
      WFC to maintain cash of not less than
$500,000.
  The
modification of the Loan Agreement also contains a waiver for certain inventory
covenants contained in the original Loan Agreement that WFC of which WFC was not
in compliance prior to the date of the Modification.  This includes a
waiver of the following covenants:
  ·
              the
      spec home limitation covenant until March 31,
  2011;
  ·
              the
      developed lot limitation covenant until March 31,
  2011;
  ·
              the
      land, lots under development and developed lot limitation covenant until
      March 31, 2011
  ·
              the
      entitled land and pods limitation covenant until March 31,
      2011;
  ·
              the
      entitled land, pods, lots under development, and developed lots limitation
      covenant until March 31, 2011; and
  ·
              the
      land, pods lots under development, developed lots and spec home limitation
      covenant until March 31, 2011.
  26
 Table of Contents
  Pursuant
to the Modification, WFC will be required to reduce the outstanding principal
amount under the Master Line to approximately $9.0 million by September 30,
2009, $6.0 million by December 31, 2010 and to repay the Master Line in full by
March 31, 2011.
  WFC is
currently in compliance with the revised covenants of the Modification
Agreement.
  The above
description of the material terms of the Modification is qualified in its
entirety by reference to the Fourth Agreement to Modify the Loan Documents filed
as an Exhibit 10.6 hereto.
  ITEM6. EXHIBITS
  Exhibit
      No.
                  Description10.1
                  Modification
      and Forbearance Agreement dated January 12, 2009 by and among Registrant,
      Wilson Family Communities, Inc. and Graham Mortgage Corporation (filed as
      Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the SEC
      on January 15, 2009 and incorporated herein by this
      reference).10.2
                  Modification
      and Forbearance Agreement dated January 12, 2009 by and among Registrant,
      Wilson Family Communities, Inc. and Graham Mortgage Corporation (filed as
      Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed with the SEC
      on January 15, 2009 and incorporated herein by this
      reference).10.3
                  Form
      of Construction Loan Agreement (filed as Exhibit 10.1 to Registrant’s
      Current Report on Form 8-K filed with the SEC on March 17, 2009 and
      incorporated herein by this reference)10.4
                  Form  Form
      of Promissory Note (filed as Exhibit 10.2 to Registrant’s Current Report
      on Form 8-K filed with the SEC on March 17, 2009 and incorporated herein
      by this reference)10.5
                  Form
      of Deed of Trust (filed as Exhibit 10.3 to Registrant’s Current Report on
      Form 8-K filed with the SEC on March 17, 2009 and incorporated herein by
      this reference)10.6
                  Fourth Agreement to Modify Loan Documents dated May 14,
      2009 and among Registrant, Wilson Family Communities, Inc and RBC Bank and
      IBC Bank31.1
                  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 302 of the
      Sarbanes-Oxley Act of
2002
   27
 Table of Contents
   SIGNATURE
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.
  Green
      Builders, Inc.Date:
      May 15,
      2009
                      By:
                      /s/  Clark
      WilsonClark
      WilsonPresident
      and Chief Executive Officer
                        (Principal
      Executive
Officer)
 
 Date:
      May 15,
      2009
                  By:
                  /s/  Cindy
      HammesCindy
      HammesVP
      of Finance
                    (Principal
      Financial Officer)
 
 
 
 28
 Table of Contents
 
 Exhibit
      No.
                    Description10.1
                    Modification
      and Forbearance Agreement dated January 12, 2009 by and among Registrant,
      Wilson Family Communities, Inc. and Graham Mortgage Corporation (filed as
      Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the SEC
      on January 15, 2009 and incorporated herein by this
      reference).10.2
                    Modification
      and Forbearance Agreement dated January 12, 2009 by and among Registrant,
      Wilson Family Communities, Inc. and Graham Mortgage Corporation (filed as
      Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed with the SEC
      on January 15, 2009 and incorporated herein by this
      reference).10.3
                    Form
      of Construction Loan Agreement (filed as Exhibit 10.1 to Registrant’s
      Current Report on Form 8-K filed with the SEC on March 17, 2009 and
      incorporated herein by this reference)10.4
                    Form  Form
      of Promissory Note (filed as Exhibit 10.2 to Registrant’s Current Report
      on Form 8-K filed with the SEC on March 17, 2009 and incorporated herein
      by this reference)10.5
                    Form
      of Deed of
      Trust (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K
      filed with the SEC on March 17, 2009 and incorporated herein by this
      reference)10.6
                    Fourth Agreement to Modify Loan Documents dated May 14,
      2009 and among Registrant, Wilson Family Communities, Inc and RBC Bank and
      IBC Bank31.1
                    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 302 of the
      Sarbanes-Oxley Act of
2002
  29
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