Green Builders, Inc - Quarterly Report of Financial Condition (10QSB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended: JUNE 30, 2008


o	TRANSITION REPORT UNDER 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 Small Business Issuer as Specified in Its Charter)

Texas		76-0547762
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S Employer Identification No.)


8121 Bee Caves Rd., Austin, TX 78746
(Address of Principal Executive Offices)


512-732-0932
(Issuer's Telephone Number)



(Former Name)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter time period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.

Yes x No o

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

Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: As of August 13, 2008, the registrant had 23,135,539 shares of common stock, par value $0.001, outstanding.

Transitional Small Business Issuer Disclosure Format: Yes o No x

I nd ex

PART I – FINANCIAL INFORMATION

	Item 1.	Financial Statements	1

	Item 2.	Management’s Discussion and Analysis or Plan of Operation	20

	Item 3.	Controls and Procedures	29

PART II – OTHER INFORMATION

	Item 1.	Legal Proceedings	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3.	Defaults Upon Senior Securities	30

	Item 4.	Submission of Matters to a Vote of Security Holders	30

	Item 5.	Other Information	31

	Item 6.	Exhibits	31

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CAUTION REGARDING FORWARD-LOOKING INFORMATION

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

Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, us concerning anticipated financial performance, business prospects and strategies. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this Quarterly Report on Form 10-QSB are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

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

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

Please see Part 1, Item 1A – “Risk Factors” of our Annual Report on Form 10-KSB for the transitional period ended September 30, 2007, as well as the “Risk Factors” contained in Part I, Item 2 – “Management’s Discussion and Analysis or Plan of Operation” in this quarterly report on Form 10-QSB. In addition, new risk factors emerge from time to time and it is not possible for us to predict all such factors, nor to assess the impact such factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Whenever we refer in this report to “Green Builders,” “the Company,” “we,” “us,” or “our,” we mean Green Builders, Inc., a Texas corporation, and, unless the context indicates otherwise, its predecessors and subsidiaries, including its wholly-owned subsidiaries, Wilson Family Communities, Inc., a Delaware corporation and GB Operations, Inc, a Texas corporation.

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I te m 1. Financial Statements

GREEN BUILDERS , INC.
Consolidated Balance Sheets
As of June 30, 2008 and September 30, 2007
	(Unaudited)
	June 30, 2008			September 30, 2007

Cash and cash equivalents	$	4,802,649			13,073,214
Restricted cash		179,401			-
Inventory
Land and land development		39,008,507			32,463,411
Homebuilding inventories		9,863,849			2,843,704
Total inventory		48,872,357			35,307,116
Other assets		983,254			729,471
Debt issuance costs, net of amortization		1,087,459			1,265,218
Equipment and software, net of accumulated depreciation and amortization of $66,882 and $32,294, respectively		291,563			232,357
Total assets		56,216,682			50,607,375
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable		1,994,504			1,404,151
Accrued real estate taxes payable		755,459			405,060
Accrued liabilities and expenses		453,320			215,372
Accrued interest		233,170			464,809
Deferred revenue		-			159,381
Notes payable and lines of credit		30,232,825			20,638,358
Subordinated convertible debt, net of $2,826,459 and $3,245,220 discount, respectively		13,673,541			13,254,780
Total liabilities		47,342,818			36,541,911

STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000 shares authorized and 23,135,539 shares issued and outstanding, respectively		23,136			23,136
Additional paid in capital		27,874,211			27,040,304
Retained deficit		(19,023,483	)		(12,997,976	)
Total stockholders' equity		8,873,864			14,065,464
Commitments and contingencies		-			-
Total liabilities and stockholders' equity	$	56,216,682			50,607,375

See accompanying notes to the consolidated financial statements.

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GREEN BUILDERS, INC.
Consolidated Statements of Operations
For the Three and Nine Months Ended June 30, 2008 and 2007

		Three Months Ended June 30,		Nine Months Ended June 30,

		2008	2007	2008	2007
		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Revenues:
Homebuilding and related services	$	2,754,424	320,000	3,238,934	2,150,165
Land sales		709,345	1,064,178	2,474,693	2,471,048
Total revenues		3,463,769	1,384,178	5,713,627	4,621,213

Cost of revenues:
Homebuilding and related services		2,540,740	206,038	2,946,298	1,549,091
Land sales		544,997	2,001,031	1,476,536	3,250,409
Total cost of revenues		3,085,738	2,207,069	4,422,835	4,799,500

Gross profit:
Homebuilding and related services		213,684	113,962	292,636	601,074
Land sales		164,347	(936,853)	998,157	(779,360)
Total gross profit		378,031	(822,891)	1,290,793	(178,287)

Costs and expenses:
Corporate general and administration		964,714	1,547,094	3,594,672	3,528,582
Sales and marketing		637,455	284,259	1,394,003	733,038
Total costs and expenses		1,602,169	1,831,353	4,988,675	4,261,620
Operating loss		(1,224,138)	(2,654,244)	(3,697,882)	(4,439,907)
Other income (expense):
Loss on fair value of derivatives		-	-	-	(5,076,957)
Interest and other income		110,788	102,386	269,746	180,379
Interest expense		(909,356)	(763,911)	(2,597,370)	(2,100,655)
Total other expense		(798,568)	(661,525)	(2,327,624)	(6,997,233)
Net loss	$	(2,022,707)	(3,315,769)	(6,025,506)	(11,437,140)
Basic and diluted loss per share	$	(0.09)	(0.16)	(0.26)	(0.61)

Basic and diluted weighted average common shares outstanding		23,135,539	20,568,871	23,135,539	18,777,011

See accompanying notes to the consolidated financial statements.

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GREEN BUILDERS, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 2008 and 2007

	2008			2007
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(6,025,506	)		(11,437,140	)
Non cash adjustments:
Loss on fair value of derivatives		-			5,076,957
Amortization of convertible debt discount		418,761			777,990
Amortization of debt issuance costs		177,759			191,689
Stock-based compensation expense		758,907			399,909
Services provided without compensation by principal shareholders		75,000			-
Depreciation and amortization		332,805			61,398
Loss on land option purchase					1,254,968
Adjustments to reconcile net loss to net cash used in operating activities:					-
Increase in total inventory		(13,565,241	)		(5,552,323	)
Increase in other assets		(553,264	)		(234,895	)
Increase in accounts payable		590,353			264,282
Increase in real estate taxes payable		350,399			418,161
Increase in accrued expenses		237,947			286,936
Increase in restricted cash		(179,401	)		-
Decrease in deferred revenue		(159,381	)		9,821
Increase (decrease) in accrued interest		(231,639	)		186,830
Net cash used in operating activities		(17,772,501	)		(8,295,417	)
Cash flows from investing activities:
Purchase of fixed assets		(92,530	)		(24,057	)
Cash paid for Green Builders, Inc		-			(32,919	)
Net cash used in investing activities		(92,530	)		(56,976	)
Cash flows from financing activities:
Issuances (repayments) of notes payable and lines of credit, net		9,594,466			1,496,481
Proceeds from issuance of subordinated conv debt		-			250,000
Common stock sales, net of transaction costs		-			13,739,347
Cash paid for debt issuance costs		-			(41,172	)
Net cash provided by financing activities		9,594,466			15,444,656
Net decrease in cash and cash equivalents		(8,270,565	)		7,092,263
Cash and cash equivalents at beginning of period		13,073,214			8,803,777
Cash and cash equivalents at end of period	$	4,802,649			15,896,040
Cash paid for interest	$	2,574,671			1,717,088
Cash paid for income taxes	$	-			-
Non cash in financing activities:
Assets and Liabilities acquired from Green Builders, Inc.
Accounts Receivable	$	-			2,900
Accounts Payable	$	-			6,190
Issuance of common stock for notes payable, cancellation of notes payable in exchange for cancellation of subordinated debt	$	-			250,000

See accompanying notes to the consolidated financial statements.

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(1) Organization and Business Activity

Green Builders, Inc., (the “Company”), is a Texas corporation formerly known as Wilson Holdings, Inc, a Nevada corporation. Effective April 4, 2008, Wilson Holdings, Inc., a Nevada corporation, completed its reincorporation to the State of Texas pursuant to the Plan of Conversion as ratified by the shareholders at the 2008 annual meeting of shareholders held on April 3, 2008. As part of the reincorporation, a new Certificate of Formation was adopted and Wilson Holdings, Inc.’s corporate name was changed to Green Builders, Inc., and the Certificate of Formation will now govern the rights of holders of the Company’s common stock. The Company has been using the name “Green Builders” in its regular business operations since June 2007 and will continue to do so. Effective April 8, 2008, the Company’s common stock began trading under the symbol “GBH” on the American Stock Exchange.

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

The consolidated financial statements and the notes of the Company for the three months and nine months ending June 30, 2008 and 2007 have been prepared by management without audit pursuant to rules and regulations of the Securities Exchange Commission and should be read in conjunction with the September 30, 2007 audited financials statements contained in the Company’s Annual Report on 10-KSB for the transitional period from January 1, 2007 to September 30, 2007. In the opinion of management, all normal, recurring adjustments necessary for the fair presentation of such financial information have been included. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.

(2) Summary of Significant Accounting Policies

(a) Revenue Recognition

Revenues from property sales are recognized in accordance with SFAS No. 66, “Accounting for Sales of Real Estate.” Revenues from land development services to builders are recognized when the properties associated with the services are sold, when the risks and rewards of ownership are transferred to the buyer and when the consideration has been received, or the title company has processed payment. For projects that are consolidated, homebuilding revenues and services will be categorized as homebuilding revenues and revenues from property sales or options will be categorized as land sales.

(b) Cash and Cash Equivalents

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

The Company has restricted cash of $179,401 with a financial institution as part of a letter of credit issued for Georgetown Village development.

Inventory is stated at cost unless it is determined to be impaired, in which case the impaired inventory would be written down to the fair market value. Inventory costs include land, land development costs, deposits on land purchase contracts, model home construction costs, capitalized interest, real estate taxes incurred during development and construction phases, and homebuilding costs. No significant impairments of inventory were recorded in 2007 or 2008.

(d) Use of Estimates

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

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

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(e) Municipal Utility and Water District Reimbursements

The Company owns one property located in a Municipal Utility District (MUD) and one property located in a Water Control and Improvement District (WCID). The Company incurs development costs for water, sewage lines and associated treatment plants and other development costs and fees for these properties. Under the agreement with the districts, the Company expects to be reimbursed partially for the above developments costs. The Districts will issue bonds to repay the Company, once the property has sufficient assessed value for the District taxes to repay the bonds. As the project is completed and homes are sold within the District, the assessed value increases. It can take several years before the assessed value is sufficient to provide sufficient tax revenue for the Company to recapture its costs. The Company has estimated that it will recover approximately 50% to 100% of eligible costs spent through June 30, 2008. The Company has completed Phase 1 for the Rutherford West project and has approximately $980,000 of Water Control and Improvement District reimbursements included in inventory that it anticipates it will collect from bond issuances made by the district. The Company anticipates the first reimbursement will be approximately $500,000 in March 2009. When the reimbursements are received they will be recorded as reductions in the related asset’s balance. The Districts will pay for property set aside for the preservation of endangered species, greenbelts and similar uses. To the extent that the estimated reimbursements are dramatically different to the actual reimbursements, it could have a material effect on our financial statements.

(f) Subordinated Convertible Debt

The company’s subordinated convertible debt and the related warrants have been accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF 00-27, “Application of issue 98-5 to Certain Convertible Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt Instrument’ in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19 updated with FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements”.

(g) Loss Per Common Share

Earnings per share is accounted for in accordance with SFAS No. 128, “Earnings per Share,” which requires a dual presentation of basic and diluted earnings per share on the face of the statements of earnings. Basic loss per share is based on the weighted effect of common shares issued and outstanding, and is calculated by dividing net loss by the weighted average shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.

The Company has issued stock options and warrants convertible into shares of common stock. These shares and warrants have been excluded from loss per share at June 30, 2008 and 2007 because the effect would be anti-dilutive as summarized in the table below:

	June 30,
	2008		2007
Stock options		1,616,148		1,710,000
Common stock warrants		1,143,125		1,143,125
Subordinated convertible debt warrants		8,250,000		8,375,000
Total		11,009,273		11,228,125

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(h) Reclassification

Certain prior period amounts have been reclassified to conform to current period presentation.

(i) Adoption of New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ request for expanded information about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 will be effective for the Company’s fiscal year beginning October 1, 2008. The Company is currently reviewing the effect SFAS 157 will have on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” The statement permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 will be effective for the Company’s fiscal year beginning October 1, 2008. The Company is currently evaluating the impact of the adoption of SFAS No. 159; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" (FAS 141(R)), which establishes accounting principles and disclosure requirements for all transactions in which a company obtainscontrol over another business. SFAS 141R is effective for business combinations that close on or after December 1, 2009. The Company does not expect the adoption of SFAS 141R to have a material effect on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" (FAS 160), which prescribes the accounting by a parent company for minority interests held by other parties in a subsidiary of the parent company. SFAS 160 is effective for the Company’s fiscal year beginning December 1, 2009. The Company is evaluating the impact the adoption of SFAS 160 will have on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133, (“SFAS 161”). SFAS 161 expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities, regarding an entity’s derivative instruments and hedging activities. SFAS 161 is effective for the Company’s fiscal year beginning December 1, 2008. The Company does not expect the adoption of SFAS 161 to have a material effect on its consolidated financial statements.

(3) Liquidity and Capital Resources

Liquidity

At June 30, 2008, the Company had approximately $4.9 million in cash and cash equivalents. The Company completed a public offering of common stock in May 2007, resulting in net proceeds of approximately $14 million.

On June 29, 2007, Green Builders entered into a $55 million revolving credit facility (the “Credit Facility”) with a syndicate of banks led by RBC Bank (formerly RBC Centura Bank) as administrative agent. The Credit Facility allows the Company to obtain revolving credit loans and provides for the issuance of letters of credit. The amount available at any time under the Credit Facility for revolving credit loans or the issuance of letters of credit is determined by a borrowing base. The borrowing base is calculated as the sum of the values for homes and lots in the subdivision to be developed as agreed to by the Company and the agent. The Company’s obligations under the Credit Facility will be secured by the assets of each subdivision to be developed with the proceeds of loans available under the Credit Facility.

On June 23, 2008, the Company entered into an Agreement to Modify the Loan Documents. The Modification Agreement modified the terms of the Loan Agreement by reducing the loan commitment amount from $55 million to $30 million, changing the guarantor under the loan from Wilson Holdings, Inc. (our predecessor entity) to the Company, and modifying certain limitations under the Loan Agreement.

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The initial maturity date for the Credit Facility was June 29, 2008. On July 2, 2008, the Company entered into a Second Agreement to Modify Loan Documents. The Modification Agreement modified the terms of the Loan Agreement by (i) extending the loan termination date from June 29, 2008 to August 29, 2008, (ii) forbearing our non-compliance with (A) the existing Spec Home limitation set forth in the Loan Agreement and (B) the developed lot limitation set forth in the Loan Agreement, both through August 29, 2008, and (iii) clarifying that in spite of such non-compliance that we will continue to be entitled to borrow funds pursuant to the Loan Agreement. No payments were made in consideration for the Modification Agreement.

The facility will be reviewed by our syndicate of banks and renewed for successive monthly periods, so long as the following items have been satisfied: no event of default shall exist, no material adverse effect in the financial condition, operations, business or management of Green Builders shall exist and extension fees in the amount determined by the agent and all costs associated incurred in connection with the proposed extension must be paid. The final borrowing base calculation will be made twelve months prior to the termination of the Credit Facility and no borrowings may be made in excess of such amount. As of June 30, 2008, the Credit Facility has loaned the Company approximately $15.8 million and has issued a $179 thousand letter of credit.

Outstanding borrowings under the Credit Facility bear interest at the prime rate plus 0.25%, with a floor of 5.5%. The Company is charged a letter of credit fee equal to 1.10% of each letter of credit issued under the Credit Facility. The Credit Facility may be prepaid without premium or penalty. Quarterly principal reductions will be required during the final 12 months of the term.

The Company’s growth will require substantial amounts of cash for earnest money deposits, land purchases, development costs, interest payments and homebuilding costs. Until we begin to sell an adequate number of lots and homes to cover monthly operating expenses, our sales, marketing, general and administrative costs will deplete cash. To maintain its liquidity, the Company has financed the majority of its land and development activities with debt, and believes it can continue to do so in the future through a combination of conventional and subordinated convertible debt, joint venture financing, sales of selected lot positions, sales of land and lot options. The Company may be required to raise additional capital and/or enter into joint ventures to support growth and operations for the next twelve months.

Capital Resources

The Company has raised approximately $16.5 million of subordinated convertible debt, and approximately $14 million in a public offering of the Company’s common stock completed in May 2007. The Company also has a $30 million revolving Credit Facility mentioned previously.

Due to current conditions in the market, the Company has seen a slowdown in revenue from home and lot sales. The Company anticipates that it will incur significant losses in 2008. Due to current market conditions and slow home and land sales, the Company may need to raise additional capital and/or enter into joint ventures to support future growth and current operations for the next twelve months. See risk factors below.

Land and homes under construction compose the majority of the Company’s assets, which could suffer devaluation if the housing and real estate market suffers a significant downturn due to interest rate increases or other reasons. If we are not in compliance with our debt covenants, we may be required to repay our debt sooner than anticipated requiring liquidation of assets or the use of cash to satisfy its debt obligations. A significant downturn could also make it more difficult for the Company to liquidate assets, to raise cash and to pay off debts, which could have a material adverse effect.

(4) Inventory

The Company’s land inventory includes real estate held for sale or under development and earnest money on land purchase options. Construction in progress includes development costs, prepaid development costs, and development costs on land under option but not owned. Homebuilding inventory represents speculative homes under construction. The Company expects the homebuilding inventory to increase as it continues to build in its current communities and as it looks to build in additional communities.

Earnest money deposits for land costs and development costs on land under option, not owned, totaled approximately $695,000 at June 30, 2008 and September 30, 2007, of which approximately $645,000 is non-refundable if the Company does not exercise the option and purchase the land.

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As of June 30, 2008 the Company owned approximately 1,191 acres of unfinished acreage. The Company completed Section 9 of Georgetown Village in June 2008. In addition, the Company completed Phase 1 in Rutherford West in 2007 and Phase 6 in Georgetown Village in 2006.

In April 2007, 10 acres of the Company’s Highway 183 project was condemned by the State of Texas. In July 2007 the Company received final judgment from the State of Texas and received proceeds of approximately $410,000 for the condemned land. The Company sold and closed the remaining 5 acres in December 2007 for approximately $190,000.

Effective July 2007, the Company temporarily suspended development of phases 2 through 5 of Rutherford West. From that date, all interest costs related to holding this property has been recorded as an expense.

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

Property	Finished Lots/Homes		Owned Unfinished Acreage		Approximate Acreage Under Option		Land and Project Costs at June 30, 2008 (in thousands)		Texas County
Rutherford West		42		521		n/a		12,268	Hays
Georgetown Village		135		119		419		10,282	Williamson
Villages of New Sweden		-		521		-		10,955	Travis
Elm Grove		83		30		31		5,349	Hays
Other land projects		-		-		-		155
Sub-total land		260		1,191		450		39,009
Homebuilding inventory		13		-		-		9,864
Total inventory		273		1,191		450		48,872

Below is a summary of the property completed, owned or under contract by the Company at September 30, 2007:

Property	Finished Lots/Homes		Owned Unfinished Acreage		Approximate Acreage Under Option		Land and Project Costs at Sept. 30, 2007 (in thousands)		Texas County
Rutherford West		54		521		n/a	$	12,369	Hays
Highway 183		-		5		n/a		113	Travis
Georgetown Village		50		149		419		6,199	Williamson
Villages of New Sweden		-		521		-		10,716	Travis
Elm Grove		-		30		61		3,011	Hays
Other land projects		-		-		-		55
Sub-total land		104		1,226		480	$	32,463
Homebuilding inventory		-		-		-		2,844
Total inventory		104		1,226		480	$	35,307

(5) Consolidation of Variable Interest Entities

At December 31, 2006, the Company determined it was the primary beneficiary in certain homebuilder agreements as defined under FASB Interpretation No. 46(R) (“FIN 46(R)”), “Consolidation of Variable Interest Entities” (VIEs), because the Company has a significant, but less than controlling, interest in certain entities also party to the homebuilder agreements. The results of these clients have been consolidated into its financial statements for the three and nine months ended June 30, 2007.

On June 19, 2007, the Company purchased one of its VIEs, Green Builders, Inc, now a wholly owned subsidiary of the Company, and commenced homebuilding operations under the name Green Builders. The Company ceased providing services to its homebuilder clients and terminated its relationship with its final homebuilder client on August 2, 2007 subsequent to the sale of all the homes for which the Company had guaranteed the loans. There was no consolidation of VIEs for the three months and nine months ended June 30, 2008.

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Below is a summary of the effect of the consolidation of these entities for the three months ended June 30, 2007.

	Three Months Ended June 30, 2007
	WFC			VIEs			Consolidating entries			Consolidated
Revenues		1,080,288			320,000	(a)		(16,110	)		1,384,178
Expenses
Cost of Revenues		2,001,031			222,148	(a)		(16,110	)		2,207,069
General, administrative, sales and marketing		1,758,571			83,912	(b)		(11,130	)		1,831,353
Costs and expenses before interest		3,759,602			306,060			(27,240	)		4,038,422
Operating income/(loss)		(2,679,314	)		13,940			11,130			(2,654,244	)

(a)

Eliminates WFC revenues in VIE expenses, eliminates VIE expenses in WFC.

Below is a summary of the effect of the consolidation of these entities for the nine months ended June 30, 2007.

	Nine Months Ended June 30, 2007
	WFC			VIEs				Consolidating entries			Consolidated
Revenues		2,819,127			2,150,165		(a)		(348,079	)		4,621,213
Expenses
Cost of Revenues		3,343,802			1,811,265		(a)		(355,567	)		4,799,501
General, administrative, sales and marketing		3,928,446			377,949				(44,774	)		4,261,620
Costs and expenses before interest		7,272,248			2,189,214				(400,341	)		9,061,121
Operating income/(loss)		(4,453,121	)		(39,049	)			52,262			(4,439,908	)

(b)

Eliminates WFC revenues in VIE expenses, eliminates VIE expenses in WFC.

(6) Operating and Reporting Segments

The Company has two reporting segments: homebuilding and related services, and land sales. The Company’s reporting segments are strategic business units that offer different products and services. The homebuilding and related services segment includes home sales and services provided to homebuilders. The Company is required to consolidate its homebuilder services clients per FIN 46(R). The Company identifies the clients it consolidates as “VIEs.” Land sales consist of land in various stages of development sold, including finished lots. The Company charges identifiable direct expenses and interest to each segment and allocates corporate expenses and interest based on an estimate of each segment’s relative use of those expenses. Depreciation expense is included in selling, general and administrative and is immaterial.

The following table presents segment operating results before taxes for the three months ended June 30, 2008 and 2007:

	2008									2007
	Homebuilding and Related Services			Land Sales			Total			Homebuilding and Related Services			Land Sales			Total
Revenues from external customers	$	2,754,424			709,345			3,463,769			320,000			1,064,178			1,384,178
Costs and expenses:		-			-
Cost of revenues		2,540,740			544,997			3,085,738			206,038			2,001,031			2,207,069
Selling, general and administrative		1,101,337			500,832			1,602,169			1,198,281			633,072			1,831,353
Loss on fair value of derivatives		-			-			-			-			-			-
Interest & other income		(60,933	)		(49,854	)		(110,788	)		(47,648	)		(54,738	)		(102,386	)
Interest expense		202,138			707,218			909,356			276,853			487,058			763,911
Total costs and expenses		3,783,282			1,703,193			5,486,475			1,633,524			3,066,423			4,699,947
Loss before taxes	$	(1,028,858	)		(993,849	)		(2,022,707	)		(1,313,524	)		(2,002,245	)		(3,315,769	)
Segment Assets	$	14,207,313			42,009,369			56,216,682			9,907,341			39,697,025			49,604,366
Capital expenditures	$	18,460			2,051			20,511			9,878			-			9,878

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The following table presents segment operating results before taxes for the nine months ended June 30, 2008 and 2007:

	2008									2007
	Homebuilding and Related Services			Land Sales			Total			Homebuilding and Related Services			Land Sales			Total
Revenues from external customers	$	3,238,934			2,474,693			5,713,627			2,150,165			2,471,048			4,621,213
Costs and expenses:											-			-
Cost of revenues		2,946,298			1,476,536			4,422,835			1,549,092			3,250,408			4,799,501
Selling, general and administrative		3,361,690			1,626,985			4,988,675			2,686,503			1,575,118			4,261,620
Loss on fair value of derivatives		-			-			-			-			5,076,957			5,076,957
Interest & other income		(148,360	)		(121,386	)		(269,746	)		(59,648	)		(120,731	)		(180,379	)
Interest expense		623,655			1,973,715			2,597,370			1,251,365			849,290			2,100,655
Total costs and expenses		6,783,283			4,955,851			11,739,134			5,427,312			10,631,042			16,058,354
Loss before taxes	$	(3,544,349	)		(2,481,158	)		(6,025,506	)		(3,277,147	)		(8,159,994	)		(11,437,141	)
Segment Assets	$	14,207,313			42,009,369			56,216,682			9,907,341			39,697,025			49,604,366
Capital expenditures	$	83,277			9,253			92,530			147,344			(67,050	)		80,294

(7) Related Party Transactions

Issuance of Convertible Debt

Barry A. Williamson is a member of our board of directors and, until January 31, 2006, was a member of the board of directors of Tejas Incorporated, the parent company of our Placement Agent for the sale of our convertible notes. Mr. Williamson was re-elected to the board of directors of Tejas Incorporated in November 2006.

In September 2006, the Company entered into an agreement to lease approximately 5,000 square feet for its corporate offices, which it began occupying on October 1, 2006. The lease requires monthly payments of approximately $11,000 per month for 36 months. The lease was with a subsidiary of Tejas Incorporated until January 2008. In January 2008 the building being leased was bought by an unrelated party. The Company believes that the lease is paid at fair market value for similar space in the Austin, Texas commercial real estate market.

In December 2006, Tejas Securities Group, Inc. exercised 535,000 warrants, exercisable at $2.00 per share, in a cashless exercise netting the warrant holder 348,913 shares of common stock.

Consulting Arrangement with Audrey Wilson

In February 2007 the Company entered into a consulting agreement with Audrey Wilson, the wife of Clark N. Wilson, our President and Chief Executive Officer. Pursuant to the consulting agreement, the Company has agreed to pay Ms. Wilson $10,000 per month for a maximum of six months. Ms. Wilson agreed to devote at least twenty-five hours per week assisting the Company with the following activities: (i) the establishment of “back-office” processes for homebuilding activities, including procurement, sales and marketing and other related activities, and (ii) developing our marketing strategy for marketing and sale of land to homebuilders. Subsequent to the completion of the six month period in July 2007, Ms. Wilson continues to provide consulting services to the Company at no cost to the Company. In accordance with Staff Accounting Bulletin 5A, for the nine months ended June 30, 2008, the Company has recorded $75,000 as compensation expense and credited equity for three months of services recorded at fair market value. On May 13, 2008, the consulting agreement was re-instated and Ms. Wilson will be paid $10,000 per month for a maximum of 12 months. The company paid Audrey Wilson $5,000 for the nine months ended June 30, 2008.

Vendor Payments

The Company has entered into contractual work agreements with Wilson Roofing. Wilson Roofing is owned by relatives of Clark N. Wilson, our President and Chief Executive Officer. The company paid Wilson Roofing approximately $50,000 and $266,000 for the three and nine months ended June 30, 2008. Management believes that services were provided at fair market value.

(8) Commitments and Contingencies

Options Purchase Agreements

In order to ensure the future availability of land for development and homebuilding, the Company plans to enter into lot-option purchase agreements with unaffiliated third parties. Under the proposed option agreements, the Company pays a stated deposit in consideration for the right to purchase land at a future time, usually at predetermined prices or a percentage of proceeds as homes are sold. These options generally do not contain performance requirements from the Company nor obligate the Company to purchase the land. In order for the Company to start or continue the development process on optioned land, it may incur development costs on land it does not own before it exercises its option agreement. In the next twelve months, the Company has a land option takedown for Phase 3 of Elm Grove Development in December 2008. The purchase price of the land is $1.26 million, of which the Company has $400,000 in earnest money already down. The Company anticipates financing the purchase through a land loan with its credit facility with RBC.

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Lease Obligations

In September 2006, the Company entered into an agreement to lease approximately 5,000 square feet for its corporate offices, which it began occupying on October 1, 2006. The lease requires monthly payments of approximately $11,000 per month through October 2009. The Company also has office equipment leases and trailers. The Company’s future minimum lease payments for future fiscal years are as follows:

		2008				2009				2010				2011				2012
Lease obligations		$	38,754			$	152,001			$	17,097			$	240			$	240

Employment Agreements with Executive Officers

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

Consulting Arrangement with Arun Khurana

On September 18, 2007, the Company entered into a consulting agreement with Arun Khurana, its Vice President and Chief Financial Officer, pursuant to which Mr. Khurana will transition from his position as an executive officer of the Company into a consulting role, beginning December 31, 2007 and ending on October 31, 2008. The transition into a consulting role is a part of the Company’s efforts to reduce its expenditures through fiscal 2008 as the Company has decided to focus its efforts on commencing its homebuilding operations.

Pursuant to the consulting agreement, during the consulting term Mr. Khurana will (i) review and provide comments on the Company’s periodic filings with the Securities and Exchange Commission, (ii) advise the Company on its Sarbanes-Oxley Act compliance and implementation efforts, (iii) advise the Company regarding financing and joint venture matters, and (iv) transition his responsibilities to the Vice President of Finance of the Company. During the consulting term, Mr. Khurana will receive a consulting fee of $11,500 per month and all his unvested options to purchase the Company’s common stock vested in full on October 31, 2007.

(9)

Indebtedness

Revolving Credit Facility

On June 29, 2007, Wilson Family Communities entered into a $55 million revolving credit facility with a syndicate of banks led by RBC Bank (formerly RBC Centura Bank), as administrative agent. The Credit Facility allows the Company to obtain revolving credit loans and provides for the issuance of letters of credit. Green Builders has guaranteed the obligations of Wilson Family Communities under the Credit Facility. The amount available at any time under the Credit Facility for revolving credit loans or the issuance of letters of credit is determined by a borrowing base. The borrowing base is calculated as the sum of the values for homes and lots in the subdivision to be developed as agreed to by the Company and the agent. The Company’s obligations under the Credit Facility will be secured by the assets of each subdivision to be developed with the proceeds of loans available under the Credit Facility.

On June 23, 2008, the Company entered into an Agreement to Modify Loan Documents. The Modification Agreement modified the terms of the Loan Agreement by reducing the loan commitment amount from $55 million to $30 million, changing the name of the guarantor under the loan from Wilson Holdings, Inc. (our predecessor entity) to the Company, and modifying certain limitations under the Loan Agreement.

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The credit facility contains customary terms and covenants limiting the Company’s ability to take certain actions, including terms that limit the Company’s ability to place liens on property, pay dividends and other restrictions and payments.

The Credit Facility contains customary covenants limiting our ability to take certain actions, including covenants that:

affect how the Company can develop our properties;

limit the ability to pay dividends and other restricted payments;

limit the ability to place liens on its property;

limit the ability to engage in mergers and acquisitions and dispositions of assets;

require the Company to maintain a minimum net worth of $20,000,000, including subordinated debt (although the minimum net worth may be $17,000,000 for one quarter);

prohibit the ratio of debt (excluding convertible debt) to equity (including convertible debt) from exceeding (A) 1.75 to 1.0 prior to September 30, 2007, (B) 1.85 to 1.0 from September 30, 2007 until March 30, 2008 and (C) 2.0 to 1.0 thereafter;

require the Company to maintain working capital of at least $15,000,000; and

limit the number of completed speculative homes to 12% of the total borrowing base available for homes.

An event of default will occur under the credit facility if certain events occur, including the following:

	·	a failure to pay principal or interest on any loan under the credit facility;

	·	the inaccuracy of a representation or warranty when made;

	·	the failure to observe or perform covenants or agreements;

	·	an event of default beyond any applicable grace period with respect to any other indebtedness;

	·	the commencement of proceedings under federal, state or foreign bankruptcy, insolvency, receivership or similar laws;

	·	a condition where any loan document, or any lien created thereunder, ceases to be in full force and effect;

	·	the entry of a judgment greater than $1,000,000 that remains undischarged; or

a change of control.

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If an event of default occurs under the credit facility, then the lenders may: (1) terminate their commitments under the credit facility; (2) declare any outstanding indebtedness under the credit facility to be immediately due and payable; and (3) foreclose on the collateral securing the obligations.

The Company is currently out of compliance with the terms of the Borrowing Base Agreement due to the total number of completed speculative homes that were included in the “eligible property” as of June 30, 2008. The loan agreement requires that the Company may not exceed more than 12% of the total borrowing base available for homes then included in homes defined as “eligible property.” “Eligible Property” is defined as homes that meet the requirements of the borrowing base agreement for financing under the Master Line and calculation of borrowing availability. The Company is also not in compliance with its developed lot loan covenant. The loan agreement requires that not more than twenty percent (20%) of the “eligible property” owned by Borrower shall consist of developed lots. The Company is operating under a waiver for both covenants; the waiver expires August 29th, 2008. In addition, the Company is not in compliance with an additional developed lot and land covenant. The loan agreement requires that not more than seventy percent (70%) of the company’s tangible assets be in the form of developed lots and land. We are currently in discussions with our lenders regarding this matter and we expect that our lenders will waive our non-compliance with this covenant until such time as we enter into an extension and amendment of our Credit Facility. If the Company is unable to comply with any one or more of these financial covenants, and is unable to obtain a waiver for the non-compliance, the Company could be precluded from incurring additional borrowings and its obligation to repay indebtedness outstanding under the facility could be accelerated in full. The Company can give no assurance that in such an event, it would have or be able to obtain sufficient funds to satisfy all repayment obligations.

The above description of the material terms of the credit facility is not a complete statement of the parties’ rights and obligations with respect to such transactions. The above statements are qualified in their entirety by reference to the Borrowing Base Loan Agreement executed in connection with the credit facility, a copy of which is filed with the Company’s Form 10-QSB for the quarterly period ending June 30, 2007. Amendments to these agreements were filed as exhibits to the Company’s Current Reports on Form 8-K filed June 23, 2008 and July 3, 2008.

The following schedule lists the Company’s notes payable and lines of credit balances at June 30, 2008 and September 30, 2007:

	In Thousands	Rate	Maturity Date		6/30/2008	9/30/2007
a	Line of Credit, $3 million, development	Prime+.50%	Mar-1-08	$	-	472
b	Notes payable, land	12.50%	Mar-1-09		4,700	4,700
c	Notes payable, seller financed	7% & Prime + 2%	Oct. 2010/11		2,475	2,475
d	Notes payable, land	12.50%	Mar-1-09		7,300	7,300
e	Notes payable, development	Prime+.50%	Feb-1-10		-	1,502
f	Notes payable, land and development	Prime+3.00%	Feb-1-09		-	1,440
g	Line of Credit, $30 million facility, land, land development, and homebuilding	Prime+.25%	Aug-31-08		15,758	2,749
i	2005 $10 million, Subordinated convertible notes, net of discount of $393 thousand and $459 thousand, respectively	5.00%	Dec-1-12		9,606	9,541
j	2006 $6.50 million, Subordinated convertible notes, net of discount of $2,433 and $2,786 thousand respectively	5.00%	Sep-1-13		4,067	3,714
		Total		$	43,906	33,893

(a) In March 2006 the Company secured a $3.0 million line of credit development loan, maturing on March 30, 2008, at prime plus 0.50% with a minimum floor of 7.00%, and interest payable monthly. The loan was secured by property being developed totaling approximately 32.6 acres located in Williamson County. The loan was paid in December 2007 and the lots were refinanced as a developed lot loan with our $30 million credit facility

(b) In March 2007, the Company secured a $4.7 million term land loan maturing March 2009. The loan is secured by land of 534 acres located in eastern Travis County. The interest rate on the loan is 12.5%, with interest payable monthly. The loan has no financial covenants.

(c) As part of the purchase of 534 acres in Travis County described above, the Company entered into four notes payable, seller financed with a cumulative balance of approximately $2.5 million. Three of the notes payable with a cumulative balance of $1.9 million are at an interest rate of 7.0% and the fourth note payable issued for approximately $600,000 is at an interest rate of prime rate with an anniversary date of October 28 of each year plus 2.0%. The terms of the note were modified in October 2007 with the principal payments extended for one year. The revised terms of the notes payable now call for quarterly interest payments commencing October 12, 2007 and principal payments of $1.4 million in October 2010 and $1.0 million due in October 2011.

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(d) In February 2007 the company secured a loan of approximately $7.3 million to finance approximately 538 acres. The interest rate is 12.5% annually and requires monthly interest payments, with a maturity of two years and is renewable for an additional year for a 1% loan fee. The loan is secured by the underlying land.

(e) In February 2007 the Company obtained a development loan of approximately $4.6 million. The loan matures on February 1, 2010 and requires quarterly interest payments and principal pay downs as lots are sold. The loan is secured by the property being developed at an interest rate of prime plus 0.50%. The loan was paid in December 2007 and the lots were refinanced as a developed lot loan with our $30 million credit facility

(f) In February 2007 the Company obtained a development loan of approximately $3.1 million to develop approximately 30 acres. The loan has an interest rate of prime plus 3.00%, with interest payable monthly. The loan was paid in December 2007 and the lots were refinanced as a developed lot loan with our $30 million credit facility.

(g) In June 2007 the Company established a $55 million credit facility with a syndicate of banks. In June 2008 the credit facility was reduced to $30 million. The Company currently has approximately $15.8 million in borrowing for land and home construction.

Subordinated Convertible Debt

The Company accounts for all derivative financial instruments in accordance with SFAS No. 133. Prior to 2007, derivative financial instruments were recorded as liabilities in the consolidated balance sheet and measured at fair value. The Company accounted for the various embedded derivative features as being bundled together as a single, compound embedded derivative instrument that was bifurcated from the debt host contract, referred to as the “single compound embedded derivatives.” The single compound embedded derivative features include within the convertible note the conversion feature, the early redemption option and the fixed price conversion adjustment. The initial value of the single compound embedded derivative liability was bifurcated from the debt host contract and recorded as a derivative liability, which resulted in a reduction of the initial carrying amount (as unamortized discount) of the convertible notes. The unamortized discount was amortized using the straight-line method over the life of the convertible note, or 7 years. The penalty warrants were valued based on the fair value of the Company’s common stock on the issuance date using a Black-Scholes valuation model and the unamortized discount was to be amortized as interest expense over the 7-year life of the notes using the straight-line method. In January 2007, the Company adopted FSP EITF 00-19-2. Prior to adoption of FSP EITF 00-19-2, the uncertainty of a successful registration of the shares underlying the subordinated convertible debt required that the freestanding and embedded derivatives be characterized as derivative liabilities. FSP EITF 00-19-2 specifically addressed the accounting for a registration rights agreement and the requirement to classify derivative instruments subject to registration rights agreements as liabilities was withdrawn. The Company re-evaluated its accounting for the subordinated debt transaction and determined that the liability for the penalty warrants be included in the allocation of the proceeds to the various components of the transaction according to paragraph 16 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.” The Company also determined the notes contained a beneficial conversion feature under Issues 98-5 and 00-27, and used the effective conversion price based on the proceeds allocated to the convertible instrument to compute the intrinsic value of the embedded conversion option. The Company recalculated the discount on the convertible debt at its intrinsic value and re-characterized the freestanding and embedded derivatives as equity. The previous valuation adjustments of the derivative liabilities were reversed and the amortization of the discounts was adjusted based upon the recalculation. Per FSP EITF 00-19-2, the Company was permitted to adjust the previous amounts as a cumulative accounting adjustment.

The net effect of the change increased the net carrying amount of the subordinated convertible debt and eliminated the derivative liabilities. There was also an increase of $4.8 million in total stockholders’ equity. During the year ended December 31, 2006, the Company recognized approximately $8.5 million of loss on fair value of derivatives related to the subordinated convertible debt. For the nine months ended June 30, 2007, the Company recognized a loss of $5,076,957 on fair value of derivates related to the subordinated convertible debt. Under the new FSP EITF 00-19-2 the derivatives were eliminated and hence there will no longer be gains and losses related to the current subordinated convertible debt.

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2005, $10MM, 5%, Subordinated Convertible Debt

On December 19, 2005, the Company issued $10 million in aggregate principal amount of 5% subordinated convertible debt due December 1, 2012 to certain purchasers. The following are the key features of the subordinated convertible debt: interest accrues on the principal amount of the subordinated convertible debt at a rate of 5% per annum and the debt is payable semi-annually on May 1 and December 1 of each year, with interest payments beginning on June 1, 2006. The subordinated convertible debt is due on December 1, 2012 and is convertible, at the option of the holder, into shares of our common stock at a conversion price of $2.00 per share. The conversion price is subject to adjustment for stock splits, reverse stock splits, recapitalizations and similar corporate actions. An adjustment in the conversion price is also triggered upon the issuance of certain equity or equity-linked securities with a conversion price, exercise price, or share price less than $2.00 per share. The anti-dilution provisions state the conversion price cannot be lower than $1.00 per share.

The Company may redeem all or a portion of the subordinated convertible debt after December 1, 2008 at a redemption price that incorporates a premium that ranges from 3% to 10% during the period beginning December 1, 2008 and ending on the due date. In addition, the redemption price will include any accrued but unpaid interest on the subordinated convertible debt. Upon a change in control event, each holder of the subordinated convertible debt may require us to repurchase some or all of its subordinated convertible debt at a purchase price equal to 100% of the principal amount of the subordinated convertible debt plus accrued and unpaid interest. The due date may accelerate in the event the Company commences any case relating to bankruptcy or insolvency, or related events of default. The Company’s assets will be available to pay obligations on the subordinated convertible debt only after all senior indebtedness has been paid.

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

The Company also issued warrants to purchase an aggregate of 750,000 shares of common stock to the purchasers of the subordinated convertible debt, 562,500 shares which vested and the remaining shares will never vest. The warrants were exercisable only upon the occurrence of certain events and then only in the amount specified as follows: (i) with respect to 25% of the warrant shares, on February 3, 2006 if the registration statement shall not have been filed with the SEC by such date (the Company filed a Form SB-2 registration statement on February 2, 2006); (ii) with respect to an additional 25% of the warrant shares, on April 19, 2006 if the registration statement shall not have been declared effective by the SEC by such date; (iii) with respect to an additional 25% of the warrant shares, on May 19, 2006 if the registration statement shall not have been declared effective by the SEC by such date; and (iv) with respect to the final 25% of the warrant shares, on June 18, 2006 if the registration statement shall not have been declared effective by the SEC by such date. Management has recorded the fair value of these warrants due to the uncertainty surrounding the timeline of getting the registration statement effected and the high probability that these warrants would be issued. The shelf registration statement relating to these warrants was declared effective on August 1, 2006 and 562,500 of these warrants have vested and the remaining 187,500 warrants will never vest.

The penalty warrants were valued based on the fair value of the Company’s common stock on the issuance date of $1.60, using a Black-Scholes approach, risk free interest rate of 4.25%; dividend yield of 0%; weighted-average expected life of the warrants of 10 years; and a 60% volatility factor, resulting in an allocated value of approximately $613,000. The penalty warrants are recorded as part of the debt discount and an increase in additional paid in capital, and amortized over the 7-year life of the notes using the straight-line rate method.

The Company also incurred closing costs of $588,000 which included placement agent fees of $450,000 plus reimbursement of expenses to the placement agent of $125,000, plus 750,000 fully vested warrants to purchase Company’s common stock at $2.00 per share with a 10 year exercise period, valued at $829,000, for a total of $1.4 million, recorded as debt issuance costs, to be amortized over the 7-year life of the notes using the straight line method. These warrants were valued based on the fair value of the Company’s common stock of $1.60, using a Black-Scholes valuation model, at a $2.00 exercise price, risk free interest rate of 4.25%; dividend yield of 0%; weighted-average expected life of warrants of 10 years; and a 60% volatility factor.

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Subordinated Convertible Note at June 30, 2008 and September 30, 2007:

	June 30, 2008			September 30, 2007
Notional balance	$	10,000,000			10,000,000
Unamortized discount		(393,772	)		(459,400	)
Subordinated convertible debt balance, net of unamortized discount	$	9,606,228			9,540,600

2006, $6.5MM, 5%, Subordinated Convertible Debt

On September 29, 2006, the Company raised capital of $6.75 million in aggregate principal amount of 5% subordinated convertible debt due September 1, 2013, to certain purchasers. As of December 31, 2006, $6.75 million had been received in cash, the remaining $250,000 was a receivable from an owner of land that the Company had under option to purchase. During the quarter ended June 2007, the Company did not exercise its option to purchase the land and therefore does not expect to receive the additional $250,000. In addition, during the quarter ended June 30, 2007, one of our convertible debt holders who is also the seller of Bohl’s tract purchased common stock with a promissory note. Under the terms of the promissory note, should the Company not exercise the option to purchase the Bohl’s tract the convertible debt would be used for repayment of the promissory note. As the Company did not exercise the option to purchase Bohl’s tract the promissory note was repaid from the repayment of the convertible debt. The following are the key features of the subordinated convertible debt: interest accrues on the principal amount of the subordinated convertible debt at a rate of 5% per annum, payable semi-annually on March 1 and September 1 of each year, with interest payments beginning on March 1, 2006. The subordinated convertible debt is due on September 1, 2013 and is convertible, at the option of the holder, into shares of common stock at a conversion price of $2.00 per share. The conversion price is subject to adjustment for stock splits, reverse stock splits, recapitalizations and similar corporate actions. An adjustment in the conversion price is also triggered upon the issuance of certain equity or equity-linked securities with a conversion price, exercise price, or share price less than $2.00 per share. The anti-dilution provisions state the conversion price cannot be lower than $1.00 per share.

The Company may redeem all or a portion of the subordinated convertible debt after September 1, 2009 at a redemption price that incorporates a premium that ranges from 3% to 10% during the period beginning September 1, 2009 and ending on the due date. In addition, the redemption price will include any accrued but unpaid interest on the subordinated convertible debt. Upon a change in control event, each holder of the subordinated convertible debt may require us to repurchase some or all of its subordinated convertible debt at a purchase price equal to 100% of the principal amount of the subordinated convertible debt plus accrued and unpaid interest. The due date may accelerate in the event the Company commences any case relating to bankruptcy or insolvency, or related events of default. The Company’s assets will be available to pay obligations on the subordinated convertible debt only after all senior indebtedness has been paid.

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

The Company also issued warrants to purchase an aggregate of 506,250 shares of common stock to the purchasers of the subordinated convertible debt. The warrants are exercisable only upon the occurrence of certain events and then only in the amount specified as follows: (i) with respect to 25% of the warrant shares, on November 13, 2006 if the registration statement shall not have been filed with the SEC by such date (the Company filed a Form SB-2 registration statement on October 16, 2006); (ii) with respect to an additional 25% of the warrant shares, on January 27, 2007 if the registration statement shall not have been declared effective by the SEC by such date; (iii) with respect to an additional 25% of the warrant shares, on February 26, 2007 if the registration statement shall not have been declared effective by the SEC by such date; and (iv) with respect to the final 25% of the warrant shares, on March 28, 2007 if the registration statement shall not have been declared effective by the SEC by such date. The Company met certain of these milestones and has recorded 75% of the fair value of these warrants but the registration statement was not declared effective by the SEC prior to March 28, 2007 and therefore 75% of the warrant shares have vested and remain exercisable. The Company also incurred closing costs of $140,000, including placement agent fees of approximately $70,000 plus reimbursement of expenses to the placement agent of $25,000, for a total of $95,000 to the placement agent, recorded as debt issuance costs, to be amortized over the 7-year life of the notes using the straight-line rate method.

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The issuance of the debt resulted in an embedded beneficial conversion feature valued at approximately $2.5 million, which will be recorded as part of the debt discount and an increase in additional paid in capital, and amortized over the 7-year life of the notes using the straight-line rate method.

The penalty warrants were based on the fair value of the Company’s common stock on the issuance date of $1.91, using a Black-Scholes approach, risk free interest rate of 4.64%; dividend yield of 0%; weighted-average expected life of the warrants of 10 years; and a 60% volatility factor. The allocated value of the penalty warrants totaled approximately $846,000 and are recorded as part of the debt discount and an increase in additional paid in capital, and amortized over the 7-year life of the notes using the straight-line rate method.

Convertible Note at June 30, 2008 and September 30, 2007:

	June 30, 2008			September 30, 2007
Notional balance	$	6,500,000			6,500,000
Unamortized discount		(2,432,687	)		(2,785,820	)
Subordinated convertible debt balance, net of unamortized discount	$	4,067,313			3,714,180

(10) Common Stock

The Company is authorized to issue 100,000,000 shares of common stock.

Each common stockholder is entitled to one vote per share of common stock owned.

The Company sold 5,000,000 shares of common stock in a public offering at $3.25 per share that closed on May 19, 2007 and concurrently began trading on the American Stock Exchange under the symbol “WIH.” The stock is now being traded under the ticker symbol “GBH.” The Company incurred the following transaction costs related to the financing:

(In thousands)
Cash paid to investment banker for underwriting and other fees	$	1,219
Legal, printing, accounting and stock exchange registration fees		497
Travel and selling related costs		503
Warrants to purchase 500,000 shares at $4.06 with a fair value based on the Black-Scholes option pricing model with a risk free interest rate of 4.64%; dividend yield of 0%; weighted-average expected life of the warrants of 1 years; and a 60% volatility factor at $0.56 per warrant.		280
Total expenses	$	2,499

During June 2007, the Company issued 80,000 shares of common stock for the purchase of Green Builders, Inc.

(11) Common Stock Option / Stock Incentive Plan

In August 2005, the Company adopted the 2005 Stock Option/Stock Issuance Plan (the “Stock Option Plan”). The plan contains two separate equity programs: 1) the Option Grant Program for eligible persons at the discretion of the plan administrator to be granted options to purchase shares of common stock, and 2) the Stock Issuance Program under which eligible persons may, at the discretion of the plan administrator, be issued shares of common stock directly, either through the immediate purchase of such shares or as a bonus for services rendered to the Company or any parent or subsidiary. The market value of the shares underlying option issuance prior to the merger of the Company and WFC was determined by the Board of Directors as of the grant date. This plan was assumed by WFC. The fair value of the options granted under the plan was determined by the Board of Directors prior to the merger of the Company and WFC.

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

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The stock issued under the Stock Option Plan shall not exceed 2,500,000 shares. Unless terminated at an earlier date by action of the Board of Directors, the Stock Option Plan terminates upon the earlier of (1) the expiration of the ten year period measured from the date the Stock Option Plan is adopted by the Board or (2) the date on which all shares available for issuance under the Stock Option Plan shall have been issued as fully-vested shares.

The Company had 883,852 shares of common stock available for future grants under the Stock Option Plan at June 30, 2008. Compensation expense related to the Company’s share-based awards for the three months ended June 30, 2008 and 2007 was approximately $83,000 and $165,000, respectively. For the nine months ended June 30, 2008 and 2007 the Compensation expense related to the Company’s share-based awards was approximately $759,000 and $400,000, respectively.

Before January 1, 2006, options granted to non-employees were recorded at fair value in accordance with SFAS No. 123 and EITF 96-18. These options are issued pursuant to the Stock Option Plan and are reflected in the disclosures below.

During the three months ended June 30, 2008, the Company issued options to purchase 45,000 shares of common stock at an exercise price of $0.86 per share which was equal to the closing price of our common stock as reported on the American Stock Exchange on the date of grant. Using the Black-Scholes pricing model with the following weighted-average assumptions: risk free interest rate of 4.64%; dividend yields of 0%; weighted average expected life of options of 5 years; and a 60% volatility factor. Based on these assumptions, management estimated the fair market value of the grants to be $0.48 per share. Management estimated the volatility factor based on an average of comparable companies due to its limited trading history.

A summary of activity in common stock options for the three months and nine months ended June 30, 2008 are as follows:

				Range of
	Share Roll			Exercise Prices		Weighted Avg
	Forward				(1)	Exc Price
Balance September 30, 2007		1,835,000		$	1.65-3.25	$	2.50
Granted		230,000		$	0.91-1.78	$	1.50
Forfeited		(411,667	)	$	0.93-3.25	$	1.82
Balance March 31, 2008		1,653,333		$	0.91-3.25	$	2.54
Grants		45,000		$	0.86	$	0.86
Forfeited		(82,185	)	$	0.86-3.25	$	1.92
Balance June 30, 2008		1,616,148		$	0.86-3.25	$	2.52

(1) For each option, the exercise price per share was equal to the closing price of our common stock as reported on the American Stock Exchange on the date of grant.

The following is a summary of options outstanding and exercisable at June 30, 2008:

Outstanding			Vested
				Weighted
				Average
Number of Shares	Weighted Average	Weighted		Remaining	Weighted
Subject to Options	Remaining Contractual Life	Average	Number of	Contractual	Average
Outstanding	(in years)	Exercise Price	Vested Shares	Life (in years)	Exercise Price
1,616,148	6.03	$ 2.52	1,127,647	4.84	2.70

At June 30, 2008, there was approximately $781,000 of unrecognized compensation expense related to unvested share-based awards granted under the Company’s Stock Option Plan. In February 2007, the Company’s Board approved an 819,522 share increase in the number of shares issuable pursuant to its option plan for a total of 2,500,000 shares issuable under the plan.

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(12) Purchase of Green Builders, Inc.

On June 19, 2007, the Company purchased Green Builders, Inc. for $65,000 in cash and 80,000 shares of the Company’s common stock which was valued at $2.70 per share on the date of the transaction. The total purchase price for the acquisition was approximately $281,000. In addition the Company spent approximately $24,000 in legal fees for the purchase. The Company allocated the purchase price and legal fees to trademark with indefinite life in accordance with SFAS 142.


Cash	$	17,081
Accounts Receivable		2,900
Accounts Payable		(6,190	)
Trademarks		292,691
Others		(9,276	)
	$	297,206

In conjunction with the acquisition, the Company increased the size of its Board of Directors from four to five persons, and appointed Victor Ayad as a director of the Company. Mr. Ayad was the President and sole shareholder of Green Builders, Inc. prior to the acquisition. The pro forma effect of the acquisition on the Company’s income was not material and is already consolidated into the Company’s results as a VIE under FIN 46(R).

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I t e m 2. Management’s Discussion and Analysis or Plan of Operation

The following discussion and analysis or plan of operation should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see the “Caution Regarding Forward-Looking Information; Risk Factors” above and “Risk Factors” below for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Green Builders, Inc., (the “Company”), is a Texas corporation formerly known as Wilson Holdings, Inc, a Nevada corporation. Effective April 4, 2008, Wilson Holdings, Inc, a Nevada corporation, completed its reincorporation to the State of Texas pursuant to the Plan of Conversion as ratified by the shareholders at the 2008 annual meeting of shareholders held on April 3, 2008. As part of the reincorporation, a new Certificate of Formation was adopted and Wilson Holdings, Inc.’s corporate name was changed to Green Builders, Inc., and the Certificate of Formation will now govern the rights of holders of the Company’s common stock. The Company has been using the name “Green Builders” in its regular business operations since June 2007 and will continue to do so. Effective April 8, 2008, the Company’s common stock began trading under the symbol “GBH” on the American Stock Exchange.

Historically our business plan was focused on the acquisition of undeveloped land that we believe, based on our understanding of population growth patterns and infrastructure development, is strategically located. This portion of our business focus has required, and is expected to continue to require, the majority of our financial resources. The Company is actively pursing placing its land positions into joint ventures to limit that amount of capital required for these assets. We have funded these acquisitions primarily with bank debt and cash from capital raises. In tandem with our land acquisition efforts and based upon our strategic market analysis, we also prepare land for homebuilding. We commenced homebuilding activities in June 2007. We believe that as the central Texas economy expands, the strategic land purchases, land development activities and homebuilding activities will enable us to capitalize on the new growth centers we expect will be created.

A primary focus of our business has been the sale of developed lots to homebuilders, including national homebuilders. Due to deteriorating conditions in the market for homes and in the homebuilding industry both nationally and to a lesser extent locally, during the second quarter of 2007 and continuing through August 2008, demand for finished lots by national homebuilders is and we expect will continue to be significantly reduced. As a result, orders placed for some of our finished lots were cancelled. We elected to retain some of our lots for use in our new homebuilding business (described below). We believe retaining some of our lots for use in homebuilding activities will allow us to generate homebuilding revenue to replace revenue from the loss of sales of these finished lots. We will continue to pursue lot sales contracts with both national and regional builders.

In June 2007 we purchased Green Builders, Inc. and commenced our homebuilding operations under that name. We are in the process of developing the Green Builders brand. Our strategy is to build homes that are environmentally responsible, resource efficient and consistent with local style. Our home designs will be selected and prepared for each of our markets based on local community tastes and the preferences of homebuyers. Substantially all of our construction work will be performed by subcontractors who will be retained for specific subdivisions pursuant to contracts entered in 2007 and 2008. We intend to build homes on the majority of the lots we currently have under development and sell those finished homes. In order to expand the business and increase home closings in future years, we have entered into a purchase lot contract that would allow us to purchase finished lots beginning in fiscal year 2009. Furthermore, we are currently negotiating with other developers to enter into agreements that would give us the option to purchase additional finished lots in the future.

Although central Texas has been less affected than other areas, national real estate trends have an impact on home buyers and lenders and we believe that sales of new homes in our market will continue to decline in fiscal year 2008. We believe this slowdown is attributable to a decline in consumer confidence, the inability of some buyers to sell their current homes and the direct and indirect impact of the well-publicized turmoil in the mortgage and credit markets. Due to current market conditions, we believe that we will see a reduction in revenue from home and lot sales in fiscal 2008. We are considering selling tracts of commercial and residential land in order to raise additional cash.

We are actively pursing entering into joint venture arrangements with other land developers and builders in order to preserve cash in case the slowdown continues to impact our business for a long time.

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Results of Operations

	Three Months Ended June 30
	2008			2007			Change			Change %
	(in thousands)
Revenues
Homebuilding and related services revenues	$	2,754		$	320		$	2,434		%	761
Land revenues		709			1,064			(355	)		(33	)
Gross Profit
Homebuilding and related services gross profit		214			114			100			88
Land gross profit		164			(937	)		1,101			118
Costs & Expenses
Operating expenses		1,602			1,831			(229	)		(13	)
Operating Income (Loss)		(1,224	)		(2,654	)		1,430			54
Net Income (Loss)	$	(2,023	)	$	(3,316	)	$	1,293		%	39

	Nine Months Ended June 30
	2008			2007			Change			Change %
	(in thousands)
Revenues
Homebuilding and related services revenues	$	3,239		$	2,150		$	1,089		%	51
Land revenues		2,475			2,471			4			0
Gross Profit
Homebuilding and related services gross profit		293			601			(308	)		(51	)
Land gross profit		998			(779	)		1,778			228
Costs & Expenses
Operating expenses		4,989			4,262			727			17
Operating Income (Loss)		(3,698	)		(4,440	)		742			17
Net Income (Loss)	$	(6,026	)	$	(11,437	)	$	5,412		%	47

Homebuilding and Related Services

Background - Homebuilding and related services revenue consists of revenue from home sales and from providing services to our homebuilder customers. Prior to fiscal year 2008, all home sales were generated by our homebuilder customers utilizing our homebuilder services. We ceased providing services to homebuilder customers in August 2007 and any future revenues from home sales will be from the sale of homes we build through our Green Builders brand. We consolidate our homebuilder customers into our operating results based on accounting requirements according to FIN 46(R) and refer to these homebuilder customers as Variable Interest Entities, or VIEs.

Revenues - During the three months ended June 30, 2008, we had revenues from homebuilding of $2.8 million. For the three months ended June 30, 2007, all of the homebuilding revenues were generated by one VIE consolidated into our operating results. The increase in revenues was primarily due to our transition into homebuilding and away from providing services to homebuilder customers.

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Gross Profit - Gross Profit on homebuilding and related services increased by $100,000 for the three months ended June 30, 2008, compared to the same period in 2007 due to the increase in sales during the period. Gross margins decreased compared to last year primarily due to higher sales incentives offered to homebuyers.

In June 2007 we acquired Green Builders and have commenced our homebuilding activities. We plan to sell homes in the Austin, Texas area for prices ranging from $180,000 to $600,000. For the three months ended June 30, 2008 we were actively building in three communities and had a total of 27 sales and 12 closings. We have 12 completed speculative units, seven speculative units under construction, nine completed models, and 16 units in backlog. Backlog is defined as homes under contract but not yet delivered to our home buyers. Although we feel that the central Texas market is relatively strong, we believe that the turmoil in the mortgage market combined with national publicity of a potential recession has caused a lack of urgency for buyers. As such, sales and sales revenues were lower than anticipated for the three months ended June 30, 2008 and we expect that they will continue to be slow throughout fiscal year 2008. In accordance with these expected market conditions, our strategy is to build a limited number of speculative units per community and build the majority of our homes after a contract is entered into with a homebuyer.

La nd and Land Development

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

Revenues – Revenue from the sale of land decreased 33% during the three months ended June 30, 2008 compared to the same period in 2007. For the three months ended June 30, 2008, land sale revenues came from the sale of developed finished lots in the Georgetown Village project, located in the City of Georgetown, Texas. The decrease compared to the same period in 2007 was primarily due to the decrease in land sales in the Rutherford West project. In addition revenues declined due to the defaulting of a regional builder for a contract in the Georgetown Village project.

Gross Profit - Gross profit on land and land development increased by $1.1 million for the three months ended June 30, 2008 compared to the same period in 2007 due to previously written off expenses for the Bohl’s Tract in 2007.

We are considering selling tracts of undeveloped or developed land in order to increase revenue from the sale of land in 2008 to counteract the anticipated slowdown in revenue from homebuilding activity. We anticipate that sales from developed lots will be slow in fiscal 2008 due to the decreased demand for finished lots from national homebuilders.

General and Administrative Expenses

	Three Months Ended June 30
Breakdown of G&A Expenses	2008		2007		Change			% Change
Salaries, benefits, payroll taxes and related emp. exps.	$	378,841	$	473,788		(94,947	)		-20	%
Stock compensation expense		83,272		165,000		(81,728	)		-50	%
Legal, accounting, auditing, and investor relations		114,968		222,658		(107,690	)		-48	%
Consultants		83,903		189,340		(105,437	)		-56	%
General overhead, including office expenses, insurance, and travel		241,479		404,500		(163,021	)		-40	%
Amortization of subordinated debt costs and transaction costs		62,385		91,808		(29,423	)		-32	%
Total G&A	$	964,848	$	1,547,094		(582,246	)		-38	%

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	Nine Months Ended June 30
Breakdown of G&A Expenses	2008		2007		Change			% Change
Salaries, benefits, payroll taxes and related emp. exps.	$	1,256,820	$	1,081,318		175,502			16	%
Stock compensation expense		758,907		399,909		358,998			90	%
Legal, accounting, auditing, and investor relations		471,940		518,399		(46,459	)		-9	%
Consultants		224,709		251,913		(27,204	)		-11	%
General overhead, including office expenses, insurance, and travel		704,670		800,535		(95,865	)		-12	%
Amortization of subordinated debt costs and transaction costs		177,759		476,509		(298,750	)		-63	%
Total G&A	$	3,594,805	$	3,528,583		66,222			2	%

General and administrative expenses are composed primarily of salaries of general and administrative personnel and related employee benefits and taxes. During the three months ended June 30, 2008 and 2007, salaries, benefits, taxes and related employee expenses totaled approximately $379,000 and $474,000, respectively, and represented approximately 40% and 31%, respectively, of total general and administrative expenses for the periods. The decrease for the three months ended is due to an entry for a bonus accrual for $189,000 that was not paid out, offset by an increase in expenses for additional headcount to support the homebuilding business.

Stock compensation expense was approximately $83,000 and $165,000 for the three months ended June 30, 2008 and 2007, respectively. The decrease in stock compensation expense for the three months June 30, 2008 was due to the acceleration of our former CFO’s stock option expense recognized in prior quarters.

Legal, accounting, audit and investor relations expense totaled $114,000 and $223,000 for the three months ended June 30, 2008 and 2007, respectively. For the three months ended June 30, 2008, the decrease in legal, accounting, audit, and investor relations expenses was due to the expenses in prior quarter to set up our homebuilding business.

Consultant expenses were approximately $84,000 and $189,000 for the three months ended June 30, 2008 and 2007, respectively. These expenses decreased due to a decrease in consulting services for the development of our homebuilding activities.

General overhead expenses, including rent, office expenses and insurance totaled $242,000 and $405,000 for the three months ended June 30, 2008 and 2007, respectively. The decrease was due to approximately $175,000 write-down of assets relating to the termination of our homebuilder services client recorded in the three months June 30, 2007.

Amortization of subordinated convertible debt issuance costs and transaction costs was approximately $62,000 and $92,000 for the three months ended June 30, 2008 and 2007. This decrease is attributable due to the adoption of FSP 00-10-2.

Selling and Marketing Expenses

	Three Months Ended June 30
	2008		2007		Change			% Change
Salaries and related employee expenses	$	34,565	$	14,963		19,602			131	%
Advertising, public relations, and marketing		465,564		106,015		359,549			339	%
Commisions and closing expenses		137,326		163,281		(25,955	)		-16	%
Selling and Marketing Expenses	$	637,455	$	284,259		353,196			124	%


	Nine Months Ended June 30
	2008		2007		Change			% Change
Salaries and related employee expenses	$	107,060	$	101,366		5,694			6	%
Advertising, public relations, and marketing		1,077,137		210,970		866,167			411	%
Model expenditures				59,217		(59,217	)		-100	%
Commisions and closing expenses		209,806		361,484		(151,678	)		-42	%
Selling and Marketing Expenses	$	1,394,003	$	733,037		660,966			90	%

Sales and marketing expenses include selling costs, salaries and related taxes and benefits, marketing activities including websites, brochures, catalogs, signage, and billboards, and market research, all of which benefit our corporate presence and are not included as homebuilding cost of sales. The increase was due to increased marketing expenses to help develop our homebuilding business, increase awareness of our brand through development of our website, advertising, public relations, and community marketing initiatives and to sell our existing inventory.

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We expect to see a decline in advertising, public relations, and marketing costs in the next twelve months due to the fact that the major start-up costs of building our brand through the website, through an advertising campaign, and public relations have been completed.

Interest and Other Expense and Income

	Three Months Ended June 30
	2008			2007			Change			% Change
Loss on fair value of derivatives	$	-		$	-			-			0	%
Interest expense - convertible debt		206,258			210,313			(4,055	)		-2	%
Interest discount expense - convertible debt		139,587			321,464			(181,877	)		-57	%
Interest expense - land and development loans		563,511			232,134			331,377			143	%
Interest income and misc income		(110,788	)		(102,386	)		(8,402	)		8	%
Total interest and other expense and income	$	798,568		$	661,525			137,043			21	%

	Nine Months Ended June 30
	2008			2007			Change			% Change
Loss on fair value of derivatives	$	-		$	5,076,957			(5,076,957	)		-100	%
Interest expense - convertible debt		627,197			628,994			(1,797	)		0	%
Interest discount expense - convertible debt		418,761			777,991			(359,230	)		-46	%
Interest expense - land and development loans		1,551,412			693,671			857,741			124	%
Interest income and misc income		(269,746	)		(180,379	)		(89,367	)		50	%
Total interest and other expense and income	$	2,327,624		$	6,997,234			(4,669,610	)		-67	%

Interest expense for land and development loans increased by approximately $331,000 for the three months ended June 30, 2008 over the same period in 2007. The increase is attributable to our determination to expense, rather than to capitalize, interest related to property temporarily not under development. In addition, discount expense for the convertible debt decreased due to the adoption of FSP 00-10-2.

Financial Condition and Capital Resources

Liquidity

On June 30, 2008 we had approximately $4.9 million in cash and cash equivalents. We completed a public offering of our common stock in May 2007, resulting in net proceeds to us of approximately $14 million.

On June 29, 2007, Wilson Family Communities entered into a $55 million revolving credit facility (the “Credit Facility”) with a syndicate of banks led by RBC Bank (formerly RBC Centura Bank), as administrative agent. The credit facility was reduced to $30 million in June 2008. Green Builders has guaranteed the obligations of Wilson Family Communities under the Credit Facility. The Credit Facility allows us to obtain revolving credit loans and provides for the issuance of letters of credit. The amount available at any time under the Credit Facility for revolving credit loans or the issuance of letters of credit is determined by a borrowing base. The borrowing base is calculated as the sum of the values for homes and lots in the subdivision to be developed as agreed by us and the agent. Our obligations under the Credit Facility will be secured by the assets of each subdivision to be developed with the proceeds of loans available under the Credit Facility.

The initial maturity date for the Credit Facility was June 29, 2008. On July 2, 2008, we entered into an agreement to modify the loan documents and extend the maturity date to August 29, 2008. The facility will be reviewed by our syndicate of banks and renewed for successive 12 month periods, so long as the following items have been satisfied: no event of default shall exist, no material adverse effect in our financial condition, operations, business or management shall exist and extension fees in the amount determined by the agent and all costs associated incurred in connection with the proposed extension must be paid. The final borrowing base calculation will be made twelve months prior to the termination of the Credit Facility and no borrowings may be made in excess of such amount. As June 30, 2008, the Credit Facility has loaned approximately $15.8 million and issued a $179,000 letter of credit. We are not currently in compliance with certain of the covenants under the facility as describe in more detail below. Although we are currently negotiating with our banks, this non-compliance may cause the syndicate of banks not to renew this line of credit upon its maturity on August, 29, 2008.

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Outstanding borrowings under the Credit Facility bear interest at the prime rate plus 0.25%, with a floor of 5.5%. We are charged a letter of credit fee equal to 1.10% of each letter of credit issued under the Credit Facility. We may elect to prepay the Credit Facility at any time without premium or penalty. Quarterly principal reductions are required during the final 12 months of the term.

The Credit Facility contains customary covenants limiting our ability to take certain actions, including covenants that

affect how we can develop our properties;

limit the ability to pay dividends and other restricted payments;

limit the ability to place liens on its property;

limit the ability to engage in mergers and acquisitions and dispositions of assets;

require the Company to maintain a minimum net worth of $20,000,000, including subordinated debt (although the minimum net worth may be $17,000,000 for one quarter);

require the Company to maintain working capital of at least $15,000,000; and

limit the number of completed speculative homes to 12% of the total borrowing base available for homes.

An event of default will occur under the Credit Facility if certain events occur, including the following:

a failure to pay principal or interest on any loan under the Credit Facility;

the inaccuracy of a representation or warranty when made;

the failure to observe or perform covenants or agreements;

an event of default beyond any applicable grace period with respect to any other indebtedness;

the commencement of proceedings under federal, state or foreign bankruptcy, insolvency, receivership or similar laws;

any loan document, or any lien created thereunder, ceases to be in full force and effect;

the entry of a judgment greater than $1,000,000 that remains undischarged; or

a change of control.

If an event of default occurs under the Credit Facility, then the lenders may: (1) terminate their commitments under the Credit Facility; (2) declare any outstanding indebtedness under the Credit Facility to be immediately due and payable; and (3) foreclose on the collateral securing the obligations.

We are currently out of compliance with the terms of the Borrowing Base Agreement under the Credit Facility due to the total number of completed speculative homes and land and lot inventory that were included in the definition of “eligible property” as of June 30, 2008 and are operating under a wavier which expires August 29, 2008. Per the Borrowing Base Agreement, we may not exceed more than 12% of the total borrowing base available for homes then included in homes defined as “eligible property.” “Eligible Property” is defined as homes that meet the requirements of the borrowing base agreement for financing under the Master Line and calculation of borrowing availability. In addition, we are not in compliance with an additional developed lot and land covenant. The loan agreement requires that not more than seventy percent (70%) of our tangible assets be in the form of developed lots and land. We are currently in discussion with our lenders regarding this matter and we expect that our lenders will waive our non-compliance with this covenant until such time as we enter into an extension and amendment of our Credit Facility. If we are unable to comply with any one or more of these financial covenants, and are unable to obtain a waiver for the noncompliance, we could be precluded from incurring additional borrowings and our obligation to repay indebtedness outstanding under the facility, our term loans, and our outstanding note indentures could be accelerated in full. In addition, the banks may elect not to extend the term of the line of credit when it matures on August 29, 2008. We can give no assurance that in such an event, we would have, or be able to obtain, sufficient funds to pay all debt required to repay.

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

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Our growth will require substantial amounts of cash for earnest money deposits, land purchases, development costs, interest payments and homebuilding costs. Until we begin to sell an adequate number of lots and homes to cover our monthly operating expenses, our sales, marketing, general and administrative costs will deplete cash. Due to current market conditions and slow home and land sales, we may need to additional capital and are actively looking into joint ventures to support future growth and current operations for the next twelve months.

Capital Resources

We have raised approximately $16.5 million of subordinated convertible debt, and approximately $14 million in a public offering of the Company’s common stock completed in May 2007. The Company entered into a $55 million revolving Credit Facility that was reduced to $30 million in June 2008.

Due to a change in market conditions discussed above and a longer than expected acceleration of homebuilding operations, our financial projections have changed. We are considering selling tracts of commercial and residential land in order to increase sales revenues and increase cash. We expect that we will incur significant losses in 2008. Due to current market conditions and slow home and land sales, we may need to raise additional capital and are actively looking into entering joint ventures with our land to support future growth and current operations for the next twelve months.

Land and homes under construction comprise the majority of our assets. These assets could suffer devaluation if the housing and real estate market for central Texas suffers a significant downturn. Our debt secured by our real estate holdings might then be called which may require us to liquidate assets to satisfy our debt obligations. A significant downturn could also make it more difficult for us to liquidate assets, to raise cash and to pay off debts, which could have a material adverse effect on the Company.

Off-Balance Sheet Arrangements

As of June 30, 2008, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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

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

Consolidation of Variable Interest Entities

We offer certain homebuilder clients surety for their interim construction loans and cash advances to facilitate sales of our residential lots. We may be considered the primary beneficiary as defined under FASB Interpretation No. 46(R) (“FIN 46(R)”), “Consolidation of Variable Interest Entities” (VIE), and the Company may have a significant, but less than controlling, interest in the entities. We account for each of these entities in accordance with FIN 46(R). Management uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, any of these entities. Factors considered in determining whether we have significant influence or has control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement.

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Inventory

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

Revenue Recognition

Use of Estimates

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

Municipal Utility and Water District Reimbursements

We currently have planned the community of Villages of New Sweden within the boundaries of New Sweden Municipal Utility District No. 1 and the community of Rutherford West in Greenhawe Water Control and Improvement District No. 2. We incur development costs for the initial creation and operating costs of these Districts and continuing costs for the water, sewer and drainage infrastructure for these Districts. The Districts will issue bonds to repay us, once the property has sufficient assessed value for the District taxes to repay the bonds. As the project is completed and homes are sold within the District, the assessed value increases. It can take several years before the assessed value is sufficient to provide sufficient tax revenue for us to recapture its costs. We estimate that we will recover approximately 50 to 100% of eligible initial creation and operating costs spent through June 30, 2008 We have completed Phase 1 for the Rutherford West project and have approximately $980,000 of water district reimbursements included in inventory that we anticipate will be collected from bond issuances made by the District. We anticipate the first reimbursement will be approximately $500,000 in March 2009. When the reimbursements are received we will record them as reductions of the related asset’s balance. Usually, a District issues its first bond issue only after completion of construction of approximately 200 houses. The Districts will pay for property set aside for the preservation of endangered species, greenbelts and similar uses. To the extent that the estimates are dramatically different from the actual facts, it could have a material effect on our financial statements.

Convertible Debt

The subordinated convertible debt and the related warrants have been accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” EITF 00-27, “Application of issue 98-5 to Certain Convertible Instruments”, EITF 05-02 “Meaning of ‘Conventional Convertible Debt Instrument’ in Issue No. 00-19”, and EITF 05-04 “The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19” updated with FSP EITF 00-19-2”, Accounting for Registration Payment Arrangements.

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Recent Accounting Pronouncements

See Note 2 of our condensed consolidated financial statements included under Item 1 of this Report for a discussion of new accounting pronouncements applicable to our company.

Risk Factors

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Our annual report on Form 10-KSB for the transition period ended September 30, 2007 described various risk factors applicable to our business in Part I, Item 1 “Risk Factors”. The risks and uncertainties described in our Form 10-KSB are not the only ones we face. Additional risks and uncertainties that we do not presently know, or that we currently view as immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.

The actual occurrence of any of the risks described in our Form 10-KSB could materially harm our business, financial condition and results of operations. In that case, the trading price of our common stock could decline.

We were required to obtain a waiver of non-compliance with certain covenants under our borrowing base agreement. In the event that we are not able to regain compliance with the covenant and the lender declines to waive our non-compliance in the future, we may be required to repay amounts owed under the line of credit and additional amounts owed under our securities purchase agreements, which could harm our business.

We are currently out of compliance with the terms of our Borrowing Base Agreement due to the total number of completed speculative home and developed lots that were included in the definition of “eligible property” as of June 30, 2008 and we are operating under a wavier which expires August 29, 2008. In addition, we are not in compliance with an additional developed lot and land covenant. The loan agreement requires that not more than seventy percent (70%) of our tangible assets be in the form of developed lots and land. We are currently in discussions with our lenders regarding this matter and we expect that our lenders will waive our non-compliance with this covenant until such time as we enter into an extension and amendment of our Credit Facility. If we are unable to comply with any one or more of these financial covenants and are unable to obtain a waiver for the non-compliance, we could be precluded from incurring additional borrowings and our obligation to repay indebtedness outstanding under the facility could be accelerated in full. We may not have or may not be able to obtain sufficient funds to satisfy all repayment obligations. If we are unable to repay these obligations our business would suffer.

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

If we are unable to generate sufficient cash from operations or secure additional borrowings or raise additional capital, we may find it necessary to curtail our development activities.

Our performance continues to be substantially dependent on future cash flows from real estate financing and sales and there can be no assurance that we will generate sufficient cash flow or otherwise obtain sufficient funds to meet the expected development plans for our current and future properties. If we are unsuccessful in obtaining adequate loans or in generating positive cash flows, we could be forced to sell equity securities to raise additional funds. There is no assurance that such financing would be available or that the terms of the financing would be acceptable to us. This could require us to abandon some of our development activities, including the development of subdivisions and entitling of land for development; forfeit option fees and deposits; default on loans; violate covenants with our current lenders and convertible note holders thereby putting us in default; and possibly be forced to liquidate a substantial portion of our asset holdings at unfavorable prices.

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I te m 3. Controls and Procedures

Our management, including our principal executive officer and our principal accounting officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the period ended June 30, 2008, the period covered by this Quarterly Report on Form 10-QSB. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2008 to ensure that the information required to be disclosed in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the three months ended June 30, 2008.

As disclosed in our Annual Report on Form 10-KSB for the transitional period from January 1, 2007 to September 30, 2007, Arun Khurana transitioned from his role as our principal financial officer to a consulting role with the company.

We will be required to be in compliance with Sarbanes Oxley Section 404 certification requirements relating to internal controls for the fiscal year ended September 30, 2008. We have recently commenced our homebuilding operations. We have also recently implemented a new enterprise-wide information technology system. We are continuing to work with our Audit Committee to implement internal controls due to the above noted activities. Any failure to develop adequate these internal controls would be likely to result in a material weakness in our internal control.

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PART II – OTHER INFORMATION

I te m 1. Legal Proceedings

None.

I te m 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

I te m 3. Defaults Upon Senior Securities

None.

I te m 4. Submission of Matters to a Vote of Security Holders

On April 3, 2008, we held our Annual Meeting of Shareholders. The matters voted upon at the meeting and the results of those votes were as follows:

Proposal 1: Election of Directors.

Name	Total Votes For Director	Total Votes Withheld From Director

Clark N. Wilson	21,837,338	100
Victor Ayad	21,837,338	100
Jay Gouline	21,837,338	100
Sidney Christopher Ney	21,837,338	100
Barry Williamson	21,837,338	100

Proposal 2: Approval of the reincorporation of the Company in Texas.

Total Votes For Proposal 2	Total Votes Against Proposal 2	Total Votes Abstaining From Proposal 2

18,871,986	1,000	100

Proposal 3: Amendment to the Company’s Certificate of Formation to change the name of the Company to Green Builders, Inc.

Total Votes For Proposal 3	Total Votes Against Proposal 3	Total Votes Abstaining From Proposal 3

21,757,416	79,922	100

Proposal 4: Ratification of the appointment of PMB Helin Donovan, LLP as independent auditors for the fiscal year ending September 30, 2008.

Total Votes For Proposal 4	Total Votes Against Proposal 4	Total Votes Abstaining From Proposal 4

21,836,095	1,234	100

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I te m 5. Other Information

None.

I te m 6. Exhibits

Exhibit No.	Description
10.1	Agreement to Modify Loan Documents (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 23, 2008 and incorporated herein by reference)
10.2	Consulting Agreement by and between the Company and Audrey Wilson, dated May 13, 2008.
4.1	Specimen certificate for shares of Common Stock of Registrant (filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-1 (File No. 333-140747) and incorporated herein by reference)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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S IG NATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GREEN BUILDERS, INC.

August 14, 2008	/s/ Clark Wilson
	Clark Wilson
	President and Chief Executive Officer

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EXHIBIT INDEX

LIST OF EXHIBITS

Exhibit No.	Description
10.1	Agreement to Modify Loan Documents (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 23, 2008 and incorporated herein by reference)
10.2	Consulting Agreement by and between the Company and Audrey Wilson, dated May 13, 2008.
4.1	Specimen certificate for shares of Common Stock of Registrant (filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-1 (File No. 333-140747) and incorporated herein by reference)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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