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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Consolidated Financial Information" and our financial statements and accompanying notes included elsewhere in this document.

Overview

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

Through fiscal 2008 our business was significantly impacted by the continued deterioration of the real estate and homebuilding industry. Although central Texas has been less affected than other areas, national real estate trends have had a significant impact on home buyers and lenders and we believe that sales of new homes in our market will be stagnant or will continue to decline in fiscal 2009. We believe this slowdown is attributable to a decline in consumer confidence, the inability of some buyers to sell their current homes and the direct and indirect impact of the well-publicized turmoil in the mortgage and credit markets.

In June 2007 we purchased Green Builders, Inc. and commenced our homebuilding operations under that name. Our strategy is to build homes that are environmentally responsible, resource efficient and consistent with local style. Substantially all of our construction work is performed by subcontractors who are retained for specific subdivisions pursuant to contracts entered in 2007 and 2008. We intend to build homes on some of the lots we currently have completed and sell those as finished homes as well as continue to sell lots to other builders. We are currently exploring options with other developers to enter into agreements that would give us the option to purchase additional finished lots in the future. In November 2008 we updated our homebuilding services to include "build on your lot". "Build on your lot" allows customers to build our existing plans on lots that they own.

Prior to our acquisition of Green Builders, we were solely focused on the acquisition of undeveloped land that we believed, based on our research of population growth patterns and infrastructure development was strategically located. We have funded these acquisitions primarily with bank debt and cash. We currently have completed 220 lots in Georgetown Village, 105 lots in Elm Grove and 58 lots in Rutherford West. This portion of our business focus has required the majority of our financial resources. Due to the continued deterioration of the homebuilding industry and based on our current liquidity, we are currently in negotiations to dispose of some of our land positions including but not limited to deed in lieu of foreclosure of these assets.

In tandem with our land acquisition efforts and based upon our strategic market analysis, we also prepare land for homebuilding. A focus of our business had been the sale of developed lots to homebuilders, including national homebuilders. Due to deteriorating conditions in the homebuilding industry both nationally and to a lesser extent locally, during the second quarter of 2007 and continuing through December 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 homebuilding business. We believe that retaining some of our lots for use in homebuilding activities will allow us to generate homebuilding revenue to replace some of the revenue from the loss of sales of these finished lots. We will continue to pursue lot sales contracts with both national and regional builders.

In November 2008 we expanded our services to include "green" remodeling of existing homes. We have taken a comprehensive approach to engaging in the green remodeling business and offer customers a "one-stop" process for updating their existing home with a focus on energy efficiency. Our green remodeling program currently caters to existing homeowners in the Austin, Texas area who want to reduce home energy demands and utility bills, lessen home maintenance costs and increase the comfort of their home. Initially we anticipate that substantially all of our construction work will be performed by subcontractors. By subcontracting out the work, there is limited additional capital required to enter this business line. We also feel that entering into remodeling will help us supplement revenue during this slowdown in the real estate industry. To date we have received some energy audit requests and are reviewing the results and discussing the next steps with our customers. We have not received any revenues from remodeling operations and we expect to see initial revenues from these operations during fiscal year 2009.

Comparison of Year Ended September 30, 2008 and Nine Months Ended September 30,

2007

                                            Year Ended        Nine Months
                                            September       Ended September
                                             30, 2008          30, 2007          Change        Change %
                                                                  (in thousands)
Revenues
Homebuilding and related services
revenues                                   $      6,042     $         1,295     $   4,747            366 %
Land revenues                                     2,951               3,149          (198 )           -6 %
Gross Profit
Homebuilding and related services gross
profit                                              663                 386           277             72 %
Land gross profit                                   831                 742            89             12 %
Inventory impairments and land option
cost write-offs                                  (5,888 )            (1,280 )      (4,608 )          360 %
Costs & Expenses
Operating expenses                                6,987               4,468         2,519             56 %
Operating Income (Loss)                         (11,382 )            (4,620 )      (6,762 )          146 %
Net Income (Loss)                          $    (14,833 )   $        (6,556 )   $  (8,277 )          126 %

Results of Operations

Homebuilding and Related Services Revenues

Background - Homebuilding and related services revenue consists of revenue from home sales and from providing services to our homebuilder customers. Prior to fiscal 2008, all home sales were generated by our homebuilder customers utilizing our homebuilder services. 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. We ceased providing services to homebuilder customers in August 2007. In June 2007 we acquired Green Builders, Inc and have commenced our homebuilding activities. We sell homes in the Austin, Texas area for prices ranging from $180,000 to $600,000. For the year ended September 30, 2008 we had 68 home sales and 13 cancellations. We had 26 home closings. We have 13 completed speculative units, 1 speculative unit under construction, seven completed models, and 29 units in backlog. Backlog is defined as homes under contract but not yet delivered to our home buyers. We believe that the turmoil in the mortgage market combined with national publicity of a potential recession has caused a lack of urgency for buyers. As such, sales and sales revenues were lower than anticipated for the year ended September 30, 2008 and we expect that they will continue to be slow throughout fiscal 2009. 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.

Revenues - During the year ended September 30, 2008, home sales accounted for approximately 67% of revenues. For the nine months ended September 30, 2007 all of the homebuilding revenues were generated by one VIE consolidated into our operating results. During the year ended September 30, 2008, home sales increased by approximately 366% from the nine months ended September 30, 2007, primarily due to the launch of our homebuilding division in June 2007.

Gross Profit- During fiscal year 2008 we reviewed our homebuilding inventory for impairments. We determined that two communities, Rutherford West and Georgetown Village, had impairments. Our assumption for revenue was based on current incentives that have been offered on our speculative units. The Company recorded impairments of $547,000 and $77,000 for Rutherford West and Georgetown Village. In addition we wrote off approximately $224,000 for earnest money and capitalized costs for homebuilding communities that we no longer plan to pursue. Gross profit percentage before impairments decreased from 30% in 2007 to 11% in 2008 due to the additional incentives offered on our homes and the lower margin for homebuilding versus homebuilding services.

Land and Land Development

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

Revenues -Revenue from the sale of land decreased 6% during the year ended September 30, 2008, compared to the nine months ended September 30, 2007. The decrease compared to 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 an option contract in the Georgetown Village project.

Gross Profit- Gross profit on land and land development includes impairment charges of approximately $5 million for the year ended September 30, 2008. Impairment charges include:

· $3.5 million for land and development expenses capitalized on approximately 522 acres of land in New Sweden;

· $859,000 for land and development expenses capitalized on approximately 538 acres of land in Rutherford West;

· $838,000 for Rutherford West developed lots; and

· $50,000 for earnest money for a land option contract which we will not pursue.

These impairment charges are offset by $240,000 of expenses incurred for Bohls Tract. The majority of these expenses represent LUE fees that were reimbursed by the City. We recorded the impairment charges for New Sweden and Rutherford West because we do not have the cash or a line of credit to develop these projects and we no longer have the ability to service the debt.

For the nine months ended September 30, 2007 we wrote off pre-acquisition and earnest money expenses of $1.3 million for the Bohls Tract land option purchase of approximately 428 acres that we did not exercise. Based on the deterioration in the real estate market, we concluded that we had adequate single-family lots, excluding this tract of land.

General and Administrative Expenses

                                                                 Nine Months
                                             Year Ended             Ended
                                            September 30,       September 30,
Breakdown of G&A Expenses                       2008                2007             Change        Change %
Salaries, benefits, payroll taxes and
related emp. exps.                         $     1,615,182     $     1,196,630     $  418,551             26 %
Stock compensation expense                         834,599             540,900        293,700             35 %
Legal, accounting, auditing,
consultants, and investor relations                958,219             951,772          6,447              1 %
General overhead, including office
expenses, insurance, and travel                    857,211             686,725        170,486             20 %
Loss on deconsolidation of VIEs                                        176,012       (176,012 )            n/a
Amortization of subordinated debt costs
and transaction costs                              237,012             319,548        (82,536 )          -35 %
Total G&A                                  $     4,502,223     $     3,871,587     $  630,636             15 %

General and administrative expenses are composed primarily of salaries of general and administrative personnel and related employee benefits and taxes, accounting and legal and general office expenses and insurance. During the year ended September 30, 2008 and nine months ended September 30, 2007, salaries, benefits, taxes and related employee expenses totaled approximately $1.6 million and $1.1 million, respectively, and represented approximately 36% and 31%, respectively, of total general and administrative expenses for the periods. The increase for year ended is due to an increase in expenses for additional headcount for the launching of the homebuilding division through January 2008. In January 2008 we had a reduction in force. In addition, we had another reduction in force in September 2008.

Stock compensation expense was approximately $835,000 and $541,000 for the year ended September 30, 2008 and nine months ended September 30, 2007, respectively. The increase in stock compensation expense was due to acceleration of the stock option expense for our former CFO.

Legal, accounting, audit, consulting and investor relation expense totaled $958,000 and $952,000 for the year ended September 30, 2008 and nine months ended September 30, 2007, respectively. There was a loss of $176,000 for homebuilder services for the nine months ended September 30, 2007 due to indirect operating losses of variable interest entities that we incurred in 2007.

Amortization of subordinated convertible debt issuance costs was approximately $237,000 and $320,000 for the year ended September 30, 2008 and 2007, respectively. The decrease of this expense is attributable to a prior year adjustment due to the adoption of FSP 00-19-2.

Sales and Marketing Expenses

Sales and marketing expenses include selling costs, commissions, salaries and related taxes and benefits, finished inventory maintenance and property tax expense, marketing activities including websites, brochures, catalogs, signage, and billboards, and market research, all of which benefit our corporate presence and are not included as homebuilding cost of sales. The increase was due to 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.

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.

We account for intangible assets in accordance with Statement of Financial Accounting Standards ("SFAS") No 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Definite-lived intangibles are amortized over their estimated useful lives and are evaluated for impairment annually, or more frequently if impairment indicators are present, using a process similar to that used to test other long-lived assets for impairment. During the year ended September 30, 2008 we recorded an impairment charge of approximately $293,000 related to the trademark name of Green Builders, Inc.

Interest Expense and Income

                                                 Nine Months
                               Year Ended           Ended
                             September 30,      September 30,
                                  2008               2007           Change      Change %
Interest expense -                 $833,450           $630,313       $203,137        32%
convertible debt
Interest discount                   558,348            536,230         22,118         4%
expense - convertible
debt
Interest expense - land           2,357,559          1,060,690      1,296,869       122%
and development loans
Interest income and misc          (298,406)          (291,478)        (6,928)         2%
income
Total interest and other         $3,450,951         $1,935,755     $1,515,196        78%
expense and income

Interest expense for land and development loans increased by approximately $1.3 million for the year ended September 30, 2008 over the same period in 2007. The increase is attributable to expense of interest expense for property not under development. In addition, discount expense for the convertible debt and loss on fair value of derivatives decreased due to the adoption of FSP 00-19-2.

Financial Condition and Capital Resources

Financial Condition and Capital Resources

Liquidity

On September 30, 2008 we had approximately $3.7 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. IBC Bank and Franklin Bank, S.S.B. ("Franklin Bank") are the other two banks that make up the syndicate of banks. The Credit Facility was reduced to $30 million in June 2008. The initial maturity date for the Credit Facility was June 29, 2008. We entered into an agreement to extend the maturity date to October 1, 2008. On October 1, 2008, the Credit Facility expired pursuant to its terms. Although WFC is currently out of compliance with certain covenants set forth in the Borrowing Base Agreement under the Loan Agreement, the syndicate of banks has continued to make amounts available to WFC pursuant to the Loan Agreement for loans made prior to the expiration of the facility. We were notified on November 7, 2008 that Franklin Bank was closed by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation (the "FDIC") was named Receiver.

Green Builders has guaranteed the obligations of 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 by us and the agent. Our obligations under the Credit Facility are secured by the assets of each subdivision that was to be developed with the proceeds of loans available under the Credit Facility.

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

The Credit Facility contains customary covenants limiting our ability to take certain actions, 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 us 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 us 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. We are not in compliance with the tangible net worth, the ratio of debt to equity, working capital, number of completed speculative homes and number of land and developed lot loans covenants. If we are unable to obtain a waiver for the noncompliance our obligation to repay indebtedness outstanding under the facility, our term loans, and our outstanding note indentures could be accelerated in full. 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 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.

Our growth will require substantial amounts of cash for earnest money deposits, development costs, interest payments and homebuilding costs. Until we begin to sell an adequate number of lots and homes to cover our monthly operating expenses, our sales, marketing, general and administrative costs will deplete cash. Due to current market conditions and slow home and land sales, we may need to obtain additional capital. We are currently in negotiations to dispose of some of our current land positions, but there is no assurance that we will be successful in selling these land positions at an acceptable price or at all. In addition we are seeking additional capital in the form of debt or equity and 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 our common stock completed in May 2007. We entered into a $55 million revolving Credit Facility that was reduced to $30 million in June 2008. The initial maturity date for the Credit Facility was June 29, 2008. We entered into an agreement to extend the maturity date to October 1, 2008. On October 1, 2008, the Credit Facility expired pursuant to its terms. Although WFC is currently out of compliance with certain covenants set forth in the Borrowing Base Agreement under the Loan Agreement, RBC and IBC have continued to make amounts available to WFC pursuant to the Loan Agreement for loans made prior to the expiration of the facility. We were notified on November 7, 2008 that Franklin Bank was closed by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation (the "FDIC") was named Receiver. The Company is in current negotiations to obtain a new line of credit for homebuilding from RBC, but there is no assurance that we will be able to obtain a new line of credit on acceptable terms or at all.

Land and homes under construction comprise the majority of our assets. These assets have suffered devaluation due to the downturn in the housing and real estate market for central Texas. We are considering selling tracts of commercial and residential land in order to increase sales revenues and increase cash. We are also in negotiation to deed in lieu of foreclosure some of our land positions. We expect that we will incur losses in 2009. Due to current market conditions and slow home and land sales, we anticipate that we will need additional capital to support operations for the next twelve months.

Off-Balance Sheet Arrangements

. . .