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

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

Overview

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

From late 2007 through December 31, 2008 our business has been significantly impacted by the continued deterioration of the real estate and homebuilding industry. Although central Texas has been less affected than other areas, national real estate trends and global economic conditions have had a significant impact on home buyers and lenders and we believe that sales of new homes in our market may continue to decline in fiscal 2009. We believe this slowdown is attributable to a decline in consumer confidence, the inability of some buyers to sell their current homes and the direct and indirect impact of the well-publicized turmoil in the mortgage and credit markets.

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

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

In tandem with our land acquisition efforts and based upon our strategic market analysis, we also prepare land for homebuilding. A focus of our business had been the sale of developed lots to homebuilders, including national homebuilders. Due to deteriorating conditions in the homebuilding industry both nationally and to a lesser extent locally, during the second quarter of 2007 and continuing through 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 received immaterial amounts of revenue from remodeling operations. We expect to see additional revenues from these operations during fiscal 2009.

Comparison of Three Months Ended December 31, 2008 and 2007

                                           Three Months      Three Months
                                               Ended             Ended
                                           December 31,      December 31,
                                               2008              2007            Change         Change %
Revenues
Homebuilding and related services
revenues                                   $   4,236,450     $           -     $ 4,236,450            n/a
Land revenues                                    346,146         1,108,312        (762,166 )          -69 %
Remodeling revenues                                  270                 -             270            n/a
Gross Profit
Homebuilding and related services gross
profit                                           474,195                 -         474,195            n/a
Land gross profit                                 73,914           399,257        (325,343 )          -81 %
Remodeling gross profit                             (330 )               -            (330 )          n/a
Inventory impairments and land option
cost write-offs                                  (11,900 )               -         (11,900 )          n/a
Costs & Expenses
Operating expenses                             1,312,203         1,936,013        (623,810 )          -32 %
Operating Loss                                  (776,324 )      (1,536,756 )       760,432            -49 %
Net Loss                                   $  (1,661,103 )   $  (2,357,138 )   $   696,035            -30 %

Homebuilding and Related Services Revenues

Background - Homebuilding and related services revenue consists of revenue from home sales. Prior to fiscal 2008, all home sales were generated by our homebuilder customers utilizing our homebuilder services. In June 2007 we acquired Green Builders, Inc and commenced our homebuilding activities. We sell homes in the Austin, Texas area for prices ranging from $180,000 to $600,000. For the three months ended December 31, 2008 we had twelve home sales and seven cancellations for a total of five net sales. We had seventeen home closings. Revenue is not recognized until the home closing is finalized. At December 31, 2008, we had eight completed speculative units, two speculative units under construction, seven completed models, and 19 units in backlog. Backlog is defined as homes under contract but not yet delivered to our home buyers. We believe that the turmoil in the mortgage market combined with national publicity of significantly deteriorating general and economic conditions has caused a lack of urgency for buyers. We expect that they will continue to be slow throughout fiscal 2009. In accordance with these anticipated market conditions, our strategy is to build a limited number of speculative units per community and build the majority of our homes after a contract is entered into with a homebuyer.

Revenues - During the three months ended December 31, 2008, home sales accounted for approximately 93% of revenues. For the three months ended December 31, 2008 there were seventeen home closings at an average sales price of $249,000. During the three months ended December 31, 2007, we had no revenue from homebuilding or homebuilding services.

Gross Profit- Gross profit percentage before impairments was 11% for the three months ended December 31, 2008. During fiscal year 2008 we reviewed our homebuilding inventory for impairments. We determined that we had $11,900 in impairments on speculative units. The impairment analysis for each of our communities generally assumed that sales prices in future periods would be equal to current sold unit's prices.

Land and Land Development

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

Revenues -Revenue from the sale of land decreased by 69% during the three months ended December 31, 2008, compared to the three months ended December 31, 2007. During the three months ended December 31, 2008 we closed six finished lots as compared to eleven finished lots for the three months ended December 31, 2007. In addition for the three months ended December 31, 2007 we had $349,000 in land revenues for the sale of five acres of Highway 183.

Gross Profit- Gross profit as a percentage of sales decreased from 36% to 21% for the three months ended December 31, 2008. The decrease in margin percentage is due to the higher margin earned on the Highway 183 sale.

General and Administrative Expenses

                                             Three Months         Three Months
                                            Ended December       Ended December
Breakdown of G&A Expenses                      31, 2008             31, 2007           Change        Change %
Salaries, benefits, payroll taxes and
related emp. exps.                         $        283,963     $        502,749     $ (218,786 )          -77 %
Stock compensation expense                           42,286              639,700       (597,414 )        -1413 %
Legal, accounting, auditing,
consultants, and investor relations                 122,721              221,674        (98,953 )          -81 %
General overhead, including office
expenses, insurance, and travel                     140,580              254,205       (113,625 )          -81 %
Restructuring expenses                              169,486                    -        169,486            n/a
Amortization of subordinated debt costs
and transaction costs                                59,253               62,385         (3,132 )           -5 %
Total G&A                                  $        818,289     $      1,680,713     $ (862,424 )           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 three months ended December 31, 2008 and December 31, 2007, salaries, benefits, taxes and related employee expenses totaled approximately $284,000 and $503,000, respectively, and represented approximately 35% and 30%, respectively, of total general and administrative expenses for the periods. The decrease for the year is due to a decrease in headcount.

Stock compensation expense was approximately $42,000 and $640,000 for the three months ended December 31, 2008 and 2007, respectively. The decrease in stock compensation expense was due to acceleration of the stock option expense for our former CFO expensed for the three months ended December 31, 2007. In addition, the decrease is also due to a decrease in headcount from 25 employees at December 31, 2007 to 16 employees at December 31, 2008.

Legal, accounting, audit, consulting and investor relation expense totaled $123,000 and $222,000 for the three months ended December 31, 2008 and 2007, respectively. General overhead, including office expenses, insurance, and travel totaled $141,000 and $254,000 for the three months ended December 31, 2008 and 2007, respectively. The decrease in these general and administrative costs resulted from our initiative to control costs.

Restructuring expenses relates to expenses incurred to restructure our debt agreement with Graham Mortgage Capital and our syndicate of banks. In the prior year we incurred no expenses for restructuring.

Amortization of subordinated convertible debt issuance costs was approximately $60,000 and $62,000 for the three months December 31, 2008 and 2007, respectively.

Sales and Marketing Expenses

Sales and marketing expenses include selling costs, commissions, salaries and related taxes and benefits, finished inventory maintenance and property tax expense, marketing activities including websites, brochures, catalogs, signage, and billboards, and market research, all of which benefit our corporate presence and are not included as homebuilding cost of sales. The increase was due to an increase in commissions and closing costs due to an increase in homebuilding revenue for the three months ended December 31, 2008.

Interest Expense and Income


                                                  Three Months         Three Months
                                                 Ended December       Ended December
                                                    31, 2008             31, 2007          Change        Change %
Interest expense - convertible debt             $        206,250     $        206,250             -               0 %
Interest discount expense - convertible debt             139,587              139,587             -               0 %
Interest expense - land and development loans            636,785              567,740        69,045              12 %
Interest income and misc income                          (97,843 )            (93,195 )      (4,648 )             5 %
Total interest and other expense and income     $        884,779     $        820,382        64,397               8 %

Interest expense for land and development loans increased by approximately $69,000 for the three months ended December 31, 2008 over the same period in 2007. The increase is attributable to expense of interest expense for property not under development.

Financial Condition and Capital Resources

Liquidity

On December 31, 2008 we had $2.2 million in cash and cash equivalents. We will need to raise additional cash to continue our business, whether through the sale of debt, equity, or combination thereof or through the sale of certain of our assets. 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 2.0 to 1.0;

· 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 will need to obtain additional capital. We are currently in negotiations to dispose of some of our current land positions, but there is no assurance that we will be successful in selling these land positions at an acceptable price or at all. In addition we are seeking additional capital in the form of debt or equity to support future growth and current operations. We do not have sufficient cash to continue operations for the next twelve months. We will need to raise additional cash to continue our business, whether through the sale of debt, equity, or combination thereof or through the sale of certain of our assets.

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 FDIC was named Receiver. 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

As of December 31, 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.

Inventory

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

Revenue Recognition

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

Use of Estimates

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