##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 001-32322


Technical Olympic USA, Inc.


(Exact Name of Registrant as Specified in Its Charter)


|                                                                                                             |  |                                         
|------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                                                     |  | 76-0460831                              
|(State or Other Jurisdiction
    of Incorporation or Organization)                                           |  | (I.R.S. Employer
    Identification No.)
|                                                                                                            
|4000 Hollywood Boulevard,
    Suite 500 North
    Hollywood, Florida(Address of Principal Executive Offices) |  | 33021(Zip Code)                         

Registrants telephone number, including area code:


(954) 364-4000


Securities registered pursuant to Section 12(b) of the
Act:


Common Stock, $.01 par value


9% Senior Notes due 2010 (CUSIP No. 878483 AC0)


9% Senior Notes due 2010 (CUSIP No. 878483 AG1)


103/8% Senior
Subordinated Notes due 2012 (CUSIP No. 878483 AD8)


71/2% Senior
Subordinated Notes due 2011 (CUSIP No. 878483 AJ5)


Securities registered pursuant to Section 12(g) of the
Act:


None


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












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##### 





PART I




|        |         
|------- | --------
|Item 1. | Business











Business Strategies




| |                                                          
| | ---------------------------------------------------------
| | Capitalize on Growth Potential in Our Current
    Markets



1



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##### 





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Expand Our Use of Joint Ventures and Option Contracts to
    Maximize our Return on Assets





| |                                     
| | ------------------------------------
| | Grow Our Financial Services Business





| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing the percentage of our homebuyers who use our
    financial services;                                                                                                                
|
| |  | marketing our financial services more actively to buyers of
    homes built by other homebuilders, including smaller
    homebuilders that do not provide their own financial
    services; and
|
| |  | offering additional services that complement our existing
    financial services in all our markets.                                                                                           



| |                                    
| | -----------------------------------
| | Selectively Expand Into New Markets



2



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##### 



Homebuilding Operations




| |        
| | -------
| | Markets



|                     |  |                                       |  |                        |  |                
|-------------------- |  | ------------------------------------- |  | ---------------------- |  | ---------------
|Florida              |  | Mid-Atlantic                          |  | Texas                  |  | West           
|                     |  |                                       |  |                        |  |                
|Jacksonville(1)      |  | Baltimore/Southern Pennsylvania(1)(2) |  | Austin(4)(5)           |  | Colorado(1)    
|Orlando(1)           |  | Delaware(1)(3)                        |  | Dallas/Ft. Worth(4)(5) |  | Las Vegas(1)(6)
|Southeast Florida(1) |  | Nashville (4)(5)                      |  | Houston(4)(5)(6)       |  | Phoenix(1)     
|Southwest Florida(1) |  | Northern Virginia(1)                  |  | San Antonio(4)         |  |                






|    |                                                     
|--- | ----------------------------------------------------
|(1) | Using the Engle Homes brand name.                 
|   
|(2) | Using the Masonry Homes brand name.               
|   
|(3) | Using the Gilligan Homes brand name.              
|   
|(4) | Using the Newmark Homes brand name.               
|   
|(5) | Using the Fedrick, Harris Estate Homes brand name.
|   
|(6) | Using the Trophy Homes brand name.                



Florida.


Mid-Atlantic.


Texas.


West.


3



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##### 







| |            
| | -----------
| | Product Mix







| |                   
| | ------------------
| | Land and Homesites



Types of Land and Homesites.






Land Acquisition Policies.


4



---



##### 







| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | historical and projected population and employment rates for the
    surrounding area;                            
|
| |  | demographic information such as age, education and economic
    status of the homebuyers in the area;             
|
| |  | suitability for development within two to four years of
    acquisition;                                          
|
| |  | desirability of location, including proximity to metropolitan
    area, local traffic corridors and amenities; and
|
| |  | prices of comparable new and resale houses in the area.                                                           





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | estimated costs of completed homesite development;                                                                                          
|
| |  | current and anticipated competition in the area, including the
    type and anticipated sales price of homes offered by our
    competitors;
|
| |  | opportunity to acquire additional homesites in the future, if
    desired; and                                                              
|
| |  | results of financial analysis, such as projected profit margins
    and return on invested capital.                                         





Land Supply.


5



---



##### 





|               |          |                 |        |        |  |      |        |        |  |  |        |        | 
|-------------- | -------- | --------------- | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|               |          | At December 31,
|               |          |                
|               |          | 2004            |        | 2003   |  | 2002
|               |          |                 |        |        |  |     
|Florida        |          |                 | 17,000 |        |  |      | 19,900 |        |  |  | 11,300 |       
|Mid-Atlantic   |          |                 | 5,900  |        |  |      | 4,900  |        |  |  | 4,950  |       
|Texas          |          |                 | 6,200  |        |  |      | 8,100  |        |  |  | 5,050  |       
|West           |          |                 | 15,900 |        |  |      | 15,300 |        |  |  | 5,000  |       
|Joint Ventures |          |                 | 5,000  |        |  |      |       |        |  |  |       |       
|               |          |                 |        |        |  |      |        |        |  |  |        |       
|               | Total(1) |                 |        | 50,000 |  |      |        | 48,200 |  |  |        | 26,300 | 
|               |          |                 |        |        |  |      |        |        |  |  |        |       






|    |                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes approximately 36,000, 35,800 and 16,500 homesites under
    option contracts by us and our joint ventures as of
    December 31, 2004, 2003, and 2002, respectively.

Land Sales.


Joint Ventures and Option Contracts.




6



---



##### 







| |                  
| | -----------------
| | Supply Management







| |       
| | ------
| | Design





| |               
| | --------------
| | Design Centers



7



---



##### 





| |             
| | ------------
| | Construction









| |                    
| | -------------------
| | Marketing and Sales







8



---



##### 











| |                                     
| | ------------------------------------
| | Customer Service and Quality Control







| |                 
| | ----------------
| | Warranty Program



9



---



##### 





Financial Services
















Governmental Regulation




10



---



##### 











Competition and Market Forces






| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | our experience within our geographic markets;                                                        
|
| |  | the ability of our local managers to identify and quickly
    respond to local market conditions; and
|
| |  | our reputation for service and quality.                                                              





11



---



##### 



Seasonality




Backlog




Employees




12



---



##### 



RISK FACTORS


Risks Related to Our Business




| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Economic downturns in the geographic areas in which we
    operate could adversely affect demand and prices for new homes
    in those areas and could have an adverse effect on our revenues
    and earnings.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to acquire suitable land at reasonable
    prices, which could increase our costs and reduce our earnings
    and profit margins.



Our significant level of
debt could adversely affect our financial condition and prevent
us from fulfilling our debt service obligations.








| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our debt instruments impose significant operating and
    financial restrictions, which may limit our ability to finance
    future operations or capital needs and pursue business
    opportunities, thereby limiting our growth.





| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | incur additional debt;                                                      
|
| |  | pay dividends or make other restricted payments;                            
|
| |  | create or permit certain liens, other than customary and
    ordinary liens;
|
| |  | sell assets other than in the ordinary course of our business;              

13



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##### 





| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | create or permit restrictions on the ability of our restricted
    subsidiaries to pay dividends or make other distributions to us;
|
| |  | engage in transactions with affiliates; and                                                                                        
|
| |  | consolidate or merge with or into other companies or sell all or
    substantially all of our assets.                              





| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be successful in our effort to identify,
    complete, integrate or manage acquisitions, which could
    adversely affect our results of operations and future
    growth.





| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need additional financing to fund our operations or
    for the expansion of our business, and if we are unable to
    obtain sufficient financing or such financing is obtained on
    adverse terms, we may not be able to operate or expand our
    business as planned, which could adversely affect our results of
    operations and future growth.





| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the event that tax liabilities arise in connection with
    the October 2003 restructuring, there can be no assurance that
    we will not be liable for such amounts.



14



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##### 







| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Technical Olympic S.A., our majority stockholder, can
    cause us to take certain actions or preclude us from taking
    actions without the approval of the other stockholders and may
    have interests that could conflict with the interests of our
    other stockholders.



Risks Related to Our Industry


Changes in economic or
other business conditions could adversely affect demand and
prices for new homes, which could decrease our revenues.






| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | employment levels;                                                                                                             
|
| |  | population growth;                                                                                                             
|
| |  | consumer confidence and stability of income levels;                                                                            
|
| |  | availability of financing for land and homesite acquisitions,
    and the availability of construction and permanent mortgages;
|
| |  | interest rates;                                                                                                                
|
| |  | inventory levels of both new and existing homes;                                                                               
|
| |  | supply of rental properties; and                                                                                               
|
| |  | conditions in the housing resale market.                                                                                       





| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to substantial risks with respect to the
    land and home inventories we maintain, and fluctuations in
    market conditions may affect our ability to sell our land and
    home inventories at expected prices, if at all, which would
    reduce our profit margins.



15



---



##### 







| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Supply risks and shortages relating to labor and materials
    can harm our business by delaying construction and increasing
    costs.





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | shortages of qualified trades people and other labor;                                                                                                          
|
| |  | inadequately capitalized local subcontractors;                                                                                                                 
|
| |  | shortages of materials; and                                                                                                                                    
|
| |  | volatile increases in the cost of certain materials, including
    lumber, framing and cement, which are significant components of
    home construction costs.





| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future increases in interest rates or a decrease in the
    availability of government-sponsored mortgage financing could
    prevent potential customers from purchasing our homes, which
    would adversely affect our revenues and profitability.





| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The competitive conditions in the homebuilding industry
    could increase our costs, reduce our revenues, and otherwise
    adversely affect our results of operations.



16



---



##### 







| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | increase our costs and reduce our revenues and/or profit margins;                                           
|
| |  | make it difficult for us to acquire suitable land or homesites
    at acceptable prices;                    
|
| |  | require us to increase selling commissions and other incentives;                                            
|
| |  | result in delays in construction if we experience a delay in
    procuring materials or hiring laborers; and
|
| |  | result in lower sales volumes.                                                                              







| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to product liability and warranty claims
    arising in the ordinary course of business that could adversely
    affect our results of operations.





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to mold litigation and claims arising in
    the ordinary course of business that could adversely affect our
    results of operations.



17



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##### 





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | States, cities and counties in which we operate have, or
    may adopt, slow or no growth initiatives that would reduce our
    ability to build in these areas and could adversely affect our
    future revenues.





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business is subject to governmental regulations that
    may delay, increase the cost of, prohibit or severely restrict
    our development and homebuilding projects.







| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our business revenues and profitability may be adversely
    affected by natural disasters or weather conditions.



Special Note Regarding Forward Looking Statements




18



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##### 







| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding growth opportunities in the
    homebuilding industry and our ability to successfully take
    advantage of such opportunities to expand our operations and
    maximize our financial returns;                        
|
| |  | our expectations regarding population growth and median income
    growth trends and their impact on future housing demand in our
    markets;                                                                                                    
|
| |  | our expectation regarding the impact of geographic and customer
    diversification;                                                                                                                                                              
|
| |  | our expectations that strong demand for new housing in our
    current markets will contribute to our growth;                                                                                                                                     
|
| |  | our belief that by leveraging our current operations, we will,
    over time, maximize our financial returns, strengthen our
    margins and increase our revenues and profitability;                                                             
|
| |  | our ability to successfully integrate our current operations and
    any future acquisitions, and to recognize anticipated operating
    efficiencies, cost savings and revenue increases;                                                        
|
| |  | our expectations regarding our land and homesite acquisition
    strategy and its impact on our business, including our estimate
    of the number of years our supply of homesites affords us;                                                   
|
| |  | our belief that homes in premier locations will continue to
    attract homebuyers in both strong and weak economic conditions;                                                                                                                   
|
| |  | our intention to make improvement of our operating margin a high
    priority for 2005;                                                                                                                                                           
|
| |  | our expectations regarding future land sales;                                                                                                                                                                                                     
|
| |  | our intention to grow the financial services business;                                                                                                                                                                                            
|
| |  | our belief regarding growth opportunities within our financial
    services business;                                                                                                                                                             
|
| |  | our expectations regarding the impact of our business
    initiatives on our ability to capture repeat business, to
    minimize our exposure to adverse economic conditions and to
    increase our revenue;                                     
|
| |  | our belief that we have adequate financial resources to meet our
    current and anticipated working capital, including our annual
    debt service payments, and land and homesite acquisition and
    development needs;                        
|
| |  | our expectations regarding a variable compensation charge in the
    fourth quarter of 2005;                                                                                                                                                      
|
| |  | our expectations regarding the implementation of certain recent
    accounting pronouncements;                                                                                                                                                    
|
| |  | the impact of inflation on our future results of operations;                                                                                                                                                                                      
|
| |  | our ability to pass through to our customers any increases in
    our costs;                                                                                                                                                                      
|
| |  | our expectations regarding our continued use of option
    contracts, investments in unconsolidated joint ventures and
    other off-balance sheet arrangements to control homesites and
    manage our business and their effect on our business;
|
| |  | our expectations regarding the labor and supply shortages in
    Florida resulting from the recent hurricanes;                                                                                                                                    
|
| |  | our expectations regarding our use of cash in
    operations; and                                                                                                                                                                                 
|
| |  | our expectations regarding new sales orders during the first
    quarter of 2005.                                                                                                                                                                 



19



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##### 







| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our significant level of debt and the impact of the restrictions
    imposed on us by the terms of this debt;                                                                                                                                                                                        
|
| |  | our ability to borrow or otherwise finance our business in the
    future;                                                                                                                                                                                                                           
|
| |  | our ability to identify and acquire, at anticipated prices,
    additional homebuilding opportunities and/or to effect our
    growth strategies;                                                                                                                                                    
|
| |  | our relationship with Technical Olympic S.A. and its control
    over our business activities;                                                                                                                                                                                                       
|
| |  | our ability to successfully integrate and to realize the
    expected benefits of any acquisitions;                                                                                                                                                                                                  
|
| |  | economic or other business conditions that affect the desire or
    ability of our customers to purchase new homes in markets in
    which we conduct our business;                                                                                                                                  
|
| |  | any unexpected delays in the opening of new communities in 2005,
    including those due to delays in governmental approvals;                                                                                                                                                                        
|
| |  | our ability to successfully utilize and recognize the
    anticipated benefits of joint venture and option contracts;                                                                                                                                                                                
|
| |  | a decline in the demand for, or the prices of, housing;                                                                                                                                                                                                                                              
|
| |  | a decline in the value of the land and home inventories we
    maintain;                                                                                                                                                                                                                             
|
| |  | an increase in the cost of, or shortages in the availability of,
    skilled labor or construction materials;                                                                                                                                                                                        
|
| |  | an increase in interest rates;                                                                                                                                                                                                                                                                       
|
| |  | our ability to successfully dispose of developed properties or
    undeveloped land or homesites at expected prices and within
    anticipated time frames;                                                                                                                                          
|
| |  | our ability to compete in our existing and future markets;                                                                                                                                                                                                                                           
|
| |  | the impact of hurricanes, tornadoes or other natural disasters
    or weather conditions on our business, including the potential
    for shortages and increased costs of materials and qualified
    labor and the potential for delays in construction and obtaining
    government approvals; and
|
| |  | an increase or change in government regulations, or in the
    interpretation and/or enforcement of existing government
    regulations.                                                                                                                                                             

Availability of Reports and Other Information




20



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##### 





|        |           
|------- | ----------
|Item 2. | Properties





|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



PART II




|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                                    |                |      |   |       |  |  |   |       | 
|----------------------------------- | -------------- | ---- | - | ----- |  |  | - | ----- | 
|                                    |                | High |   | Low  
|                                    |                |      |   |      
|Fiscal Year Ended December 31, 2004 |                |      |   |       |  |  |   |      
|                                    | First Quarter  |      | $ | 21.73 |  |  | $ | 15.50 | 
|                                    | Second Quarter |      | $ | 22.49 |  |  | $ | 14.09 | 
|                                    | Third Quarter  |      | $ | 19.71 |  |  | $ | 13.33 | 
|                                    | Fourth Quarter |      | $ | 18.92 |  |  | $ | 15.77 | 
|Fiscal Year Ended December 31, 2003 |                |      |   |       |  |  |   |      
|                                    | First Quarter  |      | $ | 11.78 |  |  | $ | 9.04  | 
|                                    | Second Quarter |      | $ | 18.18 |  |  | $ | 11.13 | 
|                                    | Third Quarter  |      | $ | 19.04 |  |  | $ | 15.47 | 
|                                    | Fourth Quarter |      | $ | 23.21 |  |  | $ | 16.84 | 





21



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##### 













EQUITY COMPENSATION PLAN INFORMATION


|                                                           |       |                         |           |                      |  |                         |       |       |  |  |         |         | 
|---------------------------------------------------------- | ----- | ----------------------- | --------- | -------------------- |  | ----------------------- | ----- | ----- |  |  | ------- | ------- | 
|                                                           |       |                         |           |                      |  | Number of Securities   
|                                                           |       |                         |           |                      |  | Remaining Available for
|                                                           |       |                         |           |                      |  | Future Issuance Under  
|                                                           |       | Number of Securities to |           | Weighted-Average     |  | Equity Compensation    
|                                                           |       | be Issued Upon Exercise |           | Exercise Price of    |  | Plans (Excluding       
|                                                           |       | of Outstanding Options, |           | Outstanding Options, |  | Securities Reflected in
|Plan Category                                              |       | Warrants and Rights     |           | Warrants and Rights  |  | Column (a))            
|                                                           |       |                         |           |                      |  |                        
|                                                           |       | (a)                     |           | (b)                  |  | (c)                    
|Equity compensation plans approved by security holders     |       |                         | 5,477,204 |                      |  | $                       | 13.93 |       |  |  | 484,506 |        
|Equity compensation plans not approved by security holders |       |                         | *         |                      |  |                         | *     |       |  |  | *       |        
|                                                           | Total |                         |           | 5,477,204            |  |                         | $     | 13.93 |  |  |         | 484,506 | 

22



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                      |  |                                              |         |      |  |            |         |            |  |            |         |  |  |   |         |  |  |   |       | 
|----------------------------------------------------- |  | -------------------------------------------- | ------- | ---- |  | ---------- | ------- | ---------- |  | ---------- | ------- |  |  | - | ------- |  |  | - | ----- | 
|                                                      |  | Year Ended December 31,                     
|                                                      |  |                                             
|                                                      |  | 2004                                         |         | 2003 |  | 2002(1)(2) |         | 2001(1)(2) |  | 2000(1)(2)
|                                                      |  |                                              |         |      |  |            |         |            |  |           
|                                                      |  | (Dollars in millions, except per share data)
|Statement of Income Data:                             |  |                                              |         |      |  |            |         |            |  |            |         |  |  |   |         |  |  |   |       | 
|Total revenues                                        |  | $                                            | 2,135.3 |      |  | $          | 1,680.7 |            |  | $          | 1,408.4 |  |  | $ | 1,422.0 |  |  | $ | 549.1 | 
|Homebuilding revenues                                 |  | $                                            | 2,100.8 |      |  | $          | 1,642.6 |            |  | $          | 1,377.7 |  |  | $ | 1,392.9 |  |  | $ | 546.6 | 
|Homebuilding gross profit                             |  | $                                            | 428.4   |      |  | $          | 323.2   |            |  | $          | 276.1   |  |  | $ | 284.6   |  |  | $ | 105.7 | 
|Homebuilding pretax income                            |  | $                                            | 181.7   |      |  | $          | 114.7   |            |  | $          | 91.2    |  |  | $ | 128.5   |  |  | $ | 36.5  | 
|Financial services pretax income                      |  | $                                            | 8.3     |      |  | $          | 15.6    |            |  | $          | 15.7    |  |  | $ | 11.5    |  |  | $ | 0.9   | 
|Income from continuing operations before income taxes |  | $                                            | 190.0   |      |  | $          | 130.3   |            |  | $          | 106.9   |  |  | $ | 140.0   |  |  | $ | 37.4  | 
|Income from continuing operations                     |  | $                                            | 119.6   |      |  | $          | 82.7    |            |  | $          | 67.0    |  |  | $ | 87.8    |  |  | $ | 23.8  | 
|Share Data(3):                                        |  |                                              |         |      |  |            |         |            |  |            |         |  |  |   |         |  |  |   |       | 
|Income from continuing operations per share  basic   |  | $                                            | 2.67    |      |  | $          | 1.96    |            |  | $          | 1.60    |  |  | $ | 2.10    |  |  | $ | 1.20  | 
|Income from continuing operations per share  diluted |  | $                                            | 2.60    |      |  | $          | 1.94    |            |  | $          | 1.60    |  |  | $ | 2.10    |  |  | $ | 1.20  | 
|Cash dividends per share                              |  | $                                            | 0.045   |      |  | $          |        |            |  | $          |        |  |  | $ | 0.14    |  |  | $ |      | 
|Statement of Financial Condition Data:                |  |                                              |         |      |  |            |         |            |  |            |         |  |  |   |         |  |  |   |       | 
|Inventory                                             |  | $                                            | 1,276.2 |      |  | $          | 1,172.9 |            |  | $          | 753.9   |  |  | $ | 646.0   |  |  | $ | 613.1 | 
|Total assets                                          |  | $                                            | 1,987.5 |      |  | $          | 1,605.0 |            |  | $          | 1,034.9 |  |  | $ | 999.2   |  |  | $ | 868.6 | 
|Homebuilding borrowings(4)                            |  | $                                            | 811.4   |      |  | $          | 497.9   |            |  | $          | 413.1   |  |  | $ | 308.7   |  |  | $ | 337.6 | 
|Total borrowings(4)                                   |  | $                                            | 860.4   |      |  | $          | 561.1   |            |  | $          | 461.4   |  |  | $ | 347.4   |  |  | $ | 346.7 | 
|Stockholders equity                                  |  | $                                            | 662.7   |      |  | $          | 537.6   |            |  | $          | 405.1   |  |  | $ | 413.4   |  |  | $ | 355.1 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On June 25, 2002, we completed the merger with Engle
    Holdings Corp. As both entities were under the common control of
    Technical Olympic, Inc., our parent company at the time,
    the merger was accounted for as a reorganization of entities
    under common control. In accordance with Statement of Financial
    Accounting Standards (SFAS) No. 141, Business
    Combinations, we recognized the acquired assets and
    liabilities of Engle Holdings Corp. at their historical carrying
    amounts. As both entities came under common control of Technical
    Olympic on November 22, 2000, our financial statements and
    other operating data have been restated to include the
    operations of Engle Holdings Corp. from November 22, 2000.
|   
|(2) | On April 15, 2002, we completed the sale of Westbrooke,
    formerly one of our Florida homebuilding subsidiaries. In
    accordance with SFAS No. 144, Accounting for the
    Impairment or Disposal of Long-Lived Assets, the results
    of Westbrookes operations have been classified as
    discontinued operations, and prior periods have been restated.                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) | The shares issued and outstanding and the earnings per share
    amounts have been adjusted to reflect a three-for-two stock
    split effected in the form of a 50% stock dividend paid on
    June 1, 2004. Cash dividends per share have been restated
    to reflect the total shares outstanding as a result of the
    merger.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | Homebuilding borrowings and total borrowings do not include
    obligations for inventory not owned of $136.2 million,
    $246.2 million, $16.3 million and $30.0 million
    as of December 31, 2004, 2003, 2002, and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

23



---



##### 



Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations




Executive Summary




|                  |  |                                 |  |                  |  |                 
|----------------- |  | ------------------------------- |  | ---------------- |  | ----------------
|Florida           |  | Mid-Atlantic                    |  | Texas            |  | West            
|                  |  |                                 |  |                  |  |                 
|Jacksonville      |  | Baltimore/Southern Pennsylvania |  | Austin           |  | Central Colorado
|Orlando           |  | Delaware                        |  | Dallas/Ft. Worth |  | Las Vegas       
|Southeast Florida |  | Nashville                       |  | Houston          |  | Phoenix         
|Southwest Florida |  | Northern Virginia               |  | San Antonio      |  |                 









24



---



##### 











Critical Accounting Policies






| |                                        
| | ---------------------------------------
| | Homebuilding Revenues and Cost of Sales



25



---



##### 







| |                                         
| | ----------------------------------------
| | Financial Services Revenues and Expenses





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets







| |         
| | --------
| | Goodwill





| |                                                                              
| | -----------------------------------------------------------------------------
| | Homesite Option Contracts and Consolidation of Variable
    Interest Entities



26



---



##### 











| |                  
| | -----------------
| | Warranty Reserves



27



---



##### 





| |                                  
| | ---------------------------------
| | Insurance and Litigation Reserves





| |                    
| | -------------------
| | Recent Acquisitions



Selected Homebuilding Operating Data




|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|---------------------------------- |  | ----------------------- | ----- | ---- |  | ----- | ------- | - |  | ----- | ----- | - |  | - | ------- |  |  |  | ----- |  |  | - | ------- | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2004                    |       | 2003 |  | 2002 
|                                   |  |                         |       |      |  |      
|Deliveries:                        |  | Homes                   |       | $    |  | Homes |         | $ |  | Homes |       | $
|                                   |  |                         |       |      |  |       |         |   |  |       |       |  
|Florida                            |  |                         | 2,361 |      |  | $     | 632.8   |   |  |       | 2,311 |   |  | $ | 562.5   |  |  |  | 2,024 |  |  | $ | 497.0   | 
|Mid-Atlantic                       |  |                         | 562   |      |  |       | 235.3   |   |  |       | 636   |   |  |   | 209.3   |  |  |  | 564   |  |  |   | 197.9   | 
|Texas                              |  |                         | 1,827 |      |  |       | 459.9   |   |  |       | 1,557 |   |  |   | 407.5   |  |  |  | 1,539 |  |  |   | 397.2   | 
|West                               |  |                         | 2,471 |      |  |       | 657.0   |   |  |       | 1,631 |   |  |   | 425.1   |  |  |  | 958   |  |  |   | 258.2   | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|Consolidated total                 |  |                         | 7,221 |      |  | $     | 1,985.0 |   |  |       | 6,135 |   |  | $ | 1,604.4 |  |  |  | 5,085 |  |  | $ | 1,350.3 | 
|From unconsolidated joint ventures |  |                         | 116   |      |  |       | 34.7    |   |  |       |      |   |  |   |        |  |  |  |      |  |  |   |        | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|Total                              |  |                         | 7,337 |      |  | $     | 2,019.7 |   |  |       | 6,135 |   |  | $ | 1,604.4 |  |  |  | 5,085 |  |  | $ | 1,350.3 | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 

|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|---------------------------------- |  | ----------------------- | ----- | ---- |  | ----- | ------- | - |  | ----- | ----- | - |  | - | ------- |  |  |  | ----- |  |  | - | ------- | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2004                    |       | 2003 |  | 2002 
|                                   |  |                         |       |      |  |      
|Net Sales Orders(1):               |  | Homes                   |       | $    |  | Homes |         | $ |  | Homes |       | $
|                                   |  |                         |       |      |  |       |         |   |  |       |       |  
|Florida                            |  |                         | 3,711 |      |  | $     | 1,107.8 |   |  |       | 2,662 |   |  | $ | 672.1   |  |  |  | 1,809 |  |  | $ | 465.2   | 
|Mid-Atlantic                       |  |                         | 682   |      |  |       | 289.0   |   |  |       | 616   |   |  |   | 207.3   |  |  |  | 569   |  |  |   | 212.2   | 
|Texas                              |  |                         | 1,876 |      |  |       | 473.9   |   |  |       | 1,673 |   |  |   | 427.7   |  |  |  | 1,515 |  |  |   | 394.9   | 
|West                               |  |                         | 3,274 |      |  |       | 942.0   |   |  |       | 1,884 |   |  |   | 481.8   |  |  |  | 1,116 |  |  |   | 306.1   | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|Consolidated total                 |  |                         | 9,543 |      |  | $     | 2,812.7 |   |  |       | 6,835 |   |  | $ | 1,788.9 |  |  |  | 5,009 |  |  | $ | 1,378.4 | 
|From unconsolidated joint ventures |  |                         | 390   |      |  |       | 117.6   |   |  |       |      |   |  |   |        |  |  |  |      |  |  |   |        | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 
|Total                              |  |                         | 9,933 |      |  | $     | 2,930.3 |   |  |       | 6,835 |   |  | $ | 1,788.9 |  |  |  | 5,009 |  |  | $ | 1,378.4 | 
|                                   |  |                         |       |      |  |       |         |   |  |       |       |   |  |   |         |  |  |  |       |  |  |   |         | 






|    |                     
|--- | --------------------
|(1) | Net of cancellations

28



---



##### 



|                                    |  |                         |       |      |  |       |         |       |  |   |     |       |  |       |       |   |  |       |       |  |  |   |     |  |  |  |       |  |  |   |       |  |  |   |     | 
|----------------------------------- |  | ----------------------- | ----- | ---- |  | ----- | ------- | ----- |  | - | --- | ----- |  | ----- | ----- | - |  | ----- | ----- |  |  | - | --- |  |  |  | ----- |  |  | - | ----- |  |  | - | --- | 
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2004                    |       | 2003 |  | 2002 
|                                    |  |                         |       |      |  |      
|                                    |  |                         |       | Avg  |  |       |         | Avg   |  |   |     | Avg  
|Sales Backlog:                      |  | Homes                   |       | $    |  | Price |         | Homes |  | $ |     | Price |  | Homes |       | $ |  | Price
|                                    |  |                         |       |      |  |       |         |       |  |   |     |       |  |       |       |   |  |      
|Florida                             |  |                         | 2,896 |      |  | $     | 898.9   |       |  | $ | 310 |       |  |       | 1,546 |   |  | $     | 423.8 |  |  | $ | 274 |  |  |  | 1,195 |  |  | $ | 314.2 |  |  | $ | 263 | 
|Mid-Atlantic                        |  |                         | 346   |      |  |       | 141.9   |       |  | $ | 410 |       |  |       | 224   |   |  |       | 87.6  |  |  | $ | 391 |  |  |  | 244   |  |  |   | 89.7  |  |  | $ | 368 | 
|Texas                               |  |                         | 543   |      |  |       | 137.3   |       |  | $ | 253 |       |  |       | 494   |   |  |       | 123.3 |  |  | $ | 250 |  |  |  | 378   |  |  |   | 103.0 |  |  | $ | 273 | 
|West                                |  |                         | 1,309 |      |  |       | 388.9   |       |  | $ | 297 |       |  |       | 864   |   |  |       | 220.7 |  |  | $ | 255 |  |  |  | 463   |  |  |   | 130.0 |  |  | $ | 281 | 
|                                    |  |                         |       |      |  |       |         |       |  |   |     |       |  |       |       |   |  |       |       |  |  |   |     |  |  |  |       |  |  |   |       |  |  |   |     | 
|Consolidated total                  |  |                         | 5,094 |      |  | $     | 1,567.0 |       |  | $ | 308 |       |  |       | 3,128 |   |  | $     | 855.4 |  |  | $ | 274 |  |  |  | 2,280 |  |  | $ | 636.9 |  |  | $ | 279 | 
|From unconsolidated joint ventures* |  |                         | 669   |      |  |       | 210.4   |       |  | $ | 314 |       |  |       |      |   |  |       |      |  |  |   |    |  |  |  |      |  |  |   |      |  |  |   |    | 
|                                    |  |                         |       |      |  |       |         |       |  |   |     |       |  |       |       |   |  |       |       |  |  |   |     |  |  |  |       |  |  |   |       |  |  |   |     | 
|Total                               |  |                         | 5,763 |      |  | $     | 1,777.4 |       |  | $ | 308 |       |  |       | 3,128 |   |  | $     | 855.4 |  |  | $ | 274 |  |  |  | 2,280 |  |  | $ | 636.9 |  |  | $ | 279 | 
|                                    |  |                         |       |      |  |       |         |       |  |   |     |       |  |       |       |   |  |       |       |  |  |   |     |  |  |  |       |  |  |   |       |  |  |   |     | 






|  |                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------
|* | Includes 37 homes associated with the Gilligan Homes acquisition
    and 358 homes associated with the Engle/ Sunbelt joint venture.

|                                   |  |                         |     |              |  |            |     |              |  |            |     |              |  |   |     |  |  |   |     |  |  |   |     | 
|---------------------------------- |  | ----------------------- | --- | ------------ |  | ---------- | --- | ------------ |  | ---------- | --- | ------------ |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2004                    |     | 2003         |  | 2002      
|                                   |  |                         |     |              |  |           
|Average Price:                     |  | Deliveries              |     | Sales Orders |  | Deliveries |     | Sales Orders |  | Deliveries |     | Sales Orders
|                                   |  |                         |     |              |  |            |     |              |  |            |     |             
|Florida                            |  | $                       | 268 |              |  | $          | 299 |              |  | $          | 243 |              |  | $ | 253 |  |  | $ | 246 |  |  | $ | 257 | 
|Mid-Atlantic                       |  | $                       | 419 |              |  | $          | 424 |              |  | $          | 329 |              |  | $ | 337 |  |  | $ | 351 |  |  | $ | 373 | 
|Texas                              |  | $                       | 252 |              |  | $          | 253 |              |  | $          | 262 |              |  | $ | 256 |  |  | $ | 258 |  |  | $ | 261 | 
|West                               |  | $                       | 266 |              |  | $          | 288 |              |  | $          | 261 |              |  | $ | 256 |  |  | $ | 270 |  |  | $ | 274 | 
|Consolidated total                 |  | $                       | 275 |              |  | $          | 295 |              |  | $          | 262 |              |  | $ | 262 |  |  | $ | 266 |  |  | $ | 275 | 
|From unconsolidated joint ventures |  | $                       | 299 |              |  | $          | 301 |              |  |            |    |              |  |   |    |  |  |   |    |  |  |   |    | 
|Total                              |  | $                       | 275 |              |  | $          | 295 |              |  | $          | 262 |              |  | $ | 262 |  |  | $ | 266 |  |  | $ | 275 | 

|                            |  |                                           |        |      |  |      |        |  |  |  |        | 
|--------------------------- |  | ----------------------------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                            |  | Percentage of Total Homebuilding Revenues
|                            |  |                                          
|                            |  | Year Ended December 31,                  
|                            |  |                                          
|                            |  | 2004                                      |        | 2003 |  | 2002
|                            |  |                                           |        |      |  |     
|Gross Profit                |  |                                           | 20.4%  |      |  |      | 19.7%  |  |  |  | 20.0%  | 
|SG&A                        |  |                                           | 12.0%  |      |  |      | 12.9%  |  |  |  | 13.6%  | 
|Income from joint ventures  |  |                                           | (0.1)% |      |  |      |       |  |  |  |       | 
|Other (income) expense, net |  |                                           | (0.1)% |      |  |      | (0.2)% |  |  |  | (0.2)% | 
|                            |  |                                           |        |      |  |      |        |  |  |  |        | 
|Homebuilding pretax income  |  |                                           | 8.6%   |      |  |      | 7.0%   |  |  |  | 6.6%   | 



| |                                              
| | ---------------------------------------------
| | Fiscal Year 2004 Compared to Fiscal Year 2003







29



---



##### 





Results of Operations




| |             
| | ------------
| | Homebuilding











30



---



##### 





| |                             
| | ----------------------------
| | Net Sales Orders and Backlog







| |                   
| | ------------------
| | Financial Services







| |                                              
| | ---------------------------------------------
| | Fiscal Year 2003 Compared to Fiscal Year 2002





31



---



##### 







Results of Operations




| |             
| | ------------
| | Homebuilding









32



---



##### 







| |                             
| | ----------------------------
| | Net Sales Orders and Backlog







| |                   
| | ------------------
| | Financial Services





Financial Condition, Liquidity and Capital Resources




| |                         
| | ------------------------
| | Sources and Uses of Cash









33



---



##### 









| |                     
| | --------------------
| | Financing Activities

3 8 1 2 1 2


1 2 1 2


pari passu pari
passu




34



---



##### 





|                           |  |                                  |         |              |  |   |       |  
|-------------------------- |  | -------------------------------- | ------- | ------------ |  | - | ----- | -
|                           |  | Homebuilding Net Debt to Capital
|                           |  |                                 
|                           |  | December 31,                     |         | December 31,
|                           |  | 2004                             |         | 2003        
|                           |  |                                  |         |             
|Notes payable              |  | $                                | 811.4   |              |  | $ | 480.0 |  
|Bank borrowings            |  |                                  |        |              |  |   | 17.9  |  
|                           |  |                                  |         |              |  |   |       |  
|Homebuilding borrowings(1) |  | $                                | 811.4   |              |  | $ | 497.9 |  
|Less: unrestricted cash    |  |                                  | 217.6   |              |  |   | 73.7  |  
|                           |  |                                  |         |              |  |   |       |  
|Homebuilding net debt      |  | $                                | 593.8   |              |  | $ | 424.2 |  
|Stockholders equity       |  |                                  | 662.7   |              |  |   | 537.6 |  
|                           |  |                                  |         |              |  |   |       |  
|Total capital(2)           |  | $                                | 1,256.5 |              |  | $ | 961.8 |  
|                           |  |                                  |         |              |  |   |       |  
|Ratio                      |  |                                  | 47.3    | %            |  |   | 44.1  | %






|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include obligations for inventory not owned of
    $136.2 million at December 31, 2004 and
    $246.2 million at December 31, 2003, all of which are
    non-recourse to us.
|   
|(2) | Does not include Financial Services bank borrowings of
    $49.0 million at December 31, 2004 and
    $63.2 million at December 31, 2003.                                            





35



---



##### 













36



---



##### 





|                                                                                                          |  |                       |       |           |  |       |      |       |  |           |     |  |  |   |     |  |  |   |       |    
|--------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | --------- |  | ----- | ---- | ----- |  | --------- | --- |  |  | - | --- |  |  | - | ----- | ---
|                                                                                                          |  | Payment Due by Period
|                                                                                                          |  |                      
|                                                                                                          |  |                       |       | Less Than |  | 1-3   |      | 3-5   |  | More Than
|Contractual Obligations(1)                                                                                |  | Total                 |       | 1 Year    |  | Years |      | Years |  | 5 Years  
|                                                                                                          |  |                       |       |           |  |       |      |       |  |          
|Long-Term Debt Obligations                                                                                |  | $                     | 859.0 |           |  | $     | 49.0 | (2)   |  |           |    |  |  |   |    |  |  | $ | 810.0 | (3)
|Capital Lease Obligations                                                                                 |  |                       |      |           |  |       |     |       |  |           |    |  |  |   |    |  |  |   |      |    
|Operating Lease Obligations                                                                               |  |                       | 18.1  |           |  |       | 6.3  |       |  |           | 7.0 |  |  |   | 3.7 |  |  |   | 1.1   |    
|Purchase Obligations                                                                                      |  |                       |      |           |  |       |     |       |  |           |    |  |  |   |    |  |  |   |      |    
|Other Long-Term Liabilities Reflected on the Registrants
    Statement of Financial Condition under GAAP |  |                       |      |           |  |       |     |       |  |           |    |  |  |   |    |  |  |   |      |    
|                                                                                                          |  |                       |       |           |  |       |      |       |  |           |     |  |  |   |     |  |  |   |       |    
|Total                                                                                                     |  | $                     | 877.1 |           |  | $     | 55.3 |       |  | $         | 7.0 |  |  | $ | 3.7 |  |  | $ | 811.1 |    
|                                                                                                          |  |                       |       |           |  |       |      |       |  |           |     |  |  |   |     |  |  |   |       |    






|    |                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include obligations for inventory not owned
    of $136.2 million at December 31, 2004. See
    notes 2 and 3 to the consolidated financial statements
    included elsewhere in this Form 10-K for more information
    on obligations for inventory not owned.                                                                                                      
|   
|(2) | Represents borrowings under the New and Existing Warehouse Lines
    of Credit outstanding at December 31, 2004.                                                                                                                                                                                                                                                                   
|   
|(3) | Represents aggregate principal amount of outstanding senior and
    senior subordinated notes. Does not include aggregate annual
    interest of $70.6 million on such senior and senior
    subordinated notes. See note 6 to the consolidated
    financial statements included elsewhere in this Form 10-K
    for more information on the senior and senior subordinated notes.



| |                               
| | ------------------------------
| | Off Balance Sheet Arrangements



| |                                   
| | ----------------------------------
| | Land and Homesite Option Contracts







| |                                             
| | --------------------------------------------
| | Investments in Unconsolidated Joint Ventures



37



---



##### 





Dividends




Recent Accounting Pronouncements






Seasonality of Operations






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



38



---



##### 





|               |                                                                          |                        |   |      |  |      |   |      |  |      |   |            |  |            |   |   |  |  |   |   |  |  |   |       |  |  |   |       | 
|-------------- | ------------------------------------------------------------------------ | ---------------------- | - | ---- |  | ---- | - | ---- |  | ---- | - | ---------- |  | ---------- | - | - |  |  | - | - |  |  | - | ----- |  |  | - | ----- | 
|               |                                                                          | Expected Maturity Date
|               |                                                                          |                       
|Liabilities    |                                                                          | 2005                   |   | 2006 |  | 2007 |   | 2008 |  | 2009 |   | Thereafter |  | Fair Value
|               |                                                                          |                        |   |      |  |      |   |      |  |      |   |            |  |           
|               |                                                                          | (In millions)         
|Long-term debt |                                                                          |                        |  |      |  |      |  |      |  |      |  |            |  |            |  |   |  |  |  |   |  |  |  |       |  |  |  |      
|               | Fixed rate
    (71/2%)                                                   |                        |   |     |  |      |   |     |  |      |   |           |  |            |   |  |  |  |   |  |  |  | $ | 325.0 |  |  | $ | 324.4 | 
|               | Fixed rate (9.0%)                                                        |                        |   |     |  |      |   |     |  |      |   |           |  |            |   |  |  |  |   |  |  |  | $ | 300.0 |  |  | $ | 321.0 | 
|               | Fixed rate
    (103/8%)                                                  |                        |   |     |  |      |   |     |  |      |   |           |  |            |   |  |  |  |   |  |  |  | $ | 185.0 |  |  | $ | 207.2 | 
|               | Variable rate, warehouse line of credit (3.74% at
    December 31, 2004) |                        | $ | 49.0 |  |      |   |     |  |      |   |           |  |            |   |  |  |  |   |  |  |  |   |      |  |  | $ | 49.0  | 







|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure





|         |                        
|-------- | -----------------------
|ITEM 9A. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures.




Managements Report on Internal Control Over Financial
Reporting.




39



---



##### 





|         |                   
|-------- | ------------------
|Item 9B. | Other Information.



PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

www.tousa.com








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services



PART IV




|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                         
| | ------------------------
| | (1) Financial Statements



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | See Item 8. Financial Statements and Supplementary
    Data for Financial Statements included with this Annual
    Report on Form 10-K.

40



---



##### 





| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedules



| |      
| | -----
| | None.



| |             
| | ------------
| | (3) Exhibits

|       |     |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|------ | --- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |     | Exhibit Description
|       |     |                    
|       | 2.1 |                     |  | Agreement and Plan of Merger dated April 8, 2002, by and
    among Newmark Homes Corp., Engle Holdings Corp., and Technical
    Olympic, Inc. (Incorporated by reference to Exhibit 99.A to
    the Information Statement on Schedule 14-C, dated
    June 3, 2002, filed by the Registrant).                                                                                                        
|       | 3.1 |                     |  | Certificate of Incorporation of Newmark Homes Corp (Incorporated
    by reference to the Form 8-K, dated March 23, 2001,
    previously filed by the Registrant).                                                                                                                                                                                                                                    
|       | 3.2 |                     |  | Certificate of Amendment to the Certificate of Incorporation
    (Incorporated by reference to the Registration Statement on
    Form S-4 previously filed by the Registrant (Registration
    Statement No. 333-100013)).                                                                                                                                                                           
|       | 3.3 |                     |  | Amended and Restated Bylaws. (Incorporated by reference to the
    Registration Statement on Form S-4 previously filed by the
    Registrant (Registration Statement No. 333-100013)).                                                                                                                                                                                                               
|       | 3.4 |                     |  | Certificate of Amendment to the Certificate of Incorporation,
    filed on April 28, 2004 (Incorporated by reference to the
    Form 10-Q for the quarter ended March 31, 2004,
    previously filed by the Registrant).                                                                                                                                                                             
|       | 4.1 |                     |  | Indenture, dated as of June 25, 2002, by and among
    Technical Olympic USA, Inc. and the subsidiaries named therein
    and Wells Fargo Bank Minnesota, National Association, as Trustee
    covering up to $200,000,000 9% Senior Notes due 2010
    (Incorporated by reference to the Form 8-K, dated
    July 9, 2002, previously filed by the Registrant).                                     
|       | 4.2 |                     |  | Indenture, dated as of June 25, 2002, by and among
    Technical Olympic USA, Inc., the subsidiaries name therein and
    Wells Fargo Bank Minnesota, National Association, as Trustee
    covering up to $150,000,000
    103/8% Senior
    Subordinated Notes due 2012 (Incorporated by reference to the
    Form 8-K, dated July 9, 2002, previously filed by the
    Registrant).                
|       | 4.3 |                     |  | Form of Technical Olympic USA, Inc. 9% Senior Note due 2010
    (included in Exhibit A to Exhibit 4.1) (Incorporated
    by reference to the Form 8-K, dated July 9, 2002,
    previously filed by the Registrant).                                                                                                                                                                                  
|       | 4.4 |                     |  | Form of Technical Olympic USA, Inc.
    103/8% Senior
    Subordinated Note due 2012 (included in Exhibit A of
    Exhibit 4.2) (Incorporated by reference to the
    Form 8-K, dated July 9, 2002, previously filed by the
    Registrant).                                                                                                                                                         
|       | 4.5 |                     |  | Registration Rights Agreement, dated June 25, 2002, among
    Technical Olympic USA, Inc. and Technical Olympic, Inc.
    (Incorporated by reference to Exhibit 2.2 to the
    Form 8-K, dated July 9, 2002, previously filed by the
    Registrant).                                                                                                                                                
|       | 4.6 |                     |  | Specimen of Stock Certificate of Technical Olympic USA, Inc.
    (Incorporated by reference to Exhibit 4.1 to the
    Registration Statement on Form S-8 previously filed by the
    Registrant (Registration No. 333-99307)).                                                                                                                                                                       
|       | 4.7 |                     |  | Indenture, dated as of February 3, 2003, among Technical
    Olympic USA, Inc., the subsidiaries named therein, Salomon Smith
    Barney Inc., Deutsche Bank Securities Inc., Fleet Securities,
    Inc. and Credit Lyonnais Securities (USA) Inc.
    (Incorporated by reference to Exhibit 4.13 to the
    Form 10-K for the year ended December 31, 2002,
    previously filed by the Registrant).
|       | 4.8 |                     |  | Form of Technical Olympic USA, Inc. 9% Senior Note due 2010
    (included in Exhibit A to Exhibit 4.7 (Incorporated by
    reference to Exhibit 4.13 to the Form 10-K for the
    year ended December 31, 2002, previously filed by the
    Registrant).                                                                                                                                             
|       | 4.9 |                     |  | Technical Olympic USA, Inc.
    103/8% Senior
    Subordinated Note due 2012, dated as of April 22, 2003, in
    the amount of $35,000,000. (Incorporated by reference to
    Exhibit 4.19 to the Registration Statement on Form S-1
    previously filed by the Registrant (Registration Statement
    No. 333-106537)).                                                                            

41



---



##### 



|       |        |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | ------ | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |        | Exhibit Description
|       |        |                    
|       | 4.10   |                     |  | Indenture for the
    71/2% Senior
    Subordinated Notes due 2011, dated as of March 17, 2004,
    among Technical Olympic USA, Inc., the subsidiaries named
    therein and Wells Fargo Bank, N.A., as Trustee (Incorporated by
    reference to Exhibit 4.24 to the Registration Statement on
    Form S-4 previously filed by the Registrant (Registration
    Statement No. 333-114587)).           
|       | 4.11   |                     |  | Form of Technical Olympic USA, Inc.
    71/2% Senior
    Subordinated Note due 2011 (included in Exhibit A to
    Exhibit 4.10) (Incorporated by reference to
    Exhibit 4.24 to the Registration Statement on Form S-4
    previously filed by the Registrant (Registration Statement
    No. 333-114587)).                                                                                            
|       | 4.12   |                     |  | Indenture for the
    71/2% Senior
    Subordinated Notes due 2015, dated as of December 21, 2004,
    among Technical Olympic USA, Inc., the subsidiaries named
    therein and Wells Fargo Bank, N.A., as Trustee (Incorporated by
    reference to the Registration Statement on Form S-4
    previously filed by the Registrant (Registration Statement
    No. 333-122450)).                        
|       | 4.13   |                     |  | Registration Rights Agreement, dated as of December 21,
    2004, among Technical Olympic USA, Inc., the subsidiaries named
    therein, and Citigroup Global Markets Inc. (Incorporated by
    reference to the Registration Statement on Form S-4
    previously filed by the Registrant (Registration Statement
    No. 333-122450)).                                                                 
|       | 4.14   |                     |  | Form of Technical Olympic USA, Inc.
    71/2% Senior
    Subordinated Note due 2015 (included in Exhibit A to
    Exhibit 4.12) (Incorporated by reference to the
    Registration Statement on Form S-4 previously filed by the
    Registrant (Registration Statement No. 333-122450)).                                                                                                                
|       | 10.1+  |                     |  | Form of Indemnification Agreement (Incorporated by reference to
    the Form 10-K for the year ended December 31, 2003,
    previously filed by the Registrant).                                                                                                                                                                                                                                         
|       | 10.2   |                     |  | Form of Tax Allocation Agreement between Technical Olympic, Inc.
    (formerly known as Technical Olympic USA, Inc.) and various
    affiliates and subsidiaries, including Technical Olympic USA,
    Inc. and its subsidiaries dated March 15, 2000
    (Incorporated by reference to Exhibit 10.10 to the
    Form 10-K for the year ended December 31, 1999,
    previously filed by the Registrant).
|       | 10.3+  |                     |  | Amended and Restated Employment Agreement between Technical
    Olympic USA, Inc. and Antonio B. Mon dated January 27,
    2004, effective as of July 26, 2003 (Incorporated by
    reference to Exhibit 10.9 to the Form 10-K for the
    year ended December 31, 2003, previously filed by the
    Registrant).                                                                                        
|       | 10.4+  |                     |  | Employment Agreement between Technical Olympic USA, Inc. and
    Tommy L. McAden dated July 12, 2002, effective
    June 25, 2002 (Incorporated by reference to
    Exhibit 10.10 to the Form 10-Q for the quarter ended
    June 30, 2002, previously filed by the Registrant).                                                                                                                         
|       | 10.5*+ |                     |  | Technical Olympic USA, Inc. Annual and Long-Term Incentive Plan,
    as amended and restated.                                                                                                                                                                                                                                                                                                            
|       | 10.6+  |                     |  | Consulting Agreement, dated as of January 1, 2003, between
    Technical Olympic USA, Inc. and Lonnie M. Fedrick (Incorporated
    by reference to Exhibit 10.25 to the Form 10-Q for the
    quarter ended March 31, 2003, previously filed by the
    Registrant).                                                                                                                                     
|       | 10.7   |                     |  | Contractor Agreement, effective as of November 6, 2000,
    between Technical Olympic USA, Inc. (f/k/a Newmark Homes Corp.)
    and Technical Olympic S.A. (Incorporated by reference to
    Exhibit 10.26 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    No. 333-106537)).                                                                          
|       | 10.8   |                     |  | Supplemental Contractor Agreement, effective as of
    January 4, 2001, between Technical Olympic USA, Inc. (f/k/a
    Newmark Homes Corp.) and Technical Olympic S.A. (Incorporated by
    reference to Exhibit 10.27 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    Statement No. 333-106537)).                                                    
|       | 10.9   |                     |  | Contractor Agreement, effective as of November 22, 2000,
    between TOUSA Homes, Inc. (f/k/a Engle Homes, Inc.) and
    Technical Olympic S.A. (Incorporated by reference to
    Exhibit 10.28 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    Statement No. 333-106537)).                                                                           

42



---



##### 



|       |         |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | ------- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |         | Exhibit Description
|       |         |                    
|       | 10.10   |                     |  | Supplemental Contractor Agreement, effective as of
    January 3, 2001, between TOUSA Homes, Inc. (f/k/a Engle
    Homes Inc.) and Technical Olympic S.A. (Incorporated by
    reference to Exhibit 10.29 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    Statement No. 333-106537)).                                                                                                                      
|       | 10.11+  |                     |  | Employment Agreement, dated as of January 1, 2003, between
    Technical Olympic USA, Inc. and Eric Rome (Incorporated by
    reference to Exhibit 10.30 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    Statement No. 333-106537)).                                                                                                                                                                       
|       | 10.12+  |                     |  | Employment Agreement, dated as of November 12, 2000,
    between TOUSA Homes, Inc. and Mark Upton. (Incorporated by
    reference to Exhibit 10.31 to the Registration Statement on
    Form S-4 previously filed by the Registrant (Registration
    Statement No. 333-107091)).                                                                                                                                                                             
|       | 10.13+  |                     |  | First Amendment to Employment Agreement, dated as of
    April 1, 2003, among Technical Olympic USA, Inc., TOUSA
    Homes, Inc. and Mark Upton (Incorporated by reference to
    Exhibit 10.32 to the Registration Statement on
    Form S-4 previously filed by the Registrant (Registration
    Statement No. 333-107091)).                                                                                                                                
|       | 10.14   |                     |  | Amended and Restated Management Services Agreement, dated as of
    June 13, 2003, between Technical Olympic USA, Inc. and
    Technical Olympic, Inc. (Incorporated by reference to
    Exhibit 10.33 to the Registration Statement on
    Form S-1 previously filed by the Registrant (Registration
    Statement No. 333-106537)).                                                                                                                         
|       | 10.15+  |                     |  | Employment Agreement, dated as of January 1, 2004, between
    Harry Engelstein and Technical Olympic USA, Inc. (Incorporated
    by reference to Exhibit 10.42 to the Form 10-Q for the
    quarter ended March 31, 2004, previously filed by the
    Registrant).                                                                                                                                                                                           
|       | 10.16+  |                     |  | Employment Agreement, dated as of May 1, 2004, between
    David J. Keller and Technical Olympic USA, Inc. (Incorporated by
    reference to Exhibit 10.44 to the Form 10-Q for the
    quarter ended June 30, 2004, previously filed by the
    Registrant).                                                                                                                                                                                                 
|       | 10.17   |                     |  | Credit Agreement, dated as of October 26, 2004, among
    Technical Olympic USA, Inc., the lenders and issuers party
    thereto, Citicorp North America, Inc., Deutsche Bank Securities,
    Inc., KeyBank National Association, J.P. Morgan Securities,
    Inc., and CitiGroup Global Markets, Inc. (Incorporated by
    reference to Exhibit 10.45 to the Form 10-Q for the
    quarter ended September 30, 2004, previously filed by the
    Registrant).
|       | 10.18   |                     |  | Revolving Credit and Security Agreement, dated as of
    October 22, 2004, among Preferred Home Mortgage Company and
    Countrywide Warehouse Lending (Incorporated by reference to
    Exhibit 10.46 to the Form 10-Q for the quarter ended
    September 30, 2004, previously filed by the Registrant).                                                                                                                                                    
|       | 10.19+  |                     |  | Technical Olympic USA, Inc. Executive Savings Plan, effective as
    of December 1, 2004, comprised of the Basic Plan Document
    and the Adoption Agreement. (Incorporated by reference to
    Exhibit 99.1 to the Form 8-K, dated November 30,
    2004, previously filed by the Registrant).                                                                                                                                                              
|       | 10.20+  |                     |  | Addendum to Technical Olympic USA, Inc. Executive Savings Plan,
    effective as of December 1, 2004 (Incorporated by reference
    to Exhibit 99.2 to the Form 8-K, dated
    November 30, 2004, previously filed by the Registrant).                                                                                                                                                                                                                        
|       | 10.21*+ |                     |  | Term Sheet for the Performance Unit Program under the Technical
    Olympic USA, Inc. Annual and Long- Term Incentive Plan, as
    amended and restated.                                                                                                                                                                                                                                                                                                      
|       | 10.22+  |                     |  | Employment Agreement, dated as of February 16, 2005, by and
    between TOUSA Associates Services Company and Harry Engelstein.
    (Incorporated by reference to Exhibit 10.22 to the
    Form 8-K, dated February 16, 2005, previously filed by
    the Registrant).                                                                                                                                                                                        
|       | 10.23+  |                     |  | Employment Agreement, dated as of February 16, 2005, by and
    between TOUSA Associates Services Company and Mark Upton.
    (Incorporated by reference to Exhibit 10.23 to the
    Form 8-K, dated February 16, 2005, previously filed by
    the Registrant).                                                                                                                                                                                              
|       | 10.24*+ |                     |  | Employment Agreement, dated as of November 15, 2004,
    between Technical Olympic USA, Inc. and Edward Wohlwender.                                                                                                                                                                                                                                                                                                                                           
|       | 10.25*+ |                     |  | Employment Agreement, dated as of January 1, 2004, between
    TOUSA Associates Services Company and John Kraynick.                                                                                                                                                                                                                                                                                                                                           

43



---



##### 



|       |         |                     |  |                                                                                                                                                                                          
|------ | ------- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |         | Exhibit Description
|       |         |                    
|       | 10.26+  |                     |  | Form of Director Non-Qualified Stock Option Agreement.
    (Incorporated by reference to Exhibit 10.26 to the
    Form 8-K, dated March 3, 2005, previously filed by the
    Registrant).
|       | 10.27*+ |                     |  | Form of Director Restricted Stock Grant Agreement.                                                                                                                                       
|       | 10.28*+ |                     |  | Form of Associate Non-Qualified Stock Option Agreement.                                                                                                                                  
|       | 21.0*   |                     |  | Subsidiaries of the Registrant.                                                                                                                                                          
|       | 23.1*   |                     |  | Consent of Ernst & Young LLP independent registered
    public accounting firm.                                                                                                          
|       | 31.1*   |                     |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                  
|       | 31.2*   |                     |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                  
|       | 32.1*   |                     |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                  
|       | 32.2*   |                     |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                  






|  |                                                         
|- | --------------------------------------------------------
|* | Filed herewith.                                         
| 
|+ | Management contract or compensatory plan or arrangement.

44



---



##### 



SIGNATURES






| |                            
| | ---------------------------
| | Technical Olympic USA, Inc.



| |     |                   
| | --- | ------------------
| | By: | /s/ Antonio B. Mon

| |                                      
| | -------------------------------------
| |                                      
| | Antonio B. Mon                       
| | President and Chief Executive Officer



|                                                     |  |                                                                                                            |  |                |  | 
|---------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                            |  | Title                                                                                                      |  | Date          
|                                                     |  |                                                                                                            |  |               
|                                                    
|/s/ Antonio B. MonAntonio
    B. Mon                 |  | Executive Vice Chairman, President, Chief Executive Officer
    (Principal Executive Officer) and Director |  | March 10, 2005
|                                                    
|/s/ David J. KellerDavid
    J. Keller               |  | Senior Vice President, Chief Financial Officer and Treasurer
    (Principal Financial Officer)             |  | March 10, 2005
|                                                    
|/s/ Randy L. KotlerRandy
    L. Kotler               |  | Vice President  Chief Accounting Officer (Principal
    Accounting Officer)                               |  | March 10, 2005
|                                                    
|/s/ Konstantinos
    StengosKonstantinos
    Stengos |  | Chairman of the Board and Director                                                                         |  | March 10, 2005
|                                                    
|/s/ Lonnie M. FedrickLonnie
    M. Fedrick           |  | Director                                                                                                   |  | March 10, 2005
|                                                    
|/s/ Andreas StengosAndreas
    Stengos               |  | Director                                                                                                   |  | March 10, 2005
|                                                    
|/s/ George StengosGeorge
    Stengos                 |  | Director                                                                                                   |  | March 10, 2005
|                                                    
|/s/ Marianna StengouMarianna
    Stengou             |  | Director                                                                                                   |  | March 10, 2005
|                                                    
|/s/ Larry D. HornerLarry
    D. Horner               |  | Director                                                                                                   |  | March 10, 2005
|                                                    
|/s/ William A. HaslerWilliam
    A. Hasler           |  | Director                                                                                                   |  | March 10, 2005

45



---



##### 



|                                             |  |          |  |                |  | 
|-------------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                                    |  | Title    |  | Date          
|                                             |  |          |  |               
|                                            
|/s/ Michael J. PoulosMichael
    J. Poulos   |  | Director |  | March 10, 2005
|                                            
|/s/ Susan B. ParksSusan
    B. Parks         |  | Director |  | March 10, 2005
|                                            
|/s/ J. Bryan WhitworthJ.
    Bryan Whitworth |  | Director |  | March 10, 2005

46



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                         |  |      |      | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                         |  | Page
|                                                                                                         |  |     
|Managements Report on Internal Control over Financial
    Reporting                                     |  |      | F-2  | 
|Report of Independent Registered Public Accounting Firm on
    Internal Control Over Financial Reporting |  |      | F-3  | 
|Report of Independent Registered Public Accounting Firm on the
    Financial Statements                  |  |      | F-4  | 
|Consolidated Statements of Financial Condition as of
    December 31, 2004 and 2003                      |  |      | F-5  | 
|Consolidated Statements of Income for the years ended
    December 31, 2004, 2003 and 2002               |  |      | F-6  | 
|Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2004, 2003 and 2002 |  |      | F-7  | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002           |  |      | F-8  | 
|Notes to Consolidated Financial Statements                                                               |  |      | F-10 | 

F-1



---



##### 






MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


Internal
Control  Integrated Framework Internal Control  Integrated Framework,


Technical Olympic USA, Inc.


F-2



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON INTERNAL CONTROL OVER FINANCIAL REPORTING




















| |                             
| | ----------------------------
| | Ernst & Young LLP           
| | Certified Public Accountants







F-3



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON THE FINANCIAL STATEMENTS
















| |                             
| | ----------------------------
| | Ernst & Young LLP           
| | Certified Public Accountants







F-4



---



##### 






TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------- | ------- | ----- |  | - | ------- | ----- | 
|                                                                                                                                                                                  |                                             | December 31,         
|                                                                                                                                                                                  |                                             |                      
|                                                                                                                                                                                  |                                             | 2004                  |         | 2003 
|                                                                                                                                                                                  |                                             |                       |         |      
|                                                                                                                                                                                  |                                             | (Dollars in millions,
|                                                                                                                                                                                  |                                             | except par value)    
|ASSETS                                                                                                                                                                           
|Homebuilding:                                                                                                                                                                     |                                             |                       |         |       |  |   |         |      
|Cash and cash equivalents:                                                                                                                                                        |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  | Unrestricted                                |                       | $       | 217.6 |  |   | $       | 73.7  | 
|                                                                                                                                                                                  | Restricted                                  |                       |         | 8.0   |  |   |         | 21.2  | 
|Inventory                                                                                                                                                                         |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  | Deposits                                    |                       |         | 132.8 |  |   |         | 78.7  | 
|                                                                                                                                                                                  | Homesites and land under development        |                       |         | 336.2 |  |   |         | 443.4 | 
|                                                                                                                                                                                  | Residences completed and under construction |                       |         | 671.0 |  |   |         | 404.6 | 
|                                                                                                                                                                                  | Inventory not owned                         |                       |         | 136.2 |  |   |         | 246.2 | 
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  |                                             |                       | 1,276.2 |       |  |   | 1,172.9 |      
|Property and equipment, net                                                                                                                                                       |                                             |                       | 26.7    |       |  |   | 23.7    |      
|Investments in unconsolidated joint ventures                                                                                                                                      |                                             |                       | 71.6    |       |  |   | 10.5    |      
|Other assets                                                                                                                                                                      |                                             |                       | 71.1    |       |  |   | 43.7    |      
|Goodwill                                                                                                                                                                          |                                             |                       | 110.7   |       |  |   | 100.1   |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  |                                             |                       | 1,781.9 |       |  |   | 1,445.8 |      
|Financial Services:                                                                                                                                                               |                                             |                       |         |       |  |   |         |      
|Cash and cash equivalents:                                                                                                                                                        |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  | Unrestricted                                |                       |         | 50.9  |  |   |         | 3.1   | 
|                                                                                                                                                                                  | Restricted                                  |                       |         | 69.1  |  |   |         | 73.4  | 
|Mortgage loans held for sale                                                                                                                                                      |                                             |                       | 75.8    |       |  |   | 75.2    |      
|Other assets                                                                                                                                                                      |                                             |                       | 9.8     |       |  |   | 7.5     |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  |                                             |                       | 205.6   |       |  |   | 159.2   |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|Total assets                                                                                                                                                                      |                                             | $                     | 1,987.5 |       |  | $ | 1,605.0 |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             
|Homebuilding:                                                                                                                                                                     |                                             |                       |         |       |  |   |         |      
|Accounts payable and other liabilities                                                                                                                                            |                                             | $                     | 188.9   |       |  | $ | 149.3   |      
|Customer deposits                                                                                                                                                                 |                                             |                       | 69.1    |       |  |   | 35.5    |      
|Obligations for inventory not owned                                                                                                                                               |                                             |                       | 136.2   |       |  |   | 246.2   |      
|Notes payable                                                                                                                                                                     |                                             |                       | 811.4   |       |  |   | 480.0   |      
|Bank borrowings                                                                                                                                                                   |                                             |                       |        |       |  |   | 17.9    |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  |                                             |                       | 1,205.6 |       |  |   | 928.9   |      
|Financial Services:                                                                                                                                                               |                                             |                       |         |       |  |   |         |      
|Accounts payable and other liabilities                                                                                                                                            |                                             |                       | 70.2    |       |  |   | 75.3    |      
|Bank borrowings                                                                                                                                                                   |                                             |                       | 49.0    |       |  |   | 63.2    |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                  |                                             |                       | 119.2   |       |  |   | 138.5   |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|                                                                                                                                                                                 
|Total liabilities                                                                                                                                                                 |                                             |                       | 1,324.8 |       |  |   | 1,067.4 |      
|                                                                                                                                                                                 
|Stockholders equity:                                                                                                                                                             |                                             |                       |         |       |  |   |         |      
|Preferred stock  $0.01 par value;
    3,000,000 shares authorized; none issued or outstanding                                                                                    |                                             |                       |        |       |  |   |        |      
|Common stock  $0.01 par value;
    97,000,000 shares authorized and 44,856,437 and
    44,833,554 shares issued and outstanding at
    December 31, 2004, and 2003, respectively |                                             |                       | 0.4     |       |  |   | 0.3     |      
|Additional paid-in capital                                                                                                                                                        |                                             |                       | 388.5   |       |  |   | 379.4   |      
|Unearned compensation                                                                                                                                                             |                                             |                       | (9.0    | )     |  |   | (7.3    | )    
|Retained earnings                                                                                                                                                                 |                                             |                       | 282.8   |       |  |   | 165.2   |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|Total stockholders equity                                                                                                                                                        |                                             |                       | 662.7   |       |  |   | 537.6   |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      
|Total liabilities and stockholders equity                                                                                                                                        |                                             | $                     | 1,987.5 |       |  | $ | 1,605.0 |      
|                                                                                                                                                                                  |                                             |                       |         |       |  |   |         |      



F-5



---



##### 






TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME


|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |            | 
|----------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------- | ------- | ---------- |  | ---- | ------- | ---------- |  | - | ------- | ---------- | 
|                                                                        |                                                   | Year Ended December 31,                        
|                                                                        |                                                   |                                                
|                                                                        |                                                   | 2004                                            |         | 2003       |  | 2002
|                                                                        |                                                   |                                                 |         |            |  |     
|                                                                        |                                                   | (Dollars in millions, except per share amounts)
|Homebuilding:                                                           |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Revenues:                                                               |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Homes sales                                       |                                                 | $       | 1,985.0    |  |      | $       | 1,604.4    |  |   | $       | 1,350.3    | 
|                                                                        | Land sales                                        |                                                 |         | 115.8      |  |      |         | 38.2       |  |   |         | 27.4       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        |                                                   |                                                 | 2,100.8 |            |  |      | 1,642.6 |            |  |   | 1,377.7 |           
|Cost of sales:                                                          |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Home sales                                        |                                                 |         | 1,592.0    |  |      |         | 1,291.8    |  |   |         | 1,077.2    | 
|                                                                        | Land sales                                        |                                                 |         | 80.4       |  |      |         | 27.6       |  |   |         | 24.4       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        |                                                   |                                                 | 1,672.4 |            |  |      | 1,319.4 |            |  |   | 1,101.6 |           
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Gross profit                                                            |                                                   |                                                 | 428.4   |            |  |      | 323.2   |            |  |   | 276.1   |           
|Selling, general and administrative expenses                            |                                                   |                                                 | 251.6   |            |  |      | 212.1   |            |  |   | 187.5   |           
|Income from joint ventures, net                                         |                                                   |                                                 | (3.2    | )          |  |      |        |            |  |   |        |           
|Other (income) expense, net                                             |                                                   |                                                 | (1.7    | )          |  |      | (3.6    | )          |  |   | (2.6    | )         
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Homebuilding pretax income                                              |                                                   |                                                 | 181.7   |            |  |      | 114.7   |            |  |   | 91.2    |           
|Financial Services:                                                     |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Revenues                                                                |                                                   |                                                 | 34.5    |            |  |      | 38.1    |            |  |   | 30.7    |           
|Expenses                                                                |                                                   |                                                 | 26.2    |            |  |      | 22.5    |            |  |   | 15.0    |           
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Financial Services pretax income                                        |                                                   |                                                 | 8.3     |            |  |      | 15.6    |            |  |   | 15.7    |           
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Income from continuing operations before provision for income
    taxes |                                                   |                                                 | 190.0   |            |  |      | 130.3   |            |  |   | 106.9   |           
|Provision for income taxes                                              |                                                   |                                                 | 70.4    |            |  |      | 47.6    |            |  |   | 39.9    |           
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Income from continuing operations                                       |                                                   |                                                 | 119.6   |            |  |      | 82.7    |            |  |   | 67.0    |           
|Discontinued operations:                                                |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Income from discontinued operations               |                                                 |         |           |  |      |         |           |  |   |         | 7.9        | 
|                                                                        | Provision for income taxes                        |                                                 |         |           |  |      |         |           |  |   |         | 2.9        | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Income from discontinued operations, net of taxes |                                                 |         |           |  |      |         |           |  |   |         | 5.0        | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Net income                                                              |                                                   | $                                               | 119.6   |            |  | $    | 82.7    |            |  | $ | 72.0    |           
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Earnings per common share  basic                                       |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | From continuing operations                        |                                                 | $       | 2.67       |  |      | $       | 1.96       |  |   | $       | 1.60       | 
|                                                                        | From discontinued operations                      |                                                 |         |           |  |      |         |           |  |   |         | 0.12       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Net income                                        |                                                 | $       | 2.67       |  |      | $       | 1.96       |  |   | $       | 1.72       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Earnings per common share  diluted                                     |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | From continuing operations                        |                                                 | $       | 2.60       |  |      | $       | 1.94       |  |   | $       | 1.60       | 
|                                                                        | From discontinued operations                      |                                                 |         |           |  |      |         |           |  |   |         | 0.12       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Net income                                        |                                                 | $       | 2.60       |  |      | $       | 1.94       |  |   | $       | 1.72       | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Weighted average number of common shares                                |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | outstanding:                                      |                                                 |         |            |  |      |         |            |  |   |         |            | 
|                                                                        | Basic                                             |                                                 |         | 44,848,297 |  |      |         | 42,176,148 |  |   |         | 41,818,181 | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|                                                                        | Diluted                                           |                                                 |         | 45,928,560 |  |      |         | 42,544,152 |  |   |         | 41,818,181 | 
|                                                                        |                                                   |                                                 |         |            |  |      |         |            |  |   |         |           
|Cash dividends per share                                                |                                                   | $                                               | 0.045   |            |  | $    |        |            |  | $ |        |           



F-6



---



##### 






TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                             |                                      |                       |            |            |  |          |     |          |  |          |       |        |   |   |      |      |   |   |       |       |   |   |       |       |  
|---------------------------- | ------------------------------------ | --------------------- | ---------- | ---------- |  | -------- | --- | -------- |  | -------- | ----- | ------ | - | - | ---- | ---- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                             |                                      | Common Stock          |            | Additional |  |          |     |          |  |         
|                             |                                      |                       |            | Paid-In    |  | Unearned |     | Retained |  | Total   
|                             |                                      | Shares                |            | Amount     |  | Capital  |     | Comp     |  | Earnings |       | Equity
|                             |                                      |                       |            |            |  |          |     |          |  |          |       |       
|                             |                                      | (Dollars in millions)
|Balance at January 1, 2002   |                                      |                       | 41,818,181 |            |  | $        | 0.3 |          |  | $        | 322.4 |        |   | $ |     |      |   | $ | 90.7  |       |   | $ | 413.4 |      
|                             | Assumption of Technical Olympic debt |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | (75.4 | ) |   |       | (75.4 | )
|                             | Distributions by Engle Holdings      |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | (4.8  | ) |   |       | (4.8  | )
|                             | Net income                           |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | 72.0  |   |   |       | 72.0  |  
|                             |                                      |                       |            |            |  |          |     |          |  |          |       |        |   |   |      |      |   |   |       |       |   |   |       |      
|Balance at December 31, 2002 |                                      |                       | 41,818,181 |            |  |          | 0.3 |          |  |          | 322.4 |        |   |   |     |      |   |   | 82.5  |       |   |   | 405.2 |      
|                             | Common stock issued to directors     |                       |            | 15,373     |  |          |     |         |  |          |       | 0.1    |   |   |      |     |   |   |       |      |   |   |       | 0.1   |  
|                             | Sale of common stock                 |                       |            | 3,000,000  |  |          |     |         |  |          |       | 48.4   |   |   |      |     |   |   |       |      |   |   |       | 48.4  |  
|                             | Unearned compensation                |                       |            |           |  |          |     |         |  |          |       | 8.5    |   |   |      | (7.3 | ) |   |       |      |   |   |       | 1.2   |  
|                             | Net income                           |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | 82.7  |   |   |       | 82.7  |  
|                             |                                      |                       |            |            |  |          |     |          |  |          |       |        |   |   |      |      |   |   |       |       |   |   |       |      
|Balance at December 31, 2003 |                                      |                       | 44,833,554 |            |  |          | 0.3 |          |  |          | 379.4 |        |   |   | (7.3 | )    |   |   | 165.2 |       |   |   | 537.6 |      
|                             | Common stock issued to directors     |                       |            | 10,917     |  |          |     |         |  |          |       | 0.2    |   |   |      |     |   |   |       |      |   |   |       | 0.2   |  
|                             | Stock split                          |                       |            |           |  |          |     | 0.1      |  |          |       | (0.1   | ) |   |      |     |   |   |       |      |   |   |       |      |  
|                             | Stock option exercises               |                       |            | 11,966     |  |          |     |         |  |          |       | 0.1    |   |   |      |     |   |   |       |      |   |   |       | 0.1   |  
|                             | Dividends paid                       |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | (2.0  | ) |   |       | (2.0  | )
|                             | Unearned compensation                |                       |            |           |  |          |     |         |  |          |       | 8.9    |   |   |      | (1.7 | ) |   |       |      |   |   |       | 7.2   |  
|                             | Net income                           |                       |            |           |  |          |     |         |  |          |       |       |   |   |      |     |   |   |       | 119.6 |   |   |       | 119.6 |  
|                             |                                      |                       |            |            |  |          |     |          |  |          |       |        |   |   |      |      |   |   |       |       |   |   |       |      
|Balance at December 31, 2004 |                                      |                       | 44,856,437 |            |  | $        | 0.4 |          |  | $        | 388.5 |        |   | $ | (9.0 | )    |   | $ | 282.8 |       |   | $ | 662.7 |      
|                             |                                      |                       |            |            |  |          |     |          |  |          |       |        |   |   |      |      |   |   |       |       |   |   |       |      



F-7



---



##### 






TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |      |       |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ----- | ---- | ------ | ---- | ------ | ---- | ------ | - | ------ | ---- | ----- | -
|                                                                                                |                                              | Year Ended December 31,               
|                                                                                                |                                              |                                       
|                                                                                                |                                              | 2004                                   |       | 2003 |        | 2002
|                                                                                                |                                              |                                        |       |      |        |     
|                                                                                                |                                              | (Dollars in millions)                 
|Cash flows from operating activities:                                                           |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net income                                                                                      |                                              | $                                      | 119.6 |      |        | $    | 82.7   |      |        | $ | 72.0   |     
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|                                                                                                | Income from discontinued operations          |                                        |       |     |        |      |        |     |        |   |        | (5.0 | )    
|                                                                                                | Depreciation and amortization                |                                        |       | 12.6 |        |      |        | 9.3  |        |   |        | 7.5  |      
|                                                                                                | Non-cash compensation expense                |                                        |       | 8.8  |        |      |        | 1.4  |        |   |        |     |      
|                                                                                                | Deferred income taxes                        |                                        |       | (0.6 | )      |      |        | (0.7 | )      |   |        | (2.1 | )    
|                                                                                                | Other adjustments                            |                                        |       |     |        |      |        |     |        |   |        | 1.1  |      
|                                                                                                | Changes in operating assets and liabilities: |                                        |       |      |        |      |        |      |        |   |        |      |      
|                                                                                                |                                              | Restricted cash                        |       |      | 17.5   |      |        |      | (48.1  | ) |        |      | (19.1 | )
|                                                                                                |                                              | Inventory                              |       |      | (211.8 | )    |        |      | (132.3 | ) |        |      | (75.9 | )
|                                                                                                |                                              | Other assets                           |       |      | (23.3  | )    |        |      | (3.1   | ) |        |      | (2.4  | )
|                                                                                                |                                              | Accounts payable and other liabilities |       |      | 29.2   |      |        |      | 102.0  |   |        |      | 39.1  |  
|                                                                                                |                                              | Customer deposits                      |       |      | 33.6   |      |        |      | 7.2    |   |        |      | (1.6  | )
|                                                                                                |                                              | Mortgage loans held for sale           |       |      | (0.6   | )    |        |      | (16.4  | ) |        |      | (7.9  | )
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net cash (used in) provided by operating activities                                             |                                              |                                        | (15.0 | )    |        |      | 2.0    |      |        |   | 5.7    |     
|Cash flows from investing activities:                                                           |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net additions to property and equipment                                                         |                                              |                                        | (15.6 | )    |        |      | (19.1  | )    |        |   | (8.8   | )   
|Investments in unconsolidated joint ventures                                                    |                                              |                                        | (61.1 | )    |        |      | (10.5  | )    |        |   |       |     
|Amounts paid for acquisitions, net of cash acquired                                             |                                              |                                        |      |      |        |      | (59.6  | )    |        |   | (51.3  | )   
|Earn out consideration paid for acquisitions                                                    |                                              |                                        | (6.6  | )    |        |      | (18.1  | )    |        |   |       |     
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net cash used in investing activities                                                           |                                              |                                        | (83.3 | )    |        |      | (107.3 | )    |        |   | (60.1  | )   
|Cash flows from financing activities:                                                           |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net (repayments on) proceeds from revolving credit facilities                                   |                                              |                                        | (10.0 | )    |        |      | (45.2  | )    |        |   | 58.6   |     
|Proceeds from notes offerings                                                                   |                                              |                                        | 330.0 |      |        |      | 129.3  |      |        |   | 350.0  |     
|Principal payments on unsecured borrowings and senior notes                                     |                                              |                                        | (7.9  | )    |        |      |       |      |        |   | (379.6 | )   
|Net payments on obligations for inventory not owned                                             |                                              |                                        |      |      |        |      |       |      |        |   | (13.7  | )   
|Net (repayments on) proceeds from Financial Services bank
    borrowings                        |                                              |                                        | (14.3 | )    |        |      | 14.9   |      |        |   | 9.6    |     
|Payments for deferred financing costs                                                           |                                              |                                        | (5.9  | )    |        |      | (5.4   | )    |        |   | (15.3  | )   
|Minority interest in consolidated subsidiaries                                                  |                                              |                                        |      |      |        |      | (9.1   | )    |        |   | (26.7  | )   
|Net proceeds from sale of common stock                                                          |                                              |                                        |      |      |        |      | 48.4   |      |        |   |       |     
|Proceeds from stock option exercises                                                            |                                              |                                        | 0.1   |      |        |      |       |      |        |   |       |     
|Dividends paid and distributions by Engle Holdings                                              |                                              |                                        | (2.0  | )    |        |      |       |      |        |   | (4.8   | )   
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net cash provided by (used in) financing activities                                             |                                              |                                        | 290.0 |      |        |      | 132.9  |      |        |   | (21.9  | )   
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Net cash provided by (used in) operations                                                       |                                              |                                        | 191.7 |      |        |      | 27.6   |      |        |   | (76.3  | )   
|Net cash provided by discontinued operations                                                    |                                              |                                        |      |      |        |      |       |      |        |   | 50.3   |     
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | 191.7 |      |        |      | 27.6   |      |        |   | (26.0  | )   
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 76.8  |      |        |      | 49.2   |      |        |   | 75.2   |     
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 268.5 |      |        | $    | 76.8   |      |        | $ | 49.2   |     
|                                                                                                |                                              |                                        |       |      |        |      |        |      |        |   |        |     



F-8



---



##### 





|                                                                                                                  |  |                         |        |      |  |      |       |  |  |   |   | 
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ----- |  |  | - | - | 
|                                                                                                                  |  | Year Ended December 31,
|                                                                                                                  |  |                        
|                                                                                                                  |  | 2004                    |        | 2003 |  | 2002
|                                                                                                                  |  |                         |        |      |  |     
|Amount accrued for earn out consideration on acquisition                                                          |  | $                       | 4.0    |      |  | $    |      |  |  | $ |  | 
|                                                                                                                  |  |                         |        |      |  |      |       |  |  |   |   | 
|(Decrease) increase in obligations for inventory not owned and
    corresponding (decrease) increase in inventory |  | $                       | (110.0 | )    |  | $    | 229.9 |  |  | $ |  | 
|                                                                                                                  |  |                         |        |      |  |      |       |  |  |   |   | 



|                           |  |                         |      |      |  |      |      |  |  |   |      | 
|-------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2004                    |      | 2003 |  | 2002
|                           |  |                         |      |      |  |     
|Cash paid for income taxes |  | $                       | 60.4 |      |  | $    | 43.8 |  |  | $ | 39.2 | 
|                           |  |                         |      |      |  |      |      |  |  |   |      | 

F-9



---



##### 






TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004




|   |                          
|-- | -------------------------
|1. | Business and Organization



| |         
| | --------
| | Business





| |             
| | ------------
| | Organization



| |                              
| | -----------------------------
| | The Merger and Notes Offering

Business Combinations,


3 8






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



F-10



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                                          
| | ---------------------------------------------------------
| | Principles of Consolidation and Basis of
    Presentation









| |                  
| | -----------------
| | Segment Reporting

Disclosures about
Segments of an Enterprise and Related Information,






| |             
| | ------------
| | Homebuilding



| |          
| | ---------
| | Inventory





| |                                    
| | -----------------------------------
| | Obligations for Inventory Not Owned





| |                    
| | -------------------
| | Revenue Recognition



F-11



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |               
| | --------------
| | Warranty Costs





| |                  
| | -----------------
| | Advertising Costs





| |                   
| | ------------------
| | Financial Services



| |                             
| | ----------------------------
| | Mortgage Loans Held for Sale





| |                               
| | ------------------------------
| | Interest Rate Lock Commitments

Application of Accounting Principles to Loan Commitments




| |                    
| | -------------------
| | Revenue Recognition





F-12



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |        
| | -------
| | General



| |                                            
| | -------------------------------------------
| | Cash and Supplemental Cash Flow Information







| |                                                   
| | --------------------------------------------------
| | Accounting for the Impairment of Long-Lived Assets

Accounting for the
Impairment or Disposal of Long-Lived Assets




| |                             
| | ----------------------------
| | Concentration of Credit Risk





| |                       
| | ----------------------
| | Property and Equipment







| |         
| | --------
| | Goodwill



Goodwill and Other
Intangible Assets,


F-13



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                       |  |              |       |      |  |   |       | 
|------------------------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | 
|                                                       |  | Year Ended  
|                                                       |  | December 31,
|                                                       |  |             
|                                                       |  | 2004         |       | 2003
|                                                       |  |              |       |     
|Balance at January 1                                   |  | $            | 100.1 |      |  | $ | 74.3  | 
|Earn out consideration paid or accrued on acquisitions |  |              | 10.6  |      |  |   | 18.1  | 
|Goodwill recognized from acquisitions                  |  |              |      |      |  |   | 7.7   | 
|                                                       |  |              |       |      |  |   |       | 
|Balance at December 31                                 |  | $            | 110.7 |      |  | $ | 100.1 | 
|                                                       |  |              |       |      |  |   |       | 



| |                                  
| | ---------------------------------
| | Insurance and Litigation Reserves





| |             
| | ------------
| | Income Taxes

Accounting for Income Taxes.




| |                   
| | ------------------
| | Earnings Per Share

Earnings Per Share




F-14



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                               |  |                         |            |      |  |      |            |  |  |  |            | 
|-------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                               |  | Year Ended December 31,
|                                                               |  |                        
|                                                               |  | 2004                    |            | 2003 |  | 2002
|                                                               |  |                         |            |      |  |     
|Basic weighted average shares outstanding                      |  |                         | 44,848,297 |      |  |      | 42,176,148 |  |  |  | 41,818,181 | 
|Net effect of common stock equivalents assumed to be exercised |  |                         | 1,080,263  |      |  |      | 368,004    |  |  |  |           | 
|                                                               |  |                         |            |      |  |      |            |  |  |  |            | 
|Diluted weighted average shares outstanding                    |  |                         | 45,928,560 |      |  |      | 42,544,152 |  |  |  | 41,818,181 | 
|                                                               |  |                         |            |      |  |      |            |  |  |  |            | 





| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation


|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                                                         |  | Year Ended December 31,
|                                                                                                         |  |                        
|                                                                                                         |  | 2004                    |       | 2003 |  | 2002
|                                                                                                         |  |                         |       |      |  |     
|Net income as reported                                                                                   |  | $                       | 119.6 |      |  | $    | 82.7 |   |  | $ | 72.0 |  
|Add: Stock-based employee compensation included in reported net
    income, net of tax                   |  |                         | 5.4   |      |  |      | 0.8  |   |  |   |     |  
|Deduct: Stock-based employee compensation expense determined
    under the fair value method, net of tax |  |                         | (4.1  | )    |  |      | (2.9 | ) |  |   | (2.3 | )
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|Pro forma net income                                                                                     |  | $                       | 120.9 |      |  | $    | 80.6 |   |  | $ | 69.7 |  
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|Reported basic earnings per share                                                                        |  | $                       | 2.67  |      |  | $    | 1.96 |   |  | $ | 1.72 |  
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|Pro forma basic earnings per share                                                                       |  | $                       | 2.70  |      |  | $    | 1.91 |   |  | $ | 1.67 |  
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|Reported diluted earnings per share                                                                      |  | $                       | 2.60  |      |  | $    | 1.94 |   |  | $ | 1.72 |  
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  
|Pro forma diluted earnings per share                                                                     |  | $                       | 2.63  |      |  | $    | 1.89 |   |  | $ | 1.67 |  
|                                                                                                         |  |                         |       |      |  |      |      |   |  |   |      |  



|                        |  |  |  |  |  |  |             | 
|----------------------- |  |  |  |  |  |  | ----------- | 
|Expected volatility     |  |  |  |  |  |  | 0.42%-0.48% | 
|Expected dividend yield |  |  |  |  |  |  | 0%          | 
|Risk-free interest rate |  |  |  |  |  |  | 1.47%-4.02% | 
|Expected life           |  |  |  |  |  |  | 4-10 years  | 

F-15



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

Disclosures about Fair Value of
Financial Instruments




| |                                    
| | -----------------------------------
| | Obligations for Inventory Not Owned

Consolidation of Variable Interest Entities






| |                  
| | -----------------
| | Reclassifications



F-16



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |          
|-- | ---------
|3. | Inventory



|                                          |               |                         |      |      |  |      |      |      |  |   |      |      | 
|----------------------------------------- | ------------- | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                          |               | Year Ended December 31,
|                                          |               |                        
|                                          |               | 2004                    |      | 2003 |  | 2002
|                                          |               |                         |      |      |  |     
|Interest capitalized, beginning of period |               | $                       | 29.7 |      |  | $    | 11.6 |      |  | $ | 12.2 |     
|Interest incurred                         |               |                         | 66.1 |      |  |      | 55.1 |      |  |   | 27.7 |     
|Less interest included in:                |               |                         |      |      |  |      |      |      |  |   |      |     
|                                          | Cost of sales |                         |      | 50.5 |  |      |      | 35.3 |  |   |      | 28.1 | 
|                                          | Other*        |                         |      | 8.5  |  |      |      | 1.7  |  |   |      | 0.2  | 
|                                          |               |                         |      |      |  |      |      |      |  |   |      |     
|Interest capitalized, end of period       |               | $                       | 36.8 |      |  | $    | 29.7 |      |  | $ | 11.6 |     
|                                          |               |                         |      |      |  |      |      |      |  |   |      |     






|  |                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included in Other above for the year ended
    December 31, 2004 is $4.4 million of interest which
    was capitalized to inventory that was subsequently contributed
    to an unconsolidated joint venture. For the years ended
    December 31, 2004, 2003, and 2002, all interest incurred
    has been capitalized.





Accounting for the Sales of Real
Estate


F-17



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                             
|-- | --------------------------------------------
|4. | Investments in Unconsolidated Joint Ventures



|                                          |                             |              |       |      |  |   |      |      | 
|----------------------------------------- | --------------------------- | ------------ | ----- | ---- |  | - | ---- | ---- | 
|                                          |                             | December 31,
|                                          |                             |             
|                                          |                             | 2004         |       | 2003
|                                          |                             |              |       |     
|Assets:                                   |                             |              |       |      |  |   |      |     
|Cash                                      |                             | $            | 16.2  |      |  | $ | 1.4  |     
|Inventories                               |                             |              | 270.8 |      |  |   | 42.3 |     
|Other assets                              |                             |              | 9.8   |      |  |   | 0.2  |     
|                                          |                             |              |       |      |  |   |      |     
|Total assets                              |                             | $            | 296.8 |      |  | $ | 43.9 |     
|                                          |                             |              |       |      |  |   |      |     
|                                         
|Liabilities and equity:                  
|Accounts payable and other liabilities    |                             | $            | 20.8  |      |  | $ | 7.4  |     
|Notes payable                             |                             |              | 113.8 |      |  |   | 17.2 |     
|Equity of:                                |                             |              |       |      |  |   |      |     
|                                          | Technical Olympic USA, Inc. |              |       | 66.8 |  |   |      | 7.0  | 
|                                          | Others                      |              |       | 95.4 |  |   |      | 12.3 | 
|                                          |                             |              |       |      |  |   |      |     
|Total liabilities and stockholders equity |                             | $            | 296.8 |      |  | $ | 43.9 |     
|                                          |                             |              |       |      |  |   |      |     

|                                        |  |              |      |      |  |   |   | 
|--------------------------------------- |  | ------------ | ---- | ---- |  | - | - | 
|                                        |  | Year Ended  
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2004         |      | 2003
|                                        |  |              |      |     
|Revenues                                |  | $            | 54.1 |      |  | $ |  | 
|Cost and expenses                       |  |              | 49.6 |      |  |   |  | 
|                                        |  |              |      |      |  |   |   | 
|Net earnings of unconsolidated entities |  | $            | 4.5  |      |  | $ |  | 
|                                       
|Our share of net earnings               |  | $            | 0.5  |      |  | $ |  | 
|Net fees earned                         |  |              | 2.7  |      |  |   |  | 
|                                        |  |              |      |      |  |   |   | 
|Income from joint ventures              |  | $            | 3.2  |      |  | $ |  | 
|                                        |  |              |      |      |  |   |   | 







F-18



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




5.     Accrued Expenses and Other
Liabilities




|                                             |                                                |              |       |      |  |   |       |      | 
|-------------------------------------------- | ---------------------------------------------- | ------------ | ----- | ---- |  | - | ----- | ---- | 
|                                             |                                                | December 31,
|                                             |                                                |             
|                                             |                                                | 2004         |       | 2003
|                                             |                                                |              |       |     
|Homebuilding:                                |                                                |              |       |      |  |   |       |     
|                                             | Accounts payable                               |              | $     | 58.4 |  |   | $     | 44.8 | 
|                                             | Interest                                       |              |       | 26.2 |  |   |       | 23.9 | 
|                                             | Compensation                                   |              |       | 22.7 |  |   |       | 18.2 | 
|                                             | Taxes, including income and real estate        |              |       | 16.7 |  |   |       | 11.1 | 
|                                             | Accrual for unpaid invoices on delivered homes |              |       | 24.8 |  |   |       | 16.5 | 
|                                             | Accrued expenses                               |              |       | 20.9 |  |   |       | 24.1 | 
|                                             | Warranty costs                                 |              |       | 6.5  |  |   |       | 4.9  | 
|                                             | Deferred revenue                               |              |       | 12.7 |  |   |       | 5.8  | 
|                                             |                                                |              |       |      |  |   |       |     
|Total accounts payable and other liabilities |                                                | $            | 188.9 |      |  | $ | 149.3 |     
|                                             |                                                |              |       |      |  |   |       |     





|                                                           |  |              |      |      |  |   |      |  
|---------------------------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                                           |  | Year Ended  
|                                                           |  | December 31,
|                                                           |  |             
|                                                           |  | 2004         |      | 2003
|                                                           |  |              |      |     
|Accrued warranty costs at January 1                        |  | $            | 4.9  |      |  | $ | 4.8  |  
|Liability recorded for warranties issued during the period |  |              | 11.3 |      |  |   | 9.3  |  
|Warranty work performed                                    |  |              | (8.0 | )    |  |   | (9.1 | )
|Adjustments                                                |  |              | (1.7 | )    |  |   | (0.1 | )
|                                                           |  |              |      |      |  |   |      |  
|Accrued warranty costs at December 31                      |  | $            | 6.5  |      |  | $ | 4.9  |  
|                                                           |  |              |      |      |  |   |      |  

F-19



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                               
|-- | ----------------------------------------------
|6. | Homebuilding and Financial Services Borrowings



| |                        
| | -----------------------
| | Homebuilding Borrowings



|                                                     |  |              |       |      |  |   |       |  
|---------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | -
|                                                     |  | December 31,
|                                                     |  |             
|                                                     |  | 2004         |       | 2003
|                                                     |  |              |       |     
|Senior notes due 2010, at 9%(a)                      |  | $            | 300.0 |      |  | $ | 300.0 |  
|Discount on senior notes                             |  |              | (3.8  | )    |  |   | (4.5  | )
|Senior subordinated notes due 2012, at
    103/8%(a) |  |              | 185.0 |      |  |   | 185.0 |  
|Senior subordinated notes due 2011, at
    71/2%(a)  |  |              | 125.0 |      |  |   |      |  
|Senior subordinated notes due 2015, at
    71/2%(a)  |  |              | 200.0 |      |  |   |      |  
|Premium (discount) on senior subordinated notes      |  |              | 5.2   |      |  |   | (.5   | )
|Revolving credit facility(b)                         |  |              |      |      |  |   | 10.0  |  
|Other                                                |  |              |      |      |  |   | 7.9   |  
|                                                     |  |              |       |      |  |   |       |  
|                                                     |  | $            | 811.4 |      |  | $ | 497.9 |  
|                                                     |  |              |       |      |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Interest on the senior and senior subordinated notes
    due 2012 is payable semi-annually on January 1 and
    July 1 of each year. Interest on the senior subordinated
    notes due 2011 and 2015 is payable semi-annually on
    March 15 and September 15 each year, and
    January 15 and July 15 each year, respectively. Our
    outstanding senior notes are guaranteed, on a joint and several
    basis, by the Guarantor Subsidiaries, which are all of our
    direct and indirect subsidiaries, other than our mortgage and
    title operations subsidiaries and certain other immaterial
    subsidiaries (the Non-guarantor Subsidiaries). Our outstanding
    senior subordinated notes are guaranteed on a senior
    subordinated basis by all of the Guarantor Subsidiaries. The
    indentures governing the senior notes and senior subordinated
    notes require us to maintain a minimum net worth and place
    certain restrictions on our ability, among other things, to
    incur additional debt (other than under our revolving credit
    facility), pay or make dividends or other distributions, sell
    assets, enter into transactions with affiliates, and merge or
    consolidate with other entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | Our outstanding senior notes and senior subordinated notes have
    call features that allow redemption of the notes prior to
    maturity, upon payment of a make-whole premium or,
    in certain cases, a stated premium as provided in the relevant
    indenture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(b) | On October 26, 2004, we entered into an unsecured revolving
    credit facility replacing our previous $350.0 million
    revolving credit facility. Our new credit facility increased the
    amount we are permitted to borrow to the lesser of
    (i) $600.0 million or (ii) our borrowing base
    (calculated in accordance with the revolving credit facility
    agreement) minus our outstanding senior debt. The new facility
    also increased the amount of the letter of credit subfacility to
    $300.0 million from $175.0 million under our previous
    credit facility. In addition, we have the right to increase the
    size of the facility to provide up to an additional
    $150.0 million of revolving loans, provided we give 10
    business days notice of our intention to increase the size
    of the facility and we meet the following conditions:
    (i) at the time of and after giving effect to the increase,
    we are in pro forma compliance with our financial covenants;
    (ii) no default or event of default has occurred and is
    continuing or would result from the increase, and (iii) the
    conditions precedent to a borrowing are satisfied as of such
    date. The revolving credit facility expires on October 26,
    2008. Loans outstanding under the facility may be base rate
    loans or Eurodollar loans, at our election. Base rate loans
    accrue interest at a rate per annum equal to (i) an
    applicable margin plus (ii) the higher of
    (A) Citicorps base rate or (B) 0.5% plus the
    Federal Funds Rate. Eurodollar loans accrue interest at a rate
    per annum equal to (i) an applicable margin plus

F-20



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) the reserve-adjusted Eurodollar base rate for the
    interest period. Applicable margins will be adjusted based on
    the ratio of our liabilities to our adjusted tangible net worth
    or our senior debt rating. The revolving credit facility
    requires us to maintain specified financial ratios regarding
    leverage, interest coverage, adjusted tangible net worth and
    certain operational measurements. The revolving credit facility
    also places certain restrictions on, among other things, our
    ability to pay or make dividends or other distributions, create
    or permit certain liens, make equity investments in joint
    ventures, enter into transactions with affiliates and merge or
    consolidate with other entities. Our obligations under the
    revolving credit facility are guaranteed by our significant
    domestic subsidiaries, other than our mortgage and title
    subsidiaries (unrestricted subsidiaries). As of
    December 31, 2004, we had no borrowings under the revolving
    credit facility and had issued letters of credit totaling
    $136.0 million.





| |                              
| | -----------------------------
| | Financial Services Borrowings







| |                   
| | ------------------
| | Borrowing Capacity





|   |             
|-- | ------------
|7. | Acquisitions





F-21



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)












|   |                                      
|-- | -------------------------------------
|8. | Severance and Merger Related Expenses





|   |                   
|-- | ------------------
|9. | Sale of Westbrooke







|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



F-22



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








1 12






|           |  |   |      | 
|---------- |  | - | ---- | 
|2005       |  | $ | 6.3  | 
|2006       |  |   | 3.9  | 
|2007       |  |   | 3.1  | 
|2008       |  |   | 2.5  | 
|2009       |  |   | 1.2  | 
|Thereafter |  |   | 1.1  | 
|           |  |   |      | 
|           |  | $ | 18.1 | 
|           |  |   |      | 



|    |                           
|--- | --------------------------
|11. | Related Party Transactions



F-23



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|    |             
|--- | ------------
|12. | Income Taxes



|          |         |                         |      |      |   |      |      |      |   |   |      |      |  
|--------- | ------- | ----------------------- | ---- | ---- | - | ---- | ---- | ---- | - | - | ---- | ---- | -
|          |         | Year Ended December 31,
|          |         |                        
|          |         | 2004                    |      | 2003 |   | 2002
|          |         |                         |      |      |   |     
|Current:  |         |                         |      |      |   |      |      |      |   |   |      |     
|          | Federal |                         | $    | 65.5 |   |      | $    | 43.4 |   |   | $    | 38.3 |  
|          | State   |                         |      | 5.6  |   |      |      | 3.0  |   |   |      | 3.7  |  
|          |         |                         |      |      |   |      |      |      |   |   |      |     
|          |         |                         | 71.1 |      |   |      | 46.4 |      |   |   | 42.0 |     
|Deferred: |         |                         |      |      |   |      |      |      |   |   |      |     
|          | Federal |                         |      | (0.6 | ) |      |      | 1.5  |   |   |      | (1.9 | )
|          | State   |                         |      | (0.1 | ) |      |      | (0.3 | ) |   |      | (0.2 | )
|          |         |                         |      |      |   |      |      |      |   |   |      |     
|          |         |                         | (0.7 | )    |   |      | 1.2  |      |   |   | (2.1 | )   
|          |         |                         |      |      |   |      |      |      |   |   |      |     
|          |         | $                       | 70.4 |      |   | $    | 47.6 |      |   | $ | 39.9 |     
|          |         |                         |      |      |   |      |      |      |   |   |      |     

F-24



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                              |  |                         |      |      |  |      |      |  |  |   |      | 
|--------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                              |  | Year Ended December 31,
|                                              |  |                        
|                                              |  | 2004                    |      | 2003 |  | 2002
|                                              |  |                         |      |      |  |     
|Computed income tax expense at statutory rate |  | $                       | 66.5 |      |  | $    | 45.6 |  |  | $ | 37.4 | 
|State income taxes                            |  |                         | 2.7  |      |  |      | 1.7  |  |  |   | 2.3  | 
|Other, net                                    |  |                         | 1.2  |      |  |      | 0.3  |  |  |   | 0.2  | 
|                                              |  |                         |      |      |  |      |      |  |  |   |      | 
|Income taxes                                  |  | $                       | 70.4 |      |  | $    | 47.6 |  |  | $ | 39.9 | 
|                                              |  |                         |      |      |  |      |      |  |  |   |      | 



|                               |                                                                            |              |       |      |   |   |       |      |  
|------------------------------ | -------------------------------------------------------------------------- | ------------ | ----- | ---- | - | - | ----- | ---- | -
|                               |                                                                            | December 31,
|                               |                                                                            |             
|                               |                                                                            | 2004         |       | 2003
|                               |                                                                            |              |       |     
|Deferred tax assets:           |                                                                            |              |       |      |   |   |       |     
|                               | Warranty, legal and insurance reserves                                     |              | $     | 4.5  |   |   | $     | 3.4  |  
|                               | Inventory                                                                  |              |       | 7.7  |   |   |       | 4.3  |  
|                               | Accrued compensation                                                       |              |       | 4.0  |   |   |       | 2.4  |  
|                               | State net operating loss carryforwards                                     |              |       | 0.3  |   |   |       | 0.4  |  
|                               | Other                                                                      |              |       | 2.2  |   |   |       | 2.1  |  
|                               |                                                                            |              |       |      |   |   |       |     
|Total deferred tax assets      |                                                                            |              | 18.7  |      |   |   | 12.6  |     
|Deferred tax liabilities:      |                                                                            |              |       |      |   |   |       |     
|                               | Amortizable intangibles                                                    |              |       | (9.6 | ) |   |       | (7.3 | )
|                               | Prepaid commissions and differences in reporting selling and
    marketing |              |       | (4.3 | ) |   |       | (2.4 | )
|                               | Other                                                                      |              |       | (1.8 | ) |   |       | (0.5 | )
|                               |                                                                            |              |       |      |   |   |       |     
|Total deferred tax liabilities |                                                                            |              | (15.7 | )    |   |   | (10.2 | )   
|                               |                                                                            |              |       |      |   |   |       |     
|Net deferred tax asset         |                                                                            | $            | 3.0   |      |   | $ | 2.4   |     
|                               |                                                                            |              |       |      |   |   |       |     







|    |                     
|--- | --------------------
|13. | Stockholders Equity



F-25



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |                  
|--- | -----------------
|14. | Stock Option Plan





|                                                                                                       |  |         |           |          |  |         |       |          |  |         |           |          |  |   |       |  |  |   |           |  |  |   |       | 
|------------------------------------------------------------------------------------------------------ |  | ------- | --------- | -------- |  | ------- | ----- | -------- |  | ------- | --------- | -------- |  | - | ----- |  |  | - | --------- |  |  | - | ----- | 
|                                                                                                       |  | 2004    |           | 2003     |  | 2002   
|                                                                                                       |  |         |           |          |  |        
|                                                                                                       |  |         |           | Weighted |  |         |       | Weighted |  |         |           | Weighted
|                                                                                                       |  |         |           | Average  |  |         |       | Average  |  |         |           | Average 
|                                                                                                       |  |         |           | Exercise |  |         |       | Exercise |  |         |           | Exercise
|                                                                                                       |  | Options |           | Price    |  | Options |       | Price    |  | Options |           | Price   
|                                                                                                       |  |         |           |          |  |         |       |          |  |         |           |         
|Options outstanding at beginning of year                                                               |  |         | 5,136,704 |          |  | $       | 13.05 |          |  |         | 3,293,177 |          |  | $ | 12.92 |  |  |   |          |  |  | $ |      | 
|Granted                                                                                                |  |         | 360,000   |          |  | $       | 27.00 |          |  |         | 1,861,554 |          |  | $ | 13.16 |  |  |   | 3,293,177 |  |  | $ | 12.92 | 
|Exercised                                                                                              |  |         | (12,000   | )        |  | $       | 12.60 |          |  |         |          |          |  | $ |      |  |  |   |          |  |  | $ |      | 
|Forfeited                                                                                              |  |         | (7,500    | )        |  | $       | 13.92 |          |  |         | (18,027   | )        |  | $ | 11.87 |  |  |   |          |  |  | $ |      | 
|                                                                                                       |  |         |           |          |  |         |       |          |  |         |           |          |  |   |       |  |  |   |           |  |  |   |       | 
|Options outstanding at end of year                                                                     |  |         | 5,477,204 |          |  | $       | 13.93 |          |  |         | 5,136,704 |          |  | $ | 13.05 |  |  |   | 3,293,177 |  |  | $ | 12.92 | 
|                                                                                                      
|Options exercisable at end of year                                                                     |  |         | 2,901,350 |          |  | $       | 12.62 |          |  |         | 1,548,031 |          |  | $ | 12.13 |  |  |   | 428,103   |  |  | $ | 11.45 | 
|                                                                                                       |  |         |           |          |  |         |       |          |  |         |           |          |  |   |       |  |  |   |           |  |  |   |       | 
|                                                                                                      
|Options available for grant at end of year                                                             |  |         | 484,506   |          |  |         |       |          |  |         | 845,264   |          |  |   |       |  |  |   | 2,706,823 |  |  |   |       | 
|                                                                                                      
|Weighted average fair market value per share of options granted
    during the year under SFAS No. 123 |  | $       | 3.47      |          |  |         |       |          |  | $       | 3.91      |          |  |   |       |  |  | $ | 9.60      |  |  |   |       | 
|                                                                                                       |  |         |           |          |  |         |       |          |  |         |           |          |  |   |       |  |  |   |           |  |  |   |       | 

F-26



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                        |  |                     |           |                     |  |          |            |         |  |          |       |  |  |  |           |  |  |   |       | 
|----------------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---------- | ------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                        |  | Options Outstanding |           | Options Exercisable
|                        |  |                     |           |                    
|                        |  |                     |           | Weighted            |  | Weighted |            |         |  | Weighted
|                        |  |                     |           | Average             |  | Average  |            |         |  | Average 
|                        |  |                     |           | Remaining           |  | Exercise |            |         |  | Exercise
|Range of Exercise Price |  | Options             |           | Contractual Life    |  | Price    |            | Options |  | Price   
|                        |  |                     |           |                     |  |          |            |         |  |         
|$10.41-$12.60           |  |                     | 2,879,528 |                     |  |          | 8.01 years |         |  | $        | 11.85 |  |  |  | 1,972,713 |  |  | $ | 12.03 | 
|$13.56-$15.24           |  |                     | 2,237,676 |                     |  |          | 8.03 years |         |  | $        | 14.50 |  |  |  | 928,637   |  |  | $ | 13.86 | 
|$21.56-$24.19           |  |                     | 129,000   |                     |  |          | 9.19 years |         |  | $        | 22.82 |  |  |  |          |  |  |   |      | 
|$26.09-$29.27           |  |                     | 72,000    |                     |  |          | 9.20 years |         |  | $        | 26.20 |  |  |  |          |  |  |   |      | 
|$28.70-$31.56           |  |                     | 129,000   |                     |  |          | 9.19 years |         |  | $        | 30.03 |  |  |  |          |  |  |   |      | 
|$32.20-$35.42           |  |                     | 30,000    |                     |  |          | 9.33 years |         |  | $        | 33.81 |  |  |  |          |  |  |   |      | 





|    |                       
|--- | ----------------------
|15. | Employee Benefit Plans



F-27



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                              
|--- | -----------------------------
|16. | Quarterly Results (Unaudited)





|                           |  |       |       |        |  |       |       |        |  |   |       |  |  |   |       | 
|-------------------------- |  | ----- | ----- | ------ |  | ----- | ----- | ------ |  | - | ----- |  |  | - | ----- | 
|                           |  | First |       | Second |  | Third |       | Fourth
|                           |  |       |       |        |  |       |       |       
|2004:                      |  |       |       |        |  |       |       |        |  |   |       |  |  |   |       | 
|Total Revenue              |  | $     | 435.2 |        |  | $     | 509.5 |        |  | $ | 517.3 |  |  | $ | 673.3 | 
|Homebuilding gross profit  |  |       | 80.5  |        |  |       | 95.8  |        |  |   | 101.8 |  |  |   | 150.3 | 
|Net income                 |  |       | 18.0  |        |  |       | 24.1  |        |  |   | 28.1  |  |  |   | 49.4  | 
|Basic earnings per share   |  |       | 0.40  |        |  |       | 0.54  |        |  |   | 0.63  |  |  |   | 1.10  | 
|Diluted earnings per share |  |       | 0.40  |        |  |       | 0.53  |        |  |   | 0.61  |  |  |   | 1.06  | 
|2003:                      |  |       |       |        |  |       |       |        |  |   |       |  |  |   |       | 
|Total Revenue              |  | $     | 324.7 |        |  | $     | 426.9 |        |  | $ | 443.3 |  |  | $ | 485.8 | 
|Homebuilding gross profit  |  |       | 66.9  |        |  |       | 82.2  |        |  |   | 86.5  |  |  |   | 87.6  | 
|Net income                 |  |       | 17.6  |        |  |       | 23.3  |        |  |   | 21.5  |  |  |   | 20.3  | 
|Basic earnings per share   |  |       | 0.42  |        |  |       | 0.56  |        |  |   | 0.52  |  |  |   | 0.47  | 
|Diluted earnings per share |  |       | 0.42  |        |  |       | 0.55  |        |  |   | 0.51  |  |  |   | 0.46  | 







|    |                 
|--- | ----------------
|17. | Subsequent Event



|                                                      |         |                         |   |            |  |      |   |            |  |  |   |            | 
|----------------------------------------------------- | ------- | ----------------------- | - | ---------- |  | ---- | - | ---------- |  |  | - | ---------- | 
|                                                      |         | Year Ended December 31,
|                                                      |         |                        
|                                                      |         | 2004                    |   | 2003       |  | 2002
|                                                      |         |                         |   |            |  |     
|Earnings per common share                             |         |                         |   |            |  |      |   |            |  |  |   |           
|                                                      | Basic   |                         | $ | 2.13       |  |      | $ | 1.57       |  |  | $ | 1.38       | 
|                                                      | Diluted |                         | $ | 2.08       |  |      | $ | 1.56       |  |  | $ | 1.38       | 
|Weighted average number of common shares outstanding: |         |                         |   |            |  |      |   |            |  |  |   |           
|                                                      | Basic   |                         |   | 56,060,371 |  |      |   | 52,720,185 |  |  |   | 52,272,726 | 
|                                                      | Diluted |                         |   | 57,410,700 |  |      |   | 53,180,190 |  |  |   | 52,272,726 | 

F-28



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                 
|--- | --------------------------------
|18. | Summarized Financial Information



Consolidating Statement of Financial Condition


|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|-------------------------------------------- |  | --------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ----- | ----- | - |  | - | -------- | - |  | - | ------- | 
|                                             |  | December 31, 2004    
|                                             |  |                      
|                                             |  | Technical             |         |              |  | Non-         |         |             
|                                             |  | Olympic               |         | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.             |         | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                       |         |              |  |              |         |              |  |      
|                                             |  | (Dollars in millions)
|ASSETS                                       |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Homebuilding:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $                     | 159.3   |              |  | $            | 66.3    |              |  | $     |      |   |  | $ |         |   |  | $ | 225.6   | 
|Inventory                                    |  |                       |        |              |  |              | 1,276.2 |              |  |       |      |   |  |   |         |   |  |   | 1,276.2 | 
|Property and equipment, net                  |  |                       | 6.8     |              |  |              | 19.9    |              |  |       |      |   |  |   |         |   |  |   | 26.7    | 
|Investments in unconsolidated joint ventures |  |                       |        |              |  |              | 71.6    |              |  |       |      |   |  |   |         |   |  |   | 71.6    | 
|Advances to/ investments in subsidiaries     |  |                       | 1,349.9 |              |  |              | 24.0    |              |  |       | (62.8 | ) |  |   | (1,311.1 | ) |  |   |        | 
|Other assets                                 |  |                       | 22.4    |              |  |              | 48.7    |              |  |       |      |   |  |   |         |   |  |   | 71.1    | 
|Goodwill                                     |  |                       |        |              |  |              | 110.7   |              |  |       |      |   |  |   |         |   |  |   | 110.7   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 1,538.4 |              |  |              | 1,617.4 |              |  |       | (62.8 | ) |  |   | (1,311.1 | ) |  |   | 1,781.9 | 
|Financial Services:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  |                       |        |              |  |              |        |              |  |       | 120.0 |   |  |   |         |   |  |   | 120.0   | 
|Mortgage loans held for sale                 |  |                       |        |              |  |              |        |              |  |       | 75.8  |   |  |   |         |   |  |   | 75.8    | 
|Other assets                                 |  |                       |        |              |  |              |        |              |  |       | 9.8   |   |  |   |         |   |  |   | 9.8     | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 205.6 |   |  |   |         |   |  |   | 205.6   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total assets                                 |  | $                     | 1,538.4 |              |  | $            | 1,617.4 |              |  | $     | 142.8 |   |  | $ | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                            
|LIABILITIES AND STOCKHOLDERS EQUITY         |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Homebuilding:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  | $                     | 64.3    |              |  | $            | 124.6   |              |  | $     |      |   |  | $ |         |   |  | $ | 188.9   | 
|Customer deposits                            |  |                       |        |              |  |              | 69.1    |              |  |       |      |   |  |   |         |   |  |   | 69.1    | 
|Obligations for inventory not owned          |  |                       |        |              |  |              | 136.2   |              |  |       |      |   |  |   |         |   |  |   | 136.2   | 
|Notes payable                                |  |                       | 811.4   |              |  |              |        |              |  |       |      |   |  |   |         |   |  |   | 811.4   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 875.7   |              |  |              | 329.9   |              |  |       |      |   |  |   |         |   |  |   | 1,205.6 | 
|Financial Services:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  |                       |        |              |  |              |        |              |  |       | 70.2  |   |  |   |         |   |  |   | 70.2    | 
|Bank borrowings                              |  |                       |        |              |  |              |        |              |  |       | 49.0  |   |  |   |         |   |  |   | 49.0    | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 119.2 |   |  |   |         |   |  |   | 119.2   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total liabilities                            |  |                       | 875.7   |              |  |              | 329.9   |              |  |       | 119.2 |   |  |   |         |   |  |   | 1,324.8 | 
|Total stockholders equity                   |  |                       | 662.7   |              |  |              | 1,287.5 |              |  |       | 23.6  |   |  |   | (1,311.1 | ) |  |   | 662.7   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $                     | 1,538.4 |              |  | $            | 1,617.4 |              |  | $     | 142.8 |   |  | $ | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 

F-29



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Financial Condition


|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|-------------------------------------------- |  | -------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ----- | ----- |  |  | - | -------- | - |  | - | ------- | 
|                                             |  | December 31, 2003   
|                                             |  |                     
|                                             |  | Technical            |         |              |  | Non-         |         |             
|                                             |  | Olympic              |         | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.            |         | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                      |         |              |  |              |         |              |  |      
|                                             |  | (Dollars in million)
|ASSETS                                       |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Homebuilding:                                |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $                    | 47.5    |              |  | $            | 47.4    |              |  | $     |      |  |  | $ |         |   |  | $ | 94.9    | 
|Inventory                                    |  |                      |        |              |  |              | 1,172.9 |              |  |       |      |  |  |   |         |   |  |   | 1,172.9 | 
|Property and equipment, net                  |  |                      | 7.8     |              |  |              | 15.9    |              |  |       |      |  |  |   |         |   |  |   | 23.7    | 
|Investments in unconsolidated joint ventures |  |                      |        |              |  |              | 10.5    |              |  |       |      |  |  |   |         |   |  |   | 10.5    | 
|Advances to/ investments in subsidiaries     |  |                      | 946.2   |              |  |              | 223.0   |              |  |       | 22.3  |  |  |   | (1,191.5 | ) |  |   |        | 
|Other assets                                 |  |                      | 68.6    |              |  |              | 28.1    |              |  |       |      |  |  |   | (53.0    | ) |  |   | 43.7    | 
|Goodwill                                     |  |                      |        |              |  |              | 100.1   |              |  |       |      |  |  |   |         |   |  |   | 100.1   | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|                                             |  |                      | 1,070.1 |              |  |              | 1,597.9 |              |  |       | 22.3  |  |  |   | (1,244.5 | ) |  |   | 1,445.8 | 
|Financial Services:                          |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  |                      |        |              |  |              |        |              |  |       | 76.5  |  |  |   |         |   |  |   | 76.5    | 
|Mortgage loans held for sale                 |  |                      |        |              |  |              |        |              |  |       | 75.2  |  |  |   |         |   |  |   | 75.2    | 
|Other assets                                 |  |                      |        |              |  |              |        |              |  |       | 7.5   |  |  |   |         |   |  |   | 7.5     | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|                                             |  |                      |        |              |  |              |        |              |  |       | 159.2 |  |  |   |         |   |  |   | 159.2   | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Total assets                                 |  | $                    | 1,070.1 |              |  | $            | 1,597.9 |              |  | $     | 181.5 |  |  | $ | (1,244.5 | ) |  | $ | 1,605.0 | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|                                            
|LIABILITIES AND STOCKHOLDERS EQUITY         |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Homebuilding:                                |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  | $                    | 42.5    |              |  | $            | 159.8   |              |  | $     |      |  |  | $ | (53.0    | ) |  | $ | 149.3   | 
|Customer deposits                            |  |                      |        |              |  |              | 35.5    |              |  |       |      |  |  |   |         |   |  |   | 35.5    | 
|Obligations for inventory not owned          |  |                      |        |              |  |              | 246.2   |              |  |       |      |  |  |   |         |   |  |   | 246.2   | 
|Notes payable                                |  |                      | 480.0   |              |  |              |        |              |  |       |      |  |  |   |         |   |  |   | 480.0   | 
|Bank borrowings                              |  |                      | 10.0    |              |  |              | 7.9     |              |  |       |      |  |  |   |         |   |  |   | 17.9    | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|                                             |  |                      | 532.5   |              |  |              | 449.4   |              |  |       |      |  |  |   | (53.0    | ) |  |   | 928.9   | 
|Financial Services:                          |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  |                      |        |              |  |              |        |              |  |       | 75.3  |  |  |   |         |   |  |   | 75.3    | 
|Bank borrowings                              |  |                      |        |              |  |              |        |              |  |       | 63.2  |  |  |   |         |   |  |   | 63.2    | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|                                             |  |                      |        |              |  |              |        |              |  |       | 138.5 |  |  |   |         |   |  |   | 138.5   | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Total liabilities                            |  |                      | 532.5   |              |  |              | 449.4   |              |  |       | 138.5 |  |  |   | (53.0    | ) |  |   | 1,067.4 | 
|Total stockholders equity                   |  |                      | 537.6   |              |  |              | 1,148.5 |              |  |       | 43.0  |  |  |   | (1,191.5 | ) |  |   | 537.6   | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $                    | 1,070.1 |              |  | $            | 1,597.9 |              |  | $     | 181.5 |  |  | $ | (1,244.5 | ) |  | $ | 1,605.0 | 
|                                             |  |                      |         |              |  |              |         |              |  |       |       |  |  |   |          |   |  |   |         | 

F-30



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Income


|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | ----- | ---- |  |  | - | ------ | - |  | - | ------- | -
|                                             |  | Year Ended December 31, 2004
|                                             |  |                             
|                                             |  | Technical                    |        |              |  | Non-         |         |             
|                                             |  | Olympic                      |        | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.                    |        | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                              |        |              |  |              |         |              |  |      
|                                             |  | (Dollars in millions)       
|Homebuilding:                                |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Revenues                                     |  | $                            |       |              |  | $            | 2,100.8 |              |  | $     |     |  |  | $ |       |   |  | $ | 2,100.8 |  
|Cost of Sales                                |  |                              | (0.1   | )            |  |              | 1,672.5 |              |  |       |     |  |  |   |       |   |  |   | 1,672.4 |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Gross Profit                                 |  |                              | 0.1    |              |  |              | 428.3   |              |  |       |     |  |  |   |       |   |  |   | 428.4   |  
|Selling, general and administrative expenses |  |                              | 50.1   |              |  |              | 208.8   |              |  |       |     |  |  |   | (7.3   | ) |  |   | 251.6   |  
|Income from joint ventures, net              |  |                              |       |              |  |              | (3.2    | )            |  |       |     |  |  |   |       |   |  |   | (3.2    | )
|Other (income) expense, net                  |  |                              | (153.6 | )            |  |              | 2.1     |              |  |       |     |  |  |   | 149.8  |   |  |   | (1.7    | )
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Homebuilding pretax income                   |  |                              | 103.6  |              |  |              | 220.6   |              |  |       |     |  |  |   | (142.5 | ) |  |   | 181.7   |  
|Financial Services:                          |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Revenues                                     |  |                              |       |              |  |              |        |              |  |       | 41.8 |  |  |   | (7.3   | ) |  |   | 34.5    |  
|Expenses                                     |  |                              |       |              |  |              |        |              |  |       | 31.6 |  |  |   | (5.4   | ) |  |   | 26.2    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Financial Services pretax income             |  |                              |       |              |  |              |        |              |  |       | 10.2 |  |  |   | (1.9   | ) |  |   | 8.3     |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Income before income taxes                   |  |                              | 103.6  |              |  |              | 220.6   |              |  |       | 10.2 |  |  |   | (144.4 | ) |  |   | 190.0   |  
|Provision for income taxes                   |  |                              | (16.0  | )            |  |              | 81.7    |              |  |       | 4.7  |  |  |   |       |   |  |   | 70.4    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Net income                                   |  | $                            | 119.6  |              |  | $            | 138.9   |              |  | $     | 5.5  |  |  | $ | (144.4 | ) |  | $ | 119.6   |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  

Consolidating Statement of Income


|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | ----- | ---- |  |  | - | ------ | - |  | - | ------- | -
|                                             |  | Year Ended December 31, 2003
|                                             |  |                             
|                                             |  | Technical                    |        |              |  | Non-         |         |             
|                                             |  | Olympic                      |        | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.                    |        | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                              |        |              |  |              |         |              |  |      
|                                             |  | (Dollars in millions)       
|Homebuilding:                                |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Revenues                                     |  | $                            |       |              |  | $            | 1,642.6 |              |  | $     |     |  |  | $ |       |   |  | $ | 1,642.6 |  
|Cost of Sales                                |  |                              |       |              |  |              | 1,319.4 |              |  |       |     |  |  |   |       |   |  |   | 1,319.4 |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Gross Profit                                 |  |                              |       |              |  |              | 323.2   |              |  |       |     |  |  |   |       |   |  |   | 323.2   |  
|Selling, general and administrative expenses |  |                              | 38.6   |              |  |              | 179.3   |              |  |       |     |  |  |   | (5.8   | ) |  |   | 212.1   |  
|Other (income) expense, net                  |  |                              | (114.7 | )            |  |              | (10.1   | )            |  |       |     |  |  |   | 121.2  |   |  |   | (3.6    | )
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Homebuilding pretax income                   |  |                              | 76.1   |              |  |              | 154.0   |              |  |       |     |  |  |   | (115.4 | ) |  |   | 114.7   |  
|Financial Services:                          |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Revenues                                     |  |                              |       |              |  |              |        |              |  |       | 43.9 |  |  |   | (5.8   | ) |  |   | 38.1    |  
|Expenses                                     |  |                              |       |              |  |              |        |              |  |       | 30.7 |  |  |   | (8.2   | ) |  |   | 22.5    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Financial Services pretax income             |  |                              |       |              |  |              |        |              |  |       | 13.2 |  |  |   | 2.4    |   |  |   | 15.6    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Income before income taxes                   |  |                              | 76.1   |              |  |              | 154.0   |              |  |       | 13.2 |  |  |   | (113.0 | ) |  |   | 130.3   |  
|Provision for income taxes                   |  |                              | (6.6   | )            |  |              | 48.6    |              |  |       | 5.6  |  |  |   |       |   |  |   | 47.6    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  
|Net income                                   |  | $                            | 82.7   |              |  | $            | 105.4   |              |  | $     | 7.6  |  |  | $ | (113.0 | ) |  | $ | 82.7    |  
|                                             |  |                              |        |              |  |              |         |              |  |       |      |  |  |   |        |   |  |   |         |  

F-31



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Income


|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|----------------------------------------------------------------------- |  | ---------------------------- | ----- | ------------ |  | ------------ | ------- | ------------ |  | ----- | ---- |  |  | - | ----- | - |  | - | ------- | -
|                                                                        |  | Year Ended December 31, 2002
|                                                                        |  |                             
|                                                                        |  | Technical                    |       |              |  | Non-         |         |             
|                                                                        |  | Olympic                      |       | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                                                        |  | USA, Inc.                    |       | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                                                        |  |                              |       |              |  |              |         |              |  |      
|                                                                        |  | (Dollars in millions)       
|Homebuilding:                                                           |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Revenues                                                                |  | $                            |      |              |  | $            | 1,377.7 |              |  | $     |     |  |  | $ |      |   |  | $ | 1,377.7 |  
|Cost of Sales                                                           |  |                              |      |              |  |              | 1,101.6 |              |  |       |     |  |  |   |      |   |  |   | 1,101.6 |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Gross Profit                                                            |  |                              |      |              |  |              | 276.1   |              |  |       |     |  |  |   |      |   |  |   | 276.1   |  
|Selling, general and administrative expenses                            |  |                              | 18.3  |              |  |              | 172.8   |              |  |       |     |  |  |   | (3.6  | ) |  |   | 187.5   |  
|Other (income) expense, net                                             |  |                              | (85.1 | )            |  |              | (6.7    | )            |  |       |     |  |  |   | 89.2  |   |  |   | (2.6    | )
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Homebuilding pretax income                                              |  |                              | 66.8  |              |  |              | 110.0   |              |  |       |     |  |  |   | (85.6 | ) |  |   | 91.2    |  
|Financial Services:                                                     |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Revenues                                                                |  |                              |      |              |  |              |        |              |  |       | 34.3 |  |  |   | (3.6  | ) |  |   | 30.7    |  
|Expenses                                                                |  |                              |      |              |  |              |        |              |  |       | 19.9 |  |  |   | (4.9  | ) |  |   | 15.0    |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Financial Services pretax income                                        |  |                              |      |              |  |              |        |              |  |       | 14.4 |  |  |   | 1.3   |   |  |   | 15.7    |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Income from continuing operations before provision for income
    taxes |  |                              | 66.8  |              |  |              | 110.0   |              |  |       | 14.4 |  |  |   | (84.3 | ) |  |   | 106.9   |  
|Provision for income taxes                                              |  |                              | (5.2  | )            |  |              | 39.9    |              |  |       | 5.2  |  |  |   |      |   |  |   | 39.9    |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Income from continuing operations                                       |  |                              | 72.0  |              |  |              | 70.1    |              |  |       | 9.2  |  |  |   | (84.3 | ) |  |   | 67.0    |  
|Discontinued operations:                                                |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Income from discontinued operations                                     |  |                              |      |              |  |              | 7.9     |              |  |       |     |  |  |   |      |   |  |   | 7.9     |  
|Provision for income taxes                                              |  |                              |      |              |  |              | 2.9     |              |  |       |     |  |  |   |      |   |  |   | 2.9     |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Income from discontinued operations, net of taxes                       |  |                              |      |              |  |              | 5.0     |              |  |       |     |  |  |   |      |   |  |   | 5.0     |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  
|Net income                                                              |  | $                            | 72.0  |              |  | $            | 75.1    |              |  | $     | 9.2  |  |  | $ | (84.3 | ) |  | $ | 72.0    |  
|                                                                        |  |                              |       |              |  |              |         |              |  |       |      |  |  |   |       |   |  |   |         |  

F-32



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |      |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | ------------ | ---- | ------------ | ----- | ------------ | ------ | ----- | ----- | - | ---- | - | ------ | - | ----- | - | ----- | ---- | ------ | -
|                                                                                                |                                              | Year Ended December 31, 2004          
|                                                                                                |                                              |                                       
|                                                                                                |                                              | Technical                              |        |              |      | Non-         |       |             
|                                                                                                |                                              | Olympic                                |        | Guarantor    |      | guarantor    |       | Intercompany |        |      
|                                                                                                |                                              | USA, Inc.                              |        | Subsidiaries |      | Subsidiaries |       | Eliminations |        | Total
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |      
|                                                                                                |                                              | (Dollars in millions)                 
|Cash Flows from Operating Activities:                                                           |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net income                                                                                      |                                              | $                                      | 119.6  |              |      | $            | 138.9 |              |        | $     | 5.5   |   |      | $ | (144.4 | ) |       | $ | 119.6 |     
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|                                                                                                | Depreciation and amortization                |                                        |        | 2.9          |      |              |       | 9.7          |        |       |       |  |      |   |        |  |       |   |       | 12.6 |       
|                                                                                                | Non-cash compensation expense                |                                        |        | 8.8          |      |              |       |             |        |       |       |  |      |   |        |  |       |   |       | 8.8  |       
|                                                                                                | Deferred income taxes                        |                                        |        | (0.6         | )    |              |       |             |        |       |       |  |      |   |        |  |       |   |       | (0.6 | )     
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |      |       
|                                                                                                |                                              | Restricted cash                        |        |              | 1.5  |              |       |              | 11.7   |       |       |   | 4.3  |   |        |   |      |   |       |      | 17.5   |  
|                                                                                                |                                              | Inventory                              |        |              | 1.4  |              |       |              | (213.2 | )     |       |   |     |   |        |   |      |   |       |      | (211.8 | )
|                                                                                                |                                              | Other assets                           |        |              | 52.4 |              |       |              | (20.7  | )     |       |   | (2.4 | ) |        |   | (52.6 | ) |       |      | (23.3  | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |              | 20.9 |              |       |              | (39.2  | )     |       |   | (5.1 | ) |        |   | 52.6  |   |       |      | 29.2   |  
|                                                                                                |                                              | Customer deposits                      |        |              |     |              |       |              | 33.6   |       |       |   |     |   |        |   |      |   |       |      | 33.6   |  
|                                                                                                |                                              | Mortgage loans held for sale           |        |              |     |              |       |              |       |       |       |   | (0.6 | ) |        |   |      |   |       |      | (0.6   | )
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net cash provided by (used in) operating activities                                             |                                              |                                        | 206.9  |              |      |              | (79.2 | )            |        |       | 1.7   |   |      |   | (144.4 | ) |       |   | (15.0 | )   
|Cash Flows from Investing Activities:                                                           |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net additions to property and equipment                                                         |                                              |                                        | (1.9   | )            |      |              | (13.7 | )            |        |       |      |   |      |   |       |   |       |   | (15.6 | )   
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |       |              |      |              | (61.1 | )            |        |       |      |   |      |   |       |   |       |   | (61.1 | )   
|Earn out consideration paid for acquisitions                                                    |                                              |                                        |       |              |      |              | (6.6  | )            |        |       |      |   |      |   |       |   |       |   | (6.6  | )   
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net cash used in investing activities                                                           |                                              |                                        | (1.9   | )            |      |              | (81.4 | )            |        |       |      |   |      |   |       |   |       |   | (83.3 | )   
|Cash Flows from Financing Activities:                                                           |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net repayments on revolving credit facilities                                                   |                                              |                                        | (10.0  | )            |      |              |      |              |        |       |      |   |      |   |       |   |       |   | (10.0 | )   
|Proceeds from notes offering                                                                    |                                              |                                        | 330.0  |              |      |              |      |              |        |       |      |   |      |   |       |   |       |   | 330.0 |     
|Principal payments on unsecured borrowings and senior notes                                     |                                              |                                        |       |              |      |              | (7.9  | )            |        |       |      |   |      |   |       |   |       |   | (7.9  | )   
|Net repayments on Financial Services bank borrowings                                            |                                              |                                        |       |              |      |              |      |              |        |       | (14.3 | ) |      |   |       |   |       |   | (14.3 | )   
|Payments for deferred financing costs                                                           |                                              |                                        | (5.9   | )            |      |              |      |              |        |       |      |   |      |   |       |   |       |   | (5.9  | )   
|Proceeds from stock option exercises                                                            |                                              |                                        | 0.1    |              |      |              |      |              |        |       |      |   |      |   |       |   |       |   | 0.1   |     
|Dividends paid and distributions by Engle Holdings                                              |                                              |                                        | (2.0   | )            |      |              |      |              |        |       | (24.7 | ) |      |   | 24.7   |   |       |   | (2.0  | )   
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (403.9 | )            |      |              | 199.1 |              |        |       | 85.1  |   |      |   | 119.7  |   |       |   |      |     
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Net cash (used in) provided by financing activities                                             |                                              |                                        | (91.7  | )            |      |              | 191.2 |              |        |       | 46.1  |   |      |   | 144.4  |   |       |   | 290.0 |     
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | 113.3  |              |      |              | 30.6  |              |        |       | 47.8  |   |      |   |       |   |       |   | 191.7 |     
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 46.0   |              |      |              | 27.7  |              |        |       | 3.1   |   |      |   |       |   |       |   | 76.8  |     
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 159.3  |              |      | $            | 58.3  |              |        | $     | 50.9  |   |      | $ |       |   |       | $ | 268.5 |     
|                                                                                                |                                              |                                        |        |              |      |              |       |              |        |       |       |   |      |   |        |   |       |   |       |     

F-33



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |      |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | ------------ | ----- | ------------ | ------ | ------------ | ------ | ----- | ----- | - | ----- | - | ------ | - | ----- | - | ------ | ---- | ------ | -
|                                                                                                |                                              | Year Ended December 31, 2003          
|                                                                                                |                                              |                                       
|                                                                                                |                                              | Technical                              |        |              |       | Non-         |        |             
|                                                                                                |                                              | Olympic                                |        | Guarantor    |       | guarantor    |        | Intercompany |        |      
|                                                                                                |                                              | USA, Inc.                              |        | Subsidiaries |       | Subsidiaries |        | Eliminations |        | Total
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |      
|                                                                                                |                                              | (Dollars in millions)                 
|Cash Flows from Operating Activities:                                                           |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net income                                                                                      |                                              | $                                      | 82.7   |              |       | $            | 105.4  |              |        | $     | 7.6   |   |       | $ | (113.0 | ) |       | $ | 82.7   |     
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|                                                                                                | Depreciation and amortization                |                                        |        | 2.0          |       |              |        | 7.3          |        |       |       |  |       |   |        |  |       |   |        | 9.3  |       
|                                                                                                | Non-cash compensation expense                |                                        |        | 1.4          |       |              |        |             |        |       |       |  |       |   |        |  |       |   |        | 1.4  |       
|                                                                                                | Deferred income taxes                        |                                        |        | (0.7         | )     |              |        |             |        |       |       |  |       |   |        |  |       |   |        | (0.7 | )     
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |      |       
|                                                                                                |                                              | Restricted cash                        |        |              | 2.5   |              |        |              | (0.1   | )     |       |   | (50.5 | ) |        |   |      |   |        |      | (48.1  | )
|                                                                                                |                                              | Inventory                              |        |              | 0.6   |              |        |              | (132.9 | )     |       |   |      |   |        |   |      |   |        |      | (132.3 | )
|                                                                                                |                                              | Other assets                           |        |              | (48.4 | )            |        |              | (7.3   | )     |       |   | 0.1   |   |        |   | 52.5  |   |        |      | (3.1   | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |              | 17.8  |              |        |              | 83.0   |       |       |   | 53.7  |   |        |   | (52.5 | ) |        |      | 102.0  |  
|                                                                                                |                                              | Customer deposits                      |        |              |      |              |        |              | 7.2    |       |       |   |      |   |        |   |      |   |        |      | 7.2    |  
|                                                                                                |                                              | Mortgage loans held for sale           |        |              |      |              |        |              |       |       |       |   | (16.4 | ) |        |   |      |   |        |      | (16.4  | )
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net cash provided by (used in) operating activities                                             |                                              |                                        | 57.9   |              |       |              | 62.6   |              |        |       | (5.5  | ) |       |   | (113.0 | ) |       |   | 2.0    |     
|Cash Flows from Investing Activities:                                                           |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net additions to property and equipment                                                         |                                              |                                        | (6.4   | )            |       |              | (12.7  | )            |        |       |      |   |       |   |       |   |       |   | (19.1  | )   
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |       |              |       |              | (10.5  | )            |        |       |      |   |       |   |       |   |       |   | (10.5  | )   
|Amounts paid for acquisitions, net of cash acquired                                             |                                              |                                        |       |              |       |              | (59.6  | )            |        |       |      |   |       |   |       |   |       |   | (59.6  | )   
|Earn out consideration paid for acquisitions                                                    |                                              |                                        |       |              |       |              | (18.1  | )            |        |       |      |   |       |   |       |   |       |   | (18.1  | )   
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net cash used in investing activities                                                           |                                              |                                        | (6.4   | )            |       |              | (100.9 | )            |        |       |      |   |       |   |       |   |       |   | (107.3 | )   
|Cash Flows from Financing Activities:                                                           |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net repayments on revolving credit facilities                                                   |                                              |                                        | (45.0  | )            |       |              | (0.2   | )            |        |       |      |   |       |   |       |   |       |   | (45.2  | )   
|Proceeds from notes offering                                                                    |                                              |                                        | 129.3  |              |       |              |       |              |        |       |      |   |       |   |       |   |       |   | 129.3  |     
|Net proceeds from Financial Services bank borrowings                                            |                                              |                                        |       |              |       |              |       |              |        |       | 14.9  |   |       |   |       |   |       |   | 14.9   |     
|Payments for deferred financing costs                                                           |                                              |                                        | (5.4   | )            |       |              |       |              |        |       |      |   |       |   |       |   |       |   | (5.4   | )   
|Minority interest in consolidated subsidiaries                                                  |                                              |                                        |       |              |       |              | (9.1   | )            |        |       |      |   |       |   |       |   |       |   | (9.1   | )   
|Net proceeds from sale of common stock                                                          |                                              |                                        | 48.4   |              |       |              |       |              |        |       |      |   |       |   |       |   |       |   | 48.4   |     
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (170.3 | )            |       |              | 68.0   |              |        |       | (10.7 | ) |       |   | 113.0  |   |       |   |       |     
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Net cash (used in) provided by financing activities                                             |                                              |                                        | (43.0  | )            |       |              | 58.7   |              |        |       | 4.2   |   |       |   | 113.0  |   |       |   | 132.9  |     
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | 8.5    |              |       |              | 20.4   |              |        |       | (1.3  | ) |       |   |       |   |       |   | 27.6   |     
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 37.5   |              |       |              | 7.3    |              |        |       | 4.4   |   |       |   |       |   |       |   | 49.2   |     
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 46.0   |              |       | $            | 27.7   |              |        | $     | 3.1   |   |       | $ |       |   |       | $ | 76.8   |     
|                                                                                                |                                              |                                        |        |              |       |              |        |              |        |       |       |   |       |   |        |   |       |   |        |     

F-34



---



##### 



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |      |       |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | ------------ | ---- | ------------ | ------ | ------------ | ----- | ----- | ----- | - | ---- | - | ----- | - | - | - | ------ | ---- | ----- | -
|                                                                                                |                                              | Year Ended December 31, 2002          
|                                                                                                |                                              |                                       
|                                                                                                |                                              | Technical                              |        |              |      | Non-         |        |             
|                                                                                                |                                              | Olympic                                |        | Guarantor    |      | guarantor    |        | Intercompany |       |      
|                                                                                                |                                              | USA, Inc.                              |        | Subsidiaries |      | Subsidiaries |        | Eliminations |       | Total
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |      
|                                                                                                |                                              | (Dollars in millions)                 
|Cash Flows from Operating Activities:                                                           |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net income                                                                                      |                                              | $                                      | 72.0   |              |      | $            | 75.1   |              |       | $     | 9.2   |   |      | $ | (84.3 | ) |   | $ | 72.0   |     
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|                                                                                                | Income from discontinued operations          |                                        |        |             |      |              |        | (5.0         | )     |       |       |  |      |   |       |  |   |   |        | (5.0 | )    
|                                                                                                | Depreciation and amortization                |                                        |        | 1.7          |      |              |        | 5.8          |       |       |       |  |      |   |       |  |   |   |        | 7.5  |      
|                                                                                                | Deferred income taxes                        |                                        |        | (2.1         | )    |              |        |             |       |       |       |  |      |   |       |  |   |   |        | (2.1 | )    
|                                                                                                | Other adjustments                            |                                        |        | 1.1          |      |              |        |             |       |       |       |  |      |   |       |  |   |   |        | 1.1  |      
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |      |      
|                                                                                                |                                              | Restricted cash                        |        |              | (4.0 | )            |        |              | (11.8 | )     |       |   | (3.3 | ) |       |   |  |   |        |      | (19.1 | )
|                                                                                                |                                              | Inventory                              |        |              |     |              |        |              | (75.9 | )     |       |   |     |   |       |   |  |   |        |      | (75.9 | )
|                                                                                                |                                              | Other assets                           |        |              | 1.5  |              |        |              | (3.5  | )     |       |   | (0.4 | ) |       |   |  |   |        |      | (2.4  | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |              | 25.0 |              |        |              | 11.4  |       |       |   | 2.7  |   |       |   |  |   |        |      | 39.1  |  
|                                                                                                |                                              | Customer deposits                      |        |              |     |              |        |              | (1.6  | )     |       |   |     |   |       |   |  |   |        |      | (1.6  | )
|                                                                                                |                                              | Mortgage loans held for sale           |        |              |     |              |        |              |      |       |       |   | (7.9 | ) |       |   |  |   |        |      | (7.9  | )
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net cash used in operating activities                                                           |                                              |                                        | 95.2   |              |      |              | (5.5   | )            |       |       | 0.3   |   |      |   | (84.3 | ) |   |   | 5.7    |     
|Cash Flows from Investing Activities:                                                           |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net additions to property and equipment                                                         |                                              |                                        | (3.5   | )            |      |              | (5.3   | )            |       |       |      |   |      |   |      |   |   |   | (8.8   | )   
|Amounts paid for acquisitions, net of cash acquired                                             |                                              |                                        |       |              |      |              | (49.0  | )            |       |       | (2.3  | ) |      |   |      |   |   |   | (51.3  | )   
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net cash used in investing activities                                                           |                                              |                                        | (3.5   | )            |      |              | (54.3  | )            |       |       | (2.3  | ) |      |   |      |   |   |   | (60.1  | )   
|Cash Flows from Financing Activities:                                                           |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net proceeds from revolving credit facilities                                                   |                                              |                                        |       |              |      |              | 58.6   |              |       |       |      |   |      |   |      |   |   |   | 58.6   |     
|Proceeds from notes offering                                                                    |                                              |                                        | 350.0  |              |      |              |       |              |       |       |      |   |      |   |      |   |   |   | 350.0  |     
|Principal payments on unsecured borrowings and senior notes                                     |                                              |                                        |       |              |      |              | (379.6 | )            |       |       |      |   |      |   |      |   |   |   | (379.6 | )   
|Net payments on obligations for inventory not owned                                             |                                              |                                        |       |              |      |              | (13.7  | )            |       |       |      |   |      |   |      |   |   |   | (13.7  | )   
|Net proceeds from Financial Services bank borrowings                                            |                                              |                                        |       |              |      |              |       |              |       |       | 9.6   |   |      |   |      |   |   |   | 9.6    |     
|Payments for deferred financing costs                                                           |                                              |                                        | (15.3  | )            |      |              |       |              |       |       |      |   |      |   |      |   |   |   | (15.3  | )   
|Minority interest in consolidated subsidiaries                                                  |                                              |                                        |       |              |      |              | (26.7  | )            |       |       |      |   |      |   |      |   |   |   | (26.7  | )   
|Dividends paid and distributions by Engle Holdings                                              |                                              |                                        | (4.8   | )            |      |              |       |              |       |       |      |   |      |   |      |   |   |   | (4.8   | )   
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (384.6 | )            |      |              | 311.5  |              |       |       | (11.2 | ) |      |   | 84.3  |   |   |   |       |     
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net cash (used in) provided by financing activities                                             |                                              |                                        | (54.7  | )            |      |              | (49.9  | )            |       |       | (1.6  | ) |      |   | 84.3  |   |   |   | (21.9  | )   
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Net cash provided by (used in) operations                                                       |                                              |                                        | 37.0   |              |      |              | (109.7 | )            |       |       | (3.6  | ) |      |   |      |   |   |   | (76.3  | )   
|Net cash provided by discontinued operations                                                    |                                              |                                        |       |              |      |              | 50.3   |              |       |       |      |   |      |   |      |   |   |   | 50.3   |     
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | 37.0   |              |      |              | (59.4  | )            |       |       | (3.6  | ) |      |   |      |   |   |   | (26.0  | )   
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 0.5    |              |      |              | 66.7   |              |       |       | 8.0   |   |      |   |      |   |   |   | 75.2   |     
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 37.5   |              |      | $            | 7.3    |              |       | $     | 4.4   |   |      | $ |      |   |   | $ | 49.2   |     
|                                                                                                |                                              |                                        |        |              |      |              |        |              |       |       |       |   |      |   |       |   |   |   |        |     

F-35