Financial Statements




---



##### 



Contents
 Unaudited Consolidated Statement of Financial Condition as of July 30, 2007
    
    
    2Unaudited Consolidated Statement of Operations for the eight months ended
July 30, 2007
    
    
    3Unaudited Consolidated Statement of Changes in Members Equity for the eight
months ended July 30, 2007
    
    
    4Unaudited Consolidated Statement of Cash Flows for the eight months
ended July 30, 2007
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6




---



##### 



(Dollars in Thousands)
 AssetsCash and cash equivalents
    
    $
    10,278Restricted cash
    
    
    28,368InventoryDeposits and option contracts
    
    
    63,820Homesites and land under development
    
    
    37,058Residences completed and under construction
    
    
    48,954Inventory not owned
    
    
    12,452Total inventory
    
    
    162,284Other assets
    
    
    3,945Total assets
    
    $
    204,875Liabilities and members equity (deficit)Liabilities:Accounts payable, accrued expenses and other liabilities
    
    $
    109,265Customer deposits
    
    
    1,932Obligations for inventory not owned
    
    
    12,452Due to members
    
    
    44,623Bank borrowings
    
    
    625,000Member loans
    
    
    31,250Total liabilities
    
    
    824,522Commitments and contingenciesMembers equity (deficit)Members capital
    
    
    141,094Deficit
    
    
    (760,741
    )Total members deficit
    
    
    (619,647
    )Total liabilities and members deficit
    
    $
    204,875
 See
accompanying notes to unaudited consolidated financial statements. These financial
statements have not been subject to a review by an independent registered public accounting
firm.
 2




---



##### 



(Dollars in Thousands)
 Home sales revenues
    
    $
    174,826Cost of sales:Home sales
    
    
    177,693Loss on impairment of inventory
    
    
    134,845Write-off of deposits and abandonment costs
    
    
    45,972Cost of home sales
    
    
    358,510Gross loss
    
    
    (183,684
    )Selling, general, and administrative expenses
    
    
    47,538Depreciation and amortization
    
    
    453Interest expense
    
    
    48,498Other income
    
    
    (3,230
    )Net loss
    
    $
    (276,943
    )
 See
accompanying notes to unaudited consolidated financial statements. These
financial statements have not been subject to a review by an independent
registered public accounting firm.
 3




---



##### 



(Dollars in Thousands)
 MembersCapital
    
    
    Deficit
    
    
    TotalBalance, November 30, 2006
    
    $
    144,173
    
    
    $
    (483,798
    )
    
    $
    (339,625
    )Net loss
    
    
    
    
    
    
    (276,943
    )
    
    
    (276,943
    )Recharacterization of related party debt
    
    
    8,449
    
    
    
    
    
    
    
    8,449Accrual of preferred return
    
    
    (11,528
    )
    
    
    
    
    
    
    (11,528
    )Balance, July 30, 2007
    
    $
    141,094
    
    
    $
    (760,741
    )
    
    $
    (619,647
    )
 See
accompanying notes to unaudited consolidated financial statements. These financial
statements have not been subject to a review by an independent registered public
accounting firm.
 4




---



##### 



(Dollars in Thousands)
 Operating activitiesNet loss
    
    $
    (276,943
    )Adjustments to reconcile net loss to net cash used in
operating activities:Loss on impairment of inventory and write-off of deposits
and abandonment costs
    
    
    180,817Depreciation and amortization
    
    
    453Changes in operating assets and liabilities:Restricted cash
    
    
    6,624Inventory
    
    
    65,720Other assets
    
    
    8,233Accounts payable, accrued expenses and other liabilities
    
    
    10,271Customer deposits
    
    
    (11,664
    )Net cash used in operating activities
    
    
    (16,489
    )Investing activityAdditions to property and equipment
    
    
    (10
    )Net cash used in investing activity
    
    
    (10
    )Financing activityAdvances from members
    
    
    10,073Net cash provided by financing activity
    
    
    10,073Net decrease in cash and cash equivalents
    
    
    (6,426
    )Cash and cash equivalents at beginning of period
    
    
    16,704Cash and cash equivalents at end of period
    
    $
    10,278
 See
accompanying notes to unaudited consolidated financial statements. These financial statements
have not been subject to a review by an independent registered public accounting firm
 5




---



##### 



(Dollars in Thousands)
 1. Organization and Acquisition
      6




---



##### 



1. Organization and Acquisition (continued)
  
    
    the Company became a wholly-owned subsidiary of TOUSA, Inc. by merger into one of its
subsidiaries, which subsidiary became a guarantor on TOUSA, Inc.s credit facilities and
note indentures;
    
    the senior secured lenders of the Company were paid in full, including accrued interest
by TOUSA, Inc.;
    
    the senior mezzanine lenders to the Company received $20,000 in aggregate principal
amount of 14.75% Senior Subordinated PIK Election Notes due 2015 from TOUSA, Inc. and
$117,500 in initial aggregate liquidation preference of TOUSA, Inc.s 8% Series A
Convertible Preferred PIK Preferred Stock;
    
    the junior mezzanine lenders to the Company received warrants to purchase shares of
TOUSA, Inc.s common stock which had an estimated fair value of $8.2 million at issuance
(based on the Black-Scholes option pricing model and before issuance costs);
    
    TOUSA, Inc. entered into settlement and mutual release agreements with the senior
mezzanine lenders and the junior mezzanine lenders to the Company which released TOUSA,
Inc. from its potential obligations to the lenders; and
    
    TOUSA, Inc. entered into a settlement and mutual release agreement with Falcone
concerning the Company that among other things, released Falcone from claims under the
Acquisition agreement. Pursuant to the settlement agreement, TOUSA, Inc. remains obligated
on certain indemnification obligations, including, without limitation, related to certain
land bank arrangements.
  7




---



##### 



2. Summary of Significant Accounting Policies
 Basis of Presentation
      Cash, Restricted Cash and Cash Equivalents
   8




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Inventory
  Accounting for the
Impairment or Disposal of Long-Lived Assets
 Inventory Not Owned and Obligations for Inventory Not Owned
 Consolidation of Variable Interest Entities
  9




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities Amendment of Statement 133 on Derivative Instruments and Hedging Activities
   Property and Equipment
  10




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Revenue Recognition
  Warranty Costs
   Balance at beginning of period
    
    $
    1,428Current period warranty costs
    
    
    881Payments made for work performed
    
    
    (269
    )Balance at end of period
    
    $
    2,040
 Advertising Costs
  11




---



##### 



2. Summary of Significant Accounting Policies (continued)
 Fair Value of Financial Instruments
 Disclosures about Fair Value of Financial Instruments
 Revolving facility
    
    $
    65,000Senior Term Loan
    
    
    335,000Senior Mezzanine Loan
    
    
    94,900Junior Mezzanine Loan
    
    
    8,200
 Concentration of Credit Risk
  3. Inventory
 Accounting for the Impairment or Disposal of Long-Lived Assets
 12




---



##### 



3. Inventory (continued)
 Capitalization of Interest Cost,
 Accounting for Sales of Real Estate
 4. Accrued Liabilities
  Accounts payable
    
    $
    3,352Accrued expense, other
    
    
    8,084Accrual for unpaid invoices on delivered homes
    
    
    1,117Accrued real estate taxes
    
    
    2,500Accrued compensation
    
    
    2,822Accrued interest
    
    
    54,675CDD Obligations
    
    
    36,715$
    109,265
  13




---



##### 



4. Accrued Liabilities (continued)
   Accounting for Special Assessments and Tax Increment
Financing
 5. Bank Borrowings
  Revolving facility, $115,000 revolving line of
credit, default interest at 11.75%
    
    $
    65,000Senior Term Loan, default interest at 11.75%
    
    
    335,000Senior Mezzanine Loan, default interest at 14.25%
    
    
    137,500Junior Mezzanine Loan, default interest at 19.39%
    
    
    87,500$
    625,000
  14




---



##### 



5. Bank Borrowings (continued)
  6. Income Tax Matters
  7. Commitments and Contingencies
   8. Related Party Transactions
 Limited Liability Agreement
  15




---



##### 



8. Related Party Transactions (continued)
 Due from Members
  Due to Members
   Management Fee
  Member Loan
  16




---



##### 



8. Related Party Transactions (continued)
 Payments to Members
  17