<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                  FORM 10-K/A
                               (AMENDMENT NO. 1)


               [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the Fiscal Year Ended: September 30, 1998

                         Commission File Number 0-21900

                              SUNDANCE HOMES, INC.
             (Exact name of registrant as specified in its charter)

                Illinois                                   36-3111764
     (State or other jurisdiction              (IRS Employer Identification No.)
   of incorporation or organization)

               150 West Center Court, Schaumburg, Illinois  60195
          (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code: (847) 255-5555

       Securities registered pursuant to Section 12(b) of the Act: None

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

                         Common Stock, $0.01 par value
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X   No
                                        ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this From 10-K
or any amendment to this Form 10-K. [X]

On December 31, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing sale price of the
registrant's Common Stock as quoted on the Nasdaq Stock Market's National
Market, was approximately $2,338,506.  (For purposes of calculating this amount
only directors, executive officers, and beneficial owners of 5% or more of the
Common Stock of the registrant have been deemed affiliates).

Number of shares of the registrant's outstanding Common Stock at December 31,
1998: 7,813,144.

<PAGE>

                              SUNDANCE HOMES, INC.


                                  FORM 10-K/A

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
<S>            <C>                                                                    <C>

PART II
   Item 6.     Selected Consolidated Financial Data.................................        1

   Item 7.     Management's Discussion and Analysis of Financial
               Condition and Results of Operations..................................    1 - 9

   Item 8.     Financial Statements and Supplementary Data..........................        9

PART IV
   Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....  10 - 11

SIGNATURES..........................................................................       12
</TABLE>
<PAGE>
PART II

This amendment to this Form 10-K is being filed to reflect the Company's
determination to expense in the period incurred certain deferred project
start-up costs which the Company had previously capitalized.

Item 6. Selected Consolidated Financial Data

The following selected consolidated financial and operating data of Sundance
Homes, Inc. (the "Company" or "Sundance") is qualified by reference to and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and other financial data included elsewhere herein. The data set
forth below as of and for the years ended September 30, 1998, 1997, and 1996,
the nine months ended September 30, 1995 and the year ended December 31, 1994
have been derived from the Company's audited consolidated financial statements.
Consolidated balance sheets at September 30, 1998 and September 30, 1997 and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended September 30,
1998 and notes thereto appear elsewhere herein. These historical results are not
necessarily indicative of the results to be expected in the future (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations").

<TABLE>
<CAPTION>
                                                              Nine
                              Year       Year       Year     Months     Year
                              ended      ended      ended     ended    ended
                            September  September  September September December
                            30, 1998   30, 1997   30, 1996  30, 1995  31, 1994
                            ---------  ---------  --------- --------- --------
                                (in thousands, except per share amounts)
<S>                         <C>        <C>        <C>       <C>       <C>
Statement of Operations
 Data:
Total sales (1)             $131,556   $108,743   $120,948   $63,811  $118,659
Income (loss) before
 minority interest and
 provision for income
 taxes (2)                    (5,480)    (2,367)     2,804    (6,230)    3,214
Net income previously
 reported                     (7,614)      (350)     1,235    (4,216)    1,930
Effect of currently
 expensing deferred
 project start-up costs in
 the period incurred (3)       2,234       (991)       377       493      (257)
                            --------   --------   --------   -------  --------
Net income (loss)--revised  $ (5,380)  $ (1,341)  $  1,612   $(3,723) $  1,673
                            ========   ========   ========   =======  ========
Net income (loss) per
 share (basic and diluted)
 as reported                $  (0.98)  $  (0.04)  $   0.16   $ (0.54) $   0.25
Effect of currently
 expensing deferred
 project start-up costs in
 the period incurred (3)        0.29      (0.13)      0.05      0.06     (0.03)
                            --------   --------   --------   -------  --------
Revised net income per
 share (basic and diluted)  $  (0.69)  $  (0.17)  $   0.21   $ (0.48) $   0.22
                            ========   ========   ========   =======  ========

<CAPTION>
                            September  September  September September December
                            30, 1998   30, 1997   30, 1996  30, 1995  31, 1994
                            ---------  ---------  --------- --------- --------
                                             (in thousands)
<S>                         <C>        <C>        <C>       <C>       <C>
Balance Sheet Data:
Real estate inventories     $102,088   $ 80,787   $ 76,101   $86,434  $ 86,721
Total assets--revised (3)    111,250     91,004     84,334    96,180    95,386
Notes and mortgages
 payable                      55,249     33,087     23,027    42,787    34,280
Minority interest (2)             --         --        111       266     1,049
Shareholders' equity--
 revised (3)                  20,432     25,808     27,145    25,533    29,256
Net book value per share        2.61       3.30       3.47      3.27      3.74
</TABLE>
--------
(1) Sales are recognized at closing, when title to the  home has passed to the
    buyer (see Note 1 of the Notes to Consolidated Financial Statements).

(2) The Company is the General Partner of The Sundance-Kaco Limited Partnership,
    with a 75% interest in said partnership.  Under the terms of the partnership
    agreement, the limited partner is entitled to 25% of all profits of the
    partnership and will receive cash distributions.

(3) Prior to October 1, 1997, the Company capitalized certain costs incurred
    prior to the sale of the initial residence in each development as deferred
    project start-up costs on the basis that such costs were required to
    commence sales. In the financial statements for the year ended September
    30, 1998, as part of the adoption of Statement of Position (SoP) 98-5,
    Reporting on the Costs of Start-Up Activities and Organization Costs, the
    Company wrote-off these costs as deferred project start-up costs. However,
    upon subsequent review the Company determined to expense such costs in the
    period incurred and the financial statements have been revised
    accordingly.

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

Except for historical information, matters discussed in this Form 10-Q contain
forward looking information and reflect the Company's current expectations
regarding the future results of operations, performance and achievement of the
Company based on currently available information. The Company has identified
these "forward looking" statements by words such as "believes", "estimates",
"should", "could", "expects", "anticipates", and similar expressions. These
statements involve known and unknown risks and uncertainties that may cause
Sundance's actual results or outcomes to be materially different from those
anticipated and discussed herein. Important factors that Sundance believes might
cause such differences include: (1) concentration of Sundance's assets into the
Chicago urban housing market; (2) changes in interest rates and the availability
of mortgage financing; (3) Sundance's substantial leverage and the restrictions
imposed on Sundance under its existing debt instruments; (4) the seasonal nature
of the residential construction business; (5) changes in general economic and
market conditions; (6) changes in costs and availability of material, supplies
and labor; (7) general competitive conditions; (8) the availability of capital;
(9) the inability of Sundance to satisfy the minimum maintenance requirements
for the continued listing of its shares of common stock on the Nasdaq National
Market; and (10) those specific risks that are discussed in the Risk Factors
detailed in Sundance's filings with the Securities and Exchange Commission.

                                       1
<PAGE>

As previously announced, the Company has restated its quarterly results for the
quarters ended December 31, 1997, March 31, 1998 and June 30, 1998.  See Note 12
of the Notes to the Consolidated Financial Statements.

Overview

During the year ended September 30, 1998 as compared to the year ended September
30, 1997 the company's residential sales increased by $14.2 million or 13% to
$122.9 million.  In addition the average sales price per home closed increased
by $17,500 to $188,500 from $171,000 in fiscal 1997.  The Company closed 652
homes during fiscal 1998 compared to 636 in fiscal 1997.

The Company's aggregate sales value in backlog at September 30, 1998 increased
by $29.2 million or 65% to $74.4 million compared to $45.2 million at September
30, 1997.  In addition, the average sales price per home of the 384 homes in
backlog at September 30, 1998, increased by $10,700 per home to $193,800 from
$183,100 for the 247 homes in backlog at September 30, 1997.

During fiscal 1998 the Company sold its position in two separate land parcels
located in the City of Chicago and 10 fully developed lots in one of its
suburban projects for $6,950,000 and $1,700,000, respectively, totaling
$8,650,000 in land and building sales.

Urban Development.  The Company's division which develops property under the
name Chicago Urban Properties experienced significant growth in fiscal 1998.
Closings increased from 95 units in fiscal 1997 to 149 units in fiscal 1998.
Revenues increased from $15.6 million in fiscal 1997 to $27.3 million in fiscal
1998.

The St. Paul, Michigan Avenue and Erie Center Lofts projects were substantially
completed and closed out during the year.  The Company's 24-story building which
contains 124 condominium units and 251 parking spaces was over 80% completed by
September 30, 1998 with initial deliveries scheduled for early in 1999.

The Company's three new projects in the Chicago urban market ended the fiscal
year with 130 units in backlog.  These projects include two new loft conversion
projects located at 625 West Jackson Street and 942 West Madison Street in
Chicago, Illinois, and a 130 unit new construction mid-rise condominium project
at 3232 North Halsted, Chicago, Illinois.

Suburban Communities.  During the year ending September 30, 1998 the Company
significantly expanded its presence in the south suburbs of Chicago by
purchasing approximately 400 developed lots in Orland Park and Lockport, and
166 undeveloped lots in Bolingbrook.

The Company's custom home division, Rembrandt Homes, continued to expand by
completing the acquisition of 135 lots at Gregg's Landing, a golf course
community in Vernon Hills, Illinois. Of the 135 acquired lots, the Company
delivered 36 homes and sold 10 developed lots during the year ended September
30, 1998.

                                       2
<PAGE>

Results of Operations

The following table sets forth by each income statement line item presented as a
percentage of the Company's total sales (unless otherwise indicated) and certain
other information regarding the Company's operations for the periods indicated.

<TABLE>
<CAPTION>
                                                     Year ended September 30,
                                               ------------------------------------
                                                  1998          1997          1996
                                               ------------------------------------
<S>                                            <C>           <C>           <C>
Residential sales                                  93.4%        100.0%        100.0%
Land and building sales                             6.6            -             -
                                               --------      --------      --------
Total sales                                       100.0%        100.0%        100.0%

Cost of residential sales                          85.9          89.7          87.7
Cost of land and building sales                     5.4            -             -
                                               --------      --------      --------
Total cost of sales                                91.3          89.7          87.7
                                               --------      --------      --------
Gross profit                                        8.7          10.3          12.3
Selling expenses                                    9.3           8.8           6.1
General and administrative expenses                 3.8           3.7           4.0
                                               --------      --------      --------
Income (loss) before provision
     (benefit) for income taxes                    (4.2)         (2.2)          2.2
Provision (benefit) for income taxes               (0.1)         (0.8)          0.9
                                               --------      --------      --------
Net income (loss)                                  (4.1)%        (1.4)%         1.3%
                                               ========      ========      ========

New orders (net)                                    789           686           624
Homes closed-units                                  652           636           701
Average selling price-homes closed             $188,500      $171,000      $172,500
</TABLE>

Year Ended September 30, 1998 Compared to the Year Ended September 30, 1997

Residential Sales.  Residential sales, which are recognized upon the closing and
delivery of homes, increased $14.2 million or 13%, to $122.9 million, for the
year ended September 30, 1998 as compared to $108.7 for the prior year.  This
increase was due primarily to the increase in the number of units closed during
the year and the average selling price increase of $17,500 from $171,000 for the
year ended September 30, 1997 to $188,500 for the year ended September 30, 1998.

                                       3
<PAGE>

Land Sales.  During the year ended September 30, 1998 the Company sold the land
and the 28 story building located at 201 N. Wells in Chicago, Illinois.  In
February, 1997 the Company purchased the note and mortgage on this property and
on April 13, 1998 obtained title through a foreclosure sale.  In addition the
Company sold 10 developed lots in its Turtle Bay project in Vernon Hills,
Illinois and its contractual rights to purchase a land parcel located at 1300
West Diversey in Chicago, Illinois.  Revenue derived from these sales totaled
$8,650,000.  In fiscal 1997, no revenue was derived from land sales.

Cost of Residential Sales.  Cost of residential sales includes land acquisition
costs, development costs, construction costs and direct overhead, job oversight
supervision, customer service, warranty costs, interest and property taxes.
Cost of residential sales, as a percentage of residential sales, increased by
2.3 percentage points to 92.0% for the year ended September 30, 1998 as compared
to 89.7% for the year ended September 30, 1997.  Cost of residential sales
increased by $15.5 million to $113.0 million from $97.5 million for the year
ended September 30, 1997.  The primary reasons for the increase in the cost of
residential sales as a percentage of residential sales were increased costs
related to interest and production overheads as well as certain increases on
several of the Company's close-out projects in both its Suburban and Urban
Divisions.

Selling, General and Administrative Expenses.  Selling expenses include
advertising, sales commissions, payroll, amortization of the costs of non-
permanent upgrades to convert standard homes to model homes (draperies, wall-
hangings, decor items) and maintenance of model homes.  Certain expenses, such
as sales commissions and amortization of model home upgrades, are derived from
sales prices or the number of home sales closed and thus remain relatively
constant as a percentage of residential sales. Other expenses, such as
advertising costs and model home maintenance, may be significantly influenced in
any given period by the number of grand openings or special promotions and the
number of projects operating in that period.  Costs associated with upgrading
standard homes to model homes are capitalized and expensed as related home sales
are closed, while most other selling expenses are expensed as incurred.

Selling expenses as a percentage of total sales increased by 0.5 percentage
points to 9.3% for the year ended September 30, 1998 from 8.8% for the year
ended September 30, 1997.  Actual selling expenses increased by $2.7 million
from $9.5 million for the year ended September 30, 1997 to $12.2 million for the
year ended September 30, 1998.  This increase, for the year ended September 30,
1998, resulted primarily from variable costs associated with increased
deliveries, as well as increased advertising expenditures resulting from the
opening of several new communities.

General and administrative expenses increased by $0.6 million to $4.9 million
for the year ended September 30, 1998 compared to $4.3 million for the year
ended September 30, 1997.  As a percentage of total sales, general and
administrative expenses were 3.8% and 3.7% for the years ended September 30,
1998 and September 30, 1997, respectively.

                                       4
<PAGE>

Year Ended September 30, 1997 Compared to the Year Ended September 30, 1996

Sales.  Residential sales decreased $12.2 million to $108.7 million for the year
ended September 30, 1997, a decrease of 10.1% over the twelve months ended
September 30, 1996. The decrease was primarily due to an overall decline in the
suburban housing market of approximately 10%.  The average sales price of home
sales closed also decreased slightly from $172,500 in fiscal 1996 to $171,000 in
fiscal 1997.

There were 686 net new sales orders for the year ended September 30, 1997
representing an increase of 10%, or 62 orders, over the fiscal 1996 total of
624. The Company attributes the increase primarily to the expansion of its
market place to include the Chicago urban market.

Cost sales decreased $8.5 million to $97.5 million in fiscal 1997 primarily as
a result of lower sales volume.  Cost of sales as a percent of residential sales
was 89.7% in fiscal 1997 as compared to 87.7% of sales revenue in fiscal 1996.

Selling, General and Administrative Expenses.  Selling expenses increased by
$2.1 million from $7.4 million in fiscal 1996 to $9.5 million in fiscal 1997.
As a percent of residential sales, selling expenses increased from 6.1% in the
year ended September 30, 1996, to 8.8% in the year ended September 30, 1997.
This increase is primarily due to increased marketing activities for several
projects which did not deliver closed units and homes until fiscal 1998 and
additional costs incurred due to the decision by the Company to use commissioned
brokers.

General and administrative expenses decreased by $639,000 in the year ended
September 30, 1997 compared to the year ended September 30, 1996.  These costs
have decreased due to the Company's continued efforts to reduce such expenses.

Sundance - Kaco Limited Partnership

The Company is the general partner, with a 75.0% partnership interest, in the
Sundance-Kaco Limited Partnership, an Illinois limited partnership.  Also
participating in the partnership is Kaco, Inc,  the sole limited partner, which
is entitled to 25.0% of all profits from the Spring Lake Farm South project.
The limited partner's share of losses for 1997 was $131,000.  Pursuant to the
provisions of the partnership agreement, limited partner distributions of
$161,000 were paid during 1997.

Year 2000 Compliance

The Year 2000 or "Y2K" issue is the result of many legacy computer programs
using a two digit format, as opposed to a four digit format, to indicate the
year.  Many computer systems will not be able to interpret dates beyond the year
1999, which could cause a system failure or other errors, leading to disruptions
in operations.  In 1997, the Company developed a three phase plan to address
this issue.

                                       5
<PAGE>

Phase I of the plan, which began during the fiscal year ended September 30,
1998, is the identification of all the systems, services and key operating
infrastructures where the Company has exposure.  Phase II is the development and
implementation of the necessary steps to bring the systems, services and
infrastructures into compliance.  Phase II is scheduled to be completed by
spring of 1999.  Phase III, which is scheduled to be completed in mid to late
1999, is the testing and acceptance of each modification necessary to the
systems, service and infrastructure components identified in Phase I and
implemented in Phase II.  The Company has identified four major areas of focus
necessary to ensure successful Y2K compliance.  These are: (1) its integrated
suite of accounting, costing and job control applications, (2) all custom
developed enhancements to the base suite, (3) all operating infrastructure
components including, but not limited to various operating systems, personal
computers and their associated software tools, along with other hardware and
software necessary for the operation of the business and (4) third party
relationships and their respective Y2K readiness.

The Company's currently installed core accounting, costing and job control
applications are not Y2K compliant.  However a project is currently underway to
upgrade the suite to a version which is believed to be compliant.  The upgrade
plan will include a corresponding upgrade of the custom developed enhancements.
Many of the operating infrastructure components will require modifications to
achieve compliance.  These modifications are currently underway and do not
directly impact the upgrade of any other system.  The Company is in the process
of contacting all significant suppliers and other third party relationships to
obtain responses indicating compliance or plans to be compliant by the year
2000.

The Company has identified the potential for 1,000 man hours of project-related
work to achieve compliance.  The Company has hired outside consulting resources
to help facilitate the timely completion of the projects identified.  Y2K
specific costs incurred to date have not been significant.  Estimated future
costs will range from approximately $50,000-$150,000 and are scheduled to be
incurred in fiscal 1999.

A formal contingency plan has not been prepared at this time. At present,
Sundance does not have a contingency plan related to a worst-case scenario
because the scope of internal compliance is relatively small and Sundance
believes very achievable prior to December 31, 1999. Preparation of a
contingency plan will, however, begin in the late summer of 1999 after the Y2K
specific releases of Sundance's main software have been tested and Sundance has
received responses to its letters of inquiry sent to its third party
relationships. The contingency plan will address specific issues, if any,
identified during such testing and raised by such responses.


Income Taxes

The provision for income taxes for the years ended September 30, 1997 and 1996
reflects management's estimate of the Company's effective tax rate of
approximately 40.0%.  During the year ended September 30, 1998, the Company has
recorded a charge to earnings in fiscal 1998 of approximately $2.1 million to
establish a reserve against the net deferred income tax asset which resulted
from the current year net operating loss.

Seasonality and Variability in Quarterly Results

The Company has experienced, and expects to continue to experience, significant
seasonally and quarter to quarter variability in residential sales and net
income.  Generally, the receipt of sales contracts is highest during the first
six months of the calendar year.  Related closings typically peak in the July
through September period as homes contracted for earlier in the year are
delivered.  Management believes that this seasonality reflects the tendency of
home buyers to shop for a new home in the Spring with the goal of closing in the
Fall or Winter as well as the scheduling of construction to accommodate seasonal
weather conditions (see Note 12. "Quarterly Results of Operations" in the
Footnotes to Consolidated Financial Statements).

                                       6
<PAGE>

Inflation

The Company, as well as the home-building industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land
acquisition, land development and construction costs.  In addition, higher
mortgage interest rates may significantly affect the affordability of mortgage
financing to prospective purchasers.  Inflation also increases the Company's
interest costs and the cost of labor and materials.  The Company attempts to
pass through to its buyers any increases in its costs through increased selling
prices.  Inflation did not have a material impact on fiscal 1998 or 1997
results.

Liquidity and Capital Resources

Net cash provided by or used for operating activities varies from period to
period, due primarily to the Company's housing inventory, land acquisition and
development requirements, and in lesser part to the Company's net income.  Net
cash used for operations in fiscal 1998 was $24.6 million, primarily due to the
acquisition of new projects.

On April 30, 1998, the Company entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
"the Lenders"), which replaced the Company's previous credit loan agreement
which had provided for a $60 million line of credit.  The three banks
participate in the $80 million facility as follows: LaSalle National Bank, $35
million; American National Bank, $25 million; and BankBoston, $20 million.  The
borrowings are secured by the real estate assets of the Company with certain
exceptions.  Borrowings under the Loan Agreement bear interest at LIBOR plus 300
basis points for borrowings up to $70 million and prime plus 0.75% for
borrowings in excess of $70 million, plus certain customary fees. The Loan
Agreement was originally scheduled to mature on February 1, 2000.  Available
borrowings under the Loan Agreement are reduced by the amount of letters of
credit outstanding.  The Loan Agreement includes certain customary
representations and covenants, including restrictions on the Company's ability
to pay dividends and maintenance of certain financial ratios.  As of September
30, 1998, the Company had violated certain covenants as set forth in the Loan
Agreement, including certain financial covenants, specifically those  related to
net worth and net income. On December 1, 1998, the Company's Lenders declared a
"default" under the Loan Agreement and the outstanding balance of the loan is
due and payable, subject to the satisfactory modification of the Loan Agreement.
The Company and its Lenders are currently negotiating a Forbearance and Loan
Modification Agreement (the "Forbearance Agreement").  The Company believes that
this agreement, when finalized, will include at a minimum the following terms:

     1. Existing defaults will be waived.
     2. Significant limitations will be placed on the Company's ability to
        acquire new land.
     3. The Lenders will not further fund the 130 unit condominium apartment
        project known as Plaza 32 in Chicago, Illinois.
     4. Interest rates will be increased from prime plus 0.75% to prime plus
        3.0%.
     5. Certain financial penalties will be imposed if certain revised covenants
        are not met in the future.
     6. The maximum loan amount will be systematically reduced.
     7. Other various credit limiting and monitoring devices will imposed.

                                       7
<PAGE>

Following the successful execution of the Forbearance Agreement, the Company
intends to replace the existing credit line at more favorable rates and terms.
There can be no assurance though, that the Company will be able to enter into
the Forbearance Agreement on the terms described above or replace the existing
credit line on a timely basis or at all.  Failure by the Company to cure the
defaults, successfully negotiate the Forbearance Agreement or negotiate
replacement financing on a timely basis could have a material adverse effect on
the Company's operations.  As of September 30, 1998, the Company had borrowed
$53.7 million under the Loan Agreement and had $4.1 million outstanding letters
of credit, leaving $22.2 million available for future borrowings.  The Loan
Agreement was originally scheduled to mature on February 1, 2000, which date may
be modified in the Forbearance Agreement.

While the Company was securing its Loan Agreement, the Company entered into
certain interim financing arrangements to provide funding for certain projects
which were not provided for under the Company's prior credit agreement.

On March 16, 1998 the Company entered into $15 million Construction Loan
Agreement with LaSalle National Bank with a maturity date of February 20, 1999,
at a rate of Prime plus 1.0%.  Advances under this loan totaled $4,931,562 and
were used to provide construction funds for the Company's Erie Tower Project
located at 375 West Erie Street, Chicago, Illinois.  Concurrent with the funding
of the Loan Agreement on May 12, 1998, this Construction Loan Agreement was
repaid in full.

On March 17, 1998, the Company entered into an interim financing agreement with
Cohen Financial Corporation in the amount of $1.6 million at a rate of prime
plus 1.0% with a maturity date of October 1, 1998.  This promissory note was
secured by a mortgage on the property located at 3228-3244 North Halsted Street,
Chicago, Illinois.  Concurrent with the funding of the Loan Agreement on May 12,
1998, this note was repaid in full.

Secured Shareholder Note Payable

On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of the
Company, entered into a $2.5 million Secured Subordinated Promissory Note with a
maturity date of June 30, 1999, and an interest rate of 20% with Maurice
Sanderman, the Company's Chairman and Principal Shareholder.  The note is
secured by a junior mortgage on the property commonly known as Erie Tower
located at 421 West Erie Street in Chicago, Illinois.  Principal payments under
this note may only be paid out of net sales proceeds from the sale of units
within Erie Tower and only after all advances made under the New Loan Agreement
related to the Erie Tower project have been repaid.

Unsecured Shareholder Note Payable

On February 24, 1998, the Company borrowed $487,000 on an unsecured basis from
Maurice Sanderman.  The unsecured note was at a prime rate plus 3.0% with a
maturity date of October 1, 1998.  These funds were used to pay property taxes
for 1996 and 1997 which became due on a building owned by the Company at 201
North Wells, Chicago, Illinois.  The payment of these taxes was not provided for
under the terms of the prior credit agreement.  This loan was repaid on June 30,
1998 concurrently with the closing of the sale of the building.

                                       8
<PAGE>

On March 17, 1998, in order to acquire the property located at 3228-3244 North
Halsted, Chicago, Illinois, the Company borrowed $890,000 on an unsecured basis
from Maurice Sanderman.  The unsecured note was at a rate of prime plus 3.0%
with an expiration date of October 1, 1998.  The purchase of this property was
not provided for under the terms of the prior credit agreement.  Concurrent with
the funding of the Loan Agreement, on May 12, 1998, this note was repaid in
full.

On May 26, 1998 the Company borrowed $1,602,241 on an unsecured basis from
Maurice Sanderman.  The unsecured note was at a rate of prime plus 3.0% with a
maturity date of October 1, 1998.  These funds were used to pay property taxes
for 1990, 1991, and 1992, which became due through a court settlement on a
building owned by the Company at 201 N. Wells, Chicago, Illinois.  The payment
of these taxes were not provided for under the terms of the Loan Agreement.
This loan was repaid in full concurrent with the closing of the sale of the
building on June 30, 1998.

Transaction with the Principal Shareholder

As part of the public offering and recapitialization of the Company on July 9,
1993, the Company issued promissory notes to the Company's principal
shareholder, Maurice Sanderman.  The notes are subordinate to the Company's bank
indebtedness, bear interest at 7.5% per annum, compounded daily, and originally
matured in two equal annual payments on the first and second anniversaries of
the offering.  On April 30, 1998 concurrent with the execution of the Loan
Agreement these notes were extended to February 1, 2000.  Payment of the
outstanding principal balances are subject to certain restrictions under the
Loan Agreement.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this report
beginning on page F-1.

                                       9
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) (1) and (2)  The response to this portion of Item 14 is submitted as a
    separate section of this report beginning on page F-1.

    All other schedules have been omitted because they are inapplicable, not
    required, or the information is included elsewhere in the consolidated
    financial statements or notes thereto.

    (3)  Exhibits: The response to this Item is incorporated by reference to
    Item 14(c) below.

(b) No report on Form 8-K was filed by the Company during the last quarter of
    the period covered by this report.

(c) The exhibits listed below are filed with this report or incorporated by
    reference, as set forth below.

                                      10
<PAGE>

The Company will furnish to any shareholder, upon written request, any of the
exhibits listed below upon payment by such shareholder of the Company's
reasonable expenses in furnishing any such exhibit.

<TABLE>
<CAPTION>

Exhibit
Number                                             Document Description
------              ------------------------------------------------------------------------------------
<S>                 <C>
3.1 a               Amended and Restated Articles of Incorporation of the Registrant
3.2 a               Amended and Restated Bylaws of the Registrant
4.1 c               Specimen stock certificate representing Common Stock
10.1 b              The Sundance Homes, Inc. 1993 Stock Incentive Plan
10.2 b              The Sundance Homes, Inc. 1993 Directors' Option Plan
10.3 b              Profit Sharing and Savings Plan
10.4 b              Form of Tax Indemnification Agreement
10.5 b              Form of Director's Indemnification Agreement
10.6 b              Form of Dividend Note
10.10 e             Employment Letter for Jon Tilkemeier, dated September 10, 1996
10.11 e             Employment Letter for Joseph Atkin, dated November 27, 1996
10.12 d             First Amendment to the Sundance Homes, Inc. Stock Incentive Plan
10.13 d             First Amendment to the Sundance Homes, Inc. Directors' Stock Option Plan
10.14 f             Revolving Loan Credit Agreement dated April 30, 1998 by and between the Company and
                    LaSalle National Bank, American National Bank and Trust of Chicago and BankBoston, NA
10.15 f             Secured Subordinated Promissory Note dated May 1, 1998 by and between Maurice Sanderman and Erie
                    Centre Lofts, Inc.
21.0 g              List of Subsidiaries
23.1                Consent of PricewaterhouseCoopers, LLP
27.1                Financial Data Schedule

           a        Incorporated by reference to the Company's Registration Statement on Form S-8, Registration No. 33-96546.
           b        Incorporated by reference to the Company's Registration Statement on Form S-1, Registration Statement No.
                    33-60988.
           c        Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended December
                    31, 1994.
           d        Incorporated by reference to the Company's Registration Statement on Form S-8, Registration No. 333-
                    11087
           e        Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended
                    September 30, 1996.
           f        Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended
                    June 30, 1998.
           g        Incorporated by reference to the Company's Annual Report on Form 10-K for the period ended
                    September 30, 1998, filed on January 13, 1999.
</TABLE>

(d) The response to this Item is incorporated by reference to Item 14(a)(2).

                                      11
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 17th day of January, 1999.

                     SUNDANCE HOMES, INC.



                 By:    /s/ Joseph R. Atkin
                     -----------------------------------------------------------
                     Joseph R. Atkin, Vice President and Chief Financial Officer





                                      12
<PAGE>

                              SUNDANCE HOMES, INC.
                         ITEM 8, ITEM 14(a) (1) and (2)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>                                                                               <C>
Report of Independent Accountants..............................................................F-2

Consolidated Balance Sheets as restated  as of September 30, 1998 and September 30, 1997.......F-3

Consolidated Statements of Operations as restated for the Years Ended September 30, 1998,
1997 and 1996..................................................................................F-4

Consolidated Statements of Changes in Shareholders' Equity as restated for the Years
September 30, 1998, 1997 and 1996..............................................................F-5

Consolidated Statements of Cash Flows as restated for the Years Ended September 30, 1998,
1997 and 1996..................................................................................F-6

Notes to Consolidated Financial Statements.....................................................F-7
</TABLE>
                                      F-1

<PAGE>

            FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND 1997
           AND FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

Report of Independent Accountants

To the Board of Directors and
Shareholders of Sundance Homes, Inc.

   In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Sundance Homes, Inc. and its subsidiaries at September
30, 1998 and 1997, and the results of their operations and their cash flows
for the each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

   As discussed in Note 2, the financial statements referred to above have
been restated to expense in the period incurred previously deferred project
start-up costs.

   The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has violated certain loan covenants and
accordingly is in default of its revolving credit loan agreement. The Company
has been unable to renegotiate the terms of the revolving credit loan
agreement or to secure alternative financing. The inability of the Company to
resolve the loan default under its current loan agreement or to obtain
alternative financing to meet its obligations as they become due raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
December 23, 1998

except for Note 2 for

which the date is June 15, 1999

                                      F-2

<PAGE>

                              SUNDANCE HOMES, INC.

 CONSOLIDATED BALANCE SHEETS AS RESTATED AS OF SEPTEMBER 30, 1998 AND SEPTEMBER
                                 30, 1997
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                    September 30, September 30,
                      ASSETS                            1998          1997
                      ------                        ------------- -------------
<S>                                                 <C>           <C>
Cash and cash equivalents..........................   $  1,947       $ 4,615
Real estate inventories............................    102,088        80,787
Prepaid expenses and other assets..................      2,227         1,748
Property and equipment, net........................      4,988         3,289
Income taxes receivable............................        --            565
                                                      --------       -------
    Total assets...................................   $111,250       $91,004
                                                      ========       =======

<CAPTION>
       LIABILITIES AND SHAREHOLDERS' EQUITY
       ------------------------------------
<S>                                                 <C>           <C>
Accounts payable and accrued construction
 liabilities.......................................   $ 23,026       $23,711
Other accrued expenses.............................      2,386         1,976
Customer deposits..................................      3,464         2,116
Notes payable......................................     55,249        33,087
Notes payable to Principal Shareholder.............      2,500           --
Deferred income taxes..............................        --            112
Subordinated notes payable to Principal
 Shareholders......................................      4,193         4,193
                                                      --------       -------
    Total liabilities..............................     90,818        65,195
                                                      --------       -------
Minority interest..................................        --            --
                                                      --------       -------
Commitments and contingencies......................        --            --
                                                      --------       -------
Shareholders' equity:
  Preferred stock, $0.01 par value, 1,000,000
   shares authorized, none issued or outstanding...        --            --
  Common stock, $0.01 par value, 20,000,000 shares
   authorized, 7,809,125 shares issued and
   outstanding.....................................         78            78
  Additional paid-in capital.......................     26,980        26,977
  Retained earnings (deficit)......................     (6,626)       (1,246)
                                                      --------       -------
    Total shareholders' equity.....................     20,432        25,809
                                                      --------       -------
    Total liabilities and shareholders' equity.....   $111,250       $91,004
                                                      ========       =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3

<PAGE>

                              SUNDANCE HOMES, INC.

         CONSOLIDATED STATEMENTS OF OPERATIONS AS RESTATED FOR THE
                 YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                   Year ended September 30,
                                                  ----------------------------
                                                    1998      1997      1996
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Residential sales................................ $122,906  $108,743  $120,948
Land and building sales..........................    8,650       --        --
                                                  --------  --------  --------
Total sales......................................  131,556   108,743   120,948
Cost of residential sales........................  113,065    97,527   106,011
Cost of land and building sales..................    7,069       --        --
                                                  --------  --------  --------
Total cost of sales..............................  120,134    97,527   106,011
                                                  --------  --------  --------
Gross profit.....................................   11,422    11,216    14,937
Selling expenses.................................   12,227     9,547     7,386
General and administrative expenses..............    4,871     4,301     4,940
Other (income) expenses, net.....................     (196)     (265)     (193)
                                                  --------  --------  --------
Income (loss) before minority and provision
 (benefit) for income taxes......................   (5,480)   (2,367)   (2,804)
Minority interest................................       (3)     (131)      117
                                                  --------  --------  --------
Income (loss) before provision (benefit) for
 income taxes....................................   (5,477)   (2,236)    2,687
Provision (benefit) for income taxes.............      (97)     (895)    1,075
                                                  --------  --------  --------
Net income (loss)................................ $ (5,380) $ (1,341) $  1,612
                                                  ========  ========  ========
Net income (loss) per share (basic and diluted).. $  (0.69) $  (0.17) $   0.21
                                                  ========  ========  ========
Weighted average number of shares outstanding....    7,808     7,807     7,806
                                                  ========  ========  ========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>

                              SUNDANCE HOMES, INC.

  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AS RESTATED
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                    Common Stock  Additional Retained
                                    -------------  Paid-In   Earnings
                                    Shares Amount  Capital   (Deficit)  Total
                                    ------ ------ ---------- --------- -------
<S>                                 <C>    <C>    <C>        <C>       <C>
Balance at September 30, 1995 as
 previously reported............... 7,805   $78    $26,972    $   103  $27,153
  Effect of currently expensing
   deferred project start-up costs
   in the period incurred (see Note
   2)..............................   --     --        --      (1,620)  (1,620)
  Exercise of stock options........     2    --          5        --         5
  Net income.......................   --     --        --       1,612    1,612
                                    -----   ---    -------    -------  -------
Balance at September 30, 1996...... 7,807    78     26,977         95   27,150
  Net loss.........................   --     --        --      (1,341)  (1,341)
                                    -----   ---    -------    -------  -------
Balance at September 30, 1997...... 7,807    78     26,977     (1,246)  25,809
  Exercise of stock options........     2    --          3        --         3
  Net loss.........................   --     --        --      (5,380)  (5,380)
                                    -----   ---    -------    -------  -------
Balance at September 30, 1998...... 7,809   $78    $26,980    $(6,626) $20,432
                                    =====   ===    =======    =======  =======
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                      F-5

<PAGE>

                              SUNDANCE HOMES, INC.

             CONSOLIDATED STATEMENTS OF CASH FLOWS AS RESTATED
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                                  Year ended September 30,
                                                ------------------------------
                                                  1998       1997      1996
                                                ---------  --------  ---------
<S>                                             <C>        <C>       <C>
Operating activities:
  Net income (loss)............................ $  (5,380) $ (1,341) $   1,612
    Adjustments to reconcile net income (loss)
     to net cash provided by (used for)
     operating activities:
     Depreciation and amortization.............     2,636     1,109        848
     Deferred income taxes.....................      (112)    1,402       (210)
     Changes in operating assets and
      liabilities:
      Real estate inventories..................   (22,949)   (4,686)    10,333
      Prepaid expenses and other assets........      (479)     (946)       395
      Income tax receivables...................       565      (565)     1,964
      Accounts payable and accrued construction
       liabilities.............................      (685)      644      6,551
      Other accrued expenses...................       410    (4,206)       866
      Customer deposits........................     1,348       683     (1,216)
                                                ---------  --------  ---------
Net cash provided by (used for) operating
 activities....................................   (24,646)   (7,906)    21,143
                                                ---------  --------  ---------
Investing activities:
  Property and equipment, net..................    (2,687)   (1,878)    (1,292)
  Exercise of stock options....................       --        --          (5)
                                                ---------  --------  ---------
Net cash provided by (used for) investing
 activities....................................    (2,687)   (1,878)    (1,297)
                                                ---------  --------  ---------
Financing activities:
  Borrowings under notes payable...............   141,199   111,275     99,392
  Repayments of notes payable..................  (119,037)  (99,682)  (115,691)
  Borrowings under notes payable to Principal
   Shareholder.................................     5,479       650      1,340
  Repayments of notes payable to Principal
   Shareholder.................................    (2,979)   (2,183)    (4,801)
  Proceeds of stock options exercised..........         3       --         --
  Contributions from minority interest.........       --        --          73
  Distributions to minority interest...........       --       (162)      (345)
                                                ---------  --------  ---------
Net cash provided by (used for) financing
 activities....................................    24,665     9,898    (20,032)
                                                ---------  --------  ---------
Net increase (decrease) in cash and cash
 equivalents...................................    (2,668)      114       (186)
Cash and cash equivalents:
  Beginning of period..........................     4,615     4,501      4,687
                                                ---------  --------  ---------
  End of period................................ $   1,947  $  4,615  $   4,501
                                                =========  ========  =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

                             SUNDANCE HOMES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              SEPTEMBER 30, 1998

Note 1--Summary of Significant Accounting Policies:

 Nature of business

   Sundance Homes, Inc. is engaged in the development of land and construction
of attached and detached single-family homes and urban residential buildings
in the Chicago metropolitan area.

 Principles of consolidation

   The consolidated financial statements include the accounts of Sundance
Homes, Inc., its wholly-owned subsidiaries ("Sundance" or the "Company") and
its investment in a majority-owned limited partnership. All significant
intercompany accounts and transactions have been eliminated in consolidation.

 Revenue recognition

   Residential sales are recognized at closing, when title to the home has
passed to the buyer. Sundance's homes are generally offered for sale in
advance of their construction. To date, most of Sundance's homes have been
sold pursuant to standard sales contracts entered into prior to commencement
of construction. Sundance's standard sales contracts generally require the
customer to make an earnest money deposit. This deposit may range from a
nominal amount for an FHA or VA financed purchase to 5% to 10% of the purchase
price for a buyer using conventional financing.

   Land sales are recognized when Sundance has received an adequate cash down
payment and all other conditions necessary for profit recognition have been
satisfied.

 Real estate inventories and cost of sales

   Real estate inventories are carried at cost and include land, land
development, direct and certain indirect construction costs, interest and real
estate taxes. At the time of revenue recognition, cost of sales is charged
with the actual construction costs incurred and any estimate to complete, plus
an allocation, based upon relative sales value, of the total estimated cost of
land and land development, interest, real estate taxes and any other
capitalizable common costs. Sundance generally provides a one year limited
warranty of workmanship and materials and a two year limited warranty on the
working systems for each of its homes. Accordingly, a warranty reserve, based
on Sundance's historical experience, is provided as residential sales are
closed. This reserve is reduced by the cost of subsequent work performed.

 Interest capitalization

   Interest and related debt issuance costs are capitalized to qualifying real
estate inventories as incurred, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 34, "Capitalization of Interest Cost," and
charged to cost of sales as revenue from residential sales is recognized.

 Property and equipment

   Property and equipment are carried at cost less accumulated depreciation
and are depreciated using straight line and accelerated methods over the
estimated useful lives of the assets, except for model home upgrades and
furnishings, which are amortized as related home sales in a development are
closed. Significant additions and improvements are capitalized, while
expenditures for maintenance and repairs are charged to operations as
incurred. The cost and accumulated depreciation of property and equipment sold
or retired are removed from the respective accounts and the resultant gains or
losses, if any, are included in current operations.

                                      F-7
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Advertising costs

   Sundance attracts initial interest in its projects through a comprehensive
advertising program using media such as newspapers, direct mail,
telemarketing, billboards and, to a lesser extent, radio and television.
Advertising costs, which are expensed as incurred, aggregated approximately
$3.3 million, $3.6 million and $1.9 million during the years ended September
30, 1998, 1997 and 1996, respectively.

 Income taxes

   Deferred income taxes are determined under the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, deferred income taxes arise from temporary differences between the income
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.

 Cash and equivalents

   For purposes of reporting cash flows, Sundance considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.

   Supplemental disclosures of cash flow information are as follows (in
thousands):

<TABLE>
<CAPTION>
                                        Year ended    Year ended    Year ended
                                       September 30, September 30, September 30,
                                           1998          1997          1996
                                       ------------- ------------- -------------
      <S>                              <C>           <C>           <C>
      Cash paid for:
        Interest......................    $6,116        $5,975        $3,536
        Income taxes..................       --             75           --
</TABLE>

 Use of estimates

   The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year
then ended. Actual results could differ from those estimates.

 Reclassification of Results of Operations

   Certain amounts for 1997 and 1996 were reclassified to conform to the 1998
financial presentation.

Note 2--Restatement


   Prior to October 1, 1997, the Company capitalized certain costs incurred
prior to the sale of the initial residence in each development as deferred
project start-up costs on the basis that such costs were required to commence
sales. In the financial statements for the year ended September 30, 1998, as
part of the adoption of Statement of Position (SoP) 98-5, Reporting on the
Costs of Start-Up Activities and Organization Costs, the Company wrote-off
these costs as deferred project start-up costs. However, upon subsequent
review the Company determined to expense such costs in the period incurred and
the financial statements for the years ended September 30, 1998, 1997 and 1996
have been revised accordingly.

                                      F-8
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The effect of this revised reporting is as follows:

<TABLE>
<CAPTION>
                                                         1998     1997     1996
                                                        -------  -------  ------
      <S>                                               <C>      <C>      <C>
      Net income (loss) as previously reported........  $(7,614) $  (350) $1,235
      Effect of currently expensing deferred project
       start-up costs in the period incurred..........    2,234     (991)    377
                                                        -------  -------  ------
      Net income (loss) as restated...................  $(5,380) $(1,341) $1,612
                                                        =======  =======  ======
      Per share amounts:
       Earnings (loss) per share--basic and diluted:
        Net income (loss) as previously reported......  $ (0.98) $ (0.04) $ 0.16
        Effect of currently expensing deferred project
         start-up costs in the period incurred........     0.29    (0.13)   0.05
                                                        -------  -------  ------
        Net income (loss) per share--basic and diluted
         as restated..................................  $ (0.69) $ (0.17) $ 0.21
                                                        =======  =======  ======
</TABLE>

Note 3--Real Estate Inventories:

   Real estate inventories are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     September 30, September 30,
                                                         1998          1997
                                                     ------------- -------------
      <S>                                            <C>           <C>
      Work-in-process:
        Land and land development...................   $ 41,696       $33,683
        Suburban inventory..........................     12,545        10,249
        Urban construction inventory................     30,983        19,482
      Completed homes:
        Models......................................      2,040         6,668
        Speculative homes...........................      3,590           912
      Capitalized overhead..........................      4,225         3,146
      Capitalized interest..........................      7,009         6,647
                                                       --------       -------
                                                       $102,088       $80,787
                                                       ========       =======
</TABLE>

   Completed homes include models constructed to help market a development and
include allocations of land, development and other common costs. Speculative
homes represent non-model homes that are substantially complete and are not
subject to a sales contract. During the year ended September 30, 1998,
Sundance entered into a sale leaseback agreement with a third party. Sales
revenue derived from the 31 units sold subject to this agreement totaled $5.5
million. Annual lease payments due under the leaseback provisions of the
agreement will be approximately $0.6 million for the year ended September 30,
1999.

   Capitalized interest is included in real estate inventories as follows (in
thousands):

<TABLE>
<CAPTION>
                                      Year ended    Year ended    Year ended
                                     September 30, September 30, September 30,
                                         1998          1997          1996
                                     ------------- ------------- -------------
      <S>                            <C>           <C>           <C>
      Interest capitalized,
       beginning of period..........    $ 6,647       $ 5,427       $ 5,418
      Interest incurred and
       capitalized..................      6,825         4,534         3,581
      Interest amortized to cost of
       sales........................     (6,463)       (3,314)       (3,572)
                                        -------       -------       -------
      Interest capitalized, end of
       period.......................    $ 7,009       $ 6,647       $ 5,427
                                        =======       =======       =======
</TABLE>

                                      F-9
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Real estate inventories in progress are carried at cost unless facts and
circumstances indicate that the carrying value of the underlying projects may
be impaired. Impairment is determined by comparing the estimated future cash
flows (undiscounted) from an individual project to its carrying value. If such
cash flows are less than the project's carrying value, the carrying value of
the project is written down to its fair value. Completed homes held for sale
are carried at the lower of cost or fair value, less selling costs, and are
evaluated on a project basis. Cost includes capitalized costs, such as
interest and construction related overhead and salaries, which are allocated
proportionately to projects being developed.

   Fair value represents the expected selling price a property will bring in
the open market reduced by (a) the estimated cost to complete and improve such
property to the condition expected in determining the selling price, (b)
disposition costs, and (c) estimated costs to hold the property to the point
of sale, including interest carrying costs and other net cash flow
requirements of the project. During the year ended September 30, 1998,
Sundance recorded valuation reserves totaling $850,000.

Note 4--Property and Equipment:

   Property and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     September 30, September 30,
                                                         1998          1997
                                                     ------------- -------------
      <S>                                            <C>           <C>
      Model home upgrades and furnishings...........    $ 8,047       $4,307
      Equipment and furniture.......................      3,028        3,147
      Vehicles......................................        270          379
      Leasehold improvements........................        476           52
                                                        -------       ------
                                                         11,821        7,885
      Accumulated depreciation......................      6,833        4,596
                                                        -------       ------
                                                        $ 4,988       $3,289
                                                        =======       ======
</TABLE>

Note 5--Notes and Mortgages Payable:

   Notes and mortgages payable are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     September 30, September 30,
                                                         1998          1997
                                                     ------------- -------------
      <S>                                            <C>           <C>
      Revolving line of credit......................    $53,682       $30,818
      Notes payable to land sellers.................      1,567         2,269
                                                        -------       -------
                                                        $55,249       $33,087
                                                        =======       =======
</TABLE>

   On April 30, 1998, Sundance entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
the "Lenders"), which replaced Sundance's previous credit loan agreement which
had provided for a $60 million line of credit. The three banks participate in
the $80 million facility as follows: LaSalle National Bank, $35 million;
American National Bank and Trust Company of Chicago, $25 million; and
BankBoston, NA, $20 million. The borrowings are secured by the real estate
assets of Sundance with certain exceptions. Borrowings under the Loan
Agreement bear interest at LIBOR plus 300 basis points for borrowings up to
$70 million and prime plus 0.75% for borrowings in excess of $70 million, plus
certain customary fees. The Loan Agreement was originally scheduled to mature
on February 1, 2000. Available borrowings under the Loan Agreement are reduced
by the amount of letters of credit outstanding. The Loan Agreement includes
certain customary representations and covenants, including restrictions on
Sundance's ability

                                     F-10
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to pay dividends and maintenance of certain financial ratios. As of September
30, 1998, Sundance had violated certain covenants as set forth in the Loan
Agreement, including certain financial covenants, specifically those related
to net worth and net income. On December 1, 1998, Sundance's Lenders declared
a "default" under the Loan Agreement and the outstanding balance of the loan
is due and payable, subject to the satisfactory modification of the Loan
Agreement. Sundance and its Lenders are currently negotiating a Forbearance
and Loan Modification Agreement (the "Forbearance Agreement").

   Following the successful execution of the Forbearance Agreement, Sundance
intends to replace the existing credit line at more favorable rates and terms.
There can be no assurance though, that Sundance will be able to enter into the
Forbearance Agreement on the terms described above or replace the existing
credit line on a timely basis or at all. Failure by Sundance to cure the
defaults, successfully negotiate the Forbearance Agreement or negotiate
replacement financing on a timely basis could have a material adverse effect
on Sundance's operations. As of September 30, 1998, Sundance had borrowed
$53.7 million under the Loan Agreement and had $4.1 million outstanding
letters of credit, leaving $22.2 million available for future borrowings. The
Loan Agreement was originally scheduled to mature on February 1, 2000, which
date may be modified in the Forbearance Agreement.

   While Sundance was securing its Loan Agreement, Sundance entered into
certain interim financing arrangements to provide funding for certain projects
that were not provided for under Sundance's prior credit agreement.

   On March 16, 1998, Sundance entered into a $15 million Construction Loan
Agreement with LaSalle National Bank with a maturity date of February 20,
1999, at a rate of Prime plus 1.0%. Advances under this loan totaled
$4,931,562 and were used to provide construction funds for Sundance's Erie
Tower Project located at 375 West Erie Street, Chicago, Illinois. Concurrent
with the funding of the Loan Agreement on May 12, 1998, this Construction Loan
Agreement was repaid in full.

   On March 17, 1998, Sundance entered into an interim financing agreement
with Cohen Financial Corporation in the amount of $1.6 million at a rate of
prime plus 1.0% with a maturity date of October 1, 1998. This promissory note
was secured by a mortgage on the property located at 3228-3244 North Halsted
Street, Chicago, Illinois. Concurrent with the funding of the Loan Agreement
on May 12, 1998, this note was repaid in full.

   Sundance entered into interim financing agreements with the Principal
Shareholder as described in Note 6.

   Notes payable to land sellers are non-interest bearing and are repaid
through application of agreed upon amounts from the proceeds of individual
home sale closings.

   Scheduled maturities of notes and mortgages payable in future periods are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    Year ending
                                                                   September 30,
                                                                   -------------
      <S>                                                          <C>
      1999........................................................   $    777
      2000........................................................     53,994
      2001........................................................        313
      2002........................................................        165
                                                                     --------
                                                                     $ 55,249
                                                                     ========
</TABLE>

   Interest and related debt issuance costs incurred, all of which were
capitalized, during the year ended September 30, 1998, 1997 and 1996,
aggregated approximately $6.8 million, $4.5 million and $3.5 million,
respectively.

                                     F-11
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 6--Subordinated Notes and Notes Payable to Principal Shareholder:

 Secured Note Payable

   On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of
Sundance, entered into a $2.5 million Secured Subordinated Promissory Note
with a maturity date of June 30, 1999, and an interest rate of 20% with
Maurice Sanderman, Sundance's Chairman and President. The note is secured by a
junior mortgage on the property commonly known as Erie Tower located at 421
West Erie Street in Chicago, Illinois. Principal payments under this note may
only be paid out of net sales proceeds from the sale of units within Erie
Tower only after all advances made under the New Loan Agreement related to the
Erie Tower project have been repaid.

 Unsecured Notes Payable

   On February 24, 1998, Sundance borrowed $487,000 on an unsecured basis from
Maurice Sanderman. The unsecured note was at a prime rate plus 3.0% with a
maturity date of October 1, 1998. These funds were used to pay property taxes
for 1996 and 1997 that became due on a building owned by Sundance at 201 North
Wells, Chicago, Illinois. The payment of these taxes was not provided for
under the terms of the prior credit agreement. This loan was repaid on June
30, 1998 concurrently with the closing of the sale of the building.

   On March 17, 1998, in order to acquire the property located at 3228-3244
North Halsted, Chicago, Illinois, Sundance borrowed $890,000 on an unsecured
basis from Maurice Sanderman. The unsecured note was at a rate of prime plus
3.0% with an expiration date of October 1, 1998. The purchase of this property
was not provided for under the terms of the prior credit agreement. Concurrent
with the funding of the Loan Agreement, on May 12, 1998, this note was repaid
in full.

   On May 26, 1998 Sundance borrowed $1,602,241 on an unsecured basis from
Maurice Sanderman. The unsecured note was at a rate of prime plus 3.0% with a
maturity date of October 1, 1998. These funds were used to pay property taxes
for 1990, 1991 and 1992, which became due through a court settlement on a
building owned by Sundance at 201 N. Wells, Chicago, Illinois. The payment of
these taxes were not provided for under the terms of the Loan Agreement. This
loan was repaid in full concurrent with the closing of the sale of the
building on June 30, 1998.

   Prior to Sundance completing the public offering on July 9, 1993, Sundance
was recapitalized and reorganized into a parent-subsidiary structure, thereby
terminating its S Corporation status. Sundance declared aggregate
distributions of S Corporation earnings to its Principal Shareholder in an
aggregate amount such that beginning shareholders' equity as a C Corporation
would be $5 million.

   During the twelve months ended December 31, 1993, such distributions
aggregated $9.1 million, of which $4.9 million was paid out of available cash,
while the remaining $4.2 million was paid in the form of promissory notes,
which are subordinate to Sundance's bank indebtedness, bear interest at 7.50%
that compounds daily and originally matured in two equal annual installments
on the first and second anniversaries of the offering. On April 30, 1998, the
maturity date of the notes was extended to February 1, 2000. Payment of the
annual installments is subject to certain restrictions under Sundance's
Revolving Credit Loan Agreement (see Note 5--Notes and Mortgages Payable).

                                     F-12
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 7--Income Taxes:

   The provision (benefit) for income taxes was as follows (in thousands):

<TABLE>
<CAPTION>
                                        Year Ended    Year Ended    Year Ended
                                       September 30, September 30, September 30,
                                           1998          1997          1996
                                       ------------- ------------- -------------
      <S>                              <C>           <C>           <C>
      Current
        Federal.......................    $   --         $ --         $  105
        State.........................        --           --             35
                                          -------        -----        ------
                                              --           --            140
                                          -------        -----        ------
      Deferred
        Federal.......................     (1,842)        (761)          770
        State.........................       (348)        (134)          165
                                          -------        -----        ------
                                           (2,190)        (895)          935
                                          -------        -----        ------
      Valuation allowance.............      2,093          --            --
                                          -------        -----        ------
      Total...........................    $   (97)       $(895)       $1,075
                                          =======        =====        ======
</TABLE>


   Reconciliations of the statutory Federal income tax rate of 34% to the
effective income tax rate are as follows (in thousands):

<TABLE>
<CAPTION>
                                      Year Ended    Year Ended    Year Ended
                                     September 30, September 30, September 30,
                                         1998          1997          1996
                                     ------------- ------------- -------------
      <S>                            <C>           <C>           <C>
      Income taxes at the Federal
       statutory rate...............    $(1,852)       $(788)       $  913
      State income taxes, net of
       Federal benefit..............       (338)        (102)          188
      Other.........................        --            (5)          (26)
      Valuation allowance...........      2,093          --            --
                                        -------        -----        ------
          Total.....................    $   (97)       $(895)       $1,075
                                        =======        =====        ======
</TABLE>

   Sundance's net deferred tax asset is reserved through the establishment of
a tax valuation allowance. The valuation allowance of $2.1 million was
recorded upon consideration of the recent operating results and related
uncertainty associated with realization of the tax benefit of the net
operating loss carryforward, which is ultimately dependent upon the generation
of future earnings of Sundance.

   The consolidated balance sheets included the following net deferred tax
(assets) or net deferred tax liabilities:

<TABLE>
<CAPTION>
                                      September 30, September 30, September 30,
                                          1998          1997          1996
                                      ------------- ------------- -------------
      <S>                             <C>           <C>           <C>
      Real estate inventories........    $  342        $1,723        $(1,378)
      Partnership book to tax
       differences...................       --            --             176
      Accrued expenses...............      (359)         (228)          (266)
      Depreciation of property and
       equipment.....................       (85)          117            164
      Tax carry forward items........    (1,991)       (1,500)           --
      Valuation allowance............     2,093           --             --
                                         ------        ------        -------
                                         $  --         $  112        $(1,304)
                                         ======        ======        =======
</TABLE>

   Sundance has entered into a tax indemnification agreement with the
Principal Shareholder of Sundance which provides for, among other things, the
indemnification of the Principal Shareholder for any losses or liabilities
with respect to any additional taxes (including interest, penalties and legal
fees) resulting from Sundance's operations during the period in which it was
an S Corporation.

                                     F-13
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 8--Minority Interest:

   During 1993, one of Sundance's subsidiaries, acting as general partner with
a 75% ownership interest, entered into a limited partnership with a land
seller. Under the terms of this limited partnership agreement, Sundance
purchased the land from the seller for approximately $1.4 million, payable
over the term of the agreement as home sales are closed. This partnership
began closing homes in March, 1994.

   The income (loss) from the limited partnership's operations is allocated to
the general and limited partner based upon their relative ownership interests.
Distributions with respect thereto are paid as outlined in the agreements.

   A reconciliation of the minority interest balance as presented in the
Consolidated Balance Sheets is as follows (in thousands):

<TABLE>
<S>                                                                      <C>
Minority interest in net assets at September 30, 1995................... $ 266
                                                                         -----
Contributions...........................................................    73
Limited partner's interest in 1996 net income of the partnership........   117
Distributions during 1996...............................................  (345)
                                                                         -----
Minority interest in net assets at September 30, 1996................... $ 111
                                                                         -----
Contributions...........................................................   --
Limited partner's interest in 1997 net loss of the partnership..........  (131)
Distributions during 1997...............................................  (162)
                                                                         -----
Minority interest in net assets at September 30, 1997................... $(182)
                                                                         -----
Contributions...........................................................   --
Limited partner's interest in 1998 net loss of the partnership..........    (3)
                                                                         -----
Minority interest in net assets at September 30, 1998................... $(185)
                                                                         =====
</TABLE>

   The balances due from minority interest as of September 30, 1998 and 1997
were reclassified to Prepaid expenses and other assets.

Note 9--Stock Incentive Plan and Directors Options Plan

Stock Incentive Plan

   The Board of Directors and shareholders adopted the Sundance Homes, Inc.
Stock Incentive Plan (the "Stock Incentive Plan") effective as of April 7,
1993. The purpose of the Stock Incentive Plan is to enable officers and key
employees of Sundance to participate in Sundance's future and to enable
Sundance to attract and retain these persons by offering them proprietary
interests in Sundance. The Stock Incentive Plan is administered by Sundance's
compensation committee and authorizes the issuance of up to 525,000 shares of
common stock pursuant to the grant or exercise of stock options, stock
appreciation rights, restricted or deferred stock.

   Prior to the offering in July of 1993, Sundance granted stock options under
the Stock Incentive Plan to certain of its employees who were not previously
shareholders of Sundance to purchase up to 250,000 shares of common stock in
the aggregate for a purchase price per share equal to the initial public
offering price. Options granted to these officers will vest 25% per year on
the anniversary of the grant date for four years and will expire after 10
years.

                                     F-14
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Directors Option Plan

   Outside Directors are granted options by Sundance's compensation committee,
which is authorized to issue of up to 100,000 shares of common stock.
Directors are granted options to acquire 5,000 shares of Common Stock on each
of: (1) the date on which a person is elected as a Director, (2) the date of
the first annual meeting of shareholders held subsequent to such person's
election and, (3) the date of each succeeding annual meeting of shareholders
after which the person is still serving as a director (with a limit of options
to acquire a total of 25,000 shares to be granted to any Outside Director).
All options granted under the Director's Plan are exercisable on the one year
anniversary date of the grant and, at a price per share equal to the closing
price of the Common Stock as reported on the NASDAQ National Market on the
date of the grant or, if the market is closed on such date, the next business
day. Options will expire after ten years.

   Option activity for both plans for the three years ended September 30, 1998
is as follows:

<TABLE>
<CAPTION>
                                1998               1997              1996
                          ------------------ ----------------- -----------------
                                    Weighted          Weighted          Weighted
                                    Average           Average           Average
                           Shares   Exercise Shares   Exercise Shares   Exercise
                          --------  -------- -------  -------- -------  --------
<S>                       <C>       <C>      <C>      <C>      <C>      <C>
Outstanding at beginning
 of year................   400,500   $3.54   250,500   $4.08   146,500   $5.21
  Granted...............   219,000    1.60   187,500    2.67   126,500    2.34
  Exercised.............    (2,125)   1.63       --      --        --      --
  Forfeited.............  (155,625)   3.03   (37,500)   2.83   (22,500)   1.63
                          --------           -------           -------
Outstanding at end of
 year...................   461,750   $2.80   400,500   $3.54   250,000   $4.16
                          ========           =======           =======
Exercisable at end of
 year...................   184,375           147,625            83,750
                          ========           =======           =======
Available for future
 grant at end of year...   163,250           224,500           374,500
                          ========           =======           =======
Weighted average per
 share fair value of
 options granted during
 year...................             $0.77             $1.36             $1.29
</TABLE>

   The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                  1998       1997       1996
                                --------   --------   --------
      <S>                       <C>        <C>        <C>
      Risk free interest rate.      5.77%      6.44%      6.37%
      Dividend yield..........         0%         0%         0%
      Expected lives..........   7 years    7 years    7 years
      Expected volatility.....     34.51%     36.87%     37.30%
</TABLE>

   The following table summarizes information about stock options at September
30, 1998:

<TABLE>
<CAPTION>
      Options Outstanding                            Range           Range
      -------------------                        --------------  -------------
      <S>                                        <C>             <C>
      Range of Exercise Price...................  $7.250-11.250   $1.125-3.625
      Number Outstanding at September 30, 1998..         43,250        418,500
      Weighted Average Remaining Contractual
       Life.....................................      5.3 years      8.4 years
      Weighted Average Exercise Price...........  $        8.74   $       2.19

<CAPTION>
      Options Exercisable
      -------------------
      <S>                                        <C>             <C>
      Number Exercisable at September 30, 1998..         43,250        141,125
      Weighted Average Exercise Price...........  $        8.74   $       7.79
</TABLE>

                                     F-15
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Sundance has applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its Plan; accordingly, no compensation costs
have been recognized. Had compensation costs for Sundance's Plan been
determined based on the fair value at the grant date for the options granted
in 1998, 1997, and 1996 in accordance with the method required by Statement of
Financial Accounting Standards No. 123, Sundance's net income per share would
have been reduced to the pro forma amounts as follows:

<TABLE>
<CAPTION>
                                                       1998     1997     1996
                                                      -------  -------  ------
<S>                                                   <C>      <C>      <C>
Net income (loss) available to common shareholders
  As reported (restated--Note 2)..................... $(5,380) $(1,341) $1,612
  Pro forma.......................................... $(5,457) $(1,419) $1,598
Per share net income (loss) available to common
 shareholders
  As reported basic and diluted (restated--Note 2)... $ (0.69) $ (0.17) $ 0.21
  Pro forma basic and diluted........................ $ (0.70) $ (0.18) $ 0.20
</TABLE>

 Earnings Per Share

   The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128. As required by this statement the
Company has adopted the new standards for computing and presenting earnings
per share for 1998, and for all prior period earnings per share data
presented. The following is the reconciliation of the numerators and
denominators of the basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                              1998         1997         1996
                                           -----------  -----------  ----------
<S>                                        <C>          <C>          <C>
Numerators:
  Net (loss) income--for basic and diluted
   EPS (restated--Note 2)................. $(5,380,000) $(1,341,000) $1,612,000
                                           ===========  ===========  ==========
Denominators:
  Weighted average common shares--for
   basic EPS..............................   7,808,000    7,809,000   7,806,000
  Common shares from options..............      16,879       18,892       3,992
                                           -----------  -----------  ----------
  Weighted average common shares--for
   diluted EPS............................   7,824,879    7,827,892   7,809,992
                                           ===========  ===========  ==========
</TABLE>

   In years where net losses are incurred, diluted weighted average common
shares are not used in the calculation of diluted EPS as it would have an
anti-dilutive effect on EPS. In addition, options to purchase 375,750, 235,000
and 186,000 weighted average shares of common stock during 1998, 1997 and
1996, respectively, were not included in the diluted EPS as the options'
exercise prices were greater than the average market price.

Note 10--Employee Benefit Plan:

   Sundance maintains a contributory profit sharing plan established pursuant
to the provisions of Section 401(k) of the Internal Revenue Code which
provides retirement benefits for eligible employees of Sundance and its
subsidiaries. Sundance may make annual discretionary contributions to the
plan. There were no discretionary contributions during the years ended
September 30, 1998, 1997 and 1996.

Note 11--Commitments and Contingencies:

   Sundance is frequently required, in connection with the development of its
projects, to obtain performance or other maintenance bonds or letters of
credit in lieu thereof. The amount of such obligations outstanding at any time
varies in connection with Sundance's pending development activities. In the
event any such obligations are drawn upon, Sundance would be obligated to
reimburse the issuing surety company or bank. At September 30, 1998, there
were approximately $10.6 million in performance or maintenance bonds and
approximately $4.1 million of letters of credit outstanding for such purposes.
There have been no such draws during the years ended September 30, 1998 and
1997.

                                     F-16
<PAGE>

                             SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Sundance currently leases 15,500 square feet of office space in Schaumburg,
Illinois where its Suburban Properties Division is located. Sundance also
leases approximately 3,000 square feet of office space in Chicago, Illinois,
where the Chicago Urban Properties Division is located. Certain equipment is
also currently leased under non-cancelable operating leases. Rent expense
under such leases aggregated $480,000, $436,000 and $380,000 during the years
ended September 30, 1998, 1997 and 1996, respectively. As discussed in Note 3
to the financial statements, Sundance sold certain model homes to an unrelated
third party and is leasing them back from the buyer. Rent expense under the
sale leaseback agreement was $153,000 during the year ended September 30,
1998.

   Additionally, Sundance is involved in various routine legal proceedings
which Sundance believes to be incidental to the conduct of its business.
Specifically, In November, 1994, a lawsuit was brought against Sundance and
certain directors and employees of Sundance by the Board of Managers of
Parkside on the Green Condominium Association. The complaint seeks damages
against Sundance for alleged construction defects in the approximate amount of
$4.8 million, together with punitive damages against the named individuals for
alleged breach of fiduciary duty. Sundance has assumed the defense of this
lawsuit on behalf of the individual defendants. The lawsuit is in the
discovery process and various inspections of the project are underway.
Sundance is defending the lawsuit vigorously. Management believes that none of
these legal proceedings will have a material adverse impact on the financial
condition or results of operations of Sundance.

Note 12--Quarterly Results of Operation (unaudited):

   The following table reflects the results of operations for Sundance during
the four quarters of 1998 and 1997. Certain of the quarterly information has
been restated, as described below (dollars in thousands, except unit and per
share data):

<TABLE>
<CAPTION>
                                                      Quarter Ended
                                             -----------------------------------
                                             12/31/97  3/31/98  6/30/98  9/30/98
                                             --------  -------  -------  -------
<S>                                          <C>       <C>      <C>      <C>
Fiscal 1998
Number of home sales closed................      107       137      186      222
Total sales, as reported...................  $19,633   $25,244  $42,117      n/a
  Parking unit sales (1)...................     (213)     (185)    (148)     n/a
                                             -------   -------  -------  -------
Total sales, as restated...................  $19,420   $25,059  $41,969  $45,108
                                             =======   =======  =======  =======
Gross profit, as reported..................  $ 2,563   $ 2,450  $ 4,578      n/a
  Parking unit sales (1)...................      (81)      (77)     (51)     n/a
  Change in construction costs (2).........   (1,038)     (620)    (616)     n/a
                                             -------   -------  -------  -------
Gross profit, as restated..................  $ 1,444   $ 1,753  $ 3,911  $ 4,314
                                             =======   =======  =======  =======
Income (loss) before minority interest and
 provision for income taxes, as reported...  $  (221)  $(1,144) $ 1,026      n/a
  Parking unit sales (1)...................      (81)      (77)     (51)     n/a
  Change in construction costs (2).........   (1,038)     (620)    (616)     n/a
                                             -------   -------  -------  -------
Income (loss) before minority interest and
 provision for income taxes, as restated...  $(1,340)  $(1,841) $   359  $(2,655)
                                             =======   =======  =======  =======
Net income (loss), as restated.............  $  (804)  $(1,105) $   215  $(3,686)
                                             =======   =======  =======  =======
Net income (loss) per share, as reported
 (basic and diluted).......................  $ (0.02)  $ (0.07) $  0.08      n/a
Income (loss) per share, as restated (basic
 and diluted)..............................  $ (0.10)  $ (0.14) $  0.03  $ (0.47)
</TABLE>
--------
(1) Reversal of parking unit closings because the transfer of legal title was
    incomplete.
(2) To reflect changes in construction costs that were not recognized on a
    timely basis.

                                     F-17
<PAGE>

                              SUNDANCE HOMES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                      Quarter Ended
                                             -----------------------------------
                                             12/31/96  3/31/97  6/30/97  9/30/97
                                             --------  -------  -------  -------
<S>                                          <C>       <C>      <C>      <C>
Fiscal 1997+
Number of home sales closed.................     131        91      140      274
Sales....................................... $22,712   $15,131  $23,739  $47,161
                                             =======   =======  =======  =======
Gross profit as reported.................... $ 1,837   $   695  $ 2,876  $ 7,460
Effect of currently expensing deferred
 project start-up costs in the period
 incurred (Note 2)..........................    (290)     (842)    (707)     187
                                             -------   -------  -------  -------
Gross profit (loss), as restated............ $ 1,547   $  (147) $ 2,169  $ 7,647
                                             =======   =======  =======  =======
Income (loss) before minority interest and
 provision (benefit) for income taxes as
 reported................................... $  (943)  $(2,664)      33  $ 2,859
Effect of currently expensing deferred
 project start-up costs in the period
 incurred (Note 2)..........................    (290)     (842)    (707)     187
                                             -------   -------  -------  -------
Income (loss) before minority interest and
 provision (benefit) for income taxes, as
 restated................................... $(1,233)  $(3,506) $  (674) $ 3,046
                                             =======   =======  =======  =======
Net income (loss) as reported .............. $  (575)  $(1,604) $    22  $ 1,807
Effect of currently expensing deferred
 project start-up costs in the period
 incurred (Note 2)..........................    (174)     (505)    (424)     112
                                             -------   -------  -------  -------
Net income (loss), as restated.............. $  (749)  $(2,109) $  (402) $ 1,919
                                             =======   =======  =======  =======
Net income (loss) per share (basic and
 diluted) as reported....................... $ (0.07)  $ (0.21) $ (0.00) $  0.23
Effect of currently expensing deferred
 project start-up costs in the period
 incurred (Note 2)..........................   (0.02)    (0.06)   (0.05)    0.01
                                             -------   -------  -------  -------
Net income (loss) per share (basic and
 diluted), as restated...................... $ (0.09)  $ (0.27) $ (0.05) $  0.24
                                             =======   =======  =======  =======
</TABLE>
--------
   +Quarterly Results of Operations have been reclassified to conform to the
   1998 financial presentation.

                                     F-18