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**UNITED STATES  SECURITIES AND EXCHANGE COMMISSION**  Washington, D.C. 20549

**FORM 10-Q**

(Mark One)

|  | QUARTERLY REPORT PURSUANT          TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
|--|--------------------------------------------------------------------------------------------------------|

**For the quarterly period ended      September** **30, 2004**

OR

|  | TRANSITION REPORT PURSUANT          TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934.        FOR THE TRANSITION PERIOD__________ TO __________. |
|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Commission File No. 1-6830

**ORLEANS HOMEBUILDERS, INC.**(Exact name of registrant as specified  in its charter)

| Delaware                                 | 59-0874323                 |
|------------------------------------------|----------------------------|
| (State          or other jurisdiction of | (I.R.S. Employer I.D. No.) |
| incorporation          or organization)  |                       |

One Greenwood Square, Suite 101  3333 Street Road  Bensalem, PA 19020  (Address of principal executive offices)  Telephone: (215) 245-7500  (Registrant’s telephone number, including area code)

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     No 

Indicate by check mark whether the    registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange    Act). Yes     No 

Number of shares of common stock,    par value $0.10 per share, outstanding as of  November 1, 2004: 18,031,463  (excluding 576,330 shares held in Treasury).

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**ORLEANS HOMEBUILDERS, INC. AND      SUBSIDIARIES**

|                                       |                                                                                                                    | **PAGE** |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|----------|
|                                       |                                                                                                                    |          |
| **PART 1 — FINANCIAL    INFORMATION** |
|                                       |                                                                                                                    |     |
| Item          1.                           | Financial Statements (unaudited)                                                                                        |     |
|                                       |                                                                                                                    |     |
|                                       | Consolidated        Balance Sheets at September 30, 2004 and June 30, 2004                                    | 1        |
|                                       |                                                                                                                    |     |
|                                       | Consolidated          Statements of Operations for the Three Months Ended September 30,        2004 and 2003       | 2        |
|                                       |                                                                                                                    |     |
|                                       | Consolidated          Statements of Shareholders’ Equity for the Three Months Ended September 30,        2004 | 3        |
|                                       |                                                                                                                    |     |
|                                       | Consolidated          Statements of Cash Flows for the Three Months Ended September 30,        2004 and 2003       | 4        |
|                                       |                                                                                                                    |     |
|                                       | Notes to Consolidated Financial        Statements                                                                       | 5        |
|                                       |                                                                                                                    |     |
| Item          2.                           | Management’s        Discussion and Analysis of Financial Condition and Results of Operations                       | 13       |
|                                       |                                                                                                                    |     |
| Item          3.                           | Quantitative and Qualitative        Disclosures About Market Risk                                                       | 29       |
|                                       |                                                                                                                    |     |
| Item          4.                           | Controls and Procedures                                                                                                 | 29       |
|                                       |                                                                                                                    |     |
| **PART II — OTHER    INFORMATION**    |
|                                       |                                                                                                                    |     |
| Item          6.                           | Exhibits                                                                                                                | 30       |

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**Orleans Homebuilders, Inc. and      Subsidiaries****Consolidated Balance Sheets****(Unaudited)****(in thousands)**

|                                                                                                                 |   | **September** **30,****2004** |    | **June** **30,****2004** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|-------------------------------|--------|
|                                                                                                                 |   |                                    |         |                          |        |  |   |
| Assets:                                                                                                              |   |                               |    |                          |   |   |   |
| Cash          and cash equivalents                                                                                   |   | $                                  | 15,491  |                          | $      | 32,962 |   |
| Restricted          cash — customer deposits                                                                    |   |                               | 22,664  |                          |   | 17,795 |   |
| Real          estate held for development and sale:                                                                  |   |                               |    |                          |   |   |   |
| Residential properties          completed or under construction                                                      |   |                               | 215,906 |                          |   | 140,401 |   |
| Land held for          development or sale and improvements                                                          |   |                               | 288,817 |                          |   | 161,265 |   |
| Inventory not          owned — Variable Interest Entities                                                       |   |                               | 107,025 |                          |   | 88,995 |   |
| Property          and equipment, at cost, less accumulated depreciation                                              |   |                               | 3,277   |                          |   | 3,163 |   |
| Deferred          taxes                                                                                              |   |                               | 2,542   |                          |   | 2,453 |   |
| Goodwill          and other intangible assets                                                                        |   |                               | 20,307  |                          |   | 7,187 |   |
| Receivables,          deferred charges and other assets                                                              |   |                               | 10,388  |                          |   | 9,025 |   |
| Land          deposits and costs of future development                                                               |   |                               | 31,941  |                          |   | 23,356 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
| Total Assets                                                                                                         |   | $                                  | 718,358 |                          | $      | 486,602 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
|                                                                                                                 |   |                               |    |                          |   |   |   |
| Liabilities          and Shareholders’ Equity                                                                   |   |                               |    |                          |   |   |   |
| Liabilities:                                                                                                         |   |                               |    |                          |   |   |   |
| Accounts          payable                                                                                            |   | $                                  | 34,196  |                          | $      | 26,246 |   |
| Accrued          expenses                                                                                            |   |                               | 42,876  |                          |   | 46,981 |   |
| Customer          deposits                                                                                           |   |                               | 33,466  |                          |   | 22,620 |   |
| Obligations          related to inventory not owned                                                                  |   |                               | 97,491  |                          |   | 81,992 |   |
| Mortgage          and other note obligations primarily secured by real estate held for          development and sale |   |                               | 210,124 |                          |   | 128,773 |   |
| Unsecured          line of credit                                                                                    |   |                               | 103,448 |                          |   | — |   |
| Notes          payable and amounts due to related parties                                                            |   |                               | 7,868   |                          |   | 2,879 |   |
| Other          notes payable                                                                                         |   |                               | 4,685   |                          |   | 1,139 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
| Total Liabilities                                                                                                    |   |                               | 534,154 |                          |   | 310,630 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
|                                                                                                                 |   |                               |    |                          |   |   |   |
| Commitments          and contingencies (See Note I)                                                                  |   |                               |    |                          |   |   |   |
|                                                                                                                 |   |                               |    |                          |   |   |   |
| Redeemable          common stock                                                                                     |   |                               | 1,067   |                          |   | 1,067 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
|                                                                                                                 |   |                               |    |                          |   |   |   |
| Shareholders’ Equity:                                                                                           |   |                               |    |                          |   |   |   |
| Common          stock, $.10 par, 20,000,000 shares authorized, 18,031,463 shares issued                              |   |                               | 1,803   |                          |   | 1,803 |   |
| Capital          in excess of par value — common stock                                                          |   |                               | 68,584  |                          |   | 68,554 |   |
| Retained          earnings                                                                                           |   |                               | 113,766 |                          |   | 105,564 |   |
| Treasury          stock, at cost (576,330 shares held)                                                               |   |                               | (1,016  | )                             |   | (1,016 | ) |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
| Total          Shareholders’ Equity                                                                             |   |                               | 183,137 |                          |   | 174,905 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |
| Total          Liabilities and Shareholders’ Equity                                                             |   | $                                  | 718,358 |                          | $      | 486,602 |   |
|                                                                                                                 |   |                                    |         |                          |        |  |   |

See accompanying notes which are    an integral part of the consolidated financial statements.

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**Orleans Homebuilders, Inc. and Subsidiaries****Consolidated Statements of Operations****and Changes in Retained Earnings****(Unaudited)****(in thousands, except per share amounts)**

|                                         |   | **Three Months Ended****September** **30,** |    |
|----------------------------------------------|--------|--------------------------------------------------|---------|
|                                         |   | **2004**                                         |    | **2003** |   |
|                                         |   |                                                  |         |   |  |  |   |
| Earned revenues                              |   |                                             |    |   |   |   |   |
| Residential properties                       |   | $                                                | 138,312 |   | $ | 98,383 |   |
| Land sales                                   |   |                                             | 49      |   |   | 457 |   |
| Other income                                 |   |                                             | 1,801   |   |   | 1,595 |   |
|                                         |   |                                                  |         |   |  |  |   |
|                                         |   |                                             | 140,162 |   |   | 100,435 |   |
|                                         |   |                                                  |         |   |  |  |   |
| Costs and expenses                           |   |                                             |    |   |   |   |   |
| Residential properties                       |   |                                             | 109,591 |   |   | 74,809 |   |
| Land sales                                   |   |                                             | 48      |   |   | 490 |   |
| Other                                        |   |                                             | 937     |   |   | 1,223 |   |
| Selling, general and administrative          |   |                                             | 16,095  |   |   | 11,448 |   |
| Interest                                     |   |                                             |    |   |   |   |   |
| Incurred                                     |   |                                             | 2,730   |   |   | 1,814 |   |
| Less capitalized                             |   |                                             | (2,716  | ) |   | (1,742 | ) |
|                                         |   |                                                  |         |   |  |  |   |
|                                         |   |                                             | 126,685 |   |   | 88,042 |   |
|                                         |   |                                                  |         |   |  |  |   |
| Income from operations before income taxes   |   |                                             | 13,477  |   |   | 12,393 |   |
| Income tax expense                           |   |                                             | 5,275   |   |   | 4,875 |   |
|                                         |   |                                                  |         |   |  |  |   |
| Net income                                   |   | $                                                | 8,202   |   | $ | 7,518 |   |
|                                         |   |                                                  |         |   |  |  |   |
|                                         |   |                                             |    |   |   |   |   |
| Net income                                   |   |                                             | 8,202   |   |   | 7,518 |   |
| Preferred dividends                          |   |                                             | —  |   |   | 53 |   |
|                                         |   |                                                  |         |   |  |  |   |
| Net income available for common shareholders |   | $                                                | 8,202   |   | $ | 7,465 |   |
|                                         |   |                                                  |         |   |  |  |   |
|                                         |   |                                             |    |   |   |   |   |
| Basic earnings per share                     |   | $                                                | 0.47    |   | $ | 0.58 |   |
|                                         |   |                                                  |         |   |  |  |   |
|                                         |   |                                             |    |   |   |   |   |
| Diluted earnings per share                   |   | $                                                | 0.44    |   | $ | 0.45 |   |
|                                         |   |                                                  |         |   |  |  |   |

See accompanying notes which are an integral part of the consolidated financial statements.

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**Orleans Homebuilders, Inc. and Subsidiaries****Consolidated Statements of Shareholders’ Equity****(Unaudited)****(dollars in thousands)**

|                                      |   | **Common Stock** |       | **Capital in** |   |                 |   |         |   |               |   |       |   |      |    |   |   |
|-------------------------------------------|--------|------------------|------------|----------------|--------|----------------------|--------|--------------|--------|--------------------|--------|------------|--------|-----------|---------|--------|--------|
|                                      |   | **Shares**       |       |           |   | **Excess of**        |   |         |   | **Treasury Stock** |   |       |   |      |
|                                      |   | **Issued and**   |       |           |   | **Par Value –** |   | **Retained** |   | **Share**          |   |       |   |      |    |   |   |
|                                      |   | **Outstanding**  |       | **Amount**     |   | **Common Stock**     |   | **Earnings** |   | **Held**           |   | **Amount** |   | **Total** |    |
|                                      |   |                  |            |           |        |                      |   |              |        |               |        |            |   |           |         |   |        |  |   |  |  |   |
| Balance at June 30, 2004             |   |             | 18,031,463 |           | $      | 1,803                |   | $            | 68,554 |               | $      | 105,564    |   |      | 576,330 |   | $      | (1,016 | ) | $ | 174,905 |   |
| Fair market value of stock options issued |   |             |       |           |   |                 |   |         | 30     |               |   |       |   |      |    |   |   |   |   |   | 30 |   |
| Net income                                |   |             |       |           |   |                 |   |         |   |               |   | 8,202      |   |      |    |   |   |   |   |   | 8,202 |   |
|                                      |   |                  |            |           |        |                      |   |              |        |               |        |            |   |           |         |   |        |  |   |  |  |   |
| Balance at September 30, 2004        |   |             | 18,031,463 |           | $      | 1,803                |   | $            | 68,584 |               | $      | 113,766    |   |      | 576,330 |   | $      | (1,016 | ) | $ | 183,137 |   |
|                                      |   |                  |            |           |        |                      |   |              |        |               |        |            |   |           |         |   |        |  |   |  |  |   |

See accompanying notes which are an integral part of the consolidated financial statements.

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**Orleans Homebuilders, Inc. and Subsidiaries****Consolidated Statements of Cash Flows****(Unaudited)****(in thousands)**

|                                                 |   | **Three Months Ended****September** **30,** |    |
|------------------------------------------------------|--------|--------------------------------------------------|---------|
|                                                 |   | **2004**                                         |    | **2003** |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Cash flows from operating activities:                |   |                                             |    |   |   |   |   |
| Net income                                           |   | $                                                | 8,202   |   | $ | 7,518 |   |
| Adjustments to reconcile net income to net cash      |   |                                             |    |   |   |   |   |
| used in operating activities:                        |   |                                             |    |   |   |   |   |
| Depreciation and amortization                        |   |                                             | 350     |   |   | 131 |   |
| Deferred taxes                                       |   |                                             | (89     | ) |   | — |   |
| Stock based compensation expense                     |   |                                             | 30      |   |   | 27 |   |
| Changes in operating assets and liabilities:         |   |                                             |    |   |   |   |   |
| Restricted cash — customer deposits             |   |                                             | (596    | ) |   | (1,787 | ) |
| Real estate held for development and sale            |   |                                             | (66,225 | ) |   | (14,659 | ) |
| Receivables, deferred charges and other assets       |   |                                             | 115     |   |   | (8,350) |   |
| Land deposits and costs of future developments       |   |                                             | (8,862  | ) |   | 6,631 |   |
| Accounts payable and other liabilities               |   |                                             | (15,214 | ) |   | (5,924 | ) |
| Customer deposits                                    |   |                                             | 2,280   |   |   | 1,984 |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Net cash used in operating activities                |   |                                             | (80,009 | ) |   | (14,429 | ) |
|                                                 |   |                                                  |         |   |  |  |   |
| Cash flows from investing activities:                |   |                                             |    |   |   |   |   |
| Purchases of property and equipment                  |   |                                             | (195    | ) |   | (57 | ) |
| Acquisitions, net of cash acquired                   |   |                                             | (56,848 | ) |   | (4,932 | ) |
|                                                 |   |                                                  |         |   |  |  |   |
| Net cash used in investing activities                |   |                                             | (57,043 | ) |   | (4,989 | ) |
|                                                 |   |                                                  |         |   |  |  |   |
| Cash flows from financing activities:                |   |                                             |    |   |   |   |   |
| Borrowings from loans secured by real estate assets  |   |                                             | 70,262  |   |   | 75,073 |   |
| Repayment of loans secured by real estate assets     |   |                                             | (59,195 | ) |   | (58,909 | ) |
| Borrowings from unsecured line of credit             |   |                                             | 103,448 |   |   | — |   |
| Borrowings from other note obligations               |   |                                             | 5,070   |   |   | 5,424 |   |
| Repayment of other note obligations                  |   |                                             | (4      | ) |   | (2,017 | ) |
| Sale of treasury stock                               |   |                                             | —  |   |   | 240 |   |
| Preferred stock dividend                             |   |                                             | —  |   |   | (53 | ) |
|                                                 |   |                                                  |         |   |  |  |   |
| Net cash provided by financing activities            |   |                                             | 119,581 |   |   | 19,758 |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Net increase (decrease) in cash and cash equivalents |   |                                             | (17,471 | ) |   | 340 |   |
| Cash and cash equivalents at beginning of year       |   |                                             | 32,962  |   |   | 8,883 |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Cash and cash equivalents at end of period           |   | $                                                | 15,491  |   | $ | 9,223 |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Supplemental disclosure of cash flow activities:     |   |                                             |    |   |   |   |   |
| Interest paid, net of amounts capitalized            |   | $                                                | 14      |   | $ | 72 |   |
|                                                 |   |                                                  |         |   |  |  |   |
| Income taxes paid                                    |   | $                                                | 9,817   |   | $ | 5,988 |   |
|                                                 |   |                                                  |         |   |  |  |   |

See accompanying notes which are an integral part of the consolidated financial statements.

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**ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

| (A)    | Summary of Significant Accounting Policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | The accompanying unaudited consolidated financial        statements are presented in accordance with the requirements for Form        10-Q and do not include all the disclosures required by generally accepted        accounting principles for complete financial statements. Reference is        made to Form 10-K as of and for the year ended June 30, 2004 for        Orleans Homebuilders, Inc. and subsidiaries (the “Company”)        for additional disclosures, including a summary of the Company’s    accounting policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | On July 28, 2004, the Company acquired        all of the issued and outstanding partnership interests in Realen Homes,        L.P., a Pennsylvania limited partnership (“Realen Homes”).        Unless otherwise indicated, the term the “Company” includes        the accounts of Realen Homes. Realen Homes is engaged in residential        real estate development in Southeastern Pennsylvania and Chicago, Illinois.        The Consolidated Statements of Operations and Changes in Retained Earnings        and the Consolidated Statements of Cash Flows include the accounts of        RealenHomes from July 28, 2004 through September 30, 2004. The ConsolidatedBalance Sheets include the accounts of Realen Homes as of September 30,2004. All material intercompany transactions and accounts have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In the opinion of management, the consolidated        financial statements contain all adjustments, consisting only of normal        recurring accruals, necessary to present fairly the consolidated financial        position of the Company for the periods presented. The interim operating        results of the Company may not be indicative of operating results for    the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Certain prior year amounts have been reclassified    to conform to the fiscal 2005 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Recent accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In January 2003, the FASB issued FASB Interpretation        No. 46 “Consolidation of Variable Interest Entities, an interpretation        of ARB No. 51” (“FIN 46”). The FASB issued a revised FIN        46 in December 2003 which modifies and clarifies various aspects of the        originalinterpretations. A Variable Interest Entity (“VIE”) is created when(i) the equity investment at risk is not sufficient to permit the entity to financeits activities without additional subordinated financial support from other partiesor (ii) equity holders either (a) lack direct or indirect ability to make decisionsabout the entity, (b) are not obligated to absorb expected losses of the entityor (c) do not have the right to receive expected residual returns of the entityif they occur. If an entity is deemed to be a VIE, pursuant to FIN 46, an enterprisethat absorbs a majority of the expected losses of the VIE is considered the primarybeneficiary and must consolidate the VIE. For VIEs created before January 31,2003, FIN 46 was deferred to the end of the first interim or annual period endingafter March 15, 2004. TheCompany fully adopted FIN 46 effective March 31, 2004. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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|   | Based on the provisions of FIN 46, the Company        has concluded that whenever it enters into an option agreement to acquire        land or lots from an entity and pays a significant deposit that is not        unconditionally refundable, a VIE is created under condition (ii) (b)        of the previous paragraph. The Company has been deemed to have provided        subordinated financial support, which refers to variable interests that        will absorb some or all of an entity’s expected theoretical losses        if they occur. For each VIE created the Company will compute expected        losses and residual returns based on the probability of future cash flows        as outlined in FIN 46. If the Company is deemed to be the primary beneficiary        of the VIE it will consolidate the VIE on its balance sheet. The fair        value of the VIEs inventory will be reported as “Inventory Not Owned — Variable    Interest Entities.”                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | At September 30, 2004, the Company consolidated        twenty-three VIEs as a result of its option to purchase land or lots        from the selling entities. The Company paid cash or issued letters of        credit deposits to these twenty-three VIEs totaling $9,121,000 and incurred        additional pre-acquisition costs totaling $2,096,000. The Company’s        deposits and any costs incurred prior to acquisition of the land or lots,        represent our maximum exposure to loss. The fair value of the VIEs inventory        will be reported as “Inventory Not Owned — Variable Interest        Entities.” The Company recorded $107,025,000 in Inventory Not Owned — Variable        Interest Entities as of September 30, 2004. The fair value of the        property to be acquired less cash deposits and pre-acquisition costs,        which totaled $97,491,000 at September 30, 2004, was reported on        the balance sheet as “Obligations related to inventory not owned.” Creditors,    if any, of these VIEs have no recourse against the Company. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company will continue to secure land        and lots using options. Including the deposits and other costs capitalized        in connection with the VIEs above, the Company had total costs incurred        to acquire land and lots at September 30, 2004 of approximately        $29,909,000, including $20,078,000 of cash deposits. The total purchase        price under these cancelable contracts or options is approximately $521,972,000.        The maximum exposure to loss is limited to the deposits, although some        deposits are refundable, and costs incurred prior to the acquisition    of the land or lots.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In May 2003, the FASB issued Statement of        Financial Accounting Standards No. 150 “Accounting for Certain Financial        Instruments With Characteristics of Both Liabilities and Equity” (“SFAS        No. 150”). This standard requires issuers to classify as liabilities        the following three types of freestanding financial instruments: (1)        mandatory redeemable financial instruments, (2) obligations to repurchase        the issuer’s equity shares by transferring assets; and (3) certain        obligations to issue a variable number of shares. The Company adopted        SFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150        did not have a material impact on the financial position or results of    operations of the Company.                                                                                                                                                                                                                                                                                                               |

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|   | In December 2003, the SEC issued Staff Accounting        Bulletin No. 104 (“SAB 104”), “Revenue Recognition” which        supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB        104’s primary purpose is to rescind the accounting guidance contained        in SAB 101 related to multiple element revenue arrangements, superseded        as a result of the issuance of EITF 00-21. The Company adopted the provisions        of this statement immediately, as required, and it did not have a significant        impact on the Company’s Consolidated FinancialStatements.                                                                                                                                                                                                                                                                              |
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|   | EITF 00-21, “Accounting for Revenue        Arrangements with Multiple Deliverables,” issued during the third        quarter of 2003, provides guidance on revenue recognition for revenues        derived from a single contract that contain multiple products or services.        EITF 00-21 also provides additional requirements to determine when these        revenues may be recorded separately for accounting purposes. The Company        adopted EITF 00-21 on July 1, 2003, as required, and it did not        have a significant impact on the Company’s Consolidated Financial    Statements.                                                                                                                                                                                                                                                                                              |
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| (B)    | Acquisitions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|   | On July 28, 2004, pursuant to a Purchase        Agreement of the same date, the Company completed its acquisition of        all of the issued and outstanding partnership interests in Realen Homes,        a Pennsylvania limited partnership, from Realen General Partner, LLC,        a Pennsylvania limited liability company, and DB Homes Venture L.P.,        a Pennsylvania limited partnership. The Company acquired the limited        partner’s interest in Realen Homes and a subsidiary of the Company,        RHGP LLC, acquired the general partner’s interest and serves as    the general partner of Realen Homes.                                                                                                                                                                                                                                                                           |
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|   | In accordance with the Purchase Agreement,        the consideration paid by the Company consisted of: (i) $53,348,000 in        cash delivered at closing, (ii) a promissory note of the Company in the        aggregate principal amount of $5 million, payable over a period        of up to two years, with an interest rate of 3% per year and (iii) a        warranty holdback of $1.5 million retained by the Company to be        applied toward the administration of any warranty claims made against        Realen Homes. The purchase price was determined based on Realen Homes’ book        value at June 30, 2004, its management personnel, its profitability,        its backlog and its land position. In addition to the consideration described        above, the Company incurred approximately $311,000 in professional fees    in connection with the acquisition of Realen Homes. |
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|   | The Company evaluated the $5,000,000 3% note        in accordance with APB 21 and determined that it was a below market rate        note. In accordance with APB 21, the Company estimated, based on current        market conditions that the Company would likely have been able to obtain        similar fixed-rate financing from a third party at approximately 150        basis points higher than the note actually obtained. The Company imputed        interest on the note at 4.5% and reduced the carrying value of the note        from $5,000,000 to $4,863,000. The discount of $137,000 will be recorded      as interest expense over the life of the note.                                                                                                                  |
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|   | The acquisition included, subject to specified        exceptions, all assets and liabilities of Realen Homes, including land        owned or under contract, homes under construction but not sold or sold        but not delivered, sales offers and reservations, and model homes and        furnishings. The acquired assets were used by Realen Homes in the homebuilding        business in Pennsylvania and Illinois. The Company intends to continue      to use the acquired assets in the homebuilding business.                                                                                                                                                                                                                                                                    |
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|   | The Company accounted for the acquisition        as a purchase in accordance with SFAS No. 141, “Business Combinations”.        The purchase price was allocated to the fair value of assets and liabilities        acquired with the excess purchase price of approximately $12,723,000        and $500,000 allocated to goodwill and other intangible assets, respectively.        The intangible assets represent the intangible value of the backlog acquired        from Realen Homes. The intangible value of the backlog will be amortized        into cost of sales as the acquired backlog is delivered. The Company        amortized $103,000 of the intangible value of the backlog acquired from      Realen Homes for the three months ended September 30, 2004. |
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|   | If the Realen Homes acquisition occurred        on July 1, 2003, pro forma information for the Company would have      been as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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                                                                                                                                                       |   | **Three Months Ended****September** **30,** |   |
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      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|   | Earned revenues $145,588 $131,905  Income from operations before income taxes  14,602  12,399  Net income  8,863  7,526  Earnings per share:        Basic  0.51  0.59  Diluted  0.47  0.46    On August 9, 2004, the Company entered        into a letter of intent for the acquisition of all of the outstanding        shares of Peachtree Residential Properties, Inc. (“Peachtree”).        Peachtree is engaged in homebuilding business in Atlanta, Georgia and        Charlotte, North Carolina. The Company anticipates completing the Peachtree        acquisition during the second quarter ended December 31, 2004 but      the Company cannot offer any assurance that it will be able to do so.
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(C)Mortgage, Other Note Obligations, and Unsecured Lines of Credit:   The maximum balance outstanding under construction        and inventory loan agreements at any month end during the three months        ended September 30, 2004 was $210,124,000. The average month end        balance during the three months ended September 30, 2004 was $203,502,000.        At September 30, 2004, the Company had approximately $174,071,000,        available to be drawn under existing secured revolving and construction        loans for planned development expenditures. Obligations under residential        property and construction loans amountedto $131,222,000 at September 30, 2004 and are repaid at a predeterminedpercentage (approximately 85% on average) of the selling price of a unit whena sale is completed. The repayment percentage varies from community to communityand over time within the same community. Mortgage obligations secured by landheld for development and sale and improvements aggregating $8,923,000 at September 30,2004 and are due in varying installments through fiscal 2005 with annual interestat variable rates based on 30-day LIBOR or the prime rate of interest plus aspread. Obligations relating to the $70,000,000 secured credit facility assumedfrom Realen Homes described below totaled $69,979,000 at September 30, 2004.The 30-day LIBOR and prime rate of interest at September 30, 2004 were 1.84%and4.75%, per annum, respectively.   On July 28, 2004 the Company obtained        a $120,000,000 unsecured bridge loan to finance the acquisition of Realen        Homes, refinance certain outstanding indebtedness of Realen Homes and        provide the Company with short-term liquidity for land purchases and        residential development and construction site improvements. The unsecured        bridge loan has a maturity date of November 30, 2004. Interest is        payable monthly at 30-day LIBOR plus 225 basis points on the portion        of the outstanding principal balance that does not exceed $60,000,000        and 30-day LIBOR plus 250 basis points on the portion of the outstanding        principal balance that exceeds $60,000,000. The unsecured bridge loan        is included in the balance sheet caption “Unsecured line of credit” and        has an outstanding balance of $103,448,000as of September 30, 2004.   As part of the acquisition Realen Homes,        the Company assumed a $70,000,000 secured credit facility. The facility        bears interest at a rate based upon the agent lender’s prime rate.        The Company at its option, may elect to convert all or a portion of the        outstanding facility to a fixed rate facility at 30-day LIBOR plus 187.5        basis points to 250 basis points per annum (based on certain lender ratios)        in accordance with the lenders pricing formula for certain pre-defined        periods up to 180 days. At September 30, 2004 the Company elected        to allocate $4,800,000 and $65,179,000 of the total outstanding balance        of the facility of $69,979,000 to 30-day LIBOR plus 200 basis points        and prime, respectively. The $4,800,000 balance of the credit facility        allocated to 30-day LIBOR plus 250 basis points will revert back to the        prime rate on November 10, 2004. The secured credit facility is        included in the balance sheet caption “Mortgage and other note obligations    primarily secured by real estate held for development and sale.”
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(D)Redeemable Common Stock:   In connection with the Company’s acquisition        of Parker and Lancaster Corporation on October 13, 2000, the Company        issued 300,000 shares of common stock of the Company to the former shareholders        of Parker and Lancaster Corporation. The former shareholders of Parker        and Lancaster Corporation have the right to cause the Company to repurchase        the common stock approximately five years after the closing of the acquisition        at a price of $3.33 per share. As of March 31, 2004, a former shareholder        of Parker and Lancaster Corporationsold 51,502 shares of the Company’s Common Stock thereby reducing the numberof shares of redeemable common stock in connection with the Parker and LancasterCorporation acquisition to 248,498 shares.   In connection with the Company’s acquisition        of Masterpiece Homes on July 28, 2003 (see Note B), the Company        sold 30,000 shares of common stock of the Company to the president of        Masterpiece Homes at $8 per share. The president of Masterpiece Homes        has the right to cause the Company to repurchase the common stock at        $8 per share by giving notice to the Company no later than the earlier        of December 31, 2006 or 30 days after termination of his employment,    as specified in his employment agreement.  (E)Earnings Per Share:   The weighted average number of shares used        to compute basic earnings per common share and diluted earnings per common        share and a reconciliation of the numerator and denominator used in the        computation for the three months ended September 30, 2004 and 2003    are shown in the following table:     **Three Months Ended****September** **30,**    **2004** **2003**         **(in thousands)**  Total common shares issued  18,031  13,365  Unconditional shares issuable  68  136  Less: Average treasury shares        Outstanding  (576) (706)      Basic EPS shares  17,523  12,795  Effect of assumed shares issued under treasury stock method for stock options  565  553  Effect of December 29, 2003 partial conversion of $3 million Convertible        Subordinated 7% Note  667  1,333  Effect of December 29, 2003 conversion of $3 million Series D Preferred Stock  —  2,000       Diluted EPS shares  18,755  16,681                Net income available for common shareholders $8,202 $7,465  Effect of December 29, 2003 conversion of $3 million Series D Preferred Stock  —  53  Effect of December 29, 2003 partial conversion of $3 million Convertible        Subordinated 7% Note  11  22       Adjusted net income for diluted EPS $8,213 $7,540      
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(F)Supplemental Cash Flow Disclosure:On July 28, 2004,    the Company acquired Realen Homes. The following is a summary of the effects    of this transaction on the Company’s consolidated financial position:  **July** **28,****2004**      **(in thousands)** Assets acquired:    Cash $(3,174)Restricted cash — customer deposits  (4,273)Real estate held for development and sale  (136,832)Property and equipment, at cost, less accumulated depreciation  (166)Intangible assets, net of amortization  (13,223)Receivables, deferred charges and other assets  (1,478)Land deposits and costs of future development  (2,254)   Total assets acquired  (161,400)        Liabilities assumed:    Accounts payable  10,771 Accrued expenses  8,288 Customer deposits  8,566 Mortgage and other note obligations primarily secured by real estate held for development and sale  70,282 Other notes payable  3,471    Total liabilities assumed  101,378         Cash paid  (53,348)Note payable  (4,863)Warranty holdback  (1,500)Professional fees paid  (311)Less cash acquired  3,174    Net cash outflow for Realen Homes acquisition $(56,848)   
 
(G)Residential Properties Completed or under Construction:
Residential properties completed or under construction consist of the following:
  **September** **30,****2004** **June** **30,****2004**       **(in thousands)** Under contract for sale (backlog) $150,518 $89,519 Unsold  65,388  50,882     Total residential properties completed or under construction $215,906 $140,401     
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(H)Litigation:   From time to time the Company is named as        a defendant in legal actions arising from its normal business activities.        Although the amount of liability that could arise with respect to currently        pending actions cannot be accurately predicted, in the opinion of the        Company any such liability will not have a material adverse effect on    the financial position, operating results or cash flows of the Company.  (I)Commitments and Contingencies:   As of September 30, 2004, the Company        owned or controlled approximately 15,930 building lots. As part of the        aforementioned building lots, the Company had contracted to purchase,        or has under option, undeveloped land and improved lots for an aggregate        purchase price of approximately $521,972,000 which is expected to yield        approximately 9,158 building lots. Generally, the Company structures        its land acquisitions so that it has the right to cancel its agreements        to purchase undeveloped land and improved lots by forfeiture of its deposit        under the agreement. Furthermore, purchase of the properties is usually        contingent upon obtaining all governmental approvals and satisfaction    of certain requirements by the Company and the sellers.  (J)Subsequent Events:   On October 26, 2004 the Company awarded        16,778 shares of Common Stock under the Orleans Homebuilder’s Inc.        Stock Award Plan. The shares of Common Stock will be issued from the    Company’s Treasury Stock.
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**ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES**
**Item 2.****Management’s              Discussion and Analysis of Financial Condition and Results of Operations**
Orleans Homebuilders, Inc. and its subsidiaries (collectively, the “Company”, “OHB” or “Orleans”) are currently engaged in residential real estate development in the following ten markets: Southeastern Pennsylvania; Central New Jersey; Southern New Jersey;Charlotte, Raleigh and Greensboro, North Carolina; Richmond and Tidewater, Virginia; Orlando, Florida; and Chicago, Illinois. The Company’s Charlotte, North Carolina market also includes operations in adjacent counties in South Carolina. The Company has operated in itsPennsylvania and New Jersey markets for over 85 years and began operations in its North Carolina and Virginia markets in fiscal 2001 through the acquisition of Parker & Lancaster Corporation, a privately-held residential homebuilder. The Company entered the Orlando,Florida market on July 28, 2003 through its acquisition of Masterpiece Homes, Inc. (“Masterpiece Homes”), a privately-held residential homebuilder. On July 28, 2004, the Company entered the Chicago, Illinois market through the acquisition of Realen Homes, L.P. (“RealenHomes”), an established privately-held homebuilder with operations in Southeastern Pennsylvania and Chicago, Illinois. The Results of Operations include the activity of Masterpiece Homes from July 28, 2003 through September 30, 2004 and Realen Homes from July 28,2004 through September 30, 2004. Unless otherwise indicated, the term the “Company” includes the accounts of Realen Homes.

References to a given fiscal year in this Quarterly Report on Form 10-Q are to the fiscal year ended June 30th of that year. For example, the phrases “fiscal 2004” or “2004 fiscal year” refer to the fiscal year ended June 30, 2004. When used in this report, “northernregion” refers to the Company’s Pennsylvania and New Jersey markets, which includes the Southeastern Pennsylvania operations of Realen Homes that were acquired on July 28, 2004; “southern region” refers to the Company’s North Carolina and Virginia markets; “Floridaregion” refers to the Company’s Florida market, and “midwestern region” refers to the Company’s Illinois market.

The Company believes it is well positioned for continued growth. At September 30, 2004, backlog was $594,097,000 representing 1,643 homes compared to a backlog of $360,088,000 representing 1,116 homes at September 30, 2003. At September 30, 2004, theCompany was selling in 97 communities and owned or controlled approximately 15,930 building lots compared to 77 communities and 10,863 owned or controlled building lots at September 30, 2003.

The Company has entitled and developed lots in the highly regulated Pennsylvania and New Jersey markets for over 40 years. As a result, the Company believes it has expertise in all aspects of the site selection, land planning, entitlement and land developmentprocesses which can be leveraged across all markets in which the Company operates. In addition, the Company believes that it holds attractive land positions in the Pennsylvania and New Jersey markets and that the market value of these land positions will continue to growdue to the highly regulated environment in these markets.

The Company develops, builds and markets high-quality single-family homes, townhomes and condominiums to serve various homebuyer segments, including first-time, move-up, luxury, empty nester and active adult. The Company believes this broad range of homedesigns allows it to capitalize on favorable economic and demographic trends within its markets.

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Results of Operations
The following table sets forth certain details as to residential sales activity. The information provided is for the three months ended September 30, 2004 and 2003 in the case of residential revenue earned and new orders, and as of September 30, 2004 and 2003 in thecase of backlog.

A sales contract or potential sale is classified as a new order and, therefore, becomes a part of backlog, at the time a homebuyer executes a contract to purchase a home from the Company.
  **Three Months Ended September** **30,**   **2004** **2003**   **(Dollars in thousands)**   **Amount** **Homes** **Average****Price** **Amount** **Homes** **Average****Price** **Northern Region (1)**                   New Jersey and Pennsylvania:                   Residential revenue earned $67,283  155 $434 $53,020  140 $379 New orders  77,437  164  472  62,555  146  428 Backlog  292,973  669  438  199,469  468  426                     **Southern Region**                   North Carolina, South Carolina and Virginia:                   Residential revenue earned $40,448  116 $349 $34,416  111 $310 New orders  47,428  130  365  56,038  167  336 Backlog  135,247  351  385  117,455  346  339                     **Florida Region (2)**                   Residential revenue earned $14,403  89 $162 $10,947  84 $130 New orders  21,729  106  205  12,449  88  141 Backlog  60,174  336  179  43,164  302  143                     **Midwestern Region (3)**                   Residential revenue earned $16,178  45 $360 $—  — $— New orders  24,203  66  367  —  —  — Backlog  105,703  287  368  —  —  —                     **Combined Regions**                   Residential revenue earned $138,312  405 $342 $98,383  335 $294 New orders  170,797  466  367  131,042  401  327 Backlog  594,097  1,643  362  360,088  1,116  323                      (1)Information on residential revenue earned and new orders for the three months ending September 30, 2004 includes Realen Homes’ Southeastern Pennsylvania operations for the period beginning July 28, 2004, the date the Company acquired Realen Homes, throughSeptember 30, 2004. The backlog at September 30, 2004, includes the backlog of Realen Homes’ Southeastern Pennsylvania operations.(2)Information on residential revenue earned and new orders for the three months ending September 30, 2003 is for the period beginning July 28, 2003, the date the Company entered this market through its acquisition of Masterpiece Homes, through September 30, 2004.(3)Information on residential revenue earned and new orders is for the period beginning July 28, 2004, the date the Company entered this this market through its acquisition of Realen Homes, through September 30, 2004.
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**Three Months Ended September** **30, 2004** Orders and Backlog
New orders for the three months ended September 30, 2004 increased $39,755,000, or 30.3%, to $170,797,000 on 466 homes, compared to $131,042,000 on 401 homes for the three months ended September 30, 2003. The average price per home of new ordersincreased by approximately 12.2% to $367,000 for the three months ended September 30, 2004 compared to $327,000 for the three months ended September 30, 2003.

The backlog at September 30, 2004 increased $234,009,000, or 65.0%, to $594,097,000 on 1,643 homes compared to the backlog at September 30, 2003 of $360,088,000 on 1,116 homes. The increase in backlog was attributable to an increase in new orders, theCompany’s obtaining additional backlog of $170,785,000 on 463 homes through its acquisition of Realen Homes on July 28, 2004 and favorable economic conditions for the homebuilding industry in the regions where the Company operates. These favorable economicconditions, including historically low interest rates, have resulted in positive home pricing trends and consistent customer demand. The average price per home included in the Company’s backlog increased 12.1% to $362,000 at September 30, 2004 compared to $323,000 atSeptember 30, 2003.

***Northern Region:*** New orders for the three months ended September 30, 2004 increased $14,882,000 to $77,437,000, or 23.8% on 164 homes, compared to $62,555,000 on 146 homes for the three months ended September 30, 2003. The increase was primarilyattributable to the acquisition of Realen Homes which contributed $12,300,000 on 30 new orders for the three months ended September 30, 2004. Excluding the acquisition of Realen Homes, new orders increased $2,582,000 to $65,137,000 and new orders decreased12 homes to 134 homes for the three months ended September 30, 2004 when compared to the three months ended September 30, 2003. The increase in new order dollars and the decrease in new home orders is a result of the Company’s efforts to intentionally slowabsorption through pricing increases in several new communities to ensure production, pricing and absorption rates are properly balanced. The average price per home of new orders increased by 10.3% to $472,000 for the three months ended September 30, 2004 compared to$428,000 for the three months ended September 30, 2003. In addition to the Company’s efforts to intentionally slow absorption, the Company believes that it has been able to increase sales prices due to the strong demand for new homes resulting from the growing population,fueled in part by immigration, and historically low interest rates which have made housing more affordable. The limited supply of entitled lots for residential housing in Pennsylvania and New Jersey due to increased governmental regulations has also positively impacted homepricing trends.

The Company had 28 active selling communities in the northern region as of September 30, 2004 compared to 19 active selling communities as of September 30, 2003. The increase in the number of active selling communities was primarily attributable to theacquisition of Realen Homes which resulted in the addition of eight active selling communities in the northern region.

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***Southern Region:*** New orders for the three months ended September 30, 2004 decreased $8,610,000 to $47,428,000, or 15.4% on 130 homes, compared to $56,038,000 on 167 homes for the three months ended September 30, 2003. The decrease in new orders wasprimarily attributable to a decrease in the number of available building lots to sell for the three months ended September 30, 2004 when compared to the three months ended September 30, 2003. While the Company had 51 active selling communities in the southern region asof September 30, 2004 compared to 50 active selling communities as of September 30, 2003, several of the active selling communities included in the community count at September 30, 2004 are approaching the sell-out point at a faster rate than the opening of new sellingcommunities.

The average price per home of new orders increased by 8.6% to $365,000 for the three months ended September 30, 2004 compared to $336,000 for the three months ended September 30, 2003. This increase in the average price per home of new orders is due to priceincreases in those communities open during the three months ended September 30, 2004 when compared with the same communities and products offered for sale in the comparable prior year period.

***Florida Region:*** In spite of a series of hurricanes that struck the Florida region in September 2004, new orders for the three months ended September 30, 2004 increased $9,280,000 to $21,729,000, or 74.5% on 106 homes, compared to $12,449,000 on 88 homes forthe three months ended September 30, 2003. The increase was attributable to the fact that the Florida region’s results of operations were included in the Company’s results of operations for the entire three months ended September 30, 2004 compared to the comparable prioryear period wherein the Company acquired Masterpiece Homes and entered the Florida region on July 28, 2003. While the hurricanes slowed sales activities, they did not result in any substantial physical damage to the Company’s properties.

The average price per home of new orders increased by 45.4% to $205,000 for the three months ended September 30, 2004 compared to $141,000 for the three months ended September 30, 2003. This increase in the average price per home of new orders is due toprice increases in those communities open during the three months ended September 30, 2004 when compared with the same communities and products offered for sale in the comparable prior year period.

The Company is continuing to expand its operations in the Florida region. The Company had 11 active selling communities in the Florida region as of September 30, 2004, compared to eight active selling communities as of September 30, 2003.

***Midwestern Region:*** The Company entered the midwestern through the acquisition of Realen Homes on July 28, 2004. The Midwestern region accounted for $24,203,000 in new orders on 66 homes at an average price per home of new orders of $367,000. As ofSeptember 30, 2004, the midwestern region had seven active selling communities.

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Total Earned Revenues
Total earned revenues for the three months ended September 30, 2004 increased $39,727,000, to $140,162,000 or 39.6%, compared to $100,435,000 for the three months ended September 30, 2003. Residential revenue earned from the sale of residential homes included405 homes totaling $138,312,000 during the three months ended September 30, 2004, as compared to 335 homes totaling $98,383,000 during the three months ended September 30, 2003. The average selling price per home delivered in the three months ended September 30,2004 increased by approximately 16.3% to $342,000 for the three months ended September 30, 2004 compared to $294,000 for the three months ended September 30, 2003.

***Northern Region:   ***Residential revenue earned for the three months ended September 30, 2004 increased $14,263,000 to $67,283,000 or 26.9% on 155 homes delivered as compared to $53,020,000 on 140 homes delivered during the three months ended September 30,2003. The increase was primarily attributable to the acquisition of Realen Homes which contributed $10,737,000 in residential revenue on 35 homes delivered for the three months ended September 30, 2004.

Excluding the acquisition of Realen Homes, residential revenue earned increased $3,526,000 to $56,546,000 and the number of homes delivered decreased 20 homes to 120 homes for the three months ended September 30, 2004 when compared to the three monthsended September 30, 2003. The increase in residential revenue earned and the decrease in new home deliveries is a result of the mix of homes delivered. Specifically, single family homes, which typically have a longer building cycle than townhomes, comprised a largerpercentage of the total homes delivered in the region during the three months ended September 30, 2004 than townhomes when compared to the three months ended September 30, 2003. The number of homes delivered also decreased due to delays in the opening of newcommunities as a result of increasingly restrictive regulations and moratoriums by state and local governmental authorities and the Company’s intentional slowing of absorption through pricing increases in several communities starting in the fourth quarter of fiscal 2004.

The average selling price per home delivered in three months ended September 30, 2004 increased by approximately 14.5% to $434,000 for the three months ended September 30, 2004 compared to $379,000 for the three months ended September 30, 2003. This increase inthe average selling price per home delivered contributed to the increase in residential revenue earned described above. The increase in the average selling price per home delivered is attributable increases in the average price per home of new orders in fiscal 2004 resulting fromsales price increases as well as the product mix of homes delivered. Specifically, single family homes, which have higher selling prices than townhomes, comprised a larger percentage of the total homes delivered in the region during the three months ended September 30,2004 than townhomes when compared to the three months ended September 30, 2003.

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***Southern Region:   ***Residential revenue earned for the three months ended September 30, 2004 increased $6,032,000 to $40,448,000 or 17.5% on 116 homes delivered as compared to $34,416,000 on 111 homes delivered during the three months ended September 30,2003.

The average price per home delivered increased 12.6% to $349,000 for the three months ended September 30, 2004 compared to $310,000 for the three months ended September 30, 2003. The increase in the average price per home delivered was attributable toincreases in the average price per home of new orders in fiscal 2004 coupled with an increase in revenue attributable to customer-selected options, such as bonus rooms and flooring upgrades, for the three months ended September 30, 2004 when compared to the three monthsended September 30, 2003. In addition, a change in the product mix of homes delivered during the three months ended September 30, 2004 compared to the three months ended September 30, 2003 contributed to the increase in the average price per home delivered.Specifically, the Company delivered a larger percentage of luxury and move-up homes during the three months ended September 30, 2004 than during the three months ended September 30, 2003.

***Florida Region:   ***In spite of a series of hurricanes that struck the Florida region in September 2004, residential revenue earned for the three months ended September 30, 2004 increased $3,456,000 to $14,403,000, or 31.6% on 89 homes, compared to $10,947,000 on 84homes for the three months ended September 30, 2003. The increase was attributable to the fact that the Florida region’s results of operations were included in the Company’s results of operations for the entire three months ended September 30, 2004 compared to thecomparable prior year period wherein the Company acquired Masterpiece Homes and entered the Florida region on July 28, 2003. Several homes that were scheduled for delivery in September 2004 were delayed due to poor weather conditions resulting from a series ofhurricanes that struck the Florida region in September. These delays negatively impacted residential revenue for the three months ended September 30, 2004 and were primarily customer-related. Specifically, several customers were temporarily unable to obtain the necessaryhomeowners insurance due to the insurance industry’s regional practice ofsuspending its issuance of homeowners insurance policies in the days prior toand immediately following a hurricane. 

The average selling price per home delivered increased by 24.6% to $162,000 for the three months ended September 30, 2004 compared to $130,000 for the three months ended September 30, 2003. The increase in the average selling price per home delivered isattributable to a change in product mix toward more homes for move-up buyers as well as increases in the average price per home of new orders in fiscal 2004.

***Midwestern Region:   ***The Company entered the midwestern region on July 28, 2004 through the acquisition of Realen Homes. For the three months ended September 30, 2004, the Midwestern region accounted for $16,178,000 in residential revenue earned on 45 homesat an average selling price per home delivered of $360,000.

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Costs and Expenses
Costs and expenses for the three months ended September 30, 2004 increased $38,643,000 to $126,685,000, or 43.9%, compared with the three months ended September 30, 2003. The cost of residential properties for the three months ended September 30, 2004increased $34,782,000 to $109,591,000, or 46.5%, when compared with the three months ended September 30, 2003. The increase in cost of residential properties was primarily attributable to increased residential revenue in the Company’s northern, southern, and Floridaregions as noted above as well as the increase in residential revenue resulting from the Company’s acquisition of Realen Homes. The consolidated gross profit margin for the three months ended September 30, 2004 decreased 3.2% to 20.8% compared to 24.0% for the threemonths ended September 30, 2003. The decrease in the consolidated gross profit margin was attributable to the following factors. The gross profit margin is affected when the acquired Realen Homes’ inventory is delivered because the value of the acquired Realen Homes’inventory was increased to its fair market value as a result of the application of purchase accounting under SFAS 141. The additional costs recognized in connection with the first quarter deliveries of the acquired Realen Homes inventory as a result of the fair market valuewrite-up of the acquired inventory was approximately $1,676,000 for the three months ended September 30, 2004. The additional costs recognized in connection with the amortization of the intangible value of the acquired Realen Homes backlog delivered during the threemonths ended September 30, 2004 was approximately $103,000. The northern region, which has significantly higher gross profit margins than the other regions in which the Company operates, comprised a smaller percentage of the consolidated residential properties revenuefor the three months ended September 30, 2004 than for the three months ended September 30, 2003. Finally, overall raw material costs, particularly lumber and concrete, have increased during the three months ended September 30, 2004 when compared to the three monthsended September 30, 2003.

The Company sells a variety of home types in various communities and regions, each yielding a different gross profit margin. As a result, depending on the mix of both communities and of home types delivered, the consolidated gross profit margin may fluctuate up ordown on a periodic basis and periodic profit margins may not be representative of the consolidated gross profit margin for the year.

Interest included in the costs and expenses of residential properties and land sold for the three months ended September 30, 2004 and September 30, 2003 was $1,272,000 and $1,671,000, respectively. The decrease in the interest included in the costs and expenses ofresidential properties and land sold despite the overall increase in the cost of residential properties is attributable to continuing low interest rates during the construction periods for both the site improvements and the homes. The interest incurred during the construction periodsis expensed to the cost of residential properties in the period in which the unit settles.

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For the three months ended September 30, 2004, selling, general and administrative expenses increased $4,647,000 to $16,095,000, or 40.6%, when compared with the three months ended September 30, 2003. The increase in selling, general and administrative expenseswas due to an increase in Florida region expenses of $1,277,000 which resulted from the fact that the Florida region’s results of operations were included in the Company’s results of operations for the entire three months ended September 30, 2004 compared to the comparableprior year period wherein the Company acquired Masterpiece Homes and entered the Florida region on July 28, 2003. Additionally, the Company incurred $2,410,000 in selling, general and administrative expenses resulting from the Company’s expansion in the northernregion and its expansion into the midwestern region through the acquisition of Realen Homes on July 28, 2004. The remaining increase in selling, general and administrative expenses was primarily attributable to increases in general and administrative payroll, incentivecompensation and travel expenses. These increases are a result of the Company’s continued expansion into new regions.

The selling, general and administrative expenses as a percentage of residential revenue earned for the three months ended September 30, 2004 of 11.6% remained unchanged from the selling, general and administrative expenses as a percentage of residential revenueearned for the three months ended September 30, 2003.
Income Tax Expense
Income tax expense for the three months ended September 30, 2004 increased $400,000 to $5,275,000, or 8.2% from $4,875,000 for the three months ended September 30, 2003. The increase in income tax expense for the three months ended September 30, 2004 isattributable to an increase in income from operations.

Additionally, income tax expense as a percentage of income from operations before income taxes was 39.1% and 39.3% for the three months ended September 30, 2004 and 2003, respectively. The slight decrease in the effective tax rate is due to an increase in netincome from operations before income taxes in the Florida region as a percentage of the consolidated income from operations before income taxes for the three months ended September 30, 2004 when compared to the three months ended September 30, 2003 as Florida has alower state tax rate than a majority of the states in which the Company operates.
Net Income
Net income for the three months ended September 30, 2004 increased $684,000, or 9.1%, to $8,202,000, compared with $7,518,000 for the three months ended September 30, 2003. This increase in net income was attributable to an increase in residential revenueearned primarily as a result of favorable conditions in the homebuilding industry, resulting in strong customer demand and positive home pricing trends. The Company believes the primary factors resulting in favorable conditions in the homebuilding industry include: the strongdemand for new homes as a result of an increase in immigration and new household formation; historically low interest rates which enhance the affordability of homes; and the limited supply of entitled lots for residential housing due to increased governmental regulation,which increases the value of lots already owned by the Company.

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The increase in net income for the three months ended September 30, 2004 was reduced by approximately $1,083,000 due to the additional costs recognized in connection with the first quarter deliveries of the acquired Realen Homes inventory, as a result of the fairmarket value write-up of the acquired inventory and backlog. This was partially offset by the recognition of approximately $765,000 of net income that was previously deferred pending the resolution of outstanding issues associated with one of the Company’s closedcommunities.
Liquidity and Capital Resources
On an ongoing basis, the Company requires capital to purchase and develop land, to construct units, to fund related carrying costs and overhead and to fund various advertising and marketing programs to facilitate sales. These expenditures include site preparation, roads,water and sewer lines, impact fees and earthwork, as well as the construction costs of the homes and amenities. The Company’s additional sources of capital include funds derived from operations, sales of assets and various borrowings, most of which are secured.

At September 30, 2004, the Company had approximately $190,623,000 available under existing secured and unsecured revolving and construction loans for planned development expenditures. A majority of the Company’s debt is variable rate, based on 30-day LIBORor the prime rate, and therefore, the Company is exposed to market risk in connection with interest rate changes. At September 30, 2004, the 30-day LIBOR and prime rates of interest were 1.84% and 4.75%, respectively.

Generally, the Company has historically financed its development and construction activities on a community-by community basis so that, for each community the Company builds, it has a separate credit facility. Accordingly, the Company has numerous credit facilities.While the loan agreements relating to these facilities contain certain covenants, they generally contain few, if any, material financial covenants. Typically, the Company’s loan agreements contain covenants requiring it to:
 •obtain agreements of sale for a specified number of homes within a specified time period, with the number of homes and time period varying by community;    •not distribute dividends greater than 5% of each year’s net income;    •not permit a change in control of the Company or of any subsidiary that is a party to the applicable loan agreement;    •complete any construction which is the subject of the loan agreement without significant delay and in accordance with the previously submitted construction plans;    •notify the lender, in writing, immediately if the Company receives a claim of lien with respect to any services, labor, or material furnished in connection with applicable construction, and to remove any such lien within 10 days after the date the lien was filed;    •maintain certain minimum levels of insurance;
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 •when requested by lender, provide inventory status reports and financial statements and other inventory and financial information reasonably requested by lender;    •furnish the lender with copies of all notices received by the Company claiming any breach or potential breach of any contracts related to the construction, claiming or asserting a right to a lien for work performed or materials provided in connection with construction, orfrom any governmental authority asserting that the land or construction which is the subject of the loan agreements may or does violate any law or regulations;    •not enter into leases affecting the land or the construction which is the subject of the applicable loan documents without the prior written consent of the lender;    •not obtain subordinate financing on the land, construction or other property granted as security under applicable loan documents without the prior approval of the lender; and    •not sell or otherwise dispose of any of the land or the construction which is the subject of the applicable loan documents.
On July 28, 2004, pursuant to a Purchase Agreement of the same date, the Company completed its acquisition of all of the issued and outstanding partnership interests in Realen Homes, a Pennsylvania limited partnership. The terms of the Purchase Agreement are asfollows: (i) $53,348,000 in cash delivered at closing, (ii) a promissory note of the Company in the aggregate principal amount of $5 million, payable over a period of up to two years, with an interest rate of 3% per year and (iii) a warranty holdback of $1.5 million retainedby the Company to be applied toward the administration of any warranty claims made against Realen Homes. To finance the acquisition of Realen Homes, refinance certain outstanding indebtedness of Realen Homes and provide the Company with short-term liquidity for landpurchases and residential development and construction site improvements, the Company obtained a $120,000,000 unsecured bridge loan. The unsecured bridge loan has a maturity date of November 30, 2004. Interest is payable monthly at 30-day LIBOR plus 225 basis pointson the portion of the outstanding principal balance that does not exceed $60,000,000 and 30-day LIBOR plus 250 basis points on the portion of the outstanding principal balance that exceeds $60,000,000.

The Company anticipates replacing its community-by-community financing and its unsecured bridge loan with a $500,000,000 secured revolving loan facility that is expandable to $650,000,000 and contains a $100,000,000 letter of credit sublimit. The Company expectsto have the new secured revolving loan facility in place by the November 30, 2004, although the Company cannot offer any assurance that it will be able to do so. The secured revolving loan facility would replace the $120,000,000 unsecured bridge loan described above andwould be the primary source of financing for land acquisitions, land development, home construction, acquisitions, and working capital. The secured revolving loan facility will require the Company to adhere to a series of covenants including covenants pertaining to thefinancial position of the Company.

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Net cash used in operating activities for the three months ended September 30, 2004 was $80,009,000, compared to net cash used by operating activities for the prior fiscal year period of $14,429,000. The increase in net cash used in operating activities during the threemonths ended September 30, 2004 was primarily attributable to the acquisition of undeveloped land and improved building lots that will yield approximately 1,810 building lots with an aggregate purchase price of approximately $62,673,000. The remaining increase in net cashused in operating activities was attributable to increases in land deposits and costs of future development and customer deposits as well as decreases in receivables, deferred charges and other assets, and accounts payable and other liabilities partially offset by an increase in netincome when compared with the prior fiscal year period. Net cash used in investing activities for the three months ended September 30, 2004 was $57,043,000, compared to $4,989,000 for the prior fiscal year period. This increase was primarily related to the acquisition ofRealen Homes on July 28, 2004. Net cash provided by financing activities for the three months ended September 30, 2004 was $119,581,000, compared to $19,758,000 for the prior fiscal year period. The increase in net cash provided by financing activities is primarilyattributable to $53,348,000 borrowed under a $120,000,000 unsecured bridge loan to finance the acquisition of Realen Homes and an increase in financing to support the acquisition of undeveloped land and improved building lots as noted above.
Lot Positions
As of September 30, 2004, the Company owned or controlled approximately 15,930 building lots. Included in the aforementioned lots, the Company had contracted to purchase, or has under option, undeveloped land and improved building lots for an aggregate purchaseprice of approximately $521,972,000 that are expected to yield approximately 9,158 building lots.
Undeveloped Land Acquisitions
In recent years, the process of acquiring desirable undeveloped land has become extremely competitive, particularly in the northern region, mostly due to the lack of available parcels suitable for development. In addition, expansion of regulation in the housing industryhas increased the time it takes to acquire undeveloped land with all of the necessary governmental approvals required to begin construction. Generally, the Company structures its land acquisitions so that it has the right to cancel its agreements to purchase undeveloped land byforfeiture of its deposit under the agreement. For the three months ended September 30, 2004, the Company did not forfeit any land deposits related to the cancellation of purchase agreements. Included in the balance sheet captions “Inventory not owned — Variable InterestEntities” and “Land deposits and costs of future development,” at September 30, 2004 the Company had $23,617,000 invested in 58 parcels of undeveloped land, of which $13,919,000 is deposits, a portion of which is non-refundable. These undeveloped parcels of land havean aggregate purchase price of approximately $381,862,000 and are expected to yield approximately 7,421 building lots.

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The Company attempts to further mitigate the risks involved in acquiring undeveloped land by structuring its undeveloped land acquisitions so that the deposits required under the agreements coincide with certain benchmarks in the governmental approval process,thereby limiting the amount at risk. This process allows the Company to periodically review the approval process and make a decision on the viability of developing the acquired parcel based upon expected profitability. In some circumstances the Company may be required tomake deposits solely due to the passage of time. This structure still provides the Company an opportunity to periodically review the viability of developing the parcel of land. In addition, the Company primarily structures its agreements to purchase undeveloped land to becontingent upon obtaining all governmental approvals necessary for construction. Under most agreements, the Company secures the responsibility for obtaining the required governmental approvals as the Company believes that it has significant expertise in this area. TheCompany intends to complete the acquisition of undeveloped land after all governmental approvals are in place. In certain circumstances, however, when all extensions have been exhausted, the Company must make a decision on whether to proceed with the purchase eventhough all governmental approvals have not yet been received. In these circumstances, the Company performs reasonable due diligence to ascertain the likelihood that the necessary governmental approvals will be granted. At September 30, 2004, the Company owned oneparcel that is expected to yield 646 building lots for which preliminary governmental approval for the construction of homes has not been obtained. The $10,370,000 invested in the parcel, of which $9,263,000 pertains to land and $1,107,000 pertains to site improvements, isincluded in the balance sheet caption “Land deposits and costs of future development,” at September 30, 2004.
Improved Lot Acquisitions
The process of acquiring improved building lots from developers is extremely competitive. The Company competes with many national homebuilders to acquire improved building lots, some of which have greater financial resources than the Company. The acquisition ofimproved lots is usually less risky than the acquisition of undeveloped land as the contingencies and risks involved in the land development process are borne by the developer. In addition, governmental approvals are generally in place when the improved building lots areacquired.

At September 30, 2004, the Company had contracted to purchase or had under option approximately 1,737 improved building lots for an aggregate purchase price of approximately $140,110,000, including $6,159,000 of deposits.

The Company expects to utilize primarily the new secured revolving credit facility that it is currently being negotiating as described above as well as existing capital resources, to finance the acquisitions of undeveloped land and improved lots described above.Contingent on the aforementioned, the Company anticipates completing a majority of these acquisitions during the next several years.

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Critical Accounting Policies
For a discussion the Company’s critical accounting policies, see “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for fiscal year ended June 30, 2004 filed with the Securities and Exchange Commission.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46”). The FASB issued a revised FIN 46 in December 2003 which modifies and clarifies various aspects of the originalinterpretations. A Variable Interest Entity (“VIE”) is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct orindirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46, an enterprise thatabsorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. For VIEs created before January 31, 2003, FIN 46 was deferred to the end of the first interim or annual period ending after March 15, 2004. TheCompany fully adopted FIN 46 effective March 31, 2004.

Based on the provisions of FIN 46, the Company has concluded that whenever it enters into an option agreement to acquire land or lots from an entity and pays a significant deposit that is not unconditionally refundable, a VIE is created under condition (ii) (b) of theprevious paragraph. The Company has been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected theoretical losses if they occur. For each VIE created the Company will compute expectedlosses and residual returns based on the probability of future cash flows as outlined in FIN 46. If the Company is deemed to be the primary beneficiary of the VIE it will consolidate the VIE on its balance sheet. The fair value of the VIEs inventory will be reported as“Inventory Not Owned — Variable Interest Entities.”

At September 30, 2004, the Company consolidated twenty-three VIEs as a result of its option to purchase land or lots from the selling entities. The Company paid cash or issued letters of credit deposits to these twenty-three VIEs totaling $9,121,000 and incurred additionalpre-acquisition costs totaling $2,096,000. The Company’s deposits and any costs incurred prior to acquisition of the land or lots, represent our maximum exposure to loss. The fair value of the VIEs inventory will be reported as “Inventory Not Owned — Variable InterestEntities.” The Company recorded $107,025,000 in Inventory Not Owned — Variable Interest Entities as of September 30, 2004. The fair value of the property to be acquired less cash deposits and pre-acquisition costs, which totaled $97,491,000 at September 30, 2004, wasreported on the balance sheet as Obligations related to inventory not owned. Creditors, if any, of these VIEs have no recourse against the Company.

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The Company will continue to secure land and lots using options. Including the deposits and other costs capitalized in connection with the VIEs above, the Company had total costs incurred to acquire land and lots at September 30, 2004 of approximately $29,909,000,including $20,078,000 of cash deposits. The total purchase price under these cancelable contracts or options is approximately $521,972,000. The maximum exposure to loss is limited to the deposits, although some deposits are refundable, and costs incurred prior to theacquisition of the land or lots.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 “Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). This standard requires issuers to classify as liabilities thefollowing three types of freestanding financial instruments: (1) mandatory redeemable financial instruments, (2) obligations to repurchase the issuer’s equity shares by transferring assets; and (3) certain obligations to issue a variable number of shares. The Company adoptedSFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company.

In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition” which supersedes SAB 101, “Revenue Recognition in Financial Statements.” SAB 104’s primary purpose is to rescind the accounting guidance contained inSAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21. The Company adopted the provisions of this statement immediately, as required, and it did not have a significant impact on the Company’s Consolidated FinancialStatements.

EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” issued during the third quarter of 2003, provides guidance on revenue recognition for revenues derived from a single contract that contain multiple products or services. EITF 00-21 alsoprovides additional requirements to determine when these revenues may be recorded separately for accounting purposes. The Company adopted EITF 00-21 on July 1, 2003, as required, and it did not have a significant impact on the Company’s Consolidated FinancialStatements.
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
In addition to historical information, this report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), and are subject to the Safe Harbor provisions created by statute. Generally words such as “may”, “will”, “should”, “could”, “anticipate”, “expect”, “intend”, “estimate”, “plan”, “continue”, and “believe” or thenegative of or other variation on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this report. The Company does not undertake to update or revise the forward-looking statements, whetheras a result of new information, future events or otherwise.

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Forward-looking statements are based on current expectations and involve risks and uncertainties and the Company’s future results could differ significantly from those expressed or implied by the Company’s forward-looking statements.

Many factors, including those listed below, could cause the Company’s actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company:
 •Future increases in interest rates or a decrease in the availability of mortgage financing could lead to fewer home sales, which could adversely affect the Company’s total earned revenues and earnings.    •Changes in consumer confidence due to perceived uncertainty of future employment opportunities or other factors could lead to fewer home sales by the Company.    •The Company is subject to substantial risks with respect to the land and home inventories it maintains and fluctuations in market conditions may affect the Company’s ability to sell its land and home inventories at expected prices, if at all, which could reduce theCompany’s total earned revenues and earnings.    •The Company’s business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict the Company’s development and homebuilding projects and reduce its total earned revenues and growth.    •States, cities and counties in which the Company operates have adopted, or may adopt, slow or no growth initiatives which would reduce the Company’s ability to build and sell homes in these areas and could adversely affect the Company’s total earned revenues andearnings.    •The Company may not be successful in its effort to identify, complete or integrate acquisitions, which could disrupt the activities of the Company’s current business and adversely affect the Company’s results of operations and future growth.    •The Company is dependent on the services of certain key employees and the loss of their services could harm the Company’s business.    •The Company may not be able to acquire suitable land at reasonable prices, which could result in cost increases the Company is unable to recover and reduce the Company’s total earned revenues and earnings.    •The Company’s significant level of debt could adversely affect its financial condition and prevent it from fulfilling its debt service obligations.
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 •The competitive conditions in the homebuilding industry could increase the Company’s costs, reduce its total earned revenues and earnings and otherwise adversely affect its results of operations or limit its growth.    •The Company may need additional financing to fund its operations or to expand its business, and if the Company is unable to obtain sufficient financing or such financing is obtained on adverse terms, the Company may not be able to operate or expand its business asplanned, which could adversely affect the Company’s results of operations and future growth.    •Shortages of labor or materials and increases in the price of materials can harm the Company’s business by delaying construction, increasing costs, or both.    •The Company depends on the continued availability and satisfactory performance of its our subcontractors which, if unavailable, could have a material adverse effect on the Company’s business by limiting its ability to build and deliver homes.    •The Company is subject to construction defect, product liability and warranty claims arising in the ordinary course of business that could adversely affect its results of operations.    •The Company is subject to mold litigation and mold claims arising in the ordinary course of business for which the Company has no insurance that could adversely affect the Company’s results of operations.    •The Company’s business, total earned revenues and earnings may be adversely affected by natural disasters or adverse weather conditions.    •The Company may be subject to environmental liabilities that could adversely affect its results of operations or the value of its properties.    •Increases in taxes or government fees could increase the Company’s costs and adverse changes in tax laws could reduce customer demand for the Company’s homes, either of which could reduce the Company’s total earned revenues or profitability.    •There are a number of laws, regulations and accounting pronouncements, recently adopted or proposed, that could affect the Company’s corporate governance or accounting practices.    •Acts of war or terrorism may seriously harm the Company’s business.    •Jeffrey P. Orleans, Chairman and Chief Executive Officer and the Company’s majority shareholder, can cause the Company to take certain actions or preclude the Company from taking actions without the approval of the other shareholders and may have interests thatcould conflict with the interests of other shareholders.    •The Company has entered into several transactions with related parties, including entities controlled by Mr. Jeffrey P. Orleans, which may create conflicts of interest.
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**Item            3.****Quantitative and              Qualitative Disclosures About Market Risk**
Market risk represents the risk of loss that may impact    the financial position, results of operations or cash flows of the Company,    due to adverse changes in financial and commodity market prices and interest    rates. The Company’s principal market risk exposure  continues to be interest rate risk. A majority of the Company’s debt is variable based on LIBOR or the prime rate, and, therefore, affected by changes in market interest rates. Based on current operations, an increase or decrease in interest rates of 100 basis points will result in  a corresponding increase or decrease in cost of sales and interest charges incurred by the Company of approximately $3,100,000 in a fiscal year, a portion of which will be capitalized and included in cost of sales as homes are delivered. The Company believes that reasonably  possible near-term interest rate changes will not result in a material negative effect on future earnings, fair values or cash flows of the Company. Generally, the Company has been able to recover any increased costs of borrowing through increased selling prices; however, there  is no assurance the Company will be able to continue to increase selling prices to cover the effects of any increase in near-term interest rates.

Changes in the prices of commodities that are a significant component of home construction costs, particularly lumber, may result in unexpected short term increases in construction costs. Since the sales price of the Company’s homes is fixed at the time the buyer entersinto a contract to acquire a home and because the Company generally contracts to sell its homes before construction begins, any increase in costs in excess of those anticipated may result in gross margins lower than anticipated for the homes in the Company’s backlog. TheCompany attempts to mitigate the market risks of price fluctuation of commodities by entering into fixed-price contracts with its subcontractors and material suppliers for a specified period of time, generally commensurate with the building cycle.

There have been no material adverse changes to the Company’s (1) exposure to risk and (2) management of these risks, since June 30, 2004.
**Item 4.****Controls and Procedures**
The Company’s management, with the participation of the Company’s Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of theperiod covered by this report. Based upon that evaluation, the Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are functioning effectively to provide reasonableassurance that information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There has been no change in theCompany’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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**PART II. OTHER INFORMATION**
**Item 6.****Exhibits.**    (a)Exhibits.     31.1*Certification          of Jeffrey P. Orleans pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002.    31.2*Certification          of Michael T. Vesey pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002.    31.3*Certification          of Joseph A. Santangelo pursuant to Section 302 Sarbanes-Oxley      Act of 2002.    32.1*Certification          of Jeffrey P. Orleans pursuant to Section 906 Sarbanes-Oxley Act      of 2002.    32.2*Certification          of Michael T. Vesey pursuant to Section 906 Sarbanes-Oxley Act    of 2002.    32.3*Certification          of Joseph A. Santangelo pursuant to Section 906 Sarbanes-Oxley    Act of 2002.    *Exhibits filed herewith electronically.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
  ORLEANS HOMEBUILDERS, INC.(Registrant)      November 12, 2004Michael T. VeseyMichael T. VeseyPresident and Chief Operating Officer      November 12, 2004Joseph A. SantangeloJoseph A. SantangeloTreasurer, Secretary and Chief Financial Officer 
 

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**EXHIBIT INDEX**
31.1Certification          of Jeffrey P. Orleans pursuant to Section 302 of the Sarbanes-Oxley    Act of 2002.  31.2Certification          of Michael T. Vesey pursuant to Section 302 of the Sarbanes-Oxley    Act of 2002.  31.3Certification          of Joseph A. Santangelo pursuant to Section 302 Sarbanes-Oxley    Act of 2002.  32.1Certification          of Jeffrey P. Orleans pursuant to Section 906 Sarbanes-Oxley Act    of 2002.  32.2Certification          of Michael T. Vesey pursuant to Section 906 Sarbanes-Oxley Act    of 2002.  32.3Certification          of Joseph A. Santangelo pursuant to Section 906 Sarbanes-Oxley    Act of 2002.
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