<PAGE>

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

                                      FORM 10-K

               [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended September 30, 1998

                                          OR

            [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from        to        

                            Commission File Number 0-23347


                                   UNITED HOMES, INC.
                                --------------------------
                (Exact name of Registrant as specified in its charter)

               Illinois                                36-3978181
     (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

        2100 Golf Road, Rolling Meadows, IL                   60008
     (Address of principal executive offices)               (Zip Code)

Registrant's telephone number including area code (847) 427-2450

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

     Title of each class           Name of each exchange on which registered
    ---------------------         -------------------------------------------
            None                                       None

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

                         11% Mandatory Redemption Debentures
                                  Due March 15, 2005

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

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


<PAGE>


                                  TABLE OF CONTENTS


                                                                          PAGE
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
   Item 1.   Business  . . . . . . . . . . . . . . . . . . . . . . . . . .  3
   Item 2.   Properties  . . . . . . . . . . . . . . . . . . . . . . . . .  7
   Item 3.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .  8
   Item 4.   Submission of Matters to a Vote of Security Holders . . . . .  8

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
   Item 5.   Market for the Registrant's Common Equity and Related
             Stockholder Matters . . . . . . . . . . . . . . . . . . . . .  9
   Item 6.   Selected Financial Data . . . . . . . . . . . . . . . . . . . 11
   Item 7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations . . . . . . . . . . . . . 12
   Item 7A.  Quantitative and Qualitative Disclosures About Market Risk. . 20
   Item 8.   Financial Statements and Supplementary Data . . . . . . . . . 20
   Item 9.   Changes In and Disagreements with Accountants on Accounting 
             and Financial Disclosure  . . . . . . . . . . . . . . . . . . 20

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
   Item 10.  Directors and Executive Officers of the Registrant  . . . . . 21
   Item 11.  Executive Compensation  . . . . . . . . . . . . . . . . . . . 23
   Item 12.  Security Ownership of Certain Beneficial Owners and
             Management  . . . . . . . . . . . . . . . . . . . . . . . . . 24
   Item 13.  Certain Relationships and Related Transactions  . . . . . . . 24

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
   Item 14.  Exhibits, Financial Statement Schedules and Reports
             on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 26



<PAGE>


                                        PART I


                      SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

     Certain statements in this Report that are not historical facts 
constitute "forward-looking statements" within the meaning of the Private 
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act 
of 1933, as amended (the "Securities Act") and Section 21E of the Securities 
Exchange Act of 1934, as amended (the "Exchange Act").  Discussions 
containing such forward-looking statements may be found in the material set 
forth under "Business," "Properties" and "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" ("MD&A") as well 
as within this Report generally.  In addition, when used in this Report, the 
words "believes," "intends," "anticipates," "expects" and similar expressions 
are intended to identify forward-looking statements.  Such statements are 
subject to a number of risks and uncertainties described in more detail under 
MD&A - Factors Affecting the Company's Business.  Actual results could differ 
materially from those projected in the forward-looking statements as a result 
of the factors set forth in this Report.  The Company undertakes no 
obligation to publicly release the result of any revisions to these 
forward-looking statements that may be made to reflect any future events or 
circumstances.

ITEM 1.   BUSINESS

     AS USED HEREIN, THE "COMPANY" MEANS UNITED HOMES, INC. ("UNITED"), AND 
UNITED'S WHOLLY-OWNED SUBSIDIARIES INCLUDING UNITED HOMES OF ILLINOIS, INC.; 
UNITED HOMES OF MICHIGAN, INC.; AND UNITED HOMES, INC., AN ARIZONA 
CORPORATION (INDIVIDUALLY, A "SUBSIDIARY," COLLECTIVELY THE "SUBSIDIARIES"). 
UNITED WAS FORMED IN 1994 TO CARRY ON THE HOMEBUILDING ACTIVITIES OF UNITED'S 
PARENT CORPORATION UNITED DEVELOPMENT MANAGEMENT COMPANY (THE "PARENT"). 
UNITED IS A WHOLLY-OWNED SUBSIDIARY OF THE PARENT. 

     The Company is a fully-integrated land development and homebuilding 
company operating in the Chicago, Phoenix and western Michigan markets.  The 
Company acquires undeveloped land and develops it into finished lots for 
residential subdivisions, and periodically options or purchases finished lots 
from third parties, primarily for the construction and sale of homes. The 
Company maintains an inventory of potential home sites (lots) by controlling 
undeveloped and developed land through options, contingent purchase 
agreements, joint ventures, partnerships and other contractual relationships 
with landowners ("Acquisition and Option  Agreements"). The Company believes 
that this strategy allows it to control sites for future development and at 
the same time maximize use of its available capital.  During the fiscal year 
ended September 30, 1998, the Company closed on the sale of 509 homes and 30 
lots generating approximately $107.1 million in revenue from housing and land 
sales as compared to 531 homes, and 55 lots which generated approximately 
$92.7 million in revenue from housing and land sales during the fiscal year 
ended September 30, 1997.  As of September 30, 1998, the Company had 
contracts to sell an additional 207 homes, and a current inventory of 982 
improved lots.

     Prices for the Company's homes, including the lot, range from $99,000 to 
in excess of $450,000 per home.  During the fiscal year ended September 30, 
1998, the average price of a home sold by the Company was approximately 
$186,000.  The Company markets its products to entry-level through 
semi-custom home buyers.

United's principal place of business is located at 2100 Golf Road, Suite 110, 
Rolling Meadows, Illinois 60008, and its telephone number is (847) 427-2450. 

     OPERATING STRATEGY.  The Company seeks to locate and control property 
for development while minimizing the amount of direct capital investment by 
monitoring and controlling the costs of designing, building and selling its 
homes and by carefully managing its inventory of undeveloped land, developed 
lots and unsold homes. The Company attempts to achieve this goal by 
maintaining an inventory of potential


                                       3

<PAGE>


homesites (lots) by controlling undeveloped and developed land through 
Acquisition and Option Agreements for as long as possible prior to actual 
purchase of the land.  As of September 30, 1998, the Company had 324 homes 
built or under construction to be sold or held as inventory located in 19 
different subdivisions and in various stages of the construction process. A 
total of 207 of these homes were under contract to be sold. The Company 
rarely holds houses in inventory after completing construction, with the 
exception of model homes which are typically sold to a third party and then 
leased back. Homes in inventory not subject to a purchase contract are 
generally marketed to transferee home buyers or buyers who cannot wait for 
the construction cycle to be completed. Transferee buyers have traditionally 
represented a small portion of the Company's sales. A transferee buyer 
typically requires delivery of a new house within 30 to 60 days. The number 
of homes held in inventory will vary seasonally and with changes in the local 
and national economy. Generally, the Company attempts to develop homes in 
areas with limited competition and before purchasing any property employs an 
independent marketing consultant to analyze the real estate market in which 
the property is located. The Company's product mix includes both 
single-family and multifamily home designs which are sold through 
commissioned employees who work from sales offices located at each project 
or, in certain cases, through outside brokers. The Company markets its homes 
through a combination of newspaper, radio and television advertisements, 
direct mail, directional signage, special promotions, the Internet and 
referrals both from homebuyers and brokers.

     MARKETS/PRODUCT. The Company builds and sells homes in three market 
areas: Chicago, Phoenix and western Michigan.

     CHICAGO METROPOLITAN AREA.  The Company's principal market is the 
Chicago metropolitan area which essentially consists of Cook, DuPage, Lake, 
McHenry, Will and Kane counties (the "Chicago Area"). The Chicago Area was 
ranked 88th in the nation by the National Association of Homebuilders 
("NAHB") in population growth during the time period 1986-1995. According to 
Claritas, Inc., the population of the Chicago Area is projected to grow to 
approximately 7,769,000, up from the 1990 census figures of approximately 
7,411,000 and is projected to rise to approximately 7,996,000 by 2002.

     United's subsidiary, United Homes of Illinois, Inc. was ranked by Tracy 
Cross & Associates, among the top twenty Illinois  homebuilders for calendar 
years 1998 and 1997.  During the fiscal year ended September 30, 1998, the 
Company closed on the sale of 394 homes including lots in the Chicago Area. 
Prices for the Company's Chicago Area homes range from $99,000 to in excess 
of $450,000.

     PHOENIX.  The Company believes that the city of Phoenix and the 
surrounding metropolitan area (the "Phoenix Area") offers significant growth 
opportunities. Annual building permits issued for single-family residential 
units in the Phoenix MSA have increased from approximately 10,909 in 1990 to 
approximately 28,583 in the Phoenix-Mesa MSA in 1995. The Phoenix Area was 
ranked 12th in the nation by the NAHB in population growth during the time 
period 1986-1995. According to Claritas, Inc., the population of the Phoenix 
Area is projected to grow to approximately 2,815,000, up from the 1990 census 
figures of approximately 2,238,000 and is projected to rise to approximately 
3,232,000 by 2002.

     United's subsidiary, United Homes, Inc., an Arizona corporation, has 
operated in the Phoenix Area since 1984. During the fiscal year ended 
September 30, 1998, the Company closed on the sale of 36 homes and lots in 
the Phoenix Area. Prices for the Company's homes in this market range from 
$110,000 to in excess of $400,000. 

     WESTERN MICHIGAN.  The Company conducts its homebuilding operations in 
western Michigan primarily in a 60 mile radius of Grand Rapids, Michigan 
which includes Holland and Kalamazoo, Michigan (the "Grand Rapids Area").  
The Grand Rapids Area was ranked 54th in the nation by the NAHB for 
population growth during the time period 1986-1995. According to the U.S. 
Census Bureau, the 1997 population of the Grand Rapids MSA was approximately 
1,015,000, up from the 1990 census figures of approximately 942,000 and is 
projected to increase to approximately 1,052,000 by 2002.


                                       4

<PAGE>


     United's subsidiary, United Homes of Michigan, Inc., was the second 
largest homebuilder in the Grand Rapids Area based on homes closed as of 
September 30, 1998. United Homes of Michigan, Inc. is currently exploring 
expanding its operations into Lansing, Ann Arbor and Detroit, Michigan, as 
well as Indianapolis, Indiana. The Company generally sells single-family 
homes to entry-level and move-up buyers with prices generally averaging 
$154,000 in this market which is below the market average of $165,000.  
During the fiscal year ended September 30, 1998, the Company closed on the 
sale of 109 homes in the Grand Rapids Area. 

     LAND ACQUISITION.  A significant factor influencing the Company's 
results of operation and financial condition is its ability to acquire land 
for future home sites on acceptable terms and conditions. The Company has 
developed procedures for, and employs management specialized in, site 
acquisition and development. The Company attempts to develop homes in areas 
with limited competition and before entering into an acquisition arrangement 
generally employs an independent marketing consultant to perform a market 
analysis. 

     The Company attempts to minimize the amount of capital invested in 
undeveloped land by entering into agreements containing contingencies 
allowing the Company extended periods of time to conduct its due diligence 
review prior to the actual purchase of the land. The Company uses this review 
period to obtain necessary development approvals from governmental units and 
to evaluate the feasibility and profitability of the project. The Company 
also investigates other factors affecting the feasibility of the project, 
including: 

<TABLE>
<CAPTION>

    <S>                                                  <C>
     --    topography                                     --     archeological site status
     --    geology, soils and grading                     --     regulatory processing and approval schedule
     --    traffic, transportation and access             --     financing alternatives
     --    market research (including evaluation          --     hazards, including noise and pollution
           of competitive products and pricing)           --     economic feasibility
     --    environmental issues

</TABLE>


     Occasionally, the Company acquires control of land through joint 
ventures and other contractual relationships with third-party landowners. 
Under these arrangements, the Company generally is employed as an agent to 
zone and develop the property and build and sell homes for the ventures. The 
Company is typically required to meet certain criteria relating to cost 
control and absorption rates. The landowner generally subordinates his or her 
interest in the land to a mortgage securing the development financing 
typically provided by a third party. As lots are sold, the landowner shares 
in the profits from sale of the finished lots. This approach allows the 
landowner to maximize the profit to be made on the sale of the land and 
enables the Company to control a site which it might not otherwise have been 
able to control. The arrangement also enables the Company to participate in 
the lot profit, while retaining the profit from the construction of the homes 
on the site. Affiliates of the Company may be participants in these 
arrangements.

     Periodically, the Company uses Acquisition and Option Agreements to 
control finished lots developed by third parties. The Company believes that 
this approach allows it to control and market a large number of finished lots 
with minimal capital investment and limited development risk. Generally, 
under these agreements, the Company can continue to control these finished 
lots as long as the Company purchases a specified number of lots consistent 
with the Acquisition and Option Agreements.  The Company attempts to 
ultimately build a majority of its homes on lots developed by the Company, 
although the Company occasionally builds homes on lots developed by third 
parties. During the fiscal year ended September 30, 1998, approximately 90% 
of the homes sold by the Company were built on lots developed by the Company.

     COMPETITION.  The homebuilding industry is highly competitive and 
fragmented. Homebuilders compete for desirable properties, financing, raw 
materials and skilled labor. The Company competes for residential sales with 
other homebuilders, resales of existing homes, available rental housing, and, 
to a lesser extent, resales of condominiums. The Company's competitors 
include a large number of national and regional


                                       5

<PAGE>


homebuilding companies (Chicago and Phoenix markets) and small local 
homebuilding companies (in all of the Company's markets), some of which may 
have greater financial resources, easier access to working capital or lower 
capital costs than the Company.   The Company competes with these firms on 
the basis of a number of interrelated factors including reputation, location, 
design, quality and price.  Individual resales of residential units and lots 
also provide additional competition.

     ECONOMIC CONDITIONS.  The Company's business, as well as the real estate 
industry in general, is affected by a number of economic factors, including 
interest rates and inflation. Interest rates affect both the cost to 
individuals and builders of purchasing homes and lots from the Company, and 
the carrying cost of undeveloped land. During the past fiscal year, interest 
rates on residential mortgage loans declined slightly. In the past, the 
Company has increased the price of lots offered for sale to offset increased 
inflation. The factors mentioned above may reduce the number of persons who 
are able to afford the lots and homes offered by the Company. If interest 
rates and inflation increase substantially, the real estate and construction 
industries would be adversely affected and the Company's ability to sell its 
real estate could be significantly adversely affected.

     EMPLOYEES.  As of September 30, 1998, the Company employed 101 full-time 
employees.  The Company's employees are not covered by a collective 
bargaining agreement and the Company believes its relations with its 
employees are good. 

     GOVERNMENTAL REGULATION.  The Company's business is subject to 
regulation by a variety of state and federal laws and regulations relating 
to, among other things, advertising, collection of state sales and use taxes 
and product safety. The Company's development activities are also affected by 
local zoning ordinances, building codes and other municipal laws as well as 
federal, state and municipal environmental and conservation  laws. While the 
Company believes it is presently in material compliance with these 
regulations, in the event that it should be determined that the Company is 
not in compliance with all such laws and regulations, the Company could 
become subject to cease and desist orders, injunctive proceedings, civil 
fines and other penalties. 

     ENVIRONMENTAL  LEGAL PROCEEDINGS.  Except as discussed below, and as 
arising in the ordinary course of business, or covered by insurance, the 
Company currently is not subject to any environmental litigation or 
administrative proceedings.  In addition to the below discussed action, the 
Company believes that its potential liability for environmental concerns can 
arise in one of two contexts: (i) liability could arise with respect to 
substances that are in, under or on land which the Company intends to 
acquire; or (ii) liability could arise in connection with how the Company  
intends to develop the land. With respect to a substance in, under or on land 
for which the Company could face environmental liability, the Company 
performs a Phase I environmental audit prior to acquiring the land. If the 
audit uncovers any environmental hazards on the land, the Company would not 
exercise the purchase option unless the hazard could be corrected at a 
reasonable cost. With respect to liabilities in connection with a planned 
development, the Company ascertains the availability of federal and state 
permits necessary for building and development before it exercises the 
options. If a planned development is not permissible under environmental 
laws, the Company will not exercise the option.   

On May 27, 1998, the United States of America, on behalf of the Army Corps. 
Of Engineers, filed a suit against the Company in the Northern District of 
Illinois, Eastern Division, Case No. 93C3242; claiming entitlement to relief 
under the Clean Water Act.  On July 9, 1998, the Company filed a motion to 
dismiss the complaint which motion is still pending.  The Company believes 
the case was filed without merit.  There is no reasonable determination at 
this point of the monetary damages which would be awarded if the Company is 
unsuccessful in the case.  Management believes that resolution of this matter 
will not have a material effect on the Company's financial position, results 
of operation or cash flows.


                                       6

<PAGE>


ITEM 2.   PROPERTIES

     The following table summarizes the Company's inventory of homes and lots 
sold, but not yet closed, the current lot inventory and lots available for 
future development as of September 30, 1998:


<TABLE>
<CAPTION>

                          Homes and Lots                        Lots Available for
                           Sold but not       Current Lot              Future
                            Closed (1)       Inventory (2)         Development (3)
 <S>                           <C>               <C>                  <C>
 Illinois  . . . . .            111               670                  1,895
 Michigan  . . . . .             69               210                    771
 Arizona . . . . . .             27               102                     52
                                ---               ---                  -----
 Total . . . . . . .            207               982                  2,718
                                ---               ---                  -----
                                ---               ---                  -----

</TABLE>

___________________

(1)  Represent homes and lots subject to a purchase agreement which have not yet
     closed (sales backlog). Revenue is not recognized until the time of
     closing. 

(2)  Represents lots owned by the Company that are available for home
     construction which have not been sold. The Company typically constructs and
     sells one home on a lot. 

(3)  Represents undeveloped land that the Company either owns or controls
     through Acquisition and Option Agreements. There can be no assurance that
     the Company will actually develop the number of lots set forth in this
     chart. In addition, as noted herein there can be no assurance that the
     Company will purchase the land controlled through Acquisition and Option
     Agreements. 


     As of September 30, 1998, the Company controlled, through Acquisition 
and Option Agreements, seven parcels of land for future development of homes. 
The acquisition of any particular parcel is subject to numerous conditions 
such as receipt by the Company of satisfactory environmental reports, 
engineering studies, surveys, favorable zoning determinations and acceptable 
financing. Below is a summary of the parcels subject to Acquisition and 
Option Agreements. There can be no assurance that the Company will complete 
the acquisitions on the terms and conditions set forth below, if at all. 

     CLARENDON HILLS, ILLINOIS.  The Company has a contract to acquire 
approximately 6.8 acres of land for a project of 50 units in Clarendon Hills, 
Illinois.

     FOX LAKE, ILLINOIS.  The Company has a contract to acquire approximately 
20 acres zoned and improved for construction of 155 units in Fox Lake, 
Illinois.

     ELLENTON, FLORIDA.  The Company has a contract to acquire approximately 
220 acres of land in Ellenton, Florida for a project of 508 units.

     STEVENS POINTE, MICHIGAN.  The Company has a contract to acquire 
approximately 105 acres in Kent County, Michigan, for a project of 226 units.

     WOODSIDE GREEN, MICHIGAN.  The Company has an option to acquire 30 acres 
of land for a project of 81 units in Holland, Michigan.

     CHANDLER, ARIZONA.  The Company has concluded negotiations to acquire 84 
platted lots in Chandler, Arizona.

     PRESCOTT, ARIZONA.  The Company has two separate options to acquire 15 
and 20 lots, respectively, in Prescott, Arizona.


                                       7

<PAGE>


ITEM 3.   LEGAL PROCEEDINGS

     On May 27, 1998, the United States of America, on behalf of the Army 
Corps. Of Engineers, filed a suit against the Company in the Northern 
District of Illinois, Eastern Division, Case No. 93C3242; claiming 
entitlement to relief under the Clean Water Act.  On July 9, 1998, the 
Company filed a motion to dismiss the complaint which is still pending.  The 
Company believes the case was filed without merit.  There is no reasonable 
determination at this point of the monetary damages which would be awarded if 
the Company is unsuccessful in the case.  Management believes that resolution 
of this matter will not have a material effect on the Company's financial 
position, results of operation or cash flows.

     In June, 1998, Axiom, Inc., an engineering firm employed by the Company 
at various projects, filed a suit claiming non-payment of fees for services 
provided.  The Company has filed a counterclaim for damages due to defective 
work.  The exposure to the Company based on response from its attorney from 
the filed lawsuit and the counterclaim is under $20,000.

     On August 20, 1998, the Village of Cary filed a Complaint in Equity with 
the Circuit Court of the Nineteenth Judicial Circuit, McHenry County, 
Illinois, seeking to, among other items, set aside condemnation proceeds, if 
and when awarded to the owner of a property known as Gentry Ridge, to allow 
the Village to build a sewer interceptor.  The Company is no longer the owner 
of the subject property, but  filed a motion to dismiss in November, 1998.  
Decision of the Motion to Dismiss is pending.  The Company believes the suit 
as filed is without merit.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          NOT APPLICABLE


                                       8

<PAGE>

                                     PART II


ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

          (a)  Not Applicable

          (b)  On November 14, 1997, the Company's registration statement on
     Form S-1, File No. 333-33965, was declared effective, and the Company
     commenced the offering of 11% Mandatory Redemption Debentures due March 15,
     2005 (the "Debentures").

          Miller & Schroeder Financial, Inc. served as the underwriter (the
     "Underwriter") of the offering  which was conducted on a "best-efforts"
     basis.  The Company registered an aggregate of 7,106 Debentures for sale at
     a maximum offering price of $1,000 per Debenture or $7,106,000 maximum
     aggregate offering price.  This amount included a total of 1,015 Debentures
     issuable upon exercise by the Underwriter of an option to purchase such
     additional Debentures (the "Underwriter Option").  The Debentures were
     offered to the public at a price equal to $985 per Debenture.  The Company
     sold all of the Debentures, including the Debentures covered by the
     Underwriter Option and completed the offering on December 22, 1997.  The
     gross proceeds from the offering totaled $7,000,000.





                                       9

<PAGE>


          From the effective date of the registration statement, the Company 
incurred the following   expenses in connection with the issuance and 
distribution of the Debentures:


<TABLE>
<CAPTION>

                       DESCRIPTION                   AMOUNT
                                                       ($)
            <S>                                       <C>
            Underwriting Discounts and
            Commissions                                489,959

            Management Fee to Underwriter              139,988

            Non-accountable expense
            allowance to Underwriter                    69,994

            Reimbursable expenses of
            Underwriter                                120,000

            Registration and filing fees                 2,170

            Legal fees and expenses                    115,000

            Blue Sky fees and expenses                  33,583
            (including counsel fees)

            Printing and engraving expense              60,000

            Accounting                                  70,000

            Miscellaneous expenses                      35,000
                                                  ------------
            Total                                 $  1,135,694
                                                  ------------
                                                  ------------
</TABLE>

     None of the expenses set forth above were paid, directly or indirectly, 
to the Company's  directors or officers or to persons owing ten percent (10%) 
or more of any class of the Company's equity securities or to the affiliates 
of the Company nor, except as described above, were any such payments made 
directly or indirectly to others.

     The net offering proceeds realized by the Company after paying all of    
the expenses described above was $5,864,306 not including the underwriting  
discount of $105,000.  The net proceeds were utilized to repay indebtedness 
aggregating approximately $2.6 million and incurred in connection with land 
acquisitions with the remainder applied to reduce a line of credit loan to 
Heller Financial, Inc.

                                       10

<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

     The following selected consolidated financial data as of September 30, 
1998, 1997 and 1996 and for each of the three years in the period ended 
September 30, 1998 has been derived from the Company's consolidated financial 
statements audited by Deloitte & Touche LLP (1998) and Ernst &Young LLP (1997 
and prior), independent auditors, whose reports with respect thereto is 
included elsewhere in this Report.  The selected consolidated financial data 
as of September 30, 1995 and 1994 and for each of the two years ended 
September 30, 1995 and 1994 has been derived from audited financial 
statements. The following selected consolidated financial data should be read 
in conjunction with the consolidated financial statements, including the 
notes thereto, included elsewhere in this Report.

<TABLE>
<CAPTION>

                           1998                 1997                1996               1995               1994

                                                                        YEAR ENDED SEPTEMBER 30
                                                                        -----------------------
                                                                        (DOLLARS IN THOUSANDS)

SELECTED STATEMENT OF
INCOME DATA:
<S>                       <C>                 <C>                 <C>               <C>              <C>
Revenues                   $  108,501          $100,491            $ 65,117          $ 44,349         $  32,886

Cost of Sales               ($100,242)         $(95,373)           $(60,494)         $(40,067)        $ (29,227)
                           ----------          --------            -------           --------         ---------

Gross Profit               $    8,259          $  5,118            $  4,623          $  4,282         $   3,659

Other Cost and
Expenses                   $   (4,815)         $ (3,247)           $ (2,838)         $ (2,770)        $  (2,490)
                           ----------          --------            -------           --------         ---------
Income before
Investors' Share of
Income in Majority-
Owned Land
Development and
Housing Partnerships       $    3,444          $  1,871            $  1,785          $  1,512         $   1,169

Investors' Share of
Income in Majority-
Owned Land
Development and
Housing Partnerships       $      (58)         $   (698)           $   (735)         $    (70)              --  
                           ----------          --------            -------           --------         ---------
Income before Income
Taxes                      $    3,386          $  1,173            $  1,050          $  1,442         $   1,169

Income Taxes               $  ( 1,365)         $   (454)           $  (401)          $   (577)        $    (468)
                           ----------          --------            -------           --------         ---------
Net Income                 $    2,021          $    719            $   649           $    865         $     701
                           ----------          --------            -------           --------         ---------
                           ----------          --------            -------           --------         ---------


OTHER DATA:

Number of Homes and
Lots Closed                       539               586                378                267               174

Average Selling Price
Per Home                   $      186          $    174            $   171           $    163         $     185
</TABLE>


                                       11

<PAGE>


<TABLE>
<CAPTION>
                                                           AS OF SEPTEMBER 30
                                                         ----------------------
                                                         (DOLLARS IN THOUSANDS)

SELECTED BALANCE
SHEET DATA:                    1998               1997                1996              1995             1994
                             ---------          --------           ---------          ---------       ---------
<S>                           <C>                <C>                 <C>               <C>              <C>
Inventories                   $71,727            $71,233             $54,588           $28,796          $21,143
Total Assets                  $91,101            $85,111             $69,931           $34,365          $26,779

Total Liabilities             $77,336            $73,675             $58,699           $22,909          $18,825

Investors' Equity in
Majority-Owned
Projects                      $   759            $ 1,650             $ 2,164           $ 3,037           $  400
---------------------------------------------------------------------------------------------------------------
</TABLE>


ITEM  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

     The following analysis of the Company's consolidated financial condition 
and results of operations as of September 30, 1998 and 1997 and for the years 
ended September 30, 1998, 1997, and 1996 should be read in conjunction with 
the Company's Consolidated Financial Statements, including the notes thereto, 
and other information included elsewhere in this Report. 

GENERAL

     The Company generates revenue from the interrelated activities of land 
acquisition, development and homebuilding. The Company generally enters into 
a purchase agreement with a potential home buyer prior to commencing 
construction, except where the home is being constructed on a speculative 
basis or to be used as a model home. As of September 30, 1998, the Company 
had 324 homes built or under construction, 207 of which were under contract 
for sale. The number of homes under construction prior to execution of sales 
contracts tends to vary by season reflecting the fact that weather conditions 
in the Chicago and western Michigan markets necessitate starting foundation 
construction in the fall and early winter months prior to executing purchase 
agreements to ensure available inventory for winter sales and spring 
closings. The Company does not recognize a sale for accounting purposes until 
the sale of a home or lot is closed. The time period from execution of a 
purchase agreement to the closing of the sale of a home generally ranges from 
six to nine months.

RESULTS OF OPERATIONS

     YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996.  Revenue from housing and 
land sales for the fiscal years ended September 30, 1998, 1997 and 1996 was 
approximately $107.1 million, $100.2 million and $64.7 million, respectively. 
Total revenues were approximately $108.5 million, $100.4 million and $65.1 
million, respectively, when adding in revenue from the Company's share of net 
income from a minority-owned land development housing partnership, as well as 
management fees. The total number of homes  closed for the fiscal years ended 
September 30, 1998, 1997 and 1996 was 509 homes, 531 homes and 378 homes, 
respectively. The volume between fiscal years 1998 and 1997 remained 
unchanged due to the competitive market conditions.  The Company believes 
that the increases in the volume of homes closed when comparing 1997 to 1996 
was due in part by increases in demand for new residential housing resulting 
from decreases in long-term mortgage interest rates.  The average selling 
price of a home closed in fiscal year 1998 increased from $174,000 for fiscal 
year 1997 to $186,000 in 1998.  Also, the average selling price of a home 
closed in fiscal year 1997 increased from $171,000 in fiscal year 1996 to 
$174,000 in fiscal year 1997.  The Company believes that the increase in the 
average selling price for a home closed during fiscal


                                       12

<PAGE>


year 1998 compared to fiscal year 1997 and fiscal year 1997 compared to 1996 
resulted from changes in the mix of homes closed during those years (higher 
priced homes). 

     As a percentage of housing and land sales revenue, housing costs were 
83.9% for fiscal year 1998, 86.4% for fiscal year 1997 and 83.0% for fiscal 
year 1996. The Company believes that the decrease in housing costs of 2.5% in 
fiscal year 1998 compared to fiscal year 1997 was a result of the type of 
homes built and closed between those fiscal years.  The increase in housing 
costs of 3.4% in fiscal year 1997 compared to fiscal year 1996 was 
attributable to increases in material costs which could not be passed on to 
home buyers and two bulk sales of land at prices lower than typical which, 
therefore, resulted in lower margins. Net income was $2,020,773 in 1998 
compared to $718,603 in 1997 and $648,627 in 1996. 

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents balance at September 30, 1998 
was approximately $.8 million, and on and September 30, 1997 was 
approximately $1.1 million.  The Company typically finances the acquisition 
of land parcels and the costs associated with initial development of the 
parcels (such as entitlement activities and construction of streets and 
sewers) by drawing on a line of credit from Residential Funding Corp., a 
portion which is allocated to fund acquisition and development activity, such 
as sewer and roadway construction (the "Residential Line II"). Under the 
agreements governing the Residential Line II, the Company may generally draw 
up to 75-80% of the value of the land and improvements (based on an as-built 
appraisal) to fund acquisition and development costs. Based on the 
outstanding balance of the Residential Line at the end of each month, an 
interest charge is either paid by the Company if the particular loan does not 
have an interest reserve or is funded through an additional draw on the loan. 
As of September 30, 1998 and September 30, 1997, the Company had total 
indebtedness of approximately $12.8 million and $10.7 million, respectively, 
on the Residential Line II. 

     Once construction of a home commences, the Company was able to draw on 
two lines of credit, a $25 million facility with Heller Financial (the 
"Heller Line") and a line in the amount of $25 million from Residential 
Funding Corp. (the "Residential Line I," collectively with the "Residential 
Line II," the "Residential Lines") to finance the costs associated with 
constructing a home and preparing a lot for delivery and the home for sale to 
the end purchaser. On June 9, 1998, Residential Funding Corporation (a) 
increased the aggregate available under the Residential Lines to $55 million 
from $50 million to allow for additional construction of homes and working 
capital, and (b) made a $7 million term loan (the "RFC Term Loan") to the 
Company.  The RFC Term Loan bears interest at 15% per annum and was due on 
November 15, 1998.  An extension of the term loan to June 30, 1999 has been 
granted.  The RFC Term Loan is secured by assignments of certain real estate 
sale contracts executed by the Company, pursuant to which the Company has 
contracted to or is negotiating to sell certain of its land assets.  As noted 
herein, the Company typically does not commence construction of a home until 
a buyer executes a purchase contract.  As of September 30, 1998 and September 
30, 1997, the Company had total indebtedness of approximately $31.3 million 
and $29.6 million, respectively, outstanding on the Residential Line I and had 
incurred interest charges of approximately $2.8 million and $2.4 million 
associated with this line, all of which were funded by additional draws 
allowable on these lines. 

     On June 22, 1998, the Heller Line was converted to a $13,715,000 project 
loan.  The Heller project loan bore interest at 3.75% over the LIBOR rate and 
has matured on December 15, 1998.  The Company received an extension of this 
loan to May 15, 1999.  The Heller Line was previously being used to fund only 
one project, and was converted to a project loan for that project.  The 
Company does not believe the conversion of the Heller Line to a project loan 
will have a material impact on its ability to finance its business.  The 
Heller Line, after the conversion, was paid off in full.  As of September 30, 
1998, the project loan balance was $3,522,802.


                                       13

<PAGE>


     The amount of indebtedness incurred with respect to any particular 
project is based on the purchase price of the land, the estimated costs of 
infrastructure activities and the costs of constructing and selling homes on 
the land. These estimated costs are based on, among other things, demand for 
housing in the Company's market areas which the Company then factors into its 
analysis of the number of homes that it believes may be constructed and the 
rate at which these homes may be sold to end purchasers. However, from time 
to time the Company will sell improved lots without constructing a home 
thereon.

     Upon closing of a home sale, the Company utilizes all of the net closing 
proceeds (including the Company's profit) from the sale of the home to reduce 
the indebtedness under the Residential Line II or Residential Line I, as the 
case may be. Thus, the amount of indebtedness outstanding on these lines 
fluctuates based on the number of parcels and homes under development or 
construction at any one time and the rate at which the Company closes on 
homes under contract for sale. During the fiscal years ended  September 30, 
1998 and 1997, the Company made principal reductions of approximately $69.6 
million and $68.8 million, respectively, on these lines. As of December 29, 
1998, the Company had approximately $2.4 million available for borrowing 
under its credit facilities.  Draws under the Residential Lines bear interest 
at a variable rate equal to prime plus 1.25% per annum (9.75% as of September 
30, 1998).  The Residential Lines each mature on March 14, 2001.

     From time to time, the Company also incurs indebtedness secured by 
specific projects for specific acquisition and development activities. As of 
September 30, 1998, the Company had approximately $3.5 million of this 
indebtedness outstanding, all of which was secured by certain of the 
Company's assets. This indebtedness generally matures between 1998 and 2000 
and bears interest at a rate of approximately 10.0% per annum as of September 
30, 1998. 
 
     Finally, the Company also generates additional working capital by: (i) 
selling, and then leasing back, certain of its model homes to Dynex 
Residential, Inc., formerly known as National Model Homes; or (ii) by 
entering into other transactions with affiliates of the Company.  On February 
14, 1998, the Company entered into an agreement with National Model Homes, an 
unrelated third party. Under the arrangement with National Model Homes, the 
Company sells the model home at a price equal to the appraised value of the 
completed home and then leases back the model home from National Model Homes. 
Ninety percent of the purchase price is paid in cash and ten percent is 
evidenced by a recourse promissory note.  When the model home is sold to a 
third party by National Model Homes, the note is paid.  As of September 30, 
1998, the company was leasing 18 model homes from National Model Homes.   The 
Company believes this arrangement allows it to increase its available capital 
by reducing the amount of capital committed to model homes which are 
typically the last homes sold at the Company's developments. 

     The Company believes that the capital available under the lines of 
credit described above, project specific indebtedness and cashflow from the 
sale of model homes, internally generated funds and the proceeds from the 
offering of Debentures described herein, will be sufficient to meet the 
Company's reasonably anticipated needs for working capital and liquidity for 
the foreseeable future. If these amounts prove insufficient, however, the 
Company would likely have to raise additional capital (debt or equity or 
both) from third parties. There can be no assurance that additional capital, 
either in the form of equity or debt, will be available on terms and 
conditions acceptable to the Company, if at all. 

     CASH FLOWS FROM OPERATING ACTIVITIES.  The Company's operating 
activities utilized cash in the fiscal years ended September 30, 1998, 1997 
and 1996 of approximately $10.4 million, $2.7 million and $29.6 million, 
respectively.  The Company utilized cash flow generated during the fiscal 
year ended September 30, 1998 to increase the Company's housing inventories 
and notes receivable (approximately $5.3 million) and aided by a decrease in 
the Company's accounts payable (approximately $4.2 million) and a decrease of 
$1.3 million for land held for future development.  Similarly, for the fiscal 
year ended September 30, 1997 and 1996, the Company utilized approximately 
$2.7 million and $29.6 million, respectively, in cash from operating 
activities to increase the Company's inventory of housing (approximately 
$16.6 million and $25.8


                                       14

<PAGE>


million, respectively) offset by an increase in the Company's accounts 
payable (approximately $9.7 million and $3.9 million, respectively) and a 
decrease of $5.9 million and increase of $7.9 million, respectively, for land 
held for future development. The increase in the Company's accounts payable 
reflects an increase in amounts owed to vendors and other subcontractors 
reflecting an increase in the number of homes being constructed by the 
Company. 

     CASH FLOWS PROVIDED BY FINANCING ACTIVITIES.  The Company's financing 
activities provided the bulk of the Company's cash flow in the fiscal years 
ended September 30, 1998, 1997 and 1996.  During the fiscal year ended 
September 30, 1998, net cash provided by financing activities was 
approximately $10.3 million comprised almost entirely of proceeds from 
development loans, other notes payable and the debentures totaling 
approximately $119.4 million offset by repayments on development loans and 
other notes payable, discount and the debentures issuance cost of 
approximately $108.9 million.  For the fiscal years ended September 30, 1997 
and 1996, financing activities provided the Company with net cash of 
approximately $2.8 million and $29.1 million, respectively, comprised almost 
entirely of the proceeds from development loans and other notes payable of 
approximately $119.6 million and $99.6 million, respectively, offset by 
repayments on development loans and other notes payable of approximately 
$115.6 million and $68.8 million, respectively. The increase in borrowing 
activity in each time period reflects increases in the amount of funds 
necessary to finance the Company's construction and development activities as 
reflected by increases in the number of homes constructed and sold by the 
Company in each period when compared to the prior comparable period. These 
borrowings are typically repaid from the proceeds of housing or lot sales and 
then reborrowed by the Company to fund construction costs. Thus, borrowings 
on the Company's lines of credit (described above) fluctuate significantly 
based on the level of the Company's activities. 

     CASH FLOWS FROM INVESTING ACTIVITIES.  Net cash provided by or used for 
investing activities was not significant for the fiscal years ended September 
30, 1998, 1997 or 1996. 

     INFLATION AND SEASONALITY.  Real estate and residential housing prices 
are affected by inflation, which can cause increases in the price of land, 
raw materials and subcontracted labor. Historically, the Company has been 
able to increase the price of its housing products to cover these costs. 
Interest rate fluctuations also affect gross profit margins by increasing or 
decreasing financing costs for land, construction and operations. The Company 
believes that product demand and sales are impacted by mortgage interest 
rates. The Company benefited from low mortgage interest rates in early 1995 
and then again from mid-year 1995 through 1998. If rates increase, potential 
customers may be discouraged from purchasing a home due to the increased 
cost, decrease in buying power and possible difficulty in qualifying for a 
mortgage. Seasonality is generally not a significant factor in the Company's 
operations, in part because homes can be constructed and sold year-round, 
particularly in the Phoenix Area. 

     YEAR 2000.  The Company recognizes the importance of the Year 2000 issue 
and is taking a phased approach intended to facilitate an appropriate 
transition into the Year 2000.  These phases include:

-    Allocation of Company resources to manage the approach,

-    Evaluation of the Company's information technology ("IT") systems and
     non-IT systems that include imbedded microprocessors (together, the
     Company's "Internal Systems"),

-    Inquiry into IT and non-IT systems for principal vendors (principally
     subcontractors) and other service providers (together, the Company's
     "External Systems"),

-    Evaluation of risk associated with Internal and External Systems
     compliance efforts,

-    Test of all material Internal and External Systems as practicable,


                                       15

<PAGE>


-    Creation of contingency plans for non-compliance of either Internal or
     External Systems, and

-    Determination of the expected total cost of a complete state of readiness
     for the Company.

The Company will allocate resources to the phased approach outlined above and 
will complete an inventory of Internal Systems and an inventory of External 
Systems to determine those that do not properly recognize dates after 
December 31, 1999.

The Company's principal Internal Systems include its general systems 
architecture (mini-computers with remote operations) and integrated 
enterprise software.  The Company is currently operating on the latest 
version of this system (excluding architecture) and has received 
representations from the vendor indicating that they are Year 2000 compliant. 
The Company is in the process of evaluating the compliance of its general 
systems architecture.  Despite the certifications from the software vendors 
the Company will test compliance on its principal Internal Systems during 
fiscal 1999.

The Company's principal External Systems include those of its payroll 
processing service, subcontractors, significant raw material vendors, and 
general service providers such as telecommunications and power.  The Company 
has substantially completed its evaluation of its significant subcontractors 
and raw material providers via inquiry. The Company has not performed its own 
test on these systems, and no assurance can be given as to the compliance of 
these systems. Based on the information currently available, the Company is 
not aware of any material non-compliance by its general service providers; 
however, the Company does not control these systems and cannot assure their 
compliance.

Costs - As of September 30, 1998, less than $10,000 of outside consulting 
costs have been incurred related specifically to the Company's Year 2000 
initiatives. The Company will incur capital expenditures and internal staff 
costs, as well as additional outside consulting expenditures, related to this 
process.  Based on currently available information, the Company does not 
expect the costs of these initiatives to exceed $400,000.

Risks Presented by the Year 2000 Issue - The failure by the Company to 
appropriately address a material Year 2000 issue within its Internal Systems, 
or the failure by any third party to address an External System could have a 
material adverse impact on the Company's financial condition, liquidity or 
results of operations.  To date, however, the Company has not identified any 
material Internal or External System that presents a significant risk of not 
being Year 2000 ready or for which a suitable alternative does not exist.  
With continued evaluation, however, the Company may identify an Internal or 
External System that presents a risk for a Year 2000 disruption in 
operations.  The homebuilding construction process by nature is labor 
intensive and could operate for a limited time in a manual environmental.  At 
this time, the Company believes the most likely worst case scenario would 
result if there were a significant disruption in services provided by 
lenders, or certain government agencies which could inhibit the ability of 
the Company to deliver finished homes to its customers.

Contingency Plans - The Company will identify contingency plans that would 
allow for the construction and delivery of homes to customers should any of 
the Company's Internal or External Systems fail.  These contingency plans 
will consist of construction and raw material scheduling arrangements and 
potential alternative financing options for home buyers.

     DEBENTURE OFFERING. As described above, on December 22, 1997 the Company 
completed the sale of approximately $7.0 million of Debentures. The Company 
realized net proceeds of approximately $5.9 million. The net proceeds were 
utilized first to repay indebtedness aggregating approximately $2.6 million 
and second to repay draws on the Heller Line. For additional information 
about the offering, see item (b) of "Market for the Registrant's Common 
Equity and Related Stockholder Matters" above.


                                       16

<PAGE>


FACTORS AFFECTING THE COMPANY'S BUSINESS

     SUBSTANTIAL LEVERAGE, RELIANCE ON FINANCING AND NO ASSURANCE OF 
AVAILABILITY OF CREDIT.  The land development and homebuilding business is 
capital intensive. The Company typically finances the acquisition of land 
parcels and the costs associated with development of the parcels (such as 
entitlement activities and construction of streets and sewers) by drawing on 
its Residential Line II.  Under the agreements governing the Residential Line 
II, the Company may generally draw up to 75-80% of the value of the land and 
improvements (based on an as-built appraisal) to fund acquisition and 
development costs. Based on the outstanding balance of the Residential Line 
II at the end of each month, an interest charge is either paid by the Company 
if the particular loan does not have an interest reserve or is funded through 
an additional draw on the loan. As of September 30, 1998, the Company had 
total indebtedness of $12.8 million on the Residential Line II.  Once 
construction of a home commences, the Company is able to draw on the 
Residential Line I to finance the costs associated with constructing a home 
and preparing a lot for delivery and the home for sale to the end purchaser. 
As of September 30, 1998, the Company had total indebtedness of approximately 
$31.3 million outstanding on the Residential Line I.

     The amount of indebtedness incurred with respect to any particular 
project is based on the purchase price of the land and the costs of 
constructing and selling homes on the land. These estimates are based on, 
among other things, demand for housing in the Company's market areas which 
the Company then factors into its analysis of the number of homes that it 
believes may be constructed and the rate in which these homes may be sold to 
end purchasers. However, from time to time the Company will sell improved 
lots without constructing a home thereon. There can be no assurance that the 
Company's estimate of the demand for housing in the market area or more 
particularly the rate at which these houses can be sold will prove correct. 
Differences in projected and actual demand may cause the Company to incur 
additional holding costs associated with land which is being improved for the 
construction of homes. 

     Upon closing of a home sale, the Company utilizes all of the net closing 
proceeds (including the Company's profit) from the sale of the home to reduce 
indebtedness under the Residential Line II or Residential Line I as the case 
may be. Thus, the amount of indebtedness outstanding on these lines 
fluctuates based on the number of parcels and homes under development or 
construction at any one time and the rate at which the Company closes on 
homes under contract for sale. During the fiscal year ended September 30, 
1998, the Company made principal reductions of approximately $69.6 million 
under the Residential Line I.  As of September 30, 1998, the Company had 
approximately $3.1 million available for borrowing under all of its credit 
facilities. 

     As of September 30, 1998, the Company had a total of $77.3 million of 
outstanding liabilities, including $56.9 million of secured indebtedness. 
Although the Company believes that internally generated funds, the net 
proceeds from the sale of the Debentures and the Company's available 
borrowings under its credit facilities will be sufficient to meet its 
reasonably anticipated needs for working capital and fixed charges including 
debt service on the Debentures for the foreseeable future, there can be no 
assurance that these sources will be sufficient. The Company's ability to 
meet its debt service obligations is dependent upon the future performance of 
the Company, which, in turn, is subject to general economic conditions as to 
financial, competitive, business and other factors, including factors beyond 
the Company's control. The level of the Company's leverage could restrict its 
flexibility in responding to changing business and economic conditions. If 
the Company is at any time unable to generate sufficient cash flow from 
operations or borrow under its existing credit facilities to service its 
debt, it may be required to seek refinancing for all or a portion of that 
debt or to obtain additional financing. There can be no assurance that 
additional financing, either in the form of equity or debt, will be available 
on terms and conditions acceptable to the Company, if at all.


                                       17

<PAGE>


     INTEREST RATES; MORTGAGE FINANCING.  In general, the demand for housing 
is influenced in large part by the availability of mortgage financing and the 
ability of prospective purchasers to finance home purchases since virtually 
all purchasers of the Company's homes finance their acquisitions through 
third-party lenders. Increases in interest rates generally reduce the demand 
for, and affordability of, mortgage financing and therefore the demand for 
the Company's homes. Increases in interest rates would have a material 
adverse affect on the Company's results of operations and financial 
condition. 

     CYCLICAL ECONOMIC CONDITIONS.  The homebuilding industry is cyclical in 
nature and is significantly affected by changes in national and local 
economic and other conditions, such as employment levels, availability of 
financing, interest rates, consumer confidence and housing demand. Sales of 
new homes are also affected by market conditions for resale homes and rental 
properties. Certain of the markets in which the Company operates have at 
times in the past experienced significant declines in housing demand and 
there can no assurance that these declines will not occur in the future. 
Homebuilders such as the Company also incur substantial risk due to the 
fluctuating market value of land, building lots, and housing inventories. 
Additionally, the carrying cost of the Company's inventory can be significant 
and can result in losses in poorly performing projects or markets. 
Homebuilders are also subject to various other risks  which may cause 
fluctuations in operating results such as competitive over building, shortage 
of desirable land with municipal services, availability and cost of materials 
and labor, construction delays, cost overruns, weather conditions, government 
regulation, availability of adequate financing, changes in mortgage interest 
rates and real estate taxes as well as other governmental fees. 

     FLUCTUATIONS IN OPERATING RESULTS/IMPACT ON FUTURE OPERATIONS.  The 
Company's operating results fluctuate from time to time based on factors not 
entirely within the Company's control. These factors include, among others: 
(i) the timing of home closings and land sales; (ii) the Company's ability to 
acquire additional land or options thereon on acceptable terms; (iii) the 
condition of the real estate market and the general economy in the Company's 
markets as well as other markets into which the Company may expand; (iv) the 
cyclical nature of the homebuilding industry and changes in prevailing 
interest rates and availability of mortgage financing; and (v) cost of 
material and labor and delays in construction schedules. The Company's gross 
margins also are affected by the location and type of lot, as well as the 
design of the particular home sold. Negative fluctuations in operating 
results may have an adverse effect on the Company's future results and 
financial condition. As noted above, the Company utilizes the net proceeds 
from home sales to repay indebtedness on its lines of credit. Amounts repaid 
on these lines are then available to be "reborrowed" to fund future 
acquisition, development and construction activities. A slowing or reduction 
in home sales from those projected or anticipated by the Company would have 
an adverse impact on the Company's ability to fund future activities since it 
would have less capital in the form of additional borrowing capacity 
available to finance acquisition, development and construction activity. 

     RESTRICTIONS IMPOSED BY TERMS OF INDENTURE.  The Indenture entered into 
between the Company and the trustee for the holders of the Debentures 
restricts United and the Subsidiaries from, among other things, incurring 
additional indebtedness, paying excessive dividends or making certain other 
restricted payments or investments to the Parent, consummating certain asset 
sales, entering into certain transactions with affiliates, incurring liens, 
or merging or consolidating with any other person or selling, assigning, 
transferring, conveying or otherwise disposing of  substantially all of their 
respective assets.  The Indenture also imposes limitations on United and its 
Subsidiaries to pay dividends or make certain payments to United or any of 
the Subsidiaries, and, requires United to maintain specified financial ratios 
and satisfy certain financial tests. United's ability to meet these ratios 
and tests may be affected by events beyond its control, and there can be no 
assurance that the United will meet these tests. The Indenture does not, 
however, prohibit United from entering new markets.


                                       18

<PAGE>


     NEED TO ACQUIRE LAND FOR FUTURE DEVELOPMENT.  The Company's ability to 
generate revenues in the future depends, in part, on its ability to acquire 
or otherwise control an inventory of undeveloped land while efficiently 
deploying its available capital. Although the Company attempts to minimize 
the amount of capital invested in land parcels, the Company's inventory of 
land may, from time to time, exceed the demand for the Company's products 
thus limiting the capital available for additional land acquisition. In 
pursuing its development activities, the Company may invest significant 
amounts of capital to acquire and maintain control of undeveloped land as 
well as to apply for regulatory approvals prior to determining whether the 
Company will actually develop the land. There can be no assurance that such 
land will be developed on acceptable terms and conditions, if at all, or that 
the Company will have adequate capital to compete with third parties in 
acquiring land. 

     EXTENSIVE REGULATIONS AND ENVIRONMENTAL FACTORS.  The homebuilding 
industry in general, and the Company in particular, is subject to extensive 
and complex laws and regulations which cover, among other things, zoning and 
density requirements, design and building permits, building materials, 
environmental and health issues, advertising and consumer credit, 
development, homebuilding and sales activities. These laws and regulations 
impact the time required to obtain approvals necessary to begin home 
construction and can adversely impact the time between the initial control of 
land, commencement of development and completion of construction. The Company 
is also subject to a variety of environmental laws and regulations which can 
affect its business and its homebuilding projects. The particular 
environmental laws and regulations which apply to any given homebuilding site 
vary greatly depending on the site's location, environmental condition, 
present and former uses of the site as well as adjoining properties. These 
laws and regulations may result in additional delays, may cause the Company 
to incur substantial compliance and other costs, and may prohibit or severely 
restrict homebuilding activity in certain environmentally sensitive areas. 

     In addition, the Company is subject to laws and regulations governing 
the type of materials used in constructing its homes and imposing liability 
on the Company for personal injury and worker's compensation claims. Although 
the Company maintains insurance against the liability for personal injury and 
worker's compensation claims, there can be no assurance that this coverage 
will be adequate. 

     RELIANCE ON SUBCONTRACTORS.  With the exception of field supervisors, 
the Company does not employ its own development or construction personnel. 
Instead, the Company depends on subcontractors and other independent 
contractors to complete its land development and home construction 
activities. There can be no assurances that the Company will continue to be 
able to contract for the services of subcontractors necessary to complete 
such land development and construction on reasonable terms, if at all. 

     RELIANCE ON KEY PERSONNEL.  The Company relies upon certain key 
management employees, including United's Chairman, Virgil W. Owings, and 
President, Edward F. Havlik. The loss of either individual's services could 
have a material adverse effect on the  Company's results of operations and 
financial condition. The Company believes that its future success will depend 
on its ability to retain key members of management and to attract experienced 
management in the future. There can be no assurance that it will be able to 
do so. The Company does not carry, and will not likely obtain any key man 
life insurance on these individuals nor has it entered into contracts with 
any of these individuals. 

     COMPETITION.  The homebuilding industry is highly competitive and 
fragmented. Homebuilders compete for desirable properties, financing, raw 
materials and skilled labor. The Company competes for residential sales with 
other homebuilders, individual resales of existing homes, available rental 
housing and, to a lesser extent, resales of condominiums. The Company's 
competitors include a number of large national and regional homebuilding 
companies (Chicago and Phoenix markets) and small local homebuilding 
companies (in all of the Company's markets), some of which may have greater 
financial resources, easier access to capital markets or lower costs than the 
Company. 


                                       19

<PAGE>


     CONFLICTS OF INTEREST.  From time to time the Company may enter into 
transactions with affiliates including the Parent or its shareholders as well 
as the Company's officers and directors.  There can be no assurance that 
these transactions will be on terms and conditions similar to those that may 
be available with a third party. Such transactions with affiliates may have 
an unfavorable impact on the Company's results of operation and financial 
condition. 

     SUBSEQUENT EVENTS.  The RFC Term Loan which became due November 15, 
1998, has been extended by agreement to June 30, 1999.  In addition, on 
January 8, 1999, the Company entered into a Second Amended Agreement, which 
(a) increased the cash advance rate under the Residential Line as funded and 
(b) modified the debt to equity ratio to 6.25:1

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company does not engage in trading currencies or in any hedging 
activities.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     SEE THE INFORMATION SET FORTH ON PAGES F-1 THROUGH F-17.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     On June 26, 1998, the Company filed a Form 8-K as follows:

     On June 23, 1998, United Homes, Inc. (The "Registrant") was advised by 
Ernst & Young LLP that it was resigning as the Registrant's independent 
accountant.  Ernst & Young LLP had been engaged as the Registrant's 
independent accountant to audit its financial statements as of September 30, 
1997 and 1996 and for each of the three years ended September 30, 1997, 1996 
and 1995.  Ernst & Young LLP's reports on these financial statements did not 
contain an adverse opinion or a disclaimer of opinion nor were these reports 
qualified or modified as to uncertainty, audit scope or accounting 
principles.  At no time during Ernst & Young LLP's engagement as the 
Registrant's independent accountant were there any disagreements on any 
matter of accounting principles or practices, financial statements, 
disclosure or auditing procedures. 

     On September 1, 1998, the Company filed a second Form 8-K as follows:

     On August 27, 1998, United Homes, Inc. (The "Registrant") engaged 
Deloitte & Touche LLP as the Registrant's independent accountant to audit and 
report on the Registrant's annual financial statements for the year ending 
September 30, 1998.  At no time during the Registrant's two most recent 
fiscal years, and any subsequent interim period prior to engaging Deloitte & 
Touche LLP, did the Registrant consult Deloitte & Touche LLP regarding: (i) 
either the application of accounting principles to a specified transaction, 
either completed or proposed; or the type of audit opinion that might be 
rendered on the Registrant's financial statements; or (ii) any matter that 
was either the subject of a disagreement as defined in paragraph 
304(a)(l)(iv) of Regulation S-K and the related instructions or a reportable 
event described in paragraph 304(a)(l)(v).


                                       20

<PAGE>


                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

     The current executive officers, directors and managers of United are as 
follows: 

<TABLE>
<CAPTION>

NAME                     AGE       TITLE
<S>                     <C>        <C>
Virgil W. Owings         65        Chairman of the Board
Edward F. Havlik         54        President and Director
Laurie H. Bulson         31        Vice President and Director
                                   (Directorship ended 9/30/98)
Timothy S. Owings        38        Vice President and Director
                                   (Directorship ended 9/30/98)
William J. Crock, Jr.    51        Executive Vice President, Chief Financial
                                   Officer, Secretary/Treasurer
David L. Feltman         39        Executive Vice President/General Counsel
</TABLE>


     VIRGIL W. OWINGS, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Owings has 
served as the Chief Executive Officer of the Parent since 1982 and as 
United's Chairman of the Board since its inception in 1994. Prior thereto, 
Mr. Owings was Chief Financial Officer of Urban Investment Company. He holds 
a B.S. degree from the University of Missouri and an MBA from the University 
of Chicago and is a C.P.A. Mr. Owings is the father of Timothy Owings. 

     EDWARD F. HAVLIK, PRESIDENT AND DIRECTOR. Mr. Havlik has served as the 
Chairman of the Board of the Parent since 1982 and as United's President 
since its inception in 1994. Mr. Havlik has more than twenty-three years of 
experience building and developing homes with an emphasis on marketing, 
forward planning and negotiations. Mr. Havlik holds a B.A. in marketing from 
Northern Michigan University and an honorary Doctor of Letters from Jordan 
College and is President of the Illinois Homebuilders Association. Mr. Havlik 
is the father of Laurie Bulson. 

     LAURIE H. BULSON, VICE PRESIDENT. Ms. Bulson has been employed by the 
Company or its Parent since 1988. In addition to her current 
responsibilities, she has also served as Director of Sales and Marketing for 
United Homes Michigan, Inc. and Vice President of Marketing of United Homes 
of Illinois, Inc. Ms. Bulson has a B.S. degree in Business and Marketing from 
Indiana University. Ms. Bulson is the daughter of Mr. Havlik. 

     TIMOTHY S. OWINGS, VICE PRESIDENT OF UNITED HOMES, INC. AND PRESIDENT 
UNITED HOMES, INC., AN ARIZONA CORPORATION. Mr. Owings has been employed by 
the Company or its Parent since 1984. Prior thereto, he was Director of 
Research for Home Data Corporation, Chicago. Mr. Owings is President of 
United Homes, Inc., an Arizona corporation and has a degree in Business 
Administration/Marketing from Western Illinois University and is a licensed 
Real Estate Broker in Arizona. Mr. Owings is the son of Virgil Owings. 

     WILLIAM J. CROCK, JR., EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER. 
Mr. Crock has served as Chief Financial Officer of United and its Parent 
since 1990. Prior thereto, he was Chief Lending Officer of Skokie Federal 
Savings and Loan from 1986 to 1990, Vice President of Finance for Joseph 
Freed & Associates from 1983 to 1986 and an audit manager for Touche Ross & 
Company from 1969 to 1983. Mr. Crock has a B.S. from Bradley University, 
Peoria, Illinois and is a C.P.A. 


                                       21

<PAGE>


     DAVID L. FELTMAN, EXECUTIVE VICE PRESIDENT/GENERAL COUNSEL.  Mr. Feltman 
joined United in 1996. From 1988 to 1989 Mr. Feltman was associated with, and 
from 1990 to 1995 a partner with, Shefsky & Froelich Ltd. practicing in the 
Real Estate Department. In 1981 he received a B.S. in Accounting, and in 1984 
he received a J.D. degree, both from the University of Illinois. Mr. Feltman 
is also a C.P.A. 

     GLENN RICHMOND, PRESIDENT, UNITED HOMES OF MICHIGAN, INC.  Mr. Richmond 
has been with United Homes since May, 1997.  He holds a B.S. in Urban 
Planning from Michigan State University, and an M.B.A. in Real Estate Finance 
from DePaul University.  He brings 10 years of  homebuilding experience with 
expertise within the land acquisition planning and finance.  Prior to 
arriving at United, Mr. Richmond spent six years in the public sector as a 
City Planner specializing in regulatory mandates and requirements.

     RIK ALEX, SENIOR VICE PRESIDENT/MANAGER OF OPERATIONS.  Mr. Alex joined 
United Homes in September, 1998 as Senior Vice President of Operations.  He 
brings to United an extensive working knowledge spanning 40 years of land 
development and construction experience.  Mr. Alex is an instructor at 
Northern Illinois University; a member of the Executive Advisory Board 
College of Construction Management and Engineering at Bradley University and 
a noted guest speaker at Purdue University School of Building Construction 
Management.

     The officers of the Company are elected annually and serve at the 
discretion of the Board of Directors. None of the Company's officers is 
employed pursuant to a written employment contract.






                                      22

<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

     SUMMARY COMPENSATION TABLE.  The following table sets forth information 
with respect to those persons who: (i) served as the chief executive officer 
of United during the fiscal year ended September 30, 1998; and (ii) were the 
most highly compensated executive officers of United at September 30, 1998, 
whose total annual salary and bonus exceeded $100,000 for the year.


<TABLE>
<CAPTION>

                                                                                                    Long-term Compensation
                                                                                                   ------------------------
                                              Annual Compensation                               Awards                Payouts
                                              --------------------                             ---------              --------
   Name and Principal     Year      Salary      Bonus        Other Annual    Restricted    Securities      LTIP        All Other
        Position                       $           $         Compensation      Stock       Underlying    Payouts     Compensation
                                                                  ($)          Awards     Options/SARS      ($)            ($)
                                                                                              (#)
           (a)             (b)       (c)         (d)              (e)            (f)          (g)           (h)            (i)
 <S>                     <C>         <C>         <C>             <C>            <C>           <C>           <C>            <C>
 Virgil W. Owings         1998        273,003          -               -              -             -             -              -
 Chairman                 1997        325,000          -               -              -             -             -              -
                          1996        325,000          -               -              -             -             -              -

 Edward F. Havlik         1998        403,955          -               -              -             -             -              -
 President                1997        325,000          -               -              -             -             -              -
                          1996        325,000          -               -              -             -             -              -


 William J. Crock, Jr.    1998        132,047     25,000               -              -             -             -              -
 Executive Vice           1997        125,000          -               -              -             -             -              -
 President                1996        125,000          -               -              -             -             -              -
                                                       -

 David L. Feltman         1998        122,108     25,000               -              -             -             -              -
 Executive Vice           1997        125,000          -               -              -             -             -              -
 President, General       1996              -          -               -              -             -             -              -
 Counsel                                               -

 Glenn Richmond
 Bruce C. Brown (1)       1998        120,000          -               -              -              -           -              -
 President                1997        120,000          -               -              -              -           -              -
 United Homes of          1996        120,000          -               -              -              -           -              -
 Michigan, Inc.

 Timothy S. Owings        1998        100,000     16,250               -              -              -           -              -
 Vice President           1997        100,000          -               -              -              -           -              -
                          1996        100,000          -               -              -              -           -              -


 John Wozniak             1998        103,305          -               -              -              -           -              -
 Vice President of        1997        100,000          -               -              -              -           -              -
 Production               1996         93,229          -               -              -              -           -              -

 Neville Alperstein(2)                                 -               -              -              -           -              -
</TABLE>

 (1) Mr. Brown resigned his position effective September 30, 1998, and was 
replaced with Glenn Richmond.

 (2)  Mr. Alperstein resigned his position as President of United Homes of 
Illinois, Inc. in January 1998 to pursue other  opportunities.

     United has recently established a bonus plan which enables executive 
level employees of United to receive up to twenty-five percent (25%) of their 
annual base salary and all other employees to receive up to ten percent (10%) 
plus an additional one quarter of one percent (.25%) for each year that the 
individual has


                                       23

<PAGE>



been employed by United if the Company achieves its income budget for that 
particular year. In particular, at the beginning of each fiscal year, the 
Company's managers develop budgets for their respective operations. These 
budgets are then approved by the Company's Board of Directors. If the Company 
is successful in meeting or exceeding the budget, then the various employees 
are eligible for bonuses. The determination of bonus payments is made in the 
December following the end of the previous fiscal year following receipt and 
review by the board of the Company's audited financial statements for the 
prior year. 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     United is a wholly-owned subsidiary of the Parent, which owns 100% of 
the issued and outstanding common stock of United. Control of United is 
directed by the shareholders of the Parent. The following table sets forth 
certain information regarding the ownership of the Parent's common stock as 
of September 30, 1998 by each person who is known to beneficially own more 
than 5% of the Parent's common stock, by each of the Directors and executive 
officers of United, and by all Directors and executive officers of United as 
a group.

<TABLE>
<CAPTION>

                                                    NUMBER OF SHARES         PERCENT OF CLASS
NAMES AND ADDRESS OF BENEFICIAL OWNER(1)           BENEFICIALLY OWNED           OUTSTANDING
<S>                                                     <C>                          <C>
Edward F. Havlik (2)
2100 Gold Road
Suite 110
Rolling Meadows, IL  60008                               50,000                      50%

Virgil W. Owings (3)
3260 North Hayden
Suite 102
Scottsdale, AZ  85251                                    50,000                      50%

___________________
</TABLE>


(1)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission, and generally includes voting power
     and/or investment power with respect to securities. Shares of common stock
     which a person has the right to acquire within 60 days of September 30,
     1998, are deemed outstanding for computing the percentage of the person
     possessing such right but are not deemed outstanding for computing the
     percentage of any other person. Unless otherwise indicated, the Company
     believes that each person named or included in the table has sole voting
     and investment power with respect to the shares of common stock set forth
     opposite his or her name. 

(2)  Mr. Havlik owns his interest in United through his interest in the Parent.
     Mr. Havlik owns 17,500 shares, the Nancy I. Havlik Trust owns 17,500
     shares, and 30,000 shares are owned by TUET, LLC, which has as its members
     the Nancy I. Havlik Trust and the Barbara M. Owings Irrevocable Trust, in
     equal shares. 

(3)  Mr. Owings owns his interest in United through his interest in the Parent
     which includes 17,500 shares of common stock held in a trust of which Ruth
     Goodwin (Mr. Owings daughter), Timothy Owings and Todd Owings serve as
     trustee and of which Mr. Owings has disclaimed beneficial ownership; 17,500
     shares of common stock held by the Barbara M. Owings Irrevocable Trust (the
     "Owings Family Trust"); and 30,000 shares are owned by TUET, LLC, which has
     as its members the Nancy I. Havlik Trust and the Barbara M. Owings
     Irrevocable Trust, in equal shares. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS

     On November 17, 1997, the Havlik Trust and the Owings Trust each
transferred a 37-1/2% interest in each of United Round Lake Land Development LLC
("Round Lake, LLC") and Mirage, LLC ("Mirage LLC") to a third party unrelated to
the Company, each retaining a 12-1/2% interest in Round Lake LLC and Mirage LLC.
On December 30, 1997, the Havlik Trust and Owings Trust each transferred its
remaining 12-1/2% interest in each of Round Lake LLC and Mirage LLC to a third
party unrelated to the Company.


                                       24

<PAGE>


     On November 17, 1997, Agnus-Irene Corp. and Arizona Fisheries, Inc. each 
transferred a 37-1/2% interest in Model Homes, LLC to a third party unrelated 
to the Company each retaining a 12-1/2% interest in Model Homes, LLC.  On 
December 30, 1997, each of Agnus-Irene Corp. and Arizona Fisheries, Inc. 
transferred its remaining 12-1/2% interest in Model Homes, LLC to a third 
party unrelated to the Company.  During the quarter ended December 31, 1997, 
the Company recognized approximately $1.2 million of previously deferred 
income as of September 30, 1997.

     On May 1, 1994, the Parent executed a Real Estate Purchase Agreement 
with Greenbrooke Associates, Ltd. ("Greenbrooke"), a Michigan corporation. 
Edward Havlik and Virgil Owings each own 16-2/3% of Greenbrooke.  The Purchase 
Agreement was for the sale of 142 unimproved single family lot sites from 
Greenbrooke for $12,000 per lot plus interest at the rate of 8% per annum 
(subsequently increased to $13,000 per lot plus interest by amendment to the 
Purchase Agreement). The Parent assigned the Purchase Agreement to United 
Homes of Michigan, Inc. in May of 1994.  As of September 30, 1998, United 
Homes of Michigan, Inc. was obligated to pay Greenbrooke $205,428 (inclusive 
of interest) for lots to be improved with single-family residences and 
condominiums. The sale price and subsequent increase were determined based 
upon the parties agreement of the fair market value of the lots, without 
reliance on independent appraisals.

     Greenbrooke loaned the Company $240,259 in February, 1997. The 
obligation was evidenced by a demand note which bears interest at the prime 
rate.  In July, 1998 the debt evidenced by this note was credited against the 
purchase price in a transaction pursuant to which the Company sold certain of 
its property for approximately $6,800,000 to an entity classified as an 
affiliate pursuant to ownership attribution rules.

     On February 1, 1996, United Homes of Michigan, Inc., executed a $100,000 
promissory note in favor of Landrover Properties, L.L.C., a Michigan limited 
liability company, 60% of which is owned by the Havlik Trust.  As of 
September 30, 1998, the note was paid in full.

     N. Havlik owns a 15.16% interest in a partnership which loaned $660,000 
to the Company secured by approximately 86 acres of land in Kalamazoo, 
Michigan. As of September 30, 1998, this note was paid in full. 

     DR Development, Inc. a corporation owned by the Havlik Trust and the 
Owings Trust loaned the Company $200,000 in September of 1993, ("Loan 1") and 
$182,000 on August 5, 1994 ("Loan 2"). Loan 1 and Loan 2 are each evidenced 
by a promissory note ("Note 1" and "Note 2" respectively). Note 1 bears 
interest at 10% per annum. Note 2 provides that $364,000 inclusive of 
interest is due on maturity, which is December 31, 1998. As of September 30, 
1998 approximately $414,652 is owed in aggregate on Note 1 and Note 2. 

     The entire obligation of Odyssey Limited Partnership to the Company has 
been written off in fiscal 1998.

     From time to time, the Company has advanced monies to Parent to pay 
obligations of Parent. Such advances have resulted in a payable to the 
Company, evidenced by a promissory note, which as of September 30, 1998 was 
$4,563,471. This promissory note bears interest at the prime rate (8.50% as 
of September 30, 1998). 


                                       25

<PAGE>


     Messrs. Havlik and Owings have each guaranteed certain indebtedness of 
the Company and its subsidiaries in the past. As of September 30, 1998, 
Messrs. Havlik and Owings have guaranteed indebtedness outstanding for 
approximately $12.6 million of debt, in the aggregate. 

                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
          CONFORM TO 8-K FILING-23

     On June 26, 1998, the Company filed an 8-K as follows:

     On June 23, 1998, United Homes, Inc. (The "Registrant") was advised by 
Ernst & Young LLP that it was resigning as the Registrant's independent 
accountant.  Ernst & Young LLP had been engaged as the Registrant's 
independent accountant to audit its financial statements as of September 30, 
1997 and 1996 and for each of the three years ended September 30, 19997, 1996 
and 1995.  Ernst & Young LLP's reports on these financial statements did not 
contain an adverse opinion or a disclaimer of opinion nor were these reports 
qualified or  modified as to uncertainty, audit scope or accounting 
principles.  At no time during Ernst & Young LLP's engagement as the 
Registrant's independent accountant were there any disagreements on any 
matter of accounting principles or practices, financial statements, 
disclosure or auditing procedures.

     On September 1, 1998, an 8-K was filed as follows: 

     On August 27, 1998, United Homes, Inc. (The "Registrant") engaged 
Deloitte & Touche LLP as the Registrant's independent accountant to audit and 
report on the Registrant's annual financial statements for the year ending 
September 30, 1998.  At no time during the Registrant's two most recent 
fiscal years, and any subsequent interim period prior to engaging Deloitte & 
Touche LLP, did the Registrant consult Deloitte & Touche LLP regarding: (i) 
either the application of accounting principles to a specified transaction, 
either completed or proposed; or the type of audit opinion that might be 
rendered on the Registrant's financial statements; or (ii) any matter that 
was either the subject of a disagreement as defined in paragraph 
304(a)(l)(iv) of Regulation S-K and the related instructions or a reportable 
event described in paragraph 304(a)(l)(v).


                                       26

<PAGE>

<TABLE>
<CAPTION>


                                  EXHIBIT INDEX

    EXHIBIT           DESCRIPTION
    -------           -----------
     <S>            <C>
      3.1      --   Articles of Incorporation of United Homes, Inc.(1)
      3.2      --   Bylaws of United Homes, Inc.(1)
      4.1      --   Specimen Debenture (filed as part of Exhibit 4.2)
      4.2      --   Indenture  dated  November  25,  1997,  by and between
                    United Homes, Inc. and National City Bank of Minneapolis(4)
     10.1      --   Loan  Agreement  between  Residential  Funding  Corporation
                    and United Homes, Inc., United Homes of Illinois, Inc.,
                    United Homes of Michigan, Inc. and United Homes, Inc.,
                    an Arizona corporation dated March 14, 1997(1)
     10.2      --   Loan  Agreement  between  Residential  Funding  Corporation
                    and United Homes, Inc., United Homes of Illinois, Inc.,
                    United Homes of Michigan, Inc. and United Homes, Inc.,
                    an Arizona corporation dated May 28, 1996(1)
     10.3      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois, Inc., United Homes of Michigan, Inc. and United
                    Homes, Inc., an Arizona corporation dated October 3, 1996(1)
     10.4      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois,  Inc., United Homes of Michigan, Inc.
                    and United Homes, Inc., an Arizona corporation dated
                    August 21, 1996(1)
     10.5      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois, Inc., United Homes of Michigan, Inc. and
                    United Homes, Inc., an Arizona corporation dated
                    February 3, 1997(1)
     10.6      --   $7,000,000 Promissory Note from United Homes, Inc., United
                    Homes of Michigan, Inc., United Homes of Illinois, Inc.,
                    and United Homes, Inc., an Arizona corporation to
                    Residential Funding Corporation dated June 9, 1998*
     10.7      --   Amendment Agreement between United Homes, Inc., United
                    Homes of Illinois, Inc., United Homes of Michigan, Inc.,
                    United Homes, Inc., an Arizona corporation and Residential
                    Funding Corporation dated June 9, 1998*
     10.8      --   Second Amendment Agreement between United Homes, Inc.,
                    United Homes of Michigan, Inc., United Homes of Illinois,
                    Inc., United Homes, Inc., an Arizona corporation and
                    Residential Funding Corporation dated January 8, 1999.*
     10.9      --   Loan Agreement dated June 22, 1998 by and between United-
                    Woodmere, Inc. and Heller Financial, Inc.*
     10.10     --   Note dated June 22, 1998 in the amount of $13,715,000 from
                    United-Woodmere, Inc., to Heller Financial, Inc.*
     21.1    --     List of Subsidiaries of United Homes, Inc.(2)
     27.1    --     Financial Data Schedule*

</TABLE>
________________________
*  Filed herewith

(1)  Incorporated by reference from the Registrant's Registration Statement on
     Form S-1, File No. 333-33965, filed August 19, 1997.

(2)  Incorporated by reference from Amendment Number One to the Registrant's
     Registration Statement on Form S-1, File No. 333-33965, filed October 21,
     1997.

(3)  Incorporated by reference from Amendment Number Three to the Registrant's
     Registration Statement on Form S-1, File No. 333-33965, filed November 14,
     1997.

(4)  Incorporated by reference from the Registrants Form 10-K Annual Report
     pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
     for the fiscal year ended September 30, 1997, File No. 0-23347 filed
     December 30, 1997.

                                       27

<PAGE>

                                  United Homes, Inc.

                      Index to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Reports of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997. . . . . . . . F-3
Consolidated Statements of Income for the years ended September 30, 1998,
     1997, and 1996... . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholder's Equity for the years
     ended September 30, 1998, 1997, and 1996. . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended September 30,
     1998, 1997, and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.


                                         F-1
<PAGE>

                           Report of Independent Auditors

Board of Directors
United Development Management Company

We have audited the accompanying consolidated balance sheet of United 
Homes, Inc., a wholly owned subsidiary of United Development Management 
Company, as of September 30, 1998, and the related consolidated statements of 
income, stockholder's equity, and cash flows for the year then ended. These 
financial statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements based 
on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of the Company at September 30, 
1998, and the results of its operations and its cash flows for the year then 
ended in conformity with generally accepted accounting principles.


Chicago, Illinois
January 8, 1999



                           Report of Independent Auditors

Board of Directors
United Development Management Company

We have audited the accompanying consolidated balance sheet of United 
Homes, Inc., a wholly owned subsidiary of United Development Management 
Company, as of September 30, 1997, and the related consolidated statements of 
income, stockholder's equity, and cash flows for each of the two years in the 
period then ended. These financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of United Homes, Inc. at September 30, 1997 and the consolidated 
results of its operations and its cash flows for each of the two years in the 
period then ended, in conformity with generally accepted accounting 
principles.


                                       Ernst & Young LLP


Chicago, Illinois
February 3, 1998

                                         F-2
<PAGE>

                                 United Homes, Inc.

                            Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30
                                                           1998        1997
                                                      -------------------------
<S>                                                   <C>           <C>
ASSETS
Cash and cash equivalents                             $   795,880  $   937,305
Closing proceeds in transit                                  -         168,063
Housing inventories                                    71,727,336   71,232,760
Land held for future development                        1,085,786    2,352,502
Investment in real estate partnership                     541,243      541,243
Due from Parent                                         4,563,471    4,159,383
Due from affiliates                                       373,098      190,836
Notes receivable from affiliates                             -       3,902,000
Notes receivable                                        9,112,374         -
Other receivables (net of allowance of $245,000 in
 1997)                                                    248,773      381,870
Deposits                                                   91,937      220,833
Other Assets                                            2,561,395    1,023,827
                                                      -------------------------
Total assets                                          $91,101,293  $85,110,622
                                                      -------------------------
                                                      -------------------------

LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable                                      $11,102,417  $15,284,650
Accrued costs on closed sales                           2,237,972    3,870,524
Accrued liabilities                                       393,441      145,540
Deferred income                                           250,711    1,264,371
Deposits from home buyers                                 613,266      963,233
Development loans and other notes payable              56,912,050   52,146,531
Mandatory Redemption debentures, net of                 5,826,111         -
 issuance costs and discount
                                                      -------------------------
Total liabilities                                      77,335,968   73,674,849


Investors' equity in majority-owned land development
 and housing partnerships                                 758,563    1,649,784

Stockholder's equity:
 Common stock, $.01 par value; 1,000,000 shares
  authorized; 1,000 shares issued and outstanding             100          100
 Additional paid-in capital                             1,203,900        3,900
 Retained earnings                                     11,802,762    9,781,989
                                                      -------------------------
Total stockholder's equity                             13,006,762    9,785,989
                                                      -------------------------
Total liabilities and stockholder's equity            $91,101,293  $85,110,622
                                                      -------------------------
                                                      -------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                     F-3
<PAGE>

                                 United Homes, Inc.

                         Consolidated Statements of Income

<TABLE>
<CAPTION>


                                                                                                YEAR ENDED SEPTEMBER 30
                                                                                       1998               1997               1996
                                                                                 --------------------------------------------------
<S>                                                                              <C>                <C>                <C>
REVENUES
Housing and land sales (539 units, 564 units, and 378 units in 1998, 1997,
 and 1996, respectively)                                                         $ 107,148,828      $ 88,596,301       $ 64,749,166
Housing and land sales-affiliates:
 Housing sales (22 units, net of deferred gain of $753,397 in 1997)                      -             3,908,103              -
 Land sales (net of deferred gain of $681,972 in 1997)                                   -             7,567,714              -
 Recognition of deferred income                                                      1,264,371           170,998              -
Share of net income from minority-owned land development and housing
 partnership                                                                             -                55,969            156,233
Management fees                                                                         87,350           192,034            212,021
                                                                                 --------------------------------------------------
                                                                                   108,500,549       100,491,119         65,117,420
COST OF SALES
Housing costs, including amortization of capitalized interest and real
 estate taxes of $5,079,231, $4,510,581, and $2,031,442 in 1998, 1997, and
 1996, respectively                                                                 89,884,577        86,669,662         53,787,863
Amortization of capitalized project costs                                           10,357,083         8,703,541          6,706,639
                                                                                 --------------------------------------------------
Operating Profit                                                                     8,258,889         5,117,916          4,622,918

OTHER COSTS AND EXPENSES
Administrative                                                                       5,270,185         3,210,901          2,818,552
Interest, net of interest income of $643,689 (of which $613,109 is 
 from note receivable in 1998), $38,933 and $38,971 in 1997 and 
 1996, respectively                                                                   (455,709)           35,603             19,811
                                                                                 --------------------------------------------------
                                                                                     4,814,476         3,246,504          2,838,363
                                                                                 --------------------------------------------------

Income before investors' share of income in majority-owned land development
 and housing partnerships                                                            3,444,413         1,871,412          1,784,555
Investors' share of income in majority-owned land development and housing
 partnerships                                                                           57,992           698,164            734,597
                                                                                 --------------------------------------------------
Income before income taxes                                                           3,386,421         1,173,248          1,049,958
Income taxes                                                                         1,365,648           454,645            401,331
                                                                                 --------------------------------------------------
Net income                                                                       $   2,020,773      $    718,603       $    648,627
                                                                                 --------------------------------------------------
                                                                                 --------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                         F-4

<PAGE>

                                 United Homes, Inc.

                  Consolidated Statements of Stockholder's Equity

                   Years ended September 30, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                                     ADDITIONAL
                                        COMMON        PAID-IN      RETAINED
                                        STOCK         CAPITAL      EARNINGS
                                        -----------------------------------
<S>                                     <C>        <C>           <C>
Balance at October 1, 1995               $100       $    3,900    $ 8,414,759
Net income                                                            648,627
                                        -------------------------------------
Balance at September 30, 1996             100            3,900      9,063,386
Net income                                                            718,603
                                        -------------------------------------
Balance at September 30, 1997             100            3,900      9,781,989

Additional capital contribution                      1,200,000
Net income                                                          2,020,773
                                        -------------------------------------
Balance at September 30, 1998            $100       $1,203,900    $11,802,762
                                        -------------------------------------
                                        -------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                         F-5

<PAGE>

                                  United Homes, Inc.

                        Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED SEPTEMBER 30
                                                                        1998               1997                 1996
                                                                -----------------------------------------------------------
<S>                                                             <C>                    <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income                                                         $   2,020,773       $     718,603       $     648,627
Adjustments to reconcile net income to net cash used in
  operating activities:
    Share of net income from real estate partnership                       -                 (55,969)           (156,233)
    Investors' share of equity in majority-owned land
      development and housing partnerships                                57,992             698,164             734,597
    Bad debt expense                                                       -                 145,000               -
    Amortization of debentures issuance costs                             66,805               -                   -
    Changes in:
      Closing proceeds in transit                                        168,063             154,218             184,143
      Housing inventories                                                (62,695)        (16,644,716)        (25,791,983)
      Land held for future development                                 1,266,716           5,906,239          (7,918,741)
      Due from Parent                                                 (1,581,046)           (664,086)         (1,942,804)
      Due from affiliates                                               (182,262)             72,470            (252,149)
      Other receivables                                                  133,097              69,820             (24,832)
      Notes receivable from affiliates                                 3,902,000          (3,902,000)              -
      Notes receivable                                                (9,112,374)              -                   -
      Deposits                                                           128,896             179,877            (324,705)
      Other assets                                                      (337,568)           (327,453)            203,884
      Construction draws in process                                           -           (1,059,437)           (675,636)
      Accounts payable                                                (4,182,233)          9,655,153           3,936,745
      Accrued costs on closed sales                                   (1,632,552)          1,074,322           1,997,481
      Accrued liabilities                                                247,901            (171,449)           (352,111)
      Deferred income                                                 (1,013,660)          1,264,371               -
      Deposits from home buyers                                         (349,967)            204,832             136,705
                                                                -----------------------------------------------------------
Net cash used in operating activities                                (10,462,114)         (2,682,041)        (29,597,012)

CASH FLOW FROM INVESTING ACTIVITIES
Distributions from real estate partnership investment                         -                -                 178,000
                                                                -----------------------------------------------------------
Net cash provided by investing activities                                     -                -                 178,000

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other notes payable              112,513,289         119,618,114          99,565,025
Repayments of development loans and other notes payable             (107,747,770)       (115,610,439)        (68,818,031)
Proceeds from mandatory redemption debentures                          6,895,000               -                   -
Payment of issuance costs on mandatory redemption debentures          (1,135,694)              -                   -
Contributions from investors' in majority-owned land
  development and housing partnerships                                        -              425,775             150,000
Distributions to investors' in majority-owned land
  development and housing partnerships                                  (204,136)         (1,638,266)         (1,757,036)

                                                                -----------------------------------------------------------
Net cash provided by financing activities                             10,320,689           2,795,184          29,139,958
                                                                -----------------------------------------------------------
Increase (decrease) in cash and cash equivalents                        (141,425)            113,143            (279,054)
Cash and cash equivalents at beginning of year                           937,305             824,162           1,103,216
                                                                -----------------------------------------------------------
Cash and cash equivalents at end of year                           $     795,880        $    937,305        $    824,162
                                                                -----------------------------------------------------------
                                                                -----------------------------------------------------------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

During the year ended September 30, 1998, UHI assigned its interests in 
United Lindsay East Valley Partnership (Lindsay) to United Development 
Management Company. The investor's equity in Lindsay at date of assignment 
was $1,176,958.

During the year ended September 30, 1998, United Development Management 
Company contributed $1,200,000 in condominium units and commercial real 
estate property to United Homes, Inc.

During the year ended September 30, 1998, the investors in the majority-owned 
land development and housing partnership contributed $431,881 of land 
inventory to United Homes, Inc.

SEE ACCOMPANYING NOTES.

                                         F-6
<PAGE>

                                  United Homes, Inc.

                      Notes to Consolidated Financial Statements


1.  ORGANIZATION AND DESCRIPTION OF BUSINESS

United Homes, Inc. (UHI), is a wholly owned subsidiary of United Development 
Management Company (the Parent). UHI and its wholly owned subsidiaries, 
United Homes of Illinois, Inc., United Homes of Michigan, Inc. and United 
Homes, Inc. an Arizona corporation (collectively, the Company) are engaged in 
the ownership, development, construction, and sale of residential real 
estate, with operations in Illinois, Arizona, and Michigan. The accompanying 
consolidated financial statements include the accounts of UHI, its wholly 
owned subsidiaries and Majority-Owned Partnerships. All significant 
intercompany balances and transactions have been eliminated. In addition, UHI 
has a non-controlling 24.875% ownership interest in United Development 
Bristolwood Limited Partnership (UDB), which is presented as an investment in 
real estate partnership and is accounted for using the equity method.

UHI also provides development and construction management services to third 
parties. Aggregate unit closings and revenues associated with the Company's 
direct sales were as follows:


<TABLE>
<CAPTION>
          SEPTEMBER 30        CLOSINGS            REVENUES
      -----------------------------------------------------------
      <S>                     <C>                <C>
              1998              539             $107,148,828
              1997              586               92,504,404
              1996              378               64,749,166
</TABLE>


                                         F-7
<PAGE>

                                  United Homes, Inc.

                Notes to Consolidated Financial Statements (continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenues from housing and land sales are recognized in the period in which 
title passes and cash is received.

HOUSING INVENTORIES AND LAND HELD FOR FUTURE DEVELOPMENT

Housing inventories and land held for future development are stated at cost, 
which is not in excess of net realizable value.  Housing inventories include 
all direct costs of land under development, construction, plus financing and 
other carrying costs incurred during the period of development.  Capitalized 
project costs, including construction administration, legal fees, and various 
office costs that relate to land development housing construction, are 
capitalized and are charged to income as housing units are sold.

CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with a maturity of 
three months or less, when purchased.

INCOME TAXES

The Company and its Parent files a consolidated federal income tax return. 
Income tax expense is reflected in the accompanying consolidated financial 
statements as if the Company filed its income tax returns separately from its 
Parent.

                                         F-8
<PAGE>

                                  United Homes, Inc.

                Notes to Consolidated Financial Statements (continued)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MANAGEMENT'S USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the amounts of assets and liabilities, disclosure of contingent 
assets and liabilities, and reported amounts of revenues and expenses during 
the reporting period.  Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the 1997 consolidated financial statements have been 
reclassified to conform with the 1998 presentation. 

3.  HOUSING INVENTORIES

Housing inventories consist of the following:

<TABLE>
<CAPTION>

                                                   1998                1997
                                               ---------------------------------
       <S>                                     <C>                 <C>
       Land under development, including
         site development costs                 $33,006,027        $32,509,293
       Direct construction costs                 18,802,515         17,573,716
       Capitalized project costs                 17,677,320         16,993,716
       Land held for sale                         2,241,474          4,156,035
                                               ---------------------------------
                                                $71,727,336        $71,232,760
                                               ---------------------------------
                                               ---------------------------------
</TABLE>


                                         F-9
<PAGE>

                                  United Homes, Inc.

                Notes to Consolidated Financial Statements (continued)


4.  INVESTMENT IN REAL ESTATE PARTNERSHIP

The following is a summary of the Company's investment in real estate 
partnership at September 30, 1998 and 1997:

<TABLE>
<CAPTION>

 CONDENSED FINANCIAL INFORMATION
                                          TYPE OF                   INVESTMENT             ----------------------------------------
                                        PARTNERSHIP    PERCENT       CARRYING    SHARE OF                                   NET
          NAME                           INTEREST     OWNERSHIP       AMOUNT      INCOME      ASSETS       LIABILITIES    INCOME
                                                                                                                          (LOSS)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>           <C>         <C>         <C>           <C>           <C>
Balance at September 30, 1998:
  United Development Bristolwood
    Limited Partnership (1)              Limited      24.875%       $541,243     $  -        $ 773,607     $80,817     $(1,047,298)

Balance at September 30, 1997:
  United Development Bristolwood
    Limited Partnership (1)              Limited      24.875%       $541,243     $55,969    $2,016,257      $278,573   $   225,001
</TABLE>

NOTE (1):  DURING 1997, THE COMPANY ACQUIRED $1,176,000 
           OF IMPROVED LOTS FROM UNITED DEVELOPMENT BRISTOLWOOD LTD.
           PARTNERSHIP (UDB).
NOTE (2):  DURING 1996, THE COMPANY SHARE OF INCOME RELATING TO
           24.875% IN UDB WAS $156,233.
NOTE (3):  AN ADDITIONAL 25.125% OF UDB IS OWNED BY RELATED PARTIES.


                                         F-10
<PAGE>

                              United Homes, Inc.

             Notes to Consolidated Financial Statements (continued)

5.  NOTES RECEIVABLE AND NOTES RECEIVABLE FROM AFFILIATES

Notes receivable and Notes receivable from affiliate consist of the following:

<TABLE>
<CAPTION>

                                              1998                        1997
                 <S>                      <C>                         <C>
                  Land Sales               $8,559,924                  $3,409,620
                  Model Homes                 552,450                     492,380
                                           ----------                  ----------
                                           $9,112,374                  $3,902,000
                                           ----------                  ----------
                                           ----------                  ----------
</TABLE>

The notes have various maturity dates from 1999 to 2001 and interest rates 
ranging from 10% to 15%.

As of September 30, 1998, the Company has notes receivable related to the 
sale of 18 model homes to a public company and has leased them back. The gain 
from the sale of these homes is recognized over the related lease term in 
accordance with Statement of Financial Accounting Standards No. 98 (SFAS
No. 98) "Accounting for Leases."

On November 17, 1997, the ownership interests in the notes receivable from 
affiliates were sold to an unrelated third party. With the sale of these 
ownership interests, the income recognition of the previously deferred income 
of $1,264,371 was reported. The income recognition resulted from the 
following:

During 1997, the Company sold 22 model homes for $4,661,500 to an affiliate 
controlled by the shareholders of the Parent. The Company received cash in 
the amount of $600,000 and a demand promissory note (which is full recourse 
to the affiliate) in the amount of $565,375 bearing interest at 10% per 
annum. In addition, the affiliate assumed the debt requirements on the 
existing loans secured by the models in the amount of $3,496,125 (fully 
relieving the Company of such obligation). Concurrent with the sale, the 
Company entered into a lease agreement with the affiliate to lease the model 
homes on a month-to-month basis. The gain on the sale of $753,397 was 
initially deferred. Prior to September 30, 1997, gain of $170,998 was 
recognized upon the sale of four of the models to third parties and $72,996 
was repaid on the note receivable.

During 1997, the Company sold undeveloped property for $7,217,000 to an 
affiliate controlled by the shareholders of the Parent. The Company received 
a demand note (which is full recourse to the affiliate) in the amount of 
$2,376,935 bearing interest at 10% per annum. The affiliate assumed the debt 
requirements on the existing loan secured by the property in the amount of 
$1,200,000 (fully relieving the Company of such obligation). The gain on the 
sale of $421,924 has been deferred.

In addition, during 1997, the Company assigned its rights to acquire property 
in which it had incurred predevelopment costs of approximately $772,638 to an 
affiliate controlled by the shareholders of the Parent for $1,032,686 
evidenced by a 10% demand note. The gain of $260,048 has been deferred.

6.  DEVELOPMENT LOANS AND OTHER NOTES PAYABLE

Development loans and other notes payable consist of the following:

<TABLE>
<CAPTION>

                                                       1998             1997
                                                   -----------------------------
   <S>                                             <C>              <C>

    Revolving credit facilities (1)                 $31,334,645      $29,596,075
    Land development and construction (1) and(2)     20,609,797       22,507,898
    Installment and other (3)                            45,108           42,558
    Term loan (4)                                     4,922,500                -
                                                   -----------------------------
                                                   $56,912,050       $52,146,531
                                                   -----------------------------
                                                   -----------------------------
</TABLE>

 (1)          In January 1997, the Company entered into a revolving credit
              agreement with a financial institution and replaced the Company's
              previous credit facility. At September 30, 1997, the maximum
              principal available under the credit agreement was $25,000,000
              subject to the maximum number of housing units under construction.
              The credit agreement bore interest at the Commercial Paper Rate,
              as defined, plus 3.75% (9.47% at September 30,1997), which was 
              added monthly to the unpaid balance. Outstanding principal and 
              interest on the construction base was repaid from proceeds of 
              home sales. The credit agreement included various operating and 
              financial covenants, including restrictions on the payment of 
              dividends. The outstanding principal balance at September 30, 
              1997 was $6,372,565.

                                      F-11
<PAGE>

                              United Homes, Inc.

             Notes to Consolidated Financial Statements (continued)


          On June 22, 1998, this $25 million credit facility was converted to a
          $13,715,000 project loan.  The project loan bore interest at 3.75%
          over the LIBOR rate (9.13% at September 30, 1998)and had a maturity
          date of December 15, 1998.  An extension until May 15, 1999 has been
          approved by the lender. The outstanding balance at September 30, 1998
          was $3,522.802.
          
          In March 1997, the Company entered into a revolving credit
          agreement with another financial institution which matures March
          2001.  At September 30, 1998, the maximum principal available
          under the credit agreement is $55,000,000, with a land
          acquisition and development loan amount not to exceed $25,000,000
          and a construction loan not to exceed $45,000,000 ($40,000,000 in 
          1997) subject to a minimum loan amount of $10,000,000 on the land 
          acquisition and development facility.  Amounts borrowed under the 
          credit agreement bear interest at the prime rate plus 1.25% (9.75% at
          September 30, 1998), which is added monthly to the unpaid balance. 
          Outstanding principal and interest on the land acquisition and
          development loan is repaid based on agreed upon lot release prices. 
          Outstanding principal and interest on the construction base is repaid
          from proceeds of home sales.  The credit agreement includes various
          operating and financial covenants, including restrictions on the
          payment of dividends. The outstanding principal balance at September
          30, 1998 and 1997 was $31,334,645 and $23,223,510, respectively,
          categorized as revolving credit facilities and $12,804,669 and
          $10,662,462, respectively, categorized as land development and
          construction.

     (2)  The Company has development loans with various financial institutions
          for the purpose of financing land acquisition, development, and
          construction improvements that mature from 1998 to 2002.  The loans
          bear interest at fixed rates ranging primarily from 8% to 10.5%, as
          well as variable rates ranging from prime plus 1% to prime plus 2%,
          and include various restrictions concerning use and timing of
          borrowings.  

                                         F-12
<PAGE>

          Interest is added to the outstanding principal monthly, and
          unpaid principal and interest is repaid from proceeds of home
          sales.  These loans include $349,215 and $1,536,579 at
          September 30, 1998 and 1997, respectively, due to affiliates of
          the principal stockholders of the Parent.  The loans to
          affiliates mature in 2000 and bear interest at fixed rates
          ranging primarily from 8% to 10% per annum.
          
     (3)  The Company has various installment and other loans maturing from 1998
          to 2000, and bearing interest at fixed rates ranging from 5.9% to 10%.
          The notes are repayable in monthly installments including principal
          and interest.

     (4)  On June 9, 1998, the lender with the $55,000,000 revolving credit
          agreement made a $7,000,000 term loan.  The term loan bears interest
          at 15% per annum and matured on November 15, 1998.  The collateral for
          this loan is assignments of certain real estate sale contracts
          executed by the Company, pursuant to which the Company has contracted
          for or is negotiating to sell certain of its land assets.  The
          outstanding balance at September 30, 1998 is $4,922.500.

On January 8, 1999, the Company entered into a loan modification with the lender
on the $55 million revolving credit facility and the $7 million term loan. 
Under the revised terms of the revolving credit facility, the debt to adjusted
equity covenant was increased to 6.25 to 1 from 5 to 1.  Also, the maturity date
on the term loan was extended until June 30, 1999.  

The aggregate maturities of development loans and other notes payable are as
follows:

<TABLE>
<CAPTION>

              <S>                           <C>
               YEAR ENDING SEPTEMBER 30           AMOUNT
               -------------------------------------------
               1999                           $17,569,641
               2000                             6,189,507
               2001                            33,134,259
               2002                                18,643
               2003
               Thereafter
                                             ------------
                                              $56,912,050
                                             ------------
                                             ------------
</TABLE>

Substantially all of the Company's housing inventories and land held for sale 
are pledged as collateral to secure repayment of indebtedness.

During the years ended September 30, 1998, 1997, and 1996, the Company 
incurred and paid interest on development loans and other notes payable of 
$6,549,717, $6,342,270, and $3,960,336, respectively, of which $6,361,737, 
$6,267,734, and $3,901,554 was capitalized, respectively.

7.  MANDATORY REDEMPTION DEBENTURES

During the first quarter of fiscal 1998, the Company sold 7,000 mandatory 
redemption debentures with a par value of $1,000 per debenture at a price of 
$985 per debenture. The gross proceeds from the offering totaled $6,985,000 
after underwriting discount with offering expense of $1,135,694. The 
debentures are due March 15, 2005 and bear interest at 11%. Interest is 
payable quarterly commencing in March 1998. The debentures are to be redeemed 
semi-annually commencing in September 1999 in amounts of $583,110.

The debentures restrict the Company from, among other things, incurring
additional indebtedness, paying excessive dividends or making certain other
restricted payments or investments to the Parent, consummating certain assets
sales, entering into certain transactions with affiliates, incurring liens or
merging or consolidating with any other person or selling, assigning,
transferring, conveying, or otherwise disposing of substantially all of their
respective assets.


                                         F-13
<PAGE>

                              United Homes, Inc.

             Notes to Consolidated Financial Statements (continued)

8. INCOME TAXES

The Company's income tax expense consists of the following:

<TABLE>
<CAPTION>

                                           CURRENT        DEFERRED       TOTAL
                                         ---------------------------------------
<S>                                       <C>           <C>             <C>
Year ended September 30, 1998
     U.S. Federal                         $614,566      $ 565,895     $1,180,461
     State                                  96,410         88,777        185,187
                                          --------      ---------      ---------
                                          $710,976      $ 654,672     $1,365,648
                                          --------      ---------      ---------
                                          --------      ---------      ---------

Year ended September 30, 1997
     U.S. Federal                         $364,010      $  28,984       $392,994
     State                                  57,104          4,547         61,651
                                          --------      ---------      ---------
                                          $421,114      $  33,531       $454,645
                                          --------      ---------      ---------
                                          --------      ---------      ---------

Year ended September 30, 1996
     U.S. Federal                         $323,082      $  33,181       $356,263
     State                                  40,870          4,198         45,068
                                          --------      ---------      ---------
                                          $363,952      $  37,379       $401,331
                                          --------      ---------      ---------
                                          --------      ---------      ---------
</TABLE>

Income tax expense is recorded as a reduction of amounts due from Parent. 
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 35 percent as a result of the following:

<TABLE>
<CAPTION>

                                                                 1998           1997          1996
                                                               --------------------------------------
<S>                                                           <C>            <C>            <C>
     Computed expected tax expense                             $1,185,247     $410,637       $367,485
     Increase in income taxes resulting   
          from: 
        State income taxes, net of federal income                 120,370       40,073         29,294
          tax benefit
        Other, net                                                 60,031        3,935          4,552
                                                               --------------------------------------
     Total                                                     $1,365,648     $454,645       $401,331
                                                               --------------------------------------
                                                               --------------------------------------
</TABLE>

                                         F-14
<PAGE>

                             United Homes, Inc.

             Notes to Consolidated Financial Statements (continued)

The net deferred tax liabilities at September 30, 1998 and 1997 are recorded 
as a reduction of amounts due from Parent and are comprised of the following:

<TABLE>
<CAPTION>

                                   1998          1997  
                              -------------------------
<S>                           <C>           <C>        
DEFERRED ASSETS
     Deferred gains           $  100,284     $  484,633
     Housing inventories         356,146        344,749
     Receivables allowance         -             93,909
                              -------------------------
                                 456,430        923,291
DEFERRED LIABILITIES
     Capitalized costs         1,980,938      1,793,127
                              -------------------------
Net deferred liability        $1,524,508     $  869,836
                              -------------------------
                              -------------------------
</TABLE>

9.  RELATED PARTY TRANSACTIONS

Substantially all due from affiliates at September 30, 1998 and 1997, relate 
to costs incurred for development of housing projects and temporary advances 
to entities in which either the Parent or the two principal stockholders of 
the Parent are the general partners.  The amounts due from affiliates are 
non-interest-bearing and are payable from proceeds from sales of certain 
housing units.

In 1998 and 1997, the Company purchased an additional 48 and 76 lots, 
respectively, from an affiliate for $624,000 and $820,000, respectively.  The 
Company is obligated to purchase an additional 40 single-family lots at a 
price of $13,000 per lot (Note 11).

On July 15, 1998, the Company entered into transaction whereby it sold 
certain property to an entity classified as an affiliate based upon the 
ownership attribution rules.  The gross purchase price was approximately $6.8 
million.

                                         F-15
<PAGE>

                             United Homes, Inc.

             Notes to Consolidated Financial Statements (continued)


10.   FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair 
Value of Financial Instruments" (SFAS No. 107) requires disclosures of the 
fair value of certain financial instruments for which it is practicable to 
estimate. Value is defined by SFAS No. 107 as the amount at which the 
instrument could be exchanged in a current transaction between willing 
parties, other than in a forced or liquidation sale.

The following methods and assumptions were used by the Company in estimating 
its fair value disclosures for financial instruments:

     CASH AND CASH EQUIVALENTS

     The carrying amount of cash and cash equivalents reported in the
     balance sheet approximates its fair value.

     DEVELOPMENT LOANS AND OTHER NOTES PAYABLE AND NOTES RECEIVABLE AND NOTES 
     RECEIVABLE FROM AFFILIATES AND MANDATORY REDEMPTION DEBENTURES
     
     The carrying amount of the Company's development loans and other notes
     payable and notes receivable and notes receivable from affiliates and 
     mandatory redemption debentures approximates fair value
     based on the current rates for similar types of arrangements.

11.  COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS

Letters of credit and bonds approximating $4.2 million at September 30, 1998,
have been issued on behalf of the Company to guarantee the completion of certain
improvements associated with various properties under agreements with
municipalities in which the Company is constructing homes.  At September 30,
1998, the Company had pledged cash of approximately $119,000 as collateral for
one letter of credit.

The Company has guaranteed certain bank loans for four limited liability 
companies. As of September 30, 1998, the aggregate outstanding balance of 
these loans was approximately $8.9 million.

On May 27, 1998, the United States of America, on behalf of the Army Corps. 
of Engineers, filed a suit against the Company in the Northern District of 
Illinois, Eastern Division, Case No. 93C3242; claiming entitlement to relief 
under the Clean Water Act. On July 9, 1998, the Company filed a motion to 
dismiss the complaint which motion is still pending. The Company believes the 
case was filed without merit. There is no reasonable determination at this 
point of the monetary damages which would be awarded if the Company is 
unsuccessful in the case. Management believes that resolution of this matter 
will not have a material effect on the Company's financial position, results 
of operations or cash flows.

                                         F-16

<PAGE>

11.  COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (CONTINUED)

The Company has committed to acquire various parcels of improved and 
unimproved land through 2001 as follows:

<TABLE>
<CAPTION>

                    YEAR ENDING
                    SEPTEMBER 30                  AMOUNT
                    --------------------------------------
<S>                 <C>                      <C>

                     1999                     $ 160,000
                     2000                       640,000
                     2001                       140,000
                                              ---------
                                              $ 940,000
                                              ---------
                                              ---------
</TABLE>

                                         F-17
<PAGE>

                                      SIGNATURES

     PURSUANT to the requirements of Section 13 or 15(d) 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.


UNITED HOMES, INC.

By:  /s/  Edward Havlik                          Date: January 13, 1999
    ---------------------------                        -----------
    Edward Havlik, President



     PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the following persons and in the capacity and on the
dates indicated.

<TABLE>
<CAPTION>

          SIGNATURE                         TITLE                               DATE
         -----------                       -------                            -------
<S>                                <C>                                     <C>
     /s/ Virgil Owings             Chairman of the Board and               January 13, 1999
     -----------------------                                               -----------
         Virgil Owings             Director                

     /s/ Edward Havlik             President and Director (Principal       January 13, 1999
     -----------------------                                               ----------- 
         Edward Havlik             Executive Officer       

     /s/ William J. Crock, Jr.     Executive Vice President, Chief         January 13, 1999
     -----------------------                                               ----------- 
         William J. Crock, Jr.       Financial Officer, Secretary
                                     and Treasurer (Principal      
                                     Financial Officer and Principal
                                     Accounting Officer)            

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                  EXHIBIT INDEX

    EXHIBIT           DESCRIPTION
    -------           -----------
     <S>            <C>
      3.1      --   Articles of Incorporation of United Homes, Inc.(1)
      3.2      --   Bylaws of United Homes, Inc.(1)
      4.1      --   Specimen Debenture (filed as part of Exhibit 4.2)
      4.2      --   Indenture  dated  November  25,  1997,  by and between
                    United Homes, Inc. and National City Bank of Minneapolis(4)
     10.1      --   Loan  Agreement  between  Residential  Funding  Corporation
                    and United Homes, Inc., United Homes of Illinois, Inc.,
                    United Homes of Michigan, Inc. and United Homes, Inc.,
                    an Arizona corporation dated March 14, 1997(1)
     10.2      --   Loan  Agreement  between  Residential  Funding  Corporation
                    and United Homes, Inc., United Homes of Illinois, Inc.,
                    United Homes of Michigan, Inc. and United Homes, Inc.,
                    an Arizona corporation dated May 28, 1996(1)
     10.3      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois, Inc., United Homes of Michigan, Inc. and United
                    Homes, Inc., an Arizona corporation dated October 3, 1996(1)
     10.4      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois,  Inc., United Homes of Michigan, Inc.
                    and United Homes, Inc., an Arizona corporation dated
                    August 21, 1996(1)
     10.5      --   Supplement to Loan Agreement between Residential Funding
                    Corporation and United Homes, Inc., United Homes of
                    Illinois, Inc., United Homes of Michigan, Inc. and
                    United Homes, Inc., an Arizona corporation dated
                    February 3, 1997(1)
     10.6      --   $7,000,000 Promissory Note from United Homes, Inc., United
                    Homes of Michigan, Inc., United Homes of Illinois, Inc.,
                    and United Homes, Inc., an Arizona corporation to
                    Residential Funding Corporation dated June 9, 1998*
     10.7      --   Amendment Agreement between United Homes, Inc., United
                    Homes of Illinois, Inc., United Homes of Michigan, Inc.,
                    United Homes, Inc., an Arizona corporation and Residential
                    Funding Corporation dated June 9, 1998*
     10.8      --   Second Amendment Agreement between United Homes, Inc.,
                    United Homes of Michigan, Inc., United Homes of Illinois,
                    Inc., United Homes, Inc., an Arizona corporation and
                    Residential Funding Corporation dated January 8, 1999.*
     10.9      --   Loan Agreement dated June 22, 1998 by and between United-
                    Woodmere, Inc. and Heller Financial, Inc.*
     10.10     --   Note dated June 22, 1998 in the amount of $13,715,000 from
                    United-Woodmere, Inc., to Heller Financial, Inc.*
     21.1    --     List of Subsidiaries of United Homes, Inc.(2)
     27.1    --     Financial Data Schedule*

</TABLE>
________________________
*  Filed herewith

(1)  Incorporated by reference from the Registrant's Registration Statement on
     Form S-1, File No. 333-33965, filed August 19, 1997.

(2)  Incorporated by reference from Amendment Number One to the Registrant's
     Registration Statement on Form S-1, File No. 333-33965, filed October 21,
     1997.

(3)  Incorporated by reference from Amendment Number Three to the Registrant's
     Registration Statement on Form S-1, File No. 333-33965, filed November 14,
     1997.

(4)  Incorporated by reference from the Registrants Form 10-K Annual Report
     pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
     for the fiscal year ended September 30, 1997, File No. 0-23347 filed
     December 30, 1997.