##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended March 31,
    2005                                           
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 001-32322

TECHNICAL OLYMPIC USA, INC.

(Exact name of registrant as specified in its
charter)


|                                                                                                     |  |                                                   
|---------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or other jurisdiction of
    incorporation or organization)                           |  | 76-0460831(I.R.S. Employer
    Identification No.)
|                                                                                                    
|4000 Hollywood Blvd., Suite 500 N
    Hollywood, Florida(Address of principal executive
    offices) |  | 33021(ZIP code)                                   

(954) 364-4000

(Registrants telephone number, including
area code)


(Former name, former address and former fiscal
year, if changed since last report)

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 þ          No o

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

APPLICABLE ONLY TO CORPORATE
ISSUERS:

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date: 56,080,430 shares of common stock as of
April 29, 2005.



---






---










TECHNICAL OLYMPIC USA, INC.

INDEX

|                                              |  |                                                                                           |    |      |    | 
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                              |  |                                                                                           |    | Page
|                                              |  |                                                                                           |    |     
|PART I. Financial
    Information             |  |                                                                                           | 2  |     
|Item 1.                                       |  | Financial Statements
    (Unaudited)                                                      |    |      | 2  | 
|                                              |  | Consolidated Statements of
    Financial Condition                                        |    |      | 2  | 
|                                              |  | Consolidated Statements of
    Income                                                     |    |      | 3  | 
|                                              |  | Consolidated Statements of
    Cash Flows                                                 |    |      | 4  | 
|                                              |  | Notes to the Consolidated
    Financial Statements                                        |    |      | 5  | 
|Item 2.                                       |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |      | 17 | 
|Item 3.                                       |  | Quantitative and Qualitative
    Disclosures about Market Risk                            |    |      | 26 | 
|Item 4.                                       |  | Controls and Procedures                                                                   |    |      | 26 | 
|PART II. Other
    Information                |  |                                                                                           | 26 |     
|Item 5.                                       |  | Other Information                                                                         |    |      | 26 | 
|Item 6.                                       |  | Exhibits                                                                                  |    |      | 27 | 
|Signatures                                    |  |                                                                                           | 28 |     
|1ST AMENDED CONFIDENTIAL SEPARATION AGREEMENT
|POLICY FOR COMPENSATION OF OUTSIDE DIRECTORS 
|CERTIFICATION OF CEO PURSUANT TO SECTION 302 
|CERTIFICATION OF CFO PURSUANT TO SECTION 302 
|CERTIFICATION OF CEO PURSUANT TO SECTION 906 
|CERTIFICATION OF CFO PURSUANT TO SECTION 906 



1



---



##### Table of Contents






PART I. FINANCIAL INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements




TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

(Dollars in millions, except shares and par
value)


|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | -------------- | ------- | ----------------- | ----- | - | ------- | ----- | ----- | 
|                                                                                                                                                                                            |                                             | March 31, 2005 |         | December 31, 2004
|                                                                                                                                                                                            |                                             |                |         |                  
|                                                                                                                                                                                            |                                             | (Unaudited)    |         |                  
|ASSETS                                                                                                                                                                                     
|HOMEBUILDING:                                                                                                                                                                               |                                             |                |         |                   |       |   |         |      
|Cash and cash equivalents:                                                                                                                                                                  |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             | Unrestricted   |         | $                 | 145.3 |   |         | $     | 217.6 | 
|                                                                                                                                                                                            |                                             | Restricted     |         |                   | 13.5  |   |         |       | 8.0   | 
|Inventory Deposits                                                                                                                                                                          |                                             |                | 150.1   |                   |       |   | 132.8   |      
|                                                                                                                                                                                            | Homesites and land under development        |                |         | 393.4             |       |   |         | 341.2 |      
|                                                                                                                                                                                            | Residences completed and under construction |                |         | 708.1             |       |   |         | 671.0 |      
|                                                                                                                                                                                            | Inventory not owned                         |                |         | 131.1             |       |   |         | 136.2 |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             |                | 1,382.7 |                   |       |   | 1,281.2 |      
|Property and equipment, net                                                                                                                                                                 |                                             |                | 26.6    |                   |       |   | 26.7    |      
|Investments in unconsolidated joint ventures                                                                                                                                                |                                             |                | 78.2    |                   |       |   | 66.6    |      
|Advances to unconsolidated joint ventures                                                                                                                                                   |                                             |                | 37.6    |                   |       |   |        |      
|Other assets                                                                                                                                                                                |                                             |                | 77.8    |                   |       |   | 71.1    |      
|Goodwill                                                                                                                                                                                    |                                             |                | 110.7   |                   |       |   | 110.7   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             |                | 1,872.4 |                   |       |   | 1,781.9 |      
|FINANCIAL SERVICES:                                                                                                                                                                         |                                             |                |         |                   |       |   |         |      
|Cash and cash equivalents:                                                                                                                                                                  |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             | Unrestricted   |         |                   | 11.5  |   |         |       | 50.9  | 
|                                                                                                                                                                                            |                                             | Restricted     |         |                   | 89.7  |   |         |       | 69.1  | 
|Mortgage loans held for sale                                                                                                                                                                |                                             |                | 70.7    |                   |       |   | 75.8    |      
|Other assets                                                                                                                                                                                |                                             |                | 9.7     |                   |       |   | 9.8     |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             |                | 181.6   |                   |       |   | 205.6   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|Total assets                                                                                                                                                                                |                                             | $              | 2,054.0 |                   |       | $ | 1,987.5 |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                   
|HOMEBUILDING:                                                                                                                                                                               |                                             |                |         |                   |       |   |         |      
|Accounts payable and other liabilities                                                                                                                                                      |                                             | $              | 196.1   |                   |       | $ | 188.9   |      
|Customer deposits                                                                                                                                                                           |                                             |                | 79.9    |                   |       |   | 69.1    |      
|Obligations for inventory not owned                                                                                                                                                         |                                             |                | 131.1   |                   |       |   | 136.2   |      
|Notes payable                                                                                                                                                                               |                                             |                | 811.5   |                   |       |   | 811.4   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             |                | 1,218.6 |                   |       |   | 1,205.6 |      
|FINANCIAL SERVICES:                                                                                                                                                                         |                                             |                |         |                   |       |   |         |      
|Accounts payable and other liabilities                                                                                                                                                      |                                             |                | 90.2    |                   |       |   | 70.2    |      
|Bank borrowings                                                                                                                                                                             |                                             |                | 53.0    |                   |       |   | 49.0    |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|                                                                                                                                                                                            |                                             |                | 143.2   |                   |       |   | 119.2   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|Total liabilities                                                                                                                                                                           |                                             |                | 1,361.8 |                   |       |   | 1,324.8 |      
|Stockholders equity:                                                                                                                                                                       |                                             |                |         |                   |       |   |         |      
|Preferred stock  $0.01 par value;
    3,000,000 shares authorized; none issued or outstanding                                                                                              |                                             |                |        |                   |       |   |        |      
|Common stock  $0.01 par value;
    97,000,000 shares authorized and 56,080,430 and
    56,070,510 shares issued and outstanding at March 31,
    2005, and December 31, 2004, respectively |                                             |                | 0.6     |                   |       |   | 0.6     |      
|Additional paid-in capital                                                                                                                                                                  |                                             |                | 394.6   |                   |       |   | 388.3   |      
|Unearned compensation                                                                                                                                                                       |                                             |                | (11.5   | )                 |       |   | (9.0    | )    
|Retained earnings                                                                                                                                                                           |                                             |                | 308.5   |                   |       |   | 282.8   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|Total stockholders equity                                                                                                                                                                  |                                             |                | 692.2   |                   |       |   | 662.7   |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      
|Total liabilities and stockholders equity                                                                                                                                                  |                                             | $              | 2,054.0 |                   |       | $ | 1,987.5 |      
|                                                                                                                                                                                            |                                             |                |         |                   |       |   |         |      

See accompanying notes to consolidated financial
statements.

2



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME


(Dollars in millions, except share and per
share amounts)


(Unaudited)


|                                                          |            |                              |       |       |            |   |       |       |            | 
|--------------------------------------------------------- | ---------- | ---------------------------- | ----- | ----- | ---------- | - | ----- | ----- | ---------- | 
|                                                          |            |                             
|                                                          |            | Three Months Ended March 31,
|                                                          |            |                             
|                                                          |            | 2005                         |       | 2004 
|                                                          |            |                              |       |      
|HOMEBUILDING:                                             |            |                              |       |       |            |   |       |      
|Revenues:                                                 |            |                              |       |       |            |   |       |      
|                                                          | Home sales |                              | $     | 512.4 |            |   | $     | 406.7 |           
|                                                          | Land sales |                              |       | 21.2  |            |   |       | 18.1  |           
|                                                          |            |                              |       |       |            |   |       |      
|                                                          |            |                              | 533.6 |       |            |   | 424.8 |      
|Cost of sales:                                            |            |                              |       |       |            |   |       |      
|                                                          | Home sales |                              |       | 401.0 |            |   |       | 331.6 |           
|                                                          | Land sales |                              |       | 16.8  |            |   |       | 12.7  |           
|                                                          |            |                              |       |       |            |   |       |      
|                                                          |            |                              | 417.8 |       |            |   | 344.3 |      
|                                                          |            |                              |       |       |            |   |       |      
|Gross profit                                              |            |                              | 115.8 |       |            |   | 80.5  |      
|Selling, general and administrative expenses              |            |                              | 79.0  |       |            |   | 56.3  |      
|(Income) from joint ventures, net                         |            |                              | (2.6  | )     |            |   |      |      
|Other (income), net                                       |            |                              | (1.5  | )     |            |   | (1.2  | )    
|                                                          |            |                              |       |       |            |   |       |      
|Homebuilding pretax income                                |            |                              | 40.9  |       |            |   | 25.4  |      
|FINANCIAL SERVICES:                                       |            |                              |       |       |            |   |       |      
|Revenues                                                  |            |                              | 10.0  |       |            |   | 8.7   |      
|Expenses                                                  |            |                              | 8.7   |       |            |   | 5.4   |      
|                                                          |            |                              |       |       |            |   |       |      
|Financial Services pretax income                          |            |                              | 1.3   |       |            |   | 3.3   |      
|                                                          |            |                              |       |       |            |   |       |      
|Income before provision for income taxes                  |            |                              | 42.2  |       |            |   | 28.7  |      
|Provision for income taxes                                |            |                              | 15.8  |       |            |   | 10.7  |      
|                                                          |            |                              |       |       |            |   |       |      
|Net income                                                |            | $                            | 26.4  |       |            | $ | 18.0  |      
|                                                          |            |                              |       |       |            |   |       |      
|EARNINGS PER COMMON SHARE:                                |            |                              |       |       |            |   |       |      
|                                                          |            | Basic                        |       | $     | 0.47       |   |       | $     | 0.32       | 
|                                                          |            |                              |       |       |            |   |       |      
|                                                          |            | Diluted                      |       | $     | 0.45       |   |       | $     | 0.32       | 
|                                                          |            |                              |       |       |            |   |       |      
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING: |            |                              |       |       |            |   |       |      
|                                                          |            | Basic                        |       |       | 56,073,631 |   |       |       | 56,045,910 | 
|                                                          |            |                              |       |       |            |   |       |      
|                                                          |            | Diluted                      |       |       | 58,073,548 |   |       |       | 56,912,646 | 
|                                                          |            |                              |       |       |            |   |       |      
|CASH DIVIDENDS PER SHARE                                  |            | $                            | 0.012 |       |            |   |      |      
|                                                          |            |                              |       |       |            |   |       |      

See accompanying notes to consolidated financial
statements.

3



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in millions)


(Unaudited)


|                                                                                                       |                                              |                                        |        |      |        |   |       |     |        |  
|------------------------------------------------------------------------------------------------------ | -------------------------------------------- | -------------------------------------- | ------ | ---- | ------ | - | ----- | --- | ------ | -
|                                                                                                       |                                              |                                       
|                                                                                                       |                                              | Three Months Ended                    
|                                                                                                       |                                              | March 31,                             
|                                                                                                       |                                              |                                       
|                                                                                                       |                                              | 2005                                   |        | 2004
|                                                                                                       |                                              |                                        |        |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  |                                              |                                        |        |      |        |   |       |    
|Net income                                                                                             |                                              | $                                      | 26.4   |      |        | $ | 18.0  |    
|Adjustments to reconcile net income to net cash
    used in operating activities:                      |                                              |                                        |        |      |        |   |       |    
|                                                                                                       | Depreciation and amortization                |                                        |        | 2.9  |        |   |       | 3.3 |       
|                                                                                                       | Non-cash compensation expense                |                                        |        | 5.2  |        |   |       | 1.2 |       
|                                                                                                       | Changes in operating assets and liabilities: |                                        |        |      |        |   |       |     |       
|                                                                                                       |                                              | Restricted cash                        |        |      | (26.1  | ) |       |     | (111.4 | )
|                                                                                                       |                                              | Inventory                              |        |      | (106.5 | ) |       |     | (1.9   | )
|                                                                                                       |                                              | Other assets                           |        |      | (43.8  | ) |       |     | (30.9  | )
|                                                                                                       |                                              | Accounts payable and other liabilities |        |      | 25.8   |   |       |     | 80.6   |  
|                                                                                                       |                                              | Customer deposits                      |        |      | 10.7   |   |       |     | 9.6    |  
|                                                                                                       |                                              | Mortgage loans held for sale           |        |      | 5.0    |   |       |     | 13.3   |  
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|Net cash used in operating activities                                                                  |                                              |                                        | (100.4 | )    |        |   | (18.2 | )  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                  |                                              |                                        |        |      |        |   |       |    
|Net additions to property and equipment                                                                |                                              |                                        | (2.8   | )    |        |   | (5.1  | )  
|Investments in unconsolidated joint ventures                                                           |                                              |                                        | (11.5  | )    |        |   | (8.1  | )  
|Earn out consideration paid for acquisitions                                                           |                                              |                                        |       |      |        |   | (6.3  | )  
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|Net cash used in investing activities                                                                  |                                              |                                        | (14.3  | )    |        |   | (19.5 | )  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |                                              |                                        |        |      |        |   |       |    
|Net repayments on revolving credit facilities                                                          |                                              |                                        |       |      |        |   | (10.0 | )  
|Proceeds from notes offerings                                                                          |                                              |                                        |       |      |        |   | 125.0 |    
|Proceeds from Homebuilding bank borrowings                                                             |                                              |                                        |       |      |        |   | 1.4   |    
|Net payments on obligations for inventory not
    owned                                                |                                              |                                        |       |      |        |   | (1.1  | )  
|Net proceeds from (repayments on) Financial
    Services bank borrowings                               |                                              |                                        | 4.0    |      |        |   | (43.2 | )  
|Payments for deferred financing costs                                                                  |                                              |                                        | (0.3   | )    |        |   | (1.7  | )  
|Minority interest in consolidated subsidiaries                                                         |                                              |                                        |       |      |        |   | (1.7  | )  
|Dividends paid                                                                                         |                                              |                                        | (0.7   | )    |        |   |      |    
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|Net cash provided by financing activities                                                              |                                              |                                        | 3.0    |      |        |   | 68.7  |    
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|(Decrease) increase in cash and cash equivalents                                                       |                                              |                                        | (111.7 | )    |        |   | 31.0  |    
|Cash and cash equivalents at beginning of period                                                       |                                              |                                        | 268.5  |      |        |   | 76.8  |    
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|Cash and cash equivalents at end of period                                                             |                                              | $                                      | 156.8  |      |        | $ | 107.8 |    
|                                                                                                       |                                              |                                        |        |      |        |   |       |    
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
    ACTIVITY                                             |                                              |                                        |        |      |        |   |       |    
|(Decrease) increase in obligations for inventory
    not owned and corresponding increase in inventory |                                              | $                                      | (5.1   | )    |        | $ | 4.3   |    
|                                                                                                       |                                              |                                        |        |      |        |   |       |    

See accompanying notes to consolidated financial
statements.

4



---



##### Table of Contents






TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2005




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



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

Technical Olympic USA, Inc. is a homebuilder with
a geographically diversified national presence. We operate in 15
metropolitan markets located in four major geographic regions:
Florida, the Mid-Atlantic, Texas, and the West. We design,
build, and market detached single-family residences, town homes
and condominiums. We also provide title and mortgage brokerage
services to our homebuyers and others. Generally, we do not
retain or service the mortgages that we originate but, rather,
sell the mortgages and related servicing rights to investors.



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

Technical Olympic S.A. owns approximately 73% of
our outstanding common stock. Technical Olympic S.A. is a
publicly-traded Greek company whose shares are traded on the
Athens Stock Exchange.



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



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include our
accounts and those of our subsidiaries. Our accounting and
reporting policies conform to accounting principles generally
accepted in the United States and general practices within the
homebuilding industry. These accounting principles require
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

All significant intercompany balances and
transactions have been eliminated in the consolidated financial
statements.

Due to our normal operating cycle being in excess
of one year, we present unclassified consolidated statements of
financial condition.

We have two operating segments which are
segregated in the accompanying consolidated financial statements
under Homebuilding and Financial
Services.

Certain prior period amounts have been
reclassified to conform to the current periods
presentation.



| |                     
| | --------------------
| | Interim Presentation

The accompanying unaudited consolidated financial
statements reflect all adjustments, consisting primarily of
normal recurring items that, in the opinion of management, are
considered necessary for a fair presentation of the financial
position, results from operations, and cash flows for the
periods presented. Results of operations achieved through
March 31, 2005 are not necessarily indicative of those that
may be achieved for the year ending December 31, 2005.
Certain information and footnote disclosures normally included
in financial statements presented in accordance with accounting
principles generally accepted in the United States have been
omitted from the accompanying financial statements. The
financial statements included as part of this Form 10-Q
should be read in conjunction with the financial statements and
notes thereto included in our December 31, 2004 Annual
Report on Form 10-K.

For the three months ended March 31, 2005
and 2004, we have eliminated inter-segment Financial Services
revenues of $1.7 million and $1.8 million,
respectively.

5



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share is computed based on the weighted average
number of shares of common stock and dilutive securities
outstanding during the period. Dilutive securities are options
or other common stock equivalents that are freely exercisable
into common stock at less than market exercise prices. Dilutive
securities are not included in the weighted average number of
shares when inclusion would increase the earnings per share or
decrease the loss per share.

The following table represents a reconciliation
of weighted average shares outstanding:

|                                                                   |  |                    |            |      |  |  |            | 
|------------------------------------------------------------------ |  | ------------------ | ---------- | ---- |  |  | ---------- | 
|                                                                   |  |                   
|                                                                   |  | Three Months Ended
|                                                                   |  | March 31,         
|                                                                   |  |                   
|                                                                   |  | 2005               |            | 2004
|                                                                   |  |                    |            |     
|Basic weighted average shares outstanding                          |  |                    | 56,073,631 |      |  |  | 56,045,910 | 
|Net effect of common stock equivalents assumed to
    be exercised |  |                    | 1,999,917  |      |  |  | 866,736    | 
|                                                                   |  |                    |            |      |  |  |            | 
|Diluted weighted average shares outstanding                        |  |                    | 58,073,548 |      |  |  | 56,912,646 | 
|                                                                   |  |                    |            |      |  |  |            | 

The shares issued and outstanding and the
earnings per share amounts in the consolidated financial
statements have been adjusted to reflect a three-for-two stock
split effected in the form of a 50% stock dividend paid on
June 1, 2004 and a five-for-four stock split effected in
the form of a 25% stock dividend paid on March 31, 2005.



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

We account for our stock option plan in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the
exercise price. We have adopted the disclosure-only provisions
of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation(SFAS No. 123). Accordingly, no
compensation cost has been recognized for our stock option plan.
If the methodologies of SFAS No. 123 were applied to
determine compensation expense for our stock options based on
the fair value of our common stock at the grant dates for awards
under our option plan, our net income and earnings per

6



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

share for the three months ended March 31,
2005 and 2004 would have been reduced to the pro forma amounts
indicated below (dollars in millions, except per share amounts):

|                                                                                                         |         |                 |      |      |  |   |      |      | 
|-------------------------------------------------------------------------------------------------------- | ------- | --------------- | ---- | ---- |  | - | ---- | ---- | 
|                                                                                                         |         |                
|                                                                                                         |         | Three Months   
|                                                                                                         |         | Ended March 31,
|                                                                                                         |         |                
|                                                                                                         |         | 2005            |      | 2004
|                                                                                                         |         |                 |      |     
|Net income as reported                                                                                   |         | $               | 26.4 |      |  | $ | 18.0 |     
|Add: Stock-based employee compensation included
    in reported net income, net of tax                   |         |                 | 3.1  |      |  |   | 0.7  |     
|Deduct: Stock-based employee compensation expense
    determined under the fair value method, net of tax |         |                 | (1.3 | )    |  |   | (0.5 | )   
|                                                                                                         |         |                 |      |      |  |   |      |     
|Pro forma net income                                                                                     |         | $               | 28.2 |      |  | $ | 18.2 |     
|                                                                                                         |         |                 |      |      |  |   |      |     
|Reported earnings per common share:                                                                      |         |                 |      |      |  |   |      |     
|                                                                                                         | Basic   |                 | $    | 0.47 |  |   | $    | 0.32 | 
|                                                                                                         | Diluted |                 | $    | 0.45 |  |   | $    | 0.32 | 
|Pro forma earnings per common share:                                                                     |         |                 |      |      |  |   |      |     
|                                                                                                         | Basic   |                 | $    | 0.50 |  |   | $    | 0.33 | 
|                                                                                                         | Diluted |                 | $    | 0.49 |  |   | $    | 0.32 | 

The fair values of options granted were estimated
on the date of their grant using the Black-Scholes option
pricing model based on the following assumptions:

|                        |  |              
|----------------------- |  | -------------
|Expected life           |  | 4  10 years 
|Risk-free interest rate |  | 1.47%  4.02%
|Expected volatility     |  | 0.42%  0.48%
|Expected dividend yield |  | 0.0%         



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

A summary of Homebuilding interest capitalized in
inventory is (dollars in millions):

|                                          |               |                 |      |       |   |   |      |       |  
|----------------------------------------- | ------------- | --------------- | ---- | ----- | - | - | ---- | ----- | -
|                                          |               |                
|                                          |               | Three Months   
|                                          |               | Ended March 31,
|                                          |               |                
|                                          |               | 2005            |      | 2004 
|                                          |               |                 |      |      
|Interest capitalized, beginning of period |               | $               | 36.8 |       |   | $ | 29.7 |      
|Interest incurred                         |               |                 | 19.1 |       |   |   | 15.0 |      
|Less interest included in:                |               |                 |      |       |   |   |      |      
|                                          | Cost of sales |                 |      | (14.7 | ) |   |      | (10.7 | )
|                                          | Other         |                 |      | (1.0  | ) |   |      | (2.0  | )
|                                          |               |                 |      |       |   |   |      |      
|Interest capitalized, end of period       |               | $               | 40.2 |       |   | $ | 32.0 |      
|                                          |               |                 |      |       |   |   |      |      

In the ordinary course of business, we enter into
contracts to purchase homesites and land held for development.
At March 31, 2005 and December 31, 2004, we had
refundable and nonrefundable deposits aggregating
$150.1 million and $132.8 million, respectively,
included in inventory in the accompanying consolidated
statements of financial condition. Our liability for
nonperformance under such contracts is generally limited to
forfeiture of the related deposits.

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
No. 46, Consolidation of Variable Interest
Entities (Interpretation No. 46). Interpretation
No. 46 addresses

7



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

consolidation by business enterprises of variable
interest entities (VIEs) in which an entity absorbs a majority
of the expected losses, receives a majority of the entitys
expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the entity.

Generally, homebuilders will enter into option
contracts for the purchase of land or homesites with land
sellers and third-party financial entities, some of which may
qualify as VIEs. In applying Interpretation No. 46 to our
homesite option contracts and other transactions with VIEs, we
make estimates regarding cash flows and other assumptions. We
believe that our critical assumptions underlying these estimates
are reasonable based on historical evidence and industry
practice. Based on our analysis of transactions entered into
with VIEs, we determined that we are the primary beneficiary of
certain of these homesite option contracts. Consequently,
Interpretation No. 46 requires us to consolidate the assets
(homesites) at their fair value, although (1) we have no
legal title to the assets, (2) our maximum exposure to loss
is limited to the deposits or letters of credits placed with
these entities, and (3) creditors, if any, of these
entities have no recourse against us. The effect of
Interpretation No. 46 at March 31, 2005 was to
increase inventory by $94.3 million, excluding deposits of
$12.5 million which had been previously recorded, with a
corresponding increase to obligations for inventory not
owned in the accompanying consolidated statement of
financial condition. We have also entered into arrangements with
VIEs to acquire homesites in which our variable interest is
insignificant and, therefore, we have determined that we are not
the primary beneficiary and are not required to consolidate the
assets of such VIEs.

From time to time we transfer title to certain
parcels of land to unrelated third parties and enter into
options with the purchasers to acquire fully developed
homesites. In accordance with SFAS No. 66, Accounting
for the Sales of Real Estate, we have accounted for these
transactions as financing arrangements because we have retained
a continuing involvement in these properties. As of
March 31, 2005, $36.8 million of inventory not owned
and obligations for inventory not owned relates to sales with
continuing involvement.



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

Summarized condensed combined financial
information of unconsolidated entities in which we have
investments that are accounted for by the equity method is
(dollars in millions):

|                                               |                             |           |       |              |  |   |       |      | 
|---------------------------------------------- | --------------------------- | --------- | ----- | ------------ |  | - | ----- | ---- | 
|                                               |                             | March 31, |       | December 31,
|                                               |                             | 2005      |       | 2004        
|                                               |                             |           |       |             
|Assets:                                        |                             |           |       |              |  |   |       |     
|Cash                                           |                             | $         | 28.9  |              |  | $ | 16.2  |     
|Inventories                                    |                             |           | 424.5 |              |  |   | 270.8 |     
|Other assets                                   |                             |           | 7.2   |              |  |   | 9.8   |     
|                                               |                             |           |       |              |  |   |       |     
|Total assets                                   |                             | $         | 460.6 |              |  | $ | 296.8 |     
|                                               |                             |           |       |              |  |   |       |     
|                                              
|Liabilities and stockholders
    equity:      |                             |           |       |              |  |   |       |     
|Accounts payable and other liabilities         |                             | $         | 34.5  |              |  | $ | 21.0  |     
|Notes payable                                  |                             |           | 233.1 |              |  |   | 113.8 |     
|Equity of:                                     |                             |           |       |              |  |   |       |     
|                                               | Technical Olympic USA, Inc. |           |       | 78.2         |  |   |       | 66.6 | 
|                                               | Others                      |           |       | 114.8        |  |   |       | 95.4 | 
|                                               |                             |           |       |              |  |   |       |     
|Total liabilities and stockholders
    equity |                             | $         | 460.6 |              |  | $ | 296.8 |     
|                                               |                             |           |       |              |  |   |       |     

8



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                        |  |              |      |      |  |   |   | 
|--------------------------------------- |  | ------------ | ---- | ---- |  | - | - | 
|                                        |  |             
|                                        |  | Three Months
|                                        |  | Ended       
|                                        |  | March 31,   
|                                        |  |             
|                                        |  | 2005         |      | 2004
|                                        |  |              |      |     
|Revenues                                |  | $            | 44.9 |      |  | $ |  | 
|Cost and expenses                       |  |              | 42.6 |      |  |   |  | 
|                                        |  |              |      |      |  |   |   | 
|Net earnings of unconsolidated entities |  | $            | 2.3  |      |  | $ |  | 
|Our share of net earnings               |  | $            | 1.0  |      |  | $ |  | 
|Net fees earned                         |  |              | 1.6  |      |  |   |  | 
|                                        |  |              |      |      |  |   |   | 
|Income from joint ventures              |  | $            | 2.6  |      |  | $ |  | 
|                                        |  |              |      |      |  |   |   | 

We enter into strategic joint ventures to
acquire, to develop and to sell land and/or homesites, as well
as to construct and sell homes, in which we have a voting
ownership interest of 50% or less and do not have a controlling
interest. Our partners generally are unrelated homebuilders,
land sellers, financial partners or other real estate entities.
The unconsolidated entities follow accounting principles
generally accepted in the United States of America. At
March 31, 2005, we had made short term advances of
$37.6 million to these joint ventures.

In many instances, we are appointed as the
day-to-day manager of the unconsolidated entities and receive
management fees for performing this function. For the three
months ended March 31, 2005, we received management fees
and reimbursement of expenses from the unconsolidated entities
approximating $1.6 million. No such fees were received
during the three months ended March 31, 2004. In the
aggregate, these ventures delivered 141 homes, which accounted
for $38.3 million of the total $44.9 million of
unconsolidated partnership revenue.



|   |         
|-- | --------
|5. | Goodwill

The change in goodwill for the three months ended
March 31, 2005 and 2004 is as follows (dollars in millions):

|                                                           |  |                 |       |      |  |   |       | 
|---------------------------------------------------------- |  | --------------- | ----- | ---- |  | - | ----- | 
|                                                           |  |                
|                                                           |  | Three Months   
|                                                           |  | Ended March 31,
|                                                           |  |                
|                                                           |  | 2005            |       | 2004
|                                                           |  |                 |       |     
|Balance at January 1                                       |  | $               | 110.7 |      |  | $ | 100.1 | 
|Earn out consideration paid or accrued on
    acquisitions |  |                 |      |      |  |   | 6.3   | 
|                                                           |  |                 |       |      |  |   |       | 
|Balance at March 31                                        |  | $               | 110.7 |      |  | $ | 106.4 | 
|                                                           |  |                 |       |      |  |   |       | 



|   |           
|-- | ----------
|6. | Borrowings

Our revolving credit facility permits us to
borrow to the lesser of (i) $600.0 million or
(ii) our borrowing base (calculated in accordance with the
revolving credit facility agreement) minus our outstanding
senior debt. The facility has a letter of credit subfacility of
$300.0 million. In addition, we have the right to increase
the size of the facility to provide up to an additional
$150.0 million of revolving loans, provided we satisfy
certain conditions. Loans outstanding under the facility may be
base rate loans or Eurodollar loans, at our election. Our
obligations under the revolving credit facility are guaranteed
by our significant domestic subsidiaries, other than our
mortgage and title subsidiaries (unrestricted subsidiaries). The
revolving credit facility expires on October 26, 2008. As
of March 31, 2005, we had no borrowings under the revolving
credit facility and had issued letters of credit totaling
$153.3 million. We had $446.7 million remaining in
availability, all of which we could have borrowed without
violating any of our debt covenants.

9



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Our mortgage subsidiary has the ability to borrow
up to $120.0 million under two revolving warehouse lines of
credit to fund the origination of residential mortgage loans.
One of these warehouse lines can be increased to provide up to
an additional $50.0 million of availability, subject to
meeting certain requirements. One of the lines of credit bears
interest at the 30 day LIBOR rate plus a margin of 1.25% to
3.0%, determined based upon the type of mortgage loans being
financed, and the other bears interest at the 30 day
Eurodollar rate plus a margin of 1.125%. Both warehouse lines of
credit are secured by funded mortgages, which are pledged as
collateral, and require our mortgage subsidiary to maintain
certain financial ratios and minimums. As of March 31,
2005, we had $53.0 million in borrowings under our
warehouse lines of credit.



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies

We are involved in various claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on our consolidated
financial condition or results of operations. In addition, a
member of our management group has asserted certain claims
against us. A lawsuit has not been filed. This matter is subject
to further discovery and uncertainties. It is possible that the
ultimate resolution of this matter could have a material impact
on our results of operations, but we do not anticipate that such
resolution will be material to our consolidated financial
condition.

We provide homebuyers with a one-year or two-year
limited warranty of workmanship and materials, and an eight-year
or ten-year limited warranty covering major structural defects.
We generally have recourse against our subcontractors for claims
relating to workmanship and materials. We also have a
homebuilder protective policy which covers warranty claims for
structure and design defects related to homes sold by us during
the policy period, subject to a significant self-insured
retention per occurrence. Estimated warranty costs are recorded
at the time of sale based on historical experience and current
factors.

During the three months ended March 31, 2005
and 2004, changes in our warranty accrual consisted of (dollars
in millions):

|                                                               |  |              |      |      |  |   |      |  
|-------------------------------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                                               |  |             
|                                                               |  | Three Months
|                                                               |  | Ended       
|                                                               |  | March 31,   
|                                                               |  |             
|                                                               |  | 2005         |      | 2004
|                                                               |  |              |      |     
|Accrued warranty costs at January 1                            |  | $            | 6.5  |      |  | $ | 5.2  |  
|Liability recorded for warranties issued during
    the period |  |              | 2.8  |      |  |   | 2.4  |  
|Warranty work performed                                        |  |              | (1.4 | )    |  |   | (2.5 | )
|Adjustments                                                    |  |              | (0.9 | )    |  |   |     |  
|                                                               |  |              |      |      |  |   |      |  
|Accrued warranty costs at March 31                             |  | $            | 7.0  |      |  | $ | 5.1  |  
|                                                               |  |              |      |      |  |   |      |  



|   |                                                      
|-- | -----------------------------------------------------
|8. | Stockholders Equity and Stock-Based
    Compensation

During 2001, we adopted the Technical Olympic
USA, Inc. Annual and Long-Term Incentive Plan (the
Plan) pursuant to which our employees, consultants
and directors, and those of our subsidiaries and affiliated
entities, are eligible to receive shares of restricted common
stock and/or options to purchase shares of common stock. Under
the Plan, subject to adjustment as defined, the maximum number
of shares with respect to which awards may be granted is
7,500,000. At March 31, 2005, 6,769,111 options and
42,781 shares of restricted stock had been granted. Of the
stock options granted, 1,567,072 contain accelerated vesting
criteria or other features that are being accounted for under
the variable accounting method as provided by APB Opinion
No. 25. During the three months ended March 31, 2005,
we recorded compensation expense of $3.5 million related to
these accelerated vesting options, as compared to
$1.0 million during the three months ended March 31,
2004.

10



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|9. | Summarized Financial Information

Our outstanding senior notes and senior
subordinated notes are fully and unconditionally guaranteed, on
a joint and several basis, by the Guarantor Subsidiaries, which
are all of our material direct and indirect subsidiaries, other
than our mortgage and title operations subsidiaries (the
Non-guarantor Subsidiaries). Each of the Guarantor Subsidiaries
is directly or indirectly 100% owned by us. In lieu of providing
separate audited financial statements for the Guarantor
Subsidiaries, consolidated condensed financial statements are
presented below. Separate financial statements and other
disclosures concerning the Guarantor Subsidiaries are not
presented because management has determined that they are not
material to investors.

11



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF FINANCIAL
CONDITION

March 31, 2005


|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|-------------------------------------------- |  | --------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ----- | ----- | - |  | - | -------- | - |  | - | ------- | 
|                                             |  | Technical             |         |              |  | Non-         |         |              |  |      
|                                             |  | Olympic               |         | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.             |         | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                       |         |              |  |              |         |              |  |      
|                                             |  |                      
|                                             |  | (Dollars in millions)
|ASSETS                                       |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|HOMEBUILDING:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $                     | 71.0    |              |  | $            | 87.8    |              |  | $     |      |   |  | $ |         |   |  | $ | 158.8   | 
|Inventory                                    |  |                       |        |              |  |              | 1,382.7 |              |  |       |      |   |  |   |         |   |  |   | 1,382.7 | 
|Property and equipment, net                  |  |                       | 7.8     |              |  |              | 18.8    |              |  |       |      |   |  |   |         |   |  |   | 26.6    | 
|Investments in unconsolidated joint ventures |  |                       |        |              |  |              | 78.2    |              |  |       |      |   |  |   |         |   |  |   | 78.2    | 
|Advances to/ investments in subsidiaries     |  |                       | 1,402.6 |              |  |              | (49.9   | )            |  |       | (12.8 | ) |  |   | (1,339.9 | ) |  |   |        | 
|Other assets and advances                    |  |                       | 74.7    |              |  |              | 40.7    |              |  |       |      |   |  |   |         |   |  |   | 115.4   | 
|Goodwill                                     |  |                       |        |              |  |              | 110.7   |              |  |       |      |   |  |   |         |   |  |   | 110.7   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 1,556.1 |              |  |              | 1,669.0 |              |  |       | (12.8 | ) |  |   | (1,339.9 | ) |  |   | 1,872.4 | 
|FINANCIAL SERVICES:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  |                       |        |              |  |              |        |              |  |       | 101.2 |   |  |   |         |   |  |   | 101.2   | 
|Mortgage loans held for sale                 |  |                       |        |              |  |              |        |              |  |       | 70.7  |   |  |   |         |   |  |   | 70.7    | 
|Other assets                                 |  |                       |        |              |  |              |        |              |  |       | 9.7   |   |  |   |         |   |  |   | 9.7     | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 181.6 |   |  |   |         |   |  |   | 181.6   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total assets                                 |  | $                     | 1,556.1 |              |  | $            | 1,669.0 |              |  | $     | 168.8 |   |  | $ | (1,339.9 | ) |  | $ | 2,054.0 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|LIABILITIES AND STOCKHOLDERS EQUITY         |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|HOMEBUILDING:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  | $                     | 52.4    |              |  | $            | 143.7   |              |  | $     |      |   |  | $ |         |   |  | $ | 196.1   | 
|Customer deposits                            |  |                       |        |              |  |              | 79.9    |              |  |       |      |   |  |   |         |   |  |   | 79.9    | 
|Obligations for inventory not owned          |  |                       |        |              |  |              | 131.1   |              |  |       |      |   |  |   |         |   |  |   | 131.1   | 
|Notes payable                                |  |                       | 811.5   |              |  |              |        |              |  |       |      |   |  |   |         |   |  |   | 811.5   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 863.9   |              |  |              | 354.7   |              |  |       |      |   |  |   |         |   |  |   | 1,218.6 | 
|FINANCIAL SERVICES:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  |                       |        |              |  |              |        |              |  |       | 90.2  |   |  |   |         |   |  |   | 90.2    | 
|Bank borrowings                              |  |                       |        |              |  |              |        |              |  |       | 53.0  |   |  |   |         |   |  |   | 53.0    | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 143.2 |   |  |   |         |   |  |   | 143.2   | 
|Total liabilities                            |  |                       | 863.9   |              |  |              | 354.7   |              |  |       | 143.2 |   |  |   |         |   |  |   | 1,361.8 | 
|Stockholders equity                         |  |                       | 692.2   |              |  |              | 1,314.3 |              |  |       | 25.6  |   |  |   | (1,339.9 | ) |  |   | 692.2   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $                     | 1,556.1 |              |  | $            | 1,669.0 |              |  | $     | 168.8 |   |  | $ | (1,339.9 | ) |  | $ | 2,054.0 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 

12



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF FINANCIAL
CONDITION

December 31, 2004


|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|-------------------------------------------- |  | --------------------- | ------- | ------------ |  | ------------ | ------- | ------------ |  | ----- | ----- | - |  | - | -------- | - |  | - | ------- | 
|                                             |  | Technical             |         |              |  | Non-         |         |              |  |      
|                                             |  | Olympic               |         | Guarantor    |  | guarantor    |         | Intercompany |  |      
|                                             |  | USA, Inc.             |         | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Total
|                                             |  |                       |         |              |  |              |         |              |  |      
|                                             |  |                      
|                                             |  | (Dollars in millions)
|ASSETS                                       |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|HOMEBUILDING:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $                     | 159.3   |              |  | $            | 66.3    |              |  | $     |      |   |  | $ |         |   |  | $ | 225.6   | 
|Inventory                                    |  |                       |        |              |  |              | 1,281.2 |              |  |       |      |   |  |   |         |   |  |   | 1,281.2 | 
|Property and equipment, net                  |  |                       | 6.8     |              |  |              | 19.9    |              |  |       |      |   |  |   |         |   |  |   | 26.7    | 
|Investments in unconsolidated joint ventures |  |                       |        |              |  |              | 66.6    |              |  |       |      |   |  |   |         |   |  |   | 66.6    | 
|Advances to/ investments in subsidiaries     |  |                       | 1,349.9 |              |  |              | 24.0    |              |  |       | (62.8 | ) |  |   | (1,311.1 | ) |  |   |        | 
|Other assets and advances                    |  |                       | 22.4    |              |  |              | 48.7    |              |  |       |      |   |  |   |         |   |  |   | 71.1    | 
|Goodwill                                     |  |                       |        |              |  |              | 110.7   |              |  |       |      |   |  |   |         |   |  |   | 110.7   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 1,538.4 |              |  |              | 1,617.4 |              |  |       | (62.8 | ) |  |   | (1,311.1 | ) |  |   | 1,781.9 | 
|FINANCIAL SERVICES:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Cash and cash equivalents                    |  |                       |        |              |  |              |        |              |  |       | 120.0 |   |  |   |         |   |  |   | 120.0   | 
|Mortgage loans held for sale                 |  |                       |        |              |  |              |        |              |  |       | 75.8  |   |  |   |         |   |  |   | 75.8    | 
|Other assets                                 |  |                       |        |              |  |              |        |              |  |       | 9.8   |   |  |   |         |   |  |   | 9.8     | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 205.6 |   |  |   |         |   |  |   | 205.6   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total assets                                 |  | $                     | 1,538.4 |              |  | $            | 1,617.4 |              |  | $     | 142.8 |   |  | $ | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|LIABILITIES AND STOCKHOLDERS EQUITY         |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|HOMEBUILDING:                                |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  | $                     | 64.3    |              |  | $            | 124.6   |              |  | $     |      |   |  | $ |         |   |  | $ | 188.9   | 
|Customer deposits                            |  |                       |        |              |  |              | 69.1    |              |  |       |      |   |  |   |         |   |  |   | 69.1    | 
|Obligations for inventory not owned          |  |                       |        |              |  |              | 136.2   |              |  |       |      |   |  |   |         |   |  |   | 136.2   | 
|Notes payable                                |  |                       | 811.4   |              |  |              |        |              |  |       |      |   |  |   |         |   |  |   | 811.4   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       | 875.7   |              |  |              | 329.9   |              |  |       |      |   |  |   |         |   |  |   | 1,205.6 | 
|FINANCIAL SERVICES:                          |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Accounts payable and other liabilities       |  |                       |        |              |  |              |        |              |  |       | 70.2  |   |  |   |         |   |  |   | 70.2    | 
|Bank borrowings                              |  |                       |        |              |  |              |        |              |  |       | 49.0  |   |  |   |         |   |  |   | 49.0    | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|                                             |  |                       |        |              |  |              |        |              |  |       | 119.2 |   |  |   |         |   |  |   | 119.2   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total liabilities                            |  |                       | 875.7   |              |  |              | 329.9   |              |  |       | 119.2 |   |  |   |         |   |  |   | 1,324.8 | 
|Stockholders equity                         |  |                       | 662.7   |              |  |              | 1,287.5 |              |  |       | 23.6  |   |  |   | (1,311.1 | ) |  |   | 662.7   | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $                     | 1,538.4 |              |  | $            | 1,617.4 |              |  | $     | 142.8 |   |  | $ | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                             |  |                       |         |              |  |              |         |              |  |       |       |   |  |   |          |   |  |   |         | 

13



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF INCOME

Three Months Ended March 31,
2005

|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|-------------------------------------------- |  | --------------------- | ----- | ------------ |  | ------------ | ----- | ------------ |  | ----- | ---- |  |  | - | ----- | - |  | - | ----- | -
|                                             |  | Technical             |       |              |  |              |       |              |  |      
|                                             |  | Olympic               |       |              |  | Non-         |       |              |  |      
|                                             |  | USA,                  |       | Guarantor    |  | guarantor    |       | Intercompany |  |      
|                                             |  | Inc.                  |       | Subsidiaries |  | Subsidiaries |       | Eliminations |  | Total
|                                             |  |                       |       |              |  |              |       |              |  |      
|                                             |  |                      
|                                             |  | (Dollars in millions)
|HOMEBUILDING:                                |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Revenues                                     |  | $                     |      |              |  | $            | 533.6 |              |  | $     |     |  |  | $ |      |   |  | $ | 533.6 |  
|Cost of sales                                |  |                       |      |              |  |              | 417.8 |              |  |       |     |  |  |   |      |   |  |   | 417.8 |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Gross profit                                 |  |                       |      |              |  |              | 115.8 |              |  |       |     |  |  |   |      |   |  |   | 115.8 |  
|Selling, general and administrative expenses |  |                       | 21.1  |              |  |              | 59.6  |              |  |       |     |  |  |   | (1.7  | ) |  |   | 79.0  |  
|(Income) from joint ventures, net            |  |                       |      |              |  |              | (2.6  | )            |  |       |     |  |  |   |      |   |  |   | (2.6  | )
|Other (income) expense, net                  |  |                       | (46.9 | )            |  |              | 15.7  |              |  |       |     |  |  |   | 29.7  |   |  |   | (1.5  | )
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Homebuilding pretax income                   |  |                       | 25.8  |              |  |              | 43.1  |              |  |       |     |  |  |   | (28.0 | ) |  |   | 40.9  |  
|FINANCIAL SERVICES:                          |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Revenues                                     |  |                       |      |              |  |              |      |              |  |       | 11.7 |  |  |   | (1.7  | ) |  |   | 10.0  |  
|Expenses                                     |  |                       |      |              |  |              |      |              |  |       | 9.6  |  |  |   | (0.9  | ) |  |   | 8.7   |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Financial Services pretax income             |  |                       |      |              |  |              |      |              |  |       | 2.1  |  |  |   | (0.8  | ) |  |   | 1.3   |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Income before provision for income taxes     |  |                       | 25.8  |              |  |              | 43.1  |              |  |       | 2.1  |  |  |   | (28.8 | ) |  |   | 42.2  |  
|Provision (benefit) for income taxes         |  |                       | (0.6  | )            |  |              | 16.2  |              |  |       | 0.2  |  |  |   |      |   |  |   | 15.8  |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Net income                                   |  | $                     | 26.4  |              |  | $            | 26.9  |              |  | $     | 1.9  |  |  | $ | (28.8 | ) |  | $ | 26.4  |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  

CONSOLIDATING STATEMENT OF INCOME

Three Months Ended March 31,
2004

|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|-------------------------------------------- |  | --------------------- | ----- | ------------ |  | ------------ | ----- | ------------ |  | ----- | ---- |  |  | - | ----- | - |  | - | ----- | -
|                                             |  | Technical             |       |              |  |              |       |              |  |      
|                                             |  | Olympic               |       |              |  | Non-         |       |              |  |      
|                                             |  | USA,                  |       | Guarantor    |  | guarantor    |       | Intercompany |  |      
|                                             |  | Inc.                  |       | Subsidiaries |  | Subsidiaries |       | Eliminations |  | Total
|                                             |  |                       |       |              |  |              |       |              |  |      
|                                             |  |                      
|                                             |  | (Dollars in millions)
|HOMEBUILDING:                                |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Revenues                                     |  | $                     |      |              |  | $            | 424.8 |              |  | $     |     |  |  | $ |      |   |  | $ | 424.8 |  
|Cost of sales                                |  |                       |      |              |  |              | 344.3 |              |  |       |     |  |  |   |      |   |  |   | 344.3 |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Gross profit                                 |  |                       |      |              |  |              | 80.5  |              |  |       |     |  |  |   |      |   |  |   | 80.5  |  
|Selling, general and administrative expenses |  |                       | 10.6  |              |  |              | 47.5  |              |  |       |     |  |  |   | (1.8  | ) |  |   | 56.3  |  
|Other (income) expense, net                  |  |                       | (24.8 | )            |  |              | (1.7  | )            |  |       |     |  |  |   | 25.3  |   |  |   | (1.2  | )
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Homebuilding pretax income                   |  |                       | 14.2  |              |  |              | 34.7  |              |  |       |     |  |  |   | (23.5 | ) |  |   | 25.4  |  
|FINANCIAL SERVICES:                          |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Revenues                                     |  |                       |      |              |  |              |      |              |  |       | 10.5 |  |  |   | (1.8  | ) |  |   | 8.7   |  
|Expenses                                     |  |                       |      |              |  |              |      |              |  |       | 6.7  |  |  |   | (1.3  | ) |  |   | 5.4   |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Financial Services pretax income             |  |                       |      |              |  |              |      |              |  |       | 3.8  |  |  |   | (0.5  | ) |  |   | 3.3   |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Income before provision for income taxes     |  |                       | 14.2  |              |  |              | 34.7  |              |  |       | 3.8  |  |  |   | (24.0 | ) |  |   | 28.7  |  
|Provision (benefit) for income taxes         |  |                       | (3.8  | )            |  |              | 12.9  |              |  |       | 1.6  |  |  |   |      |   |  |   | 10.7  |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  
|Net income                                   |  | $                     | 18.0  |              |  | $            | 21.8  |              |  | $     | 2.2  |  |  | $ | (24.0 | ) |  | $ | 18.0  |  
|                                             |  |                       |       |              |  |              |       |              |  |       |      |  |  |   |       |   |  |   |       |  

14



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2005

|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |     |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ----- | ------------ | ----- | ------------ | ----- | ------------ | ------ | ----- | ----- | - | ----- | - | ----- | - | - | - | ------ | --- | ------ | -
|                                                                                                |                                              | Technical                              |       |              |       | Non-         |       |              |        |      
|                                                                                                |                                              | Olympic                                |       | Guarantor    |       | guarantor    |       | Intercompany |        |      
|                                                                                                |                                              | USA, Inc.                              |       | Subsidiaries |       | Subsidiaries |       | Eliminations |        | Total
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |      
|                                                                                                |                                              |                                       
|                                                                                                |                                              | (Dollars in millions)                 
|Cash Flows from Operating
    Activities:                                                       |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net income                                                                                      |                                              | $                                      | 26.4  |              |       | $            | 26.9  |              |        | $     | 1.9   |   |       | $ | (28.8 | ) |   | $ | 26.4   |    
|Adjustments to reconcile net income to net cash
    (used in) provided by operating activities: |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|                                                                                                | Depreciation and amortization                |                                        |       | 0.9          |       |              |       | 2.0          |        |       |       |  |       |   |       |  |   |   |        | 2.9 |       
|                                                                                                | Non-cash compensation expense                |                                        |       | 5.2          |       |              |       |             |        |       |       |  |       |   |       |  |   |   |        | 5.2 |       
|                                                                                                | Changes in operating assets and liabilities: |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |     |       
|                                                                                                |                                              | Restricted cash                        |       |              | (1.1  | )            |       |              | (4.5   | )     |       |   | (20.5 | ) |       |   |  |   |        |     | (26.1  | )
|                                                                                                |                                              | Inventory                              |       |              |      |              |       |              | (106.5 | )     |       |   |      |   |       |   |  |   |        |     | (106.5 | )
|                                                                                                |                                              | Other assets                           |       |              | (52.0 | )            |       |              | 8.0    |       |       |   | 0.2   |   |       |   |  |   |        |     | (43.8  | )
|                                                                                                |                                              | Accounts payable and other liabilities |       |              | (13.2 | )            |       |              | 19.0   |       |       |   | 20.0  |   |       |   |  |   |        |     | 25.8   |  
|                                                                                                |                                              | Customer deposits                      |       |              |      |              |       |              | 10.7   |       |       |   |      |   |       |   |  |   |        |     | 10.7   |  
|                                                                                                |                                              | Mortgage loans held for sale           |       |              |      |              |       |              |       |       |       |   | 5.0   |   |       |   |  |   |        |     | 5.0    |  
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net cash (used in) provided by operating
    activities                                         |                                              |                                        | (33.8 | )            |       |              | (44.4 | )            |        |       | 6.6   |   |       |   | (28.8 | ) |   |   | (100.4 | )  
|Cash Flows from Investing
    Activities:                                                       |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net additions to property and equipment                                                         |                                              |                                        | (1.9  | )            |       |              | (0.9  | )            |        |       |      |   |       |   |      |   |   |   | (2.8   | )  
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |      |              |       |              | (11.5 | )            |        |       |      |   |       |   |      |   |   |   | (11.5  | )  
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net cash used in investing activities                                                           |                                              |                                        | (1.9  | )            |       |              | (12.4 | )            |        |       |      |   |       |   |      |   |   |   | (14.3  | )  
|Cash Flows from Financing
    Activities:                                                       |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net proceeds from Financial Services bank
    borrowings                                        |                                              |                                        |      |              |       |              |      |              |        |       | 4.0   |   |       |   |      |   |   |   | 4.0    |    
|Payments for deferred financing costs                                                           |                                              |                                        | (0.3  | )            |       |              |      |              |        |       |      |   |       |   |      |   |   |   | (0.3   | )  
|Dividends paid                                                                                  |                                              |                                        | (0.7  | )            |       |              |      |              |        |       |      |   |       |   |      |   |   |   | (0.7   | )  
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (52.7 | )            |       |              | 73.9  |              |        |       | (50.0 | ) |       |   | 28.8  |   |   |   |       |    
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Net cash provided by (used in) financing
    activities                                         |                                              |                                        | (53.7 | )            |       |              | 73.9  |              |        |       | (46.0 | ) |       |   | 28.8  |   |   |   | 3.0    |    
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|(Decrease) increase in cash and cash equivalents                                                |                                              |                                        | (89.4 | )            |       |              | 17.1  |              |        |       | (39.4 | ) |       |   |      |   |   |   | (111.7 | )  
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 159.3 |              |       |              | 58.3  |              |        |       | 50.9  |   |       |   |      |   |   |   | 268.5  |    
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 69.9  |              |       | $            | 75.4  |              |        | $     | 11.5  |   |       | $ |      |   |   | $ | 156.8  |    
|                                                                                                |                                              |                                        |       |              |       |              |       |              |        |       |       |   |       |   |       |   |   |   |        |    

15



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2004

|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |     |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | ------------ | ----- | ------------ | ----- | ------------ | ----- | ----- | ----- | - | ------ | - | ----- | - | ---- | - | ----- | --- | ------ | -
|                                                                                                |                                              | Technical                              |        |              |       | Non-         |       |              |       |      
|                                                                                                |                                              | Olympic                                |        | Guarantor    |       | guarantor    |       | Intercompany |       |      
|                                                                                                |                                              | USA, Inc.                              |        | Subsidiaries |       | Subsidiaries |       | Eliminations |       | Total
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |      
|                                                                                                |                                              |                                       
|                                                                                                |                                              | (Dollars in millions)                 
|Cash Flows from Operating
    Activities:                                                       |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net income                                                                                      |                                              | $                                      | 18.0   |              |       | $            | 22.0  |              |       | $     | 2.1   |   |        | $ | (24.1 | ) |      | $ | 18.0  |    
|Adjustments to reconcile net income to net cash
    (used in) provided by operating activities: |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|                                                                                                | Depreciation and amortization                |                                        |        | 0.9          |       |              |       | 2.4          |       |       |       |  |        |   |       |  |      |   |       | 3.3 |       
|                                                                                                | Non-cash compensation expense                |                                        |        | 1.2          |       |              |       |             |       |       |       |  |        |   |       |  |      |   |       | 1.2 |       
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |     |       
|                                                                                                |                                              | Restricted cash                        |        |              | 0.3   |              |       |              | (7.4  | )     |       |   | (104.3 | ) |       |   |     |   |       |     | (111.4 | )
|                                                                                                |                                              | Inventory                              |        |              | 0.2   |              |       |              | (2.1  | )     |       |   |       |   |       |   |     |   |       |     | (1.9   | )
|                                                                                                |                                              | Other assets                           |        |              | 2.0   |              |       |              | (23.7 | )     |       |   | (0.4   | ) |       |   | (8.8 | ) |       |     | (30.9  | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |              | (13.9 | )            |       |              | (17.5 | )     |       |   | 103.2  |   |       |   | 8.8  |   |       |     | 80.6   |  
|                                                                                                |                                              | Customer deposits                      |        |              |      |              |       |              | 9.6   |       |       |   |       |   |       |   |     |   |       |     | 9.6    |  
|                                                                                                |                                              | Mortgage loans held for sale           |        |              |      |              |       |              |      |       |       |   | 13.3   |   |       |   |     |   |       |     | 13.3   |  
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net cash (used in) provided by operating
    activities                                         |                                              |                                        | 8.7    |              |       |              | (16.7 | )            |       |       | 13.9  |   |        |   | (24.1 | ) |      |   | (18.2 | )  
|Cash Flows from Investing
    Activities:                                                       |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net additions to property and equipment                                                         |                                              |                                        | (0.4   | )            |       |              | (4.7  | )            |       |       |      |   |        |   |      |   |      |   | (5.1  | )  
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |       |              |       |              | (8.1  | )            |       |       |      |   |        |   |      |   |      |   | (8.1  | )  
|Earn out consideration paid for acquisitions                                                    |                                              |                                        |       |              |       |              | (6.3  | )            |       |       |      |   |        |   |      |   |      |   | (6.3  | )  
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net cash used in investing activities                                                           |                                              |                                        | (0.4   | )            |       |              | (19.1 | )            |       |       |      |   |        |   |      |   |      |   | (19.5 | )  
|Cash Flows from Financing
    Activities:                                                       |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net repayments on revolving credit facilities                                                   |                                              |                                        | (10.0  | )            |       |              |      |              |       |       |      |   |        |   |      |   |      |   | (10.0 | )  
|Proceeds from notes offering                                                                    |                                              |                                        | 125.0  |              |       |              |      |              |       |       |      |   |        |   |      |   |      |   | 125.0 |    
|Proceeds from Homebuilding bank borrowings                                                      |                                              |                                        |       |              |       |              | 1.4   |              |       |       |      |   |        |   |      |   |      |   | 1.4   |    
|Net payments on obligations for inventory not
    owned                                         |                                              |                                        |       |              |       |              | (1.1  | )            |       |       |      |   |        |   |      |   |      |   | (1.1  | )  
|Net repayments on Financial Services bank
    borrowings                                        |                                              |                                        |       |              |       |              |      |              |       |       | (43.2 | ) |        |   |      |   |      |   | (43.2 | )  
|Payments for deferred financing costs                                                           |                                              |                                        | (1.7   | )            |       |              |      |              |       |       |      |   |        |   |      |   |      |   | (1.7  | )  
|Minority interest in consolidated subsidiaries                                                  |                                              |                                        |       |              |       |              | (1.7  | )            |       |       |      |   |        |   |      |   |      |   | (1.7  | )  
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (132.3 | )            |       |              | 77.7  |              |       |       | 30.5  |   |        |   | 24.1  |   |      |   |      |    
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Net cash provided by (used in) financing
    activities                                         |                                              |                                        | (19.0  | )            |       |              | 76.3  |              |       |       | (12.7 | ) |        |   | 24.1  |   |      |   | 68.7  |    
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | (10.7  | )            |       |              | 40.5  |              |       |       | 1.2   |   |        |   |      |   |      |   | 31.0  |    
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 46.0   |              |       |              | 27.7  |              |       |       | 3.1   |   |        |   |      |   |      |   | 76.8  |    
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 35.3   |              |       | $            | 68.2  |              |       | $     | 4.3   |   |        | $ |      |   |      | $ | 107.8 |    
|                                                                                                |                                              |                                        |        |              |       |              |       |              |       |       |       |   |        |   |       |   |      |   |       |    

16



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Executive Summary

We generate revenues from our homebuilding
operations (Homebuilding) and financial services
operations (Financial Services), which comprise our
operating segments. Through our Homebuilding operations we
design, build and market high-quality detached single-family
residences, town homes and condominiums in 15 metropolitan
markets located in four major geographic regions: Florida, the
Mid-Atlantic, Texas and the West.

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

We build homes for inventory and on a pre-sold
basis. At March 31, 2005, we had 4,426 homes completed or
under construction (including unconsolidated joint ventures), of
which approximately 19% were unsold. At March 31, 2005, we
had 106 completed unsold homes in our inventory (including
unconsolidated joint ventures), of which approximately 44% had
been completed for more than 90 days. Our completed unsold
homes have decreased by 48% from 203 at December 31, 2004.
We are actively working to reduce our speculative home inventory
to reduce carrying costs and to increase our available capital.

Once a sales contract with a buyer has been
approved, we classify the transaction as a new sales
order and include the home in backlog. Such
sales orders are usually subject to certain contingencies such
as the buyers ability to qualify for financing. At
closing, title passes to the buyer and a home is considered to
be delivered and is removed from backlog. Revenue
and cost of sales are recognized upon the delivery of the home,
land or homesite when title is transferred to the buyer. We
estimate that the average period between the execution of a
sales contract for a home and closing is approximately six to
twelve months for presold homes; however, this varies by market.
The principal expenses of our Homebuilding operations are
(i) cost of sales and (ii) selling, general and
administrative (SG&A) expenses. Costs of home
sales include land and land development costs, home construction
costs, previously capitalized indirect costs, capitalized
interest and estimated warranty costs. SG&A expenses for our
Homebuilding operations include administrative costs,
advertising expenses, on-site marketing expenses, commission
costs, and closing costs. Sales commissions are included in
selling, general and administrative costs when the related
revenue is recognized. As used herein, Homebuilding
includes results of home and land sales. Home sales
includes results related only to the sale of homes.

We were actively selling homes in 247 communities
(including 17 through our unconsolidated joint ventures) and 227
communities at March 31, 2005 and 2004, respectively. For
the three months ended March 31, 2005, total revenues
increased 25%, net income increased 46%, net sales orders
(including unconsolidated joint ventures) decreased 3% and home
deliveries (including unconsolidated joint ventures) increased
32% as compared to the same period in the prior year. Sales
value in backlog at March 31, 2005 as compared to
March 31, 2004 increased by 51% to $1.8 billion. The
3% decrease in net sales orders is due to delays in opening new
communities and deliberate attempts to phase sales to maximize
gross margins in high demand markets. Our joint ventures had an
additional $0.3 billion in sales backlog. Our home
cancellation rate was approximately 14% for the quarter ended
March 31, 2005.

We have entered into, and expect to expand our
use of, joint ventures that acquire and develop land for our
Homebuilding operations and/or joint ventures that also build
and market homes. The majority of these joint ventures are not
consolidated. At March 31, 2005, our investment in these
unconsolidated joint ventures was $78.2 million, and we had
made short term advances of $37.6 million to these joint
ventures. In addition, we seek to use option contracts to
acquire land whenever feasible. Option contracts allow us to
control significant homesite positions with minimal capital
investment and substantially reduce the risks associated with
land ownership and development. At March 31, 2005, we
controlled approximately 55,000 homesites (including
unconsolidated joint ventures) of which 72% were controlled
through various option arrangements.

17



---



##### Table of Contents



To provide homebuyers a seamless home purchasing
experience, we have a complementary financial services business
where we provide mortgage financing and closing services and
offer title, homeowners and other insurance products to
our homebuyers and others. Our mortgage financing operation
derives most of its revenues from buyers of our homes, although
it also offers its services to existing homeowners refinancing
their mortgages. Our closing services and our insurance agency
operations are used by our homebuyers and a broad range of other
clients purchasing or refinancing residential or commercial real
estate. Our mortgage financing operations revenues consist
primarily of origination and premium fee income, interest
income, and the gain on the sale of the mortgages. Our title
operations revenues consist primarily of title insurance
and closing services. The principal expenses of our Financial
Services operations are SG&A expenses, which consist
primarily of compensation and interest expense on our warehouse
line of credit.

Critical Accounting Policies

There have been no significant changes to our
critical accounting policies during the three months ended
March 31, 2005, as compared to those we disclosed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K
for the year ended December 31, 2004.

Results of Operations 
Consolidated

Total revenues increased 25% to
$543.6 million for the three months ended March 31,
2005, from $433.5 million for the three months ended
March 31, 2004. This increase is attributable to an
increase in Homebuilding revenues of 26%, and an increase in
Financial Services revenues of 15%. Although this was a large
increase, delays related to the hurricanes in Florida caused our
deliveries to lag behind our expectations. We expect the labor
and supply shortages caused by the hurricanes to persist for
some time.

Income before provision for income taxes
increased by 48% to $42.2 million for the three months
ended March 31, 2005, from $28.7 million for the
comparable period in 2004. This increase is attributable to an
increase in Homebuilding pretax income to $40.9 million for
the three months ended March 31, 2005, from
$25.4 million for the three months ended March 31,
2004. This was partially offset by a decline in Financial
Services pretax income to $1.3 million for the three months
ended March 31, 2005 from $3.3 million for the three
months ended March 31, 2004.

Our effective tax rate was 37.5% and 36.9% for
the three months ended March 31, 2005 and 2004,
respectively. This increase was due to increases in income in
states with higher tax rates. During 2004, the American Jobs
Creation Act was enacted. We are currently evaluating the
potential impact, if any, of this law on our effective tax rate
for the year ended December 31, 2005. At the present time,
we do not anticipate that this law will have a material impact
on our consolidated financial condition or results of operations.

As a result of the above, net income increased to
$26.4 million (or $0.45 per diluted share) for the
three months ended March 31, 2005 from $18.0 million
(or $0.32 per diluted share) for the three months ended
March 31, 2004.

18



---



##### Table of Contents



Results of Operations

The following tables set forth certain operating
and financial data for our homebuilding operations in our four
major geographic regions, Florida, the Mid-Atlantic, Texas and
the West (dollars in millions, except average price in
thousands):

|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|---------------------------------- |  | ---------------------------- | ----- | ---- |  | ----- | ----- | - |  |  | ----- |  |  | - | ----- | 
|                                   |  |                             
|                                   |  | Three Months Ended March 31,
|                                   |  |                             
|                                   |  |                              |       |     
|                                   |  | 2005                         |       | 2004
|                                   |  |                              |       |     
|                                   |  | Homes                        |       | $    |  | Homes |       | $
|                                   |  |                              |       |      |  |       |       |  
|Deliveries:                        |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Florida                            |  |                              | 757   |      |  | $     | 212.9 |   |  |  | 544   |  |  | $ | 141.5 | 
|Mid-Atlantic                       |  |                              | 122   |      |  |       | 47.0  |   |  |  | 120   |  |  |   | 45.2  | 
|Texas                              |  |                              | 393   |      |  |       | 94.1  |   |  |  | 419   |  |  |   | 101.1 | 
|West                               |  |                              | 595   |      |  |       | 158.4 |   |  |  | 434   |  |  |   | 118.9 | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Consolidated total                 |  |                              | 1,867 |      |  |       | 512.4 |   |  |  | 1,517 |  |  |   | 406.7 | 
|From unconsolidated joint ventures |  |                              | 141   |      |  |       | 38.3  |   |  |  |      |  |  |   |      | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Total                              |  |                              | 2,008 |      |  | $     | 550.7 |   |  |  | 1,517 |  |  | $ | 406.7 | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 

|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|---------------------------------- |  | ---------------------------- | ----- | ---- |  | ----- | ----- | - |  |  | ----- |  |  | - | ----- | 
|                                   |  |                             
|                                   |  | Three Months Ended March 31,
|                                   |  |                             
|                                   |  |                              |       |     
|                                   |  | 2005                         |       | 2004
|                                   |  |                              |       |     
|                                   |  | Homes                        |       | $    |  | Homes |       | $
|                                   |  |                              |       |      |  |       |       |  
|Net Sales Orders(1):               |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Florida                            |  |                              | 706   |      |  | $     | 253.5 |   |  |  | 1,085 |  |  | $ | 300.0 | 
|Mid-Atlantic                       |  |                              | 191   |      |  |       | 83.9  |   |  |  | 262   |  |  |   | 110.6 | 
|Texas                              |  |                              | 689   |      |  |       | 165.8 |   |  |  | 535   |  |  |   | 137.2 | 
|West                               |  |                              | 835   |      |  |       | 274.6 |   |  |  | 847   |  |  |   | 186.8 | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Consolidated total                 |  |                              | 2,421 |      |  |       | 777.8 |   |  |  | 2,729 |  |  |   | 734.6 | 
|From unconsolidated joint ventures |  |                              | 314   |      |  |       | 102.8 |   |  |  | 92    |  |  |   | 27.5  | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 
|Total                              |  |                              | 2,735 |      |  | $     | 880.6 |   |  |  | 2,821 |  |  | $ | 762.1 | 
|                                   |  |                              |       |      |  |       |       |   |  |  |       |  |  |   |       | 



---



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

|                                   |  |                |       |                |  |       |         |         |  |   |     |       |  |  |       |  |  |   |         |  |  |   |     | 
|---------------------------------- |  | -------------- | ----- | -------------- |  | ----- | ------- | ------- |  | - | --- | ----- |  |  | ----- |  |  | - | ------- |  |  | - | --- | 
|                                   |  |                |       |               
|                                   |  | March 31, 2005 |       | March 31, 2004
|                                   |  |                |       |               
|                                   |  |                |       | Average        |  |       |         | Average
|                                   |  | Homes          |       | $              |  | Price |         | Homes   |  | $ |     | Price
|                                   |  |                |       |                |  |       |         |         |  |   |     |      
|Sales Backlog:                     |  |                |       |                |  |       |         |         |  |   |     |       |  |  |       |  |  |   |         |  |  |   |     | 
|Florida                            |  |                | 2,845 |                |  | $     | 939.5   |         |  | $ | 330 |       |  |  | 2,087 |  |  | $ | 582.3   |  |  | $ | 279 | 
|Mid-Atlantic                       |  |                | 415   |                |  |       | 178.8   |         |  | $ | 431 |       |  |  | 366   |  |  |   | 153.1   |  |  | $ | 418 | 
|Texas                              |  |                | 839   |                |  |       | 209.1   |         |  | $ | 249 |       |  |  | 610   |  |  |   | 159.4   |  |  | $ | 261 | 
|West                               |  |                | 1,549 |                |  |       | 505.1   |         |  | $ | 326 |       |  |  | 1,277 |  |  |   | 322.6   |  |  | $ | 253 | 
|                                   |  |                |       |                |  |       |         |         |  |   |     |       |  |  |       |  |  |   |         |  |  |   |     | 
|Consolidated total                 |  |                | 5,648 |                |  |       | 1,832.5 |         |  | $ | 324 |       |  |  | 4,340 |  |  |   | 1,217.4 |  |  | $ | 281 | 
|From unconsolidated joint ventures |  |                | 842   |                |  |       | 274.8   |         |  | $ | 326 |       |  |  | 92    |  |  |   | 27.5    |  |  | $ | 299 | 
|                                   |  |                |       |                |  |       |         |         |  |   |     |       |  |  |       |  |  |   |         |  |  |   |     | 
|Total                              |  |                | 6,490 |                |  | $     | 2,107.3 |         |  | $ | 325 |       |  |  | 4,432 |  |  | $ | 1,244.9 |  |  | $ | 281 | 
|                                   |  |                |       |                |  |       |         |         |  |   |     |       |  |  |       |  |  |   |         |  |  |   |     | 

19



---



##### Table of Contents



|                                   |  |                              |     |              |  |            |     |              |  |   |     |  |  |   |     | 
|---------------------------------- |  | ---------------------------- | --- | ------------ |  | ---------- | --- | ------------ |  | - | --- |  |  | - | --- | 
|                                   |  |                             
|                                   |  | Three Months Ended March 31,
|                                   |  |                             
|                                   |  |                              |     |             
|                                   |  | 2005                         |     | 2004        
|                                   |  |                              |     |             
|                                   |  | Deliveries                   |     | Sales Orders |  | Deliveries |     | Sales Orders
|                                   |  |                              |     |              |  |            |     |             
|Average Price:                     |  |                              |     |              |  |            |     |              |  |   |     |  |  |   |     | 
|Florida                            |  | $                            | 281 |              |  | $          | 359 |              |  | $ | 260 |  |  | $ | 277 | 
|Mid-Atlantic                       |  | $                            | 385 |              |  | $          | 439 |              |  | $ | 376 |  |  | $ | 422 | 
|Texas                              |  | $                            | 239 |              |  | $          | 241 |              |  | $ | 241 |  |  | $ | 256 | 
|West                               |  | $                            | 266 |              |  | $          | 329 |              |  | $ | 274 |  |  | $ | 221 | 
|Consolidated total                 |  | $                            | 274 |              |  | $          | 321 |              |  | $ | 268 |  |  | $ | 269 | 
|From unconsolidated joint ventures |  | $                            | 272 |              |  | $          | 327 |              |  |   |    |  |  | $ | 299 | 
|Total                              |  | $                            | 274 |              |  | $          | 322 |              |  | $ | 268 |  |  | $ | 270 | 

|                            |  |                              |      |      |  |  |      |   
|--------------------------- |  | ---------------------------- | ---- | ---- |  |  | ---- | --
|                            |  |                             
|                            |  | Percentage of Total         
|                            |  | Homebuilding Revenues       
|                            |  |                             
|                            |  |                             
|                            |  | Three Months Ended March 31,
|                            |  |                             
|                            |  | 2005                         |      | 2004
|                            |  |                              |      |     
|Gross Profit                |  |                              | 21.7 | %    |  |  | 19.0 | % 
|SG&A                        |  |                              | 14.8 | %    |  |  | 13.3 | % 
|Income from joint ventures  |  |                              | (0.5 | )%   |  |  |     |   
|Other (income) expense, net |  |                              | (0.3 | )%   |  |  | (0.3 | )%
|                            |  |                              |      |      |  |  |      |   
|Homebuilding pretax income  |  |                              | 7.7  | %    |  |  | 6.0  | % 
|                            |  |                              |      |      |  |  |      |   



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2005
    Compared to Three Months Ended March 31, 2004

Homebuilding revenues increased 26% to
$533.6 million for the three months ended March 31,
2005, from $424.8 million for the three months ended
March 31, 2004. This increase is due primarily to an
increase in revenues from home sales to $512.4 million for
the three months ended March 31, 2005, from
$406.7 million for the comparable period in 2004. The 26%
increase in revenue from home sales was due to (1) a 23%
increase in home deliveries to 1,867 from 1,517 for the three
months ended March 31, 2005 and 2004, respectively, and
(2) a 2% increase in the average selling price on homes
delivered to $274,000 from $268,000 in the comparable period of
the prior year. A significant component of this increase was the
50% increase in revenues from home sales in our Florida region
for the three months ended March 31, 2005 as compared to
the same period in 2004. This increase was due to a 39% increase
in home deliveries and an 8% increase in the average selling
price of such homes. In addition to the increase in revenue from
home sales, we generated additional revenue from land sales.
Land sales increased to $21.2 million for the three months
ended March 31, 2005, as compared to $18.1 million for
the three months ended March 31, 2004. As part of our land
inventory management strategy, we regularly review our land
portfolio. As a result of these reviews, we will seek to sell
land when we have changed our strategy for a certain property
and/or we have determined that the potential profit realizable
from a sale of a property outweighs the economics of developing
a community. Land sales are incidental to our residential
homebuilding operations and are expected to continue in the
future, but may fluctuate significantly from period to period.

Our Homebuilding gross profit increased 44% to
$115.8 million for the three months ended March 31,
2005, from $80.5 million for the three months ended
March 31, 2004. This increase is primarily due to an
increase in revenue from home sales and an improved gross margin
on home sales. Our gross margin on home sales increased to 21.7%
for the three months ended March 31, 2005, from 19.0% for
the three months ended March 31, 2004. This increase from
period to period is primarily due to an increase in gross margin
across many of our markets resulting from stronger housing
demand which offset increases in land costs resulting from our
increased use of option contracts. For the three months ended
March 31, 2005, we generated gross profit on land sales of
$4.4 million, as compared to $5.4 million for the
comparable period in 2004.

SG&A expenses increased to $79.0 million
for the three months ended March 31, 2005, from
$56.3 million for the three months ended March 31,
2004. As a percentage of Homebuilding revenues, SG&A

20



---



##### Table of Contents



expenses increased to 14.8% for the three months
ended March 31, 2005, as compared to 13.3% for the same
period in 2004. SG&A expenses as a percentage of revenues
from home sales for the three months ended March 31, 2005
increased to 15.4%, as compared to 13.8% for the three months
ended March 31, 2004.


The 160 basis point increase in SG&A
expenses as a percentage of home sales revenues is due to an
increase of $4.0 million in stock based compensation
expense, one-time bonus payments, increased management fees,
litigation reserves, professional fees and higher compensation
expense due to increased head count. For the three months ended
March 31, 2005 and 2004, we recognized a compensation
charge of $5.0 million and $1.0 million, respectively,
for variable accounting of certain stock-based awards which
include performance-based accelerated vesting criteria that were
partially vested during the year and certain other common stock
purchase rights.

For the three months ended March 31, 2005,
income from joint ventures of $2.6 million includes our
share of net earnings from these entities and management fees.



| |                                                                  
| | -----------------------------------------------------------------
| | Net Sales Orders and Backlog Units (including
    joint ventures)

For the three months ended March 31, 2005,
net sales orders units decreased by 3% due to delays in opening
new communities and deliberate attempts to phase sales to
maximize gross margins in high demand markets. For the three
months ended March 31, 2005, the dollar value of these
units increased by 16% over the three months ended
March 31, 2004, due to an increase in the average net sales
price to $322,000 from $270,000 over these same periods.

We had 6,490 homes in backlog, as of
March 31, 2005, as compared to 4,432 homes in backlog
as of March 31, 2004.



| |                                                      
| | -----------------------------------------------------
| | Backlog Dollar Amounts (excluding joint
    ventures)

The dollar amount of backlog increased 51% to
$1.8 billion at March 31, 2005, from $1.2 billion
at March 31, 2004, while the average price of homes in
backlog increased to $324,000 from $281,000 from period to
period. The increase in the average price of homes in backlog
was primarily due to our ability to increase prices in markets
with strong housing demand and a change in the product mix of
our homes in backlog.



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

Financial Services revenues increased to
$10.0 million for the three months ended March 31,
2005, from $8.7 million for the three months ended
March 31, 2004. This 15% increase is due primarily to an
increase in the number of closings at our title and mortgage
operations offset by reduced gains in selling mortgages in the
secondary market caused by a shift toward more adjustable rate
mortgage loans and market reductions in the interest rate
margin. For the three months ended March 31, 2005, our mix
of mortgage originations was 42% adjustable rate mortgages (of
which approximately 70% were interest only) and 58% fixed rate
mortgages, which is a shift from the comparable period in the
prior year of 26% adjustable rate mortgages and 74% fixed rate
mortgages. The average FICO score of our homebuyers during the
three months ended March 31, 2005 was 730 and the average
loan to value ratio on first mortgages was 77%. For the three
months ended March 31, 2005, approximately 9% of our
homebuyers paid in cash as compared to 14% during the three
months ended March 31, 2004. Our mortgage operations
capture ratio for non-cash homebuyers decreased to 60% for the
three months ended March 31, 2005 from 63% for the three
months ended March 31, 2004. The number of closings at our
mortgage operations increased to 1,462 for the three months
ended March 31, 2005, from 1,049 for the three months ended
March 31, 2004. Our title operations capture ratio
decreased to 79% of our homebuyers for the three months ended
March 31, 2005, from 90% for the comparable period in 2004
due to an organizational change in our Phoenix operations
causing a loss of closings for the period. However, the number
of closings at our title operations increased to 4,600 for the
three months ended March 31, 2005, from 4,373 for the same
period in 2004. Non-affiliated customers accounted for
approximately 77% of our title company revenues for the three
months ended March 31, 2005.

21



---



##### Table of Contents



Financial Services expenses increased to
$8.7 million for the three months ended March 31,
2005, from $5.4 million for the three months ended
March 31, 2004. This 56% increase is a result of higher
staff levels to support anticipated increased loan activity.

Financial Condition, Liquidity and Capital
Resources



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

Our Homebuilding operations primary uses of
cash have been for land acquisitions, construction and
development expenditures, and SG&A expenditures. Our sources
of cash to finance these uses have been primarily cash generated
from operations and cash from our financing activities.

Our Financial Services operations primarily use
cash to fund mortgages, prior to their sale, and SG&A
expenditures. We rely primarily on internally generated funds,
which include the proceeds generated from the sale of mortgages,
and from the mortgage operations warehouse lines of credit
to fund these operations.

At March 31, 2005, we had unrestricted cash
and cash equivalents of $156.8 million as compared to
$268.5 million at December 31, 2004.

Cash used in operating activities was
$100.4 million during the three months ended March 31,
2005, as compared to $18.2 million during the three months
ended March 31, 2004. The increase in the use of cash in
operating activities primarily is due to an increase of
$106.5 million in additional inventory, consistent with our
strategy to increase the number of active communities and our
land positions. At March 31, 2005 compared to
March 31, 2004, our controlled homesites increased to
approximately 55,000 from 47,000 and our homes completed or
under construction increased to 4,426 from 3,226. Our homes
completed or under construction increased due to our 46%
increase in homes in backlog. These expenditures have been
financed by retained earnings and with the issuance of
$325.0 million in senior subordinated notes. Because of our
rapid growth in recent periods, our operations have generally
used more cash than they have generated. We expect this trend to
continue as long as we are experiencing similar growth.

Cash used in investing activities was
$14.3 million during the three months ended March 31,
2005, as compared to $19.5 million during the three months
ended March 31, 2004. The decrease in the use of cash in
investing activities primarily is due to additional investments
in joint ventures of $3.4 million during the three months
ended March 31, 2005, offset by additional consideration of
$6.3 million paid during the three months ended
March 31, 2004 with respect to those companies acquired in
the fourth quarter of 2002.



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

Our consolidated borrowings at March 31,
2005 were $864.5 million, up from $860.4 million at
December 31, 2004, resulting from an increase in Financial
Services borrowings to $53.0 million from
$49.0 million at the same dates. At March 31, 2005,
our Homebuilding borrowings of $811.5 million included
$300.0 million in 9% senior notes due 2010,
$185.0 million of 10 3/8% senior subordinated notes
due 2012, $125.0 million of 7 1/2% senior subordinated
notes due 2011, and $200.0 million of 7 1/2% senior
subordinated notes due 2015. Our weighted average debt to
maturity is 7.0 years, while our average inventory turnover
is 1.7 times per year.

Our outstanding senior notes are guaranteed, on a
joint and several basis, by the Guarantor Subsidiaries, which
are all of our material direct and indirect subsidiaries, other
than our mortgage and title operations subsidiaries (the
Non-guarantor Subsidiaries). Our outstanding senior subordinated
notes are guaranteed on a senior subordinated basis by all of
the Guarantor Subsidiaries. The senior notes rank pari passuin right of payment with all of our existing and future
unsecured senior debt and senior in right of payment to the
senior subordinated notes and any future subordinated debt. The
senior subordinated notes rank pari passuin right of
payment with all of our existing and future unsecured senior
subordinated debt. The indentures governing the senior notes and
senior subordinated notes require us to maintain a minimum net
worth and place certain restrictions on our ability, among other
things, to incur additional debt (other than under our revolving
credit facility), pay or make dividends or other distributions,
sell assets, enter into transactions with affiliates, and

22



---



##### Table of Contents



merge or consolidate with other entities.
Interest on our outstanding senior notes and senior subordinated
notes is payable semi-annually each year.


Our financial leverage, as measured by the ratio
of Homebuilding net debt to capital, increased to 49.0% at
March 31, 2005 from 47.3% at December 31, 2004, due
primarily to the use of cash in our operations. As noted above,
we have made significant investments in inventory consistent
with our growth strategy which we have financed through debt and
internally generated cash, resulting in an increase in our
financial leverage. We believe that our financial leverage is
appropriate given our industry, size and current growth strategy.

|                           |  |                          |         |              |  |   |         |  
|-------------------------- |  | ------------------------ | ------- | ------------ |  | - | ------- | -
|                           |  |                         
|                           |  | Homebuilding Net Debt to
|                           |  | Capital                 
|                           |  |                         
|                           |  | March 31,                |         | December 31,
|                           |  | 2005                     |         | 2004        
|                           |  |                          |         |             
|Notes payable              |  | $                        | 811.5   |              |  | $ | 811.4   |  
|Bank borrowings            |  |                          |        |              |  |   |        |  
|                           |  |                          |         |              |  |   |         |  
|Homebuilding borrowings(1) |  | $                        | 811.5   |              |  | $ | 811.4   |  
|Less: unrestricted cash    |  |                          | 145.3   |              |  |   | 217.6   |  
|                           |  |                          |         |              |  |   |         |  
|Homebuilding net debt      |  | $                        | 666.2   |              |  | $ | 593.8   |  
|Stockholders equity       |  |                          | 692.2   |              |  |   | 662.7   |  
|                           |  |                          |         |              |  |   |         |  
|Total capital(2)           |  | $                        | 1,358.4 |              |  | $ | 1,256.5 |  
|                           |  |                          |         |              |  |   |         |  
|Ratio                      |  |                          | 49.0    | %            |  |   | 47.3    | %



---



|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include obligations for inventory not
    owned of $131.1 million at March 31, 2005 and
    $136.2 million at December 31, 2004, all of which are
    non-recourse to us.
|   
|(2) | Does not include Financial Services bank
    borrowings of $53.0 million at March 31, 2005 and
    $49.0 million at December 31, 2004.                                            

Homebuilding net debt to capital is not a
financial measure required by generally accepted accounting
principles (GAAP) and other companies may calculate it
differently. We have included this information as we believe
that the ratio of Homebuilding net debt to capital provides
comparability among other publicly-traded homebuilders. In
addition, management uses this information in measuring the
financial leverage of our homebuilding operations, which is our
primary business. Homebuilding net debt to capital has
limitations as a measure of financial leverage because it
excludes Financial Services bank borrowings and it reduces our
Homebuilding debt by the amount of our unrestricted cash.
Management compensates for these limitations by using
Homebuilding net debt to capital as only one of several
comparative tools, together with GAAP measurements, to assist in
the evaluation of our financial leverage. It should not be
construed as an indication of our operating performance or as a
measure of our liquidity.

Our revolving credit facility permits us to
borrow to the lesser of (i) $600.0 million or
(ii) our borrowing base (calculated in accordance with the
revolving credit facility agreement) minus our outstanding
senior debt. The facility has a letter of credit subfacility of
$300.0 million. In addition, we have the right to increase
the size of the facility to provide up to an additional
$150.0 million of revolving loans, provided we satisfy
certain conditions. Loans outstanding under the facility may be
base rate loans or Eurodollar loans, at our election. Our
obligations under the revolving credit facility are guaranteed
by our significant domestic subsidiaries, other than our
mortgage and title subsidiaries (unrestricted subsidiaries). The
revolving credit facility expires on October 26, 2008. As
of March 31, 2005, we had no borrowings under the revolving
credit facility and had issued letters of credit totaling
$153.3 million. We had $446.7 million remaining in
availability, all of which we could have borrowed without
violating any of our debt covenants.

Our mortgage subsidiary has the ability to borrow
up to $120.0 million under two revolving warehouse lines of
credit to fund the origination of residential mortgage loans.
One of these warehouse lines can be increased to provide up to
an additional $50.0 million of availability, subject to
meeting certain requirements. One of the lines of credit bears
interest at the 30 day LIBOR rate plus a margin of 1.25% to
3.0%, determined

23



---



##### Table of Contents



based upon the type of mortgage loans being
financed, and the other bears interest at the 30 day
Eurodollar rate plus a margin of 1.125%. Both warehouse lines of
credit are secured by funded mortgages, which are pledged as
collateral, and require our mortgage subsidiary to maintain
certain financial ratios and minimums. As of March 31,
2005, we had $53.0 million in borrowings under our
warehouse lines of credit.


We believe that we have adequate financial
resources, including unrestricted cash, availability under our
current revolving credit facility and the warehouse lines of
credit, and relationships with financial partners to meet our
current and anticipated working capital, land acquisition and
development needs and our estimated consolidated annual debt
service payments of $72.8 million (at March 31, 2005,
based on the outstanding balances and interest rates as of such
date). However, there can be no assurance that the amounts
available from such sources will be sufficient. If we identify
new acquisition opportunities, or if our operations do not
generate sufficient cash from operations at levels currently
anticipated, we may seek additional debt or equity financing to
operate or expand our business.

At March 31, 2005, the amount of our annual
debt service payments was $72.8 million. This amount
included annual debt service payments on the senior and senior
subordinated notes of $70.6 million and interest payments
on the revolving credit facility, the warehouse lines of credit,
and other notes of $2.2 million based on the balances
outstanding as of March 31, 2005. The amount of our annual
debt service payments on the revolving credit facility
fluctuates based on the principal outstanding under the facility
and the interest rate. An increase or decrease of 1% in interest
rates will change our annual debt service payment by
$0.5 million per year.



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



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

We enter into land and homesite option contracts
to procure land or homesites for the construction of homes.
Option contracts generally require the payment of cash or the
posting of a letter of credit for the right to acquire land or
homesites during a specified period of time at a certain price.
These option contracts are either with land sellers or financial
investors who have acquired the land to enter into option
contracts with us. Option contracts allow us to control
significant homesite positions with a minimal capital investment
and substantially reduce the risk associated with land ownership
and development. At March 31, 2005, we had refundable and
non-refundable deposits of $150.1 million and had issued
letters of credit of approximately $90.6 million associated
with our option contracts. The financial exposure for
nonperformance on our part in these transactions is generally
limited to our deposits and/or letters of credit.

Additionally, at March 31, 2005, we had
outstanding performance/ surety bonds outstanding of
approximately $186.1 million and letters of credit of
approximately $62.7 million primarily related to land
development activities.



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

We have entered into, and expect to expand our
use of, joint ventures that acquire and develop land for our
Homebuilding operations and/or that also build and market homes
for sale to third parties. In addition, we have, on a selective
basis, entered into joint ventures that acquire and develop land
for sale to unrelated third parties. Through joint ventures, we
reduce and share our risk associated with land ownership and
development and extend our capital resources. Our partners in
these joint ventures generally are unrelated homebuilders, land
sellers, financial investors or other real estate entities. In
joint ventures where the assets are being financed with debt,
the borrowings are non-recourse to us, and we do not provide any
financial guarantees; as a result, our financial exposure
generally is limited to our investment. At March 31, 2005,
we had investments in unconsolidated joint ventures of
$78.2 million. We account for these investments under the
equity method of accounting. These unconsolidated joint ventures
are limited liability companies or limited partnerships in which
we have a limited partnership interest and a minority interest
in the general partner.

We believe that the use of these off-balance
sheet arrangements enables us to acquire attractive land
positions, which we may not have otherwise been able to acquire
at favorable terms, mitigate and share risk

24



---



##### Table of Contents



associated with land ownership and development,
increase our return on assets and extend our capital resources.
As a result, we view the use of these off-balance sheet
arrangements as beneficial to our Homebuilding activities.


DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. Discussions containing forward-looking statements may
be found throughout this Quarterly Report and specifically in
the material set forth in the section, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative
Disclosures about Market Risk. These statements concern
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning
matters that are not historical facts and typically include the
words anticipate, believe,
expect, estimate, project,
and future. Specifically, this Quarterly Report
contains forward-looking statements regarding:



| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding our continued use of
    option contracts, investments in unconsolidated joint ventures
    and other off-balance sheet arrangements to control homesites
    and manage our business and their effect on our business;
|
| |  | our expectations regarding the labor and supply
    shortages in Florida resulting from the 2004 hurricanes;                                                                                                                                      
|
| |  | our expectations regarding our use of cash in
    operations;                                                                                                                                                                                     
|
| |  | our expectations regarding future land sales;                                                                                                                                                                                                     
|
| |  | our estimate that we have adequate financial
    resources to meet our current and anticipated working capital,
    including our annual debt service payments, and land acquisition
    and development needs;                                   
|
| |  | our expectations regarding the impact on our
    business and profits of phasing sales in some of our high demand
    markets; and                                                                                                                
|
| |  | our expectation that the American Jobs Creation
    Act will not have a material impact on our consolidated
    financial condition or results of operations.                                                                                     

These forward-looking statements reflect our
current views about future events and are subject to risks,
uncertainties and assumptions. As a result, actual results may
differ materially from the results discussed in and anticipated
by the forward-looking statements. The most important factors
that could cause the assumptions underlying forward-looking
statements and actual results to differ materially from those
expressed in or implied by those forward-looking statements
include, but are not limited to, the following:



| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our significant level of debt and the impact of
    the restrictions imposed on us by the terms of this debt;                                                                                                                                                                                                  
|
| |  | our ability to borrow or otherwise finance our
    business in the future;                                                                                                                                                                                                                                     
|
| |  | our ability to identify and acquire, at
    anticipated prices, additional homebuilding opportunities and/or
    to effect our growth strategies;                                                                                                                                                              
|
| |  | our relationship with Technical Olympic, S.A. and
    its control over our business activities;                                                                                                                                                                                                                
|
| |  | economic or other business conditions that affect
    the desire or ability of our customers to purchase new homes in
    markets in which we conduct our business, such as increases in
    interest or unemployment rates or decline in consumer confidence
    or the demand for, or the prices of, housing;
|
| |  | events which would impede our ability to open new
    communities and/or deliver homes within anticipated timeframes
    and/or within anticipated budgets;                                                                                                                                                    
|
| |  | an increase in interest rates;                                                                                                                                                                                                                                                                                 
|
| |  | an increase in the cost, or shortages in the
    availability of, labor and materials;                                                                                                                                                                                                                         

25



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to compete in our existing and future
    markets;                                                                                                                                                                                                                                       
|
| |  | our ability to successfully utilize and recognize
    the anticipated benefits of joint venture and option contracts;                                                                                                                                                                                
|
| |  | the impact of hurricanes, tornadoes or other
    natural disasters or weather conditions on our business,
    including the potential for shortages and increased costs of
    materials and qualified labor and the potential for delays in
    construction and obtaining government approvals; and
|
| |  | an increase or change in governmental
    regulations, or in the interpretation and/or enforcement of
    existing governmental regulations.                                                                                                                                                         






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

At March 31, 2005, $810.0 million of
our outstanding borrowings are based on fixed interest rates. We
are exposed to market risk primarily related to potential
adverse changes in interest rates on our existing construction
loans, warehouse lines of credit and revolving credit facility.
The interest rates relative to these borrowings fluctuate with
the prime, Federal Funds, LIBOR, and Eurodollar lending rates.
We have not entered into derivative financial instruments for
trading or speculative purposes. As of March 31, 2005, we
had an aggregate of approximately $53.0 million drawn under
our bank loan arrangements that were subject to changes in
interest rates. Consequently, an increase or decrease of 1% in
interest rates will change our annual debt service payments by
$0.5 million per year as a result of our bank loan
arrangements that are subject to changes in interest rates.

Our operations are interest rate sensitive.
Overall housing demand is adversely affected by increases in
interest rates. If mortgage interest rates increase
significantly, this may negatively affect the ability of
homebuyers to secure adequate financing. Higher interest rates
will adversely affect our revenues, gross margins, and net
income. Higher interest rates also increase our borrowing costs
because, as indicated above, our bank loans will fluctuate with
the prime, Federal Funds, LIBOR and Eurodollar lending rates.

Our Annual Report on Form 10-K for the year
ended December 31, 2004 contains further information
regarding our market risk. There have been no material changes
in our market risk since December 31, 2004.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

To ensure that the information we must disclose
in our filings with the Securities and Exchange Commission is
recorded, processed, summarized, and reported on a timely basis,
we maintain disclosure controls and procedures. Our principal
executive officer and principal financial officer have reviewed
and evaluated the effectiveness of our disclosure controls and
procedures, as of March 31, 2005. Based on such evaluation,
such officers have concluded that, as of March 31, 2005,
our disclosure controls and procedures were effective. There has
been no change in our internal control over financial reporting
during the quarter ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.




PART II. OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 5. | Other Information



| |                                                       
| | ------------------------------------------------------
| | Independent Contractor Agreement with J. Eric
    Rome

On April 1, 2003, the Company and
Mr. Rome entered into an employment agreement to reflect
his responsibilities as an Executive Vice President of our
homebuilding operations. On March 10, 2005, this agreement
was terminated, and Mr. Rome entered into a separation and
independent contractor agreement with the Company. Pursuant to
the new agreement, Mr. Rome will actively seek real
property for acquisition by the Companys homebuilding
operations. The agreement provides that Mr. Rome will
receive an initial payment of $82,500, monthly payments of
$38,667 per month from March 15, 2005 through
December 31, 2007, and an additional aggregate payment of
$1,286,000 payable in four quarterly installments beginning on

26



---



##### Table of Contents



April 15, 2005, and certain other benefits
and perquisites. In addition, Mr. Rome will be paid 3% of
the base purchase price of any property identified by him and
ultimately acquired by the Company and is eligible to receive
additional compensation if such property exceeds specified
Company profit margin targets upon development. In the event of
a change of control of the Company, Mr. Rome is entitled to
terminate the agreement and receive an accelerated payment of
all amounts due to him under the agreement. The agreement can be
terminated by Mr. Rome on 60 days notice to the
Company. The agreement with Mr. Rome contains certain
limited non-compete and non-disclosure provisions.


Policy for Compensation of Outside
Directors

On March 3, 2005, the Company adopted a
revised Policy for Compensation of Outside Directors. The
revised policy provides that our outside directors (which we
consider to be those directors who are not employees of the
Company, Technical Olympic, S.A., or their affiliates), will
receive an annual fee of $60,000, an annual equity award of
either non-qualified stock options or restricted stock valued at
$60,000, and reimbursement of reasonable out-of-pocket expenses
incurred for attendance at Board and Board committee meetings.
Under the policy, our senior outside director will receive an
annual cash retainer of $120,000, an annual equity award of
either non-qualified stock options or restricted stock valued at
$120,000, and reimbursement of reasonable out-of-pocket expenses
incurred for attendance at Board and Board Committee meetings.
In addition, the chairperson of the Audit Committee will receive
an additional annual fee of $20,000, and the chairperson of the
Human Resources, Compensation, and Benefits Committee will
receive an additional annual fee of $10,000.






|        |         
|------- | --------
|Item 6. | Exhibits

|        |    |             |  |                                                                                                                                                                                                         
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .29         |  | First Amended Confidential Separation Agreement,
    General Release and Independent Contractor Agreement, by and
    between Eric Rome and Technical Olympic USA, Inc., dated as of
    March 10, 2005.
|        | 10 | .30         |  | Policy for Compensation of Outside Directors of
    Technical Olympic USA, Inc.                                                                                                                         
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|        | 32 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 
|        | 32 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 

27



---



##### Table of Contents






SIGNATURES

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



| |                            
| | ---------------------------
| | TECHNICAL OLYMPIC USA, INC.

|                  |  |                                                                                                                           
|----------------- |  | --------------------------------------------------------------------------------------------------------------------------
|Date: May 3, 2005 |  | By: /s/ DAVID J. KELLERName: David J. Keller
    Title:   Senior Vice President,
    Chief Financial Officer and Treasurer
|                 
|Date: May 3, 2005 |  | By: /s/ RANDY L. KOTLERName: Randy L. Kotler
    Title:   Vice President  Chief
    Accounting Officer                   

28