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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|           |  |                                                                                         
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |  |                                                                                         
|           |  | For the quarterly period ended March 31, 2003                                           
|           |  |                                                                                         
|           |  | 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: 000-23677

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 33021
(Address of principal executive offices) (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 x
 No o

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

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: 27,889,036 shares of common
stock as of April 30, 2003.



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TABLE OF CONTENTS



|                                                     |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                     | PART I. FINANCIAL INFORMATION                                                                
|                                                     | ITEM 1. FINANCIAL STATEMENTS                                                                 
|CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION      
|CONSOLIDATED STATEMENTS OF INCOME                   
|CONSOLIDATED STATEMENTS OF CASH FLOWS               
|NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                                                     | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|RESULTS OF OPERATIONS                               
|FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
|DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS     
|                                                     | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                     | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II OTHER INFORMATION                           
|                                                     | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                          
|CERTIFICATIONS                                      
|EX-4.17 Supplement Indenture for 9% Senior Notes    
|EX-4.18 Supplemental Indenture for 10-3/8% Notes    
|EX-10.23 Amended & Restated Credit Agreement        
|EX-10.24 Facility Increase Letter                   
|EX-10.25 Consulting Agreement                       
|EX-99.1 Certification of Chief Executive Officer    
|EX-99.2 Certification of Chief Financial Officer    



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TECHNICAL OLYMPIC USA, INC.

INDEX

|               |  |                                                                                       |    |      |    | 
|-------------- |  | ------------------------------------------------------------------------------------- | -- | ---- | -- | 
|               |  |                                                                                       |    | PAGE
|               |  |                                                                                       |    |     
|PART I         |  | Financial Information                                                                 |    |      | 3  | 
|               |  |                                                                                       |    |      |    | 
|ITEM 1.        |  | Financial Statements (Unaudited)                                                      |    |      | 3  | 
|               |  |                                                                                       |    |      |    | 
|               |  | Consolidated Statements of Financial Condition                                        |    |      | 3  | 
|               |  | Consolidated Statements of Income                                                     |    |      | 4  | 
|               |  | Consolidated Statements of Cash Flows                                                 |    |      | 5  | 
|               |  | Notes to the Consolidated Financial Statements                                        |    |      | 6  | 
|               |  |                                                                                       |    |      |    | 
|ITEM 2.        |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |    |      | 12 | 
|               |  |                                                                                       |    |      |    | 
|ITEM 3.        |  | Quantitative and Qualitative Disclosures about Market Risk                            |    |      | 22 | 
|               |  |                                                                                       |    |      |    | 
|ITEM 4.        |  | Controls and Procedures                                                               |    |      | 23 | 
|               |  |                                                                                       |    |      |    | 
|PART II        |  | Other Information                                                                     |    |      | 23 | 
|               |  |                                                                                       |    |      |    | 
|ITEM 6.        |  | Exhibits and Reports on Form 8-K                                                      |    |      | 23 | 
|               |  |                                                                                       |    |      |    | 
|               |  | Exhibits                                                                              |    |      | 23 | 
|               |  | Reports on Form 8-K                                                                   |    |      | 24 | 
|Signatures     |  |                                                                                       | 25 |     
|               |  |                                                                                       |    |      |    | 
|Certifications |  |                                                                                       | 26 |     

2



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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

TECHNICAL OLYMPIC USA, INC.




CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(unaudited)


|                                                                                                                                                                              |              |                                      |           |        |              |   |           |        |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------ | --------- | ------ | ------------ | - | --------- | ------ |  |  | 
|                                                                                                                                                                              |              |                                      |           |        | DECEMBER 31, |   | MARCH 31,
|                                                                                                                                                                              |              |                                      |           |        | 2002         |   | 2003     
|                                                                                                                                                                              |              |                                      |           |        |              |   |          
|                                                                                                                                                                              |              |                                      | ASSETS    |        |              |   |           |        |  |  | 
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|HOMEBUILDING:                                                                                                                                                                 |              |                                      |           |        |              |   |           |       
|Cash and cash equivalents:                                                                                                                                                    |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              | Unrestricted |                                      | $         | 44,825 |              |   | $         | 43,298 | 
|                                                                                                                                                                              | Restricted   |                                      |           | 23,645 |              |   |           | 15,663 | 
|Inventory                                                                                                                                                                     |              |                                      | 753,872   |        |              |   | 853,841   |       
|Property and equipment, net                                                                                                                                                   |              |                                      | 13,862    |        |              |   | 16,365    |       
|Other assets                                                                                                                                                                  |              |                                      | 30,681    |        |              |   | 44,451    |       
|Goodwill, net                                                                                                                                                                 |              |                                      | 78,252    |        |              |   | 100,525   |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              |                                      | 945,137   |        |              |   | 1,074,143 |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|FINANCIAL SERVICES:                                                                                                                                                           |              |                                      |           |        |              |   |           |       
|Cash and cash equivalents:                                                                                                                                                    |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              | Unrestricted |                                      |           | 4,386  |              |   |           | 5,781  | 
|                                                                                                                                                                              | Restricted   |                                      |           | 22,866 |              |   |           | 22,188 | 
|Mortgage loans held for sale                                                                                                                                                  |              |                                      | 58,840    |        |              |   | 44,065    |       
|Other assets                                                                                                                                                                  |              |                                      | 3,659     |        |              |   | 2,746     |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              |                                      | 89,751    |        |              |   | 74,780    |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|Total assets                                                                                                                                                                  |              | $                                    | 1,034,888 |        |              | $ | 1,148,923 |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              | LIABILITIES AND STOCKHOLDERS EQUITY |           |        |              |   |           |        |  | 
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|HOMEBUILDING:                                                                                                                                                                 |              |                                      |           |        |              |   |           |       
|Accounts payable                                                                                                                                                              |              | $                                    | 12,800    |        |              | $ | 20,853    |       
|Accrued and other liabilities                                                                                                                                                 |              |                                      | 84,020    |        |              |   | 91,973    |       
|Customer deposits                                                                                                                                                             |              |                                      | 24,564    |        |              |   | 28,949    |       
|Consolidated land bank obligations                                                                                                                                            |              |                                      | 16,288    |        |              |   | 12,901    |       
|Homebuilding borrowings                                                                                                                                                       |              |                                      | 413,110   |        |              |   | 505,642   |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              |                                      | 550,782   |        |              |   | 660,318   |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|FINANCIAL SERVICES:                                                                                                                                                           |              |                                      |           |        |              |   |           |       
|Accounts payable and other liabilities                                                                                                                                        |              |                                      | 21,560    |        |              |   | 21,802    |       
|Financial services borrowings                                                                                                                                                 |              |                                      | 48,309    |        |              |   | 34,604    |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|                                                                                                                                                                              |              |                                      | 69,869    |        |              |   | 56,406    |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|Total liabilities                                                                                                                                                             |              |                                      | 620,651   |        |              |   | 716,724   |       
|                                                                                                                                                                             
|Minority interest                                                                                                                                                             |              |                                      | 9,092     |        |              |   | 9,238     |       
|                                                                                                                                                                             
|Commitments and contingencies                                                                                                                                                 |              |                                      |          |        |              |   |          |       
|                                                                                                                                                                             
|Stockholders equity:                                                                                                                                                         |              |                                      |           |        |              |   |           |       
|Common stock  $.01 par value; 67,000,000 shares
authorized and 27,878,787 and 27,889,036 shares
issued and outstanding at December 31, 2002 and
March 31, 2003, respectively |              |                                      | 279       |        |              |   | 279       |       
|Additional paid-in capital                                                                                                                                                    |              |                                      | 322,400   |        |              |   | 322,560   |       
|Retained earnings                                                                                                                                                             |              |                                      | 82,466    |        |              |   | 100,122   |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|Total stockholders equity                                                                                                                                                    |              |                                      | 405,145   |        |              |   | 422,961   |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       
|Total liabilities and stockholders equity                                                                                                                                    |              | $                                    | 1,034,888 |        |              | $ | 1,148,923 |       
|                                                                                                                                                                              |              |                                      |           |        |              |   |           |       

See accompanying notes.

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TECHNICAL OLYMPIC USA, INC.




CONSOLIDATED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(unaudited)


|                                                      |                                                   |   |                    |            |      |   |         |            | 
|----------------------------------------------------- | ------------------------------------------------- | - | ------------------ | ---------- | ---- | - | ------- | ---------- | 
|                                                      |                                                   |   | THREE MONTHS ENDED
|                                                      |                                                   |   | MARCH 31,          |            |      |   |        
|                                                      |                                                   |   |                    |            |      |   |        
|                                                      |                                                   |   | 2002               |            | 2003
|                                                      |                                                   |   |                    |            |     
|HOMEBUILDING:                                         |                                                   |   |                    |            |      |   |         |           
|Revenues:                                             |                                                   |   |                    |            |      |   |         |           
|                                                      | Home sales                                        |   | $                  | 302,155    |      |   | $       | 313,820    | 
|                                                      | Land sales                                        |   |                    | 383        |      |   |         | 2,060      | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|                                                      |                                                   |   | 302,538            |            |      |   | 315,880 |           
|Cost of sales:                                        |                                                   |   |                    |            |      |   |         |           
|                                                      | Home sales                                        |   |                    | 239,645    |      |   |         | 246,280    | 
|                                                      | Land sales                                        |   |                    | 430        |      |   |         | 1,841      | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|                                                      |                                                   |   | 240,075            |            |      |   | 248,121 |           
|                                                      |                                                   |   |                    |            |      |   |         |           
|Gross profit                                          |                                                   |   | 62,463             |            |      |   | 67,759  |           
|Selling, general and administrative expenses          |                                                   |   | 37,704             |            |      |   | 43,790  |           
|Depreciation and amortization                         |                                                   |   | 1,631              |            |      |   | 1,646   |           
|Severance expenses                                    |                                                   |   | 13,828             |            |      |   |        |           
|Other income, net                                     |                                                   |   | (222               | )          |      |   | (1,019  | )         
|                                                      |                                                   |   |                    |            |      |   |         |           
|Homebuilding pretax income                            |                                                   |   | 9,522              |            |      |   | 23,342  |           
|                                                     
|FINANCIAL SERVICES:                                   |                                                   |   |                    |            |      |   |         |           
|Revenues                                              |                                                   |   | 7,954              |            |      |   | 10,645  |           
|Expenses                                              |                                                   |   | 3,780              |            |      |   | 6,160   |           
|                                                      |                                                   |   |                    |            |      |   |         |           
|Financial Services pretax income                      |                                                   |   | 4,174              |            |      |   | 4,485   |           
|                                                      |                                                   |   |                    |            |      |   |         |           
|                                                     
|Income from continuing operations before income taxes |                                                   |   | 13,696             |            |      |   | 27,827  |           
|                                                     
|Income tax expense                                    |                                                   |   | 4,767              |            |      |   | 10,171  |           
|                                                      |                                                   |   |                    |            |      |   |         |           
|Income from continuing operations                     |                                                   |   | 8,929              |            |      |   | 17,656  |           
|Discontinued operations:                              |                                                   |   |                    |            |      |   |         |           
|                                                      | Income from discontinued operations               |   |                    | 1,027      |      |   |         |           | 
|                                                      | Income tax expense                                |   |                    | 387        |      |   |         |           | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|                                                      | Income from discontinued operations, net of taxes |   |                    | 640        |      |   |         |           | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|Net income                                            |                                                   | $ | 9,569              |            |      | $ | 17,656  |           
|                                                      |                                                   |   |                    |            |      |   |         |           
|EARNINGS PER COMMON SHARE (BASIC AND DILUTED):        |                                                   |   |                    |            |      |   |         |           
|                                                      | From continuing operations                        |   | $                  | 0.32       |      |   | $       | 0.63       | 
|                                                      | From discontinued operations                      |   |                    | 0.02       |      |   |         |           | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|                                                      | Net income                                        |   | $                  | 0.34       |      |   | $       | 0.63       | 
|                                                      |                                                   |   |                    |            |      |   |         |           
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |                                                   |   |                    |            |      |   |         |           
|                                                      | Basic and diluted                                 |   |                    | 27,878,787 |      |   |         | 27,882,090 | 
|                                                      |                                                   |   |                    |            |      |   |         |           

See accompanying notes.

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TECHNICAL OLYMPIC USA, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)
(unaudited)


|                                                                                  |                                                               |                                                    |         |                    |        |      |         |         |         |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------- | ------- | ------------------ | ------ | ---- | ------- | ------- | ------- | -
|                                                                                  |                                                               |                                                    |         | THREE MONTHS ENDED
|                                                                                  |                                                               |                                                    |         | MARCH 31,         
|                                                                                  |                                                               |                                                    |         |                   
|                                                                                  |                                                               |                                                    |         | 2002               |        | 2003
|                                                                                  |                                                               |                                                    |         |                    |        |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                               |                                                    |         |                    |        |      |         |        
|Net income                                                                        |                                                               | $                                                  | 9,569   |                    |        | $    | 17,656  |        
|Adjustments to reconcile net income to net cash provided by operating
activities: |                                                               |                                                    |         |                    |        |      |         |        
|                                                                                  | Income from discontinued operations                           |                                                    |         | (640               | )      |      |         |        |        
|                                                                                  | Depreciation and amortization                                 |                                                    |         | 1,631              |        |      |         | 1,646   |        
|                                                                                  | Non-cash compensation expense                                 |                                                    |         |                   |        |      |         | 160     |        
|                                                                                  | Changes in operating assets and liabilities:                  |                                                    |         |                    |        |      |         |         |        
|                                                                                  |                                                               | Restricted cash                                    |         |                    | 3,154  |      |         |         | 8,660   |  
|                                                                                  |                                                               | Inventory                                          |         |                    | (913   | )    |         |         | (44,610 | )
|                                                                                  |                                                               | Other assets                                       |         |                    | (5,998 | )    |         |         | (6,761  | )
|                                                                                  |                                                               | Accounts payable and accrued and other liabilities |         |                    | 8,604  |      |         |         | 9,423   |  
|                                                                                  |                                                               | Customer deposits                                  |         |                    | 532    |      |         |         | 676     |  
|                                                                                  |                                                               | Mortgage loans held for sale                       |         |                    | 22,214 |      |         |         | 14,775  |  
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Net cash provided by operating activities                                         |                                                               |                                                    | 38,153  |                    |        |      | 1,625   |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                               |                                                    |         |                    |        |      |         |        
|                                                                                  | Amounts paid for acquisitions, net of cash acquired           |                                                    |         |                   |        |      |         | (58,968 | )      
|                                                                                  | Additional consideration paid for acquisitions                |                                                    |         |                   |        |      |         | (11,594 | )      
|                                                                                  | Net additions to property and equipment                       |                                                    |         | (1,550             | )      |      |         | (4,068  | )      
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Net cash used in investing activities                                             |                                                               |                                                    | (1,550  | )                  |        |      | (74,630 | )      
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                               |                                                    |         |                    |        |      |         |        
|                                                                                  | Proceeds from notes offering                                  |                                                    |         |                   |        |      |         | 94,836  |        
|                                                                                  | Payments for deferred financing costs                         |                                                    |         |                   |        |      |         | (2,597  | )      
|                                                                                  | Net proceeds from (repayments on) revolving credit facilities |                                                    |         | 1,262              |        |      |         | (2,420  | )      
|                                                                                  | Net repayments on Financial Services borrowings               |                                                    |         | (24,756            | )      |      |         | (13,705 | )      
|                                                                                  | Minority interest in consolidated subsidiaries                |                                                    |         | (4,298             | )      |      |         | 146     |        
|                                                                                  | Net payments on consolidated land bank obligations            |                                                    |         | (444               | )      |      |         | (3,387  | )      
|                                                                                  | Distributions by Engle                                        |                                                    |         | (3,012             | )      |      |         |        |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Net cash (used in) provided by financing activities                               |                                                               |                                                    | (31,248 | )                  |        |      | 72,873  |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Net cash provided by (used in) operations                                         |                                                               |                                                    | 5,355   |                    |        |      | (132    | )      
|Net cash provided by discontinued operations                                      |                                                               |                                                    | 5,647   |                    |        |      |        |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Increase (decrease) in cash and cash equivalents                                  |                                                               |                                                    | 11,002  |                    |        |      | (132    | )      
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Cash and cash equivalents at beginning of period                                  |                                                               |                                                    | 75,136  |                    |        |      | 49,211  |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        
|Cash and cash equivalents at end of period                                        |                                                               | $                                                  | 86,138  |                    |        | $    | 49,079  |        
|                                                                                  |                                                               |                                                    |         |                    |        |      |         |        

See accompanying notes.

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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003


1. Business and Organization

Business

Technical Olympic USA, Inc. (we or the Company) is a Delaware
corporation. We are a large diversified homebuilder in the United States. We
operate in 14 metropolitan markets, located in four major geographic regions:
Florida, Texas, the West, and the Mid-Atlantic. We design, build, and market
high quality detached single-family residences, town homes and condominiums. In
addition to our homebuilding operations, we offer a variety of financial
services, including mortgage financing, title insurance, and closing services,
to homebuyers and others in the majority of our markets. We do not retain or
service the mortgages that we originate but, rather, sell the mortgages and
related servicing rights to investors.

Organization

The Merger and Notes Offering

On June 25, 2002, Engle Holdings Corp. (Engle) merged with and into
Newmark Homes Corp. (Newmark). The combined company was renamed Technical
Olympic USA, Inc. Each issued and outstanding share of Engle common stock was
exchanged for 1,724.08294 shares of Newmark common stock (the Merger). At the
date of the Merger, there were 9,500 shares of Engle common stock issued and
outstanding, all of which were held by Technical Olympic, Inc. (Technical
Olympic). As a result of the Merger, 16,378,787 of additional shares were
issued to Technical Olympic. In addition, we assumed $75.4 million of debt
incurred by Technical Olympic (the Technical Olympic Debt). The Technical
Olympic Debt accrued interest at rates ranging from 13.5% to 14.875% and was to
mature on September 30, 2004. As both Engle and Newmark were under the control
of Technical Olympic, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the Merger was accounted for
in a manner similar to a pooling of interests, whereby we recognized the
acquired assets and liabilities of Engle at their historical carrying amounts.
As both entities came under common control of Technical Olympic on November 22,
2000, the financial statements and other operating data have been restated to
include the operations of Engle from November 22, 2000. Our assumption of the
$75.4 million of Technical Olympic Debt has been accounted for as a
distribution.

As a result of the exchange of equity interests, Technical Olympic owned
91.75% of our outstanding common stock. Technical Olympic is a wholly-owned
subsidiary of Technical Olympic (UK) PLC, a company formed under the laws of
Great Britain, which is a wholly-owned subsidiary of Technical Olympic S.A., a
publicly-traded Greek company that is traded on the Athens Stock Exchange. As
of March 31, 2003, Technical Olympic owns 91.72% of our outstanding common
stock.

Concurrently with the Merger, we completed a private placement of $200.0
million 9% senior notes (the June 2002 Senior Notes) and $150.0 million
10-3/8% senior subordinated notes due 2012 (the June 2002 Senior Subordinated
Notes). And together they are called the Notes Offering. The net proceeds of
approximately $335.0 million from the Notes Offering were used to repay certain
indebtedness of both Newmark and Engle and the Technical Olympic Debt that was
assumed in connection with the Merger. Additionally, we entered into a
revolving credit facility to fund working capital, which provided for loans up
to $220.0 million.

Subsequently, these privately placed senior and senior subordinated notes
issued pursuant to the Notes Offering were exchanged for an equivalent amount
of notes at their respective interest rates, which are registered under the
Securities Act of 1933.

Engle Acquisition

On November 22, 2000, Engle became a wholly-owned subsidiary of Technical
Olympic. Engles stockholders received $19.10 for each share of Engles common
stock at the time of acquisition. Following the acquisition, the common stock
of Engle ceased to be publicly traded. The acquisition of Engle was accounted
for using the purchase method of accounting. Total consideration for the
acquisition approximated $542.0 million, including $216.0 million in cash and
the assumption of $326.0 million of liabilities. The
push down basis of accounting resulted in us allocating approximately
$527.0 million to inventories and other identifiable assets and $15.0 million
to goodwill.

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As a result of the change in control of Engle, Engle was required by the
indentures governing its senior notes to offer to repurchase all of its
outstanding senior notes at a price of 101% of the principal plus accrued
interest. Upon termination of the notes offer in January 2001, Engle
repurchased approximately $237.0 million of its senior notes. Approximately
$13.0 million of the senior notes were not tendered and remained outstanding as
of December 31, 2001. These notes were discharged with the proceeds from the
Notes Offering.

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

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires 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.

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

Interim Presentation

The accompanying condensed consolidated financial statements have been
prepared by us and are unaudited. 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 statements. Management believes the disclosures made are
adequate to make the information presented not misleading. However, the
financial statements included as part of this 10-Q filing should be read in
conjunction with the financial statements and notes thereto included in our
December 31, 2002 Annual Report on Form 10-K. 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, 2003 are not necessarily indicative of those that
may be achieved for the year ending December 31, 2003.

Segment Reporting

In accordance with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, we have concluded that our operating
segments consist of homebuilding and financial services. These two segments are
segregated in the accompanying consolidated financial statements under
Homebuilding and Financial Services, respectively.

Earnings per Share

We present earnings per share in accordance with the provisions of SFAS
No. 128, Earnings Per Share. Basic earnings per share is computed by dividing
earnings attributable 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 not included in the weighted average number of
shares when inclusion would increase the earnings per share or decrease the
loss per share. For the periods ended March 31, 2002 and 2003, we had no
dilutive securities outstanding. All of the vested options granted are
anti-dilutive as their exercise prices are above market.

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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 would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price.

Reclassifications

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

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (Interpretation) No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. Interpretation No. 46 addresses
consolidation by business enterprises of variable interest entities, which have
one or both of the following characteristics: (i) the equity investment at risk
is not sufficient to permit the entity to finance its activities without
additional subordinated support from other parties, which is provided through
other interests that will absorb some or all of the expected losses of the
entity; (ii) the equity investors lack one or more of the following essential
characteristics of a controlling financial interest: the direct or indirect
ability to make decisions about the entities activities through voting rights
or similar rights; or the obligation to absorb the expected losses of the
entity if they occur, which makes it possible for the entity to finance its
activities; the right to receive the expected residual returns of the entity if
they occur, which is the compensation for the risk of absorbing the expected
losses.

Interpretation No. 46 also requires expanded disclosures by the primary
beneficiary (as defined) of a variable interest entity and by an enterprise
that holds a significant variable interest in a variable interest entity but is
not the primary beneficiary. Interpretation No. 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. Interpretation No. 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. As Interpretation No. 46 has just been
issued, we have not completed our evaluation as to the potential impact on our
consolidated financial statements. However, based on preliminary review,
management does not believe that the adoption of Interpretation No. 46 will
have a significant effect on our consolidated financial statements.

3. Inventory

Inventory consists of the following (dollars in thousands):

|                                                  |  |              |         |           |  |   |         | 
|------------------------------------------------- |  | ------------ | ------- | --------- |  | - | ------- | 
|                                                  |  | DECEMBER 31, |         | MARCH 31,
|                                                  |  | 2002         |         | 2003     
|                                                  |  |              |         |          
|Deposits and homesites and land under development |  | $            | 397,362 |           |  | $ | 457,295 | 
|Residences completed and under construction       |  |              | 356,510 |           |  |   | 396,546 | 
|                                                  |  |              |         |           |  |   |         | 
|                                                  |  | $            | 753,872 |           |  | $ | 853,841 | 
|                                                  |  |              |         |           |  |   |         | 

A summary of Homebuilding interest capitalized in inventory is as follows
(dollars in thousands):

|                                          |                  |   |                    |        |      |   |        |        |  
|----------------------------------------- | ---------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | -
|                                          |                  |   | THREE MONTHS ENDED
|                                          |                  |   | MARCH 31,         
|                                          |                  |   |                   
|                                          |                  |   | 2002               |        | 2003
|                                          |                  |   |                    |        |     
|Interest capitalized, beginning of period |                  | $ | 12,226             |        |      | $ | 11,578 |       
|Interest incurred                         |                  |   | 4,248              |        |      |   | 11,045 |       
|Less interest included in:                |                  |   |                    |        |      |   |        |       
|                                          | Cost of sales    |   |                    | (6,937 | )    |   |        | (7,382 | )
|                                          | Interest expense |   |                    | (67    | )    |   |        |       |  
|                                          |                  |   |                    |        |      |   |        |       
|Interest capitalized, end of period       |                  | $ | 9,470              |        |      | $ | 15,241 |       
|                                          |                  |   |                    |        |      |   |        |       

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4. Acquisitions

On February 28, 2003, we acquired the net assets of James Construction
Company (James), a homebuilder operating in the greater Denver, Colorado area,
for approximately $22.0 million in cash. In addition, we are obligated to pay
an additional $1.4 million to the sellers over a two-year period. This
acquisition resulted in no goodwill being recorded. The results of operations
of James for the period from February 28, 2003 through March 31, 2003 are
included in the accompanying consolidated statement of income for the period
ended March 31, 2003.

On February 6, 2003, we acquired the net assets of Trophy Homes, Inc.
(Trophy), a homebuilder operating in Las Vegas, Nevada, and certain homesites
for approximately $36.2 million in cash. In addition, if certain targets are
met regarding home deliveries during 2003 and 2004, we will be obligated to pay
up to an additional $2.5 million to the sellers over a two-year period. Based
on our preliminary allocation of the purchase price, this acquisition resulted
in approximately $5.8 million of goodwill. The results of operations of Trophy
for the period from February 6, 2003 through March 31, 2003 are included in the
accompanying consolidated statement of income for the period ended March 31,
2003.

On November 18, 2002, we acquired the net assets of Masonry Homes, Inc., a
homebuilder operating in the northwestern suburbs of Baltimore. We paid $17.1
million in cash. In addition, if certain targets are met regarding home
deliveries, the development and/or subdivision of certain homesites and
earnings for the 2003 and 2004 fiscal years, we will be obligated to pay up to
an additional $21.3 million to the sellers over a two-year period. During the
three months ended March 31, 2003, we paid additional consideration of $11.3
million in cash to the sellers, all of which was recorded as goodwill.

On October 4, 2002, we acquired the net assets of DS Ware Homes LLC, a
homebuilder operating in Jacksonville, Florida for $35.6 million. In addition,
if certain earnings targets were met for the five-month period after the
closing, we were obligated to pay up to an additional $5.2 million to the
sellers in 2003. During the three months ended March 31, 2003, we accrued $4.7
million as additional consideration, which was paid in April 2003. The entire
amount was recorded as goodwill.

5. Borrowings

On February 3, 2003, we completed a private placement of $100.0 million of
9% Senior Notes due 2010 at a price of 94.836% of the principal face amount
plus interest accrued since January 1, 2003. The net proceeds of approximately
$93.6 million were primarily used to repay amounts outstanding under our credit
facility. These securities were issued pursuant to an indenture with the same
terms and conditions as our $200.0 million of 9% Senior Notes due 2010 were
issued.

On April 22, 2003, we completed a private placement of an additional $35.0
million of our 10-3/8% Senior Subordinated Notes due 2012 at a price of 98.5%
of the principal face amount plus interest accrued since January 1, 2003. The
net proceeds of approximately $34.5 million were used to repay amounts
outstanding under our credit facility. These additional debt securities were
issued under the same indenture pursuant to which our $150.0 million of 10-3/8%
Senior Subordinated Notes due 2012 were issued.

On April 4, 2003, we amended our revolving credit facility to increase the
amount we are permitted to borrow to the lesser of (i) $305.0 million, or (ii)
our borrowing base (calculated in accordance with the revolving credit facility
agreement) minus our outstanding senior debt, and to increase the amount of the
letter of credit subfacility to $80.0 million. Subsequently, we increased the
size of the facility to provide up to an additional $10.0 million of revolving
loans. In addition, we have the right to increase the size of the facility to
provide for up to an additional $10.0 million of revolving loans, subject to
meeting certain requirements.

6. 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 position or results of operations.

We provide homebuyers with a limited warranty of workmanship and materials
from the date of sale for up to two years. We generally have recourse against
our subcontractors for claims relating to workmanship and materials. We also
provide up to a ten-year homeowners warranty which covers major structural
defects.

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We have established warranty reserves for homes in amounts estimated to
cover potential costs for materials and labor. Reserves are based on historical
trends, adjusted as appropriate for current quantitative and qualitative
factors. The following table sets forth the activity in our warranty reserve
for the three months ended March 31, 2003:

|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Accrued warranty costs at December 31, 2002 |  | $ | 4,795  |  
|Estimated liability recorded                |  |   | 1,686  |  
|Settlements made                            |  |   | (1,803 | )
|                                            |  |   |        |  
|Accrued warranty costs at March 31, 2003    |  | $ | 4,678  |  
|                                            |  |   |        |  

During the three months ended March 31, 2003, we completed a
sale-leaseback transaction of 76 of our model homes, for net proceeds of $26.2
million. In connection with this transaction, we deferred profit of $4.2
million which is being amortized over the lease term. The lease term varies on
a per house basis and ranges from 3 to 36 months.

In connection with our announcement in March 2001 of our proposed merger
with Engle, there was a class action suit filed in District Court, Clark
County, Nevada, and a class action suit filed in the 80th Judicial District
Court of Harris County, Texas, each of which challenged the merger as a breach
of fiduciary duty. In addition, two interveners filed interventions in the
Texas class action. In March 2002, we reached an agreement in principle for the
settlement of the class actions and interventions. Under the terms of the
settlement, we have agreed to pay the plaintiffs attorneys fees and expenses
in an amount not to exceed $350,000 in the aggregate. The settlement was
subject to a number of conditions, including the closing of the Merger,
providing notice to the class, conducting confirmatory discovery, executing a
definitive settlement agreement and obtaining final approval by the court. The
parties originally contemplated that the settlement would be consummated in the
Texas action. In the third quarter of 2002, the parties learned that the
anticipated Texas forum was unavailable due to a prior dismissal. On April 28,
2003, the court entered an Order and Final Judgment approving the settlement
relating to the Nevada action. After payments made by our insurance provider,
we paid approximately $139,000 in connection with the settlement of this
litigation. This amount was accrued at March 31, 2003.

7. Sale of Westbrooke

During March 2002, we committed to a plan to dispose of Westbrooke
Acquisition Corp. and its subsidiaries (Westbrooke) to eliminate operating
redundancies in the South Florida market and to strengthen our financial
position. Pursuant to this plan of disposition, we would sell 100% of the
common stock of Westbrooke. On April 8, 2002, we signed a definitive agreement
for the sale of Westbrooke to Standard Pacific Corp. (Standard Pacific) for
approximately $41.0 million in cash. This sale was completed on April 15, 2002.
In addition, Standard Pacific satisfied approximately $54.0 million of
Westbrookes debt that included approximately $14.2 million of intercompany
liabilities owed to us. Upon completion of this sale, we recognized a gain of
$4.3 million. We determined that in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, as of March 31, 2002, the
criteria to classify the Westbrooke assets as held for sale were met. Results
of Westbrookes operations have been classified as discontinued operations,
which includes revenues of $38.7 million for the period ended March 31, 2002.

8. Severance Related Expenses

In early February 2002, certain former executive offers resigned from
their positions with Engle Homes, Inc. and alleged that they were entitled to
receive severance packages in the aggregate amount of approximately $9.4
million, plus other benefits, including a claim by one of these officers of a
monthly retirement benefit equal to 1/12th of his annual salary with such
payments to continue for a period of 60 consecutive months. We accrued $13.7
million in connection with this matter during the three months ended March 31,
2002, based on our estimate of our probable exposure at the time. During
September 2002, we reached an agreement whereby we would pay $7.6 million. As a
result, we subsequently recognized a $6.1 million reduction of this accrual.

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9. Shareholders Equity and Stock-Based Compensation

During 2001, we adopted the Technical Olympic USA, Inc. Annual and
Long-Term Incentive Plan, formerly known as the Newmark Homes Corp. 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 4,000,000. Pursuant to the Plan, no shares could be
granted prior to consummation of the aforementioned merger between us and
Engle. As a result, as of March 30, 2002, no options had been granted.

During the year ended December 31, 2002, we granted 2,195,455 options to
executives under the Plan. During the three months ended March 31, 2003, we
granted 1,227,000 options to employees and 14,036 options to certain
independent directors. Of the 3,436,491 options granted, 839,776 contain
accelerated vesting criteria that are being accounted for under the variable
accounting method as provided by APB Opinion No. 25. No expense has been
recorded during the three months ended March 31, 2003 as the exercise price is
greater than the current market price of the stock.

We have elected to follow APB Opinion No. 25 in accounting for our
employee stock options. The exercise price of our employee stock options equal
or exceed the market price of the underlying stock on the date of grant, and
therefore no compensation expense is recognized. SFAS No. 123, as amended by
SFAS No. 148, requires disclosure of pro forma income and pro forma income per
share as if the fair value based method had been applied in measuring
compensation expense.

|                                              |  |             |        |           |  |   |        | 
|--------------------------------------------- |  | ----------- | ------ | --------- |  | - | ------ | 
|                                              |  | As Reported |        | Pro Forma
|                                              |  |             |        |          
|Net income                                    |  | $           | 17,656 |           |  | $ | 15,652 | 
|Earnings per common share  basic and diluted |  | $           | 0.63   |           |  | $ | 0.56   | 

During the three months ended March 31, 2003, we awarded 10,249 shares of
restricted common stock under the Plan to certain independent directors as
compensation for board services. In connection with this stock award, we
recognized expense of $160,000, which is included in selling, general and
administrative expenses in the accompanying consolidated statement of income.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We generate our revenues from our homebuilding operations (Homebuilding)
and financial services operations (Financial Services). In accordance with
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, we have determined that
Homebuilding and Financial Services comprise our operating segments. Through
our Homebuilding operations, we design, build, and market high-quality detached
single-family residences, town homes, and condominiums in 14 metropolitan
markets located in four major geographic regions: Florida, Texas, the West, and
the Mid- Atlantic.

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

Our Homebuilding operation generates the majority of its revenues from the
sale of homes to homebuyers and to a lesser degree from the sale of land to
other homebuilders. Our homes are designed to appeal to a diverse group of
homebuyers, such as first-time homebuyers, move-up homebuyers, homebuyers
who are relocating to a new city or state, buyers of second or vacation homes,
active-adult homebuyers, and homebuyers with grown children who want a smaller
home (empty-nesters). Our homes are generally offered for sale in advance of
their construction. Once a sales contract has been signed, we classify the
transaction as a new sales contract and include the home in backlog. Such
sales contracts are usually subject to certain contingencies such as the
buyers ability to qualify for financing. Revenue from the sale of homes and
the sale of land is recognized at closing when title passes to the buyer. At
this point a home is considered to be delivered. The principal expenses
of our Homebuilding operations are (i) cost of sales and (ii) selling, general
and administrative (SG&A) expenses. Homebuilding cost of sales consists
primarily of the cost of home construction and land purchases. SG&A expenses
for our Homebuilding operations include administrative costs, advertising
expenses, on-site marketing expenses, commission costs, and closing costs.

At March 31, 2003, we were marketing homes in 176 communities; by
comparison, at March 31, 2002 we were marketing homes in 141 communities.

Through our Financial Services operations, we offer a variety of financial
services, including mortgage financing, title insurance and closing services,
to homebuyers in the majority of our markets. Our mortgage financing operation
derives most of its revenues from buyers of our homes, although it also offers
its services to other homebuyers and existing homeowners refinancing their
mortgages. Our title insurance and closing services are more broadly used by
buyers of our homes and other persons purchasing or refinancing residential or
commercial real estate. Our mortgage operations revenues consist primarily of
origination and premium fee income, credit application fee income, and the gain
on the sale of the mortgages. Title operations revenues consist primarily of
title insurance and closing services. All of our underwriting risk associated
with title insurance policies is transferred to third-party insurers. The
principal expenses of our Financial Services operations are SG&A expenses. SG&A
expenses for our Financial Services operations consist primarily of
compensation and interest expense on our warehouse line of credit.

Recent Transactions

On April 22, 2003, we completed a private placement of an additional $35.0
million of our 10-3/8% Senior Subordinated Notes due 2012 at a price of 98.5%
of the principal amount plus interest accrued since January 1, 2003, referred
to as our April 2003 Senior Subordinated Notes. The net proceeds of
approximately $34.5 million were used to repay amounts outstanding under our
credit facility. The April 2003 Senior Subordinated Notes were issued under the
same indenture as the $150.0 million of 10-3/8% Senior Subordinated Notes due
2012 that we issued in June 2002, which we refer to as the June 2002 Senior
Subordinated Notes.

On April 4, 2003, we amended our revolving credit facility to increase the
amount we are permitted to borrow to the lesser of (i) $305.0 million, or (ii)
our borrowing base (calculated in accordance with the revolving credit facility
agreement) minus our outstanding senior debt, and to increase the amount of the
letter of credit subfacility to $80.0 million. Subsequently, we increased the
size of the facility to provide up to an additional $10.0 million of revolving
loans. In addition, we have the right to increase the size of the facility to
provide for up to an additional $10.0 million of revolving loans, subject to
meeting certain requirements.

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On February 28, 2003, we acquired the net assets of James Construction
Company, a homebuilder operating in the greater Denver, Colorado area, for
approximately $22.0 million in cash. In addition, we are obligated to pay an
additional $1.4 million to the sellers over a two-year period.

On February 6, 2003, we acquired the net assets of Trophy Homes, Inc., a
homebuilder operating in Las Vegas, Nevada, and certain homesites for
approximately $36.2 million. In addition, if certain targets are met regarding
home deliveries during 2003 and 2004, we will be obligated to pay up to $2.5
million over a two-year period.

On February 3, 2003, we completed a private placement of $100.0 million of
9% Senior Notes due 2010, which we refer to as the February 2003
Senior Notes,
at a price of 94.836% of the principal amount plus interest accrued since
January 1, 2003. The net proceeds of approximately $93.6 million were primarily
used to repay amounts outstanding under our credit facility. The February 2003
Senior Notes were issued pursuant to an indenture with the same terms and
conditions as the $200.0 million of 9% Senior Notes due 2010 that we issued in
June 2002, which we refer to as the June 2002 Senior Notes.

Critical Accounting Policies

In the preparation of our consolidated financial statements, we apply
accounting principles generally accepted in the United States. The application
of generally accepted accounting principles may require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying results. Listed below are those policies that we
believe are critical and require the use of complex judgment in their
application.

Homebuilding Revenues and Cost of Sales

Revenue from the sale of homes and the sale of land is recognized at
closing when title passes to the buyer and all of the following conditions are
met: a sale is consummated; a significant down payment is received; the
earnings process is complete; and the collection of any remaining receivables
is reasonably assured. As a result, our revenue recognition process does not
involve significant judgments or estimates. However, we do rely on certain
estimates to determine the related construction and land costs and resulting
gross margins associated with revenues recognized. Our construction and land
costs are comprised of direct and allocated costs, including estimated costs
for future warranties and indemnities. Our estimates are based on historical
results, adjusted for current factors. Land, land improvements, and other
common costs are generally allocated on a relative fair value basis to units
within a parcel or community. Land and land development costs generally include
related interest and property taxes incurred until construction is
substantially completed.

Financial Services Revenues and Expenses

Our Financial Services operations generates its revenues from its mortgage
and title operations. Our mortgage operations revenues consist primarily of
origination and premium fee income, credit application fee income, and the gain
on the sale of the mortgages. Revenue from our mortgage operations is generally
recognized when the mortgage loans and related servicing rights are sold to
third-party investors. Substantially all of our mortgages are sold to private
investors within 30 days. Title operations revenues consist primarily of title
insurance and closing services which are recognized as homes are closed. As a
result, our revenue recognition process does not involve significant judgments
or estimates.

Impairment of Long-Lived Assets

Housing projects and land/homesites under development are stated at the
lower of costs or net realizable value. Property and equipment is carried at
cost less accumulated depreciation. We assess these assets for impairment in
accordance with the provisions of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets is measured by comparing the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. These
evaluations for impairment are significantly impacted by estimates of revenues,
costs and expenses, and other factors. If these assets are considered to be
impaired, the impairment loss to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.

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Goodwill

Effective January 1, 2002, we adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets. Upon the adoption of SFAS No. 142,
goodwill is no longer subject to amortization. Goodwill is subject to at least
an annual assessment for impairment by applying a fair value-based test. If the
carrying amount exceeds the fair value, goodwill is considered to be impaired.
We continually evaluate whether events and circumstances have occurred that
indicate the remaining balance of goodwill may not be recoverable. In
evaluating impairment, we estimate the sum of the expected future cash flows
derived from such goodwill. Such evaluations for impairment are significantly
impacted by estimates of future revenues, costs and expenses, and other
factors. If the goodwill is considered to be impaired, the impairment loss to
be recognized is measured by the amount by which the carrying amount of the
goodwill exceeds the fair value of the expected future cash flows.

Homesite Option Contracts

We enter into option contracts with land sellers and third-party financial
entities as a method of acquiring developed homesites. From time to time to
leverage our ability to acquire and finance the development of these homesites,
we transfer our option right to third parties. Option contracts generally
require the payment of a non-refundable cash deposit or the issuance of a
letter of credit for the right to acquire homesites over a specified period of
time at predetermined prices. Typically, our deposits or letters of credit are
less than 20% of the option price. We generally have the right at our
discretion to terminate our obligations under these option agreements by
forfeiting our cash deposit or repaying amounts drawn under the letter of
credit with no further financial responsibility. We do not have legal title to
these assets. Additionally, we do not have an investment in the third-party
acquirer and do not guarantee their liabilities. However, if certain conditions
are met, including the deposit and/or letters of credit exceeding certain
significance levels as compared to the remaining homesites under the option
contract, we will include the homesites in inventory with a corresponding
liability in consolidated land bank obligations.

Warranty Reserves

In the normal course of business we will incur warranty related costs
associated with homes which have been delivered to the homebuyers. Warranty
reserves are established by charging cost of sales and recognizing a liability
for the estimated warranty costs for each home that is delivered. We monitor
this reserve on a monthly basis by evaluating the historical warranty
experience in each market in which we operate and the reserve is adjusted as
appropriate for current quantitative and qualitative factors. Actual future
warranty costs could differ from our currently estimated amounts.

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RESULTS OF OPERATIONS

Selected Financial and Other Information

|                                                                   |            |   |                        |         |      |   |         |         | 
|------------------------------------------------------------------ | ---------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | 
|                                                                   |            |   | THREE MONTHS ENDED    
|                                                                   |            |   | MARCH 31              
|                                                                   |            |   |                       
|                                                                   |            |   | 2002                   |         | 2003
|                                                                   |            |   |                        |         |     
|                                                                   |            |   | (Dollars
in Thousands)
|HOMEBUILDING:                                                      |            |   |                        |         |      |   |         |        
|Revenues:                                                          |            |   |                        |         |      |   |         |        
|                                                                   | Home sales |   | $                      | 302,155 |      |   | $       | 313,820 | 
|                                                                   | Land sales |   |                        | 383     |      |   |         | 2,060   | 
|                                                                   |            |   |                        |         |      |   |         |        
|                                                                   |            |   | 302,538                |         |      |   | 315,880 |        
|                                                                   |            |   |                        |         |      |   |         |        
|Cost of Sales:                                                     |            |   |                        |         |      |   |         |        
|                                                                   | Home sales |   |                        | 239,645 |      |   |         | 246,280 | 
|                                                                   | Land sales |   |                        | 430     |      |   |         | 1,841   | 
|                                                                   |            |   |                        |         |      |   |         |        
|                                                                   |            |   | 240,075                |         |      |   | 248,121 |        
|                                                                  
|Gross profit                                                       |            |   | 62,463                 |         |      |   | 67,759  |        
|Selling, general and administrative expenses                       |            |   | 37,704                 |         |      |   | 43,790  |        
|Depreciation and amortization                                      |            |   | 1,631                  |         |      |   | 1,646   |        
|Severance expenses                                                 |            |   | 13,828                 |         |      |   |        |        
|Other income, net                                                  |            |   | (222                   | )       |      |   | (1,019  | )      
|                                                                   |            |   |                        |         |      |   |         |        
|Homebuilding pretax income                                         |            |   | 9,522                  |         |      |   | 23,342  |        
|                                                                   |            |   |                        |         |      |   |         |        
|FINANCIAL SERVICES:                                                |            |   |                        |         |      |   |         |        
|Revenues                                                           |            |   | 7,954                  |         |      |   | 10,645  |        
|Expenses                                                           |            |   | 3,780                  |         |      |   | 6,160   |        
|                                                                   |            |   |                        |         |      |   |         |        
|Financial Services pretax income                                   |            |   | 4,174                  |         |      |   | 4,485   |        
|                                                                   |            |   |                        |         |      |   |         |        
|Income from continuing operations before income taxes              |            |   | 13,696                 |         |      |   | 27,827  |        
|Income tax expense                                                 |            |   | 4,767                  |         |      |   | 10,171  |        
|                                                                   |            |   |                        |         |      |   |         |        
|Income from continuing operations                                  |            | $ | 8,929                  |         |      | $ | 17,656  |        
|                                                                   |            |   |                        |         |      |   |         |        
|                                                                   |            |   |                        |         |      |   |         |        
|OTHER DATA:                                                        |            |   |                        |         |      |   |         |        
|Cash flow from operating activities                                |            | $ | 38,153                 |         |      | $ | 1,625   |        
|Cash flow from investing activities                                |            | $ | (1,550                 | )       |      | $ | (74,630 | )      
|Cash flow from financing activities                                |            | $ | (31,248                | )       |      | $ | 72,873  |        
|Earnings before interest, taxes, depreciation and
amortization (1) |            | $ | 22,264                 |         |      | $ | 36,855  |        
|Gross margin on revenue from home sales                            |            |   | 20.7                   | %       |      |   | 21.5    | %      
|Ratio of SG&A expenses to Homebuilding revenues                    |            |   | 12.5                   | %       |      |   | 13.9    | %      
|Ratio of Homebuilding pretax income to Homebuilding
revenues       |            |   | 3.1                    | %       |      |   | 7.4     | %      
|Total active communities at period end                             |            |   | 141                    |         |      |   | 176     |        
|Homes delivered                                                    |            |   | 1,146                  |         |      |   | 1,234   |        
|Average sales price per home delivered                             |            | $ | 264                    |         |      | $ | 254     |        
|Backlog at end of period in sales value                            |            | $ | 651,273                |         |      | $ | 763,965 |        
|Backlog at end of period in number of homes                        |            |   | 2,411                  |         |      |   | 2,826   |        



---

|(1) |  | EBITDA represents earnings from continuing operations before
interest, taxes, depreciation, and amortization and consists of the sum of
income from continuing operations before: (a) income taxes, (b)
amortization of capitalized interest in cost of sales, (c) homebuilding
interest expense and (d) depreciation and amortization. We have included
information concerning EBITDA because some investors use it as a measure
of a companys ability to service and incur debt. EBITDA is not required
by generally accepted accounting principles, or GAAP, and other companies
may calculate EBITDA differently. EBITDA should not be considered as an
alternative to operating income or to cash flows from operating activities
(as determined in accordance with GAAP) and should not be construed as an
indication of our operating performance or a measure of our liquidity. We
believe that EBITDA reflects the changes in our operating results,
particularly changes in the Companys net income, and is an indication of
our ability to generate funds from operations that are available to pay
income taxes, interest and principal on debt
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | and to meet other obligations.
A reconciliation of EBITDA to income from continuing operations,
the most directly comparable GAAP measure, is provided below (dollars
in thousands):
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           |  |                    |        |      |  |   |        | 
|------------------------------------------ |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                           |  | THREE MONTHS ENDED
|                                           |  | MARCH 31,         
|                                           |  |                   
|                                           |  | 2002               |        | 2003
|                                           |  |                    |        |     
|Income from continuing operations          |  | $                  | 8,929  |      |  | $ | 17,656 | 
|Add: income taxes                          |  |                    | 4,767  |      |  |   | 10,171 | 
|Add: interest in cost of sales             |  |                    | 6,937  |      |  |   | 7,382  | 
|Add: depreciation and amortization expense |  |                    | 1,631  |      |  |   | 1,646  | 
|                                           |  |                    |        |      |  |   |        | 
|EBITDA                                     |  | $                  | 22,264 |      |  | $ | 36,855 | 
|                                           |  |                    |        |      |  |   |        | 

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Selected Homebuilding Operating Data

The following table
sets forth home sales and backlog data by region (dollars in
thousands):

|                                             |  |                    |         |      |  |   |         | 
|-------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                             |  | THREE MONTHS ENDED
|                                             |  | MARCH 31,         
|                                             |  |                   
|                                             |  | 2002               |         | 2003
|                                             |  |                    |         |     
|HOMES DELIVERED:                             |  |                    |         |      |  |   |         | 
|Florida                                      |  |                    | 489     |      |  |   | 521     | 
|Mid-Atlantic                                 |  |                    | 133     |      |  |   | 137     | 
|Texas                                        |  |                    | 304     |      |  |   | 300     | 
|West                                         |  |                    | 220     |      |  |   | 276     | 
|                                             |  |                    |         |      |  |   |         | 
|Total                                        |  |                    | 1,146   |      |  |   | 1,234   | 
|                                             |  |                    |         |      |  |   |         | 
|                                             |  |                    |         |      |  |   |         | 
|AVERAGE SALES PRICE PER HOME DELIVERED:      |  |                    |         |      |  |   |         | 
|Florida                                      |  | $                  | 240     |      |  | $ | 233     | 
|Mid-Atlantic                                 |  | $                  | 333     |      |  | $ | 289     | 
|Texas                                        |  | $                  | 269     |      |  | $ | 260     | 
|West                                         |  | $                  | 266     |      |  | $ | 270     | 
|Company Average                              |  | $                  | 264     |      |  | $ | 254     | 
|                                             |  |                    |         |      |  |   |         | 
|REVENUES FROM HOME SALES:                    |  |                    |         |      |  |   |         | 
|Florida                                      |  | $                  | 117,581 |      |  | $ | 121,574 | 
|Mid-Atlantic                                 |  |                    | 44,351  |      |  |   | 39,653  | 
|Texas                                        |  |                    | 81,720  |      |  |   | 77,941  | 
|West                                         |  |                    | 58,503  |      |  |   | 74,652  | 
|                                             |  |                    |         |      |  |   |         | 
|Total                                        |  | $                  | 302,155 |      |  | $ | 313,820 | 
|                                             |  |                    |         |      |  |   |         | 
|                                             |  |                    |         |      |  |   |         | 
|NEW SALES CONTRACTS, NET OF CANCELLATIONS:   |  |                    |         |      |  |   |         | 
|Florida                                      |  |                    | 473     |      |  |   | 642     | 
|Mid-Atlantic                                 |  |                    | 192     |      |  |   | 195     | 
|Texas                                        |  |                    | 440     |      |  |   | 418     | 
|West                                         |  |                    | 303     |      |  |   | 377     | 
|                                             |  |                    |         |      |  |   |         | 
|Total                                        |  |                    | 1,408   |      |  |   | 1,632   | 
|                                             |  |                    |         |      |  |   |         | 
|                                             |  |                    |         |      |  |   |         | 
|BACKLOG AT END OF PERIOD IN NUMBER OF HOMES: |  |                    |         |      |  |   |         | 
|Florida                                      |  |                    | 1,257   |      |  |   | 1,316   | 
|Mid-Atlantic                                 |  |                    | 228     |      |  |   | 302     | 
|Texas                                        |  |                    | 538     |      |  |   | 496     | 
|West                                         |  |                    | 388     |      |  |   | 712     | 
|                                             |  |                    |         |      |  |   |         | 
|Total                                        |  |                    | 2,411   |      |  |   | 2,826   | 
|                                             |  |                    |         |      |  |   |         | 
|                                             |  |                    |         |      |  |   |         | 
|BACKLOG AT END OF PERIOD IN SALES VALUE:     |  |                    |         |      |  |   |         | 
|Florida                                      |  | $                  | 328,097 |      |  | $ | 339,139 | 
|Mid-Atlantic                                 |  |                    | 84,326  |      |  |   | 107,778 | 
|Texas                                        |  |                    | 135,704 |      |  |   | 128,524 | 
|West                                         |  |                    | 103,146 |      |  |   | 188,524 | 
|                                             |  |                    |         |      |  |   |         | 
|Total                                        |  | $                  | 651,273 |      |  | $ | 763,965 | 
|                                             |  |                    |         |      |  |   |         | 

March 31, 2003 Compared to March 31, 2002

Income from continuing operations increased to $17.7 million (or $0.63 per
share) during the three months ended March 31, 2003 from $8.9 million (or $0.32
per share) during the three months ended March 31, 2002. The increase in income
from continuing operations is attributable to an increase in Homebuilding
pretax income to $23.3 million during the three months ended March 31,

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2003 from $9.5 million during the three months ended March 31, 2002.
Additionally, we experienced an increase in Financial Services pretax income to
$4.5 million during the three months ended March 31, 2003 from $4.2 million
during the three months ended March 31, 2002.

Total revenues increased to $326.5 million during the three months ended
March 31, 2003 from $310.5 million during the three months ended March 31,
2002. The increase of 5% is attributable to an increase in Homebuilding
revenues and an increase in Financial Services revenues of 4% and 33%,
respectively.

Our effective tax rate increased to 36.6% during the three months ended
March 31, 2003 from 34.8% during the three months ended
March 31, 2002. The effective tax rate for the three months
ended March 31, 2002 reflected a non-recurring state income tax
benefit resulting from certain severance charges recorded during this
period. For the year ended December 31, 2002, our effective tax
rate was 37.3%.

Homebuilding

Homebuilding revenues increased to $315.9 million during the three months
ended March 31, 2003 from $302.5 million during the three months ended March
31, 2002. The increase of 4% was due to an increase in home deliveries to 1,234
during the three months ended March 31, 2003 from 1,146 during the three months
ended March 31, 2002. The 8% increase in home deliveries was partially offset
by a decline in the average selling price on delivered homes to $254,000 from
$264,000.

Our Florida region realized an increase in revenue from home sales of $4.0
million to $121.6 million during the three months ended March 31, 2003. This
increase of 3% is due to an increase of 32 home deliveries during the three
months ended March 31, 2003 from the three months ended March 31, 2002. The
increase in home deliveries was primarily due to the deliveries generated by
our Jacksonville division, which we acquired during the 4th quarter of 2002.
This increase in home deliveries was partially offset by a decline in the
average selling price for the Florida region to $233,000 for the three months
ended March 31, 2003 from $240,000 during the three months ended March 31,
2002. The decrease in average selling price is primarily due to a change in
product mix, including the additional deliveries generated by our Jacksonville
division, which offers homes with a lower average selling price.

Our Mid-Atlantic region realized a decline in revenue from home sales of
$4.7 million to $39.7 million. This decrease of 11% was due to a reduction in
the average selling price to $289,000 during the three months ended March 31,
2003 from $333,000 during the three months ended March 31, 2002 primarily due
to a change in product mix for the region, as we experienced significantly less
closings in our Virginia division and an increase in our recently acquired
Baltimore division, which has historically had a lower average selling price.
Home deliveries remained relatively flat in our Mid-Atlantic region, increasing
slightly to 137 during the three months ended March 31, 2003 from 133 during
the three months ended March 31, 2002.

Our Texas region realized a decline in revenue from home sales of $3.8
million to $77.9 million during the three months ended March 31, 2003. This
decrease of 5% was primarily attributable to a reduction in the average selling
price to $260,000 during the quarter ended March 31, 2003 from $269,000 during
the quarter ended March 31, 2002 due to our focus on diversifying our product
mix. Home deliveries remained relatively flat in our Texas region, decreasing
slightly to 300 during the quarter ended March 31, 2003 from 304 during the
quarter ended March 31, 2002.

Our West region realized an increase in revenue from home sales of $16.2
million to $74.7 million for the three months ended March 31, 2003. This
increase of 28% was primarily due to an increase of 56 home deliveries during
the three months ended March 31, 2003 from the three months ended March 31,
2002. The increase in home deliveries was primarily due to the deliveries
generated by our acquisitions of Trophy Homes and James Construction Company
during the three months ended March 31, 2003. Additionally, our West region
experienced a slight increase in its average selling price to $270,000 during
the three months ended March 31, 2003 from $266,000 during the three months
ended March 31, 2002.

Our Homebuilding gross profit increased to $67.8 million for the three
months ended March 31, 2003 from $62.5 million for the three months ended March
31, 2002. This increase of 8% is primarily due to an increase in revenue from
home sales and an increase in our gross margin on homes sales. Our gross margin
on home sales has increased slightly to 21.5% during the three months ended
March 31, 2003 from 20.7% during the three months ended March 31, 2002. This
increase is primarily due to a change in product mix in our existing divisions
and the higher gross margins generated by our recently acquired divisions,
which have all generated gross margins in excess of 21%.

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SG&A expenses increased to $43.8 million during the three months ended
March 31, 2003 from $37.7 million during the three months ended March 31, 2002.
As a percentage of Homebuilding revenues, SG&A increased to 13.9% for the three
months ended March 31, 2003 from 12.5% for the three months ended March 31,
2002. Of this $6.1 million increase in SG&A expenses, approximately $4.5
million is attributable to SG&A expenses associated with recently acquired
companies. The remainder of the increase is primarily attributable to increases
in compensation, professional fees, and insurance. During the three months
ended March 31, 2003, we incurred significant professional and other fees as a
result of modifying our corporate structure to be more efficient from an
organizational, operational, and income tax standpoint. We expect that certain
of these expenditures will continue through the 3rd quarter of 2003. The
benefits from these expenditures will be realized through lower income taxes
and other operating costs over time.

Severance expenses of $13.8 million during the three months ended March
31, 2002 represent accrued severance charges relating to former executives of
Engle who resigned during February 2002.

Financial Services

Financial Services revenues increased to $10.6 million during the three
months ended March 31, 2003 from $8.0 million during the three months ended
March 31, 2002. The increase of 33% is primarily attributable to an increase in
the number of closings by our mortgage and title operations. The number of
closings at our mortgage operations increased to 880 for the three months ended
March 31, 2003 from 817 for the three months ended March 31, 2002. The number
of closings at our title operations increased to 4,670 for the three months
ended March 31, 2003 from 3,871 for the three months ended March 31, 2002. Our
capture ratios of Financial Services segment have remained relatively
consistent with the corresponding quarter in the prior year. Our mortgage
operations capture ratio was 51% for the three months ended March 31, 2003 as
compared to 55% for the three months ended March 31, 2002. However, excluding
the recently acquired markets where our mortgage operations have not yet
penetrated into the marketplace, our capture ratio increased by 7% over the
prior year.

EBITDA

During the three months ended March 31, 2003 we generated EBITDA of $36.9
million as compared to $22.3 million during the three months ended March 31,
2002. The increase in EBITDA is primarily a result of $13.8 million in
severance expenses incurred during the three months ended
March 31, 2002. Excluding these unusual charges, EBITDA during the three months
ended March 31, 2002 would have been $36.1 million. The increase of 2%
primarily relates to the increase in our Financial Services pretax income
during the three months ended March 31, 2003 as compared to the three months
ended March 31, 2002.




FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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 requirements have been primarily cash
generated from operations and cash borrowed under our credit facilities. Our
Financial Services segment relies primarily on internally generated funds,
which include the proceeds generated from the sale of mortgages, and from the
mortgage operations warehouse line of credit to fund our operations.

At March 31, 2003 we had unrestricted cash and cash equivalents of $49.1
million as compared to $49.2 million at December 31, 2002.

During the three months ended March 31, 2003, we generated cash of $1.6
million from our operating activities, as compared to $38.2 million for the
three months ended March 31, 2002. This decrease is primarily a result of an
increase in inventory of $44.6 million, excluding the impact of our
acquisitions, as compared to a $0.9 million increase in inventory for the three
months ended March 31, 2002. This increase in inventory is part of our
strategy to increase the number of active communities and our land positions.
During the three months ended March 31, 2003, including the impact of our
acquisitions, our controlled homesites increased to 31,651 from 26,320.

Cash used in investing activities was $74.6 million during the three
months ended March 31, 2003 as compared to $1.6 million during the three months
ended March 31, 2002. The increase in the use of cash in investing activities
is primarily due to the acquisitions during the three months ended March 31,
2003.

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On February 28, 2003, we acquired the net assets of the James Construction
Company, a homebuilder operating in the greater Denver, Colorado area, for
approximately $22.0 million in cash. In addition, we are obligated to pay an
additional $1.4 million over a two year period.

On February 6, 2003, we acquired the net assets of Trophy Homes, Inc., a
homebuilder operating in Las Vegas, Nevada, and certain homesites for
approximately $36.2 million in cash. In addition, if certain targets are met
regarding home deliveries during 2003 and 2004, we will be obligated to pay up
to $2.5 million over a two year period.

As a result of the increases in our land positions and the recent
acquisitions, our ratio of Homebuilding borrowings to total assets was 44.0% at
March 31, 2003 as compared to 39.9% at December 31, 2002. Our ratio of
Homebuilding borrowings to capital was 54.5% at March 31, 2003 as compared to
50.5% at December 31, 2002.

On February 3, 2003, we completed a private placement of $100.0 million of
9% Senior Notes at a price of 94.836% of the principal amount plus interest
accrued since January 1, 2003. The net proceeds of approximately $93.6 million
were primarily used to repay amounts outstanding under our revolving credit
facility. The February 2003 Senior Notes were issued pursuant to an indenture
with the same terms and conditions as the June 2002 Senior Notes.

On April 22, 2003, we completed a private placement of an additional $35.0
million of our 10-3/8% Senior Subordinated Notes due 2012 at a price of 98.5%.
The net proceeds of approximately $34.5 million were used to repay the amounts
outstanding under our credit facility. These additional debt securities were
issued under the same indenture pursuant to which our June 2002 Senior
Subordinated Notes were issued.

Interest on our outstanding June 2002 Senior Notes and February 2003
Senior Notes 10-3/8% Senior Subordinated Notes is payable on January 1 and July
1 of each year. The senior notes are guaranteed by all of our material domestic
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 subordinated debt and are guaranteed on a senior
subordinated basis by all of our material domestic subsidiaries. The indentures
governing the senior 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, pay or make dividends or other distributions,
sell assets, enter into transactions with affiliates, and merge or consolidate
with other entities. The interest rates on our outstanding senior and senior
subordinated notes are higher than the collective interest rates on the
obligations that were repaid. As a result of the higher interest rates and the
assumption of the Technical Olympic debt, we anticipate that interest incurred
will exceed the amounts which would have been incurred under the prior
borrowings. Therefore, the increased interest incurred will have an effect on
gross margins in future periods.

As of March 31, 2003 our revolving credit facility, as amended, permitted
us to borrow up to the lesser of (i) $220.0 million or (ii) our borrowing base
(calculated in accordance with the revolving credit facility agreement) minus
our outstanding senior debt. The revolving credit facility expires on June 26,
2005. As of March 31, 2003, we had drawn down $50.0 million and had issued
letters of credit of $36.5 million and as a result, had $133.5 million in
availability under the revolving credit facility. Loans outstanding under the
facility may be base rate loans or Eurodollar loans, at our election. Base rate
loans accrue interest at a rate per annum equal to (i) an applicable margin
plus (ii) the higher of (A) Citibank, N.A.s base rate, (B) 0.5% plus the three
week average of reserve-adjusted three-month certificate of deposit rate and
(C) 0.5% plus the Federal Funds Rate. Eurodollar loans accrue interest at a
rate per annum equal to (i) an applicable margin plus (ii) the reserve-adjusted
Eurodollar rate for the interest period. Applicable margins will be adjusted
based on the ratio of our liabilities to our tangible worth. At March 31, 2003,
our loans outstanding under the revolving credit facility accrued interest at a
rate of 3.55% per annum. The revolving credit facility requires us to (1)
maintain specified financial ratios regarding leverage, interest coverage,
consolidated tangible net worth and certain operational measurements and (2)
satisfy certain financial condition tests. The revolving credit facility also
places certain restrictions on, among other things, our ability to incur
additional debt or liens, pay or make dividends or other distributions, sell
assets, enter into transactions with affiliates and merge or consolidate with
other entities. The revolving credit facility is secured by a first-priority
perfected lien on all capital stock of subsidiaries owned by us. Our
obligations under the revolving credit facility are guaranteed by all our
domestic subsidiaries (subject to certain limited restrictions).

On April 4, 2003, we amended our revolving credit facility to increase the
amount we are permitted to borrow to the lesser of (i) $305.0 million, or (ii)
our borrowing base (calculated in accordance with the revolving credit facility
agreement) minus our outstanding senior debt, and to increase the amount of the
letter of credit subfacility to $80.0 million. Subsequently, we increased the

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size of the facility to provide up to an additional $10.0 million of
revolving loans. In addition, we have the right to increase the size of the
facility to provide for up to an additional $10.0 million of revolving loans,
subject to meeting certain requirements.

To fund the origination of residential mortgage loans, our subsidiary,
Preferred Home Mortgage Company (Preferred Home) entered into a $65.0 million
revolving warehouse line of credit, which we refer to as our warehouse line of
credit. The warehouse line of credit is comprised of (1) a credit facility
providing for revolving loans of up to $40.0 million, subject to meeting
borrowing base requirements based on the value of collateral provided and (2)
mortgage loan purchase and sale agreements which provide for the purchase by
the lender of up to $25.0 million in mortgage loans generated by Preferred
Home. At no time may the amount outstanding under the facility plus the amount
of purchased loans pursuant to the purchase and sale agreements exceed $65.0
million. The warehouse line of credit expires on June 24, 2003. As of March 31,
2003, we had $34.6 million outstanding under the warehouse line of credit. The
warehouse line of credit bears interest, at Preferred Homes option, at either,
(1) the Federal Funds rate plus 1.375% or (2) a Eurodollar rate plus 1.25%. At
March 31, 2003, our loans outstanding under the warehouse line of credit
accrued interest at a rate of 2.625% per annum. The warehouse line of credit
requires Preferred Home to maintain certain financial ratios and minimums. The
warehouse line of credit is secured by a guarantee from us and by funded
mortgages which are pledged as collateral.

We believe that as a result of our offering of senior notes in February
2003 and senior subordinated notes in April 2003 and the increase in our
revolving credit facility, we will have adequate financial resources, including
cash from operations and availability under the revolving credit facility and
the warehouse line of credit, to meet our current working capital and land
acquisition and development needs based on current market conditions into the
near future. 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 need to seek additional debt or equity financing
to operate and expand our business.

At March 31, 2003, the amount of our annual debt service payments was
$45.8 million. This amount included debt service payments on the senior and
senior subordinated notes of $42.6 million and interest payments on the
revolving credit facility, the warehouse line of credit, and other notes of
$3.2 million based on the balances outstanding as of March 31, 2003. 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 payments by $1.0 million per year. The revolving credit facility
terminates in June 2005 at which time we will be required to repay all
outstanding principal. Under certain circumstances, we may extend the facility
in one-year increments, for up to two additional years.

Backlog

As of March 31, 2003, we had 2,826 units in backlog representing $764.0
million in revenue, as compared to 2,411 units in backlog representing $651.3
million in revenue as of March 31, 2002. This increase in revenue in backlog of
17% is primarily attributable to the units in backlog of our recent
acquisitions. Our average selling price of units in backlog has remained
consistent at $270,000.




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. Specifically, this Quarterly Report
contains forward-looking statements regarding:



| |  |  | our estimate that we have adequate financial resources to meet our
current working capital and land acquisition and development needs for
the near future;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our expectations regarding the timing and benefits of expenditures related to modifying our corporate structure;                                          
|
| |  |  | our expectations regarding the effect of increased interest on our gross margins;                                                                         

21



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|
|
|
|
|
|
|

These forward-looking statements reflect our current views about future
events and are subject to risks, uncertainties and assumptions. We wish to
caution readers that certain important factors may have affected and could in
the future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most
important factors that could prevent us from achieving our goals, and cause the
assumptions underlying forward-looking statements and the 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 by 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;                                                         
|
| |  |  | our relationship with Technical Olympic, Inc., our majority stockholder, and its control over our business activities;                                     
|
| |  |  | our ability to successfully integrate and to realize the expected benefits of recent acquisitions;                                                         
|
| |  |  | 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;
|
| |  |  | a decline in the demand for, or the prices of, housing;                                                                                                    
|
| |  |  | a decline in the value of the land and home inventories we maintain;                                                                                       
|
| |  |  | an increase in the cost of, or shortages in the availability of, skilled labor or construction materials;                                                  
|
| |  |  | an increase in interest rates;                                                                                                                             
|
| |  |  | our ability to successfully dispose of developed properties or
undeveloped land or lots at expected prices and within anticipated time
frames;             
|
| |  |  | our ability to compete in our existing and future markets; and                                                                                             
|
| |  |  | an increase or change in governmental regulations.                                                                                                         




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our notes offerings, at March 31, 2003, $450.0 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 line of credit, and revolving credit
facility. The interest rates relative to these borrowings fluctuate with the
prime and LIBOR lending rates, both upwards and downwards. We have not entered
into derivative financial instruments for trading or speculative purposes. As
of March 31, 2003, we had an aggregate of approximately $95.1 million drawn
under our bank loan arrangements that are subject to changes in interest rates.
An increase or decrease of 1% in interest rates will change our annual debt
service payments by $1.0 million per year as a result of our bank loan
arrangements that are subject to changes in interest rates.

We do not enter into, or intend to enter into, derivative financial
instruments for trading or speculative purposes.

22



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##### Table of Contents



The following table presents the future principal payment obligations and
weighted average interest rates associated with our long-term debt instruments
assuming our actual level of long-term debt indebtedness as of March 31, 2003:

Expected Maturity Date
(in thousands)

|               |                                                                    |  |      |        |      |  |      |   |      |  |      |        |            |  |            |   |  |  |   |   |  |  |   |         |  |  |   |         | 
|-------------- | ------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ---- | - | ---- |  | ---- | ------ | ---------- |  | ---------- | - |  |  | - | - |  |  | - | ------- |  |  | - | ------- | 
|               |                                                                    |  | 2003 |        | 2004 |  | 2005 |   | 2006 |  | 2007 |        | Thereafter |  | Fair Value
|               |                                                                    |  |      |        |      |  |      |   |      |  |      |        |            |  |           
|Liabilities    |                                                                    |  |      |        |      |  |      |   |      |  |      |        |            |  |            |   |  |  |   |   |  |  |   |         |  |  |   |        
|Long-term debt |                                                                    |  |     |        |      |  |     |   |      |  |     |        |            |  |           |   |  |  |  |   |  |  |  |         |  |  |  |        
|               | Fixed rate (9.0%)                                                  |  |      |       |      |  |      |  |      |  |      |       |            |  |            |  |  |  |   |  |  |  | $ | 300,000 |  |  | $ | 295,875 | 
|               | Fixed rate (10-3/8%)                                               |  |      |       |      |  |      |  |      |  |      |       |            |  |            |  |  |  |   |  |  |  | $ | 185,000 |  |  | $ | 180,606 | 
|               | Revolving loan, variable rate
(3.55% at March 31, 2003)            |  |      |       |      |  |      |  |      |  | $    | 50,000 |            |  |            |  |  |  |   |  |  |  |   |        |  |  | $ | 50,000  | 
|               | Variable rate, warehouse line of
credit, 2.625% at March 31, 2003) |  | $    | 34,604 |      |  |      |  |      |  |      |       |            |  |            |  |  |  |   |  |  |  |   |        |  |  | $ | 34,604  | 

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 and LIBOR lending rates, both upwards and downwards.

We may be adversely affected during periods of high inflation, primarily
because of higher land and construction costs. In addition, inflation may
result in higher mortgage interest rates, which may significantly affect the
affordability of permanent mortgage financing for prospective purchasers.
Inflation also increases our interest costs. We attempt to pass through to our
customers any increases in our costs through increased selling prices and, to
date, inflation has not had a material adverse effect on our results of
operations. However, there is no assurance that inflation will not have a
material adverse impact on our future results of operations.




ITEM 4. CONTROLS AND PROCEDURES

In order 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 have formalized our 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 defined in Exchange Act Rules 13a-14(c) and 15d-14(c), as of a
date within 90 days prior to the filing date of this report (the Evaluation
Date). Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in
timely alerting them to material information relating to us (and our
consolidated subsidiaries) required to be included in our periodic SEC filings.
Since the Evaluation Date, there have not been any significant changes in our
internal controls, or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.




PART II OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|        |  |                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                      
|Number  |  | Description                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                      
|4.17    |  | Supplemental Indenture for the 9% Senior Notes due 2010 issued in
June 2002, dated as of March 31, 2003, by and among
Technical Olympic USA, Inc., the subsidiaries named therein and Wells
Fargo Bank Minnesota, National Association, as Trustee.                  
|        |  |                                                                                                                                                                                                                                                                      
|4.18    |  | Supplemental Indenture for the 10-3/8% Senior Subordinated Notes due
2012 issued in June 2002, dated as of March 31, 2003, by
and among Technical Olympic USA, Inc., the subsidiaries named therein
and Wells Fargo Bank Minnesota, National Association, as Trustee.
|        |  |                                                                                                                                                                                                                                                                      
|10.23   |  | Amended and Restated Credit Agreement, dated as of April 4, 2003, among Technical Olympic
USA, Inc., the lenders and issuers party thereto, Citicorp North America, Inc., and Fleet National Bank.                                                                   
|        |  |                                                                                                                                                                                                                                                                      
|10.24   |  | Facility Increase Letter, dated April 22, 2003.                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                      
|10.25   |  | Consulting Agreement, dated as of January 1, 2003, between
Technical Olympic USA, Inc. and Lonnie M. Fedrick.                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                      
|99.1    |  | Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                      
|99.2    |  | Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                  

23



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##### Table of Contents



(b)  Reports on Form 8-K: The following reports on Form 8-K were filed during
the period covered by this report.

On January 27, 2003, we filed a Current Report on Form 8-K (Items 7 and 9) to
release certain preliminary unaudited financial and operating information for
the quarter and full year ended December 31, 2002.

On February 19, 2003, we filed a Current Report on Form 8-K (Items 7 and 9) to
release financial results for the quarter and year ended December 31, 2002.

On April 11, 2003, we filed a Current Report on Form 8-K (Item 5) to announce
amendments to its revolving credit facility and (Item 9) certain preliminary
unaudited operating information for the quarter ended March 31, 2003.

24



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##### 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 15, 2003 |  | By: /s/ Tommy L. McAden                                                                           
|                   |  |                                                                                                   
|                   |  | Name: Tommy L. McAden
Title: Vice President-Finance
and Administration and Chief
Financial Officer
|                   |  |                                                                                                   
|Date: May 15, 2003 |  | By: /s/ Randy L. Kotler                                                                           
|                   |  |                                                                                                   
|                   |  | Name: Randy L. Kotler
Title: Vice President-Chief Accounting Officer                              

25



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##### Table of Contents






CERTIFICATIONS

I, Antonio B. Mon, Chief Executive Officer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Technical Olympic
USA, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                   |  |                                                    
|------------------ |  | ---------------------------------------------------
|Date: May 15, 2003 |  |                                                    
|                   |  |                                                    
|                   |  |                                                    
|                   |  | By: /s/ ANTONIO B. MON                             
|                   |  |                                                    
|                   |  | Name: Antonio B. Mon
Title: Chief Executive Officer

26



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##### Table of Contents



CERTIFICATIONS

I, Tommy L. McAden, Chief Financial Officer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Technical Olympic
USA, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and

c.     presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                   |  |                                                     
|------------------ |  | ----------------------------------------------------
|Date: May 15, 2003 |  |                                                     
|                   |  |                                                     
|                   |  |                                                     
|                   |  | By: /s/ TOMMY L. MCADEN                             
|                   |  |                                                     
|                   |  | Name: Tommy L. McAden
Title: Chief Financial Officer

27



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##### Table of Contents



Exhibit Index

|        |  |                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                      
|Number  |  | Description                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                      
|4.17    |  | Supplemental Indenture for the 9% Senior Notes
due 2010 issued in June 2002, dated as of March 31, 2003,
by and
among Technical Olympic USA, Inc., the subsidiaries named therein and
Wells Fargo Bank Minnesota, National Association, as Trustee.                  
|       
|4.18    |  | Supplemental Indenture for the 10-3/8% Senior
Subordinated Notes due 2012 issued in June 2002, dated as of
March 31, 2003, by and among Technical Olympic USA, Inc., the
subsidiaries named therein and Wells Fargo Bank Minnesota, National
Association, as Trustee.
|       
|10.23   |  | Amended and Restated Credit Agreement, dated as
of April 4, 2003, among Technical Olympic USA, Inc., the lenders
and issuers party thereto, Citicorp North America, Inc., and Fleet
National Bank.                                                                   
|       
|10.24   |  | Facility Increase Letter, dated April 22,
2003.                                                                                                                                                                                                                      
|       
|10.25   |  | Consulting Agreement, dated as of
January 1, 2003, between Technical Olympic USA, Inc. and Lonnie
M. Fedrick.                                                                                                                                                        
|       
|99.1    |  | Certification of Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                  
|       
|99.2    |  | Certification of Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.