##### 









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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Form 10-Q

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30,
    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



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Technical Olympic USA, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 76-0460831                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|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  þ     No  o

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

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
August 5, 2003.



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##### 



TECHNICAL OLYMPIC USA, INC.

INDEX

|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    |     
|PART I.    |  | Financial Information                                                                     |    |      | 1  | 
|ITEM 1.    |  | Financial Statements (Unaudited)                                                          |    |      | 1  | 
|           |  | Consolidated Statements of Financial Condition                                            |    |      | 1  | 
|           |  | Consolidated Statements of Income                                                         |    |      | 2  | 
|           |  | Consolidated Statements of Cash Flows                                                     |    |      | 3  | 
|           |  | Notes to the Consolidated Financial Statements                                            |    |      | 4  | 
|ITEM 2.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 11 | 
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |    |      | 23 | 
|ITEM 4.    |  | Controls and Procedures                                                                   |    |      | 24 | 
|PART II.   |  | Other Information                                                                         |    |      | 25 | 
|ITEM 4.    |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 25 | 
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                          |    |      | 25 | 
|           |  | Exhibits                                                                                  |    |      | 25 | 
|           |  | Reports on Form 8-K                                                                       |    |      | 25 | 
|Signatures |  |                                                                                           | 26 |     

i



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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)


|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------------- | --------- | ----------------------- |  | - | --------- | ------ | 
|                                                                                                                                                                                         |              | December
31,2002 |           | June 30,2003(unaudited)
|                                                                                                                                                                                         |              |                  |           |                        
|                                                                                                                                                                                         |              |                  |           |                        
|                                                                                                                                                                                         |              |                  |           |                        
|ASSETS                                                                                                                                                                                  
|HOMEBUILDING:                                                                                                                                                                            |              |                  |           |                         |  |   |           |       
|Cash and cash equivalents:                                                                                                                                                               |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         | Unrestricted |                  | $         | 44,825                  |  |   | $         | 33,771 | 
|                                                                                                                                                                                         | Restricted   |                  |           | 23,645                  |  |   |           | 13,373 | 
|Inventory                                                                                                                                                                                |              |                  | 753,872   |                         |  |   | 923,597   |       
|Property and equipment, net                                                                                                                                                              |              |                  | 13,862    |                         |  |   | 18,163    |       
|Other assets                                                                                                                                                                             |              |                  | 30,681    |                         |  |   | 44,556    |       
|Goodwill, net                                                                                                                                                                            |              |                  | 78,252    |                         |  |   | 102,326   |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         |              |                  | 945,137   |                         |  |   | 1,135,786 |       
|FINANCIAL SERVICES:                                                                                                                                                                      |              |                  |           |                         |  |   |           |       
|Cash and cash equivalents:                                                                                                                                                               |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         | Unrestricted |                  |           | 4,386                   |  |   |           | 5,280  | 
|                                                                                                                                                                                         | Restricted   |                  |           | 22,866                  |  |   |           | 29,886 | 
|Mortgage loans held for sale                                                                                                                                                             |              |                  | 58,840    |                         |  |   | 66,542    |       
|Other assets                                                                                                                                                                             |              |                  | 3,659     |                         |  |   | 3,818     |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         |              |                  | 89,751    |                         |  |   | 105,526   |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|Total assets                                                                                                                                                                             |              | $                | 1,034,888 |                         |  | $ | 1,241,312 |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                                
|HOMEBUILDING:                                                                                                                                                                            |              |                  |           |                         |  |   |           |       
|Accounts payable                                                                                                                                                                         |              | $                | 24,951    |                         |  | $ | 37,333    |       
|Accrued and other liabilities                                                                                                                                                            |              |                  | 71,869    |                         |  |   | 81,560    |       
|Customer deposits                                                                                                                                                                        |              |                  | 24,564    |                         |  |   | 31,214    |       
|Consolidated land bank obligations                                                                                                                                                       |              |                  | 16,288    |                         |  |   | 30,189    |       
|Homebuilding borrowings                                                                                                                                                                  |              |                  | 413,110   |                         |  |   | 522,529   |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         |              |                  | 550,782   |                         |  |   | 702,825   |       
|FINANCIAL SERVICES:                                                                                                                                                                      |              |                  |           |                         |  |   |           |       
|Accounts payable and other liabilities                                                                                                                                                   |              |                  | 21,560    |                         |  |   | 30,541    |       
|Financial services borrowings                                                                                                                                                            |              |                  | 48,309    |                         |  |   | 57,671    |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|                                                                                                                                                                                         |              |                  | 69,869    |                         |  |   | 88,212    |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|Total liabilities                                                                                                                                                                        |              |                  | 620,651   |                         |  |   | 791,037   |       
|Minority interest                                                                                                                                                                        |              |                  | 9,092     |                         |  |   | 4,081     |       
|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 June
    30, 2003, respectively |              |                  | 279       |                         |  |   | 279       |       
|Additional paid-in capital                                                                                                                                                               |              |                  | 322,400   |                         |  |   | 322,560   |       
|Retained earnings                                                                                                                                                                        |              |                  | 82,466    |                         |  |   | 123,355   |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|Total stockholders equity                                                                                                                                                               |              |                  | 405,145   |                         |  |   | 446,194   |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       
|Total liabilities and stockholders equity                                                                                                                                               |              | $                | 1,034,888 |                         |  | $ | 1,241,312 |       
|                                                                                                                                                                                         |              |                  |           |                         |  |   |           |       

See accompanying notes.

1



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##### 



TECHNICAL OLYMPIC USA, INC.



CONSOLIDATED STATEMENTS OF INCOME


(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)


(unaudited)


|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |            | 
|--------------------------------------------------------- | ------------------------------------------------- | --------------------------- | ------- | ------------------------- |  | ---- | ------- | ---------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                                          |                                                   |                             |         |                          
|                                                          |                                                   | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                                          |                                                   |                             |         |                          
|                                                          |                                                   | 2002                        |         | 2003                      |  | 2002 |         | 2003      
|                                                          |                                                   |                             |         |                           |  |      |         |           
|HOMEBUILDING:                                             |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Revenues:                                                 |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Home sales                                        |                             | $       | 352,329                   |  |      | $       | 409,699    |  |   | $       | 654,483    |  |   | $       | 723,521    | 
|                                                          | Land sales                                        |                             |         | 2,033                     |  |      |         | 4,822      |  |   |         | 3,342      |  |   |         | 6,882      | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          |                                                   |                             | 354,362 |                           |  |      | 414,521 |            |  |   | 657,825 |            |  |   | 730,403 |           
|Cost of sales:                                            |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Home sales                                        |                             |         | 279,789                   |  |      |         | 329,866    |  |   |         | 519,608    |  |   |         | 575,774    | 
|                                                          | Land sales                                        |                             |         | 1,861                     |  |      |         | 3,606      |  |   |         | 3,045      |  |   |         | 5,446      | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          |                                                   |                             | 281,650 |                           |  |      | 333,472 |            |  |   | 522,653 |            |  |   | 581,220 |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Gross profit                                              |                                                   |                             | 72,712  |                           |  |      | 81,049  |            |  |   | 135,172 |            |  |   | 149,183 |           
|Selling, general and administrative expenses              |                                                   |                             | 41,897  |                           |  |      | 51,248  |            |  |   | 79,612  |            |  |   | 95,317  |           
|Depreciation and amortization expense                     |                                                   |                             | 1,609   |                           |  |      | 1,969   |            |  |   | 3,241   |            |  |   | 3,615   |           
|Severance and merger related expenses                     |                                                   |                             | 10,639  |                           |  |      | (577    | )          |  |   | 24,467  |            |  |   | (577    | )         
|Loss on early extinguishment of debt                      |                                                   |                             | 5,411   |                           |  |      |        |            |  |   | 5,411   |            |  |   |        |           
|Other income, net                                         |                                                   |                             | (1,129  | )                         |  |      | (1,044  | )          |  |   | (1,815  | )          |  |   | (1,967  | )         
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Homebuilding pretax income                                |                                                   |                             | 14,285  |                           |  |      | 29,453  |            |  |   | 24,256  |            |  |   | 52,795  |           
|FINANCIAL SERVICES:                                       |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Revenues                                                  |                                                   |                             | 9,423   |                           |  |      | 14,546  |            |  |   | 17,947  |            |  |   | 25,191  |           
|Expenses                                                  |                                                   |                             | 5,035   |                           |  |      | 7,433   |            |  |   | 9,837   |            |  |   | 13,593  |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Financial Services pretax income                          |                                                   |                             | 4,388   |                           |  |      | 7,113   |            |  |   | 8,110   |            |  |   | 11,598  |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Income from continuing operations before income
    taxes |                                                   |                             | 18,673  |                           |  |      | 36,566  |            |  |   | 32,366  |            |  |   | 64,393  |           
|Income tax expense                                        |                                                   |                             | 7,110   |                           |  |      | 13,333  |            |  |   | 11,877  |            |  |   | 23,504  |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Income from continuing operations                         |                                                   |                             | 11,563  |                           |  |      | 23,233  |            |  |   | 20,489  |            |  |   | 40,889  |           
|Discontinued operations:                                  |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Income from discontinued operations               |                             |         | 6,895                     |  |      |         |           |  |   |         | 7,922      |  |   |         |           | 
|                                                          | Income tax expense                                |                             |         | 2,572                     |  |      |         |           |  |   |         | 2,959      |  |   |         |           | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Income from discontinued operations, net of taxes |                             |         | 4,323                     |  |      |         |           |  |   |         | 4,963      |  |   |         |           | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Net income                                                |                                                   | $                           | 15,886  |                           |  | $    | 23,233  |            |  | $ | 25,452  |            |  | $ | 40,889  |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|EARNINGS PER COMMON SHARE:                                |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Basic:                                                    |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | From continuing operations                        |                             | $       | 0.41                      |  |      | $       | 0.83       |  |   | $       | 0.73       |  |   | $       | 1.47       | 
|                                                          | From discontinued operations                      |                             |         | 0.16                      |  |      |         |           |  |   |         | 0.18       |  |   |         |           | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Net income                                        |                             | $       | 0.57                      |  |      | $       | 0.83       |  |   | $       | 0.91       |  |   | $       | 1.47       | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|Diluted                                                   |                                                   | $                           | 0.57    |                           |  | $    | 0.83    |            |  | $ | 0.91    |            |  | $ | 1.46    |           
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING: |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Basic                                             |                             |         | 27,878,787                |  |      |         | 27,889,036 |  |   |         | 27,878,787 |  |   |         | 27,885,582 | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           
|                                                          | Diluted                                           |                             |         | 27,878,787                |  |      |         | 28,052,683 |  |   |         | 27,878,787 |  |   |         | 27,967,405 | 
|                                                          |                                                   |                             |         |                           |  |      |         |            |  |   |         |            |  |   |         |           

See accompanying notes.

2



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##### 



TECHNICAL OLYMPIC USA, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


(DOLLARS IN THOUSANDS)


(unaudited)


|                                                                                                |                                                                     |                                                    |         |          |         |   |         |         |         |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------- | ------- | -------- | ------- | - | ------- | ------- | ------- | -
|                                                                                                |                                                                     |                                                   
|                                                                                                |                                                                     | Six Months Ended                                  
|                                                                                                |                                                                     | June 30,                                          
|                                                                                                |                                                                     |                                                   
|                                                                                                |                                                                     | 2002                                               |         | 2003    
|                                                                                                |                                                                     |                                                    |         |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |                                                                     |                                                    |         |          |         |   |         |        
|Net income                                                                                      |                                                                     | $                                                  | 25,452  |          |         | $ | 40,889  |        
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                                     |                                                    |         |          |         |   |         |        
|                                                                                                | Income from discontinued operations                                 |                                                    |         | (4,963   | )       |   |         |        |        
|                                                                                                | Depreciation and amortization                                       |                                                    |         | 3,241    |         |   |         | 3,615   |        
|                                                                                                | Write-off of deferred financing costs                               |                                                    |         | 1,095    |         |   |         |        |        
|                                                                                                | Deferred income taxes                                               |                                                    |         | (7,821   | )       |   |         |        |        
|                                                                                                | Non-cash compensation expense                                       |                                                    |         |         |         |   |         | 567     |        
|                                                                                                | Changes in operating assets and liabilities:                        |                                                    |         |          |         |   |         |         |        
|                                                                                                |                                                                     | Restricted cash                                    |         |          | (29,843 | ) |         |         | 3,252   |  
|                                                                                                |                                                                     | Inventory                                          |         |          | (8,395  | ) |         |         | (96,642 | )
|                                                                                                |                                                                     | Other assets                                       |         |          | (2,842  | ) |         |         | (5,713  | )
|                                                                                                |                                                                     | Accounts payable and accrued and other liabilities |         |          | 29,211  |   |         |         | 26,516  |  
|                                                                                                |                                                                     | Customer deposits                                  |         |          | (406    | ) |         |         | 2,941   |  
|                                                                                                |                                                                     | Mortgage loans held for sale                       |         |          | 18,899  |   |         |         | (7,702  | )
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Net cash provided by (used in) operating
    activities                                         |                                                                     |                                                    | 23,628  |          |         |   | (32,277 | )      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |                                                                     |                                                    |         |          |         |   |         |        
|                                                                                                | Amounts paid for acquisitions, net of cash
    acquired             |                                                    |         |         |         |   |         | (59,335 | )      
|                                                                                                | Additional consideration paid for acquisitions                      |                                                    |         |         |         |   |         | (16,743 | )      
|                                                                                                | Net additions to property and equipment                             |                                                    |         | (6,125   | )       |   |         | (7,835  | )      
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Net cash used in investing activities                                                           |                                                                     |                                                    | (6,125  | )        |         |   | (83,913 | )      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |                                                                     |                                                    |         |          |         |   |         |        
|                                                                                                | Net proceeds from notes offering                                    |                                                    |         | 350,000  |         |   |         | 129,311 |        
|                                                                                                | Payments for deferred financing costs                               |                                                    |         | (15,188  | )       |   |         | (4,750  | )      
|                                                                                                | Net proceeds from (repayments on) revolving
    credit facilities   |                                                    |         | 12,868   |         |   |         | (20,000 | )      
|                                                                                                | Repayments on Homebuilding borrowings                               |                                                    |         | (379,577 | )       |   |         | (196    | )      
|                                                                                                | Net (repayments on) proceeds from Financial
    Services borrowings |                                                    |         | (12,318  | )       |   |         | 9,362   |        
|                                                                                                | Minority interest in consolidated subsidiaries                      |                                                    |         | (10,253  | )       |   |         | (5,011  | )      
|                                                                                                | Net payments on consolidated land bank obligations                  |                                                    |         |         |         |   |         | (2,686  | )      
|                                                                                                | Distributions by Engle                                              |                                                    |         | (4,810   | )       |   |         |        |        
|                                                                                                | Other                                                               |                                                    |         | 44       |         |   |         |        |        
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Net cash (used in) provided by financing
    activities                                         |                                                                     |                                                    | (59,234 | )        |         |   | 106,030 |        
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Net cash used in operations                                                                     |                                                                     |                                                    | (41,731 | )        |         |   | (10,160 | )      
|Net cash provided by discontinued operations                                                    |                                                                     |                                                    | 50,323  |          |         |   |        |        
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Increase (decrease) in cash and cash
    equivalents                                            |                                                                     |                                                    | 8,592   |          |         |   | (10,160 | )      
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Cash and cash equivalents at beginning of period                                                |                                                                     |                                                    | 75,136  |          |         |   | 49,211  |        
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        
|Cash and cash equivalents at end of period                                                      |                                                                     | $                                                  | 83,728  |          |         | $ | 39,051  |        
|                                                                                                |                                                                     |                                                    |         |          |         |   |         |        

See accompanying notes.

3



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS


JUNE 30, 2003


1.     Business and
Organization

Business

Technical Olympic USA, Inc. (we or
the Company) is a Delaware corporation. We generate
our revenues from our homebuilding operations and financial
services operations. 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, the
Mid-Atlantic, Texas and the West. 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 the
United Kingdom, 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 June 30, 2003, Technical
Olympic owns 90.73% of our outstanding common stock.

Concurrently with the Merger, we issued $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 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

4



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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 offer to repurchase 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 consolidated 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 June 30, 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.

5



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 three and six month periods
ended June 30, 2002, we had no dilutive securities
outstanding.

The following table represents a reconciliation
of average shares outstanding:

|                                                        |  |               |            |               |  |  |            | 
|------------------------------------------------------- |  | ------------- | ---------- | ------------- |  |  | ---------- | 
|                                                        |  | Three Months  |            | Six Months   
|                                                        |  | Ended         |            | Ended        
|                                                        |  | June 30, 2003 |            | June 30, 2003
|                                                        |  |               |            |              
|Basic average shares outstanding                        |  |               | 27,889,036 |               |  |  | 27,885,582 | 
|Net effect of stock options assumed to be
    exercised |  |               | 163,647    |               |  |  | 81,823     | 
|                                                        |  |               |            |               |  |  |            | 
|Diluted average shares outstanding                      |  |               | 28,052,683 |               |  |  | 27,967,405 | 
|                                                        |  |               |            |               |  |  |            | 

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 periods amounts to the current
periods presentation.

New Accounting
Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(Interpretation) No. 46, Consolidation of Variable
Interest Entities. Interpretation No. 46 is applied
immediately to variable interest entities (VIEs) created after
January 31, 2003. With respect to variable interests held
before February 1, 2003, Interpretation No. 46 will
apply beginning July 1, 2003. Interpretation No. 46
addresses consolidation by business enterprises of VIEs which
have one or both of the following characteristics: (1) 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; or (2) the equity investors lack one or more of
the following essential characteristics of a controlling
financial interest: (a) the direct or indirect ability to
make decisions about the entities activities through
voting rights or similar rights; or (b) the obligation to
absorb the expected losses of the entity if they occur, which
makes it possible for the entity to finance its activities; or
(c) 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.

Generally, in the homebuilding industry,
homebuilders will enter into option contracts for the purchase
of land or homesites with land sellers and third-party financial
entities, some of which may qualify as VIEs, as a method of
acquiring developed homesites; we believe that Interpretation
No. 46 must be evaluated as it relates to these and similar
types of arrangements. In applying Interpretation No. 46 to
our homesite option contracts, estimates regarding cash flows
and other assumptions have to be made. Based on our analysis of

6



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

contracts entered into after January 31,
2003, we determined that we are the primary beneficiary of
certain of these homesite option contracts. Consequently,
Interpretation No. 46 requires us to consolidate the assets
(homesites) at their fair value, although (1) we have
no legal title to the assets, (2) our maximum exposure to
loss is limited to the deposits or letters of credits placed
with these entities and (3) creditors, if any, of these
entities have no recourse against us. The effect of the
consolidation was to increase inventory by $16.6 million,
excluding deposits of $2.5 million, which had been previously
recorded, with a corresponding increase to consolidated land
bank obligations in the accompanying consolidated statement of
financial condition as of June 30, 2003.

3.     Inventory

Inventory consists of the following (dollars in
thousands):

|                                                  |  |              |         |          |  |   |         | 
|------------------------------------------------- |  | ------------ | ------- | -------- |  | - | ------- | 
|                                                  |  | December 31, |         | June 30,
|                                                  |  | 2002         |         | 2003    
|                                                  |  |              |         |         
|Deposits and homesites and land under development |  | $            | 397,362 |          |  | $ | 526,237 | 
|Residences completed and under construction       |  |              | 356,510 |          |  |   | 397,360 | 
|                                                  |  |              |         |          |  |   |         | 
|                                                  |  | $            | 753,872 |          |  | $ | 923,597 | 
|                                                  |  |              |         |          |  |   |         | 

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

|                                          |                  |                    |       |                  |   |      |        |        |   |   |        |         |   |   |        |         |  
|----------------------------------------- | ---------------- | ------------------ | ----- | ---------------- | - | ---- | ------ | ------ | - | - | ------ | ------- | - | - | ------ | ------- | -
|                                          |                  |                    |       |                 
|                                          |                  | Three Months Ended |       | Six Months Ended
|                                          |                  | June 30,           |       | June 30,        
|                                          |                  |                    |       |                 
|                                          |                  | 2002               |       | 2003             |   | 2002 |        | 2003  
|                                          |                  |                    |       |                  |   |      |        |       
|Interest capitalized, beginning of period |                  | $                  | 9,470 |                  |   | $    | 15,241 |        |   | $ | 12,226 |         |   | $ | 11,578 |        
|Interest incurred                         |                  |                    | 3,919 |                  |   |      | 14,596 |        |   |   | 8,631  |         |   |   | 25,643 |        
|Less interest included in:                |                  |                    |       |                  |   |      |        |        |   |   |        |         |   |   |        |        
|                                          | Cost of sales    |                    |       | (7,350           | ) |      |        | (8,550 | ) |   |        | (14,761 | ) |   |        | (15,429 | )
|                                          | Interest expense |                    |       | (10              | ) |      |        |       |   |   |        | (67     | ) |   |        |        |  
|                                          | Other            |                    |       |                 |   |      |        | 52     |   |   |        |        |   |   |        | (453    | )
|                                          |                  |                    |       |                  |   |      |        |        |   |   |        |         |   |   |        |        
|Interest capitalized, end of period       |                  | $                  | 6,029 |                  |   | $    | 21,339 |        |   | $ | 6,029  |         |   | $ | 21,339 |        
|                                          |                  |                    |       |                  |   |      |        |        |   |   |        |         |   |   |        |        

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 June 30, 2003
are included in the accompanying consolidated statements of
income for the periods ended June 30, 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
$7.3 million of goodwill. The results of operations of Trophy
for the period from February 6, 2003 through June 30,
2003 are included in the accompanying consolidated statements of
income for the periods ended June 30, 2003.

On November 18, 2002, we acquired the net
assets of Masonry Homes, Inc., a homebuilder operating in the
northwestern suburbs of Baltimore, for approximately $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

7



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 six months ended
June 30, 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 cash. 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 six months ended
June 30, 2003, we paid additional consideration of $4.9
million, all of which was recorded as goodwill.

5.     Borrowings

On February 3, 2003, we issued $100.0
million of 9% Senior Notes due 2010 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. These securities were issued pursuant to an indenture
with the same terms and conditions as the indenture pursuant to
which we issued our June 2002 Senior Notes.

On April 22, 2003, we issued 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. 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 we issued our 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.

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 one-year or two-year
limited warranty of workmanship and materials, and an eight-year
or ten-year limited warranty covering major structural defects.
We generally have recourse against our subcontractors for claims
relating to workmanship and materials.

We 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 six months ended June 30, 2003 (dollars in
thousands):

|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Accrued warranty costs at December 31, 2002 |  | $ | 4,795  |  
|Estimated liability recorded                |  |   | 4,179  |  
|Settlements made                            |  |   | (3,681 | )
|                                            |  |   |        |  
|Accrued warranty costs at June 30, 2003     |  | $ | 5,293  |  
|                                            |  |   |        |  

During the six months ended June 30, 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

8



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

million which is being amortized over the lease
term. The lease term varies on a per home 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 December 31,
2002.

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 $54.4 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 $5.5 million
and $44.2 million for the three and six months ended
June 30, 2002, respectively.

8.     Severance and
Merger Related Expenses

In early February 2002, certain former executive
officers 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 six months ended June 30, 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.

Included in severance and merger related expenses
in the accompanying consolidated statements of income for the
three and six months ended June 30, 2002, are costs of the
merger and integration, such as professional fees, investment
banking fees and printing fees. These fees approximate $5.5
million. Additionally, we incurred approximately $5.3 million in
severance charges attributable to former executives whose
employment was terminated in connection with the Merger.

During the three and six month periods ended
June 30, 2003, we recorded a reversal of $0.6 million
related to accrued merger and severance expenses.

9



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##### 



TECHNICAL OLYMPIC USA, INC. AND
SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Stockholder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 June 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 six months ended June 30, 2003, we granted 900,000
options to one executive, 327,000 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. During
the three and six months ended June 30, 2003, we have
recorded compensation expense in the amount of $407,000 related
to these accelerated vesting options as the market price, as of
June 30, 2003, of the stock was greater than the exercise
price.

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, unless the stock options
contain accelerated vesting criteria as described above. 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.

|                                                                |         |               |        |               |  |   |        |      | 
|--------------------------------------------------------------- | ------- | ------------- | ------ | ------------- |  | - | ------ | ---- | 
|                                                                |         | Three         |        |              
|                                                                |         | Months        |        | Six Months   
|                                                                |         | Ended         |        | Ended        
|                                                                |         | June 30, 2003 |        | June 30, 2003
|                                                                |         |               |        |              
|Net income as reported                                          |         | $             | 23,233 |               |  | $ | 40,889 |     
|Fair value method of stock based compensation,
    net of taxes |         |               | (831   | )             |  |   | (2,706 | )   
|                                                                |         |               |        |               |  |   |        |     
|Proforma net income                                             |         | $             | 22,402 |               |  | $ | 38,183 |     
|                                                                |         |               |        |               |  |   |        |     
|Reported earnings per common share:                             |         |               |        |               |  |   |        |     
|                                                                | Basic   |               | $      | 0.83          |  |   | $      | 1.47 | 
|                                                                | Diluted |               | $      | 0.83          |  |   | $      | 1.46 | 
|Proforma earnings per common share:                             |         |               |        |               |  |   |        |     
|                                                                | Basic   |               | $      | 0.80          |  |   | $      | 1.37 | 
|                                                                | Diluted |               | $      | 0.80          |  |   | $      | 1.37 | 

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

|                        |  |  |               | 
|----------------------- |  |  | ------------- | 
|Expected life in years  |  |  | 4  10 years  | 
|Risk-free interest rate |  |  | 1.85%  3.20% | 
|Volatility              |  |  | 0.42%  0.48% | 
|Dividend yield          |  |  | 0%            | 

On March 3, 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 for the six months
ended June 30, 2003.

10



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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, the Mid-Atlantic, Texas
and the West.

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

Our Homebuilding operations generate the majority
of their revenue from the sale of homes to homebuyers and to a
lesser degree from the sale of land and homesites 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, the
acquisition cost of land and the cost of land development.
SG&A expenses for our Homebuilding operations include
administrative costs, advertising expenses, on-site marketing
expenses, commission costs, and closing costs.

At June 30, 2003, we were marketing homes in
181 communities; by comparison, at June 30, 2002 we were
marketing homes in 127 communities.

As part of our objective to provide homebuyers a
seamless home purchasing experience, we have developed, and are
expanding, our complementary financial services business. As
part of this business, we provide mortgage financing and closing
services and offer title, homeowners and other insurance
products. Our mortgage financing operation derives most of its
revenues from buyers of our homes, although it also offers its
services to existing homeowners refinancing their mortgages. By
comparison, our closing services and our insurance agency
operations are used by our homebuyers as well as a broad range
of other clients purchasing or refinancing residential or
commercial real estate. Mortgage financing 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 and homeowners insurance policies is
transferred to third-party insurers. The principal expenses of
our Financial Services operations are SG&A expenses, which
consist primarily of compensation and interest expense on our
warehouse line of credit.

Recent Transactions

On April 22, 2003, we issued an additional
$35.0 million of our 10 3/8% Senior Subordinated Notes due
2012, which we refer to as the April 2003 Senior
Subordinated Notes, at a price of 98.5% of the principal
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. The April 2003
Senior Subordinated Notes were issued under the same indenture pursuant to which
we issued the $150.0 million of 10 3/8% Senior Subordinated
Notes due 2012 in June 2002, which we refer to as the June 2002
Senior Subordinated Notes.

11



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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.

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 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 an additional $2.5 million over a two-year period.

On February 3, 2003, we issued $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 indenture
pursuant to which we issued $200.0 million of 9% Senior Notes
due 2010 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 and homesites 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 profit associated with revenues recognized. Our
construction and land costs are comprised of direct and
allocated costs, including interest, indirect construction costs
and 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 of closing. Title operations revenues consist

12



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primarily of title insurance agency 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.

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 and
Consolidation of Variable Interest Entities

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 underlying purchase 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.
At June 30, 2003, we owned 13,693 homesites, or 32% of our
homesite supply, and had option contracts on 28,455 homesites,
or 68% of our homesite supply.

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
(Interpretation) No. 46, Consolidation of Variable
Interest Entities. Interpretation No. 46 is applied
immediately to variable interest entities (VIEs) created after
January 31, 2003. With respect to variable interests held
before February 1, 2003, Interpretation No. 46 will
apply beginning July 1, 2003. Interpretation No. 46
addresses consolidation by business enterprises of VIEs which
have one or both of the following characteristics: (1) 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; or (2) the equity investors lack one or more of
the following essential characteristics of a controlling
financial interest: (a) the direct or indirect ability to
make

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decisions about the entities activities through
voting rights or similar rights; or (b) the obligation to
absorb the expected losses of the entity if they occur, which
makes it possible for the entity to finance its activities; or
(c) 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.


Generally, in the homebuilding industry,
homebuilders will enter into option contracts for the purchase
of land or homesites with land sellers and third-party financial
entities, some of which may qualify as VIEs, as a method of
acquiring developed homesites; we believe that Interpretation
No. 46 must be evaluated as it relates to these and
similar types of arrangements. In applying Interpretation
No. 46 to our homesite option contracts, estimates
regarding cash flows and other assumptions have to be made. We
believe that our critical assumptions are reasonable based on
historical evidence and industry practice. Based on our analysis
of contracts entered into after January 31, 2003, we
determined that we are the primary beneficiary of certain of
these homesite option contracts. Consequently, Interpretation
No. 46 requires us to consolidate the assets
(homesites) at their fair value, although (1) we have
no legal title to the assets, (2) our maximum exposure to
loss is limited to the deposits or letters of credits placed
with these entities, and (3) creditors, if any, of these
entities have no recourse against us. The effect of the
consolidation was to increase inventory by $16.6 million,
excluding deposits of $2.5 million which had been previously
recorded, with a corresponding increase to consolidated land
bank obligations in the accompanying consolidated statement of
financial condition as of June 30, 2003.

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     |         | Six Months Ended
|                                                                 |            | June 30,               |         | June 30,        
|                                                                 |            |                        |         |                 
|                                                                 |            | 2002                   |         | 2003             |  | 2002 |         | 2003   
|                                                                 |            |                        |         |                  |  |      |         |        
|                                                                 |            |                       
|                                                                 |            | (Dollars in thousands)
|HOMEBUILDING:                                                    |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Revenues:                                                        |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                 | Home sales |                        | $       | 352,329          |  |      | $       | 409,699 |  |   | $       | 654,483 |  |   | $       | 723,521 | 
|                                                                 | Land sales |                        |         | 2,033            |  |      |         | 4,822   |  |   |         | 3,342   |  |   |         | 6,882   | 
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                 |            |                        | 354,362 |                  |  |      | 414,521 |         |  |   | 657,825 |         |  |   | 730,403 |        
|Cost of Sales:                                                   |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                 | Home sales |                        |         | 279,789          |  |      |         | 329,866 |  |   |         | 519,608 |  |   |         | 575,774 | 
|                                                                 | Land sales |                        |         | 1,861            |  |      |         | 3,606   |  |   |         | 3,045   |  |   |         | 5,446   | 
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                 |            |                        | 281,650 |                  |  |      | 333,472 |         |  |   | 522,653 |         |  |   | 581,220 |        
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Gross profit                                                     |            |                        | 72,712  |                  |  |      | 81,049  |         |  |   | 135,172 |         |  |   | 149,183 |        
|Selling, general and administrative expenses                     |            |                        | 41,897  |                  |  |      | 51,248  |         |  |   | 79,612  |         |  |   | 95,317  |        
|Depreciation and amortization expense                            |            |                        | 1,609   |                  |  |      | 1,969   |         |  |   | 3,241   |         |  |   | 3,615   |        
|Severance and merger related expenses                            |            |                        | 10,639  |                  |  |      | (577    | )       |  |   | 24,467  |         |  |   | (577    | )      
|Loss on early retirement of debt                                 |            |                        | 5,411   |                  |  |      |        |         |  |   | 5,411   |         |  |   |        |        
|Other income, net                                                |            |                        | (1,129  | )                |  |      | (1,044  | )       |  |   | (1,815  | )       |  |   | (1,967  | )      
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Homebuilding pretax income                                       |            |                        | 14,285  |                  |  |      | 29,453  |         |  |   | 24,256  |         |  |   | 52,795  |        
|FINANCIAL SERVICES:                                              |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Revenues                                                         |            |                        | 9,423   |                  |  |      | 14,546  |         |  |   | 17,947  |         |  |   | 25,191  |        
|Expenses                                                         |            |                        | 5,035   |                  |  |      | 7,433   |         |  |   | 9,837   |         |  |   | 13,593  |        
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Financial Services pretax income                                 |            |                        | 4,388   |                  |  |      | 7,113   |         |  |   | 8,110   |         |  |   | 11,598  |        
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Income from continuing operations before income
    taxes        |            |                        | 18,673  |                  |  |      | 36,566  |         |  |   | 32,366  |         |  |   | 64,393  |        
|Income tax expense                                               |            |                        | 7,110   |                  |  |      | 13,333  |         |  |   | 11,877  |         |  |   | 23,504  |        
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Income from continuing operations                                |            | $                      | 11,563  |                  |  | $    | 23,233  |         |  | $ | 20,489  |         |  | $ | 40,889  |        
|                                                                 |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|OTHER DATA:                                                      |            |                        |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|EBITDA (1)                                                       |            | $                      | 27,642  |                  |  | $    | 47,085  |         |  | $ | 50,435  |         |  | $ | 83,437  |        
|Gross margin on revenue from home sales                          |            |                        | 20.6%   |                  |  |      | 19.5%   |         |  |   | 20.6%   |         |  |   | 20.4%   |        
|Ratio of SG&A expenses to Homebuilding
    revenues              |            |                        | 11.8%   |                  |  |      | 12.4%   |         |  |   | 12.1%   |         |  |   | 13.0%   |        
|Ratio of Homebuilding pretax income to
    Homebuilding revenues |            |                        | 4.0%    |                  |  |      | 7.1%    |         |  |   | 3.7%    |         |  |   | 7.2%    |        
|Total active communities at period end                           |            |                        | 127     |                  |  |      | 181     |         |  |   | 127     |         |  |   | 181     |        
|Homes delivered                                                  |            |                        | 1,315   |                  |  |      | 1,539   |         |  |   | 2,461   |         |  |   | 2,773   |        
|Average sales price per home delivered                           |            | $                      | 268     |                  |  | $    | 266     |         |  | $ | 266     |         |  | $ | 261     |        
|Backlog at end of period in sales value                          |            | $                      | 666,082 |                  |  | $    | 820,661 |         |  | $ | 666,082 |         |  | $ | 820,661 |        
|Backlog at end of period in number of homes                      |            |                        | 2,394   |                  |  |      | 3,040   |         |  |   | 2,394   |         |  |   | 3,040   |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 we believe
    that it is an indication of the profitability of our core
    operations and reflects the changes in our operating results. We
    do not use EBITDA as a measure of our liquidity because we do
    not believe it is a meaningful indication of our cash flow.
    EBITDA is not required by generally accepted accounting
    principles, or GAAP, and other companies may calculate EBITDA
    differently. EBITDA should not be

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

|                                           |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|------------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                           |  |                    |        |                 
|                                           |  | Three Months Ended |        | Six Months Ended
|                                           |  | June 30,           |        | June 30,        
|                                           |  |                    |        |                 
|                                           |  | 2002               |        | 2003             |  | 2002 |        | 2003
|                                           |  |                    |        |                  |  |      |        |     
|Income from continuing operations          |  | $                  | 11,563 |                  |  | $    | 23,233 |      |  | $ | 20,489 |  |  | $ | 40,889 | 
|Add: income taxes                          |  |                    | 7,110  |                  |  |      | 13,333 |      |  |   | 11,877 |  |  |   | 23,504 | 
|Add: interest in cost of sales             |  |                    | 7,350  |                  |  |      | 8,550  |      |  |   | 14,761 |  |  |   | 15,429 | 
|Add: interest expense                      |  |                    | 10     |                  |  |      |       |      |  |   | 67     |  |  |   |       | 
|Add: depreciation and amortization expense |  |                    | 1,609  |                  |  |      | 1,969  |      |  |   | 3,241  |  |  |   | 3,615  | 
|                                           |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|EBITDA                                     |  | $                  | 27,642 |                  |  | $    | 47,085 |      |  | $ | 50,435 |  |  | $ | 83,437 | 
|                                           |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 

Selected Homebuilding Operating Data

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

|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                               |  |                    |         |                 
|                                               |  | Three Months Ended |         | Six Months Ended
|                                               |  | June 30,           |         | June 30,        
|                                               |  |                    |         |                 
|                                               |  | 2002               |         | 2003             |  | 2002 |         | 2003
|                                               |  |                    |         |                  |  |      |         |     
|HOMES DELIVERED:                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                        |  |                    | 561     |                  |  |      | 525     |      |  |   | 1,050   |  |  |   | 1,046   | 
|Mid-Atlantic                                   |  |                    | 148     |                  |  |      | 170     |      |  |   | 281     |  |  |   | 307     | 
|Texas                                          |  |                    | 407     |                  |  |      | 423     |      |  |   | 711     |  |  |   | 723     | 
|West                                           |  |                    | 199     |                  |  |      | 421     |      |  |   | 419     |  |  |   | 697     | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total                                          |  |                    | 1,315   |                  |  |      | 1,539   |      |  |   | 2,461   |  |  |   | 2,773   | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|AVERAGE SALES PRICE PER HOME
    DELIVERED:    |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                        |  | $                  | 252     |                  |  | $    | 246     |      |  | $ | 246     |  |  | $ | 240     | 
|Mid-Atlantic                                   |  | $                  | 349     |                  |  | $    | 356     |      |  | $ | 341     |  |  | $ | 326     | 
|Texas                                          |  | $                  | 257     |                  |  | $    | 258     |      |  | $ | 262     |  |  | $ | 259     | 
|West                                           |  | $                  | 275     |                  |  | $    | 264     |      |  | $ | 270     |  |  | $ | 267     | 
|Company Average                                |  | $                  | 268     |                  |  | $    | 266     |      |  | $ | 266     |  |  | $ | 261     | 
|                                              
|REVENUES FROM HOME SALES:                      |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                        |  | $                  | 141,239 |                  |  | $    | 129,047 |      |  | $ | 258,821 |  |  | $ | 250,712 | 
|Mid-Atlantic                                   |  |                    | 51,586  |                  |  |      | 60,546  |      |  |   | 95,934  |  |  |   | 100,112 | 
|Texas                                          |  |                    | 104,743 |                  |  |      | 108,963 |      |  |   | 186,461 |  |  |   | 186,904 | 
|West                                           |  |                    | 54,761  |                  |  |      | 111,143 |      |  |   | 113,267 |  |  |   | 185,793 | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total                                          |  | $                  | 352,329 |                  |  | $    | 409,699 |      |  | $ | 654,483 |  |  | $ | 723,521 | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|NEW SALES CONTRACTS, NET OF
    CANCELLATIONS: |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                        |  |                    | 445     |                  |  |      | 665     |      |  |   | 918     |  |  |   | 1,307   | 
|Mid-Atlantic                                   |  |                    | 188     |                  |  |      | 153     |      |  |   | 380     |  |  |   | 348     | 
|Texas                                          |  |                    | 403     |                  |  |      | 510     |      |  |   | 843     |  |  |   | 928     | 
|West                                           |  |                    | 262     |                  |  |      | 425     |      |  |   | 565     |  |  |   | 802     | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total                                          |  |                    | 1,298   |                  |  |      | 1,753   |      |  |   | 2,706   |  |  |   | 3,385   | 
|                                               |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 

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|                                                 |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|------------------------------------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                                 |  |                    |         |                 
|                                                 |  | Three Months Ended |         | Six Months Ended
|                                                 |  | June 30,           |         | June 30,        
|                                                 |  |                    |         |                 
|                                                 |  | 2002               |         | 2003             |  | 2002 |         | 2003
|                                                 |  |                    |         |                  |  |      |         |     
|BACKLOG AT END OF PERIOD IN NUMBER OF
    HOMES: |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                          |  |                    | 1,141   |                  |  |      | 1,456   |      |  |   | 1,141   |  |  |   | 1,456   | 
|Mid-Atlantic                                     |  |                    | 268     |                  |  |      | 285     |      |  |   | 268     |  |  |   | 285     | 
|Texas                                            |  |                    | 534     |                  |  |      | 583     |      |  |   | 534     |  |  |   | 583     | 
|West                                             |  |                    | 451     |                  |  |      | 716     |      |  |   | 451     |  |  |   | 716     | 
|                                                 |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total                                            |  |                    | 2,394   |                  |  |      | 3,040   |      |  |   | 2,394   |  |  |   | 3,040   | 
|                                                 |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|BACKLOG AT END OF PERIOD IN SALES
    VALUE:     |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Florida                                          |  | $                  | 301,849 |                  |  | $    | 375,437 |      |  | $ | 301,849 |  |  | $ | 375,437 | 
|Mid-Atlantic                                     |  |                    | 106,689 |                  |  |      | 103,470 |      |  |   | 106,689 |  |  |   | 103,470 | 
|Texas                                            |  |                    | 137,200 |                  |  |      | 152,004 |      |  |   | 137,200 |  |  |   | 152,004 | 
|West                                             |  |                    | 120,344 |                  |  |      | 189,750 |      |  |   | 120,344 |  |  |   | 189,750 | 
|                                                 |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Total                                            |  | $                  | 666,082 |                  |  | $    | 820,661 |      |  | $ | 666,082 |  |  | $ | 820,661 | 
|                                                 |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 

June 30, 2003 Compared to June 30,
2002

Income from continuing operations increased to
$23.2 million (or $0.83 per diluted share) during the three
months ended June 30, 2003 from $11.6 million (or $0.41 per
diluted share) during the three months ended June 30, 2002.
The increase in income from continuing operations is
attributable to an increase in Homebuilding pretax income to
$29.5 million during the three months ended June 30, 2003 from
$14.3 million during the three months ended June 30, 2002;
the results for the prior year include merger and severance
charges of $10.6 million and a $5.4 million loss on
the early retirement of debt, as compared to a reversal of a
merger and severance accrual of $0.6 million during the
three months ended June 30, 2003. Additionally, we
experienced an increase in Financial Services pretax income to
$7.1 million during the three months ended June 30, 2003
from $4.4 million during the three months ended June 30,
2002.

Income from continuing operations increased to
$40.9 million (or $1.46 per diluted share) during the six months
ended June 30, 2003 from $20.5 million (or $0.73 per
diluted share) during the six months ended June 30, 2002.
The increase in income from continuing operations is
attributable to an increase in Homebuilding pretax income to
$52.8 million during the six months ended June 30, 2003 from
$24.3 million during the six months ended June 30, 2002;
the results for the prior year included merger and severance
related expenses of $24.5 million and a $5.4 million
loss on the early retirement of debt, as compared to a reversal
of a merger and severance accrual of $0.6 million during
the six months ended June 30, 2003. Additionally, we
experienced an increase in Financial Services pretax income to
$11.6 million during the six months ended June 30, 2003
from $8.1 million during the six months ended June 30, 2002.

Total revenues increased to $429.1 million during
the three months ended June 30, 2003 from $363.8 million
during the three months ended June 30, 2002. The increase
of 18% is attributable to increases in Homebuilding revenues and
Financial Services revenues of 17% and 54%, respectively. Total
revenues increased to $755.6 million during the six months ended
June 30, 2003 from $675.8 million during the six months
ended June 30, 2002. The increase of 12% is attributable to
increases in Homebuilding revenues and Financial Services
revenues of 11% and 40%, respectively.

Our effective tax rate attributable to income
from continuing operations decreased to 36.5% during the three
and six months ended June 30, 2003 from 38.1% and 36.7%
during the three and six months ended June 30, 2002. The
decrease is due primarily to expected reductions in state taxes
as a result of modifying our corporate structure and other tax
planning initiatives.

17



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##### 



Homebuilding

During the three months ended June 30, 2003,
Homebuilding revenues increased to $414.5 million from $354.4
million during the three months ended June 30, 2002. The
increase of 17% was due primarily to the increase in revenues
from home sales to $409.7 million during the three months ended
June 30, 2003 from $352.3 million during the three months ended
June 30, 2002. This increase of 16% is due to an increase
in home deliveries to 1,539 during the three months ended
June 30, 2003 from 1,315 during the three months ended June
30, 2002. The 17% increase in home deliveries was partially
offset by a slight decline in the average selling price on
delivered homes to $266,000 from $268,000. For the six months
ended June 30, 2003, Homebuilding revenues increased to
$730.4 million from $657.8 million for the six months ended June
30, 2002. This increase of 11% is primarily attributable to a
13% increase in home deliveries to 2,773 for the six months
ended June 30, 2003 from 2,461 during the six months ended
June 30, 2002. This increase was partially offset by a
slight decrease in our average selling price on homes delivered
to $261,000 during the six months ended June 30, 2003 from
$266,000 during the six months ended June 30, 2002.

Our Florida region realized a decrease in revenue
from home sales of $12.2 million, or 9%, to $129.0 million
during the three months ended June 30, 2003. This decrease
is primarily due to a 6% decline in home deliveries to 525 and a
decline in the average selling price of homes delivered to
$246,000 during the three months ended June 30, 2003 as
compared to 561 home deliveries and an average selling price of
homes delivered of $252,000 during the three months ended
June 30, 2002. The decline in home deliveries is primarily
due to our Southeast Florida division, which had a shortage of
available product during the period as compared to the prior
year due to the timing of new community openings. This was
offset by the deliveries generated by our Jacksonville division,
which was acquired during the fourth quarter of 2002. The
decrease in average selling price is primarily due to this
change in the geographical mix as our Jacksonville division has
historically delivered homes with a lower average selling price
than our other Florida divisions.

Our Mid-Atlantic region realized an increase in
revenue from home sales of $9.0 million, or 17%, to $60.5
million during the three months ended June 30, 2003. This
increase is primarily due to a 15% increase in home deliveries
to 170 and an increase in the average selling price to $356,000
during the three months ended June 30, 2003 as compared to
148 home deliveries and an average selling price of homes
delivered of $349,000 during the three months ended June 30,
2002. The increase in home deliveries is primarily attributable
to the deliveries generated by our Baltimore division, which was
acquired during the fourth quarter of 2002.

Our Texas region realized a slight increase in
revenue from home sales of $4.2 million, or 4%, to $109.0
million during the three months ended June 30, 2003. This
increase is primarily due to a 4% increase in home deliveries to
423 during the three months ended June 30, 2003, with this
unit volume level continuing to reflect the slower demand for
new housing in several of our Texas markets. Our average selling
price in this region remained relatively flat at $258,000.

Our West region realized an increase in revenue
from home sales of $56.4 million, or 103%, to $111.1 million for
the three months ended June 30, 2003. This increase is due
to a 112% increase in home deliveries to 421 during the three
months ended June 30, 2003 from 199 home deliveries during
the three months ended June 30, 2002. The increase in home
deliveries is attributable to increases in several of our
divisions in this region, most notably our Phoenix division,
which reflects the strong housing demand in this market.
Additionally, the increase is attributable to the deliveries
generated by our acquisitions in Las Vegas and Colorado during
the first quarter of 2003. The increase in home deliveries was
partially offset by a decline in our average selling price in
this region to $264,000 from $275,000 as a result of the
diversification of our product mix in this region due to our
recent acquisitions.

Our Homebuilding gross profit increased to $81.0
million for the three months ended June 30, 2003 from $72.7
million for the three months ended June 30, 2002. This increase
of 11% is primarily due to an increase in revenue from home
sales. Our gross margin on home sales has decreased slightly to
19.5% during the three months ended June 30, 2003 from
20.6% during the three months ended June 30, 2002. This
decrease is primarily due to an increase in the cost of
homesites. Our gross profit for the six months ended
June 30, 2003

18



---



##### 



increased by $14.0 million, or 10%, to $149.2
million from $135.2 million during the six months ended
June 30, 2002.


SG&A expenses increased to $51.2 million
during the three months ended June 30, 2003 from $41.9
million during the three months ended June 30, 2002. As a
percentage of Homebuilding revenues, SG&A increased slightly
to 12.4% for the three months ended June 30, 2003 from
11.8% for the three months ended June 30, 2002. For the six
months ended June 30, 2003, SG&A expenses increased to
$95.3 million from $79.6 million during the six months ended
June 30, 2002. The majority of the increase in SG&A
expenses is attributable to SG&A expenses associated with
recently acquired companies. The remainder of the increase is
primarily attributable to increases in compensation and
professional fees. During the three and six months ended
June 30, 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.

During the six months ended June 30, 2002,
we incurred $24.5 million in severance and merger related
charges. These charges include severance accrued related to
former executives of both Newmark and Engle and $5.5 million in
legal, consulting and advisory fees.

During the six months ended June 30, 2002,
in connection with our June 2002 Notes Offering, we recognized a
loss on the early retirement of debt of $5.4 million. This
charge relates to the exit fees incurred and the write off of
unamortized deferred finance costs associated with the then
existing borrowings.

Financial
Services

Financial Services revenues increased to $14.5
million during the three months ended June 30, 2003 from
$9.4 million during the three months ended June 30, 2002. The
increase of 54% 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 1,244
for the three months ended June 30, 2003 from 869 for the three
months ended June 30, 2002. The number of closings at our
title operations increased to 5,583 for the three months ended
June 30, 2003 from 4,261 for the three months ended
June 30, 2002. Our Financial Services segment capture
ratios have remained relatively consistent with the
corresponding quarter in the prior year. Our mortgage operations
capture ratio was 58% for the three months ended June 30,
2003 as compared to 59% for the three months ended June 30,
2002. However, excluding the recently acquired markets where our
mortgage operations have not yet penetrated into the
marketplace, our capture ratio increased by 6% over the prior
year. As a result, our Financial Services revenues increased to
$25.2 million during the six months ended June 30, 2003
from $17.9 million during the six months ended June 30,
2002.

Financial Services expenses increased to $7.4
million for the three months ended June 30, 2003 from $5.0
million for the three months ended June 30, 2002. For the
six months ended June 30, 2003, Financial Services expenses
increased to $13.6 million from $9.8 million for the six months
ended June 30, 2002. The increases in Financial Services
expenses of 48% and 38%, for the three months and six months
ended June 30, 2003 respectively, are primarily
attributable to the increased revenues and the expansion into
new markets.

EBITDA

During the three months ended June 30, 2003
we generated EBITDA of $47.1 million as compared to $27.6
million during the three months ended June 30, 2002. The
increase in EBITDA is primarily a result of $16.1 million in
severance and merger related charges incurred during the three
months ended June 30, 2002 and a $0.6 million reversal of
accrued merger expenses during the three months ended
June 30, 2003. Excluding the effect of these charges, our
increase in EBITDA primarily relates to the increase in our
Financial Services pretax income during the three months ended
June 30, 2003 as compared to the three months ended
June 30, 2002.

19



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##### 



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL
RESOURCES

Statement of Financial Condition and Related
Data

The following table includes selected statement
of financial condition and related data (dollars in thousands):

|                                                 |                      |                |         |         |  |   |         |           | 
|------------------------------------------------ | -------------------- | -------------- | ------- | ------- |  | - | ------- | --------- | 
|                                                 |                      |               
|                                                 |                      | As of June 30,
|                                                 |                      |               
|                                                 |                      | 2002           |         | 2003   
|                                                 |                      |                |         |        
|Cash  unrestricted                              |                      | $              | 83,728  |         |  | $ | 39,051  |          
|Inventory                                        |                      | $              | 654,381 |         |  | $ | 923,597 |          
|                                                 | Total assets         |                | $       | 937,582 |  |   | $       | 1,241,312 | 
|Homebuilding borrowings                          |                      | $              | 367,405 |         |  | $ | 522,529 |          
|                                                 | Total borrowings (1) |                | $       | 393,776 |  |   | $       | 580,200   | 
|Stockholders equity                             |                      | $              | 358,596 |         |  | $ | 446,194 |          
|Ratio of Homebuilding borrowings to total assets |                      |                | 39.2%   |         |  |   | 42.1%   |          
|Ratio of Homebuilding borrowings to Capital (2)  |                      |                | 50.6%   |         |  |   | 53.9%   |          




|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Total borrowings includes Homebuilding borrowings
    and Financial Services borrowings.                                  
|(2) | Capital includes Homebuilding borrowings and
    stockholders equity. Capital excludes Financial Services
    borrowings.

Discussion of 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 June 30, 2003 we had unrestricted cash
and cash equivalents of $39.1 million as compared to $49.2
million at December 31, 2002.

During the six months ended June 30, 2003,
we utilized cash of $32.3 million from our operating activities,
as compared to cash provided by operations of $23.6 million for
the six months ended June 30, 2002. This decrease is
primarily a result of an increase in inventory of $96.6 million,
excluding the impact of our acquisitions, as compared to an $8.4
million increase in inventory for the six months ended
June 30, 2002. This increase in inventory is part of our
strategy to increase the number of active communities and our
land positions. During the six months ended June 30, 2003,
including the impact of our acquisitions, our controlled
homesites increased to 42,148 from 26,320.

Cash used in investing activities was $83.9
million during the six months ended June 30, 2003 as
compared to $6.1 million during the six months ended
June 30, 2002. The increase in the use of cash in investing
activities is primarily due to the acquisitions made during the
six months ended June 30, 2003 and additional consideration
paid on those companies acquired in the fourth quarter of 2002.

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 an additional $2.5 million over a two
year period.

20



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##### 



As a result of the increases in our land
positions and the recent acquisitions, our ratio of Homebuilding
borrowings to total assets was 42.7% at June 30, 2003 as
compared to 39.2% at June 30, 2002. Our ratio of
Homebuilding borrowings to capital was 53.9% at June 30,
2003 as compared to 50.6% at June 30, 2002.

On February 3, 2003, we issued $100.0
million of 9% Senior Notes due 2010 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 indenture pursuant to which we issued our June 2002 Senior
Notes.

On April 22, 2003, we issued 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. 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 we issued our June 2002 Senior Subordinated Notes.

Interest on our outstanding senior notes and
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
passu in 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 approximately $75 million of Technical
Olympics debt in connection with the merger of Engle
Holdings, 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.

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. The revolving credit facility expires on
June 26, 2005. As of June 30, 2003, we had drawn down
$35.0 million and had issued letters of credit of $48.3 million
and as a result, had $231.7 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 June 30, 2003, our
loans outstanding under the revolving credit facility accrued
interest at a rate of 4.64% 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).

21



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##### 



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
September 22, 2003. As of June 30, 2003, we had $57.7
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
June 30, 2003, our loans outstanding under the warehouse
line of credit accrued interest at a rate of 2.825% 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 and
anticipated working capital and land acquisition and development
needs based on current market conditions. 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 June 30, 2003, the amount of our annual
debt service payments was $49.9 million. This amount included
debt service payments on the senior and senior subordinated
notes of $46.2 million and interest payments on the revolving
credit facility, the warehouse line of credit, and other notes
of $3.7 million based on the balances outstanding as of
June 30, 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 June 30, 2003, we had 3,040 units in
backlog representing $820.7 million in revenue, as compared to
2,394 units in backlog representing $666.1 million in revenue as
of June 30, 2002. This increase in revenue in backlog of
23% is primarily attributable to the units in backlog of our
recent acquisitions. Our average selling price of units in
backlog has declined slightly to $270,000 from $278,000 as a
result of our product diversification.

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:

22



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##### 





| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our estimate that we have adequate financial
    resources to meet our current and anticipated working capital
    and land acquisition and development needs;
|
| |  | 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;                                                                         
|
| |  | the impact of inflation on our future results of
    operations;                                                                                              
|
| |  | our ability to pass through to our customers in
    the form of increased sales prices any increases in our costs;
    and                                    
|
| |  | our estimates regarding the financial impact of
    adopting certain recently issued accounting pronouncements.                                               

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 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; and         
|
| |  | our ability to compete in our existing and future
    markets.                                                                                                     

Item 3.  Quantitative and
Qualitative Disclosures About Market Risk

As a result of our notes offerings, at
June 30, 2003, $485.0 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 June 30, 2003, we had an aggregate of
approximately $100.6 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.

23



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##### 



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 June 30,
2003:

|               |                                                                                         |                        |   |        |   |      |   |       |   |      |   |            |   |            |   |   |   |  |   |   |   |  |   |         |         |  |   |         |         | 
|-------------- | --------------------------------------------------------------------------------------- | ---------------------- | - | ------ | - | ---- | - | ----- | - | ---- | - | ---------- | - | ---------- | - | - | - |  | - | - | - |  | - | ------- | ------- |  | - | ------- | ------- | 
|               |                                                                                         |                       
|               |                                                                                         | Expected Maturity Date
|               |                                                                                         | (in thousands)        
|               |                                                                                         |                       
|Liabilities    |                                                                                         | 2003                   |   | 2004   |   | 2005 |   | 2006  |   | 2007 |   | Thereafter |   | Fair Value
|               |                                                                                         |                        |   |        |   |      |   |       |   |      |   |            |   |           
|Long-term debt |                                                                                         |                        |  |        |   |      |  |       |   |      |  |            |   |            |  |   |   |  |  |   |   |  |  |         |         |  |  |        
|               | Fixed rate (9.0%)                                                                       |                        |   |       |   |      |   |      |   |      |   |           |   |            |   |  |   |  |   |  |   |  | $ | 300,000 |         |  | $ | 315,900 |        
|               |                                                                                         | Fixed rate (10 3/8%)   |   |        |  |      |   |       |  |      |   |            |  |            |   |   |  |  |   |   |  |  |   | $       | 185,000 |  |   | $       | 194,435 | 
|               | Revolving loan, variable rate (4.64% at
    June 30, 2003)                              |                        |   |       |   |      |   |      |   |      | $ | 35,000     |   |            |   |  |   |  |   |  |   |  |   |        |         |  | $ | 35,000  |        
|               | Variable rate, warehouse line of credit, 2.825%
    at June 30, 2003)                   |                        | $ | 57,671 |   |      |   |      |   |      |   |           |   |            |   |  |   |  |   |  |   |  |   |        |         |  | $ | 57,671  |        
|               | Other homebuilding borrowings (at various
    interest rates ranging from 2.8% to 6.0%) |                        | $ | 1,000  |   |      | $ | 1,443 |   |      | $ | 5,377      |   |            |   |  |   |  |   |  |   |  |   |        |         |  | $ | 7,820   |        

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-15(e) and 15d-15(e), as of
June 30, 2003. Based on such evaluation, such officers have
concluded that, as of June 30, 2003, 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. There has been no change in our internal control over
financial reporting during the quarter ended June 30, 2003
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

24



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##### 



PART II OTHER INFORMATION

Item 4.  Submission of
Matters to a Vote of Security Holders.

On May 8, 2003, Technical Olympic USA, Inc.
held its annual meeting of stockholders. At the meeting,
stockholders voted on the election of nine directors to serve
for a term of one year. The voting results were as follows:

|                    |  |     |            |          |  |  |         | 
|------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|Name of Nominee     |  | For |            | Withheld
|                    |  |     |            |         
|Constantine Stengos |  |     | 27,301,428 |          |  |  | 82,909  | 
|Antonio B. Mon      |  |     | 27,337,731 |          |  |  | 46,606  | 
|Yannis Delikanakis  |  |     | 27,126,496 |          |  |  | 257,841 | 
|Lonnie B. Fedrick   |  |     | 27,337,731 |          |  |  | 46,606  | 
|William A. Hasler   |  |     | 27,337,731 |          |  |  | 46,606  | 
|Larry D. Horner     |  |     | 27,337,731 |          |  |  | 46,606  | 
|Michael J. Poulos   |  |     | 27,337,731 |          |  |  | 46,606  | 
|Andreas Stengos     |  |     | 26,981,396 |          |  |  | 402,941 | 
|George Stengos      |  |     | 27,163,699 |          |  |  | 220,638 | 

Item 6.  Exhibits and
Reports on Form 8-K

(a) Exhibits:

|        |     |   |  |             |  |                                                                                                        
|------- | --- | - |  | ----------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |     |   |  |            
|Number  |     |   |  | Description
|        |     |   |  |            
|        | 31. | 1 |  |             |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 31. | 2 |  |             |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 32. | 1 |  |             |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 32. | 2 |  |             |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.

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

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

On May 16, 2003, we filed a Current Report
on Form 8-K (furnishing information under Items 7 and 12)
to release financial results for the quarter ended March 31,
2003 and announce conference call information.

On May 22, 2003, we filed a Current Report
on Form 8-K (furnishing information under Items 7 and 12)
to release more detailed financial results for the quarter ended
March 31, 2003, guidance for 2003 and 2004 and announce
conference call information.

25



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##### 



SIGNATURES

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



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





| |                                                    
| | ---------------------------------------------------
| | By: /s/ TOMMY L. MCADEN                            
| |                                                    
| | TOMMY L. MCADEN                                    
| | Vice President  Finance and
    Administration and
| | Chief Financial Officer                            

Date: August 5, 2003





| |                                              
| | ---------------------------------------------
| | By: /s/ RANDY L. KOTLER                      
| |                                              
| | RANDY L. KOTLER                              
| | Vice President  Chief
    Accounting Officer

Date: August 5, 2003

26