##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30, 2005                                                
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

COMMISSION FILE NUMBER: 001-32322


TECHNICAL OLYMPIC USA, INC.


(Exact name of registrant as specified in its charter)


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

(Registrants telephone number, including area code)


(954) 364-4000


(Former name, former address and former fiscal year,


if changed since last report)


þ o


þ o


APPLICABLE ONLY TO CORPORATE ISSUERS:












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TECHNICAL OLYMPIC USA, INC.


INDEX


|                                    |         |                                                    |                                                                                           |      |    |    | 
|----------------------------------- | ------- | -------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---- | -- | -- | 
|                                    |         |                                                    |                                                                                           | Page |   
|                                    |         |                                                    |                                                                                           |      |   
|PART I.                             |         | Financial Information                              |                                                                                           |      | 3  |   
|                                    | ITEM 1. |                                                    | Financial Statements (Unaudited)                                                          |      |    | 3  | 
|                                    |         | Consolidated Statements of Financial
    Condition |                                                                                           |      | 3  |   
|                                    |         | Consolidated Statements of Income                  |                                                                                           |      | 4  |   
|                                    |         | Consolidated Statements of Cash Flows              |                                                                                           |      | 5  |   
|                                    |         | Notes to the Consolidated Financial
    Statements |                                                                                           |      | 6  |   
|                                    | ITEM 2. |                                                    | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |      |    | 19 | 
|                                    | ITEM 3. |                                                    | Quantitative and Qualitative Disclosures
    about Market Risk                            |      |    | 30 | 
|                                    | ITEM 4. |                                                    | Controls and Procedures                                                                   |      |    | 31 | 
|PART II.                            |         | Other Information                                  |                                                                                           |      | 31 |   
|                                    | ITEM 4. |                                                    | Submission of Matters to a Vote of Security
    Holders                                   |      |    | 31 | 
|                                    | ITEM 5. |                                                    | Other Information                                                                         |      |    | 31 | 
|                                    | ITEM 6. |                                                    | Exhibits                                                                                  |      |    | 31 | 
|Signatures                          |         |                                                    | 32                                                                                        |     
|Asset Purchase Agreement           
|Amendment No. 1 to Credit Agreement
|Section 302 CEO Certification      
|Section 302 CFO Certification      
|Section 906 CEO Certification      
|Section 906 CFO Certification      



2



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##### Table of Contents






PART I. FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Dollars in millions, except shares and par value)


|                                                                                                                                                                                           |                                             |             |         |       |              |   |         |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | ----------- | ------- | ----- | ------------ | - | ------- | ----- | 
|                                                                                                                                                                                           |                                             | June 30,    |         |       | December 31, |  
|                                                                                                                                                                                           |                                             | 2005        |         |       | 2004         |  
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             | (Unaudited) |         |       |             
|ASSETS                                                                                                                                                                                    
|HOMEBUILDING:                                                                                                                                                                              |                                             |             |         |       |              |   |         |      
|Cash and cash equivalents:                                                                                                                                                                 |                                             |             |         |       |              |   |         |      
|                                                                                                                                                                                           | Unrestricted                                |             | $       | 73.3  |              |   | $       | 217.6 | 
|                                                                                                                                                                                           | Restricted                                  |             |         | 2.9   |              |   |         | 8.0   | 
|Inventory:                                                                                                                                                                                 |                                             |             |         |       |              |   |         |      
|                                                                                                                                                                                           | Deposits                                    |             |         | 186.1 |              |   |         | 132.8 | 
|                                                                                                                                                                                           | Homesites and land under development        |             |         | 492.2 |              |   |         | 341.2 | 
|                                                                                                                                                                                           | Residences completed and under construction |             |         | 736.4 |              |   |         | 671.0 | 
|                                                                                                                                                                                           | Inventory not owned                         |             |         | 103.6 |              |   |         | 136.2 | 
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             |             | 1,518.3 |       |              |   | 1,281.2 |      
|Property and equipment, net                                                                                                                                                                |                                             |             | 25.9    |       |              |   | 26.7    |      
|Investments in unconsolidated joint ventures                                                                                                                                               |                                             |             | 82.4    |       |              |   | 66.6    |      
|Advances to unconsolidated joint ventures                                                                                                                                                  |                                             |             | 15.4    |       |              |   |        |      
|Other assets                                                                                                                                                                               |                                             |             | 87.0    |       |              |   | 71.1    |      
|Goodwill                                                                                                                                                                                   |                                             |             | 110.7   |       |              |   | 110.7   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             |             | 1,915.9 |       |              |   | 1,781.9 |      
|FINANCIAL SERVICES:                                                                                                                                                                        |                                             |             |         |       |              |   |         |      
|Cash and cash equivalents:                                                                                                                                                                 |                                             |             |         |       |              |   |         |      
|                                                                                                                                                                                           | Unrestricted                                |             |         | 4.2   |              |   |         | 50.9  | 
|                                                                                                                                                                                           | Restricted                                  |             |         | 70.0  |              |   |         | 69.1  | 
|Mortgage loans held for sale                                                                                                                                                               |                                             |             | 60.9    |       |              |   | 75.8    |      
|Other assets                                                                                                                                                                               |                                             |             | 12.6    |       |              |   | 9.8     |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             |             | 147.7   |       |              |   | 205.6   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|Total assets                                                                                                                                                                               |                                             | $           | 2,063.6 |       |              | $ | 1,987.5 |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                      
|                                                                                                                                                                                          
|HOMEBUILDING:                                                                                                                                                                              |                                             |             |         |       |              |   |         |      
|Accounts payable and other liabilities                                                                                                                                                     |                                             | $           | 200.3   |       |              | $ | 188.9   |      
|Customer deposits                                                                                                                                                                          |                                             |             | 90.8    |       |              |   | 69.1    |      
|Obligations for inventory not owned                                                                                                                                                        |                                             |             | 103.6   |       |              |   | 136.2   |      
|Notes payable                                                                                                                                                                              |                                             |             | 811.5   |       |              |   | 811.4   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             |             | 1,206.2 |       |              |   | 1,205.6 |      
|FINANCIAL SERVICES:                                                                                                                                                                        |                                             |             |         |       |              |   |         |      
|Accounts payable and other liabilities                                                                                                                                                     |                                             |             | 71.7    |       |              |   | 70.2    |      
|Bank borrowings                                                                                                                                                                            |                                             |             | 49.4    |       |              |   | 49.0    |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|                                                                                                                                                                                           |                                             |             | 121.1   |       |              |   | 119.2   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|Total liabilities                                                                                                                                                                          |                                             |             | 1,327.3 |       |              |   | 1,324.8 |      
|Stockholders equity:                                                                                                                                                                      |                                             |             |         |       |              |   |         |      
|Preferred stock  $0.01 par value;
    3,000,000 shares authorized; none issued or outstanding                                                                                             |                                             |             |        |       |              |   |        |      
|Common stock  $0.01 par value;
    97,000,000 shares authorized and 56,093,602 and
    56,070,510 shares issued and outstanding at June 30,
    2005, and December 31, 2004, respectively |                                             |             | 0.6     |       |              |   | 0.6     |      
|Additional paid-in capital                                                                                                                                                                 |                                             |             | 393.3   |       |              |   | 388.3   |      
|Unearned compensation                                                                                                                                                                      |                                             |             | (11.0   | )     |              |   | (9.0    | )    
|Retained earnings                                                                                                                                                                          |                                             |             | 353.4   |       |              |   | 282.8   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|Total stockholders equity                                                                                                                                                                 |                                             |             | 736.3   |       |              |   | 662.7   |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  
|Total liabilities and stockholders equity                                                                                                                                                 |                                             | $           | 2,063.6 |       |              | $ | 1,987.5 |      
|                                                                                                                                                                                           |                                             |             |         |       |              |  



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


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


(Unaudited)


|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |            | 
|----------------------------------------------------- | ---------- | ------------------ | ----- | ---------- | ---------------- | - | ----- | ---------- |  | - | ------- | ---------- |  | - | ----- | ---------- | 
|                                                      |            | Three Months Ended |       |            | Six Months Ended |  
|                                                      |            | June 30,           |       |            | June 30,         |  
|                                                      |            |                    |       |            |                  |  
|                                                      |            | 2005               |       |            | 2004             |   |       | 2005       |  |   | 2004    |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|HOMEBUILDING:                                         |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|Revenues:                                             |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|                                                      | Home sales |                    | $     | 582.1      |                  |   | $     | 462.5      |  |   | $       | 1,094.5    |  |   | $     | 869.3      | 
|                                                      | Land sales |                    |       | 33.7       |                  |   |       | 35.8       |  |   |         | 54.9       |  |   |       | 53.9       | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|                                                      |            |                    | 615.8 |            |                  |   | 498.3 |            |  |   | 1,149.4 |            |  |   | 923.2 |           
|Cost of sales:                                        |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|                                                      | Home sales |                    |       | 448.2      |                  |   |       | 374.0      |  |   |         | 849.2      |  |   |       | 705.6      | 
|                                                      | Land sales |                    |       | 29.9       |                  |   |       | 28.5       |  |   |         | 46.7       |  |   |       | 41.2       | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|                                                      |            |                    | 478.1 |            |                  |   | 402.5 |            |  |   | 895.9   |            |  |   | 746.8 |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|Gross profit                                          |            |                    | 137.7 |            |                  |   | 95.8  |            |  |   | 253.5   |            |  |   | 176.4 |           
|Selling, general and administrative expenses          |            |                    | 77.1  |            |                  |   | 59.4  |            |  |   | 156.5   |            |  |   | 115.7 |           
|(Income) from joint ventures, net                     |            |                    | (8.1  | )          |                  |   |      |            |  |   | (10.7   | )          |  |   |      |           
|Other (income) expense, net                           |            |                    | (2.3  | )          |                  |   | 0.7   |            |  |   | (4.2    | )          |  |   | (0.5  | )         
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|Homebuilding pretax income                            |            |                    | 71.0  |            |                  |   | 35.7  |            |  |   | 111.9   |            |  |   | 61.2  |           
|FINANCIAL SERVICES:                                   |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|Revenues                                              |            |                    | 11.4  |            |                  |   | 9.4   |            |  |   | 21.4    |            |  |   | 18.2  |           
|Expenses                                              |            |                    | 9.0   |            |                  |   | 6.9   |            |  |   | 17.7    |            |  |   | 12.5  |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|Financial Services pretax income                      |            |                    | 2.4   |            |                  |   | 2.5   |            |  |   | 3.7     |            |  |   | 5.7   |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|Income before provision for income taxes              |            |                    | 73.4  |            |                  |   | 38.2  |            |  |   | 115.6   |            |  |   | 66.9  |           
|Provision for income taxes                            |            |                    | 27.7  |            |                  |   | 14.1  |            |  |   | 43.5    |            |  |   | 24.7  |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|Net income                                            |            | $                  | 45.7  |            |                  | $ | 24.1  |            |  | $ | 72.1    |            |  | $ | 42.2  |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|EARNINGS PER COMMON SHARE:                            |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|                                                      | Basic      |                    | $     | 0.82       |                  |   | $     | 0.43       |  |   | $       | 1.29       |  |   | $     | 0.75       | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|                                                      | Diluted    |                    | $     | 0.79       |                  |   | $     | 0.42       |  |   | $       | 1.24       |  |   | $     | 0.74       | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |            |                    |       |            |                  |   |       |            |  |   |         |            |  |   |       |           
|                                                      | Basic      |                    |       | 56,083,450 |                  |   |       | 56,060,228 |  |   |         | 56,078,578 |  |   |       | 56,053,078 | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|                                                      | Diluted    |                    |       | 58,189,548 |                  |   |       | 57,195,224 |  |   |         | 58,157,052 |  |   |       | 57,053,943 | 
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           
|CASH DIVIDENDS PER SHARE                              |            | $                  | 0.015 |            |                  | $ | 0.012 |            |  | $ | 0.027   |            |  | $ | 0.012 |           
|                                                      |            |                    |       |            |                  |   |       |            |  |   |         |           



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in millions)


(Unaudited)


|                                                                                            |                                                     |                                        |        |     |        |   |       |     |       |  
|------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | ------ | --- | ------ | - | ----- | --- | ----- | -
|                                                                                            |                                                     | Six Months Ended                       |       
|                                                                                            |                                                     | June 30,                               |       
|                                                                                            |                                                     |                                        |       
|                                                                                            |                                                     | 2005                                   |        |     | 2004   |  
|                                                                                            |                                                     |                                        |        |     |        |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                                     |                                        |        |     |        |   |       |    
|Net income                                                                                  |                                                     | $                                      | 72.1   |     |        | $ | 42.2  |    
|Adjustments to reconcile net income to net cash used in
    operating activities:           |                                                     |                                        |        |     |        |   |       |    
|                                                                                            | Depreciation and amortization                       |                                        |        | 6.3 |        |   |       | 6.4 |      
|                                                                                            | Non-cash compensation expense                       |                                        |        | 4.8 |        |   |       | 1.7 |      
|                                                                                            | Equity in earnings from unconsolidated subsidiaries |                                        |        | 3.8 |        |   |       |    |      
|                                                                                            | Changes in operating assets and liabilities:        |                                        |        |     |        |   |       |     |      
|                                                                                            |                                                     | Restricted cash                        |        |     | 4.2    |   |       |     | 0.2   |  
|                                                                                            |                                                     | Inventory                              |        |     | (269.6 | ) |       |     | (74.9 | )
|                                                                                            |                                                     | Other assets                           |        |     | (33.3  | ) |       |     | (43.4 | )
|                                                                                            |                                                     | Accounts payable and other liabilities |        |     | 11.0   |   |       |     | (32.0 | )
|                                                                                            |                                                     | Customer deposits                      |        |     | 21.6   |   |       |     | 21.7  |  
|                                                                                            |                                                     | Mortgage loans held for sale           |        |     | 14.9   |   |       |     | 14.4  |  
|                                                                                            |                                                     |                                        |        |     |        |  
|Net cash used in operating activities                                                       |                                                     |                                        | (164.2 | )   |        |   | (63.7 | )  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                                     |                                        |        |     |        |   |       |    
|Net additions to property and equipment                                                     |                                                     |                                        | (6.0   | )   |        |   | (9.2  | )  
|Investments in unconsolidated joint ventures                                                |                                                     |                                        | (19.6  | )   |        |   | (13.9 | )  
|Earn out consideration paid for acquisitions                                                |                                                     |                                        |       |     |        |   | (6.6  | )  
|                                                                                            |                                                     |                                        |        |     |        |  
|Net cash used in investing activities                                                       |                                                     |                                        | (25.6  | )   |        |   | (29.7 | )  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                                     |                                        |        |     |        |   |       |    
|Net repayments on revolving credit facilities                                               |                                                     |                                        |       |     |        |   | (10.0 | )  
|Proceeds from notes offerings                                                               |                                                     |                                        |       |     |        |   | 125.0 |    
|Proceeds from Homebuilding bank borrowings                                                  |                                                     |                                        |       |     |        |   | 1.6   |    
|Net payments on obligations for inventory not owned                                         |                                                     |                                        |       |     |        |   | (5.2  | )  
|Net proceeds from (repayments on) Financial Services bank
    borrowings                    |                                                     |                                        | 0.4    |     |        |   | (9.3  | )  
|Payments for deferred financing costs                                                       |                                                     |                                        | (0.3   | )   |        |   | (2.0  | )  
|Dividends paid                                                                              |                                                     |                                        | (1.5   | )   |        |   | (0.7  | )  
|Other                                                                                       |                                                     |                                        | 0.2    |     |        |   | (0.6  | )  
|                                                                                            |                                                     |                                        |        |     |        |  
|Net cash (used in) provided by financing activities                                         |                                                     |                                        | (1.2   | )   |        |   | 98.8  |    
|                                                                                            |                                                     |                                        |        |     |        |  
|(Decrease) increase in cash and cash equivalents                                            |                                                     |                                        | (191.0 | )   |        |   | 5.4   |    
|Cash and cash equivalents at beginning of period                                            |                                                     |                                        | 268.5  |     |        |   | 76.8  |    
|                                                                                            |                                                     |                                        |        |     |        |  
|Cash and cash equivalents at end of period                                                  |                                                     | $                                      | 77.5   |     |        | $ | 82.2  |    
|                                                                                            |                                                     |                                        |        |     |        |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY                                      |                                                     |                                        |        |     |        |   |       |    
|Decrease in obligations for inventory not owned and
    corresponding decrease in inventory |                                                     | $                                      | (32.6  | )   |        | $ | (34.1 | )  
|                                                                                            |                                                     |                                        |        |     |        |  



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2005




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



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





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





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



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













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





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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|                                                    |  |                    |            |  |                  |  |            |      |  |  |            |  |  |  |            | 
|--------------------------------------------------- |  | ------------------ | ---------- |  | ---------------- |  | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                    |  | Three Months Ended |            |  | Six Months Ended | 
|                                                    |  | June 30,           |            |  | June 30,         | 
|                                                    |  |                    |            |  |                  | 
|                                                    |  | 2005               |            |  | 2004             |  |            | 2005 |  |  | 2004       | 
|                                                    |  |                    |            |  |                  |  |            |      |  |  |            | 
|Basic weighted average shares outstanding           |  |                    | 56,083,450 |  |                  |  | 56,060,228 |      |  |  | 56,078,578 |  |  |  | 56,053,078 | 
|Net effect of stock options assumed to be exercised |  |                    | 2,106,098  |  |                  |  | 1,134,996  |      |  |  | 2,078,474  |  |  |  | 1,000,865  | 
|                                                    |  |                    |            |  |                  |  |            |      |  |  |            | 
|Diluted weighted average shares outstanding         |  |                    | 58,189,548 |  |                  |  | 57,195,224 |      |  |  | 58,157,052 |  |  |  | 57,053,943 | 
|                                                    |  |                    |            |  |                  |  |            |      |  |  |            | 





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

Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation


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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                         |         |              |      |      |            |   |      |      |  |   |      |      |  |   |      |      | 
|-------------------------------------------------------------------------------------------------------- | ------- | ------------ | ---- | ---- | ---------- | - | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                                                                                                         |         | Three Months |      |      | Six Months |  
|                                                                                                         |         | Ended        |      |      | Ended      |  
|                                                                                                         |         | June 30,     |      |      | June 30,   |  
|                                                                                                         |         |              |      |      |            |  
|                                                                                                         |         | 2005         |      |      | 2004       |   |      | 2005 |  |   | 2004 |     
|                                                                                                         |         |              |      |      |            |   |      |      |  |   |      |     
|Net income as reported                                                                                   |         | $            | 45.7 |      |            | $ | 24.1 |      |  | $ | 72.1 |      |  | $ | 42.2 |     
|Add: Stock-based employee compensation included in reported net
    income, net of tax                   |         |              | (0.3 | )    |            |   | 0.4  |      |  |   | 2.8  |      |  |   | 1.0  |     
|Deduct: Stock-based employee compensation expense determined
    under the fair value method, net of tax |         |              | (0.6 | )    |            |   | (0.6 | )    |  |   | (1.9 | )    |  |   | (1.1 | )   
|                                                                                                         |         |              |      |      |            |   |      |      |  |   |      |     
|Pro forma net income                                                                                     |         | $            | 44.8 |      |            | $ | 23.9 |      |  | $ | 73.0 |      |  | $ | 42.1 |     
|                                                                                                         |         |              |      |      |            |   |      |      |  |   |      |     
|Reported earnings per common share:                                                                      |         |              |      |      |            |   |      |      |  |   |      |      |  |   |      |     
|                                                                                                         | Basic   |              | $    | 0.82 |            |   | $    | 0.43 |  |   | $    | 1.29 |  |   | $    | 0.75 | 
|                                                                                                         | Diluted |              | $    | 0.79 |            |   | $    | 0.42 |  |   | $    | 1.24 |  |   | $    | 0.74 | 
|Pro forma earnings per common share:                                                                     |         |              |      |      |            |   |      |      |  |   |      |      |  |   |      |     
|                                                                                                         | Basic   |              | $    | 0.80 |            |   | $    | 0.43 |  |   | $    | 1.30 |  |   | $    | 0.75 | 
|                                                                                                         | Diluted |              | $    | 0.77 |            |   | $    | 0.42 |  |   | $    | 1.26 |  |   | $    | 0.74 | 



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



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



|                                          |               |              |      |       |            |   |      |       |   |   |      |       |   |   |      |       |  
|----------------------------------------- | ------------- | ------------ | ---- | ----- | ---------- | - | ---- | ----- | - | - | ---- | ----- | - | - | ---- | ----- | -
|                                          |               | Three Months |      |       | Six Months |  
|                                          |               | Ended        |      |       | Ended      |  
|                                          |               | June 30,     |      |       | June 30,   |  
|                                          |               |              |      |       |            |  
|                                          |               | 2005         |      |       | 2004       |   |      | 2005  |   |   | 2004 |      
|                                          |               |              |      |       |            |   |      |       |   |   |      |      
|Interest capitalized, beginning of period |               | $            | 40.2 |       |            | $ | 32.0 |       |   | $ | 36.8 |       |   | $ | 29.7 |      
|Interest incurred                         |               |              | 19.6 |       |            |   | 16.7 |       |   |   | 38.7 |       |   |   | 31.6 |      
|Less interest included in:                |               |              |      |       |            |   |      |       |   |   |      |       |   |   |      |      
|                                          | Cost of sales |              |      | (17.7 | )          |   |      | (12.8 | ) |   |      | (32.4 | ) |   |      | (23.5 | )
|                                          | Other         |              |      | 1.0   |            |   |      | (0.2  | ) |   |      |      |   |   |      | (2.1  | )
|                                          |               |              |      |       |            |   |      |       |   |   |      |      
|Interest capitalized, end of period       |               | $            | 43.1 |       |            | $ | 35.7 |       |   | $ | 43.1 |       |   | $ | 35.7 |      
|                                          |               |              |      |       |            |   |      |       |   |   |      |      



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidation of Variable Interest Entities








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



|                                       |                             |               |       |      |              |   |       |       |  |   |       |       | 
|-------------------------------------- | --------------------------- | ------------- | ----- | ---- | ------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |                             | June 30, 2005 |      
|                                       |                             |               |      
|                                       |                             | Land          |       |      | Home         |   |       |      
|                                       |                             | Development   |       |      | Construction |   |       | Total | 
|                                       |                             |               |       |      |              |   |       |       | 
|Assets:                                |                             |               |       |      |              |   |       |       |  |   |       |      
|Cash                                   |                             | $             | 13.2  |      |              | $ | 27.5  |       |  | $ | 40.7  |      
|Inventories                            |                             |               | 196.3 |      |              |   | 243.3 |       |  |   | 439.6 |      
|Other assets                           |                             |               | 3.7   |      |              |   | 10.3  |       |  |   | 14.0  |      
|                                       |                             |               |       |      |              |   |       |       | 
|Total assets                           |                             | $             | 213.2 |      |              | $ | 281.1 |       |  | $ | 494.3 |      
|                                       |                             |               |       |      |              |   |       |       | 
|                                      
|Liabilities and equity:               
|Accounts payable and other liabilities |                             | $             | 10.7  |      |              | $ | 30.8  |       |  | $ | 41.5  |      
|Notes payable                          |                             |               | 140.9 |      |              |   | 113.4 |       |  |   | 254.3 |      
|Equity of:                             |                             |               |       |      |              |   |       |       |  |   |       |      
|                                       | Technical Olympic USA, Inc. |               |       | 29.4 |              |   |       | 53.0  |  |   |       | 82.4  | 
|                                       | Others                      |               |       | 32.2 |              |   |       | 83.9  |  |   |       | 116.1 | 
|                                       |                             |               |       |      |              |   |       |       | 
|Total liabilities and equity           |                             | $             | 213.2 |      |              | $ | 281.1 |       |  | $ | 494.3 |      
|                                       |                             |               |       |      |              |   |       |       | 

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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                       |                             |                   |      |      |              |   |       |       |  |   |       |      | 
|-------------------------------------- | --------------------------- | ----------------- | ---- | ---- | ------------ | - | ----- | ----- |  | - | ----- | ---- | 
|                                       |                             | December 31, 2004 |     
|                                       |                             |                   |     
|                                       |                             | Land              |      |      | Home         |   |       |      
|                                       |                             | Development       |      |      | Construction |   |       | Total | 
|                                       |                             |                   |      |      |              |   |       |       | 
|Assets:                                |                             |                   |      |      |              |   |       |       |  |   |       |     
|Cash                                   |                             | $                 | 1.4  |      |              | $ | 14.8  |       |  | $ | 16.2  |     
|Inventories                            |                             |                   | 74.0 |      |              |   | 196.8 |       |  |   | 270.8 |     
|Other assets                           |                             |                   | 1.4  |      |              |   | 8.4   |       |  |   | 9.8   |     
|                                       |                             |                   |      |      |              |   |       |       | 
|Total assets                           |                             | $                 | 76.8 |      |              | $ | 220.0 |       |  | $ | 296.8 |     
|                                       |                             |                   |      |      |              |   |       |       | 
|                                      
|Liabilities and equity:               
|Accounts payable and other liabilities |                             | $                 | 11.0 |      |              | $ | 10.0  |       |  | $ | 21.0  |     
|Notes payable                          |                             |                   | 32.0 |      |              |   | 81.8  |       |  |   | 113.8 |     
|Equity of:                             |                             |                   |      |      |              |   |       |       |  |   |       |     
|                                       | Technical Olympic USA, Inc. |                   |      | 15.6 |              |   |       | 51.0  |  |   |       | 66.6 | 
|                                       | Others                      |                   |      | 18.2 |              |   |       | 77.2  |  |   |       | 95.4 | 
|                                       |                             |                   |      |      |              |   |       |       | 
|Total liabilities and equity           |                             | $                 | 76.8 |      |              | $ | 220.0 |       |  | $ | 296.8 |     
|                                       |                             |                   |      |      |              |   |       |       | 

|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |   |       |  |  |   |       | 
|------------------------------------------------ |  | -------------------------------- | ---- | - | ------------------------------ | - | ---- | ----- |  | ---- | ----------- |  | ---- | ------------ | ---- | - | ----- | - | ----- |  |  | - | ----- | 
|                                                 |  | Three Months Ended June 30, 2005 |      |   | Six Months Ended June 30, 2005 |  
|                                                 |  |                                  |      |   |                                |  
|                                                 |  | Land                             |      |   | Home                           |   |      |       |  | Land |             |  | Home |              |      |  
|                                                 |  | Development                      |      |   | Construction                   |   |      | Total |  |      | Development |  |      | Construction |      |   | Total |  
|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |  
|Revenues                                         |  | $                                | 3.5  |   |                                | $ | 65.1 |       |  | $    | 68.6        |  |      | $            | 10.2 |   |       | $ | 103.4 |  |  | $ | 113.6 | 
|Cost and expenses                                |  |                                  | 4.2  |   |                                |   | 57.9 |       |  |      | 62.1        |  |      |              | 11.8 |   |       |   | 92.9  |  |  |   | 104.7 | 
|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |  
|Net earnings (losses) of unconsolidated entities |  | $                                | (0.7 | ) |                                | $ | 7.2  |       |  | $    | 6.5         |  |      | $            | (1.6 | ) |       | $ | 10.5  |  |  | $ | 8.9   | 
|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |  
|Our share of net earnings (losses)               |  | $                                | (0.5 | ) |                                | $ | 3.0  |       |  | $    | 2.5         |  |      | $            | (0.8 | ) |       | $ | 4.6   |  |  | $ | 3.8   | 
|Management fees earned                           |  |                                  | 0.8  |   |                                |   | 4.8  |       |  |      | 5.6         |  |      |              | 1.6  |   |       |   | 5.3   |  |  |   | 6.9   | 
|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |  
|Income from joint ventures                       |  | $                                | 0.3  |   |                                | $ | 7.8  |       |  | $    | 8.1         |  |      | $            | 0.8  |   |       | $ | 9.9   |  |  | $ | 10.7  | 
|                                                 |  |                                  |      |   |                                |   |      |       |  |      |             |  |      |              |      |   |       |  





10



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                                       |  |            |       |  |      |   |       | 
|------------------------------------------------------ |  | ---------- | ----- |  | ---- | - | ----- | 
|                                                       |  | Six Months |      
|                                                       |  | Ended      |      
|                                                       |  | June 30,   |      
|                                                       |  |            |      
|                                                       |  | 2005       |       |  | 2004 |  
|                                                       |  |            |       |  |      |  
|Balance at January 1                                   |  | $          | 110.7 |  |      | $ | 100.1 | 
|Earn out consideration paid or accrued on acquisitions |  |            |      |  |      |   | 6.6   | 
|                                                       |  |            |       |  |      |  
|Balance at June 30                                     |  | $          | 110.7 |  |      | $ | 106.7 | 
|                                                       |  |            |       |  |      |  



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







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





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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                           |  |            |      |   |      |   |      |  
|---------------------------------------------------------- |  | ---------- | ---- | - | ---- | - | ---- | -
|                                                           |  | Six Months |     
|                                                           |  | Ended      |     
|                                                           |  | June 30,   |     
|                                                           |  |            |     
|                                                           |  | 2005       |      |   | 2004 |  
|                                                           |  |            |      |   |      |  
|Accrued warranty costs at January 1                        |  | $          | 6.4  |   |      | $ | 5.2  |  
|Liability recorded for warranties issued during the period |  |            | 6.0  |   |      |   | 4.6  |  
|Warranty work performed                                    |  |            | (4.1 | ) |      |   | (3.9 | )
|Adjustments                                                |  |            | (0.6 | ) |      |   |     |  
|                                                           |  |            |      |   |      |  
|Accrued warranty costs at June 30                          |  | $          | 7.7  |   |      | $ | 5.9  |  
|                                                           |  |            |      |   |      |  



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





|   |                 
|-- | ----------------
|9. | Subsequent Event





|    |                                 
|--- | --------------------------------
|10. | Summarized Financial Information



12



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Financial Condition


June 30, 2005


|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|---------------------------------------------------- |  | --------------------- | ------- |  | ------------ | - | ------- | ------------ |  | - | ------------ | - |  | ----- | -------- | - |  | - | ------- | 
|                                                     |  | Technical             |         |  |              |   | Non-    |              |  |   |              |  
|                                                     |  | Olympic               |         |  | Guarantor    |   |         | Guarantor    |  |   | Intercompany |   |  |      
|                                                     |  | USA, Inc.             |         |  | Subsidiaries |   |         | Subsidiaries |  |   | Eliminations |   |  | Total |         
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                     |  | (Dollars in millions) |        
|ASSETS                                               |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|HOMEBUILDING:                                        |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                            |  | $                     | 31.6    |  |              | $ | 44.6    |              |  | $ |             |   |  | $     |         |   |  | $ | 76.2    | 
|Inventory                                            |  |                       |        |  |              |   | 1,518.3 |              |  |   |             |   |  |       |         |   |  |   | 1,518.3 | 
|Property and equipment, net                          |  |                       | 7.1     |  |              |   | 18.8    |              |  |   |             |   |  |       |         |   |  |   | 25.9    | 
|Investments in unconsolidated joint ventures         |  |                       |        |  |              |   | 82.4    |              |  |   |             |   |  |       |         |   |  |   | 82.4    | 
|Advances to unconsolidated joint ventures            |  |                       |        |  |              |   | 15.4    |              |  |   |             |   |  |       |         |   |  |   | 15.4    | 
|Investments in/Advances to consolidated subsidiaries |  |                       | 1,516.4 |  |              |   | (147.5  | )            |  |   | (7.1         | ) |  |       | (1,361.8 | ) |  |   |        | 
|Other assets and advances                            |  |                       | 53.3    |  |              |   | 33.7    |              |  |   |             |   |  |       |         |   |  |   | 87.0    | 
|Goodwill                                             |  |                       |        |  |              |   | 110.7   |              |  |   |             |   |  |       |         |   |  |   | 110.7   | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                     |  |                       | 1,608.4 |  |              |   | 1,676.4 |              |  |   | (7.1         | ) |  |       | (1,361.8 | ) |  |   | 1,915.9 | 
|FINANCIAL SERVICES:                                  |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                            |  |                       |        |  |              |   |        |              |  |   | 74.2         |   |  |       |         |   |  |   | 74.2    | 
|Mortgage loans held for sale                         |  |                       |        |  |              |   |        |              |  |   | 60.9         |   |  |       |         |   |  |   | 60.9    | 
|Other assets                                         |  |                       |        |  |              |   |        |              |  |   | 12.6         |   |  |       |         |   |  |   | 12.6    | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                     |  |                       |        |  |              |   |        |              |  |   | 147.7        |   |  |       |         |   |  |   | 147.7   | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|Total Assets                                         |  | $                     | 1,608.4 |  |              | $ | 1,676.4 |              |  | $ | 140.6        |   |  | $     | (1,361.8 | ) |  | $ | 2,063.6 | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                 |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|                                                    
|HOMEBUILDING:                                        |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities               |  | $                     | 60.6    |  |              | $ | 139.7   |              |  | $ |             |   |  | $     |         |   |  | $ | 200.3   | 
|Customer deposits                                    |  |                       |        |  |              |   | 90.8    |              |  |   |             |   |  |       |         |   |  |   | 90.8    | 
|Obligations for inventory not owned                  |  |                       |        |  |              |   | 103.6   |              |  |   |             |   |  |       |         |   |  |   | 103.6   | 
|Notes payable                                        |  |                       | 811.5   |  |              |   |        |              |  |   |             |   |  |       |         |   |  |   | 811.5   | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                     |  |                       | 872.1   |  |              |   | 334.1   |              |  |   |             |   |  |       |         |   |  |   | 1,206.2 | 
|FINANCIAL SERVICES:                                  |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities               |  |                       |        |  |              |   |        |              |  |   | 71.7         |   |  |       |         |   |  |   | 71.7    | 
|Bank borrowings                                      |  |                       |        |  |              |   |        |              |  |   | 49.4         |   |  |       |         |   |  |   | 49.4    | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|                                                     |  |                       |        |  |              |   |        |              |  |   | 121.1        |   |  |       |         |   |  |   | 121.1   | 
|Total liabilities                                    |  |                       | 872.1   |  |              |   | 334.1   |              |  |   | 121.1        |   |  |       |         |   |  |   | 1,327.3 | 
|Stockholders equity                                 |  |                       | 736.3   |  |              |   | 1,342.3 |              |  |   | 19.5         |   |  |       | (1,361.8 | ) |  |   | 736.3   | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         
|Total liabilities and stockholders equity           |  | $                     | 1,608.4 |  |              | $ | 1,676.4 |              |  | $ | 140.6        |   |  | $     | (1,361.8 | ) |  | $ | 2,063.6 | 
|                                                     |  |                       |         |  |              |   |         |              |  |   |              |   |  |       |         

13



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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Financial Condition


December 31, 2004


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

14



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Three Months Ended June 30, 2005


|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|-------------------------------------------- |  | --------------------- | ----- | - | ------------ | - | ----- | ------------ |  | - | ------------ |  |  | ----- | ----- | - |  | - | ----- | -
|                                             |  | Technical             |       |   |              |   | Non-  |              |  |   |              | 
|                                             |  | Olympic               |       |   | Guarantor    |   |       | Guarantor    |  |   | Intercompany |  |  |      
|                                             |  | USA, Inc.             |       |   | Subsidiaries |   |       | Subsidiaries |  |   | Eliminations |  |  | Total |      
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|                                             |  | (Dollars in millions) |      
|HOMEBUILDING:                                |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|Revenues                                     |  | $                     |      |   |              | $ | 615.8 |              |  | $ |             |  |  | $     |      |   |  | $ | 615.8 |  
|Cost of sales                                |  |                       |      |   |              |   | 478.1 |              |  |   |             |  |  |       |      |   |  |   | 478.1 |  
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Gross profit                                 |  |                       |      |   |              |   | 137.7 |              |  |   |             |  |  |       |      |   |  |   | 137.7 |  
|Selling, general and administrative expenses |  |                       | 15.0  |   |              |   | 64.2  |              |  |   |             |  |  |       | (2.1  | ) |  |   | 77.1  |  
|(Income) from joint ventures, net            |  |                       |      |   |              |   | (8.1  | )            |  |   |             |  |  |       |      |   |  |   | (8.1  | )
|Other (income) expense, net                  |  |                       | (68.1 | ) |              |   | 1.5   |              |  |   |             |  |  |       | 64.3  |   |  |   | (2.3  | )
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Homebuilding pretax income                   |  |                       | 53.1  |   |              |   | 80.1  |              |  |   |             |  |  |       | (62.2 | ) |  |   | 71.0  |  
|FINANCIAL SERVICES:                          |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|Revenues                                     |  |                       |      |   |              |   |      |              |  |   | 13.5         |  |  |       | (2.1  | ) |  |   | 11.4  |  
|Expenses                                     |  |                       |      |   |              |   |      |              |  |   | 10.5         |  |  |       | (1.5  | ) |  |   | 9.0   |  
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Financial Services pretax income             |  |                       |      |   |              |   |      |              |  |   | 3.0          |  |  |       | (0.6  | ) |  |   | 2.4   |  
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Income before provision for income taxes     |  |                       | 53.1  |   |              |   | 80.1  |              |  |   | 3.0          |  |  |       | (62.8 | ) |  |   | 73.4  |  
|Provision (benefit) for income taxes         |  |                       | (0.6  | ) |              |   | 27.2  |              |  |   | 1.1          |  |  |       |      |   |  |   | 27.7  |  
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Net income                                   |  | $                     | 53.7  |   |              | $ | 52.9  |              |  | $ | 1.9          |  |  | $     | (62.8 | ) |  | $ | 45.7  |  
|                                             |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      

Consolidating Statement of Income


Three Months Ended June 30, 2004


|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       | 
|-------------------------------------------------- |  | --------------------- | ----- | - | ------------ | - | ----- | ------------ |  | - | ------------ |  |  | ----- | ----- | - |  | - | ----- | 
|                                                   |  | Technical             |       |   |              |   | Non-  |              |  |   |              | 
|                                                   |  | Olympic               |       |   | Guarantor    |   |       | Guarantor    |  |   | Intercompany |  |  |      
|                                                   |  | USA, Inc.             |       |   | Subsidiaries |   |       | Subsidiaries |  |   | Eliminations |  |  | Total |      
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|                                                   |  | (Dollars in millions) |      
|HOMEBUILDING:                                      |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       | 
|Revenues                                           |  | $                     |      |   |              | $ | 498.3 |              |  | $ |             |  |  | $     |      |   |  | $ | 498.3 | 
|Cost of sales                                      |  |                       |      |   |              |   | 402.5 |              |  |   |             |  |  |       |      |   |  |   | 402.5 | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Gross profit                                       |  |                       |      |   |              |   | 95.8  |              |  |   |             |  |  |       |      |   |  |   | 95.8  | 
|Selling, general and administrative expenses       |  |                       | 10.2  |   |              |   | 51.0  |              |  |   |             |  |  |       | (1.8  | ) |  |   | 59.4  | 
|Other (income) expense, net                        |  |                       | (29.4 | ) |              |   | (0.9  | )            |  |   |             |  |  |       | 31.0  |   |  |   | 0.7   | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Homebuilding pretax income                         |  |                       | 19.2  |   |              |   | 45.7  |              |  |   |             |  |  |       | (29.2 | ) |  |   | 35.7  | 
|FINANCIAL SERVICES:                                |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       | 
|Revenues                                           |  |                       |      |   |              |   |      |              |  |   | 11.2         |  |  |       | (1.8  | ) |  |   | 9.4   | 
|Expenses                                           |  |                       |      |   |              |   |      |              |  |   | 8.4          |  |  |       | (1.5  | ) |  |   | 6.9   | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Financial Services pretax income                   |  |                       |      |   |              |   |      |              |  |   | 2.8          |  |  |       | (0.3  | ) |  |   | 2.5   | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Income before provision (benefit) for income taxes |  |                       | 19.2  |   |              |   | 45.7  |              |  |   | 2.8          |  |  |       | (29.5 | ) |  |   | 38.2  | 
|Provision (benefit) for income taxes               |  |                       | (4.9  | ) |              |   | 16.9  |              |  |   | 2.1          |  |  |       |      |   |  |   | 14.1  | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Net income                                         |  | $                     | 24.1  |   |              | $ | 28.8  |              |  | $ | 0.7          |  |  | $     | (29.5 | ) |  | $ | 24.1  | 
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      

15



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Six Months Ended June 30, 2005


|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |       |   |  |   |         |  
|-------------------------------------------- |  | --------------------- | ------ | - | ------------ | - | ------- | ------------ |  | - | ------------ |  |  | ----- | ----- | - |  | - | ------- | -
|                                             |  | Technical             |        |   |              |   | Non-    |              |  |   |              | 
|                                             |  | Olympic               |        |   | Guarantor    |   |         | Guarantor    |  |   | Intercompany |  |  |      
|                                             |  | USA, Inc.             |        |   | Subsidiaries |   |         | Subsidiaries |  |   | Eliminations |  |  | Total |      
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|                                             |  | (Dollars in millions) |       
|HOMEBUILDING:                                |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |       |   |  |   |         |  
|Revenues                                     |  | $                     |       |   |              | $ | 1,149.4 |              |  | $ |             |  |  | $     |      |   |  | $ | 1,149.4 |  
|Cost of sales                                |  |                       |       |   |              |   | 895.9   |              |  |   |             |  |  |       |      |   |  |   | 895.9   |  
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|Gross profit                                 |  |                       |       |   |              |   | 253.5   |              |  |   |             |  |  |       |      |   |  |   | 253.5   |  
|Selling, general and administrative expenses |  |                       | 36.5   |   |              |   | 123.8   |              |  |   |             |  |  |       | (3.8  | ) |  |   | 156.5   |  
|(Income) from joint ventures, net            |  |                       |       |   |              |   | (10.7   | )            |  |   |             |  |  |       |      |   |  |   | (10.7   | )
|Other (income) expense, net                  |  |                       | (107.4 | ) |              |   | 17.2    |              |  |   |             |  |  |       | 86.0  |   |  |   | (4.2    | )
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|Homebuilding pretax income                   |  |                       | 70.9   |   |              |   | 123.2   |              |  |   |             |  |  |       | (82.2 | ) |  |   | 111.9   |  
|FINANCIAL SERVICES:                          |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |       |   |  |   |         |  
|Revenues                                     |  |                       |       |   |              |   |        |              |  |   | 25.2         |  |  |       | (3.8  | ) |  |   | 21.4    |  
|Expenses                                     |  |                       |       |   |              |   |        |              |  |   | 20.1         |  |  |       | (2.4  | ) |  |   | 17.7    |  
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|Financial Services pretax income             |  |                       |       |   |              |   |        |              |  |   | 5.1          |  |  |       | (1.4  | ) |  |   | 3.7     |  
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|Income before provision for income taxes     |  |                       | 70.9   |   |              |   | 123.2   |              |  |   | 5.1          |  |  |       | (83.6 | ) |  |   | 115.6   |  
|Provision (benefit) for income taxes         |  |                       | (1.2   | ) |              |   | 43.4    |              |  |   | 1.3          |  |  |       |      |   |  |   | 43.5    |  
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      
|Net income                                   |  | $                     | 72.1   |   |              | $ | 79.8    |              |  | $ | 3.8          |  |  | $     | (83.6 | ) |  | $ | 72.1    |  
|                                             |  |                       |        |   |              |   |         |              |  |   |              |  |  |       |      

Consolidating Statement of Income


Six Months Ended June 30, 2004


|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|-------------------------------------------------- |  | --------------------- | ----- | - | ------------ | - | ----- | ------------ |  | - | ------------ |  |  | ----- | ----- | - |  | - | ----- | -
|                                                   |  | Technical             |       |   |              |   | Non-  |              |  |   |              | 
|                                                   |  | Olympic               |       |   | Guarantor    |   |       | Guarantor    |  |   | Intercompany |  |  |      
|                                                   |  | USA, Inc.             |       |   | Subsidiaries |   |       | Subsidiaries |  |   | Eliminations |  |  | Total |      
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|                                                   |  | (Dollars in millions) |      
|HOMEBUILDING:                                      |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|Revenues                                           |  | $                     |      |   |              | $ | 923.2 |              |  | $ |             |  |  | $     |      |   |  | $ | 923.2 |  
|Cost of sales                                      |  |                       |      |   |              |   | 746.8 |              |  |   |             |  |  |       |      |   |  |   | 746.8 |  
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Gross profit                                       |  |                       |      |   |              |   | 176.4 |              |  |   |             |  |  |       |      |   |  |   | 176.4 |  
|Selling, general and administrative expenses       |  |                       | 20.8  |   |              |   | 98.5  |              |  |   |             |  |  |       | (3.6  | ) |  |   | 115.7 |  
|Other (income) expense, net                        |  |                       | (54.2 | ) |              |   | (2.6  | )            |  |   |             |  |  |       | 56.3  |   |  |   | (0.5  | )
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Homebuilding pretax income                         |  |                       | 33.4  |   |              |   | 80.5  |              |  |   |             |  |  |       | (52.7 | ) |  |   | 61.2  |  
|FINANCIAL SERVICES:                                |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |       |   |  |   |       |  
|Revenues                                           |  |                       |      |   |              |   |      |              |  |   | 21.8         |  |  |       | (3.6  | ) |  |   | 18.2  |  
|Expenses                                           |  |                       |      |   |              |   |      |              |  |   | 15.2         |  |  |       | (2.7  | ) |  |   | 12.5  |  
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Financial Services pretax income                   |  |                       |      |   |              |   |      |              |  |   | 6.6          |  |  |       | (0.9  | ) |  |   | 5.7   |  
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Income before provision (benefit) for income taxes |  |                       | 33.4  |   |              |   | 80.5  |              |  |   | 6.6          |  |  |       | (53.6 | ) |  |   | 66.9  |  
|Provision (benefit) for income taxes               |  |                       | (8.8  | ) |              |   | 29.8  |              |  |   | 3.7          |  |  |       |      |   |  |   | 24.7  |  
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      
|Net income                                         |  | $                     | 42.2  |   |              | $ | 50.7  |              |  | $ | 2.9          |  |  | $     | (53.6 | ) |  | $ | 42.2  |  
|                                                   |  |                       |       |   |              |   |       |              |  |   |              |  |  |       |      

16



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


Six Months Ended June 30, 2005


|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |     |        |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | ------ | --- | ------------ | - | ------ | ------------ | ------ | - | ------------ | - | ---- | ----- | ----- | - | - | - | ------ | --- | ------ | -
|                                                                                                |                                                     | Technical                              |        |     |              |   | Non-   |              |        |   |              |  
|                                                                                                |                                                     | Olympic                                |        |     | Guarantor    |   |        | Guarantor    |        |   | Intercompany |   |      |      
|                                                                                                |                                                     | USA, Inc.                              |        |     | Subsidiaries |   |        | Subsidiaries |        |   | Eliminations |   |      | Total |      
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|                                                                                                |                                                     | (Dollars in millions)                  |       
|Cash Flows from Operating Activities:                                                           |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |    
|Net income                                                                                      |                                                     | $                                      | 72.1   |     |              | $ | 79.8   |              |        | $ | 3.8          |   |      | $     | (83.6 | ) |   | $ | 72.1   |    
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |    
|                                                                                                | Depreciation and amortization                       |                                        |        | 1.8 |              |   |        | 4.5          |        |   |              |  |      |       |       |  |   |   |        | 6.3 |       
|                                                                                                | Non-cash compensation expense                       |                                        |        | 4.8 |              |   |        |             |        |   |              |  |      |       |       |  |   |   |        | 4.8 |       
|                                                                                                | Equity in earnings from unconsolidated subsidiaries |                                        |        |    |              |   |        | 3.8          |        |   |              |  |      |       |       |  |   |   |        | 3.8 |       
|                                                                                                | Changes in operating assets and liabilities:        |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |     |       
|                                                                                                |                                                     | Restricted cash                        |        |     | (1.2         | ) |        |              | 6.3    |   |              |   | (0.9 | )     |       |   |  |   |        |     | 4.2    |  
|                                                                                                |                                                     | Inventory                              |        |     |             |   |        |              | (269.6 | ) |              |   |     |       |       |   |  |   |        |     | (269.6 | )
|                                                                                                |                                                     | Other assets                           |        |     | (30.6        | ) |        |              |       |   |              |   | (2.7 | )     |       |   |  |   |        |     | (33.3  | )
|                                                                                                |                                                     | Accounts payable and other liabilities |        |     | (5.6         | ) |        |              | 15.0   |   |              |   | 1.6  |       |       |   |  |   |        |     | 11.0   |  
|                                                                                                |                                                     | Customer deposits                      |        |     |             |   |        |              | 21.6   |   |              |   |     |       |       |   |  |   |        |     | 21.6   |  
|                                                                                                |                                                     | Mortgage loans held for sale           |        |     |             |   |        |              |       |   |              |   | 14.9 |       |       |   |  |   |        |     | 14.9   |  
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|Net cash (used in) provided by operating activities                                             |                                                     |                                        | 41.3   |     |              |   | (138.6 | )            |        |   | 16.7         |   |      |       | (83.6 | ) |   |   | (164.2 | )  
|Cash Flows from Investing Activities:                                                           |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |    
|Net additions to property and equipment                                                         |                                                     |                                        | (2.1   | )   |              |   | (3.9   | )            |        |   |             |   |      |       |      |   |   |   | (6.0   | )  
|Investments in unconsolidated joint ventures                                                    |                                                     |                                        |       |     |              |   | (19.6  | )            |        |   |             |   |      |       |      |   |   |   | (19.6  | )  
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|Net cash used in investing activities                                                           |                                                     |                                        | (2.1   | )   |              |   | (23.5  | )            |        |   |             |   |      |       |      |   |   |   | (25.6  | )  
|Cash Flows from Financing Activities:                                                           |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |       |   |   |   |        |    
|Net proceeds from Financial Services bank borrowings                                            |                                                     |                                        |       |     |              |   |       |              |        |   | 0.4          |   |      |       |      |   |   |   | 0.4    |    
|Payments for deferred financing costs                                                           |                                                     |                                        | (0.3   | )   |              |   |       |              |        |   |             |   |      |       |      |   |   |   | (0.3   | )  
|Dividends paid                                                                                  |                                                     |                                        | (1.5   | )   |              |   |       |              |        |   | (8.0         | ) |      |       | 8.0   |   |   |   | (1.5   | )  
|Increase (decrease) in intercompany transactions                                                |                                                     |                                        | (166.6 | )   |              |   | 146.8  |              |        |   | (55.8        | ) |      |       | 75.6  |   |   |   |       |    
|Other                                                                                           |                                                     |                                        | 0.2    |     |              |   |       |              |        |   |             |   |      |       |      |   |   |   | 0.2    |    
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|Net cash provided by (used in) financing activities                                             |                                                     |                                        | (168.2 | )   |              |   | 146.8  |              |        |   | (63.4        | ) |      |       | 83.6  |   |   |   | (1.2   | )  
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|(Decrease) increase in cash and cash equivalents                                                |                                                     |                                        | (129.0 | )   |              |   | (15.3  | )            |        |   | (46.7        | ) |      |       |      |   |   |   | (191.0 | )  
|Cash and cash equivalents at beginning of period                                                |                                                     |                                        | 159.3  |     |              |   | 58.3   |              |        |   | 50.9         |   |      |       |      |   |   |   | 268.5  |    
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      
|Cash and cash equivalents at end of period                                                      |                                                     | $                                      | 30.3   |     |              | $ | 43.0   |              |        | $ | 4.2          |   |      |       |      |   |   | $ | 77.5   |    
|                                                                                                |                                                     |                                        |        |     |              |   |        |              |        |   |              |   |      |       |      

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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


Six Months Ended June 30, 2004


|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |     |       |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | --- | ------------ | - | ----- | ------------ | ----- | - | ------------ | - | ---- | ----- | ----- | - | ---- | - | ----- | --- | ----- | -
|                                                                                                |                                              | Technical                              |        |     |              |   | Non-  |              |       |   |              |  
|                                                                                                |                                              | Olympic                                |        |     | Guarantor    |   |       | Guarantor    |       |   | Intercompany |   |      |      
|                                                                                                |                                              | USA, Inc.                              |        |     | Subsidiaries |   |       | Subsidiaries |       |   | Eliminations |   |      | Total |      
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|                                                                                                |                                              | (Dollars in millions)                  |       
|Cash Flows from Operating Activities:                                                           |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |    
|Net income                                                                                      |                                              | $                                      | 42.2   |     |              | $ | 50.7  |              |       | $ | 2.9          |   |      | $     | (53.6 | ) |      | $ | 42.2  |    
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |    
|                                                                                                | Depreciation and amortization                |                                        |        | 1.6 |              |   |       | 4.8          |       |   |              |  |      |       |       |  |      |   |       | 6.4 |      
|                                                                                                | Non-cash compensation expense                |                                        |        | 1.7 |              |   |       |             |       |   |              |  |      |       |       |  |      |   |       | 1.7 |      
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |     |      
|                                                                                                |                                              | Restricted cash                        |        |     | 1.5          |   |       |              | (5.6  | ) |              |   | 4.3  |       |       |   |     |   |       |     | 0.2   |  
|                                                                                                |                                              | Inventory                              |        |     | 0.3          |   |       |              | (75.2 | ) |              |   |     |       |       |   |     |   |       |     | (74.9 | )
|                                                                                                |                                              | Other assets                           |        |     | (11.7        | ) |       |              | (32.2 | ) |              |   | (1.9 | )     |       |   | 2.4  |   |       |     | (43.4 | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |     | (4.4         | ) |       |              | (20.1 | ) |              |   | (5.1 | )     |       |   | (2.4 | ) |       |     | (32.0 | )
|                                                                                                |                                              | Customer deposits                      |        |     |             |   |       |              | 21.7  |   |              |   |     |       |       |   |     |   |       |     | 21.7  |  
|                                                                                                |                                              | Mortgage loans held for sale           |        |     |             |   |       |              |      |   |              |   | 14.4 |       |       |   |     |   |       |     | 14.4  |  
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|Net cash (used in) provided by operating activities                                             |                                              |                                        | 31.2   |     |              |   | (55.9 | )            |       |   | 14.6         |   |      |       | (53.6 | ) |      |   | (63.7 | )  
|Cash Flows from Investing Activities:                                                           |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |    
|Net additions to property and equipment                                                         |                                              |                                        | (0.9   | )   |              |   | (8.3  | )            |       |   |             |   |      |       |      |   |      |   | (9.2  | )  
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |       |     |              |   | (13.9 | )            |       |   |             |   |      |       |      |   |      |   | (13.9 | )  
|Earn out consideration paid for acquisitions                                                    |                                              |                                        |       |     |              |   | (6.6  | )            |       |   |             |   |      |       |      |   |      |   | (6.6  | )  
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|Net cash used in investing activities                                                           |                                              |                                        | (0.9   | )   |              |   | (28.8 | )            |       |   |             |   |      |       |      |   |      |   | (29.7 | )  
|Cash Flows from Financing Activities:                                                           |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |       |   |      |   |       |    
|Net repayments on revolving credit facilities                                                   |                                              |                                        | (10.0  | )   |              |   |      |              |       |   |             |   |      |       |      |   |      |   | (10.0 | )  
|Proceeds from notes offering                                                                    |                                              |                                        | 125.0  |     |              |   |      |              |       |   |             |   |      |       |      |   |      |   | 125.0 |    
|Proceeds from Homebuilding bank borrowings                                                      |                                              |                                        |       |     |              |   | 1.6   |              |       |   |             |   |      |       |      |   |      |   | 1.6   |    
|Net payments on obligations for inventory not owned                                             |                                              |                                        |       |     |              |   | (5.2  | )            |       |   |             |   |      |       |      |   |      |   | (5.2  | )  
|Net repayments on Financial Services bank borrowings                                            |                                              |                                        |       |     |              |   |      |              |       |   | (9.3         | ) |      |       |      |   |      |   | (9.3  | )  
|Payments for deferred financing costs                                                           |                                              |                                        | (2.0   | )   |              |   |      |              |       |   |             |   |      |       |      |   |      |   | (2.0  | )  
|Dividends paid                                                                                  |                                              |                                        | (0.7   | )   |              |   |      |              |       |   |             |   |      |       |      |   |      |   | (0.7  | )  
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (159.9 | )   |              |   | 109.8 |              |       |   | (3.5         | ) |      |       | 53.6  |   |      |   |      |    
|Other                                                                                           |                                              |                                        | 0.2    |     |              |   | (0.8  | )            |       |   |             |   |      |       |      |   |      |   | (0.6  | )  
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|Net cash provided by (used in) financing activities                                             |                                              |                                        | (47.4  | )   |              |   | 105.4 |              |       |   | (12.8        | ) |      |       | 53.6  |   |      |   | 98.8  |    
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | (17.1  | )   |              |   | 20.7  |              |       |   | 1.8          |   |      |       |      |   |      |   | 5.4   |    
|Cash and cash equivalents at beginning of period                                                |                                              |                                        | 46.0   |     |              |   | 27.7  |              |       |   | 3.1          |   |      |       |      |   |      |   | 76.8  |    
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      
|Cash and cash equivalents at end of period                                                      |                                              | $                                      | 28.9   |     |              | $ | 48.4  |              |       | $ | 4.9          |   |      |       |      |   |      | $ | 82.2  |    
|                                                                                                |                                              |                                        |        |     |              |   |       |              |       |   |              |   |      |       |      

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

Executive Summary




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







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Critical Accounting Policies




Recent Developments




20



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##### Table of Contents



Results of Operations  Consolidated




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Three Months Ended June 30, 2005 Compared to Three
    Months Ended June 30, 2004











| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2005 Compared to Six Months
    Ended June 30, 2004









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Results of Operations




|                                   |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |       | 
|---------------------------------- |  | --------------------------- | ----- |  | ------------------------- | - | ----- | ----- |  |  | ----- |  |  | ----- | ----- |  | - |  | ----- | ----- |  | - | ------- |  |  |  | ----- |  |  | - | ----- | 
|                                   |  | Three Months Ended June 30, |       |  | Six Months Ended June 30, |  
|                                   |  |                             |       |  |                           |  
|                                   |  | 2005                        |       |  | 2004                      |   |       | 2005  |  |  | 2004  | 
|                                   |  |                             |       |  |                           |   |       |       |  |  |       | 
|                                   |  | Homes                       |       |  | $                         |   |       | Homes |  |  | $     |  |  | Homes |       |  | $ |  |       | Homes |  |   | $       | 
|                                   |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Deliveries:                        |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |       | 
|Florida                            |  |                             | 760   |  |                           | $ | 223.3 |       |  |  | 556   |  |  | $     | 147.2 |  |   |  | 1,517 |       |  | $ | 436.2   |  |  |  | 1,100 |  |  | $ | 288.7 | 
|Mid-Atlantic                       |  |                             | 155   |  |                           |   | 64.3  |       |  |  | 115   |  |  |       | 43.4  |  |   |  | 277   |       |  |   | 111.3   |  |  |  | 235   |  |  |   | 88.6  | 
|Texas                              |  |                             | 454   |  |                           |   | 110.2 |       |  |  | 470   |  |  |       | 120.1 |  |   |  | 847   |       |  |   | 204.3   |  |  |  | 889   |  |  |   | 221.2 | 
|West                               |  |                             | 643   |  |                           |   | 184.3 |       |  |  | 541   |  |  |       | 151.8 |  |   |  | 1,238 |       |  |   | 342.7   |  |  |  | 975   |  |  |   | 270.8 | 
|                                   |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Consolidated total                 |  |                             | 2,012 |  |                           |   | 582.1 |       |  |  | 1,682 |  |  |       | 462.5 |  |   |  | 3,879 |       |  |   | 1,094.5 |  |  |  | 3,199 |  |  |   | 869.3 | 
|From unconsolidated joint ventures |  |                             | 203   |  |                           |   | 65.1  |       |  |  | 2     |  |  |       | 0.6   |  |   |  | 344   |       |  |   | 103.4   |  |  |  | 2     |  |  |   | 0.6   | 
|                                   |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Total                              |  |                             | 2,215 |  |                           | $ | 647.2 |       |  |  | 1,684 |  |  | $     | 463.1 |  |   |  | 4,223 |       |  | $ | 1,197.9 |  |  |  | 3,201 |  |  | $ | 869.9 | 
|                                   |  |                             |       |  |                           |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 

|                                   |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |         | 
|---------------------------------- |  | --------------------------- | ----- |  | ------------------------- | - | ------- | ----- |  |  | ----- |  |  | ----- | ----- |  | - |  | ----- | ----- |  | - | ------- |  |  |  | ----- |  |  | - | ------- | 
|                                   |  | Three Months Ended June 30, |       |  | Six Months Ended June 30, |  
|                                   |  |                             |       |  |                           |  
|                                   |  | 2005                        |       |  | 2004                      |   |         | 2005  |  |  | 2004  | 
|                                   |  |                             |       |  |                           |   |         |       |  |  |       | 
|                                   |  | Homes                       |       |  | $                         |   |         | Homes |  |  | $     |  |  | Homes |       |  | $ |  |       | Homes |  |   | $       | 
|                                   |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Net Sales Orders(1):               |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |         | 
|Florida                            |  |                             | 776   |  |                           | $ | 261.3   |       |  |  | 971   |  |  | $     | 289.1 |  |   |  | 1,482 |       |  | $ | 514.9   |  |  |  | 2,056 |  |  | $ | 589.1   | 
|Mid-Atlantic                       |  |                             | 205   |  |                           |   | 89.5    |       |  |  | 250   |  |  |       | 110.3 |  |   |  | 396   |       |  |   | 173.4   |  |  |  | 512   |  |  |   | 220.9   | 
|Texas                              |  |                             | 735   |  |                           |   | 190.7   |       |  |  | 453   |  |  |       | 116.3 |  |   |  | 1,424 |       |  |   | 356.5   |  |  |  | 988   |  |  |   | 253.5   | 
|West                               |  |                             | 983   |  |                           |   | 310.0   |       |  |  | 971   |  |  |       | 267.2 |  |   |  | 1,818 |       |  |   | 584.6   |  |  |  | 1,818 |  |  |   | 454.0   | 
|                                   |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Consolidated total                 |  |                             | 2,699 |  |                           |   | 851.5   |       |  |  | 2,645 |  |  |       | 782.9 |  |   |  | 5,120 |       |  |   | 1,629.4 |  |  |  | 5,374 |  |  |   | 1,517.5 | 
|From unconsolidated joint ventures |  |                             | 486   |  |                           |   | 179.4   |       |  |  | 138   |  |  |       | 42.7  |  |   |  | 800   |       |  |   | 282.1   |  |  |  | 230   |  |  |   | 70.2    | 
|                                   |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Total                              |  |                             | 3,185 |  |                           | $ | 1,030.9 |       |  |  | 2,783 |  |  | $     | 825.6 |  |   |  | 5,920 |       |  | $ | 1,911.5 |  |  |  | 5,604 |  |  | $ | 1,587.7 | 
|                                   |  |                             |       |  |                           |   |         |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 






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

|                                   |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |   |         |  |  |   |     | 
|---------------------------------- |  | ------------- | ----- | ------- | ------------- | - | ------- | ----- | ------- | - | ----- |  |  | - | ----- |  | ----- | - | ------- |  |  | - | --- | 
|                                   |  | June 30, 2005 |       |         | June 30, 2004 |  
|                                   |  |               |       |         |               |  
|                                   |  |               |       | Average |               |   |         |       | Average |  
|                                   |  | Homes         |       |         | $             |   |         | Price |         |   | Homes |  |  | $ |       |  | Price |  
|                                   |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |  
|Sales Backlog:                     |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |   |         |  |  |   |     | 
|Florida                            |  |               | 2,861 |         |               | $ | 977.5   |       |         | $ | 342   |  |  |   | 2,502 |  |       | $ | 724.2   |  |  | $ | 290 | 
|Mid-Atlantic                       |  |               | 465   |         |               |   | 204.0   |       |         | $ | 439   |  |  |   | 501   |  |       |   | 220.0   |  |  | $ | 439 | 
|Texas                              |  |               | 1,120 |         |               |   | 289.6   |       |         | $ | 259   |  |  |   | 593   |  |       |   | 155.6   |  |  | $ | 262 | 
|West                               |  |               | 1,889 |         |               |   | 630.8   |       |         | $ | 334   |  |  |   | 1,707 |  |       |   | 438.0   |  |  | $ | 257 | 
|                                   |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |  
|Consolidated total                 |  |               | 6,335 |         |               |   | 2,101.9 |       |         | $ | 332   |  |  |   | 5,303 |  |       |   | 1,537.8 |  |  | $ | 290 | 
|From unconsolidated joint ventures |  |               | 1,125 |         |               |   | 389.1   |       |         | $ | 346   |  |  |   | 228   |  |       |   | 69.6    |  |  | $ | 305 | 
|                                   |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |  
|Total                              |  |               | 7,460 |         |               | $ | 2,491.0 |       |         | $ | 334   |  |  |   | 5,531 |  |       | $ | 1,607.4 |  |  | $ | 291 | 
|                                   |  |               |       |         |               |   |         |       |         |   |       |  |  |   |       |  |       |  

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|                                   |  |                             |     |       |                           |   |     |            |       |   |        |  |  |            |     |  |        |   |       |            |  |   |        |  |  |   |     |  |  |   |     | 
|---------------------------------- |  | --------------------------- | --- | ----- | ------------------------- | - | --- | ---------- | ----- | - | ------ |  |  | ---------- | --- |  | ------ | - | ----- | ---------- |  | - | ------ |  |  | - | --- |  |  | - | --- | 
|                                   |  | Three Months Ended June 30, |     |       | Six Months Ended June 30, |  
|                                   |  |                             |     |       |                           |  
|                                   |  | 2005                        |     |       | 2004                      |   |     | 2005       |       |   | 2004   | 
|                                   |  |                             |     |       |                           |   |     |            |       |   |        | 
|                                   |  |                             |     | Sales |                           |   |     |            | Sales |   |        |  |  | Sales      |     |  |        |   | Sales |           
|                                   |  | Deliveries                  |     |       | Orders                    |   |     | Deliveries |       |   | Orders |  |  | Deliveries |     |  | Orders |   |       | Deliveries |  |   | Orders | 
|                                   |  |                             |     |       |                           |   |     |            |       |   |        |  |  |            |     |  |        |   |       |            |  |   |        | 
|Average Price:                     |  |                             |     |       |                           |   |     |            |       |   |        |  |  |            |     |  |        |   |       |            |  |   |        |  |  |   |     |  |  |   |     | 
|Florida                            |  | $                           | 294 |       |                           | $ | 337 |            |       | $ | 265    |  |  | $          | 298 |  |        | $ | 288   |            |  | $ | 347    |  |  | $ | 262 |  |  | $ | 287 | 
|Mid-Atlantic                       |  | $                           | 415 |       |                           | $ | 437 |            |       | $ | 378    |  |  | $          | 441 |  |        | $ | 402   |            |  | $ | 438    |  |  | $ | 377 |  |  | $ | 432 | 
|Texas                              |  | $                           | 243 |       |                           | $ | 259 |            |       | $ | 256    |  |  | $          | 257 |  |        | $ | 241   |            |  | $ | 250    |  |  | $ | 249 |  |  | $ | 257 | 
|West                               |  | $                           | 287 |       |                           | $ | 315 |            |       | $ | 281    |  |  | $          | 275 |  |        | $ | 277   |            |  | $ | 322    |  |  | $ | 278 |  |  | $ | 250 | 
|Consolidated total                 |  | $                           | 289 |       |                           | $ | 316 |            |       | $ | 275    |  |  | $          | 296 |  |        | $ | 282   |            |  | $ | 318    |  |  | $ | 272 |  |  | $ | 282 | 
|From unconsolidated joint ventures |  | $                           | 321 |       |                           | $ | 369 |            |       | $ | 309    |  |  | $          | 309 |  |        | $ | 301   |            |  | $ | 353    |  |  | $ | 309 |  |  | $ | 305 | 
|Total                              |  | $                           | 292 |       |                           | $ | 324 |            |       | $ | 275    |  |  | $          | 297 |  |        | $ | 284   |            |  | $ | 323    |  |  | $ | 272 |  |  | $ | 283 | 



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Three Months Ended June 30, 2005 Compared to Three
    Months Ended June 30, 2004









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##### Table of Contents









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







| |                                               
| | ----------------------------------------------
| | Backlog Sales Value (excluding joint ventures)





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





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##### Table of Contents





| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2005 Compared to Six Months
    Ended June 30, 2004













| |                                            
| | -------------------------------------------
| | Net Sales Orders (including joint ventures)



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##### Table of Contents





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





FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES




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











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##### Table of Contents







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

3 8 1 2 1 2


pari passu pari passu




|                           |  |                     |         |   |              |   |         |  
|-------------------------- |  | ------------------- | ------- | - | ------------ | - | ------- | -
|                           |  | Homebuilding        |        
|                           |  | Net Debt to Capital |        
|                           |  |                     |        
|                           |  | June 30,            |         |   | December 31, |  
|                           |  | 2005                |         |   | 2004         |  
|                           |  |                     |         |   |              |  
|Notes payable              |  | $                   | 811.5   |   |              | $ | 811.4   |  
|Bank borrowings            |  |                     |        |   |              |   |        |  
|                           |  |                     |         |   |              |  
|Homebuilding borrowings(1) |  | $                   | 811.5   |   |              | $ | 811.4   |  
|Less: unrestricted cash    |  |                     | 73.3    |   |              |   | 217.6   |  
|                           |  |                     |         |   |              |  
|Homebuilding net debt      |  | $                   | 738.2   |   |              | $ | 593.8   |  
|Stockholders equity       |  |                     | 736.3   |   |              |   | 662.7   |  
|                           |  |                     |         |   |              |  
|Total capital(2)           |  | $                   | 1,474.5 |   |              | $ | 1,256.5 |  
|                           |  |                     |         |   |              |  
|Ratio                      |  |                     | 50.1    | % |              |   | 47.3    | %






|    |                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include obligations for inventory not owned of
    $103.6 million at June 30, 2005 and
    $136.2 million at December 31, 2004, all of which are
    non-recourse to us.
|   
|(2) | Does not include Financial Services bank borrowings of
    $49.4 million at June 30, 2005 and $49.0 million
    at December 31, 2004.                                            



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



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



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##### Table of Contents









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





DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding our continued use of option
    contracts, investments in unconsolidated joint ventures and
    other off-balance sheet arrangements to control homesites and
    manage our business and their effect on our business;
|
| |  | our expectations regarding the labor and supply shortages in
    Florida resulting from the recent hurricanes;                                                                                                                                    
|
| |  | our expectations regarding our use of cash in operations;                                                                                                                                                                                         
|
| |  | our expectations regarding future land sales;                                                                                                                                                                                                     
|
| |  | our expectation that our rate of converting sales backlog units
    to deliveries will improve in the last half of 2005;                                                                                                                          

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##### Table of Contents





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our estimate that we have adequate financial resources to meet
    our current and anticipated working capital, including our
    annual debt service payments, and land acquisition and
    development needs; and
|
| |  | our expectations regarding the impact on our business and
    profits of phasing sales in some of our high demand markets.                                                                                         





| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our significant level of debt and the impact of the restrictions
    imposed on us by the terms of this debt;                                                                                                                                                                                                  
|
| |  | our ability to borrow or otherwise finance our business in the
    future;                                                                                                                                                                                                                                     
|
| |  | our ability to identify and acquire, at anticipated prices,
    additional homebuilding opportunities and/or to effect our
    growth strategies;                                                                                                                                                              
|
| |  | our relationship with Technical Olympic, S.A. and its control
    over our business activities;                                                                                                                                                                                                                
|
| |  | economic or other business conditions that affect the desire or
    ability of our customers to purchase new homes in markets in
    which we conduct our business, such as increases in interest or
    unemployment rates or decline in consumer confidence or the
    demand for, or the prices of, housing;
|
| |  | events which would impede our ability to open new communities
    and/or deliver homes within anticipated timeframes and/or within
    anticipated budgets;                                                                                                                                                    
|
| |  | an increase in interest rates;                                                                                                                                                                                                                                                                                 
|
| |  | an increase in the cost, or shortages in the availability of,
    labor and materials;                                                                                                                                                                                                                         
|
| |  | our ability to compete in our existing and future markets;                                                                                                                                                                                                                                                     
|
| |  | our ability to successfully utilize and recognize the
    anticipated benefits of joint venture and option contracts;                                                                                                                                                                                          
|
| |  | the impact of hurricanes, tornadoes or other natural disasters
    or weather conditions on our business, including the potential
    for shortages and increased costs of materials and qualified
    labor and the potential for delays in construction and obtaining
    government approvals; and          
|
| |  | an increase or change in governmental regulations, or in the
    interpretation and/or enforcement of existing governmental
    regulations.                                                                                                                                                                   






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK





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##### Table of Contents












|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES






PART II. OTHER INFORMATION







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



Election of Directors


|                     |  |     |            |  |          |  |           | 
|-------------------- |  | --- | ---------- |  | -------- |  | --------- | 
|Name of Nominee      |  | For |            |  | Withheld | 
|                     |  |     |            |  |          | 
|Konstantinos Stengos |  |     | 46,902,708 |  |          |  | 6,025,232 | 
|Antonio B. Mon       |  |     | 46,917,277 |  |          |  | 6,010,663 | 
|Andreas Stengos      |  |     | 46,891,382 |  |          |  | 6,036,558 | 
|George Stengos       |  |     | 46,894,916 |  |          |  | 6,033,024 | 
|Marianna Stengou     |  |     | 46,891,757 |  |          |  | 6,036,183 | 
|Larry D. Horner      |  |     | 52,793,715 |  |          |  | 134,225   | 
|William A. Hasler    |  |     | 47,149,315 |  |          |  | 5,778,625 | 
|Michael J. Poulos    |  |     | 52,609,548 |  |          |  | 318,392   | 
|Susan B. Parks       |  |     | 52,809,990 |  |          |  | 117,950   | 
|Bryan J. Whitworth   |  |     | 52,800,280 |  |          |  | 127,660   | 






|        |                  
|------- | -----------------
|ITEM 5. | OTHER INFORMATION



| |                             
| | ----------------------------
| | Amendment to Credit Facility



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|        |         
|------- | --------
|ITEM 6. | EXHIBITS

|        |    |             |  |                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .31         |  | Asset Purchase Agreement, dated as of June 6, 2005, among
    EH/Transeastern, LLC, Transeastern Properties, Inc. and the
    other sellers identified therein, Arthur J. Falcone and Edward
    W. Falcone.                        
|       
|        | 10 | .32         |  | Amendment No. 1, dated as of July 28, 2005, to the
    Credit Agreement dated as of October 26, 2004 among
    Technical Olympic USA, Inc., Citicorp North America, Inc., as
    administrative agent and the Lenders party thereto.
|       
|        | 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.                                                                                                                             

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SIGNATURES






| |                            
| | ---------------------------
| | Technical Olympic USA, Inc.



| |     |                    
| | --- | -------------------
| | By: | /s/ David J. Keller

| |                      
| | ---------------------
| |                      
| | Name: David J. Keller

| |        |                       
| | ------ | ----------------------
| | Title: | Senior Vice President,

| |                                      
| | -------------------------------------
| | Chief Financial Officer and Treasurer





| |     |                    
| | --- | -------------------
| | By: | /s/ Randy L. Kotler

| |                       
| | ----------------------
| |                       
| | Name:  Randy L. Kotler

| |        |                                        
| | ------ | ---------------------------------------
| | Title: | Vice President-Chief Accounting Officer



33