PART I. FINANCIAL INFORMATION

See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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BEAZER HOMES USA, INC.

granted to employees because all stock options granted had exercise prices not less than the market value of Beazer Homes’ stock on the date of the grant in periods prior to fiscal year 2006.

SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after the required effective date, as well as to the unvested portion of awards outstanding as of the required effective date.  The Company uses the Black-Scholes model to value its new stock option grants under SFAS 123R, applying the “modified prospective method” for existing grants which requires the Company to value stock options prior to its adoption of SFAS 123R under the fair value method and expense the unvested portion over the remaining vesting period.  SFAS 123R also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation.  In addition, SFAS 123R requires the Company to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash inflow upon adoption and an operating cash outflow.

Nonvested stock granted to employees is valued based on the market price of the common stock on the date of the grant.  Performance based, nonvested stock granted to employees is valued using the Monte Carlo valuation method.  The Company accounts for stock awards issued to non-employees under the recognition and measurement principles of SFAS 123R and Emerging Issues Task Force Issue No. 96-18: Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services .  Stock options issued to non-employees are valued using the Black-Scholes option pricing model.  Nonvested stock granted to non-employees is initially valued based on the market price of the common stock on the date of the grant and is adjusted to fair value until vested.

Compensation cost arising from nonvested stock granted to employees and from non-employee stock awards is recognized as expense using the straight-line method over the vesting period. Unearned compensation is now included in paid-in capital in accordance with SFAS 123R.  As of March 31, 2006, there was $35.5 million of total unrecognized compensation cost related to nonvested stock.  That cost is expected to be recognized over a weighted average period of 4.5 years.  For the three months and six months ended March 31, 2006, the Company’s total stock-based compensation expense was $3.7 million ($2.7 million net of tax) and $6.0 million ($4.1 million net of tax), respectively.  Included in this total stock-based compensation expense was incremental expense for stock options of $1.8 million ($1.1 million net of tax) and $2.9 million ($1.8 million net of tax) for the three months and six months ended March 31, 2006, respectively.

The following table summarizes nonvested stock awards as of March 31, 2006, as well as activity for the three and six months then ended.

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The following table illustrates the effect (in thousands, except per share amounts) on net income and earnings per share for the three and six months ended March 31, 2005 as if the Company’s stock-based compensation had been determined based on the fair value at the grant dates for awards made prior to fiscal 2006, under those plans and consistent with SFAS 123R:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. For grants issued in the second quarter of fiscal 2006, weighted average assumptions used to determine grant date fair value included a risk free interest rate of 4.51%, an expected life of 5.5 years and an expected volatility of 42.55%.  Expected life of the options granted is computed using the mid-point between the vesting period and contractual life of the options granted.  Expected volatilities are based on the historical volatility of the Company’s stock and other factors.  Expected discrete dividends of $0.10 per quarter are assumed in lieu of a continuously compounding dividend yield.  There were no option grants in the second quarter of fiscal 2005.

The following table summarizes stock options outstanding as of March 31, 2006 as well as activity during the three and six months then ended:

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At March 31, 2006, the weighted-average remaining contractual life for both all options outstanding and options currently exercisable was 6.0 years.

At March 31, 2006, the aggregate intrinsic value of options outstanding and options exercisable was $49.5 million and $34.6 million, respectively.  Valuations of the options granted and exercised during the period is as follows.  (The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.):

(3) Inventory

Inventory consists of (in thousands):

Homes under construction includes homes finished and ready for delivery and homes in various stages of construction.  Excluding model homes, Beazer Homes had 632 completed homes (valued at $128.4 million) and 414 completed homes (valued at $72.2 million) at March 31, 2006 and September 30, 2005, respectively, which were not subject to a sales contract.

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Development projects in progress consist principally of land and land improvement costs.  Certain of the fully developed lots in this category are reserved by a deposit or sales contract.

The Company acquires certain lots by means of option contracts.   Option contracts generally require the payment of cash for the right to acquire lots during a specified period of time at a certain price.  Under option contracts, both with and without specific performance provisions, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers.  Beazer Homes’ obligation with respect to options with specific performance provisions is included on the Company’s consolidated balance sheets in other liabilities.  Under option contracts without specific performance obligations, the Company’s liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $351.8 million at March 31, 2006.  This amount includes letters of credit of approximately $55.6 million.  Below is a summary of amounts, net of cash deposits, committed under all options at March 31, 2006 (in thousands) :

Certain of the Company’s option contracts are with sellers who are deemed to be Variable Interest Entities (“VIE”s) under FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN 46”).  FIN 46 defines a VIE as an entity with insufficient equity investment to finance its planned activities without additional financial support or an entity in which the equity investors lack certain characteristics of a controlling financial interest.  Pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses or receives a majority of the expected residual returns of a VIE is deemed to be the primary beneficiary of the VIE and must consolidate the VIE.

The Company has determined that Beazer Homes is the primary beneficiary of certain of these option contracts.  The Company’s risk is generally limited to the option deposits that it pays, and creditors of the sellers generally have no recourse to the general credit of the Company.  Although Beazer Homes does not have legal title to the optioned land, for those option contracts for which the Company is the primary beneficiary, Beazer Homes is required to consolidate the land under option at fair value.  The Company believes that the exercise prices of its option contracts approximate their fair value.  The Company’s consolidated balance sheets at March 31, 2006 and September 30, 2005 reflect consolidated inventory not owned of $336.5 million and $230.1 million, respectively.  Obligations related to consolidated inventory not owned totaled $244.4 million at March 31, 2006 and $166.2 million at September 30, 2005.  The difference between the balances of consolidated inventory not owned and obligations related to consolidated inventory not owned represents cash deposits paid under the option agreements.   The above disclosures of amounts committed under options include Beazer Homes’ obligations related to consolidated inventory not owned.

(4) Investments in and Advances to Unconsolidated Joint Ventures

The Company participates in a number of land development joint ventures in which Beazer Homes has less than a controlling interest.  The Company’s joint ventures are typically entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the joint venture’s members and other

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third parties.  Beazer Homes accounts for its interest in these joint ventures under the equity method.  The Company recognizes its share of profits from the sale of lots to other buyers.  Beazer Homes’ share of profits from lots purchased from the joint ventures are deferred and treated as a reduction of the cost of the land purchased from the joint venture.  Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer.

The Company’s joint ventures typically obtain secured acquisition and development financing.  In some instances, Beazer Homes and its joint venture partners have provided varying levels of guarantees of debt of the Company’s unconsolidated joint ventures.  At March 31, 2006, the Company had a repayment guarantee of $10.7 million related to our portion of debt of one of our unconsolidated joint ventures and loan-to-value maintenance guarantees of $32.9 million related to certain of our unconsolidated joint ventures.  The repayment guarantee requires the repayment of Beazer Homes’ share of debt of the unconsolidated joint venture in the event the joint venture defaults on its obligations under the borrowings.  The loan-to-value maintenance guarantees only apply if the borrowings of the unconsolidated joint venture exceed a specified percentage of the value of the collateral (generally land and improvements) securing the borrowings. The Company has not recorded a liability for the non-contingent aspect of these guarantees as such amounts are not material.  In assessing the need to record a liability for the contingent aspect of these guarantees, the Company considers its historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees and the financial condition of the applicable unconsolidated joint ventures.  In addition, the Company monitors the fair value of the collateral of these unconsolidated joint ventures to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings.  To date, Beazer has not incurred any obligations related to repayment or loan-to-value maintenance guarantees.  Based on these considerations, the Company has determined that it is remote that it will have to perform under the contingent aspects of these guarantees and, as a result, has not recorded a liability for the contingent aspects of these guarantees.  To the extent the recording of a liability related to such guarantees would be required, the recognition of such liability would result in an increase to the carrying value of the Company’s investment in the associated joint venture.

(5) Interest

The following table sets forth certain information regarding interest (in thousands):

(6) Earnings Per Share

Basic and diluted earnings (loss) per share were calculated as follows (in thousands, except per share amounts):

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Emerging Task Force Issue No. 04-8: The Effect of Contingently Convertible Debt on Diluted Earnings Per Share (“EITF 04-8”) requires that shares issuable upon conversion of contingently convertible debt instruments (“Co-Cos”) be included in diluted earnings per share computations using the “if-converted method” regardless of whether the issuer’s stock price exceeds the contingent conversion price.  EITF 04-8 applies to the Company’s 4 ⅝% Convertible Senior Notes issued in June 2004.  The calculation of diluted loss per share for the three and six months ended March 31, 2005 excludes the impact of EITF 04-8 because its inclusion would be antidilutive.  Options to purchase 230,653 shares of common stock were not included in the computation of diluted earnings per share for the six months ended March 31, 2006, because the options’ exercise price was greater than the average market price of the common shares during that period.  There were no anti-dilutive shares outstanding during the three months ended March 31, 2006 or the three or six months ending March 31, 2005.

(7) Borrowings

At March 31, 2006 we had the following borrowings (in thousands) :

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Warehouse Line – Effective January 11, 2006, Beazer Mortgage entered into a 364-day credit agreement with a number of banks to fund the origination of residential mortgage loans (the “Warehouse Line”).  The Warehouse Line provides for a maximum available borrowing capacity of $250 million to $350 million based on commitment periods as defined in the Warehouse Line and is secured by certain mortgage loan sales and related property.  The Warehouse Line is not guaranteed by Beazer Homes USA, Inc. or any of its subsidiaries that are guarantors of the Senior Notes or Revolving Credit Facility.  Beginning in the current quarter, Beazer Mortgage finances a portion of its mortgage lending activities with borrowings under the Warehouse Line.  Borrowings under the Warehouse Line were $28.1 million and bore interest at 5.83% as of March 31, 2006.  Beazer Mortgage had a pipeline of loans in process of approximately $1.6 billion as of March 31, 2006 which may be financed either through the Warehouse Line or the third party investors.

The Warehouse Line contains various operating and financial covenants.  The Company was in compliance with such covenants at March 31, 2006.

Revolving Credit Facility - In August 2005 we entered into a new $750 million (expandable up to $1 billion), four-year unsecured revolving credit facility (the “Revolving Credit Facility”) with a group of banks, which matures in August 2009. The Revolving Credit Facility replaced our former $550 million revolving credit facility and $200 million term loan.  The Revolving Credit Facility includes a $50 million swing line commitment and has a $350 million sublimit for the issuance of standby letters of credit.  Substantially all of the Company’s significant subsidiaries are guarantors of the obligations under the Revolving Credit Facility (see Note 11).  The Revolving Credit Facility contains various operating and financial covenants.  The Company was in compliance with such covenants at March 31, 2006.  The Company has the option to elect two types of loans under the Revolving Credit Facility which incur interest as applicable based on either the Alternative Base Rate or the Applicable Eurodollar Margin (both as defined in the Revolving Credit Facility).

Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, lots under development, raw land and accounts receivable.   At March 31, 2006, we had $136.6 million of borrowings outstanding, and had available borrowings of $481.6 million under the Revolving Credit Facility.  The borrowings outstanding under the Revolving Credit Facility bore interest at 5.78% as of March 31, 2006.  There were no borrowings outstanding under the Revolving Credit Facility at September 30, 2005.

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Senior Notes - The Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness.  Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and our obligations under the Revolving Credit Facility, and are jointly and severally liable for obligations under the Senior Notes and the Revolving Credit Facility.  Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.

The indentures under which the Senior Notes were issued contain certain restrictive covenants, including limitations on payment of dividends.  At March 31, 2006, under the most restrictive covenants of each indenture, approximately $221.3 million of our retained earnings was available for cash dividends and for share repurchases.  Each indenture provides that, in the event of defined changes in control or if our consolidated tangible net worth falls below a specified level or in certain circumstances upon a sale of assets, we are required to offer to repurchase certain specified amounts of outstanding Senior Notes.

We periodically acquire land through the issuance of notes payable.  As of March 31, 2006 and September 30, 2005, we had outstanding notes payable of $73.3 million and $46.1 million related to land acquisitions, respectively.  These notes payable expire at various times through 2010 at variable rates ranging from 5.0% to 10.3% at March 31, 2006.

(8) Contingencies

Trinity Claims – Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions that include claims related to moisture intrusion and mold.  The Company has experienced a significant number of such claims in its Midwest region and particularly with respect to homes built by Trinity Homes LLC, a subsidiary which was acquired in the Crossmann acquisition in 2002.

As of March 31, 2006, there were eleven pending lawsuits related to such complaints received by Trinity.  All eleven suits are by individual homeowners, and the cost to resolve these matters is not expected to be material, either individually or in the aggregate.  Additionally, a class action suit was filed in the State of Indiana in August 2003 against Trinity Homes LLC.  The parties in the class action reached a settlement agreement which was approved by the court on October 20, 2004.

The settlement class includes, with certain exclusions, the current owners of all Trinity homes that have brick veneer, where the closing of Trinity’s initial sale of the home took place between June 1, 1998 and October 31, 2002.  The settlement agreement establishes an agreed protocol and process for assessment and remediation of any external water intrusion issues at the homes which includes, among other things, that the homes will be repaired at Trinity’s expense.  The settlement agreement also provides for payment of plaintiffs’ attorneys’ fees and for Trinity to pay an agreed amount for engineering inspection costs for each home for which a claim is filed under the settlement.

Under the settlement, subject to Trinity’s timely performance of the specified assessments and remediation activities for homeowners who file claims, each homeowner releases Trinity, Beazer Homes Investment Corp. and other affiliated companies, including Beazer Homes, from the claims asserted in the class action lawsuit, claims arising out of external water intrusion, claims of improper brick installation, including property damage claims, loss or diminution of property value claims, and most personal injury claims, among others.  No appeals of the court’s order approving the settlement were received by the court within the timeframe established by the

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court.  The Company sent out the claims notices on December 17, 2004, and the class members had until February 15, 2005 to file claims.  A total of 1,312 valid claims were filed (of the 2,161 total class members), of which 613 complaints had been received prior to the Company’s receipt of the claim notices.  Class members who did not file a claim by February 15, 2005 are no longer able to file a class action claim under the settlement or pursue an individual claim against Trinity.  As of March 31, 2006, the Company had completed remediation of 479 homes related to 1,770 total Trinity claims.

Beazer Homes’ warranty reserves at March 31, 2006 and September 30, 2005 include accruals for the Company’s estimated costs to assess and remediate all homes for which Trinity had received complaints related to moisture intrusion and mold, including a provision for legal fees.  Warranty reserves also include accruals for class action claims received, pursuant to the settlement discussed above, from class members who had not previously contacted Trinity with complaints.

The cost to assess and remediate a home depends on the extent of moisture damage, if any, that the home has incurred.  Homes for which the Company receives complaints are classified into one of three categories: 1) homes with no moisture damage, 2) homes with isolated moisture damage or 3) homes with extensive moisture damage.

As of March 31, 2006 and September 30, 2005, the Company accrued for its estimated cost to remediate homes that it had assessed and assigned to one of the above categories, as well as the Company’s estimated cost to remediate those homes for which an assessment had not yet been performed.  For purposes of the Company’s accrual, the Company has historically assigned homes not yet assessed to categories based on its expectations about the extent of damage and trends observed from the results of assessments performed to date.  In addition, the Company refined its cost estimation process to consider the subdivision of the claimant along with the categorization discussed above.  Once a home is categorized, detailed budgets are used as the basis to prepare the Company’s estimated costs to remediate such home.

During fiscal 2004, the Company initiated a program under which it offered to repurchase a limited number of homes from specific homeowners.  The program was concluded during the first quarter of fiscal 2005.  The Company has repurchased a total of 54 homes under the program.  During the six months ended March 31, 2006, the Company sold four of the repurchased homes.  The remaining 44 homes were acquired for an aggregate purchase price of $14.6 million.  The accrual at March 31, 2006 includes the estimated costs to sell homes that the Company has repurchased, and the Company’s estimated losses on the sale of those homes, if any.

Changes in the accrual for Trinity moisture intrusion and related mold issues during the period were as follows (in thousands):

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The accruals at March 31, 2006 represent the Company’s best estimates of the costs to resolve all asserted complaints.  During the quarter ended March 31, 2006, the Company adjusted its estimate of these costs and the related accruals based on historical experience in resolving such complaints. Actual costs to assess and remediate homes in each category and subdivision, the extent of damage to homes not yet assessed, estimates of costs to sell repurchased homes, and losses on such sales could differ from the Company’s estimates.  As a result, the costs to resolve existing complaints could differ from the Company’s recorded accruals and have a material adverse effect on the Company’s earnings in the periods in which the matters are resolved.   Additionally, it is possible that the Company will incur additional losses related to these matters, including additional losses related to homes for which the Company has not yet received complaints.  However, the amount or range of such losses cannot be determined at this time.

Warranty Reserves – Beazer Homes provides a limited warranty (ranging from one to two years) of workmanship and materials with each of its homes. Such warranty covers defects in plumbing, electrical, heating, cooling and ventilating systems and construction defects. In addition, the Company provides a limited warranty (generally ranging from a minimum of ten years up to the period covered by the applicable statute of repose) with each home, covering only certain defined construction defects. Since Beazer Homes subcontracts its homebuilding work to subcontractors who generally provide the Company with an indemnity and a certificate of insurance prior to receiving payments for their work, many claims relating to workmanship and materials are the primary responsibility of the subcontractors.

As noted above, the Company’s warranty reserves at March 31, 2006 and September 30, 2005 include accruals for Trinity moisture intrusion and related mold issues.  Warranty reserves are included in other payables and accrued liabilities in the condensed consolidated balance sheets.  The Company records reserves covering anticipated warranty expense for each home closed.  Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly.  While the Company believes that its warranty reserves are adequate, historical data and trends may not accurately predict actual warranty costs, or future developments could lead to a significant change in the reserve.

Changes in the Company’s warranty reserves, which include amounts related to the Trinity moisture intrusion and mold issues discussed above,  during the period are as follows (in thousands):

Other Contingencies - The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions, including matters relating to moisture intrusion and related mold claims, construction defects and product liability.  Certain of the liabilities resulting from these actions are covered in whole or part by insurance.  With respect to certain general liability exposures, including construction defect, moisture intrusion and related mold claims and product liability claims,

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interpretation of underlying current and future trends, assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of these exposures, with each exposure exhibiting unique circumstances.  In particular, for construction defect liability there is a high degree of uncertainty relating to the extent of insurance coverage, when losses occur, the size of each loss, expectations for future interpretive rulings concerning contract provisions, possible recovery against other responsible parties, and the extent to which the assertion of these claims will expand geographically.  In the Company’s opinion, based on its current assessment, the ultimate resolution of these matters will not have a material adverse effect on Beazer Homes’ financial condition, results of operations, or cash flows.

We had outstanding letters of credit and performance bonds of approximately $551.6 million and $70.1 million, respectively, at March 31, 2006 related principally to our obligations to local governments to construct roads and other improvements in various developments in addition to the letters of credit of approximately $68.7 million relating to our land option contracts discussed in Note 3. We do not believe that any such letters of credit or bonds are likely to be drawn upon.

(9)  Stock Repurchase Program

On November 18, 2005, as part of an acceleration of Beazer’s comprehensive plan to enhance stockholder value, the Company’s Board of Directors authorized an increase in the Company’s stock repurchase plan to ten million shares of the Company’s common stock.  The Company has entered into a plan under Rule 10b5-1 of the Securities Act of 1934 to execute a portion of the share repurchase program, and may also make opportunistic purchases in the open market or in privately negotiated transactions.  During the six months ended March 31, 2006, the Company repurchased 2,021,800 shares for an aggregate purchase price of $133.2 million or approximately $66 per share pursuant to the plan.

(10)  Other Events

The staff of the Securities and Exchange Commission (the “SEC Staff”) recently completed a periodic review of the Company’s Annual Report on Form 10-K as of September 30, 2005 and Quarterly Report on Form 10-Q as of December 31, 2005 and issued a letter (the “Comment Letter”) commenting on certain aspects of those reports.  The Company believes that all issues raised in the Comment Letter have been resolved, with one exception.  The SEC Staff asked the Company to provide a supplemental analysis supporting its aggregation of its homebuilding operations into one reportable segment.  The Company has provided detailed support for its position; however, the SEC Staff has not agreed with the Company's position.  The Company has now appealed the SEC Staff's position to the Office of the Chief Accountant and, as a result, this issue remains unresolved.  There can be no certainty that the SEC ultimately will agree with our position.  If the SEC does disagree with the Company's position, the Company may be required to amend certain prior filings to provide additional segment reporting footnote disclosure.  As a result of this outstanding comment, the Company's auditors have not finalized their review of the Company's interim financial statements included in this filing.

(11)  Supplemental Guarantor Information

As discussed in Note 7, Beazer Homes’ obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of its subsidiaries.  The guarantees are full

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and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc.  The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.