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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

or

For the transition period from              to             

Commission File Number: 0-23270

Dominion Homes, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 614-356-5000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: common shares without par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer.    Yes  x    No  ¨

The aggregate market value of our common shares held by non-affiliates was $85,845,000 on June 30, 2004. For this purpose, non-affiliates are defined to be all shareholders of the registrant other than its directors and executive officers and its largest shareholder, BRC Properties Inc.

As of February 28, 2005, there were 8,231,515 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders are incorporated by reference in Part III.

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PART I

Item 1. BUSINESS

All references to “we,” “us,” and “our”, “Dominion,” or the “Company” in this Annual Report on Form 10-K mean Dominion Homes, Inc. and its consolidated subsidiaries, except where it is made clear that the term only means the parent company.

Overview

We are a leading builder of high-quality homes in Central Ohio and Louisville, Kentucky. During 2004, we expanded our operations to the Lexington, Kentucky market. Our customer-driven focus targets entry-level and move-up home buyers. We offer a variety of homes that are differentiated by price, size, standard features and available options. Our homes range in price from approximately $110,000 to more than $350,000 and in size from approximately 1,000 to 3,500 square feet.

We trace our homebuilding roots to 1952 when Donald A. Borror, our Chairman Emeritus, built his first home in Columbus, Ohio. Donald Borror and the Borror family grew the homebuilding business, and operated it as part of the homebuilding and related divisions of BRC Properties Inc. (“BRC”). We were organized as an Ohio corporation in October 1993 under the name Borror Corporation in anticipation of our initial public offering, which we completed in March 1994. In connection with the initial public offering, we acquired from BRC, our predecessor company and our largest shareholder, its homebuilding operations. BRC is primarily owned and is controlled by the Borror family. In May 1997, we changed our name to Dominion Homes, Inc.

In late 2004, we reorganized our existing management structure by dividing our Central Ohio homebuilding operations into two divisions - Single Family and Communities. The Single Family division encompasses all phases of selling and of building our traditional homes in Central Ohio, which are marketed as our Celebration and Tradition Series of homes. The Communities division encompasses all phases of selling and building our more affordable homes, which are marketed as Independence and Metropolitan Series homes. We continue to maintain a separate division for our Kentucky homebuilding operations, which has been in place since 1998. We believe that this management reorganization will result in additional efficiencies and position the Company for future growth.

Our principal corporate offices are located at 5000 Tuttle Crossing Blvd., Dublin, Ohio 43016. The telephone number of our principal corporate offices is (614) 356-5000 and our web site address is www.dominionhomes.com.

Our Markets

We presently build homes in three markets, Central Ohio, Louisville, Kentucky and Lexington, Kentucky. We had our first home sale in Lexington during the third quarter of 2004 and our first home delivery during the fourth quarter of 2004. Each of our markets has diverse economic and employment bases with steady population growth over the last 10 years. We believe we are the largest homebuilding company in both the Central Ohio and Louisville, Kentucky markets, based on the number of new homes delivered.

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In 2004, we delivered approximately 26% of all new homes in the Central Ohio market, as reported in an annual housing report for 2004 prepared by a Columbus, Ohio based real estate service that is unaffiliated with the Company. Columbus is the capital of Ohio, the county seat of Franklin County and the largest city in Ohio. The Columbus Metropolitan Statistical Area (the “Columbus MSA”) has a population of approximately 1.5 million. As of December 2004, the unemployment rate in the Columbus MSA was 5.0% and the national average was 5.4%. Columbus is the home of The Ohio State University. In addition, a number of notable organizations have their headquarters in Central Ohio, including Honda of America Manufacturing, Inc., American Electric Power Company, Inc., The Limited, Inc., Nationwide Insurance Company, Wendy’s International, Inc., Battelle Memorial Institute, The Scotts Company and Cardinal Health, Inc. The Columbus MSA includes Delaware, Fairfield, Franklin, Licking, Madison, Morrow, Pickaway and Union County. We build homes in all of these counties, except Madison and Morrow Counties. In addition, to the Columbus MSA, we also build homes in Marion County, which is in Central Ohio.

In 1998, we expanded our operations into Louisville, Kentucky. In 2004, we believe that we delivered approximately 7% of all new homes in the Louisville market based on the total number of permits issued in 2004 in the Louisville Metropolitan Statistical Area (the “Louisville MSA”). The Louisville MSA has a population of approximately 1.0 million. As of December 2004, the unemployment rate in the Louisville MSA was 4.3%. Louisville is the home of the University of Louisville and the headquarters for major corporations such as Humana, Inc., Yum! Brands, Inc. and KFC Corporation. Other major employers in Louisville include GE Appliance, Ford Motor Company and United Parcel Service, Inc. The Louisville MSA consists of Jefferson, Oldham, Bullitt, Trimble, Nelson, Meade, Spencer, Shelby and Henry Counties in Kentucky and Harrison, Floyd, Clark and Washington Counties in Southern Indiana. We presently build homes in Jefferson, Oldham, Shelby and Clark counties.

In the fourth quarter of 2003, we announced our expansion into Lexington, Kentucky. We chose Lexington because of its strong economy, its proximity to our existing operations in Louisville and our ability to share many systems and personnel in developing communities and building homes in both of our Kentucky locations. The Lexington Metropolitan Statistical Area (the “Lexington MSA”) has a population of approximately 500,000. At December 31, 2004, the unemployment rate in the Lexington MSA was 3.0%. Lexington is the home of the University of Kentucky, Toyota Motor Manufacturing Kentucky, Inc. and Lexmark International. The Lexington MSA consists of Bourbon, Clark, Fayette, Jessamine, Scott and Woodford counties. We presently build homes in Fayette and Scott counties.

Our Products

We focus on providing high-quality, affordably priced homes primarily for entry-level and first-time move-up home buyers. We currently offer four distinct series of homes, which are differentiated by price, size, standard features and available options. Generally, the design of our homes allows them to be built in any one of our three markets, depending on the availability of compatible land sites.

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We regularly build prototypes of new home designs in order to expand our target markets. Our Independence Series and Metropolitan Series homes both resulted from successful prototype designs.

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Community Development

Our community development process generally consists of two phases: (1) land acquisition and development, and (2) home construction.

Land Acquisition and Development. One of our key strengths is our ability to identify and economically acquire land to be developed for our homebuilding operations. During 2004, we were the developer of over 90% of the communities in which we built homes. This practice enables us to: (1) improve our profit margins by reducing the cost of finished lots, (2) maintain an adequate supply of finished lots to meet market demand, (3) control the details of development in order to create a distinctive look and feel in our communities, and (4) streamline and coordinate the construction process.

We believe that our understanding of our homebuilding markets gives us an advantage in identifying and acquiring unimproved land with good market potential. In considering the suitability of unimproved land for development, we review factors such as: (1) availability of existing community services such as sewers, water, gas and electricity, (2) estimated costs of development, (3) the quality of surrounding school systems, (4) population growth patterns, (5) proximity to developed residential and retail areas, (6) employment growth rates, (7) anticipated absorption rates for new housing, and (8) availability of transportation.

To limit our risk, we generally attempt to control land through the use of option and contingent purchase contracts when purchasing land. These contingent purchase contracts condition our obligation to purchase land subject to our review and approval of such matters as zoning, utilities, soil and subsurface conditions, environmental and wetland conditions, title matters, economic feasibility of development and other property-related criteria. We generally do not acquire unimproved land until necessary environmental studies and zoning permits have been obtained and the land is served by utilities. Our engineering and design professionals plan and engineer the land and oversee the construction of streets, sewers, water and drainage facilities and other improvements to meet our specifications. In developing land, we are required by some municipalities and other governmental authorities to provide letters of credit or performance bonds to secure performance of our obligations to install sewers, streets and other improvements.

Through our control of the development process, from the design of each community entryway to the placement of streets and amenities, we create a distinctive look and feel in each of our communities. We generally complete the sale of homes in our communities in time periods that range from three to five years from first to last sale, with smaller communities generally taking less time to complete than larger communities. Certain large communities can take more than five years to complete. In addition, we typically incorporate an association of the homeowners to ensure the continued maintenance of the common areas after the community is developed.

We selectively enter into joint ventures with other homebuilders to own and develop communities. Development costs of the joint ventures generally are funded by the participants. The participants in the joint ventures acquire substantially all of the developed lots. At December 31, 2004, we were actively participating in nine joint ventures.

Land inventory that we own consists of either (1) land titled in our name or (2) our pro rata share of land titled in the name of one of our joint ventures. Land inventory that we control

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consists of land that we have committed to purchase or have the right to acquire under contingent purchase or option contracts. Land inventory that we control includes certain land that we have consolidated as a result of the application of FIN 46R. We expect that a portion of our contingent contracts will not be completed for various reasons. We continually review our land inventory and contingent contracts to determine which contracts are reasonably likely to result in a completed land purchase. Occasionally, we determine that land that we own no longer fits into our sales plans. We offer such land for sale, primarily to other homebuilders, or in some limited instances, to commercial developers.

The following table sets forth an estimate of our land inventory as of December 31, 2004 and includes for land that we control under contingent contracts only that land which has already been zoned for our needs or which we otherwise believe is reasonably likely to result in a purchase. The estimated number of lots is based on our current development plans, but the number of lots may change if our development plans change.

Home Construction. To further improve our building efficiency and to better control our supply and cost of raw materials, we operate our own lumber and construction products distribution centers. The distribution centers enable us to provide just-in-time delivery of materials to our Central Ohio job sites, and to purchase high-quality lumber products and other building materials, including shingles, doors and windows, directly from mills and wholesalers at more attractive prices than are available to many of our competitors. We occasionally purchase lumber for delayed delivery to ensure adequate supply and predictable costs. Substantially all of the lumber and other building materials maintained at our distribution centers are for our own use. In addition to buying and delivering building materials, most of the floor trusses used in our Central Ohio homes are manufactured at our primary distribution center.

We act as the general contractor for the construction of our homes. Our construction superintendents, together with the construction managers to whom they report, monitor construction, coordinate the activities of subcontractors and suppliers, maintain quality and cost controls, and monitor compliance with zoning and building codes. We use subcontractors to minimize our employment cost, equipment and building supply inventory. This practice also increases our ability to respond to changes in the demand for housing. We have longstanding business relationships with many of our subcontractors. These relationships, combined with our building volume, year-round construction schedule, and efficient home designs, have enabled us to negotiate favorable agreements with our subcontractors and allow us to better control the costs of skilled labor.

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We maintain information and administrative systems to support our construction operations. These systems are designed to allow us to monitor construction costs by providing us the information necessary to manage subcontractor performance and expenditures on each home. Subcontracted work is authorized by work orders. The cost of deviations from the work order must be approved for payment by our construction superintendents and we investigate significant cost variances. These information systems also integrate our sales reporting, contract management and material distribution systems into the construction process.

Our general practice is to start construction of a Celebration or Tradition Series home when we have obtained an executed sales contract. However, we selectively start construction of a limited number of homes in these series without a sales contract in anticipation of seasonal demand and to attract customers, such as corporate transferees, who need homes in 60 to 90 days. We generally begin construction of Independence Series and Metropolitan Series of homes without a sales contract because we believe this to be the most efficient method to build these types of homes. In addition to the intentional creation of inventory homes, an inventory home is also created when a sales contract is cancelled after construction has commenced, generally because the purchaser has not satisfied a contingency. At December 31, 2004, we had 290 inventory homes in various stages of construction, compared to 248 inventory homes at December 31, 2003. We also may start the foundation of homes in all of our series on a strategic and selective basis during the fall and early winter in order to moderate the effects of weather on the building process. These foundations are not included in the number of inventory homes we report.

Marketing Strategy - “The Best of Everything^®”

Marketing and Sales. We have an extensive targeted marketing plan, which includes advertising by broadcast, newspapers, magazines, direct mail, the Internet and billboards. Our advertising typically emphasizes the quality of our homes, the location of our communities, the brand name components used in our homes, the wide variety of our home styles and the longevity of the Company. We believe these factors differentiate our products and reinforce our “Dominion Homes-The Best of Everything^®” brand awareness program. According to a third party survey conducted during 2004, approximately 98% of Central Ohio respondents recognized the Dominion Homes^® brand.

We sell our homes principally through the use of on-site, fully furnished and landscaped model homes decorated to emphasize the quality design features and choices available to our customers. At December 31, 2004, we had 72 model homes. In addition, we sell our homes in Central Ohio through two Dominion HomeStores^®. The Dominion HomeStores^® primarily focus on sales through the realtor community and generated sales of more than $96.6 million in 2004. We encourage independent realtor participation in the home sales process because realtors often introduce our homes to customers who might not otherwise consider purchasing a new home.

At December 31, 2004, we employed 85 trained sales representatives. Our sales representatives are trained to explain the features and benefits of our homes, the available mortgage financing opportunities and the construction process. Our sales representatives are

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also trained to help the customer determine which home design best suits his or her needs. We devote significant attention to the continued training of our sales representatives to assure high levels of professionalism and product knowledge. Our sales representatives are Company employees and are compensated primarily on a commission basis. We believe that the use of an in-house sales staff allows for a more knowledgeable sales presentation and enables us to communicate a consistent message to our customers.

We support our Central Ohio operations through a customer center that is located in an office building that is adjacent to our Dublin, Ohio executive offices. These operations include sales services, showroom and decorating services, mortgage financing services and title and closing services. We believe that, by combining these operations in one location, we can provide a more effective and satisfying home buying experience for our customers.

We use promotional and sales incentives, such as discounts on the purchase price of our homes, to market our products. We also offer discounts to previous purchasers of our homes, employees of our vendors, our own employees and employees of select companies.

Quality Homes and Communities. Our more than 60 communities offer customers a wide-range of choices in neighborhoods and schools. Many of our communities offer bicycle and jogging trails, walking paths, park areas, playgrounds and swimming facilities.

We believe that our homes have more standard features than any competitor selling at comparable prices in our markets. Our Celebration Series and Tradition Series homes generally include a front porch, maintenance-free exterior, two-car garage, cathedral ceiling, air conditioning, all major kitchen appliances and fully sodded yard. We use nationally recognized and industry leading brand name components in constructing all of our homes. These components include Andersen^® wood windows, the Kohler^® family of bathroom and kitchen fixtures, Carrier^® natural gas furnaces, Armstrong^® flooring, General Electric^® appliances, Wilsonart^® decorative laminate and Aristokraft^® cabinets.

We offer a comprehensive warranty program that features a two-year warranty covering the roof, windows, doors and all mechanical elements of our homes, including the heating, plumbing and electrical systems. We also offer a 30-year warranty covering all major structural components. The structural warranty on each home is automatically transferred to subsequent owners of the home. We also transfer to our customers all warranties provided by manufacturers and suppliers.

Customer Financing. Through our mortgage financing services subsidiary, Dominion Homes Financial Services, Ltd. (“DHFS”), we assist many of our customers to obtain mortgages to finance the purchase of their homes. We do not provide mortgage financing to our customers and, consequently, do not bear the interest rate and market risks associated with making mortgage loans. Our services include loan application counseling, loan processing and negotiation and the placement of mortgages with third party mortgage lenders. In 2004, DHFS provided mortgage financing services for approximately 2,000 of our customers, representing approximately 70% of our closings, and the average mortgage amount per closing was approximately $168,000. In 2003, DHFS provided mortgage financing services for approximately 2,700 of our customers, representing approximately 88% of our closings, and the average mortgage amount per closing was approximately $164,000.

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We offer to our customers a number of attractive loan options that include interest rate buy downs and payment of the customer’s loan origination fees, rate commitment fees, discount points and some closing fees. We currently offer several “no money down” programs to our home buyers. These “no money down” programs are offered under both conventional and government-insured loan programs. The “no money down” programs offered under the government-insured loan programs allow a home buyer to use gift funds received from a non-profit corporation as a down payment. We are obligated to make a contribution to the non-profit corporation that is slightly larger than the amount of the gift to the home buyer. The “no money down” programs enable us to sell homes to entry-level home buyers who otherwise would not have the down payment necessary to qualify for mortgage financing.

During 2004, approximately one-half of our homes were financed using government-insured loans. In comparison to conventional financing, government-insured loans generally allow customers to purchase homes with a higher percentage of their income directed toward housing expenses and with lower down payments. Regulations applicable to government-insured loans also generally allow the seller to pay more points and closing costs for the buyer. At December 31, 2004, the maximum dollar amount for Federal Housing Administration (“FHA”) mortgages was $208,800 in the Columbus MSA, $180,485 in the Louisville MSA and $160,176 in the Lexington MSA.

We sell our homes using standard sales contracts. These contracts generally require the home buyer to make a $500 deposit when the contract is signed and to pay the balance of the cash down payment at the start of construction. Our “no money down” programs require an initial deposit of $250 when the contract is executed and a second $250 deposit when the home buyer’s loan is approved. Both of these deposits are returned to the home buyer upon the successful closing of the home.

Customer Communication. We believe that the Internet has had and will continue to have a significant impact on the way that potential home buyers shop for homes. Therefore, in 2004 we redesigned our website to better market our products and communicate with our customers. We incorporated all market-specific web pages into one website and streamlined the structure to make it easier for our customers to find home and community information. Through our website, a potential home buyer can take virtual tours of models and search our home inventory by specifying size, location, amenities and price. Additionally, a home buyer can request a mortgage pre-qualification letter online. Our website allows our home buyers to communicate with their sales representatives and construction superintendents, and to monitor construction progress.

Most of our closings are performed by our affiliated title insurance agencies. Alliance Title Agency, Ltd. (“Alliance”) is an Ohio Limited liability company which is licensed under Ohio insurance laws to conduct title insurance agency business in Ohio. Alliance provided title insurance and other closing related service for most of the Company’s home closings in Central Ohio. As of December 31, 2003, the Company owned a 49.9% membership interest in Alliance and CC, I Ltd. (“CCI”), an Ohio limited liability company owned by Denis G. Connor and

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Chicago Title Agency of Central Ohio, Inc, owned the remaining 50.1%. Effective January 1, 2004, the Company assigned and contributed a 30.1% membership in Alliance to the Dominion Homes - Borror Family Foundation (the “Foundation”), an Ohio nonprofit corporation. Simultaneously, the Company exercised its right to purchase a 30.1% membership interest in Alliance from CCI at a cost of $11,667. The cost for the purchase was determined in accordance with an existing operating agreement between the members of Alliance. After the completion of these transactions, the membership interests of Alliance are owned as follows: 49.9% by the Company (the maximum ownership interest allowed under Ohio law); 20.0% by CCI; and 30.1% by the Foundation. Our wholly-owned subsidiary, Alliance Title Agency of Kentucky, LLC, a Kentucky limited liability company, provides title insurance for our Louisville and Lexington, Kentucky home closings.

We believe that maintaining affiliated title insurance agencies facilitates efficient and convenient closings. The title insurance agency personnel are trained to have a basic understanding of our home construction process and “The Best of Everything” marketing strategy. We also believe that having affiliated title insurance agencies and a mortgage financing services subsidiary enhances communication between these entities and the Company.

After a home closing, we survey our home buyers twice and invite them to complete a questionnaire that rates their home buying experience. This survey includes rating their sales representative, construction superintendent, decorating consultant and loan counselor. The questionnaires also provide other information regarding the home buyer’s building experience. We use the information obtained from these questionnaires to refine our product offerings, and improve our customers’ experience. In addition, our overall “customer satisfaction” rate which we measure based on survey responses to the question, “Would you recommend Dominion Homes to a friend?”, has been an important factor in the evaluation and compensation of our senior management.

Value Engineering. We have enhanced “The Best of Everything” marketing strategy through our innovative approach to home design and construction. We use streamlined architectural designs and offer more standard features and amenities than we believe are normally found in new homes at comparable prices. This approach enables us to use standard-sized building materials and reduces construction deviations and change orders. On an ongoing basis, we work closely with our vendors to further refine and standardize our building material needs, enabling us to realize additional cost and supply efficiencies. This focus on the design and construction process allows us to deliver affordably priced homes with more consistent quality and shorter construction times.

Our design work is performed by our architectural department. Each home design is value engineered for greater efficiency in the building process and to lower the cost to the home buyer. On an ongoing basis, the architectural department uses its knowledge of our markets and feedback from our home buyers to create new designs and modify existing designs to keep pace with changing consumer tastes and preferences. The architectural department uses computers and computer graphics that provide flexibility in creating new designs, modifying existing designs and accurately estimating the materials required for any particular design.

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New Markets

We periodically evaluate opportunities to expand into new markets. Expansion into a new market could occur either through the creation of a start-up operation or through the acquisition of an existing homebuilding company.

Intellectual Property

We have obtained federal registrations for the service marks Dominion Homes^®, The Best of Everything^®, The Dominion HomeStore^®, Dominion Homes Financial Services ^®. In addition, we have applied for federal registration for The Dominion Homeshow. We have obtained or applied for design patents on many of our homes. We also either have obtained or applied for copyright registrations for both the architectural plans and the architectural works for virtually all of the homes that we build.

Employees

We employed 565 full-time individuals on December 31, 2004, including 497 individuals employed in Ohio and 68 in Kentucky. We employed 473 individuals in our home building operations, 54 individuals in our building materials distribution center, 36 individuals in our mortgage finance service subsidiary and two individuals in our wholly-owned Kentucky title agency. These numbers do not include 14 individuals employed by Alliance Title Agency, Ltd. in Ohio. Our employees are not represented by labor unions or covered by collective bargaining agreements. We believe our relationships with our employees and subcontractors are generally good.

Other Information

Information regarding seasonality, our practices regarding working capital items and backlog orders is contained in this Report in Part II, Item 7 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Information regarding the availability of labor and raw materials, competition and governmental regulations affecting our business is contained in the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Business Risks – Material or labor shortages can adversely affect our business; The homebuilding industry is highly competitive; and, Our business is subject to substantial government regulation which could cause delays, increase costs, and restrict or prohibit homebuilding activity in certain regions.”

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). Our SEC filings are available to the public through the Internet at the SEC’s web site at http://www.sec.gov. The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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We also make available at our Internet website, http://www.dominionhomes.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act, and other SEC filings as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 2. PROPERTIES

We lease two office buildings in Central Ohio from our affiliate, BRC Properties Inc. The first office building is approximately 40,000 gross square feet (37,557 net rentable square feet). The lease commenced January 1, 1998, has a lease term of twelve years and a triple net rental rate of $12.00 per square foot. The lease also provides us with two options to renew for periods of five years each at then-current market rates. The rental rate for the building was established by an MAI appraiser commissioned by a committee comprised solely of independent members of our Board of Directors, and confirmed in a review by a second MAI appraiser.

The second office building is approximately 35,000 gross square feet (33,260 net rentable square feet). The lease commenced November 1, 2003, has a lease term of fifteen years and a triple net rental rate per square foot of $12.58 for the first five years, $13.18 for the second five years and $13.83 for the last five years. The lease also provides us with two options to renew for periods of five years each at then-current market rates. The terms of the lease were negotiated based on bids from multiple third parties, reviewed by an MAI appraiser and approved by a committee comprised solely of independent members of our Board of Directors.

We also have three other short-term leases with non-affiliated parties in Central Ohio. The leases include 25,000 square feet of warehouse space used to store building materials, 2,280 square feet of retail space used as a sales center and 1,200 square feet of warehouse space used to store model home furnishings.

We lease approximately 6,400 square feet of commercial space in Louisville, Kentucky from a non-affiliated party for our Louisville, Kentucky office and approximately 4,800 square feet of commercial office space from a non-affiliated third party for our Lexington, Kentucky office.

We own a distribution center, which is located on approximately six acres in Columbus, Ohio. The facility includes nine buildings, constructed of steel, wood or concrete block and contains approximately 75,000 square feet of space.

From time to time, we participate in a program with a non-affiliated party to sell and lease back our model homes. At December 31, 2004, we leased 26 model homes under this program. These leases have a one-year term and then become month-to-month leases, renewing at our option.

Item 3. LEGAL PROCEEDINGS

We are involved in various legal proceedings, most of which arise in the ordinary course of business and some of which are covered by insurance. In the opinion of our management, none of the claims relating to such proceedings will have a material adverse effect on our financial condition or results of operations.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2004.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common shares are traded on The NASDAQ Stock Market under the symbol “DHOM.” The following table sets forth, for the periods indicated, the high and low closing prices for our common shares, as reported by The NASDAQ Stock Market.

On February 28, 2005, the last sale price of our common shares, as reported by The NASDAQ Stock Market, was $19.22 per share, and there were approximately 226 holders of record of our common shares.

We have never paid any cash dividends on our common shares and currently anticipate that we will continue to retain future earnings to finance the growth of our business. From time to time, our Board of Directors evaluates the desirability of paying cash dividends. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, applicable loan covenants and other factors deemed relevant by our Board of Directors. The provisions of our existing bank credit facility limit the amount of cash dividends that we may pay during any calendar year to 50% of our net income after taxes for such year.

During the period covered by this Report, the Company did not engage in any sales of its equity securities that were not registered under the Securities Act of 1933, as amended. In addition, neither the Company nor any “affiliated purchaser” of the Company purchased during the fourth quarter of 2004 any of the Company’s equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended.

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Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth our selected consolidated financial and operating data as of the dates and for the periods indicated. This table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Form 10-K.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading builder of high-quality homes in Central Ohio (primarily the Columbus Metropolitan Statistical Area) and Louisville, Kentucky. During 2004, we entered the Lexington, Kentucky market. Our customer-driven focus targets entry-level and move-up home buyers. We offer a variety of homes that are differentiated by price, size, standard features and available options. Our homes range in price from approximately $110,000 to more than $350,000 and in size from approximately 1,000 to 3,500 square feet.

Net income for the twelve months ended December 31, 2004 was $20.2 million, or $2.47 per diluted share, compared to $31.8 million, or $3.94 per diluted share, for the twelve months ended December 31, 2003. Net income for the year 2004 was the third best in our company’s history; however, lower sales, higher costs of real estate sold, adjustments to land inventory values of approximately $4.8 million and increased selling, general and administrative expenses negatively impacted our results compared to the prior year.

We sold 2,450 homes during 2004, representing a sales value of $460.3 million, compared to 3,071 homes sold during 2003, representing a sales value of $554.7 million. During 2004, we delivered 2,837 homes with revenues of $542.0 million, compared to 3,070 homes with revenues of $563.5 million during 2003. Our backlog at December 31, 2004 was 632 sales contracts, with an aggregate sales value of $127.5 million, compared to 1,019 sales contracts with an aggregate sales value of $198.9 million at year-end 2003. The average price of homes in backlog at year-end 2004 was $201,800 compared to $195,200 for the prior year.

Revenues from our mortgage financing services subsidiary for 2004 declined to $7.8 million from $11.2 million for the prior year due to the fewer number of homes sold during 2004 and a lower capture rate for 2004. During 2004, we provided mortgage financing services for approximately 2,000 of our customers, representing approximately 70% of our deliveries, compared to providing financing services for approximately 2,700 of our customers, representing approximately 88% of our deliveries during 2003. The 2004 mortgage financing services capture rate declined primarily due to competitive financing services provided by other lenders and organizational changes occurring within the mortgage financing services subsidiary.

In late 2003 and early 2004, we began to implement plans to increase the number of communities in both Central Ohio and Louisville, Kentucky and to expand our operations into the Lexington, Kentucky market. These decisions were based on record sales achieved over the previous several years which continued through the first quarter of 2004. As a result, we increased our number of active communities to 60 at December 31, 2004 compared to 51 at December 31, 2003. We also increased our investment in land and land development based on the expected growth in our home sales. Beginning in the second quarter of 2004, however, we experienced a drop-off in our home sales in each of our markets, which resulted in lower revenue from home sales and reduced absorption of our land inventory. We believe that this drop-off, in part, was reflective of a general downturn in new home sales in the Midwest markets. In addition, our Central Ohio home building operation’s overall market share of homes delivered declined to

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approximately 26% in 2004 compared to approximately 32% in 2003 based on new homes closed. For the year ended December 31, 2004, we had an approximately 47% market share for homes in the $100,000 to $150,000 range, an approximately 32% market share for homes in the $150,000 to $250,000 range and an approximately 16% market share for homes in the $250,000 to $350,000 range in our Central Ohio market. For the year ended December 31, 2003, we had an approximately 59% market share for homes in the $100,000 to $150,000 range and an approximately 35% market share for homes in the $150,000 to $250,000 range and an approximately 17% market share for homes in the $250,000 to $350,000 range in our Central Ohio market. This market share information is based on an annual housing market report for 2003 and 2004 prepared by a Columbus, Ohio based real estate service that compiles data on market share based on new homes delivered in the Columbus MSA (“the Columbus Market Report”), and which is not affiliated with the Company.

In response to this decline in demand for our new homes, we implemented several initiatives targeted at improving sales and reducing our overhead expenses. During the second half of 2004, we developed additional incentives for real estate brokers and launched specific and targeted direct marketing campaigns designed to more effectively reach our potential customer base. We also redesigned our company website to more effectively market our homes and communities to Internet users. We reduced the number of full-time employees from a high of 693 in May of 2004 to 565 at December 31, 2004, mostly through attrition, and undertook additional cost-saving initiatives. These efforts resulted in a 13% reduction in our fourth quarter 2004 selling, general and administrative expenses compared to the same period the previous year, after eliminating the variable sales expense associated with selling fewer homes. During 2005, we intend to reduce our speculative home inventory and slow land development for some land not already in the development process or land not required for immediate use.

We are continuing to develop communities already in progress, including six new communities in premier locations that we anticipate will be well received by homebuyers. We presently have a larger investment in land, particularly developed lots, than is desirable in view of the reduced demand. In order to partially address this problem, during 2004 we sold land with a historical cost of approximately $4.9 million and charged to earnings approximately $4.8 million primarily consisting of deposits and due diligence expenses on land that we decided not to purchase. However, due to commitments already in place, we expect our investment in land to increase during 2005. These commitments include the purchase and development of new communities that we believe will incrementally benefit our home sales.

We anticipate that the strategic actions we have implemented will position the Company for future growth and profitability. However, due to the low number of sales contracts in backlog at December 31, 2004, we do not expect to achieve a profit in the first quarter of 2005. We anticipate that 2005 overall will be a profitable year, but that net income will be lower than in recent years.

Business Risks

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Annual Report on Form 10-K contains various “forward–looking statements” within the meaning of the PSLRA and other applicable

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securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “expect,” “hope” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations or financial conditions, or state other forward-looking information. These forward-looking statements involve various important risks, uncertainties and other factors which could cause our actual results for 2005 and beyond to differ materially from those expressed in the forward-looking statements. Included among such important risks, uncertainties and other factors are the following:

Our business is cyclical and significantly affected by changes in national and local economic, business and other conditions, most of which are beyond our control. These conditions include:

In addition, domestic terrorist attacks and the threat or the involvement of the United States in international armed conflict may also adversely affect general economic conditions, consumer confidence and the homebuilding markets.

We operate in a limited number of geographic areas. We conduct our operations only in Central Ohio, Louisville, Kentucky and Lexington, Kentucky. Our lack of geographic diversity means that adverse general economic or weather conditions in one or more of these markets could have a material adverse impact on our operations.

The nature of the homebuilding process makes it difficult to quickly respond to rapid changes in housing demand. Once we have begun the development of a new community, it is difficult and, at times, impractical, to discontinue development activities. Thus, we may be forced to incur costs associated with land development which began at a time of high housing demand even if the demand for newly constructed homes later decreases. Conversely, if there is a sudden increase in the demand for our homes, we may not be able to fully take advantage of the increased demand if we have not begun land development and acquisition activities on a sufficient number of communities.

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Interest rate increases or changes in federal lending programs could adversely affect sales of our homes. Virtually all purchasers of our homes finance their purchase through third party lenders who offer conventional and government-insured mortgage financing. A material increase in mortgage interest rates or unfavorable changes to these lending programs would adversely affect the ability of prospective home buyers, particularly our targeted entry-level home buyers, to obtain mortgage financing. We also depend on the availability and cost of mortgage financing for buyers of the current homes owned by potential purchasers of our homes. Prior to purchasing our homes, some of our home buyers must sell their current homes, and these sales depend on the availability and cost of mortgage financing. In addition, because many of our home buyers use government-insured mortgage financing, a material reduction in the scope or funding of government-insured mortgage programs could have a material adverse effect on our sales.

In particular, a substantial number of our home buyers use down payment assistance programs, which allow home buyers to receive gift funds from non-profit corporations to be used as a down payment. At one time, HUD proposed rules which would have prohibited the use of gift fund programs in conjunction with government-insured mortgage loans. HUD subsequently withdrew these proposed rules, but has continued to increase its regulation of gift fund programs. If HUD were to prohibit or make materially unfavorable changes to the use of gift fund programs, we would expect to offer, as we have in the past, a different type of down payment program. There can be no assurance, however, that any such replacement program would be as attractive to home buyers as the programs offered today and that our sales would not suffer.

Our business is subject to substantial government regulation which could cause delays, increase costs, and restrict or prohibit homebuilding activity in certain regions. We are subject to substantial local, state and Federal requirements concerning zoning, resource protection, building design and construction, and similar matters. These requirements include local regulations, which impose restrictive zoning and density requirements to limit the number of homes that can eventually be built within the boundaries of a particular location. Particularly in the case of local political subdivisions, anti-growth sentiments can lead to ballot measures that can interfere with or impede our ability to develop land or build homes. Candidates for local office who favor restrictions on growth and development are being elected with greater frequency in certain communities in which the Company conducts business. Restrictive measures can also affect construction activities, including construction materials, which must be used in home construction, as well as sales activities and other dealings with home buyers. We also must obtain licenses, permits and approvals from various governmental agencies for our development activities, the granting of which are beyond our control. Obtaining acceptable zoning and overcoming objections of neighborhood groups and citizen activists is becoming more difficult, time consuming and expensive. These issues may adversely affect the Company in the future.

We also are subject to a variety of local, state and Federal requirements concerning the protection of health and the environment. The particular environmental laws, which apply to any given project, vary greatly according to the project site and the present and former uses of the

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property. These environmental laws may result in delays and cause us to incur substantial compliance costs, including substantial expenditures for pollution and water quality control. These laws may prohibit or severely restrict development in certain environmentally sensitive regions. In an effort to avoid major environmental issues in our developments, we have a general practice of requiring environmental reports from qualified, independent professionals and resolution of identified environmental issues prior to purchasing land. However, it is possible that we may incur material liabilities relating to the removal of toxic wastes or other environmental matters affecting land we have acquired.

Building moratoria may result in periodic delays or may preclude us from developing certain projects. These moratoria generally result from insufficient water supplies or sewer facilities, delays in utility hookups, inadequate road capacity, environmental concerns, school system overcrowding or financial difficulties, or anti-growth sentiment within a specific market area or community. Time-limited moratoria or restrictions on zoning changes, building permit issuance and extensions of utilities in certain areas have been adopted by several communities in which the Company develops land and builds homes, and similar restrictive measures have been considered by other communities in which the Company conducts business. These moratoria can occur before or after we start our operations and without notice or recourse.

Our success depends on the availability of undeveloped land that is suitable for our development. Our business strategy is to be the developer in substantially all of the communities in which we build homes. Therefore, our short and long-term financial success depends and will continue to depend on our ability to acquire land, adjust our strategy for purchasing land, address changing market conditions and develop communities successfully. We commit substantial financial and managerial resources to acquire land and develop the streets, utility services and other infrastructure before any revenue is generated from the community. We may acquire and develop land upon which we cannot, or choose not to, build or sell homes. The market value of undeveloped land and building lots fluctuates. We also build some homes before we obtain non-cancelable sale contracts for those homes. We may have to hold these unsold inventory homes for an indefinite time prior to a sale. In addition, because market prices fluctuate, we may have to sell inventory homes at a loss.

Adverse weather conditions may prevent or delay the construction of homes and reduce the number of home sales. Poor weather conditions can hinder our construction and development activities, and thereby increase the cost of constructing our homes and delay the closing of our homes and our recognition of revenue from such closings. In addition, in cases of prolonged severe weather, potential home buyers may delay or forgo the purchase of a home.

Delays in construction of our homes could cause mortgage commitments to expire. Delays in the construction of a home could cause the mortgage commitment to expire and could require us, if mortgage interest rates have increased, to pay significant amounts to the mortgage lender to extend the original mortgage interest rates.

We are significantly leveraged and depend on the availability of financing. We incur significant up-front expenditures for land acquisition, development and construction costs. We have traditionally financed these costs with bank borrowings, internally-generated funds and joint venture arrangements. Although we have not in recent years experienced problems in

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obtaining financing, we cannot be sure that continued financing will be available to us in the future, or that any financing available to us will be on favorable terms. Our ability to make payments of principal or interest on, or to refinance our indebtedness, will depend on our future operating performance and successful execution of our business strategy.

Our expansion strategies may adversely effect our operations. From time to time, we evaluate opportunities to expand into new markets, whether through acquisitions or start-up operations. Any expansion strategy involves many risks. New markets may prove to be less stable than our current markets and may result in delays, problems and expenses not typically encountered in our current markets. Regulations in various states may prohibit or impede us from using some of our community development strategies, such as those utilized with the Independence Series that require condominium or other high density housing. We may fail to identify suitable acquisition candidates or complete acquisitions on acceptable terms. The magnitude, timing and nature of acquisitions will depend upon various factors, including the availability of suitable acquisition candidates, financial resources and skilled employees to manage the acquired companies, the negotiation of acceptable terms, and general economic and business conditions. The likelihood of our success in establishing start-up operations also depends on similar factors, including identification of suitable start-up markets, availability of financial resources and skilled employees and subcontractors, and general economic and business conditions. In addition, start-up operations may require significant lead-time before they generate sufficient revenues to be profitable. Expansion through acquisitions or start-up operations will require substantial attention from our management team. The diversion of management’s attention, the incurrence of substantial indebtedness to finance the expansion, as well as difficulties that may be encountered in the transition and integration process, could have a material adverse effect on our operations or business.

Our new product offerings may not be attractive to customers. We continue to introduce new home designs and new community concepts as part of our product offerings. There are significant risks that we may not accurately predict the tastes or preferences of potential home buyers. A failure to predict these tastes or preferences could have a material adverse effect on our sales.

The loss of certain key personnel could adversely effect our operations. We have several key executive officers, the loss or prolonged absence of whom could have an adverse effect on our operations. In particular, the loss of the services or prolonged absence of Douglas Borror, our Chairman, Chief Executive Officer and President could have a material adverse effect on our operations. Our future success will depend on our continued ability to attract and retain highly skilled and qualified personnel, of which there can be no assurance.

Our operating results vary on a quarterly basis. Our business is significantly affected by changes in economic cycles, and our revenues and earnings vary with the level of general economic activity in the markets where we build homes. We historically have experienced, and expect to continue to experience, variability in revenues and reported earnings on a quarterly basis. A significant percentage of our sales contracts historically have been executed during the first half of the year. Closing on a home usually occurs approximately three to six months after the date of the sales contract, however weather and other delays, may cause the closing to take longer. We do not recognize any revenue on the sale of a home until the closing occurs. As a result, we historically have experienced higher closings and revenues during the second half of the year.

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We are subject to warranty claims arising in the ordinary course of business that could be costly. As a homebuilder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the homebuilding industry and can be costly. We provide warranties on our homes for periods as long as thirty years. In the event that we experience greater warranty claims than we anticipate, we could incur significant expenses which could affect future earnings.

Litigation related to construction defects could adversely affect our business. Litigation related to construction defects has increased significantly in recent years. The homebuilding industry has experienced both an increase in the number of individual claims for construction defects as well as increased costs of insuring against such claims.

Our financial results are subject to inflation and other cost increases. We are not always able to reflect all cost increases in the prices of our homes because competitive pressures and other factors sometimes require us to maintain or discount those prices. While we attempt to maintain costs with subcontractors from the date a sales contract with a customer is accepted until the date construction is completed, we may incur unanticipated costs which cannot be passed on to the customer.

Material or labor shortages can adversely affect our business. During periods of increased construction activity, the homebuilding industry has faced shortages in the availability of skilled labor. Waiting for skilled labor to become available may result in construction delays. The use of less skilled labor to satisfy a skilled labor shortage may cause quality standards to suffer. Increases in the demand for skilled labor also can result in increases in the cost of skilled labor. The principal raw materials used in the homebuilding industry are lumber, brick and concrete as well as plumbing and electrical supplies. While these materials are generally available from a variety of sources, they are subject to periodic price fluctuations. In particular, the homebuilding industry has experienced occasional lumber shortages which produced significant price increases. Because we may not be able to pass on to our customers price increases in raw materials or labor, future price increases in these items could have a material adverse effect on our operating margins and earnings.

The homebuilding industry is highly competitive. We compete in each of our geographic markets with national, regional and local homebuilders, some of which have greater financial, marketing, land acquisition and sales resources than we do. We compete not only for home buyers, but also for desirable properties, financing, raw materials and skilled labor. Competitive conditions may make it difficult for us to acquire land that is suitable for our development, cause us to lower our prices and cause our sales to decline. We also compete with the resale market for existing homes, which some home buyers may prefer over new homes. Additionally, there are many other national and regional homebuilders, many of which have greater financial, marketing, land acquisition and sales resources than we do, that do not currently have a significant presence in our markets. A concerted effort by these homebuilders to enter or expand their current operations in our markets could have a material adverse effect on our sales.

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Covenants in our bank credit facility restrict our ability to engage in certain activities. Our bank credit facility imposes restrictions on our operations and activities. Some of the more significant restrictions limit:

Application of critical accounting policies requires management to make certain estimates and assumptions that may impact our future financial results. In preparing our financial statements, management is required to make certain estimates and assumptions that affect the annual and quarterly reported amounts of assets, liabilities, revenues and expenses, and disclosures about contingent assets and liabilities. Our actual results could be different from these estimates and assumptions. Some of our more critical accounting policies include:

Seasonality and Variability in Quarterly Results

We experience significant seasonality and quarter-to-quarter variability in our homebuilding activity. Historically, closings and related revenues usually increase in the second half of the year. We believe this seasonality reflects the tendency of home buyers to shop for a new home in the spring with the goal of closing in the fall or winter. Weather conditions can also accelerate or delay the scheduling of closings. During 2004, however, the historical trend of closing more homes in the second half of the year was not as evident due to the lower sales experienced during the last nine months of the year.

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The following table sets forth certain data for each of our last eight quarters:

At December 31, 2004, the aggregate sales value of homes in backlog was $127.5 million compared to $198.9 million at December 31, 2003. At December 31, 2004, the average sales price of homes in backlog was $201,800 compared to $195,200 at December 31, 2003.

Results of Operations

The following table sets forth, for the periods indicated, certain items from our Consolidated Statements of Operations expressed as percentages of total revenues, as well as certain operating data:

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We include a home in “sales contracts” when a home buyer signs our standard sales contract, which requires a deposit and generally has no contingencies other than for buyer financing or for the sale of an existing home, or both. We recognize revenue and cost of real estate sold at the time of closing. “Closings” or “deliveries” occur when we deliver the deed to the home buyer and we receive payment for the home. We include a home in “backlog” when a home buyer signs our standard sales contract, but the closing has not occurred as of the end of the period.

Homes included in “sales contracts” in the foregoing table are net of cancellations. Most cancellations occur when home buyers cannot qualify for financing. While most cancellations occur prior to the start of construction, some cancellations occur during the construction process. The cancellation rates for homes in backlog as of December 31, 2003, 2002, and 2001 were 19.2%, 17.4%, and 11.6%, respectively.

We annually incur a substantial amount of indirect construction costs, which are essentially fixed in nature. For purposes of quarterly financial reporting, we capitalize these indirect construction costs in real estate inventories based on the ratio of estimated annual indirect construction costs to direct construction costs to be incurred. Thus, variations in construction activity may result in changes in the amount of indirect construction costs capitalized in ending real estate inventories and cause fluctuations in interim and annual gross profits.

2004 Compared to 2003

Revenues. Our revenues for 2004 decreased by 3.8% to $542.0 million from the delivery of 2,837 homes compared to revenues for 2003 of $563.5 million from the delivery of 3,070 homes. During 2004, the average delivered price of homes increased 4.6% to $188,100 from $179,800 for 2003 and partially offset the loss in revenues caused by delivering 233 fewer homes. The higher average price of delivered homes in 2004 occurred across all series of homes, but was more weighted toward our higher priced homes. Revenues for 2004 include $3.5 million from the sale of 21 homes that we leased back for use as sales models. There were no model homes sold and leased back during 2003.

Included in revenues are other revenues, consisting principally of fees from the Company’s mortgage financing services subsidiary. During 2004, these other revenues decreased 27.8% to $8.3 million from $11.5 million for 2003 primarily because we only provided mortgage financing services to approximately 2,000, or approximately 70%, of our home buyers during 2004 compared to approximately 2,700, or approximately 88%, of our home buyers during 2003.

Gross Profit. Our gross profit for 2004 decreased by 11.4% to $119.6 million from $135.0 million for 2003, primarily due to the fewer number of homes delivered, the reduction in mortgage financing services income as discussed above and the higher costs of real estate compared to 2003. In addition, we charged to earnings approximately $4.8 million primarily consisting of deposits and due diligence expenses on land we decided not to purchase. Warranty expense that is accounted for as part of our building cost decreased by $2.0 million over 2003 due to better warranty claim experience during 2004 than was provided for based upon historical claims. The net after tax impact of these two items was a $1.7 million decrease in net income. As a percentage of revenues, our gross profit margin declined to 22.1% for 2004 compared to 24.0% for 2003.

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Selling, General and Administrative Expenses. Our selling, general and administrative expenses for 2004 increased by 5.3% to $77.9 million from $74.0 million for 2003. The primary reasons for the increase in selling, general and administrative expenses for 2004 were additional expenses that were incurred in connection with the increase in the number of our communities in Central Ohio and Louisville, Kentucky, the start-up of our Lexington, Kentucky market, the testing and documentation of internal controls required by the Sarbanes-Oxley Act and the replacement of key personnel.

Interest expense. Our interest expense for 2004 increased by 4.2% to $8.2 million from $7.9 million for 2003 due to having higher average borrowings outstanding, partially offset by a lower average borrowing rate and capitalized interest. During 2004, we paid $9.7 million of interest compared to $7.5 million of interest during 2003, a 29.3% increase. Our average revolving line of credit borrowings outstanding increased to $186.5 million for 2004 compared to $112.5 million for 2003 due to increased investment in land and land development. Although the weighted average borrowing rate for 2004, excluding amortization of bank fees, decreased to 4.7% from 5.9% for 2003, the primary reason that interest expense for 2004 did not increase proportionately with interest paid was additional interest capitalized into our land development inventories due to the growth in those inventories.

Provision for Income Taxes. Our income tax expense for 2004 decreased 37.5% to $13.3 million from $21.2 million for 2003. The Company’s annual effective tax rate decreased to 39.6% for 2004, from 40.0% for 2003.

2003 Compared to 2002

Revenues. Our revenues for 2003 increased by 14.6% to $563.5 million from the delivery of 3,070 homes compared to revenues for 2002 of $491.7 million from the delivery of 2,591 homes. This $71.8 million increase in revenues was primarily due to the delivery of 479 more homes. As expected, the average price of homes delivered in 2003 decreased 2.9% or $5,300 to $179,800 from $185,100 in 2002. The lower average price of delivered homes in 2003 was the result of closing a larger percentage of our entry-level series of homes.

Included in revenues are other revenues, consisting principally of fees from the Company’s mortgage financing services subsidiary. During 2003, these other revenues increased 1.8% to $11.5 million from $11.3 million for 2002. We provided mortgage financing services to approximately 2,700, or approximately 88%, of our home buyers during 2003 compared to approximately 2,400, or approximately 93%, of our home buyers during 2002.

Gross Profit. Our gross profit for 2003 increased by 17.4% to $135.0 million from $115.0 million for 2002. The primary reason for the 2003 increase in gross profit was the larger number of homes delivered during 2003.

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Selling, General and Administrative Expenses. Our selling, general and administrative expenses for 2003 increased by 14.7% to $74.0 million from $64.5 million for 2002. The primary reasons for the increase in selling, general and administrative expenses for 2003 were higher variable costs associated with delivering more homes. These higher variable costs included variable incentive compensation, sales commissions, advertising expenses and administrative expenses related to the mortgage financing services subsidiary.

Interest Expense. Our interest expense for 2003 decreased by 8.9% to $7.9 million from $8.7 million for 2002 principally as a result of having lower average borrowings outstanding and a lower average borrowing rate. During 2003, we paid $7.5 million of interest compared to $8.3 million of interest during 2002, a 9.6% decrease. Our average revolving line of credit borrowings outstanding decreased to $112.5 million for 2003 compared to $117.4 million for 2002. The weighted average borrowing rate for 2003 decreased to 5.9% from 6.2% for 2002. The amount of interest capitalized into our land and land development inventories decreased compared to the prior year due to higher sales volume which reduced our investment in land development inventories.

Provision for Income Taxes. Our income tax expense for 2003 increased to $21.2 million from $17.3 million for 2002. The Company’s annual effective tax rate decreased to 40.0% for 2003, from 41.4% for 2002 due to implementation of various tax planning strategies.

Liquidity and Capital Resources

Historically, our capital needs have depended on sales volume, asset turnover, land acquisition and inventory levels. Our traditional sources of capital have been internally generated cash, bank borrowings and seller financing. At times, we also have sold our common shares in the public market. We have incurred indebtedness in the past and expect to incur indebtedness in the future to fund our operations and our investment in land. We expect the cash flow from our sales in backlog and funds from our Senior Unsecured Revolving Credit Facility to allow us to meet our short-term cash obligations. The primary reasons that we could require additional capital are an expansion in our existing markets, expansion into new markets, expansion of our mortgage financing services subsidiary, or a purchase of a homebuilding company. See Business Risks – “Our business is cyclical and is significantly affected by changes in national and local economic, business and other conditions, most of which are beyond our control” contained in Item 7 of this Report. We believe that our current borrowing capacity and anticipated cash flows from operations should be sufficient to meet our liquidity needs during 2005.

Sources and Uses of Cash

For the Three Year Period Ended December 31, 2004

During 2004, we generated $20.2 million of cash flow from operations before expenditures on real estate inventories. Real estate inventories utilized $76.7 million of net cash because our investment in land and land development and other costs increased by $91.8 million as we added additional communities and increased our land inventories. We had fewer homes under construction during 2004 compared to 2003, which offset the increase in land inventories by $15.1 million. We used cash from operations together with approximately $65.2 million of net additional borrowings under our bank credit facility, primarily to finance the increase in real estate inventories.

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During 2003, we generated $46.6 million of cash flow from operations before expenditures on real estate inventories. Our real estate inventories increased by $55.4 million because homes under construction increased by $14.9 million and land and land development and other costs increased by $40.5 million. We invested significantly in land and land development in order to replace communities that had sold out earlier than anticipated, to expand our presence in Louisville, Kentucky and to enter the Lexington, Kentucky market. We used cash from operations together with borrowings under our bank credit facility to finance the increase in real estate inventories.

During 2002, we generated $29.0 million of cash flow from operations before expenditures on real estate inventories. We also raised approximately $27.4 million in cash from the sale of 1,503,900 common shares, and we used this cash to reduce debt under our bank credit facility. Our real estate inventories increased by $33.7 million because homes under construction increased by $10.7 million and land and land development and other costs increased by $23.0 million. We used cash from operations together with borrowings under our bank credit facility to finance the increase in real estate inventories.

Real Estate Inventories

Our real estate inventories at December 31, 2004 increased $89.7 million to $416.5 million compared to $326.8 million at December 31, 2003. Real estate inventories include land and land development costs, homes under construction, land held for sale and other building materials. As of December 31, 2004, land and land development costs increased to $307.7 million from $205.5 million as of December 31, 2003, homes under construction decreased to $102.2 million from $117.3 million on December 31, 2003 and other building material inventories decreased to $2.9 million from $3.9 million as of December 31, 2003. At December 31, 2004, land held for sale was $3.7 million. No land was held for sale at December 31, 2003. Our land and land development costs increased principally due to the increased number of sales communities.

We generally do not purchase land for resale. However, there are times when we own land that no longer fits into our development plans and that we offer for sale, primarily to other homebuilders and commercial developers.

We attempt to maintain a land inventory that is sufficient to meet our anticipated lot needs for the next three to six years. At December 31, 2004, we owned lots or land that we estimate could be developed into 14,728 lots, including 2,653 lots in Kentucky. Included in the 14,728 lots are 215 lots that we have determined no longer fit into our sales plans and that we are offering for sale to other home builders or commercial developers.

At December 31, 2004, we controlled, through option agreements or contingent contracts, land that we estimate could be developed into 6,059 additional lots, including 208 lots in Kentucky. We hold additional contingent agreements for land that may allow us to develop additional lots that are not included in these totals. However, based on our land review process, we have concluded that it is unlikely that all of the contingencies contained in these other agreements will be satisfied in the near future. Consequently, we did not consider these contingent agreements when estimating the total amount of land or number of lots that we

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control. The option agreements that we determined were more than likely to have the contingencies satisfied expire at various dates through 2013. During 2004, we exercised options to purchase lots or unimproved land that could be developed into 7,514 lots, including 1,606 lots in Kentucky. We decide whether to exercise any particular option or otherwise acquire additional land based upon our assessment of a number of factors, including our existing land inventory at the time, the status of purchase contingencies and our evaluation of the future demand for our homes.

On December 31, 2004, we had 290 single family inventory homes, including 52 in Kentucky, in various stages of construction, representing an aggregate investment of $29.4 million, compared to 248 single family inventory homes, including 25 in Louisville, Kentucky, in various stages of construction, representing an aggregate investment of $18.0 million on December 31, 2003. We do not include inventory homes in sales or backlog.

Contractual Obligations

Note Payable, Banks. On December 3, 2003, we entered into a Second Amended and Restated $250.0 million Senior Unsecured Revolving Credit Facility (the “Facility”) that terminates on May 31, 2007. On June 30, 2004, the Facility was amended to increase the amount of the Facility to $300.0 million from $250.0 million. On February 1, 2005, the Facility was amended to increase the value of speculative inventory homes allowed from $30.0 million to $35.0 million for the period from December 31, 2004 through June 29, 2005. As of December 31, 2004, we were in compliance with the Facility covenants and had $33.8 million available under the Facility, after adjustment for borrowing base limitations. Borrowing availability under the Facility could increase, depending on our use of the proceeds of borrowings under the Facility.

The Facility provides for a variable rate of interest on our borrowings. The variable rate is the three month LIBOR rate plus a margin based on our interest coverage ratio that ranges from 1.75% to 2.5% and is determined quarterly. The margin was 1.75% during all quarters in 2004. In order to reduce the risks caused by interest rate fluctuations, we have entered into interest rate swap contracts that fix the interest rate on a portion of our borrowings under the Facility. The weighted average interest rates for borrowings under the Facility for the years ended December 31, 2004 and 2003 were 4.7% and 5.9%, respectively. These rates include the cost of our interest rate swaps. Interest rates for 2004 decreased compared to 2003 due to a lower average borrowing rate resulting from a lower interest rate environment. Additional information regarding the interest rate swap contracts we have entered into is set forth under the heading “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of this Report. For a more detailed description of the Facility, including restrictions on our business activities, see Note 7, Note Payable, Banks in the Notes to the Consolidated Financial Statements included herein.

Seller Financing. From time to time, we purchase land with seller financing. As of December 31, 2004, we held land for development that was partially financed with seller-provided term debt that had an outstanding balance of approximately $4.8 million.

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Capital and Operating Leases. We believe the best use of our Facility is to finance real estate inventories and other investments in our homebuilding operations. Other assets that support our homebuilding operations are generally financed through capital and operating lease obligations. These assets include office facilities, model homes, vehicles and equipment. We analyze each lease and determine whether the lease is a capital lease, in which case the asset and related obligation is included on our Consolidated Balance Sheet, or an operating lease, in which case the asset and obligation is not included on our Consolidated Balance Sheet. We do not retain a residual financial interest in leased assets. Our capital lease obligations were approximately $981,000 at December 31, 2004. We believe our operating leases are properly classified as off balance sheet transactions. Our minimum rental commitment under such non-cancelable operating leases was approximately $15.0 million at December 31, 2004. For further information on our leases, see Note 9, Operating Lease Commitments, and Note 12, Related Party Transactions, in the Notes to the Consolidated Financial Statements included herein.

Land Purchase Commitments. On December 31, 2004, we had non-cancelable obligations to purchase residential lots and unimproved land at an aggregate cost of $792,000. We intend to purchase this land over the next year.

The following is a summary of our contractual obligations at December 31, 2004 (in thousands):

Off Balance Sheet Arrangements

Performance Bonds and Irrevocable Letters of Credit. We are liable for performance bonds of $45.3 million and irrevocable letters of credit of $7.3 million at December 31, 2004. These instruments were issued to municipalities and other individuals to ensure performance and completion of certain land development activities and as collateral for contingent land purchase commitments. We do not anticipate incurring any liability with respect to these instruments.

Variable Interest Entities. From time to time, we selectively enter into joint ventures with other homebuilders to own and develop communities. Through the creation of joint venture partnerships and limited liability companies, these joint ventures engage in land development activities for the purpose of distributing developed lots to the partners in the entity. The partners in the joint ventures acquire substantially all of the lots developed by the joint ventures and fund the development costs in proportion to their equity interests. We receive our percentage interest in the lots developed in the form of capital distributions. At December 31, 2004, we had ownership interests in nine active joint ventures with ownership interests ranging from 33% to

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50%. These joint ventures generally do not hold debt securities, except for seller requested financing arrangements upon purchasing the land for the joint ventures. In certain cases, we may be liable under debt commitments within the particular joint venture. As of December 31, 2004, we were party to one joint venture that finances its own development activities. We have guaranteed the obligations under the joint venture’s loan agreement up to $250,000, representing our one-half interest. At December 31, 2004, the joint venture did not have any loans outstanding. We have determined that our land development joint ventures do not qualify as variable interest entities that would require consolidation in our financial statements. See Note 6, Land Development Joint Ventures, in the Notes to the Consolidated Financial Statements included herein.

In managing our land inventories, we enter into land option and contingent purchase contracts with third parties to acquire unimproved land and developed lots, which may qualify as variable interest entities. These contracts may be with individual land owners or entities that hold land for sale and generally require us to pay or issue one or a combination of the following: refundable deposits, non-refundable deposits and letters of credit. We have determined that certain of these contracts are with variable interest entities and that we are the primary beneficiary, as defined in FIN 46R, of approximately $17.0 million of land option contracts or contingent purchase contracts. These contracts were consolidated in our Consolidated Balance Sheet at December 31, 2004 even though we do not have legal title to the land subject to these contracts. Of the $17.0 million, approximately $13.6 million relates to cancelable contracts for which the Company has determined that it is reasonably likely that it will complete the land or lot purchase. The remaining approximately $3.4 million relates to cancelable contractual obligations for which the Company has not yet determined whether it is reasonably likely that it will complete the land or lot purchase. Our exposure to loss is limited to option deposits, letters of credit and due diligence expenses, which were approximately $4.8 million at December 31, 2004.

Cancelable contractual obligations consist of options under which we have the right, but not the obligation, to purchase land and contingent purchase contracts under which our obligation to purchase land is subject to the satisfaction of zoning, utility, environmental, title or other contingencies. We continually evaluate our cancelable contractual obligations to purchase unimproved land and developed lots. At December 31, 2004, we had approximately $51.3 million of cancelable contractual obligations for which we had determined it is reasonably likely that we will complete the land or lot purchase. Our good faith deposits and related due diligence costs on these contracts were approximately $3.6 million at December 31, 2004. In addition, approximately $2.3 million of performance bonds and irrevocable letters of credit were outstanding as collateral for these contingent land purchase commitments at December 31, 2004. Assuming that the contingencies are satisfied and that no other significant obstacles to development arise, we expect to purchase most of the residential lots and unimproved land that are subject to these cancelable contractual obligations within the next several years. We expect to fund our land acquisition and development obligations from internally generated cash and from the borrowing capacity under the Facility. We are in the process of evaluating approximately $95.7 million of additional cancelable contractual obligations for which we have not yet determined whether it is reasonably likely that we will complete the land or lot purchase. At December 31, 2004, good faith deposits and related due diligence costs on these contracts were approximately $2.5 million. Good faith deposits and related due diligence costs are charged to earnings when we determine the purchase of the land or lots will not be completed.

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We own a 49.9% interest in a consolidated title insurance agency, Alliance Title Agency, Ltd., that provides closing services for our Central Ohio homes. At December 31, 2004, our investment in the title insurance agency was approximately $138,000. We determined that the title insurance agency is a variable interest entity and consolidated it with our other homebuilding operations effective January 1, 2004.

In 1997, we entered into an agreement with an unaffiliated third party to sell and lease back certain homes for use as sales models. This agreement was amended on September 10, 2004, at which time 21 homes were sold and leased back for use as sales models. At December 31, 2004, we had 21 homes subject to a one-year lease which expires in September 2005 but which the Company, at its option, may continue on a month-to-month basis and five model homes subject to a month-to-month lease under this agreement. We have determined that these leases are not with a variable interest entity and rental obligations are properly classified as operating leases in our schedule of contractual obligations.

BRC is the owner of two office buildings that we lease under long term leases. We have no residual financial interest in these properties. We analyzed these leases with BRC and determined that BRC was not a variable interest entity requiring consolidation in our financial statements.

The following is a summary of our commercial commitments under off balance sheet arrangements at December 31, 2004 (in thousands):

Inflation and Other Cost Increases

We are not always able to reflect all of our cost increases in the prices of our homes because competitive pressures and other factors sometimes require us to maintain or discount those prices. While we attempt to maintain material, labor and subcontractor costs from the date a sales contract with a customer is accepted until the date construction is completed, we may incur unanticipated costs which cannot be passed on to the customer. For example, delays in construction of a home can cause the mortgage commitment to expire and can require us, if mortgage interest rates have increased, to pay significant amounts to the mortgage lender to extend the original mortgage interest rate. In addition, during periods of high construction activities, we may incur additional costs to obtain subcontractors when certain trades are not readily available, which additional costs can result in lower gross profits. Periods of rapid price increases can result in lower gross profits.

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Recently Issued Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board (the “FASB”) issued FASB Statement No. 123R (“FAS 123R”), Share-Based Payment, which requires companies to expense the value of employee stock options and other similar awards. FAS 123R will be effective beginning July 1, 2005. We are currently reviewing the adoption and valuation methods available under FAS 123R. We do not expect its adoption to have a significant impact on our consolidated financial position or results of operations.

Critical Accounting Policies

The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, including the related Notes, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to real estate inventories, warranty obligations, and construction costs for homes closed. We base these estimates on historical trends and experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements:

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2004, we were a party to twelve interest rate swap contracts with an aggregate notional amount of $130 million, as reflected in the table below. We enter into swap contracts to minimize earnings fluctuations caused by interest rate volatility associated with our variable rate debt. The swap contracts allow us to have variable rate borrowings and to select the level of fixed rate debt for the Company as a whole. Under the swap contracts, we agree with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate amounts calculated by reference to an agreed notional amount. Our current intention is to maintain a range of 40% to 60% of our debt at a fixed interest rate. However, market conditions and timing effect the Company’s ability to maintain this balance between fixed and variable interest rates. Therefore, at any time, this percentage may be more or less depending on specific circumstances. At December 31, 2004 our level of fixed rate debt under the Facility, after considering the effect of the interest rate swaps, was 67%. However, $20 million of interest rate swaps were scheduled to mature in January 2005 and our outstanding borrowings are expected to increase in early 2005, primarily due to the purchase and development of land. The combination of these two events is expected to bring our level of fixed rate debt back into the range we desire to maintain on a long-term basis. We do not enter into derivative financial instrument transactions for speculative purposes. The swap contracts are more fully described below:

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The following table presents descriptions of the financial instruments and derivative instruments that we held at December 31, 2004. For the liabilities, the table presents principal calendar year cash flows that exist by maturity date and the related average interest rate. For the interest rate derivatives, the table presents the notional amounts and expected interest rates that exist by contractual dates. Interest on our variable rate liabilities is LIBOR plus a variable margin ranging from 1.75% to 2.50%. Cash flows for interest on $130 million of the variable rate liabilities subject to interest rate derivatives is the contractual average pay rate plus the variable margin (1.75% at December 31, 2004). The notional amount is used to calculate the contractual payments to be exchanged under the contract. The fair value of the variable rate liabilities at December 31, 2004 and 2003 was $194.4 million and $129.2 million, respectively. The fair value of the derivatives at December 31, 2004 was an asset of $981,000 and at December 31, 2003 a liability of $1.9 million. We do not expect a gain to be realized from the $981,000 asset because we expect to retain the swap contracts to maturity. All dollar amounts are in thousands.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated:

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we undertook an assessment of our internal control over financial reporting as of December 31, 2004, based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based upon this assessment, our management has concluded that, as of December 31, 2004, our internal control over financial reporting was effective based on those criteria, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Dominion Homes, Inc.:

We have completed an integrated audit of Dominion Homes, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Dominion Homes, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over

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financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Columbus, Ohio

March 11, 2005

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Dominion Homes, Inc.

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

The accompanying notes are an integral part of the Consolidated Financial Statements.

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Dominion Homes, Inc.

Consolidated Balance Sheets

(In thousands, except share information)