SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------
                                    FORM 10-Q

(Mark One)

   [X]            QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE
                  SECURITIES EXCHANGE ACT OF 1934.

                 For the quarterly period ending March 31, 1997
                                                 --------------
 
                                       OR

   [_]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934.

               For the transition period from ________ to _______

                          Commission file number 1-4719
                                                 ------

                             THE DELTONA CORPORATION
               -------------------------------------------------
             (Exact name of registrant as specified in its charter)


            DELAWARE                                          59-0997584
--------------------------------------------------------------------------------
(State of other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                          Identification Number)

999 BRICKELL AVENUE, SUITE 700, MIAMI, FLORIDA                    33131
--------------------------------------------------------------------------------
(Address of principal executive office)                        (Zip Code)

Registrant's telephone number, including area code:       (305) 579-0999
                                                   -----------------------------


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of  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 the number of shares  outstanding  of the issuer's  classes of
common stock,  as of the latest  practicable  date:  6,734,939  shares of common
stock, $1 par value, excluding treasury stock, as of March 31, 1997.



<PAGE>

                          PART I FINANCIAL INFORMATION
                          ============================


ITEM 1.           FINANCIAL STATEMENTS


                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
                 -----------------------------------------------
                      MARCH 31, 1997 AND DECEMBER 31, 1996
                      ------------------------------------
                                 ($000 Omitted)

<TABLE>
<CAPTION>
                                                     March 31,   December 31,
                                                       1997         1996
                                                     ---------   ------------
<S>                                                  <C>         <C>
Cash and temporary cash investments,
 including escrow deposits and restricted
 cash of $811 in 1997 and $845 in 1996...............$     877   $     907
                                                     ---------   ---------
Contracts receivable for land sales - net............    7,461       6,965
                                                     ---------   ---------
Mortgages and other receivables - net................      343         384
                                                     ---------   ---------
Inventories (b):
 Land and land improvements..........................   10,155      10,287
 Other...............................................       99          99
                                                     ---------   ---------
         Total inventories...........................   10,254      10,386
                                                     ---------   ---------
Property, plant, and equipment at cost - net.........      404         413
                                                     ---------   ---------
Prepaid expenses and other...........................      298         367
                                                     ---------   ---------
         Total.......................................$  19,637   $  19,422
                                                     =========   =========



                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)


Mortgages and similar debt(c):
 Mortgage notes payable..............................$  18,707   $  18,707
 Other loans ........................................    3,661       3,661
                                                     ---------   ---------
   Total mortgages and similar debt..................   22,368      22,368
Accounts payable, accrued expenses,
 customers' deposits.................................    8,015       7,169
Allowance for Marco permit costs (d).................        0           0
Deferred revenue.....................................    7,560       7,764
                                                     ---------   ---------
         Total liabilities...........................   37,943      37,301
                                                     ---------   ---------
Commitments and contingencies (d):
 Stockholders' equity (deficiency):
  Common stock, $1 par value -
  authorized 15,000,000 shares;
  outstanding:  1997 and 1996 -
  6,734,939 shares and 6,734,572
  shares (excluding 12,228 shares held
  in treasury in 1997 and 1996)......................    6,735      6,734
 Capital surplus.....................................   44,715     44,714
 Accumulated deficit.................................  (69,756)   (69,327)
                                                     ---------   --------
         Total stockholders' (deficiency)............  (18,306)   (17,879)
                                                     ---------   --------
                  Total..............................$  19,637   $ 19,422
                                                     =========   ========

</TABLE>

                                       2
<PAGE>


                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
            ---------------------------------------------------------
                            FOR THE PERIODS INDICATED
                            -------------------------
                     ($000 Omitted Except Per Share Amounts)

<TABLE>
<CAPTION>

                                              Three Months Ended
                                           ------------------------
                                           March 31,      March 31,
                                             1997            1996
                                           ---------      ---------
<S>                                        <C>            <C>
Revenues (a):
 Net land sales.......................     $   1,129      $   1,048
 House and apartment sales............           321            364
 Recognized improvement
  revenue/ prior period
  sales...............................           184            131
 Interest income......................           330            244
 Other revenues.......................           108            230
                                           ---------      ---------
     Total............................         2,072          2,017
                                           ---------      ---------
Costs and expenses (a):
 Cost of sales and
  improvements........................           628            667
 Selling, general and
  administrative and other
  expenses............................         1,417          1,332
 Interest expense (c)(e)..............           456            422
                                           ---------      ---------
     Total............................         2,501          2,421
                                           ---------      ---------
Loss from operations .................          (429)          (404)
                                           ---------      ---------
Net Income (Loss).....................     $    (429)     $    (404)
                                           =========      =========
Earning (Loss) per share:
 From operations......................          (.06)          (.06)
                                           ---------      ---------
Net Income (Loss).....................     $    (.06)     $    (.06)
                                           =========      =========
Number of common and common
 equivalent shares....................     6,734,906      6,722,942
                                           =========      =========

<FN>

No dividends have been paid on Common Stock.
Results  of  operations  for the first  three  months may not be  indicative  of
 results  which  may be  expected  for the full  year.
See  Notes  to  Unaudited Condensed Consolidated Financial Statements.
See Management's Analysis of Quarterly Statements of Operations included herein.
Certain amounts have been reclassified for comparative purposes.

</FN>
</TABLE>

                                       3
<PAGE>
                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                           FOR THE THREE MONTHS ENDED
                           --------------------------
                        MARCH 31, 1997 AND MARCH 31, 1996
                        ---------------------------------
                                 ($000 Omitted)

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                       ------------------------
                                                        March 31,     March 31,
                                                          1997          1996
                                                       ----------     ---------
<S>                                                    <C>            <C>
Cash flows from operating activities..............     $     (31)     $   (219)
                                                       ---------      --------
Cash flows from investing activities:
  Proceeds from sale of property, plant
  and equipment...................................             3             5
 Payment for acquisition and construction
  of property plant and equipment.................            (2)            0
                                                       ---------      --------
Net cash provided by (used in) investing
 activities.......................................             1             5
                                                       ---------      --------
Cash flows from financing activities:
  New borrowings..................................             0           100
  Repayment of borrowings.........................             0             0
                                                       ---------      --------
Net cash provided by (used in) financing
 activities.......................................             0           100
                                                       ---------      --------
Net increase (decrease) in cash and
 temporary cash investments (including
 escrow deposits and restricted cash).............           (30)         (114)

Cash and temporary cash investments at
 December 31, 1996 and December 31, 1995..........           907           982
                                                       ---------      --------
Cash and temporary cash investments at
 March 31, 1997 and March 31, 1996................     $     877      $    868
                                                       =========      ========

Supplemental disclosure of non cash
 investing and financing activities:

Common Stock issued for Marco Settlement.........      $       1      $     19
                                                       =========      ========

<FN>

See Notes to Unaudited Condensed Consolidated Financial Statements.
Certain amounts have been reclassified for comparative purposes.
</FN>
</TABLE>

                                       4
<PAGE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                           FOR THE THREE MONTHS ENDED
                           --------------------------
                        MARCH 31, 1997 AND MARCH 31, 1996
                        ---------------------------------
                                 ($000 Omitted)
<TABLE>
<CAPTION>

                                                          Three Months Ended
                                                       ------------------------
                                                       March 31,      March 31,
                                                          1997           1996
                                                       ---------      ---------
<S>                                                    <C>            <C>
Reconciliation of net income (loss)
 to net cash provided by (used in)
 operating activities:

  Net loss..........................................   $    (429)     $   (404)
                                                       ---------      --------
Adjustments  to reconcile  net loss to net cash
  provided by (used in) operating activities:

  Depreciation and amortization.....................          14            13
  Provision for estimated uncollectible sales-net...         412           389
  Contract valuation discount, net of amortization..          74            75
  Net Gain on sale of property, plant &
    equipment.......................................          (3)           (5)
  Net change in assets and liabilities..............         (79)         (287)
                                                       ---------      --------
         Total adjustments...........................  $     398      $    185
                                                       ---------      --------
  Net cash provided by (used in) operating
         activities..................................  $     (31)     $   (219)
                                                       =========      ========

</TABLE>

                                       5
<PAGE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         --------------------------------------------------------------
                                 MARCH 31, 1997
                                 --------------


(a)      SIGNIFICANT ACCOUNTING POLICIES

         The condensed unaudited  financial  statements of the Company have been
         prepared  pursuant to the rules and  regulations  of the Securities and
         Exchange  Commission  (the   "Commission").   Certain  information  and
         footnote disclosures normally included in financial statements prepared
         in accordance with generally accepted  accounting  principles have been
         condensed or omitted pursuant to Commission rules and regulations.  The
         information  furnished  reflects,  in the opinion of the  Company,  all
         adjustments (consisting only of normal recurring adjustments) necessary
         for a fair statement of the results for the interim periods  presented.
         These condensed  consolidated  financial  statements  should be read in
         conjunction  with  the  financial  statements  and  the  notes  thereto
         included in the Company's latest Annual Report on Form 10-K.


(b)      INVENTORIES

         Information with respect to the classification of inventory of land and
         improvements including land held for sale or transfer is as follows (in
         thousands):


                              Land and Improvements
                              ---------------------

<TABLE>
<CAPTION>

                                                       March 31,  December 31,
                                                         1997         1996
                                                       ---------  -----------
         <S>                                           <C>        <C>
         Unimproved land.............................  $    415   $    421
         Land in various stages of
          development................................     3,724      3,708
         Fully improved land.........................     6,016      6,159
                                                       --------   --------
                  Total..............................  $ 10,155   $ 10,288
                                                       ========   ========
</TABLE>

     Other inventories consists primarily of vacation ownership units completed.


(c)  MORTGAGES AND SIMILAR DEBT

     On June 19,  1992,  Selex  loaned the  Company  the sum of  $3,000,000
     pursuant to the First Selex Loan. The First Selex Loan is collateralized by
     a first mortgage on certain of the Company's unsold,  undeveloped  property
     in its St. Augustine Shores,  Florida  community.  The Loan matures on June
     15, 1996 and provides for principal to be repaid at 50% of the net proceeds
     per lot for lots  requiring  release  from the  mortgage,  with the  entire
     unpaid  balance  becoming due and payable at the end of the four year term.
     It initially  bears interest at the rate of 10% per annum,  with payment of
     interest  deferred  for the  initial  18  months  of the Loan and  interest
     payments due quarterly thereafter. As part of the Selex transaction,  Selex
     was  granted  an option,  approved  by the  holders  of a  majority  of the
     outstanding  shares of the  Company's  Common Stock at the  Company's  1992
     Annual  Meeting,  which,  as modified,  enabled  Selex to convert the First
     Selex Loan, or any portion thereof, into a maximum of 600,000 shares of the
     Company's Common Stock at a per share conversion price equal to the greater
     of (i) $1.25 or (ii) 95% of the market price of the Company's  Common Stock
     at the time of  conversion,  but in no event  greater  than $4.50 per share
     (the "Option").  On February 17, 1994, Selex exercised the Option, in full,
     at a conversion price of $1.90 per share, such that $1,140,000 in principal
     was repaid under the First Selex Loan through such conversion.  As of March
     31, 1997, the Company was in default of the First Selex Loan.

                                       6
<PAGE>

     One million dollars of the proceeds from the First Selex Loan was used
     by the Company to acquire certain commercial and multi-family properties at
     the Company's St.  Augustine Shores community at their net appraised value,
     from Marcel  Muyres and certain  entities  affiliated  with Mr.  Muyres and
     Cornelis  Zwaans.  Namely,  (i) $416,000 was used to acquire 48 undeveloped
     condominium  units  (twelve 4 unit  building  sites) and 4  completed  (and
     rented)  condominium  units  from  Conquistador   Development   Corporation
     ("Conquistador"), in which Messrs. Zwaans and Muyres serve as directors, as
     well as President and Secretary/Treasurer,  respectively; (ii) $485,000 was
     used to acquire 4 commercial  lots from Swan, in which  Messrs.  Zwaans and
     Muyres  also  serve  as  directors,  as well as  President  and  Secretary,
     respectively;  and (iii) approximately $99,000 was used to reacquire,  from
     Mr. Muyres, all of his rights, title and interest in that certain contracts
     with the Company for the  purchase of a commercial  tract in St.  Augustine
     Shores,  Florida. None of the commercial and multi-family property acquired
     by the Company from Mr. Muyres and certain entities affiliated with Messrs.
     Zwaans and Muyres  collateralizes  the First  Selex Loan.  In March,  1994,
     Conquistador   exercised  its  right  to  repurchase  certain  multi-family
     property from the Company (which right had been granted in connection  with
     the June, 1992 Selex transaction) at a price of $312,000, of which $260,000
     was paid in cash to the Company and $52,000 was applied to reduce  interest
     due  to  Selex  under  the  Second  Selex  Loan  (the  "First  Conquistador
     Acquisition").

     On  December 2, 1992,  the Company  entered  into  various  agreements
     relating  to certain of its assets and the  restructuring  of its debt with
     Yasawa, which is beneficially owned by Mr. Antony Gram. The consummation of
     these  agreements,  which are further described below, was conditioned upon
     the acquisition by Mr. Gram of the Company's outstanding bank loan.

     On  December 4, 1992,  Mr. Gram  entered  into an  agreement  with the
     lenders,  pursuant  to which he  acquired  the bank  loan of  approximately
     $25,150,000  (including  interest and fees) for a price of $10,750,000.  In
     conjunction with such transaction,  the lenders transferred to Mr. Gram the
     warrants  which they held that entitled the holder to purchase an aggregate
     of 277,387  shares of the  Company's  Common Stock at an exercise  price of
     $1.00 per share.  Immediately  after the  acquisition of the bank loan, Mr.
     Gram  transferred  all of his  interest  in the bank  loan,  including  the
     warrants, to Yasawa.

     On December 11,  1992,  the Company  consummated  the December 2, 1992
     agreements with Yasawa. Under these agreements,  Yasawa, its affiliates and
     the Company agreed as follows: (i) the Company sold certain property at its
     Citrus  Springs  community  to an  affiliate  of  Yasawa  in  exchange  for
     approximately  $6,500,000 of debt  reduction  credit;  (ii) an affiliate of
     Yasawa and the Company entered into a joint venture  agreement with respect
     to the Citrus  Springs  property,  providing for the Company to market such
     property  and  receive an  administration  fee from the  venture (in March,
     1994, the Company and the affiliate agreed to terminate the venture); (iii)
     the Company sold certain contracts receivable at face value to an affiliate
     of Yasawa for debt reduction credit of approximately $10,800,000;  (iv) the
     Company sold the Marco Shores  Country Club and Golf Course to an affiliate
     of Yasawa for an aggregate  sales price of  $5,500,000,  with the affiliate
     assuming an existing  first  mortgage of  approximately  $1,100,000 and the
     Company  receiving  debt  reduction  credit  of  $2,400,000,  such that the
     Company obtained cash proceeds from this  transaction of $2,000,000,  which
     amount was used for working  capital;  (v) an affiliate of Yasawa agreed to
     lease the Marco  Shores  Country  Club and Golf Course to the Company for a
     period of  approximately  one year;  (vi) an  affiliate  of Yasawa  and the
     Company agreed to amend the terms of the warrants to increase the number of
     shares  issuable upon their  exercise from 277,387 shares to 289,637 shares
     and to adjust the exercise price to an aggregate of approximately $314,000;
     (vii) Yasawa  exercised the warrants in exchange for debt reduction  credit
     of approximately  $314,000;  (viii) Yasawa released certain collateral held
     for the bank loan; (ix) an affiliate of Yasawa agreed to make an additional
     loan of up to $1,500,000 to the Company,  thus providing the Company with a
     future line of credit (all of which was drawn and  outstanding  as of March
     31, 1997);  and (x) Yasawa agreed to  restructure  the payment terms of the
     remaining  $5,106,000  of the bank loan as a loan from Yasawa (the  "Yasawa
     Loan").

     The Yasawa  Loan  bears  interest  at the rate of 11% per annum,  with
     payment of interest  deferred  until  December 31, 1993,  when only accrued
     interest  became  payable.  Commencing  January  31,  1994,  principal  and
     interest  became  payable  monthly,  with all unpaid  principal and accrued
     interest being due and payable on


                                       7
<PAGE>


     December 31, 1997.  As of March 31, 1997,  $6,493,000 in principal and
     accrued interest was in default under the Yasawa Loan.

     On April 30, 1993 Selex  loaned the Company an  additional  $1,000,000
     collateralized by a first mortgage on certain of the Company's  property in
     its Marion Oaks,  Florida  community  (the "Second Selex  Loan").  Interest
     under the Second Selex Loan was 11% per annum,  deferred until December 31,
     1993,  and principal was to be repaid at $3,000 per lot for lots  requiring
     release from the  mortgage,  with the entire unpaid  principal  balance and
     interest accruing from January 1, 1994 to April 30, 1994 due and payable on
     April 30,  1994.  Although  Selex had certain  conversion  rights under the
     Second  Selex  Loan in the  event  the  Company  sold any  Common  Stock or
     Preferred  Stock prior to payment in full of all amounts due to Selex under
     the Second Selex Loan,  such rights were voided.  The Second Selex Loan was
     satisfied  on May 22, 1995  through the closing of the Second  Conquistador
     Acquisition, discussed below.

     From July 9, 1993 through  December 31, 1993, Selex loaned the Company
     an additional $4,400,000  collateralized by a second mortgage on certain of
     the Company's  property on which Selex and/or Yasawa hold a first  mortgage
     pursuant to a Loan  Agreement  dated July 14, 1993 and  amendments  thereto
     (the "Third Selex  Loan").  The Third Selex Loan bears  interest at 11% per
     annum, with interest  deferred until December 31, 1993.  Principal is to be
     repaid at $3,000 per lot for lots requiring release from the mortgage, with
     the entire unpaid principal  balance and interest  accruing from January 1,
     1994 to April 30,  1994 due and  payable  on April  30,  1994.  The  Second
     Conquistador Acquisition, discussed below, closed on May 22, 1995, provided
     a reduction of the debt due and payable  under the Third Selex Loan.  As of
     March 31, 1997,  the  remaining  balance of  $4,238,000  in  principal  and
     accrued interest remained unpaid and in default.

     In February,  1994,  Yasawa loaned the Company an additional amount of
     approximately  $514,900  at an interest  rate of 8% per annum (the  "Second
     Yasawa  Loan").  Since May, 1994,  additional  amounts were advanced to the
     Company  under the Second  Yasawa Loan to enable the Company to pay certain
     essential  expenses,  including  payment of certain real estate taxes,  and
     effectuate settlements with the Company's principal creditors.  As of March
     31,  1997,  an  aggregate  amount of  $6,012,000  had been  advanced to the
     Company  under the Second  Yasawa  Loan and the  balance of  $6,873,000  in
     principal and accrued interest remains unpaid.

     On May 22, 1995,  the Company closed a transaction  with  Conquistador
     (the "Second  Conquistador  Acquisition") for the sale of an administration
     building and a  multi-family  site in the  Company's St.  Augustine  Shores
     community  as  well  as  the  remaining  lot  inventory  in  the  Company's
     FeatherNest  community at Marion Oaks in consideration for the satisfaction
     of  $2,599,300  of principal  and accrued  interest on the Second and Third
     Selex Loans. In a separate  transaction which also closed on the same date,
     the Company sold to  Conquistador  (the "Third  Conquistador  Acquisition")
     four single family  residential  lots in the St. Augustine Shores community
     for $100,000 in cash. These  transactions  were accounted for in accordance
     with generally  accepted  accounting  principals for these types of related
     party  transactions.  Accordingly,  the resulting  gain of  $1,900,000  was
     treated as a  contribution  of capital  and  recorded  directly  to capital
     surplus.

     As  previously  stated,  Messrs.  Muyres  and  Zwaans  also  serve  as
     directors and  executive  officers of M&M First Coast Realty  ("M&M").  The
     Company had leased certain office space to M&M at its St.  Augustine Shores
     community pursuant to a Lease Agreement dated August 10, 1990. A payment of
     approximately  $21,300 in  delinquent  rental  payments was made on May 22,
     1995  upon  the  closing  of the  Second  Conquistador  Acquisition,  which
     included the sale of the St. Augustine Administration Building to which the
     lease pertained.

     At December 31,  1995,  $4,200,000  of accrued  interest due to Selex,
     Yasawa  and their  affiliates  was  reclassified  as  non-interest  bearing
     principal. Through March 31, 1997, $1,140,000 in principal was repaid under
     the First Selex Loan  through the exercise of the above  described  Option,
     the Second  Selex  Loan was repaid in full,  $1,380,900  in  principal  was
     repaid under the Third Selex Loan,  and $135,900 in principal  and $346,000
     in accrued interest was repaid under the Yasawa loan. As of March 31, 1997,
     the Company had loans  outstanding from Selex,  Yasawa and their affiliates
     in the aggregate amount of approximately $24,603,000, including

                                       8
<PAGE>

     interest,  all  of  which  are  in  default,  including  approximately
     $9,005,000,  which is owed to Selex,  including accrued and unpaid interest
     of  approximately  $810,000 (10% per annum on the First Selex Loan, 11% per
     annum on the Third Selex Loan and 12% per annum on the Empire Note assigned
     to Selex);  approximately  $13,365,000,  which is owed to Yasawa, including
     accrued and unpaid interest of  approximately  $1,196,000 (11% per annum on
     the  Yasawa  Loan  and 8%  per  annum  on  the  Second  Yasawa  Loan);  and
     approximately  $2,233,000,  which  is  owed  to  an  affiliate  of  Yasawa,
     including  accrued and unpaid interest of  approximately  $228,000 (12% per
     annum).  The loans from Selex,  Yasawa and their  affiliates are secured by
     substantially all of the assets of the Company.


(d)  COMMITMENTS AND CONTINGENCIES

     Homesite sales contracts  provide for the return of all monies paid in
     (including  paid-in  interest)  should  the  Company  be unable to meet its
     contractual  obligations after the use of reasonable diligence. If a refund
     is made, the Company will recover the related  homesite and any improvement
     thereto.  The  aggregate  amount of all monies paid in  (including  paid-in
     interest)  on  all  homesite  contracts  having   outstanding   contractual
     obligations  (primarily  to  complete  improvements)  at March 31, 1997 was
     approximately $5,205,000.

     As a result  of the  delays in  completing  the land  improvements  to
     certain  property  sold  in  certain  of  its  Central  and  North  Florida
     communities, the Company fell behind in meeting its contractual obligations
     to its  customers.  In  connection  with  these  delays,  the  Company,  in
     February,  1980,  entered  into a Consent  Order  with the  Division  which
     provided a program for notifying  affected  customers.  The Consent  Order,
     which was restated and amended,  provided a program for notifying  affected
     customers of the anticipated  delays in the completion of improvements (or,
     in the case of  purchasers  of  unbuildable  lots in  certain  areas of the
     Company's Sunny Hills community, the transfer of development obligations to
     core growth areas of the community);  various options which may be selected
     by affected purchasers; a schedule for completing certain improvements; and
     a deferral of the obligation to install water mains until  requested by the
     purchaser.  Under an agreement with Topeka Group  Incorporated  ("Topeka"),
     which purchased the Company's utilities in 1989, Topeka's utility companies
     have  agreed to furnish  utility  service to the  future  residents  of the
     Company's communities on substantially the same basis as such services were
     provided by the Company.  The Consent Order also required the establishment
     of  an  improvement   escrow  account  as  assurance  for  completing  such
     improvement obligations.

     In June,  1992,  the Company  entered into the 1992 Consent Order with
     the Division,  which replaced and superseded the original Consent Order, as
     amended  and  restated.   Among  other  things,   the  1992  Consent  Order
     consolidated  the  Company's  development  obligations  and  provided for a
     reduction  in its  required  monthly  escrow  obligation  to $175,000  from
     September,  1992 through December,  1993. Beginning January, 1994 and until
     development is completed or the 1992 Consent Order is amended,  the Company
     is required to deposit $430,000 per month into the escrow account.  As part
     of the assurance  program under the 1992 Consent Order, the Company and its
     lenders  granted  the  Division  a lien on certain  receivables  and future
     receivables. The Company defaulted on its obligation to escrow $430,000 per
     month  for the  period  of  January,  1994  through  the  present  and,  in
     accordance with the 1992 Consent Order, collections on Division receivables
     were  escrowed  for the benefit of  purchasers  from March 1, 1994  through
     April 30, 1994. In May, 1994 the Company  implemented a program to exchange
     purchasers  who  contracted to purchase  property  which is  undeveloped to
     property which is developed. As of March 31, 1997, approximately 85% of the
     customers  whose lots are currently  undeveloped  have opted to exchange or
     were otherwise resolved. Consequently, the Division has allowed the Company
     to utilize  collections  on receivables  since May 1, 1994.  Because of the
     Company's  default,  the  Division  could  also  exercise  other  available
     remedies under the 1992 Consent Order, which remedies entitle the Division,
     among other things, to halt all sales of registered property.

     The Company's goal is to eliminate its  development  obligation  (with
     the exception of its maintenance  obligation in Marion Oaks) under the 1992
     Consent Order through this exchange program and settlement of all remaining
     maintenance and improvements  obligations in Citrus Springs through a final
     agreement with Citrus County

                                       9
<PAGE>

     (entered into in May 1995).  Pursuant to the 1992 Consent  Order,  the
     Company has limited the sale of single-family lots to lots which front on a
     paved street and are ready for immediate building.

     The Company's corporate  performance bonds to assure the completion of
     development  at its St.  Augustine  Shores  community  expired in March and
     June,  1993.  Such bonds cannot be renewed due to a change in the policy of
     the Board of County  Commissioners  of St.  Johns  County  which  precludes
     allowing any developer to secure the performance of development obligations
     by the  issuance of  corporate  bonds.  In the event that St.  Johns County
     elects to undertake the  completion of such  development  work, the Company
     would be obligated with respect to 1,000  unimproved lots at St.  Augustine
     Shores in the amount of  approximately  $6,200,000.  The Company intends to
     submit  an  alternative  assurance  program  for  the  completion  of  such
     development and improvements to the County for its approval.

     In  addition  to the  matters  discussed  above  and in  Note 9 to the
     Company's  Consolidated  Financial  Statements  included  in the  Company's
     Annual  Report on Form  10-K for the year  ended  December  31,  1996,  the
     Company  is a party to other  litigation  relating  to the  conduct  of its
     business  which is routine in nature  and,  in the  opinion of  management,
     should have no material effect upon the Company's operation


(e)  CAPITALIZED INTEREST

     The Company  capitalizes  interest  cost  incurred  during a project's
     construction  period.  Of the total  interest cost incurred of $456,000 and
     $422,000,  none was  capitalized  for the three months ended March 31, 1997
     and March 31, 1996, respectively.


(f)  EARNINGS OR LOSS PER SHARE

     Earnings (loss) per common and common  equivalent  share were computed
     by dividing net income (loss) by the weighted  average  number of shares of
     Common Stock and common stock equivalents  outstanding  during each period.
     The  earnings  (loss) and the average  number of shares of Common Stock and
     common stock equivalents used to calculate earnings per share for the three
     months  ended  March  31,  1997 and  March 31,  1996  were  $(429,000)  and
     $(404,000) and 6,734,906 and 6,722,942, respectively.


                                       10
<PAGE>

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


On June 19, 1992, the Company completed a transaction with Selex, which resulted
in a change in control of the Company.  Under the transaction,  Selex loaned the
Company  $3,000,000  collateralized  by a  first  mortgage  on  certain  of  the
Company's  property in its St. Augustine  Shores,  Florida community (the "First
Selex Loan").  The First Selex Loan initially  bears interest at the rate of 10%
per annum with a term of four years and  payment of  interest  deferred  for the
first 18 months.

In  conjunction  with the  First  Selex  Loan:  (i)  Empire  of  Carolina,  Inc.
("Empire")  sold Selex its 2,220,066  shares of the  Company's  Common Stock and
assigned Selex its $1,000,000  Note from the Company,  with $225,000 of interest
accrued thereon;  (ii) Maurice A. Halperin,  Chairman of the Board of Empire and
former  Chairman of the Board of the  Company,  forgave  payment of the $200,000
salary due him for the period of April,  1990 through April,  1991, which was in
arrears;  and (iii) certain changes occurred in the composition of the Company's
Board of Directors. Namely, the six directors serving on the Company's Board who
were previously  designated by Empire resigned and four Selex designees (Messrs.
Marcellus H.B. Muyres,  Antony Gram,  Cornelis van de Peppel and Cornelis L.J.J.
Zwaans) were elected to serve as directors in their stead. Marcellus H.B. Muyres
was appointed  Chairman of the Board and Chief Executive Officer of the Company.
These directors,  as well as Leonardus G.M.  Nipshagen,  a Selex designee,  were
then elected as directors at the  Company's  1992 Annual  Meeting.  In November,
1995, Messrs.  Muyres, van de Peppel,  Nipshagen and Zwaans resigned their board
seats.

As part of the Selex transaction,  Selex was granted an option,  approved by the
holders of a majority of the outstanding shares of the Company's Common Stock at
the  Company's  1992 Annual  Meeting,  to convert the Selex Loan, or any portion
thereof, into a maximum of 850,000 shares of the Company's Common Stock at a per
share  conversion  price  equal to the  greater  of (i) $1.25 or (ii) 95% of the
market price of the Company's Common Stock at the time of conversion,  but in no
event  greater than $4.50 per share (the  "Option").  However,  on September 14,
1992, Selex formally waived and relinquished its right to exercise the Option as
to 250,000 shares of the Company's  Common Stock to enable the Company to settle
certain  litigation  involving the Company through the issuance of approximately
250,000  shares  of  the  Company's  Common  Stock  to  the  claimants,  without
jeopardizing  the utilization of the Company's net operating loss  carryforward.
On February 17, 1994, Selex exercised the remaining full 600,000 share Option at
a conversion  price of $1.90 per share,  such that  $1,140,000  in principal was
repaid under the First Selex Loan through such  conversion.  As a consequence of
such  conversion,  Selex holds  2,820,066  shares of the Company's  Common Stock
(41.9% of the  outstanding  shares of Common Stock of the Company based upon the
number of shares  of the  Company's  Common  Stock  outstanding  as of March 31,
1997).

Pursuant to the Selex  transaction,  $1,000,000  of the proceeds  from the First
Selex  Loan  was  used  by  the  Company  to  acquire  certain   commercial  and
multi-family properties at the Company's St. Augustine Shores community at their
net  appraised  value,  from Mr.  Muyres and certain  entities  affiliated  with
Messrs.  Zwaans  and  Muyres.  Namely,  (i)  $416,000  was  used to  acquire  48
undeveloped  condominium  units (twelve 4 unit  building  sites) and 4 completed
(and rented)  condominium units from Conquistador,  in which Messrs.  Zwaans and
Muyres  serve  as  directors,  as well  as  President  and  Secretary/Treasurer,
respectively;  (ii)  $485,000  was used to acquire 4  commercial  lots from Swan
Development  Corporation ("Swan"), in which Messrs. Zwaans and Muyres also serve
as  directors,  as well as  President  and  Secretary,  respectively;  and (iii)
approximately $99,000 was used to reacquire, from Mr. Muyres, all of his rights,
title and interest in a certain  contract with the Company for the purchase of a
commercial tract in St. Augustine Shores,  Florida.  None of the commercial land
and  multi-family  property  acquired by the Company from Mr. Muyres and certain
entities  affiliated  with Messrs.  Zwaans and Muyres  collateralizes  the First
Selex Loan.  In March,  1994,  Conquistador  exercised  its right to  repurchase
certain of the  multi-family  property  from the Company  (which  right had been
granted in connection with the June,  1992  transaction) at a price of $312,000,
of which  $260,000  was paid in cash to the  Company  and $52,000 was applied to
reduce   interest  due  to  Selex  under  the  Second  Selex  Loan  (the  "First
Conquistador Acquisition").

                                       11
<PAGE>

In December,  1992, Mr. Gram, a director of the Company and beneficial  owner of
the Common  Stock of the Company held by Selex,  acquired  all of the  Company's
outstanding  bank debt and then  assigned  same to Yasawa,  of which Mr. Gram is
also  the  beneficial  owner.  Yasawa  simultaneously   completed  a  series  of
transactions  with the Company which  involved the transfer of certain assets to
Yasawa or its affiliated companies,  the acquisition by Yasawa of 289,637 shares
of the Company's  Common Stock through the exercise of warrants  previously held
by the banks,  the  provision of a $1,500,000  line of credit to the Company and
the  restructuring  of the  remaining  debt as a  $5,106,000  Yasawa  Loan.  The
principal  balance of the Yasawa Loan is  $4,765,000  as of March 31,  1997.  On
April 30, 1993,  Selex  loaned the Company an  additional  amount of  $1,000,000
pursuant to the Second Selex Loan and since July 1, 1993 made  further  loans to
the Company aggregating  $4,400,000 under the Third Selex Loan. The Second Selex
Loan has been  satisfied and  principal of $1,381,000  has been repaid under the
Third Selex Loan through March 31, 1997. As of March 31, 1997, Yasawa has loaned
the Company an additional sum of $6,012,000  pursuant to the Second Yasawa Loan.
As a consequence  of these  transactions,  as of March 31, 1997, the Company had
loans  outstanding  from Selex,  Yasawa and their  affiliates  in the  aggregate
amount of approximately $24,603,000, including interest.

On May 22, 1995, the Company closed a transaction with Conquistador (the "Second
Conquistador  Acquisition")  for the sale of an  administration  building  and a
multi-family site in the Company's St. Augustine Shores community as well as the
remaining lot inventory in the Company's FeatherNest community at Marion Oaks in
consideration  for the  satisfaction  of  $2,599,300  of  principal  and accrued
interest  on the  Second and Third  Selex  Loans.  On that same  date,  but in a
separate  transaction,   the  Company  also  sold  to  Conquistador  Development
Corporation   (the  "Third   Conquistador   Acquisition")   four  single  family
residential  lots in the St.  Augustine  Shores  community for $100,000 in cash.
These  transactions  were accounted for in accordance  with  generally  accepted
accounting   principals   for  these  types  of  related   party   transactions.
Accordingly,  the resulting gain of $1,900,000 was treated as a contribution  of
capital and recorded directly to capital surplus.  The loans from Selex,  Yasawa
and their  affiliates  are  secured  by  substantially  all of the assets of the
Company. See Note 5 to Consolidated Financial Statements.

On March 10, 1994,  the Company was advised that Selex filed an Amendment to its
Schedule 13D with the  Commission.  In the  Amendment,  Selex  reported that it,
together  with Yasawa and their  affiliates,  were  uncertain as to whether they
would provide any further funds to the Company.  The  Amendment  further  stated
that Selex,  Yasawa and their  affiliates  were seeking third parties to provide
financing for the Company and that as part of any such  transaction,  they would
be willing  to sell or  restructure  all or a portion of their  loans and Common
Stock in the Company.

The Company, Selex and Yasawa entered into loan modification agreements in which
all accrued interest was converted into  non-interest  bearing  principal at the
earlier of the maturity date or the default date.  Accordingly,  at December 31,
1995,  $4,200,000 of accrued interest was  reclassified as principal.  The loans
were also modified to formalize  the  elimination  of the default  interest rate
provisions in each of the applicable loan agreements.

The Company has stated in previous  filings with the  Commission  and  elsewhere
herein that the  obtainment  of  additional  funds to  implement  its  marketing
program and achieve the  objectives  of its business plan is essential to enable
the Company to  maintain  operations  and  continue  as a going  concern.  Since
December, 1992, the Company has been dependent on loans and advances from Selex,
Yasawa and their  affiliates  in order to implement  its  marketing  program and
assist in meeting its working capital requirements. As previously stated, during
the last nine  months of 1993,  Selex,  Yasawa and their  affiliates  loaned the
Company an aggregate of $4,400,000  pursuant to Third Selex Loan. Funds advanced
under the Third Selex Loan enabled the Company to commence implementation of the
majority  of its  marketing  program  in the  third  quarter  of 1993.  The full
benefits of the program  were not realized in 1993 and the Company was unable to
secure  financing in 1994 to meet its working capital  requirements and continue
its marketing program. Commencing in 1994, Yasawa advanced additional funds (the
"Second  Yasawa  Loan")  totaling  $6,012,000  as of March 31, 1997, to meet the
Company's minimum working capital  requirements,  to pay a portion of delinquent
real estate taxes, to pay settlements with certain trade creditors and to settle
certain litigation.

As a consequence of its liquidity position, the Company has defaulted on certain
obligations,  including  its  previously  described  escrow  obligations  to the
Division pursuant to the Company's 1992 Consent Order and its obligation to make
required  payments  under  loans  from  Selex,   Yasawa  and  their  affiliates.
Furthermore,  the  Company  has not paid

                                       12

<PAGE>

delinquent  real estate taxes which  aggregate  approximately  $3,000,000  as of
March 31, 1997;  non-payment of these  delinquent taxes may adversely affect the
financial condition of the Company.

The Company is continuing to seek third parties to provide financing.  There can
be  no  assurance,   however,   that  additional  financing  will  be  obtained,
accordingly,  the  Company's  Board  of  Directors  is  also  considering  other
appropriate  action  given the  severity  of the  Company's  liquidity  position
including,  but  not  limited,  to  filing  for  protection  under  the  federal
bankruptcy laws.


RESULTS OF OPERATIONS
---------------------


For the three months ended March 31, 1997 and March 31, 1996.

Revenues
--------

Total  revenues  were  $2,072,000  for the first  quarter  of 1997  compared  to
$2,017,000 for the comparable 1996 period.

Gross land sales were $1,682,000 for the first quarter of 1997 versus $1,567,000
for the first quarter of 1996.  Net land sales (gross land sales less  estimated
uncollectible  installment sales and contract valuation  discount)  increased to
$1,129,000  for the first  three  months of 1996 from  $1,048,000  for the first
three months of 1996.

There were no bulk land sales for the first quarter of 1997 or 1996. In light of
the Company's  diminished bulk land sales  inventory it is anticipated  that the
Company will produce a negligible  volume of bulk land sales. See "Liquidity and
Capital Resources -- Mortgages and Similar Debt".

Housing  revenues  were  $321,000  for the three  months  ended  March 31,  1997
compared to $364,000 for the same period in 1996.  Housing revenues decreased in
both  quarters  of 1997 and 1996 due to the lack of  working  capital to fund an
advertising  and promotional  program.  Revenues are not recognized from housing
sales until the completion of construction and passage of title.

The  following  table  reflects the  Company's  real estate  product mix for the
periods indicated (in thousands):

<TABLE>
<CAPTION>

                                           Three Months Ended
                                        ------------------------
                                        March 31,      March 31,
                                          1997            1996
                                        ---------      ---------
                  <S>                   <C>            <C>
                  Gross Land Sales:
                  Retail Sales*         $  1,682       $ 1,567
                                        --------       -------
                  Housing Sales:
                  Single Family              321           364
                                        --------       -------
                    Total Real Estate   $  2,003       $ 1,931
                                        ========       =======
<FN>

---------------------
*        New retail land sales contracts  entered into,  including deposit sales
         on which the Company has received less than 20% of the sales price, net
         of  cancellations,  for the three months ended March 31, 1997 and March
         31, 1996 were $1,688,000 and $1,735,000,  respectively. The Company had
         a backlog of approximately $1,841,000 in unrecognized sales as of March
         31, 1997.  Such  contracts  are not included in retail land sales until
         the  applicable  rescission  period has  expired  and the  Company  has
         received payments totaling 20% of the contract sales price.

</FN>
</TABLE>

Improvement  revenues  result from  recognition of revenues  deferred from prior
period sales.  Recognition occurs as development work proceeds on the previously
sold  property  or  customers  are  exchanged  to a developed  lot.  Improvement
revenues  totaled $184,000 for the first quarter of 1997 as compared to $131,000
for the first quarter of 1996.  Due to the Company's  financial  condition,  the
Company has done minimal development work in the last two year.

                                       13

<PAGE>

Interest  income was  $330,000 for the first three months of 1997 as compared to
$244,000  for the first  three  months of 1996.  This  increase is the result of
higher contracts receivable balances.

Other  revenues were $108,000 as compared to $230,000 for the three months ended
March 31, 1997 and March 31, 1996,  respectively.  Other  revenues for 1997 were
generated principally by the Company's title insurance and real estate brokerage
subsidiaries.  In 1996 the  Company  recorded a gain of  approximately  $136,000
representing  contracts receivables returned to the Company from a previous sale
of receivables.


Costs and Expenses
------------------

Costs and expenses for the first three months of 1997 were  $2,501,000  compared
to $2,421,000  for the same period in 1996.  Cost of sales totaled  $628,000 for
the three months ended March 31, 1997  compared to $667,000 for the three months
ended March 31,  1996.

Commissions,  advertising and other selling  expenses  totaled  $649,000 for the
three  months  ended March 31, 1997  compared to $545,000  for the three  months
ended March 31, 1996. This increase is the result of higher retail sales levels.
Advertising and promotional  expenditures  increased to $30,000 from $27,000 for
the three month period of 1997 versus 1996. Other selling expenses  increased to
$167,000 for the three months period of 1997 versus $132,000 for 1996.

General and administrative  expenses were $462,000 for the first three months of
1997  compared  to  $473,000  for the first  three  months of 1996.  General and
administrative expenses have remained constant from period to period.

Real  estate tax  expense was  $305,000  for the period  ended March 31, 1997 as
compared  to $315,000  for the period  ended  March 31,  1996.  Included in real
estate tax expense is interest  and  administrative  fees on  delinquent  taxes,
which accrue interest at 18% per annum.

Interest  expense for the first three months of 1997 was  $456,000,  compared to
$422,000  for the first three months of 1996.  No interest has been  capitalized
since the first  quarter of 1994 since the Company did minimal land  development
work at its communities.


Net Income (Loss)
-----------------

The Company reported a net loss of $429,000 for the three months ended March 31,
1997 as compared to a net loss of $404,000  for the three months ended March 31,
1996.


Regulatory Developments which may affect Future Operations
----------------------------------------------------------

In Florida,  as in many growth areas,  local governments have sought to limit or
control  population  growth in their  communities  through  restrictive  zoning,
density reduction,  the imposition of impact fees and more stringent development
requirements.  Although the Company has taken such factors into consideration in
its master plans,  the  increased  regulation  has  lengthened  the  development
process and added to development costs.

On a statewide  level,  the Florida  Legislature  adopted  and  implemented  the
Florida  Growth  Management  Act of 1985 (the  "Act")  to aid local  governments
efforts to  discourage  uncontrolled  growth in Florida.  The Act  precludes the
issuance  of  development  orders  or  permits  if  public  facilities  such  as
transportation,  water and sewer services will not be available  concurrent with
development.  Development  orders  have been  issued for,  and  development  has
commenced  in,  the  Company's  existing  communities  (with  development  being
virtually completed in certain of these communities). Thus, such communities are
less  likely to be affected by the new growth  management  policies  than future
communities.  Any

                                       14

<PAGE>

future  communities  developed by the Company  will be strongly  impacted by new
growth management policies.  Since the Act and its implications are consistently
being  re-examined  by the State,  together with local  governments  and various
state and local  governmental  agencies,  the Company cannot further predict the
timing or the effect of new growth  management  policies,  but anticipates  that
such policies may increase the Company's permitting and development costs.

In addition to Florida,  other  jurisdictions in which the Company's  properties
are  offered  for  sale  have   recently   strengthened,   or  are   considering
strengthening,  their regulation of subdividers and subdivided lands in order to
provide  further  assurances  to the  public,  particularly  given  the  adverse
publicity  surrounding  the  industry  which  existed in 1990.  The  Company has
attempted  to take  appropriate  steps to  modify  its  marketing  programs  and
registration  applications  in the face of such  increased  regulation,  but has
incurred  additional  costs  and  delays  in the  marketing  of  certain  of its
properties  in certain  states and  countries.  For  example,  the  Company  has
complied with  regulations of certain states which require that the Company sell
its  properties  to residents  of those  states  pursuant to a deed and mortgage
transaction,  regardless of the amount of the down payment.  The Company intends
to continue to monitor any  changes in  statutes or  regulations  affecting,  or
anticipated  to  affect,  the sale of its  properties  and  intends  to take all
necessary and  reasonable  action to assure that its properties and its proposed
marketing programs are in compliance with such regulations,  but there can be no
assurance  that the Company  will be able to timely  comply with all  regulatory
changes in all  jurisdictions  in which the Company's  properties  are presently
offered for sale to the public.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------


Mortgages and Similar Debt
--------------------------

Indebtedness  under various  purchase  money  mortgages  and loan  agreements is
collateralized by substantially all of the Company's assets,  including stock of
certain wholly-owned subsidiaries.

The Company, Selex and Yasawa entered into loan modification agreements in which
all accrued interest was converted into  non-interest  bearing  principal at the
earlier of the maturity date or the default date.  Accordingly,  at December 31,
1996,  $4,200,000 of accrued interest was  reclassified as non-interest  bearing
principal.  The loans were also  modified to formalize  the  elimination  of the
default interest rate provisions in each of the applicable loan agreements.

The following table presents  information  with respect to mortgages and similar
debt (in thousands):

<TABLE>
<CAPTION>
                                                              Years Ended
                                                              -----------
                                                        March 31,     December 31,
                                                          1997           1996
                                                       ----------     ------------     
                  <S>                                  <C>            <C>
                  Mortgage Notes Payable........       $ 18,707       $ 18,707
                  Other Loans...................          3,661          3,661
                                                       --------       --------
                  Total Mortgages and
                  Similar Debt..................       $ 22,368       $ 22,368
                                                       ========       ========

</TABLE>

Included in Mortgage  Notes Payable is the First Selex Loan of  $2,722,000,  the
Third Selex Loan of  $3,816,000,  the Yasawa Loan of  $5,829,000  and the Second
Yasawa Loan of $6,340,000.  Other loans include the  $1,656,000  Empire note and
the $2,005,000 Scafholding Loan.

These  mortgage notes payable and other loans are in default as of March 31,1997
due to the non-payment of principal and interest. The lenders have not taken any
other action as a result of these defaults.

On June 19, 1992, Selex loaned the Company the sum of $3,000,000 pursuant to the
First Selex Loan. The First Selex Loan is  collateralized by a first mortgage on
certain of the  Company's  unsold,  undeveloped  property  in its St.  Augustine
Shores,  Florida  community.  The Loan matures on June 15, 1996 and provides for
principal  to be repaid at 50% of the net  proceeds  per lot for lots  requiring
release  from the  mortgage,  with the entire  unpaid  balance  becoming due and
payable

                                       15

<PAGE>

at the end of the four year term. It initially bears interest at the rate of 10%
per annum,  with  payment of interest  deferred for the initial 18 months of the
Loan and  interest  payments  due  quarterly  thereafter.  As part of the  Selex
transaction,  Selex was granted an option, approved by the holders of a majority
of the  outstanding  shares of the Company's  Common Stock at the Company's 1992
Annual  Meeting,  which,  as modified,  enabled Selex to convert the First Selex
Loan, or any portion thereof,  into a maximum of 600,000 shares of the Company's
Common Stock at a per share  conversion  price equal to the greater of (i) $1.25
or (ii) 95% of the market  price of the  Company's  Common  Stock at the time of
conversion,  but in no event  greater  than $4.50 per share (the  "Option").  On
February 17, 1994, Selex exercised the Option, in full, at a conversion price of
$1.90 per share,  such that  $1,140,000  in principal was repaid under the First
Selex Loan  through such  conversion.  As of March  31,1997,  the Company was in
default of the First Selex Loan.

One million  dollars of the  proceeds  from the First Selex Loan was used by the
Company  to  acquire  certain  commercial  and  multi-family  properties  at the
Company's St. Augustine Shores community at their net appraised value,  from Mr.
Muyres and certain entities affiliated with Messrs.  Zwaans and Muyres.  Namely,
(i) $416,000 was used to acquire 48 undeveloped condominium units (twelve 4 unit
building sites) and 4 completed (and rented) condominium units from Conquistador
Development  Corporation  ("Conquistador"),  in which Messrs.  Zwaans and Muyres
serve as directors, as well as President and Secretary/Treasurer,  respectively;
(ii) $485,000 was used to acquire 4 commercial  lots from Swan, in which Messrs.
Zwaans and Muyres also serve as directors,  as well as President and  Secretary,
respectively;  and (iii) approximately  $99,000 was used to reacquire,  from Mr.
Muyres, all of his rights, title and interest in that certain contracts with the
Company for the purchase of a commercial tract in St. Augustine Shores, Florida.
None of the commercial and  multi-family  property  acquired by the Company from
Mr.  Muyres and  certain  entities  affiliated  with  Messrs.  Zwaans and Muyres
collateralizes the First Selex Loan. In March, 1994,  Conquistador exercised its
right to repurchase certain multi-family  property from the Company (which right
had been granted in connection with the June, 1992 Selex transaction) at a price
of $312,000,  of which  $260,000 was paid in cash to the Company and $52,000 was
applied to reduce  interest due to Selex under the Second Selex Loan (the "First
Conquistador Acquisition").

On December 2, 1992,  the Company  entered into various  agreements  relating to
certain of its assets and the  restructuring  of its debt with Yasawa,  which is
beneficially  owned by Mr. Antony Gram. The  consummation  of these  agreements,
which are further  described  below, was conditioned upon the acquisition by Mr.
Gram of the Company's outstanding bank loan.

On December 4, 1992,  Mr.  Gram  entered  into an  agreement  with the  lenders,
pursuant  to  which  he  acquired  the bank  loan of  approximately  $25,150,000
(including  interest and fees) for a price of $10,750,000.  In conjunction  with
such  transaction,  the lenders  transferred to Mr. Gram the warrants which they
held that entitled the holder to purchase an aggregate of 277,387  shares of the
Company's  Common  Stock at an  exercise  price of $1.00 per share.  Immediately
after the acquisition of the bank loan, Mr. Gram transferred all of his interest
in the bank loan, including the warrants, to Yasawa.

On December 11, 1992, the Company  consummated  the December 2, 1992  agreements
with Yasawa.  Under these  agreements,  Yasawa,  its  affiliates and the Company
agreed as follows:  (i) the Company sold certain  property at its Citrus Springs
community to an affiliate of Yasawa in exchange for approximately  $6,500,000 of
debt reduction credit;  (ii) an affiliate of Yasawa and the Company entered into
a joint venture agreement with respect to the Citrus Springs property, providing
for the Company to market such property and receive an  administration  fee from
the venture (in March,  1994, the Company and the affiliate  agreed to terminate
the venture);  (iii) the Company sold certain contracts receivable at face value
to  an  affiliate  of  Yasawa  for  debt  reduction   credit  of   approximately
$10,800,000; (iv) the Company sold the Marco Shores Country Club and Golf Course
to an affiliate of Yasawa for an aggregate  sales price of $5,500,000,  with the
affiliate  assuming an existing first mortgage of  approximately  $1,100,000 and
the Company receiving debt reduction credit of $2,400,000, such that the Company
obtained cash proceeds from this  transaction  of  $2,000,000,  which amount was
used for working  capital;  (v) an affiliate of Yasawa agreed to lease the Marco
Shores Country Club and Golf Course to the Company for a period of approximately
one year;  (vi) an affiliate of Yasawa and the Company agreed to amend the terms
of the warrants to increase the number of shares  issuable  upon their  exercise
from 277,387  shares to 289,637  shares and to adjust the  exercise  price to an
aggregate of  approximately  $314,000;  (vii) Yasawa  exercised  the warrants in
exchange for debt  reduction  credit of  approximately  $314,000;  (viii) Yasawa
released certain  collateral held for the bank

                                       16

<PAGE>

loan;  (ix) an affiliate of Yasawa  agreed to make an  additional  loan of up to
$1,500,000  to the  Company,  thus  providing  the Company with a future line of
credit (all of which was drawn and  outstanding  as of March 31, 1997);  and (x)
Yasawa agreed to  restructure  the payment terms of the remaining  $5,106,000 of
the bank loan as a loan from Yasawa (the "Yasawa Loan").

The Yasawa  Loan bears  interest at the rate of 11% per annum,  with  payment of
interest  deferred until December 31, 1993,  when only accrued  interest  became
payable.  Commencing  January 31, 1994,  principal and interest  became  payable
monthly, with all unpaid principal and accrued interest being due and payable on
December 31, 1997.  As of March 31, 1997,  $6,493,000  in principal  and accrued
interest was in default under the Yasawa Loan.

On  April  30,  1993  Selex   loaned  the  Company  an   additional   $1,000,000
collateralized  by a first mortgage on certain of the Company's  property in its
Marion Oaks,  Florida  community  (the "Second Selex Loan").  Interest under the
Second Selex Loan was 11% per annum,  deferred  until  December  31,  1993,  and
principal was to be repaid at $3,000 per lot for lots requiring release from the
mortgage,  with the entire unpaid principal  balance and interest  accruing from
January 1, 1994 to April 30,  1994 due and payable on April 30,  1994.  Although
Selex had certain conversion rights under the Second Selex Loan in the event the
Company sold any Common Stock or Preferred Stock prior to payment in full of all
amounts due to Selex under the Second Selex Loan,  such rights were voided.  The
Second  Selex Loan was  satisfied  on May 22,  1995  through  the closing of the
Second Conquistador Acquisition, discussed below.

From July 9, 1993  through  December  31,  1993,  Selex  loaned  the  Company an
additional  $4,400,000  collateralized  by a second  mortgage  on certain of the
Company's  property on which Selex and/or Yasawa hold a first mortgage  pursuant
to a Loan Agreement dated July 14, 1993 and amendments thereto (the "Third Selex
Loan").  The Third  Selex Loan bears  interest at 11% per annum,  with  interest
deferred  until  December 31, 1993.  Principal is to be repaid at $3,000 per lot
for lots requiring  release from the mortgage,  with the entire unpaid principal
balance and  interest  accruing  from  January 1, 1994 to April 30, 1994 due and
payable on April 30, 1994. The Second Conquistador Acquisition, discussed below,
closed on May 22, 1995,  provided a reduction of the debt due and payable  under
the Third Selex Loan. As of March 31, 1997, the remaining  balance of $4,238,000
in principal and accrued interest remained unpaid and in default.

In  February,   1994,   Yasawa  loaned  the  Company  an  additional  amount  of
approximately  $514,900 at an interest rate of 8% per annum (the "Second  Yasawa
Loan").  Since May, 1994,  additional amounts were advanced to the Company under
the Second Yasawa Loan to enable the Company to pay certain essential  expenses,
including payment of certain real estate taxes, and effectuate  settlements with
the Company's principal creditors.  As of March 31, 1997, an aggregate amount of
$6,012,000 had been advanced to the Company under the Second Yasawa Loan and the
balance of $6,873,000 in principal and accrued interest remains unpaid.

On May 22, 1995, the Company closed a transaction with Conquistador (the "Second
Conquistador  Acquisition")  for the sale of an  administration  building  and a
multi-family site in the Company's St. Augustine Shores community as well as the
remaining lot inventory in the Company's FeatherNest community at Marion Oaks in
consideration  for the  satisfaction  of  $2,599,300  of  principal  and accrued
interest on the Second and Third Selex Loans.  In a separate  transaction  which
also  closed on the same date,  the  Company  sold to  Conquistador  (the "Third
Conquistador  Acquisition")  four  single  family  residential  lots  in the St.
Augustine  Shores  community  for  $100,000  in cash.  These  transactions  were
accounted for in accordance with generally  accepted  accounting  principals for
these types of related party  transactions.  Accordingly,  the resulting gain of
$1,900,000  was treated as a  contribution  of capital and recorded  directly to
capital surplus.

As  previously  stated,  Messrs.  Muyres and Zwaans also serve as directors  and
executive  officers of M&M First Coast  Realty  ("M&M").  The Company had leased
certain office space to M&M at its St. Augustine Shores community  pursuant to a
Lease  Agreement  dated August 10, 1990. A payment of  approximately  $21,300 in
delinquent  rental  payments  was made on May 22,  1995 upon the  closing of the
Second Conquistador Acquisition, which included the sale of the St.
Augustine Administration Building to which the lease pertained.

At December 31, 1995,  $4,200,000 of accrued  interest due to Selex,  Yasawa and
their affiliates was reclassified as non-interest bearing principal. As of March
31,  1997,  the  Company  had loans  outstanding  from  Selex,  Yasawa and their

                                       17

<PAGE>

affiliates  in the  aggregate  amount of  approximately  $24,603,000,  including
interest, all of which are in default, including approximately $9,005,000, which
is owed to  Selex,  including  accrued  and  unpaid  interest  of  approximately
$810,000  (10% per annum on the  First  Selex  Loan,  11% per annum on the Third
Selex  Loan  and  12%  per  annum  on  the  Empire  Note   assigned  to  Selex);
approximately $13,365,000, which is owed to Yasawa, including accrued and unpaid
interest of  approximately  $1,196,000  (11% per annum on the Yasawa Loan and 8%
per annum on the Second Yasawa Loan);  and  approximately  $2,233,000,  which is
owed to an  affiliate  of  Yasawa,  including  accrued  and unpaid  interest  of
approximately  $228,000 (12% per annum). The loans from Selex,  Yasawa and their
affiliates are secured by substantially all of the assets of the Company.

On March 10, 1994,  the Company was advised that Selex filed an Amendment to its
Schedule 13D filed with the  Commission.  In the Amendment,  Selex reported that
it, together with Yasawa and their affiliates, were uncertain as to whether they
would provide any further funds to the Company.  The  Amendment  further  stated
that Selex,  Yasawa and their  affiliates  were seeking third parties to provide
financing for the Company and that as part of any such  transaction,  they would
be willing  to sell or  restructure  all or a portion of their  loans and Common
Stock in the Company.

The Company has stated in previous  filings with the  Commission  and  elsewhere
herein that the  obtainment  of  additional  funds to  implement  its  marketing
program and achieve the  objectives  of its business plan is essential to enable
the Company to  maintain  operations  and  continue  as a going  concern.  Since
December, 1992, the Company has been dependent on loans and advances from Selex,
Yasawa and their  affiliates  in order to implement  its  marketing  program and
assist in meeting its working capital requirements. As previously stated, during
the last nine  months of 1993,  Selex,  Yasawa and their  affiliates  loaned the
Company an aggregate of $4,400,000  pursuant to Third Selex Loan. Funds advanced
under the Third Selex Loan enabled the Company to commence implementation of the
majority  of its  marketing  program  in the  third  quarter  of 1993.  The full
benefits of the program  were not realized in 1993 and the Company was unable to
secure  financing in 1994 to meet its working capital  requirements and continue
its marketing program. Commencing in 1994, Yasawa advanced additional funds (the
"Second  Yasawa  Loan")  totaling  $6,012,000  as of March 31, 1997, to meet the
Company's minimum working capital  requirements,  to pay a portion of delinquent
real estate taxes, to pay settlements with certain trade creditors and to settle
certain litigation.

As a consequence of its liquidity position, the Company has defaulted on certain
obligations,  including  its  previously  described  escrow  obligations  to the
Division pursuant to the Company's 1992 Consent Order and its obligation to make
required  payments  under  loans  from  Selex,   Yasawa  and  their  affiliates.
Furthermore,  the  Company  has not paid  delinquent  real  estate  taxes  which
aggregate  approximately  $3,000,000 as of March 31, 1997;  non-payment of these
delinquent taxes may adversely affect the financial condition of the Company.

The Company is continuing to seek third parties to provide financing.  There can
be  no  assurance,   however,   that  additional  financing  will  be  obtained,
accordingly,  the  Company's  Board  of  Directors  is  also  considering  other
appropriate  action  given the  severity  of the  Company's  liquidity  position
including,  but  not  limited,  to  filing  for  protection  under  the  federal
bankruptcy laws.


         CONTRACTS AND MORTGAGES RECEIVABLE SALES


In December, 1992, as described above, the Company sold $10,800,000 of contracts
and mortgages  receivable to an affiliate of Yasawa at face value,  applying the
proceeds therefrom to reduce the Bank Loan acquired by Yasawa.

In March,  1993 the Company  transferred  $1,600,000  in contracts and mortgages
receivable generating approximately $1,059,000 in proceeds to the Company, which
was used for  working  capital  and the  creation  of a holdback  account in the
amount  $150,000.  As of March 31, 1997, the balance of the holdback account was
approximately $118,000.

In June, 1992 and February,  1990, the Company  completed sales of contracts and
mortgages receivable totaling $13,500,000 and $17,000,000,  respectively,  which
generated approximately $8,000,000 and $13,900,000 respectively,


                                       18

<PAGE>

in net  proceeds  to the  Company.  The  anticipated  costs  of the  June,  1992
transaction were included in the extraordinary  loss from debt restructuring for
1991 since the  restructuring  was dependent on the sale. The Company recorded a
loss of $600,000 on the February, 1990 sale. In conjunction with these sales the
Company  granted  the  purchaser  a  security  interest  in  certain  additional
contracts receivable of approximately $2,700,000 and conveyed all of its rights,
title and interest in the  property  underlying  such  contracts to a collateral
trustee. In addition,  these  transactions,  among other things require that the
Company  replace or repurchase  any receivable  that becomes 90 days  delinquent
upon the  request of the  purchaser.  Such  requirement  can be  satisfied  from
contracts  in which  the  purchaser  holds a  security  interest  (approximately
$1,388,000  as of  December  31,  1995).  The  purchaser  of  these  receivables
experienced  financial difficulty and filed in 1994 for protection under Chapter
11 of the Federal  Bankruptcy  Code.  In November  1995,  the purchaser of these
receivables  sold the portfolio to Finova  Capital  Corporation.  The Company is
unable to determine what effect this will have, if any, on future cancellations,
since it is unable to determine how the bankruptcy or the subsequent sale of the
portfolio  will impact  servicing and  collection  procedures and the customers'
determination  to continue to pay under those  contracts.  The Company has fully
reserved  for the  amount  of the  holdback  account  and the  estimated  future
cancellations based on the Company's  historical  experience for receivables the
Company services.  However, due to the uncertainty noted above, the Company does
not feel there is sufficient information to estimate future cancellations and is
unable to  determine  the  adequacy  of its  reserves  to replace or  repurchase
receivables that become  delinquent.  In 1996, the Company replaced  $293,000 in
delinquent  receivables.  As of March 31, 1997 and 1996, $1,271,000 and $591,000
in receivables were delinquent, respectively.

The  Company  was  the  guarantor  of  approximately  $10,048,900  of  contracts
receivable  sold or  transferred  as of March  31,  1997,  for the  transactions
described  above, and had $118,000 on deposit with purchasers of the receivables
as  security to assure  collectibility  as of such date.  A  provision  has been
established for the Company's  obligation  under the recourse  provisions  which
$857,000  remains at March 31, 1997. The Company has been in compliance with all
receivable transactions since the consummation of sales.

The  Company  anticipates  that it  will be  necessary  to  complete  additional
financings of a portion of its  receivables in 1996.  There can be no assurance,
however, that such sales and/or financings can be accomplished.


         OTHER OBLIGATIONS


As a result  of the  delays  in  completing  the land  improvements  to  certain
property  sold in certain of its  Central  and North  Florida  communities,  the
Company fell behind in meeting its contractual  obligations to its customers. In
connection with these delays,  the Company,  in February,  1980,  entered into a
Consent Order with the Division which provided a program for notifying  affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying  affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community,  the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected  purchasers;  a schedule for  completing  certain  improvements;  and a
deferral  of the  obligation  to install  water  mains  until  requested  by the
purchaser.  Under an agreement with Topeka Group Incorporated ("Topeka"),  which
purchased the  Company's  utilities in 1989,  Topeka's  utility  companies  have
agreed to  furnish  utility  service to the future  residents  of the  Company's
communities  on  substantially  the same basis as such services were provided by
the Company. The Consent Order also required the establishment of an improvement
escrow account as assurance for completing such improvement obligations.

In  June,  1992,  the  Company  entered  into the 1992  Consent  Order  with the
Division,  which replaced and superseded the original  Consent Order, as amended
and  restated.  Among other  things,  the 1992 Consent  Order  consolidated  the
Company's  development  obligations and provided for a reduction in its required
monthly escrow  obligation to $175,000 from  September,  1992 through  December,
1993.  Beginning  January,  1994 and until  development is completed or the 1992
Consent Order is amended,  the Company is required to deposit $430,000 per month
into the escrow account. As part of the assurance program under the 1992 Consent
Order,  the  Company  and its  lenders  granted  the  Division a lien on certain
receivables and future  receivables.  The Company defaulted on its obligation to
escrow  $430,000  per month

                                       19

<PAGE>

for the period of January,  1994 through the present and, in accordance with the
1992 Consent Order,  collections on Division  receivables  were escrowed for the
benefit of  purchasers  from March 1, 1994 through  April 30, 1994. In May, 1994
the Company  implemented  a program to exchange  purchasers  who  contracted  to
purchase  property which is  undeveloped  to property which is developed.  As of
March 31, 1997,  approximately  85% of the  customers  whose lots are  currently
undeveloped have opted to exchange or were otherwise resolved. Consequently, the
Division has allowed the Company to utilize collections on receivables since May
1, 1994.  Because of the  Company's  default,  the Division  could also exercise
other available  remedies under the 1992 Consent Order,  which remedies  entitle
the Division, among other things, to halt all sales of registered property.

The  Company's  goal  is to  eliminate  its  development  obligation  (with  the
exception of its  maintenance  obligation in Marion Oaks) under the 1992 Consent
Order through this exchange program and settlement of all remaining  maintenance
and  improvements  obligations in Citrus Springs  through a final agreement with
Citrus County  (entered into in May 1995).  Pursuant to the 1992 Consent  Order,
the Company has limited the sale of single-family  lots to lots which front on a
paved street and are ready for immediate building.

The Company's continuing liquidity problems have precluded the timely payment of
the full amount of its real estate taxes.  On properties  where  customers  have
contractually  assumed the obligation to pay into a tax escrow maintained by the
Company,  the Company has and will continue to pay delinquent  real estate taxes
as monies are collected from customers.  Delinquent real estate taxes aggregated
approximately $3,000,000 as of March 31, 1997.

The  Company's   corporate   performance  bonds  to  assure  the  completion  of
development at its St.  Augustine  Shores  community  expired in March and June,
1993. Such bonds cannot be renewed due to a change in the policy of the Board of
County  Commissioners of St. Johns County which precludes allowing any developer
to  secure  the  performance  of  development  obligations  by the  issuance  of
corporate  bonds.  In the event that St.  Johns County  elects to undertake  the
completion of such development work, the Company would be obligated with respect
to 1,000  unimproved lots at St. Augustine Shores in the amount of approximately
$6,200,000.  The Company intends to submit an alternative  assurance program for
the  completion  of such  development  and  improvements  to the  County for its
approval.

On September 30, 1988, the Company entered into an agreement with Citrus County,
Florida  to  establish  the  procedure  for   transferring   final   maintenance
responsibilities for roads in the Company's Citrus Springs subdivision to Citrus
County. The agreement obligated the Company to complete certain remedial work on
previously completed  improvements within the Citrus Springs subdivision by June
1, 1991.  The Company was unable to complete this work by the specified date and
negotiated  another  agreement  with  Citrus  County for the  transfer  of final
maintenance responsibility for the roads to the County. This final agreement was
entered into in May 1995.

The  Company  had  placed  certain  properties  in  trust  to  meet  its  refund
obligations to Marco customers affected by the permit denials.  On September 14,
1992, the Circuit Court of Dade County, Florida approved a settlement of certain
class action  litigation  instituted  by customers  affected by the Marco permit
denials, under the terms of which the Company was required,  among other things,
to convey more than 120 acres of multi-family  and commercial land that had been
placed  in  trust  to the  trustee  of the  809  member  class.  As  part of the
settlement,  the Company  guaranteed  the amount to be realized from the sale of
the conveyed  property,  not to exceed  $2,000,000.  Such settlement enabled the
Company to resolve the claims of an additional  12.7% of its affected  customers
and  re-evaluate  the  allowance  for Marco  permit  costs.  As a result of such
analysis,  the  Company  was  able to  reduce  such  allowance  by  $12,200,000,
resulting in a $3,983,000  extraordinary  gain in 1992 and a $500,000  credit to
accrued expenses to be credited to paid-in capital following issuance of 250,000
shares of restricted Common Stock of the Company to the class members. Following
the closing on a majority  of the  property  conveyed to the trust,  the Company
recorded an  extraordinary  gain of $702,000  resulting  from a reduction in the
amount of its  guarantee  pursuant to the  settlement  agreement.  During  1996,
$993,000  of the  amount  loaned by Yasawa  was used to  satisfy  the  remaining
obligation  on the Marco  class  action  settlement  agreement  resulting  in an
extraordinary  gain  of  $313,000.  As part of the  settlement  agreement,  Swan
Development Corporation, an affiliate of Yasawa, acquired four condominium units
from the class  action  trustee  for  $182,000,  the same value that the trustee
attributed to the units on September 14, 1992.

                                       20

<PAGE>


         LIQUIDITY


Since 1986, the Company has directed its marketing  efforts to rebuilding retail
land sales in an attempt to obtain a more  stable  income  stream and  achieve a
balanced  growth of retail  land sales and bulk land  sales.  Retail  land sales
typically  have a higher  gross  profit  margin  than  bulk  land  sales and the
contracts  receivable  generated  from  retail land sales  provide a  continuing
source of income.  However,  retail land sales also have traditionally  produced
negative cash flow through the point of sale.  This is because the marketing and
selling expenses have generally been paid prior to or shortly after the point of
sale,  while  the land is  generally  paid for in  installments.  The  Company's
ability to rebuild  retail land sales has been  substantially  dependent  on its
ability to sell or otherwise  finance  contracts  receivable and/or secure other
financing sources to meet its cash requirements.

To alleviate the negative cash flow impact  arising from retail land sales while
attempting  to rebuild its sales  volume,  the Company  implemented  several new
marketing programs which, among other things,  adjusted the method of commission
payments and required  larger down payments.  However,  the nationwide  economic
recession,  which was especially pronounced in the real estate industry, adverse
publicity  surrounding  the industry which existed in 1990, the resulting,  more
stringent regulatory climate, and worldwide economic uncertainties have severely
depressed  retail land sales  beginning in mid-1990 and  continuing  thereafter,
resulting in a continuing liquidity crisis.

In an attempt to offset the negative cash effects of installment land sales, the
Company is attempting to direct its marketing  efforts to its housing product in
which a house and lot are sold as a package.  The success of this direction will
be dependent upon the Company's  dealer  recruiting  program and availability of
funds for a national advertising and promotion program.

Because of this severe  liquidity  crisis,  the Company ceased  development work
late in the third quarter of 1990 and did not resume  development work until the
third quarter of 1992.  From  September  29, 1990 through the fourth  quarter of
1991,  when the Company ceased selling  undeveloped  lots,  sales of undeveloped
lots were  accounted  for using the  deposit  method.  Under  this  method,  all
payments were recorded as a customer deposit liability. In addition,  because of
the increasing trend in delinquencies  during 1990, since the beginning of 1991,
the Company has not  recognized  any sale until 20% of the contract  sales price
has been received.  As a result,  the reporting and  recognition of revenues and
profits on a portion of the  Company's  retail  land  sales  contracts  is being
delayed. See Note 1 to Consolidated Financial Statements.

The continued  economic  recession and the  increasing  adverse  effects of such
recession on the Florida real estate industry not only resulted in the Company's
sales remaining at depressed levels,  but caused greater contract  cancellations
in 1991,  particularly  in the second half of the year,  than were  anticipated.
Such cancellations required the Company to record an additional provision to its
allowance for uncollectible sales of approximately $12,200,000 in the 1991 third
quarter, impacting net income by approximately $8,900,000.  While the Company is
making every effort to reduce its  cancellations,  the Company could be required
to record additional provisions in the future.

In December, 1992, the Company's bank debt was acquired by Mr. Gram and assigned
to  Yasawa.  Through  the sale of certain  assets to Yasawa and its  affiliates,
including  certain  contracts  receivable,  and the  exercise of the warrants by
Yasawa,  the Company was able to reduce such remaining  debt from  approximately
$25,150,000  (including interest and fees) to approximately  $5,106,000.  During
1994,  the Yasawa Loan was reduced to 4,764,600.  The agreement with Yasawa also
provided  the Company  with a future  line of credit,  all of which is drawn and
outstanding  as of December 31, 1996.  During 1993,  Selex loaned the Company an
additional  $5,400,000  pursuant to the Second and Third Selex Loans.  The loans
from Selex,  Yasawa and their affiliates are collateralized by substantially all
of the Company's assets.

On March 10, 1994,  the Company was advised that Selex filed an Amendment to its
Schedule 13D with the  Commission.  In the  Amendment,  Selex  reported that it,
together  with Yasawa and their  affiliates,  were  uncertain as to whether they
would provide any further funds to the Company.  The  Amendment  further  stated
that Selex,  Yasawa and their  affiliates  were seeking third parties to provide
financing for the Company and that as part of any such  transaction,  they would
be willing  to sell or  restructure  all or a portion of their  loans and Common
Stock in the Company.

                                       21

<PAGE>

The Company has stated in previous  filings with the  Commission  and  elsewhere
herein that the  obtainment  of  additional  funds to  implement  its  marketing
program and achieve the  objectives  of its business plan is essential to enable
the Company to  maintain  operations  and  continue  as a going  concern.  Since
December, 1992, the Company has been dependent on loans and advances from Selex,
Yasawa and their  affiliates  in order to implement  its  marketing  program and
assist in meeting its working capital requirements. As previously stated, during
the last nine  months of 1993,  Selex,  Yasawa and their  affiliates  loaned the
Company an aggregate of $4,400,000  pursuant to Third Selex Loan. Funds advanced
under the Third Selex Loan enabled the Company to commence implementation of the
majority  of its  marketing  program  in the  third  quarter  of 1993.  The full
benefits of the program  were not realized in 1993 and the Company was unable to
secure  financing in 1994 to meet its working capital  requirements and continue
its marketing program. Commencing in 1994, Yasawa advanced additional funds (the
"Second  Yasawa  Loan")  totaling  $6,012,000  as of March 31, 1997, to meet the
Company's minimum working capital  requirements,  to pay a portion of delinquent
real estate taxes, to pay settlements with certain trade creditors and to settle
certain litigation.

As a consequence of its liquidity position, the Company has defaulted on certain
obligations,  including  its  previously  described  escrow  obligations  to the
Division pursuant to the Company's 1992 Consent Order and its obligation to make
required interest payments under loans from Selex,  Yasawa and their affiliates.
Furthermore,  the  Company  has not paid  delinquent  real  estate  taxes  which
aggregate  approximately  $3,000,000 as of March 31, 1997;  non-payment of these
delinquent taxes may adversely affect the financial condition of the Company.

The Company is continuing to seek third parties to provide financing. There
can be no  assurance,  however,  that  additional  financing  will be  obtained,
accordingly,  the  Company's  Board  of  Directors  is  also  considering  other
appropriate  action  given the  severity  of the  Company's  liquidity  position
including,  but  not  limited,  to  filing  for  protection  under  the  federal
bankruptcy laws.

                                       22
<PAGE>


                           PART II - OTHER INFORMATION
                           ===========================


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K.

                  (a)  Exhibits

                           None.

                  (b)  Reports on Form 8-K

                           No  Reports  on Form  8-K were  filed by the  Company
                           during the quarter ended March 31, 1997.



                                       23
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                                    SIGNATURE
                                    ---------




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



                                               THE DELTONA CORPORATION



Date: May 12, 1997                             By: /s/Donald O. McNelley
      ------------                                 ----------------------
                                                   Donald O. McNelley
                                                   Treasurer
                                                  (Principal Financial Officer)



                                       24
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