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 September 30, 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 September 30, 1997.



<PAGE>



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

ITEM I.           FINANCIAL STATEMENTS.
<TABLE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
                 -----------------------------------------------   
                    SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
                    ----------------------------------------
                                 ($000 Omitted)


<CAPTION>

                                                     September 30,     December 31,
                                                         1997              1996
                                                     -------------     ------------
<S>                                                  <C>               <C>

                                     ASSETS
                                     ------

Cash and temporary cash investments,
 including escrow deposits and restricted
 cash of $776 in 1997 and $981 in 1996...............$      819        $     907
                                                     ----------        ---------
Contracts receivable for land sales - net............     8,101            6,965
                                                     ----------        ---------
Mortgages and other receivables - net................       322              384
                                                     ----------        ---------

Inventories (b):
 Land and land improvements..........................     9,860           10,287
 Other...............................................        99               99
                                                     ----------        ---------
         Total inventories...........................     9,959           10,386
                                                     ----------        ---------

Property, plant, and equipment at cost - net.........       381              413
                                                     ----------        ---------
Prepaid expenses and other...........................       287              367
                                                     ----------        ---------
         Total.......................................$   19,869        $  19,422
                                                     ==========        =========



                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
              -----------------------------------------------------

Mortgages and similar debt(c):
 Mortgage notes payable..............................$   18,845        $  18,707
 Other loans ........................................     3,661            3,661
                                                     ----------        ---------
   Total mortgages and similar debt..................    22,506           22,368

Accounts payable, accrued expenses,
 customers' deposits.................................     9,670            7,169
Allowance for Marco permit costs (d).................         0                0
Deferred revenue.....................................     6,800            7,764
                                                     ----------        ---------
         Total liabilities...........................    38,976           37,301
                                                     ----------        ---------

Commitments and contingencies (d):
 Stockholders' equity (deficiency):
  Common stock, $1 par value - authorized
  15,000,000 shares;  outstanding:  1997
  and 1996 - 6,734,939 shares and 6,734,572
  shares (excluding 12,228 shares held
  in treasury in 1997 and 1996)......................     6,735            6,734
 Capital surplus.....................................    44,715           44,714
 Accumulated deficit.................................   (70,557)         (69,327)
                                                     ----------        ---------
         Total stockholders' (deficiency)............   (19,107)         (17,879)
                                                     ----------        ---------
                  Total..............................$   19,869        $  19,422
                                                     ==========        =========

</TABLE>



                                        2

<PAGE>

<TABLE>

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


<CAPTION>

                                         Nine Months Ended                 Three Months Ended
                                    ----------------------------       ----------------------------
                                     Sept.  30,       Sept.  30,        Sept.  30,       Sept.  30,
                                        1997             1996              1997             1996
                                    -----------      -----------       -----------       ----------    
<S>                                 <C>              <C>               <C>              <C> 
Revenues (a):
 Net land sales.....................$   2,947        $   3,526         $     856        $   1,405
 House and apartment sales..........      787              875               225              267
 Recognized improvement
  revenue/ prior period
  sales.............................      908              874               147              227
 Interest income....................    1,009            1,083               330              546
 Other revenues.....................      343              518                73              162
                                    ---------        ---------         ---------        ---------
     Total..........................    5,994            6,876             1,631            2,607
                                    ---------        ---------         ---------        ---------

Costs and expenses (a):
 Cost of sales and
  improvements......................    1,770            2,076               505              725
 Selling, general and
  administrative and other
  expenses..........................    4,068            4,244             1,285            1,580
 Interest expense (c)(e)............    1,386            1,316               468              453
                                    ---------        ---------         ---------        ---------
     Total..........................    7,224            7,636             2,258            2,758
                                    ---------        ---------         ---------        ---------
Loss from operations before
         extraordinary item.........   (1,230)            (760)             (627)            (151)
                                    ---------        ---------         ---------        ---------
Extraordinary Item:
 Gain on settlement related to the
   Marco refund obligation..........        0              331                 0              331
                                    ---------        ---------         ---------        ---------
Net Income (Loss)...................$  (1,230)       $    (429)        $    (627)       $     180
                                    =========        =========         =========        =========
Earning (Loss) per share:
 From operations....................$    (.18)       $    (.11)        $    (.09)       $    (.02)
                                    ---------        ---------         ---------        ---------
 From extraordinary item............$       0        $     .05         $       0        $     .05
                                    ---------        ---------         ---------        ---------
Net Income (Loss)...................$    (.18)       $    (.06)        $    (.09)       $     .03
                                    =========        =========         =========        =========
Number of common and common
 equivalent shares..................6,734,928        6,728,157         6,734,939        6,732,341
                                    =========        =========         =========        =========


<FN>
No dividends have been paid on Common Stock.
Results of operations for the first nine 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>

<TABLE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                            FOR THE NINE MONTHS ENDED
                            -------------------------
                    SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
                    -----------------------------------------
                                 ($000 Omitted)


<CAPTION>

                                                       Nine Months Ended
                                                     ----------------------
                                                     Sept.  30,   Sept. 30,
                                                        1997         1996
                                                     ----------  ----------
<S>                                                  <C>         <C>

Cash flows from operating activities..............   $   (227)   $ (1,871)
                                                     --------    --------

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)         (5)
                                                     --------    --------
Net cash provided by (used in) investing
 activities.......................................          1           0
                                                     --------    --------

Cash flows from financing activities:
  New borrowings..................................        138       1,918
  Repayment of borrowings.........................          0          (6)
                                                     --------    --------

Net cash provided by (used in) financing
 activities.......................................        138       1,912
                                                     --------    --------

Net increase (decrease) in cash and
 temporary cash investments (including
 escrow deposits and restricted cash).............        (88)         41

Cash and temporary cash investments at
 December 31, 1996 and December 31, 1995..........        907         982
                                                     --------    --------

Cash and temporary cash investments at
 September 30, 1997 and September 30, 1996........   $    819    $  1,023
                                                     ========    ========

Supplemental disclosure of non cash
 investing and financing activities:

Common Stock issued for Marco Settlement..........   $      1    $     31
                                                     ========    ========


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




                                        4

<PAGE>


<TABLE>
                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                            FOR THE NINE MONTHS ENDED
                            -------------------------
                    SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
                    -----------------------------------------
                                 ($000 Omitted)


<CAPTION>

                                                         Nine Months Ended
                                                     --------------------------
                                                     Sept.  30,       Sept. 30,
                                                        1997             1996
                                                     ----------       ---------
<S>                                                  <C>               <C>
Reconciliation of net income (loss)
 to net cash provided by (used in)
 operating activities:

  Net loss.......................................... $ (1,230)         $   (429)
                                                     --------          --------

Adjustments  to reconcile  net loss
 to net cash  provided by (used in)
 operating activities:

  Depreciation and amortization.....................       52                40
  Provision for estimated uncollectible sales-net...    1,068             1,394
  Contract valuation discount, net of amortization..      178               249
  Net Gain on sale of property, plant &
    equipment.......................................       (3)               (5)
  Net Gain on settlement related to Marco
    refund obligation...............................        0              (331)
  Net change in assets and liabilities..............     (292)           (2,789)
                                                     --------          --------
         Total adjustments.......................... $  1,003          $ (1,442)
                                                     --------          --------

  Net cash provided by (used in) operating
         activities................................. $   (227)         $ (1,871)
                                                     ========          ========



</TABLE>

                                        5

<PAGE>



                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         --------------------------------------------------------------
                               SEPTEMBER 30, 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):

<TABLE>
<CAPTION>

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

                                                      September 30,    December 31,
                                                          1997            1996
                                                     -------------     -----------
         <S>                                         <C>               <C>

         Unimproved land.............................$    415          $    421
         Land in various stages of
          development................................   3,880             3,708
         Fully improved land.........................   5,565             6,159
                                                     --------          --------
                  Total..............................$  9,860          $ 10,288
                                                     ========          ========
</TABLE>

         Other inventories   consists  primarily  of  vacation  ownership  units
         completed.


(c)      MORTGAGES AND SIMILAR DEBT

         On June 19, 1992, Selex International  B.V., a Netherlands  corporation
         ("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 matured on June
         15,  1996,  with the entire  unpaid  balance  now due and  payable  and
         bearing  interest  at the rate of 10% per  annum.  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 September 30, 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 Marcellus H.B. Muyres and certain entities
         affiliated with Cornelis  L.J.J.  Zwaans and Mr. Muyres.  Namely,  (i)
         $416,000 was used to acquire 48 undeveloped  condominium units (twelve
         4 unit building sites) and


                                        6

<PAGE>



         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 Development  Corporation  ("Swan"),  in which
         Messrs.  Zwaans  and  Muyres  also  served  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   Holding   N.V.,  a  Netherlands   Antilles   corporation
         ("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 September 30, 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,  at which time
         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 September  30, 1997,  $6,759,000  in principal and accrued
         interest was in default under the Yasawa Loan.


                                        7

<PAGE>



         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, which closed on May 22, 1995,  provided a reduction of
         the debt due and payable  under the Third Selex Loan.  As of  September
         30, 1997, the remaining  balance of $4,408,000 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 September 30, 1997, an aggregate amount of $6,149,500
         had been  advanced to the Company  under the Second Yasawa Loan and the
         balance of $7,256,500 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  served  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  Shores
         Administration Building.

         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  September  30, 1997,  $1,380,900  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 September 30, 1997, the Company had loans  outstanding from
         Selex,   Yasawa  and  their  affiliates  in  the  aggregate  amount  of
         approximately  $25,670,000,  including  interest,  all of which  are in
         default, including approximately $4,329,700, which is owed to Selex,
         including accrued and unpaid interest of approximately  $1,135,500 (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);

                                        8

<PAGE>


         approximately  $14,015,600,  which is owed to Yasawa, including accrued
         and unpaid interest of  approximately  $1,708,800 (11% per annum on the
         Yasawa  Loan  and  8%  per  annum  on  the  Second  Yasawa  Loan);  and
         approximately  $2,324,500,  which is owed to an  affiliate  of  Yasawa,
         including  accrued and unpaid interest of  approximately  $319,500 (12%
         per  annum).  The loans from  Selex,  Yasawa and their  affiliates  are
         secured by substantially all of the assets of the Company.

         On  November  4, 1997,  the  Company's  stockholders  approved an
         Agreement to reduce its $25.3 million debt obligation with its lenders
         (the  "August  19,  1997  Agreement").  See  Part  II,  Item 5.  Other
         Information.


(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 September 30, 1997 was approximately $5,086,000.

         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 of Florida  Land  Sales,  Condominiums  and Mobile  Homes (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 a Consent  Order  with the
         Division,  which replaced and superseded the original Consent Order, as
         amended and restated  (the "1992 Consent  Order").  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 September 30, 1997,  approximately
         84% 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. All remaining  maintenance
         and  improvements  obligations in Citrus Springs were settled through a
         final agreement with Citrus County. Pursuant


                                        9

<PAGE>

         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 $1,386,000
         and  $1,316,000,  none  was  capitalized  for  the  nine  months  ended
         September 30, 1997 and September 30, 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 (loss)
         per share for the nine months ended  September  30, 1997 and  September
         30, 1996 were  $(1,230,000) and $(429,000) and 6,734,928 and 6,728,157,
         respectively,  and  for  the  third  quarters  of 1997  and  1996  were
         $(627,000) and $180,000 and 6,734,939 and 6,732,341, 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  International
B.V., a Netherlands corporation ("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.  Mr.  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 September 30,
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  served  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 $5,829,000 as of September 30, 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 $1,380,900  has been repaid under the
Third Selex Loan through  September 30, 1997.  As of September 30, 1997,  Yasawa
has loaned the Company an additional  sum of  $6,149,500  pursuant to the Second
Yasawa Loan. As a consequence of these  transactions,  as of September 30, 1997,
the Company had loans outstanding from Selex, Yasawa and their affiliates in the
aggregate amount of approximately $25,670,000, 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 Securities and Exchange Commission (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  $6,149,500 as of September 30, 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.

On November 4, 1997, the Company's  stockholders approved an Agreement to reduce
its $25.3  million  debt  obligation  with its  lenders  (the  "August  19, 1997
Agreement"). See Part II, Item 5. Other Information.





                                       12

<PAGE>

The Company will continue to seek third party  financing to meet its working
capital requirements.  As part of the August 19, 1997 Agreement, approved by the
Board of Directors and  subsequently  the  stockholders on November 4, 1997, the
lenders  agreed to purchase  future  contracts  receivable at 65% of face value,
with recourse, as a source of working capital for the Company.  See Part II, 
Item 5. Other Information.

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  $3,120,000  as of September 30, 1997;  non-payment  of
these  delinquent  taxes may  adversely  affect the  financial  condition of the
Company.  As part of the August  19,  1997  Agreement,  the  Company  will use a
portion of the proceeds of the $7,500,000 sale of contracts  receivable to pay a
majority of the delinquent real estate taxes.


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

For the nine months ended September 30, 1997 and September 30, 1996.

Revenues
--------

Total  revenues  were  $5,994,000  for the first nine months of 1997 compared to
$6,876,000 for the comparable  1996 period.  For the third quarter of 1997 total
revenues were $1,631,000 compared to $2,607,000 for the comparable 1996 period.

Gross land  sales  were  $4,402,000  for the first  nine  months of 1997  versus
$5,569,000  for the first nine months of 1996.  Net land sales (gross land sales
less estimated uncollectible  installment sales and contract valuation discount)
decreased to $2,947,000  for the first nine months of 1997 from  $3,526,000  for
the first nine months of 1996. For the three months ended September 30, 1997 net
land sales  decreased to $856,000 from  $1,405,000 for the  comparable  year ago
period.

There  were no bulk land  sales for the first  nine  months 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  $787,000 for the nine months ended  September  30, 1997
compared to $875,000 for the same period in 1996. Housing revenues decreased 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>

                                       Nine Months Ended                  Three Months Ended
                                    --------------------------         -------------------------
                                    Sept. 30,        Sept. 30,         Sept. 30,        Sept. 30,
                                       1997            1996              1997             1996
                                    ---------        --------          ---------        --------
         <S>                        <C>              <C>               <C>              <C>
         Gross Land Sales:
         Retail Sales*              $   4,402        $ 5,569           $   1,236        $ 2,295
                                    ---------        -------           ---------        -------

         Housing Sales:
         Vacation Ownership                 0              8                   0              0
         Single Family                    787            867                 225            267
                                    ---------        -------           ---------        -------
                  Total                   787            875                 225            267
                                    ---------        -------           ---------        -------
                  Total Real Estate $   5,189        $ 6,444           $   1,461        $ 2,562
                                    =========        =======           =========        =======

<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 nine months  ended  September  30, 1997 and
         September 30, 1996 were  $4,085,000 and $5,576,000,  respectively,  and
         $1,228,000  and  $1,838,000  for the third

                                       13
<PAGE>

         quarters  of 1997  and  1996,  respectively.  The  Company  had a
         backlog  of  approximately  $1,546,000  in  unrecognized  sales  as of
         September  30, 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  $907,000  for  the  first  nine  months  of 1997
($147,000  for the third  quarter  1997),  as compared to $874,000 for the first
nine months of 1996 ($227,000 for the third quarter 1996).  Due to the Company's
financial  condition,  the Company has done minimal development work in the last
two years.

Interest  income was $1,009,000 for the first nine months of 1997 as compared to
$1,083,000 for the first nine months of 1996. For the third quarters of 1997 and
1996, interest income was $330,000 and $546,000, respectively.

Other  revenues  were $342,000 as compared to $518,000 for the nine months ended
September 30, 1997 and September 30, 1996, respectively.  For the third quarters
of 1997 and 1996, other revenues were $73,000 and $162,000,  respectively. Other
revenues for 1997 were generated  principally by the Company's  title  insurance
and real  estate  brokerage  subsidiaries.  Included  in the 1996  results is an
extraordinary  gain of $331,000 resulting from the final settlement of the Marco
Class  action  litigation.  In  1996,  the  Company  also  recorded  a  gain  of
approximately $136,000 representing contract receivables returned to the Company
from a previous sale of receivables.

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

Costs and expenses for the first nine months of 1997 were $7,224,000 compared to
$7,636,000 for the same period in 1996. For the third quarters of 1997 and 1996,
costs and expenses  totaled  $2,258,000 and  $2,758,000,  respectively.  Cost of
sales totaled  $1,770,000 for the nine months ended  September 30, 1997 compared
to  $2,076,000  for the nine months  ended  September  30,  1996.  For the third
quarters  of  1997  and  1996,   cost  of  sales  were   $505,000  and  $725,000
respectively.

Commissions,  advertising and other selling expenses totaled  $1,786,000 for the
nine months ended  September 30, 1997 compared to $1,952,000 for the nine months
ended  September  30,  1996.  This  decrease  is the result of lower  commission
expenses.  Advertising  and promotional  expenditures  decreased to $83,000 from
$90,000 for the nine month period of 1997 versus 1996.  For the third quarter of
1997,  commissions,  advertising and other selling  expenses  totaled  $536,000,
compared to $822,000 for the 1996 third  quarter.  Advertising  and  promotional
expenditures  decreased to $26,000 from $36,000 for the third quarter  period of
1997 versus 1996.

General and administrative expenses were $1,291,000 for the first nine months of
1997  compared to  $1,352,000  for the first nine months of 1996.  For the third
quarter of 1997, general and  administrative  expenses were $401,000 compared to
$447,000 in 1996.  General and  administrative  expenses have remained  constant
from period to period.

Real  estate tax  expense  was  $990,000  for the first nine  months of 1997 and
$939,000  for the same  period of 1996.  Real  estate tax  expense for the third
quarter of 1997 was  $348,000  versus  $312,000  for the third  quarter of 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 nine months of 1997 was $1,386,000,  compared to
$1,316,000  for the first nine  months of 1996.  Interest  expense for the third
quarter of 1997 was  $468,000,  compared  to $453,000  for the third  quarter of
1996. No interest has been capitalized since the first quarter of 1994 since the
Company did minimal land development work at its communities.

                                       14

<PAGE>



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

The  Company  reported  a net  loss of  $1,230,000  for the  nine  months  ended
September  30, 1997 as  compared  to a net loss of $429,000  for the nine months
ended  September 30, 1996. For the third quarter of 1997, a net loss of $627,000
was  reported  compared to a profit of $180,000  for the third  quarter of 1996.
Included in the nine months ended  September  30, 1996 and the third quarter for
1996 is an extraordinary gain of $331,000 resulting from the final settlement of
the Marco class action litigation.


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 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.

                                      15

<PAGE>

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

<TABLE>
<CAPTION>

                                                             Years Ended
                                                    ------------------------------
                                                    September 30,     December 31,
                                                        1997              1996
                                                    -------------     ------------
       <S>                                         <C>               <C>
       Mortgage Notes Payable........              $ 18,845          $ 18,707
       Other Loans...................                 3,661             3,661
                                                   --------          --------
       Total Mortgages and
       Similar Debt..................              $ 22,506          $ 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 $6,478,000.  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  September
30,1997 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 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  September
30,1997, 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  Development
Corporation  ("Swan"),  in which  Messrs.  Zwaans  and  Muyres  also  served  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.

                                      16

<PAGE>

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 September 30, 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 September 30, 1997, $6,759,000 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  September  30,  1997,  the  remaining  balance of
$4,408,000 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

                                       17

<PAGE>


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 September 30, 1997, an aggregate amount
of $6,149,500  had been advanced to the Company under the Second Yasawa Loan and
the balance of $7,256,500 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 served 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
Shores Administration Building.

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
September 30, 1997,  the Company had loans  outstanding  from Selex,  Yasawa and
their affiliates in the aggregate amount of approximately $25,670,000, including
interest, all of which are in default, including approximately $9,329,700, which
is owed to  Selex,  including  accrued  and  unpaid  interest  of  approximately
$1,135,500  (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 $14,015,600, which is owed to Yasawa, including accrued and unpaid
interest of  approximately  $1,708,800  (11% per annum on the Yasawa Loan and 8%
per annum on the Second Yasawa Loan);  and  approximately  $2,324,500,  which is
owed to an  affiliate  of  Yasawa,  including  accrued  and unpaid  interest  of
approximately  $319,500 (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  $6,149,500 as of September 30, 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.


On November 4, 1997,  the Company's  stockholders  approved an Agreement to
reduce its $25.3 million debt  obligation with its lenders (the "August 19, 1997
Agreement").  See Part II, Item 5. Other  Information.


                                       18

<PAGE>


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  $3,120,000  as of September 30, 1997;  non-payment  of
these  delinquent  taxes may  adversely  affect the  financial  condition of the
Company.  As part of the August  19,  1997  Agreement,  the  Company  will use a
portion of the proceeds of the $7,500,000 sale of contracts  receivable to pay a
majority of the delinquent real estate taxes.

The Company will continue to seek third party  financing to meet its working
capital requirements.  As part of the August 19, 1997 Agreement, approved by the
Board of Directors and  subsequently,  the stockholders on November 4, 1997, the
lenders  agreed to purchase  future  contracts  receivable at 65% of face value,
with recourse, as a source of working capital for the Company.  See Part II,
Item 5. Other Information.

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.


         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 September 30, 1997, the balance of the holdback account
was approximately $119,000.

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, 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 September 30,
1997, $1,138,000 were delinquent.

The  Company  was  the  guarantor  of  approximately   $8,048,000  of  contracts
receivable  sold or transferred  as of September 30, 1997, for the  transactions
described  above, and had $119,000 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

                                       19

<PAGE>

the recourse  provisions of which $1,208,000 remains at September 30, 1997.
The Company has been in compliance  with all receivable  transactions  since the
consummation of sales.

The Company will continue to seek third party financing to meet its working
capital requirements.  As part of the August 19, 1997 Agreement, approved by the
Board of Directors and  subsequently,  the stockholders on November 4, 1997, the
lenders  agreed to purchase  future  contracts  receivable at 65% of face value,
with recourse, as a source of work capital for the Company.  See Part II, Item
5. Other Information.


         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 a Consent Order with the Division, which
replaced and superseded the original Consent Order, as amended and restated (the
"1992 Consent Order").  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 September 30, 1997,  approximately 84% 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. All remaining  maintenance and improvements
obligations in Citrus Springs were settled through a final agreement with Citrus
County.  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  $3,120,000  as of September  30, 1997.  As part of the August 19,
1997 Agreement, the Company will use a portion of the proceeds of the $7,500,000
sale of contracts  receivable  to pay a majority of the  delinquent  real estate
taxes.


                                       20

<PAGE>

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. All payments to Citrus County required under the final
agreement were completed in May, 1997.

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.

         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.
                                      21

<PAGE>

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.

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  $6,149,500 as of September 30, 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.

On November 4, 1997,  the Company's  stockholders  approved an Agreement to
reduce its $25.3 million debt  obligation with its lenders (the "August 19, 1997
Agreement"). See Part II, Item 5. Other Information.


                                       22

<PAGE>

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  $3,120,000 as of September 30, 1997; non-payment
of these delinquent  taxes may adversely  affect the financial  condition of the
Company.  As part of the August  19,  1997  Agreement,  the  Company  will use a
portion of the proceeds of the $7,500,000 sale of contracts  receivable to pay a
majority of the delinquent real estate taxes.

The Company will continue to seek third party financing to meet its working
capital requirements.  As part of the August 19, 1997 Agreement, approved by the
Board of Directors and  subsequently,  the stockholders on November 4, 1997, the
lenders  agreed to purchase  future  contracts  receivable at 65% of face value,
with recourse, as a source of working capital for the Company. See Part II, Item
5. Other Information.


                                       23

<PAGE>

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

ITEM 5.           OTHER INFORMATION.


     On August 19, 1997, the Board of Directors of the Company  announced it had
reached an Agreement,  in principle,  with its lenders (Selex,  Yasawa and their
affiliates)  to reduce its $25.3 million debt  obligation  (the "August 19, 1997
Agreement").  The $25.3  million  represents  the total amount of principal  and
interest  outstanding  as of July 31,  1997.  The  August  19,  1997  Agreement,
approved by the Board of Directors  and the  lenders,  is subject to approval by
the stockholders and the Division of Florida Land Sales, Condominiums and Mobile
Homes (the  "Division).  The Division must approve the August 19, 1997 Agreement
since the Company is a Registrant  with that  agency,  a portion of the property
involved in the proposal is located in a registered subdivision and the Division
presently has a first lien on the contracts  receivable  contemplated  for sale.
During preliminary  discussions with the Division,  they approved the August 19,
1997 Agreement in principle.

     The August 19, 1997 Agreement  would result in a reduction in the Company's
outstanding  debt  obligation  through  the  conveyance  of all  remaining  land
inventory and obligations in the Company's St. Augustine Shores  Subdivision and
the issuance of  approximately  6.8 million  shares of Common Stock at $1.00 per
share (par value). Additionally,  the August 19, 1997 Agreement provides for the
lenders to purchase  $7.5  million in contracts  receivable  from the Company to
generate working capital and further reduce the debt obligation.  If the Company
succeeds in obtaining  the required  approvals,  the  Company's  remaining  debt
obligation would be reduced to approximately $11 million payable on restructured
terms.  Additionally,  the lenders have agreed that should the  stockholders and
the Division approve the proposal, the outstanding debt as of July 31, 1997 will
not accrue interest until the debt is restructured. Specifically:

         1.       Selex, Yasawa and their affiliates would convert $6,809,338 of
                  the Company's outstanding debt into 6,809,338 shares of Common
                  Stock to be issued by the  Company  at a per share  conversion
                  price of One Dollar ($1.00), which is equal to par value. As a
                  consequence,  Mr. Antony  Gram's  beneficial  ownership  would
                  increase  from  3,109,703  shares  (46.17% of the  outstanding
                  shares of Common  Stock of the Company as of July 31, 1997) to
                  9,919,041  shares (73.23% of the outstanding  shares of Common
                  Stock of the Company once the transaction is consummated).

         2.       Selex,  Yasawa and their affiliates would reduce the Company's
                  outstanding debt by $5,529,501 in exchange for a conveyance of
                  all of the Company's  remaining land inventory and obligations
                  in its St.  Augustine  Shores  Subdivision to their affiliate,
                  Swan Development  Corporation ("Swan").  The price, based upon
                  appraised  value,  was  adjusted  to  take  into  account  the
                  development  obligations  on sold lots to be  assumed by Swan,
                  subject to Division approval.

         3.       Selex,    Yasawa   and   their   affiliates   would   purchase
                  approximately  $7.5 million in contracts  receivable  from the
                  Company  at  seventy-five  percent  (75%) of face  value  with
                  recourse for  non-performing  contracts.  This would  generate
                  approximately $5.6 million,  $1,982,457 of which would be used
                  to reduce  outstanding  debt. The balance would be used by the
                  Company to pay a portion of the delinquent  real estate taxes,
                  to implement its marketing  programs and to meet the Company's
                  minimum working capital requirements.

         4.       The  remaining  debt  obligation  to Selex,  Yasawa  and their
                  affiliates,  assuming  consummation of the above  transactions
                  would be approximately $11 million . The terms of repayment of
                  this debt would be $110,375 in  principal  payable  monthly in
                  cash or with contracts  receivable at 100% of face value, plus
                  interest payable monthly on the declining  balance at the rate
                  of 9.6% per annum in cash or with contracts  receivable at 65%
                  of face value.



                                       24

<PAGE>



         5.       In the future,  if the Company elects to do so, Selex,  Yasawa
                  and their  affiliates have agreed to purchase future contracts
                  receivable at 65% of face value,  with  recourse,  to meet the
                  Company ongoing capital requirements.

     The August 19, 1997 Agreement  outlined above was approved by a majority of
the holders of the  outstanding  shares of Common  Stock  voting in person or by
proxy at the Company's  Annual  Meeting held on November 4, 1997.  The 3,109,703
shares of Common Stock  beneficially owned by Antony Gram were voted in the same
proportion  as other  shareholder  votes.  When the  August 19,  1997  Agreement
outlined above is closed Antony Gram will be deemed to be the beneficial  owner
of 9,919,041 shares of Common Stock of the Company (73.23%).

     Prior  to  November  4,  1997 and  independent  of the  August  19,  1997
Agreement  outlined  above,  Selex and Yasawa  agreed to forgive  $2,050,818  in
accrued interest on their debt.

         Selex,  Yasawa and their  affiliates  has advised the Company that they
may acquire  additional  shares of Common Stock solely for their own account and
that they  will not  dispose  of the  shares in  violation  of the  registration
requirements  of the  Securities  Act of 1933,  as  amended.  The Company has no
present plans to undertake the registration of the shares to be issued.





                                       25

<PAGE>



     The following unaudited pro forma consolidated balance sheet of the Company
as of September 30, 1997 and the unaudited pro forma  consolidated  statement of
operations  for the nine months ended  September 30, 1997 and for the year ended
December  31, 1996 have been  prepared  to reflect  the effect on the  Company's
financial condition and results of operations from the August 19, 1997 Agreement
to satisfy a portion of the Company's debt.

     The unaudited pro forma consolidated  balance sheet has been prepared as if
the August 19, 1997  Agreement  occurred on September 30, 1997 and the unaudited
pro forma  consolidated  statements of  operations  have been prepared as if the
August 19, 1997  Agreement  occurred on the first day of the periods  presented.
The unaudited pro forma  financial  statements  have been prepared in accordance
with the accounting policies outlined in the historical financial statements.

     The following pro forma consolidated  financial  information should be read
in conjunction with the Company's  consolidated  financial  statements and notes
thereto, Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the Company's 1996 Annual Report on Form 10K and other
information  included  elsewhere  in this  document.  The  unaudited  pro  forma
consolidated  financial  information do not necessarily reflect what the results
of  operations  and financial  position  would have been had the August 19, 1997
Agreement  occurred as assumed in preparing the  unaudited  pro forma  financial
statements,  nor do they  necessarily  reflect the future  results or  financial
position of the Company.

<TABLE>


                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                 ----------------------------------------------
                            AS OF SEPTEMBER 30, 1997
                            ------------------------
                                 (in thousands)
<CAPTION>
                                            Historical         Pro Forma                 Pro Forma
                                                              Adjustments
                                            ----------        -----------               -----------
<S>                                         <C>               <C>                       <C>
ASSETS
------

Cash and temporary cash investments,
 including escrow deposits of $776..........$      819        $   1,426  (1)            $    2,245
                                            ----------        ---------                 ----------
Contracts receivable for land sales - net...     8,101           (5,250) (1)                 2,851
                                            ----------        ---------                 ----------
Mortgages and other receivables - net.......       322                0                        322
                                            ----------        ---------                 ----------
Inventories:
 Land and land improvements.................     9,860           (1,953) (2)                 7,907
 Other......................................        99                0                         99
                                            ----------        ---------                 ----------
         Total inventories..................     9,959           (1,953)                     8,006
                                            ----------        ---------                 ----------
Property, plant, and equipment at cost - net       381                0                        381
                                            ----------        ---------                 ----------
Prepaid expenses and other..................       287                0                        287
                                            ----------        ---------                 ----------
         Total..............................$   19,869        $  (5,777)                $   14,092
                                            ==========        =========                 ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------

Mortgages and similar debt:
 Mortgage notes payable.....................$   18,845        $ (12,152)(1)(2)(3)       $    6,693
 Other loans ...............................     3,661           (1,367)(3)                  2,294
                                            ----------        ---------                 ----------
   Total mortgages and similar debt.........    22,506          (13,519)                     8,987
                                            ----------        ---------                 ----------
Accounts payable, accrued expenses,
 customers' deposits........................     9,670           (3,956)(1)(2)(3)            5,714
                                            ----------        ---------                 ----------
Deferred revenue............................     6,800           (1,901)(2)                  4,899
                                            ----------        ---------                 ----------
         Total liabilities..................    38,976          (19,376)                    19,600
                                            ----------        ---------                 ----------
 Stockholders' equity (deficiency):
  Common stock, $1 par value - authorized
  15,000,000 shares.........................    6,735             6,809 (3)                 13,544
 Capital surplus............................   44,715             6,790 (1)(2)              51,505
 Retained earnings..........................  (70,557)                0                    (70,557)
                                            ---------         ---------                 ----------
    Total stockholders' equity (deficiency).  (19,107)           13,599                     (5,508)
                                            ---------         ---------                 ----------
                  Total.....................$  19,869         $  (5,777)                $   14,092
                                            =========         =========                 ==========
<FN>
See accompanying notes to pro forma consolidated financial information.
</FN>
</TABLE>


                                       26

<PAGE>


<TABLE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED PRO FORMA STATEMENTS OF CONSOLIDATED OPERATIONS
            ---------------------------------------------------------
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                  --------------------------------------------
                      (in thousands, except per share data)


<CAPTION>
                                    Historical        Pro Forma         Pro Forma
                                                     Adjustments
                                    ----------       -----------        ---------
<S>                                 <C>              <C>                <C>
REVENUES:

 Net land sales.....................$   2,947        $       0          $   2,947
 Sales - house and apartments.......      787                0                787
 Recognized improvement
  revenue/ prior period
  sales.............................      908                0                908
 Interest income....................    1,009             (784) (1)           225
 Sales - other than real estate.....      343                0                343
                                    ---------        ---------          ---------
     TOTAL..........................    5,994             (784)             5,210
                                    ---------        ---------          ---------

COSTS AND EXPENSES:

 Cost of sales and
  improvements......................$   1,770        $       0          $   1,770
 Selling, general and
  administrative and other
  expenses..........................    4,068             (370) (1)(2)      3,698
 Interest expense...................    1,386             (771)(1)(2)(3)      615
                                    ---------        ---------          ---------

     TOTAL..........................    7,224           (1,141)             6,083
                                    ---------        ---------          ---------

Loss from operations ...............$  (1,230)       $     357          $    (873)
                                    =========        =========          =========


Net Income..........................$  (1,230)       $     357          $    (873)
                                    =========        =========          =========

Earning per share:
 From operations....................$    (.18)                 (4)      $    (.03)
                                    ---------                           ---------
Net Income (Loss)...................$    (.18)                          $    (.03)
                                    =========                           =========

Number of common and common
 equivalent shares..................    6,735                  (4)         13,544
                                    =========                           =========

<FN>
See accompanying notes to pro forma consolidated financial information.
</FN>
</TABLE>





                                       27

<PAGE>

<TABLE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED PRO FORMA STATEMENTS OF CONSOLIDATED OPERATIONS
            ---------------------------------------------------------
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                      ------------------------------------
                      (in thousands, except per share data)


<CAPTION>
                                            Historical         Pro Forma         Pro Forma
                                                              Adjustments
                                            ----------        -----------        ---------
<S>                                         <C>               <C>                <C>

REVENUES:

 Net land sales.......................      $   4,296         $       0          $   4,296
 Sales - house and apartments.........          1,202                 0              1,202
 Recognized improvement
  revenue/ prior period
  sales...............................          1,008                 0              1,008
 Interest income......................          1,464            (1,039) (1)           425
 Sales - other than real estate.......            680                 0                680
                                            ---------         ---------          ---------
     TOTAL............................          8,650            (1,039)             7,611
                                            ---------         ---------          ---------

COSTS AND EXPENSES:

 Cost of sales and
  improvements........................      $   2,673         $       0          $   2,673
 Selling, general and
  administrative and other
  expenses............................          5,423              (493) (1)(2)      4,930
 Interest expense.....................          1,781              (973)(1)(2)(3)      808
                                            ---------         ---------          ---------

     TOTAL............................          9,877            (1,466)             8,411
                                            ---------         ---------          ---------
Loss from operations before
         extraordinary item...........      $ (1,227)         $     427          $    (800)

Extraordinary Item:
 Gain on settlement related to the
   Marco refund obligation...........       $    331          $       0          $     331
                                            --------          ---------          ---------

Net Income............................      $   (896)         $     427          $    (469)
                                            ========          =========          =========

Earning per share:
 From operations......................      $    (.18)                   (4)     $    (.06)
                                            ---------                            ---------
 From extraordinary item..............      $     .05                            $     .02
                                            ---------                            ---------
Net Income (Loss).....................      $    (.13)                           $    (.04)
                                            =========                            =========
Number of common and common
 equivalent shares....................          6,729                    (4)        13,539
                                            =========                            =========

<FN>
See accompanying notes to pro forma consolidated financial information.
</FN>
</TABLE>

                             The Deltona Corporation
              Notes To Pro Forma Consolidated Financial Information

(1)      Represents  the  entries to reflect  the sale of  receivables  from the
         Company to its lenders and the repayment of a portion of its debt and a
         portion of its delinquent real estate taxes.

(2)      Represents  the  entries to reflect  the  conveyance  of the  Company's
         remaining land  inventory at its St.  Augustine  Shores  subdivision in
         exchange for certain debt reduction.

(3)      Represents the  conversion of a portion of the Company's  debt
         to Common Stock and the  restructuring of the remaining debt
         into new debt.

(4)      Earnings  per share have been  calculated  using the average  number of
         common  shares  and  common  equivalent  shares  outstanding  since the
         lenders will receive 6,809,338 of newly issued common stock.


                                       28
<PAGE>



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 September 30, 1997.




                                       29

<PAGE>


                                    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: November 13, 1997                        By: /s/Donald O. McNelley
      -----------------                            ---------------------
                                                   Donald O. McNelley
                                                   Treasurer
                                                   (Principal Financial Officer)
















                                       30