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, 1996

                              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:  6,734,572 shares of common stock, $1
par value, excluding treasury stock, as of September 30, 1996.


<PAGE>


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

ITEM 1.   FINANCIAL STATEMENTS


                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
                 -----------------------------------------------
                    SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
                    ----------------------------------------
                                 ($000 Omitted)

<TABLE>
<CAPTION>
                                                  September 30,  December 31,
                                                      1996          1995
                                                  -------------  ------------
<S>                                               <C>            <C>
Cash and temporary cash investments,
 including escrow deposits and restricted
 cash of $981 in 1996 and $855 in 1995........... $    1,024     $     982
                                                  ----------     ---------                         
Contracts receivable for land sales - net........      6,855         5,602
                                                  ----------     ---------
Mortgages and other receivables - net............        260           413
                                                  ----------     ---------
Inventories (b):
 Land and land improvements......................     10,392        11,131
 Other...........................................        101           104
                                                  ----------     ---------
     Total inventories.........................       10,493        11,235
                                                  ----------     ---------
Property, plant, and equipment at cost - net.....        469           510
                                                  ----------     ---------
Prepaid expenses and other.......................        356           438
                                                  ----------     ---------
     Total.....................................   $   19,457     $  19,180
                                                  ==========     =========

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

Mortgages and similar debt(c):
 Mortgage notes payable.......................... $   18,629     $  16,717
 Other loans ....................................      3,661         3,661
                                                  ----------     ---------
   Total mortgages and similar debt..............     22,290        20,378

Accounts payable, accrued expenses,
 customers' deposits.............................      6,681         5,701
Allowance for Marco permit costs (d).............        -0-         1,349
Deferred revenue.................................      7,897         8,765
                                                  ----------     ---------
     Total liabilities...........................     36,868        36,192
                                                  ----------     ---------

Commitments and contingencies (d):
 Stockholders' equity (deficiency):
  Common stock, $1 par value -
  authorized 15,000,000 shares;
  outstanding:  1996 and 1995 -
  6,734,572 shares and 6,719,244
  shares (excluding 12,228 shares held
  in treasury in 1996 and 1995)..................      6,735          6,719
 Capital surplus.................................     44,714         44,699
 Accumulated deficit.............................    (68,860)       (68,431)
                                                  ----------     ----------
     Total stockholders' (deficiency)............    (17,411)       (17,013)
                                                  ----------     ----------
          Total.................................. $   19,457     $   19,180
                                                  ==========     ==========
</TABLE>


                                       2
<PAGE>




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

<TABLE>
<CAPTION>
                                       Nine Months              Three Months
                                         Ended                      Ended
                                   -------------------      -------------------
                                   Sept. 30, Sept. 30,      Sept. 30, Sept. 30,
                                     1996      1995            1996     1995
                                   --------- ---------      --------- ---------
<S>                                <C>       <C>            <C>       <C>
Revenues (a):
 Net land sales..................  $ 3,526   $  1,423       $   1,405 $     436
 House and apartment sales.......      875      1,251             267       253
 Recognized improvement
  revenue/ prior period
  sales..........................      874        933             227       162
 Interest income.................    1,083        655             546       232
 Other revenues..................      518        706             162       135
                                   -------   --------       --------- ---------
     Total.......................    6,876      4,968           2,607     1,218
                                   -------   --------       --------- ---------
Costs and expenses (a):
 Cost of sales and
  improvements....................   2,076      1,985             725       420
 Selling, general and
  administrative and other
  expenses........................   4,244      3,539           1,580     1,130
 Interest expense (c)(e)..........   1,316      1,217             453       411
                                   -------   --------       --------- ---------
     Total........................   7,636      6,741           2,758     1,961
                                   -------   --------       --------- ---------
Loss from operations before
 extraordinary item...............    (760)    (1,773)           (151)     (743)
Extraordinary Item:
 Gain on settlement related
  to the Marco refund
  obligation......................     331        702             331       -0-
                                   -------   --------       --------- ---------
Net Income (Loss)................. $  (429)  $ (1,071)      $     180 $    (743)
                                   =======   ========       ========= =========
Earning (Loss) per share:
 From operations.................. $  (.11)  $   (.26)      $    (.02)$    (.11)
 Extraordinary item...............     .05        .10             .05       -0-
                                   -------   --------       --------- ---------
Net Income (Loss)................. $  (.06)  $   (.16)      $     .03 $    (.11)
                                   =======   ========       ========= =========
Number of common and common
 equivalent shares................ 6,728,157 6,693,341      6,732,341 6,699,344
                                   ========= =========      ========= =========
<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>



                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                            FOR THE NINE MONTHS ENDED
                            -------------------------
                    SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
                    -----------------------------------------
                                 ($000 Omitted)
<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                       ------------------------
                                                       Sept. 30,      Sept. 30,
                                                         1996            1995
                                                       ---------      ---------
<S>                                                    <C>            <C>
Cash flows from operating activities..............     $  (1,871)     $ (3,045)
                                                       ---------      --------     
Cash flows from investing activities:
  Proceeds from sale of property, plant
  and equipment...................................             5            29
 Payment for acquisition and construction
  of property plant and equipment.................            (5)          (35)
                                                       ---------      --------
Net cash provided by (used in) investing
 activities.......................................           -0-            (6)
                                                       ---------      --------
Cash flows from financing activities:
  New borrowings..................................         1,918         1,942
  Repayment of borrowings.........................            (6)           (5)
                                                       ---------      --------
Net cash provided by (used in) financing
 activities.......................................         1,912         1,937
                                                       ---------      --------
Net increase (decrease) in cash and
 temporary cash investments (including
 escrow deposits and restricted cash).............            41        (1,114)

Cash and temporary cash investments at
 December 31, 1995 and December 31, 1994..........           982         2,440
                                                       ---------      --------
Cash and temporary cash investments at
 September 30,1996 and September 30, 1995.........     $   1,023      $  1,326
                                                       =========      ========

Supplemental disclosure of non cash
 investing and financing activities:

Common Stock issued for Marco Settlement..........     $      31      $     71
                                                       =========      ========

Interest and debt reduction in exchange
 for Land and Property Plant and Equipment.......      $     -0-      $  2,599
                                                       =========      ========  

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


                                       4
<PAGE>

                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
            UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
            ---------------------------------------------------------
                            FOR THE NINE MONTHS ENDED
                            -------------------------
                    SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
                    -----------------------------------------
                                 ($000 Omitted)

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                       -----------------------
                                                       Sept. 30,     Sept. 30,
                                                          1996          1995
                                                       ---------     ---------                         
<S>                                                    <C>           <C>
Reconciliation of net income (loss)
 to net cash provided by (used in)
 operating activities:

  Net loss..........................................   $    (429)    $ (1,071)
                                                       ---------     -------- 
Adjustments  to reconcile  net loss to net
 cash  provided by (used in) operating
 activities:

  Depreciation and amortization.....................          40           46
  Provision for estimated uncollectible sales-net...       1,394          532
  Contract valuation discount, net of amortization..         249           74
  Net Gain on sale of property, plant &
    equipment.......................................          (5)         (29)
 Gain on settlement related to the Marco refund
     obligation.....................................        (331)        (702)
  Net change in assets and liabilities..............      (2,789)      (1,895)
                                                       ---------     --------
     Total adjustments..............................   $  (1,442)    $ (1,974)
                                                       ---------     --------
  Net cash provided by (used in) operating
     activities.....................................   $  (1,871)    $ (3,045)
                                                       =========     ========
</TABLE>

                                       5
<PAGE>



                    THE DELTONA CORPORATION AND SUBSIDIARIES
                    ----------------------------------------
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
         --------------------------------------------------------------
                               SEPTEMBER 30, 1996
                               ------------------


(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 is as follows (in thousands):


                              Land and Improvements
                              ---------------------
     <TABLE>
     <CAPTION>
                                                  September 30,  December 31,
                                                       1996           1995
                                                  -------------  ------------
     <S>                                          <C>            <C>
     Unimproved land.........................     $     444      $    444
     Land in various stages of
      development............................         4,014         4,014
     Fully improved land.....................         5,934         6,673
                                                  ---------      --------
          Total..............................     $  10,392      $ 11,131
                                                  =========      ========
     </TABLE>

     Land and land improvements include approximately  $202,000 of land placed
     in the Marco  Island and Marco Shores  trusts for the Marco  refund program
     as of September  30, 1996 and  December  31,  1995.  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 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,
     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,
     1996, 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.


                                       6
<PAGE>


     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 serve as directors,  as
     well as President  and  Secretary,  respectively;  and (iii)  approximately
     $99,000 was used to reacquire,  from Mr. Muyres,  all of his rights,  title
     and interest in that certain contracts with the Company for the purchase of
     a commercial tract in St. Augustine Shores, Florida. None of the commercial
     and  multi-family  property  acquired  by the Company  from Mr.  Muyres and
     certain entities affiliated with Messrs.  Zwaans and Muyres  collateralizes
     the First Selex Loan. In March, 1994,  Conquistador  exercised its right to
     repurchase certain multi-family  property from the Company (which right had
     been granted in  connection  with the June,  1992 Selex  transaction)  at a
     price of  $312,000,  of which  $260,000 was paid in cash to the Company and
     $52,000 was applied to reduce  interest due to Selex under the Second Selex
     Loan (the "First Conquistador Acquisition").

     On December 2, 1992, the Company entered into various  agreements  relating
     to  certain of its assets  and the  restructuring  of its debt with  Yasawa
     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 Gram of the Company's outstanding bank loan.

     On December 4, 1992,  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 Gram the warrants which
     they held that  entitled  the holder to  purchase an  aggregate  of 289,637
     shares of the  Company's  Common  Stock at an  exercise  price of $1.00 per
     share. Immediately after the acquisition of the bank loan, 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, 1996); 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,
     1996, $6,228,000 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").  The Second
     Selex Loan bears  interest at 11% per annum,  with interest  deferred until
     December 31,  1993.  The Second  Selex Loan  provides  for  principal 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,  1996,  the  remaining  principal  and  accrued  interest of
     $4,074,.000 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, 1996, an aggregate  amount of $5,930,000 had been advanced to
     the Company  under the Second  Yasawa Loan,  which  remained  unpaid and in
     default.

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

     As previously stated, Messrs. Muyres and Zwaans also serve as directors and
     executive officers of M&M First Coast Realty Inc. ("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, 1996, the Company had loans outstanding from
     Selex, Yasawa and their affiliates in the aggregate amount of approximately
     $23,604,000,  including  interest,  all of which are in default,  including
     approximately   $8,686,000,   which   is  owed  to   Selex;   approximately
     $12,776,000,  which is owed to Yasawa; and approximately $2,142,000,  which
     is owed to an affiliate of Yasawa.  The loans from Selex,  Yasawa and their
     affiliates are secured by substantially all of the assets of the Company.


                                       8
<PAGE>

(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 improvements
     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, 1996 was
     approximately $5,064,000.

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

     In June,  1992,  the Company  entered into the 1992 Consent  Order with the
     Division,  which  replaced and superseded  the original  Consent Order,  as
     amended  and  restated.   Among  other  things,   the  1992  Consent  Order
     consolidated  the  Company's  development  obligations  and  provided for a
     reduction  in its  required  monthly  escrow  obligation  to $175,000  from
     September,  1992 through December,  1993. Beginning January, 1994 and until
     development is completed or the 1992 Consent Order is amended,  the Company
     is required to deposit $430,000 per month into the escrow account.  As part
     of the assurance  program under the 1992 Consent Order, the Company and its
     lenders  granted  the  Division  a lien  on  certain  contracts  receivable
     (approximately   $10,100,000   as  of   September   30,  1996)  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, 1996, approximately 83% of
     the customers whose lots are currently  undeveloped have opted to exchange.
     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 and Sunny Hills)
     under the 1992 Consent Order through this exchange  program,  completion of
     two commercial areas in Marion Oaks, sale of its second Citrus Springs Golf
     Course  and  settlement  of  all  remaining  maintenance  and  improvements
     obligations in Citrus Springs  through a final agreement with Citrus County
     (entered into in May 1995). Pursuant to the 1992 Consent Order, the Company
     has limited the sale of  single-family  lots to lots which front on a paved
     street and are ready for immediate building.

     Based upon the Company's  experience with affected  customers,  the Company
     believes  that  the  total  refunds   arising  from  delays  in  completing
     improvements  will not  materially  exceed the amount  provided  for in the
     consolidated  financial  statements.  Approximately $7,000 of the provision
     for the total refunds  relating to the delays of  improvements  remained in
     accrued expenses and other at September 30, 1996.

     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

                                       9
<PAGE>


     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 fiscal year ended  December 31, 1995, 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 $1,316,000 and
     $1,217,000,  none was  capitalized  for the nine months ended September 30,
     1996 and September 30, 1995, 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,  1996 and  September  30, 1995 were
     $(429,000) and $(1,071,000) and 6,728,157 and 6,693,341,  respectively, and
     for the third  quarters of 1996 and 1995 were $180,000 and  $(743,000)  and
     6,732,341 and 6,699,344, respectively.


                                       10
<PAGE>

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


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

In  conjunction  with the  First  Selex  Loan:  (i)  Empire  of  Carolina,  Inc.
("Empire")  sold Selex its 2,220,066  shares of the  Company's  Common Stock and
assigned Selex its $1,000,000  Note from the Company,  with $225,000 of interest
accrued thereon;  (ii) Maurice A. Halperin,  Chairman of the Board of Empire and
former  Chairman of the Board of the  Company,  forgave  payment of the $200,000
salary due him for the period of April,  1990 through April,  1991, which was in
arrears;  and (iii) certain changes occurred in the composition of the Company's
Board of Directors. Namely, the six directors serving on the Company's Board who
were previously  designated by Empire resigned and four Selex designees (Messrs.
Marcellus H.B. Muyres,  Antony Gram,  Cornelis van de Peppel and Cornelis L.J.J.
Zwaans) were elected to serve as directors in their stead. Marcellus H.B. Muyres
was appointed  Chairman of the Board and Chief Executive Officer of the Company.
These directors,  as well as Leonardus G.M.  Nipshagen,  a Selex designee,  were
then elected as directors at the Company's 1992 Annual Meeting and re-elected at
the Company's 1993 Annual Meeting.

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
(41.87% 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,
1996).

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

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


                                       11
<PAGE>

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. 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. As of September 30,
1996, Yasawa has loaned the Company an additional sum of $5,930,000  pursuant to
the Second Yasawa Loan. As a consequence of these transactions,  the Company had
loans outstanding from Selex,  Yasawa and their affiliates on September 30, 1996
in the  aggregate  amount of  approximately  $22,290,000.  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.

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  $5,930,000 as of September 30, 1996, to meet the
Company's  minimum working capital  requirements,  to pay delinquent real estate
taxes,  to pay  settlements  with certain trade  creditors and to settle certain
litigation.

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.

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  $2,265,000  as of September 30, 1996;  non-payment  of
these  delinquent  taxes may  adversely  affect the  financial  condition of the
Company.  On April 16, 1996, Yasawa loaned the Company $1,000,000 which was used
to pay approximately $979,000 of delinquent real estate taxes.

The Company is continuing to seek third parties to provide financing.  There can
be no assurance, however, that any financing will be obtained.  Accordingly, the
Company's Board of Directors is also considering other appropriate  action given


                                       12
<PAGE>


the severity of the Company's liquidity position including,  but not limited, to
filing for protection under the federal bankruptcy laws.


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

For the nine months and three months ended  September 30, 1996 and September 30,
1995.

Revenues
--------

Total  revenues  were  $6,876,000  for the first nine months of 1996 compared to
$4,968,000 for the comparable  1995 period.  For the third quarter of 1996 total
revenues were $2,607,000 compared to $1,219,000 for the comparable 1995 period.

Gross land  sales  were  $5,569,000  for the first  nine  months of 1996  versus
$2,195,000   for  1995.   Net  land  sales  (gross  land  sales  less  estimated
uncollectible  installment sales and contract valuation  discount)  increased to
$3,526,000 for the first nine months of 1996 from  $1,423,000 for the first nine
months of 1995.  For the three  months ended  September  30, 1996 net land sales
increased to $1,405,000 from $436,000 for the comparable year ago period.

There  were no bulk land  sales for the first  nine  months of 1996 or 1995.  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".

The Company  re-entered the  single-family  housing business in December,  1992.
Revenues  are  not  recognized  from  housing  sales  until  the  completion  of
construction  and passage of title.  Housing revenues were $875,000 for the nine
months ended  September 30, 1996  compared to $1,251,000  for the same period in
1995. The decrease in housing  revenues is directly  related to the reduction in
the Company's  housing  advertising and promotional  programs for housing due to
limited working capital.

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,
                                1996           1995          1996        1995  
                              ---------      ---------     ---------  ---------
     <S>                      <C>            <C>           <C>        <C>
     Gross Land Sales:
     Retail Sales*            $ 5,569        $ 2,195        $ 2,295   $   685
                              -------        -------        -------   -------
     Housing Sales:
     Single Family                867          1,201            267       210
      Vacation ownership            8             50            -0-        43
                              -------        -------        -------   -------
          Total                   875          1,251            267       253
                              -------        -------        -------   -------
          Total Real Estate   $ 6,444        $ 3,446        $ 2,562   $   938
                              =======        =======        =======   =======
<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, 1996 and September
     30, 1995 were  $5,576,000 and $3,466,000,  respectively  and $1,838,000 and
     $1,398,000  for the  third  quarters  of 1996 and 1995,  respectively.  The
     Company had a backlog of approximately  $2,333,000 in unrecognized sales as
     of September 30, 1996. 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  $874,000 for the first nine months of 1996  ($227,000 for the
third  quarter of 1996),  as compared  to $993,000  for the first nine months of
1995  ($162,000 for the third quarter of 1995).  Due to the Company's  financial
condition the Company has done minimal development work in the last two years.



                                       13
<PAGE>

Interest  income was $1,083,000 for the first nine months of 1996 as compared to
$655,000  for the same  period of 1995.  This  increase  is the result of higher
contracts receivable balances. For the third quarters of 1996 and 1995, interest
income was $546,000 and $233,000, respectively.

Other  revenues  were $518,000 as compared to $706,000 for the nine months ended
September 30, 1996 and 1995,  respectively.  For the third  quarters of 1996 and
1995,  other revenues were $162,000 and $135,000,  respectively.  Other revenues
are  generated  by the  Company's  title  insurance  and real  estate  brokerage
subsidiaries.

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

Costs and expenses for the first nine months of 1996 were $7,636,000 compared to
$6,741,000 for the same period in 1995. For the third quarters of 1996 and 1995,
costs and expenses  totaled  $2,758,000 and  $1,961,000,  respectively.  Cost of
sales totaled $2,076,000 for the nine month ended September 30, 1996 compared to
$1,984,000 for the 1995 period. For the third quarters of 1996 and 1995, cost of
sales were $725,000 and $420,000, respectively.

Commissions,  advertising and other selling expenses totaled  $1,952,000 for the
nine months ended  September 30, 1996  compared to $1,222,000  for the same 1995
period.  This increase is the result of higher retail sales levels.  Advertising
and  promotional  expenditures  increased  to $90,000  from $87,000 for the nine
month period of 1996 versus  1995.  For the third  quarter of 1996,  commission,
advertising and other selling  expenses totaled  $822,000,  compared to $402,000
for the 1995 third quarter.  Advertising and promotional  expenditures increased
to $36,000 from $32,000 for the third quarter period of 1996 versus 1995.  These
increases are the result of the increase in the Company's retail land sales.

General and administrative expenses were $1,352,000 for the first nine months of
1996 and  $1,458,000 for the same period of 1995. For the third quarter of 1996,
general and administrative expenses were $447,000 compared to $432,000 in 1995.

Real  estate tax  expense  was  $939,000  for the first nine  months of 1996 and
$859,000  for the same  period of 1995.  Real  estate tax  expense for the third
quarter of 1996 was $312,000  versus  $296,000  for the second  quarter of 1995.
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 1996 was $1,316,000,  compared to
$1,217,000  for the first nine  months of 1995.  Interest  expense for the third
quarter of 1996 was  $453,000,  compared  to $411,000  for the third  quarter of
1995.  Total interest cost (none of which represents  capitalized  interest) was
$1,316,000  and  $1,217,000  for the first nine  months  ended of 1996 and 1995,
respectively.  For the third quarter of 1996, total interest cost (none of which
represents  capitalized  interest)  was  $453,000,  compared to $411,000 for the
second quarter of 1995. No interest has been capitalized since the first quarter
of 1994  since  the  Company  has  done  minimal  land  development  work at its
communities.

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

The Company  reported a net loss of $429,000 for the nine months ended September
30,  1996 as  compared to a net loss of  $1,071,000  for the nine  months  ended
September  30,  1995.  For the third  quarter of 1996,  a profit of $180,000 was
reported  compared  to a net loss of  $743,000  for the third  quarter  of 1995.
Included in the nine months ended September 30, 1996 and the third quarter is an
extraordinary  gain of 331,000  resulting from the final settlement of the Marco
class action  litigation.  The nine months ending September 30, 1995 included an
extraordinary  gain of $702,000  resulting from a reduction in the allowance for
the  guarantee  pursuant  to 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.


                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                         Years Ended
                                                ----------------------------
                                                September 30,   December 31,
                                                     1996           1995
                                                -------------   ------------                           
          <S>                                     <C>            <C>
          Mortgage Notes Payable........          $ 18,629       $ 16,717
          Other Loans...................             3,661          3,661
                                                  --------       --------
          Total Mortgages and
          Similar Debt..................          $ 22,290       $ 20,378
                                                  ========       ========

</TABLE>

As of December 31, 1995, $4,200,000 of accrued interest due to Selex, Yasawa and
their affiliates was reclassified as non-interest bearing principal. Included in
Mortgage  Notes Payable is the  $3,000,000  First Selex Loan  ($2,722,000  as of
September 30, 1996), the $4,400,000 Third Selex Loan ($3,820,000 as of September
30, 1996), the $4,900,000  Yasawa Loan ($5,829,000 as of September 30, 1996) and
the Second  Yasawa Loan  ($6,220,000  as of  September  30,  1996).  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,
1996 due to the non-payment of principal.  The lenders have not taken any 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,

                                       15
<PAGE>


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.

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,  in which Messrs. Zwaans and Muyres serve as directors, as well as
President  and  Secretary/Treasurer,  respectively;  (ii)  $485,000  was used to
acquire 4 commercial  lots from Swan,  in which  Messrs.  Zwaans and Muyres also
serve as directors, as well as President and Secretary,  respectively; and (iii)
approximately $99,000 was used to reacquire, from Mr. Muyres, all of his rights,
title and interest in that certain  contracts  with the Company for the purchase
of a commercial tract in St. Augustine Shores,  Florida.  None of the commercial
and  multi-family  property  acquired by the Company from Mr. Muyres and certain
entities  affiliated  with Messrs.  Zwaans and Muyres  collateralizes  the First
Selex Loan.  In March,  1994,  Conquistador  exercised  its right to  repurchase
certain multi-family  property from the Company (which right had been granted in
connection  with the June, 1992 Selex  transaction)  at a price of $312,000,  of
which $260,000 was paid in cash to the Company and $52,000 was applied to reduce
interest  due to Selex  under the  Second  Selex Loan (the  "First  Conquistador
Acquisition").

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

On December 4, 1992,  Mr.  Gram  entered  into an  agreement  with the  lenders,
pursuant  to  which  he  acquired  the bank  loan of  approximately  $25,150,000
(including  interest and fees) for a price of $10,750,000.  In conjunction  with
such  transaction,  the lenders  transferred to Mr. Gram the warrants which they
held that entitled the holder to purchase an aggregate of 289,637  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

                                       16
<PAGE>


with a future  line of credit  (all of which was  drawn  and  outstanding  as of
September 30, 1996);  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, 1996, $6,228,000 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,  1996,  the  remaining  balance of
$4,074,000 including 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, 1996, an aggregate amount
of $5,930,000  had been advanced to the Company under the Second Yasawa Loan and
the balance of $6,548,000 including accrued interest remains unpaid.

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

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

As of 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, 1996,  the Company had loans  outstanding  from Selex,  Yasawa and
their affiliates in the aggregate amount of approximately $23,604,000, including
interest, all of which are in default, including approximately $8,868,000, which
is owed to Selex; approximately $12,776,000,  which is owed to Yasawa, including


                                       17
<PAGE>


accrued and unpaid interest; and approximately  $2,142,000,  which is owed to an
affiliate  of Yasawa,  including  accrued  and unpaid  interest.  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  $5,930,000 as of September 30, 1996, to meet the
Company's  minimum working capital  requirements,  to pay delinquent real estate
taxes,  to pay  settlements  with certain trade  creditors and to settle certain
litigation.

As a consequence of its liquidity position, the Company has defaulted on certain
obligations,  including  its  previously  described  escrow  obligations  to the
Division pursuant to the Company's 1992 Consent Order and its obligation to make
required  payments  under  loans  from  Selex,   Yasawa  and  their  affiliates.
Furthermore,  the  Company  has not paid  delinquent  real  estate  taxes  which
aggregate  approximately  $2,265,000  as of September 30, 1996;  non-payment  of
these  delinquent  taxes may  adversely  affect the  financial  condition of the
Company.  On April 16, 1996, Yasawa loaned the Company $1,000,000 which was used
to pay  approximately  $979,000 of delinquent real estate taxes. On September 6,
1996, Yasawa loaned the Company $818,000 which was used to satisfy the remaining
obligation on the Marco class action settlement agreement. Additionally, 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.

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


CONTRACTS AND MORTGAGES RECEIVABLE SALES

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

In March,  1993 the Company  transferred  $1,600,000  in contracts and mortgages
receivable generating approximately $1,059,000 in proceeds to the Company, which
was used for  working  capital  and the  creation  of a holdback  account in the
amount  $150,000.  As of September 30, 1996, the balance of the holdback account
was approximately $116,000.

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

                                       18
<PAGE>

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.  The
Company was unable to replace or repurchase  $1,148,000 in delinquent  contracts
in 1994 and  $524,000  in  delinquent  contracts  in 1995,  which  amounts  were
deducted from the deposit held by the purchaser of the  receivables as security.
In  addition,  the  Company  was  unable to replace or  repurchase  $613,000  in
delinquent   receivables  in  1995;   however,  a  replacement  of  $293,000  in
receivables was made in January, 1996.

The  Company  was  the  guarantor  of  approximately  $12,100,000  of  contracts
receivable  sold or transferred  as of September 30, 1996, for the  transactions
described  above, and had $116,000 on deposit with purchasers of the receivables
as security to assure  collectibility  as of such date.  A provision of $650,000
was established for the Company's  obligation  under the recourse  provisions of
which $547,000 remains at September 30, 1996. The Company has been in compliance
with all receivable transactions since the consummation of sales.

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


     OTHER OBLIGATIONS

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

In  June,  1992,  the  Company  entered  into the 1992  Consent  Order  with the
Division,  which replaced and superseded the original  Consent Order, as amended
and  restated.  Among other  things,  the 1992 Consent  Order  consolidated  the
Company's  development  obligations and provided for a reduction in its required
monthly escrow  obligation to $175,000 from  September,  1992 through  December,
1993.  Beginning  January,  1994 and until  development is completed or the 1992
Consent Order is amended,  the Company is required to deposit $430,000 per month
into the escrow account. As part of the assurance program under the 1992 Consent
Order,  the  Company  and its  lenders  granted  the  Division a lien on certain
contracts  receivable  (approximately  $10,100,000 as of September 30, 1996) 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,


                                       19
<PAGE>


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, 1996,  approximately 83% of the
customers  whose  lots  are  currently   undeveloped  have  opted  to  exchange.
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 and Sunny Hills) under
the  1992  Consent  Order  through  this  exchange  program,  completion  of two
commercial  areas in Marion Oaks,  sale of its second Citrus Springs Golf Course
and  settlement of all remaining  maintenance  and  improvements  obligations in
Citrus Springs through a final agreement with Citrus County (entered into in May
1995).  Pursuant to the 1992 Consent Order,  the Company has limited the sale of
single-family  lots to lots  which  front on a paved  street  and are  ready for
immediate building.

Based  upon the  Company's  experience  with  affected  customers,  the  Company
believes that the total refunds  arising from delays in completing  improvements
will not materially exceed the amount provided for in the consolidated financial
statements. Approximately $7,000 of the provision for the total refunds relating
to the  delays  of  improvements  remained  in  accrued  expenses  and  other at
September 30, 1996.

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.

The Company placed certain  properties in trust to meet its refund obligation 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 the  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.  On September 6,
1996, Yasawa loaned the Company $818,000 which was used to satisfy the remaining
obligation  on the Marco  class  action  settlement  agreement  resulting  in an
extraordinary  gain  of  $331,000.  Additionally,  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


                                       20
<PAGE>

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.

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.

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 of $1,500,000, all of which is
drawn and  outstanding  as of March 31,  1996.  During  1993,  Selex  loaned the
Company an additional  $5,400,000  pursuant to the Second and Third Selex Loans.
Beginning  in 1994,  Yasawa  has loaned the  Company an  additional  $5,930,000,
pursuant to the Second  Yasawa Loan,  as of September  30, 1996.  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") a totaling  $5,930,000 as of September 30, 1996, to meet
the Company's  minimum


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working  capital  requirements,  to pay  delinquent  real estate  taxes,  to pay
settlements with certain trade creditors and to settle certain litigation.

As a consequence of its liquidity position, the Company has defaulted on certain
obligations,  including  its  previously  described  escrow  obligations  to the
Division pursuant to the Company's 1992 Consent Order and its obligation to make
required interest payments under loans from Selex,  Yasawa and their affiliates.
Furthermore,  the  Company  has not paid  delinquent  real  estate  taxes  which
aggregate  approximately  $2,265,000  as of September 30, 1996;  non-payment  of
these  delinquent  taxes may  adversely  affect the  financial  condition of the
Company.

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



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


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

          (a)  Exhibits

               None

          (b)  Reports on Form 8-K

               No  Reports  on Form 8-K were  filed by the  Company  during  the
               quarter ended September 30, 1996.



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                                    SIGNATURE
                                    ---------




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



                                              THE DELTONA CORPORATION



Date: November 7, 1996                        By: /s/Donald O. McNelley
                                                  ----------------------
                                                  Donald O. McNelley
                                                  Treasurer
                                                  (Principal Financial Officer)






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