<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   Form 10-Q


 X   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
---  Act of 1934
     
     For the quarterly period ended March 31, 1997 or

     Transition report pursuant to Section 13 or 15(d) of the Securities
---  Exchange Act of 1934

     For the transition period from ________ to _____________

     Commission file number 1-9822


                               BUFFTON CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

             Delaware                                      75-1732794
-------------------------------                ---------------------------------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

             226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107
             -----------------------------------------------------
             (Address and zip code of principal executive offices)

                                (817) 332-4761
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)
     

             ----------------------------------------------------
             (Former Name, Former Address and Former Fiscal Year, 
                         If Changed Since Last Report)

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  X    No 
    ---      ---

                    APPLICABLE ONLY TO ISSUERS INVOLVED IN
                       BANKRUPTCY PROCEEDINGS DURING THE
                             PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes       No
    ---      ---
                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

                                                Number of shares outstanding at:
          Class                                          April 14, 1997
----------------------------                    --------------------------------
Common stock, $.05 par value                                7,713,928
                              

                                       1
<PAGE>
 
                              BUFFTON CORPORATION

                                     Index
                                     -----
 
                                                                            Page
                                                                            ----
 
Part I - Financial Information............................................     3
 
Item 1 - Financial Statements.............................................     3
 
Consolidated Condensed Balance Sheets March 31, 1997 (Unaudited)
  and September 30, 1996..................................................     3
 
Consolidated Condensed Statements of Operations (Unaudited)
  Three Months Ended March 31, 1997 and 1996..............................     4
 
Consolidated Condensed Statements of Operations (Unaudited)
  Six Months Ended March 31, 1997 and 1996................................     5
 
Consolidated Condensed Statements of Cash Flow (Unaudited)
  Six Months Ended March 31, 1997 and 1996................................     6
 
Supplemental Disclosures of Cash Flow Information (Unaudited).............     6
 
Notes to Consolidated Condensed Financial Statements (Unaudited)..........     7
 
Item 2 - Management's Discussion and Analysis of Financial Condition and
  Results of Operations...................................................    11
 
Part II - Other Information...............................................    15
 
Signatures................................................................    16
 

                                       2
<PAGE>
 
                              BUFFTON CORPORATION
                                        
                     Consolidated Condensed Balance Sheets
                     -------------------------------------
<TABLE>
<CAPTION>
                                                                       March 31,      September 30,
                                                                         1997             1996
                                                                      -----------     --------------
                                                                      (Unaudited)
                                                                             (In thousands)
<S>                                                                   <C>             <C>
                    Assets
                    ------
Current assets:
  Cash and cash equivalents                                              $ 1,672         $ 1,659
  Accounts receivable, net of allowance for
    doubtful accounts of $29,000 and $35,000,
    respectively....................................................       2,867           3,370
  Inventories.......................................................       1,518           1,396
  Prepaid and other current assets..................................         987             492
                                                                         -------         -------
    Total current assets............................................       7,044           6,917
                                                                         -------         -------
 
Property, plant and equipment, at cost:
  Land, building and improvements...................................      12,834          12,257
  Less:  Accumulated depreciation and amortization..................      (3,026)         (2,626)
                                                                         -------         -------
   Net property, plant and equipment................................       9,808           9,631
                                                                         -------         -------
 
Patents, net of accumulated amortization of
   $1,609,000 and $1,529,000, respectively..........................       1,371           1,451
Goodwill, net of amortization of $1,025,000 and
   $845,000, respectively...........................................       3,939           4,120
Long-term note receivable...........................................         430             540
Other assets........................................................       1,132             505
                                                                         -------         -------
                                                                         $23,724         $23,164
                                                                         =======         =======
       Liabilities and Stockholders' Equity
       ------------------------------------
Current liabilities:
  Current portion of long-term debt.................................     $   187         $   187
  Accounts payable..................................................         956           1,152
  Accrued liabilities...............................................       1,074           1,524
  Income taxes......................................................         638             311
                                                                         -------         -------
   Total current liabilities........................................       2,855           3,174
 
Long - term debt....................................................       2,400           2,493
Deferred income taxes...............................................           4               4
                                                                         -------         -------
   Total liabilities................................................       5,259           5,671
                                                                         -------         -------
 
Stockholders' equity:
  Preferred stock $.01 par value; 5,000,000 shares
    authorized; no shares issued and outstanding....................           -               -
  Common stock $.05 par value; 30,000,000 shares authorized;
   6,726,878 shares outstanding.....................................         337             337
  Additional paid-in capital........................................      14,365          14,354
  Retained earnings.................................................       3,872           3,158
  Treasury stock, at cost, 54,550 and 183,350, shares respectively..        (109)           (356)
                                                                         -------         -------
 
   Total stockholders' equity.......................................      18,465          17,493
                                                                         -------         -------
                                                                         $23,724         $23,164
                                                                         =======         =======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
                              

                                       3
<PAGE>
 
                              BUFFTON CORPORATION

          Consolidated Condensed Statements of Operations (Unaudited)
          -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                        Three Months
                                                       Ended March 31,
                                                   ---------------------
                                                    1997           1996
                                                   ------         ------
                                                   (In thousands, except 
                                                     per share amounts)

<S>                                                <C>            <C>
Net revenues.....................................  $7,326         $5,972
                                                   ------         ------
Costs and expenses:
 Cost of goods sold (exclusive of depreciation)..   2,395          2,018
 Selling, general and administrative.............   3,532          3,227
 Depreciation and amortization...................     341            378
 Interest........................................      56             60
                                                   ------         ------
 
  Total costs and expenses.......................   6,324          5,683
                                                   ------         ------
 
Income before income taxes.......................   1,002            289
Income tax provision.............................     401             80
                                                   ------         ------
 
Net income.......................................  $  601         $  209
                                                   ======         ======
 
Primary income per average common share..........  $  .09         $  .03
                                                   ======         ======
 
Weighted average common shares outstanding.......   6,679          6,675
                                                   ======         ======
 
Fully diluted income per common share............  $  .09         $  .03
                                                   ======         ======
 
Fully diluted shares outstanding.................   6,679          6,675
                                                   ======         ======
</TABLE>

See accompanying notes to unaudited Consolidated Condensed Financial Statements.

                                       4
<PAGE>
 
                              BUFFTON CORPORATION

          Consolidated Condensed Statements of Operations (Unaudited)
          -----------------------------------------------------------
<TABLE>
<CAPTION>
                                                         Six Months
                                                       Ended March 31,
                                                   ---------------------
                                                    1997            1996
                                                   -------       -------
                                                   (In thousands, except 
                                                     per share amounts)

<S>                                                <C>           <C>
Net revenues.....................................  $13,295       $11,308
                                                   -------       -------
Costs and expenses:
 Cost of goods sold (exclusive of depreciation)..    4,375         3,907
 Selling, general and administrative.............    6,947         5,920
 Depreciation and amortization...................      672           655
 Interest........................................      111            95
                                                   -------       -------
                                                          
  Total costs and expenses.......................   12,105        10,577
                                                   -------       -------
                                                          
Income before income taxes.......................    1,190           731
Income tax provision.............................      476           205
                                                   -------       -------
                                                          
Net income.......................................  $   714       $   526
                                                   =======       =======
                                                          
Primary income per average common share..........  $   .11       $   .09
                                                   =======       =======
                                                          
Weighted average common shares outstanding.......    6,635         6,178
                                                   =======       =======
                                                          
Fully diluted income per common share............  $   .10       $   .09
                                                   =======       =======
                                                          
Fully diluted shares outstanding.................    6,999         6,178
                                                   =======       =======
</TABLE>

See accompanying notes to unaudited Consolidated Condensed Financial Statements.

                                       5
<PAGE>
 
                              BUFFTON CORPORATION
                              -------------------

           Consolidated Condensed Statements of Cash Flow (Unaudited)
           ----------------------------------------------------------
<TABLE>  
<CAPTION> 
                                                    Six Months
                                                   Ended March 31,
                                                --------------------
                                                 1997          1996
                                                ------        ------
                                                    (In thousands)
<S>                                             <C>          <C>
Net cash provided by operating activities.....  $1,052       $   621
                                                ------       -------
                                                       
Cash flows from investing activities:                  
  Additions to property, plant and equipment..    (577)         (683)
  Additions to other assets...................    (354)          (19)
  Acquisitions, net of cash acquired..........       -        (1,007)
                                                ------       -------
Net cash provided by investing activities.....    (931)       (1,709)
                                                ------       -------
                                                       
Cash flows from financing activities:                  
  Additions to long-term debt.................       -         1,200
  Repayments of long-term debt................     (93)          (26)
  Treasury stock purchases....................     (15)            -
                                                ------       -------
Net cash provided by financing activities.....    (108)        1,174
                                                ------       -------
                                                       
Net increase in cash..........................      13            86
Cash and cash equivalents at beginning 
  of period...................................   1,659             7
                                                ------       -------
                                                       
Cash and cash equivalents at end of period....  $1,672       $    93
                                                ======       =======
 
</TABLE>

               Supplemental Disclosures of Cash Flow Information
               -------------------------------------------------
<TABLE>
<CAPTION>

Supplemental cash flow information (unaudited):
                                                    Six Months
                                                   Ended March 31,
                                                --------------------
                                                 1997          1996
                                                ------        ------
                                                    (In thousands)
<S>                                             <C>          <C>

Cash paid for:
  Interest...................................   $  56         $   40
  Income taxes...............................     164              5
                                                            
Noncash investing and financing activities:                 
  Fair value of assets acquired..............                 $4,660
  Liabilities assumed........................                  1,754
  Stock issued...............................                  1,804
                                                              ------
  Cash paid..................................                  1,102
  Less:  Cash acquired.......................                     95
                                                              ------
  Net cash paid for acquisitions.............                 $1,007
                                                              ======
</TABLE>

See accompanying notes to unaudited Consolidated Condensed Financial Statements.

                                       6
<PAGE>
 
                              BUFFTON CORPORATION
                                        
        Notes to Consolidated Condensed Financial Statements (Unaudited)
        ----------------------------------------------------------------



Note A
------

          In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
Buffton Corporation (the Company), as of March 31, 1997, the results of its
operations for the three and six month periods ended March 31, 1997 and 1996 and
its cash flows for the six month periods ended March 31, 1997 and 1996.

          The accounting policies followed by the Company are set forth in Note
1 to the Company's financial statements in the 1996 Buffton Corporation Annual
Report on Form 10-K/A.


Note B
------

          The results of operations for the three and six month periods ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the full year.


Note C
------

          Net income per share has been computed on the basis of the weighted
average number of common shares outstanding.

          In February 1997, the Financial Accounting Standards Board ("FASB")
issued Financial Accounting Standard No. 128, Earnings per Share ("FAS 128"),
which is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Effective December 31, 1997, the
Company will adopt FAS 128, which establishes standards for computing and
presenting earnings per share ("EPS"). The statement requires dual presentations
of basic and diluted EPS on the face of the income statement for entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS calculation to the numerator and denominator of the
dilutited EPS calculation.  Basic EPS excludes the effect of potentially
dilutive securities while diluted EPS reflects the potential dilution that would
have occured if securities or other contracts to issue common stock had been
exercised, converted or resulted in the issuance of common stock that would have
then shared in the earnings of the entity. Had the Company already adopted the 
provision of this statement, there would have been no impact on the EPS amounts 
presented.

                                       7
<PAGE>
 
Note D
------
 
  Inventories are as follows:
<TABLE>
<CAPTION> 
                                       March 31,     September 30,
                                          1997            1996
                                       ---------     -------------
                                             (In thousands)
<S>                                    <C>           <C>
 Raw materials                          $  917          $1,140
 Work in process                           321              86
 Finished goods                            280             170
                                        ------          ------
                                        $1,518          $1,396
                                        ======          ======
</TABLE>

Note E
------

     Effective January 1, 1996, the Company entered into an agreement to
purchase the assets of Cabo Tacobar One, Ltd., a Mexican restaurant concept with
Central and South American influences located in Houston, Texas, for $589,000 in
cash, 375,000 shares of the Company's common stock (with an estimated fair
market value of $656,000), and a one year option to purchase an additional
150,000 shares of the Company's common stock at a price of $2.00 per share.
Additionally, the Company issued 76,500 shares of its common stock for
commissions incurred in connection with the acquisition which resulted in
increased acquisition costs of $153,000.  Excess of purchase price over fair
value of net tangible assets acquired, recorded as Goodwill, approximates
$1,300,000 and is being amortized on a straight line basis over 15 years.
Effective January 1, 1996, the Company also entered into an agreement to
purchase the assets and assume certain liabilities of the Stockyards Hotel,
located in Fort Worth, Texas, for $500,000 in cash, 450,000 shares of the
Company's common stock (with an estimated fair market value of $788,000) and the
refinancing of a $1,600,000 bank term loan.  Under this agreement, the Company
guaranteed, until March 15, 1997, a sales price of $2.05 per share for any of
this stock that may be sold.  No liability was incurred under the guarantee
agreement.  These acquisitions were accounted for under purchase accounting and
are included in the Company's results of operations beginning on the
acquisitions' effective date of January 1, 1996.

     Unaudited proforma results from continuing operations, as if the
acquisitions had occurred at the beginning of fiscal 1996 are as follows:
<TABLE>
<CAPTION>
                                                 Six Months Ended
                                                     March 31,
                                                       1996
                                                ------------------
<S>                                             <C>
 
     Revenues.................................        $12,106
     Net income from operations...............            569
     Primary income per average common share..            .09
 
</TABLE>

                                       8
<PAGE>
 
Note F
------

     During March 1992, the United States Environmental Protection Agency (EPA),
issued a Record of Decision (ROD) with respect to the Company's Superfund Site
in Vestal, New York.  An Administrative Order for Remedial Design and Remedial
Action was issued on October 1, 1992.  The ROD requires the Company to construct
a water treatment facility at the site and to pump contaminated ground water
from bedrock and overburden extraction wells for 15 to 30 years until
remediation goals were met.  In December 1992, the Company's environmental
consultants prepared and submitted a Remedial Design Work Plan (RDWP) to the
EPA.  The EPA issued comments on the RDWP on October 1, 1993, and a revised RDWP
was submitted to the EPA on October 21, 1993.  During February 1994, the Company
received comments from the EPA with respect to the revised RDWP and the
Company's environmental consultants submitted a response.  The EPA approved the
revised RDWP in October 1994.  On November 14, 1994, engineering design and
related fieldwork was begun in order to meet the specifications of the revised
RDWP.

     During the six months ended March 31, 1997 and 1996, $199,000 and $229,000,
respectively, were incurred for work related to the engineering design.  These
costs were capitalized when incurred because the remedy would prevent further
environmental contamination with respect to the contaminated ground water being
pumped from the extraction wells and improve the property compared with its
condition when acquired by the Company.  Due to concerns about the correctness
of the remedy provided for in the ROD, additional fieldwork was performed and in
June 1995, an RDWP Addendum was prepared and submitted to the EPA.  The Company
received comments from the EPA regarding this Addendum, and the Company's
environmental consultants submitted a response shortly thereafter.

     On August 24, 1995, the Company and its legal and environmental consultants
met with officials of the EPA and agreed on additional fieldwork deemed
necessary by the EPA to support the Company's position regarding the RDWP
Addendum.  At this meeting, officials of the EPA agreed the remedy needed to be
modified and that certain requirements under the existing ROD needed to be
eliminated or reduced in scope.

     Additional fieldwork provided for in the RDWP Addendum was conducted at the
site and resulted in the formulation of a revised remedy.  On December 19, 1995,
the Company and its legal and environmental consultants presented to the EPA the
RDWP Addendum and the recommended changes to the ROD in the form of a revised
remedy.  On July 16, 1996, the Company and its legal and environmental
representatives met with the EPA to review the EPA's written response to this
revised remedy.  The revised remedy would eliminate certain requirements of the
existing ROD and would primarily include removing and treating contaminated
soil, significantly reducing the time period for remediation.

     In April 1997, the EPA issued a proposed plan setting forth the expedited
remedy discussed above.  The proposed plan allows 30 days for public comment.
If the EPA issues an amended ROD that is consistent with the proposed plan, the
Company would, at the date of amendment, expense approximately $3,000,000, the
estimated net present value of the future costs of implementing this
alternative. Additionally, all prior costs incurred, approximating $870,000
through March 31, 1997, associated with the implementation of the original ROD
would be expensed. As a result, the Company expects to expense $3,870,000 during
the quarter ending June 30, 1997.

                                       9
<PAGE>
 
Note G
------

     The Company is a party to various legal actions which are in the aggregate
immaterial, and due to the nature of the Company's business, it could be a party
in other legal or administrative proceedings arising in the ordinary course of
business.  While occasional adverse settlements or resolutions may occur and
negatively impact earnings in the year of settlement, it is the opinion of
management that their ultimate resolution will not have a material adverse
effect on the Company's financial position.


Note H
------

     One of the Company's subsidiaries has a financing agreement with a bank
which consists of a $2,000,000 revolving line of credit, all of which was
available for borrowing at March 31, 1997, and is secured by the accounts
receivable and inventory of the subsidiary.  The terms of the finance agreement
provide for interest to be paid monthly at a floating rate equal to the
established prime rate.  The agreement also provides for a commitment fee of
0.25% per annum of the unused portion of the facility.


Note I
------

     In April 1997, the Company acquired all of the outstanding stock of Hotels
of Distinction (HOD), a hotel management company, from Alan Tremain, O.B.E. and
Jean-Claude Mathot in exchange for 300,000 shares of the Company's common stock.
In addition, Mr. Tremain will become Chairman of the Board of the Company and
Jean-Claude Mathot will become President and Chief Operating Officer of the
Company. Because HOD has no assets or management contracts at the date of
purchase, the transaction, in substance, represents payment for employment
services. As a result, the Company will expense $875,000, the estimated fair
market value of the stock, during the quarter ending June 30, 1997.

                                       10
<PAGE>
 
                              BUFFTON CORPORATION
                                        
PART I - FINANCIAL INFORMATION
------------------------------

Item 2. - Management's Discussion and Analysis of Financial Condition and
          Results of Operations


GENERAL INFORMATION

     At March 31, 1997, the Company consists of operations in two principal
segments, electrical products and hospitality group.  During the year ended
September 30, 1996 and the six months ended March 31, 1997, the Company entered
into the following acquisition and disposition transactions.

     Effective January 1, 1996, the Company entered into agreements to purchase
the assets of Cabo Tacobar One, Ltd. (Cabo), located in Houston, Texas and to
purchase the assets and assume certain liabilities related to the Stockyards
Hotel (SYH), located in Fort Worth, Texas.  See Note E of Notes to Consolidated
Condensed Financial Statements for details of the acquisitions.


FACTORS THAT MAY AFFECT FUTURE RESULTS

     Certain matters discussed herein are forward-looking statements about the
business, financial condition and prospects of the Company.  The actual results
could differ materially from those indicated by such forward-looking statements
because of various risks and uncertainties.  Such risks and uncertainties may
include, but are not limited to regional and national economic conditions,
changes in customer demand for products offered by the Company, and other
matters that may adversely affect the availability of products and pricing,
state and federal regulatory environment, possible future acquisitions or
dispositions, amendments to the Record of Decision issued by the Environmental
Protection Agency (see Liquidity and Capital Resources) and other risks
indicated in the Company's previous filings with the Securities and Exchange
Commission.  The Company cannot control these risks and uncertainties, and in
many cases, cannot predict the risks and uncertainties that could cause its
actual results to differ materially from those indicated by the forward-looking
statements.


RESULTS OF OPERATIONS

     Consolidated net revenues in the 1997 three and six month periods increased
23% and 18%, respectively, compared to 1996.  Electrical products revenues for
the 1997 three and six month periods increased 36% and 14%, respectively, due to
increased shipments made under contract, of power distribution modules
incorporating surge suppression for integration into a customer's sorter
equipment and to a new product introduction in its power siftor line.
Hospitality revenues for the 1997 three month period increased 7% compared to
1996 due to increased revenues at Cat's Meow (primarily due to increased major
tourist events in New Orleans and higher sales during Mardi Gras, as well as a
menu price increase of approximately 6%) and Cabo (due to expansion in May 1996)
offset by reduction in revenues by sale of River Rat's in July 1996.
Hospitality Division revenues for the 1997 six month period increased 23%, due
to the inclusion of the results of operations of Cabo and SYH effective January
1, 1996.

                                       11
<PAGE>
 
     Consolidated total costs and expenses during the 1997 three and six month
periods increased 11% and 14%, respectively, compared to 1996.  Consolidated
costs of sales increased 19% and 12% during the 1997 three and six month periods
versus 1996.  As a percent of related revenue, these costs were 33% during the
1997 three month period versus 34% a year earlier and were 33% during the 1997
six month period versus 35% a year earlier.  Electrical products cost of sales
during the 1997 three and six month periods increased 26% and 11% compared to
1996.  These costs as a percent of revenue were 41% in the 1997 three month
period compared to 44% in 1996 and 41% in the 1997 six month period compared to
42% in 1996.  The increase in absolute dollars was due to increased sales and
the decrease in costs as a percent of revenue is due to increased manufacturing
efficiencies.  Cost of sales related to the Hospitality Division during the 1997
three and six month periods increased 1% and 16%, respectively.  This increase
is due to the increase in sales as previously discussed.  Cost of sales as a
percentage of revenue approximated prior year amounts.

     Consolidated selling, general and administrative expenses for the 1997
three and six month periods increased 9% and 17%, respectively, compared to
1996.  The absolute dollar increase in these expenses is due to increased sales
levels incurred during 1997.  As a percent of revenue, these expenses were 48%
for the 1997 three month period versus 54% in 1996 and were 52% for the 1997 and
1996 six month periods.  Electrical products selling, general and administrative
expenses increased 12% and 11% for the 1997 three and six month periods,
respectively, versus 1996.  The increases associated with the electrical
products segment are due to the 1996 results including the reversal of reserves
in the amount of $146,000 related to favorable developments of certain state
sales tax claims and to higher salaries and commissions incurred as a result of
increased sales.  The expenses associated with the Hospitality Division for the
1997 three month period approximated the 1996 amount.  The expenses associated
with the Hospitality Division for the 1997 six month period increased 7% ,
compared to 1996.  This increase is due to the inclusion of the results of
operations of Cabo and SYH effective January 1, 1996.

     The increase in interest expense to $111,000 for the 1997 six month period
from $95,000 in 1996 is primarily due to the refinancing of a $1,600,000 bank
term loan assumed in connection with the acquisition of SYH offset by the
reduction of debt outstanding under a line of credit with a bank.  Interest
expense for the 1997 three month period approximated the 1996 amount.

     During the three months ended March 31, 1997, the Company reported income
from continuing operations before income taxes of $1,002,000 versus $289,000 in
1996.  This increase is due to increased operating income at the electrical
products division and hospitality division of approximately $650,000 and
$350,000, respectively, offset in part by increased corporate expenses related
to concept development and additional management salaries incurred to develop
the hospitality operations for future growth.  During the six months ended March
31, 1997, the Company reported income from continuing operations before income
taxes of $1,190,000 versus $731,000 in 1996. This increase is due to increased
operating income at the electrical products division and hospitality division of
approximately $450,000 and $580,000, respectively, offset  in part by increased
corporate expenses related to concept development and additional management
salaries incurred to develop the hospitality operations for future growth.

                                       12
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     During March 1992, the United States Environmental Protection Agency (EPA),
issued a Record of Decision (ROD) with respect to the Company's Superfund Site
in Vestal, New York.  An Administrative Order for Remedial Design and Remedial
Action was issued on October 1, 1992.  The ROD requires the Company to construct
a water treatment facility at the site and to pump contaminated ground water
from bedrock and overburden extraction wells for 15 to 30 years until
remediation goals were met.  In December 1992, the Company's environmental
consultants prepared and submitted a Remedial Design Work Plan (RDWP) to the
EPA.  The EPA issued comments on the RDWP on October 1, 1993, and a revised RDWP
was submitted to the EPA on October 21, 1993.  During February 1994, the Company
received comments from the EPA with respect to the revised RDWP and the
Company's environmental consultants submitted a response.  The EPA approved the
revised RDWP in October 1994.  On November 14, 1994, engineering design and
related fieldwork was begun in order to meet the specifications of the revised
RDWP.

     During the six months ended March 31, 1997 and 1996, $199,000 and $229,000,
respectively, were incurred for work related to the engineering design.  These
costs were capitalized when incurred because the remedy would prevent further
environmental contamination with respect to the contaminated ground water being
pumped from the extraction wells and improve the property compared with its
condition when acquired by the Company.  Due to concerns about the correctness
of the remedy provided for in the ROD, additional fieldwork was performed and in
June 1995, an RDWP Addendum was prepared and submitted to the EPA.  The Company
received comments from the EPA regarding this Addendum, and the Company's
environmental consultants submitted a response shortly thereafter.

     On August 24, 1995, the Company and its legal and environmental consultants
met with officials of the EPA and agreed on additional fieldwork deemed
necessary by the EPA to support the Company's position regarding the RDWP
Addendum.  At this meeting, officials of the EPA agreed the remedy needed to be
modified and that certain requirements under the existing ROD needed to be
eliminated or reduced in scope.

     Additional fieldwork provided for in the RDWP Addendum was conducted at the
site and resulted in the formulation of a revised remedy.  On December 19, 1995,
the Company and its legal and environmental consultants presented to the EPA the
RDWP Addendum and the recommended changes to the ROD in the form of a revised
remedy.  On July 16, 1996, the Company and its legal and environmental
representatives met with the EPA to review the EPA's written response to this
revised remedy.  The revised remedy would eliminate certain requirements of the
existing ROD and would primarily include removing and treating contaminated
soil, significantly reducing the time period for remediation.

     In April 1997, the EPA issued a proposed plan setting forth the expedited
remedy discussed above.  The proposed plan allows 30 days for public comment.
If the EPA issues an amended ROD that is consistent with the proposed plan, the
Company would, at the date of amendment, expense approximately $3,000,000, the
estimated net present value of the future costs of implementing this
alternative. Additionally, all prior costs incurred, approximating $870,000
through March 31, 1997, associated with the implementation of the original ROD
would be expensed. As a result, the Company expects to expense $3,870,000 during
the quarter ending June 30, 1997.

     In April 1997, the Company acquired all of the outstanding stock of Hotels
of Distinction (HOD), a hotel management company, from Alan Tremain, O.B.E. and
Jean-Claude Mathot in exchange for 300,000 shares of the Company's common stock.
In addition, Mr. Tremain will become Chairman of the Board of the Company and
Jean-Claude Mathot will become President and Chief Operating Officer of the
Company. Because HOD has no assets or management contracts at the date of
purchase, the transaction, in substance, represents payment for employment
services. As a result, the Company will expense $875,000, the estimated fair
market value of the stock, during the quarter ending June 30, 1997.

                                       13
<PAGE>
 
     In February 1997, the Company began construction on a second Cabo unit to
be located in the historical district of downtown Houston, Texas.  The unit is
expected to open during the fourth quarter of fiscal 1997.  Plans for a new
restaurant are being finalized and it is expected to open during the fourth
quarter of fiscal 1997.  Capital expenditures for these two projects are
expected to approximate $1,750,000 and are expected to be funded from existing
cash and operating cash flow.

                                       14
<PAGE>
 
                              BUFFTON CORPORATION
                                        


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

Item 1. -  Legal Proceedings

           None


Item 6. -  Exhibits and Reports on Form 8-K

           (a)  Exhibits


           2.1  Asset Purchase Agreement dated February 14, 1997 incorporated
                herein by reference to the Definitive Proxy Statement dated
                April 23, 1997.

           3.1  Restated by-laws of Buffton Corporation dated April 7, 1997
 
           (b)  Reports on Form 8-K

                Report dated February 21, 1997 reporting Asset Purchase
                Agreement of Current Technology, Inc.

                                       15
<PAGE>
 
                              BUFFTON CORPORATION
                                        
                                   SIGNATURES
                                   ----------



Pursuant to 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.



                                     BUFFTON CORPORATION
                                     (Registrant)



                                     By:  /s/ Robert H. McLean
                                         -------------------------------------
                                              Chairman of the Board
                                              and President
May 14, 1997
------------



                                     By:  /s/ Robert Korman
                                         -------------------------------------
                                              Vice President and
                                              Chief Financial Officer

May 14, 1997
------------

                                       16