<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 June 30, 1997

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

                          Commission file number  0-19891

                                 SCHULER HOMES, INC.
                (Exact name of registrant as specified in its charter)

                  Delaware                                99-0293125
           (State or jurisdiction of                   (I.R.S. employer
         incorporation or organization)                identification no.)

                           828 Fort Street Mall, Suite 400
                             Honolulu, Hawaii  96813-4321
                 (Address of principal executive offices) (Zip code)

                                    (808) 521-5661
                 (Registrant's telephone number, including area code)

                                    Not Applicable
                 (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
              ---                                              ---

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

                                                      Outstanding at
    Class of Common Stock                             July 31, 1997
    ---------------------                           ------------------
        $.01 par value                                  20,100,177

                                      
<PAGE>

                                 SCHULER HOMES, INC.

                                        INDEX


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Independent Accountants' Review Report. . . . . . . . . . . . . .   3

         Consolidated Balance Sheets - June 30, 1997 and
            December 31, 1996. . . . . . . . . . . . . . . . . . . . . . .   4

         Consolidated Statements of Income - Three and six months
            ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . .   5

         Consolidated Statements of Cash Flows - Six
            months ended June 30, 1997 and 1996. . . . . . . . . . . . . .   6

         Notes to Consolidated Financial Statements. . . . . . . . . . . .   7

Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations. . . . . . . . .  11

PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .  19

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

                                          2
<PAGE>
                        INDEPENDENT ACCOUNTANTS' REVIEW REPORT


The Board of Directors and Stockholders
Schuler Homes, Inc.

We have reviewed the accompanying interim consolidated balance sheet of 
Schuler Homes, Inc. as of June 30, 1997, and the related consolidated 
statements of income for the three-month and six-month periods ended June 30, 
1997 and 1996, and the consolidated statements of cash flows for the 
six-month periods ended June 30, 1997 and 1996.  These financial statements 
are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the 
American Institute of Certified Public Accountants.  A review of interim 
financial information consists principally of applying analytical procedures 
to financial data, and making inquiries of persons responsible for financial 
and accounting matters.  It is substantially less in scope than an audit 
conducted in accordance with generally accepted auditing standards, which 
will be performed for the full year with the objective of expressing an 
opinion regarding the financial statements taken as a whole.  Accordingly, we 
do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that 
should be made to the accompanying interim consolidated financial statements 
referred to above for them to be in conformity with generally accepted 
accounting principles.  See Note 1.

We have previously audited, in accordance with generally accepted auditing 
standards, the consolidated balance sheet of Schuler Homes, Inc. as of 
December 31, 1996, and the related consolidated statements of income, 
stockholders' equity, and cash flows for the year then ended (not presented 
herein) and in our report dated March 7, 1997, we expressed an unqualified 
opinion on those consolidated financial statements.  In our opinion, the 
information set forth in the accompanying consolidated balance sheet as of 
December 31, 1996, is fairly stated, in all material respects, in relation to 
the consolidated balance sheet from which it has been derived.

                                                      ERNST & YOUNG LLP


Honolulu, Hawaii
August 12, 1997

                                      3
<PAGE>

                                 SCHULER HOMES, INC.
                             CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                    June 30, 1997    December 31, 1996
                                                    -------------    -----------------
                                                     (unaudited)
ASSETS
<S>                                                <C>               <C>
Cash and cash equivalents (Note 2) . . . . . . .   $    506,000          $  1,619,000
Receivables  . . . . . . . . . . . . . . . . . .        915,000               425,000
Prepaid income taxes . . . . . . . . . . . . . .      2,810,000             2,604,000
Amount due from affiliate (Note 5) . . . . . . .         19,000                26,000
Real estate inventories (Note 3) . . . . . . . .    291,068,000           236,569,000
Investments in unconsolidated joint ventures . .     11,657,000            11,611,000
Deposits . . . . . . . . . . . . . . . . . . . .        200,000               483,000
Deferred offering costs. . . . . . . . . . . . .      1,285,000             1,399,000
Notes receivable (Note 2). . . . . . . . . . . .      2,095,000             3,944,000
Deferred income taxes. . . . . . . . . . . . . .      5,235,000             7,356,000
Intangibles (Note 7) . . . . . . . . . . . . . .     14,103,000                    --
Other assets . . . . . . . . . . . . . . . . . .      3,750,000             1,122,000
                                                   ------------          ------------
Total assets . . . . . . . . . . . . . . . . . .   $333,643,000          $267,158,000
                                                   ------------          ------------
                                                   ------------          ------------
</TABLE>

<TABLE>
<CAPTION>
                                                       June 30, 1997  December 31, 1996
                                                       -------------  -----------------
                                                        (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                     <C>            <C>
Accounts payable . . . . . . . . . . . . . . . . . . .  $  2,363,000      $    593,000
Accrued expenses . . . . . . . . . . . . . . . . . . .     8,804,000         6,910,000
Notes payable to banks (Note 4). . . . . . . . . . . .   103,900,000        44,690,000
Note payable to others (Note 3). . . . . . . . . . . .     1,675,000               ---
6-1/2% convertible subordinated debentures due 2003. .    57,500,000        57,500,000
                                                        ------------    --------------
Total liabilities. . . . . . . . . . . . . . . . . . .   174,242,000       109,693,000

Commitments and contingencies (Notes 4 and 9)

Stockholders' equity (Note 10):
   Common stock, $.01 par value; 30,000,000 shares
     authorized; 20,874,177 shares issued at
     June 30, 1997 and December 31, 1996 . . . . . . .       209,000           209,000
   Additional paid-in capital. . . . . . . . . . . . .    93,096,000        93,096,000
   Retained earnings . . . . . . . . . . . . . . . . .    71,096,000        69,160,000
   Treasury stock, at cost; 774,000 shares at
     June 30, 1997 and December 31, 1996 . . . . . . .    (5,000,000)       (5,000,000)
                                                        ------------    --------------

Total stockholders' equity . . . . . . . . . . . . . .   159,401,000       157,465,000
                                                        ------------    --------------

Total liabilities and stockholders' equity . . . . . .  $333,643,000      $267,158,000
                                                        ------------    --------------
                                                        ------------    --------------

</TABLE>
                            See accompanying notes.
                                      4
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                         Three months ended June 30,      Six months ended June 30,
                                                         ---------------------------     --------------------------
                                                            1997           1996           1997            1996 
                                                            ----           ----           ----            ----
                                                               (unaudited)                    (unaudited)
<S>                                                      <C>           <C>             <C>            <C>
Residential real estate sales. . . . . . . . . . . .     $52,457,000   $ 29,820,000    $102,452,000   $ 49,785,000

Costs and expenses . . . . . . . . . . . . . . . . .                                  
  Residential real estate sales. . . . . . . . . . .      42,021,000     24,010,000      83,485,000     40,223,000
  Inventory impairment loss  . . . . . . . . . . . .             ---     23,910,000             ---     23,910,000
  Selling and commissions. . . . . . . . . . . . . .       4,303,000      2,263,000       7,766,000      3,806,000
  General and administrative . . . . . . . . . . . .       3,379,000      1,121,000       6,299,000      2,027,000
                                                         -----------   ------------    ------------   ------------
    Total costs and expenses . . . . . . . . . . . .      49,703,000     51,304,000      97,550,000     69,966,000
                                                                                      
Income from unconsolidated joint ventures. . . . . .           9,000         12,000          16,000        100,000
                                                         -----------   ------------    ------------   ------------
                                                                                      
  Operating income (loss). . . . . . . . . . . . . .       2,763,000    (21,472,000)      4,918,000    (20,081,000)
Other income (expense) . . . . . . . . . . . . . . .        (898,000)        40,000      (1,797,000)       201,000
                                                         -----------   ------------    ------------   ------------
                                                                                      
  Income (loss) before provision for income taxes. .       1,865,000    (21,432,000)      3,121,000    (19,880,000)
Provision (credit) for income taxes (Note 6) . . . .         706,000     (8,358,000)      1,185,000     (7,754,000)
                                                         -----------   ------------    ------------   ------------
                                                                                      
  Net income (loss). . . . . . . . . . . . . . . . .     $ 1,159,000   $(13,074,000)   $  1,936,000   $(12,126,000)
                                                         -----------   ------------    ------------   ------------
                                                         -----------   ------------    ------------   ------------
                                                                                      
Net income (loss) per share (Note 8):                                                 
  Primary. . . . . . . . . . . . . . . . . . . . . .        $   0.06       $  (0.63)       $   0.10       $  (0.58)
                                                         -----------   ------------    ------------   ------------
                                                         -----------   ------------    ------------   ------------
  Fully diluted. . . . . . . . . . . . . . . . . . .        $   0.06       $  (0.63)       $   0.10       $  (0.58)
                                                         -----------   ------------    ------------   ------------
                                                         -----------   ------------    ------------   ------------

</TABLE>
                  
                            See accompanying notes.

                                      5
<PAGE>

SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Six months ended June 30,
                                                                                        --------------------------
                                                                                            1997          1996
                                                                                        -----------    -----------
                                                                                               (unaudited)
<S>                                                                                     <C>           <C>
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,936,000   $(12,126,000)
Adjustments to reconcile net income to net cash provided by. . . . . . . . . . . . .
  operating activities:
     Inventory impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . .            ---     23,910,000
     Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . .        573,000         94,000
     Income from unconsolidated joint ventures . . . . . . . . . . . . . . . . . . .          7,000       (111,000)
     Sales financed by Company . . . . . . . . . . . . . . . . . . . . . . . . . . .       (262,000)      (653,000)
     Principal payments of notes receivable. . . . . . . . . . . . . . . . . . . . .      1,615,000        105,000
Changes in assets and liabilities, net of effects from purchase of Melody Homes
  and Mortgage:
     Decrease in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .        619,000        141,000
     (Increase) decrease in prepaid income taxes . . . . . . . . . . . . . . . . . .       (206,000)       320,000
     (Increase) in real estate inventories . . . . . . . . . . . . . . . . . . . . .    (13,860,000)   (31,566,000)
     Decrease in deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        283,000        951,000
     (Increase) in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,039,000)      (839,000)
     (Decrease) in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . .     (3,004,000)      (494,000)
     Increase in accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . .      2,344,000        726,000
     Change in deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . .      2,121,000     (8,345,000)
                                                                                        -----------    -----------
     Net cash provided by (used in) operating activities . . . . . . . . . . . . . .     (8,873,000)   (27,887,000)

INVESTING ACTIVITIES
Payment for purchase of Melody Homes and Mortgage, net of cash acquired. . . . . . .    (29,508,000)           ---
Advances to unconsolidated joint venture . . . . . . . . . . . . . . . . . . . . . .       (122,000)    (3,076,000)
Repayments of advances to unconsolidated joint venture . . . . . . . . . . . . . . .         70,000      2,612,000
Capital distributions from unconsolidated joint venture. . . . . . . . . . . . . . .            ---         24,000
Purchase of furniture, fixtures, and equipment . . . . . . . . . . . . . . . . . . .       (344,000)       (17,000)
                                                                                        -----------    -----------
     Net cash provided by (used in) investing activities . . . . . . . . . . . . . .    (29,904,000)      (457,000)

FINANCING ACTIVITIES
Proceeds from bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . .    105,191,000     77,143,000
Principal payments on bank borrowings. . . . . . . . . . . . . . . . . . . . . . . .    (67,648,000)   (53,884,000)
Advances to affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (48,000)       (62,000)
Repayment of advances to affiliate . . . . . . . . . . . . . . . . . . . . . . . . .         55,000         63,000
Net decrease in deferred offering costs. . . . . . . . . . . . . . . . . . . . . . .        114,000        115,000
Reacquisition of the Company's common stock. . . . . . . . . . . . . . . . . . . . .            ---       (315,000)
                                                                                        -----------    -----------
     Net cash provided by (used in) financing activities . . . . . . . . . . . . . .     37,664,000     23,060,000
                                                                                        -----------    -----------

Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,113,000)    (5,284,000)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .      1,619,000      6,147,000
                                                                                        -----------    -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . .    $   506,000    $   863,000
                                                                                        -----------    -----------
                                                                                        -----------    -----------
</TABLE>
                          See accompanying notes
                                      6
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  General

    The accompanying unaudited consolidated financial statements have been
    prepared in accordance with generally accepted accounting principles for
    interim financial information and with the instructions to Form 10-Q and
    Article 10 of Regulation S-X.  Accordingly, they do not include all of the
    information and footnotes required by generally accepted accounting
    principles for complete financial statements.  In the opinion of
    management, all adjustments (consisting of normal recurring adjustments)
    considered necessary for a fair presentation have been included.

    These financial statements should be read in conjunction with the Notes to
    Consolidated Financial Statements for the year ended December 31, 1996
    contained in the Company's 1996 annual report on Form 10-K.

    The Company has experienced, and expects to continue to experience,
    significant variability in quarterly sales and net income.  The results of
    any interim period are not necessarily indicative of the results that can
    be expected for the entire year.

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the
    financial statements and the reported amounts of revenues and expenses
    during the reporting period.  Actual results could differ from those
    estimates.

    The Company entered into an interest-rate swap agreement to modify the
    interest characteristics of its outstanding debt.  This agreement involves
    the exchange of amounts based on a fixed interest rate for amounts based on
    variable interest rates over the life of the agreement without an exchange
    of the notional amount upon which the payments are based.  The differential
    to be paid or received as interest rates change is accrued and recognized
    as an adjustment of interest incurred related to the debt (the accrual
    accounting method).  The fair value of the swap agreement is not
    recognized in the financial statements. In the event of the termination of
    the interest-rate swap agreement, gains and losses would be deferred as an
    adjustment to the carrying amount of the outstanding debt and amortized as
    an adjustment to interest incurred related to the debt over the remaining
    term of the original contract life of the terminated swap agreement.  In
    the event of the early extinguishment of a designated debt obligation, any
    realized or unrealized gain or loss from the swap would be recognized in
    income coincident with the extinguishment.

2.  Notes Receivable

    Notes receivable consist primarily of notes receivable on seller financed
    sales of residential units and residential lots.  The notes provide for
    terms and conditions similar to those offered by financial institutions and
    are collateralized by the residential units and residential lots sold.
    Certain of the notes are collateralized by second mortgages relating to
    home buyers who purchased homes as part of the Company's "zero-down" sales
    program.  Revenue and profit recognition on such transactions are deferred
    until the down payment requirement for revenue and profit recognition is
    satisfied.  In March 1997, the Company sold second mortgage notes of
    approximately $2,500,000, resulting in the recognition of sales and gross
    profit of approximately $11,303,000 and $817,000 (net of discount and
    collection reserve relating to sale), respectively (includes five sales
    which closed during the first quarter of 1997).  The collection reserve
    results in a restriction on the Company's cash in the amount of
    approximately $506,000.  Cumulative revenue and gross profit remaining
    deferred on such transactions as of June 30, 1997 are $6,096,000 and
    $785,000, respectively.

3.  Real Estate Inventories

    Inventories which are substantially completed are carried at the lower of
    cost or fair value less cost to sell.  Fair value is determined by applying
    a risk adjusted discount rate to estimates of future cash flows.  In
    addition, land held for future development or inventories under current
    development are adjusted to fair value, only if an impairment to their
    value is indicated.

    The estimates of future cash flows require significant judgment relating to
    the level of sales prices, rate of new home sales, amount of marketing
    costs and price discounts needed in order to stimulate sales, rate of
    increase in the cost of building materials and labor, introduction of
    building code modifications, and level of consumer confidence, among
                                      7
<PAGE>

    other items.  Accordingly, there exists at any date, a reasonable 
    possibility that changes in estimates will occur in subsequent periods.

    Real estate inventories at June 30, 1997 consist of the following:

       Unimproved land held for future development . . . . . . .   62,971,000
       Development projects in progress. . . . . . . . . . . . .  174,620,000
       Completed inventory (including lots held for sale). . . .   53,477,000
                                                                 ------------
                                                                 $291,068,000
                                                                 ------------
                                                                 ------------

    Completed inventory includes residential units which are substantially
    ready for occupancy.

    The Company has a note payable to a land seller with a principal balance of
    $1,675,000 at June 30, 1997, which relates to land purchased for future
    residential development.  The note is secured by a mortgage on the
    purchased land.

4.  Notes Payable to Banks

    At June 30, 1997, $33,700,000 of the Company's line of credit is unused, of
    which $178,000 is restricted as to withdrawal for project expenses and
    $3,026,000 is restricted as to withdrawal for outstanding but unused
    letters of credit.

    In March 1997, the Company amended its Credit Agreement, increasing the
    unsecured revolving line of credit facility from $110,000,000 to
    $137,600,000.  The facility expires on July 1, 1999 and includes an option
    for the lenders to extend the term for an additional year.  The Company can
    select an interest rate based on either LIBOR (1, 2, 3 or 6 month term) or
    prime for each borrowing.  Based on the Company's leverage ratio, as
    defined,  the interest rate may vary from LIBOR plus 1.5% to 2% or prime
    plus 0% to 0.25%.  At June 30, 1997, the Company's outstanding borrowings
    were at interest rates of LIBOR plus 1.75% (7.5% ) and prime plus 0%
    (8.5%).  The Company's ability to draw upon its line of credit is dependent
    upon meeting certain financial ratios and covenants.

    The Company paid interest (relating to notes payable to bank and the
    convertible subordinated debentures) of approximately $1,993,000 during the
    quarter ended June 30, 1997.  Interest incurred during the quarter ended
    June 30, 1997 totaled $2,978,000, of which approximately $2,272,000 was
    capitalized to real estate inventories and approximately $706,000 was
    expensed (included in Other income (expense)) and not capitalized.  The
    difference between the amount of interest paid and the amount incurred is
    comprised of accrued interest payable.  Interest, previously capitalized to
    real estate inventories, expensed as a component of cost of residential
    real estate sales during the quarter ended June 30, 1997 totaled
    $1,435,000.

5.  Related Party Transactions

    The Company charged $19,000 for the quarter ended June 30, 1997 to James K.
    Schuler & Associates, Inc. (an affiliate) under the management agreement
    entered into between the Company and James K. Schuler & Associates, Inc.,
    pursuant to which certain management and administrative personnel of the
    Company will perform certain functions for James K. Schuler & Associates,
    Inc., to be reimbursed by James K. Schuler & Associates, Inc.  At June 30,
    1997, the $19,000 was included in Amount Due from Affiliate.  Subsequent to
    June 30, 1997, the receivable was paid in full.

    From time to time, the Company engages the law firms in which directors of
    the Company are partners.  During the quarterly period ended June 30, 1997,
    legal fees of approximately $33,000 to such firms were incurred by the
    Company.

6.  Income Taxes

    During the three months ended June 30, 1997, the Company paid income taxes
    of $235,000.
                                      8
<PAGE>

7.  Acquisition of Melody Homes, Inc. and Melody Mortgage Company

    On January 8, 1997, the Company completed the acquisition of the common
    stock of Melody Homes, Inc., a Colorado homebuilder, and Melody Mortgage
    Company, a mortgage brokerage firm for Melody home buyers.  The
    consideration of approximately $24,100,000 (excludes $4,000,000 of the
    covenant-not-to-compete paid to certain former Melody shareholders and
    certain other acquisition related costs) consisted of cash, in addition to
    liabilities assumed of approximately $26,500,000.  The transaction has been
    accounted for under the purchase method of accounting, wherein goodwill and
    a covenant-not-to-compete in the combined amount of approximately
    $14,500,000 has been recognized by the Company after recording other
    purchase adjustments necessary to allocate the purchase price to the value
    of assets acquired and liabilities assumed.  Goodwill and the
    covenant-not-to-compete are being amortized over a 20-year period.
    Accumulated amortization at June 30, 1997 is approximately $362,000.

    In connection with his consultation services relating to the acquisition of
    Melody, the Company paid a fee of $90,000 to Mr. Martin T. Hart, a member
    of the Company's Board of Directors.  Combined revenue for Melody Homes,
    Inc. and Melody Mortgage Company was approximately $97,000,000 for the year
    ended June 30, 1996.

8.  Net Income (Loss) Per Share

    Primary earnings per share for the quarter and six-month period ended June
    30, 1997 were computed using the weighted average number of common shares
    outstanding during the periods of 20,100,177.  Primary earnings per share
    for the quarter and six-month period ended June 30, 1996 were computed
    using the weighted average number of common shares outstanding during the
    periods of 20,865,307 and 20,869,742, respectively.

    The computation of fully diluted earnings per share for the quarters and
    six-month periods ended June 30, 1997 and 1996 resulted in amounts greater
    than the primary earnings per share.  Accordingly, the primary earnings per
    share is also presented as the fully diluted earnings per share.

    In February 1997, the Financial Accounting Standards Board issued Statement
    No. 128, EARNINGS PER SHARE, which is required to be adopted on December
    31, 1997.  At that time, the Company will be required to change the method
    currently used to compute earnings per share and restate all prior periods.
    Under the new requirements for calculating primary earnings per share, the
    dilutive effect of stock options will be excluded.  The impact of Statement
    No. 128 on the calculation of primary and fully diluted earnings per share
    for the quarters and six-month periods ended June 30, 1997 and 1996 is not
    material.

9.  Commitments and Contingencies

    At June 30, 1997, the Company had under contract to purchase for
    approximately $1,028,000, land for residential development.

    The Company is from time to time involved in routine litigation or
    threatened litigation arising in the ordinary course of its business.  Such
    matters, if decided adversely to the Company, would not, in the opinion of
    management, have a material adverse effect on the financial condition of
    the Company.

    In April 1996, the Company was served with a lawsuit by owners of units and
    the Association of Owners of Fairway Village at Waikele, who sought to have
    a class of all owners certified.  The complaint alleges material
    construction defects and deficiencies, misrepresentation regarding the cost
    of insurance, breach of covenant of good faith and fair dealing, among
    other allegations.  The complaint does not specify an amount of damages,
    but includes a claim for punitive damages, among other claims.  However,
    this litigation is at an early stage of discovery.   Based upon its current
    understanding of the lawsuit, the Company believes (at this early stage of
    litigation) the claims to be largely without merit, or that meritorious
    defenses, together with potential third party defendants and insurance
    coverage, exist to offset a material portion of the related claims.  The
    Court has denied the motion to certify the class, and the litigation
    continues to be vigorously defended.   However, if this lawsuit were
    decided adversely to the Company, it could have a material adverse effect
    on the Company's business, financial condition and operating results.

                                      9
<PAGE>

10. Stockholders' Equity

    During the first quarter of 1997, options to purchase approximately 222,500
    shares of common stock were approved to be granted.  In addition, a plan
    was approved to permit option holders to effectively reprice certain of
    their outstanding options (covering up to an aggregate of approximately
    271,000 shares of common stock).  This plan would allow option holders to
    receive new options for the same number of shares covered by their existing
    options at an exercise price equal to $5.625.  Any such new options would
    be subject to a new vesting schedule and the existing options would be
    canceled.

11. Subsequent Event

    On July 31, 1997 the Company (through a new wholly-owned subsidiary, SHLR
    of Washington, Inc., incorporated in the state of Washington) acquired a
    49% interest in a homebuilder in the state of Washington.  The Company has
    an option to purchase the remaining 51% interest, subject to certain
    contingencies.  In connection with this acquisition, the Company entered
    into an agreement to make revolving loans to the acquiree in an aggregate
    principal amount of up to $5,000,000.


                                      10
<PAGE>

                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION AND RESULTS OF OPERATIONS


    Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties.  The Company's actual results may differ materially from the
results discussed in the forward-looking statements.  Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in the Company's Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission from
time to time.

OVERVIEW

    For the quarter ended June 30, 1997, sales of residential real estate
(revenue) were $52.5 million  and operating income was $2.8 million, compared to
revenues of $29.8 million and an operating loss of $21.5 million during the
second quarter last year.  Net income was $1.2 million ($0.06 per share) for the
quarter ended June 30, 1997.   During the 1996 second quarter, the Company
posted a net loss of $13.1 million, which includes a non-cash after-tax charge
of $14.6 million in conjunction with Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of".

    For the first half of 1997, the Company reported sales of residential real
estate of $102.5 million, compared to sales of $49.8 million during the first
half of 1996.  Net income was $1.9 million or $0.10 per share during the six
months ended June 30, 1997, as compared to net loss of $12.1 million or $0.58
per share during the same period in the prior year.  Excluding the impact of the
inventory impairment loss in the second quarter of 1996, net income was $1.5
million or $0.07 per share during the second quarter of 1996 and $2.5 million or
$0.12 per share during the first half of 1996.

    On January 8, 1997, the Company acquired Melody Homes, Inc., a leading 
homebuilder and 43-year old company in the Denver metropolitan area of 
Colorado, and Melody Mortgage Company, a mortgage brokerage firm for Melody 
home buyers. The Company's Colorado operations have positively impacted the 
Company's 1997 financial results with strong sales rates and margins, while 
the Company's Hawaii operations and financial results continue to reflect 
weaknesses in Hawaii's market and resulting declines in homes sales rates, 
prices and profit margins.  The  Company anticipates that the Hawaii 
division's financial results will continue to be adversely affected by fewer 
closings of home sales, lower revenues and reduced margins in 1997 as 
compared to 1996.

    On July 31, 1997, the Company acquired a 49% interest in Stafford Homes
(Stafford), a homebuilder in the greater Seattle/Puget Sound area of Washington
state.  The Company has an option to purchase the remaining 51% interest in
Stafford, subject to certain contingencies.  The Stafford homebuilding
companies, founded by Brien Stafford in 1967, focus primarily on the
entry-level, and first and second move-up markets.


                                      11
<PAGE>

    The following table sets forth, for the periods indicated, the percentage 
of the Company's sales represented by each income statement line item 
presented.

<TABLE>
<CAPTION>
                                                     Three months ended June 30,   Percentage Change in
                                                     ---------------------------   Dollar Amounts From
                                                         1997           1996          1996 to 1997
                                                         ----           ----          ------------
<S>                                                  <C>            <C>             <C>
Residential real estate sales. . . . . . . . . . . .     100.0%         100.0%          75.9%
Costs and expenses 
   Residential real estate sales . . . . . . . . . .      80.1           80.5           75.0
   Inventory impairment loss . . . . . . . . . . . .       ---           80.2         (100.0)
   Selling and commissions . . . . . . . . . . . . .       8.2            7.6           90.1
   General and administrative. . . . . . . . . . . .       6.4            3.7          201.4
                                                      --------      ---------
      Total costs and expenses . . . . . . . . . . .      94.7          172.0           (3.1)
Income from unconsolidated joint ventures. . . . . .       ---            ---          (25.0)
                                                      --------      ---------
   Operating income (loss) . . . . . . . . . . . . .       5.3          (72.0)         112.9
Other income (expense) . . . . . . . . . . . . . . .      (1.7)           0.1       (2,345.0)
                                                      --------      ---------
Income (loss) before provision for income taxes. . .       3.6          (71.9)         108.7
Provision (credit) for income taxes. . . . . . . . .       1.4          (28.0)         108.4
                                                      --------      ---------
   Net income (loss) . . . . . . . . . . . . . . . .       2.2%         (43.9)%          108.9
                                                      --------      ---------
                                                      --------      ---------

</TABLE>
<TABLE>
<CAPTION>
                                                     Three months ended June 30,   Percentage Change in
                                                     ---------------------------   Dollar Amounts From
                                                         1997           1996          1996 to 1997
                                                         ----           ----          ------------
<S>                                                  <C>            <C>             <C>
Percentage Change in Dollar Amounts From
1996 to 1997

Residential real estate sales. . . . . . . . . . . .     100.0%         100.0%            105.8%
Costs and expenses  
   Residential real estate sales . . . . . . . . . .      81.5           80.8             107.6
   Inventory impairment loss . . . . . . . . . . . .       ---           48.0            (100.0)
   Selling and commissions . . . . . . . . . . . . .       7.6            7.6             104.0
   General and administrative. . . . . . . . . . . .       6.1            4.1             210.8
                                                      --------      ---------
      Total costs and expenses . . . . . . . . . . .      95.2          140.5              39.4
Income from unconsolidated joint ventures. . . . . .       ---            0.2             (84.0)
                                                      --------      ---------
   Operating income (loss) . . . . . . . . . . . . .       4.8          (40.3)            124.5
Other income (expense) . . . . . . . . . . . . . . .      (1.8)           0.4            (994.0)
                                                      --------      ---------
Income (loss) before provision for income taxes. . .       3.0          (39.9)            115.7
Provision (credit) for income taxes. . . . . . . . .       1.1          (15.6)            115.3
                                                      --------      ---------
   Net income (loss) . . . . . . . . . . . . . . . .      1.9%         ( 24.3)%           116.0
                                                      --------      ---------
                                                      --------      ---------

</TABLE>
                                      12
<PAGE>
RESULTS OF OPERATIONS

SALES OF RESIDENTIAL REAL ESTATE

    The Company's sales of residential real estate (revenue) increased during 
the quarter and six months ended June 30, 1997 as compared to the same 
periods in 1996, primarily reflecting a larger number of sales closed in 1997 
at lower average sales prices than in 1996.  The increased number of closings 
came solely from the Colorado division (acquired in January of 1997), as the 
number of sales closed in the Hawaii division declined in 1997 as compared to 
1996.  The average revenue recognized per unit in 1997 is lower than in 1996 
primarily due to (1) the lower average sales prices of homes in Colorado as 
compared to homes in Hawaii, and (2) the increased level of price discounts 
and sales incentives offered to prospective home buyers in Hawaii.

    The Company's sales of residential real estate for the quarter ended June 
30, 1997 were approximately $52.5 million as compared to approximately $29.8 
million during the quarter ended June 30, 1996.  This represents an increase 
of approximately $22.6 million or 75.9%.  For the second quarter of 1997, the 
revenues are related to 324 sales closed (excludes 5 sales closed by the 
Company's joint ventures and 7 sales closed under the Company's "zero-down" 
sales program) during the quarter.  The average revenue recognized was 
$162,000 per unit for the second quarter of 1997 compared to the 1996 second 
quarter average of $239,000.  Revenue and profit recognition on "zero-down" 
sales are deferred until the down payment requirement for revenue and profit 
recognition is satisfied.

    The Company's sales of residential real estate (revenues) were $102.5 
million for the six months ended June 30, 1997, compared to $49.8 million 
during the same period in 1996, an increase of 105.8%.  For the first six 
months of 1997, the revenues include approximately $10.1 million related to 
53 sales that closed in 1996 under the Company's "zero-down" sales program, 
for which the second mortgage notes were sold during the 1997 first quarter.  
Pre-tax profit of $762,000 was recognized in connection with the sale of the 
53 second mortgages.  Revenue and profit recognition on these "zero-down" 
sales was deferred in 1996 until the requirements for revenue and profit 
recognition were satisfied, which occurred during the first quarter of 1997.  
The average revenue recognized was $176,000 per unit for the first six months 
of 1997, compared to the first six months of 1996 average of $233,000.

    The following table sets forth the number of sales closed during the 
quarter and six months ended June 30, 1997 and 1996, which includes closings 
of homes and lots sold pursuant to the Company's "zero-down" sales program 
and 100% of the sales closed at projects developed by the Company's 50% owned 
joint ventures.

                Three months ended June 30,     Six months ended June 30,
                ---------------------------     -------------------------

--------------------------------------------------------------------------------
                   1997            1996            1997            1996
                   ----            ----            ----            ----
Hawaii               89             153             162             252
Colorado            247              --             414              --
                   ----            ----            ----            ----
Total               336             153             576             252
                   ----            ----            ----            ----
                   ----            ----            ----            ----
--------------------------------------------------------------------------------

    The number of Hawaii home sales closed in the first six months of 1997 
has declined as compared to the first six months of 1996, primarily as a 
result of the reduction in home sales rates during the periods, which have 
been declining since 1994.  The Company believes the reduction in the rate of 
new home sales to be the result of the general uncertainty of prospective 
home buyers as to, and to their lack of confidence in, Hawaii's economy.  
Although the Company believes that the Hawaiian economy has shown signs of 
recovery, particularly in the tourism industry, the Company's rate of new 
home sales has not improved.  The Company anticipates that the Hawaii 
division's financial results will continue to be adversely affected by fewer 
closings of home sales, lower revenues and reduced margins in 1997 as 
compared to 1996.

    During 1995 and 1996, Hawaii's unemployment rate has been higher than the
national average.  Jobs in Hawaii declined by approximately 0.5% to 2.0% per
year from 1992 through 1996.  Any increases in Hawaii's unemployment rate or
continued lack of job growth may further adversely affect future demand for new
homes.
                                      13
<PAGE>

In addition, increases in mortgage rates impact the home buyer's ability to 
qualify for mortgage loans, which could adversely affect demand for new 
homes.  Increases in mortgage rates may also reduce the sales price ceilings 
established on homes which are subject to governmentally imposed affordable 
housing requirements in Hawaii.  The affordable prices are generally 
determined at a price at which a purchaser earning up to 140% of the local 
median income is able to satisfy specified mortgage criteria.

COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES

    Cost of residential real estate sales represents the acquisition and 
development costs for a particular phase of a project attributable to the 
homes sold in that phase.  Acquisition and development costs primarily 
include land acquisition costs, sitework and construction payments to 
contractors, engineering and architectural costs, loan fees, interest and 
other indirect costs attributable to development and project management 
activities and miscellaneous construction costs.

    Cost of residential real estate sales increased to approximately $42.0 
million during the quarter ended June 30, 1997 from approximately $24.0 
million during the same period in 1996, representing an increase of 
approximately $18.0 million or 75.0%.   This increase in the second quarter 
of 1997 as compared to the second quarter of 1996 is primarily the result of 
the increased number of home sales closed in the second quarter of 1997 as 
compared to the second quarter of 1996.

    Cost of residential real estate sales as a percentage of sales of 80.1% 
in the second quarter of 1997 was relatively comparable to the 80.5% in the 
second quarter of 1996, and reflects higher profit margins realized in the 
Company's Colorado division offset by lower profit margins realized by Hawaii 
projects as a result of the higher level of price discounts and sales 
incentives offered to prospective home buyers in Hawaii. The Company 
anticipates that an increased level of price discounts and sales incentives 
offered by its Hawaii division will continue to affect its operating results 
in future periods and no assurances can be given that they will not increase 
to even greater levels than reached in the past.

    The cost of residential real estate sold increased from approximately 
$40.2 million during the six months ended June 30, 1996 to approximately 
$83.5 million during the same period in 1997, representing an increase of 
approximately $43.3 million or 107.6%, primarily reflecting the larger volume 
of home sales closed in 1997 as compared to 1996.

    The cost of residential real estate sold as a percentage of sales 
increased from 80.8% for the six months ended June 30, 1996 to 81.5% for the 
six months ended June 30, 1997.  The increase in the cost of residential real 
estate sold as a percentage of sales reflects higher margins realized by the 
Colorado division offset by the lower margins realized by the Hawaii division 
including the impact of  the recognition of costs related to the 53 
"zero-down" sales deferred in 1996 and recognized in the first quarter of 
1997 as a result of the sale of the related second mortgages.

    Total interest incurred during each of the quarters ended June 30, 1997 
and 1996 was approximately $3.0 million and $2.1 million, respectively.   All 
amounts incurred were, except for approximately $706,000 in the second 
quarter of 1997,  capitalized to development projects.  Interest capitalized 
to projects is expensed through cost of residential real estate sales as 
sales are closed and revenue is recognized in the particular project.

    Average debt outstanding was approximately $164.4 million and $120.3 
million during the second quarters of 1997 and 1996, respectively.  The 
Company's average interest rate on its debt for the quarters ended June 30, 
1997 and 1996 was approximately 7.3% and 6.9%, respectively.  The Company's 
notes payable bear interest based on prime or LIBOR.  Changes in the prime or 
LIBOR rates will affect the amount of interest being capitalized to inventory 
and subsequently expensed through cost of residential real estate sales as 
sales are closed and revenue is recognized.

COSTS AND EXPENSES - INVENTORY IMPAIRMENT LOSS

    During the fourth quarter of 1995, the Company changed its method of 
accounting for the carrying amount of its real estate inventories by adopting 
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets 
and for Long-Lived Assets to be Disposed of."  Under the new standard, 
inventories which are substantially completed are carried at the lower of 
cost or fair value less cost to sell.  Fair value is determined by applying a 
risk adjusted discount rate to estimates of future cash flows, resulting in a 
lower value than under the net realizable value method previously required.  
In addition, land held for future development or inventories under current 
development are adjusted to fair value, only if an impairment to their value 
is indicated.

                                      14
<PAGE>
    The estimates of future cash flows require significant judgment relating 
to the level of sales prices, rate of new home sales, amount of marketing 
costs and price discounts needed in order to stimulate sales, rate of 
increase in the cost of building materials and labor, introduction of 
building code modifications, and level of consumer confidence in Hawaii's 
economy, among other items. Accordingly, there exists at any date, a 
reasonable possibility that changes in estimates will occur in subsequent 
periods.

    The financial results for the second quarter of 1996 included a non-cash 
charge pursuant to FASB Statement No. 121.  The FASB Statement No. 121 
non-cash charge had a net after-tax impact of $14.6 million or $0.70 per 
share in the second quarter of 1996, resulting in a net after-tax loss of 
$13.1 million or $0.63 per share for the quarter and a net loss of $12.1 
million or $0.58 per share for the six month period.  The second quarter 1996 
charge relates principally to the Company's completed inventories at June 30, 
1996.  While the Company had been working to reduce completed inventories in 
its projects, the then current real estate environment and other factors 
dictated that the Company adopt a more conservative outlook with respect to 
the future performance of its completed inventories.  The Company's completed 
inventories increased during the second quarter of 1996 primarily due to the 
substantial completion of the second high-rise building at the Company's 
Country Club Village project located in Salt Lake on Oahu.  The Company has 
postponed the construction of the third and last high-rise building in order 
to reduce completed inventories in this project in the future.

COST AND EXPENSES - SELLING AND COMMISSIONS

    Sales and marketing costs represented approximately 8.2% and 7.6% of 
sales of residential real estate during the quarters ended June 30, 1997 and 
1996, respectively.  Such costs represented approximately  7.6% of 
residential real estate sales during the six months ended June 30, 1997 and 
1996.  The increase in the second quarter of 1997 is a result of increases in 
the level of selling and commission costs in Hawaii.

COSTS AND EXPENSES - GENERAL AND ADMINISTRATIVE

    General and administrative expense includes salaries, office and other 
administrative costs.  Indirect costs attributable to specific projects are 
capitalized and deducted as part of cost of residential real estate sales.

    General and administrative expenses increased by $2.3 million or 201.4% 
during the second quarter of 1997 and by  $4.3 million or 210.8% during the 
first half of 1997 as compared to the same periods in 1996 primarily due to 
the addition of the Colorado division and the start-up of operations in 
Northern California and the Pacific Northwest.  As a percentage of sales, 
general and administrative expense increased from 3.7% during the quarter 
ended June 30, 1996 to 6.4% during the quarter ended June 30, 1997 and from 
4.1% during the first half of 1996 to 6.1% during the first half of 1997, 
which is a result of the same items mentioned in the preceeding sentence.

INCOME FROM UNCONSOLIDATED JOINT VENTURES

    Income from unconsolidated joint ventures primarily represents the 
Company's 50% interest in the operations of Waiakoa Estates Subdivision Joint 
Venture and Iao Partners, the joint ventures developing the Waiakoa Kai 
Estates and Iao Parkside projects, respectively.  The decrease in this income 
from the first half of 1996 to the same period in 1997 is primarily the 
result of the closing of fewer homes during the first half of 1997 as 
compared to the comparable period in 1996, and lower profit margins realized 
for the Iao Parkside project during the first half of 1997 as compared to the 
first half of 1996.

OTHER INCOME (EXPENSE)

    Other income (expense) is primarily composed of interest income of 
$90,000 and $40,000 earned on cash balances and notes receivable during the 
quarters ended June 30, 1997 and 1996, respectively, offset in the 1997 
second quarter by a) approximately $754,000 of financing costs (primarily 
including interest of $706,000) expensed and not capitalized resulting from 
the acquisition of Melody Homes and Mortgage and reduced construction 
activity in Hawaii, and b) amortization of goodwill and the 
covenant-not-to-compete of $178,000 also associated with the acquisition of 
Melody Homes and Mortgage.

    Other income (expense) is primarily composed of interest income earned on 
cash balances and notes receivable during
                                      15
<PAGE>

the six months ended June 30, 1997 and 1996, respectively, offset in the 
first six months of 1997 by the same items mentioned in the preceding 
paragraph.

PROVISION (CREDIT) FOR INCOME TAXES

    The Company's effective income tax rate for the second quarters of 1997 
and 1996 was approximately 37.9% and 39%, respectively.    The lower 
effective tax rate in the second quarter of 1997 primarily reflects the lower 
Colorado state income tax rate as compared to Hawaii's state income tax rate. 
VARIABILITY OF RESULTS

    The Company has experienced, and expects to continue to experience, 
significant variability in sales and net income.  For example, the Company's 
sales of residential real estate for each of the four quarters ended December 
31, 1995, ranged from approximately $26.8 million to $39.5 million and for 
each of the four quarters ended December 31, 1996, ranged from approximately 
$20.0 million to $29.8 million.  The Company's net income (loss) for each of 
the four quarters ended December 31, 1995, ranged from a net loss of 
approximately  $3.1 million (after giving effect to the $5.7 million 
after-tax charge relating to FASB 121) to net income of $4.7 million and for 
each of the four quarters ended December 31, 1996, ranged from a net loss of 
approximately $13.1 million (after giving effect to the $14.6 million 
after-tax charge relating to FASB 121) to net income of $948,000.  Factors 
that contribute to variability of the Company's results include:  the timing 
of home closings, a substantial portion of which historically have occurred 
in the last month of each quarter; the Company's ability to continue to 
acquire additional land on favorable terms for future developments;  the 
condition of the real estate markets and economies in states in which the 
Company operates;  the cyclical nature of the homebuilding industry and 
changes in prevailing interest rates;  costs of material and labor; and  
delays in construction schedules caused by timing of inspections and approval 
by regulatory agencies, including zoning approvals and receipt of 
entitlements, the timing of completion of necessary public infrastructure, 
the timing of utility hookups and adverse weather conditions.  The Company's 
historical financial performance is not necessarily a meaningful indicator of 
future results and, in general, the Company's financial results will vary 
from development to development.

    The Company's recent expansion to markets in the mainland United States 
further exposes the Company to risks inherent in those markets.  For example, 
as a result of the Company's acquisition of Melody, it will encounter 
construction issues and risks such as expansive soils and extreme seasonal 
weather conditions (dissimilar to those encountered in Hawaii).

    The Company will continue to consider its expansion into additional 
selected residential housing markets in the United States mainland and into 
certain foreign countries and into other related industries.  The Company has 
and would consider the acquisition of or joint venture with an existing 
company, as well as its own acquisition and development of homebuilding 
projects in certain areas, in order to facilitate its expansion.  No 
assurances can be given that the Company will be able to successfully 
establish operations outside of its existing Hawaiian markets or that such 
expansion will not adversely affect its results of operations.

BACKLOG

    The Company's homes are generally offered for sale in advance of their 
construction upon applicable regulatory approval and sold pursuant to 
standard sales contracts.  The Company's standard sales contract may be 
canceled by the buyer at any time prior to closing.  The Company does not 
recognize revenues on homes covered by such contracts until the sales are 
closed.  Homes covered by such sales contracts are considered by the Company 
as its backlog.

    The following table sets forth the Company's backlog (for both homes and 
residential lots) at June 30, 1997 and 1996, which includes homes and lots 
sold pursuant to the Company's "zero-down" sales program and 100% of the 
backlog related to projects developed by the Company's 50% owned joint 
ventures.

                                    June 30, 1997     June 30, 1996
                                    -------------     -------------

                                      16
<PAGE>
                                     Aggregate               Aggregate
                          Number    Sales Value   Number    Sales Value
                          ------    -----------   ------    ------------
Hawaii                      106      25,336,000      155     36,003,000
Colorado                    383      57,294,000      ---            ---
Pacific Northwest             2         345,000      ---            ---
                          ------    -----------   ------    ------------
Total                       491     $82,975,000      155    $36,003,000
                          ------    -----------   ------    ------------
                          ------    -----------   ------    ------------

    The Company has observed an increase in its historical cancellation rates 
in Hawaii, which the Company believes to be attributable to uncertainty of 
prospective home buyers as to, and to their general lack of confidence in, 
the Hawaiian economy.  The Company's historical cancellation experience 
(which prior to 1995 had been nominal) may not be indicative of cancellations 
in future periods.

    The average sales prices of the homes and lots comprising backlog at June 
30, 1997 and 1996 were $169,000 and $232,000, respectively.   The decrease in 
average sales prices primarily reflects the lower average sales prices in 
Colorado, as compared to Hawaii and the increased level of sales price 
discounts and sales incentives offered in Hawaii.  Due to the ability of 
buyers to cancel their sales contracts, no assurances can be given that homes 
or residential lots in backlog will result in actual closings.  Backlog data 
includes 100% of the backlog of Waiakoa Estates Subdivision Joint Venture and 
Iao Partners, the Company's two joint ventures developing the Waiakoa Kai 
Estates and Iao Parkside projects, respectively.

LIQUIDITY AND CAPITAL RESOURCES

    In March 1997, the Company amended its Credit Agreement, increasing the 
unsecured revolving line of credit facility from $110 million to $137.6 
million, and adding Bank One, Arizona, N.A. to the lending group.  The 
facility expires on July 1, 1999 and includes an option for the lenders to 
extend the term for an additional year.  The Company can select an interest 
rate based on either LIBOR (1, 2, 3 or 6 month term) or prime for each 
borrowing.  Based on the Company's leverage ratio, as defined, the interest 
rate may vary from LIBOR plus 1.5% to 2% or prime  plus 0% to 0.25%.  The 
Company's current rate is LIBOR plus 1.75% or prime plus 0%. The Company's 
ability to draw upon its line of credit is dependent upon meeting certain 
financial ratios and covenants.   At July 31, 1997, the Company had bank 
notes payable of approximately $108.9 million.

    On January 8, 1997, the Company completed the acquisition of Melody 
Homes, Inc. ("Melody"), a homebuilder in the Denver metropolitan area of 
Colorado, and Melody Mortgage Company, a mortgage brokerage firm for Melody 
home buyers.  The Company funded the purchase and refinanced a portion of 
Melody's loans using its unsecured revolving line of credit facility.  Upon 
the finalization of the increase in the Company's unsecured revolving line of 
credit, all of Melody's loans were refinanced by the Company's line of credit.

    The Company has a note payable to a land seller with a principal balance 
of approximately $1.7 million at June 30, 1997, which relates to land 
purchased for future residential development.  The note is secured by a 
mortgage on the purchased land.

    Companies in the homebuilding industry are generally highly leveraged and
require significant up-front expenditures.  Accordingly, the Company incurs
substantial indebtedness to finance its homebuilding and development activities.
At June 30, 1997, the Company had bank notes payable of approximately $103.9
million.  Peak outstanding debt, including bank borrowings and the Convertible
Subordinated Debentures, during the quarter ended June 30, 1997 was $170.9
million. In order to service these obligations and fund its ongoing operations,
the Company has used proceeds from its initial public offering, the offering of
convertible subordinated debentures, secondary offering of common stock, cash
flow from operations, its available bank credit facilities and financing by
sellers of land purchased.  The Company's business and earnings are
substantially dependent on its ability to obtain debt financing on acceptable
terms.  Although the Company has in the past been able to obtain credit
facilities on acceptable terms and believes virtually all of its currently
planned construction projects will be funded by a combination of cash flow from
operations and bank or other financing, no assurance can be given that it will
be able to obtain such bank or other debt financing or that any such financing
will be on terms acceptable to the Company.  Further, the availability of
borrowed funds to homebuilders, especially for land acquisition and construction
financing, has been
                                      17
<PAGE>

severely restricted and in some cases eliminated entirely. In compliance with 
federal guidelines, certain lenders are now requiring increased equity 
commitments by borrowers in connection with both new loans and the extension 
of existing loans.

    The Company believes that cash flow from operations, and borrowings under 
its credit facilities will provide adequate cash to fund the Company's 
operations at least through 1997.

    At July 31, 1997, the Company has a commitment to purchase a parcel of 
land for approximately $1 million, including land to be acquired for 
development by the Company.  The Company expects to utilize a combination of 
cash flow from operations and bank financing to purchase the land parcel.  
The Company intends to consummate the purchase of the land parcel in 1997.  
However, no assurances can be given that the purchase will be completed or 
that the land under purchase option will be acquired.

    On July 31, 1997 the Company (through a new wholly-owned subsidiary, SHLR 
of Washington, Inc., incorporated in the state of Washington) acquired a 49% 
interest in a homebuilder in the state of Washington.  The Company has an 
option to purchase the remaining 51% interest, subject to certain 
contingencies.  In connection with this acquisition, the Company entered into 
an agreement to make revolving loans to the acquiree in an aggregate 
principal amount of up to $5 million.

    Certain of the Company's currently planned projects, as well as future 
projects, are anticipated to be longer term in nature than those developed in 
the past by the Company.  The increased length of such projects further 
exposes the Company to the risks inherent in the homebuilding industry, 
including reductions in the value of land inventory.

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<PAGE>

                                 SCHULER HOMES, INC.

                             PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

    The Company is from time to time involved in routine litigation or
    threatened litigation arising in the ordinary course of its business.  Such
    matters, if decided adversely to the Company, would not, in the opinion of
    management, have a material adverse effect on the financial condition of
    the Company.

    In April 1996, the Company was served with a lawsuit by owners of units and
    the Association of Owners of Fairway Village at Waikele, who sought to have
    a class of all owners certified.  The complaint alleges material
    construction defects and deficiencies, misrepresentation regarding the cost
    of insurance, breach of covenant of good faith and fair dealing, among
    other allegations.  The complaint does not specify an amount of damages,
    but includes a claim for punitive damages, among other claims.  However,
    this litigation is at an early stage of discovery.   Based upon its current
    understanding of the lawsuit, the Company believes (at this early stage of
    litigation) the claims to be largely without merit, or that meritorious
    defenses, together with potential third party defendants and insurance
    coverage, exist to offset a material portion of the related claims.  The
    Court has denied the motion to certify the class, and the litigation
    continues to be vigorously defended.   However, if this lawsuit were
    decided adversely to the Company, it could have a material adverse effect
    on the Company's business, financial condition and operating results.

Items 2 and 3.  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

(a) The Company held an Annual Meeting of Stockholders on May 23, 1997.

(b) At the Annual Meeting of Stockholders, the following directors were
elected:

        Pamela S. Jones
        Martin T. Hart

(c) At the Annual Meeting of Stockholders, the following matters were voted
upon:

    (1)  A proposal to ratify the selection of Ernst & Young LLP as 
         independent auditors for fiscal year 1997.

         Affirmative votes: 20,060,148
         Negative votes: 10,700
         Abstain: 1,000

    (2)  A proposal to elect Pamela S. Jones to the board of directors.
         Affirmative votes: 20,056,048
         Withhold authority: 15,800

    (3)  A proposal to elect Martin T. Hart to the board of directors.
         Affirmative votes: 20,056,048
         Withhold authority: 15,800

Item 5.  Not applicable.

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

    (a)  Exhibits.

          Exhibit Number            Document Description
          --------------            --------------------

              27.1                  Financial Data Schedule.

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<PAGE>

    (b)  Reports on Form 8-K.  There were no reports on Form 8-K for the
         quarter ended June 30, 1997.

                                 SCHULER HOMES, INC.

                                      SIGNATURES


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 thereto duly authorized.

                                  SCHULER HOMES, INC.

Date: August 12, 1997             By:  /s/ James K. Schuler
                                       --------------------------
                                  James K. Schuler
                                  Chairman of the Board,
                                  President and Chief Executive Officer
                                  (principal executive officer)



Date: August 12, 1997             By:  /s/ Pamela S. Jones
                                       --------------------------
                                  Pamela S. Jones
                                  Senior Vice President of Finance,
                                  Chief Financial Officer and
                                  Director (principal financial officer)



Date: August 12, 1997             By:  /s/ Douglas M. Tonokawa
                                       --------------------------
                                  Douglas M. Tonokawa
                                  Vice President of Finance,
                                  Chief Accounting Officer
                                  (principal accounting officer)

                                      20