================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                -----------------
                                    FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]


FOR THE TRANSITION PERIOD FROM_______________ TO ________________

                          COMMISSION FILE NO 001-12211

                        ECHELON INTERNATIONAL CORPORATION
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)
             

                 FLORIDA                                   59-2554218
----------------------------------------        -------------------------------
        (State of incorporation)                        (I.R.S. Employer
     One Progress Plaza, Suite 1500                  Identification Number)
      St. Petersburg, Florida 33701                 Telephone (727) 803-8200
(Address of principal executive offices)        (Registrant's telephone number)


     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 registrant's
classes of common stock, as of the latest practicable date.

     Common stock, par value $.01 per share, 6,681,943 shares, as of November 
13, 1998


================================================================================


<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


                                                                                    PAGE
                                                                                    ----
<S>           <C>                                                                   <C>
PART I.

    Item 1.   Financial Statements...............................................     2

    Item 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations..........................................    13

    Item 3.   Quantitative and Qualitative Disclosures about Market Risk.........    25


PART II.

    Item 4.   Submission of Matters to a Vote of Security Holders................    25

    Item 5.   Other Information..................................................    25

    Item 6.   Exhibits and Reports on Form 8-K...................................    25


Signatures.......................................................................    26
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        ECHELON INTERNATIONAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                                                              SEPTEMBER 30,  DECEMBER 31,
                                                                                 1998          1997
                                                                              ------------   -----------
                                                                              (UNAUDITED)
                                                                         (IN MILLIONS, EXCEPT SHARE AMOUNTS)
                                     ASSETS
<S>                                                                              <C>          <C>   
REAL ESTATE, LEASES, LOANS & OTHER INVESTMENTS:
Real estate, net (Note 2) ...............................................        $171.7       $115.1
Aircraft under operating lease (net of accumulated depreciation of
  $9.2 and $8.4 million, respectively) ..................................           3.3          4.1
Leases and loans receivable, net (Note 3) ...............................         198.4        196.3
Investments in and advances to unconsolidated partnerships (Note 7) .....          22.5         47.2
                                                                                  ------       -----
                                                                                  395.9        362.7
                                                                                 ------        -----
ASSETS HELD FOR SALE (Note 4) ...........................................           2.3          2.5
                                                                                 ------       -----
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $1.1 million
  and $1.5 million, respectively) .......................................           9.4          7.8
Marketable securities ...................................................          22.2         42.0
Accounts receivable, net ................................................           1.0          1.2
Current portion of leases and loans receivable ..........................          43.6         39.8
Inventories, at cost ....................................................            .9          1.1
Other ...................................................................            .9          1.7
                                                                                 ------        -----
          Total current assets ..........................................          78.0         93.6
                                                                                 ------        -----

OTHER NON-CURRENT ASSETS ................................................           2.6          1.7
                                                                                 ------        -----
          Total assets ..................................................        $478.8       $460.5
                                                                                 ======        =====
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities ..................................        $ 11.0       $  6.1
Accounts and interest payable to former parent ..........................          --            1.3
Current portion of funding for limited partnership investments (Note 7) .           4.9          9.5
Current portion of deferred income taxes ................................          14.1          8.4
Current portion of long-term debt (Note 5) ..............................          12.7         12.2
                                                                                 ------        -----
          Total current liabilities .....................................          42.7         37.5

LONG-TERM DEBT (Note 5) .................................................          85.7         64.9
DEFERRED INCOME TAXES ...................................................         133.0        145.8
OTHER LIABILITIES .......................................................            .4          3.2

COMMITMENTS AND CONTINGENCIES (Note 10) ................................
                                                                                 ------        -----
          Total liabilities .............................................         261.8        251.4
                                                                                 ------        -----
STOCKHOLDERS' EQUITY (Note 6):
Preferred stock, $.01 par value, 10,000,000 shares authorized,
  none issued ...........................................................          --          --
Common stock, $.01 par value, 25,000,000 shares authorized,
  6,884,181 issued and  6,811,243 outstanding in 1998, and 6,785,241
  issued and 6,716,722 outstanding in 1997 ..............................            .1           .1
Additional paid in capital ..............................................         281.7        279.5
Retained deficit ........................................................         (62.1)       (70.5)
Unrealized gain (loss) on available-for-sale securities, net of tax .....           (.2)         1.5
Treasury stock, at cost (72,938 shares in 1998 and 68,519 shares in 1997)          (1.6)        (1.5)
Unearned compensation ...................................................           (.9)        --
                                                                                 ------        -----
          Total stockholders' equity ....................................         217.0        209.1
                                                                                 ------        -----
          Total liabilities and stockholders' equity ....................        $478.8       $460.5
                                                                                 ======        =====
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                        ECHELON INTERNATIONAL CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                    THREE MONTHS               NINE MONTHS
                                                                                 ENDED SEPTEMBER 30,       ENDED SEPTEMBER 30,
                                                                             ----------------------    ----------------------
                                                                                1998       1997          1998         1997
                                                                             --------    ---------     --------    ----------
                                                                                     (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

                                                                                                   (UNAUDITED)
<S>                                                                          <C>         <C>           <C>         <C>     
SALES AND REVENUES:
Real estate operations:
    Rental, other operations and marina revenues .......................     $    6.5    $    5.9      $   16.4    $   16.6
    Sales of development properties and development rights .............         --            .5           3.1          .8
    Equity in losses of limited partnership investments ................         (1.1)        (.2)         (1.7)       (1.0)
Leasing and lending operations:
    Earned income on finance and operating leases ......................          2.2         1.3           4.4         3.6
    Interest income ....................................................          1.0         1.4           3.2         5.5
    Equity in earnings of unconsolidated partnerships ..................           .2          .8           2.7         3.0
    Gain on sale of loans ..............................................         --          --            --           4.1
Investment income and realized gain on sale of investments .............           .5          .9           3.5         2.5
                                                                               ------      ------        ------      ------

                                                                                  9.3        10.6          31.6        35.1
                                                                               ------      ------        ------      ------

OPERATING EXPENSES:
Rental, other operations and marina expenses ...........................          4.3         4.7           9.6        12.4
Cost of development properties and development rights sold .............         --            .5           1.6          .8
Depreciation ...........................................................          1.7         1.1           4.4         3.6
Provision for (recovery of) lease, real estate and loan losses .........         --          --            (1.6)        (.7)
Interest expense on long-term debt, net of amounts capitalized .........          1.5         1.9           4.1         7.1
General and administrative .............................................           .9         1.2           6.0         4.9
Other (income) expenses, net ...........................................          (.1)        (.4)          (.1)       (1.8)
                                                                               ------      ------        ------      ------

                                                                                  8.3         9.0          24.0        26.3
                                                                               ------      ------        ------      ------

INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ......................          1.0         1.6           7.6         8.8

INCOME TAX (BENEFIT) EXPENSE ...........................................          (.3)         .2          --           1.3
                                                                               ------      ------        ------      ------

INCOME BEFORE EXTRAORDINARY ITEM                                                  1.3         1.4           7.6         7.5
EXTRAORDINARY ITEM:
    Gain on settlement of debt, net of income tax expense of $.4 million           .8        --              .8        --
    Loss on extinguishment of debt, net of income tax benefit
       of $.1 million and $.5 million, respectively ....................         --           (.1)         --           (.9)
                                                                               ------      ------        ------      ------

NET INCOME .............................................................     $    2.1    $    1.3      $    8.4    $    6.6
                                                                               ======      ======        ======      ======
Basic earnings per common share:
    Income before extraordinary item ...................................     $    .19    $    .20      $   1.12    $   1.10
    Extraordinary item, net of tax .....................................          .12        (.01)          .12        (.13)
                                                                                ------      ------        ------      ------

    Net income per common share ........................................     $    .31   $     .19     $    1.24   $     .97
                                                                                ======      ======        ======      ======

Diluted earnings per common share:
    Income before extraordinary item ...................................     $    .19   $     .20     $    1.10   $    1.10
    Extraordinary item, net of tax .....................................          .12        (.01)          .12        (.13)
                                                                                ------      ------        ------      ------

    Net income per common share ........................................     $    .31   $     .19     $    1.22   $     .97
                                                                                ======      ======        ======      ======

Basic weighted average shares of common stock outstanding ..............          6.8         6.8           6.8         6.8
                                                                                ======      ======        ======      ======

Diluted weighted average shares of common stock outstanding ............          6.9         6.8           6.9         6.8
                                                                                ======      ======        ======      ======
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                        ECHELON INTERNATIONAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                   NINE MONTHS
                                                                                ENDED SEPTEMBER 30,
                                                                                -------------------
                                                                                   1998      1997
                                                                                --------   --------
                                                                                   (IN MILLIONS)
                                                                                    (UNAUDITED)
<S>                                                                             <C>        <C>    
OPERATING ACTIVITIES:
     Net income ...........................................................     $   8.4    $   6.6
     Adjustment to reconcile net income to cash provided by operating
         activities:
         Depreciation and amortization of financing costs .................         4.6        4.3
         Extraordinary (gain) loss on (settlement) extinguishment of debt .        (1.2)       1.4
         Deferred income taxes ............................................        (7.1)      (6.2)
         Amortization related to finance leases ...........................        (1.8)      (1.2)
         Provision for (recovery of) lease, loan and real estate losses ...        (1.6)       (.7)
         Stock-based compensation expense .................................          .7        --
         Gain on sale of assets ...........................................        (3.5)      (4.2)
         Equity in income of unconsolidated partnerships, net .............        (1.0)      (2.0)
         Changes in working capital:
              Accounts payable and other liabilities ......................         5.5       (4.3)
              Other working capital changes ...............................         1.2        2.4
         Other ............................................................         (.5)       4.6
                                                                                  -----      -----

                                                                                    3.7         .7
                                                                                  -----      -----
INVESTING ACTIVITIES:
     Purchases of marketable securities ...................................        (7.9)     (57.1)
     Proceeds from sales of marketable securities .........................        26.7       15.6
     Proceeds from sales and collections of leases and loans ..............        18.4       76.5
     Real estate property additions and other capital expenditures ........       (62.0)      (7.8)
     Net proceeds from sales of real estate properties, development rights
       and assets held for sale ...........................................         3.1         .4
     Contributions to unconsolidated partnerships .........................        (7.5)      (7.3)
     Distributions from unconsolidated partnerships .......................         6.5        9.6
                                                                                  -----      -----

                                                                                  (22.7)      29.9
                                                                                  -----      -----
FINANCING ACTIVITIES:
     Issuance of long-term debt ...........................................        25.2       --
     Repayment of long-term debt ..........................................        (4.4)     (74.2)
     Issuance of common stock .............................................          .2       --
     Debt issuance costs ..................................................         (.3)      --
     Purchase of treasury stock ...........................................         (.1)      --
                                                                                  -----      -----

                                                                                   20.6      (74.2)
                                                                                  -----      -----

Net increase (decrease) in cash and equivalents ...........................         1.6      (43.6)
BEGINNING CASH AND EQUIVALENTS ............................................         7.8       63.3
                                                                                  -----      -----
ENDING CASH AND EQUIVALENTS ...............................................     $   9.4    $  19.7
                                                                                  =====      =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest, net of amounts capitalized .............................     $   4.0    $   6.7
                                                                                  =====      =====
         Income taxes, net of refunds .....................................     $   6.9    $   7.1
                                                                                  =====      =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING &
   FINANCING ACTIVITIES:
     Distribution of note receivable by unconsolidated affiliate ..........     $  --      $   3.0
                                                                                  =====       =====
     Distribution of net assets by unconsolidated partnership .............     $  19.1    $  --
                                                                                  =====       =====
     Issuance of common stock related to LTIP .............................     $    .4    $  --
                                                                                  =====       =====
     Change in unrealized gain (loss) on available-for-sale securities,
       net of tax effect of  $1.0 million in both 1998 and 1997 ...........     $  (1.7)   $   1.9
                                                                                  =====      =====
     Delayed equity amortization on leveraged leases ......................     $   1.2    $   1.2
                                                                                  =====      =====
</TABLE>
       The accompanying notes are an integral part of these consolidated
                             financial statements.

                                      -4-
<PAGE>

                        ECHELON INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)  INTERIM FINANCIAL STATEMENTS

     In the opinion of management, the accompanying consolidated financial
statements include all adjustments deemed necessary to summarize fairly and
reflect the financial position and results of operations of Echelon
International Corporation ("Echelon" or the "Company") for the interim periods
presented. Results of the third quarter of 1998 are not necessarily indicative
of results for the full year. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.

     Certain amounts previously reported in the Form 10-Q for the three and nine
months ended September 30, 1997 have been reclassified to conform to the 1998
presentation.


(2)  REAL ESTATE

     The depreciable lives and carrying values of the Company's real estate are
as follows:
<TABLE>
<CAPTION>
                                                            DEPRECIABLE        SEPTEMBER 30,        DECEMBER 31,
                                                           LIVES (YEARS)           1998                 1997
                                                           -------------           ----                 ----
                                                                                (UNAUDITED)

                                                                                       (IN MILLIONS)
<S>                                                            <C>               <C>                   <C>    
     Real estate held for and under development:
         Land and land improvements....................                          $  37.1               $  31.7
         Construction in progress......................                             26.6                   3.8
                                                                                  ------               -------
                                                                                    63.7                  35.5
                                                                                  ------                ------
     Income producing real estate:
         Land and land improvements....................                             16.5                  15.2
         Buildings and improvements....................         5-40               107.1                  78.0
         Equipment and other...........................         3-10                 4.2                   2.9
                                                                                 -------               -------

                                                                                   127.8                  96.1
                                                                                   -----                ------

                                                                                   191.5                 131.6
     Less: accumulated depreciation....................                             19.8                  16.5
                                                                                  ------                ------

                                                                                  $171.7                $115.1
                                                                                   =====                 =====
</TABLE>

     Capitalized interest during the development of specific projects was $1.1
million and $.2 million during the nine months ended September 30, 1998 and the
year ended December 31, 1997, respectively.

                                      -5-

<PAGE>


(3)  LEASES AND LOANS RECEIVABLE

     At September 30, 1998 and December 31, 1997, investments in leases and
loans receivable are as follows:

                                                 SEPTEMBER 30,  DECEMBER 31,
                                                     1998          1997
                                                 ------------   -----------
                                                 (UNAUDITED)

                                                        (IN MILLIONS)
       Finance leases:
           Rentals receivable ............        $  177.6       $  169.2
           Unguaranteed residual values ..           106.9          105.6
           Guaranteed residual values ....             6.0            6.0
           Unearned income ...............           (56.9)         (56.4)
           Deferred investment tax credits           (12.2)         (13.3)
                                                    ------         ------

               Total finance leases ......           221.4          211.1

       Commercial finance loans receivable            39.1           45.1
       Allowance for losses ..............           (18.5)         (20.1)
                                                    ------         ------

                                                     242.0          236.1
       Less: current portion .............            43.6           39.8
                                                    ------         ------

                                                  $  198.4       $  196.3
                                                    ======         ======

     Finance leases consist of direct finance leases and leveraged lease
investments, primarily in aircraft. The majority of the leases have remaining
terms of 7 to 12 years, with one lease currently scheduled to mature in 20
years. Rentals receivable from leveraged leases represent unpaid rentals less
principal and interest on nonrecourse third-party debt. The Company's share of
rentals receivable is subordinate to the debt holders who have security
interests in the leased assets.

     The Company's commercial finance loans are secured by first mortgage liens
on the related commercial real estate or by security interests in aircraft.
These loans are further collateralized, where applicable, by an assignment to
the Company of the borrowers' lease agreements, and, in some cases, third party
guaranties.

     During June 1998, the Company received complete repayment on a $3.0 million
real estate loan that was considered to be impaired. As a result of the loan
payoff, Echelon reversed the $1.6 million allowance for losses on leases and
loans previously recorded.

     As of July 31, 1998, a joint venture in which Echelon had a 50% interest
was dissolved and the Company received net assets totaling $19.1 million. The
net assets were recorded by the Company and represent the components of a direct
finance lease for an aircraft leased to Continental Airlines through February
2002.

     During August 1998, the Company sold two aircraft engines which were in the
Company's leveraged lease portfolio. The sale of the aircraft engines and the
termination of the leveraged lease resulted in after-tax income of $.4 million
to the Company.

     On November 3, 1998, the Company executed an extension and rate adjustment
on a direct finance lease for the aircraft leased to Southwest Airlines. The
lease was originally scheduled to mature in June 2004. The amended lease
agreement will extend the maturity of the lease through June 2008. The lease
extension was negotiated in order to utilize the lease as collateral for the
funding of the Company's open market Common Stock buyback. Any remaining
proceeds will be used to fund the development projects currently in the
Company's pipeline. See further discussion of the loan in Note 5, "Long-Term
Debt" and the Company's open market Common Stock buyback in Note 13, "Subsequent
Events".

                                      -6-

<PAGE>


(4)  ASSETS HELD FOR SALE

     During the quarter ended September 30, 1998, the Company sold property
classified as an asset held for sale at its net book value of $.2 million.

(5)  LONG-TERM DEBT

     The Company's long-term debt outstanding is as follows:
<TABLE>
<CAPTION>
                                                                 INTEREST        SEPTEMBER 30,        DECEMBER 31,
                                                                   RATE              1998                 1997
                                                                   ----              ----                 ----
                                                                                  (UNAUDITED)

                                                                                           (IN MILLIONS)

<S>                                                              <C>                 <C>                  <C>  
     Northwestern Mutual Life Insurance Company .......          6.98%               $55.6                $45.0
     Salomon Brothers Realty Corp......................          7.13%(a)             12.9                 13.0
     SouthTrust Bank...................................          7.26%(a)             13.6                  -
     Delayed equity obligation on finance lease........         10.00%                16.3                 18.5
     Other.............................................          -                    -                     0.6
                                                                                   -------                -----

                                                                                      98.4                 77.1
     Less: current portion of long-term debt...........                               12.7                 12.2
                                                                                      ----                 ----

                                                                                     $85.7                $64.9
                                                                                      ====                 ====
<FN>
     (a) Interest rate at September 30, 1998.
</FN>
</TABLE>

         In July 1997, the Company closed on a $16.5 million construction loan
at an interest rate of LIBOR plus 1.60% per annum which is being utilized to
fund development of ECHELON AT BAY ISLE KEY, a 369-unit multi-family residential
community on land the Company owns in the Gateway area of Tampa Bay, Florida.
During the nine months ended September 30, 1998, the Company made construction
draws on this loan totaling $13.6 million. The initial term of the construction
loan is two years, with the ability to extend the loan for an additional five
years from the completion of construction. Teacher's Insurance and Annuity
Association of America ("TIAA") has committed to provide the permanent financing
for this development, as discussed below.

     In April 1998, the Company closed on a $18.6 million construction loan at
an interest rate of LIBOR plus 1.50% per annum which will be utilized to fund
the development of ECHELON AT THE RESERVE, a 314-unit multi-family residential
community on land that the Company owns in CARILLON PARK in the Gateway area of
Tampa Bay, Florida. As of September 30, 1998, Echelon had not made any
construction draws on this loan. The Company will begin making construction
draws after the Company's initial equity funding of $6.2 million of the
construction costs, including a $2.2 million land contribution. The initial term
of the construction loan is three years, with the ability to extend the loan for
an additional two years from the completion of construction. TIAA has committed
to provide the permanent financing for this development, as discussed below.

     In May 1998, the Company executed an amendment to the Salomon Brothers
Realty Corp. loan which increased the amount of available credit on the existing
loan to $30.0 million and reduced the interest rate on the entire loan to LIBOR
plus 1.50% per annum. The loan is secured by Echelon's real estate loan
portfolio and a commercial property, BAYBORO STATION.
The entire loan matures May 2000 with the ability to extend through May 2002.

     In May 1998, the Company executed a commitment letter with AmSouth Bank for
a $50.0 million Advised Guidance Line of Credit. The proceeds from the line of
credit will be used to provide the construction financing for multi-family and
commercial projects in the Company's pipeline, as approved by AmSouth Bank. Each
project financed under the line of credit will be a separate loan. The interest
rate for each loan will be the lesser of the prime rate of interest or the LIBOR
rate plus a defined number of basis points per annum. The term for each
multi-family loan is 36 months and for each commercial loan is 30 months. The
repayment terms of the loans are interest only,

                                      -7-

<PAGE>


with the entire principal and any accrued interest due at the maturity of the
loans.

     To date, the Company has closed on three loans under the AmSouth Bank $50.0
million Advised Guidance Line of Credit Agreement discussed above. The first
loan, in the amount of $10.9 million, provides construction financing for
CASTILLE AT CARILLON. The second loan, in the amount of $11.3 million, provides
construction financing for ECHELON AT WOODLAND Park. A third loan, in the amount
of $17.2 million, provides construction financing for ECHELON AT NORTHLAKE. As
of September 30, 1998, the Company has not made any construction draws on these
loans.

     In May 1998, Echelon also executed a commitment letter with TIAA for a
$55.5 million loan at an interest rate of 7.15% per annum. The proceeds of the
loan are to be used for the permanent financing of four specific projects. The
loan is secured by the projects and funding will occur for each project based on
specific conditions. Each disbursement will constitute a separate loan that will
mature 10 years from the date of the first loan disbursement. The first loan
disbursement requires interest-only payments for the first 12 months and monthly
principal and interest payments based on a 30-year amortization schedule. The
remaining loans require monthly principal and interest payments based on a
30-year amortization schedule. Under the terms of the commitment, TIAA required
the Company to remit a refundable application fee. The Company negotiated to
provide stand-by letters of credit in lieu of the application fee, which will be
reduced as the loans are funded. As of September 30, 1998, Echelon has a total
of $1.1 million of certificates of deposits securing these letters of credit.
The Company has not closed on any loans with TIAA as of September 30, 1998.

     In August 1998, the Company closed on a loan amendment with Northwestern
Mutual Life Insurance Company which increased the amount of the existing loan by
$11.0 million and reduced the interest rate on the entire loan to 6.98% per
annum. The increase in the loan is secured by two commercial properties in
Echelon's real estate portfolio, CENTRAL STATION and MCNULTY PARKING GARAGE. The
entire loan matures seven years from the date of closing.

     In August 1998, the Company successfully negotiated a modification in an
agreement with the University of Florida Foundation, Inc. As a result of the
modification, a long-term debt obligation and related accrued interest were
cancelled, which resulted in a $.8 million after-tax extraordinary gain to the
Company. See further discussion included in Note 12, "Extraordinary Items".

     On November 3, 1998, the Company closed on a $13.0 million loan from Fleet
Capital Corporation. The loan is at a 5.99% fixed rate of interest and matures
June 2008. The proceeds of the loan will be used to fund the Company's open
market Common Stock buyback. Any remaining proceeds will be used to fund the
development projects currently in the Company's pipeline. The loan is secured
by Echelon's direct finance lease with Southwest Airlines, as discussed in Note
3, "Lease and Loans Receivable". See discussion of the Company's open market
Common Stock buyback included in Note 13, "Subsequent Events".

(6)  STOCKHOLDERS' EQUITY

     During the nine months ended September 30, 1998, the Company had the
following stockholders' equity related transactions:

/bullet/    Issuance of 90,181 shares of restricted Common Stock under the
            Echelon International Corporation Long-Term Incentive Plan ("LTIP")
            in accordance with executive employment contracts. In conjunction
            with the issuance of the restricted Common Stock, the Company
            recorded $1.6 million of unearned compensation and subsequently
            recognized $.7 million of compensation expense during the nine
            months ended September 30, 1998. The unearned compensation will be
            amortized as compensation expense over the vesting period of the
            restricted Common Stock.

/bullet/    Issuance of 146,500 stock options under the LTIP and the Echelon
            International Corporation 1996 Stock Option Plan ("SOP"). The stock
            options were granted at market value on the date of grant. The stock
            options granted under the LTIP are performance based options which
            cliff vest at the end of nine 

                                        -8-

<PAGE>


            years with a provision for early vesting if certain performance
            goals are achieved. The stock options granted under the SOP vest
            over five years.

/bullet/    Issuance of 6,921 shares of Common Stock in conjunction with the
            Echelon International Corporation Employee Stock Purchase Plan.

/bullet/    Issuance of 1,838 shares of Common Stock and 4,000 stock options
            under the Echelon International Corporation Non-Employee Directors'
            Stock Plan.

/bullet/    Repurchase of 4,419 shares of Common Stock, which resulted in
            additional treasury stock, at cost, of $.1 million.

     The net income and common shares used to compute basic and diluted earnings
per share is presented in the following table:
<TABLE>
<CAPTION>

                                                                THREE MONTHS           NINE MONTHS
                                                             ENDED SEPTEMBER 30,   ENDED SEPTEMBER 30,
                                                             ------------------    ------------------
                                                               1998       1997       1998      1997
                                                             ------      ------    ------     -------
                                                                (Unaudited)           (Unaudited)

                                                              (In millions, except per share amounts)
<S>                                                             <C>        <C>        <C>        <C>
BASIC
Weighted average number of shares:
    Average common shares outstanding                           6.8        6.8        6.8        6.8
                                                              =====      =====      =====      =====

Net income used to compute basic earnings per share:
    Net income                                              $   2.1    $   1.3    $   8.4    $   6.6
                                                              =====      =====      =====      =====

Basic earnings per common share                             $   .31    $   .19    $  1.24    $   .97
                                                              =====      =====      =====      =====

DILUTED
Weighted average number of shares:
    Average common shares outstanding                           6.8        6.8        6.8        6.8
    Dilutive effect for stock options and
       contingently issuable common shares                       .1        --          .1       --
                                                              -----      -----      -----      -----

    Weighted average shares                                     6.9        6.8        6.9        6.8
                                                              =====      =====      =====      =====

Net income used to compute diluted earnings per share:
    Net income                                              $   2.1    $   1.3    $   8.4    $   6.6
                                                              =====      =====      =====      =====

Diluted earnings per common share                           $   .31    $   .19    $  1.22    $   .97
                                                              =====      =====      =====      =====
</TABLE>

     See discussion of the Company's open market Common Stock buyback included
in Note 13, "Subsequent Events".

(7) CONDENSED STATEMENTS OF INCOME AND DISCLOSURES OF UNCONSOLIDATED
    PARTNERSHIPS

     As of July 31, 1998, a joint venture in which the Company had a 50%
interest was dissolved and the Company received net assets totaling $19.1
million. Presented below is summarized financial information for this aircraft
equipment and leasing joint venture for the three and nine months ended
September 30, 1998 and 1997, respectively. Amounts reflect 100% of the joint
venture's balances and results of its operations through July 31, 1998, the date
of dissolution.

                                      -9-

<PAGE>
<TABLE>
<CAPTION>

                                       THREE MONTHS ENDED                NINE MONTHS ENDED
                                          SEPTEMBER 30,                    SEPTEMBER 30,
                                       ------------------                ------------------
                                        1998         1997                1998         1997
                                        ----         ----                ----         ----
                                                           (In millions)
                                                            (Unaudited)
<S>                                     <C>          <C>                <C>          <C>   
     Revenues.......................    $294         $1,719             $5,369       $4,589

     Expenses.......................       5            129                 35          381
                                       -----         ------             ------       ------

     Net income.....................    $289         $1,590             $5,334       $4,208
                                         ===          =====              =====        =====
</TABLE>

     The joint venture's revenues for the nine months ended September 30, 1998
include a $3.2 million gain on the sale of two aircraft engines.

     The Company's investments in affordable housing investments through limited
partnerships range between a total ownership percentage of 7.1% to 11.6% as of
both September 30, 1998 and December 31, 1997. The Company accounts for its
investments in these limited partnerships by the equity method of accounting.
Echelon recorded losses of $1.7 million and $1.0 million on these investments
for the nine months ended September 30, 1998 and 1997, respectively.

     During 1997, Echelon signed commitments to provide total capital
contributions of $25.8 million to affordable housing tax credit limited
partnerships. Echelon had funded $13.4 million of these commitments as of
December 31, 1997 and has funded an additional $7.5 million of the commitments
during the nine months ended September 30, 1998.. The total commitments of $25.8
million are included as investments in unconsolidated partnerships in the
Company's consolidated balance sheets. As of September 30, 1998, remaining
commitments totaling $4.9 million are to be funded within one year and are
included in the current portion of funding for limited partnership investments
on the consolidated balance sheet. The Company's overall investment return
includes both the tax benefits resulting from the losses on these investments
and the realization of the housing tax credits on these investments.

(8)  EFFECTIVE INCOME TAX RATE

     The Company's effective income tax rate differs from the statutory income
tax rate primarily due to tax credits related to the Company's investment in
affordable housing limited partnerships, amortization of investment tax credits
related to the Company's leveraged lease portfolio, and differences in rates
between previously deferred taxes and current effective tax rates.

(9)  RELATED PARTY TRANSACTIONS

     In April 1998, the Board of Directors approved an interest-free loan
program for Executive Officers for the purpose of assisting the Executive
Officers in meeting tax liabilities associated with the lapse of restrictions on
restricted Common Stock. During May 1998, the Company funded $.3 million to two
Executive Officers in conjunction with this loan program. The promissory notes
from the Executive Officers mature in April 2003. The Company recognized $.1
million in salary expense in conjunction with the issuance of these promissory
notes.

(10) COMMITMENTS AND CONTINGENCIES

     The Company is subject to regulation with respect to the environmental
effects of its operations. The Company's disposal of hazardous waste through
third party vendors may result in costs to clean up facilities found to be
contaminated. Federal and state statutes authorize governmental agencies to
compel responsible parties to clean up certain abandoned or uncontrolled
hazardous waste sites. The Company may be responsible for environmental cleanup
at certain sites. Based on information currently available to the Company,
Echelon estimates that its share of liability for cleaning up these sites ranges
from $.1 million to

                                      -10-

<PAGE>


$1.0 million, and has reserved $.2 million for potential costs. Management
currently believes that the ultimate outcome of these matters will not have a
material adverse effect upon the Company's results of operations, financial
condition or liquidity.

     The Company is currently involved in the construction of several commercial
projects and multi-family residential communities and had outstanding
construction commitments with contractors with remaining amounts totaling $30.1
million at September 30, 1998.

     As of September 30, 1998, Echelon had a total of 10 contingent contracts,
letters of intent or joint venture agreements, subject to the Company's final
due diligence, to acquire land for the development of an estimated 2,792
multi-family residential units at an aggregate estimated development cost of
$250.0 million.

     Through a previous partnership, the Company remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
the former partnership. The contingent liability reduces over time as those who
were residents at the time of the sale of the Company's interest discontinue
their residency. If the current owners fail to perform their obligations and if
the partnership assets, consisting primarily of land and buildings, were
worthless, the Company could be liable for an additional $26.5 million as of
December 31, 1997. The Company considers the incurrence of this liability to be
remote based on asset values and the indemnification agreement from the current
owners to the Company.

(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting comprehensive
income. SFAS No. 130 defines comprehensive income as the change in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in a new financial statement
that is displayed with equal prominence as existing financial statements. The
Company adopted this standard as of January 1, 1998.
<TABLE>
<CAPTION>

                        STATEMENT OF COMPREHENSIVE INCOME

                                                                     THREE MONTHS        NINE MONTHS ENDED
                                                                  ENDED SEPTEMBER 30,    ENDED SEPTEMBER 30,
                                                                  -------------------    -------------------
                                                                     1998    1997           1998      1997
                                                                     ----    ----           ----      ----

                                                                                (In millions)
                                                                                 (Unaudited)
<S>                                                                  <C>     <C>            <C>      <C> 
     Net income                                                      $2.1    $1.3           $8.4     $6.6
                                                                      ---     ---            ---      ---
     Other comprehensive income, net of tax:
         Change in unrealized holding gain (loss) on available-
              for-sale securities during period.................     (.7)    1.0              .1      1.9
         Less: reclassification adjustment for realized
              gains included in net income......................      -       -             (1.8)     -
                                                                     ---     ---             ---     ---

              Other comprehensive income........................     (.7)    1.0           (1.7)     1.9
                                                                     ---     ---            ---      ---

         Comprehensive income                                       $1.4    $2.3           $6.7     $8.5
                                                                     ===     ===           ====      ===
</TABLE>

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company will be
required to adopt this standard for the quarter ended September 30, 1999 and
based on current circumstances, does not believe the application of the new
rules will have a material impact on the Company's consolidated financial
statements.

                                      -11-

<PAGE>


(12) EXTRAORDINARY ITEMS

     In August 1998, the Company successfully negotiated a modification in an
agreement with the University of Florida Foundation, Inc. ("Foundation"). As a
result of the modification, a $.6 million long-term debt obligation owed by the
Company and $.6 million of related accrued interest were cancelled by the
Foundation, resulting in a $.8 million after-tax extraordinary gain to the
Company. As a condition of the modification, Echelon constructed roads and other
infrastructure totaling $.6 million on Company-owned land in the Progress Center
Office Park. The infrastructure enhances both the Company's land and provides
additional access to Foundation-owned land.

     During the nine months ended September 30, 1997, the Company recorded an
after-tax extraordinary loss of $(.9) million on the write-off of $1.3 million
of financing costs related to the early extinguishment of debt.

(13) SUBSEQUENT EVENTS

     On October 8, 1998, Echelon announced that the Company's Board of Directors
authorized up to $15.0 million for the purchase of the Company's outstanding
Common Stock in both the open market and privately negotiated transactions, as
market conditions allow.

     As of November 13, 1998, the Company has repurchased and settled 129,300
shares of Common Stock, which results in additional treasury stock, at cost, of
$2.6 million.
                                      -12-


<PAGE>


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

OVERVIEW

     Echelon International Corporation is a real estate company which develops,
owns and manages commercial and multi-family residential real estate (the "Real
Estate Business"). The Company also owns and manages a portfolio of financial
assets consisting primarily of leased aircraft and other assets and
collateralized financing of commercial real estate and aircraft (the "Leasing
and Lending Business"). Echelon is continuing to withdraw from the aircraft and
real estate lending business to focus on its core real estate operations.

     Prior to December 18, 1996 ("Distribution Date"), the Company operated as a
wholly-owned subsidiary of Florida Progress Corporation ("Florida Progress").
Effective on the Distribution Date, Florida Progress distributed the Company's
stock to Florida Progress shareholders (one share of the Company for each
fifteen shares of Florida Progress) as a tax-free dividend (the "Distribution").
The Distribution established the Company as a publicly held corporation,
separate from Florida Progress.

     The Company's operations for the nine months ended September 30, 1998
include the following transactions related to the Company's ongoing multi-family
residential and commercial development activities:

/bullet/    The sale of 6.57 acres of land in CARILLON PARK for $2.7 million,
            resulting in a pre-tax gain of $1.1 million.

/bullet/    The purchase of the land for the development of ECHELON AT
            NORTHLAKE, a 256-unit multi-family residential community in Atlanta,
            Georgia, at a cost of $4.0 million. Construction of the development
            began in November 1998.

/bullet/    The purchase of the land for the development of ECHELON AT WOODLAND
            PARK, a 232-unit multi-family residential community in Tulsa,
            Oklahoma, at a cost of $1.0 million. Construction of the development
            began in September 1998.

/bullet/    The purchase of land for the development of ECHELON AT MEMORIAL
            CREEK, a 292-unit multi-family residential community in Tulsa,
            Oklahoma, at a cost of $1.6 million. Construction is planned to
            begin in the fourth quarter of 1998.

/bullet/    The ongoing construction of three multi-family residential
            communities, ECHELON AT BAY ISLE KEY and ECHELON AT THE RESERVE,
            both located in the Gateway Area of Tampa Bay, Florida, and ECHELON
            AT WOODLAND PARK, located in Tulsa, Oklahoma, and construction and
            tenant improvements on two commercial projects; MCNULTY PARKING
            GARAGE and CASTILLE AT CARILLON. Construction and tenant
            improvements on two additional projects, BAYBORO Station and CENTRAL
            STATION are complete as of September 30, 1998. Total capital
            expenditures for construction and tenant improvements were $61.0
            million during the nine months ended September 30, 1998.

     The Company's operations for the nine months ended September 30, 1998 also
include the following nonrecurring events and transactions:

/bullet/    The sale of two aircraft engines by Progress Potomac Capital
            Ventures ("PPCV"), in which Echelon had a 50% interest, for $5.7
            million, resulting in a pre-tax gain of $1.6 million to Echelon.

/bullet/    The collection of a real estate loan receivable from Madison
            Building, Inc. The loan receivable was originally scheduled to
            mature in November 1998. As a result of the loan payoff, Echelon
            reversed the $1.6 million allowance for losses on leases and loans
            previously recorded.

                                      -13-

<PAGE>


/bullet/    The payoff of a $2.3 million deferred rent note receivable from
            Continental Airlines. The deferred note receivable was originally
            scheduled to mature in 2000.

/bullet/    The receipt of $19.1 million in net assets from the dissolution of
            the PPCV joint venture in which Echelon had a 50% interest. The net
            assets represent the components of a direct finance lease for an
            aircraft leased to Continental Airline through February 2002.

/bullet/    The sale of two aircraft engines to United Technologies, Inc. and
            the termination of the related leveraged lease, resulting in
            after-tax income of $.4 million.

/bullet/    The settlement of a $.6 million long-term debt obligation and
            related accrued interest of $.6 million, resulting in an after-tax
            extraordinary gain of $.8 million.

     Because of the Company's on-going execution of targeted strategies,
including dispositions of non-strategic assets and pursuit of additional
strategic initiatives made possible by the earlier than expected repayment of
debt, the results of operations in the third quarter and first nine months of
1998 are not necessarily indicative of future results.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997

     Net income for the three and nine months ended September 30, 1998 was $2.1
million or $.31 for both basic and diluted earnings per share, and $8.4 million
or $1.24 basic and $1.22 diluted earnings per share, respectively. This compares
to net income of $1.3 million or $.19 basic and diluted earnings per share and
$6.6 million or $.97 basic and diluted earnings per share for the same periods
in 1997.

REVENUES

     Sales and revenues for the three and nine months ended September 30, 1998
decreased $1.3 million and $3.5 million, respectively, over the same periods in
1997. The decrease in sales and revenues is primarily due to the $4.1 million
decrease in gain on sale of loans for the nine months ended September 30, 1998
in comparison with the same period of 1997.

     Rental, other operations and marina revenues for first nine months of 1998
decreased $.2 million compared to the same period in 1997 primarily due to $3.2
million decrease in marina revenues resulting from the Company's decision to
discontinue the sale of boats as a component of marina operations. This decrease
is offset by a $3.0 million increase in rental revenues which resulted from an
overall increase in occupancy and rental rates for the Company's commercial
properties, the 100% occupancy of the Company's commercial properties completed
during 1998, BAYBORO STATION and CENTRAL STATION and the opening of the
Company's first multi-family residential community, ECHELON AT BAY ISLE KEY, in
late April 1998.

     Sales of development properties and development rights in the first nine
months of 1998 were $3.1 million compared to $.8 million in the first nine
months of 1997. The increase in the sales of development properties and
development rights resulted from the sales of land and development rights in
CARILLON PARK in the first nine months of 1998. The CARILLON PARK land sale was
to an existing owner for land contiguous to the owner's land holdings. The sale
of development rights in CARILLON PARK was also to an existing owner for further
development on the owner's land holdings. Echelon intends to develop much of the
unsold CARILLON PARK land for its own account and, if and when market conditions
warrant, to possibly market the remaining land to third parties.

                                      -14-

<PAGE>


     As part of Echelon's strategy to focus on real estate development, Echelon
has investments in affordable housing developments entitled to the benefits of
housing tax credits. The Company's overall investment return includes both the
tax benefits resulting from the losses on these investments and the realization
of the housing tax credits on these investments. Equity in losses of real estate
partnerships reduced revenue for each of the three and nine months ended
September 30, 1998 and 1997 by $1.1 million and $1.7 million, and $.2 million
and $1.0 million, respectively, as a result of the Company recording its share
of losses from housing tax credit limited partnerships. The Company recorded 
$.8 million and $2.1 million in tax credits for the three and nine months ended
September 30, 1998, respectively, as reduction of income tax expense.

     Earned income on finance and operating leases increased $.8 million for the
nine months ended September 30, 1998 as a result of the sale of two leveraged
lease aircraft engines. The sale of the aircraft engines and the termination of
the related leveraged lease resulted in additional revenues of $.6 million to
the Company. In addition, $.3 million of lease revenues were recorded from the
direct finance lease the Company received from the dissolution of a joint
venture as of July 31, 1998. Prior to July 31, 1998, the income from the joint
venture was reported in the "Equity in Earnings of Unconsolidated Partnerships"
income statement line item.

     Interest income from leasing and lending operations for the nine months
ended September 30, 1998 decreased by $2.3 million compared to the first nine
months of 1997 as a result of the sales and payoffs of loans receivable as the
Company continues to execute its strategy to liquidate non-strategic assets and
redirect the capital to real estate development and acquisition.

     Equity in earnings of unconsolidated partnerships decreased $.6 million and
$.3 million, respectively, in the three and nine months ended September 30, 1998
as compared to the same periods in 1997. The decrease for the three and nine
months ended September 30, 1998 is due primarily to the dissolution of the joint
venture partnership in which Echelon had a 50% interest as of July 31, 1998. The
decrease for the nine months ended September 30, 1998 is offset by the $1.6
million pretax gain on the sale of an asset in January 1998 in this joint
venture. Equity in earnings of unconsolidated partnerships in the first nine
months of 1997 included $.9 million from a pretax gain on the sale of an asset
in a partnership in which Echelon had approximately a 26% interest. As of
December 31, 1997, the Company had no ownership interest in this partnership.

     During the nine months ended September 30, 1998, there were no gains on
sales of loans. The gain on sale of loans of $4.1 million in the nine months
ended September 30, 1997 was the result of the recognition of a deferred gain on
loans receivable that were sold.

     Investment income and realized gain on sale of investments increased $1.0
million for the nine months ended September 30, 1998 in comparison with the same
period of 1997 primarily as a result of $1.8 million of net gains on sales of
marketable securities during the nine months ended September 30, 1998.

OPERATING EXPENSES

     Operating expenses for the three and nine months ended September 30, 1998
decreased by $.7 million and $2.3 million, respectively, compared to the same
periods in 1997.

     Rental, other operations and marina expenses decreased $2.8 million during
the nine months ended September 30, 1998 as compared to the same period in 1997
primarily due to the Company's decision to discontinue the sale of boats, as
discussed above.

     The provision for (recovery of) lease, loan and real estate losses was
$(1.6) million for the nine months ended September 30, 1998 as a result of
complete repayment of a real estate loan for which the Company had previously
recorded a $1.6 million allowance for loan losses.

     Interest expense, net of amounts capitalized, decreased $.4 million and
$3.0 million during the three

                                      -15-

<PAGE>


and nine months ended September 30, 1998, respectively, compared to the same
periods 1997 due to the reduction of debt resulting from loan receivable sales
and payoffs, asset sales and the refinancing of a significant portion of the
Company's debt at lower interest rates throughout the fourth quarter of 1997 and
the first nine months of 1998.

     General and administrative expenses were $.9 million and $6.0 million in
the three and nine months ended September 30, 1998, respectively, compared to
$1.2 million and $4.9 million in the same periods of 1997. This represents an
increase of $1.1 million during the nine months ended September 30, 1998 as
compared to the same period in 1997. General and administrative expenses for the
first nine months of both 1998 and 1997 include the full year accrual of
management incentive and long-term incentive compensation as a result of the
Company achieving the annual 1998 and 1997 goals in the first quarter of each of
the years, respectively. In addition, during the formation of the Company's
multi-family and commercial pipeline of potential projects, certain costs were
appropriately expensed rather than capitalized. As specific projects are
approved, costs related to these projects have been, and will continue to be,
capitalized.

     Other income of $1.8 million in the nine months ended September 30, 1997
was primarily as a result of a $1.3 million gain related to the sale of the
Company's interest in a previously written-off oil rig lease.

EXTRAORDINARY ITEMS

     In August 1998, the Company settled a long-term obligation with the
University of Florida Foundation, Inc. In conjunction with the settlement, a $.6
million long-term debt obligation and related accrued interest of $.6 million
were cancelled, resulting in a $.8 million after-tax extraordinary gain to the
Company.

     During the nine months ended September 30, 1997, the Company recorded an
after-tax extraordinary loss of $(.9) million on the write-off of $1.3 million
of financing costs related to the early extinguishment of debt.

LIQUIDITY AND CAPITAL RESOURCES

     SOURCES OF LIQUIDITY

     The Company's sources of liquidity have been primarily from the continued
maturity and collection of Echelon's loan portfolio, proceeds from the sale of
certain non-strategic assets, operating cash flow and, with respect to Echelon's
real estate development, from project-based and other financings. Future sources
of funds may also come from the capital markets.

     At the Distribution Date, Echelon and Florida Progress entered into a
distribution agreement, which requires Echelon to maintain liquidity levels of
at least $25.0 million and $17.0 million throughout 1998 and 1999, respectively.

     CASH FLOW PROVIDED BY OPERATING ACTIVITIES

     Cash flow provided by operating activities was $3.7 million for the nine
months ended September 30, 1998. The primary source of cash was an increase in
accounts payable and other liabilities of $5.5 million and an increase in other
working capital changes of $1.2 million. The primary use of $7.1 million of cash
related to previously deferred tax liabilities becoming due and payable as a
result of collections of lease payments. Deferred income taxes from leveraged
leasing activities, which are reflected in cash flows from operating activities,
are offset by related collections from lessees, which are included in cash flows
from investing activities. Future net cash flows from operations are generally
expected to be reinvested in the Real Estate Business.

                                      -16-

<PAGE>


     CASH FLOW USED IN INVESTING ACTIVITIES

     Echelon's net cash flow used in investing activities for the first nine
months of 1998 was $22.7 million. The foregoing cash flows reflect the $18.4
million in proceeds received from the collection of leases and loans. The
collection of leases and loans includes $2.3 million from Continental Airlines
for the payoff of a deferred rent note receivable originally scheduled to mature
in 2000, $3.0 million from Madison Building, Inc. for the payoff of a real
estate loan originally scheduled to mature in November 1998 and $3.5 million for
the sale of two aircraft engines which were in the Company's leveraged lease
portfolio. Upon the maturity and collection of Echelon's loan portfolio, Echelon
expects investing activities to continue to be a net use of funds as Echelon
continues to build the Real Estate Business. Purchases of marketable securities,
including debt securities with maturities greater than three months, were $7.9
million and proceeds from sales of marketable securities were $26.7 million
during the nine months ended September 30, 1998.

     Real estate property additions and other capital expenditures of $62.0
million for the nine months ended September 30, 1998 were primarily for the
ongoing construction of two multi-family residential communities, ECHELON AT BAY
ISLE KEY and ECHELON AT THE RESERVE, the three land purchases for the
development of ECHELON AT NORTHLAKE, ECHELON AT WOODLAND PARK and ECHELON AT
MEMORIAL CREEK, and construction and tenant improvements on four commercial
projects, BAYBORO STATION, CENTRAL STATION, MCNULTY GARAGE and CASTILLE AT
CARILLON. For the remainder of 1998, capital expenditures for tenant
improvements, land development, commercial office development and multi-family
residential development are projected to be approximately $20.0 million to $40.0
million. These expenditures are expected to be funded through project-based and
other financings and from existing cash and marketable securities.

     CASH FLOW FROM FINANCING ACTIVITIES

         During the nine months ended September 30, 1998, the Company's primary
sources of financing activities were proceeds of $11.0 million from the increase
in the Northwestern Mutual Life Insurance Company loan and construction draws on
the ECHELON AT BAY ISLE KEY construction loan of $13.6 million. The Company also
made scheduled loan repayments on the Company's outstanding debt of $4.4 million
during the first nine months of 1998.

     The Company is currently involved in the construction of several commercial
projects and multi-family residential communities and had outstanding
construction commitments with contractors with remaining amounts totaling $30.1
million at September 30, 1998.

     As of September 30, 1998, Echelon had a total of 10 contingent contracts,
letters of intent or joint venture agreements subject to the Company's final due
diligence, to acquire land for the development of an estimated 2,792
multi-family-residential units at an aggregate estimated development cost of
$250.0 million. No assurance can be given that Echelon will acquire this land or
develop the multi-family residential units.

     OFF-BALANCE SHEET RISK

     Through a previous partnership, Echelon remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
such partnership. The contingent liability reduces over time as those who were
residents at the time of the sale of Echelon's partnership interest discontinue
their residency. If the current owners were to fail to perform their obligations
and if the partnership assets, consisting primarily of land and buildings, were
worthless, Echelon could be liable for an additional $26.5 million as of
December 31, 1997. Echelon considers the incurrence of this liability to be
remote based on asset values and the indemnification agreement from the current
owners to Echelon.

                                      -17-

<PAGE>


YEAR 2000 COMPUTER ISSUE

     Many computer systems currently in use were designed and developed using
two digits, rather than four, to identify the year. As a result, such computer
systems will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken.

     Echelon has several projects underway to address the Year 2000 issue. These
projects include: 1) identifying and mitigating Year 2000 problems in Echelon's
systems, including equipment used in the Company's properties, such as the
elevators and phone systems that may have date sensitive information within
them, 2) working with the Company's financial institutions, lenders, lessees of
aircraft and vendors to assure that the appropriate steps are being taken to
mitigate the Year 2000 issue in each entity's software systems, and 3) ensuring
that each entity that electronically receives or sends information to Echelon is
aware of the steps that the Company is taking and is taking appropriate steps of
its own to address the Year 2000 issue.

     To date, Echelon has incurred costs of $.3 million for the acquisition and
implementation of a real estate property management and general ledger software
that is Year 2000 compliant. These costs were capitalized consistent with
Echelon's accounting policies.

     Echelon is currently Year 2000 compliant with some software systems and
expects to be compliant with all other software systems no later than the end of
the third quarter of 1999. Costs related to the maintenance and or modification
of Echelon's software systems has been, and will continue to be, expensed as
incurred. Echelon does not anticipate the costs related to Year 2000 to have a
material impact on its results of operations. While the Company currently
expects that the Year 2000 will not pose significant operational problems,
delays in the modification of software systems or failure to fully identify all
Year 2000 dependencies in the Company's software systems could result in
material adverse consequences, including disruption of operations, loss of
information, and unanticipated increases in costs.

GENERAL OVERVIEW OF STRATEGIC PLAN

     The overriding objective of the Echelon management team, and of all
Echelon's employees, is to create superior long-term value for stockholders.

     To achieve this objective, Echelon will grow its real estate assets and
operations through the execution of targeted strategies. While these targeted
strategies evidence the Company's best decisions to date, the strategies, to the
degree possible, provide the flexibility to be recast to deal with changing
economic conditions, capital market fluctuations, business cycles and other
market conditions. Echelon continuously evaluates its strategic direction
against both short-term and long-term real estate and capital market indicators.

     In consideration of the current real estate market conditions, coupled with
the Company's opportunity to repurchase Echelon Common Stock at an attractive
discount to book value, Echelon has expedited its strategic initiatives to
attract joint venture, merchant build and presale opportunities for some of the
current multi-family projects in the Company's pipeline.

     The Company has decided to take advantage of the current equity market
opportunity to repurchase up to $15.0 million of the Company's outstanding
Common Stock. The Board of Directors believes that the current market price for
the Company's Common Stock is not reflective of its true value, which makes this
buy-back program an excellent investment to build long-term stockholder value.
As of November 13, 1998, the Company has repurchased and settled 129,300 shares
of Common Stock, at a total cost to the Company of $2.6 million.

The section below updates and summarizes Echelon's current strategies.

                                      -18-

<PAGE>


     MULTI-FAMILY

     As previously communicated, multi-family residential development has been
identified as the primary driver of Echelon's growth over the next five years.
During the next five years, Echelon expects to develop or acquire 20 to 40
multi-family residential communities, each comprised of approximately 150 to 400
units. Included in these developments are two to five affordable housing
developments of 150 to 250 units each that the Company may develop. Within the
next 12 months, Echelon plans to be under construction on approximately 2,400 to
3,800 units. Given current market conditions, Echelon is aggressively seeking
alliances to participate in joint venture partnerships, merchant build and
presale opportunities for some of these multi-family developments. These
strategic alliances have been, and will continue to be, an integral component of
the Company's strategic plan.

     Echelon is capitalizing on the opportunity provided by its existing
inventory of property in the Tampa Bay area of Florida, as well as pursuing
other locations in the southeast and southwest United States, for development of
multi-family residential communities. To achieve geographic diversity, the
Company has established a pipeline of development sites in select markets in the
southeast and southwest United States. In establishing this pipeline, the
Company uses a proprietary market research software system that identifies
initial target markets which are then inspected by experienced Echelon
management. This software system also identifies specific market characteristics
which assist in designing the appropriate community for each target market and
each specific site. This systematic approach may reduce the market selection
cycle time and allow Echelon developers the opportunity to identify and reach a
target market ahead of competition and site price escalation. Currently, the
following multi-family residential communities are, or will be, under
development in 1998:

/bullet/    Construction of the clubhouse and the first 12 of 14 total
            buildings, for ECHELON AT BAY ISLE KEY, a 369-unit multi-family
            residential community in the Gateway area of Tampa Bay, was
            completed through October 1998. Leasing is in process and to date,
            over 240 units have been leased. Construction will be completed by
            the end of the first quarter of 1999, with stabilization projected
            six months following construction completion.

/bullet/    Construction has begun on the clubhouse and the 314 units of Phase
            One of ECHELON AT THE RESERVE, a multi-family residential community
            in CARILLON PARK. The clubhouse and the first building will be
            completed in January 1999, with preleasing beginning in December
            1998.

/bullet/    ECHELON AT WOODLAND PARK, located in Tulsa, Oklahoma, will be a
            232-unit multi-family residential community. The land for the
            development was purchased in July 1998 at a cost of $1.0 million,
            and construction began in September 1998.

/bullet/    ECHELON AT NORTHLAKE, located in Atlanta, Georgia, will be a
            256-unit multi-family residential community. The land for the
            development was purchased in May 1998 at a cost of $4.0 million, and
            construction began in November 1998.

/bullet/    ECHELON AT MEMORIAL CREEK, located in Tulsa, Oklahoma, will be a
            292-unit multi-family residential community. The land for the
            development was purchased in September 1998 at a cost of $1.6
            million, and construction is planned to begin in the fourth quarter
            of 1998.

/bullet/    ECHELON AT MISSION RANCH, located in Mesquite, Texas, will be a
            295-unit multi-family residential community. The land for the
            development was purchased in October 1998 at a cost of $1.1 million,
            and construction is planned to begin in the fourth quarter of 1998.

                                      -19-

<PAGE>


     As of November 1998, Echelon's development program has produced the current
pipeline of nine sites under contract, letter of intent or joint venture
negotiations, subject to the Company's final due diligence. The Company's
pipeline currently includes the following developments:
<TABLE>
<CAPTION>

        DEVELOPMENT NAME           ESTIMATED NUMBER OF UNITS          LOCATION
        ----------------           -------------------------          --------

<S>                                           <C>                       <C>
   ECHELON AT BRIARGATE                       395                       Colorado Springs, Colorado
   ECHELON AT TWENTY MILE VILLAGE             325                       Parker, Colorado
   ECHELON AT KELLER TOWN CENTER              276                       Keller, Texas
   ECHELON AT LAKESIDE                        168                       Plano, Texas
   ECHELON AT CHANEY PLACE                    296                       Orlando, Florida
   ECHELON AT UPTOWN                          206                       Orlando, Florida
   ECHELON AT MID-TOWN                        250                       Memphis, Tennessee
   ECHELON AT THE BALLPARK                    381                       Memphis, Tennessee
   ECHELON AT WATTERS CREEK                   200                       Allen, Texas
                                           ------
         Total                              2,497
</TABLE>

     The Company expects to maintain an active pipeline of ten to twenty sites
in target markets.

     The Company continues to evaluate possible acquisitions, which include
other multi-family residential development companies and/or multi-family
residential assets. Some growth of the multi-family portfolio is expected to
result from strategic acquisition.

     COMMERCIAL

     During the next five years, the Company expects to hold its core office
buildings and subject to market conditions, expand its commercial real estate
portfolio by developing, or acquiring, up to 750,000 to 1,500,000 square feet of
commercial office space. A substantial amount of this space will be developed on
Echelon's existing land inventory in the Gateway area of Tampa Bay, Florida,
with the balance developed through land acquisition in other southeast and
southwest target markets in the United States.

     The following commercial projects, all located in the Tampa Bay area, have
been completed during the year or are currently under development:

/bullet/    The construction and tenant improvements for BAYBORO STATION
            (80,991 rentable square feet) were completed in the second quarter
            of 1998. Florida Power Corporation has leased 100% of the building
            under a 10-year lease which began in April 1998.

/bullet/    The construction and tenant improvements for CENTRAL STATION
            (133,279 rentable square feet) were completed in the second quarter
            1998. Florida Power Corporation has leased 100% of the building
            under a 15-year lease which began in June 1998.

/bullet/    The construction of MCNULTY PARKING GARAGE, containing 714 parking
            spaces and 9,000 square feet of ground floor retail space, continues
            with an on-schedule completion date in December 1998. The Company
            has executed a lease for 100% of the ground floor retail space.
            MCNULTY PARKING GARAGE will provide parking for the tenants of
            CENTRAL STATION, MCNULTY STATION and NATIONSBANK TOWER.

                                      -20-

<PAGE>


/bullet/    The construction of CASTILLE AT CARILLON, 103,000 square foot Class
            A office building in CARILLON PARK, is continuing with an
            on-schedule completion date in March 1999. Echelon plans to occupy
            approximately 20,000 square feet as its corporate headquarters. The
            Company is currently in lease negotiations with third parties for
            over 37,000 rentable square feet.

/bullet/    The design of 700 CARILLON is complete and ready to submit for
            building permits. The construction of 700 CARILLON, a 147,100 square
            foot office building, is planned to commence when anchor tenants are
            secured.

/bullet/    The conceptual design plans are continuing for CARILLON TOWN CENTER,
            an entertainment, retail, office, hotel and athletic club project,
            designed to add amenities to CARILLON PARK. Construction will
            commence when anchor tenants are secured. The ownership structure of
            CARILLON TOWN CENTER may include ownership by Echelon, joint
            ventures, or the sale of land for development to third parties. To
            date, the Company has received the majority of the required
            governmental approvals for the construction of CARILLON TOWN CENTER.

     Although the Company plans to hold its core office buildings during this
planning period, short, medium and long-term exit strategies have been developed
for all currently owned commercial real estate. The Company intends to sell
non-core commercial and industrial properties as opportunities arise.

     Echelon continues to evaluate the acquisition of other commercial real
estate development companies, real estate based operating companies and/or
commercial real estate assets, as opportunities become available. Some growth of
the commercial portfolio is expected to come from strategic acquisitions.

     REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES

     The real estate management and brokerage services business segment is
complementary to the Company's multi-family residential and commercial real
estate operations. Growth is expected to occur primarily as a result of the
growth in the multi-family residential and commercial real estate operations,
and the growth of third-party revenue associated with leasing and property and
asset management. In addition, Echelon continues to evaluate the acquisition of
real estate management and/or brokerage companies, as opportunities become
available. Some growth in the real estate management and brokerage services may
come from strategic acquisitions.

     INVESTMENTS IN FINANCIAL ASSETS

     The Company generally plans to hold its leveraged lease portfolio until
maturity or until market values exceed termination values. At that time, the
Company will either sell or re-lease the assets, depending on which alternative
provides the greatest risk-adjusted return. The Company will continue to execute
a financial strategy that integrates the tax benefits provided by its
investments in affordable housing limited partnerships, with the deferred tax
liability of the leveraged lease portfolio in order to reduce its federal income
tax liability.

     Operating leases and direct finance leases in aircraft and related
equipment will continue to be actively managed to maximize their value, which
may include the sale of the assets.

     Significant transactions involving the Company's investment in financial
assets during the nine months ended September 30, 1998 include the following:

/bullet/    A joint venture in which Echelon had a 50% interest, sold two
            aircraft engines which resulted in a pre-tax gain of $1.6 million to
            the Company. As of July 31, 1998, the joint venture was dissolved,
            resulting in the distribution of 50% of the net assets of the joint
            venture to the Company. The $19.1 million of net assets received by
            the Company are comprised of a direct finance lease for an aircraft
            leased to Continental Airlines through February 2002.

                                      -21-

<PAGE>


/bullet/    Echelon was paid in full on a deferred rent note receivable of $2.3
            million from Continental Airlines. The note receivable was
            originally scheduled to mature in 2000.

/bullet/    Echelon was paid in full on a real estate loan of $3.0 from Madison
            Building, Inc. The real estate loan was originally scheduled to
            mature in November 1998. As a result of the loan payoff, Echelon
            reversed the $1.6 million allowance for losses on leases and loans
            previously recorded.

/bullet/    Echelon sold two aircraft engines to United Technologies, Inc. The
            sale of the aircraft engines and the termination of the related
            leveraged lease resulted in after-tax income of $.4 million to the
            Company.

/bullet/    Echelon executed an extension and rate adjustment on a direct
            finance lease for an aircraft leased to Southwest Airlines. The
            lease extension and rate adjustment was negotiated in order to
            utilize the lease as collateral for a loan the Company executed in
            November 1998.

     As communicated previously, Echelon will continue to withdraw from the
aircraft and real estate lending business to focus on its core real estate
operations. The Company will collect the outstanding loan balances as soon as
practical, maximize the value of each asset, and redeploy the capital from the
loan portfolio to repay debt and/or invest in real estate operations. Echelon
expects to liquidate the loan portfolio by 2002.

     Echelon expects to obtain sufficient capital from its operations, asset
sales, loan collections, project based and other financings, and the capital
markets sufficient to execute its strategic plan. However, no assurance can be
given that such capital will be available in sufficient amounts to execute this
plan.

                                      -22-

<PAGE>


            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Company considers certain statements contained herein regarding matters that
are not historical facts are forward-looking statements, including certain
statements contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Because such statements involve risks and
uncertainties, actual strategies and the timing, and expected results thereof,
may differ materially from those expressed or implied by such forward-looking
statements.

     Echelon wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-Q, the following important factors, among
others, could affect Echelon's actual results and could cause Echelon's actual
consolidated results during 1998, and beyond, to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of
Echelon.

/bullet/    Echelon's anticipated increase in its level of real estate
            development activities will require a significant amount of capital
            and the ability to acquire land identified for future real estate
            development. Accordingly, the extent of Echelon's real estate
            development will depend upon the amount of funds generated through
            operating activities, maturity and collection of loans, planned
            asset sales, project-based and other financings and the capital
            markets and the ability to acquire land identified for future real
            estate development. There can be no assurance that operating
            activities, maturity and collection of loans, planned asset sales
            and project-based and other financings or the capital markets will
            generate net proceeds for Echelon in amounts and at times necessary
            to enable Echelon to carry out these development activities. There
            can also be no assurance that Echelon will be able to acquire land
            identified for future real estate development.

/bullet/    The successful implementation of Echelon's strategic and business
            plans will depend in a large part on certain key officers, including
            Mr. Darryl A. LeClair, Chairman, President and Chief Executive
            Officer and Mr. W. Michael Doramus, Executive Vice President, who
            have managed Echelon's businesses and participated in the
            development of Echelon's business plan. Due to the unique experience
            of these key officers and their knowledge of Echelon's assets, such
            individuals could not be easily replaced, and the loss of such key
            officers could have a material adverse effect on the Company.
            Echelon has obtained key-man life insurance policies for both Mr.
            LeClair and Mr. Doramus.

/bullet/    As a real estate development and management company, Echelon is and
            will be subject to certain risks incident generally to the
            ownership, development and management of real estate properties.
            These risks include the cyclical nature of real estate markets,
            governmental regulations and the need for governmental approvals,
            general risk of acquisition, development, and construction, tenant
            defaults, possible environmental liabilities, and competition from
            other real estate owners and developers.

/bullet/    Currently, substantially all of Echelon's owned real estate
            properties are located in the State of Florida, primarily in the
            Tampa Bay area, including St. Petersburg and Tampa, and over 85% of
            Echelon's commercial rental space (measured by rentable square
            footage) is located in this area. Due to this current lack of
            geographical diversification, Echelon is dependent upon the
            continued demand for office, multi-family residential, industrial
            and other commercial space in the Tampa Bay area. Echelon may be
            adversely affected in the event the demand for office space in St.
            Petersburg or Tampa declines or the St. Petersburg or Tampa economy
            experiences a downturn. Like other real estate markets, the Florida
            commercial real estate market has experienced periodic economic
            fluctuations.

/bullet/    Aircraft leasing involves numerous risks, including risks stemming
            from the obsolescence or physical deterioration of aircraft and the
            possibility of defaults by lessees. In addition, fluctuations in
            general business and economic conditions, the adoption of
            restrictive regulations and legislation, changes in consumer demand
            for air travel, fluctuations in fuel prices and other factors over
            which lessors of aircraft have no control could be expected to
            affect adversely the supply and demand for aircraft or aircraft
            leases and may cause cost increases relating to the leasing of
            aircraft that cannot be offset by increased leasing revenues. No
            assurance can be given that a decline in the health of the airline
            industry would not have an adverse effect on Echelon's business or
            results of operations.

                                      -23-

<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company will be required to include additional disclosures regarding
certain quantitative and qualitative information about market risk exposures for
the year ending December 31, 1998.


                                     PART II
                                OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

              None


ITEM 5.  OTHER INFORMATION

     Subsequent to the quarter ended September 30, 1998, Echelon International
Corporation issued the following:

(1)    News release dated October 8, 1998, announcing the Board of Directors'
       authorization for the Company to purchase up to $15.0 million of the
       Company's outstanding Common Stock. A copy of this news release is filed
       as Exhibit 99.1.
(2)    News release dated November 4, 1998,  announcing 1998 third quarter 
       financial results. A copy of the news release is filed as Exhibit 99.2.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)   Exhibits:
     NUMBER       EXHIBIT
     ------       -------

      10.1   Amended and Restated Employment Agreement for W. Michael Doramus
             dated September 18, 1998
      10.2   Amended and Restated Employment Agreement for Susan G. Johnson
             dated September 18, 1998
      10.3   Amended and Restated Employment Agreement for Darryl A. LeClair
             dated September 18, 1998
      10.4   Amended and Restated Employment Agreement for Julio A. Maggi dated
             September 18, 1998
      10.5   Amended and Restated Employment Agreement for Larry J. Newsome
             dated September 18, 1998
      27     Financial Data Schedule of Echelon International Corporation
      99.1   Echelon International Corporation News Release dated October 8,
             1998 announcing the Board of Directors' Authorization for the
             Company to purchase up to $15.0 million of the Company's
             outstanding Common Stock.
      99.2   Echelon International Corporation News Release dated November 4,
             1998 regarding 1998 third quarter financial results.

        (b)  Reports on Form 8-K:

             None

                                      -24-

<PAGE>


                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

        SIGNATURE                           TITLE                 DATE
        ---------                           -----                 ----

 /s/ LARRY J. NEWSOME    Principal Financial Officer,
-----------------------  Senior Vice President and Chief   November 13, 1998  
    Larry J. Newsome          Financial Officer


/s/ JAMES R. HOBBS, JR.  Principal Accounting Officer,
-----------------------  Vice President and Controller     November 13, 1998
   James R. Hobbs, Jr.   

                                      -25-


<PAGE>


                                 EXHIBIT INDEX

EXHIDBIT                  DESCRIPTION
--------                  -----------

10.1   Amended and Restated Employment Agreement for W. Michael Doramus
       dated September 18, 1998
10.2   Amended and Restated Employment Agreement for Susan G. Johnson
       dated September 18, 1998
10.3   Amended and Restated Employment Agreement for Darryl A. LeClair
       dated September 18, 1998
10.4   Amended and Restated Employment Agreement for Julio A. Maggi dated
       September 18, 1998
10.5   Amended and Restated Employment Agreement for Larry J. Newsome
       dated September 18, 1998
27     Financial Data Schedule of Echelon International Corporation
99.1   Echelon International Corporation News Release dated October 8,
       1998 announcing the Board of Directors' Authorization for the
       Company to purchase up to $15.0 million of the Company's
       outstanding Common Stock.
99.2   Echelon International Corporation News Release dated November 4,
       1998 regarding 1998 third quarter financial results.