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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
(Mark One)

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

                 FOR THE QUARTERLY PERIOD ENDED JUNE 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
                                                     IDENTIFICATION NUMBER)
       ONE PROGRESS PLAZA, SUITE 1500
        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, 6,810,020 shares, as of August 11,
1998

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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                    PAGE
                                                                                   -----
<S>        <C>                                                                     <C>
PART I.
 Item 1.   Financial Statements ................................................     2

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

 Item 3.   Quantitative and Qualitative Disclosures about Market Risk ..........    22

PART II.

 Item 4.   Submission of Matters to a Vote of Security Holders .................    22

 Item 5.   Other Information ...................................................    22

 Item 6.   Exhibits and Reports on Form 8-K ....................................    22

Signatures ...................................................................      23
</TABLE>

<PAGE>

                                    PART I.
                             FINANCIAL INFORMATION

                         ITEM 1. FINANCIAL STATEMENTS
                       ECHELON INTERNATIONAL CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     JUNE 30,      DECEMBER 31,
                                                                                       1998            1997
                                                                                   ------------   -------------
                                                                                    (UNAUDITED)
                                                                                       (IN MILLIONS, EXCEPT
                                                                                          SHARE AMOUNTS)
<S>                                                                                <C>            <C>
                                    ASSETS
REAL ESTATE, LEASES, LOANS & OTHER INVESTMENTS:
Real estate, net (Note 2) ......................................................     $ 151.9         $ 115.1
Aircraft under operating lease (net of accumulated depreciation
 of $9.0 million and $8.4 million, respectively)................................         3.5             4.1
Leases and loans receivable, net (Note 3) ......................................       185.5           196.3
Investments in and advances to unconsolidated partnerships (Note 6) ............        43.5            47.2
                                                                                     -------         -------
                                                                                       384.4           362.7
                                                                                     -------         -------
ASSETS HELD FOR SALE ...........................................................         2.5             2.5
                                                                                     -------         -------
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $1.1 million
 and $1.5 million, respectively)................................................        11.1             7.8
Marketable securities ..........................................................        23.1            42.0
Accounts receivable, net .......................................................         1.4             1.2
Current portion of leases and loans receivable .................................        38.1            39.8
Inventories, at cost ...........................................................          .9             1.1
Other ..........................................................................         1.1             1.7
                                                                                     -------         -------
                                                                                        75.7            93.6
                                                                                     -------         -------
OTHER NON-CURRENT ASSETS .......................................................         2.2             1.7
                                                                                     -------         -------
   Total assets ................................................................     $ 464.8         $ 460.5
                                                                                     =======         =======
                        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities .........................................     $   8.3         $   6.1
Accounts and interest payable to former parent .................................          --             1.3
Current portion of funding for limited partnership investments (Note 6) ........         4.0             9.5
Current portion of deferred income taxes .......................................        11.6             8.4
Current portion of long-term debt (Note 4) .....................................        12.4            12.2
                                                                                     -------         -------
   Total current liabilities ...................................................        36.3            37.5
LONG-TERM DEBT (Note 4) ........................................................        72.0            64.9
DEFERRED INCOME TAXES ..........................................................       138.0           145.8
OTHER LIABILITIES ..............................................................         2.9             3.2
COMMITMENTS AND CONTINGENCIES (Note 9)
   Total liabilities ...........................................................       249.2           251.4
                                                                                     -------         -------
STOCKHOLDERS' EQUITY (Note 5)
 Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued.....          --              --
 Common stock, $.01 par value, 25,000,000 shares authorized,
   6,882,958 issued and 6,810,020 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 ..............................................................       (64.2)          (70.5)
 Unrealized gain on available-for-sale securities, net of tax ..................          .5             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 ..................................................       215.6           209.1
                                                                                     -------         -------
   Total liabilities and stockholders' equity ..................................     $ 464.8         $ 460.5
                                                                                     =======         =======
</TABLE>

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

                                       2
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                              THREE MONTHS           SIX MONTHS
                                                                                  ENDED                 ENDED
                                                                                JUNE 30,              JUNE 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 ..........................    $  5.3     $ 5.0      $  9.9     $ 10.7
 Sales of development properties and development rights ................        .4        --         3.1         .3
 Equity in losses of limited partnership investments ...................       (.1)      (.3)        (.6)       (.8)

Leasing and lending operations:
 Earned income on finance and operating leases .........................       1.3       1.3         2.2        2.3
 Interest income .......................................................       1.1       1.9         2.2        4.1
 Equity in earnings of unconsolidated partnerships .....................        .4        .6         2.5        2.2
 Gain on sale of loans .................................................        --        --          --        4.1
Investment income and realized gains on sales of investments ...........        .7        .9         3.0        1.6
                                                                            ------     -----      ------     ------
                                                                               9.1       9.4        22.3       24.5
                                                                            ------     -----      ------     ------
OPERATING EXPENSES:
Rental, other operations and marina expenses ...........................       2.8       2.8         5.3        6.8
Cost of development properties and development rights sold .............        --        --         1.6         .3
Depreciation ...........................................................       1.4       1.3         2.7        2.5
Provision for (recovery of) lease, real estate and loan losses .........      (1.6)      (.7)       (1.6)       (.7)
Interest expense on long-term debt, net of amounts capitalized .........       1.2       2.5         2.6        5.2
Marketing and other administrative .....................................       2.2       1.8         5.1        4.6
Other (income) expenses, net ...........................................        --        .2          --       (1.4)
                                                                            ------     -----      ------     ------
                                                                               6.0       7.9        15.7       17.3
                                                                            ------     -----      ------     ------
INCOME BEFORE INCOME TAXES AND
 EXTRAORDINARY ITEM ....................................................       3.1       1.5         6.6        7.2
INCOME TAX EXPENSE .....................................................        .2        .1          .3        1.1
                                                                            ------     -----      ------     ------
INCOME BEFORE EXTRAORDINARY ITEM .......................................       2.9       1.4         6.3        6.1
EXTRAORDINARY ITEM:
 Loss on extinguishment of debt, net of income
   tax benefit of $.5 million in 1997...................................        --        --          --        (.8)
                                                                            ------     -----      ------     ------
NET INCOME .............................................................    $  2.9     $ 1.4      $  6.3     $  5.3
                                                                            ======     =====      ======     ======
Basic earnings per common share:
 Income before extraordinary item ......................................    $  .43     $ .21      $  .93     $  .90
 Extraordinary item, net of tax ........................................        --        --          --       (.12)
                                                                            ------     -----      ------     ------
 Net income per common share ...........................................    $  .43     $ .21      $  .93     $  .78
                                                                            ======     =====      ======     ======
Diluted earnings per common share:
 Income before extraordinary item ......................................    $  .41     $ .21      $  .91     $  .90
 Extraordinary item, net of tax ........................................        --        --          --       (.12)
                                                                            ------     -----      ------     ------
 Net income per common share ...........................................    $  .41     $ .21      $  .91     $  .78
                                                                            ======     =====      ======     ======
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>

                       ECHELON INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED
                                                                                        JUNE 30,
                                                                                  ---------------------
                                                                                     1998        1997
                                                                                  ---------   ---------
                                                                                      (IN MILLIONS)
                                                                                       (UNAUDITED)
<S>                                                                               <C>         <C>
OPERATING ACTIVITIES:
 Net income ...................................................................    $   6.3     $   5.3
 Adjustment to reconcile net income to cash provided by
  (used in) operating activities:
  Depreciation and amortization of financing costs ............................        2.8         3.0
  Extraordinary loss on extinguishment of debt ................................         --          .8
  Deferred income taxes .......................................................       (4.6)       (3.9)
  Amortization related to finance leases ......................................        (.9)        (.7)
  Provision for (recovery of) lease, loan and real estate losses ..............       (1.6)        (.7)
  Stock-based compensation expense ............................................         .7          --
  Gain on sales of assets .....................................................       (3.0)       (4.2)
  Equity in income of unconsolidated partnerships, net ........................       (1.9)       (1.4)
  Changes in working capital:
   Accounts payable and other liabilities .....................................        1.9        (6.9)
   Other working capital changes ..............................................         .6         1.4
  Other .......................................................................        (.6)        4.4
                                                                                   -------     -------
                                                                                       (.3)       (2.9)
                                                                                   -------     -------
INVESTING ACTIVITIES:
 Purchases of marketable securities ...........................................       (7.7)      (45.4)
 Proceeds from sales of marketable securities .................................       26.7          --
 Proceeds from sales and collections of leases and loans ......................       15.8        60.9
 Real estate property additions ...............................................      (40.6)       (3.6)
 Net proceeds from sales of real estate properties and development rights .....        2.9          .4
 Contributions to unconsolidated partnerships .................................       (5.7)       (6.1)
 Distributions from unconsolidated partnerships ...............................        5.6         7.9
                                                                                   -------     -------
                                                                                      (3.0)       14.1
                                                                                   -------     -------
FINANCING ACTIVITIES:
 Issuance of long-term debt ...................................................        9.0          --
 Repayment of long-term debt ..................................................       (2.5)      (66.5)
 Issuance of common stock .....................................................         .2          --
 Purchase of treasury stock ...................................................        (.1)         --
                                                                                   -------     -------
                                                                                       6.6       (66.5)
                                                                                   -------     -------
Net increase (decrease) in cash and equivalents ...............................        3.3       (55.3)
BEGINNING CASH AND EQUIVALENTS ................................................        7.8        63.3
                                                                                   -------     -------
ENDING CASH AND EQUIVALENTS
 (includes restricted deposits of $1.1 million in 1998)........................    $  11.1     $   8.0
                                                                                   =======     =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Interest, net of amounts capitalized ........................................    $   2.2     $   4.9
                                                                                   =======     =======
  Income taxes, net of refunds ................................................    $   4.6     $   6.6
                                                                                   =======     =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING &
 FINANCING ACTIVITIES:
  Change in funding commitments for limited partnership investments ...........    $    --     $   6.1
                                                                                   =======     =======
  Issuance of common stock related to LTIP ....................................    $    .4     $    --
                                                                                   =======     =======
  Change in unrealized gain (loss) on available-for-sale securities, net
    of tax of $.6 million in both 1998 and 1997................................    $  (1.0)    $    .9
                                                                                   =======     =======
  Delayed equity amortization on leveraged leases .............................    $    .8     $    .8
                                                                                   =======     =======
</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 (the "Company") for the interim periods presented.
Results of the second 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 six
months ended June 30, 1997 have been reclassified to conform with the 1998
presentation.

(2) REAL ESTATE

     The depreciable lives and carrying values of the Company's real estate are
as follows:

<TABLE>
<CAPTION>
                                                   DEPRECIABLE      JUNE 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 ...............                       $ 36.7         $ 31.7
    Construction in progress .................                         25.5            3.8
                                                                     ------         ------
                                                                       62.2           35.5
                                                                     ------         ------
   Income producing:
    Land and land improvements ...............                         15.5           15.2
    Buildings and improvements ...............        5-40             89.1           78.0
    Equipment and other ......................        3-10              3.5            2.9
                                                                     ------         ------
                                                                      108.1           96.1
                                                                     ------         ------
                                                                      170.3          131.6
   Less: accumulated depreciation ............                         18.4           16.5
                                                                     ------         ------
                                                                     $151.9         $115.1
                                                                     ======         ======
</TABLE>

     Capitalized interest during the development of specific projects was $.6
million and $.2 million during the six months ended June 30, 1998 and the year
ended December 31, 1997, respectively.

                                       5
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES AND LOANS RECEIVABLE

     Investments in leases and loans receivable are as follows:

<TABLE>
<CAPTION>
                                                     JUNE 30,      DECEMBER 31,
                                                       1998            1997
                                                   ------------   -------------
                                                    (UNAUDITED)
                                                          (IN MILLIONS)
<S>                                                <C>            <C>
   Finance leases:
    Rentals receivable .........................     $ 159.4         $ 169.2
    Unguaranteed residual values ...............       105.6           105.6
    Guaranteed residual values .................         6.0             6.0
    Unearned income ............................       (55.0)          (56.4)
    Deferred investment tax credits ............       (13.0)          (13.3)
                                                     -------         -------
      Total finance leases .....................       203.0           211.1
   Commercial finance loans receivable .........        39.1            45.1
   Allowance for losses ........................       (18.5)          (20.1)
                                                     -------         -------
                                                       223.6           236.1
   Less: current portion .......................        38.1            39.8
                                                     -------         -------
                                                     $ 185.5         $ 196.3
                                                     =======         =======
</TABLE>

     Finance leases consist of a direct finance lease and leveraged lease
investments which are primarily in aircraft. The majority of the leases have
remaining terms of 8 to 13 years, with one lease currently scheduled to mature
in 20 years. Rentals receivable from finance 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 for this loan.

                                       6
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) LONG-TERM DEBT

     The Company's long-term debt outstanding is as follows:

<TABLE>
<CAPTION>
                                                              INTEREST       JUNE 30,     DECEMBER 31,
                                                                RATE           1998           1997
                                                          ---------------   ----------   -------------
                                                                          (UNAUDITED)
                                                                                  (IN MILLIONS)
<S>                                                       <C>               <C>          <C>
   Northwestern Mutual Life Insurance
    Company ...........................................         7.09%          $44.7         $45.0
   Salomon Brothers Realty Corp. ......................         7.16%(a)        13.0          13.0
   SouthTrust Bank ....................................         7.26%(a)         9.0            --
   Delayed equity obligation on finance lease .........        10.00%           17.1          18.5
   Other ..............................................         8.50%(a)         0.6           0.6
                                                                               -----         -----
                                                                                84.4          77.1
   Less: current portion of long-term debt ............                         12.4          12.2
                                                                               -----         -----
                                                                               $72.0         $64.9
                                                                               =====         =====
</TABLE>
----------------
(a) Interest rate at June 30, 1998.

     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 that the Company owns in the Tampa Bay area. During the six
months ended June 30, 1998, the Company made construction draws on this loan
totaling $9.0 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 Tampa Bay area.
As of June 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 increases the amount of available credit on the
existing loan to $30.0 million and reduces the interest rate on the entire loan
to LIBOR plus 1.50% per annum. Echelon's real estate loan portfolio and a
commercial property, BAYBORO STATION, secure the loan. The entire loan matures
in May 2000 with the ability to extend through May 2002.

     In May 1998, Echelon executed a commitment letter with AmSouth Bank for a
$50.0 million Advised Guidance Line of Credit. The line of credit will be used
to provide construction financing for multi-family and commercial projects in
the Company's pipeline, as approved by AmSouth Bank. Each advance from the line
of credit will be considered a loan. The interest rate for each loan will be
the lesser of the prime rate of interest or the LIBOR rate plus 1.50% per
annum. The term for each

                                       7
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) LONG-TERM DEBT--(CONTINUED)

multi-family loan is 36 months and for each commercial loan is 30 months. The
repayment terms of the loans are interest only, with the entire principal and
any accrued interest due at the maturity of the loans.

     In May 1998, the Company 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,
which will also collateralize the loan. The terms of the loan provide for the
funding for each project to occur based on specific conditions. Each loan
disbursement shall constitute a separate note, which 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
disbursements require monthly principal and interest payments based on a
30-year amortization schedule. Under the terms of the commitment, TIAA requires
the Company to remit a refundable application fee. The Company negotiated the
application fee to be maintained in the form of stand-by letters of credit,
which will be reduced as the loans mature. As of June 30, 1998, Echelon has a
total of $1.1 million of certificates of deposits securing these letters of
credit.

     In July 1998, the Company closed on a loan amendment with Northwestern
Mutual Life Insurance Company which increases the amount of the existing loan
by $11.0 million and reduces the interest rate on the entire loan to 6.98% per
annum. The loan is now secured by two additional commercial properties in
Echelon's real estate portfolio, CENTRAL STATION (formerly known as SOUTHCORE
COMMERCIAL) and MCNULTY PARKING GARAGE. The entire loan matures seven years
from the date of closing.

(5) STOCKHOLDERS' EQUITY

     During the six months ended June 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 six months
            ended June 30, 1998. The unearned compensation will be amortized as
            compensation expense over the vesting period of the restricted
            Common Stock.

   /bullet/ Issuance of 120,250 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 years with a provision for early
            vesting if certain performance goals are achieved. The stock options
            granted under the SOP vest over a five year period.

   /bullet/ Issuance of 6,262 shares of Common Stock in conjunction with the
            Company's SOP.

   /bullet/ Issuance of 1,274 shares of Common Stock 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.

                                       8
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(5) STOCKHOLDERS' EQUITY--(CONTINUED)

     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        SIX MONTHS
                                                                 ENDED             ENDED
                                                               JUNE 30,           JUNE 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 ..........................................    $2.9     $1.4     $6.3     $5.3
                                                             ====     ====     ====     ====
   Basic earnings per common share ......................    $.43     $.21     $.93     $.78
                                                             ====     ====     ====     ====
   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 ..........................................    $2.9     $1.4     $6.3     $5.3
                                                             ====     ====     ====     ====
   Diluted earnings per common share ....................    $.41     $.21     $.91     $.78
                                                             ====     ====     ====     ====
</TABLE>

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

     The Company has a 50% interest in a joint venture, which is engaged in the
business of leasing aircraft equipment. Additionally, the Company has
investments in affordable housing limited partnerships of which no investment
exceeded 12% as of both June 30, 1998 and December 31, 1997. The Company
accounts for its investments in the joint venture and limited partnerships by
the equity method of accounting.

                                       9
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) CONDENSED STATEMENTS OF INCOME AND DISCLOSURES OF
     UNCONSOLIDATED PARTNERSHIPS--(CONTINUED)

     Presented below is summarized financial information for the aircraft
equipment and leasing joint venture for the three and six months ended June 30,
1998 and 1997, respectively. Amounts reflect 100% of the joint venture's
balances and results of its operations for these periods.

<TABLE>
<CAPTION>
                             THREE MONTHS           SIX MONTHS
                                ENDED                  ENDED
                               JUNE 30,              JUNE 30,
                          ------------------   ---------------------
                           1998       1997        1998        1997
                          ------   ---------   ---------   ---------
                                        (IN MILLIONS)
                                         (UNAUDITED)
<S>                       <C>      <C>         <C>         <C>
   Revenues ...........    $912     $1,409      $5,075      $2,870
   Expenses ...........      15        126          30         252
                           ----     ------      ------      ------
   Net income .........    $897     $1,283      $5,045      $2,618
                           ====     ======      ======      ======
</TABLE>

     The joint venture's revenues for the six months ended June 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 June 30, 1998. Echelon recorded losses of $.6 million and $.8
million on these investments for the six months ended June 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 has funded $19.1 million and $13.4 million of these
commitments as of June 30, 1998 and December 31, 1997, respectively. The total
commitments of $25.8 million are included as investments in unconsolidated
partnerships in the Company's consolidated balance sheets. As of June 30, 1998,
the remaining commitments to be funded within one year are $4.0 million and are
included in the current portion of funding for limited partnership investments,
and commitments to be funded thereafter are $2.7 million and are included in
other long-term liabilities on the consolidated balance sheet. The Company's
overall investment return includes both the tax benefits resulting from the
losses generated by these investments and the realization of the housing tax
credits from the investments.

(7) 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.

(8) 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 issued $.3 million of
unsecured promissory notes to two Executive Officers in conjunction with this
loan program. The promissory notes mature in April 2003. The Company recognized
$.1 million in salary expense in conjunction with the imputation of interest on
these promissory notes.

                                       10
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) 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 $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 $37.9 million at June 30, 1998.

     As of June 30, 1998, Echelon had a total of 11 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 3,100
multi-family residential units at an aggregate estimated development cost of
$247.0 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 incidence of this
liability to be remote based on asset values and the indemnification agreement
from the current owners to the Company.

(10) 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 established 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.

                                       11
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


(10) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS          SIX MONTHS
                                                                    ENDED                ENDED
                                                                  JUNE 30,             JUNE 30,
                                                              -----------------   -------------------
                                                                1998      1997       1998       1997
                                                              --------   ------   ---------   -------
                                                                           (IN MILLIONS)
                                                                            (UNAUDITED)
<S>                                                           <C>        <C>      <C>         <C>
   Net income .............................................    $ 2.9      $1.4     $  6.3      $5.3
                                                               -----      ----     ------      ----
   Other comprehensive income, net of tax:

    Change in unrealized holding gain on available-for-sale
      securities during period ............................      (.5)      1.3         .1        .9
    Less: reclassification adjustment for realized gains
        included in net income ............................      (.1)       --       (1.1)       --
                                                               -----      ----     ------      ----
      Other comprehensive income ..........................      (.6)      1.3       (1.0)       .9
                                                               -----      ----     ------      ----
   Comprehensive income ...................................    $ 2.3      $2.7     $  5.3      $6.2
                                                               =====      ====     ======      ====
</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.

                                       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 six months ended June 30, 1998 include
the following transactions:

   /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 sale of two aircraft engines by Progress Potomac Capital
            Ventures, in which Echelon has a 50% interest, for $5.7 million,
            resulting in a pre-tax gain of $1.6 million to Echelon.

   /bullet/ The collection in full of a $3.0 million real estate loan
            receivable from Madison Building, Inc. which 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, resulting in after-tax income
            of $1.0 million.

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

   /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 is planned to begin
            in the third quarter of 1998.

   /bullet/ The ongoing construction of two multi-family residential
            communities, ECHELON AT BAY ISLE KEY and ECHELON AT THE RESERVE,
            both located in the Gateway Area of Tampa Bay, and ongoing
            construction and tenant improvements on four commercial projects;
            BAYBORO STATION, CENTRAL STATION (FORMERLY KNOWN AS SOUTHCORE
            COMMERCIAL), MCNULTY PARKING GARAGE and CASTILLE AT CARILLON. Total
            capital expenditures for all developments were $40.6 million in the
            first half of 1998.

     Because of the Company's on-going execution of targeted strategies,
including dispositions of non-strategic assets and pursuit of additional
strategic initiatives, the results of operations in the second quarter and
first six months of 1998 are not necessarily indicative of future results.

                                       13
<PAGE>

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997

     Net income for the three months ended June 30, 1998 was $2.9 million or
$.43 and $.41 basic and diluted earnings per share, respectively. Net income
for the six months ended June 30, 1998 was $6.3 million or $.93 basic and $.91
diluted earnings per share, respectively. This compares to net income of $1.4
million or $.21 basic and diluted earnings per share and $5.3 million or $.78
basic and diluted earnings per share for the same periods in 1997.

REVENUES

     Sales and revenues for the three months ended June 30, 1998 decreased $.3
million and decreased $2.2 million for the first six months of 1998, in
comparison with the same periods in 1997. The decrease in sales and revenues is
primarily due to a decrease in interest income from leasing and lending
operations, as further discussed below.

     Sales of development properties and development rights in the first six
months of 1998 were $3.1 million compared to $.3 million in the first six
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 six months of 1998. The CARILLON PARK land sale was
to a third party owner for land contiguous to the owner's current land
holdings. The sale of development rights in CARILLON PARK was to a third party
owner for further development of its current 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. Rental, other operations and marina revenues for first six months of
1998 decreased $.8 million over the same period in 1997 primarily due to the
Company's decision to discontinue the sale of boats as a component of marina
operations.

     As part of Echelon's strategy to focus on real estate development, Echelon
has invested in, and intends to invest further 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 generated by these investments and the realization of the housing tax
credits from the investments. Equity in losses of real estate partnerships
reduced revenue for the three and six months ended June 30, 1998 by $.1 million
and $.6 million, respectively. Equity in losses on these same investments
reduced revenue for the three and six month periods ended June 30, 1997 by $.3
million and $.8 million, respectively. These losses occurred as a result of the
Company recording its share of losses from housing tax credit limited
partnerships. The Company recorded a $.6 million and $1.3 million tax credit
for the three and six months ended June 30, 1998, respectively, as reduction of
income tax expense.

     Interest income from leasing and lending operations for the six months
ended June 30, 1998 declined by $1.9 million compared to the first half 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 acquisition and development.

     Equity in earnings of unconsolidated partnerships decreased $.2 million
and increased $.3 million, respectively, in the three and six months ended June
30, 1998 as compared to the same periods in 1997. The increase for the six
months ended June 30, 1998 is due primarily to the $1.6 million pretax gain on
the sale of an asset in January 1998 in a joint venture in which Echelon has a
50% interest. Revenues in the six 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 first half of 1998, there were no gains on sales of loans. The
gain on sale of loans of $4.1 million in the six months ended June 30, 1997 was
the result of the recognition of a deferred gain on loans receivable that were
sold.

                                       14
<PAGE>

     Investment income and realized gain on sale of investments increased $1.4
million for the six months ended June 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 in the six months ended June 30, 1998.

OPERATING EXPENSES

     Operating expenses for the three and six months ended June 30, 1998
decreased by $1.9 million and $1.6 million, respectively, compared to the same
periods in 1997.

     Rental, other operations and marina expenses decreased $1.5 million during
the six months ended June 30, 1998 as compared to the same period in 1997
primarily due primarily to the Company's decision to discontinue the sale of
boats, as discussed above.

     Interest expense on long-term debt, net of amounts capitalized, decreased
$1.3 million and $2.6 million during the three and six months ended June 30,
1998, respectively, compared to the same periods 1997 due to the reduction of
debt resulting from loan receivable sales and payoffs and asset sales and the
refinancing of the Company's debt at a lower interest rate in the fourth
quarter of 1997.

     The provision for (recovery of) lease, loan and real estate losses was
$(1.6) million for the six months ended June 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.

     Marketing and other administrative expenses were $2.2 million and $5.1
million in the three and six months ended June 30, 1998, respectively. This
compares to marketing and other administrative expenses of $1.8 million and
$4.6 million in the same periods of 1997. This represents a $.5 million
increase during the six months ended June 30, 1998 as compared to the same
period in 1997. In both 1998 and 1997, marketing and other administrative
expenses include the full year accrual of management incentive and long-term
incentive compensation recorded 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, prior to 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 will be capitalized.

     Other income of $1.4 million in the six months ended June 30, 1997 was
primarily the 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 ITEM

     The Company had no extraordinary items during the six months ended June
30, 1998. During the six months ended June 30, 1997, the Company recorded an
after-tax extraordinary loss of $(.8) 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.

                                       15
<PAGE>

  CASH FLOW USED IN OPERATING ACTIVITIES

     Cash flow used in operating activities was $.3 million for the six months
ended June 30, 1998. The primary use of $4.6 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. The primary source of cash was an increase in
accounts payable and other liabilities of $1.9 million.

  CASH FLOW USED IN INVESTING ACTIVITIES

     Echelon's net cash flow used in investing activities for the first six
months of 1998 was $3.0 million. The foregoing cash flows reflect the $15.8
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 and $3.0 from Madison Building, Inc. for the payoff of a real
estate loan originally scheduled to mature in November 1998. 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 $7.7
million and proceeds from sales of marketable securities were $26.7 million
during the six months ended June 30, 1998.

     Capital expenditures, which are reported as real estate property
additions, were $40.6 million for the six months ended June 30, 1998. The
capital expenditures were primarily for the ongoing construction of two
multi-family residential communities, ECHELON AT BAY ISLE KEY and ECHELON AT
THE RESERVE, the land purchase for the development of ECHELON AT NORTHLAKE and
construction and tenant improvements on four commercial projects, BAYBORO
STATION, CENTRAL STATION (FORMERLY KNOWN AS SOUTHCORE COMMERCIAL), 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 $33.0 million to $53.0 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 six months ended June 30, 1998, the Company made draws on the
BAY ISLE KEY construction loan of $9.0 million and scheduled loan repayments on
the Company's outstanding debt of $2.5 million.

  OFF-BALANCE SHEET RISK

     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 $37.9 million at June 30, 1998.

     As of June 30, 1998, Echelon had a total of 11 contingent contracts or
letters of intent, subject to the Company's final due diligence, to acquire
land for the development of an estimated 3,100 multi-family residential units
at an aggregate estimated development cost of $247.0 million. No assurance can
be given that Echelon will acquire this land or develop the multi-family
residential units or that the Company will be able to secure financing for the
construction of these developments.

     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

                                       16
<PAGE>

for an additional $26.5 million as of December 31, 1997. Echelon considers the
incidence of this liability to be remote based on asset values and the
indemnification agreement from the current owners to Echelon.

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 dynamically 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 are flexible enough to be recast to deal with changing economic
conditions, capital market fluctuations, business cycles and other market
conditions. Echelon continuously evaluates its strategic direction and the
section below updates and summarizes Echelon's current strategies.

  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
350 units. Included in these developments are two to five affordable housing
developments of 150 to 250 units each. Within the next 12 months, the Company
plans to be under construction on approximately 2,400 to 3,800 units. In
consideration of market opportunities, the Company intends to integrate its
build-and-hold developments with merchant build developments to maximize
stockholder return.

     Echelon is capitalizing on the opportunity provided by its existing
inventory of property in the Tampa Bay area as well as pursuing other locations
in the southeast and southwest United States. Currently, the following
multi-family communities are, or will be, under development in 1998:

   /bullet/ Construction of the clubhouse and the first 8 buildings, of a
            total of 14 buildings, for ECHELON AT BAY ISLE KEY, a 369-unit
            multi-family residential community in the Gateway area of Tampa Bay,
            were completed through July 1998. Leasing is in process and to date,
            over 150 units have been leased. Construction will be completed by
            the fourth quarter of 1998, with stabilization projected to be ahead
            of the original schedule.

   /bullet/ Phase Two of ECHELON AT BAY ISLE KEY, which will add up to 84
            units to the community, is planned to begin construction in the next
            six months.

   /bullet/ In CARILLON PARK, construction has begun on the 314 units of Phase
            One of ECHELON AT THE RESERVE. In total, CARILLON PARK has remaining
            capacity for 1,169 units.

   /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 is planned to begin in the third quarter of 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 is planned to begin in the third quarter of 1998.

     Next, to achieve geographic diversity, the Company has established a
pipeline of development sites in select markets in the southeast and southwest
United States. Initial target markets are identified using a sophisticated
proprietary software system, rather than by random market visits. The market
research software delivers a more objective and pragmatic assessment of
markets, while minimizing the

                                       17
<PAGE>

time necessary to screen potential markets. Following initial target market
selection, markets are inspected by experienced Echelon management. 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. This software system also assists in
designing the appropriate community for each target market.

     As of August 1998, Echelon's development program has produced the current
pipeline of 10 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>
                                            ESTIMATED
                                             NUMBER
DEVELOPMENT NAME                            OF UNITS    LOCATION
----------------------------------------   ----------   ---------------------------
<S>                                        <C>          <C>
Echelon at Briargate ...................        395     Colorado Springs, Colorado
Echelon at Twenty Mile Village .........        326     Parker, Colorado
Echelon at Keller Town Center ..........        276     Keller, Texas
Echelon at Lakeside ....................        168     Plano, Texas
Echelon at Mission Ranch ...............        294     Mesquite, Texas
Echelon at Chaney Place ................        300     Orlando, Florida
Echelon at Uptown ......................        200     Orlando, Florida
Echelon at the Ballpark ................        393     Memphis, Tennessee
Echelon at Watters Creek ...............        185     Allen, Texas
Echelon at Memorial Creek ..............        292     Tulsa, Oklahoma
                                                ---
   Total ...............................      2,829
                                              =====
</TABLE>

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

     The Company also plans to develop and manage affordable housing
communities that are entitled to the benefits of Housing Tax Credits. Echelon
has resubmitted the application to the State of Florida for ECHELON AT
BAYBRIDGE. The development of this 228-unit multi-family residential community
on the Company's 4th Street property requires the housing tax credits to be
awarded by the Florida Housing Finance Corporation.

     The Company continues to evaluate possible acquisitions, which include
other multi-family development companies and/or multi-family 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 expand its commercial real estate portfolio by developing, or
acquiring, 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 Tampa Bay area of Florida, with the balance developed through
land acquisition in other southeast and southwest target markets in the United
States.

     Currently, the following commercial projects, all located in the Tampa Bay
area, are under development:

   /bullet/ The construction and 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 and moved into the building in April and May of 1998.

                                       18
<PAGE>

   /bullet/ The construction and tenant improvements for CENTRAL STATION
            (FORMERLY KNOWN AS SOUTHCORE COMMERCIAL) (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
            and moved into the building in June and July of 1998.

   /bullet/ The construction of MCNULTY PARKING GARAGE, containing 714 parking
            spaces and 9,000 square feet of ground floor retail space, is
            continuing with an on-schedule completion date in December 1998.
            MCNULTY PARKING GARAGE will provide parking for the tenants of
            CENTRAL STATION, MCNULTY STATION and BARNETT TOWER.

   /bullet/ The construction of CASTILLE AT CARILLON, which is two office
            buildings totaling 103,900 square feet, began in May 1998. Echelon
            plans to occupy approximately 25,000 square feet as its corporate
            headquarters as the Company has leased 100% of the office space
            currently occupied in BARNETT TOWER. The Company also has letters of
            intent for over 15,000 rentable square feet from third party tenants
            and is currently in discussion with other third party tenants for an
            additional 30,000 rentable square feet.

   /bullet/ 700 CARILLON, a 147,100 square foot office building, will provide
            state-of-the-art building technology, along with parking of five
            cars per thousand rentable square feet of office space. The design
            of 700 CARILLON is complete and ready to submit for building
            permits. The construction of the office building will 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 sales of land for development to third
            parties.

     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 and commercial real estate
operations. Growth is expected to occur primarily as a result of the growth in
the multi-family 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 is expected to 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 upon 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.

                                       19
<PAGE>

     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 six months ended June 30, 1998 include the following:

   /bullet/ During the six months ended June 30, 1998, a joint venture in
            which Echelon has a 50% interest, sold two aircraft engines which
            resulted in a pre-tax gain of $1.6 million to the Company.

   /bullet/ During the three months ended June 30, 1998, 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/ During the three months ended June 30, 1998, Echelon was paid in
            full on a $3.0 million real estate loan 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, resulting in after-tax income of $1.0 million.

     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.

                                       20
<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.

     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, 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 a key-man life insurance policy for Mr. LeClair.

   /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.

                                       21
<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

     The Annual Meeting of Shareholders of Echelon International Corporation
was held on June 2, 1998. There were 6,802,484 shares of common stock entitled
to vote. The following matters were voted upon at the meeting:

     1) Election of Directors

        Class II - Terms expiring 2001

<TABLE>
<CAPTION>
                                         VOTES FOR     VOTES WITHHELD
                                        -----------   ---------------
<S>                                     <C>           <C>
  Thomas W. Mahr ....................   6,145,997             90,673
  L. Raymond Eastin .................   6,195,119             41,551
</TABLE>

     2) Ratification of appointment of KPMG Peat Marwick LLP as the Company's
        independent certified public accountants for fiscal year 1998:

<TABLE>
<S>                       <C>
Votes for .............   6,175,936
Votes against .........   19,372
Abstentions ...........   41,362
</TABLE>

ITEM 5. OTHER INFORMATION

     Echelon International Corporation issued a news release dated August 12,
1998, announcing 1998 second quarter financial results. A copy of the news
release is filed as Exhibit 99.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

<TABLE>
<CAPTION>

 EXHIBIT
   NO.                                          DESCRIPTION
--------   ------------------------------------------------------------------------------------
<S>        <C>
   27      Financial Data Schedule of Echelon International Corporation
   99      Echelon International Corporation News Release dated August 12, 1998 regarding 1998
           second quarter financial results.
</TABLE>

     (b) Reports on Form 8-K:

         On May 28, 1998, Echelon International Corporation filed the following
         report on Form 8-K:

         Form 8-K dated May 28, 1998, reporting under Item 5 "Other Events" the
         information to be included in investor information sessions held
         subsequent to the Company's Annual Meeting on June 2, 1998.

                                       22
<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.

<TABLE>
<CAPTION>
       NAME AND SIGNATURE                       TITLE                     DATE
--------------------------------   ------------------------------   ----------------
<S>                                <C>                              <C>
/s/  LARRY J. NEWSOME              Principal Financial Officer      August 13, 1998
     ---------------------------   Senior Vice President and
     Larry J. Newsome
                                   Chief Financial Officer
/s/  JAMES R. HOBBS, JR.           Principal Accounting Officer     August 13, 1998
     ---------------------------   Vice President and Controller
     James R. Hobbs, Jr.
</TABLE>

                                       23