<PAGE>
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
               [X] Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For the Fiscal Year Ended September 30, 1997

             [_] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For the transition period from _____ to ____

                         Commission File Number 33-89076

                        WEITZER HOMEBUILDERS INCORPORATED
             (Exact name of registrant as specified in its charter)

           Florida                                      65-0502494
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

                             5901 N.W. 151st Street
                                    Suite 120
                           Miami Lakes, Florida 33014
                    (Address of principal executive offices)

                                 (305) 819-4663
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

     Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 Par Value

     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 by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 26, 1997 was approximately $1,826,198 based on the
$0.8438 closing price for the Class A Common Stock as reported on Nasdaq on such
date.

     As of December 26, 1997, Weitzer Homebuilders Incorporated had 2,360,254
shares of Class A Common Stock, $.01 par value, and 1,500,000 shares of Class B
Common Stock, $.01 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits listed in Part IV are incorporated by reference by certain of
the Company public filings made pursuant to the Securities Exchange Act of 1934,
including the Company's Annual Report on Form 10-K for the year ended September
30, 1996, the Company's quarterly reports on Form 10-Q for the quarters ended
December 31, 1996, March 31, 1997 and June 30, 1997 and the Company's
registration statement on Form S-1 filed pursuant to the Securities Exchange Act
of 1933.

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

                                       1
<PAGE>
 
                        Weitzer Homebuilders Incorporated

                                    FORM 10-K

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

Part I                                                                                                      Page
                                                                                                            ----
<S>         <C>                                                                                             <C>
Item 1.     Business......................................................................................     3

Item 2.     Properties....................................................................................    15

Item 3.     Legal Proceedings.............................................................................    15

Item 4.     Submission of Matters to a Vote of Security-Holders...........................................    15

Part II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters...........................................................................    16

Item 6.     Selected Financial Data.......................................................................    18

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations...........................................................    21

Item 8.     Financial Statements and Supplementary Data...................................................    30

Item 9.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure...........................................................    53

Part III

Item 10.    Directors and Executive Officers of the Registrant............................................    53

Item 11.    Executive Compensation........................................................................    53

Item 12     Security Ownership of Certain Beneficial Owners
            and Management................................................................................    59

Item 13.    Certain Relationships and Related Transactions................................................    60

Part IV

Item 14.    Exhibits, Financial Statement Schedules and
            Reports on Form 8-K...........................................................................    61

Signatures          ......................................................................................    63
</TABLE>

                                       2
<PAGE>
 
PART I

ITEM 1.  BUSINESS

General

         Weitzer Homebuilders Incorporated (the "Company"), organized in Florida
in 1994, is engaged, through its subsidiaries, primarily in the design,
construction and sale of single-family homes and townhomes in Dade and Broward
Counties located in South Florida. The Company offers a wide variety of
moderately-priced homes that are designed to appeal to the entry level and first
time move-up buyers. The Company has delivered approximately 1,946 homes in the
past six fiscal years, including 484 in the fiscal year ended September 30,
1997. Sales prices of the Company's homes range from approximately $80,000 to
$185,000 and the average sales price of homes delivered during the fiscal year
ended September 30, 1997 was approximately $115,000. At present the Company has
ten communities in various stages of planning and development, including eight
communities in which the Company is currently offering homes for sale. At
September 30, 1997, the Company had 1045 available lots for sale and 1420
available lots under option or contract compared to 583 available lots for sale
and 943 available lots under option or contract at September 30, 1996. There is
no assurance that all lots available for home construction will in fact be used
for construction of homes since construction and sales of homes are subject to a
variety of factors, including, without limitation, general and local economic
conditions, availability of financing, interest rates and government regulation.

         Prior to May 1995, the Company conducted substantially all of its
homebuilding operations through general partnerships (the "Weitzer Homebuilding
Partnerships"), in which one general partner was a subsidiary of the Company and
the other general partner was a subsidiary of an unaffiliated third party (the
"Financial Partner"). Each general partnership was involved in the development
of one specific homebuilding project. In May 1995, with a portion of the net
proceeds of the Company's initial public offering, the Company acquired the
capital stock of the existing Financial Partner affiliates (the "Partnership
Acquisition"). Since that time, the Company consolidates the operations of the
Weitzer Homebuilding Partnerships with the financial statements of the Company.
Unless the context requires otherwise, all references to the Company shall
include its subsidiaries.

         The Company's principal executive offices are located at 5901 N.W.
151st Street, Suite 120, Miami Lakes, Florida 33014, (305) 819-4663.

                                       3
<PAGE>
 
Operating Strategy

           The operating strategy of the Company currently emphasizes the
following elements:

         -Affordable Housing and Value Pricing. The Company offers a wide
variety of affordable to moderately-priced homes that are designed to appeal to
the entry-level and first time move-up buyers. The Company strives to price its
homes competitively, while providing perceived innovative designs, including
architectural details and amenities in several of its projects typically found
in more expensive homes, such as cathedral ceilings, recessed lighting, glass
block, security and intercom systems. The Company's models afford prospective
home buyers a variety of options and features so that they may customize their
designs to suit their needs. In 1997, Weitzer built both detached single family
homes in three product lines and townhomes of three different product types.

         -Commitment to Quality and Customer Service. The Company acts as the
general contractor for its projects and requires that its subcontractors and
suppliers use quality, durable materials in the construction of its homes. The
Company generally provides home buyers with at least a one-year warranty on
workmanship and building materials and, in 1997 provided all home buyers with a
ten-year structural warranty.

         -Cost Controls. In general, the Company attempts to reduce certain
risks in the homebuilding industry and maximize its financial resources by: (i)
acquiring land for development through seller financing (which generally allows
for more favorable payment terms and lower closing costs); (ii) utilizing
options and other similar agreements whereby the Company provides a relatively
small deposit to obtain the right to purchase a specified number of lots over
some period of time so long as it exercises a certain number of options pursuant
to a periodic takedown schedule; (iii) obtaining required zoning entitlements
prior to purchasing land; (iv) beginning construction of a home only after
execution of a sales contract, receipt of a down payment and, where applicable,
the buyer's receipt of mortgage approval; (v) using subcontractors on a fixed
price basis; (vi) minimizing inventory of land and unsold homes by building
speculative units on a limited basis; and (vii) obtaining volume discounts on
construction materials.

         -South Florida Market. Although the Company is continuously evaluating
locations for new residential communities the Company anticipates that in the
near term its business and earnings will continue to be derived principally from
the South Florida market. Based on the Company's knowledge of the South Florida
homebuilding market, the Company believes it has certain competitive advantages
in such market, including understanding of, and experience with the local
market; controls and cost savings that result from the Company's centralized
operations; and an experienced sales force that is generally employed on a
long-term rather than project-by-project basis.

                                       4
<PAGE>
 
Land Acquisition and Development

         The Company acquires both improved building lots ready for
construction, and tracts of land that require site improvements prior to
construction. Generally, the Company attempts to acquire or control at least 100
lots in a development to achieve economies of scale in its marketing activities.
When contemplating the purchase of land for development, the Company considers
the cost of the land, the desirability of the proposed project to targeted home
buyers, population growth patterns, competitive conditions and available
financing. The Company's land purchase agreements are typically subject to
numerous conditions, including, but not limited to, the Company's ability to
obtain or verify the necessary zoning and other governmental approvals for the
proposed subdivision. During the investigation period, the Company also confirms
the availability of utilities, conducts hazardous waste and other environmental
analyses, arranges construction financing and completes its marketing
feasibility studies. As a result, the Company is generally able to begin
development activities immediately after closing the land purchase.

         The Company attempts to reduce the financial risks and capital
requirements associated with maintaining its own inventory of lots by utilizing
options and other similar agreements pursuant to which the Company provides a
deposit and obtains the right to purchase a specified number of lots over a
period of time so long as it exercises a certain number of its options pursuant
to a periodic takedown schedule. These agreements are generally on a nonrecourse
basis, so that if the Company does not meet the takedown schedule, its only
financial risk is forfeiture of a deposit. Generally, the options are exercised
only after prospective home buyers have executed a sales contract and made a
down payment; however, the options may be exercised without having pre-sold the
lots in order for the Company to preserve its option to purchase the remaining
lots.

         The Company devotes time and effort in developing a design and
marketing concept for each of its subdivisions, which includes a determination
of size, style and price range of the homes, layout of streets, layout of
individual lots and overall community design. The product line offered in a
particular subdivision depends upon many factors, including the housing
generally available in the area, the needs of the particular market and the
Company's cost of lots in the subdivision. The Company then undertakes
development activities that include site planning, engineering and construction
of roads, sewer, water and drainage facilities.

                                       5
<PAGE>
 
Summary of Residential Projects

         The following information concerns the projects being developed and
projects planned for future development as of September 30, 1997:


        Projects Currently Being Developed
<TABLE>
<CAPTION>

                                                                                                        Range of Base
                                                        Number        Homes         Lot         Year     Home Prices
 Name                       Location                   of Homes     Delivered    Inventory     Opened       (000s)
 ----                       --------                   --------     ---------    ---------     ------   -------------
<S>                         <C>                        <C>          <C>          <C>           <C>      <C>
 Malibu Bay                 Pembroke Pines (Broward)       249            1         248 (1)     1997    $   86 - 107
 Serena Lakes II            Southwest Dade                 376          352          24         1993    $   86 - 107
 Serena Lakes Townhomes     Southwest Dade                 264          245          19         1994    $   80 -  85
 Harmony Lakes              Southwest Broward              407          221         186         1995    $  100 - 170
 Deerfield Beach            Deerfield (Broward)            151          101          50         1995    $  119 - 144
 Tesoro at Forest Lakes     Southwest Dade                 251           65         186         1996    $  107 - 129
 Lago Del Sol at Serena
 Lakes                      Southwest Dade                 284             0         284        1997    $    80 - 85
</TABLE>

(1) Includes 124 lots owned and 124 lots which the Company has under contract at
    Malibu Bay. The Company also has an additional 251 lots under option.

      Projects Planned For Future Development
<TABLE>
<CAPTION>
                                                                                             Range of Base
                                                                 Number       Expected To    Home Prices
  Name                              Location                    of Homes      Be Opened         (000s)
  ----                              --------                    --------      ---------      -------------
<S>                                 <C>                         <C>           <C>            <C>  
  Fiesta at Serena Lakes Estates    Southwest Dade                  70         Jan 1998      $120-130
  Los Castillos at Windsor Palms    Southwest Broward              102         Jan 1998      $203-250
</TABLE>

         The development of projects planned for future development depends upon
numerous factors, including the financial condition of the Company and the
homebuilding industry, general and local economic conditions, availability of
financing, interest rates, housing demand, availability of qualified labor and
materials, sufficiency of infrastructure and government regulation. There is no
assurance that any of the land under option or contract will be acquired by the
Company or that any of the planned projects will be completed and, if completed,
there is no assurance that the information relating to the number and types of
homes, prices or community features will not change materially.

         Descriptions of the Company's projects follow:


     Malibu Bay. Located in Pembroke Pines, Broward County, Florida this 
townhome community of 249 lots is offered to the first time homebuyer at base
sales prices of $86,000 to $107,000. The Company has purchased 125 lots and is
under contract to purchase 124 lots from May 1998 thru February 1999. The
Company also has an option on an additional 251 lots to be purchased starting in
1999 although there is no assurance that capital resources can be obtained to
complete such purchases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

                                       6
<PAGE>
 
         Serena Lakes II. Located in southwest Dade County, Florida, Weitzer at
Serena Lakes II opened in December 1993 and includes 376 single-family homes.
The homes contain from 1,141 to 1,787 square feet and are currently being
offered at base prices ranging from $86,000 to $107,000. Weitzer at Serena Lakes
II is the second phase of a three phase community of 70 acres, which includes 76
single-family homes in Weitzer at Serena Lakes which were sold during the first
phase and also includes Serena Lakes Townhomes, which is discussed below.

         Serena Lakes Townhomes. Serena Lakes Townhomes is a community located
in southwest Dade County, Florida. The townhome community contains 264 townhomes
surrounding a central lake and includes three community pools, each with a
cabana center. The townhomes contain from 1,209 to 1,325 square feet and the
current base sales prices range from $80,000 to $85,000.

         Harmony Lakes. Located in the City of Davie, in Broward County,
Florida, this community has 236 single-family homes which are targeted to
first-time move-up buyers and 171 townhomes which are targeted to entry level
buyers. The single family homes are currently offered at base prices ranging
from approximately $140,000 to $170,000. The townhomes are currently offered at
base prices ranging from approximately $100,000 to $110,000. The community
contains a recreation facility complete with community pool.

         Deerfield Beach. Located in Deerfield, in Broward County, Florida,
Weitzer at Deerfield Beach includes 151 single-family homes. This lakeside
community targets both the entry level buyer and the first-time move-up buyer
and homes are currently offered at base prices ranging from approximately
$119,000 to $144,000.

         Tesoro at Forest Lakes. Located in West Kendall, Dade County, Florida
this townhome/villa community of 251 lots is located in the master planned
community of Forest Lakes. Tesoro at Forest Lakes targets the entry level home
buyer and homes are currently being offered at base prices ranging from $107,000
to $129,000.

         Lago del Sol. Located in Southwest Dade County, Florida this townhome
community of 284 lots will be offered to first time homebuyers with base selling
prices ranging from $80,000 to $85,000. The sales program opened here in
December 1997.

           Descriptions of the Company's projects planned for future development
follow:

         Fiesta at Serena Lakes Estates. The Company has purchased approximately
16 acres of land adjacent to the current Serena Lakes II project and will build
70 single family homes. The homes will contain 1,400 to 2,000 square feet and
will be offered at $120,000 to $130,000. Sales are currently expected to
commence in January 1998.

         Los Castillos at Windsor Palms. This community of 102 upscale homes
located in Miramar, Southwest Broward County, Florida will have base selling
prices ranging from $203,000 to $250,000. Sales are expected to begin in January
1998.

                                       7
<PAGE>
 
Construction


         The Company, directly or indirectly through an affiliate, acts as the 
general contractor for the construction of its residential developments. The
general contractor's functions include monitoring the construction of each
project (including monitoring compliance with zoning and building codes),
participating in all significant design and building decisions, coordinating the
activities of subcontractors and suppliers and controlling the quality and cost
of the work. Subcontractors and material suppliers typically are retained after
competitive bidding at a fixed price for a specific project, and the Company
does not have any long-term contracts with any of its subcontractors. The
Company generally requires that its subcontractors agree to its standard terms
regarding matters such as frequency of payments and maintenance of insurance.
The Company generally utilizes more than one subcontractor for each type of work
to minimize increased costs and delays that might result if one of its
subcontractors experiences financial or other difficulties.

         The Company has a fully integrated construction and accounting software
package which utilizes the critical path method as the basis of the system. The
critical path method details the integral steps necessary for the complete
construction of a home and sets forth specific milestones and the timing
necessary to achieve the milestones so that the Company can track the progress
of the construction on each of its homes. All data is updated on a daily basis
resulting in current information by project and by individual unit to increase
the likelihood of, among other things, timely completion of homes under
construction.

         The Company does not maintain significant inventories of construction
materials except for materials for homes under construction and a limited amount
of other materials. Generally, the construction materials used in the Company's
operations are readily available from numerous sources, but prices can fluctuate
due to various factors, including increased demand or supply shortages. Whenever
possible, the Company negotiates agreements for price and volume discounts with
national, regional or local suppliers of materials, which either the Company or
its subcontractors will purchase. The Company does not have any long-term
contractual commitments with suppliers of building materials. Homebuilders from
time to time experience industry-wide shortages of certain raw materials, and
prices of materials can fluctuate. In addition, stringent building codes which
were adopted in Dade County and Broward County have increased costs of homes.
The Company has generally been able to pass along cost increases to the
prospective buyers, but there is no assurance that increased costs will not have
a material adverse effect on the Company's operations.

                                       8
<PAGE>
 
Marketing and Sales

         The Company sells substantially all of its homes through employees who
work from sales offices located at the model homes in each project. The Company
also sells its homes through independent real estate brokers. Sales personnel
assist prospective home buyers by providing them with floor plans, information
on prices, options and custom features and tours of model homes. Sales personnel
are trained by the Company and are periodically updated on the availability of
financing, construction schedules, marketing and advertising plans. Most of the
sales personnel are employed on a long-term rather than on a project-by-project
basis, which the Company believes results in reduced training costs and a more
motivated and experienced sales force.

         Each model complex consists of three to five models. Most models are
fully merchandised to accentuate the design and size of the home. The
merchandising is based upon the demographics and lifestyles of the target buyer.
Upgrades in many of the Company's current homes include ceramic tiles, oversized
kitchens and a separate shower and roman tub in master baths, Spanish tile
roofs, brick paved driveways and walkways, security systems, and an upgraded
designer full appliance package. Each project's sales center contains graphic
displays of the floor plans and a community site plan, as well as information on
the history of the Company.

         The Company's advertising program encompasses various media. Signage is
a primary medium which is implemented when land is acquired. Upon the completion
of the models, a full advertising campaign typically begins using newspaper,
radio and direct mail. In addition, the Company provides incentives to
independent real estate brokers as a means of ensuring broker participation.

         The volume and timing of the Company's home sales are substantially
affected by the opening of new residential developments. Generally, a
residential development will generate a high sales volume in the early period of
its existence (due primarily to the wide choice of available lots), with sales
activity decreasing as the project matures. In addition, the Company's ability
to sell its homes is dependent, in large part, upon the ability of its buyers to
obtain mortgage financing. The Company does not finance the purchase of homes in
its communities but rather refers customers to a variety of mortgage lenders for
their financing needs. The Company has experienced significant variability in
sales on a quarterly basis as a result of, among other things, the timing of
home closings, the cyclical nature of the homebuilding industry, changes in
prevailing interest rates and other economic factors and changes in the costs of
materials and labor.

         The Company's home closings are also dependent on the availability of
homeowner's insurance. Primarily as a result of Hurricane Andrew, there is a
widespread shortage of available private insurance for homeowners in the State
of Florida. The State of Florida has created a joint underwriting association to
provide insurance coverages to homeowners who cannot obtain private insurance;
however, such State provided insurance affords homeowners less protection than
is typically provided by private insurance carriers at greater costs and may not
be purchased during periods in which there is a tropical storm which could
threaten the State.

                                       9
<PAGE>
 
         Through its relationships with mortgage companies, the Company monitors
the availability of governmental programs offering low interest mortgage
financing to prospective home buyers as a means to market and increase the
Company's demand for its homes. When programs become available, the Company
reviews the terms of the program and the requisite commitment fee to determine
whether it will submit a bid for the Company to obtain low interest financing
for qualified homebuyers.

Customer Service and Quality Control

         The Company's customer service personnel are responsible for
pre-closing, quality control home inspections with the buyer and responding to
post-closing customer needs. The active participation of customer service
personnel, in management's opinion, reduces post-closing repair costs, fosters
the Company's reputation for quality and service and leads to repeat and
referral business. The Company provides home buyers with a limited warranty
program which, in general, provides home buyers with at least a one-year
warranty on workmanship and building materials through the Home Buyers Warranty
program, a privately insured program that establishes standards for the
acceptable condition of a home and resolution of disputes. Historically, the
Company has not incurred any material costs relating to warranty claims or
defects in construction.

Government Regulation and Environmental Matters

         In developing a project, the Company must obtain the approval of
numerous governmental authorities regulating such matters as permitted land uses
and levels of density, the installation of utility services such as water and
waste disposal and the dedication of acreage for open space, parks, schools and
other community purposes. Several authorities in Florida have imposed impact
fees as a means of defraying the cost of providing certain governmental services
to developing areas, and the amount of these fees has increased significantly
during recent years. Other Florida and local laws require the use of specific
construction materials which reduce the need for energy-consuming heating and
cooling systems or are expected to withstand certain wind speeds. Dade County
and Broward County have enacted more stringent building codes as a result of
Hurricane Andrew which have resulted in increased costs of construction. The
State of Florida and counties and cities within the State have also, at times,
declared moratoriums on the issuance of building permits and imposed other
restrictions in areas where the infrastructure (e.g., roads, schools, parks,
water and sewage treatment facilities and other public facilities) does not
reach minimum standards, all of which could have a material adverse effect on
the Company's business. To date, the governmental approval processes and the
restrictive zoning, moratoriums and allocation systems have not had a material
adverse effect on the Company's development activities.

                                       10
<PAGE>
 
         The Company is subject to a variety of federal, state and local
statutes, ordinances, rules and regulations concerning protection of health and
the environment. The particular environmental laws which apply to any given
community vary greatly according to the community site, the site's environmental
conditions and the present and former uses of the site. These environmental laws
may result in delays, cause the Company to incur substantial compliance and
other costs and prohibit or severely restrict development in certain
environmentally sensitive regions or areas. Prior to consummating the purchase
of land, the Company engages independent environmental engineers to evaluate
such land for the presence of hazardous or toxic materials, wastes or
substances. The Company has not been materially adversely affected to date by
the presence or potential presence of such materials.

         To varying degrees, certain permits and approvals may be required to
complete the residential developments currently being planned by the Company,
including land development permits (water, sewer, paving and drainage), sales
center permits, model home permits and building permits. The process of
obtaining permits and approvals is an ongoing process in the ordinary course of
business that the Company is engaged in as it develops and constructs homes for
its current and future planned projects. The ability of the Company to obtain
necessary approvals and permits for these projects is often beyond the Company's
control, and could restrict or prevent the development of otherwise desirable
property. The length of time necessary to obtain permits and approvals increases
the carrying costs of unimproved property acquired for the purpose of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies, rules
and regulations and their interpretation and application. To minimize these
risks, the Company generally restricts land purchases to tracts that have or
will have zoning and all other related entitlements. To date, the Company has
not encountered any material difficulties in obtaining permits and does not
currently anticipate any material difficulties in obtaining permits in the
future.

Competition

         The homebuilding industry is highly competitive and fragmented. The
Company competes on the basis of a number of interrelated factors, including
location, reputation, amenities, design, quality and price, with numerous large
and small builders, including some builders with nationwide operations and
greater financial, marketing, sales and other resources. At times competitors
may offer homes at discounted prices for financial reasons. The Company also
competes for residential sales with individual resales of existing homes and
condominiums, including sales of homes at deeply discounted prices by lenders,
the Resolution Trust Corporation and other similar institutions. Based on its
knowledge and analysis of the homebuilding market and its knowledge of its
competitors, Management believes that the Company's primary competitive
strengths have been (i) its ability to offer quality residences at affordable
prices; (ii) the location of its communities; and (iii) its reputation for
service, innovative design and value pricing.

                                       11
<PAGE>
 
         The Company also competes with other homebuilders for the acquisition
of lots. Competition for available lots varies from market to market depending
on supply and is based primarily on price, reputation and ability to build,
market and sell homes. In this regard, Management believes that the Company's
history of meeting lot takedown schedules and making timely payments has
enhanced its competitive position with local area land developers.

Warranties, Bonds and Other Obligations

         The Company is often required, in connection with the development of
its projects, to obtain performance or maintenance bonds or letters of credit.
The amount of such obligations outstanding at any time varies in accordance with
the Company's pending construction activities. In the event any such obligations
are drawn upon because of the Company's failure to build required
infrastructure, the Company would be obligated to reimburse the issuing surety
company or bank. At September 30, 1997, the Company had approximately $800,0000
in letters of credit and performance bonds outstanding in connection with its
development and construction activities.

         The Company generally provides home buyers with at least a one-year
warranty on workmanship and building materials and, in certain instances such as
when financing is provided through a government loan or where city codes
require, a ten-year structural warranty. The cost of providing extended
warranties and warranty services was not material during the fiscal year ended
September 30, 1997. The subcontractors who perform most of the actual
construction in turn provide warranties of workmanship to the Company typically
of one year in duration following completion of their work and perform
substantially all of the warranty work at no cost to the Company. The Company
has not sustained any material claims for warranty services under its ten-year
structural warranty program.

         The Company also has obligations to subsidize homeowners' associations
in certain of its residential developments up to a pro rata portion of expenses
based on the number of lots which have not been closed in such developments. To
date, the Company has incurred minimal costs to subsidize homeowners'
associations, as such associations' revenues have been adequate to cover their
operating costs.

                                       12
<PAGE>
 
Employees: Leasing Arrangement

         At September 30, 1997, the Company leased the services of approximately
59 persons, of whom approximately 14 were sales and marketing personnel, 13 were
executive, administrative and clerical personnel and 32 were involved in
construction. All of the personnel of the Company are employees of Paychex
Business Solutions, Inc. ("PBS"), which has an agreement for services with the
Company. PBS is a vehicle for small businesses to obtain workers' compensation
and health care coverage at a discounted large group rate. PBS is the employer
of record and assumes all payroll obligations and certain employee benefits
administration (such as payroll preparation, payment and reporting of payroll
taxes, maintaining employee health insurance and related benefits and workers'
compensation reporting) with respect to the personnel of the Company, while
allowing the Company to retain management control of these persons, including
supervision, job description and salary determinations. The Company determines
changes in staffing levels and makes recommendations to PBS with respect to the
hiring and firing of personnel. Although PBS has the right to do so, PBS has
never failed to accept the recommendation of the Company with respect to hiring
and firing of personnel. The Company prepays PBS for any payroll taxes, workers'
compensation and health insurance and receives a report each quarter from PBS's
certified public accountants as to whether such payroll taxes were filed and
paid in a timely manner. Should PBS fail to pay payroll taxes, workers'
compensation or health insurance, the Company may be liable for such
obligations. References to employees of the Company will include individuals
whose services are leased from PBS. The Company believes that its relations with
its personnel and subcontractors are satisfactory.

Directors and Executive Officers of the Registrant

         The following table sets forth information, with respect to each person
who is currently an executive officer or director of the Company, as indicated
below.

<TABLE>
<CAPTION>

NAME                                  AGE                            POSITION
-------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>
Harry Weitzer                         55                    Chairman of the Board, President
                                                               and Chief Executive Officer
Edward Dwier                          58                    Vice President - Controller
Leigh Feldsteen                       42                    Homebuilding Division - President
Peter Kleinerman                      45                    Executive Vice President
James Rosewater                       31                    Vice President--Marketing
Harry Speizer                         50                    Senior Vice President - Real Estate

Ivan Faggen                           57                    Director and Vice-Chairman of the Board
Joseph B. Rose                        63                    Director
Lawrence Hellring                     50                    Director
Michael Ambrosio                      50                    Director

</TABLE>

                                       13
<PAGE>
 
         Harry Weitzer has served as Chairman of the Board and Chief Executive
Officer of the Company since its formation in June 1994 and as President since
December 1994. Mr. Weitzer has also served as President and Chief Executive
Officer of each of the Company's subsidiaries since their respective inception
more than five years ago. Mr. Weitzer has over 27 years of experience in the
homebuilding industry, being actively engaged as a homebuilder in Michigan (from
1968 to 1976) as well as in Southeast Florida (since 1976). Mr. Weitzer is a
current member of the National Association of Home Builders, the Builders
Association of South Florida and the University of Miami Citizens Advisory
Board.

         Leigh Feldsteen has served as Homebuilding Division-President since
August 1996. From March 1995 to August 1996 Mr. Feldsteen served as the sales
and marketing manager and national director of sales training for Morrison
Homes, Inc,. From January 1993 to January 1995 Mr. Feldsteen served as national
corporate sales trainer for The Ryland Group, Inc.

         Peter Kleinerman has served as Executive Vice President of the Company
since March 1997. From November 1995 to March 1997 Mr. Kleinerman served as the
President of Jadan Capital Corp. which provided operational and strategic
advisory services to growing companies. From February 1993 to November 1995 Mr.
Kleinerman served as Executive Vice President and in other capacities at
Atlantic Gulf Communities Corp., a public real estate development company.

         James Rosewater has served as Vice President-Marketing since May 1995. 
From December 1993 to April 1995, Mr. Rosewater served as Director of Marketing
for Johnson Group Management, Inc./Dry Clean USA, Inc. From December 1989 to
December 1993, Mr. Rosewater served as Director of Marketing for Dry Clean USA,
Inc. Mr. Rosewater is Mr. Weitzer's son-in-law.

         Harry Speizer has served as Senior Vice President-Real Estate since
March 1997. Prior to joining the Company Mr. Speizer was President of the
Speizer Company, a real estate consulting, brokerage and development firm
established by Mr. Speizer more than five years ago.

         Edward Dwier has served as Vice President-Controller since October 
1997. From December 1978 to January 1997 Mr. Dwier served as Vice
President-Finance for the Illinois Division of Pulte Home Corporation.

         Ivan Faggen has served as a Director and Vice Chairman of the Board of
Directors of the Company since December 1996. Mr. Faggen is currently the
managing partner at Triton Pacific Partners, LLC, a company involved in
investment banking. From 1995 to 1996 Mr. Faggen was the managing director of
Tishman Speyer Properties and was responsible for raising capital and acquiring
land for an office building development. From 1962 to 1995 Mr. Faggen was a
partner with Arthur Andersen & Co. LLC and served as world wide director of such
firm's real estate service group.

                                       14
<PAGE>
 
         Joseph B. Rose has served as a Director of the Company since May 1995.
Mr. Rose has been the sole proprietor of Joseph B. Rose Construction Company
since 1957 and the sole proprietor of M.R. Management Company since 1967. These
companies are engaged in the development and management of commercial and
multiple occupancy properties in the Detroit, Michigan metropolitan area.

         Lawrence Hellring has served as a Director of the Company since March 
1996. Mr. Hellring is president and owner of Superior Windows Corp. Mr.
Hellring has been associated with Superior Windows Corp., a privately held
manufacturing company for the past eleven years.

         Michael Ambrosio has served as a Director of the Company since May 
1996. Mr. Ambrosio is vice president of Simkins Industries, Inc. and executive
vice president of Westfield Financial Corp., the real estate investment division
of Simkins Industries, Inc. Mr. Ambrosio has been associated with Simkins
Industries, Inc. for the past five years.

ITEM 2.  PROPERTIES

         The Company's principal business offices are in Miami Lakes in Dade
County, Florida and consist of 9,000 square feet which are being leased from an
unaffiliated third party through 1999. Management believes that its existing
facility will be adequate for its purposes for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

         The Company has been involved from time to time in litigation
arising in the ordinary course of business. The Company is not currently a party
to any litigation which the Company believes could have a material adverse
effect on the financial position or results of operations of the Company.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1997.

                                       15
<PAGE>
 
PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

Market information

         The Company's Class A Common Stock has been traded since April 26, 1995
on Nasdaq under the symbol "WTZRA". Prior to that time, there was no public
market for the Class A Common Stock. There is no established public trading
market for the Company's Class B Common Stock. The following sets forth the
range of high and low bid prices for the Class A Common Stock as reported on
Nasdaq during each of the quarters presented. The quotations set forth below are
inter-dealer quotations, without retail mark-ups, mark-downs or commissions and
do not necessarily represent actual transactions.

<TABLE> 
<CAPTION> 

                              Class A Common Stock
                              --------------------

            Quarterly Period Ended        High Bid         Low Bid
            ----------------------        --------         -------
            <S>                           <C>              <C> 
            September 30, 1997            $1 9/16          $1
            June 30, 1997                 $2 1/8           $1
            March 31, 1997                $2 1/4           $1 7/16
            December 31, 1996             $2 5/8           $1 1/4

            September 30, 1996            $2 5/8           $1 3/4
            June 30, 1996                 $3 3/4           $1 3/4
            March 31, 1996                $5               $3 1/8
            December 31, 1995             $6 1/2           $3 3/4

</TABLE> 

         As of December 26, 1997, there were approximately 73 holders of record
of the Company's Class A Common Stock. This number does not include
approximately 1,050 beneficial owners of the Common Stock whose shares are held
in the names of various dealers, clearing agencies, banks, brokers and other
fiduciaries.

Dividends

         Prior to the Earnings Achievement Date (as hereinafter defined), the
holders of the Common Stock are entitled to receive, if, when and as declared by
the Board of Directors of the Company to the extent funds are legally available
therefor, dividends at the rate of (i) $.325 per share per annum, with respect
to the Class A Common Stock, and (ii) $.001 per share per annum, with respect to
the Class B Common Stock, payable quarterly on the fifteenth day of February,
May, August and November of each year. For periods following the Earnings
Achievement Date, holders of the Class A Common Stock and the Class B Common
Stock are entitled to receive such dividends, in equal amounts per share, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor.

                                       16
<PAGE>
 
         The "Earnings Achievement Date" is a date which is 10 business days
following the filing by the Company with the Securities and Exchange Commission
of the first Form 10-Q or Form 10-K, as the case may be (the "SEC Report"),
which reflects that, as of the last day of the period to which such SEC Report
relates, the Company has had an aggregate of $7,500,000 of Operating Income
earned since April 1, 1995 (the "Earnings Achievement"). "Operating Income" of
the Company for any fiscal period means the Consolidated Net Income for such
period, (x) increased or decreased by all income tax expense or benefit for such
period, and (y) decreased by all dividends paid or accrued during such period.
"Consolidated Net Income" of the Company for any period means the consolidated
income or loss of the Company and its subsidiaries as set forth on the Company's
consolidated statement of income for any such fiscal period and as determined in
accordance with generally accepted accounting principles consistently applied,
provided that (i) the results of operations of any person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) (a) any gains or losses from assets sales or
reserves related thereto (other than a disposition of housing inventory in the
ordinary course of business), (b) any gains or losses upon the extinguishment of
indebtedness, including the write-off of unamortized deferred loan costs and
unamortized original issue discount in connection with the retirement of the
Company's 10% Bonds (as discussed below), or any amortization relating to
original issue discount and deferred loan costs in connection with such 10%
Bonds, and (c) any extraordinary gains or losses, shall be excluded. No later
than (i) 45 days after the end of the Company's fiscal quarter which is not the
year-end or (ii) 90 days after the fiscal year-end, as the case may be, the
Chief Financial Officer of the Company shall determine if the Earnings
Achievement has occurred.

         Under the terms of the Company's outstanding 10% Bonds due June 30,
1998 ("10% Bonds"), the Company may not declare or pay any dividend or make any
other distribution on any equity securities of the Company (except dividends or
distributions payable in equity securities of the Company), or purchase, redeem
or otherwise acquire, or permit a subsidiary to purchase, redeem or otherwise
acquire, any equity securities of the Company (other than equity securities
acquired in exchange for securities of the Company and certain equity securities
issued to employees, directors or consultants), if, upon giving effect to such
dividend, distribution, redemption or other acquisition, the net worth of the
Company would be reduced to less than an amount equal to 120% of the remaining
indebtedness outstanding under the 10% Bonds. As of September 30, 1997, the
indebtedness outstanding under the Company's 10% Bonds was approximately
$3,750,000, excluding accrued interest thereon of $93,000, and the consolidated
net worth of the Company as of September 30, 1997 was approximately $4,126,000.

         The Company is also restricted under the terms of the existing loan
agreements from declaring or paying any dividend or making any other
distribution on any shares of capital stock of the Company (other than for the
dividends on the Class A Common Stock and Class B Common Stock set forth in the
Company's Articles of Incorporation).

                                       17
<PAGE>
 
         The Company had determined that it is currently in the best interest of
the Company and its shareholders to retain all earnings and to forego the August
15, 1996, the November 15, 1996 and all of the 1997 regularly scheduled cash
dividend payments on its outstanding shares of Class A and B Common Stock. The
Company's determination to forego such payment was based in part, on the Board
of Directors determination that such cash would be better used to facilitate the
Company's growth. Cash dividends on the Class A and B Common Stock are
cumulative, and accordingly, the amount of such dividends would innure for the
benefit of the Company's shareholders. The Company would accrue such dividends
on its financial statements only if the Company's Board of Directors has
declared such dividends. The Company will continue to evaluate future cash
dividend payments depending upon then current business conditions, opportunities
for growth and on the then current financial condition of the Company.
Accordingly, no assurance can be given as to when the Company plans on resuming,
if at all, the payment of such cash dividends.

ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated financial data for
the Company. As of September 30, 1994, Harry Weitzer contributed all of the
outstanding shares of capital stock of certain corporations which were general
partners of the Weitzer Homebuilding Partnerships (the "Weitzer Subsidiaries")
to the Company in exchange for 1,500,000 shares of Class B Common Stock (the
"Weitzer Entities Exchange"). The selected consolidated financial data give
effect to the Weitzer Entities Exchange for each of the relevant periods, and
treats the Weitzer Entities Exchange on a basis similar to a pooling of
interests, which has the effect of combining all companies as if the combination
had been effective for the periods presented. Prior to May 1995, the Company
conducted substantially all of its operations through the Weitzer Homebuilding
Partnerships. See -"Business." During that time, the Company used the equity
method to account for its investment in the Weitzer Homebuilding Partnerships
and, accordingly, the selected consolidated financial data of the Company during
this time do not include the revenues, assets or equity of the Weitzer
Homebuilding Partnerships. Following the acquisition of the interests of the
affiliates of the Financial Partner in May, 1995, the Company consolidated the
operations of the Weitzer Homebuilding Partnerships with the financial
statements of the Company. The selected consolidated financial data should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere herein. The selected consolidated
financial data of the Company for the five fiscal years ended September 30, 1997
have been derived from the Company's audited consolidated financial statements.
Prior to September 30, 1994, the Weitzer Subsidiaries operated as S-
Corporations under the Internal Revenue Code of 1968 as amended, and,
accordingly, the Weitzer Subsidiaries' taxable income was taxed directly to the
sole shareholder. Pro forma net income and pro forma net income per share
amounts assume that the Company was subject to federal income taxes and taxed as
a C-Corporation at the effective tax rates in existence for the periods.

                                       18
<PAGE>
 
Selected Financial Information for the Company

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                 YEARS ENDED SEPTEMBER 30,
                                        -----------------------------------------------------------------------------
                                             1993           1994           1995            1996            1997
                                             ----           ----           ----            ----            ----
<S>                                       <C>            <C>           <C>              <C>            <C>
 INCOME STATEMENT DATA:
 Equity in earnings of 50%-owned
  affiliated partnerships(1)              $  509,334     $1,847,738    $    686,711     $   --         $   --
 Sales of homes                              112,390        998,849      13,450,684      37,391,780     55,419,763
 Net income (loss)                           492,899      1,647,149          68,814      (2,962,046)    (3,168,279)
 Net income (loss) per share                  --             --               $0.03          $(0.81)        $(0.82)
 Pro forma net income                        307,603        966,597(2)         --           --             --
 Pro forma net income per share                $0.17          $0.54            --           --             --
 Average number of shares
  outstanding                              1,801,300(3)   1,801,300(3)    2,277,950       3,649,204      3,860,254
 Dividends declared per share                 --             --               $0.08           $0.24        --
---------------------------------------------------------------------------------------------------------------------

<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                       September 30,
                                        -----------------------------------------------------------------------------
                                             1993           1994           1995            1996            1997
                                             ----          ----           ----            ----            ----
<S>                                       <C>            <C>           <C>              <C>            <C>
 BALANCE SHEET DATA:
 Land and construction-in progress        $   --         $    --       $ 30,167,295     $31,505,383    $39,181,888
 Total assets                              1,780,705      2,228,209      36,922,360      39,673,788     41,446,861
 Total liabilities                           573,666      1,374,257      26,867,489      32,379,779     37,321,131
 Shareholders' equity                      1,207,039        853,952      10,054,871       7,294,009      4,125,730
---------------------------------------------------------------------------------------------------------------------

</TABLE>

-----------------------------------

     (1) Equity in earnings of 50%-owned affiliated partnerships represents the
Company's share of the income of the Weitzer Homebuilding Partnerships. Each
partnership's income was allocated to the partners first as a preferred return
on partners' capital (which is principally contributed by the Financial Partner
affiliates), with the balance of income shared equally; all losses were shared
equally. Selected combined financial information of the Weitzer Homebuilding
Partnerships is set forth below.

     (2) Includes a charge of approximately $262,000 relating to the write-off
of costs incurred in connection with a terminated merger agreement.

     (3) Based upon (i) 1,500,000 shares of Class B Common Stock presently
outstanding, and (ii) 301,300 shares of Class A Common Stock (based on an
initial public offering price of $6.50 per share and net of Class A Common Stock
assumed to have been repurchased at such initial public offering price per share
under the treasury stock method) assumed to be outstanding upon the exercise for
$.10 per share of warrants then outstanding.

                                       19
<PAGE>
 
Selected Combined Financial Information of the Company and the Weitzer
Homebuilding Partnerships

<TABLE>
<CAPTION>
                                                                  Years Ended September 30,
                                            -----------------------------------------------------------------------
                                                     1992              1993              1994             1995
                                                     ----              ----              ----             ----
                                                                                                        (unaudited)
 <S>                                              <C>               <C>              <C>               <C>  
 INCOME STATEMENT DATA:
 Sales of homes                                   $21,336,433       $34,038,889      $53,320,277       $37,669,019
 Cost of homes sold                                18,245,203        29,201,090       45,710,767        31,876,433
 Other costs and expenses                           2,640,262         3,630,347        3,497,209         3,531,052
 Net income                                           512,603         1,356,127        4,454,170         2,261,534

<CAPTION>
                                                               September 30,
                                            -----------------------------------------------------
                                                     1992              1993              1994
                                                     ----              ----              ----
 <S>                                              <C>               <C>              <C>   
 BALANCE SHEET DATA/(1)/:
 Real estate inventories                          $21,214,968       $29,224,358      $16,802,444
 Total assets                                      24,426,848        34,961,017       21,187,373
 Total liabilities                                 18,630,006        26,815,367       14,594,117
 Partners' equity:
    Weitzer Entities                                  701,350         1,186,816        1,089,911
    Financial Partner                               5,095,492         6,958,834        5,503,345
</TABLE>

-------------------------------

     /(1)/ Following the Partnership Acquisition in May, 1995, the Company
consolidates the operations of the Weitzer Homebuilding Partnerships with the
consolidated financial statements of the Company.

                                      20
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         Prior to May 3, 1995, substantially all of the Company's homebuilding
projects were conducted through the Weitzer Homebuilding Partnerships, in which
a subsidiary of the Company held a 50% general partnership interest, and the
Company accounted for its investment in the Weitzer Homebuilding Partnerships
under the equity method of accounting, whereby its initial investment was
recorded at cost, adjusted by its share of the Weitzer Homebuilding
Partnerships' operating results and reduced by distributions received. On May 3,
1995, the Company used a portion of the net proceeds of its initial public
offering to acquire the Financial Partner's interests in the Weitzer
Homebuilding Partnerships and now consolidates the operations of these former
partnerships with the financial statements of the Company.

         Except for the historical information contained herein, the matters
discussed in this Form 10-K are forward looking statements which involve risks
and uncertainties, including, but not limited to, economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services, and prices and other factors discussed in the
Company's other filings with the Securities and Exchange Commission.

Results of Operations

General
-------

         Backlog and Available Lots for Sale or Under Option or Contract. The
following table sets forth the Company's backlog, the available lots for sale
and the available lots for construction for the periods presented. The backlog
consists of homes under sales contracts and includes homes under construction,
as well as homes which have been sold but not started. At September 30, 1997,
approximately 70% of the homes in backlog were under construction. The available
lots for sale refer to the number of lots the Company has acquired which it
plans to construct homes on and excludes homes under sales contracts included in
backlog. The available lots under option or contract refer to the number of lots
as to which the Company has an option or a contract to acquire, but whose
acquisition has not closed. The available lots under option or contract reflect
the lots for projects which are currently being developed or are currently
planned for future development. There can be no assurances that settlements of
homes subject to sales contracts will occur or that all of the available lots
for sale will be built on, or that the available lots under option or contract
will be acquired or built on. The Company estimates that the cancellation rate
on homes for which a sales contract was signed for the fiscal year ended
September 30, 1997 was approximately 15% to 20%.

                                      21
<PAGE>
 
Backlog of Homes, Available Lots for Sale and Available Lots Under Option 
--------------------------------------------------------------------------
or Contract
-----------

<TABLE>
<CAPTION>
                                                                     September 30,
                                                        --------------------------------------
                                                               1997               1996
                                                               ----               ----
 <S>                                                        <C>                 <C>
 Number of homes in backlog                                         239                 282
 Aggregate sales value of homes in backlog                  $26,865,000         $33,405,000
 Available lots for sale                                          1,045                 583
 Available lots under option or contract                          1,169                 943
</TABLE>

Comparison of the Years Ended September 30, 1997 and 1996
---------------------------------------------------------

         Revenues from home sales increased from approximately $37.4 million for
the year ended September 30, 1996 to approximately $55.4 million for the year
ended September 30, 1997. This change reflects a 5.4% decrease in the average
selling price of homes delivered (from $121,009 to $114,503) due to changes in
product mix offset by a 56.6% increase in the number of homes delivered (from
309 to 484).

         Cost of homes sold increased from approximately $35.4 million for the
year ended September 30, 1996 to approximately $51.7 million for the year ended
September 30, 1997, primarily as a result of the increase in the number of homes
delivered. Cost of homes sold as a percentage of homes sales decreased from
94.7% during the year ended September 30, 1996 to 93.4% for the year ended
September 30, 1997. Cost of homes sold also includes impairment charges of
$2,652,000 in fiscal 1997 and $1,050,000 in fiscal 1996 related to the Company's
assessment of the recoverability of certain costs of real estate projects
performed in the respective year ends.

         Selling, general and administrative ("SG&A") expenses increased from
approximately $4.8 million for the year ended September 30, 1996 to
approximately $6.2 million for the year ended September 30, 1997 due to the
increase in sales volume. SG&A expenses as a percentage of total revenues
decreased from 12.7% for the year ended September 30, 1996 to 11.1% for the year
ended September 30, 1997.

         Total expenses increased from approximately $40.7 million for the year
ended September 30, 1996 to approximately $59.0 million for the year ended
September 30, 1997. The increase is attributed primarily to the increase in the
cost of homes sold as discussed above. The increase also included a charge for
the impairment of Goodwill of approximately $331,000. Based on a review
performed at fiscal year end 1997, the Company determined that the Goodwill had
no continuing value and, accordingly, recorded an impairment charge.

         Net loss increased from approximately $3.0 million for the year ended
September 30, 1996 to a loss of approximately $3.2 million for the year ended
September 30, 1997, primarily as a result of the impairment charges previously
discussed.

                                      22
<PAGE>
 
Comparison of the Years Ended September 30, 1996 and 1995
---------------------------------------------------------

The Company as compared to the Combined Weitzer Homebuilding Partnerships

         The revenues from home sales decreased from approximately $37.7 million
for the year ended September 30, 1995 to approximately $37.4 million for the
year ended September 30, 1996. This change reflects a 4.9% decrease in the
average selling price of homes delivered (from $127,260 to $121,009) due to
changes in product mix partially offset by a 4.4% increase in the number of
homes delivered (296 to 309).

         Cost of homes sold increased from approximately $31.9 million for the
year ended September 30, 1995 to approximately $35.4 million for the year ended
September 30, 1996, primarily as a result of higher cost of sales for the
Harmony Lakes project. Cost of homes sold as a percentage of homes sales
increased from 84.6% during the year ended September 30, 1995 to 94.7% for the
year ended September 30, 1996. The increase was primarily attributable to the
overall lower profit margin being attained on the Harmony Lakes project because
of higher borrowing and land development costs. Cost of homes sold also includes
an impairment charge of $1,050,000 related to the Company's assessment of the
recoverability of the Harmony Lakes Project.

         Selling, general and administrative ("SG&A") expenses increased from
approximately $3.5 million for the year ended September 30, 1995 to
approximately $4.8 million for the year ended September 30, 1996. SG&A expenses
as a percentage of total revenues increased from 9.3% for the year ended
September 30, 1995 to 12.7% for the year ended September 30, 1996. The increase
was primarily attributable to start-up selling expenses for certain projects for
which there were minimal home sales.

         Net Income decreased from approximately $2.3 million for the year ended
September 30, 1995 to a loss of approximately $3.0 million for the year ended
September 30, 1996, primarily as a result of the lower margins and impairment
charge associated with the Harmony Lakes project.

The Company

         Sales of homes and total revenues increased from approximately $13.5
million and $14.3 million, respectively, for the year ended September 30, 1995
to approximately $37.4 million and $37.8 million, respectively, for the year
ended September 30, 1996, while the Company's equity in the earnings of the
Weitzer Homebuilding Partnerships decreased from approximately $687,000 for the
year ended September 30, 1995 to zero during the year ended September 30, 1996.
These changes are attributed to the Partnership Acquisition. Accordingly, the
results of operations for the Company for the 1996 fiscal year as compared to
the prior fiscal year may not be meaningful, as described herein.

                                      23
<PAGE>
 
         Total expenses increased from approximately $14.2 million for the year
ended September 30, 1995 to approximately $40.7 million for the year ended
September 30, 1996. The increase is attributed primarily to the change in
accounting for the investment in the Weitzer Homebuilding Partnerships resulting
from the Partnership Acquisition. SG&A expenses increased from approximately
$2.3 million for the year ended September 30, 1995 to approximately $4.8 million
for the year ended September 30, 1996. The increase in SG&A expenses is also
attributable to the change in accounting for the investment in the Weitzer
Homebuilding Partnerships resulting from the Partnership Acquisition.
Discontinued land acquisition costs of approximately $311,000 for the year ended
September 30, 1995 reflect the write-off of costs incurred in connection with
the proposed acquisition of the land for the Company's El Dorado project for
which the agreement to acquire the land expired and was not able to be extended
on terms satisfactory to the Company.

         The Company's net income for the year ended September 30, 1995 was
approximately $69,000 compared to a net loss of $3.0 million for the year ended
September 30, 1996.

Liquidity and Capital Resources

         General. As is typical in the homebuilding industry, the Company will
require both short-term and long-term financing. Such needs will depend upon the
Company's construction volume, asset turnover and land acquisitions. The
Company's most significant sources of funds are proceeds realized from home
closings; proceeds from acquisition, development and construction financing
provided by financial institutions or other lenders; and seller financing for
land purchases. The Company will continue seeking to procure additional outside
financing in both the short- and long-term, as more fully described below, for
its future projects and on-going capital requirements.

         The $3.75 million principal amount outstanding of the 10% Bonds,
together with accrued and unpaid interest thereon, will become due and payable
in full upon the earlier to occur of (i) June 30, 1998, or (ii) the receipt by
the Company of at least $12.0 million of gross proceeds from the public or
private sale of its equity securities (other than sales prior to October 7, 1994
or from the sale of units in the Company's October 7, 1994 Private Placement).
As of September 30, 1997, the Company will be required to repay the 10% Bonds
upon any additional sales of equity securities in excess of approximately
$815,000. While the 10% Bonds are outstanding, this prepayment obligation will
materially adversely affect the Company's ability to finance its activities
through the sale of equity securities. In addition, it is unlikely that cash
flow from operations will be sufficient to pay off the outstanding principal
amount of the 10% Bonds, plus accrued interest, when such obligations become due
on June 30, 1998. Management is currently exploring several alternatives to
address these obligations including, but not limited to (i) redeeming the 10%
Bonds on a discounted basis; (ii) restructuring the payments on the 10% Bonds;
and (iii) refinancing the 10% Bonds through the procurement of debt and/or
equity financing. There can be no assurance that the Company's restructuring
efforts will be successful or that the 10% Bondholders will agree to a course of
action

                                      24
<PAGE>
 
consistent with the Company's requirements in restructuring these obligations on
terms deemed acceptable by the Company. If the Company is unable to procure
additional debt and/or equity financing on terms deemed favorable to the Company
or if the Company is unsuccessful in its efforts, in terms of restructuring the
10% Bonds, the Company may be in default of such obligations when they become
due, and as a consequences may be forced to curtail its then current level of
operations. Although the 10% Bonds are collateralized by the shares of the
issued and outstanding capital stock of the Company's wholly owned subsidiary,
Weitzer at Harmony Lakes, Inc., it is unlikely that the 10% Bondholders will
realize any proceeds from such security interest underlying the 10% Bonds. In
such event, the 10% Bondholders would become unsecured creditors of the Company.

         Annual dividends on the outstanding shares of Class A Common Stock if,
when and as declared by the Board of Directors of the Company to the extent
funds are legally available therefor, are approximately $767,000 based on the
current number of Class A Common Shares outstanding. Since August 1996, the
Board of Directors of the Company has elected to forego the regularly scheduled
cash dividend payments on its outstanding shares of Class A Common Stock and
Class B Common Stock. Cash dividends on both classes of Common Stock are
cumulative, and the amount of any unpaid dividends innures for the benefit of
the Company's shareholders (See "Dividends"). As of September 30, 1997 dividends
in arrears amounted to $960,354. The Company would accrue such dividends on its
financial statements only if and when declared by the Company's Board of
Directors.

         At September 30, 1997, the Company had borrowings from banks and third
parties aggregating approximately $29.2 million. Scheduled and estimated
maturities of the Company's borrowings for the years ended September 30, 1998,
1999, 2000 and 2001 are expected to be approximately $1.6 million, $13.5
million, $13.7 million, and 0.4 million, respectively. The Company anticipates
that within the next twelve months it will fund, in part, its debt and required
expenditures relating to its existing communities, including certain development
costs, primarily with cash flow from home sales and construction/development
financing. To the extent cash flow from operations is not sufficient to satisfy
such obligations or maintain its current level of operations based on its
current volume of home sales at such time, the Company will attempt to procure
additional equity or debt financing. Although, there is no assurance that such
financing can be obtained on terms deemed favorable to the Company. To the
extent the Company is unable to procure such financing on terms favorable to the
Company, the Company may be forced to curtail its level of operations at such
time. Moreover, the Company believes unless the 10% Bonds can be restructured
successfully, the ability of the Company to procure additional financing may be
adversely impacted.

                                      25
<PAGE>
 
         On April 23, 1997, the Company increased an existing revolving loan
agreement from $25.0 million to $35.0 million to be used for the acquisition,
development and construction of new residential projects. On June 25, 1997, the
Company further increased the revolving loan agreement to $50.0 million. The
lender generally advances 85% of the cost of the land or lots to be acquired,
100% of the development cost, if applicable, and up to 80% of the sale price per
the customer purchase agreement for construction. Each project to be funded
under this credit agreement will be subject to the lender's approval. The
revolving credit loans have a maturity of no greater than 36 months from the
date of the initial project closing and bear interest at the prime rate plus
1.0% per annum. The lender receives an annual 0.5% commitment fee on the total
amount of the credit facility. The lender is also entitled to an additional fee
of 1% to 2% of the gross sale price of each house and lot sold for which funds
have been advanced from the credit facility as compensation for the higher
advance rate provided on land acquisition. The credit agreement is
collateralized by a first mortgage on each related property. At September 30,
1997, approximately $6.8 million remained unallocated under the total credit
facility and $600,000 remained available under the $1.0 million working capital
portion of the credit facility.

         On June 30, 1997, the Company purchased 102 developed lots in Southwest
Broward County for its new Los Castillos at Windsor Palms community for a
purchase price of $4.5 million. The lender approved a loan of $6.6 million under
the credit agreement to be used for the acquisition, partial development and
construction of the community. At September 30, 1997, approximately $2.5 million
remained available for this community project. On September 12, 1997, the
Company purchased 88 developed lots in Southwest Dade County for the third and
final phase of its Tesoro at Forest Lakes community for a purchase price of $2.0
million. The lender approved a loan of $3.4 million under the credit facility to
be used for the acquisition, partial development and construction of the third
phase of this community. At September 30, 1997, approximately $3.3 million
remained available for all three phases of the Tesoro at Forest Lakes project.
The Company has contracted to purchase 500 developed lots in Southwest Broward
County for its new townhome community of Malibu Bay. The first phase of the
community includes 249 lots. As of June 1, 1997, the Company completed the
purchase of 125 lots in phase one for a purchase price of $2.2 million plus
$216,000 to be applied to subsequent lot takedowns. The lender approved a loan
of $8.6 million under the credit facility to be used for the acquisition,
partial development and construction for phase one of this community. At
September 30, 1997, approximately $4.4 million remained available for phase one
of the Malibu Bay project. It is the Company's intent to purchase the remaining
124 lots in phase one during the 1998 fiscal year for a purchase price of $2.2
million using the financing already approved, contingent upon the Company's
compliance with all required lender covenants at such time. The Company will
require approximately $350,000 of additional capital to complete the purchase
although, there is no assurance that such additional capital can be obtained.
Based on the current sales pace at Malibu Bay, it is the Company's intent to
begin purchasing lots in phase two during the 1998 fiscal year up to a total
purchase price of $4.3 million contingent upon the Company obtaining additional
capital and acquisition and construction financing. Although, there is no
assurance that additional capital and financing can be obtained. The financing
activity at the Company's communities of Hammocks at Riverglen, Harmony Lakes
and Tesoro at Forest Lakes phases one and two consisted primarily of
construction draws and repayments related to the existing revolving construction
loans.

                                      26
<PAGE>
 
         On January 31, 1997, the Company exercised its option to acquire 30.6
acres of land in its Serena Lakes Townhomes community for a purchase price of
approximately $1.0 million to be developed into an aggregate of 284 lots as the
third and final phase of the community called Lago del Sol. A $4.2 million loan
was obtained from one of the Company's existing lenders for the acquisition and
development of the property. A $6.0 million revolving construction loan was also
obtained. The acquisition and development loan has a maturity of 36 months while
the construction loan has a maturity of 42 months. The term of each loan may be
extended for a period of up to six months. Both loans bear interest at the prime
rate plus 1.5% per annum and are collateralized by a first mortgage on the
related property. At September 30, 1997, approximately $7.1 million remained
available for this community project.

         During fiscal 1997, the Company began developing the final phase of the
Serena Lakes Estates community into an aggregate of 70 single family estate lots
called Fiesta. The land was purchased in 1995 as part of an overall land
acquisition in Serena Lakes with an acquisition and development loan obtained
from one of the Company's existing lenders. The portion of the original $6.5
million acquisition and development loan allocated to Fiesta totals $1.8
million. On December 20, 1996, the existing revolving construction loan was
increased from $5.0 million to $7.0 million of which $3.0 million is allocated
to the construction of Fiesta. The acquisition, development and construction
loans are collateralized by a first mortgage on the related properties and
mature on July 31, 2000. The acquisition and development loan and construction
loan bear interest at the prime rate plus 1% and .875% per annum, respectively.
At September 30, 1997, approximately $6.3 million remained available for the
Fiesta project and the completion of the previous phase. On July 22, 1997, the
lender released the Company's Chairman of the Board and his wife from all
obligations and liability under the previous guarantee agreements pertaining to
these loans. The Company continues to be required to maintain a 25% equity
position in the projects for which the acquisition and development loans are to
be used. There is no assurance that the Company can satisfy such equity
requirements and remain in compliance with the loan covenants.

         Land Acquisition and Construction Financing. The Company is continually
exploring opportunities to purchase parcels of land for its homebuilding
operations and is, at any given time, in various stages of proposing, making
offers for, and negotiating the acquisition of various parcels, whether outright
or through options. The closing of the contemplated purchases are, in most
cases, subject to a number of conditions, including the Company's completion of
a satisfactory due diligence investigation and obtaining certain required
regulatory approvals for development, and procurement of necessary financing on
terms deemed favorable by the Company.

         Debt Covenants. The Company's loan agreements require the Company to
maintain certain financial ratios. The Company was not in compliance with these
covenants at September 30, 1997. The lenders have waived compliance with these
covenants through fiscal 1998, however, no assurance can be given that the
Company would be able to satisfy all applicable requirements under such loan
agreements during such period of time. If an event of default should occur under
the loan agreements, the applicable lender would have the immediate right to
accelerate the affected loan(s) and foreclose on the assets collateralizing such
loans. There is no assurance the Company would be able to repay or refinance
such loans which would have a material adverse effect on the Company.

                                      27
<PAGE>
 
         Cash Flows. During the year ended September 30, 1997, the Company had
9.8 million of net cash used in operating activities, primarily as a result of
the net loss from operations and an increase in construction in progress at
Forest Lakes, Malibu Bay and Los Castillos at Windsor Palms. During that period
the Company had net cash provided by financing activities of $5.0 primarily from
the financing of the three aforementioned communities and partially offset by
the repayment of the 5% debentures. During the year ended September 30, 1996 the
Company had $2.3 million of net cash used in operating activities primarily as a
result of the net loss from operations and a decrease in accounts payable and
accrued liabilities. During that same period the Company had net cash provided
by financing activities of $5.7 million arising principally from the financing
for the Weitzer at Forest Lakes and Deerfield projects. During the year ended
September 30, 1995 the Company had $17.0 million of net cash used in operating
activities primarily as a result of the land purchase for the Weitzer at Harmony
Lakes project and the Hammocks at River Glen community project. During that
period the Company had net cash provided by financing activities of $21.8
million arising principally from the financing for the Weitzer at Harmony Lakes
project, the Hammocks at River Glen community project and the proceeds from the
Company's initial public offering.

Variability of Operating Results; Factors Affecting Future Results of Operations
and Liquidity

         The Company has experienced, and expects to continue to experience,
significant variability in sales and net income as a result of, among other
things, the stage of development of its projects, the timing of home closings,
the cyclical nature of the homebuilding industry, changes in the costs of
materials and labor, and the changes in prevailing interest rates and other
economic factors. The Company's new sales contracts and home closings typically
vary from period to period depending primarily on the stages of development of
its projects. In the early stages of a project's development, the Company incurs
significant start-up costs associated with, among other things, project design,
land acquisition and development, zoning and permitting, construction and
marketing expenses. Since revenues are recognized only upon the transfer of
title at the closing of a sale of a home, there are no revenues during the early
stages of a project. During the later stages of a project, however, costs are
lower in relation to the revenues recognized. Accordingly, the Company's
historical financial performance is not necessarily a meaningful indicator of
future results and, in general, management expects that financial results may
vary significantly from period to period. The Company's results of operations
and liquidity could be affected by prevailing interest rates. Lower interest
rates may result in increased demand for homes, increased sales, lower financing
costs and lower costs of homes sold, while higher interest rates may result in
lower demand for homes, lower sales, higher financing costs and higher costs of
homes sold and, subsequently, reduced profitability. Although the Company has
not experienced a sharp decline in the demand for its homes during recent
periods in which interest rates have risen, any increases in interest rates
could result in such a decline and have a material adverse effect on the
Company's future results of operations and liquidity.

                                      28
<PAGE>
 
Inflation

         The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. Inflation also increases the Company's interest costs
and costs of labor and materials. The Company attempts to pass through to its
homebuyers any increases in costs through increased selling prices and, for the
past three fiscal years, inflation has not had a material adverse effect on the
Company's results of operations. There is no assurance, however, that inflation
will not have a material adverse impact on the Company's future results of
operations.

                                      29
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO
         FINANCIAL STATEMENTS AND SCHEDULES

                                                                            Page


Report of Independent Accountants............................................31

Consolidated Balance Sheets as of September 30, 1997 and 1996
 .............................................................................32
Consolidated Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995............................................33

Consolidated Statements of Shareholders' Equity for the  Years Ended
September 30, 1997, 1996 and 1995............................................34

Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995............................................35

Notes to Consolidated Financial Statements...................................36

                                       30
<PAGE>
 
REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
Weitzer Homebuilders Incorporated and Subsidiaries

We have audited the accompanying consolidated balance sheets of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has bonds payable in the amount of $3.75
million which have a scheduled maturity in June 1998. Management's plans to
restructure or refinance the bonds payable are also discussed in Note 5. If the
Company is unable to achieve any of the alternatives discussed in Note 5, there
is substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability of asset carrying amounts or the
amount of liabilities that might result should the Company be unable to continue
as a going concern.



Coopers & Lybrand L.L.P.
Miami, Florida
December 12, 1997

                                       31
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996

<TABLE> 
<CAPTION> 

                     ASSETS                                                                1997             1996
                                                                                     ---------------   ---------------
<S>                                                                                  <C>               <C> 
 Cash                                                                                $      236,523    $    2,899,048
 Restricted escrow funds                                                                     82,105           288,872
 Advances for future projects                                                                     0         1,945,277
 Land                                                                                    23,348,773        21,193,750
 Construction-in-progress                                                                15,833,115        10,311,633
 Model furnishings, net of accumulated depreciation of
     $246,806 and $238,640, respectively                                                    502,920           870,251
 Deferred loan costs, net of accumulated amortization of
     $611,646 and $752,030, respectively                                                    348,383           628,480
 Goodwill, net of accumulated amortization of $40,552 in 1996                                     0           388,821
 Other assets                                                                             1,095,042         1,147,656
                                                                                     ---------------   ---------------

                                                                                     $   41,446,861    $   39,673,788
                                                                                     ===============   ===============

 LIABILITIES AND SHAREHOLDERS' EQUITY

 Customer deposits                                                                   $    1,173,742    $    1,666,121
 Accounts payable and accrued liabilities                                                 3,006,640         2,575,315
 Acquisition, development and construction loans payable                                 29,170,513        23,164,507
 10% bonds payable, net of discount                                                       3,681,343         3,371,650
 5% debentures                                                                                    0         1,185,000
 Notes and loans payable                                                                    288,893           417,186
                                                                                     ---------------   ---------------

                                                                                         37,321,131        32,379,779
                                                                                     ---------------   ---------------

 Commitments and contingencies (Note 11)

 Shareholders' equity:
     Preferred stock, $.01 par, 5,000,000 shares authorized, none
         issued and outstanding                                                                   0                 0
     Class A common stock, $.01 par, 40,000,000 shares authorized, 2,360,254
         shares issued and outstanding                                                       23,603            23,603
     Class B common stock, $.01 par, 1,500,000 shares authorized
         issued and outstanding                                                              15,000            15,000
 Additional paid-in capital                                                              10,330,950        10,330,950
 Accumulated deficit                                                                     (6,243,823)       (3,075,544)
                                                                                     ---------------   ---------------

                                                                                          4,125,730         7,294,009
                                                                                     ---------------   ---------------

                                                                                     $   41,446,861    $   39,673,788
                                                                                     ===============   ===============
</TABLE> 

 See notes to consolidated financial statements

                                       32
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
for the years ended September 30, 1997, 1996 and 1995

<TABLE> 
                                                                          1997               1996             1995
<S>                                                                <C>               <C>               <C> 
 Revenues:
     Sales of homes                                                $   55,419,763    $    37,391,780   $    13,450,684
     Equity in earnings of affiliated partnerships                              0                  0           686,711
     Interest income                                                      159,142            149,459           130,664
     Other income                                                         285,313            231,858            63,967
                                                                   ---------------   ----------------  ----------------

                                                                       55,864,218         37,773,097        14,332,026
                                                                   ---------------   ----------------  ----------------

 Operating costs and expenses:
     Costs of homes sold                                               51,743,605         35,425,713        11,403,230
     Selling expenses                                                   4,349,641          2,527,568         1,327,009
     General and administrative expense                                 1,825,403          2,234,404           922,637
     Depreciation and amortization                                        591,866            449,368           197,942
     Goodwill write off                                                   331,570                  0                 0
     Discontinued land acquisition expense                                 92,215             32,254           310,686
     Interest expense                                                      98,197             65,836            64,708
                                                                   ---------------   ----------------  ----------------

                                                                       59,032,497         40,735,143        14,226,212
                                                                   ---------------   ----------------  ----------------

 Income (loss) before income taxes                                     (3,168,279)        (2,962,046)         (105,814)

 Income tax provision                                                           0                  0            37,000
                                                                   ---------------   ----------------  ----------------

 Net income (loss)                                                 $   (3,168,279)   $    (2,962,046)  $        68,814
                                                                   ===============   ================  ================

 Net income (loss) per common share                                $       (0.82)    $        (0.81)   $          0.03
                                                                   ===============   ================  ================

 Weighted average number of common shares
     outstanding                                                        3,860,254          3,649,204         2,277,950
                                                                  ================  ================= =================
</TABLE> 



 See notes to consolidated financial statements

                                       33
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 

for the years ended September 30, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

                          Class A Common Stock      Class B Common Stock       Additional                              
                           Number                    Number                      Paid-in       Accumulated               
                          of Shares     Amount       of Shares     Amount        Capital        Deficit       Total       
                          -----------  -----------  -----------  -----------   ------------  ------------  ------------
<S>                       <C>          <C>          <C>          <C>           <C>           <C>           <C> 
 Balance,
     September 30, 1994   
                                  0   $         0    1,500,000  $    15,000   $  1,021,264  $   (182,312)  $    853,952

 Warrants issued in
    connection with
    private placement       432,663         4,327            0            0        714,344              0       718,671

 Issuance of common
    stock                 1,600,000        16,000            0            0       8,562,588              0     8,578,588

 Dividends - $0.08125
    per share                     0             0            0            0       (165,154)              0     (165,154)

 Net income                       0             0            0            0               0         68,814        68,814
                          -----------  -----------  -----------  -----------   ------------   ------------  ------------

 Balance,
    September 30, 1995    2,032,663        20,327    1,500,000       15,000      10,133,042      (113,498)    10,054,871

 Conversion of 5%
    debentures              327,591         3,276            0            0         693,370              0       696,646

 Dividends - $0.24375
    per share                     0             0            0            0       (495,462)              0     (495,462)
 
 Net loss                         0             0            0            0               0     (2,962,046)  (2,962,046)
                          -----------  -----------  -----------  -----------   ------------  ------------  ------------

 Balance,
     September 30, 1996    2,360,254        23,603    1,500,000       15,000      10,330,950    (3,075,544)     7,294,009

 Net loss                          0             0            0            0               0    (3,168,279)    (3,168,279)
                          -----------  -----------  -----------  -----------     ------------  ------------  ------------

 Balance,
     September 30, 1997    2,360,254   $    23,603    1,500,000  $    15,000   $  10,330,950  $ (6,243,823)  $  4,125,730
                         ============ ============ ============ ============   ============= ============= =============
</TABLE> 




See notes to consolidated financial statements

                                       34
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended September 30, 1997, 1996 and 1995

<TABLE> 
<CAPTION> 

                                                                                1997           1996            1995
<S>                                                                         <C>            <C>            <C> 
 Cash flows from operating activities:
    Net income (loss)                                                       $ (3,168,279)  $ (2,962,046)  $     68,814
    Adjustments to reconcile net income (loss) to net cash 
        used in operating activities:

       Equity in earnings of affiliated partnerships                                   0              0       (686,711)
       Current distribution of income from partnerships                                0              0         42,614
       Depreciation, amortization and other non-cash changes                     821,341        607,747        197,942
       Deferred income taxes                                                           0              0         37,000
       Changes in assets and liabilities, net of acquisition:
         Restricted escrow funds                                                 206,767      1,526,987       (931,187)
         Construction-in-progress                                             (7,676,505)      (888,720)   (17,688,606)
         Other assets                                                             57,175         51,242       (783,673)
         Customer deposits                                                      (492,379)       700,462         80,987
         Accounts payable and accrued liabilities                                431,325     (1,316,634)     2,694,734
                                                                            -------------  -------------  -------------

         Net cash used in operating activities                                (9,820,555)    (2,280,962)   (16,968,086)
                                                                            -------------  -------------  -------------

 Cash flows from investing activities:
    Distributions from affiliated partnerships                                         0              0     (4,056,370)
    Purchase of property and equipment                                          (148,780)             0              0
    Proceeds (Purchases) of model furnishings                                    359,128       (461,254)      (362,031)
    Advances for future projects                                               1,945,277     (1,664,987)     1,118,619
                                                                            -------------  -------------  -------------

         Net cash provided by investing activities                             2,155,625     (2,126,241)    (3,299,782)
                                                                            -------------  -------------  -------------

 Cash flows from financing activities:
    Loan from shareholder                                                              0              0         70,000
    Acquisition, development and construction loan borrowings                 47,399,418     39,433,675     14,136,364
    Payments on acquisition, development and construction loans              (41,393,413)   (34,563,730)    (3,582,984)
    Payment of loan from shareholder                                                   0              0       (640,219)
    Note payable borrowings                                                       99,002         58,976        619,500
    Payments on notes payable                                                   (227,295)      (201,659)      (634,215)
    10% bonds payable borrowing                                                  309,693              0      3,750,000
    Payment on 5% debentures                                                  (1,185,000)             0              0
    Loan, deferred registration and terminated merger costs                            0       (291,882)      (159,002)
    Proceeds from 5% debentures                                                        0      1,743,451              0
    Proceeds from issuance of common stock and warrants, net of        
         issuance costs                                                                0              0      8,443,243
    Dividends and distributions to shareholders                                        0       (495,462)      (165,154)
                                                                            -------------  -------------  -------------

         Net cash provided by financing activities                             5,002,405      5,683,369     21,837,533
                                                                            -------------  -------------  -------------

 Net increase (decrease) in cash                                              (2,662,525)     1,276,166      1,569,665
 Cash, beginning of period                                                     2,899,048      1,622,882         53,217
                                                                            -------------  -------------  -------------

 Cash, end of period                                                        $    236,523   $  2,899,048   $  1,622,882
                                                                            =============  =============  =============

 Cash paid during the period for interest, net of amounts capitalized       $     98,197   $    103,336   $     27,208
                                                                            =============  =============  =============
</TABLE> 

See notes to consolidated financial statements

                                       35
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     Basis of Presentation, Business and Significant accounting Policies:

       Weitzer Homebuilders Incorporated (the "Company") was incorporated under
       the laws of the State of Florida in June 1994, and engages, through its
       wholly-owned subsidiaries, in the design, construction and sale of
       moderately-priced single-family residences and townhouses in Dade and
       Broward counties in South Florida.

       On September 30, 1994, the Company acquired all the outstanding shares of
       certain entities in exchange (the "Weitzer Entities Exchange") for
       issuing Class B Common Stock to the Company's Chairman of the Board. This
       transaction was treated as a combination of entities under common
       control, and was accounted for similar to a pooling of interests. These
       entities served as general partners of partnerships (the "Weitzer
       Homebuilding Partnerships") which were engaged in the above mentioned
       homebuilding activities.

       On May 3, 1995, the Company acquired the remaining partner interests in
       the Weitzer Homebuilding Partnerships from affiliates of an unrelated
       entity (the "Financial Partner") which previously provided funding for
       real estate acquisition, development and construction. The purchase of
       these interests was accounted for by the Company under the purchase
       method of accounting for business combinations. Accordingly, the results
       of operations of the Weitzer Homebuilding Partnerships have been included
       in the Company's consolidated financial statements since the date of this
       acquisition.

       The accompanying financial statements have been prepared assuming that
       the Company will continue as a going concern. As discussed in Note 5 to
       the financial statements, the Company has bonds payable in the amount of
       $3.75 million which have a scheduled maturity in June 1998. Management's
       plans to restructure or refinance the bonds payable are also discussed in
       Note 5. If the Company is unable to achieve any of the alternatives
       discussed in Note 5, there is substantial doubt about the Company's
       ability to continue as a going concern. The accompanying consolidated
       financial statements do not include any adjustments relating to the
       recoverability of asset carrying amounts or the amount of liabilities
       that might result should the Company be unable to continue as a going
       concern.

       The following is a summary of the Company's significant accounting
       policies:

       Consolidation

       The consolidated financial statements include the accounts of the Company
       and all of its wholly-owned subsidiaries. All significant intercompany
       transactions and balances have been eliminated. Prior to May 3, 1995 the
       Company used the equity method of accounting for its significant
       investments in the Weitzer Homebuilding Partnerships. Under this method,
       the Company's initial investment was recorded at cost, and adjusted by
       its share of each partnerships operating results.

                                       36
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued        


1.     Basis of Presentation, Business and Significant accounting Policies, 
       Continued:

       Accounting Estimates

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

       Revenue Recognition

       Sales of homes and all related costs are recognized as revenue and costs
       of homes sold, respectively, when title is transferred at closing.

       Cash, Restricted Escrow Funds and Customer Deposits

       The Company maintains its cash in bank accounts which, at times, may
       exceed federally insured limits. The Company has not experienced any
       losses in such accounts. The Company's restricted escrow funds are
       comprised of customer deposits not eligible for use by the Company.
       Contracts with customers generally require deposits of 5-10% of the
       purchase price of the property before construction commences.

       Land and Construction-in-Progress

       Land and construction-in-progress are stated at the lower of cost or
       estimated net realizable value and consists of land and land development
       costs, direct construction costs, and other costs. Land and land
       development costs are allocated to housing units based on their relative
       sales values. Direct construction costs are assigned to housing units
       based on specific identification. All other costs are allocated to
       housing units based on a pro rata basis. The Company capitalizes
       interest, real estate taxes and similar development costs incurred during
       the development and construction period. Interest capitalized during
       fiscal 1997, 1996 and 1995 amounted to $2,522,984, $2,020,985 and
       $1,554,633 respectively.

       The Company periodically evaluates the carrying value of individual real
       estate projects based on estimated fair value less costs to complete and
       sell. Certain of the key assumptions used in the evaluation include sales
       price history, absorption history and cost of construction which includes
       estimates and an interest factor. During fiscal year-end 1997 and 1996,
       the Company recorded an adjustment to carrying value of approximately
       $2,652,000 and $1,050,000, respectively.

       Model Furnishings

       Model furnishings are stated at cost. Depreciation is being provided on
       the straight-line method over the estimated useful lives of the
       furnishings.

                                       37
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued        


1.     Basis of Presentation, Business and Significant accounting Policies,
       Continued:

       Advances for Future Projects

       Advances for future projects represent deposits made by the Company on
       contracts to purchase land for future development which may be refundable
       under certain circumstances.

       Deferred Loan Costs

       Costs incurred in connection with the issuance of bonds and other
       borrowings of the Company are deferred, and amortized over the term of
       the related debt.

       Goodwill

       The acquisition of the interests of the affiliates of the Financial
       Partner of the Weitzer Homebuilding Partnerships resulted in a purchase
       price in excess of the fair value of net assets acquired in the amount of
       $429,373. Such amount was being amortized on a straight-line basis over 7
       years beginning in October 1995. The realizabilty of goodwill is
       evaluated periodically as events or circumstances indicate a possible
       inability to recover its carrying amount. Such evaluation is based on
       various analyses including cash flow and profitability projections of the
       Company's various development projects. Based on a review performed at
       fiscal year end 1997, the Company determined that goodwill could not be
       realized and, accordingly, recorded a charge for the remaining balance of
       $331,570.

       Fair Value of Financial Instruments

       The carrying amounts of the Company's borrowings under its acquisition,
       development and construction loans payable approximate fair value due to
       the short term nature of the borrowings or their adjustable rates fixed
       to market conditions. The Company has not obtained an independent
       valuation of its 10% bonds.

       Warranties

       The Company provides an accrual for future warranty costs based upon the
       Company's past experience of the amount of claims actually made.

       Income Taxes

       Deferred tax assets and liabilities are recorded based on the differences
       between financial statement and income tax bases of the Company's assets
       and liabilities using enacted tax rates in effect for the year in which
       these differences are expected to reverse. The Company establishes
       valuation allowances against its deferred tax asset accounts, when
       necessary, to more accurately reflect tax benefits that are expected to
       be realized by the Company in the future.

                                       38
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued        


1.     Basis of Presentation, Business and Significant accounting Policies,
       Continued:

       Stock-Based Compensation

       Statement of Financial Accounting Standards No. 123, "Accounting for
       Stock-Based Compensation" ("SFAS 123") encourages but does not require
       companies to record compensation cost for stock-based employee
       compensation plans at fair value. The Company has chosen to continue to
       account for stock-based compensation using the intrinsic value method
       prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
       Stock Issued to Employees". Accordingly, compensation expense for stock
       options is generally measured as the difference between the quoted market
       price of the Company's stock at the date of grant and the amount an
       employee must pay to acquire the stock. For options granted to other than
       employees in exchange for goods or services, compensation cost is
       measured in accordance with SFAS 123 (see Note 8 - Stock-Based
       Compensation).

       Per Share Data

       Net income/(loss) per share is based on the weighted average number of
       shares of Common Stock outstanding during each year, after giving effect
       to stock splits and warrants. Net loss per share excludes the impact of
       warrants and stock options as such amounts are anti-dilutive.

       Recent Accounting Pronouncements

       In February 1997, the Financial Accounting Standards Board ("FASB")
       issued Statement of Financial Accounting Standards ("SFAS") No. 128,
       "Earnings per Share". This statement requires the dual presentation of
       basic earnings per share ("EPS") and diluted EPS. Basic EPS excludes the
       dilutive effect of stock options and other potentially dilutive
       instruments and diluted EPS includes such items. The Company will adopt
       this Statement in the first quarter of fiscal 1998 and does not expect
       the adoption to have a material impact on previously reported EPS
       amounts.

       In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
       Income" which establishes standards for reporting and display of
       comprehensive income and its components. The Company will adopt this
       Statement in fiscal 1999. In June 1997, the FASB also issued SFAS No.
       131, "Disclosure about Segments of an Enterprise and Related
       Information". This Statement establishes standards for reporting
       information about a company's operating segments and related disclosures
       about its products, services, geographic areas and major customers in
       annual and interim financial statements. This Statement will be adopted
       by the Company in fiscal 1998. The adoption of this Statement will not
       impact the Company's results of operations, cash flows or financial
       position.

       Reclassifications

       Certain prior period amounts have been reclassified to conform with the
       1997 presentation.

                                       39
<PAGE>

WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED 
FINANCIAL STATEMENTS, Continued



 
2.     Construction-in-Progress:

       Construction-in-progress consists of the following at September 30, 1997
       and 1996:

<TABLE> 
<CAPTION> 

                                                                          1997                 1996
                                                                    -----------------    -----------------
           <S>                                                    <C>                  <C> 
           Direct construction costs                              $        9,162,547   $        6,230,021
           Construction period interest, property taxes,
             overhead and other                                            6,670,568            4,081,612
                                                                    -----------------    -----------------
                                                                  $       15,833,115   $       10,311,633
                                                                    =================    =================
</TABLE> 

       The following is a breakdown of the construction period interest,
       property taxes, overhead and other by community:

<TABLE> 
<CAPTION> 

                                                        1997              1996
           <S>                                     <C>               <C> 
           Serena Lakes II                         $      384,369    $      171,280
           Serena Lakes Townhomes                         869,210           173,392
           Harmony Lakes                                2,857,078         2,838,877
           Deerfield Beach                                687,308           636,880
           Forest Lakes                                   946,704           160,686
           Malibu Bay                                     686,555            44,666
           Windsor Palms                                  223,474                 0
           Chapel Trail                                         0            55,831
           Other                                           15,870                 0
                                                   ---------------   ---------------

                Total                              $    6,670,568    $    4,081,612
                                                   ===============   ===============
</TABLE> 

       The increase is attributable to an increase in activity, primarily at the
       Forest Lakes and Malibu Bay communities which were in the early stage of
       development during 1997. The costs associated with these projects will be
       expensed as cost of sales ratably as units are sold and closed.

                                       40
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

3.     Acquisition, Development and Construction Loans Payable:

       Acquisition, development and construction loans payable consist of loans
       of the following subsidiaries at September 30, 1997 and 1996:

<TABLE> 
<CAPTION> 
                                                                                          1997           1996
        <S>                                                                          <C>            <C> 
        Serena Lakes Patio Homes and Serena Lakes Townhomes
          (including Lago del Sol & Fiesta)

          Revolving construction loan, matures July 2000/(1)/                        $  1,141,252   $  1,918,402
          Land acquisition and development loan, matures January 2000/(1)/              3,026,949              0
          Land acquisition and development loan, matures January 2000/(1)/              1,186,667      2,805,392
          Land acquisition note, matures July 1999/(1)/                                   300,000        300,000

        Harmony Lakes
          Revolving mortgage note, matures October 1998/(1)/                            1,215,202      4,570,325
          Revolving construction loan, matures June 1999/(1)/                           6,283,707      5,503,000

        Deerfield Beach
          Land acquisition and development loan, matures June 1998/(1)/                   436,498      2,958,319
          Revolving construction loan, matures June 1998/(1)/                           1,057,039      1,153,597

        Forest Lakes
          Land acquisition and development loan, matures February 1998/(1)/             3,682,305      2,028,109
          Revolving construction loan, matures February 1999/(1)/                       1,991,900        178,984

        Weitzer Homebuilders, Inc.
          Revolving line of credit, matures June 30, 2001/(1)/                            400,000      1,400,000

        Malibu Bay
          Land acquisition and development loan, matures May 2000/(1)/                  2,167,749              0
          Revolving construction loan, matures May 2000/(1)/                            2,002,582              0

        Windsor Palms
          Land acquisition and development loan, matures June 2000/(1)/                 4,151,977              0

        Other loans payable                                                               126,686        348,379
                                                                                     -------------  -------------

          Totals                                                                     $ 29,170,513   $ 23,164,507
                                                                                     =============  =============

</TABLE> 

                                       41
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


3.     Acquisition, Development and Construction Loans Payable, Continued:

       /(1)/The Company has entered into a loan agreement with a lender for a
       revolving credit facility (the Credit Facility") of $25.6 million (which
       was increased to $50.0 million in fiscal 1997) to be used for the
       acquisition, development and construction of new residential projects.
       The lender has approved the following borrowings: (i) Harmony Lakes -
       $11.0 million, (ii) Deerfield Beach - $7.1 million, (iii) Forest Lakes -
       $8.9 million, (iv) Weitzer Homebuilders Incorporated - $2.0 million, (v)
       Malibu Bay - $8.5 million and (vi) Windsor Palms - $6.6 million. Each
       borrowing under the credit facility has a maturity of no greater than 36
       months from the date of initial project closing and bears interest at the
       prime rate plus 1.0%. The lender also receives a fee of 1.0% to 2.0% of
       the gross sales price of each unit or lot sold and financed through the
       Credit Facility as compensation for a higher advance on land acquisitions
       up to 85%. The Credit Facility is collateralized by a first mortgage on
       all property for which funds have been disbursed from the Credit
       Facility.

       Serena Lakes Patio Homes, Serena Lakes Townhomes, Lago del Sol and
       Fiesta. Consists of (i) a $1.8 million line of credit for land
       acquisition and development which matures January, 2000 and bears
       interest at the prime rate plus 1.0%, (ii) a $7.0 million line of credit
       for construction which matures July, 2000 and bears interest at the prime
       rate plus 0.875%, (iii) a $4.2 million line of credit for land
       acquisition and development which matures January, 2000 and bears
       interest at the prime rate plus 1.5% and (iv) a $300,000 promissory note
       for miscellaneous land acquisition which matures July, 1999 and bears
       interest at the prime rate plus 1.0%. These loans are collateralized by a
       first mortgage on all properties for which funds have been disbursed and
       are guaranteed by the Company.

       Harmony Lakes. Includes a $12.6 million revolving mortgage note from
       another lender primarily related to the townhomes for the financing of
       developed lots and unit construction which matures October, 1998 and
       bears interest at the prime rate plus 1.5%. As of September 30, 1997,
       approximately $11.4 million was available under the revolving mortgage
       note which is collateralized by a first mortgage on all properties for
       which funds have been disbursed and is guaranteed by the Company.

       Weitzer Homebuilders Incorporated. The Company has a $1.0 million working
       capital note under the Credit Facility of which approximately $600,000 is
       available as of September 30, 1997. The working capital note is required
       to be maintained at a zero balance for a five day period on a semi-annual
       basis. The 1996 debt amount included a $1.0 million borrowing for land
       acquisition under the Credit Facility which was repaid from the
       refinancing of Malibu Bay.

                                       42
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



3.     Acquisition, Development and Construction Loans Payable, Continued:

       The following are the scheduled maturities of acquisition, development
       and construction loans payable as of September 30, 1997:

<TABLE> 
                        <S>             <C> 
                        1998            $        1,620,223
                        1999                    13,473,114
                        2000                    13,677,176
                        2001                       400,000
                                        -------------------
                                        $       29,170,513
                                        ===================
</TABLE> 
                 
 
       Debt Covenants. The Credit Facility requires the Company to maintain a
       minimum tangible net worth and a certain ratio of liabilities to adjusted
       net worth. The Company was not in compliance with these covenants at
       September 30, 1997; however, the lender waived the non-compliance at
       September 30, 1997 and modified the covenant so that the Company expects
       to be in compliance through October 1, 1998. The Serena Lakes and Fiesta
       loans require the Company to maintain minimum tangible net worth levels
       and earning ratios. The Company was not in compliance with these
       covenants at September 30, 1997; however, the lender has waived
       compliance as of September 30, 1997 and modified the covenant so that the
       Company expects to be in compliance through October 1, 1998. The Harmony
       Lakes and Lago del Sol revolving mortgage notes require the Company to
       maintain a minimum tangible net worth. The Company was not in compliance
       with this covenant at September 30, 1997; however, the lender has
       modified the covenant so that the Company was in compliance at September
       30, 1997 and expects to be in compliance through October 1, 1998. Under
       these loan agreements the Company is restricted from declaring or paying
       any dividends or make any other distribution on any shares of capital
       stock of the Company.

                                       43
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



4.     Notes and Loans Payable:

       Notes and loans payable consist of the following at September 30, 1996
and 1995:

<TABLE> 
<CAPTION> 
                                                                            1997                1996
                                                                      ----------------   ------------------
<S>                                                                   <C>                <C> 
Note payable to bank, bearing interest at prime rate plus 1%,
principal payments of $4,000 due monthly with interest through
January 2000                                                          $        143,495   $          160,000

Note payable to bank, bearing interest at 8.5%, principal and
interest payments of $1,673 due monthly through June 1998,
collateralized by certain office equipment                                       9,763               33,305

Note payable to bank, bearing interest at 8.25%,
principal and interest payments of $2,012 due
monthly through April 2000, collateralized by
vehicles                                                                        37,476               29,367

Capital lease obligation with interest imputed at 13.44%, payment
of $8,857 due monthly through August 1998 with a balloon payment
of $29,024 due September 1998, collateralized by certain model
furnishings                                                                     94,467              180,430

Capital lease obligation with interest imputed at
10.00%, payment of $908 due monthly through
September 1998, collateralized by certain field
equipment                                                                        3,692               14,084
                                                                          ------------         ------------
                                                                          $    288,893         $    417,186
                                                                          ============        =============

</TABLE> 

       The following are the scheduled maturities of notes and loans payable as
of September 30, 1997:

<TABLE> 
               <S>                    <C> 
               1998                   $        107,922
               1999                                  0
               2000                            180,971
                                        --------------
                                      $        288,893
                                        ==============


</TABLE> 

                                       44
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

5.     10% Bonds Payable:

       Bonds payable, net of discount, consists of the following at September
30, 1997 and 1996:
<TABLE> 
<CAPTION> 

                                                                        1997                    1996
                                                                  ----------------        ----------------
               <S>                                                <C>                     <C>     
               10% bonds with a scheduled maturity in June
               1998; interest due quarterly                       $      3,750,000        $      3,750,000
               Original issue discount                                     (68,657)               (378,350)
                                                                  ----------------        ----------------
                                                                  $      3,681,343        $      3,371,650
                                                                  ================        ================
</TABLE> 

       On October 7, 1994, the Company completed a private placement of 75 Units
       at $50,000 per Unit ( the "Private Placement"). Each Unit consisted of
       (i) a 10% bond due June 30, 1998 in the principal amount of $50,000, and
       (ii) a warrant, exercisable at a price of $.10 per share, to purchase
       such number of shares of common stock of the Company as shall equal
       $37,500 in value. The Company allocated $2,939,250 to the bonds and
       $810,750 to the warrants based on the relative fair value of the
       instruments. The original issue discount is being amortized over the term
       of the bonds and serves to create an effective interest rate of
       approximately 20.0% including offering costs. The net proceeds were used
       by Weitzer at Harmony Lakes, Inc., a subsidiary of the Company, to
       purchase and develop the real property for the Weitzer at Harmony Lakes
       residential community. The bonds are collateralized by the issued and
       outstanding capital stock of Weitzer at Harmony Lakes, Inc.

       The principal amount of the bonds are due and payable in full upon the
       receipt by the Company of at least $12,000,000 of gross proceeds from a
       public or private sale of equity securities. As of September 30, 1997,
       the Company is required to repay the bonds upon additional sales of
       equity securities in excess of approximately $815,000.

       The warrants issued in the Private Placement became exercisable in April
       26, 1995 following the Company's initial public offering. These warrants
       were exercised on July 21, 1995 and 432,663 shares of Class A Common
       Stock were issued by the Company on such date.

       Under the terms of the bonds, the Company may not declare or pay any
       dividend or make any other distribution on any equity securities of the
       Company (except dividends or distributions payable in equity securities
       of the Company), if, upon giving effect to such dividend or distribution,
       the net worth of the Company would be reduced to less than an amount
       equal to 120% of the remaining indebtedness outstanding under the bonds.

                                       45
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



5.     10% Bonds Payable, Continued:

       As discussed above, the 10% bonds payable mature in June 1998. Management
       is presently exploring several alternatives relating to these obligations
       including but not limited to (i) redeeming the bonds on a discounted
       basis; (ii) restructuring the payments on the bonds; and (iii)
       refinancing the bonds through new borrowings or equity issues. There can
       be no assurance that the Company's restructuring efforts will be
       successful, or that the bondholders will agree to a course of action
       consistent with the Company's requirements in restructuring the
       obligations. Furthermore, there can be no assurance that the Company will
       be able to obtain new financing or raise additional capital on terms
       acceptable to the Company. Under current circumstances, the Company's
       ability to continue as a going concern depends upon the successful
       restructuring or refinancing of the bond obligations. If the Company is
       unsuccessful in its efforts, it may be unable to meet its obligations on
       the bonds making it necessary to undertake such other actions as may be
       appropriate to preserve asset values. The consolidated financial
       statements do not include any adjustments that might result from the
       outcome of this uncertainty.


6.     5% Debentures:

       During fiscal 1996, the Company issued a total of $1,970,000, 5%, two
       year redeemable convertible debentures ("Debentures") resulting in net
       proceeds of $1,743,000. The Debentures were convertible, commencing 45
       days after issuance, into shares of Class A Common Stock of the Company
       at the lesser of 10% below the average closing bid price of the Class A
       Common Stock for the five days immediately preceding the date of issuance
       or 21% below the average closing bid price of the Class A Common Stock
       for the five business days immediately preceding the date of conversion
       and are redeemable under certain circumstances. Through August 1996, the
       Company converted a total of $785,000 of the Debentures into 327,591
       shares of the Company's Class A Common Stock. In August 1996, the Company
       notified outstanding Debenture holders that any and all conversions into
       shares of the Company's Class A Common Stock have been suspended
       indefinitely. As a result, two of the debenture holders brought suit
       against the Company. Subsequent to September 30, 1996, the Company
       redeemed $900,000 of outstanding debentures for $1,010,000. Part of the
       payment was in settlement of the lawsuit previously discussed. During the
       fourth quarter of fiscal 1996, the Company recorded a charge of $150,000
       for the settlement of these debenture matters. During the fourth quarter
       of fiscal 1997, the Company paid $332,500 to redeem the remaining bonds
       and recorded a charge of $47,500.

                                       46
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



7.     Income Taxes:

       No income tax expense or benefit was recorded in fiscal 1997 and 1996.
       The Company recorded deferred income tax expense of $37,000 in fiscal
       1995. Net deferred taxes consist of the following components as of
       September 30, 1997 and 1996:


<TABLE> 
<CAPTION> 
                                                                                     1997              1996
                                                                              ----------------  ----------------
          <S>                                                                 <C>               <C> 
          Deferred tax assets:
             Loss carryforwards                                               $     1,092,500   $       738,000
             Accrued expenses                                                          56,000            56,000
             Non-deductible writedown of assets                                     1,219,500           395,000
             Non-deductible contributions                                               8,500             4,400
             Less:  valuation allowance                                            (2,376,500)       (1,130,400)
                                                                              ----------------  ----------------

                  Net deferred tax asset (included in other assets)           $             0   $        63,000
                                                                              ================  ================

</TABLE> 

       Reconciliation of the differences between income taxes (benefit) computed
       at federal statutory tax rates and the Company's recorded provision
       (benefit) for income taxes are as follows:

<TABLE> 
<CAPTION> 

                                                                       1997             1996             1995
                                                                       ----             ----             ----
          <S>                                                         <C>              <C>              <C> 
          Expected tax benefit at Federal statutory rate              (34.0)%          (34.0)%            34.0%
          State income tax (benefit), net                              (3.6)%           (3.6)%             3.6%
          Surtax exemption                                                                               (2.6)%
          Valuation allowance                                           37.6%            37.6%
                                                                 -------------    -------------    -------------
                                                                         0.0%             0.0%            35.0%
                                                                 =============    =============    =============

</TABLE> 

       As of September 30, 1997, the Company had net operating losses of
       approximately $2,900,000 which have been offset by a valuation allowance.
       These carryforwards will expire through the year 2012.

       During the year ended September 30, 1997, the Company recorded an
       additional valuation allowance of $1,246,100 on the deferred tax assets
       to reduce the total to an amount that management believes will ultimately
       be realized. SFAS No. 109 requires a valuation allowance be recorded
       against tax assets which are not likely to be realized. Based upon past
       performance and the uncertain nature of their ultimate realization, the
       Company established a valuation allowance against these carryforward
       items and will be recognizing the benefits only as reassessment
       demonstrates they are realizable.

                                       47
<PAGE>
 
              WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



8.     Stock-Based Compensation:

       In February 1997, the Company granted to directors and certain employees
       options to purchase 620,000 shares of Class A Common Stock exercisable at
       $1.75 per share for a period of 10 years. The options vest ratably over a
       5 year period except for options to purchase 65,000 shares which vested
       immediately. In March 1995, the Company granted to the Company's Chairman
       of the Board of Directors options to purchase 150,000 shares of Class A
       Common Stock exercisable at $7.80 per share for a period of four years
       commencing April 26, 1996.

       In connection with its initial public offering, the Company sold to
       certain lead underwriters, for nominal consideration, warrants to
       purchase from the Company 160,000 shares of Class A Common Stock. The
       warrants are exercisable at a price of $7.80 per share of Class A Common
       Stock through April 26, 2000. The warrants also provide for adjustment in
       the number of shares of Class A Common Stock issuable upon the exercise
       thereof as a result of certain subdivisions and combinations of the Class
       A Common Stock. The warrants grant to the holders thereof certain rights
       of registration for the securities issuable upon the exercise of the
       warrants.

       In October 1995, SFAS 123 was issued by the FASB and, if fully adopted,
       changes the methods for recognition of compensation expense for
       stock-based compensation. Adoption of SFAS 123 is optional with respect
       to stock-based awards to employees; however, SFAS 123 requires pro forma
       disclosures as if the Company adopted the cost recognition principles.
       Had compensation cost been determined based on the fair market value at
       the grant dates for awards consistent with the methods prescribed by SFAS
       123, the Company's net loss and net loss per share per share in fiscal
       1997 would have been increased to the pro forma amounts indicated below:

<TABLE> 

                      <S>                                    <C>   
                      Pro forma net loss:
                               As reported                   $(3,168,279)
                               Pro forma                      (3,281,532)

                      Pro forma loss per share:
                               As reported                        $(0.82)
                               Pro forma                           (0.85)
</TABLE> 

       The fair value of the fiscal 1997 option grants was estimated on the date
       of grant using the Black-Scholes option-pricing model with the following
       assumptions: risk free interest rates of 6.75%, dividend yield of 0%,
       expected lives of 10 years and volatility of 78%. The weighted average
       fair value of options granted was $1.37 for the year ended September 30,
       1997.

                                       48
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


8.   Stock-Based Compensation, Continued:

     A summary of the status of the Company's stock-based awards as of September
     30, 1995, 1996 and 1997, and changes during the years ending on those dates
     is presented below:


<TABLE> 
<CAPTION> 
                                              1995                1996                   1997
                                        Weighted Average    Weighted Average       Weighted Average
                                             Shares              Shares                 Shares
                                             ------              ------                 ------
       <S>                              <C>       <C>       <C>      <C>           <C>        <C> 
       Outstanding at beg of year          0                310,000   7.80         310,000     7.80
       Granted                           310,000   7.80       0                    620,000     1.75
       Exercised                           0                  0                      0            0
       Forfeited                           0                  0                    (25,000)   (1.75) 
                                         -------   -----    -------   ------    -----
       Outstanding at end of year        310,000   7.80     310,000   7.80         905,000     3.82
                                         =======  =====     =======  =====         =======    =====

       Options exercisable at year end   310,000            310,000                375,000
                                         =======            =======                =======
</TABLE> 

9.   Investments in Affiliated Partnerships and Purchase of Financial Partners
     Interests: 

     In May 1995, the Company paid $6,537,711 to acquire the Financial Partners
     interests in the Weitzer Homebuilding Partnerships. The funding for the
     purchase was obtained through the Company's initial public offering. The
     following unaudited consolidated pro forma financial information for the
     year ended September 30, 1995 gives effect to the purchase of the Financial
     Partner's interests in the Weitzer Homebuilding Partnerships with a portion
     of the net proceeds of the Company's initial public offering of Class A
     Common Stock as if the transactions had occurred on October 1, 1994:


<TABLE> 
          <S>                                                     <C> 
          Revenues                                                $      37,924,941
          Costs of homes sold                                            31,891,433
          Selling and other expenses                                      4,844,151
                                                                   ----------------
          Income before income taxes                                      1,189,357
          Provision for income taxes and charge in lieu of
            income taxes                                                    416,241
                                                                   ----------------
          Net income                                              $         773,116
                                                                   ================
          Net income per share                                    $            0.24
                                                                   ================
          Weighted average number of shares                               3,186,940
                                                                   ================
</TABLE> 

                                       49
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


9.   Investments in Affiliated Partnerships and Purchase of Financial Partners
     Interests, Continued: 

     The following table presents summarized combined financial information for
     the Weitzer Homebuilding Partnerships for the period from October 1, 1994
     through May 3, 1995. In accordance with the partnership agreements, the
     income for each of the Weitzer Homebuilding Partnerships was allocated to
     the general partners first to provide a 10% preferred return on invested
     capital (which was principally contributed by the Financial Partner) with
     the balance of the income shared equally; all losses were shared equally.


<TABLE> 
        <S>                                   <C> 
        Revenues                              $   3,395,996
        Costs of homes sold                      (2,852,187)
        Selling and other expenses                 (402,564)
                                               -------------
        Net income                            $     141,245
                                               =============
</TABLE> 


10.  Capital Stock:

     On December 28, 1994, the Company effected a 1 for 2.16922 reverse stock
     split. On March 23, 1995, the Company effected a 1 for 1.383333 reverse
     stock split. All shares and share amounts have been restated to reflect the
     December 28, 1994 and March 23, 1995 stock splits.

     On April 11, 1995, the Company's Articles of Incorporation were amended to
     create two classes of common stock, $.01 par value - Class A Common Stock
     and Class B Common Stock. The Class A Common Stock and the Class B Common
     Stock vote together as a single class and are entitled to one vote per
     share.

     Prior to the Company having earned an aggregate of $7.5 million of adjusted
     operating income (as defined), the holders of common stock are entitled to
     receive dividends, to the extent funds are legally available, at the rate
     of $0.325 per share per annum for Class A Common Stock and $0.001 per share
     per annum for Class B Common Stock, payable on a quarterly basis. Since
     August 1996, the Board of Directors of the Company has elected to forego
     the regularly scheduled cash dividend payments on its outstanding shares of
     Class A Common Stock and Class B Common Stock. Cash dividends on both
     classes of Common Stock are cumulative, and accordingly, the amount of such
     dividends accrues for the benefit of the Company's shareholders. As of
     September 30, 1997, dividends in arrears amounted to $960,354.

                                       50
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


11.  Commitments and Contingencies:

     Performance Bonds

     In accordance with certain governmental requirements, the Company has
     caused performance bonds and letters of credit aggregating $800,000, to be
     issued for certain of the projects to provide for the completion of
     required improvements as of September 30, 1997.

     Litigation

     The Company is involved from time to time in litigation arising in the
     ordinary course of its business, none of which is expected to have a
     material adverse effect on the Company's consolidated financial position or
     results of operations.


12.  Related Party Transaction:

     A director of the Company is also the managing director of a company that
     provides financial consulting services ("Consulting Company"). Fees paid
     during fiscal year 1997 related to these services amounted to $163,000. In
     connection with this agreement, the Consulting Company also received
     200,000 warrants to purchase up to 200,000 fully paid and non-assessable
     shares of the Company's Class A Common Stock at a purchase price of $2.25
     per share at any time prior to November 1, 2001. On November 1, 1996, the
     Company also granted 150,000 stock appreciation rights ("SARs") exercisable
     at any time prior to October 31, 2001, related to the potential conversion
     of Class B Common Stock into Class A Common Stock of the Company. The SARs
     shall have such value as equal to the difference between the spread of the
     market value of the Class A Common Stock of the Company as of such date
     that such Class B Common Stock becomes convertible into Class A Common
     Stock and $1.00 per share.

                                       51
<PAGE>
 
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


13.  Risks and Uncertainties:

     The Company, as well as the homebuilding industry in general, may be
     adversely affected during periods of high inflation, primarily because of
     higher land and construction costs. In addition, higher mortgage interest
     rates may significantly affect the affordability of permanent mortgage
     financing to prospective purchasers. Inflation also increases the Company's
     interest costs and costs of labor and materials. The Company attempts to
     pass through to its customers any increases in its costs through increased
     selling prices and, to date, inflation has not had a material adverse
     effect on the Company's results of operations. However, there is no
     assurance that inflation will not have a material adverse impact on the
     Company's future results of operation. However, there is no assurance that
     inflation will not have a material adverse impact on the Company's future
     results of operation.

     The Company's operations are interest rate sensitive. Overall housing
     demand is adversely affected by increase in interest costs. If mortgage
     interest rate increase significantly, this may negatively impact the
     ability of a homebuyer to secure adequate financing. Such results of higher
     interest rates may result in adversely affecting the Company's revenues,
     gross margins and net income.

                                       52
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information regarding the Company's Directors and Executive Officers is
     included in Part I under "Directors and Executive Officers of the
     Registrant."

     The Board of Directors of the Company held four meetings during its fiscal
     year ended September 30, 1997 and each director attended such meetings of
     the Board. The Board has an Audit Committee and Compensation Committee.

     The Audit Committee consists of Messrs. Ambrosia, Faggen and Rose. The 
     Audit Committee oversees the procedures, scope and results of the annual
     audit and reviews the services provided by the Company's independent public
     accountants.

     The Compensation Committee consists of Messrs. Faggen, Hellring and Rose,
     none of whom are presently or formerly employees of the Company. The
     Compensation Committee administers the Company's executive officers not
     fixed by contract.

     Directors who are not employees and who do not otherwise receive
     compensation from the Company are entitled to $2,000 per Board meeting
     attended in addition to the reimbursement of reasonable expenses incurred
     in attending meetings. Directors who are officers or employees of the
     Company receive no additional compensation for service as directors, other
     than reimbursement of reasonable expenses incurred in attending meetings.
     During the fiscal year ended September 30, 1997, the Company made no other
     payments to directors with respect to participation on Board committees.
     See "Certain Relationships and Related Transactions" for compensation paid
     by the Company to an entity of which Mr. Faggen is a principal for
     financial consulting services.


ITEM 11.    EXECUTIVE COMPENSATION

     The following table sets forth certain summary information concerning all
     cash and noncash compensation paid or accrued for services rendered to the
     Company during the fiscal years ended September 30, 1995, 1996 and 1997 to
     the Company's Chief Executive Officer and each of the Company's other most
     highly compensated executive officers. All executive officers of the
     Company are currently employees of an employee leasing company named
     Paychex Business Solutions, Inc., which has an Agreement for Services with
     the Company.

                                       53
<PAGE>
 
Summary Compensation Table(1)

<TABLE> 
<CAPTION> 
                                                                                        Long Term Compensation
                                                                                   ----------------------------------
                                                Annual Compensation                       Awards            Payouts
                                   ----------------------------------------------  ----------------------  ----------

                                                                           Other   Restricted  Securities                 All       
                                                                          Annual     Stock     Underlying    LTIP        Other      
 Name and Principal                 Fiscal      Salary       Bonus     Compensation  Awards     Options/    Payouts    Compensation 
      Position                       Year         ($)         ($)          ($)        (#)      SARs (#)       ($)          ($)
-------------------------------    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ------------
<S>                                <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
 Harry Weitzer                          1997     319,000           0           0           0     250,000           0           0
 Chairman of the Board and              1996     295,000           0           0           0     150,000           0           0
 Chief Executive Officer                1995     236,667           0           0           0           0           0           0
                          
 Peter Kleinerman(2)                    1997     105,000           0           0           0     125,000           0           0
 Executive Vice President and           1996           0           0           0           0           0           0           0
 Chief Operating Officer                1995           0           0           0           0           0           0           0
                               
 James Rosewater                        1997     110,000           0           0           0      50,000           0           0
 Vice President-Marketing               1996      95,000           0           0           0           0           0           0
                                        1995      23,000           0           0           0           0           0           0
                               
 Leigh Feldsteen                        1997     131,000           0           0           0      50,000           0           0
 Homebuilding Division         
 -President                             1996      12,000           0           0           0           0           0           0
                                        1995           0           0           0           0           0           0           0
                               
 Harry Speizer(2)                       1997      92,000           0           0           0     100,000           0           0
 Vice President-Real Estate             1996           0           0           0           0           0           0           0
                                        1995           0           0           0           0           0           0           0
</TABLE>



     (1)    The amounts reflected in the above table do not include any amounts
            for perquisites and other personal benefits extended to the named
            executive officers. All of the personnel of the Company are leased
            to the Company through Paychex Business Solutions, Inc., which has
            an agreement for services with the Company.

     (2)    Mr. Kleinerman and Mr. Speizer joined the Company in March 1997.

                                       54
<PAGE>
 
Options/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                           Potential Realized Value
                                                                                               at Assumed Annual
                                                                                             Rates of Stock Price
                                     Individual Grants                                   Appreciation for Option Term
                                     -----------------                                   ----------------------------


                                  Number of    % of Total
                                  Securities    Options/
                                  Underlying     SARSs
                                   Options/    Granted to       Exercise
                                     SARs      Employees        or Base
                                   Granted     in Fiscal         Price      Expiration
            Name                    ($)          Year           ($/Sh)        Date          5%($)          10%($)
------------------------------   -----------  -----------     -----------  -----------  --------------  --------------
<S>                              <C>          <C>             <C>          <C>          <C>             <C>
 Harry Weitzer                       250,000         41.7 %         $1.75     3/12/06          242,500         552,500
 Peter Kleinerman                    125,000         20.8 %         $1.75     3/12/06          121,250         276,250
 Harry Speizer                       100,000         16.7 %         $1.75     3/12/06           97,000         221,000
 James Rosewater                      50,000          8.3 %         $1.75     3/12/06           48,500         110,500
 Leigh Feldsteen                      50,000          8.3 %         $1.75     3/12/06           48,500         110,500

<CAPTION>


Aggregated Fiscal Year-End Option Value Table

                                                                                    Value of Unexercisable
                                        Number of Unexercised Options               In-the-Money Options at
  Name                                     at September 30, 1997(#)                September 30, 1997($)(1)
                                       --------------------------------        ---------------------------------
                                       Exercisable        Unexercisable        Exercisable         Unexercisable
                                       -----------        -------------        -----------         -------------
  <S>                                  <C>                <C>                  <C>                 <C>
  Harry Weitzer                          150,000             250,000                 --                  --
  Peter Kleinerman                        25,000             100,000                 --                  --
  Harry Spiezer                           20,000              80,000                 --                  --
  Leigh Feldsteen                            --               50,000                 --                  --
  Jim Rosewater                              --               50,000                 --                  --
</TABLE>

(1)  The closing price for the Class A Common Stock as reported by the Nasdaq
     National Market System on September 30, 1997 was $1.00, which is less than
     the option exercise price at 1997 fiscal year end.

                                       55
<PAGE>
 
Management Contracts

    Effective as of November 1, 1995, the Company entered into a five-year
    employment agreement (the "Employment Agreement") with Harry Weitzer, its
    Chairman, President and Chief Executive Officer, whereby he agreed to devote
    substantially all of his business time to the affairs of the Company. The
    Employment Agreement provides for a salary of $300,000, with annual cost of
    living adjustments. In addition, the Employment Agreement provides for
    bonuses, reimbursement of business expenses, provision of an automobile,
    health insurance and related benefits. The Employment Agreement provides
    that if Mr. Weitzer is terminated other than for "cause" (which is defined
    as gross negligence in the performance of his duties, fraud, embezzlement or
    breach of trust), dissolution of the Company or his death, he will be
    entitled to receive the scheduled compensation for the full remaining term
    of the Employment Agreement. Any bonuses or other forms of compensation that
    Mr. Weitzer may receive in the future fiscal years will be determined by the
    Compensation Committee of the Board of Directors based on criteria
    established by the Committee.

     Effective as of March 1, 1997, the Company entered into a two-year
     employment agreement (the "Kleinerman Agreement") with Peter Kleinerman,
     the Company's Executive Vice President and Chief Operating officer, whereby
     Mr. Kleinerman agreed to devote substantially all of his business time to
     the affairs of the Company. The Kleinerman Agreement provides for an annual
     salary of $175,000. In addition, the Kleinerman Agreement provides for
     bonuses, reimbursement of business expenses, provision of an automobile,
     health insurance and related benefits. The Kleinerman Agreement provides
     that if Mr. Kleinerman is terminated other than for "cause" (which is
     defined as gross negligence in the performance of his duties, fraud,
     embezzlement or breach of trust), dissolution of the company or his death,
     he will be entitled to receive the scheduled compensation for a period of
     nine months. Any bonuses or other forms of compensation that Mr. Kleinerman
     may receive in the future fiscal years will be determined by the
     Compensation Committee of the Board of Directors based on criteria
     established by the Committee.

     Effective as of March 1, 1997, the Company entered into a two-year
     employment agreement (the "Speizer Agreement") with Harry Speizer, the
     Company's Senior Vice President of Real Estate, whereby Mr. Speizer agreed
     to devote substantially all of his business time to the affairs of the
     Company. The Speizer Agreement provides for an annual salary of $150,000.
     In addition, the Speizer Agreement provides for bonuses, reimbursement of
     business expenses, provision of an automobile, health insurance and related
     benefits. The Speizer Agreement provides that if Mr. Speizer is terminated
     other than for "cause" (which is defined as gross negligence in the
     performance of his duties, fraud, embezzlement or breach of trust),
     dissolution of the Company or his death, he will be entitled to receive the
     scheduled compensation for a period of nine months. Any bonuses or other
     forms of compensation that Mr. Speizer may receive in the future fiscal
     years will be determined by the Compensation Committee of the Board of
     Directors based on criteria established by the Committee.

                                       56
<PAGE>
 
Compensation Committee Report on Executive Compensation

     The Company's executive compensation for the fiscal year ended September
     30, 1997 consisted of three primary components: base salary, bonus and
     grants of stock options. Fiscal 1997 salary and bonus for the Company's
     executive officers was determined by the Compensation Committee and
     approved by the Company's Board of Directors.

     The components of the Company's Executive Compensation (salary, bonus and
     stock options) are designed to facilitate fulfillment of the compensation
     objectives of the Company, which objectives include (i) attracting and
     retaining competent management, (ii) rewarding management for short and
     long term accomplishments, (iii) aligning the interests of management with
     those of the Company's shareholders, and (iv) relating management
     compensation to the achievement of Company goals and the Company's
     performance.

     The Board's determination of fiscal 1997 salary for the Company's executive
     officers was made after reviewing and considering a number of factors,
     including job responsibility, level of performance, achievement of Company
     goals, Company performance, compensation levels at competitive companies
     and the Company's historical compensation levels. Although Company
     performance was one of the factors considered, the Board's compensation
     decisions were based upon an overall review of the relevant factors and
     compensation was not tied to Company performance by any specific
     relationship or formula.

     The determination of fiscal 1997 salary for Harry Weitzer, the Chairman of
     the Board, President and Chief Executive Officer of the Company, was based
     upon his existing employment agreement and a stock option agreement between
     the Company and Mr. Weitzer. Mr. Weitzer was also granted stock options in
     fiscal year 1997 based upon the factors discussed above.

     In June 1995, the Company established a Compensation Committee. The
     function of the Compensation Committee is to determine the compensation of
     the Company's executive officers, including bonuses, and to administer the
     Company's Performance Incentive Plan. The Compensation Committee consists
     of Messrs. Ambrosia, Faggen, and Rose, none of whom are presently or
     formerly employees of the Company.

                                       57
<PAGE>
 
Performance Graph

     The graph below compares the cumulative total returns of the Class A Common
     Stock with the companies in the NASDAQ Stock Market (U.S.) Index and with
     six peer group companies which include Engle Homes, Inc, Oriole Homes
     Corp., Rottlund Homes Inc., Sundance Homes, Inc., Washington Homes, Inc.
     and Zaring Homes, Inc. (the "Peer Group"). The Peer Group consists of
     Homebuilders who either (i) concentrate their operations primarily within
     one geographical area of the country and have a market capitalization of
     less than $50 million, or (ii) concentrate their operations primarily in
     Florida and have a market capitalization of less than $100 million. The
     comparison covers a period from April 26, 1995 to September 30, 1997, and
     is based on an assumed $100 investment on April 26, 1995 (the date of the
     initial public offering of Class A Common Stock) in the Nasdaq Stock Market
     (U.S.) Index, the Peer Group and in the Class A Common Stock.




                           [LINE GRAPH APPEARS HERE]

                                       58
<PAGE>
 
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN
            BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth as of December 26, 1997, the number and
    percentage of outstanding shares of Common Stock owned beneficially by (i)
    each shareholder known by the Company to own more than 5% of the outstanding
    shares of Class A Common Stock or Class B Common Stock; (ii) each director
    of the Company; (iii) each executive officer named in the Summary
    Compensation Table under "Executive Compensation" and (iv) all directors and
    executive officers as a group.

<TABLE>
<CAPTION>

                                                       Class A Common Stock                Class B Common Stock
                                                       --------------------                --------------------
                                                        Amount and                          Amount and
                                                        Nature of                           Nature of
 Name and Address                                       Beneficial         Percent          Beneficial         Percent
 of Beneficial Owner                                    Ownership(1)       of Class         Ownership(1)       of Class
 -------------------                                    ------------       --------         ------------       --------
<S>                                           <C>       <C>                <C>              <C>                  <C> 
 Harry Weitzer                                (2)             400,000       15.0%            1,500,000          100.0%
 5901 N.W. 151st Street, 
 Suite 120, Miami Lakes,
 Florida  33014
 Larry Hellring                               (3)              15,000        (12)                 --                --
 Joseph B. Rose                               (4)              10,000        (12)                 --                --
 Mike Ambrosio                                (5)               5,000        (12)                 --                --
 Ivan Faggen                                  (6)              15,000        (12)                 --                --
 Peter Kleinerman                             (7)             125,000        5.0%                 --                --
 Harry Speizer                                (8)             100,000        4.1%                 --                --
 James Rosewater                              (9)              51,000        2.1%                 --                --
 Leigh Feldsteen                             (10)              52,000        2.2%                 --                --
 All directors and executive                                                                    
 officers as a group (11 persons)                             773,300       24.9%                 --                --
                                                                                                
                                                                                                
 Morris Propp                                (11)             168,000        7.1%                 --                --
 405 Park Avenue                                                                                
 New York, NY  10022                                                                        
</TABLE>

                                       59
<PAGE>
 
(1)   Unless otherwise indicated, the ownership reflected in this table is
      direct and beneficial.
(2)   Includes 150,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $7.80 and which
      options expire April 20, 2000 and 250,000 shares of Class A Common Stock
      issuable upon the exercise of a like number of options at an exercise
      price of $1.75 and which expire March 12, 2006.
(3)   Includes 5,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(4)   Includes 5,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(5)   Includes 5,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(6)   Includes 5,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(7)   Includes 125,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(8)   Includes 100,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(9)   Includes 50,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(10)  Includes 50,000 shares of Class A Common Stock issuable upon the exercise
      of a like number of options at an exercise price of $1.75 and which
      options expire March 12, 2006.
(11)  Represents shares owned by Morris Propp, Rodney Propp, Hanaper Partners,
      L.P. and P-II, Incorporated.

(12)  Represents less than one percent.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Ivan Faggen, a Director of the Company, is managing director of Triton
   Pacific Capital LLC, which company entered into an agreement with the Company
   for financial consulting services. The agreement, as amended, is for a term
   expiring on September 30, 1998. The agreement provides that Triton will be
   paid an annual fee of $60,000 plus out-of-pocket expenses during the term of
   the amendment. For the fiscal year ended September 30, 1997, Triton was paid
   an aggregate of $163,000 for services provided to the Company. In addition,
   on November 1, 1996, the Company granted Triton 200,000 warrants to purchase
   up to a like number of Class A shares of common stock of the Company at an
   exercise price of $2.25 per share at any time prior to November 1, 2001. The
   Company also granted Triton, on November 1, 1996, 150,000 stock appreciation
   rights ("SARs") exercisable at any time prior to October 31, 2001, related to
   the potential conversion of Class B Common Stock into Class A Common Stock of
   the Company. The SARs shall have such value as equal to the difference
   between the spread of the market value of the Class A Common Stock of the
   Company as of such date that such Class B Common Stock becomes convertible
   into Class A Common Stock and $1.00 per share.

                                       60
<PAGE>
 
PART IV
-------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT
         SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as a part of this report:

         1.   The following exhibits, including those incorporated by reference.

<TABLE> 
<CAPTION> 

Exhibit
Number                  Description
                -------------------------------------------
<S>             <C> 
3.1**           Amended and Restated Articles of Incorporation of the Company

3.2*            By-Laws of the Company

4.1*            Form of 10% Bond

4.5***          Loan Agreement dated as of June 30, 1995, between the Company
                and Residential Funding Corporation

4.6***          Construction Loan Agreement dated as of June 30, 1995, between
                Weitzer at Deerfield Beach,Inc., and Residential Funding
                Corporation and related Promissory Note and Guaranty of the
                Company

4.7***          Construction Mortgage, Security Agreement and Fixture Filing
                with Assignment of Rent Proceeds and Agreements dated as of June
                30, 1995, between Weitzer at Deerfield Beach, Inc., and
                Residential Funding Corporation

4.8***          Loan Agreement dated as of August 3, 1995, between Weitzer
                Serena Lakes Homes II, Inc., Weitzer Serena Lakes Townhomes,
                Inc., and Barnett Bank of South Florida, N.A., and related
                Promissory Notes and Guaranties of the Company and Harry and
                Trudy Weitzer

4.9***          First Mortgage and Security Agreement dated as of August 3,
                1995, between Weitzer Serena Lakes Homes II, Inc., Weitzer
                Serena Lakes Townhomes, Inc., and Barnett Bank of South Florida,
                N.A.

4.10*****       First Amendment Agreement dated as of January 24, 1996 by and
                between the Company, Residential Funding Corporation and Webster
                Grant Land Company


4.11******      Construction Loan Agreement dated February 28, 1996, between
                Weitzer Forest Lakes Villas, Inc. and Residential Funding
                Corporation and related Promissory Note and Guaranty of the
                Company 

4.12******      Construction Mortgage, Security Agreement and Fixture Filing
                with Assignment of Rents, Proceeds and Agreements dated as of
                February 28, 1996 between Weitzer Forest Lakes Villas, Inc. and
                Residential Funding Corporation
</TABLE>
                                       61
<PAGE>
 
<TABLE> 
<S>             <C> 
10.1*           Employment Agreement dated as of November 1, 1994, between the Company and Harry Weitzer

10.2*           Indemnification Agreement dated as of September 30, 1994, between the Company and Harry Weitzer

10.4*           Option Agreement for the Purchase of Common Stock dated as of March 22, 1994 between the
                Company and Harry Weitzer

10.5*           Letter Agreement dated January 9, 1995, among the Company, Harry Weitzer, Weitzer Pine Glenn
                Homes, Inc., Weitzer Serena Lakes Homes II, Inc., Weitzer Serena Lakes Townhomes,
                Inc., and Barnett Bank of South Florida, N.A.

10.6*           Letter Agreement dated January 31, 1995, among the Company, Harry Weitzer, Weitzer Chapel Trail
                Homes, Inc., and Ohio Savings Bank

10.7*           Pledge Agreement dated as of October 25, 1994, between the Company and Josephthal, as agent on
                behalf of the holders of the 10% Bonds, of the stock of Weitzer at Harmony Lakes, Inc.
                relating to the Company's October 1994 private placement

10.8*           Agreement dated as of January 30, 1992, between Broward Management Company
                and Webster Grant Land Company, as amended

10.9***         Agreement for Purchase and Sale dated June 14, 1995, between Dade Residential
                Developers, Inc. and Webster Grant Land Company

10.10****       Agreement for Services dated as of November 30, 1995, between the
                Company and National Business Solutions, Inc.

21.1****        Subsidiaries of the Company
</TABLE> 

*      Incorporated herein by reference to the exhibit bearing the same number
       and filed as a part of the Company's Registration Statement on Form S-1
       filed on April 26, 1995 (File No. 33-89076).

**     Incorporated herein by reference to the exhibit filed as a part of the
       Company's report on Form 10-Q for the three months ended March 31, 1996.

***    Incorporated herein by reference to the exhibit filed as a part of the
       Company's report on Form 10-Q for the three months ended June 30, 1996.

****   Incorporated herein by reference to the exhibit filed as a part of the
       Company's report on Form 10-K for the fiscal year ended September 30,
       1996.

*****  Incorporated herein by reference to the exhibit filed as a part of the
       Company's report on Form 10-Q for the three months ended December 31,
       1996.

****** Incorporated herein by reference to the exhibit filed as a part of the
       Company's report on Form 10-Q for the three months ended March 31, 1997.

                                       62
<PAGE>
 
SIGNATURES
----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
     Exchange Act of 1934, the registrant has duly caused this report to be
     signed on its behalf by the undersigned, thereunto duly authorized, as of
     the 5th day of January, 1998.

                               WEITZER HOMEBUILDERS INCORPORATED

                               By: /s/ HARRY WEITZER
                                   -----------------------
                                   Harry Weitzer
                                   Chairman of the Board, and Chief Executive
                                   Officer (Principal Executive Officer)

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

<TABLE> 
<CAPTION> 

      Signature                     Title                                              Date
      ---------                     -----                                              ----
<S>                                 <C>                                         <C> 
/s/ EDWARD W. DWIER  
----------------------------
Edward W. Dwier                     Vice president / Controller                 January 5, 1998
                                    (Principal Financial and
                                    Accounting Officer)

/s/ JOSEPH B. ROSE
----------------------------
Joseph B. Rose                      Director                                    January 5, 1998


/s/ LARRY HELLRING
----------------------------
Larry Hellring                      Director                                    January 5, 1998


/s/ MICHAEL AMBROSIO
----------------------------
Michael Ambrosio                    Director                                    January 5, 1998


/s/ IVAN FAGGEN
-----------------------------
Ivan Faggen                         Director                                    January 5, 1998
</TABLE> 

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