DELTONA CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ending December 31, 1997

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________

Commission file number 1-4719

THE DELTONA CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 59-0997584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

999 BRICKELL AVENUE, SUITE 700
MIAMI, FLORIDA 33131
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (305) 579-0999

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $1 PAR VALUE
(Title of Class)

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 filers 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 amendments to
this Form 10-K. [ ]

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $973,100 based on the average price of such stock as last
traded over-the-counter. (Excludes shares of voting stock held by directors,
executive officers and beneficial owners of more than 10% of the Registrant's
voting stock; however, this does not constitute an admission that any such
holder is an "affiliate" for any purpose.)

Indicate the number of shares outstanding of the Registrant's classes of
common stock, as of the latest practicable date: 13,544,277 shares of common
stock, $1 par value, as of March 20, 1998, excluding 12,228 shares held in
treasury.

DOCUMENTS INCORPORATED BY REFERENCE

Document Incorporated Part(s)
* Registrant's 1998 Annual Meeting Proxy Statement to
be filed with the Securities and Exchange Commission Part III
pursuant to Regulation 14A

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THE DELTONA CORPORATION

INDEX

Form 10-K Page
Item No. Section Heading in Attached Material Number
- --------- ------------------------------------ ------

PART I
Items 1 and 2 ......... Business.................................................. 1
General........................................... 1
Recent Developments............................... 1
Business Segments................................. 3
Real Estate....................................... 4
Other Businesses.................................. 9
Employees......................................... 9
Competition....................................... 9
Regulation........................................ 10
Item 3 .................... Legal Proceedings................................. 13
Item 4 .................... Not Applicable

PART II
Item 5 .................... Price Range of Common Stock and Dividends......... 14
Item 6 .................... Selected Consolidated Financial Information ...... 15
Item 7 .................... Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 16
Item 8 .................... Index to Consolidated Financial Statements and
Supplemental Data ...................................... 25
Item 9 .................... Not Applicable

PART IV
Item 14 .................. . Exhibits, Financial Statement Schedules and
Reports on Form 8-K .................................... 45

ITEMS 1 AND 2

BUSINESS

General

The Company was founded in 1962 and is principally engaged in the
development and sale of Florida real estate, through the development of planned
communities on land acquired for that purpose. The Company offers single-family
lots and multi-family and commercial tracts for sale, in communities designed by
the Company. The Company is the developer of eleven planned communities in
Florida, including the new TimberWalk community, which is located in the western
portion of Marion Oaks. Seven communities are completed and four are in various
stages of development. The Company plans, designs and develops roads, waterways,
recreational amenities, grading and drainage systems within these communities.
Since 1962, the Company has sold over 156,000 single-family lots and
multi-family and commercial tracts in its communities, in addition to over
13,000 single-family homes and over 4,300 multi-family housing units.

The Company 's land holdings in Florida include an inventory of
approximately 18,600 unsold platted single-family lots and multi-family and
commercial tracts. (Platting is the process of recording, in the public records
of the county where the land is located, a map or survey delineating the legal
boundaries of the lots and tracts.) See "Real Estate: Land".

The Company also operates other businesses related to its real estate
activities, such as a title insurance company and a real estate brokerage
company. In addition, the Company has designed and constructed country clubs,
golf courses and other recreational amenities at its communities, and operates
such amenities until their conveyance or sale.

Historically, the Company has designed, constructed and operated utility
systems for the distribution of water and LP gas and for the collection and
treatment of sewage, primarily at the Company's communities. However, on June 6,
1989, Topeka Group Incorporated ("Topeka"), a subsidiary of Minnesota Power &
Light Company ("MPL"), exchanged the Company's Preferred Stock which it acquired
in November, 1985 for the Company's utility subsidiaries.

The Company is incorporated in Delaware and has its principal executive
offices at 999 Brickell Avenue, Suite 700, Miami, Florida 33131. Its telephone
number is (305) 579-0999. The Company, as used herein, refers to The Deltona
Corporation and, unless the context otherwise indicates, its wholly-owned
subsidiaries.

Recent Developments

On November 4, 1997, at the 1997 Annual Meeting, the Company's stockholders
approved an Agreement between the Company and its lenders that would
substantially reduce the Company's outstanding debt obligation of $25.3 million
(the "Agreement"). The Agreement, consummated effective December 30, 1997,
resulted in a reduction in the Company's outstanding debt obligation through the
conveyance of all remaining land inventory and obligations in the Company's St.
Augustine Shores Subdivision and the issuance of approximately 6.8 million
shares of Common Stock at $1.00 per share (par value). Additionally, the lenders
purchased $7.5 million in contracts receivable from the Company to generate
working capital and further reduce the debt obligation. Specifically:

1. Selex sold its remaining debt ($2,664,736), including the Empire note,
to Yasawa and the Company owes no further duty or obligation to Selex. The debt
purchased by Yasawa was satisfied through Yasawa's purchase of 2,664,736 shares
of Common Stock issued by the Company at a per share conversion price of One
Dollar ($1.00), which is equal to par value.

2. Swan Development Corporation ("Swan") had previously acquired $5,529,501
of the Company's debt from Selex. This $5,529,501 was satisfied through the
Company's conveyance of all of the Company's remaining land inventory and
obligations in its St. Augustine Shores Subdivision to Swan . The price, based
upon appraised value, was adjusted to take into account the development
obligations on sold lots assumed by Swan.

1

3. Scafholding B.V. ("Scafholding") an affiliate of Selex and Yasawa,
purchased approximately $7.5 million in contracts receivable from the Company at
seventy-five percent (75%) of face value with recourse for non- performing
contracts. This sale generated approximately $5.6 million, $1,982,457 of which
was used to reduce outstanding debt to Yasawa. The balance (of which $1 million
is in the form of a promissory note from Scafholding to the Company with an
expected satisfaction in mid-1998) will be used by the Company to pay a portion
of the delinquent real estate taxes, to implement its marketing programs, to
initiate development of TimberWalk and to meet the Company's working capital
requirements.

4. A $4,144,602 portion of the Company's debt to Yasawa was satisfied
through Yasawa's purchase of 4,144,602 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value.

5. As of December 31, 1997, the Company's remaining debt to Scafholding was
$2,293,950, secured by a first lien on the Company's receivables; the Company's
remaining debt to Yasawa was $6,692,732 secured by a second lien on the
Company's receivables and a mortgage on all of the Company's property. As of
December 31, 1997, the total debt owed to Yasawa and Scafholding is $8,986,682.
The terms of repayment of this debt have been restructured to provide for
monthly payments of principal in the amount of $100,000 payable monthly in cash
or with contracts receivable at 100% of face value, plus interest payable
monthly on the declining balance at the rate of 9.6% per annum in cash or with
contracts receivable at 65% of face value.

6. In the future, if the Company elects to do so, Yasawa and Scafholding
have agreed to purchase contracts receivable at 65% of face value, with
recourse, to meet the Company's ongoing capital requirements.

Prior to November 4, 1997 and independent of the Agreement outlined above,
Selex and Yasawa agreed to forgive $2,050,818 in accrued interest on the
Company's debt to them.

Through Yasawa's acquisition of the 6,809,338 shares of Common Stock of the
Company referenced above, Mr. Antony Gram's beneficial ownership increased from
3,109,703 shares to 9,919,041 shares (73.23% of the outstanding shares of Common
Stock of the Company as of March 20, 1998).

During 1997, the Company was successful in settling the lawsuit entitled
LEE SU WEN NI ET. AL. v. THE DELTONA CORPORATION AND SCAFHOLDING B.V., Case No.
95-4422-CA-E, which was filed in the Circuit Court of Marion County, Florida on
October 11, 1995. The plaintiff had alleged that the liquidated damages
provision in the Company's installment contracts for the sale of its properties
was unenforceable under Florida Law and contested the method utilized by the
Company to calculate actual damages in the event of contract cancellations.
Pursuant to the settlement, the claims and the case were dismissed with
prejudice.

In December 1997, the Company announced the start of construction on its
newest housing development: TimberWalk. TimberWalk will feature a model home
center with models built by three premier central Florida home builders. At
TimberWalk, home buyers will enjoy the benefits of Deltona's newest design
concept, "Everything Included", which includes features that are often
considered extra cost upgrades and options by other home builders but are
included in TimberWalk's basic prices. Models will range from one to two story
homes with two, three or four bedrooms ranging in size from 1,200 square feet to
over 2,200 square feet of living space.

2

Business Segments

The following table sets forth the total amounts of revenues and operating
profits (losses) from continuing operations attributable to each of the
Company's business segments for the years ended as indicated. See Note 11 to
Consolidated Financial Statements:

Years ended
--------------------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(in thousands)

Revenues
Real estate:
Net land sales........ $ 4,045 $ 4,296 $ 2,394 $ 2,058 $ 2,432
Housing revenues......... 1,214 1,202 1,382 2,543 344
Improvement revenues.. 2,366 1,008 1,052 1,214 4,725
Interest income...... 1,367 1,464 1,019 1,046 1,197
Other..................... -0- -0- -0- -0- 67
------ ------- ------- -------- --------
Total real estate.... 8,992 7,970 5,848 6,861 8,765
Other..................... 617 963 1,030 1,832 3,447
Intersegment sales........ (184) (283) (190) (152) (113)
------ ------- ------- -------- --------
Total.................. $ 9,425 $ 8,650 $ 6,688 $ 8,541 $ 12,099
======= ======= ======= ======== ========
Operating profits (losses)
Real estate................ $ 3,052 $ 3,077 $ 1,377 $ 1,055 $ (3,072)
Other ................. 185 443 341 1,033 279
General corporate expense.. (3,018) (2,966) (2,981) (4,147) (4,721)
Interest expense........... (1,545) (1,781) (1,642) (1,847) (1,257)
------- ------- ------- -------- --------
Income (loss) from
continuing operations
before income taxes
and extraordinary items... $(1,326) $(1,227) $(2,905) $ (3,906) $ (8,772)
======= ======= ======= ======== ========

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

Net land sales consist of gross land sales less estimated uncollectible
installment sales and contract valuation discount and, prior to 1992,
deferred revenue (see Notes 1, 2 and 7 to Consolidated Financial
Statements).

Improvement revenues consist of revenue recognized due to completion of
improvements on prior period sales and exchanges from undeveloped to
developed lots.

Interest income primarily consists of interest earned on contracts and
mortgages receivable and on temporary cash investments and the amortization
of valuation discounts.

Other consists of revenues from sales other than real estate, the major
portion of which came from the country club operations in prior years. In
1994, the major portion consists of a gain of $1,051,000 from the
termination of its office lease on its Miami corporate headquarters.

Intersegment sales consist primarily of sales between the Company and its
title insurance subsidiary.

3

Real Estate

The Company's principal business segment has primarily involved the
development and marketing of planned communities in Florida since 1962. The
following table sets forth certain information about these communities and other
land assets of the Company as of December 31, 1997. For a detailed description
of these communities, see "Existing Communities" and "Other Properties".

Existing Communities

Platted Unimproved Improved
Acreage Initial Estimated Lots & Tracts Unsold Platted Unsold Platted
in Acquisition Year Current in Masterplan Lots & Tracts Lots & Tracts Unplatted
Masterplan Year Opened Population Acreage
---------- ----------- ------ ---------- ----------- -------------- -------------- ----------

Deltona Lakes... 17,203 1962 1962 69,500 34,964 - 6 -
Marco Island 7,844 1964 1965 39,000 8,657 - - -
Spring Hill. 17,240 1966 1967 73,300 32,909 - 6 -
Citrus Springs 15,954 1969 1970 6,500 33,783 - 2 -
St. Augustine
Shores ....... 1,985 1969 1970 7,500 3,130 - - -
Sunny Hills...... 17,743 1968 1971 1,400 26,251 12,446 709 -
Pine Ridge...... 9,994 1969 1972 2,900 4,833 - 3 -
Marion Oaks14,644 1969 1973 8,050 27,537 3,841 413 -
Seminole Woods.. 1,554 1969 1979 500 262 - - -

Joint Venture Community:

Tierra Verde.... 666 1976 1977 4,860 1,036 - - -
------- ------- ------- -------- ----- ----
Total............ 104,827 213,510 173,362 16,287 1,139 -
======= ======= ======= ======== ===== ====

Other Properties

Initial
Acquisition
Year Acres
----------- -----

Other Land Assets:
Other land adjacent to existing communities................................ Various 92
----
Total...................................................................... 92
====

- ----------------------
Development completed.

Excluded from these lots and tracts are approximately 110 improved and 89
unimproved lots and tracts that are required for drainage and cannot be
sold, and approximately 139 improved and 335 unimproved lots and tracts
that have been removed from sale for encumbrances or additional site
development, which can only be sold when these issues are resolved. Also
excluded are amenities consisting of 2 administration facility sites, 2
recreational facility sites and 1 unimproved golf course site, as well as
approximately 433 tracts reserved for community usage such as for
greenbelts, buffer areas, church and school sites.

"Unimproved Unsold Platted Lots & Tracts" and "Improved Unsold Platted Lots
& Tracts", when added to lots and tracts sold, as described in "Existing
Communities", may not equal "Platted Lots & Tracts in Masterplan" for
various reasons, such as the subdivision of tracts into two or more parcels
for sale to different purchasers.

Excludes permit denial areas; reflects seasonal population.

Includes the South Hernando U.S. # 19 Commerce Center.

Excluded 83 Citrus Springs and 63 Marion Oaks improved lots deeded to a
purchaser of the Company's contracts receivable as exchange inventory to be
available for customers who pre-pay their contracts prior to the
installation of water service lines within one mile of their homesite and
who wish to commence immediate construction. Unused exchanged inventory
will be reconveyed to the Company when all purchased receivables have
matured and are paid in full.

4

Includes TimberWalk, the Company's newest housing development.

Excludes 3,829 acres of unplatted natural preserve in Washington County
restricted for recreational, open space/ park use which can only be sold
subject to the underlying land use restrictions

Not included are 598 improved lots deeded to a collateral trustee on behalf
of a purchaser of the Company's contract receivables so they may be sold by
the Company to create additional receivables for the Company's replacement
obligation. These lots are comprised of 474 lots in Citrus Springs, 123
lots in Marion Oaks and 1 lot in St. Augustine Shores.

Land

In selecting sites for its communities, the Company examined various
demographic and economic factors, the regulatory climate, the availability of
governmental services and medical, educational and commercial facilities, and
estimated development costs. Its communities are accessible to major highways
and Florida's major metropolitan areas and are near at least one large body of
water that can be used for recreational purposes. Other criteria used by the
Company in site selection are the suitability of the land for natural or
engineered drainage and the availability of a sufficient supply of potable water
to support the community's anticipated population.

The master plans of the Company's communities have been designed to provide
for amenities such as golf courses, greenbelt areas, parks and recreational
areas, as well as for the basic infrastructure, such as roads and water, and in
selected development areas, sewer lines. Sites are set aside for shopping
centers, schools, houses of worship, medical centers and public facilities such
as libraries and fire stations.

In its major planned communities, the Company offers for sale lot and house
"packages" situated on paved streets. In other areas of these communities, the
Company historically has sold single-family lots and multi-family and commercial
tracts on an installment basis. Prior to 1991, the Company sold such land,
subject to a future development obligation, accepting down payments as low as 5%
of the sales price, with the balance payable over periods ranging from 2 to 15
years, depending on the payment plan selected. When the applicable rescission
period expired and the Company received at least 10% of the contracted sales
price, a substantial portion of the revenue and related profit on the sale was
recognized, with the remaining revenue and profit deferred and recognized as
land improvements such as street paving occurred.

Due to various factors, since 1986, the Company had utilized a deed and
mortgage format for effecting certain sales in its communities. Beginning
September 29, 1990, the Company changed its method of recognizing land sales by
recording the sale of lots, subject to a future development obligation, under
the deposit method; since January 1, 1991, no sale has been recognized until the
Company receives at least 20% of the contracted sales price; and beginning in
the fourth quarter of 1991, the Company limited the sale of lots to those which
front on a paved street and are ready for immediate building. See Note 1 to
Consolidated Financial Statements.

A portion of the contract purchase price is discounted and treated as
interest income to be amortized over the life of the contract. Interest income
is also earned in accordance with the interest rate stated in the installment
land sales contract or promissory note. The Company further provides an
allowance for contract cancellations based on the historical experience of the
Company for such cancellations.

Substantially all of the Company's single-family lot and multi-family and
commercial tract sales have been made on an installment basis. Of the
approximate 156,000 lots and tracts sold since the Company's inception,
contracts receivable presently exist with respect to approximately 590 lots and
tracts with an outstanding balance of approximately $5,820,000 at December 31,
1997, excluding contracts receivable of which the Company is a guarantor. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 to Consolidated Financial Statements.

Housing

Historically, the Company has been involved in the design, construction and
marketing of single-family homes and multi-family housing, including both
condominium apartment complexes and a vacation ownership (timesharing) project.
Since commencing operations, the Company has constructed and sold over 13,000
single-family homes and over 4,300
5

multi-family housing units in its communities, with much of the actual
construction performed by subcontractors. Revenues, as well as related costs and
expenses, from single-family home and vacation ownership sales are recorded at
the time of closing.

Single-Family Housing

In December, 1992, the Company re-entered the single-family housing
business at its Marion Oaks community. Two and three bedroom moderately-priced
homes are being constructed by an exclusive independent builder at the Feather
Nest housing village (now owned by Conquistador Development Corporation) in this
community and sold in the local markets and through the Company's independent
dealer network. These homes include, as standard features, cathedral ceilings,
attached garages, lanais, breakfast nooks and spacious walk-in closets. The
housing village features its own recreational complex, including a swimming
pool, tennis courts and other amenities. The Company also offers the same model
line in Marion Oaks outside of the FeatherNest village in a suburban program as
well as a build on your own lot program for those customers who have previously
acquired a lot.

In December 1997, the Company announced the start of construction on its
newest housing development: TimberWalk. TimberWalk will feature a model home
center with models built by three premier central Florida home builders. At
TimberWalk, home buyers will enjoy the benefits of Deltona's newest design
concept, "Everything Included", which includes features that are often
considered extra cost upgrades and options by other home builders but are
included in TimberWalk's basic prices. Models will range from one to two story
homes with two, three or four bedrooms ranging in size from 1,200 square feet to
over 2,200 square feet of living space.

In an effort to offset the negative cash effects of installment land sales,
the Company is now attempting to direct its marketing efforts to selling homes
and lots together. The success of this direction will be dependent upon the
Company's dealer recruiting program and the availability of funds for an
advertising and promotion program.

Multi-Family Housing

The Company has designed, constructed and sold more than 4,300 condominium
apartment units at its communities in buildings ranging from garden-style
apartment complexes to luxury high-rise towers. Every condominium complex
constructed by the Company included at least one pool and patio area; many
featured tennis courts and other recreational amenities.

Substantially all of the Company's remaining inventory in its vacation
ownership complex, The Surf Club, located on the Gulf of Mexico at Marco Island,
was sold in 1990.

Marketing

The Company has historically sold land and housing on a national and
international basis through independent dealers in the United States, Canada and
overseas, as well as through Company-affiliated salespeople. For the year ended
December 31, 1997, sales by independent dealers in the United States accounted
for approximately 99% (in dollar volume) of new land sales contracts; while
overseas dealers accounted for approximately 1% of such contracts.

During the first quarter of 1995, the Company initiated a new land sales
program, which utilizes a limited group of independent dealers. During 1997, the
Company reached a lot sales volume of over $5,359,000 of contracts written.

Existing Communities

Deltona Lakes

Deltona Lakes is located 26 miles northeast of Orlando, with its popular
tourist attractions of Disney World and Sea World, and is bordered on the
northwest by Interstate 4. Opened in 1962, Deltona Lakes now has a population of

6

approximately 68,100. Over 30,000 lots and tracts and over 4,500 single and
multi-family housing units have been sold at this community.

Recreational amenities constructed by the Company include tennis courts, a
golf course and country club (which were sold in 1983), and a recreational
complex on the shores of Lake Monroe. A 133-room motel, an industrial park, a
medical complex, several shopping centers, numerous houses of worship, a fire
station, a public library and a junior high school are located in the community.
The Company has completed development of this community.

Marco Island

The Company's resort community of Marco Island is located 104 miles west of
Miami and approximately 17 miles south of Naples, Florida. Over 8,500 lots and
tracts and over 4,200 single and multi-family housing units have been sold in
this community.

More than 39,000 persons reside at Marco Island, including a population
which more than triples during the winter season. It is the largest of Florida's
Ten Thousand Islands and is known for its recreational amenities which, in
addition to its 3 1/2 mile white sand beach, sport fishing, sailing and
shelling, include golf, tennis, swimming and other recreational activities. The
island community has several major shopping centers, banks and savings & loan
associations, and medical and professional centers.

Since the community's opening in January, 1965, the Company has built and
operated a yacht club and marina, the Marco Beach Hotel & Villas, and a golf
course and country club, all of which have been sold. The Company has also
constructed over 3,300 condominium units and The Surf Club, a 44 unit vacation
ownership complex, on the island. In 1990, the Company completed the sale of
substantially all of its remaining vacation ownership weeks.

Since its inventory at Marco Island is sold out, 1998 revenues are expected
to be generated from collections on existing contracts receivable.

The community's planned growth was interrupted in 1976 by denial of certain
federal permits needed to complete the development of approximately 14,500
units. The Settlement Agreement between the Company, the State of Florida and
various environmental interest groups (the "Settlement Agreement") which became
effective on March 14, 1985, allowed for the potential development of additional
dwelling units at Marco Island, Horr's Island and Marco Shores, located two
miles from Marco Island. The bulk of these properties have subsequently been
sold or transferred to the Company's lenders or to the trustee pursuant to the
1992 settlement of the Marco class action litigation.

Spring Hill

Spring Hill, with an estimated population of approximately 71,900, is
located 45 miles north of Tampa-St. Petersburg. Over 32,000 lots and tracts and
over 4,000 single-family homes have been sold in this community. The Company has
constructed a recreation complex, a country club, and two golf courses. The
Company has sold its country club and golf courses. Several shopping centers and
medical centers, two elementary schools, a junior high school, a senior high
school, numerous houses of worship and two fire stations are located in the
community. The Company has completed the development of this community.

Citrus Springs

Citrus Springs, with an estimated population of 6,300, is located 28 miles
southwest of Ocala and 25 miles from the Gulf of Mexico. Over 30,000 lots and
tracts and over 700 single-family homes have been sold at this community. A golf
course and a clubhouse (sold in 1990) and a community center have been completed
by the Company. Several churches and a convenience shopping area are located in
the community. The Company has completed 400 miles of road. In 1992, most of the
Company's remaining inventory at this community was sold to Citony Development
Corporation ("Citony") for approximately $6,500,000. The Company and Citony then
entered into a joint venture agreement with respect to the property, providing
for the Company to market the property and receive an administration fee from
the venture. The
7

Company and Citony terminated the joint venture agreement in April 1994;
however, the Company provided certain assistance to Citony during the transition
period. In February 1997, the Company finalized the sale of the undeveloped
second Citrus Springs Golf Course to a third party, which has now substantially
completed construction of this course. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" .

St. Augustine Shores

St. Augustine Shores, with a population estimated to be approximately
7,450, is located seven miles south of St. Augustine, between the Intracoastal
Waterway and U.S. Highway 1. Only commercial and multi-family tracts, home and
lot packages and condominium apartment units had been sold in this community
before 1987, but that year St. Augustine Shores was opened for the retail sale
of single-family lots. Approximately 1,000 additional single-family lots became
available during 1988 through the platting of 641 acres adjacent to the existing
platted properties. Over 2,000 single and multi-family housing units and lots
and tracts have been sold. In December 1997, the Company sold all of its
remaining inventory at St. Augustine Shores to Swan Development Corporation
("Swan"). As part of the purchase, Swan assumed the liability for completing
improvements within St. Augustine Shores.

The Company has completed 28 miles of road. Certain common areas of the
community, such as parks and swale areas, are maintained by the St. Augustine
Shores Service Corporation, a non-profit corporation, of which all property
owners are members. Several houses of worship and shopping facilities are also
located in the community. A golf course and country club and a recreation
building were completed by the Company.

Sunny Hills

Sunny Hills, with a population of approximately 1,360 residents, is located
in the Florida Panhandle, 45 miles north of the Gulf of Mexico and 35 miles
north of Panama City. Over 12,000 lots and tracts and 300 single-family homes
have been sold at this community. It includes several houses of worship and a
convenience shopping center. The Company has completed or under construction 165
miles of road. The community also has a golf course and country club, which was
sold by the Company for $1,000,000 in the first quarter of 1993.

The Company reopened Sunny Hills for retail lot sales in mid-1989. Revenues
in 1998 will be generated from collections on existing contracts receivable,
from retail land sales and from the recognition of deferred revenue as land
development and lot exchanges proceed.

Pine Ridge

Pine Ridge, with a population of approximately 2,660, is located 34 miles
southwest of Ocala. The community's facilities include an equestrian club and
tennis courts. In May, 1987, the Company completed the $8,500,000 sale of its
remaining inventory and golf course at Pine Ridge. Prior to the sale, the
Company had sold over 3,500 lots and tracts and over 53 single-family homes in
Pine Ridge.

Marion Oaks

Marion Oaks, with a population of approximately 7,900 residents, is located
18 miles south of Ocala. Over 23,000 lots and tracts have been sold in the
community. The community includes playgrounds, two golf courses (one of which
was sold in 1988 and the second which was transferred to the Company's lenders
on October 11, 1991) and several recreation buildings. A shopping center and
several houses of worship are located in the community. The Company has
completed 315 miles of road. The Company re-entered the single-family housing
business at this community in December, 1992 with the opening of its FeatherNest
housing village. On May 22, 1995, the Company sold to Conquistador the remaining
lot inventory in the Company's FeatherNest community at Marion Oaks , as well as
other property, in consideration for the satisfaction of $2,599,300 in debt.

In December 1997, the Company announced the start of construction on its
newest housing development: TimberWalk. TimberWalk will feature a model home
center with models built by three premier central Florida home builders. At

8

TimberWalk, home buyers will enjoy the benefits of Deltona's newest design
concept, "Everything Included", which includes features that are often
considered extra cost upgrades and options by other home builders but are
included in TimberWalk's basic prices. Models will range from one to two story
homes with two, three or four bedrooms ranging in size from 1,200 square feet to
over 2,200 square feet of living space.

Revenues in 1998 will be generated from the sale of land inventory, from
housing sales, from the recognition of deferred revenue as land development,
from collections on existing contracts receivable and from the Company's real
estate brokerage operation.

Seminole Woods

Seminole Woods, with a population of approximately 430, is comprised of
1,554 acres of property located 20 miles north of Orlando. The community,
comprised of 262 single-family lots, each a minimum of five acres, has been sold
out and development completed.

Tierra Verde

Tierra Verde, with a population of approximately 4,740, is a 666-acre
waterfront subdivision located eight miles south of St. Petersburg. It was
developed and marketed pursuant to a 50% joint venture between a wholly-owned
subsidiary of the Company and an unaffiliated corporation which filed a petition
for bankruptcy under the Bankruptcy Code in 1985. The community has been sold
out and development completed. The venture, which extended until December 31,
1990, provided for the Company's subsidiary to receive a management fee and to
share in the venture's results of operations equally with its venture partner.
The venture was extended for the purposes of winding down operations which were
completed in 1993.

Other Land Assets

The Company also owns 92 acres of land in Florida adjacent to its existing
communities. Certain of these properties are being marketed by the Company's
commercial sales division.

Other Businesses

The Company's title insurance subsidiary was established in 1978 in order
to reduce title insurance, legal and certain related closing costs incurred by
the Company in transferring title of its land and housing products to its
purchasers. The subsidiary serves as an agent for TICOR Title Insurance Company
and other title insurers. The Company's realty subsidiary performs real estate
brokerage and rental services at the Company's Marion Oaks and Sunny Hills
communities.

Employees

At December 31, 1997, the Company had 37 employees, of whom 34 were
involved in executive, administrative, sales and community development and
maintenance capacities and 3 were involved with the title insurance subsidiary.
Certain of the Company's development activities are carried out by
subcontractors who separately employ additional personnel. For the most part,
the Company's sales activities are carried out by independent contractors.

Competition

The Company faces competition within its communities primarily from
property owners seeking to resell their land. The Company also faces
competition, on a local and regional level, with other builders and developers
in the sale of land and single-family housing. Such competition is generally
based upon location, price, reputation, quality of product and the existence of
commercial and recreational facilities and amenities.

9

Regulation

The Company's real estate business is subject to regulation by various
local, state and federal agencies. The communities are increasingly subject to
substantial regulation as they are planned, designed and constructed, the nature
of such regulation extending to improvements, zoning, building, environmental,
health and related matters. Although the Company has been able to operate within
the regulatory environment in the past, there can be no assurance that such
regulations could not be made more restrictive and thereby adversely affect the
Company's operations.

Community Development

In Florida, as in many growth areas, local governments have sought to limit
or control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans by agreeing, for example, to make improvements, construct
public facilities, and dedicate certain property for public use, the increased
regulation has lengthened the development process and added to development
costs.

The Florida Growth Management Act of 1985 (the "Act") precludes the
issuance of development orders or permits if public facilities such as
transportation, water and sewer services will not be available concurrent with
development. Development orders have been issued for, and development has
commenced in, the Company's existing communities (with development being
virtually completed in certain of these communities). Thus, existing communities
are less likely to be affected by the new growth management policies than future
communities since they are vested. Any future communities developed by the
Company will be strongly impacted by new growth management policies. Since the
Act and its implications are constantly being re-examined by the State, together
with local governments and various state and local governmental agencies, the
Company cannot further predict the timing or the effect of new growth management
policies, but anticipates that such policies may increase the Company's
permitting and development costs.

Environmental

To varying degrees, certain permits and approvals will be necessary to
complete the development of Marion Oaks and Sunny Hills communities. Despite the
fact that the Company has obtained substantially all of the permits and
authorizations necessary to proceed with its development work on these
communities, additional approvals may be required to develop certain platted
properties to be marketed in the future. Although the Company cannot predict the
impact of such requirements, they could result in delays and increased
expenditures. In addition, the continued effectiveness of permits and
authorizations already granted is subject to many factors, some of which,
including changes in policies, rules and regulations and their interpretation
and application, are beyond the Company's control.

The Company is aware of studies indicating that prolonged exposure to radon
gas may be hazardous to one's health. Such studies further indicate that radon
gas is apparently associated with mining and earth moving activities,
particularly in phosphate-bearing geological formations. Since phosphate mining
has, over the years, constituted a significant industry in Florida, various
state and local governmental agencies are in the process of attempting to
determine the nature and extent of indoor radon gas intrusion throughout the
state. Similar studies undertaken by the Company at its Citrus Springs community
indicate that less than 1% of its property in that community may be affected by
radon gas; studies conducted at the Company's Marion Oaks community revealed no
indications of potential indoor radon gas problems. None of the other properties
owned by the Company are situated over geological formations which are suspected
of causing radon gas problems. Consequently, the existence of radon gas in
Florida is not expected to materially affect the business or financial condition
of the Company.

The Company owned above ground fuel storage tanks at its communities. The
Florida Department of Environmental Regulation ("DER") was responsible not only
for regulating these tanks, but for developing and implementing plans and
programs to prevent the discharge of pollutants by such facilities. The Company
registered its storage tanks with the DER, constructed containment devices
around above ground storage tanks, replaced or properly abandoned faulty tanks
or equipment and conducted periodic inspections and monitoring of all
facilities. In December, 1988, the Company surveyed all of its fuel facilities
and reported any facility which exhibited evidence of potential soil
contamination to the DER prior

10

to the deadline for acceptance into the Early Detection Incentive ("EDI")
Program. The EDI Program provides for the State to assume the financial
responsibility for any necessary clean-up operations when suspected
contamination has been voluntarily reported by the facility owner and accepted
into the program by the DER. The Company's sites were inspected and reviewed
under the EDI program and were determined to be in compliance with DER
regulations.

Marketing

The Company is also subject to a number of statutes imposing registration,
filing and disclosure requirements with respect to homesites and homes sold or
proposed to be sold to the public. On the state level, the Company's land sales
activities are subject to the jurisdiction of the Division of Florida Land
Sales, Condominiums and Mobile Homes (the "Division") which requires
registration of subdividers and subdivided land; reviews the contents of
advertising and other promotional material; inspects the Company's land and
development work; exercises jurisdiction over sales practices; and requires full
disclosure to prospective purchasers of pertinent information relating to the
property offered for sale.

Other Obligations

As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for notifying affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community, the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested by the
purchaser. Under an agreement with Topeka, Topeka's utility companies agreed to
furnish utility service to the future residents of the Company's communities on
substantially the same basis as such services were provided by the Company. The
Consent Order also required the establishment of an improvement escrow account
as assurance for completing such improvement obligations.

In June, 1992, the Company entered into the 1992 Consent Order with the
Division, which replaced and superseded the original Consent Order, as amended
and restated. Among other things, the 1992 Consent Order consolidated the
Company's development obligations and provided for a reduction in its required
monthly escrow obligation to $175,000 from September, 1992 through December,
1993. Beginning January, 1994 and until development is completed or the 1992
Consent Order is amended, the Company was required to deposit $430,000 per month
into the escrow account. As part of the assurance program under the 1992 Consent
Order, the Company and its lenders had granted the Division a lien on certain
receivables and future receivables. The Company defaulted on its obligation to
escrow $430,000 per month for the period of January, 1994 through November 1997.
In accordance with the 1992 Consent Order, collections on Division receivables
were escrowed for the benefit of purchasers from March 1, 1994 through April 30,
1994. In May, 1994 the Company implemented a program have to customers who
contracted to purchase property which is undeveloped exchange such property for
developed property. As of December 31, 1997, approximately 85% of such customers
have opted to exchange or have had their situations otherwise resolved.

On December 30, 1997, the Division approved the formation of a Lot Exchange
Trust into which the Company conveyed sufficient exchange inventory to provide
exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and approved a settlement of all remaining issues
under the 1992 Deltona Consent Order.

As of December 31, 1997, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costs of $676,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$458,000, all of which are included in deferred revenue. As of December 31, 1997
and December 31, 1996 the Company had in escrow approximately $50,000 and
$360,000, respectively, specifically for land improvements at certain of its
Central and North Florida communities. The

11

Company's development obligation was substantially reduced in 1997 by the
consummation of the Agreement approved by the stockholders on November 4, 1997.
Approximately $7,400,000 of the development obligation at St. Augustine Shores
was assumed by Swan. In addition, the creation of a Lot Exchange Trust reduced
the development obligation at Marion Oaks and Sunny Hills by approximately
$5,800,000.

On the federal level, the Company's homesite installment sales are subject
to the Federal Consumer Credit Protection ("Truth-in-Lending") Act. In addition,
the Company's activities are subject to regulation by the Interstate Land Sales
Registration Division ("ILSRD"), which administers the Interstate Land Sales
Full Disclosure Act. That Act requires that the Company file with ILSRD copies
of applicable materials on file with the Division as to all properties
registered; certain properties must be registered directly with ILSRD, in
addition to being registered with the Division.

The Company has either complied with applicable statutory requirements
relative to the properties it is offering for sale or has relied on various
statutory exemptions which have relieved the Company from such registration,
filing and disclosure requirements. If these exemptions do not continue to
remain available to the Company, compliance with such statutes may result in
delays in the offering of those properties for sale to the public.

The Company's land sales activities are further subject to the jurisdiction
of the laws of various states in which the Company's properties are offered for
sale. In addition, Florida and other jurisdictions in which the Company's
properties are offered for sale have strengthened, or are considering
strengthening, their regulation of subdividers and subdivided lands in order to
provide further assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The Company has
attempted to take appropriate steps to modify its marketing programs and
registration applications in the face of such increased regulation, but has
incurred additional costs and delays in the marketing of certain of its
properties in certain states and countries. For example, the Company has
complied with the regulations of certain states which require that the Company
sell its properties to residents of those states pursuant to a deed and mortgage
transaction, regardless of the amount of the down payment. The Company intends
to continue to monitor changes in statutes or regulations affecting, or which
may affect, the sale of its properties and intends to take all necessary and
reasonable action to assure that its properties and its proposed marketing
programs are in compliance with such regulations. There can be no assurance that
the Company will be able to timely comply with all regulatory changes in all
jurisdictions in which the Company's properties are presently offered for sale
to the public.

Real estate salespersons must, absent exemptions which may be available to
employees of the property owner, be licensed in the jurisdiction in which they
perform their activities. Real estate brokerage companies in Florida, as well as
their brokers and salespersons, must be licensed by the Florida Real Estate
Commission.

Miscellaneous

In addition, various other subsidiaries and divisions of the Company are
subject to regulation by local, state and federal agencies. Such regulation
extends to the licensing of operations, operating areas and personnel; the
establishment of safety and service standards; and various other matters.

12

ITEM 3

LEGAL PROCEEDINGS

During 1997, the Company was successful in settling the lawsuit entitled
LEE SU WEN NI ET. AL. V. THE DELTONA CORPORATION AND SCAFHOLDING B.V., Case No.
95-4422-CA-E, which was filed in the Circuit Court of Marion County, Florida on
October 11, 1995. The plaintiff had alleged that the liquidated damages
provision in the Company's installment contracts for the sale of its properties
was unenforceable under Florida Law and contested the method utilized by the
Company to calculate actual damages in the event of contract cancellations.
Pursuant to the settlement, the claims and the case were dismissed with
prejudice.

In the action styled JOSEPH MANCILLA, JR. V. THE DELTONA CORPORATION, filed
in the Circuit Court of Dade County, Florida, Case No. 94-09116, the plaintiff,
Joseph Mancilla, Jr., former Senior Vice President of the Company, sued the
Company on May 17, 1994 for alleged breach of employment contract seeking
damages in excess of $391,000 plus an unspecified amount in employee benefits,
costs and attorneys' fees. The Company settled the matter and a general release
was entered into in 1995. The Company satisfied its settlement obligations in
January 1997 and a Notice of Voluntary Dismissal with prejudice was filed.

The Company is also a party to certain other legal and administrative
proceedings arising in the ordinary course of business. The outcome will not, in
the opinion of the Company, have a material adverse effect on the business or
financial condition of the Company.

13

ITEM 5

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Company's Common Stock was traded on the New York and Pacific Stock
Exchanges under the ticker symbol DLT. On April 6, 1994, both the New York and
Pacific Stock Exchanges suspended the Company's Common Stock from trading and
instituted procedures to delist the Company's Common Stock. On June 16, 1994,
the Company's Common Stock was formally removed from listing and registration on
the New York Stock Exchange. As of December 31, 1997, the Company's Common Stock
was traded on a limited basis in the over-the-counter markets (on the bulletin
board) under the symbol DLTA. The weighted average price per share at which the
common stock was traded at the end of the first, second, third and fourth
quarters of 1997 is as follows:

March 31, 1997 $.227
June 30, 1997 $.1544
September 30, 1997 $.135
December 31, 1997 $.4933

The Company has never paid cash dividends on its Common Stock. The
Company's loan agreements contain certain restrictions which currently prohibit
the Company from paying dividends on its Common Stock.

14

ITEM 6

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes selected consolidated financial information
and should be read in conjunction with the Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".

Consolidated Income Statement Data
(in thousands except per share amounts)

Years Ended
------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------

Revenues ........................ $ 9,425 $ 8,650 $ 6,688 $ 8,541 $ 12,099
Costs and expenses............... 10,751 9,877 9,593 12,447 20,871
--------- ----------- ---------- ---------- ----------
Loss from continuing operations
before taxes and extraordinary
items........................... (1,326) (1,227) (2,905) (3,906) (8,772)
Provision for income taxes....... -0- -0- -0- -0- -0-
--------- ----------- ---------- ---------- ----------
Loss from operations
before extraordinary items...... (1,326) (1,227) (2,905) (3,906) (8,772)
========= =========== ========== ========== ==========
Extraordinary items:
Gain on settlement related to
the Marco refund obligation..... -0- 331 702 -0- -0-
--------- ----------- ---------- ---------- ----------
Net income (loss) applicable
to common stock................. $ (1,326) $ (896) $ (2,203) $ (3,906) $ (8,772)
========= =========== ========== ========== ==========
Basic earnings per share amounts:
Continuing operations......... $ (.20) $ (.18) $ (.43) $ (.59) $ (1.45)
Extraordinary items........... .00 .05 .10 .00 .00
--------- ----------- ---------- ---------- ----------
Net income (loss)................. $ (.20) $ (.13) $ (.33) $ (.59) $ (1.45)
========= =========== ========== ========== ==========
Weighted average common shares
outstanding...................... 6,753,587 6,729,648 6,699,923 6,514,988 6,056,743
========= =========== ========== ========== ==========

Consolidated Balance Sheet Data
(in thousands)

December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------

Total assets...................... $ 13,560 $ 19,442 $ 19,180 $ 22,109 $ 26,565
=========== ========== ========= ========= =========
Liabilities....................... $ 19,174 $ 37,301 $ 36,192 $ 38,930 $ 40,856
Stockholders' equity (deficiency). (5,614) (17,879) (17,013) (16,821) (14,291)
----------- ---------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficiency).............. $ 13,560 $ 19,422 $ 19,180 $ 22,109 $ 26,565
=========== ========== ========= ========= =========

15

ITEM 7

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

On June 19, 1992, the Company completed a transaction with Selex International
B.V., a Netherlands corporation ("Selex"), which resulted in a change in control
of the Company. Under the transaction, Selex loaned the Company $3,000,000
collateralized by a first mortgage on certain of the Company's property in its
St. Augustine Shores, Florida community (the "First Selex Loan"). The First
Selex Loan initially bears interest at the rate of 10% per annum with a term of
four years and payment of interest deferred for the first 18 months.

In conjunction with the First Selex Loan: (i) Empire of Carolina, Inc.
("Empire") sold Selex its 2,220,066 shares of the Company's Common Stock and
assigned Selex its $1,000,000 Note from the Company, with $225,000 of interest
accrued thereon; (ii) Maurice A. Halperin, Chairman of the Board of Empire and
former Chairman of the Board of the Company, forgave payment of the $200,000
salary due him for the period of April, 1990 through April, 1991, which was in
arrears; and (iii) certain changes occurred in the composition of the Company's
Board of Directors. Namely, the six directors serving on the Company's Board who
were previously designated by Empire resigned and four Selex designees (Messrs.
Marcellus H.B. Muyres, Antony Gram, Cornelis van de Peppel and Cornelis L.J.J.
Zwaans) were elected to serve as directors in their stead. Mr. Muyres was
appointed Chairman of the Board and Chief Executive Officer of the Company.
These directors, as well as Leonardus G.M. Nipshagen, a Selex designee, were
then elected as directors at the Company's 1992 Annual Meeting. In November,
1995, Messrs. Muyres, van de Peppel, Nipshagen and Zwaans resigned their board
seats.

As part of the Selex transaction, Selex was granted an option, approved by the
holders of a majority of the outstanding shares of the Company's Common Stock at
the Company's 1992 Annual Meeting, to convert the Selex Loan, or any portion
thereof, into a maximum of 850,000 shares of the Company's Common Stock at a per
share conversion price equal to the greater of (i) $1.25 or (ii) 95% of the
market price of the Company's Common Stock at the time of conversion, but in no
event greater than $4.50 per share (the "Option"). However, on September 14,
1992, Selex formally waived and relinquished its right to exercise the Option as
to 250,000 shares of the Company's Common Stock to enable the Company to settle
certain litigation involving the Company through the issuance of approximately
250,000 shares of the Company's Common Stock to the claimants, without
jeopardizing the utilization of the Company's net operating loss carry forward.
On February 17, 1994, Selex exercised the remaining full 600,000 share Option at
a conversion price of $1.90 per share, such that $1,140,000 in principal was
repaid under the First Selex Loan through such conversion. As a consequence of
such conversion, Selex holds 2,820,066 shares of the Company's Common Stock
(20.82% of the outstanding shares of Common Stock of the Company based upon the
number of shares of the Company's Common Stock outstanding as of March 20,
1998).

Pursuant to the Selex transaction, $1,000,000 of the proceeds from the First
Selex Loan was used by the Company to acquire certain commercial and
multi-family properties at the Company's St. Augustine Shores community at their
net appraised value, from Mr. Muyres and certain entities affiliated with
Messrs. Zwaans and Muyres. Namely, (i) $416,000 was used to acquire 48
undeveloped condominium units (twelve 4 unit building sites) and 4 completed
(and rented) condominium units from Conquistador, in which Messrs. Zwaans and
Muyres served as directors, as well as President and Secretary/Treasurer,
respectively; (ii) $485,000 was used to acquire 4 commercial lots from Swan
Development Corporation ("Swan"), in which Messrs. Zwaans and Muyres also serve
as directors, as well as President and Secretary, respectively; and (iii)
approximately $99,000 was used to reacquire, from Mr. Muyres, all of his rights,
title and interest in a certain contract with the Company for the purchase of a
commercial tract in St. Augustine Shores, Florida. None of the commercial land
and multi-family property acquired by the Company from Mr. Muyres and certain
entities affiliated with Messrs. Zwaans and Muyres collateralizes the First
Selex Loan. In March, 1994, Conquistador exercised its right to repurchase
certain of the multi-family property from the Company (which right had been
granted in connection with the June, 1992 transaction) at a price of $312,000,
of which $260,000 was paid in cash to the Company and $52,000 was applied to
reduce interest due to Selex under the Second Selex Loan (the "First
Conquistador Acquisition").

16

In December, 1992, Mr. Gram, a director of the Company and beneficial owner of
the Common Stock of the Company held by Selex, acquired all of the Company's
outstanding bank debt and then assigned same to Yasawa, of which Mr. Gram is
also the beneficial owner. Yasawa simultaneously completed a series of
transactions with the Company which involved the transfer of certain assets to
Yasawa or its affiliated companies, the acquisition by Yasawa of 289,637 shares
of the Company's Common Stock through the exercise of warrants previously held
by the banks, the provision of a $1,500,000 line of credit to the Company and
the restructuring of the remaining debt as a $5,106,000 Yasawa Loan.

On April 30, 1993, Selex loaned the Company an additional amount of $1,000,000
pursuant to the Second Selex Loan and since July 1, 1993 made further loans to
the Company aggregating $4,400,000 under the Third Selex Loan.

On May 22, 1995, the Company closed a transaction with Conquistador (the "Second
Conquistador Acquisition") for the sale of an administration building and a
multi-family site in the Company's St. Augustine Shores community as well as the
remaining lot inventory in the Company's FeatherNest community at Marion Oaks in
consideration for the satisfaction of $2,599,300 of principal and accrued
interest on the Second and Third Selex Loans. On that same date, but in a
separate transaction, the Company also sold to Conquistador Development
Corporation (the "Third Conquistador Acquisition") four single family
residential lots in the St. Augustine Shores community for $100,000 in cash.
These transactions were accounted for in accordance with generally accepted
accounting principals for these types of related party transactions.
Accordingly, the resulting gain of $1,900,000 was treated as a contribution of
capital and recorded directly to capital surplus. The loans from Selex, Yasawa
and their affiliates are secured by substantially all of the assets of the
Company. See Note 5 to Consolidated Financial Statements.

On March 10, 1994, the Company was advised that Selex filed an Amendment to its
Schedule 13D with the Securities and Exchange Commission (the "Commission"). In
the Amendment, Selex reported that it, together with Yasawa and their
affiliates, were uncertain as to whether they would provide any further funds to
the Company. The Amendment further stated that Selex, Yasawa and their
affiliates were seeking third parties to provide financing for the Company and
that as part of any such transaction, they would be willing to sell or
restructure all or a portion of their loans and Common Stock in the Company.

The Company, Selex and Yasawa entered into loan modification agreements in which
all accrued interest was converted into non-interest bearing principal at the
earlier of the maturity date or the default date. Accordingly, at December 31,
1995, $4,200,000 of accrued interest was reclassified as principal. The loans
were also modified to formalize the elimination of the default interest rate
provisions in each of the applicable loan agreements.

On November 4, 1997, at the 1997 Annual Meeting, the Company's stockholders
approved an Agreement between the Company and its lenders that would
substantially reduce the Company's outstanding debt obligation of $25.3 million
(the "Agreement"). The Agreement, consummated effective December 30, 1997 upon
approval of the Division of Florida Land Sales, Condominiums and Mobile Homes,
resulted in a reduction in the Company's outstanding debt obligation through the
conveyance of all remaining land inventory and obligations in the Company's St.
Augustine Shores Subdivision and the issuance of approximately 6.8 million
shares of Common Stock at $1.00 per share (par value). Additionally, the lenders
purchased $7.5 million in contracts receivable from the Company to generate
working capital and further reduce the debt obligation. Specifically:

1. Selex sold its remaining debt ($2,664,736), including the Empire note,
to Yasawa and the Company owes no further duty or obligation to Selex, which
provided the Company a release. The debt purchased by Yasawa was satisfied
through Yasawa's purchase of 2,664,736 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value.

2. Swan Development Corporation ("Swan") had previously acquired $5,529,501
of the Company's debt from Selex. This $5,529,501 was satisfied through the
Company's conveyance of all of the Company's remaining land inventory and
obligations in its St. Augustine Shores Subdivision to Swan . The price, based
upon appraised value, was adjusted to take into account the development
obligations on sold lots assumed by Swan.

17

3. Scafholding B.V. ("Scafholding") an affiliate of Selex and Yasawa,
purchased approximately $7.5 million in contracts receivable from the Company at
seventy-five percent (75%) of face value with recourse for non-performing
contracts. This sale generated approximately $5.6 million, $1,982,457 of which
was used to reduce outstanding debt to Yasawa. The balance (of which $1 million
is in the form of a promissory note from Scafholding to the Company) will be
used by the Company to pay a portion of the delinquent real estate taxes, to
implement its marketing programs, to initiate development of TimberWalk and to
meet the Company's working capital requirements.

4. A $4,144,602 portion of the Company's debt to Yasawa was satisfied
through Yasawa's purchase of 4,144,602 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value.

5. As of December 31, 1997, the Company's outstanding debt to Scafholding
was $2,293,950, secured by a first lien on the Company's receivables; the
Company's outstanding debt to Yasawa was $6,692,732 secured by a second lien on
the Company's receivables and a mortgage on all of the Company's property. As of
December 31, 1997, loans outstanding to Yasawa and Scafholding totaled
$8,986,682. The terms of repayment of this debt have been restructured to
provide for monthly payments of principal in the amount of $100,000 payable
monthly in cash or with contracts receivable at 100% of face value, plus
interest payable monthly on the declining balance at the rate of 9.6% per annum
in cash or with contracts receivable at 65% of face value.

6. In the future, if the Company elects to do so, Yasawa and Scafholding
have agreed to purchase contracts receivable at 65% of face value, with
recourse, to meet the Company's ongoing capital requirements.

Prior to November 4, 1997 and independent of the Agreement outlined above, Selex
and Yasawa agreed to forgive $2,050,818 in accrued interest on the Company's
debt to them.

Through Yasawa's acquisition of the 6,809,338 shares of Common Stock of the
Company referenced above, Mr. Antony Gram's beneficial ownership increased from
3,109,703 shares to 9,919,041 shares (73.23% of the outstanding shares of Common
Stock of the Company as of March 20, 1998).

As a consequence of its liquidity position, the Company has not paid
delinquent real estate taxes which aggregate approximately $1,485,000 as of
December 31, 1997; non-payment of these delinquent taxes may adversely affect
the financial condition of the Company. Of the $1,485,000 in delinquent real
estate taxes, approximately $112,000 relates to sold lots on which the customer
has assumed the obligation to pay but has not done so.

Results of Operations

Years ended December 31, 1997 and December 31, 1996

Revenues

Total revenues were $9,425,000 for 1997 compared to $8,650,000 for 1996.

Gross land sales were $6,093,000 for 1997 versus $6,816,000 for 1996. Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) decreased to $4,045,000 for 1997 from $4,296,000
for 1996. The decrease in sales reflects lower sales from the Company's
independent dealer network.

The Company re-entered the single-family housing business in December,
1992. Revenues are not recognized from housing sales until the completion of
construction and passage of title. Housing revenues were $1,214,000 for 1997
compared to $1,202,000 in 1996. Housing revenues remained constant in 1997.

18

The following table reflects the Company's real estate product mix for 1997
and 1996 (in thousands):

Years Ended
---------------------------
December 31, December 31,
1997 1996
------------ ------------

Gross Land Sales:
Retail sales......................................... $ 6,093 $ 6,816
------- -------
Total................................................ 6,093 6,816
------- -------
Housing Sales:
Single Family............................................ 1,214 1,188
Vacation Ownership....................................... -0- 14
------- -------
Total................................................ 1,214 1,202
------- -------
Total Real Estate.................................... $ 7,307 $ 8,018
======= =======

- ------------
New retail land sales contracts entered into, including deposit sales on
which the Company has received less than 20% of the sales price, net of
cancellations, for the years ended December 31, 1997 and December 31, 1996
were $5,359,000 and $6,612,000, respectively. The Company had a backlog of
$1,094,000 and $2,089,000 in unrecognized sales as of December 31, 1997 and
December 31, 1996, respectively. Such contracts are not included in retail
land sales until the applicable rescission period has expired and the
Company has received payments totaling 20% of the contract sales price. See
Note 1 to the Consolidated Financial Statements.

Improvement revenues result from recognition of revenues deferred from
prior period sales. Recognition occurs as development work proceeds on the
previously sold property or customers are exchanged to a developed lot.
Improvement revenues totaled $2,366,000 in 1997 as compared to $1,008,000 for
1996. The increase is a result of the Lot Exchange Trust, which provided
sufficient developed inventory for exchanges to customers with undeveloped lots.

Interest income was $1,367,000 for 1997 compared to $1,464,000 for 1996.
This decrease is the result of lower recognition of the Company's valuation
discount.

Other revenues were $433,000 for 1997 compared to $680,000 in 1996. Other
revenues are generated principally by the Company's title insurance and real
estate brokerage subsidiaries.

Included in the 1996 results is an extraordinary gain of $331,000 resulting
from the final settlement of the Marco class action litigation.

In 1996 the Company evaluated its property, plant and equipment. As a
result, the Company wrote off approximately $1,040,000 of obsolete assets, most
of which was fully depreciated. The Company recognized a loss of $40,000 as a
result of this write off.

Costs and Expenses

Costs and expenses were $10,751,000 for 1997 compared to $9,877,000 in
1996. Cost of sales totaled $2,831,000 for 1997 versus $2,673,000 for 1996. This
increase is primarily due to an increase in the cost of improvements on prior
period sales.

Commissions, advertising and other selling expenses totaled $2,517,000 for
1997 versus $2,457,000 for 1996. Advertising and promotional expenditures
decreased to $104,000 in 1997 from $118,000 in 1996. Other selling expenses
increased to $623,000 in 1997 from $514,000 in 1996 as a result of preparations
for the introduction of a new housing line in early 1998.

General and administrative expenses were $1,680,000 in 1997 versus
$1,715,000 for 1996. General and administrative expenses remained constant.

The Company recorded a $840,000 provision for recourse obligations in 1997.

Real estate tax expense was $1,338,000 in 1997 compared to $1,251,000 in
1996. Included in real estate tax expense is delinquent interest and
administrative fees on delinquent taxes, which accrue interest at 18% per annum.

19

Interest expense was $1,545,000 for 1997 as compared to $1,781,000 for
1996. The decrease in interest expense is the result of cessation of interest
accrual as of November, 1997 simultaneous with the stockholder's approval of the
debt restructuring at the 1997 annual meeting. Total interest cost (none of
which represents capitalized) was $1,545,000 for 1997 as compared to $1,781,000
for 1996. No interest was capitalized in 1997 and 1996.

Net Income

The Company reported a net loss of $1,326,000 for 1997, compared to a net
loss of $896,000 for 1996. Included in the 1996 results is an extraordinary gain
of $331,000 resulting from the final settlement of the Marco class action
litigation.

Years ended December 31, 1996 and December 31, 1995

Revenues

Total revenues were $8,650,000 for 1996 compared to $ 6,688,000 for 1995.

Gross land sales were $6,816,000 for 1996 versus $3,623,000 for 1995. Net
land sales (gross land sales less estimated uncollectible installment sales and
contract valuation discount) increased to $4,296,000 for 1996 from $2,394,000
for 1995. The increase in sales reflects the Company's marketing program which
was initiated in 1995.

The Company re-entered the single-family housing business in December,
1992. Revenues are not recognized from housing sales until the completion of
construction and passage of title. Housing revenues were $1,202,000 for 1996
compared to $1,383,000 in 1995. The decrease in housing revenues is directly
related to the reduction in the Company's housing advertising and promotional
programs for housing due to limited working capital. Housing revenues decreased
in both 1995 and 1996 due to the lack of an advertising and promotional program.

The following table reflects the Company's real estate product mix for 1996
and 1995 (in thousands):

Years Ended
-----------------------------
December 31, December 31,
1996 1995
------------ ------------

Gross Land Sales:
Retail sales.........................................$ 6,816 $ 3,623
------- -------
Total................................................ 6,816 3,623
------- -------
Housing Sales:
Single Family........................................ 1,188 1,328
Vacation Ownership....................................... 14 55
------- -------
Total................................................ 1,202 1,383
------- -------
Total Real Estate....................................$ 8,018 $ 5,006
======= =======

-----------
New retail land sales contracts entered into, including deposit sales
on which the Company has received less than 20% of the sales price,
net of cancellations, for the years ended December 31, 1996 and
December 31, 1995 were $6,612,000 and $6,260,000, respectively. The
Company had a backlog of $2,089,000 and $3,100,000 in unrecognized
sales as of December 31, 1996 and December 31, 1995, respectively.
Such contracts are not included in retail land sales until the
applicable rescission Period has expired and the Company has received
payments totaling 20% of the contract sales price. See Note 1 to the
Consolidated Financial Statements.

Improvement revenues result from recognition of revenues deferred from
prior period sales. Recognition occurs as development work proceeds on the
previously sold property or customers are exchanged to a developed lot.
Improvement revenues totaled $1,008,000 in 1996 as compared to $1,052,000 for
1995. Due to the Company's financial condition, the Company had done minimal
development work in the last two years.

Interest income was $1,464,000 for 1996 compared to $1,019,000 for 1995.
This increase is the result of higher contract receivable balances.

Other revenues were $680,000 for 1996 compared to $840,000 in 1995. Other
revenues are generated principally by the Company's title insurance and real
estate brokerage subsidiaries.

20

Included in the 1996 results is an extraordinary gain of $331,000 resulting
from the final settlement of the Marco class action litigation. Included in the
1995 results is an extraordinary gain of $702,000 resulting from a reduction in
the allowance for the guarantee pursuant to the final settlement of the Marco
class action litigation.

In 1996 the Company evaluated its property, plant and equipment. As a
result, the Company wrote off approximately $1,044,000 of obsolete assets, most
of which were fully depreciated. The Company recognized a loss of $40,000 as a
result of this write off.

Costs and Expenses

Costs and expenses were $9,877,000 for 1996 compared to $9,593,000 in 1995.
Cost of sales totaled $2,673,000 for 1996 versus $2,432,000 for 1995. This
increase is primarily due to higher land sales in 1996.

In 1995, the Company recorded a provision of $650,000 representing the
Company's estimate of its liability to replace or repurchase canceled contracts
receivable under the recourse provisions of its prior sales of contracts and
mortgages receivable.

Commissions, advertising and other selling expenses totaled $2,457,000 for
1996 versus $1,889,000 for 1995. The increase is the result of higher retail
sales levels. Advertising and promotional expenditures decreased to $118,000 in
1996 from $151,000 in 1995 as a result of the reduction in the Company's
marketing programs. Other selling expenses decreased to $514,000 in 1996 from
$550,000 in 1995.

General and administrative expenses were $1,715,000 in 1996 versus
$1,869,000 for 1995. General and administrative expenses have decreased
primarily due to overhead reductions.

Real estate tax expense was $1,251,000 in 1996 compared to $1,111,000 in
1995. Included in real estate tax expense is delinquent interest and
administrative fees on delinquent taxes, which accrue interest at 18% per annum.

Total interest cost (none of which represents capitalized) was $1,781,000
for 1996, as compared to $1,642,000 for 1995. The increase in interest expense
is the result of the increase in debt. No interest was capitalized in 1996 and
1995 since the Company had curtailed land development work at its communities.

Net Income

The Company reported a net loss of $896,000 for 1996, compared to a net
loss of $2,203,000 for 1995. Included in the 1996 results is an extraordinary
gain of $331,000 resulting from the final settlement of the Marco class action
litigation. Included in the 1995 results is an extraordinary gain of $702,000
resulting from a reduction in the allowance for the guarantee pursuant to the
final settlement of the Marco class action litigation.

Regulatory Developments which may affect Future Operations

In Florida, as in many growth areas, local governments have sought to limit
or control population growth in their communities through restrictive zoning,
density reduction, the imposition of impact fees and more stringent development
requirements. Although the Company has taken such factors into consideration in
its master plans, the increased regulation has lengthened the development
process and added to development costs.

On a statewide level, the Florida Legislature adopted and implemented the
Florida Growth Management Act of 1985 (the "Act") to aid local governments
efforts to discourage uncontrolled growth in Florida. The Act precludes the
issuance of development orders or permits if public facilities such as
transportation, water and sewer services will not be available concurrent with
development. Development orders have been issued for, and development has
commenced in, the Company's existing communities (with development being
virtually completed in certain of these communities). Thus, such communities are
less likely to be affected by the new growth management policies than future
communities. Any future communities developed by the Company will be strongly
impacted by new growth management policies. Since the Act and

21

its implications are constantly being re-examined by the State, together with
local governments and various state and local governmental agencies, the Company
cannot further predict the timing or the effect of new growth management
policies, but anticipates that such policies may increase the Company's
permitting and development costs.

In addition to Florida, other jurisdictions in which the Company's
properties are offered for sale have recently strengthened, or are considering
strengthening, their regulation of subdividers and subdivided lands in order to
provide further assurances to the public, particularly given the adverse
publicity surrounding the industry which existed in 1990. The Company has
attempted to take appropriate steps to modify its marketing programs and
registration applications in the face of such increased regulation, but has
incurred additional costs and delays in the marketing of certain of its
properties in certain states and countries. For example, the Company has
complied with regulations of certain states which require that the Company sell
its properties to residents of those states pursuant to a deed and mortgage
transaction, regardless of the amount of the down payment. The Company intends
to continue to monitor changes in statutes or regulations affecting, or which
may affect, the sale of its properties and intends to take all necessary and
reasonable action to assure that its properties and its proposed marketing
programs are in compliance with such regulations. There can be no assurance that
the Company will be able to timely comply with all regulatory changes in all
jurisdictions in which the Company's properties are presently offered for sale
to the public.

Liquidity and Capital Resources

Mortgages and Similar Debt

Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries.

The Company, Selex and Yasawa entered into loan modification agreements in
which all accrued interest was converted into non-interest bearing principal at
the earlier of the maturity date or the default date. Accordingly, at December
31, 1996, $4,200,000 of accrued interest was reclassified as non-interest
bearing principal. The loans were also modified to formalize the elimination of
the default interest rate provisions in each of the applicable loan agreements.

The loan modifications consummated on December 30, 1997, satisfied all
Company obligations to Selex and the outstanding loans to Scafholding and Yasawa
were restructured. The following table presents information with respect to
mortgages and similar debt (in thousands):

Years Ended
------------------------------
December 31, December 31,
1997 1996
------------ ------------

Mortgage Notes Payable .................. $ 6,693 $ 18,707
Other Loans.............................. 2,294 3,661
-------- --------
Total mortgages and similar debt..... $ 8,987 $ 22,368
======== ========

Included in Mortgage Notes Payable is the Yasawa loan ($6,693,000 as of
December 31, 1997); included in Other Loans is the Scafholding loan ($2,294,000
as of December 31, 1997).

Contracts and Mortgages Receivable Sales

In June, 1992 and February, 1990, the Company completed sales of contracts
and mortgages receivable totaling $13,500,000 and $17,000,000, respectively,
which generated approximately $8,000,000 and $13,900,000 respectively, in net
proceeds to the Company. The anticipated costs of the June, 1992 transaction
were included in the extraordinary loss from debt restructuring for 1991 since
the restructuring was dependent on the sale. The Company recorded a loss of
$600,000 on the February, 1990 sale. In conjunction with these sales the Company
granted the purchaser a security interest in certain additional contracts
receivable of approximately $2,700,000 and conveyed all of its rights, title and
interest in the property underlying such contracts to a collateral trustee. In
addition, these transactions, among other things require that the Company
replace or repurchase any receivable that becomes 90 days delinquent upon the
request of the purchaser. Such requirement can be satisfied from contracts in
which the purchaser holds a security interest (approximately $2,734,000 as

22

of December 31, 1997). The purchaser of these receivables experienced financial
difficulty and filed in 1994 for protection under Chapter 11 of the Federal
Bankruptcy Code. In November 1995, the purchaser of these receivables sold the
portfolio to Finova Capital Corporation. The Company is unable to determine what
effect this will have, if any, on future cancellations, since it is unable to
determine how the bankruptcy or the subsequent sale of the portfolio will impact
servicing and collection procedures and the customers' determination to continue
to pay under those contracts. The Company has fully reserved for the estimated
future cancellations based on the Company's historical experience for
receivables the Company services. However, due to the uncertainty noted above,
the Company does not feel there is sufficient information to estimate future
cancellations and is unable to determine the adequacy of its reserves to replace
or repurchase receivables that become delinquent. In 1997, the Company did not
replace any delinquent receivables. As of December 31, 1997 and 1996, $1,279,000
and $1,069,000 in receivables were delinquent, respectively.

In December, 1992, as described above, the Company sold $10,800,000 of
contracts and mortgages receivable to an affiliate of Yasawa at face value,
applying the proceeds therefrom to reduce the Bank Loan acquired by Yasawa.

In March, 1993, the Company transferred $1,600,000 in contracts and
mortgages receivable generating approximately $1,059,000 in proceeds to the
Company, which was used for working capital and the creation of a holdback
account in the amount of $150,000. As of December 31, 1997, the balance of the
holdback account as approximately $121,000.

In December 1997, Scafholding purchased approximately $7,500,000 in
contracts receivable from the Company at seventy-five percent (75%) of face
value with recourse for non-performing contracts. This sale generated
approximately $5.6 million, $1,982,457 of which was used to reduce outstanding
debt to Yasawa. The balance (of which $1 million is in the form of a promissory
note from Scafholding to the Company expected to be satisfied by mid-1998) will
be used by the Company to pay a portion of the delinquent real estate taxes, to
implement its marketing programs, to initiate development of TimberWalk and to
meet the Company's working capital requirements.

The Company was the guarantor of approximately $14,324,000 of contracts
receivable sold or transferred as of December 31, 1997, for the transactions
described above and had $121,000 on deposit with purchasers of the receivables
as security to assure collectibility as of such date. A provision has been
established for the Company's obligation under the recourse provisions of which
$3,280,000 remains at December 31, 1997. The Company has been in compliance with
all receivable transactions since the consummation of receivable sales.

In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase contracts receivable at 65% of face value, with recourse, to
meet the Company's ongoing capital requirements.

Other Obligations

As of December 31, 1997, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costing $676,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$458,000, all of which are included in deferred revenue. The total cost to
complete improvements at December 31, 1997 was estimated to be approximately
$1,159,000. As of December 31, 1997 and December 31, 1996 the Company had in
escrow approximately $50,000 and $360,000, respectively, specifically for land
improvements at certain of its Central and North Florida communities. The
Company's development obligation was substantially reduced in 1997 by the
consummation of the Agreement approved by the stockholders on November 4, 1997.
Approximately $7,400,000 of the development obligation for St. Augustine Shores
was assumed by Swan. In addition, the creation of a Lot Exchange Trust reduced
the development obligation at Marion Oaks and Sunny Hills by approximately
$5,800,000.

The Company's continuing liquidity problems have precluded the timely
payment of the full amount of its real estate taxes. On properties where
customers have contractually assumed the obligation to pay into a tax escrow
maintained by the Company, the Company has and will continue to pay delinquent
real estate taxes as monies are collected from customers. Delinquent real estate
taxes aggregated approximately $1,485,000 as of December 31, 1997. Of the
$1,485,000 in delinquent real estate taxes, approximately $112,000 relates to
sold lots on which the customer has assumed the obligation to pay but has not
done so.

23

Liquidity

Retail land sales have traditionally produced negative cash flow through
the point of sale as a result of the regulatory requirement to sell fully
developed lots and the additional requirement to pay marketing and selling
expenses prior to or shortly after the point of sale. In an effort to offset the
negative cash effects of installment land sales, the Company is now attempting
to direct its marketing efforts to selling homes and lots together. The success
of this direction will be dependent upon the Company's dealer recruiting program
and the availability of funds for an advertising and promotion program.

In December 1997, the Company announced the start of construction on its
newest housing development: TimberWalk. TimberWalk will feature a model home
center with models built by three premier central Florida home builders. At
TimberWalk, home buyers will enjoy the benefits of Deltona's newest design
concept, "Everything Included", which includes features that are often
considered extra cost upgrades and options by other home builders but are
included in TimberWalk's basic prices. Models will range from one to two story
homes with two, three or four bedrooms ranging in size from 1,200 square feet to
over 2,200 square feet of living space.

Due to its liquidity problems over the last five years, the Company has
been forced to delay payment of certain real estate taxes. The Company has been
dependent upon its ability to sell or otherwise finance contracts receivable
and/or secure other financing sources to meet its cash requirements. Since 1992,
the Company has been largely dependent upon Yasawa and related parties for
financing of its operations. Although Yasawa and Scafholding have committed to
provide the Company with financing of its contracts receivables at the rate of
65% of face value, with recourse, there can be no guarantee that the Company
will be able to generate sufficient receivables to meet its cash flow
requirements.

Year 2000

The Company utilizes a number of software systems in conjunciton with its
community development, contract processing and contract servicing operations.
The Company has and will continue to make certain investments in its software
systems and applications to ensure the Company is Year 2000 compliant. The
financial impact of becoming Year 2000 compliant has not been and is not
expected to be material to the Company's financial position or results of
operations in a given year.

24

ITEM 8

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA

Page
-----

Independent Auditors' Report.................................... 26

Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996............................................ 27

Statements of Consolidated Operations for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995..... 29

Statements of Consolidated Stockholders' Equity (Deficiency)
for the years ended December 31, 1997, December 31, 1996
and December 31, 1995.......................................... 30

Statements of Consolidated Cash Flows for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995..... 31

Notes to Consolidated Financial Statements...................... 33

Supplemental Unaudited Quarterly Financial Data................. 44

25

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE DELTONA CORPORATION:

We have audited the consolidated balance sheets of The Deltona Corporation
and subsidiaries (the "Company") as of December 31, 1997 and 1996 and the
related statements of consolidated operations, consolidated stockholders' equity
(deficiency) and consolidated cash flows for each of the three years in the
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 from
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, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred substantial
operating losses and has continued to experience liquidity crises, causing the
Company to be unable to meet certain contractual obligations and has a
stockholders' deficiency at December 31, 1997. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans concerning these matters are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 25, 1998

26

CONSOLIDATED BALANCE SHEETS

THE DELTONA CORPORATION AND SUBSIDIARIES

ASSETS
(in thousands)

December 31, December 31,
1997 1996
------------ ------------

Cash, including escrow deposits
and restricted cash of $1,293 in 1997 and $845 in 1996
(Note 7)................................................ $ 1,397 $ 907
------- -------
Contracts receivable for land sales (Notes 2, 5 and 8)...... 4,356 10,488

Less: Allowance for uncollectible contracts................. (1,150) (2,429)

Unamortized valuation discount........................ (508) (1,094)
------- -------
Contracts receivable - net.................................. 2,698 6,965
------- -------

Mortgages and other receivables - net (Notes 2, 5 and 8).... 1.291 384
------- -------

Inventories, at lower of cost or net realizable value (Notes 3 and 5):

Land and land improvements.................................. 7,449 10,287

Other....................................................... 99 99
------ -------

Total inventories............................... 7,548 10,386
------ -------

Property, plant and equipment - net (Notes 4 and 5)........... 374 413
------ -------

Prepaid expenses and other.................................... 252 367
------ -------

Total........................................... $13,560 $19,422
======= =======

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

27

CONSOLIDATED BALANCE SHEETS

THE DELTONA CORPORATION AND SUBSIDIARIES

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands except share data)

December 31, December 31,
1997 1996
------------ ------------

Mortgages and similar debt (Note 5):

Mortgage notes payable ................................. $ 6,693 $ 18,707

Other loans ............................................. 2,294 3,661
-------- --------

Total mortgages and similar debt..................... 8,987 22,368

Accounts payable-trade ....................................... 75 94

Accrued interest payable (Note 5) ............................ 0 1,778

Accrued taxes, principally real estate taxes ................. 1,917 3,084

Accrued expenses and other (Notes 2 and 8) ................... 3,995 1,421

Customers' deposits .......................................... 689 792

Deferred revenue (Notes 7 and 8) ............................. 3,511 7,764
-------- --------

Total liabilities ............................................ 19,174 37,301
-------- --------

Commitments and contingencies (Notes 1, 2, 5, 7, 8 and 9)

Stockholders' equity (deficiency) (Notes 1, 5, and 10):

Common stock, $1 par value-authorized 15,000,000 shares; issued and
outstanding:13,544,277 shares in 1997 and 6,734,572 shares
in 1996 (excluding 12,228 shares held in treasury).......... 13,544 6,734

Capital surplus ......................................... 51,495 44,714

Accumulated deficit ..................................... (70,653) (69,327)
-------- -------
Total stockholders' equity (deficiency) ...................... (5,614) (17,879)
-------- -------
Total....................................... $ 13,560 $19,422
======== =======

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

28

STATEMENTS OF CONSOLIDATED OPERATIONS
THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands except share data)

Years Ended
--------------------------------------
December 31, December 31, December 31,
1997 1996 1995
------------ ----------- ------------

Revenues

Gross land sales (Notes 2 and 7).............. $ 6,093 $ 6,816 $ 3,623
Less: Estimated uncollectible sales........... (1,528) (1,706) (850)
Contract valuation discount............ (520) (814) (379)
-------- -------- --------
Net land sales................................ 4,045 4,296 2,394
Sales-housing................................. 1,214 1,202 1,383
Recognized improvement revenue-prior period
sales........................................ 2,366 1,008 1,052
Interest income............................... 1,367 1,464 1,019
Other ........................................ 433 680 840
------- -------- --------
Total............................ 9,425 8,650 6,688
------- -------- --------
Costs and expenses

Cost of sales-land............................ 1,121 1,212 635
Cost of sales-housing......................... 917 1,005 1,135
Cost of improvements-prior period sales....... 545 219 395
Cost of sales-other........................... 248 237 267
Provision for uncollectible contracts and
recourse obligations (Note 2)............... 840 -0- 650
Commissions, advertising, and other selling
expenses..................................... 2,517 2,457 1,889
General and administrative expenses........... 1,680 1,715 1,869
Real estate tax............................... 1,338 1,251 1,111
Interest expense.............................. 1,545 1,781 1,642
------- -------- --------
Total............................ 10,751 9,877 9,593
------- -------- --------
Loss from operations before income
taxes and extraordinary items................. (1,326) (1,227) (2,905)
Provision for income taxes (Note 6)............ -0- -0- -0-
------- -------- --------
Loss from operations before
extraordinary items........................... (1,326) (1,227) (2,905)

Extraordinary item:
Gain on settlement related to the Marco
refund obligation (Note 9)................... -0- 331 702
------- -------- ---------
Net income (loss).............................. $ (1,326) $ (896) $ (2,203)
======== ======== =========

Basic earnings (loss) per common and common
equivalent shares from (Note 10):
Operations.................................... $ (.20) $ ( .18) $ (.43)
Extraordinary gain............................ .00 .05 .10
-------- -------- --------
Net income (loss)...................... $ (.20) $ ( .13) $ (.33)
======== ======== ========

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

29

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)

THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)

For the years ended December 31, 1997, December 31, 1996 and December 31, 1995

Common Stock Capital Accumulated
($1 par value) Surplus Deficit Total
-------------- ------- ------------ ---------

Balances, December 31, 1994................... $ 6,669 $42,738 $(66,228) $(16,821)
Issuance of Common Stock for Marco Permit
Costs.................................. 50 50 -0- 100
Gain from exchange of debt for land
with related party (Note 5)............ -0- 1,911 -0- 1,911
Net (loss) for the year.................. -0- -0- (2,203) (2,203)
------- ------- -------- --------
Balances, December 31, 1995................... $ 6,719 $44,699 $(68,431) $(17,013)
Issuance of Common Stock for Marco Permit
Costs.................................. 15 15 -0- 30
Net (loss) for the year.................. -0- -0- (896) (896)
------- ------- -------- --------
Balances, December 31, 1996................... $ 6,734 $44,714 $(69,327) $(17,879)
Issuance of Common Stock with Related
Party................................... 6,810 -0- -0- 6,810
Gain from Exchange of Land and Contracts
Receivables with Related Party......... -0- 6,781 -0- 6,781
Net (loss) for the year.................. -0- -0- (1,326) (1,326)
------- ------- -------- --------
Balances, December 31, 1997................... $13,544 $51,495 $(70,653) $ (5,614)
======= ======= ======== ========

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

30

STATEMENTS OF CONSOLIDATED CASH FLOWS

THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)

Years Ended
------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------

Cash flows from operating activities:
Cash received from operations:
Proceeds from sale of residential units............ $ 1,272 $ 1,182 $ 1,416
Collections on contracts and mortgages receivable.. 3,245 2,927 2,285
Down payments on and proceeds from sales
of homesites and tracts....................... 1,476 1,517 1,261
Proceeds from the sale of Contracts Receivables 4,625 -0- -0-
Proceeds (uses) from other sources............. (8) 425 86
--------- --------- --------
Total cash received from operations.... 10,610 6,051 5,048
--------- --------- --------
Cash expended by operations:
Cash paid for residential units................ 917 1,005 1,135
Cash paid for land and land improvements....... 621 461 602
Customer refunds............................... 28 931 874
Commissions, advertising and other
selling expenses............................... 2,414 2,515 1,558
General and administrative expenses............. 1,803 1,892 2,721
Interest paid.................................. -0- -0- -0-
Real estate taxes paid......................... 2,504 1,314 984
--------- --------- ---------
Total cash expended by operations...... 8,287 8,118 7,874
--------- --------- ---------
Net cash provided by (used in) operating
activities........................... 2,323 (2,067) (2,826)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment...................................... 18 6 29
Payment for acquisition and construction of
property, plant and equipment..................... (6) (4) (43)
--------- --------- ---------
Net cash provided by (used in) investing
activities........................... 12 2 (14)
--------- --------- ---------

Cash flows from financing activities:
New borrowings...................................... 137 2,000 1,390
Repayment of borrowings............................. (1,982) (10) (8)
--------- --------- ---------
Net cash provided by (used in) financing
activities............................ (1,845) 1,990 1,382
--------- --------- ---------
Net increase (decrease) in cash and short term
investments.......................................... 490 (75) (1,458)
Cash and short term investments, at beginning
of year.............................................. 907 982 2,440
--------- --------- ---------
Cash and short term investments, at end of year....... $ 1,397 $ 907 $ 982
========= ========= =========

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

31

STATEMENTS OF CONSOLIDATED CASH FLOWS - (Continued)

THE DELTONA CORPORATION AND SUBSIDIARIES
(in thousands)

Reconciliation of net income (loss) to net cash provided by (used in) operating
activities:

Years Ended
------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ ------------

Net income (loss)........................................ $ (1,326) $ (896) $ (2,203)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 46 60 64
Provision for estimated uncollectible sales and
recourse obligations............................... 1,528 1,706 1,500
Contract valuation discount, net of amortization.... 238 279 30
Net (gain) loss on sale of property, plant
and equipment..................................... (18) 35 (19)
Extraordinary gain on settlement related to the
Marco refund obligation........................... -0- (331) (702)
Provision for recourse obligations.................. 840 -0- -0-
(Increase) decrease in assets and increase (decrease) in
liabilities:
Gross contracts receivable plus deductions from
reserves........................................... 2,501 (3,349) (936)
Mortgages and other receivables..................... (907) 29 830
Land and land improvements.......................... 673 844 (8)
Housing completed or under construction and other... -0- 5 44
Prepaid expenses and other.......................... 115 71 (154)
Accounts payable, accrued expenses and other........ 1,086 1,461 1,244
Customers' deposits................................. (103) 38 32
Allowance for Marco permit costs.................... -0- (1,018) (846)
Deferred revenue.................................... (2,350) (1,001) (1,702)
-------- -------- --------
Total adjustments and changes................... 3,649 (1,171) (623)
-------- -------- --------
Net cash provided by (used in) operating activities...... $ 2,323 $ (2,067) $ (2,826)
======== ======== ========

Supplemental disclosure of non-cash investing
and financing activities:

Assets assigned or conveyed as a reduction of accrued
expenses, mortgages and notes payable and settlement
of Marco refund obligation:
Contracts and mortgages receivable (net)............ $ -0- $ -0- $ -0-
======== ======== =======
Reduction of accrued interest as a result of the
capitalization of interest to principal................ $ 1,130 $ -0- $ 4,200
======== ======== =======
Reduction of accrued interest as a result of forgiveness
of interest............................................. $ 2,050 $ -0- $ -0-
======== ======== =======
Reduction of accrued interest and mortgage notes
payable as a result of an exchange of
land, property and common stock........................ $ 11,689 $ -0- $ 2,694
======== ======== =======
Reduction of property, plant and equipment as a result
of exchange of debt.................................... $ -0- $ -0- $ 112
======== ======== =======
Reduction of land as a result of an exchange of debt..... $ 1,953 $ -0- $ 674
======== ======== =======
Reduction of deferred revenue as a result of assumption
of the development obligation by a related party........ $ 1,901 $ -0- $ -0-
======== ======== =======
Reduction of accrued expenses as a result of the
settlement of an obligation with a prior landlord...... $ -0- $ -0- $ 500
======== ======== =======
Common Stock issued for reduction of long-term debt...... $ 6,810 $ -0- $ -0-
======== ======== =======
Common stock issued for Marco permit costs............... $ -0- $ 30 $ 101
======== ======== =======

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

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation - Going Concern

The accompanying financial statements of The Deltona Corporation and
subsidiaries (the "Company") have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.

The Company has incurred a loss from operations for 1995 of $2,905,000, for
1996 of $1,227,000 and for 1997 of $1,326,000, resulting in a stockholders'
deficiency of $5,614,000 as of December 31, 1997.

Following the completion of the restructuring of its debt in 1997 (see Note
5), the Company commenced the implementation of its business plan by redirecting
its focus to single-family housing with the development of TimberWalk. Since
1992, the Company has been largely dependent upon Yasawa and related parties for
financing of its operations. The transactions described in Note 5 with Selex,
Yasawa, Scafholding and Swan, provided the Company with a portion of its
financing requirements enabling the Company to commence implementation of the
marketing program and attempt to accomplish the objectives of its business plan,
but additional financing will be required in 1998. As a consequence of its
liquidity position, the Company continues to be in default on certain
obligations, principally its obligation to pay certain real estate taxes. (See
Note 5.)

The consolidated financial statements do not include any adjustments
relating to the recoverability of asset amounts or the amounts of liabilities
should the Company be unable to continue as a going concern.

Due to its liquidity problems over the last five years, the Company has
been forced to delay payment of certain real estate taxes. The Company has been
dependent upon its ability to sell or otherwise finance contracts receivable
and/or secure other financing sources to meet its cash requirements. Since 1992,
the Company has been largely dependent upon Yasawa and related parties for
financing of its operations. Although Yasawa and Scafholding have committed to
provide the Company with financing of its contracts receivables at the rate of
65% of face value, with recourse, there can be no guarantee that the Company
will be able to generate sufficient receivables to meet its cash flow
requirements.

Significant Accounting Policies

The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles. Material intercompany accounts
and transactions are eliminated.

The Company sells homesites under installment contracts which provide for
payments over periods ranging from 2 to 10 years. Since the fourth quarter of
1991, the Company has offered only developed lots for sale. Sales of homesites
are recorded under the percentage-of-completion method in accordance with
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate" ("FASB No. 66"). Since 1991, the Company has not recognized a sale
until it has received 20% of the contract sales price. During 1997, 1996 and
1995, approximately 87%, 94% and 72%, respectively, of sales were through a
single independent dealer in New York.

At the time of recording a sale the Company records an allowance for the
estimated cost to cancel the related contracts receivable through a charge to
the provision for uncollectible sales. The amount of this provision and the
adequacy of the allowance is determined by the Company's continuing evaluation
of the portfolio and past cancellation experience. While

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

1. Basis of Presentation and Significant Accounting Policies ( continued)

the Company uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary as a result of future national and
international economic and other conditions that may be beyond the Company's
control. Changes in the Company's estimate of the allowance for previously
recognized sales will be reported in earnings in the period in which they become
estimable and are charged to the provision for uncollectible contracts.

Land improvement costs are allocated to individual homesites based upon the
relationship that the homesite's sales price bears to the total sales price of
all homesites in the community. The estimated costs of improving homesites are
based upon independent engineering estimates made in accordance with sound cost
estimation and provide for anticipated cost-inflation factors. The estimates are
systematically reviewed. When cost estimates are revised, the percentage
relationship they bear to deferred revenues is recalculated on a cumulative
basis to determine future income recognition as performance takes place.

Sales of houses and vacation ownership units, as well as all related costs
and expenses, are recorded at the time of closing.

Interest costs directly related to, and incurred during, a project's
construction period are capitalized. No interest has been capitalized in 1995,
1996 and 1997.

Property, plant and equipment is stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the respective
assets. Additions and betterments are capitalized, and maintenance and repairs
are charged to income as incurred. Generally, upon the sale or retirement of
assets, the accounts are relieved of the costs and related accumulated
depreciation and any gain or loss is reflected in income.

When property exchanges and refund transactions are consummated under the
Consent Order (see Note 8), any resulting loss is charged against the allowance
included in accrued expenses and other. The Company accrues interest on its
refund obligations in accordance with the customer refund programs.

For the purposes of the statements of cash flows, the Company considers its
investments, which are comprised of short term, highly liquid investments
purchased with a maturity of three months or less, to be cash equivalents.

In accordance with Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
( SFAS No. 121), long-lived assets, such as inventories and property, plant and
equipment to be held and used are to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amounts of an asset may
not be recoverable. As of December 31, 1997, there were no assets considered
impaired under the provisions of the Statement.

The estimated fair values of financial instruments have been determined by
the Company using available market information and appropriate valuation
methods. Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Company could realize or incur
in a current market exchange. The use of different market assumptions and/or
estimation methods may have a material effect on the estimated fair value
amounts. The Company's financial instruments consist of cash and cash
equivalents, contracts and mortgages receivable, and similar debt. The carrying
amount of cash and cash equivalents are reasonable estimates of fair value. The
fair value of contracts and mortgages receivable and similar debt has been
estimated using interest rates currently available for similar terms. The
carrying value of the contracts and mortgages receivable and similar debt
approximates fair value.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

1. Basis of Presentation and Significant Accounting Policies ( continued)

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

2. Contracts and Mortgages Receivable

At December 31, 1997, interest rates on contracts receivable outstanding
ranged from 5% to 12% per annum (weighted average approximately 8.5%). The
approximate principal maturities of contracts receivable were:

December 31,
1997
--------------
(in thousands)

1998.................................................$ 755
1999................................................. 728
2000................................................. 670
2001................................................. 677
2002................................................. 613
2003 and thereafter.................................. 913
--------
Total.......................................$ 4,356
========

If a regularly scheduled payment on a contract remains unpaid 30 days after
its due date, the contract is considered delinquent. Aggregate delinquent
contracts receivable at December 31, 1997 and 1996 approximate $1,151,000 and
$910,000, respectively.

Information with respect to interest rates and average contract lives used
in valuing new contracts receivable generated from sales follows:

Average Average Stated Discounted
Years ended Term Interest Rate to Yield
----------- ---------- -------------- ----------

December 31, 1997......................... 91 months 8.8% 13.5%
December 31, 1996......................... 89 months 7.8% 13.5%
December 31, 1995......................... 92 months 8.2% 13.5%

In June, 1992 and February, 1990, the Company completed sales of contracts
and mortgages receivable totaling $13,500,000 and $17,000,000, respectively,
which generated approximately $8,000,000 and $13,900,000 respectively, in net
proceeds to the Company. The anticipated costs of the June, 1992 transaction
were included in the extraordinary loss from debt restructuring for 1991 since
the restructuring was dependent on the sale. The Company recorded a loss of
$600,000 on the February, 1990 sale. In conjunction with these sales the Company
granted the purchaser a security interest in certain additional contracts
receivable of approximately $2,700,000 and conveyed all of its rights, title and
interest in the property underlying such contracts to a collateral trustee. In
addition, these transactions, among other things require that the Company
replace or repurchase any receivable that becomes 90 days delinquent upon the
request of the purchaser. Such requirement can be satisfied from contracts in
which the purchaser holds a security interest (approximately $2,734,000 as of
December 31, 1997). The purchaser of these receivables experienced financial
difficulty and filed in 1994 for protection under Chapter 11 of the Federal
Bankruptcy Code. In November 1995, the purchaser of these receivables sold the
portfolio to Finova Capital Corporation. The Company is unable to determine what
effect this will have, if any, on future cancellations

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

2. Contracts and Mortgages Receivable - (Continued)

since it is unable to determine how the bankruptcy or the subsequent sale of the
portfolio will impact servicing and collection procedures and the customers'
determination to continue to pay under those contracts. The Company has fully
reserved for the estimated future cancellations based on the Company's
historical experience for receivables the Company services. However, due to the
uncertainty noted above, the Company does not feel there is sufficient
information to estimate future cancellations and is unable to determine the
adequacy of its reserves to replace or repurchase receivables that become
delinquent. In 1997, the Company did not replace any delinquent receivables. As
of December 31, 1997 and 1996, $1,279,000 and $1,069,000 in receivables were
delinquent, respectively.

In December, 1992, as described above, the Company sold $10,800,000 of
contracts and mortgages receivable to an affiliate of Yasawa at face value,
applying the proceeds therefrom to reduce the Bank Loan acquired by Yasawa.

In March, 1993, the Company transferred $1,600,000 in contracts and
mortgages receivable generating approximately $1,059,000 in proceeds to the
Company, which was used for working capital and the creation of a holdback
account in the amount of $150,000. As of December 31, 1997, the balance of the
holdback account as approximately $121,000.

In December 1997, Scafholding purchased approximately $7,500,000 in
contracts receivable from the Company at seventy-five percent (75%) of face
value with recourse for non-performing contracts. This sale generated
approximately $5.6 million, $1,982,457 of which was used to reduce outstanding
debt to Yasawa. The balance (of which $1 million is in the form of a promissory
note from Scafholding to the Company expected to be satisfied by mid-1998) will
be used by the Company to pay a portion of the delinquent real estate taxes, to
implement its marketing programs, to initiate development of TimberWalk and to
meet the Company's working capital requirements.

The Company was the guarantor of approximately $14,324,000 of contracts
receivable sold or transferred as of December 31, 1997, for the transactions
described above and had $121,000 on deposit with purchasers of the receivables
as security to assure collectibility as of such date. A provision has been
established for the Company's obligation under the recourse provisions of which
$3,280,000 remains at December 31, 1997. The Company has been in compliance with
all receivable transactions since the consummation of receivable sales.

In the future, if the Company elects to do so, Yasawa and Scafholding have
agreed to purchase future contracts receivable at 65% of face value, with
recourse, to meet the Company's ongoing capital requirements.

3. Inventories

Information with respect to the classification of inventory of land and
improvements including land held for sale or transfer is as follows (other
inventories consists primarily of vacation ownership units completed):

December 31, December 31,
1997 1996
------------ ------------
(in thousands)

Unimproved land..................................$ 420 $ 420
Land in various stages of development............ 1,888 3,708
Fully improved land.............................. 5,141 6,159
-------- --------
Total...................................$ 7,449 $ 10,287
======== ========

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

4. Property, Plant and Equipment

Property, plant and equipment and accumulated depreciation consist of the
following:

December 31, 1997 December 31, 1996
---------------------- ----------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
(in thousands)

Land and land improvements......... $ 74 $ -0- $ 74 $ -0-
Other buildings, improvements and
furnishings...................... 1,013 746 1,013 717
Construction and other equipment... 675 642 713 670
-------- -------- ------- -------
Total.......................... $ 1,762 $ 1,388 $ 1,800 $ 1,387
======== ======== ======= =======

Depreciation charged to operations for the years ended December 31, 1997,
1996 and 1995 was approximately $46,000, $60,000 and $64,000, respectively. In
1996 the Company evaluated its property, plant and equipment resulting in the
write off of approximately $1,044,000 in obsolete equipment and furniture,
resulting in a loss of $40,000.

5. Mortgages and Similar Debt

Indebtedness under various purchase money mortgages and loan agreements is
collateralized by substantially all of the Company's assets, including stock of
certain wholly-owned subsidiaries.

The Company, Selex and Yasawa entered into loan modification agreements in
which all accrued interest was converted into non-interest bearing principal at
the earlier of the maturity date or the default date. Accordingly, at December
31, 1995, $4,200,000 of accrued interest was reclassified as principal. The
loans were also modified to formalize the elimination of the default interest
rate provisions in each of the applicable loan agreements.

Prior to November 4, 1997 and independent of the Agreement outlined below,
Selex and Yasawa agreed to forgive $2,050,818 in accrued interest on the
Company's debt to them.

Effective December 30, 1997, the Company and its lenders consummated
several transactions that resulted in a reduction in the Company's outstanding
debt obligation through the conveyance of all remaining land inventory and
obligations in the Company's St. Augustine Shores Subdivision and the issuance
of approximately 6.8 million shares of Common Stock at $1.00 per share (par
value). Additionally, the lenders purchased $7,500,000 in contracts receivable
from the Company to generate working capital and further reduce the debt
obligation. Selex sold its remaining debt ($2,664,736), including the Empire
note, to Yasawa and the Company owes no further duty or obligation to Selex,
which provided the Company a release. The debt purchased by Yasawa was satisfied
through Yasawa's purchase of 2,664,736 shares of Common Stock issued by the
Company at a per share conversion price of One Dollar ($1.00), which is equal to
par value. Swan had previously acquired $5,529,501 of the Company's debt from
Selex. This $5,529,501 was satisfied through the Company's conveyance of all of
the Company's remaining land inventory and obligations in its St. Augustine
Shores Subdivision to Swan . The price, based upon appraised value, was adjusted
to take into account the development obligations on sold lots assumed by Swan.
Scafholding purchased approximately $7,500,000 in contracts receivable from the
Company at seventy-five percent (75%) of face value with recourse for
non-performing contracts. This sale generated approximately $5.6 million,
$1,982,457 of which was used to reduce outstanding debt to Yasawa. The balance
(of which $1 million is in the form of a promissory note from Scafholding to the
Company expected to be satisfied by mid-1998) will

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

5. Mortgages and Similar Debt - (Continued)

be used by the Company to pay a portion of the delinquent real estate taxes, to
implement its marketing programs, to initiate development of TimberWalk and to
meet the Company's working capital requirements. A $4,144,602 portion of the
Company's debt to Yasawa was satisfied through Yasawa's purchase of 4,144,602
shares of Common Stock issued by the Company at a per share conversion price of
One Dollar ($1.00), which is equal to par value.

The following table presents information with respect to mortgages and
similar debt (in thousands):

December 31, December 31,
1997 1996
------------ ------------

Mortgage Notes Payable ................................... $ 6,693 $ 18,707
Other Loans............................................... 2,294 3,661
-------- --------
Total mortgages and similar debt...................... $ 8,987 $ 22,368
======== ========

Included in Mortgage Notes Payable is the Yasawa Loan ($6,693,000 as of
December 31, 1997; included in Other Loans is the Scafholding Loan ($2,294,000
as of December 31, 1997). The Scafholding Loan is secured by a first lien on the
Company's receivables. The Yasawa Loan is secured by a second lien on the
Company's receivables and a mortgage on all of the Company's property. As of
December 31, 1997, loans outstanding to Yasawa and Scafholding totaled
$8,987,000. The terms of repayment of this debt have been restructured to
provide for monthly payments of principal in the amount of $100,000 payable
monthly in cash or with contracts receivable at 100% of face value, plus
interest payable monthly on the declining balance at the rate of 9.6% per annum
in cash or with contracts receivable at 65% of face value.

6. Income Taxes

Effective December 26, 1992, the Company adopted Statement of Accounting
Standard No. 109 "Accounting for Income Taxes." There was no effect from the
adoption of this standard. Under this standard deferred income assets and
liabilities are computed annually for the difference between financial
statements and the tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future bases on enacted tax and rates
applicable to periods in which the differences are expected to affect taxable
income. Income tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred assets and liabilities.

For the years ended December 31, 1997 and 1996, the Company had a net loss
for tax purposes and there was no material amount of taxes payable or
refundable. Accordingly, there was no tax provision for such years.

As of December 31, 1997, the Company had a net deferred tax asset of
approximately $22,868,000 which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $14,893,000 and losses on
subsidiaries sold in prior years of $3,960,000. A valuation allowance of
$22,868,000 has been established against the net deferred tax asset.

As of December 31, 1996, the Company had a net deferred tax asset of
approximately $22,356,000 which primarily resulted from the tax effect of the
Company's net operating loss carryforward of $16,489,000 and losses on
subsidiaries sold in prior years of $3,960,000. A valuation allowance of
$22,356,000 has been established against the net deferred tax asset.

The Company's regular net operating loss carryover for tax purposes is
estimated to be $38,603,000 at December 31, 1997, of which $6,862,000 was
available through 1999, $364,000 through 2002, $9,189,000 through 2005,
$9,780,000 through 2006, $5,029,000 through 2008, $5,402,000 through 2009, and
the remainder through 2011. In addition to the net operating loss carryover,
investment tax credit carryovers of approximately $116,000, which expire from
1997

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

6. Income Taxes - (Continued)

through 2001, are available to reduce federal income tax liabilities only after
the net operating loss carryovers have been utilized.

The utilization of the Company's net operating loss and tax credit carry
forwards could be impaired or reduced under certain circumstances, pursuant to
changes in the federal income tax laws effected by the Tax Reform Act of 1986.
Events which affect these carryforwards include, but are not limited to,
cumulative stock ownership changes of 50% or more over a three-year period, as
defined, and the timing of the utilization of the tax benefit carryforwards.

7. Liability for Improvements

The Company has an obligation to complete land improvements upon deeding
which, depending on contractual provisions, typically occurs within 90 to 120
days after the completion of payments by the customer. The estimated cost of the
remaining development obligation to sold lots and tracts as of December 31, 1997
and 1996 was approximately $1,159,000 and $15,152,000, respectively. The
foregoing estimates reflect the Company's current development plans at its
communities (see Note 8). These estimates include: estimated development
obligations applicable to sold lots of approximately $25,000 and $1,134,000,
respectively; a liability to provide title insurance and deeding costs of
$676,000 and $1,139,000, respectively; and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$458,000 and $880,000, respectively; all of which are included in deferred
revenue. Included in cash at December 31, 1997 and December 31, 1996, are escrow
deposits of $50,000 and $360,000, respectively, restricted for completion of
improvements in certain of the Company's communities. The Company's development
obligation was substantially reduced in 1997 by consummation of the Agreement
approved by the Stockholders on November 4, 1997. Approximately $7,400,000 of
the development obligation at St. Augustine Shores was assumed by Swan. In
addition, the creation of a Lot Exchange Trust reduced the development
obligation at Marion Oaks and Sunny Hills by approximately $5,800,000.

In May, 1994 the Company implemented a program to have customers who had
contracted to purchase property which is undeveloped exchange such property for
developed property. As of December 31, 1997, approximately 85% of such customers
have opted to exchange or have had their situations otherwise resolved. On
December 30, 1997, the Division approved the formation of a Lot Exchange Trust
into which the Company conveyed sufficient exchange inventory to provide
exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and approved a settlement of all remaining issues
under the 1992 Deltona Consent Order.

The anticipated expenditures for land improvements, title insurance and
deeding to complete areas from which sales have been made through December 31,
1997 are as follows:

December 31, 1997
-----------------
(in thousands)

1998....................................$ 354
1999.................................... 350
2000.................................... 160
2001+................................... 295
--------
Total..............................$ 1,159
========

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

8. Commitments and Contingent Liabilities

Total rental expense for the years ended December 31, 1997, December 31,
1996 and December 31, 1995 was approximately $121,000, $148,000 and $172,000,
respectively.

The Company has no real estate leases that extend beyond 1998. Estimated
rental expense under these leases is expected to be approximately $103,000
annually. The Company has no material equipment leases.

Homesite sales contracts provide for the return of all monies paid in
(including paid-in interest) should the Company be unable to meet its
contractual obligations after the use of reasonable diligence. If a refund is
made, the Company will recover the related homesite and any improvement thereto.

As a result of the delays in completing the land improvements to certain
property sold in certain of its Central and North Florida communities, the
Company fell behind in meeting its contractual obligations to its customers. In
connection with these delays, the Company, in February, 1980, entered into a
Consent Order with the Division which provided a program for notifying affected
customers. The Consent Order, which was restated and amended, provided a program
for notifying affected customers of the anticipated delays in the completion of
improvements (or, in the case of purchasers of unbuildable lots in certain areas
of the Company's Sunny Hills community, the transfer of development obligations
to core growth areas of the community); various options which may be selected by
affected purchasers; a schedule for completing certain improvements; and a
deferral of the obligation to install water mains until requested by the
purchaser. Under an agreement with Topeka, Topeka's utility companies agreed to
furnish utility service to the future residents of the Company's communities on
substantially the same basis as such services were provided by the Company. The
Consent Order also required the establishment of an improvement escrow account
as assurance for completing such improvement obligations.

In June, 1992, the Company entered into the 1992 Consent Order with the
Division, which replaced and superseded the original Consent Order, as amended
and restated. Among other things, the 1992 Consent Order consolidated the
Company's development obligations and provided for a reduction in its required
monthly escrow obligation to $175,000 from September, 1992 through December,
1993. Beginning January, 1994 and until development is completed or the 1992
Consent Order is amended, the Company was required to deposit $430,000 per month
into the escrow account. As part of the assurance program under the 1992 Consent
Order, the Company and its lenders had granted the Division a lien on certain
receivables and future receivables. The Company defaulted on its obligation to
escrow $430,000 per month for the period of January, 1994 through November 1997.
In accordance with the 1992 Consent Order, collections on Division receivables
were escrowed for the benefit of purchasers from March 1, 1994 through April 30,
1994. In May, 1994 the Company implemented a program to have customers who had
contracted to purchase property which is undeveloped exchange such property for
developed property. As of December 31, 1997, approximately 85% of such customers
have opted to exchange or have had their situations otherwise resolved.

On December 30, 1997, the Division approved the formation of a Lot Exchange
Trust into which the Company conveyed sufficient exchange inventory to provide
exchanges to customers with undeveloped lots. Concurrently, the Division
released its lien on the Company's contracts receivable, satisfied its mortgage
on the Company's property and approved a settlement of all remaining issues
under the 1992 Deltona Consent Order.

As of December 31, 1997, the Company had estimated development obligations
of approximately $25,000 on sold property, an estimated liability to provide
title insurance and deeding costing $676,000 and an estimated cost of street
maintenance, prior to assumption of such obligations by local governments, of
$458,000, all of which are included in deferred revenue. The total cost to
complete improvements at December 31, 1997, including the previously mentioned

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

8. Commitments and Contingent Liabilities - (Continued)

obligations, was estimated to be approximately $1,159,000. As of December
31, 1997 and December 31, 1996 the Company had in escrow approximately $50,000
and $360,000, respectively, specifically for maintenance and improvements at
certain of its Central and North Florida communities. The Company's development
obligation was substantially reduced in 1997 by the consummation of the
Agreement approved by the stockholders on November 4, 1997. Approximately
$7,400,000 of the development obligation at St. Augustine Shores was assumed by
Swan. In addition, the creation of a Lot Exchange Trust reduced the development
obligation at Marion Oaks and Sunny Hills by approximately $5,800,000.

The Company's continuing liquidity problems have precluded the timely
payment of the full amount of certain real estate taxes. Delinquent real estate
taxes aggregated approximately $1,485,000 as of December 31, 1997. On properties
where customers have contractually assumed the obligation to pay into a tax
escrow maintained by the Company, the Company has and will continue to pay
delinquent real estate taxes as monies are collected from customers. Of the
$1,485,000 in delinquent real estate taxes, approximately $112,000 relates to
sold lots on which the customer has assumed the obligation to pay but has not
done so.

During 1997, the Company was successful in settling the lawsuit entitled
Lee Su Wen Ni et. al. v. The Deltona Corporation and Scafholding B.V., Case No.
95-4422-CA-E, which was filed in the Circuit Court of Marion County, Florida on
October 11, 1995. The plaintiff had alleged that the liquidated damages
provision in the Company's installment contracts for the sale of its properties
was unenforceable under Florida Law and contested the method utilized by the
Company to calculate actual damages in the event of contract cancellations.
Pursuant to the settlement, the claims and the case were dismissed with
prejudice.

In addition to the matters discussed above and in Note 9, the Company is a
party to other litigation relating to the conduct of its business which is
routine in nature and, in the opinion of the management, should have no material
effect upon the Company's operation.

9. Marco Island-Marco Shores Permits

On April 16, 1976, the U.S. Army Corps of Engineers (the "Corps") denied
the Company's application for dredge and fill permits required to complete
development of the Marco Island community. These denials adversely affected the
Company's ability to obtain the required permits for the Marco Shores community
as originally platted. Following the denials, the Company instituted legal
proceedings, implemented various programs to assist its customers affected by
the Corps' action, and applied for permits from certain administrative agencies
for other areas of the Company's Marco ownership.

On July 20, 1982, the Company entered into an agreement with the State of
Florida and various state and local agencies (the "Settlement Agreement"),
endorsed by various environmental interest groups, to resolve pending litigation
and administrative proceedings relative to the Marco permitting issues. The
Settlement Agreement became effective when, pursuant thereto, approximately
12,400 acres of the Company's Marco wetlands were conveyed to the State in
exchange for approximately 50 acres of State-owned property in Dade County,
Florida. In October, 1987, the Company sold the Dade County property for
$9,000,000. The Settlement Agreement also allowed the Company to develop as many
as 14,500 additional dwelling units in the Marco vicinity. On October 11, 1991,
1,300 acres of Marco property (7,000 dwelling units) were conveyed to the
Company's lenders for debt reduction.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

9. Marco Island-Marco Shores Permits - (Continued)

The Company placed certain properties in trust to meet its refund
obligation to affected customers. On September 14, 1992, the Circuit Court of
Dade County, Florida approved a settlement of certain class action litigation
instituted by customers affected by the Marco permit denials, under the terms of
which the Company was required, among other things, to convey more than 120
acres of multi-family and commercial land that had been placed in trust to the
trustee of the 809 member class. As part of the settlement, the Company
guaranteed the amount to be realized from the sale of the conveyed property.
This guaranteed amount shall not exceed $2,000,000.

Following the closing in 1995 on a majority of the property conveyed to the
Trust, the Company recorded an extraordinary gain of $702,000 resulting from a
reduction in the amount of its guarantee pursuant to the Settlement Agreement.

In September, 1996 the Company satisfied all remaining obligations under
the Settlement Agreement resulting in an additional gain of $331,000.

10. Common Stock and Basic earnings per Share Information

Effective December 30, 1997, the Company entered into agreements with its
lenders to substantially reduce the Company's outstanding debt obligation.
Yasawa purchased 6,809,338 shares of Common Stock issued by the Company at a per
share conversion price of One Dollar ($1.00), which is equal to par value, in
satisfaction of $6,809,338 of the Company's debt to Yasawa. Through Yasawa's
acquisition of the 6,809,338 shares of Common Stock of the Company referenced
above, Mr. Antony Gram's beneficial ownership increased from 3,109,703 shares to
9,919,041 shares (73.23% of the outstanding shares of Common Stock of the
Company as of March 20, 1998).

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 in the fourth quarter of 1997. SFAS No. 128 requires a dual presentation
of basic and diluted earnings per share on the face of the income statement.
Basic earnings per share excludes dilution and is computed by dividing income or
loss attributable to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were converted into common stock, but such securities or
contracts are excluded if their effects would be anti-dilutive. All prior-period
loss per share data has been computed in accordance with SFAS No. 128.

The net loss and the average number of shares of common stock and common
stock equivalents used to calculate basic earnings (loss) per share for 1997,
1996 and 1995 were $(1,326,000), $(896,000) and $(2,203,000) and 6,753,587,
6,729,748 and 6,699,923, respectively.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE DELTONA CORPORATION AND SUBSIDIARIES

11. Business Segments

Years ended
-------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 25,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(in thousands)

Revenues
Real estate:
Net land sales....... $ 4,045 $ 4,296 $ 2,394 $ 2,058 $ 2,432
Housing revenues......... 1,214 1,202 1,383 2,543 344
Improvement revenues. 2,366 1,008 1,052 1,214 4,725
Interest income...... 1,367 1,464 1,019 1,046 1,197
Other.................... -0- -0- -0- -0- 67
-------- -------- -------- -------- --------
Total real estate...... 8,992 7,970 5,848 6,861 8,765
Other.................. 617 963 1,030 1,832 3,447
Intersegment sales..... (184) (283) (190) (152) (113)
-------- -------- -------- -------- --------
Total.................. $ 9,425 $ 8,650 $ 6,688 $ 8,541 $ 12,099
======== ======== ======== ======== ========
Operating profits (losses)
Real estate................ $ 3,052 $ 3,077 $ 1,377 $ 1,055 $ (3,073)
Other...................... 185 443 341 1,032 279
General corporate expense.. (3,018) (2,966) (2,981) (4,147) (4,721)
Interest expense........... (1,545) (1,781) (1,642) (1,847) (1,257)
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes
and extraordinary items... $ (1,326) $ (1,227) $ (2,905) $ (3,906) $ (8,772)
======== ======== ======== ======== ========

Real
Estate Other Corporate Total
------ -------- --------- --------

Identifiable assets........ 1997 $ 13,107 $ 404 $ 49 $ 13,560
1996 18,864 502 56 19,422
1995 18,623 289 268 19,180

Depreciation expense....... 1997 $ 25 $ 5 $ 16 $ 46
1996 38 5 17 60
1995 34 5 25 64

Capital expenditures....... 1997 $ 6 $ -0- $ -0- $ 6
1996 2 -0- 2 4
1995 24 -0- 19 43

- -----------------------
Net land sales consist of gross land sales less estimated uncollectible
installment sales and contract valuation discount and, prior to 1992,
deferred revenue (see Notes 1, 2 and 7 to Consolidated Financial
Statements).

Improvement revenues consist of revenue recognized due to completion of
improvements on prior period sales and exchanges from undeveloped to
developed lots.

Interest income primarily consists of interest earned on contracts and
mortgages receivable and on temporary cash investments and the
amortization of valuation discounts.

Other consists of revenues from sales other than real estate, the major
portion of which came from the country club operations in prior years.
In 1994, the major portion consists of a gain of $1,051,000 from the
termination of its office lease on its Miami corporate headquarters.

Intersegment sales consist primarily of sales between the Company and
its title insurance subsidiary.

43

SUPPLEMENTAL UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)

Extraordinary
(Loss) Item: Gain on
From Settlement
Operations Relating to
Before (Loss) the Net
Income From Marco Refund Income
Revenues Taxes Operations Obligation (Loss)
-------- ---------- ---------- ------------- -------

1997
First.... $ 2,072 $ (429) $ (429) $ -0- $ (429)
Second... 2,291 (174) (174) -0- (174)
Third.... 1,631 (627) (627) -0- (627)
Fourth... 3,431 (96) (96) -0- (96)
-------- -------- -------- -------- -------
Total...... $ 9,425 $ (1,326) $ (1,326) $ -0- $(1,326)
======== ======== ======== ======== =======

1996
First.... $ 2,017 $ (404) $ (404) $ -0- $ (404)
Second... $ 2,251 $ (179) $ (179) $ -0- $ (179)
Third.... $ 2,607 $ (151) $ (151) $ 331 $ 180
Fourth... $ 1,775 $ (493) $ (493) $ -0- $ (493)
-------- -------- -------- -------- -------
Total...... $ 8,650 $ (1,227) $ (1,227) $ 331 $ (896)
======== ======== ======== ======== =======

1995
First.... $ 1,829 $ (667) $ (667) $ 702 $ 35
Second... 1,920 (363) (363) -0- (363)
Third.... 1,218 (743) (743) -0- (743)
Fourth... 1,721 (1,132) (1,132) -0- (1,132)
-------- -------- -------- -------- -------
Total...... $ 6,688 $ (2,905) $ (2,905) $ 702 $(2,203)
======== ======== ======== ======== =======

Basic earnings (Loss) Per Share
- -------------------------------
Extraordinary Net Income
Operations Items (Loss)
---------- ------------- ----------

1997
First...................... $ (.06) $ .00 $ (.06)
Second..................... $ (.03) $ .00 $ (.03)
Third...................... $ (.09) $ .00 $ (.09)
Fourth..................... $ (.01) $ .00 $ (.01)
------- -------- --------
Total............................... $ (.20) $ .00 $ (.20)
======= ======== ========

1996
First...................... $ (.06) $ .00 $ (.06)
Second..................... $ (.03) $ .00 $ (.03)
Third...................... $ (.02) $ .05 $ .03
Fourth..................... $ (.07) $ .00 $ (.07)
------- -------- -------
Total............................... $ (.18) $ .05 $ (.13)
======= ======== =======

1995
First...................... $ (.10) $ .10 $ .00
Second..................... (.05) .00 (.05)
Third...................... (.11) .00 (.11)
Fourth..................... (.17) .00 (.17)
------- -------- --------
Total............................... $ (.43) $ .10 $ (.33)
======= ======== ========

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

Total shown does not agree with basic earnings per share set forth in
the Company's Statement of Consolidated Operations for the year ended
December 31, 1997 due to differences in the calculation of the
weighted average number of shares outstanding at the end of each
quarter during the year.

44

ITEM 14

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

(a) 1. Financial Statements

See Item 8, Index to Consolidated Financial Statements and
Supplemental Data.

(a) 2. Financial Statement Schedules
Page
-----
Independent Auditors' Report.......................... 46

Schedule VIII - Valuation and qualifying accounts for
the three years ended December 31, 1997............. 47

All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the Consolidated Financial
Statements or Notes thereto or the 1998 Annual Meeting Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
incorporated herein by reference.

(a) 3. Exhibits

See the Exhibit Index included herewith.

(b) Reports on Form 8-K

No Reports on Form 8-K were filed for the year ended December 31, 1997.

45

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE DELTONA CORPORATION:

We have audited the consolidated financial statements of The Deltona
Corporation and subsidiaries (the "Company") as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated March 25, 1998 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the Company's ability
to continue as a going concern), included elsewhere in this Annual Report on
Form 10-K. Our audits also included the financial statement schedules listed in
Item 14(a)2 of this Annual Report on Form 10-K. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 25, 1998

46

SCHEDULE VIII

THE DELTONA CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Additions
Charged to
Those Valuation and Qualifying Accounts Balance at Revenues, Deductions Balance at
Which are Deducted in the Balance Sheet Beginning Costs, and from End of
from the Assets to Which They Apply of Period Expenses Reserves Period
- -------------------------------------- --------- ----------- ---------- ----------

Year ended December 31, 1997

Allowance for uncollectible contracts.. $ 2,429 $ 1,528 $ 2,807 $ 1,150
========== ========= ========= =======

Unamortized contract valuation discount. $ 1,094 $ 520 $ 1,106 $ 508
========== ========= ========= =======

Year ended December 31, 1996

Allowance for uncollectible contracts.. $ 1,629 $ 1,706 $ 906 $ 2,429
========== ========= ========= =======

Unamortized contract valuation discount $ 829 $ 814 $ 549 $ 1,094
========== ========= ========= =======
Year ended December 31, 1995

Allowance for uncollectible contracts. $ 1,373 $ 850 $ 594 $ 1,629
========== ========= ========= =======

Unamortized contract valuation discount $ 913 $ 379 $ 463 $ 829
========== ========= ========= =======

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

Represents estimated uncollectible contracts receivable (see Notes 1
and 2 to Consolidated Financial Statements).

Represents the unamortized discount generated from initial valuations
of contracts receivable (see Notes 1 and 2 to Consolidated Financial
Statements).

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

THE DELTONA CORPORATION
(Company)

By: /s/ Donald O. McNelley DATE: March 25, 1998
-----------------------------
Donald O. McNelley, Treasurer

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

/s/ Antony Gram
- ----------------------------------------
Antony Gram, Chairman of the Board of Directors
& Chief Executive Officer

/s/ Neil E. Bahr
- ----------------------------------------
Neil E. Bahr, Director

/s/Earle D. Cortright, Jr.
- ----------------------------------------
Earle D. Cortright, Jr., President,
Chief Operating Officer & Director

/s/George W. Fischer
- ----------------------------------------
George W. Fischer, Director

/s/Rudy Gram
- ----------------------------------------
Rudy Gram, Director

/s/Thomas B. McNeill
- -----------------------------------------
Thomas B. McNeill, Director DATE: March 25, 1998

48