- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996

/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from _______________ to ________________

Commission File Number 0-20832

DEGEORGE FINANCIAL CORPORATION
(formerly MILES HOMES, INC.)

Delaware 41-1625724
(State of Incorporation) (I.R.S. Employer Identification No.)

99 Realty Drive
Cheshire, Connecticut
(Address of principal executive offices)
Telephone Number (203) 699-3400

Securities registered pursuant to Section 12(b) of the act:

Title of each class Name of each exchange on which registered

Common Stock, par value $.10 per share None
12% Senior Notes due 2001 of DeGeorge Home Alliance, Inc. None
Warrants to purchase Common Stock of DeGeorge Financial Corporation
at $5.75 per share expiring April 1, 1997 None

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

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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

Aggregate market value of voting stock of DeGeorge Financial Corporation held
by nonaffiliates of the Registrant as of March 25, 1997, based on the closing
price of $1.3125 as reported on the NASDAQ National Market tier of the NASDAQ
Stock Market-sm-: $6.5 million.

Shares of Common Stock outstanding on March 25, 1997: 10,810,193

DOCUMENTS INCORPORATED BY REFERENCE
None
- --------------------------------------------------------------------------------
1

PART I

ITEM 1. BUSINESS

GENERAL

As used in this Form 10-K, unless context otherwise requires, the term
"DeGeorge" refers to DeGeorge Home Alliance, Inc. and its wholly-owned
subsidiary, Plymouth Capital Company, Inc. ("Plymouth Capital") and the term
the "Company" refers to DeGeorge Financial Corporation, the registrant, and
its direct and indirect subsidiaries, DeGeorge, Plymouth Capital, DeGeorge
Homes of Florida ("DeGeorge/Florida") and DeGeorge Homes of New England
("DeGeorge/New England"). In November 1995, the Company announced the close
down of its Patwil Homes, Inc. ("Patwil Homes") business (see "Discontinued
Operations").

NAME CHANGES

At the Annual Meeting of Stockholders on November 7, 1996, the name of
the Company was changed to DeGeorge Financial Corporation from Miles Homes,
Inc. pursuant to a vote of a majority of its stockholders. Previously, on
October 29, 1996, the Company changed the name of its wholly-owned
subsidiary, Miles Homes Services, Inc. to DeGeorge Home Alliance, Inc.

GENERAL DESCRIPTION OF BUSINESS

DeGeorge provides a combination of financing, support services and
materials that enable entry-level and move-up buyers to gain access to
quality "stick-built" homes of their own with significantly lower equity
investments than are typically required by construction lenders and mortgage
financing institutions. Since its founding in 1946, DeGeorge has originated
more than 40,000 homes, with over 1,000 units in each of the last four years
and nearly 1,500 in 1996.

The DeGeorge approach, which has been developed and refined over the
years, offers advantages for many buyers. For first-time homeowners, this
method allows earlier access to home ownership, particularly in the current
economic climate, in which many find it difficult to accumulate the usual 20%
down payment most lenders require. For many buyers in this category,
DeGeorge represents the only viable means of home access. For others, the
DeGeorge approach enables the purchase of a larger and/or more upscale home
than would otherwise be affordable.

DeGeorge's just-in-time fulfillment of building materials, coupled with
its extensive construction support services, enables customers without prior
building experience to eliminate the need for general contractors. This
yields savings that translate into equity, which lower customers' permanent
mortgage financing needs. DeGeorge also offers its customers the ability to
earn additional equity through participation in various phases of the
construction process.

DeGeorge's financing package further facilitates home ownership by
offering single-source construction loan financing at competitive rates for
land purchased by its customers (up to 90%) and 100% construction financing
for services it provides, materials it supplies and construction work
performed by approved subcontractors engaged by its customers. Permanent
financing, once the home is completed, is either obtained by the customer
from a third-party lender with assistance by Plymouth Capital, DeGeorge's
mortgage banking subsidiary, or provided directly by Plymouth Capital with
the loan typically being sold in the secondary mortgage market.

CUSTOMER FINANCING

DeGeorge offers prospective homebuyers the opportunity to develop the
equity that they would otherwise lack to acquire a comparable home through
conventional means, by eliminating the general contractor and through their
contribution of time and often labor to the construction of their home.
Through its subsidiary Plymouth Capital, DeGeorge provides customers with
construction financing secured by a mortgage on the home and home site.
Plymouth Capital lends the customer money to purchase the full amount of
services and products provided by DeGeorge. In addition, Plymouth Capital
advances eligible customers up to 90% of the cost of the home site, plus much
of the cost of required ancillary work by sub-contractors, such as the
foundation, well and septic installations. DeGeorge commits to extend such a
loan only after having received at least one "site and plan appraisal" on the
property and home to be constructed, which appraisal indicates the permanent
mortgage that the home will support when complete, generally based on an 80%
loan-to-value ratio. During the construction period the customer pays only
interest on the loan.

DeGeorge conducts standard credit checks on all applicants. Income is
ascertained and verified, credit histories are researched and evaluated, and
ratios of income to total debt and to mortgage debt are calculated with the
requirement that the prospective customer meet third-party lending standards
within the two-year period provided for the completion of construction.
DeGeorge's basic guideline is that annual mortgage debt service be no more
than 30% of total annual income, which allows for modest growth in the
customer's income during the construction period. Similarly, DeGeorge will
accept a higher than 80% loan-to-value on the initial appraisal when making
its financing decision, assuming an increase in appraised value over
DeGeorge's construction loan period. For financed loans for the year ended
December 31, 1996, the loan-to-value ratio averaged 82.2%.

After a preliminary review and approval of the customer's credit
worthiness, processing of the order continues and a customer service
representative places an introductory call to the customer to review the
DeGeorge program. Information is assembled to complete the loan
underwriting, a site and plan appraisal is ordered and evaluated, and a title
policy is procured. The customer service representative works closely with
the customer, finalizing subcontractor costs, verifying the home selection
options and establishing the final construction loan amount.

Prior to the start of the project, a formal loan closing occurs and a
fully executed mortgage is recorded on the home site and home to be
constructed. DeGeorge perfects its security priority at the earliest stage
possible under the Uniform Commercial Code.

CUSTOMERS AND MARKETS

INDIVIDUAL HOMEBUYERS

DeGeorge's customers are typically moderate-income households, with annual
incomes averaging $49,900 per household for homes originated during 1996. They
are often first-time homebuyers who have the desire to acquire a home of their
own and have (or have the potential to develop) adequate family income to make
mortgage payments, but lack the cash equity typically required to qualify for a
traditional mortgage. DeGeorge offers these prospective homebuyers the
opportunity to develop, through their contribution of time and often labor to
the construction of their homes, the equity which they lack to acquire
comparable homes through conventional means. Although most of DeGeorge's
homebuyers use its construction financing, DeGeorge does make some cash sales
at a discount from the prices of financed homes. Cash sale units compared to
total homes shipped for 1996, 1995 and 1994 were 2.6%, 3.8% and 7.2%,
respectively.

DeGeorge currently markets homes in 45 states. Its sales are
concentrated primarily in the midwest and west. The midwest states of
Michigan, Wisconsin, Ohio and Illinois collectively accounted for
approximately 32%, 32% and 28% of unit sales in 1996, 1995, and 1994,
respectively; whereas the western states of Colorado, Idaho, Nevada and Utah
collectively represented approximately 27%, 32% and 33% of unit sales in
1996, 1995 and 1994, respectively. Sales of DeGeorge's homes are highest in
the outer-suburban rings surrounding metropolitan or suburban areas.

DEVELOPMENT OF OTHER MARKETS

In addition to sales to individual homebuyers, DeGeorge sells homes to
non-profit and community service organizations. Its principal customer in
this category, through 1996, was Habitat For Humanity, a private-sector,
non-profit organization. With funding and volunteer labor contributed by
church groups and other charitable organizations throughout the United
States, Habitat For Humanity builds homes for families who could not
otherwise afford acceptable housing. Sales to individual chapters of
Habitat For Humanity totaled 30 homes in 1996, 42 in 1995 and 51 in 1994. In
1993, DeGeorge began selling homes to American Indian tribal groups which
totaled 34, 85 and 20 units in 1996, 1995 and 1994, respectively. Sales to
Habitat For Humanity, other non-profit organizations and American Indian
tribal groups, which are at somewhat lower profit margins than standard
units, are made for cash, with no construction financing extended.

During 1995, the Company completed its startup phase for turnkey home
building in Florida with DeGeorge/Florida completing and settling 28 homes in
1996 compared to 13 settlements in 1995. Also in 1995, the Company began the
process of developing a direct response marketing channel for DeGeorge's core
business. During 1996, successful tests were conducted, a comprehensive
marketing strategy was formulated, an infomercial and fulfillment video tape
were completed, direct marketing personnel were hired, computer systems and
procedures were completed, and the first media buy was made with airings
beginning in January 1997.

PRODUCT FULFILLMENT

DeGeorge is in the process of implementing local product fulfillment in
the customer's locality rather than providing building materials through
Company owned or leased distribution facilities. This approach is expected
to provide for a more cost effective method of product fulfillment, better
staging and delivery of building materials to customers and an economically
viable way of meeting the current demand for its product beyond the
geographic areas serviced by its distribution centers. The Company
anticipates that it will be securing building materials locally by mid-year
1997.

The overall objective of DeGeorge's product fulfillment program is to
purchase materials of the desired quality, in a timely manner and at the
optimum price. To assure availability of supply, DeGeorge strives to create
and maintain vendor relationships and sources of materials, with needs being
determined based on seasonality and backlog of orders. All purchased
products and vendors are reviewed periodically for price competitiveness,
quality and customer service relative to locally purchased and supplied
material. DeGeorge has not experienced any significant delays in obtaining
necessary supplies because DeGeorge buys standardized materials and has
established purchasing relationships with many different manufacturers and
distributors or vendors. In some instances, DeGeorge does make purchasing
commitments to suppliers of certain products to insure availability during
periods of heavy demand. These commitments are cancelable without monetary
penalty if subsequent requirements change. In those instances where DeGeorge
is still supplying material from one of its remaining distribution facilities
rather than through a local distribution channel, it is not required to carry
significant amounts of

inventory to meet rapid delivery requirements of customers or to assure a
continuous allotment of materials from suppliers.

EMPLOYEES

As of December 31, 1996, DeGeorge had 353 employees, excluding 132 sales
representatives, all of whom are independent contractors and not employees.
Of the 353 employees, 192 were hourly employees, and the remainder were
salaried.

None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that its relations with its employees are
satisfactory.

TRADEMARKS

The Company's trademarks and service marks include "DeGeorge," "Miles
Homes," "Pathway Homes" and "Patwil Homes." The Company does not believe
that its competitive position is dependent on trademark protection.

SEASONALITY OF BUSINESS

DeGeorge has historically sold houses predominantly in the northern
sections of the United States. Because very little housing start activity
occurs during the winter months, DeGeorge has consistently shipped a very
small percentage of its total annual volume from late November through March.
Accordingly, approximately 8.1% of initial shipments to customers during the
year are delivered in the first quarter (based on the average of 1996, 1995
and 1994 data). Because DeGeorge recognizes revenue as it ships the various
components of each home (in relation to all material shipped), revenue
recognition is heavily weighted to the initial shipment of material, which
typically comprises approximately 50-60% of the total material value of the
DeGeorge package. Thus, the first quarter of the year tends to show a loss,
as fixed costs are spread over a lower revenue base rather than the average
revenue base for the full year.

ORDERS IN PROCESS

DeGeorge's orders in process are those orders that are in the process of
being qualified or have been qualified based on adequate credit, equity and
income and which have not commenced shipments of materials. At December 31,
1996, the number of orders in process decreased to 580 compared to 882 orders
in process at December 31, 1995 and 650 at December 31, 1994.

BACKLOG

Backlog is management's estimate of those orders in process
that will ultimately be fulfilled. The number of orders in process
for DeGeorge is significantly more than the number of orders
actually fulfilled due to both order disqualifications as the
underwriting process is finalized and customer cancellations. At
December 31, 1996, management estimated that DeGeorge's backlog was
264 units which have not commenced construction (which would
generate approximately $15.8 million in gross housing revenue
assuming completion of these 264 homes, which average $60,000 per
home), all of which are expected to commence on or before December
31, 1997. At December 31, 1995, DeGeorge's backlog was 344 units
which had not commenced construction (which generated approximately
$21.5 million in gross housing revenue), all of which were started
on or before December 31, 1996. In addition, as of December 31,
1996 and 1995, DeGeorge included in its backlog $14.7 million and
$12.2 million,

respectively, of gross housing revenue related to estimated remaining product
deliveries to customers with homes under construction.

COMPETITION

DeGeorge believes that its ability to extend construction financing
along with providing customer support differentiates it from other
participants in the owner-involved homebuilding industry. Certain
competitors do offer similar services and more may provide them in the
future. To the extent the element of DeGeorge-supplied financing is
important in attracting customers, DeGeorge also competes with financial
institutions and other providers of home construction loans. The
homebuilding industry is highly competitive and fragmented. DeGeorge competes
for sales with builders of new homes, sellers of existing homes and suppliers
of modular and manufactured homes. In virtually every geographic market in
which DeGeorge competes, single family homebuilding is dominated by the
conventional, wood-frame homebuilding to which DeGeorge provides access.
DeGeorge believes that most homebuyers who can afford wood-frame homes would
prefer them to modular and other types of alternative housing because of
their higher quality, design options and higher resale value. Accordingly,
DeGeorge believes that it has an advantage over most of its competitors
because it is able to provide this category of homes to persons who have the
income but lack the cash equity to purchase a conventional home through
traditional means.

During the course of its 50-year business history, DeGeorge has
developed efficient systems for tracking customer activity, underwriting
construction loans, providing construction support and increasing the
certainty of the eventual collection of a high percentage of its customers'
obligations. DeGeorge believes that these systems could not be replicated
quickly or inexpensively.

ENVIRONMENTAL IMPACT OF OPERATIONS

The Company is unaware of any asserted or unasserted adverse
environmental claims or impacts as a result of its operations.

ITEM 2. PROPERTIES

In September 1996, the Company completed and moved into its new
corporate facility located in Cheshire, Connecticut, the cost of which was
$4.3 million, including land of $600,000. The project was partially financed
with proceeds of an $800,000 loan from the State of Connecticut, Department
of Economic Development. The Company also leases office space in Cheshire
where certain operational and telemarketing functions are performed.

On February 7, 1996, as part of the Company's relocation plan, DeGeorge
sold its corporate facility located in the Minneapolis, Minnesota
metropolitan area for $4.2 million. The sales agreement provided for an
initial cash payment by the buyer of $500,000 with subsequent payments of
$2.6 million on July 1, 1996, $350,000 on October 1, 1996 and $750,000 on
July 1, 1997. The proceeds received through July 1996 were substituted as
collateral in place of the real property and deposited to a fund that secures
the Senior Secured Bonds of $2.6 million, the balance of which was $3.0
million at December 31, 1996.

DeGeorge has product distribution facilities in Fort Wayne, Indiana;
Denver, Colorado; and Owatonna, Minnesota. The facilities in Fort Wayne and
Denver are leased. On January 12, 1997, the Company entered into a
contractual agreement to sell its owned distribution facility in Owatonna,
Minnesota for $1.1 million in cash, part of which will be used to retire a
capital lease with an outstanding principal balance of $810,000. The sale
closing is scheduled to occur on March 31, 1997.

The expected gain on sale exceeds the total anticipated costs relating to the
disposition of this facility. Previously, an owned distribution facility in
Mountain Top, Pennsylvania was sold on June 11, 1996 for $1.3 million from
which the Company received net cash proceeds of $1.1 million after deduction
for settlement expenses, resulting in a second quarter 1996 gain of $600,000.

On January 12, 1996, pursuant to the Used Aircraft Purchase Agreement,
the Company acquired a one-half interest in a jet aircraft for a total
purchase price of $1.5 million. The aircraft is managed by an independent
aircraft charter service and is predominately leased to third parties. The
aircraft is also used by Company personnel for Company business as required.
Charter revenues from the aircraft substantially offset operating costs
during 1996.

The Company owns a condominium in Cheshire, Connecticut which was
previously rented to Mr. Peter R. DeGeorge, Chairman and Chief Executive
Officer of the Company. The property is currently occupied by a caretaker,
who is caring for the property in exchange for below market rent until the
local real estate market improves at which time the Company plans to list the
property for sale. An additional condominium located in Cheshire, which was
used by company personnel during the transfer of operations from Minnesota,
is currently for sale. The company also owns a condominium located in
Jupiter, Florida which is used by various company employees assigned to the
Florida operation from time to time. See "Transactions with Directors and
Officers".

During 1996 and 1995, DeGeorge leased administrative office space from
an affiliate at a total net lease cost of approximately $216,000 and
$236,000, respectively. See "Transactions with Star Services". During 1996
and 1995, DeGeorge/Florida also leased sales and administrative office space
in Jupiter, Florida.

ITEM 3. LEGAL PROCEEDINGS

The Company is currently the subject of an investigation by the United
States Securities and Exchange Commission (the "SEC"). See "Certain
Relationships and Related Transactions - SEC Investigation".

On August 20, 1996, the Company initiated a lawsuit in federal court in
Minnesota against three former executives of the Company: Paul Vogel, David
Gaither and Ray Parker, alleging that these individuals conspired to form a
competing business that misappropriated proprietary information and trade
secrets. The Company further alleges that the defendants intentionally
disrupted the Company's ongoing business operations by falsely creating a
grim view of the Company's financial situation among employees and sales
representatives to convince them to leave the Company and join the
defendants' new venture. The Company also alleges that these defendants,
which included the Company's national sales manager and a regional sales
manager, while still employed by the Company, encouraged members of the
Company's independent sales force to curtail sales activity. Messrs. Vogel,
Gaither and Parker have consented to court orders enjoining them from using
the Company's trade secrets and proprietary information in their business
venture, although they continue to deny that they have misappropriated such
trade secrets or proprietary information. This action is in the discovery
phase.

The arbitration filed by Patwil Homes against the former owners and
principals of Patwil Homes seeking damages for alleged breaches of
representations made in the agreement pursuant to which the

assets of Patwil Homes were purchased was concluded in 1996 with a decision
rejecting Patwil Homes' claims.

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

At its annual meeting on November 7, 1996, the stockholders adopted
proposals:
(1) to elect two Class II members and one Class III member of
the Board of Directors;
(2) to change the name of the corporation from "Miles Homes, Inc."
to "DeGeorge Financial Corporation"; and
(3) to ratify the selection of Price Waterhouse LLP, independent
public accountants, as the auditors of the Company for the
fiscal year ending December 31, 1996.

None of these actions has an impact on the accompanying financial
statements as of December 31, 1996 and for the period then ended, nor will
these actions have a material financial statement impact in the future.

PART II

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

(a) MARKET INFORMATION

The Company's common stock, $.10 par value ("Common Stock"), has been
publicly traded on the NASDAQ National Market tier of the NASDAQ Stock
Market-sm- since December 3, 1992 (the date of the Company's initial public
offering) under the symbol DEGE (formerly "MIHO"). The following table sets
forth the high and low sales price information as quoted by NASDAQ for each
of the periods indicated:
High Low
Period Reported Price Price
- --------------- ----- -----
Quarter ended December 31, 1996 $1.75 $0.81
Quarter ended September 30, 1996 2.50 1.56
Quarter ended June 30, 1996 2.25 1.38
Quarter ended March 31, 1996 2.38 1.25
Quarter ended December 31, 1995 1.75 0.75
Quarter ended September 30, 1995 1.88 0.75
Quarter ended June 30, 1995 3.13 1.19
Quarter ended March 31, 1995 3.13 1.88

(b) HOLDERS

As of March 14, 1997, the Company estimated that there were approximately
1,049 holders of the Company's Common Stock, including individual participants
in security position listings.

The Company has not paid cash dividends on its Common Stock since its
initial public offering, and it does not anticipate paying any cash dividends
in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------

(in thousands, except for per share and operating data)
STATEMENT OF OPERATIONS DATA:
Net housing revenue $ 86,162 $ 60,615 $ 56,548 $ 49,741 $32,320
Financial services revenue 5,424 5,844 6,216 5,230 4,634
-------- -------- -------- -------- -------
Total revenue 91,586 66,459 62,764 54,971 36,954
-------- -------- -------- -------- -------
Costs and expenses:
Cost of sales 54,758 38,270 34,819 29,309 18,351
Selling 12,786 11,998 9,580 9,984 7,545
General and administrative 17,104 15,138 13,658 7,871 5,864
Provision for credit losses 1,975 2,460 2,599 2,180 1,580
Interest expense 6,230 7,558 7,726 3,054 3,969
Other (income) expense (1,858) (540) 26 38 (70)
Restructuring expense - 1,358 903 - -
-------- -------- -------- -------- -------
Income (loss) from continuing operations
before income taxes and cumulative effect
of a change in accounting principle 591 (9,783) (6,547) 2,535 (285)
Income tax benefit (provision) 236 (1,272) 1,702 (1,020) (23)
Cumulative effect of a change in
accounting principle(1) - - - 1,060 -
-------- -------- -------- -------- -------
Income (loss) from continuing operations 827 $(11,055) (4,845) 2,575 (308)
Discontinued operations-income (loss)(5) 350 (16,618) (5,054) 958 -
-------- -------- -------- -------- -------
Net income (loss) $ 1,177 $(27,673) $ (9,899) $ 3,533 $ (308)
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------

COMMON STOCK DATA:(2)
Income (loss) per share from continuing
operations $ 0.08 $ (1.02) $ (0.46) $ 0.28 $ (0.06)
Discontinued operations-per share income
(loss), net of tax 0.03 (1.54) (0.48) 0.10 -
-------- -------- -------- -------- -------
Net income (loss) per share $ 0.11 $ (2.56) $ (0.94) $ 0.38 $ (0.06)
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Weighted average shares outstanding 10,810 10,810 10,505 9,188 5,306
Shares outstanding at year end 10,810 10,810 10,810 10,470 8,615

OPERATING DATA:
Homes shipped 1,494 1,246 1,018 1,014 765
Average price per home $ 59,300 $ 59,000 $ 63,100 $ 57,200 $53,400
Sales representatives (at period end) 132 132 142 128 123
Gross orders received(3) 3,054 3,153 2,445 3,012 1,899

BALANCE SHEET DATA (AT PERIOD END):
Notes receivable, net $ 26,726 $ 35,074 $ 73,131 $ 67,785 $46,811
Total assets 95,815 85,662 123,343 105,307 62,697
Notes payable 47,265(4) 47,849 72,307 40,450 31,500
Notes payable to related parties - - - 1,592 1,502
Accumulated (deficit) (41,970) (43,147) (15,474) (5,575) (9,108)

(1) The cumulative effect of a change in accounting principle reflects
adoption of Statement of Financial Accounting Standards No. ("FAS") 109,
whereby the Company recognized tax benefits primarily attributable to the
recognition of operating loss carryforwards not previously recognizable.
See "Income Taxes".

(2) The computation of net income (loss) per share is based on the weighted
average number of common shares and common share equivalents outstanding
during each period presented.

(3) The number of orders received is significantly higher than the number of
units actually shipped. The conversion rates of gross orders received to
units shipped in the years 1995, 1994 and 1993 were 40.1%, 40.8% and
32.8%, respectively. During 1996, 3,054 gross order were received, a
number of which will not actually be shipped until 1997. Out of the 2,620
gross orders received as of September 30, 1996, 948 units had been shipped
against those orders as of December 31, 1996, for a conversion rate to
date of 36.2%. This conversion rate should be higher once all units have
been shipped relative to those orders.

(4) Includes (a) 12% Senior Notes due 2001 of DeGeorge of which $43.7 million,
net of unamortized issuance costs, were outstanding at December 31, 1996:
(b) Senior Secured bonds issued by DeGeorge, of which $2.6 million were
outstanding at December 31, 1996; and, (c) a State of Connecticut term
loan to the Company, of which $763,000 of principal was outstanding at
December 31, 1996.

(5) Income (loss) from discontinued operations are stated net of taxes.

SUMMARIZED FINANCIAL INFORMATION

Summarized financial information of DeGeorge as of December 31, 1996 and
1995 and for the years ended December 31, 1996 and 1995 is as follows (in
thousands):

DECEMBER 31,
-----------------------
1996 1995
-------- -------
Total assets $100,743 $87,524
Total liabilities 88,083 74,586

Total assets include intercompany receivables of $25.2 million and $27.7
million, respectively, at December 31, 1996 and 1995.

YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
------- ------- -------
Net revenue $91,586 $66,459 $62,764
Net income (loss) 918 (9,434) (4,261)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following discussion makes various comparisons relevant to the
results of operations of the Company for the years ended December 31, 1996,
1995 and 1994 with regard to continuing and discontinued operations.
Discontinued operations relate to the Company's wholly-owned subsidiary,
Patwil Homes, which was formally slated for closure on November 27, 1995 (see
"Discontinued Operations").

OPERATING RESULTS

The Company reported net income of $1.2 million for the year ended
December 31, 1996, or $0.11 per share, as compared to net losses of $27.7
million, or $2.56 per share, for 1995, and a loss of $9.9 million, or $0.94
per share, for 1994. Per share amounts are based on 10.8 million, 10.8
million and 10.5 million weighted average shares outstanding for 1996, 1995
and 1994, respectively. Total revenue increased to $91.6 million in 1996
from $66.5 million in 1995 and $62.8 million in 1994.

Income from continuing operations for the year ended December 31, 1996
was $800,000, or $0.08 per share, as compared to losses from continuing
operations of $11.1 million in 1995 ($1.02 per share) and $4.8 million in
1994 ($0.46 per share). Discontinued operations reported income in 1996 of
$400,000, or $0.03 per share, and losses of $16.6 million in 1995 ($1.54 per
share) and $5.1 million in 1994 ($0.48 per share). The loss from
discontinued operations for 1995 included an $8.4 million ($0.78 per share)
loss from operations and a charge of $8.2 million ($0.76 per share) recorded
at December 31, 1995 related to the estimated losses on disposal during the
phase-out period.

During 1996, the Company shipped 1,494 units up from 1,246 units in 1995
and 1,018 units in 1994. Gross orders received in 1996, 1995 and 1994 were
3,054, 3,153, and 2,445, respectively.

The Company attributes the 1996 revenue and income growth in continuing
operations to the restructuring of operations that was completed in 1996.
From 1994 to 1996, the Company re-engineered its systems and operations,
revised its sales plans and marketing strategies, relocated its operations
from Plymouth, Minnesota to Cheshire, Connecticut and shut down the
operations of Patwil Homes. Management believes that its decision in 1995 to
close Patwil Homes enabled the Company to direct its full resources to the
growth and development of its core business.

REVENUE

Total revenue from continuing operations for the year ended December 31,
1996 increased to $91.6 million from $66.5 million in 1995, an increase of
$25.1 million, or 37.8%. The growth in total revenue is comprised of an
increase in net housing revenue of $25.5 million, or 42.1%, to $86.2 million
in 1996 from $60.6 million in 1995, and a decrease in financial services
revenue of $400,000. The increase in net housing revenue was principally due
to a 19.9% increase in the number of total orders shipped (1,494 units in
1996 versus 1,246 units in 1995), of which shipments of standard orders
increased by 26.5%, (1,393 units in 1996 versus 1,101 units in 1995). The
average selling price of a unit increased only slightly in 1996 (to $59,300
from $59,000 in 1995). Sales of turnkey homes increased to 33 units in 1996
from 15 units in 1995 contributing $7.1 million to total revenue in 1996 as
compared to $1.1 million in 1995.

Net housing revenue also increased in 1995 from 1994, by $4.1 million,
principally due to an increase in the number of units shipped (1,246 in 1995
versus 1,018 in 1994) and a decrease in the usage of sales discounts, which
was partially offset by a decrease in the average selling price of $4,100 per
unit ($59,000 in 1995 versus $63,100 in 1994).

Financial services revenue, which is comprised principally of interest
charged to the Company's customers on construction loans and also includes
customer insurance placement fees, loan origination fees and net loan
servicing income, totaled $5.4 million, $5.8 million and $6.2 million in
1996, 1995 and 1994, respectively. The decrease in financial services
revenue is primarily due to the sale of construction loans pursuant to the
Construction Loan Purchase and Servicing Agreement entered into with a
mortgage financing company on April 14, 1995 (the "Construction Loan
Agreement"). Loans sold under this agreement are serviced by Plymouth
Capital. Net loan servicing income represents fees collected by Plymouth
Capital for servicing construction loans that have been sold, offset by
amortization of prepaid mortgage servicing costs recorded at the time of the
loan sale.

DeGeorge typically sets the rates on contractual notes receivable
slightly below market rates and offers sales promotions providing for
temporary interest rate reductions to facilitate the sale of its product.
During the latter part of 1995, the Company began reporting the value of such
promotions as discount expense, reducing net housing revenue, and as a
corresponding offset, increased interest income. The resulting effect was
reflected in an increase in the weighted average interest rate earned on the
portfolio, which was 8.0%, 7.5%, and 7.9% for 1996, 1995 and 1994,
respectively. Prior to entering into the Construction Loan Agreement, the
Company utilized bank credit facilities to finance its operations.

MARGIN ANALYSIS

The following table sets forth, for the periods indicated, the
percentage of the Company's total revenue represented by each statement of
operations line item presented:

YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
------ ------ ------
Net housing revenue 94.1% 91.2% 90.1%
Financial services revenue 5.9 8.8 9.9
----- ----- -----
Total revenue 100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Cost of sales (1) 59.8 57.6 55.5
Selling 13.9 18.0 15.3
General and administrative 18.7 22.8 21.8
Provision for credit losses 2.2 3.7 4.1
Interest expense 6.8 11.4 12.3
Other (income) expense (2.0) (0.8) 0.0
Restructuring expense 0.0 2.0 1.4
----- ----- -----
Income (loss) from continuing
operations before income taxes 0.6% (14.7)% (10.4)%
----- ----- -----
----- ----- -----

(1) Cost of sales as a percentage of net housing revenue was 63.6%, 63.1%
and 61.6% for the years ended December 31, 1996, 1995 and 1994, respectively.

DISCOUNTS

For marketing purposes, DeGeorge may offer sales promotions to customers
at the time of sale, typically consisting of free interest for the first
several months or merchandise (such as appliances). As a result of its
product standardization and revised marketing plans that were implemented in
late 1995, DeGeorge significantly reduced the usage of sales promotions and
incentives to 3.5% of gross housing revenue for the year ended December 31,
1996, as compared to 8.1% for 1995 and 8.9% for 1994. DeGeorge has also
discontinued offering refinancing incentive discounts as a result of the
Construction Loan Agreement. The following table shows the offsets to gross
housing revenue represented by these items for the periods indicated (in
thousands):

YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
------- ------- -------
Gross housing revenue $89,373 $66,660 $63,042
Less:
Sales promotions and incentives 3,135 5,409 5,609
Cash discounts 76 636 885
------- ------- -------
Net housing revenue $86,162 $60,615 $56,548
------- ------- -------
------- ------- -------

Net housing revenue as a percentage
of gross housing revenue 96.4% 90.9% 89.7%
------- ------- -------
------- ------- -------

COST OF SALES

Cost of sales includes cost of materials, warehousing, material
handling, shipping and construction monitoring.

The Company's cost of sales from continuing operations for the year
ended December 31, 1996 was $54.8 million, an increase of $16.5 million from
the year ended December 31, 1995. This increase was principally due to an
increase in the number of units shipped (1,494 in 1996 versus 1,246 in 1995).
As a percentage of net housing revenue, cost of sales was 63.6%, 63.1% and
61.6% for the years ended December 31, 1996, 1995 and 1994, respectively.
The net increase in cost of sales (as a percentage of net housing revenue)
for the year ended December 31, 1996 principally resulted from higher costs
of sales associated with turnkey units, which increased to 33 units in 1996
from 15 in 1995, and increased shipping costs of $1.4 million associated with
servicing standard order customers beyond the local area of DeGeorge's
distribution centers. During 1995, DeGeorge experienced a reduction in the
cost of lumber of 11.9% partially offset by a net increase in various other
product costs, an increase in shipping costs of $1.5 million and $500,000 of
non-recurring costs related to the start-up of the Denver distribution center.

SELLING EXPENSES

Selling expenses from continuing operations increased to $12.8 million
in 1996 from $12.0 million in 1995, up $800,000, or 6.6 %. The increase
consists of additional compensation paid to sales personnel in connection
with increased order activity and was partially offset by a reduction in
costs for sales collateral material which was a non-recurring charge recorded
in 1995. From 1994 to 1995, selling expenses from continuing operations
increased by $2.4 million, or 25.2%, principally due to additional sales
compensation paid, increased advertising costs and non-recurring charges for
sales collateral materials.

At December 31, 1996, 1995 and 1994, DeGeorge had 132, 132 and 142 full-
time sales representatives, respectively. The Company discontinued its use of
part-time affiliate sales representatives during the latter part of 1996.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses from continuing operations were $17.1
million for the year ended December 31, 1996, as compared to $15.1 million and
$13.7 million in 1995 and 1994, respectively. As a percentage of total
revenue, however, general and administrative expenses decreased in 1996, to
18.7%, from 22.8% and 21.8%, respectively, for 1995 and 1994. The increase in
expense for 1996 was primarily attributable to $1.6 million of non-recurring
compensation, transition and facilities costs incurred in connection with the
movement of operations from Plymouth, Minnesota to Cheshire, Connecticut as
well as legal costs of $400,000.

For the year ended December 31, 1995, general and administrative expenses
increased $1.5 million, or 10.8%, from 1994. This increase was principally the
result of non-recurring startup expenses of $600,000 for turnkey housing
projects in Florida; legal expenses of $400,000 and costs of
$200,000 incurred for developing a direct marketing distribution channel for
DeGeorge.

The increases in legal costs incurred in 1996 and 1995 were largely
associated ($600,000 of the $800,000 over the two year period) with the SEC
inquiry (see "Certain Relationships and Related Transactions - SEC
Investigation").

INTEREST EXPENSE

Interest expense for the year ended December 31, 1996 decreased by $1.3
million, to $6.2 million from $7.5 million in 1995. $800,000 of this decrease
relates to the retirement of a secured revolving credit facility with BT
Commercial Corporation (the "BT Facility") in April 1995 with proceeds from the
sale of a portion of its construction loans pursuant to the Construction Loan
Agreement. Of the remaining decrease, $400,000 is attributable to reduced
interest costs relating to the Company's purchases on July 28, 1995 and October
15, 1996, respectively, of $4.9 million and $625,000, face value, of
outstanding 12% Senior Notes due 2001 of DeGeorge (the "12% Senior Notes").

On April 8, 1994, a secured credit agreement with a bank group was
replaced by the issuance of the 12% Senior Notes. The BT Facility was
consummated on March 30, 1994. As a result of these transactions, interest
expense for 1995 decreased $200,000 from 1994.

OTHER (INCOME) EXPENSE

Other income increased during 1996 by $1.3 million, to $1.8 million from
$500,000 in 1995. Components of this increase include $600,000 of gain
relating to the disposal of the Company's distribution facility in Mountain
Top, Pennsylvania; gain of $500,000 from the sale of second mortgage notes
receivable; $500,000 of increased interest income earned on an escalating
balance of deposits maintained pursuant to the Construction Loan Agreement; and
$200,000 of gain from the sale of fixed assets. The increases in other income
for 1996 were offset by $500,000 of costs relating to write-downs and
maintenance costs for real estate owned.

RESTRUCTURING OF OPERATIONS

During 1996, the Company completed its restructuring and relocation of
operations. From 1994 to 1996, the Company re-engineered its systems and
operations, revised its sales plans and marketing strategies, relocated its
operations from Minnesota to Connecticut and shut down the operations of Patwil
Homes. At December 31, 1995 and 1994, the Company had recorded restructuring
expenses of $1.4 million and $900,000, respectively, in connection with formal
plans implemented during 1995 and 1994. During the year ended December 31,
1996, the Company incurred compensation, transition and facilities costs in
excess of amounts previously estimated, primarily due to its delayed occupation
of its new corporate facility in Cheshire and its decision to extend the
employment of former Minnesota personnel,

whose continued services provided support and training to new personnel
during and after the transfer of operations, which enabled the Company to
simultaneously and successfully fulfill the 26.5% increase in shipments of
standard orders in 1996. By December 31, 1996, all redundant costs for
multiple facilities and excess personnel were eliminated.

In December 1995, the Company implemented the formal relocation plan
relating to the closing of its Plymouth facility in the Minneapolis
metropolitan area, where operational and administrative functions were
performed. Restructuring costs of $1.4 million, principally for employee
severance wages and benefits, were recorded at December 31, 1995.

During 1994, the Company recorded $900,000 of restructuring expense of
which $800,000 was for costs associated with the replacement of inefficient
and outdated computer software. The remaining costs consisted primarily of
employee severance costs and related benefits.

INCOME TAXES

On January 1, 1993, the Company adopted FAS 109 which provides for the
recognition of deferred tax assets and liabilities based on expected future tax
consequences of events that have been recognized in the Company's financial
statements. As of December 31, 1995, the Company had accumulated a gross
deferred tax asset of $14.7 million, against which a full valuation allowance
had been recorded. During 1996, changes in temporary differences caused a
reduction in the gross deferred tax asset to $14.0 million, against which the
Company recorded a valuation allowance of $13.7 million. The decrease in the
valuation allowance and corresponding recognition of deferred income taxes of
$300,000 at December 31, 1996 is directly attributable to earnings of $900,000
for the year ended December 31, 1996.

During 1995, the Company expensed, in its entirety, a deferred tax asset
of $2.4 million that had been carried forward from prior years, of which $1.1
million was recorded against discontinued operations.

The Company presently has a September 30 fiscal year end for tax reporting
purposes. The Company has requested and the Internal Revenue Service has
approved a change in the tax year end to December 31. For federal income tax
purposes, the Company had net operating loss carryovers of $17.5 million at
December 31, 1996, which will fully expire by the year 2011.

DISCONTINUED OPERATIONS

During 1996, the Company essentially completed the phase out of
operations for its Patwil Homes subsidiary. Contracts for the construction
of customers' homes were substantially performed during the year and assets
of discontinued operations were reduced, through liquidation, by $5.1
million, to $2.5 million at December 31, 1996. Net income from discontinued
operations was $350,000 for 1996.

$200,000 of accrued severance wages and benefits. For the year ended December
31, 1994, losses from discontinued operations included $2.6 million of costs
pertaining to the formal restructuring plan discussed earlier (see
"Restructuring of Operations"), which was comprised of a $2.1 million write-
down relating to the revaluation of model homes and the closing of unprofitable
branches and $500,000 for other operational changes.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996, cash and cash equivalents were $3.7 million as
compared to $2.8 million at December 31, 1995. Since April 1995, the Company
has been selling its construction loans to a mortgage financing company
pursuant to the Construction Loan Agreement, under which the Company may, at
its discretion and subject to certain criteria, sell all of its construction
loans. These loans are sold at face value, discounted to provide a return of
1 1/2% over prime (9.75% at December 31, 1996). The Construction Loan Agreement
also established a deposit account for retention of a portion of the proceeds
from the sale of construction loans as security for credit losses. The balance
of deposits at December 31, 1996 and 1995 was $22.4 million and $10.5 million,
respectively. The Company receives interest income on these funds, totaling
$800,000 and $300,000 in 1996 and 1995, respectively. Deposits are reflected
in the financial statements net of provision for estimated credit losses on
construction loans sold ($3.5 million and $2.5 million at December 31, 1996 and
1995, respectively).

Throughout 1996, the Company sold $167.9 million, net face value ($171.1
million gross sales less $3.2 million of repurchased accounts), of construction
loans pursuant to the Construction Loan Agreement. Net proceeds to the Company
for the year were $142.0 million, after discounting of $13.9 million and
deposits of $12.0 million (retainage on sales of $21.3 million less returns of
$9.3 million relative to loan payoffs). During 1995, the Company sold $123.1
million, net face value ($123.4 million gross sales less $300,000 of
repurchased accounts), of construction loans. Net proceeds for 1995 were
$105.4 million, after discounting of $7.2 million and deposits of $10.5 million
(retainage of $15.9 million less returns of $5.4 million), of which $24.3
million was utilized to retire the BT Facility in the second quarter of 1995.

As of December 31, 1996 and 1995, the Company was servicing $180.0 million
and $80.3 million, face value, respectively, of previously sold construction
loans. The agreement is cancelable by either party upon six months written
notice.

The Company is currently dependent upon cash flow from the sale of
construction loans under the Construction Loan Agreement for its working
capital needs. Losses for the year ended December 31, 1995, including write-
offs occasioned by the discontinuance of operations of Patwil Homes, had caused
the Company to violate the minimum tangible net worth covenant in the
Construction Loan Agreement (the "Covenant"). Since being verbally notified of
the Covenant violation, the mortgage financing company has nonetheless
continued to purchase construction loans from the Company. During this period
management had on-going discussions with the mortgage financing company
concerning this issue.

In March 1997, the Covenant was amended by written agreement to reflect
the Company's present and anticipated financial condition. The amendment
revises the Covenant for all periods retroactive to the date of the
Construction Loan Agreement. Had the revised Covenant been in force throughout
the term of the Construction Loan Agreement (since its inception on April 14,
1995), a violation of the Covenant would never have occurred. The Company is
currently in compliance with the revised Covenant.

At the close of 1996, the Company was effectively committed to fund
expenditures of $34.6 million related to cash assistance and contractual
obligations with customers in addition to ongoing working capital and debt
service requirements. The Company's primary source of funds to satisfy these
commitments continues to be the ongoing sale of construction loans to the
mortgage financing company under the Construction Loan Agreement described
above. As of December 31, 1996, the Company had $37.1 million of gross
construction loans available for sale to the mortgage financing company, not
including $6.3 million of unfunded cash assistance, which will be recorded at
the time the funds are disbursed, resulting in total notes receivable available
to fund obligations of $43.4 million at December 31, 1996. The Company
believes that a majority of its notes receivable will be eligible for sale
under the terms of the Construction Loan Agreement.

Additional sources of cash available to the Company also include the sale
of certain assets, the consolidation of distribution facility operations and
the further disposition of remaining assets of discontinued operations, $2.5
million at December 31, 1996. The Company believes that the proceeds from
these assets sales would be at least equal to their carrying value.

The Company is pursuing alternative financing sources which could include
borrowings collateralized by the construction loan receivables, inventory and
other properties owned by the Company and/or further reducing operating costs.
There are, of course, no assurances that these other sources of financing will
be obtained or, if obtained, that the cost of such financing would not be
substantial.

On April 8, 1994, DeGeorge completed a refinancing when it issued $50
million of 12% Senior Notes. The 12% Senior Notes consisted of 50,000 units,
each unit comprising one 12% $1,000 principal note of DeGeorge and warrants
valued at $1.2 million to purchase 12 shares of Common Stock of the Company for
$5.75 per share. These warrants expire on April 1, 1997. Net proceeds, after
deductions for underwriting discounts and fees, of approximately $46.8 million
were used to (i) retire the existing term loan and revolving credit facilities
payable to Morgan Guaranty Trust Company of New York, (ii) to retire a loan
payable to Peter R. DeGeorge, the Chairman, Chief Executive Officer and
principal stockholder of the Company (who had loaned Patwil Homes $3.4 million
to retire a loan from Dauphin Deposit Bank and Trust Company), and (iii) for
working capital.

For the year ended December 31, 1994, notes receivable (net) increased
$5.3 million (gross receivables of $8.1 million less unearned income,
allowances for credit losses, sales promotion and incentives of $2.8 million).
During the period, the increase in notes receivable and the operations of the
Company were funded primarily by the issuance of the 12% Senior Notes and the
$40 million BT Facility dated March 30, 1994 ($19.9 million outstanding as of
December 31, 1994). Prior to March 30, 1994 and the consummation of the BT
Facility, the Company had fully utilized all of its available credit lines
under its various funding arrangements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements, together with the report thereon of
independent accountants dated March 14, 1997, are included in Part IV, Item
14(a) and are incorporated herein by reference.

QUARTERLY FINANCIAL INFORMATION

Summarized quarterly financial information for 1996, 1995 and 1994
(restated to reflect discontinued operations, which are net of taxes) is as
follows ($ in thousands except per share data):

1996
1996 QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR. 31 JUN. 30 SEP. 30 DEC. 31 DEC. 31
------- ------- ------- ------- -------

Total revenue $10,428 $26,205 $30,477 $24,476 $91,586
Income (loss) from
continuing operations (4,241) 1,797 2,138 1,133 827
Discontinued operations-
income (loss) 312 310 (109) (163) 350
Net income (loss) (3,929) 2,107 2,029 970 1,177
Income (loss) per share from
continuing operations(2) (0.39) 0.16 0.20 0.11 0.08
Discontinued operations-per
share income (loss) (2) 0.03 0.03 (0.01) (0.02) 0.03
Net income (loss) per share(2) (0.36) 0.19 0.19 0.09 0.11

1995
1995 QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR. 31 JUN. 30 SEP. 30 DEC. 31 DEC. 31
------- ------- ------- ------- -------

Total revenue $ 9,803 $18,913 $19,470 $18,273 $66,459
Income (loss) from
continuing operations (2,333) (4,146)(1) 211(1) (4,787) (11,055)
Discontinued operations-
income (loss) (944) (1,923) (1,587) (12,164) (16,618)
Net income (loss) (3,277) (6,069) (1,376) (16,951) (27,673)
Income (loss) per share from
continuing operations(2) (0.21) (0.38) 0.02 (0.45) (1.02)
Discontinued operations-per
share income (loss) (2) (0.09) (0.18) (0.15) (1.12) (1.54)
Net income (loss) per share(2) (0.30) (0.56) (0.13) (1.57) (2.56)

1994
1994 QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR. 31 JUN. 30 SEP. 30 DEC. 31 DEC. 31
------- ------- ------- ------- -------

Total revenue $ 8,984 $19,916 $19,674 $14,190 $62,764
Income (loss) from
continuing operations (1,600)(4) 365 (72) (3,538)(3) (4,845)
Discontinued operations-
income (loss) (751) 452 (616) (4,139) (5,054)
Net income (loss) (2,351) 817 (688) (7,677) (9,899)
Income (loss) per share from
continuing operations(2) (0.15) 0.04 (0.01) (0.34) (0.46)
Discontinued operations-per
share income (loss)(2) (0.07) 0.04 (0.06) (0.39) (0.48)
Net income (loss) per share(2) (0.22)(4) 0.08 (0.07) (0.73)(3) (0.94)

(1) Includes the accelerated write-off of $928,000 remaining deferred debt
issuance costs due to the early retirement of the BT Facility on April
18, 1995 and the gain of $925,000 from the write-off of the original issue
discount and unamortized bond issue costs pertaining to the Company's
purchase of $4.9 million, face value, of outstanding 12% Senior Notes on
July 28, 1995.

(2) Per share computations are based on 10,483,589 shares in the 1st quarter
of 1994, 10,503,526 shares in the 2nd and 3rd quarters of 1994, 10,529,903
shares in the 4th quarter of 1994 and 10,810,193 shares in 1995 and 1996.

(3) Loss and net loss per share in the fourth quarter includes a) a $3.5
million charge for the Company's restructuring of operations, of which
$900,000 relates to continuing operations and $2.6 million pertains to
discontinued operations; b) $600,000 of compensation expense recognized
for stock awards issued to two executives of the Company in December 1994;
and c) a $300,000 charge for warranty and legal claims filed against the
Company.

(4) First quarter 1994 information has been adjusted to reflect a $629,000
reversal as a result of incorrect estimates.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each person
as of March 25, 1997 who is a director and/or executive officer of the
Company, DeGeorge, Plymouth Capital, DeGeorge/Florida or DeGeorge/New England:

NAME AGE POSITION
- ---- --- --------
Peter R. DeGeorge 50 Chairman, Chief Executive Officer and
President of the Company; Chairman and
President of DeGeorge; Chairman of Plymouth
Capital; Chairman and Senior Vice President of
DeGeorge/Florida and DeGeorge/New England

P. Peter Pascali 37 Director of the Company

John H. Warren 55 Director of the Company

James G. Einloth 51 Director and Vice President of the
Company; Vice President of DeGeorge; President
of DeGeorge/Florida and DeGeorge/New England

Gregory J. Hendel 36 Vice President of the Company; Executive
Vice President of DeGeorge

Salvatore A. Bucci 42 Vice President of the Company and
DeGeorge; Director and President of Plymouth
Capital; Vice President of DeGeorge/Florida
and DeGeorge/New England

James E. Fenske 54 Vice President and Treasurer of the
Company; Senior Vice President and Treasurer
of DeGeorge, Plymouth Capital and DeGeorge/New
England; Vice President and Treasurer of
DeGeorge/Florida

Jonathan K. Dodge 47 Vice President, Secretary and General
Counsel of the Company; Vice President and
Secretary of DeGeorge, Plymouth Capital,
DeGeorge/Florida and DeGeorge/ New England

Mr. DeGeorge has served with the Company, DeGeorge, Plymouth Capital,
DeGeorge/Florida and DeGeorge/New England in the positions set forth in the
above table since the dates indicated: Chairman and Chief Executive Officer
of the Company and Chairman of DeGeorge and Plymouth Capital (June 1988);
President of the Company (May 1995 and for the period June 1988 to June
1992); President of DeGeorge (October 1996) Chairman of DeGeorge/Florida
(December 1994) and DeGeorge/New England (January 1995); and, Senior Vice
President of DeGeorge/Florida and DeGeorge/New England (November 1996). He
has also served in the following capacities with the affiliates of the
Company named below since the dates indicated: Chairman and Chief Executive
Officer of Milestar, Inc. from October 1990 until the merger of Milestar,
Inc. into the Company on October 13, 1994; Chairman (November 1989),
President and Chief Executive Officer (May 1990) of BNC

Acquisition Corp., a Delaware corporation and a corporation wholly-owned by
Mr. DeGeorge ("BNC"); and Chairman (May 1990) of Star Services, Inc. of
Delaware, a Delaware corporation, ("Star Services"). From May 1990 to August
1993, he served as Chief Executive Officer of Star Services.

Mr. Pascali was appointed as a director of the Company in January 1993.
Mr. Pascali is the President and Chief Financial Officer of Pyrogenesis,
Inc., a research and development firm specializing in advanced materials.
Since December 1990, Mr. Pascali has served as President of Phoenix &
Associates, a New Jersey-based financial consulting firm which has previously
performed consulting services for an affiliate of the Company. Prior to
1990, Mr. Pascali was an officer in the corporate banking divisions of The
Bank of Nova Scotia and Westpac Banking Corporation in New York City.

Mr. Warren has been a director of the Company since January 1995. He
has been an attorney in private practice in St. Croix, United States Virgin
Islands (specializing in real estate and business) since 1987. From 1974 to
1987 he was an acquisitions attorney and the Chairman of Roico, Inc.; Vice
Chairman, Quantrex, Inc.; and Director, Ferguson Propeller, Inc. and
Columbian Bronze, Ltd. From 1970 to 1974 Mr. Warren served as Vice President
and Secretary of APL Corporation (NYSE).

Mr. Einloth has served as a Director and Vice President of the Company
since November 1996. He is a Vice President of DeGeorge and has served as
President of DeGeorge/Florida and DeGeorge/New England since November 1996.
From June 1988 to December 1994, Mr. Einloth served as Vice Chairman, Vice
President and Treasurer of the Company and as Vice Chairman of DeGeorge and
Plymouth Capital. Mr. Einloth has also served in the following capacities
with the affiliates of the Company named below for the dates indicated: Vice
Chairman (November 1989 to December 1994) and Vice President and Treasurer
(May 1990 to December 1994) of BNC; and Vice Chairman (May 1990 to January
1996), President and Chief Operating Officer (November 1991 to December 1994)
of Star Services.

Mr. Hendel joined the Company in September 1996 after a fifteen year
career in the financial services industry. He has been Vice President, Sales
and Marketing of the Company since October 1996 and Executive Vice President
of DeGeorge since January 1997. He served as Vice President, Sales and
Marketing of DeGeorge from October 1996 to January 1997. Prior to joining
the Company, Mr. Hendel worked with The Dreyfus Service Corporation, a New
York based mutual fund company, as Senior Vice President. Throughout his
career he was responsible for developing new sales, distribution, and
customer service operations for Dreyfus. In addition, he was responsible for
expanding the core product offering to include insurance based investment
products and discount brokerage. His extensive business management
background includes responsibility for administering significant revenue and
expense budgets. Mr. Hendel holds various professional licenses associated
with the National Association of Securities Dealers.

Mr. Bucci joined the Company in December 1995 and has been Vice
President, Financial Operations of the Company since November 1996. He is a
Director (since November 1996) and President (since March 1997) of Plymouth
Capital and a Vice President of DeGeorge, DeGeorge/Florida and DeGeorge/New
England since November 1996. He was a Vice President of Plymouth Capital
from November 1996 to March 1997. He is also a Vice President of Star
Services since July 1996. Mr. Bucci has served as Chief Accounting Officer of
the Company since August 1996 and was Corporate Controller of the Company
from June 1996 until November 1996. From December 1995 to May 1996, he
directed the transition of financial operations from Minnesota to Connecticut
for DeGeorge. Before joining DeGeorge, Mr. Bucci was Chief Financial Officer
of MHI, Ltd., a privately held restaurant and lodging company, from September
1992 to November 1995. Previously, Mr. Bucci served First National Realty
Associates, Inc., a publicly traded national real estate brokerage company,
as Vice President,

Financial Services from October 1990 to July 1992 and as a private consultant
during its conversion to public ownership from April 1990 to September 1990.
Prior to 1990, Mr. Bucci held management positions in mortgage banking and
real estate divisions of Merrill Lynch and was associated with the accounting
firm of Coopers & Lybrand. Mr. Bucci is a certified public accountant.

Mr. Fenske has been employed by DeGeorge since 1970. He is currently
Vice President and Treasurer of the Company (since August 1996); Senior Vice
President of DeGeorge (since April 1989), Plymouth Capital (since February
1990) and DeGeorge/New England (since January 1995); Vice President of
DeGeorge/Florida (since April 1995); and, Treasurer of DeGeorge and Plymouth
Capital (since September 1989), DeGeorge/Florida (since April 1995) and
DeGeorge/New England (since January 1995). He was a director of the Company
from October 1994 to December 1995. Mr. Fenske also served as Vice President
and Chief Financial Officer of the Company from April 1989 to December 1994.
He also serves in the capacity of Senior Vice President, Chief Financial
Officer and Treasurer of Star Services (since June 1990).

Mr. Dodge has served as Vice President, Secretary and General Counsel of
the Company since March 1993. He is also Vice President of DeGeorge and
Plymouth Capital (since March 1993); Secretary of DeGeorge and Plymouth
Capital (since August 1996); and Vice President and Secretary of
DeGeorge/Florida (since December 1994) and DeGeorge/New England (since
January 1995). Mr. Dodge was Assistant Secretary of DeGeorge and Plymouth
Capital from October 1993 to August 1996. Mr. Dodge is also a Vice President
of BNC and Star Services (since March 1993) and Secretary of Star Services
(since July 1996). Prior to March 1993, Mr. Dodge was affiliated with
several law firms in senior capacities. From January to March 1993 he was of
counsel to Schneck, Weltman, Hashmall & Mischel. From October 1990 to
December 1992 he was a partner of Andrews & Kurth, L.L.P., a national law
firm based in Houston, Texas. From February 1986 until October 1990, Mr.
Dodge was first of counsel and then a partner in Ross & Korff and its
predecessor law firms. Ross & Korff merged with Andrews & Kurth, L.L.P. in
October 1990. While at Ross & Korff and its predecessor firms, Mr. Dodge
represented Messrs. DeGeorge, Getzler and Einloth in their leveraged
purchases of DeGeorge, Plymouth Capital and Star Services.

Mr. Morris J. Hartman, formerly an officer of the Company, DeGeorge,
Plymouth Capital and Patwil Homes, resigned as an executive officer in June
1996.

Ms. Alison R.C. Sommers, formerly a Vice President of the Company,
DeGeorge and Plymouth Capital, resigned as an executive officer in September
1996.

Mr. Robert J. Belvin, formerly a Vice President of DeGeorge resigned as
an executive officer in October 1996.

Mr. Herbert L. Getzler, formerly Chief Financial Officer of the Company
and President of DeGeorge, resigned as an executive officer and as a Director
of Plymouth Capital in August 1996 and as a Director of the Company,
DeGeorge, DeGeorge/Florida and DeGeorge/New England in March 1997.

Mr. V. Mikal Jackson, formerly a Vice President of the Company, DeGeorge
and Plymouth Capital, resigned as an executive officer in March 1997.

Mr. Paul E. Neal, formerly a Vice President of DeGeorge and President of
Plymouth Capital, resigned as an executive officer in March 1997.

There are no family relationships among any directors and executive
officers identified above. Also, the Company is not aware of any current or
prior reportable event relative to legal proceedings against any of the
directors or executive officers.

Directors of DeGeorge, Plymouth Capital, DeGeorge/Florida and
DeGeorge/New England are elected annually. Each of the directors of
DeGeorge, Plymouth Capital, DeGeorge/Florida and DeGeorge/New England will
serve until the next annual meeting of the shareholders of DeGeorge, Plymouth
Capital, DeGeorge/Florida and DeGeorge/New England, respectively, or until
his death, resignation or removal, whichever is earlier. The Restated
Certificate of Incorporation of the Company provides that the Board of
Directors of the Company is divided into three classes as designated by the
Board of Directors, each class to be as nearly equal in number as possible to
the other classes so designated. The term of office of Class I shall expire
at the annual meeting of stockholders to be held in 1998, of Class II in 1999
and of Class III in 1997. At the 1996 annual meeting and all subsequent
annual meetings, the directors whose terms expire at the time of such meeting
will be elected to hold office for the full term of office of three years.
The classification of the Board of Directors has the effect of requiring at
least two annual stockholder meetings, instead of one, to effect a change in
control of the Board of Directors. The By-Laws of the Company provide for a
Board of Directors consisting of not less than three nor more than fifteen
directors. The Board of Directors currently consists of four directors, two
of which (Messrs. Pascali and Warren) are independent directors. Failure to
maintain two independent directors could result in the delisting of the
Company from NASDAQ.

Executive officers of the Company hold office for such terms as may be
determined by the Board of Directors of the Company. Executive officers of
DeGeorge, Plymouth Capital, DeGeorge/Florida and DeGeorge/New England hold
office for such terms as may be determined by the Boards of Directors of
DeGeorge, Plymouth Capital, DeGeorge/Florida and DeGeorge/New England,
respectively.

COMPENSATION OF DIRECTORS

The outside directors, Messrs. Pascali and Warren, are paid $3,500 per
month.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain compensation information as to
the most highly compensated executive officers, including the chief executive
officer, of the Company (the "Named Executive Officers") for each of the
years ended December 31, 1996, 1995 and 1994.

ANNUAL COMPENSATION

NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------ ---- ---------- -------- --------------- ---------------

Peter R. DeGeorge,
Chairman of the Board 1996 623,654 0(4) 114,583(1) 21,350(3)
and Chief Executive 1995 709,615(2) 0 84,701(1) 10,700(3)
Officer 1994 207,615(2) 0 102,589(1) 8,850(3)

Herbert L. Getzler,
Vice Chairman 1996 286,528 0 8,326 420,653(6)
(formerly) 1995 345,844 0 17,470 0
1994 330,385 36,048(7) 405,378 0

Jonathan K. Dodge(5),
Vice President, Secretary 1996 149,354 0 4,819 0
and General Counsel 1995 150,000 0 8,240 0
1994 150,388 0 5,517 0

James G. Einloth,
Vice President 1996 138,462 0 3,473 0
1995 120,769 0 6,733 0
1994 134,601 24,079(4) 239,125 0

V. Mikal Jackson,
Vice President 1996 125,900 12,656 264 77,123
(formerly) 1995 20,821 0 0 0
1994 0 0 0 0

Paul E. Neal,
President of 1996 125,000 17,500 1,166 62,772
Plymouth Capital 1995 9,615 0 0 0
(formerly) 1994 0 0 0 0

(1) The amounts shown include compensation to Mr. DeGeorge relative to the
split-dollar life insurance policy. The actual premium paid by the
Company each year for this policy was $145,000 for 1996, 1995 and 1994.
In addition, the Company paid $13,688 of legal costs during 1995 related
to revisions of the split-dollar life insurance policy. The amounts
included in Mr. DeGeorge's W-2 forms as income relative to the split-dollar
life insurance policy, computed in accordance with the regulations of the
Internal Revenue Service, were $1,080, $936 and $815 in 1996, 1995 and
1994, respectively. See "Certain Relationships and Related Transactions -
Split-Dollar Life Insurance Policy" below. Also included are legal fees
paid by the Company for estate planning services of $1,395 for the year
ended December 31, 1994, and triathlon and biathlon racing team
reimbursements of $876, $4,239 and $7,271 for the years ended December 31,
1996, 1995 and 1994, respectively, paid to Mr. DeGeorge and to his former
spouse during the period of their marriage. Mr. DeGeorge has elected to
include the racing team reimbursements in his compensation, notwithstanding
the fact that these expenses could be considered legitimate promotional
expenses for the benefit of the Company. The Company pays Mr. DeGeorge's
credit card bills and credits the amounts paid to compensation or business
expense according to the allocation provided by Mr. DeGeorge.

(2) In 1995 Mr. DeGeorge received a salary of $709,615 of which $240,500 was
payment of salary accrued at December 31, 1994.

(3) The amounts shown reflect premiums paid by the Company, and included in
Mr. DeGeorge's W-2 forms, for a $10 million ($5 million in 1995 and 1994)
term insurance policy on the life of Mr. DeGeorge for the years 1996,
1995 and 1994.

(4) At a Board of Directors meeting held on November 7, 1996, the Compensation
Committee of the Board of Directors of the Company awarded Mr. DeGeorge a
bonus for fiscal 1996, payable in 1997, in an amount to be determined by
him, not to exceed, however, 2% of the difference in the audited results
of the Company (net profit or loss) from 1995 to 1996. On March 14, 1997,
Mr. DeGeorge formally and irrevocably waived any right to any portion of
this bonus, the maximum amount of which could have been $577,000.

(5) Pursuant to a letter, dated January 15, 1993, between the Company and Mr.
Dodge, upon the commencement of Mr. Dodge's employment with the Company on
March 1, 1993, Mr. Dodge acquired the right to receive an aggregate
100,000 shares of Common Stock, with one third of such aggregate number of
shares of Common Stock being issuable as a bonus to Mr. Dodge on March 1
of each of 1994, 1995 and 1996, subject to Mr. Dodge's continued
employment by the Company through the one-year period ending on such
dates. Mr. Dodge agreed on December 12, 1994 to relinquish a prior grant
of 33,333 shares of Common Stock to the Company in exchange for an
incentive stock option for 50,000 shares of Common Stock. Negotiations
are continuing concerning restructuring of this arrangement.

(6) On August 1, 1996, Mr. Getzler retired as an executive officer of the
Company and its subsidiaries for personal health reasons. In connection
with his retirement, the Company agreed to pay Mr. Getzler severance of
$350,000 plus accrued vacation. The total amount was paid in bi-weekly
installments through the end of 1996.

(7) See "Cancellation of Options and Restricted Stock Purchase" below.

(a) CANCELLATION OF OPTIONS AND RESTRICTED STOCK PURCHASE

In November 1992, the Company's stockholders approved the 1992 stock
option plan (the "Stock Option Plan"), and 810,000 shares of Common Stock were
reserved for issuance under the Plan. On April 29, 1993, the Stock Option
Committee of the Board of Directors of the Company granted options to purchase
425,000, 255,000 and 67,000 shares to Messrs. Getzler, Einloth and Dodge,
respectively, at an exercise price of $6 15/16 per share. On June 24, 1993,
the Stock Option Committee of the Board of Directors of the Company granted
options to purchase 63,000 shares of Common Stock to certain key employees of
the Company at an exercise price of $6 7/8 per share. On July 18, 1994, the
Stock Option Committee of the Board of Directors of the Company approved the
surrender of all outstanding stock options to the Company in exchange for new
options for the same number of shares at an exercise price of $3.50 per share,
which was the closing price on that date. The Stock Option

Committee felt that, with the market price of the Common Stock so far below
the exercise prices of the outstanding options, such options no longer
offered any meaningful incentive to the optionees.

On October 13, 1994, the Company's stockholders approved the DeGeorge
Financial Corporation 1994 Stock Option and Restricted Stock Plan, (the "1994
Plan") and 1,000,000 additional shares of Common Stock (in addition to the
810,000 shares already reserved) were reserved for issuance under the 1994
Plan. On December 12, 1994, the Stock Option Committee of the Board of
Directors authorized the surrender by Messrs. Getzler and Einloth of the
options held by them (for 425,000 and 255,000 shares, respectively, of Common
Stock) in exchange for rights to purchase 212,500 and 127,500 shares,
respectively, of Common Stock at a price of $.10 per share. The Company
granted a bonus to each of Messrs. Getzler and Einloth equal to the purchase
price of such shares ($38,048 for Mr. Getzler and $24,079 for Mr. Einloth) and
such shares were purchased on December 23, 1994. This bargain purchase
transaction created taxable income for Messrs. Getzler and Einloth equal to the
difference between the price they paid for the shares ($.10 per share) and the
fair market value of the shares on the purchase date ($637,500). The Company
has paid the taxes on this income and each of Messrs. Getzler and Einloth have
given the Company a personal note ($154,835 for Mr. Getzler and $106,480 for
Mr. Einloth) for the amount of taxes paid on their behalf by the Company,
secured by the stock purchased, payable on demand and bearing interest at 10%
per annum. Mr. Getzler's note has since been modified. See "Certain
Relationships and Related Transactions - Transactions with Directors and
Officers".

On December 14, 1995 the Board approved ten year options for 10,000 shares
at an exercise price of $1.00 per share for each of Messrs. Warren and Pascali
and five year options for 20,000 shares at an exercise price of $1.00 for Mr.
Fenske at which time Mr. Fenske surrendered 18,900 options granted to him on
July 18, 1994.

The Board also approved on December 14, 1995 ten year options, vesting one-
third each year over three years, at an exercise price of $1.00 per share, for
Messrs. DeGeorge, Getzler, Reiner, Belvin, Neal, Dodge and Jackson for 325,850;
214,130; 117,720; 93,100; 93,100; 46,550; and 46,550 shares of Common Stock,
respectively, based upon the Company and individual business units meeting
certain performance criteria. All of these options were surrendered in 1996.

On October 15, 1996, the Board approved ten year options, vesting one-
third each year, subject to certain vesting criteria, at an exercise price of
$1.50 per share, for 400,000 shares of Common stock for Mr. DeGeorge; 200,000
shares for Mr. Hendel; 100,000 shares each for Messrs. Getzler, Einloth and
Neal; 80,000 shares for Mr. Fenske; 50,000 shares for Mr. Jackson; 25,000
shares for Mr. Bucci and a total of 50,000 shares for certain non-executive
officers. On October 24, 1996, Mr. Jackson also received a ten year option,
at an exercise price of $1.50, for 50,000 shares, with similar vesting
provisions. Mr. Bucci subsequently received an additional ten year option on
December 3, 1996, for 75,000 shares, at an exercise price of $1.00 per share,
also with similar vesting provisions. Previously, on February 9, 1996, the
Board had granted a ten year option to Ms. Sommers, at an exercise price of
$1.625 per share, for 46,550 shares. Ms. Sommers' option was canceled on
September 11, 1996.

During 1997, the options granted to Messrs. Neal and Jackson during 1996
were canceled upon the respective dates of their resignations. In addition,
Mr. Getzler surrendered the options granted to him in 1996 in exchange for a
ten year option, at an exercise price of $1.50 per share, for 50,000 shares of
Common Stock.

(b) COMPENSATION COMMITTEE REPORT

Material issues relating to executive officer compensation are addressed
by the Board of Director's Compensation Committee and Stock Option Committee.
The Compensation Committee, which is comprised of Messrs. Pascali and Warren,
reviews and approves management recommendations for base salary and incentive
compensation plans for all executive officers and selected senior executives
for final approval by the Board of Directors. The Stock Option Committee,
which consists of Messrs. Pascali and Warren, reviews and approves management
recommendations for stock option plan participation levels for all executive
officers and selected senior executives. This report is submitted jointly by
the Compensation Committee and the Stock Option Committee.

The components of the Company's executive compensation program consist of
base salaries, bonuses and stock options. The Company's compensation program
is intended to provide executive officers with overall levels of compensation
opportunity that are competitive with the housing industry, as well as within a
broader spectrum of companies of comparable size and complexity. The Company's
compensation program is administered to support the Company's business mission
and generate favorable returns for its stockholders.

BASE SALARY AND BONUS. Each executive officer's base salary and bonus are
derived from a review of industry and competitive labor markets for executive
officer services. Other factors in formulating base salary and bonus
recommendations include the level of an executive's compensation in relation to
other executives in the Company with the same, more or less responsibilities,
the performance of the particular executive's business unit in relation to
established strategic plans, the Company's operating budget for the year and
the overall performance of the Company.

STOCK OPTION AWARDS. The Company maintains stock option plans that are
designed to align executive officers' and stockholders' interests in the
enhancement of stockholder value. In formulating recommendations for stock
option awards, the Stock Option Committee evaluates the Company's overall
financial performance for the year, the desirability of long-term service from
an executive and the number of options held by other executives in the Company
with the same, more or less responsibility than the executive at issue.

CEO COMPENSATION. Compensation for Mr. DeGeorge, the Company's Chairman of the
Board and Chief Executive Officer, is based upon the same criteria used for
executive officers generally, including a review of chief executive
compensation of comparable companies. The Compensation Committee of the Board
of Directors, in a meeting held in March 1997, increased the approved total
compensation for Mr. DeGeorge from $750,000 in 1996 to $1 million for 1997.

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative stockholder returns on the
Company's Common Stock, the Nasdaq Composite Index and the capital stock of a
representative group of three companies, in each case from the date that
trading commenced in the Company's Common Stock on December 3, 1992 through
February 28, 1997. The values presented for each investment are based upon
share price appreciation plus re-invested dividends, and assumes an initial
investment of $100.

[GRAPH]

12/03/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 02/28/97
-------- -------- -------- -------- -------- -------- --------

DEGEORGE FIN CORP. 100.00 125.42 81.36 28.81 20.34 18.64 16.95
PEER GROUP INDEX 100.00 109.67 123.95 102.93 161.54 156.83 151.87
NASDAQ MARKET INDEX 100.00 102.56 123.02 129.17 167.54 208.19 211.30

The Peer Group of companies consists of Clayton Homes, Inc., Fleetwood
Enterprises, Inc. and Oakwood Homes Corporation.

The above report of the Compensation and Stock Option Committees and the Stock
Performance Graph will not be deemed to be soliciting material or to be filed
with or incorporated by reference into any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporated such report or graph by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to (i) the
beneficial holders of more than five percent of the Common Stock of the
Company, (ii) beneficial ownership by each director and Named Executive
Officer and (iii) beneficial ownership by all directors and executive
officers as a group, as of March 1, 1997, except as noted below:

SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER(4) OF SHARES(1) OF TOTAL
- ---------------------- ------------ --------
Peter R. DeGeorge 5,568,570(2) 51.5%
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

Herbert L. Getzler(5) 465,000 4.3%
2702 Captains Way
Jupiter, Florida 33477

James G. Einloth 279,000 2.6%
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

Jonathan K. Dodge 136,500(3) 1.3%
c/o DeGeorge Home Alliance, Inc.
591 Park Avenue
New York, New York 10021

Paul E. Neal(5) 25,000 *
223 Westwood Road
Southington, Connecticut 06489

P. Peter Pascali 10,000 *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

John H. Warren 10,000 *
c/o DeGeorge Financial Corporation
99 Realty Drive
Cheshire, Connecticut 06410

All director and executive officers as a group 6,517,070 60.3%

_________________________________________

* Less than 1% based on 10,810,193 shares outstanding.

(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table. The shares listed include (i) shares of the Company's Common
Stock that may be acquired upon exercise of presently exercisable options,
or options that will become exercisable within 60 days from the date
hereof and (ii) shares of Common Stock issuable upon the exercise of
presently exercisable rights to purchase shares of Common Stock.

(2) BNC Acquisition Corp. owns 4,475,744 shares of Common Stock. Mr. DeGeorge
owns all of the capital stock of BNC and may be deemed to beneficially own
the 4,475,744 shares of Common Stock owned by BNC. Mr. DeGeorge also owns
347,826 shares of Common Stock as a result of the conversion of a working
capital loan, 655,000 shares as a result of open market purchases and
90,000 shares acquired in a divorce settlement.

(3) Includes an option to purchase 67,000 shares of Common Stock acquired on
July 18, 1994 and an option to purchase 50,000 shares of Common Stock
acquired on December 12, 1994.

(4) Mr. V. Mikal Jackson, a Named Executive Officer, resigned as an executive
officer in March 1997 and is not listed in the table. Mr. Jackson does
not own any shares of Common Stock.

(5) Mr. Getzler, resigned as a Director in March 1997 and as an executive
officer in August 1996. Mr. Neal, resigned as an executive officer in
March 1997. As of March 1, 1997, the total of all directors and officers
as a group would have been 6,027,070, or 55.8%, were such shares to be
excluded.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Except as set forth below, to the Company's knowledge, all statements of
beneficial ownership required to be filed with the SEC for fiscal 1996 have
been timely filed. In this regard, Messrs. DeGeorge, Fenske, Pascali and
Warren each filed one late statement of beneficial ownership with the SEC in
1996. Messrs. Bucci, Hendel and Jackson each filed two such late statements.
Management believes that all such statement were current as of December 31,
1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

GENERAL

The Company purchased the business of DeGeorge and Plymouth Capital from
Insilco Corporation ("Insilco") in June 1988. Another group of assets of
Insilco, the Star Services Division, was purchased by a special purpose
corporation controlled by Mr. Peter R. DeGeorge, Chairman, Chief Executive
Officer and principal stockholder of the Company, on May 31, 1990. The Star
Services Division was reorganized as Star Services, Inc. of Delaware ("Star
Services"), a subsidiary of BNC. BNC dividended the stock of Star Services
to Mr. DeGeorge on October 2, 1995 and Star Services is now directly (and
wholly) owned by Mr. DeGeorge.

BNC is currently the principal stockholder of the Company. Mr. DeGeorge
holds his controlling interest in the Company through BNC, a corporation
wholly-owned by him. Mr. DeGeorge is also Chairman and Chief Executive
Officer of BNC and Star Services. Certain other members of the Company's
management are also officers and/or directors of these companies. See
"Directors and Executive Officers of the Registrant".

SEC INVESTIGATION

On July 28, 1995, the Company received a subpoena from the SEC relating
to an investigation of the Company, certain of its officers, directors,
employees, affiliates and other persons or entities. The subpoena sought
production of documents relating to transactions between the Company and its
directors, officers, its major stockholder, BNC, and other related entities.
BNC, its formerly wholly-owned subsidiary Star Services and others also
received subpoenas. The Company has cooperated with the SEC, and has
collected and produced documents in response to the subpoena. The Company
had previously produced documents to the SEC in response to earlier requests
from the SEC for voluntary production in connection with an informal inquiry.
Depositions of officers and employees of the Company have been taken. The
Company received oral notice that the staff of the SEC was prepared to
recommend charges against the Company and certain officers and directors of
the Company concerning certain documents filed with the SEC which relate to
fiscal 1994 and prior years. The Company is in the process of discussing
these proposed charges with the SEC staff. Although the Company cannot
predict the eventual outcome of these discussions, the Company believes that
it is close to reaching agreement with the SEC staff on a settlement of these
charges. Any agreement reached with the SEC staff would then require the
formal approval of the SEC.

TRANSACTIONS WITH STAR SERVICES

The assets of Star Services consist principally of a portfolio of real
estate, mortgages and related accounts receivable in the process of
liquidation. Most of these assets were originally owned by the Miles Homes
division of Insilco, but were not purchased as part of the original
acquisition transaction in June 1988.

The Company provides computer, data processing, account management,
accounting and administrative services to Star Services. Certain employees
of the Company also devote a portion of their time to the administration of
Star Services' portfolio. Star Services reimbursed the Company for these
services and for a prorated share of such employees' salary and fringe
benefits, pursuant to a services agreement, until June 30, 1994. Star
Services ceased to have any employees on December 31, 1993.

During 1995 Star Services continued to have no employees and occupy no
office space other than the space taken up by its files. The number of
accounts being liquidated by Star Services has declined from a high of 2,352
in 1990 to 408 at December 31, 1994 to a total of only 168 at December 31,
1995. A significant percentage of Star Services' remaining active accounts
were sold in a bulk sale during 1995. The amount of time devoted to Star
Services by DeGeorge's employees has likewise diminished substantially to a
relatively insignificant amount.

During the first six months of 1994, Star Services significantly reduced
the square footage of office space that it leased from the Company at the
Company's corporate office in Plymouth, Minnesota and also called upon the
Company to provide significantly less computer, data processing, account
management, accounting and administrative services. Accordingly, during such
six month period, Star Services was charged by the Company $33,000 for the
rental of such office space, $413,000 for the use of certain personnel of the
Company and $33,000 for computer, telephone and related services. Beginning
July 1, 1994, Star Services made only minimal use of office space at the
Company's Plymouth, Minnesota corporate office and called upon the Company to
provide only minimal services. Accordingly, beginning on such date, Star
Services ceased to make any rental or other payments to the Company for
office space or services.

Star Services has on several occasions advanced money to the Company on
a short-term basis by making prepayments for rentals and services. $1.2
million of these advances were outstanding on December 31, 1993 and were paid
in full in 1994. Prior to June 30, 1994, Star Services also reimbursed the
Company, at cost, for telephone usage and, up to December 31, 1993,
reimbursed, at cost, medical insurance coverage provided by the Company to
Star Services' employees.

In addition, until December 31, 1993, Star Services permitted the
Company to use Star Services' offices located at 591 Park Avenue, New York,
New York without charge. Beginning January 1, 1994, the Company agreed to
reimburse Star Services at cost, or pay in lieu of rent, the expenses of such
offices. The Company is paying all of the expenses for these offices, which
totaled $216,000, $236,000 and $241,000 in 1996, 1995 and 1994, respectively.
The Company believes that the fair market value of the usage of the premises
at 591 Park Avenue by the Company exceeds the expenses paid in lieu of rent,
since a normal lease would include, in addition to operating expenses, some
element of return on the capital invested in the building. The Company
believes that the fair market value of the services provided by Company
personnel to Star Services was less than or equal to the bargain element of
the use of Star Services' offices, and, accordingly, believes that the
arrangements between the Company and Star Services were comparable to, or more
favorable to the Company than, those that would be entered into by
unaffiliated parties.

As of November 8, 1995, Star Services, a corporation wholly-owned by Mr.
DeGeorge, sold the property located at 591 Park Avenue to PRD Holdings, Inc.,
a Delaware corporation ("PRD") also wholly-owned by Mr. DeGeorge. By a lease
dated as of November 16, 1995, DeGeorge leased the premises at 591 Park
Avenue from PRD for a 15 year term commencing December 1, 1995 for a rental
equal to the operating costs of the facility, plus the costs of any repairs
or capital improvements to the facility. This arrangement of zero rent,
other than the operating costs, repairs and capital improvements, is
essentially the same terms as those that had existed between DeGeorge and
Star Services. DeGeorge had undertaken roof repairs costing approximately
$100,000 and certain renovations and redecoration, anticipated to cost
approximately $125,000, are currently underway. A change in control of
DeGeorge constitutes an assignment under the lease to which PRD's consent is
required.

Both PRD and Star Services are wholly-owned by Mr. DeGeorge. The
Company believes that the bargain element of the lease between DeGeorge and
PRD for 591 Park Avenue (which is essentially the same as the prior
arrangement between Star Services and DeGeorge) more than offsets the fair
market value of the services provided by Company personnel to Star Services
in 1996.

The property at 591 Park Avenue, in addition to serving as Mr. Dodge's
principal office and as accommodations in New York City for visiting Company
personnel, also serves as a convenient place for meetings of the Company's
Board of Directors and has been used for meetings with outside attorneys,
accountants, stockholders, investment bankers, commercial bankers and
marketing personnel. In addition, this location has been used for job
interviewing, meetings with acquisition candidates and securities analysts
and as a set for the filming of DeGeorge's infomercial.

TRANSACTIONS WITH BNC

On occasion, the Company's in-house general counsel has also acted as
counsel for Mr. DeGeorge, for BNC or for one of BNC's non-public affiliates
such as Star Services. The fair value of such services was not material and
was not in excess of $60,000 for 1996, 1995 or 1994. A portion of Mr.
Dodge's salary was charged to Star Services in 1994. See "Transactions with
Star Services" above.

Such counsel briefly acted as counsel to Mr. DeGeorge (in his capacity
as Chief Executive Officer of the Company) in connection with document
production in the SEC investigation referred to above. Mr. DeGeorge has
since hired his own outside counsel in connection with such investigation.
Since Mr. DeGeorge is covered by the broad indemnification provisions of the
Company's certificate of incorporation and bylaws which, in substance, grant
indemnification to the fullest extent permitted by Delaware law, he would
normally be entitled to indemnification by the Company for the costs of
counsel representing him in the SEC investigation in most circumstances.
Mr. DeGeorge would not be entitled to indemnification in connection with the
SEC investigation if he was not acting in good faith or was not acting in a
manner he reasonably believed to be in or not opposed to the best interests
of the Company or, with respect to any criminal action or proceeding, he had
reasonable cause to believe his conduct was unlawful.

TRANSACTIONS WITH DIRECTORS AND OFFICERS

When Star Services was purchased from Insilco in 1990, one of the assets
purchased was 108,653 shares of 12-1/2% Cumulative Preferred Stock, par value
$100 per share, of the predecessor of DeGeorge which had been issued to
Insilco at the time of the initial purchase of the assets of DeGeorge from
Insilco. This preferred stock was transferred from Star Services to BNC by
dividend. Immediately preceding the Company's initial public offering in
December 1992, cash dividends declared and payable to BNC by virtue of this
preferred stock were converted into a note payable by the Company to BNC in
the principal amount of $1.5 million. This was done by BNC in order to
facilitate the Company's initial public offering. The note was originally
due on June 30, 1994 but was extended to October 31, 1994, and bore interest
at the rate of 6% per annum. BNC agreed to extend the maturity of the note
for a second time in order to facilitate the Company's bond offering which
closed in April of 1994. The note was paid at its extended maturity.

On September 23, 1993, the Company obtained a $2.0 million loan from Mr.
DeGeorge. The principal of this loan was converted into 347,826 shares of
Common Stock on December 30, 1993, at the closing price of the Common Stock
on the NASDAQ National Market tier of the NASDAQ Stock Market-sm- on that date
of $5.75 per share. Unpaid interest on this loan continued to accrue at 9%
per annum (the original interest rate of the loan) until such interest was
paid in full on October 26, 1994.

On January 14, 1994, the Company borrowed $3.4 million from Mr. DeGeorge
to repay the amount then outstanding under a bank loan which had been assumed
in connection with the acquisition of Patwil Homes. This loan from Mr.
DeGeorge bore interest at the rate of 11% per annum and matured on July 14,
1994. This loan was repaid from the proceeds of DeGeorge's sale of 12%
Senior Notes.

On May 9, 1994 DeGeorge purchased a condominium in Cheshire, Connecticut
that was subsequently transferred to the Company. Total capitalized costs
including purchase price, real estate commissions, furniture and capital
improvements totaled $405,000. The Company rented the property to Mr.
DeGeorge for $2,500 per month or a total of $20,000 for the period January to
August 1996 (at which time he ceased occupying this property), $30,000 for
1995 and $17,500 for the period June to December 1994. Taxes and utilities
on

this property are paid by the Company. This property is currently occupied
by a caretaker, who is caring for the property in exchange for below market
rent until the local real estate market improves at which time the Company
plans to list the property for sale.

On July 26, 1994, Mr. Herbert L. Getzler, Vice Chairman of the Board of
Directors of the Company (from March 1990 until March 1997), sold a
condominium in Jupiter, Florida to Patwil Homes (later transferred to the
Company) for use by DeGeorge/Florida. The purchase price of $120,000 was
lower than the price subsequently paid for any comparable unit in the same
complex through April 1995. The purchase price was the same as the price
which Mr. Getzler had paid to an unrelated party for the property on March
31, 1994. The Company considers the price to be fair market value.

On December 30, 1994, Messrs. Getzler and James G. Einloth, currently a
Director and Vice President of the Company, borrowed $155,000 and $106,000,
respectively, from the Company to pay the taxes on restricted Common Stock
purchased by them on December 23, 1994 at a discount. Each of Messrs.
Getzler and Einloth gave the Company a note for the amount borrowed, secured
by the certificates for the stock purchased. These notes were payable upon
demand and bore interest at a rate of 10% per annum. These notes have since
been repaid with the proceeds of additional borrowings, as discussed below.

On January 3, 1995, Mr. Getzler borrowed $160,000 from DeGeorge to meet
margin calls on his Common Stock. This loan was embodied in a note, bearing
interest at the rate of 10% per annum and payable upon demand. This note has
since been paid with the proceeds of additional borrowings, as described
below.

On April 11, 1996, Mr. Getzler borrowed $608,000 from the Company. This
amount was used to repay (i) $154,000 borrowed from the Company by Mr.
Getzler on December 30, 1994, to pay taxes on restricted Common Stock
purchased by him on December 23, 1994, at a discount plus interest of $20,000
on that amount, (ii) a loan by the Company to Mr. Getzler of $160,000 made on
January 3, 1995, to meet margin calls on his Common Stock plus interest on
that amount of $20,000, and (iii) a loan from Mr. DeGeorge to Mr. Getzler of
$200,000 made on December 3, 1992 plus interest on that amount at 7% per
annum totaling $52,000.

Mr. Getzler resigned as a director of the Company in March 1997. In
connection with his resignation, he relinquished his existing stock options
in exchange for a fully vested 10 year option to acquire 50,000 shares of
Common Stock at an exercise price of $1.50. Also, in connection with his
resignation, Mr. Getzler executed a modified promissory note for $662,000 as
of February 19, 1997, which represents the amount borrowed on April 11, 1996,
as previously disclosed, plus interest accrued to February 19, 1997. The
modified promissory note, instead of being a demand note, has a maturity date
of February 19, 2000, but becomes a demand note if and when the Common Stock
closes on NASDAQ or any other exchange on which it is then traded at a price
of $5.00 per share or more on any five consecutive trading days after the
date of such note. The note continues to bear interest at a rate of 10% per
annum and remains secured by 303,752 shares of Common Stock. Interest
accrues and is payable on the date the outstanding principal balance is paid.
This note is non-recourse to Mr. Getzler, except for the stock pledged as
security. There is no prepayment penalty on the note.

Also, on April 11, 1996, Mr. Einloth borrowed $309,000 from the
Company. This amount was used to repay (i) $106,000 borrowed from the
Company by Mr. Einloth on December 30, 1994, to pay taxes on restricted
Common Stock purchased by him on December 23, 1994, at a discount plus
interest of

$14,000 on that amount, and (ii) a loan from Mr. DeGeorge to Mr. Einloth of
$150,000 made on December 3, 1992, plus interest on that amount at 7% per
annum totaling $39,000.

The 1996 loan to Mr. Einloth described above will be secured by 154,727
shares of Common Stock. It is evidenced by a demand note which bears
interest at a rate of 10% per annum. Interest accrues and is payable on the
date the outstanding principal balance is paid. Mr. Einloth's note is
non-recourse to him, except for the stock to be pledged as security. There
is no prepayment penalty on this note.

On April 22, 1995, DeGeorge first televised an infomercial in a selected
market featuring Charles Remington, the "Fat Loss Coach" selling a customized
diet and exercise plan. Pursuant to an agreement dated as of May 17, 1995,
40% of the net profits from this venture were to have been paid to Mr.
Remington and 60% to DeGeorge after all costs have been recovered. Those
costs (net of revenue generated) as of December 31, 1996 totaled
approximately $1.2 million. This venture was originally a project of DeGeorge
Sports, Inc., a Delaware corporation ("Sports"), which was then a
wholly-owned subsidiary of BNC, which undertook it, in part, to familiarize
itself and Company executives with direct response marketing, with the
objective of utilizing this medium for the marketing of the Company's
products. The initial costs of filming the infomercials were funded by a
loan from DeGeorge to Sports. No term or interest rate was specified. The
oral arrangement surrounding this loan provided for a personal guarantee of
the loan by Mr. DeGeorge. In addition, during 1994, Mr. DeGeorge deferred
gross compensation of $240,500. At year end 1994, the Sports bills paid by
DeGeorge totaled $124,000. Mr. DeGeorge's deferred compensation amount was
paid in January 1995 at which time BNC determined to transfer all of its
interest in Sports (and thus the venture) to DeGeorge for a nominal
consideration. The transfer was delayed because the then outstanding loan
agreement between BT Commercial Corporation and DeGeorge prohibited the
formation or acquisition of new subsidiaries. The transfer was completed on
May 17, 1995. Mr. DeGeorge's oral guarantee terminated upon the transfer.
As of May 1996, Sports signed an agreement with a corporation experienced in
the infomercial business to manage this business for a royalty equal to 5% of
sales until Sports has received $350,000; then 3% of sales until Sports has
received an additional $350,000; then 1% until the end of the license
agreement. After Sports has recovered its costs under this license
agreement, if ever, the 60/40 split described above will become applicable to
any further amounts received by Sports under the license agreement.

The "Fat Loss Coach" venture was undertaken, in part, to educate Company
management about infomercial production and direct marketing. In part,
because of what was learned from this venture, DeGeorge produced, and is
currently airing, an infomercial of its own to market products.

DeGeorge has, and continues to, sponsor certain amateur athletes (some
of whom are or were employees of the Company or its subsidiaries) who compete
in biathlon or triathlon events by reimbursing travel and equipment expenses.
In the past certain professional athletes were also given small stipends,
although that is no longer the case. These athletes wear DeGeorge logos and
this sponsorship is a promotional venture for the Company. Mr. Peter R.
DeGeorge and his former spouse also competed in some races and received
reimbursements for equipment and entrance fees. These amounts for Mr.
DeGeorge and his former spouse, totaling $876, $4,239 and $7,271 for 1996, 1995
and 1994, respectively, have been included in computing Mr. DeGeorge's
compensation reported herein. Expenses for sponsorships have been shared
with Star Services, and have totaled for the Company approximately $79,600 in
1996, $39,600 in 1995 and $250,000 in 1994 and for Star Services
approximately $0 in 1996 and 1995 and $45,000 in 1994. The allocation
between Star Services and the Company of these expenses was done by Mr.
DeGeorge based upon what he considered appropriate at the time and the
relative benefits to Star Services, himself and the Company.

On January 12, 1996, the Company acquired a one-half interest in a jet
aircraft for a total purchase price of $1.5 million. To date, the principal
user of this aircraft from the Company has been Mr. DeGeorge, who has used it
primarily to travel from Connecticut to Florida, where the Company maintains
operations. On occasion when Mr. DeGeorge used the plane for personal
travel, the Company's cost for such usage was charged to Mr. DeGeorge as
compensation. Charter revenues from the aircraft have substantially offset
operating costs.

Mr. DeGeorge's son, who is a college student, had a summer job with the
Company in 1996 as an analyst, continues to work for the Company on a
part-time basis and has the use of a company car.

In 1995, Mr. DeGeorge gave a Jeep motor vehicle to DeGeorge/Florida free
of charge. The vehicle is now being used by Mr. DeGeorge in Connecticut.

SPLIT-DOLLAR LIFE INSURANCE POLICY

During 1992, the Company entered onto a "split-dollar" life insurance
agreement with Mr. DeGeorge and a trust established by him, pursuant to which
the Company has assisted in purchasing a survivorship insurance policy on the
lives of Mr. DeGeorge and his former spouse in the amount of $21.8 million.
Should Mr. DeGeorge remarry, the policy would be a survivorship policy on him
and his new spouse. The owner and beneficiary of the policy is a trust, of
which Mr. DeGeorge's descendants are beneficiaries. The trust reimburses the
Company for a minor portion of the premiums on such policy. Upon demand, the
Company is entitled to receive the lesser of (a) the cash surrender value of
the policy at such time, or (b) the total of premiums therefore paid on the
policy by the Company, reduced by any other amounts previously received by
the Company under the agreement. In the event of the death of the survivor
of Mr. DeGeorge and his former spouse while the agreement is in effect, the
Company will be entitled to receive from the policy proceeds an amount equal
to the premiums paid by the Company, reduced by any other amounts previously
received by the Company under the agreement. The balance of the proceeds
will be paid to the trust, which will use such proceeds to purchase shares of
Common Stock held by the estate of Mr. DeGeorge. Annual premiums of $145,000
were paid in each of the years 1996, 1995 and 1994 by the Company.

In addition, the Company maintains a term insurance policy on the life
of Mr. DeGeorge in the amount of $10 million. This policy was increased in
December 1996 from the previous level of $5 million. The increase in the
face amount of the policy was arranged to take advantage of favorable rates
available at the time and to take into account a possible increase in the
value of the Company's Common Stock. The owner and beneficiary of the policy
is the above-described trust for the benefit of Mr. DeGeorge's descendants.
Should Mr. DeGeorge predecease his former spouse, the term insurance would be
paid to the trust, which would use the proceeds to purchase shares of Common
Stock held by the estate of Mr. DeGeorge. The annual premium for this term
insurance policy increases annually and was $21,350 in 1996 (reflecting the
increase in the face value of the policy), $10,700 in 1995 and $8,850 in
1994, which amounts have been included in Mr. DeGeorge's compensation for the
respective years.

GOZZO LITIGATION

DeGeorge/Florida paid the legal fees to defend Mr. DeGeorge in a lawsuit
in federal court against Mr. DeGeorge by a local Florida custom builder
(GOZZO V. DEGEORGE, S.D. FLA.). The builder alleged that the plans for Mr.
DeGeorge's house in Jupiter, Florida were really a product of the builder's
architect rather than Mr. DeGeorge's architect. Mr. DeGeorge had intended to
use his uniquely designed home as an advertisement for DeGeorge/Florida and,
to that end, had interviewed local custom builders. In his discussions with
the plaintiff builder, Mr. DeGeorge had revealed his business plans to
develop the custom home building business of DeGeorge/Florida in the area.
In management's opinion, the pendency of this lawsuit has prevented
DeGeorge/Florida from using Mr. DeGeorge's unique and dramatic home as a
showplace and has delayed DeGeorge/Florida's entry into the luxury custom
home building business in that area. The builder's claim for lost profits
(Mr. DeGeorge used another builder to construct his home) was rejected by the
court on the grounds that the builder had no contract or agreement with Mr.
DeGeorge. This action has been settled with no payment by Mr. DeGeorge. The
Company's Board of Directors determined that the defense of this action
was a legitimate corporate expense of DeGeorge/Florida.

On June 30, 1995, Mr. DeGeorge and DeGeorge/Florida initiated a Florida
state court action against Mr. Gregory Gozzo and his related companies
stating claims for tortious interference and unfair trade practices. On
January 5, 1996, Mr. Gozzo filed a counterclaim alleging unjust enrichment,
fraud, QUANTUM MERUIT, and theft of trade secrets. The parties to this
action have engaged in settlement discussions. The costs of the Florida state
court lawsuit are also being borne by the Company. The expenses for both the
federal and state actions totaled $2,400, $132,000 and $79,800 in 1996, 1995
and 1994, respectively.

PART IV

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

(a) FINANCIAL STATEMENTS

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1996 and 1995

Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994

Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994

Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994

Notes to Consolidated Financial Statements

FINANCIAL STATEMENT SCHEDULES

All schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
are included in the Notes to Consolidated Financial Statements.

(b) REPORTS ON FORM 8-K

The registrant filed the following Current Report on Form 8-K during the
quarter ended December 31, 1996:

DATE ITEM REPORTED
- ---- -------------

None.

3.1 Amended and Restated Certificate of Incorporation of the Company, dated
as of October 13, 1994, previously filed with the SEC as Exhibit 3.1 to
the registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, on November 11, 1994, is incorporated herein by
reference.

3.2 Amended By-Laws of the Company, as of December 10, 1992, previously
filed with the SEC as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, on March 25, 1993, are
incorporated herein by reference.

4.1 Specimen of the Company's Common Stock, previously filed with the SEC
as Exhibit 4.1 to Amendment No. 3 of the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 13, 1992, is
incorporated herein by reference.

4.2 Registration Rights Agreement, dated as of December 10, 1992,
previously filed with the SEC as Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, on March 25,
1993, is incorporated herein by reference.

4.3 Certificate of designations, preferences and rights of 10% Non-
Cumulative Preferred Stock of the Company, previously filed with the
SEC as Exhibit 4.4 to the registrant's registration statement on Form S-
1 (File No. 33-50696), on August 10, 1992, is incorporated herein by
reference.

4.4 Certificate of designations, preferences and rights of 12 1/2% Cumulative
Preferred Stock of DeGeorge, previously filed with the SEC as Exhibit
4.5 to the registrant's registration statement on Form S-1 (File No. 33-
50696), on August 10, 1992, is incorporated herein by reference.

4.5 Stock Purchase and Shareholders Agreement dated as of November 22, 1988
among the Company, Peter R. DeGeorge, Kleinwort Benson Limited and
Creditanstalt Bankverein, ("Creditanstalt") previously filed with the
SEC as Exhibit 4.6 to Amendment No. 2 of the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 4, 1992, is
incorporated herein by reference.

4.6 Letter Agreement among the Company, Peter R. DeGeorge, Kleinwort Benson
Limited and Creditanstalt, dated October 7, 1992, amending the Stock
Purchase and Shareholders' Agreement, previously filed with the SEC as
Exhibit 4.7 to Amendment No. 2 of the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 4, 1992, is
incorporated herein by reference.

4.7 Indenture among the Company, DeGeorge, Plymouth Capital, Patwil Homes
and First Trust National Association, as Trustee, relating to the 12%
Senior Notes due 2001 previously filed with the SEC as Exhibit 4.7 to
the registrant's Annual Report on Form 10-K, for the year ended
December 31, 1994, on March 29, 1995 is incorporated herein by
reference.

4.8 Warrant Agreement between the Company and First Trust National
Association, as Warrant Agent, previously filed with the SEC as Exhibit
4.8 to the registrant's Annual Report on Form 10-K, for the year ended
December 31, 1994, on March 29, 1995 is incorporated herein by
reference.

4.9 $2,625,000 Senior Secured Bonds Series 1994, Combination Mortgage,
Security Agreement and Fixture Financing Statement, dated as of May 1,
1994, previously filed with the SEC as Exhibit 4.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, on
August 12, 1994 is incorporated herein by reference.

10.1 Amended and Restated Credit Agreement, dated as of February 2, 1994,
among DeGeorge, Plymouth Capital, the banks listed therein and Morgan
Guaranty Trust Company of New York, as Agent, previously filed with the
SEC as Exhibit 10.1 to Amendment No. 3 of the registrant's registration
statement on Form S-1 (File No. 33-67362), on February 16, 1994, is
incorporated herein by reference.

10.2 Pledge and Security Agreement, dated as of June 30, 1988, among
DeGeorge, Plymouth Capital, Morgan Guaranty Trust Company of New York,
as Agent, as Secured Party, and Morgan Bank (Delaware), as Collateral
Agent, as amended, previously filed with the SEC as Exhibit 10.2 to the
registrant's registration statement on Form S-1 (File No. 33-50696) on
August 10, 1992, is incorporated herein by reference.

10.3 Tax Liability Allocation and Reimbursement Agreement, previously filed
with the SEC as Exhibit 10.3 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1992, on March 25, 1993, is
incorporated herein by reference.

10.4 1994 Stock Option and Restricted Stock Purchase Plan of the Company,
dated as of October 13, 1994, previously filed with the SEC as Exhibit
10.4 to the registrant's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1994, on November 11, 1994 is incorporated herein
by reference.

10.5 DeGeorge 401(k) Savings Plan, previously filed with the SEC as Exhibit
10.5 to the registrant's registration statement on Form S-1 (File No.
33-50696) on August 10, 1992, is incorporated herein by reference.

10.6 Split-dollar Life Insurance Agreement among the Company, Peter R.
DeGeorge and the Peter R. DeGeorge Trust, previously filed with the SEC
as Exhibit 10.6 to Amendment No. 2 to the registrant's registration
statement on Form S-1 (File No. 33-50696), on November 4, 1992, is
incorporated herein by reference.

10.7 Consulting Services Agreement between the Company and BNC, previously
filed with the SEC as Exhibit 10.7 to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1992, on March 25, 1993, is
incorporated herein by reference.

10.8 Space and Services Agreement between DeGeorge and Star Services,
previously filed with the SEC as Exhibit 10.8 to Amendment No. 3 to the
registrant's registration statement on Form S-1 (File No. 33-50696), on
November 13, 1992, is incorporated herein by reference.

10.9 Asset Purchase Agreement, dated April 19, 1988, between DeGeorge and
Insilco Corporation, as amended, previously filed with the SEC as
Exhibit 10.10 to Amendment No. 1 to the registrant's registration
statement on Form S-1 (File No. 33-50696), on October 7, 1992, is
incorporated herein by reference.

10.10 Employment Agreement, dated December 10, 1992 between the Company and
Herbert L. Getzler, previously filed with the SEC as Exhibit 10.10 to
the registrant's Annual Report on Form 10-K for the ended December 31,
1992, on March 25, 1993, is incorporated herein by reference.

10.11 Employment Agreement, dated December 10, 1992 between the Company and
Robert E. Reiner previously filed with the SEC as Exhibit 10.11 to the
registrant's Annual Report on Form 10-K for the year ended December 31,
1992, on March 25, 1993, is incorporated herein by reference.

10.12 Letter Employment Agreement, dated January 15, 1993 between the Company
and Jonathan K. Dodge, previously filed with the SEC as Exhibit 10.12
to the registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, on March 25, 1993, is incorporated herein by
reference.

10.13 Sublease Agreement dated March 6, 1993 between KMART Corporation and
DeGeorge for the Fort Wayne, Indiana manufacturing and distribution
facility previously filed with the SEC as Exhibit 10.13 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1993, on May 11, 1993, is incorporated herein by reference.

10.14 Asset Purchase Agreement, dated August 23, 1993, among Patwil Homes,
Skor, Peter B. Orthwein and George Skakel, III, previously filed with
the SEC as Exhibit 1 to the registrant's Current Report on Form 8-K, on
September 2, 1993, is incorporated herein by reference.

10.15 Covenant Not-to-Compete and Undertakings, dated August 23, 1993 between
Skor and Patwil Homes, previously filed with the SEC as Exhibit 10.24
to Amendment No. 1 to the registrant's registration statement on Form S-
1 (File No. 33-67362), on September 20, 1993, is incorporated herein by
reference.

10.16 Commercial Loan Note, dated August 23, 1993, issued by Patwil Homes to
Dauphin Deposit Bank and Trust, previously filed with the SEC as
Exhibit 10.25 to Amendment No. 1 to the registrant's registration
statement on Form S-1 (File No. 33-67362), on September 20, 1993, is
incorporated herein by reference.

10.17 Note Agreement, dated September 23, 1993, issued by the Company to
Peter R. DeGeorge, previously filed with the SEC as Exhibit 10.34 to
Amendment No. 2 to the registrant's registration statement on Form S-1
(File No. 33-67362), on September 30, 1993, is incorporated herein by
reference.

10.18 Demand Note, dated September 23, 1993, issued by the Company to Peter
R. DeGeorge, previously filed with the SEC as Exhibit 10.35 to
Amendment No. 2 to the registrant's registration statement on Form S-1
(File No. 33-67362), on September 30, 1993, is incorporated herein by
reference.

10.19 Registration Rights Agreement, dated January 14, 1994, between the
Company and the persons named in Schedule I thereto, previously filed
with the SEC as Exhibit 10.23 to Amendment No. 3 to the registrant's
registration statement on Form S-1 (File No. 33-67362), on February 16,
1994, is incorporated herein by reference.

10.20 Irrevocable Proxies, each dated January 14, 1994, granted to Peter R.
DeGeorge, previously filed with the SEC as Exhibit 10.24 to Amendment
No. 3 to the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, are incorporated herein by reference.

10.21 Convertible Note due July 14, 1994 issued by Patwil Homes to Peter R.
DeGeorge, previously filed with the SEC as Exhibit 10.27 to Amendment
No. 3 to the registrant's registration statement on Form S-1 (File No.
33-67362), on February 16, 1994, is incorporated herein by reference.

10.22 Bridge Note dated February 2, 1994 from DeGeorge to Creditanstalt,
previously filed with the SEC as Exhibit 10.2 to Amendment No. 3 to the
registrant's registration statement on Form S-1 (File No. 33-67362), on
February 16, 1994, is incorporated herein by reference.

10.23 Warrant Agreement dated as of February 2, 1994 between the Company and
Creditanstalt, previously filed with the SEC as Exhibit 10.3 to
Amendment No. 3 of the registrant's registration statement on Form S-1
(File No. 33-67362), on February 16, 1994, is incorporated herein by
reference.

10.24 Warrant Certificate dated February 2, 1994 evidencing 120,000 Common
Stock Purchase Warrants of the Company issued to Creditanstalt,
previously filed with the SEC as Exhibit 10.4 to Amendment No. 3 of the
registrant's registration statement on Form S-1 (File No. 33-67362), on
February 16, 1994, is incorporated herein by reference.

10.25 Registration Rights Agreement dated as of February 2, 1994 between the
Company and Creditanstalt, previously filed with the SEC as Exhibit
10.5 to Amendment No. 3 of the registrant's registration statement of
Form S-1 (File No. 33-67362), on February 16, 1994, is incorporated
herein by reference.

10.26 Commitment letter, dated February 15, 1994, from BT Commercial
Corporation, as Agent, to the Company, previously filed with the SEC as
Exhibit 10.28 to Amendment No. 4 to the registrant's registration
statement on Form S-1 (File No. 33-67362), on March 10, 1994, is
incorporated herein by reference.

10.27 $800,000 loan by the State of Connecticut Department of Economic
Development to the Company and related documents, previously filed with
the SEC as Exhibit 10.27 to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994, on May 12, 1994 is
incorporated herein by reference.

10.28 Credit Agreement among DeGeorge and Plymouth Capital as borrowers, the
Company as guarantor and a group of lenders and BT Commercial
Corporation, as Agent, previously filed with the SEC as Exhibit 10.28
to the registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994, on May 12, 1994 is incorporated herein by reference.

10.29 Agreement of Indemnification dated as of October 13, 1994 by and among
the Company, BNC, Herbert L. Getzler and James G. Einloth, previously
filed with the SEC as Exhibit 10.28 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 on
November 11, 1994 is incorporated herein by reference.

10.30 Promissory note, in the principal amount of $154,835.47, dated as of
December 30, 1994 and the related Pledge Agreement from Herbert L.
Getzler to DeGeorge, previously filed with the SEC as Exhibit 10.30 to
the registrant's Annual Report on Form 10-K for the year ended December
31, 1994 on March 29, 1995, is incorporated herein by reference.

10.31 Promissory note, in the principal amount of $106,480.03, dated as of
December 30, 1994 and the related Pledge Agreement from James G.
Einloth to DeGeorge, previously filed with the SEC as Exhibit 10.31 to
the registrant's Annual Report on Form 10-K for the year ended December
31, 1994 on March 29, 1995, is incorporated herein by reference.

10.32 Promissory note, in the principal amount of $160,000 dated as of
January 3, 1995 from Herbert L. Getzler to DeGeorge, previously filed
with the SEC as Exhibit 10.32 to the registrant's Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1995 on May 11, 1995 is
incorporated herein by reference.

10.33 Construction Loan Purchase and Servicing Agreement dated as of April 14
1995, previously filed with the SEC as Exhibit 10.33 to the
registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, on May 11, 1995 is incorporated herein by reference.

10.34 Lease agreement, dated as of November 16, 1995, between DeGeorge and
PRD, previously filed with the SEC as Exhibit 10.34 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1995, on
March 29, 1996, is incorporated herein by reference.

10.35 Sale agreement, dated as of February 7, 1996, between DeGeorge and Ryan
Construction Company of Minnesota, Inc., previously filed with the SEC
as Exhibit 10.35 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, on March 29, 1996, is incorporated herein
by reference.

10.36 Promissory note, in the principal amount of $607,503.33 dated as of
April 11, 1996 from Herbert L. Getzler to the Company, previously filed
with the SEC as Exhibit 10.36 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, on May 10, 1996 is
incorporated herein by reference.

10.37 Promissory note, in the principal amount of $309,453.98 dated as of
April 11, 1996 from James G. Einloth to the Company, previously filed
with the SEC as Exhibit 10.37 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, on May 10, 1996 is
incorporated herein by reference.

10.38 First Amendment to Construction Loan Purchase and Servicing Agreement
dated as of March 1, 1997 is attached hereto as Exhibit 10.38.

11.1 Statement Regarding Computation of Per Share Earnings is attached
hereto as Exhibit 11.1.

22 Subsidiaries of the Company is attached hereto as Exhibit 22.

25 Powers of Attorney, dated March 25, 1997 are attached hereto as Exhibit
25.

SIGNATURES

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

DEGEORGE FINANCIAL CORPORATION
(Registrant)

Dated: March 31, 1997

By: /s/ PETER R. DEGEORGE
-------------------------------------
Peter R. DeGeorge
Chairman and Chief Executive Officer

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

Dated: March 31, 1997

By: /s/ SALVATORE A. BUCCI
-------------------------------------
Salvatore A. Bucci
Vice President, Financial Operations
(Principal Financial Officer)
(Chief Accounting Officer)

DIRECTORS:

PETER R. DEGEORGE
P. PETER PASCALI
JOHN H. WARREN
JAMES G. EINLOTH

Jonathan K. Dodge, by signing his name hereto, does hereby sign this
document on behalf of each of the above named directors of the Registrant
pursuant to powers of attorney duly executed by such persons.

Dated: March 31, 1997

By: /s/ JONATHAN K. DODGE
-------------------------------------
Jonathan K. Dodge
(Attorney-in-fact)

Report of Independent Accountants

To the Stockholders and
Board of Directors of
DeGeorge Financial Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of DeGeorge Financial Corporation and its subsidiaries at December
31, 1996 and 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ PRICE WATERHOUSE LLP

Stamford, Connecticut
March 14, 1997

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($ IN THOUSANDS)

1996 1995
-------- --------
ASSETS
Cash and cash equivalents $ 3,737 $ 2,838
Notes receivable, net 26,726 35,074
Receivable from related parties 1,047 466
Inventory 7,833 6,958
Prepaid expenses and other assets 4,158 3,988
Deposits 19,249 8,644
Mortgage servicing rights 5,982 3,036
Senior Bond collateral fund 3,008 -
Real estate owned 6,576 2,943
Property, plant and equipment, net 12,191 6,416
Property held for sale, net 417 5,144
Assets of discontinued operations 2,549 7,663
Deferred income taxes 336 -
Intangible assets, net 2,006 2,492
-------- --------
Total assets $ 95,815 $ 85,662
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 7,053 $ 6,414
Accrued construction costs and unearned
revenue on sold notes receivable 28,857 14,113
Accrued expenses 4,399 9,867
Customer deposits 821 857
12% Senior notes 43,738 44,215
Notes payable 3,527 3,634
Capital lease obligations 925 1,244
-------- --------
Total liabilities 89,320 80,344
-------- --------
Commitments and contingencies (Note 13)
Stockholders' equity:
Common Stock; par value $.10, 25,000,000 shares
authorized, 10,810,193 shares outstanding 1,081 1,081
Paid in capital 47,384 47,384
Accumulated deficit (41,970) (43,147)
-------- --------
Total stockholders' equity 6,495 5,318
-------- --------
Total liabilities and stockholders' equity $ 95,815 $ 85,662
-------- --------
-------- --------

See accompanying notes to consolidated financial statements

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995 AND 1994
($ IN THOUSANDS, EXCEPT PER SHARE DATA)

1996 1995 1994
----------- ----------- -----------

Net housing revenue $ 86,162 $ 60,615 $ 56,548
Financial services revenue 5,424 5,844 6,216
----------- ----------- -----------
Total revenue 91,586 66,459 62,764

Costs and expenses:
Cost of sales 54,758 38,270 34,819
Selling 12,786 11,998 9,580
General & administrative 17,104 15,138 13,658
Provision for credit losses 1,975 2,460 2,599
Interest expense 6,230 7,558 7,726
Other (income) expense (1,858) (540) 26
Restructuring expense - 1,358 903
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 591 (9,783) (6,547)

Income tax benefit (provision) 236 (1,272) 1,702
----------- ----------- -----------
Income (loss) from continuing operations 827 (11,055) (4,845)

Discontinued operations-Patwil Homes, Inc.
Income (loss) from operations 350 (8,412) (5,054)
Estimated loss on disposal during
the phase out period - (8,206) -
----------- ----------- -----------
Net income (loss) $ 1,177 $ (27,673) $ (9,899)
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Income (loss) from continuing operations $ 0.08 $ (1.02) $ (0.46)
Income (loss) from discontinued operations 0.03 (1.54) (0.48)
----------- ----------- -----------
Net income (loss) $ 0.11 $ (2.56) $ (0.94)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common shares
outstanding 10,810,193 10,810,193 10,504,786
----------- ----------- -----------
----------- ----------- -----------

See accompanying notes to consolidated financial statements

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995 AND 1994
($ IN THOUSANDS)

1996 1995 1994
-------- -------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,177 $(27,673) $ (9,899)
-------- -------- ----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,118 5,772 1,942
Common stock issued for services - - 821
Provision for credit losses 1,975 2,460 2,599
Provision for sales promotions and incentives 3,211 6,220 7,934
Loss (gain) on sale of property, plant and equipment (651) 8 351
Loss (gain) on early debt extinguishment (100) - -
Loss (gain) from discontinued operations (350) 16,619 5,054
Decrease (increase) in other operating assets (Note 19) (171,723) (94,146) (20,629)
Increase (decrease) in other operating liabilities (Note 19) 9,879 13,050 (15,181)
--------- -------- ----------
Total adjustments (145,641) (50,017) (17,109)
--------- -------- ----------
Net cash provided (used) by operating activities of:
Continuing operations (144,464) (77,690) (27,008)
Discontinued operations 5,464 (672) 1,842
--------- -------- ----------
Net cash provided (used) by operating activities (139,000) (78,362) (25,166)
--------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property, plant and equipment 5,373 2,628 754
Purchase of property, plant and equipment (6,643) (3,409) (2,997)
--------- -------- ----------
Net cash provided (used) by investing activities (1,270) (781) (2,243)
--------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of construction loans receivable,
net of discounting and holdback 142,131 105,401 -
Principal payments on notes payable - revolver - (61,372) (108,812)
Borrowings on notes payable - revolver - 40,600 93,000
Principal payments on notes payable - other (118) - (2,025)
Borrowings on notes payable - other - - 3,425
Deferred debt issue cost - (26) (5,169)
Proceeds from issuance of warrants - - 1,200
Principal payments on notes payable - related party - - (5,065)
Proceeds from borrowings - related party - - 3,400
Principal payments on 12% senior notes (525) (3,601) -
Proceeds from issuance of 12% senior notes - - 48,800
Principal payments on capital leases (319) (322) (290)
--------- -------- ----------
Net cash provided (used) by financing activities 141,169 80,680 28,464
--------- -------- ----------

Net change in cash and cash equivalents 899 1,537 1,055

Cash and cash equivalents - beginnning of the year 2,838 1,301 246
-------- -------- ----------
Cash and cash equivalents - end of the year $ 3,737 $ 2,838 $ 1,301
-------- -------- ----------
-------- -------- ----------

See accompanying notes to consolidated financial statements.

DEGEORGE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 31, 1996, 1995 AND 1994
($ IN THOUSANDS)

Common Stock
------------------ Paid-in Retained
Shares Amount Capital Earnings Total
---------- ------ ------- -------- ---------
December 31, 1993 10,470,193 $1,047 $45,397 $ (5,575) $ 40,869
Issuance of stock warrants - - 1,200 - 1,200
Merger with Milestar - - 1 - 1
Restricted stock awards 340,000 34 786 - 820
Net Loss - - - (9,899) (9,899)
---------- ------ ------- -------- ---------
December 31, 1994 10,810,193 1,081 47,384 (15,474) 32,991
Net Loss - - - (27,673) (27,673)
---------- ------ ------- -------- ---------
December 31, 1995 10,810,193 1,081 47,384 (43,147) 5,318
Net Income - - - 1,177 1,177
---------- ------ ------- -------- ---------
December 31, 1996 10,810,193 $1,081 $47,384 $(41,970) $ 6,495
---------- ------ ------- -------- ---------
---------- ------ ------- -------- ---------

See accompanying notes to consolidated financial statements.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS OF THE COMPANY

DeGeorge Financial Corporation (the "Company") is a holding company
whose significant assets are its investment in its wholly-owned operating
subsidiary DeGeorge Home Alliance, Inc. ("DeGeorge") and its wholly-owned
subsidiary, Plymouth Capital Company, Inc. ("Plymouth Capital"); DeGeorge
Homes of Florida, Inc. ("DeGeorge/Florida"); DeGeorge Homes of New England,
Inc. ("DeGeorge/New England"); and Patwil Homes, Inc. ("Patwil Homes").
Pursuant to a vote of a majority of its stockholders at the Annual Meeting of
Stockholders on November 7, 1996, the name of the Company was changed to
DeGeorge Financial Corporation from Miles Homes, Inc. DeGeorge, formerly
Miles Homes Services, Inc., changed its name on October 29, 1996. The
combined assets, liabilities, earnings and equity of DeGeorge, Plymouth
Capital, DeGeorge/Florida, DeGeorge/New England and Patwil Homes are
substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. Accordingly, separate financial
statements and other disclosures concerning DeGeorge, Plymouth Capital,
DeGeorge/Florida, DeGeorge/New England and Patwil Homes are not deemed to be
material to investors. In November 1995, the Company announced the closing of
the Patwil Homes' business (see "Note 20 - Discontinued Operations").

DeGeorge sells a contract package of materials, plans and support
services, and through its wholly-owned subsidiary, Plymouth Capital, provides
financing to qualified individuals. The contract package enables customers
without prior building experience to eliminate the need for general contractors
in the building of their own homes. Most customers take nine to twelve months
to complete their homes. Upon completion, the construction loan is repaid from
the proceeds of permanent mortgage financing obtained by the customers from
third-party lenders (on average, approximately 13 months after the first
delivery of building materials). Customer notes receivable are secured by a
mortgage on the property and material delivered.

On April 14, 1995, the Company entered into a Construction Loan Purchase
and Servicing Agreement (the "Construction Loan Agreement") with a mortgage
financing company. The Construction Loan Agreement provides that the Company
may sell, at its discretion, all of its construction loans, subject to certain
criteria (see "Note 4 - Sale and Servicing of Notes Receivable").

The Company is currently dependent upon cash flow from the sale of
construction loans under the Construction Loan Agreement for its working
capital needs. Losses for the year ended December 31, 1995, including
write-offs occasioned by the discontinuance of operations of Patwil Homes, had
caused the Company to violate the minimum tangible net worth covenant in the
Construction Loan Agreement (the "Covenant"). Since being verbally notified of
the Covenant violation, the mortgage financing company has nonetheless
continued to purchase construction loans from the Company. During this period
management had on-going discussions with the mortgage financing company
concerning this issue.

In March 1997, the Covenant was amended by written agreement to reflect
the Company's present and anticipated financial condition. The amendment
revised the Covenant for all periods retroactive to the date of the
Construction Loan Agreement. Had the revised Covenant been in force throughout
the term of the Construction Loan Agreement (since its inception on April 14,
1995), a violation of the Covenant would never have occurred. The Company is
currently in compliance with the revised Covenant.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. As a result of discontinuing the operations
of Patwil Homes, related assets as of December 31, 1996 and 1995, have been
classified as "Assets of discontinued operations" and operating results for
each of the years presented are separately stated as "Discontinued operations".
All intercompany accounts and transactions have been eliminated.

RECLASSIFICATIONS

Certain reclassifications have been made to the accompanying consolidated
statement of operations for the years ended December 31, 1995 and 1994, and to
the consolidated balance sheet as of December 31, 1995 to conform to the
presentation of the results of operations and balance sheet in 1996. These
reclassifications had no effect on net income, total assets or liabilities.

NET HOUSING REVENUE

Gross housing revenue of DeGeorge and related cost of sales are recognized
as materials are delivered to the customer in several loads over the
construction period. The computation of gross housing revenue is based on the
material cost of each shipment as a percentage of total material cost of all
shipments to the customer as applied to the sales contract price. Net housing
revenue is stated net of sales discounts and allowances.

Sales discounts include sales promotions and cash sale discounts, although
the Company discontinued the use of cash sale discounts in 1995. For marketing
purposes, DeGeorge may offer sales promotions to customers at the time of sale
which typically consist of a free interest period or merchandise.

Sales promotions are charged against an allowance at the time they are
earned by the customers. Provisions for sales promotions are recorded on a
basis consistent with the recognition of housing revenue and are offset against
gross housing revenue in the statement of operations. For those loans owned by
the Company, the allowance is reflected on the balance sheet as a reduction to
notes receivable and is maintained at a level considered necessary by
management to cover sales discounts offered and expected to be taken by
customers. Actual cash sale discounts are recorded as offsets to gross housing
revenue at the time the discounts are taken.

Net housing revenue for the years ended December 31, 1996, 1995 and 1994,
is as follows (in thousands):

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
Gross housing revenue $89,373 $66,660 $63,042
Less: sales discounts and allowances (3,211) (6,045) (6,494)
------- ------- -------
Net housing revenue $86,162 $60,615 $56,548
------- ------- -------
------- ------- -------

FINANCIAL SERVICES REVENUE

Financial services revenue is comprised principally of interest charged to
customers on construction loans and also includes customer insurance
placement fees, loan origination fees and net loan servicing income. Net
loan servicing income represents fees collected by the Company for servicing
construction loans that have been sold, offset by amortization of prepaid
mortgage servicing costs recorded at the time of the construction loan sale.
Interest on construction financing is charged and recognized as revenue on a
monthly basis on the actual loan balances outstanding during the construction
period based on contractually established interest rates. Interest income is
not recognized on receivables where substantial doubt exists as to
collection of the principal balance of the related receivable.

MORTGAGE SERVICING RIGHTS

Pursuant to the Construction Loan Agreement, the Company services
construction loans which are sold to the mortgage financing company, for which
it receives servicing income. The fair value of the mortgage servicing rights
is calculated at the time the note receivable is sold and is based on the total
estimated cash to be received over the life of the sold loan less incremental
costs associated with servicing the loan. In the event of unanticipated
prepayments and/or impairments on the sold notes, the capitalized mortgage
servicing rights are adjusted as necessary.

PROVISION FOR CREDIT LOSSES

An allowance for estimated credit losses is established by charges to
income and is maintained at a level considered necessary by management to
provide for potential losses on notes receivable. The adequacy of the
allowance is based on management's evaluation of the factors underlying the
quality of the notes receivable portfolio, including actual credit and real
estate owned ("REO") loss experience, current and anticipated economic
conditions and detailed analysis of individual receivables and properties for
which full collectability may not be assured. Realized credit losses are
charged against the allowance and include specific writedowns to net realizable
value when receivables are transferred to REO. Because there are subjective
judgments involved, future adjustments to the allowance may be necessary if
conditions differ from the assumptions used in performing the evaluation.

ADVERTISING

The Company expenses costs of advertising when incurred, or if later,
when first used, or in the case of direct response advertising, over the
expected period of future benefits. At December 31, 1996, $700,000 of
advertising costs were included in prepaid expenses and other assets.

STOCK-BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. ("APB") 25 to
account for stock-based compensation. The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. ("FAS") 123, "Accounting
for Stock-Based Compensation", effective for years beginning after December 15,
1995. Under FAS 123 the Company is not required to and did not change its
method of accounting for stock-based compensation. Pro forma net income and
earnings per share based on the fair value method of accounting are disclosed
in Note 18.

INCOME TAXES

Effective January 1, 1993, the Company adopted FAS 109, "Accounting for
Income Taxes". FAS 109 requires that deferred tax assets and liabilities are
established based on the difference between the financial statement and income
tax basis of assets and liabilities using existing tax rates. Deferred tax
assets and liabilities are valued and reflected in the financial statements net
of the appropriate reserve.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

EARNINGS PER COMMON SHARE

For the years ended December 1996, 1995 and 1994, earnings (loss) per
common share is based on 10,810,193; 10,810,193 and 10,504,786 weighted average
shares outstanding, respectively.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and investments in short-term money
market or U.S. Government Securities with an original maturity of three months
or less. Investments are valued at cost which approximates market.

INVENTORY

Inventory is stated at the lower of cost or market with cost determined on
a first-in, first-out ("FIFO") basis.

REAL ESTATE OWNED (REO)

REO represents properties acquired by DeGeorge through foreclosure or deed-
backs (including in-substance foreclosures) and is stated at the lower of cost
or net realizable value. Gains or losses, if any, on the sale of these
properties are included in other income (expense).

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation for financial reporting purposes is provided on a
straight-line basis over the estimated useful life of the assets. An
accelerated method is used for income tax purposes. Cost of buildings include
capitalized interest which will be amortized over the estimated useful life of
the building. The Company had capitalized interest cost of $99,000 and $52,000
in 1996 and 1995, respectively.

PROPERTY HELD FOR SALE

Property held for sale is stated at cost net of accumulated depreciation
or net realizable value, whichever is lower.

INTANGIBLE ASSETS, NET

Intangible assets include net deferred debt issuance costs which include
costs associated with the issuance of 12% Senior Notes. Debt issuance costs
are being amortized on a straight-line basis over the terms of the related
loans. Debt issuance cost is presented net of accumulated amortization of $3.1
million and $2.6 million at December 31, 1996 and 1995, respectively.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

FAS No. 125, "Accounting for Transfer and Servicing of Financial Assets
and Extinguishments of Liabilities", was issued in June 1996. This Statement
provides consistent standards for distinguishing

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

transfers of financial assets that are sales from transfers that are secured
borrowings and for the determination as to when a liability should be
considered extinguished.

As issued, the Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996; however, an amendment to FAS 125 deferred for one year the effective
date for certain transactions, including the Company's transactions under the
Construction Loan Agreement. As such, the provisions of FAS 125 will not
affect transactions of the Company until after December 31, 1997.

NOTE 3 - NOTES RECEIVABLE:

Notes receivable at December 31, 1996 and 1995, are as follows (in
thousands):

DECEMBER 31,
-------------------
1996 1995
-------- --------
Contractual value of notes receivable $37,137 $51,010
Less: unearned income (8,757) (9,535)
-------- --------
28,380 41,475
Less:
Allowance for sales promotions and incentives (878) (3,042)
Allowance for credit losses (675) (3,106)
Deferred loan processing fees, net (101) (253)
-------- --------
Notes receivable, net $26,726 $35,074
-------- --------
-------- --------

Unearned income represents contract revenue that will be recognized as
remaining materials are delivered to customers.

In addition to DeGeorge supplied materials, funds are provided to
customers for subcontractors and other material purchases related to the
construction of customer homes. These amounts, when paid, are included in the
customer's receivable balance and interest is charged at a rate established in
the sales contract. Funds provided by DeGeorge during the years ended December
31, 1996 and 1995, were approximately $74.3 million and $43.2 million,
respectively.

Notes receivable include accounts that are not expected to be repaid
within one year, as the contractual terms of the receivables are generally 24
months. As of December 31, 1996 and 1995, contractual maturities of the
receivables were as follows (in thousands):

DECEMBER 31,
-------------------
1996 1995
-------- --------
Current $10,716 $14,373
Long-term 17,664 27,102
-------- --------
Total $28,380 $41,475
-------- --------
-------- --------

It is the Company's experience that a substantial portion of the notes
receivable portfolio is generally repaid before contractual maturity dates.
Therefore, the above information is not to be regarded as a forecast of future
cash collections.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

As of December 31, 1996 and 1995, receivables which were more than ninety
days contractually past due were approximately $3.4 million and $3.7 million,
respectively. Based on prior experience and on analysis of specific accounts,
management is of the opinion that collection of interest on these receivables
more than 90 days past due is probable. A customer is considered to be in
default if that person has not obtained, or is not in the process of obtaining,
permanent financing at the end of the contractual period. As of December 31,
1996 and 1995, notes receivable included approximately $2.2 million and $1.0
million of notes receivable in default. Approximately 41.4% and 51.2% of the
originated notes receivable portfolio as of December 31, 1996 and 1995,
respectively, was concentrated in the states of Michigan, Colorado, Nevada,
Ohio and Pennsylvania.

The activity in the allowance for sales promotions and incentives for the
years ended December 31, 1996, 1995 and 1994, is as follows (in thousands) :

DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
Balance, beginning of year $3,042 $4,107 $3,000
Provision for promotions and incentives 3,211 6,220 7,934
Sales promotions and incentives taken (5,375) (7,285) (6,827)
------- ------- -------
Balance, end of year $ 878 $3,042 $4,107
------- ------- -------
------- ------- -------

The activity in the allowance for credit losses for the years ended
December 31, 1996, 1995 and 1994, is as follows (in thousands):

DECEMBER 31,
----------------------------
1996 1995 1994
------ ------- ------
Balance, beginning of year $3,106 $4,236 $2,546
Provision for credit loss 1,975 2,460 2,599
Reclassification to deposits for sold notes
receivable (1,002) (2,540) -
Charge-offs, net of recoveries (3,404) (1,050) (909)
------- ------- -------
Balance, end of year $ 675 $3,106 $4,236
------- ------- -------
------- ------- -------

Beginning in 1996, refinancing incentives were reclassified to provision
for credit loss from sales promotions. The resulting effect for prior years
presented is an increase in net housing revenue (from a decrease in sales
promotions) and an increase in the provision for credit loss of $985,000 and
$1.1 million for the years ending December 31, 1995 and 1994, respectively.

NOTE 4 - SALE AND SERVICING OF NOTES RECEIVABLE:

On April 14, 1995, the Company entered into the Construction Loan
Agreement with a mortgage financing company. The Construction Loan Agreement
provides that the Company may sell at its discretion all of its construction
loans, subject to certain criteria. These loans can be sold at face value (net
of sales discounts), discounted to provide a return of 1 1/2% over prime (9.75%
and 10.00% at December 31, 1996 and 1995, respectively). In connection with
this Construction Loan Agreement, there is a holdback provision on a portion of
the sale proceeds due the Company as security for possible credit losses. The
Company receives interest (reflected in other income/expense) on these
deposited funds, which amounted to $817,000 and $319,000 in 1996 and 1995,
respectively.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The amounts owed to the Company under the holdback provisions are included
in deposits on the balance sheet, which are stated net of the Company's
estimated credit losses anticipated on the construction loans sold at December
31, 1996 and 1995, as follows (in thousands):

DECEMBER 31,
--------------------------
1996 1995
------- -------
Holdback $22,370 $10,464
Allowance for estimated credit losses (3,542) (2,540)
------- -------
Net holdback (included in deposits) $18,828 $ 7,924
------- -------
------- -------

During 1996, the Company sold $167.9 million, net face value ($171.1
million gross sales less $3.2 million of repurchased accounts), of construction
loans pursuant to the Construction Loan Agreement. Net proceeds to the Company
for the year were $142.0 million, after discounting of $13.9 million and
deposits of $12.0 million (retainage on sales of $21.3 million less returns of
$9.3 million relative to loan payoffs). During 1995, the Company sold $123.1
million, net face value ($123.4 million gross sales less $300,000 of
repurchased accounts), of construction loans. Net proceeds for 1995 were
$105.4 million, after discounting of $7.2 million and deposits of $10.5 million
(retainage of $15.9 million less returns of $5.4 million).

Changes in mortgage loan servicing rights internally originated during the
years ended December 31, 1996 and 1995 were as follows (in thousands):

DECEMBER 31,
-------------------
1996 1995
------ ------
Balance, beginning of year $3,036 $ -
Internally originated 13,557 7,216
Amortization (10,611) (4,180)
------ -----
Balance, end of year $5,982 $3,036
------ ------
------ ------

The amortization of mortgage servicing rights is included in financial
services revenue.

At December 31, 1996 and 1995, respectively, the Company was servicing, on
behalf of the mortgage finance company, approximately $180.0 and $80.3 million
face value of construction loans. Unearned income of approximately $10.6 and
$4.4 million relating to these construction loans and approximately $18.3 and
$9.7 million of cash assistance to customers is included in accrued
construction costs and unearned income on sold notes receivable at December 31,
1996 and 1995, respectively.

NOTE 5 - INVENTORY:

At December 31, 1996 and 1995, inventory consisted mainly of unassembled
lumber and other building materials stored at distribution facilities, land and
related construction costs on turnkey homes under construction and model homes
as follows (in thousands):

DECEMBER 31,
-------------------
1996 1995
------ ------
Unassembled lumber and other building
materials stored at distribution facilities $4,241 $4,282
Land and related construction costs on
homes under construction 2,798 1,660
Model homes 794 1,016
------ ------
$7,833 $6,958
------ ------
------ ------

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:

At December 31, 1996 and 1995, property, plant and equipment includes (in
thousands):

DECEMBER 31,
-------------------
1996 1995
------ ------
Land and land improvements $1,092 $ 634
Buildings and building improvements 4,942 2,796
Equipment 7,459 4,261
Capitalized leases 1,449 1,449
------ -----
14,942 9,140
Less: accumulated depreciation (2,348) (2,409)
Less: accumulated amortization of capitalized
leases (403) (315)
-------- -------
Property, plant and equipment, net $12,191 $6,416
-------- -------
-------- -------

Depreciation expense for the years ended December 31, 1996, 1995 and 1994,
was $873,000, $914,000 and $929,000, respectively. Amortization of assets
recorded under capital leases for the years ended December 31, 1996, 1995 and
1994, was $88,000, $119,000 and $118,000, respectively.

At December 31, 1996 and 1995, property, plant and equipment of Patwil
Homes is reflected in assets of discontinued operations (see Note 20).

NOTE 7 - PROPERTY HELD FOR SALE:

At December 31, 1996 and 1995, property held for sale is as follows (in
thousands):

DECEMBER 31,
-------------------
1996 1995
------ ------
Land $ 417 $1,522
Buildings - 4,428
------ ------
417 5,950
Less: Accumulated depreciation - (806)
Property held for sale, net $ 417 $5,144
----- ------
----- ------

NOTE 8 - CUSTOMER INSURANCE:

Prior to March 1, 1995 DeGeorge had a self-insurance program that offered
builders risk insurance to its customers during the construction period with
premiums charged to the customer's account annually. DeGeorge had a stop-loss
insurance policy for pooled losses exceeding $750,000 per year with a maximum
excess coverage of $1.5 million. Premium income was earned ratably over the
individual policy periods and included in financial services revenue.

To limit the inherent risk of self-insurance, effective March 1, 1995,
DeGeorge obtained a fully underwritten master insurance policy for its
customers during the construction period. DeGeorge has no residual liability
for customer insurance. An administrative fee is earned for placing and
monitoring coverage.

DeGeorge earned customer insurance placement fees of approximately
$877,000, $715,000 and $636,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Unearned premiums were approximately $311,000 at December
31, 1994.

As of December 31, 1996 and 1995, respectively, DeGeorge had charged
customers $482,000 and $324,000 related to insurance coverage in advance of
payments of insurance premiums to the insurance carrier. On a monthly basis,
insurance premiums are paid to the insurance carrier and DeGeorge recognizes
into income a similar portion of the amounts charged to the customers.

Prior to obtaining a master insurance policy, DeGeorge maintained a
reserve for estimated future claims, which was included in accrued liabilities.
Historically, claims incurred have been less than the $750,000 stop-loss limit.
A summary of the activity in the reserve for the years ended December 31, 1996,
1995 and 1994, are as follows (in thousands):

DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ----- ------
Balance, beginning of year $ - $ 154 $ 129
Provision for claims and costs - 179 456
Claims and costs incurred - (333) (431)
---- ----- ------
Balance, end of year $ - $ - $ 154
---- ----- ------
---- ----- ------

NOTE 9 - ACCRUED EXPENSES:

Accrued expenses at December 31, 1996 and 1995, include (in thousands):

DECEMBER 31,
----------------------
1996 1995
------ ------
Interest $1,401 $1,403
Insurance 808 889
Compensation and related costs 801 1,214
Other 653 1,521
Discontinued operations 337 1,860
Construction job cost expenses 253 620
Professional fees 146 794
Restructuring - 1,566
------ ------
Accrued expenses $4,399 $9,867
------ ------
------ ------

NOTE 10 - INCOME TAXES:

The components of the income tax (benefit) provision on a consolidated
basis, including discontinued operations for the years ended December 31, 1996,
1995 and 1994, are as follows (in thousands):

DECEMBER 31,
-----------------------------------
1996 1995 1994
----- ------- -------
Current income tax:
Federal $ - $(3,582) $(2,970)
State - (868) (535)
----- ------- -------
- (4,450) (3,505)
Deferred income tax:
Federal 497 (4,233) (1,358)
State 124 (1,083) (240)
----- ------- -------
621 (5,316) (1,598)

Valuation allowance (957) 12,415 2,243
----- ------- -------
Income tax (benefit) provision $(336) $ 2,649 $(2,860)
----- ------- -------
----- ------- -------

Continuing operations $(236) $ 1,272 $(1,702)
Discontinued operations (100) 1,377 (1,158)
----- ------- -------
Income tax (benefit) provision $(336) $ 2,649 $(2,860)
----- ------- -------
----- ------- -------

For the years ended December 31, 1996, 1995 and 1994, the provision
(benefit) for income taxes from continuing operations differs from the amount
of income tax determined by applying the applicable U.S. statutory federal
income tax rate of 34% to pretax income as a result of the following
differences (in thousands):

DECEMBER 31,
-----------------------------------
1996 1995 1994
----- ------- -------
Statutory U.S. tax rate $(201) $(3,326) $(2,226)
State taxes, net of federal
income tax benefit (35) (587) (393)
Valuation allowance - 5,185 917
----- ------- -------
Income tax (benefit) provision
from continuing operations $(236) $ 1,272 $(1,702)
----- ------- -------
----- ------- -------

The significant components of deferred income taxes at December 31, 1996
and 1995, are as follows (in thousands):

DECEMBER 31,
------------------------
1996 1995
-------- --------
Deferred tax assets:
Credit and refinancing allowances $ 2,544 $ 4,015
Goodwill 1,832 1,972
Net operating loss carryforward 7,012 6,748
Other, net 2,649 1,923
-------- --------
Total gross deferred tax assets 14,037 14,658
Less valuation allowance (13,701) (14,658)
-------- --------
Deferred income taxes $ 336 $ -
-------- --------
-------- --------

The Company presently has a September 30 fiscal year end for tax reporting
purposes. The Company has requested and the Internal Revenue Service has
approved a change in the tax year end to December 31. At December 31, 1996,
the Company has net operating loss carryforwards for Federal income tax
purposes of $17.5 million, which will fully expire by the year 2011.

NOTE 11 - NOTES PAYABLE:

Notes payable at December 31, 1996 and 1995, consists of the following (in
thousands):

DECEMBER 31,
---------------------
1996 1995
------ ------
Senior Secured Bonds, Series 1994, secured by
Senior Bond Collateral Fund, accruing interest at
10.125%, payable semi-annually; varying annual
payments beginning at $100,000 in 1997 through
final maturity in 2006 $2,625 $2,625
State of Connecticut term loan, secured by Company
office building, machinery and equipment; principal
and interest payable monthly until maturity in 2001 763 893
Land contract notes payable in connection with REO,
varying interest and principal payments 139 116
------ ------
Total notes payable $3,527 $3,634
------ ------
------ ------

Principal payments required under these loan agreements are as follows (in
thousands):

PERIOD ENDING DECEMBER 31, PRINCIPAL PAYMENTS
-------------------------- ------------------
1997 $ 298
1998 389
1999 407
2000 434
2001 313
Thereafter 1,686
------
Total $3,527
------
------

On April 8, 1994, DeGeorge completed a refinancing when it issued $50
million of 12% Senior Notes due 2001 (the "12% Senior Notes"). The 12% Senior
Notes consist of 50,000 units, each unit comprising one 12% $1,000 principal
note of DeGeorge and warrants valued at $1.2 million to purchase 12 shares of
common stock, par value $0.10 per share of the Company ("Common Stock") for
$5.75 per share. These warrants expire on April 1, 1997. Net proceeds of
$46.8 million, after deductions for underwriting discounts and fees, were used
(i) to retire the existing term loan of $5 million and revolving credit
facility of $34 million with Morgan Guaranty Trust Company of New York, (ii) to
retire a loan payable to Peter R. DeGeorge, the Chairman, Chief Executive
Officer and principal stockholder of the Company (who had loaned Patwil Homes
$3.4 million to retire a loan from Dauphin Deposit Bank and Trust Company) and
(iii) for working capital.

At December 31, 1996 and 1995, the 12% Senior Notes are presented in the
accompanying financial statements net of original issue discount of $737,000
and $885,000, respectively. Interest is payable semiannually on April 1 and
October 1. The 12% Senior Notes contain covenants which limit indebtedness,
issuance of preferred stock dividends and other restricted payments.

On October 15, 1996 and July 28, 1995, respectively, DeGeorge purchased
$625,000 and $4.9 million, face value, of outstanding 12% Senior Notes. After
write-off of original issue discount and

unamortized bond issuance costs, the Company realized gains of $63,000 and
$925,000, for the years ended December 31, 1996 and 1995, respectively. In
April 1995, the Company retired a secured revolving credit facility with BT
Commercial Corporation (the "BT Facility"), with proceeds from the sale of a
portion of its construction loans to a mortgage financing company. The BT
Facility provided a revolving line of credit of the lesser of a borrowing
base or $40 million at an interest rate equal to prime rate plus 1 1/2%. The
early retirement of the BT Facility resulted in the accelerated write-off of
remaining deferred debt issuance costs of $928,000. The extraordinary gain
on the purchase of the Senior Notes and the extraordinary loss on the
termination of the BT Facility have been included in other (income) expense
for the year ended December 31, 1995.

In July 1994, DeGeorge refinanced its corporate facilities in Plymouth,
Minnesota by issuing Senior Secured Bonds in the principal amount of $2.6
million. On February 7, 1996, DeGeorge sold its Plymouth facility for $4.2
million. The sales agreement provided for an initial cash payment by the buyer
of $500,000 with subsequent payments of $2.6 million on July 1, 1996, $350,000
on October 1, 1996 and $750,000 on July 1, 1997. The proceeds received through
July 1996 were substituted as collateral in place of the real property and
deposited to the Senior bond collateral fund which secures the Senior Secured
Bonds, the balance of which was $3.0 million at December 31, 1996.

In March 1994, the Company received an $800,000 loan from the State of
Connecticut, Department of Economic Development for partial financing toward
the construction of its corporate office in Cheshire, Connecticut. Under the
terms of the loan, interest accrued to principal for two years. Beginning in
April 1996, the Company commenced monthly principal and interest payments. The
remaining unpaid principal balance will be due and payable in March 2001.

NOTE 12 - CAPITAL LEASE OBLIGATIONS:

DeGeorge is party to a capital lease for the Owatonna, Minnesota
distribution facility. Accrued interest payments at 7.25% are payable each
June 1 and December 1, with annual principal payments of $115,000 each December
1, through 2002, with a final payment of $120,000 payable on December 1, 2003.
Title to the property passes to DeGeorge at the end of the lease term.
DeGeorge is responsible for all taxes and insurance.

The Company also is liable for capital lease obligations for computer
hardware and software installed at DeGeorge and Patwil Homes facilities.
Interest is payable monthly at 9.0% and 11.7% per annum on the equipment and
software. Title to the equipment and software passes to the Company at the end
of the lease terms.

Obligations due under the terms of these capital leases are payable as
follows (in thousands):

CAPITAL LEASE
YEAR ENDED DECEMBER 31, OBLIGATIONS
----------------------- -------------
1997 $ 322
1998 165
1999 157
2000 149
2001 140
Thereafter 262
------
Total 1,195
Less: amount representing interest (270)
------
Net capital lease obligations $ 925
------
------

NOTE 13 - COMMITMENTS AND CONTINGENCIES:

DeGeorge and Patwil Homes have entered into several non-cancelable
operating lease commitments for sales offices, distribution facilities,
transportation equipment and computer equipment. The total operating lease
expense during the year ended December 1996, 1995 and 1994, was $2.2 million,
$2.3 million and $1.8 million, respectively. Future minimum lease
obligations are as follows (in thousands):

MINIMUM
YEAR ENDED DECEMBER 31, LEASE OBLIGATIONS
----------------------- -----------------
1997 $1,267
1998 1,060
1999 765
2000 74
2001 22
Thereafter -
------
$3,188
------
------

In addition to the above minimum lease obligations, the Company is
committed to a lease with a related party. The lease provides for the
operating costs of the property, plus the cost of any repairs or capital
improvements, through the 15 year lease term. The annual operating costs for
1996, 1995 and 1994 were $216,000, $236,000 and $241,000, respectively.

DeGeorge and Patwil Homes have been named as defendants in various legal
actions in which various amounts are claimed arising from normal business
activities. Although the amount of any ultimate liability with respect to
such matters cannot be precisely determined, management does not believe that
any such liability will have a material effect on the Company's financial
position or results of operations.

On July 28, 1995, the Company received a subpoena from the SEC
investigating the Company's disclosures concerning certain related party
transactions and certain of the Company's accounting practices. The subpoena
sought production of documents relating to transactions between the Company
and its directors, officers, its major stockholder, BNC, and other related
entities. BNC, its formerly wholly-owned subsidiary Star Services and others
also received subpoenas. The Company has cooperated with the SEC, and has
collected and produced documents in response to the subpoena. The Company
had previously produced documents to the SEC in response to earlier requests
from the SEC for voluntary production in connection with an informal inquiry.
Depositions of certain officers, employees and former employees of the
Company have been taken. The Company received oral notice that the staff of
the SEC was prepared to recommend charges against the Company and certain
officers and directors of the Company concerning certain documents filed with
the SEC which relate to fiscal 1994 and prior years. The Company is in the
process of discussing these proposed charges with the SEC staff. Although
the Company cannot predict the eventual outcome of these discussions, the
Company believes that it is close to reaching agreement with the SEC staff on
a settlement of these charges. Any agreement reached with the SEC staff
would then require the formal approval of the SEC.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 14 - STOCKHOLDERS' EQUITY:

On December 12, 1994, the Board of Directors and the Stock Option
Committee of the Board of Directors approved a restricted stock award of
rights to purchase 340,000 shares of Common Stock at its par value ($.10).
In connection with the exercise of the rights, Herbert L. Getzler, then Vice
Chairman and President of the Company, and James G. Einloth, currently a
Director and Vice President of the Company, issued notes to DeGeorge totaling
$261,000. The notes bore interest at 10% per annum and were secured by a
pledge of the shares of Common Stock acquired therewith. During 1994, the
Company issued 33,333 restricted shares, in accordance with a vesting
schedule which provided for the issuance of 100,000 restricted shares, per a
letter employment agreement with an executive officer of the Company. The
issuance was later rescinded and the shares were returned to the Company.

Holders of Common Stock are entitled to one vote per common share on all
matters submitted to a vote of stockholders and approval of matters brought
before the stockholders requires the affirmative vote of a majority of shares
represented and entitled to vote, except as required by law. Holders of
Common Stock are entitled to participate in dividends, as and when declared
by the Company's Board of Directors.

There are currently 830,000 warrants outstanding to purchase Common
Stock at prices varying from $5.49 to $6.42 expiring April 1, 1997.

NOTE 15 - RESTRUCTURING EXPENSE:

During 1996, the Company completed its restructuring and relocation of
operations. From 1994 to 1996, the Company re-engineered its systems and
operations, revised its sales plans and marketing strategies, relocated its
operations from Minnesota to Connecticut and shut down the operations of
Patwil Homes. At December 31, 1995 and 1994, the Company had recorded
restructuring expenses of $1.4 million and $900,000, respectively, in
connection with formal plans then implemented. During the year ended
December 31, 1996, the Company incurred compensation, transition and
facilities costs in excess of amounts previously estimated, primarily due to
its delayed occupation of its new corporate facility in Cheshire and its
decision to extend the employment of former Minnesota personnel, whose
continued services provided support and training to new personnel during and
after the transfer of operations, which enabled the Company to simultaneously
and successfully fulfill the 26.5% increase in shipments of standard orders
in 1996. By December 31, 1996, all redundant costs for multiple facilities
and excess personnel were eliminated.

During 1994, the Company recorded $900,000 of restructuring expense of
which $800,000 was for costs associated with the replacement of inefficient and
outdated computer software. The remaining costs consisted primarily of
employee severance costs and related benefits.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 16 - RELATED PARTY TRANSACTIONS:

DeGeorge formerly leased office space to an affiliate. The affiliate,
whose operations are winding down, was provided minimal services for which
there were no charges in the years ended December 31, 1996 and 1995. During
1994, the affiliate was charged $33,000 for the rental of office space,
$413,000 for the use of certain personnel of the Company and $33,000 for
computer, telephone and related services.

The Company and an affiliate have, and continue to, sponsor certain
amateur athletes (some of whom are or were employees of the Company or its
subsidiaries) who compete in biathlon or triathlon events by reimbursing
travel and equipment expenses. These athletes wear DeGeorge's logos and this
sponsorship is a promotional venture for the Company. Mr. DeGeorge and his
former spouse also competed in some races and received nominal reimbursement
for equipment and entrance fees. Payments to the racing team for sponsorship
expenses total $79,600, $39,600 and $250,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

The Company also paid approximately $83,000, $22,000 and $124,000 of
expenses during the years ended December 31, 1996, 1995 and 1994,
respectively, on behalf of DeGeorge Sports, Inc. ("Sports"), a subsidiary of
the Company which was formerly owned by an affiliate of the Company.

During 1994, DeGeorge advanced an affiliate $11,000 for payment of
various expenses. The amount remained outstanding at December 31, 1994, and
was repaid in 1995.

During 1994, Mr. DeGeorge advanced Patwil Homes $3,400,000 to pay the
demand note payable to Dauphin Deposit Bank and Trust Company. This advance,
plus accrued interest was repaid with the proceeds from the 12% Senior Notes
offering.

On May 9, 1994, DeGeorge purchased a condominium in Cheshire, Connecticut
that was subsequently transferred to the Company. Total capitalized costs
including purchase price, real estate commissions, furniture and capital
improvements totaled $405,000. The Company rented the property to Mr. DeGeorge
for $2,500 per month or a total of $20,000 for the period January to August
1996 (at which time he ceased occupying this property), $30,000 for 1995 and
$17,500 for the period June to December 1994. Taxes and utilities on this
property are paid by the Company. This property is currently occupied by a
caretaker, who is caring for the property in exchange for below market rent
until the local real estate market improves at which time the property will be
listed for sale.

During 1992, DeGeorge entered into a "split-dollar" life insurance
agreement with Mr. DeGeorge and a trust established by him, pursuant to which
DeGeorge assists in purchasing a survivorship insurance policy on the lives of
Mr. DeGeorge and his former spouse in the amount of $21.8 million. The owner
and beneficiary of the policy is a trust, of which Mr. DeGeorge's descendants
are beneficiaries. The trust reimburses DeGeorge for a minor portion of the
premiums on such policy. Upon demand, DeGeorge is entitled to receive the
lesser of (a) the cash surrender value of the policy at such time, or (b) the
total of

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

premiums theretofore paid on the policy by DeGeorge. In the event of the
death of the survivor of Mr. DeGeorge and his former spouse while the
agreement is in effect, DeGeorge will be entitled to receive from the policy
proceeds an amount equal to the premiums paid by DeGeorge, reduced by any
other amounts previously received by DeGeorge under the agreement. The
balance of the proceeds will be paid to the trust, which will use such
proceeds to purchase shares of common stock of an affiliate held by the
estate of the survivor of Mr. DeGeorge and his former spouse. Annual
premiums of $145,000 were paid during 1996, 1995 and 1994. Cash value of
$690,000 and $513,000 is included in prepaid expenses and other assets as of
December 31, 1996 and 1995, respectively.

On April 11, 1996, Mr. Getzler borrowed $608,000 from the Company. This
amount was used (i) to repay $154,000 borrowed from the Company by Mr. Getzler
on December 30, 1994 to pay taxes on restricted Common Stock of the Company
purchased by him on December 24, 1994 at a discount plus interest of $20,000 on
that amount, (ii) to repay a loan by the Company to Mr. Getzler of $160,000
made on January 3, 1995 to meet margin calls on his Common Stock plus interest
on that amount of $20,000, and (iii) to repay a loan from Mr. DeGeorge to Mr.
Getzler of $200,000 made on December 3, 1992 plus interest on that amount at 7%
per annum totaling $52,000.

Also, on April 11, 1996, James G. Einloth, currently a Director and Vice
President of the Company, borrowed $309,000 from the Company. This amount was
used (i) to repay $106,000 borrowed from the Company by Mr. Einloth on December
30, 1994, to pay taxes on restricted Common Stock of the Company purchased by
him on December 23, 1994 at a discount plus interest of $14,000 on that amount,
and (ii) to repay a loan from Mr. DeGeorge to Mr. Einloth of $150,000 made on
December 2, 1992, plus interest on that amount at 7% per annum totaling
$39,000.
The 1996 loan to Mr. Einloth described above will be secured by 154,727
shares of Common Stock. It is evidenced by a demand note which bears interest
at a rate of 10% per annum. Interest accrues and is payable on the date the
outstanding principal balance is paid. Mr. Einloth's note is non-recourse to
him, except for the stock to be pledged as security. There is no prepayment
penalty on this note.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 17 - EMPLOYEE BENEFIT PLANS:

The Company has a defined contribution profit sharing plan covering
substantially all employees. Under the plan, participants may contribute
between 1% and 15% of their "recognized compensation" (generally, pre-tax
compensation) subject to certain Federal annual limits. The Company also
makes matching contributions of 20-50% based on the participant's
contribution percentage. All participant and employer contributions vest
immediately. Amounts expended for this plan totaled $420,000, $464,000 and
$405,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

NOTE 18 - STOCK OPTION PLAN:

Under the DeGeorge Financial Corporation 1994 Stock Option and Restricted
Stock Purchase Plan (the "Plan"), a total of 1,810,000 shares of Common Stock
may be distributed upon the exercise of stock options and the award of rights
to purchase Common Stock. Under the Plan, key employees may be granted
incentive stock options and non-qualified stock options to purchase shares of
DeGeorge Financial Corporation Common Stock. The exercise prices of the
incentive stock options are not less than the fair market value of the stock on
the date of the option grant. The exercise price of the non-qualified options
are fixed by the Company's Compensation Committee. The Plan also provides for
the granting of restricted stock awards to key employees. Information related
to outstanding options is summarized as follows:

NUMBER EXERCISE
OF OPTIONS PRICE ($)
---------- ----------
Outstanding at December 31, 1994 180,000 2.00-3.50
Granted 977,000 1.00
Surrendered (18,900) 3.50
---------
Outstanding at December 31, 1995 1,138,100 1.00-3.50
Granted 1,276,550 1.25-1.625
Surrendered (679,630) 1.00
Canceled (329,120) 1.00-1.625
---------
Outstanding at December 31, 1996 1,405,900 1.00-3.50
---------
---------

Options generally vest over three years and certain options are subject to
the Company attaining financial results as defined in the option agreements.
At December 31, 1996, options for the purchase of 175,900 shares are
exercisable.

The Company applies APB Opinion 25, "Accounting for Stock issued to
Employees," and related interpretations in accounting for its Plans. No
compensation cost has been recognized for its stock option plans.

The following table summarizes information about stock options outstanding
at December 31, 1996:

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
EXERCISE AVERAGE AVERAGE
PRICE SHARES PRICE TERM SHARES PRICE
- -------- --------- ------- ---------- ------ -------
$1.00 40,000 $1.00 6.5 years 40,000 $1.00
$1.25 75,000 $1.25 9.92 years - -
$1.50 1,155,000 $1.50 9.79 years - -

Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant date for awards under
the Plan consistent with the requirements of FAS 123, "Accounting for
Stock-Based Compensation," the Company's net income (loss) and earnings per
share would have been reduced (increased) to the pro forma amounts indicated
below.

IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
-------------------------------------- ------ --------
Net income (loss) As Reported $1,177 $(27,673)

Pro forma 1,095 (27,673)

Earnings (loss) per share As reported 0.11 (2.56)
Pro forma 0.10 (2.56)

The fair value of each stock option grant has been estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

1996 1995
---- ----
Risk-free interest rate 6.72% 5.91%
Expected life 10 years 7.5 years
Expected volatility 133.51% 153.34%

The weighted-average grant date fair values of options granted during
1996 and 1995 were $1.45 and $1.33, respectively.

NOTE 19 - CONSOLIDATED STATEMENTS OF CASH FLOWS:

Changes in other operating assets and liabilities summarized in the
Consolidated Statements of Cash Flows are as follows (in thousands):

DECEMBER 31,
-----------------------------------------
Decrease (increase) in: 1996 1995 1994
---------- --------- ----------

Notes receivable $(138,969) $(76,167) $(15,929)
Receivable from related parties (581) (194) (1,312)
Inventory (864) (3,398) (1,638)
Prepaid expenses and other assets (170) (143) (1,886)
Deposits (10,605) (8,412) (232)
Mortgage servicing rights (13,557) (7,216) -
Senior Bond collateral fund (3,008) - -
Real estate owned (3,633) 335 637
Deferred income taxes (336) 1,049 (269)
--------- ------- --------
Total decrease (increase) in other operating assets $(171,723) $(94,146) $(20,629)
--------- ------- --------

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

DECEMBER 31,
-----------------------------------------
Increase (decrease) in: 1996 1995 1994
---------- --------- ----------

Accounts payable and accrued expenses $ (4,829) $ 5,273 $ (4,738)
Accrued construction costs and unearned revenue
on sold notes receivable 14,744 14,113 -
Customer deposits (36) - 388
Payable to related parties - (6,336) (10,222)
Income taxes payable - - (609)
--------- -------- --------
Total increase (decrease) in other operating assets $ 9,879 $13,050 $(15,181)
--------- -------- --------
--------- -------- --------
Supplemental disclosures of cash flow information:
Interest paid $ 5,768 $ 6,962 $6,107
Income taxes paid (refunded), net (740) (549) 2,057

NOTE 20 - DISCONTINUED OPERATIONS:

During 1996, the Company essentially completed the phase out of operations
for its Patwil Homes subsidiary. Contracts for the construction of customers'
homes were substantially performed during the year and assets of discontinued
operations were reduced, through liquidation, by $5.1 million, to $2.5 million
at December 31, 1996. Net income from discontinued operations was $350,000 for
1996.

On November 27, 1995, the Company formally announced its intent to phase
out and close down the operations of its Patwil Homes subsidiary and all
selling and marketing activities ceased at that time. As a result of the
Company's decision to discontinue the operations of Patwil Homes, the Company
recorded at December 31, 1995 an estimated loss on disposal of $8.2 million,
which included a provision of $1.7 million for losses during the phase-out
period, the write-off of $5.7 million of goodwill and deferred costs, $600,000
relating to the write-down of fixed assets (to net realizable value) and
$200,000 of accrued severance wages and benefits For the year ended December
31, 1994, losses from discontinued operations included $2.6 million of
restructuring costs pertaining to a formal restructuring plan implemented in
1994 which was designed to improve productivity and reduce operating costs.
These costs primarily reflect the write-down of $2.1 million relating to the
revaluation of model homes and the closing of unprofitable branches and
$500,000 for other operational changes.

The results of Patwil Homes have been classified as discontinued
operations for all periods presented in the Consolidated Statements of
Operations. The assets of Patwil Homes have been classified as assets of
discontinued operations in the Consolidated Balance Sheets as of December 31,
1996 and 1995. Additionally, discontinued operations have been segregated in
the Consolidated Statements of Cash Flows for all periods.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Summarized below is the assets of discontinued operations at December 31,
1996 and 1995 (in thousands):

1996 1995
------ -------
Cash $ 695 $ (486)
Notes Receivable 182 147
Inventory 357 798
Prepaid expenses 29 152
Deposits 95 59
Costs of uncompleted contacts in excess of
related billings 348 3,434
Assets held for sale, net 843 3,559
------ -------
Assets of discontinued operations $2,549 $7,663
------ -------
------ -------

Condensed income (loss) from operations, net of tax, of Patwil Homes for
the years ended December 31, 1996, 1995 and 1994, is as follows (in
thousands):

DECEMBER 31,
-----------------------------
1996 1995 1994
------ ------- --------
Net revenues $5,655 $35,814 $ 65,955
Cost of sales (5,177) (31,748) (54,735)
Selling, general and administrative expenses (228) (11,102) (17,432)
Income tax (provision) benefit 100 (1,376) 1,158
------ ------- --------
Discontinued operations - income (loss) $ 350 $(8,412) $(5,054)
------ ------- --------
------ ------- --------

NOTE 21 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value because of the short-term
maturity of these instruments.

NOTES RECEIVABLE

The carrying amount approximates fair value due to allowances for credit
losses, sales promotions and incentives. In addition, DeGeorge has entered
into a Construction Loan Purchase and Servicing Agreement whereby notes are
sold, on an ongoing basis, to a mortgage servicing company at their face
value.

12% SENIOR NOTES

The fair value of the 12% Senior Notes presented in the financial
statements, net of issue discount, is based on broker estimated repurchase
values at December 31, 1996 and 1995.

DEGEORGE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTES PAYABLE

The carrying value of notes payable approximates its fair value.

The carrying amounts and fair values of the Company's financial
instruments are as follows (in thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------ ------- ------
Cash and cash equivalents $ 3,737 $ 3,737 $ 2,838 $ 2,838
Notes receivable, net 26,726 26,726 35,074 35,074
12% senior notes 43,738 36,303 44,215 33,161
Notes payable 3,527 3,527 3,634 3,634

NOTE 22--SUBSEQUENT EVENTS:

In March 1997, the Company amended the tangible net worth covenant in the
Construction Loan Agreement to reflect the Company's present and anticipated
financial condition. The amendment revised the Covenant for all periods
retroactive to the date of the Construction Loan Agreement. Had the revised
Covenant been in force throughout the term of the Construction Loan Agreement
(since its inception on April 14, 1995), a violation of the Covenant would
never have occurred. The Company is currently in compliance with the revised
Covenant.

Mr. Getzler resigned as a director of the Company in March 1997. In
connection with his resignation, he relinquished his existing stock options
in exchange for a fully vested 10 year option to acquire 50,000 shares of
Common Stock at an exercise price of $1.50 per share. Also, in connection
with his resignation, Mr. Getzler executed a modified promissory note for
$662,000 as of February 19, 1997, which represents the amount borrowed on
April 11, 1996, as previously disclosed, plus interest accrued to February
19, 1997. The modified promissory note, instead of being a demand note, has
a maturity date of February 19, 2000, but becomes a demand note if and when
the Common Stock closes on NASDAQ on any other exchange on which it is then
traded at a price of $5.00 per share or more on any five consecutive trading
days after the date of such note. The note continues to bear interest at a
rate of 10% per annum and remains secured by 303,752 shares of Common Stock.
Interest accrues and is payable on the date the outstanding principal balance
is paid. This note is non-recourse to Mr. Getzler, except for the stock
pledged as security. There is no prepayment penalty on the note.

On January 12, 1997, the Company entered into a contractual agreement,
with an anticipated March 31, 1997 closing, to sell its owned distribution
facility in Owatonna, Minnesota for $1.1 million in cash, part of which will be
used to retire a capital lease with an outstanding principal balance of
$810,000. The sale closing is scheduled to occur on March 31, 1997. The sale
of its distribution facilities is consistent with the Company's strategy of
expanding its product marketing areas with a goal of local product fulfillment
in the customer's locality rather than through distribution facilities.

This approach is expected to provide for a more cost effective method of
product fulfillment, better staging and delivery of building materials to
customers and an economically viable way of meeting the current demand for
its product beyond the geographic areas serviced by its distribution centers.

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE
- ----------- ---------------------- ---------------
10.38 First Amendment to Construction Loan 72
Purchase and Servicing Agreement

11.1 Statement Regarding Computation of Per 75
Share Earnings

22 Subsidiaries of the Company 76

25 Powers of Attorney 77