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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


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

                  For the quarterly period ended June 30, 2000

                         Commission file number: 0-30162

                             FRONTLINE CAPITAL GROUP
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                   <C>
Delaware                                                                                          11-3383642
--------                                                                                          ----------
(State other jurisdiction of incorporation of organization)            (IRS. Employer Identification Number)

1350 Avenue of the Americas, New York, NY                                                              10019
-----------------------------------------                                                              -----
(Address of principal executive office)                                                           (zip code)
</TABLE>


                                 (212) 931-8000
               (Registrant's telephone number including area code)

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

     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)  Yes X No __, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___.


This  company has only one class of common  stock,  issued at $.01 par value per
share with 36,154,524 shares outstanding as of August 8, 2000.



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




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<PAGE>




                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                                QUARTERLY REPORT
                    FOR THE THREE MONTHS ENDED JUNE 30, 2000

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
INDEX                                                                                                  PAGE
------------------------------------------------------------------------------------------------------------------
PART I.  FINANCIAL INFORMATION
------------------------------------------------------------------------------------------------------------------
<S>              <C>                                                                                 <C>
Item 1.           Financial Statements

                  Consolidated  Balance Sheets of FrontLine  Capital Group and  Subsidiaries
                  as of June 30, 2000 (unaudited) and December 31, 1999.....................             3


                  Consolidated Statements of Operations of FrontLine Capital Group and
                  Subsidiaries for the three and six months ended June 30, 2000 and 1999
                  (unaudited)...............................................................             4


                  Consolidated  Statements  of Cash Flows of  FrontLine  Capital
                  Group and  Subsidiaries for the six months ended June 30, 2000
                  and 1999 (unaudited)......................................................             5

                  Notes to the Consolidated Financial Statements of FrontLine Capital Group
                  and Subsidiaries (unaudited)..............................................             6

Item 2.           Management's Discussion and Analysis of Financial Condition and Results of
                  Operations................................................................            21

Item 3.           Quantitative and Qualitative Disclosures about Market Risk................            33
------------------------------------------------------------------------------------------------------------------
PART II. OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------
Item 1.           Legal Proceedings.........................................................            34
Item 2.           Changes in Securities and Use of Proceeds.................................            34
Item 3.           Defaults Upon Senior Securities...........................................            34
Item 4.           Submission of Matters to a Vote of Securities Holders.....................            34
Item 5.           Other Information.........................................................            35
Item 6.           Exhibits and reports on Form 8-K..........................................            35
------------------------------------------------------------------------------------------------------------------
SIGNATURES                                                                                              36
------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       2


<PAGE>

PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                          JUNE 30, 2000      DECEMBER 31, 1999
                                                                                         ---------------     -----------------
                                                                                           (UNAUDITED)
<S>                                                                                      <C>                <C>
ASSETS:
Current Assets:
Cash and cash equivalents..........................................................              $25,239             $32,740
Restricted cash....................................................................                7,525              21,572
Accounts receivable, net of allowance for doubtful accounts of
$2,949 at June 30, 2000 and $861 at December 31, 1999..............................               22,970               8,426
Other current assets...............................................................               19,616              16,008
                                                                                         ----------------    ----------------
    TOTAL CURRENT ASSETS...........................................................               75,350              78,746

Ownership interests in and advances to unconsolidated companies....................               99,962              97,833
Intangible assets, net.............................................................              676,457             239,412
Property and equipment, net........................................................              210,871              80,425
Deferred financing costs, net......................................................               44,300                  --
Other assets, net..................................................................               65,360              45,567
                                                                                         ----------------    ----------------
    TOTAL  ASSETS..................................................................           $1,172,300            $541,983
                                                                                         ================    ================

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses..............................................              $51,924            $ 45,852
Current portion of Senior secured debt.............................................               35,475              12,500
Deferred rent payable .............................................................                4,654               2,165
Other current liabilities..........................................................                2,729               1,139
                                                                                         ----------------    ----------------
     Total Current Liabilities.....................................................               94,782              61,656

Credit facilities with related parties.............................................              131,243             121,848
Senior secured debt................................................................              204,025              44,407
Subordinated notes payable.........................................................              125,000             108,125
Deferred rent payable .............................................................               29,845              22,794
Other liabilities..................................................................               75,920              33,706
                                                                                         ----------------    ----------------
     Total Liabilities.............................................................              660,815             392,536
                                                                                         ----------------    ----------------

Minority Interest..................................................................              276,329              35,338

Commitments and Contingencies .....................................................
Shareholders' Equity:
8.875% Cumulative convertible preferred stock, $.01 par value,
25,000,000 shares authorized, 26,000 and 0 issued and outstanding
at June 30, 2000 and December 31, 1999, respectively..............................                    --                  --
Common stock, $.01 par value, 100,000,000 shares authorized,
36,094,529 and 30,672,794 shares issued and outstanding, at
June 30, 2000 and December 31,1999, respectively...................................                  360                 307

Additional paid in capital.........................................................              390,185             162,054
Accumulated  deficit...............................................................             (155,389)            (48,252)
                                                                                         ----------------    ----------------
    TOTAL SHAREHOLDERS' EQUITY.....................................................              235,156             114,109
                                                                                         ----------------    ----------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.....................................           $1,172,300            $541,983
                                                                                         ================    ================
</TABLE>

          (See accompanying notes to consolidated financial statements)


                                       3

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS     THREE MONTHS       SIX MONTHS       SIX MONTHS
                                                                ENDED            ENDED             ENDED            ENDED
                                                            JUNE 30, 2000    JUNE 30, 1999     JUNE 30, 2000    JUNE 30, 1999
                                                           --------------    --------------    --------------    -------------
<S>                                                              <C>               <C>               <C>              <C>
Operating Revenues:
Executive office suite income........................            $58,085           $30,572           $94,156          $57,637
Support services and other...........................             40,696            22,100            67,198           41,893
                                                           --------------    --------------    --------------    -------------
     TOTAL OPERATING REVENUES........................             98,781            52,672           161,354           99,530
                                                           --------------    --------------    --------------    -------------

OPERATING EXPENSES:
Cost of revenue......................................             69,092            42,496           118,871           79,683
Partner Company general and administrative expenses..             10,119             2,627            17,286            5,189
                                                           --------------    --------------    --------------    -------------
     TOTAL OPERATING EXPENSES........................             79,211            45,123           136,157           84,872
                                                           --------------    --------------    --------------    -------------
     PARTNER COMPANY OPERATING INCOME................             19,570             7,549            25,197           14,658

PARTNER COMPANY OTHER INCOME (EXPENSES):
Development stage Partner Company....................             (2,143)               --            (3,706)              --
Merger and integration costs.........................            (18,615)             (641)          (19,441)          (1,385)
Depreciation and amortization........................             (9,975)           (3,269)          (16,194)          (6,085)
Interest expense, net ...............................             (6,845)           (2,340)          (10,227)          (4,245)
                                                           --------------    --------------    --------------    -------------

PARTNER COMPANY INCOME (LOSS)........................            (18,008)            1,299           (24,371)           2,943

CORPORATE INCOME (EXPENSES):
General and administrative expenses..................             (5,705)           (7,373)           (9,939)          (8,265)
New hire expenses....................................               (294)             (348)           (1,032)            (348)
Depreciation and amortization........................               (356)              (27)             (399)             (35)
Amortization of deferred charges.....................             (3,878)               --            (5,530)              --
Interest  expense, net ..............................             (3,388)           (1,006)          (10,009)          (1,774)
                                                           --------------    --------------    --------------    -------------

LOSS BEFORE PROVISION FOR INCOME TAXES, MINORITY
INTEREST, EQUITY IN LOSS OF UNCONSOLIDATED
COMPANIES, EXTRAORDINARY LOSS AND DISTRIBUTION TO                (31,629)           (7,455)          (51,280)          (7,479)
PREFERRED SHAREHOLDER................................

Provision for income taxes...........................               (280)             (581)             (470)          (1,331)
Minority interest....................................                196              (407)            1,098             (957)
Equity in loss of unconsolidated companies ..........            (34,536)           (1,393)          (52,914)          (2,024)
                                                           --------------    --------------    --------------    -------------

LOSS BEFORE EXTRAORDINARY LOSS AND DISTRIBUTION TO
PREFERRED SHAREHOLDER................................            (66,249)           (9,836)         (103,566)         (11,791)

Extraordinary loss on extinguishment of debt ........                 --                --            (2,648)              --
                                                           --------------    --------------    --------------    -------------

NET LOSS BEFORE DISTRIBUTION TO PREFERRED SHAREHOLDER            (66,249)           (9,836)         (106,214)         (11,791)

Distribution to Preferred Shareholder................               (577)               --              (923)              --
                                                           --------------    --------------    --------------    -------------

NET LOSS  APPLICABLE TO COMMON SHAREHOLDERS..........           $(66,826)          $(9,836)        $(107,137)        $(11,791)
                                                           ==============    ==============    ==============    =============
BASIC AND DILUTED NET LOSS PER WEIGHTED AVERAGE
COMMON SHARE.........................................             $(1.92)           $(0.40)           $(3.22)          $(0.48)
                                                           ==============    ==============    ==============    =============
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING..........................................         34,889,374        24,712,383        33,300,693       24,699,285
                                                           ==============    ==============    ==============    =============
</TABLE>
          (See accompanying notes to consolidated financial statements)

                                       4

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           SIX MONTHS            SIX MONTHS
                                                                                              ENDED                 ENDED
                                                                                          JUNE 30, 2000         JUNE 30,1999
                                                                                         ----------------     ---------------
<S>                                                                                     <C>                  <C>
CASH  FLOWS FROM OPERATING ACTIVITIES:
Net loss before distribution to Preferred Shareholder                                         $(106,214)         $  (11,791)
Adjustments to reconcile net loss before distribution to Preferred Shareholder to
net cash provided by (used in) operating activities:
     Depreciation  and amortization ................................................             16,593               6,387
     Extraordinary loss on early extinguishment of debt.............................              2,648                  --
     Equity in loss of unconsolidated companies.....................................             52,914               2,024
     Minority interest..............................................................             (1,098)                957
     Provision for income taxes.....................................................                470               1,331
     Non-cash compensation..........................................................              5,530               3,720
Changes in operating assets and liabilities:
     Accounts receivable, net.......................................................             (6,862)             (1,027)
     Acquisition costs and other assets.............................................             (2,366)               (639)
     Deferred rent payable..........................................................              3,012               2,470
     Accounts payable and accrued expenses..........................................            (20,949)              3,990
     Other liabilities..............................................................              4,681               2,523
     Affiliate receivables..........................................................               (268)              7,445
                                                                                         ----------------     ---------------
Net cash provided by (used in) operating activities.................................            (51,909)             17,390
                                                                                         ----------------     ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisitions of Executive Office Suite Centers.................................           (280,311)            (28,929)
     Equipment......................................................................            (26,717)            (13,507)
     Restricted cash................................................................             23,311               8,747
     Acquisition of ownership interests and advances to unconsolidated companies....            (94,740)            (32,070)
                                                                                         ----------------     ---------------
Net cash used in investing activities...............................................           (378,457)            (65,759)
                                                                                         ----------------     ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Issuance of common stock and warrants, net of costs............................            157,481                  39
     Issuance of preferred stock, net of costs......................................             24,530                  --
     Deferred financing costs.......................................................            (23,774)               (905)
     Net proceeds from credit facilities with related parties.......................              9,395              26,025
     Net proceeds from notes payable................................................             86,758              24,675
     Capital leases.................................................................               (938)             (1,295)
     Exercise of options............................................................                395                  --
     Net proceeds from minority interest............................................            213,425
     Net proceeds from secured credit facility......................................            (44,407)                 --
                                                                                         ----------------     ---------------
     Net cash provided by financing activities......................................            422,865              48,539
                                                                                         ----------------     ---------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease).............................................................            (7,501)                 170
Beginning of period.................................................................            32,740                2,026
                                                                                         ----------------     ---------------
End of period.......................................................................           $25,239           $    2,196
                                                                                         ================     ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the period for interest........................................           $11,393           $    3,194
                                                                                         ================     ===============
    Cash paid during the year for income taxes......................................              $942                   --
                                                                                         ================     ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Contribution of assets from Interoffice Superholdings Corporation and Reckson
Executive Centers, Inc. to predecessor entity.......................................           $    --           $  (21,409)
                                                                                         ================     ===============
</TABLE>

          (See accompanying notes to consolidated financial statements)


                                       5

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


1. DESCRIPTION OF THE COMPANY

FrontLine   Capital  Group   ("FrontLine"   or  the  "Company")  is  building  a
collaborative network of companies that use the Internet and new technologies to
empower  small to medium  size  enterprises  ("SME's"),  entrepreneurs,  and the
mobile  workforce,  the fastest  growing  segment of the new economy.  FrontLine
provides its Partner  Companies  with the  capital,  customer  base,  management
resources,  and relationships  they need for fast-growth and long-term  success.
The Partner  Companies in turn provide small to medium size  business  customers
with the information,  tools and services they need to become more  competitive,
at a price they can afford. In this way, FrontLine achieves its vision along two
parallel tracks:  FrontLine  empowers the entrepreneurs that make up its network
of Partner  Companies,  and empowers the entrepreneurs that make up its customer
base.

The  Company  acquires   significant,   long-term  stakes  in  targeted  Partner
Companies,  which it incorporates into a collaborative network of e-commerce and
e-services  companies,  seeking to accelerate  their growth and increasing their
likelihood  of success.  FrontLine  has  developed  an  extensive  e-Cooperative
platform that allows its Partner  Companies to benefit from its  operational and
management  resources and experience,  the Company's  extensive customer base as
well as gain  significant  synergies  from other  existing  and  future  Partner
Companies. The e-Cooperative consists of the:

o    enterprise  Development  Group  ("eDG") - eDG  offers  strategic  planning,
     project  management  and  functional  expertise in areas of  organizational
     design, recruiting, finance and technology strategy.
o    Advisory  Board - a group  of  recognized  business  and  academic  leaders
     provides  strategic  insight,  expertise,  relationships  and access to new
     opportunities  and  potential  alliances  for the  Company  and its Partner
     Companies.
o    Network of Partner Companies - facilitates learning and collaboration among
     all Partner  Companies and provides access to the customer base,  resources
     and  relationships  of the entire  network.  It also  facilitates  business
     partnerships   among  Partner   Companies,   including   cross-selling  and
     cross-marketing opportunities.
o    Virtual and Physical - Global workplace solutions provider which offers the
     Partner  Companies  the ability to access the virtual and  physical  global
     infrastructure as well as a  distribution  network  to a  customer  base of
     SME's.

The Company's strategy is to continue to expand its network of Partner Companies
and  its  e-Cooperative  platform  by  pursuing  additional   acquisitions  that
complement and enhance the overall  network.  FrontLine seeks to add significant
value to its Partner  Companies with the goal of creating  industry leaders that
have the potential to become public companies,  act as industry consolidators or
merge  with  the  proper  strategic  partners.  FrontLine  targets  early  stage
companies that can benefit from FrontLine's  entire franchise and therefore have
the potential to create significant value for FrontLine.

FrontLine  seeks to focus its  future  acquisitions  in the  Internet  sector by
targeting three types of e-commerce and e-services companies:

o    e-commerce and  infrastructure:  companies that primarily deliver or enable
     the delivery of goods and services over the Internet;
o    Virtual brick and mortar:  companies that combine a physical infrastructure
     with an Internet  enable model to enhance the  delivery of their  services;
     and
o    Internet-based  outsourcing:  companies that utilize the Internet to enable
     the outsourcing of non-core business functions.

Although the Company  refers to the companies in which it has acquired an equity
and  cost  ownership  interest  as its  "Partner  Companies"  and  that it has a
"partnership"  with  these  companies,  it does  not act as an  agent  or  legal
representative  for any of  these  companies,  it does  not  have  the  power or
authority to legally bind any of its Partner  Companies and it does not have the
types of liabilities in relation to its Partner Companies that a general partner
of a partnership would have.


                                       6

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  present the consolidated
financial position of the Company and its majority owned subsidiaries, HQ Global
Holdings, Inc. ("HQ Global") and Confidant Inc.  ("Confidant"),  and the results
of their operations and their cash flows. All significant  intercompany balances
and transactions have been eliminated in the consolidated financial statements.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating results for the three and six month periods ended June
30, 2000, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000.

The  balance  sheet at  December  31,  1999 has been  derived  from the  audited
financial  statements  at that date but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements.

For further  information,  refer to the  consolidated  financial  statements and
footnotes  thereto  included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.

ACCOUNTING  FOR OWNERSHIP  INTERESTS IN PARTNER  COMPANIES  AND OTHER  OWNERSHIP
INTEREST

The  interests  that  FrontLine  acquires  in its  Partner  Companies  and other
ownership interest are accounted for under one of three methods:  consolidation,
equity method and cost method.  The  applicable  accounting  method is generally
determined  based on the  Company's  voting  interest  and  rights  in a Partner
Company.

Consolidation.  Partner  Companies in which the Company  directly or  indirectly
owns more than 50% of the outstanding voting securities are generally  accounted
for under the consolidation  method of accounting.  Under this method, a Partner
Company's results of operations are reflected within the Company's  Consolidated
Statements  of   Operations.   All   significant   inter-company   accounts  and
transactions  have  been  eliminated.  Participation  of other  Partner  Company
shareholders  in the earnings or losses of a  consolidated  Partner  Company are
reflected  in the caption  "Minority  interest"  in the  Company's  Consolidated
Statements of Operations.  Minority interest adjusts the Company's  consolidated
results of  operations  to reflect only the  Company's  share of the earnings or
losses of the consolidated Partner Company.


                                       7

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Equity Method. Partner Companies and other ownership interests whose results are
not consolidated, but over whom the Company exercises significant influence, are
accounted for under the equity method of accounting.  Whether or not the Company
exercises  significant  influence  with  respect  to a Partner  Company or other
ownership interest depends on an evaluation of several factors including,  among
others,  representation on the Partner  Company's or other ownership  interest's
Board of Directors and ownership level, which is generally a 20% to 50% interest
in the voting  securities of the Partner Company and other ownership  interests,
including  voting  rights  associated  with the  Company's  holdings  in common,
preferred and any other convertible instruments in the Partner Company and other
ownership interests.  Under the equity method of accounting, a Partner Company's
or other ownership  interest's  accounts are not reflected  within the Company's
Consolidated  Statements  of  Operations;  however,  FrontLine's  share  of  the
earnings  or  losses of the  Partner  Company  or other  ownership  interest  is
reflected in the caption  "Equity in loss of  unconsolidated  companies"  in the
Consolidated Statements of Operations.

The  amount by which  the  Company's  carrying  value  exceeds  its share of the
underlying  net  assets  of  unconsolidated  companies  accounted  for under the
consolidation  or equity method of  accounting  is amortized on a  straight-line
basis over 20 years which  adjusts  the  Company's  share of the  unconsolidated
companies' earnings or losses.

Cost Method.  Partner Companies not accounted for under the consolidation or the
equity  method  of  accounting  are  accounted  for  under  the cost  method  of
accounting.  Under this method, the Company's share of the earnings or losses of
such companies is not included in the Consolidated Statements of Operations. The
Company also  recognizes  income from dividends on  distributed  earnings of its
Partner Companies. However, cost method impairment charges are recognized in the
Consolidated  Statement of Operations  with the new cost basis not written-up if
circumstances  suggest  that the value of the Partner  Company has  subsequently
recovered.

The  Company  records  its  ownership  interest  in debt  securities  of Partner
Companies  accounted for under the cost method at cost as it has the ability and
intent  to hold  these  securities  until  maturity.  The  Company  records  its
ownership  interests in equity  securities  of Partner  Companies  accounted for
under the cost method at cost, unless these securities have readily determinable
fair values based on quoted market prices,  in which case these  interests would
be classified as  available-for-sale  securities or some other classification in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".  In addition
to  the  Company's   investments  in  voting  and  non-voting  equity  and  debt
securities,  it also periodically makes advances to its Partner Companies in the
form of promissory  notes which are  accounted  for in accordance  with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan".

The Company continually  evaluates the carrying value of its ownership interests
in and advances to each of its Partner  Companies for possible  impairment based
on achievement of business plan  objectives  and  milestones,  the value of each
ownership  interest in the Partner  Company  relative  to  carrying  value,  the
financial  condition and prospects of the Partner  Company,  and other  relevant
factors.  The business plan  objectives  and  milestones  the Company  considers
include,   among  others,  those  related  to  financial   performance  such  as
achievement  of planned  financial  results  or  completion  of capital  raising
activities,  and those that are not  primarily  financial  in nature such as the
launching of a web site, business development  activities,  or the hiring of key
employees.  The fair value of the Company's  ownership interests in and advances
to privately held Partner  Companies is generally  determined based on the value
at which  independent third parties have invested or have committed to invest in
the Partner Companies.

CASH AND CASH EQUIVALENTS

The Company considers highly liquid  investments with a maturity of three months
or less when purchased to be cash equivalents.


                                       8

<PAGE>




























                                       9

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

The  Company's  operating  revenues  for the three and six months ended June 30,
2000 were  attributable to HQ Global.  HQ Global's revenue is derived  primarily
from  the  operation  of  their  executive   office  suites  and  the  range  of
telecommunication  and business  support services  provided to clients,  and are
recognized as the related services are provided.

PROPERTY AND EQUIPMENT

Property and  equipment is stated at cost.  Depreciation  is  calculated  on the
straight-line  method over the estimated  useful lives of the assets which range
from five to seven years.  Leasehold  improvements are amortized over the lesser
of the term of the related lease or the estimated useful lives of the assets. As
of  June  30,  2000,  and  December  31,  1999,  accumulated   depreciation  and
amortization were approximately $23.8 million and $14.0 million, respectively.

INTANGIBLE ASSETS

Intangible  assets  consist  primarily  of  goodwill  which is the excess of the
purchase  price over the net  assets of  acquired  companies  by  FrontLine.  In
connection with the merger of HQ Global and VANTAS Incorporated ("VANTAS"),  the
Company  reassessed the estimated life of goodwill resulting from the merger. As
a result, the amortization  period for goodwill was reduced from 30 to 20 years.
As of June 30,  2000,  and  December 31,  1999,  accumulated  amortization  were
approximately $15.5 million and $9.0 million, respectively.

If there is an event or change in circumstances that indicates that the basis of
FrontLine's long-lived intangibles may not be recoverable, FrontLine's policy is
to assess any  impairment  in value by making a  comparison  of the  current and
projected  operating cash flows of the business  center for which the intangible
relates  over its  remaining  useful  life,  on an  undiscounted  basis,  to the
carrying  amount of the intangible.  Such carrying amount would be adjusted,  if
necessary, to reflect an impairment in the value of the intangible assets.

STOCK BASED COMPENSATION

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
interpretations  in accounting for its employee stock options and grants because
the alternative fair value accounting  provided for under Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") requires the use of option valuation models that were not developed
for use in valuing employee stock options.

INCOME TAXES

The Company  accounts for income taxes under the liability method which requires
recognition  of  deferred  tax assets and  liabilities  based upon the  expected
future tax consequences of events included in the Company's financial statements
and tax returns.  Under this method,  deferred  tax assets and  liabilities  are
determined based on the difference between the financial statement and tax bases
of assets  and  liabilities  using  enacted  tax rates in effect for the year in
which the differences  are expected to reverse.  For the three months ended June
30, 2000 and 1999,  the Company  recognized a current state income tax provision
of approximately $0.3 million and $0.6 million,  respectively, and approximately
$0.5  million and $1.3  million for the six months ended June 30, 2000 and 1999,
respectively.

Additionally,  deferred tax assets are recognized for temporary differences that
will result in  deductible  amounts in future  years.  A valuation  allowance is
recognized if it is more likely than not that some portion of the deferred asset
will not be


                                       10

<PAGE>

recognized.

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107,  "Disclosures About Fair Value of Financial  Instruments" requires
FrontLine  to disclose the  estimated  fair values of its  financial  instrument
assets and liabilities. The carrying amounts approximate fair value for cash and
cash  equivalents  because of the short maturity of those  instruments.  For the
loans payable to affiliates and others,  the estimated  fair value  approximates
the recorded balance.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1999,  SFAS No. 137 was issued,  amending SFAS No. 133,  "Accounting for
Derivative Instruments and Hedging Activities", which extended the required date
of adoption  for fiscal  years  beginning  after June 15,  2000.  The  Statement
permits  early  adoption as of the  beginning  of any fiscal  quarter  after its
issuance.  The Company expects to adopt the new Statement  effective  January 1,
2001. The Company does not  anticipate  that the adoption of this Statement will
have any effect on its results of operations or financial position.

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 amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.









                                       11

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


3. OWNERSHIP INTERESTS IN PARTNER COMPANIES

Partner Companies at June 30, 2000 and December 31, 1999 included:

<TABLE>
<CAPTION>
                                                        VOTING OWNERSHIP ON A BASIC BASIS  VOTING OWNERSHIP ON A DILUTED BASIS
                        Partner       Applicable        ---------------------------------  -----------------------------------
                        Company       Accounting                          DECEMBER 31,                        DECEMBER 31,
                         Since          Method           JUNE 30, 2000        1999            JUNE 30, 2000       1999
                        --------     ------------        -------------       ------           -------------      -------
<S>                   <C>          <C>                  <C>               <C>                <C>                <C>
AdOutlet.com              1999           Cost                  10%              12%                9%               10%
Confidant Inc.            1998      Consolidation              93%              93%                80%              80%
DigitalWork.com           1999           Cost                 < 1%             < 1%               < 1%            <  1%
EmployeeMatters, Inc.     1999          Equity                 53%              53%                45%              45%
Giftcertificates.com      1999           Cost                 < 1%             < 1%               < 1%            <  1%
HQ Global                 1998      Consolidation              57%              84%                42% *            76%
LiveCapital.com           2000           Cost                  4%               N/A                 4%             N/A
NeoCarta Ventures         1999           Cost                  4%               4%                  4%               4%
OnSite Access, Inc.       1997          Equity                 22%              37%                21%              22%
Opus360 Corporation       1999           Cost                 < 1%             < 1%               < 1%            <  1%
PIPE9 Corporation         1999          Equity                 31%              31%                26%              26%
RealtyIQ.com              1999          Equity                 68%              68%                54%              54%
UpShot.com                2000          Equity                 20%              N/A                17%              N/A
</TABLE>

*    Includes  preferred  equity  interests which are not yet  convertible  into
     common and which have no set conversion price.

The Company's ownership interests in Partner Companies are classified  according
to the applicable  accounting  method utilized at June 30, 2000 and December 31,
1999. The carrying  value  represents  the Company's  acquisition  cost less any
impairment charges, plus or minus the Company's share of such Partner Companies'
income or loss. The cost basis represents the Company's  acquisition  costs less
any  impairment  charges in such  Partner  Companies.  The  Company's  ownership
interests in and advances to Partner  Companies  accounted  for under the equity
method or cost method of accounting are as follows (in thousands):

<TABLE>
<CAPTION>
                                 JUNE 30, 2000                       DECEMBER 31, 1999
                                ----------------                    -------------------
                            Carrying Value       Cost        Carrying Value         Cost Basis
                            --------------       ----        --------------         -----------
<S>                       <C>                  <C>           <C>                     <C>
       Equity Method            $53,619        $116,043          $54,807            $65,741
       Cost Method               16,900          16,900            6,400              6,400
                                -------                           ------
                                $70,519                          $61,207
                                =======                          =======
</TABLE>

The  following  are the Company's  summarized  losses on ownership  interests in
unconsolidated companies (in thousands):

<TABLE>
<CAPTION>
                                                  FOR THE THREE       FOR THE THREE         FOR THE SIX         FOR THE SIX
                                                   MONTHS ENDED        MONTHS ENDED        MONTHS ENDED         MONTHS ENDED
                                                   JUNE 30, 2000       JUNE 30, 1999       JUNE 30, 2000       JUNE 30, 1999
                                                   ---------------    ----------------    ----------------    ---------------
<S>                                               <C>                  <C>                <C>                 <C>
OnSite Access, Inc. and predecessor entity.......       $(12,161)               $(48)           $(20,789)              $(70)
EmployeeMatters, Inc. ...........................         (7,346)                 --             (10,225)                --
PIPE9 Corporation................................         (3,526)                 --              (5,549)                --
RealtyIQ.com.....................................         (9,591)                 --             (13,850)                --
UpShot.com.......................................           (771)                 --              (1,075)                --
Other ownership interest.........................         (1,141)             (1,345)             (1,426)            (1,954)
                                                   ---------------    ----------------    ----------------    ---------------
EQUITY IN LOSS OF UNCONSOLIDATED COMPANIES              $(34,536)            $(1,393)           $(52,914)           $(2,024)
                                                   ===============    ================    ================    ===============
</TABLE>


                                       12

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


3. OWNERSHIP INTERESTS IN PARTNER COMPANIES (CONTINUED)

The  Company's  ownership  interests  in Partner  Companies  are  summarized  as
follows:

EXECUTIVE OFFICE SUITES AND VIRTUAL OFFICE SERVICES

HQ GLOBAL AND PREDECESSOR ENTITIES

In the first quarter of 2000,  the Company paid  approximately  $43.3 million in
cash and issued  1,294,103  shares of its common  stock in  connection  with the
completion  of  all  remaining  stock  purchase  agreements  with  other  VANTAS
Incorporated  ("VANTAS")  stockholders  to increase  its  ownership  interest in
VANTAS to approximately 84% on a basic basis and 76% on a diluted basis.

As a result of the stepped acquisition during 1999 of a controlling  interest in
VANTAS,  the Company changed the accounting  method for its investment in VANTAS
from the equity method to  consolidating  during the fourth  quarter of 1999 and
subsequently restated all 1999 quarters.

On June 1, 2000, VANTAS, merged with HQ Global Workplaces, Inc. ("Old HQ"), in a
two step merger (the "Merger").  As a result of the Merger, the combined company
became a wholly owned subsidiary of a newly formed parent corporation, HQ Global
Holdings,  Inc.  ("HQ  Global").  As of June  30,  2000,  FrontLine's  ownership
interest was  approximately  57% on a basic basis and on a fully diluted  basis,
assuming  the  outstanding  preferred  stock  converts at the merger  conversion
price, approximately 42%.

HQ Global is the largest provider of flexible  officing  solutions in the world.
As of June 30, 2000,  HQ Global  owned and  operated 400 business  centers in 29
states, the District of Columbia,  and 8 additional  countries.  This included 7
business centers under  development and 15 business centers open for nine months
or less. Also included are 6 business centers managed by HQ Global for unrelated
third parties and 9 international joint-venture business centers that HQ Global,
through its European  subsidiary HQ Holdings Limited,  is a partner with Mercury
Asset  Management.  HQ  Global  is also the  franchiser  of 45  domestic  and 33
international business centers for unrelated  franchisees.  HQ Global provides a
complete  outsourced office solution through  furnished and equipped  individual
offices  and  multi-office  suites  available  on  short  notice  with  flexible
contracts.  HQ Global also provides  business  support and information  services
including:   telecommunications;   broadband  internet  access;  mail  room  and
reception   services;   high-speed   copying,   faxing  and  printing  services;
secretarial,  desktop  publishing  and IT  support  services  and  various  size
conference facilities with multi-media presentation and, in certain cases, video
teleconferencing  capabilities.  HQ Global also  provides  similar  services for
those  businesses  and  individuals  that do not require  offices on a full-time
basis.

In  connection  with the Merger,  (i) each share of the Class A Common  Stock of
VANTAS ("VANTAS Common Stock") was converted into the right to receive $8.00 per
share in cash;  (ii) each  option and warrant to  purchase  the common  stock of
VANTAS,  were  converted into the right to receive a per share cash amount equal
to $8.00,  less the exercise price for such options or warrants,  and (iii) each
share of the  convertible  preferred  stock of VANTAS  outstanding was converted
into .2569 shares of Voting Common Stock of HQ Global  ("Voting  Common Stock").
The payment to cancel the outstanding options held by officers and employees was
charged to merger and  integration  expenses in the three  months ended June 30,
2000.  The  holders of the VANTAS  preferred  stock  received  an  aggregate  of
8,663,315  shares of Voting Common Stock upon conversion of the preferred stock.
In June 2000,  the Company  issued  1,075,000  shares of its common stock for an
additional 2.5% ownership interest in HQ Global in connection with an investment
agreement  with an investment  partnership,  which had  originally  owned VANTAS
preferred stock.


                                       13

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


To effectuate the Merger,  FrontLine  contributed  approximately  $17 million in
cash and its ownership interest in VANTAS.

e-BUSINESSES

ONSITE ACCESS

Summarized financial  information,  a summary of the Company's investment in and
advances to OnSite Access, Inc. ("OnSite") and FrontLine's share of its loss, is
as follows (in thousands):

<TABLE>
<CAPTION>

    BALANCE SHEETS                                                              JUNE 30, 2000       DECEMBER 31, 1999
                                                                                ----------------     ----------------
<S>                                                                            <C>                  <C>
Current assets                                                                          $54,013              $25,535
                                                                                ----------------     ----------------
     Total Assets                                                                      $206,837              $74,774
                                                                                ================     ================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities                                                                     $38,826              $13,702
                                                                                ----------------     ----------------
     Total Liabilities                                                                  118,876               15,615
                                                                                ----------------     ----------------
     Total Redeemable Preferred Stock and Stockholders' Equity (deficit)                 87,961               59,159
                                                                                ----------------     ----------------
     Total Liabilities and Stockholders' Equity (deficit)                              $206,837              $74,774
                                                                                ================     ================
</TABLE>






                                       14


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


3. OWNERSHIP INTERESTS IN PARTNER COMPANIES (CONTINUED)

ONSITE ACCESS (CONTINUED)

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                             FOR THE THREE         FOR THE SIX
                                                              MONTHS ENDED        MONTHS ENDED
                                                             JUNE 30, 2000        JUNE 30, 2000
                                                            -----------------    ----------------
<S>                                                         <C>                  <C>
Revenues                                                              $2,223              $3,974

Net loss                                                           $(30,531)           $(52,059)

Other interests' share of net loss                                 $(18,370)           $(31,270)
FrontLines' share of net loss                                      $(12,161)           $(20,789)
</TABLE>

In June 2000,  OnSite secured $50 million in a senior secured  financing and $20
million from the sale of preferred stock with several private equity investors.

OnSite has currently filed for an initial public offering of its common stock.

OTHER E-BUSINESSES

During the six months ended June 30, 2000,  the Company  invested  approximately
$23.5 million to purchase  ownership  interests in two new e-business  companies
and  funded  $37.0  million  of  commitments  to  existing  Partner   Companies.
Subsequent to June 30, 2000,  the Company  funded an additional  $7.5 million to
existing Partner Companies.

4. PARENT COMPANY FINANCIAL INFORMATION

The Company's  consolidated financial statements reflect HQ Global and Confidant
accounted for under the consolidation  method of accounting at June 30, 2000 and
December 31, 1999 and for the three and six months ended June 30, 2000 and 1999.

Parent  Company  financial  information  is provided  to present  the  financial
position and results of  operations of the Company as if HQ Global and Confidant
were  accounted  for  under the  equity  method of  accounting  for all  periods
presented. The Company's share of HQ Global and Confidant losses are included in
"Equity in loss  unconsolidated  companies" in the Parent Company  Statements of
Operations for all periods presented based on the Company's ownership percentage
in each period.







                                       15

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


4. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

   PARENT COMPANY BALANCE SHEETS (IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS                                                                           JUNE 30, 2000       DECEMBER 31, 1999
                                                                                ----------------     -----------------
<S>                                                                             <C>                 <C>
Current assets                                                                          $16,774              $28,933
Ownership interests in and advances to unconsolidated companies                         347,525              234,340
Other assets                                                                             23,217               30,463
                                                                                ----------------     ----------------
TOTAL ASSETS                                                                           $387,516             $293,736
                                                                                ================     ================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                                                                      $8,396               $7,841
Non-current liabilities                                                                 143,964              171,786
Shareholders' equity                                                                    235,156              114,109
                                                                                ----------------     ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                             $387,516             $293,736
                                                                                ================     ================
</TABLE>

    PARENT COMPANY STATEMENTS OF OPERATIONS  (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    FOR THE THREE        FOR THE THREE         FOR THE SIX          FOR THE SIX
                                                     MONTHS ENDED         MONTHS ENDED        MONTHS ENDED         MONTHS ENDED
                                                    JUNE 30, 2000        JUNE 30, 1999        JUNE 30, 2000        JUNE 30, 1999
                                                   -----------------    -----------------    ----------------     ----------------
<S>                                                <C>                 <C>                   <C>                  <C>
REVENUES                                                       $83                  $83                $167                 $167
                                                   -----------------    -----------------    ----------------     ----------------
Operating expenses                                          (5,999)              (7,722)            (10,971)              (8,614)
Other expenses                                              (4,234)                 (27)             (5,929)                 (35)
Interest expense, net                                       (3,388)              (1,006)            (10,009)              (1,774)
                                                   -----------------    -----------------    ----------------     ----------------
TOTAL EXPENSES                                             (13,621)              (8,755)            (26,909)             (10,423)
                                                   -----------------    -----------------    ----------------     ----------------
LOSS BEFORE EQUITY IN LOSS OF
UNCONSOLIDATED COMPANIES, EXTRAORDINARY
LOSS  AND DISTRIBUTION TO PREFERRED
SHAREHOLDER                                                (13,538)              (8,672)            (26,742)             (10,256)

Equity in loss of unconsolidated companies                 (52,711)              (1,164)            (76,824)              (1,535)
                                                   -----------------    -----------------    ----------------     ----------------
LOSS BEFORE  EXTRAORDINARY LOSS AND DISTRIBUTION
TO PREFERRED SHAREHOLDER                                   (66,249)              (9,836)           (103,566)             (11,791)

Extraordinary  loss on  early  extinguishment  of
debt                                                            --                   --              (2,648)                  --
Distribution to Preferred Shareholder                         (577)                  --                (923)                  --
                                                   -----------------    -----------------    ----------------     ----------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS                $(66,826)             $(9,836)          $(107,137)            $(11,791)
                                                   =================    =================    ================     ================
</TABLE>





                                       16

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)

5. NOTES PAYABLE

On May 31, 2000, HQ Global  completed a transaction  which  increased its $157.9
million credit facility (the amended and restated  "Credit  Facility") to $275.0
million.  The Credit Facility provides for $219.4 million under four term loans,
all of which are repayable in various  quarterly  installments  through November
2005.  The Credit  Facility also provides for  borrowings up to $55.6 million in
two revolving loan  commitments.  Availabilities  under the revolving portion of
the Credit  Facility are formula  based.  As of June 30, 2000,  there was $219.4
million in  outstanding  borrowings  under the term  loans and $20.1  million in
borrowings outstanding  under one revolver.  At June 30, 2000, $10.5 million was
available for additional borrowings under the revolving loan commitments.

Borrowings under the Credit Facility bear interest ranging from LIBOR plus 3.25%
to 4.0% or PRIME  plus 2.25% to 3.00% for a one,  three or nine month  period at
the  election  of HQ Global.  HQ  Global's  weighted  average  interest  rate on
borrowings under the term loans at June 30, 2000 was  approximately  11.48%.  HQ
Global  converted to a LIBOR option on July 3, 2000. HQ Global pays a commitment
fee of 1/2 of 1.0% per annum on the unused portion of the Credit Facility. As of
June 30, 2000,  HQ Global had hedged the interest  rate on  approximately  $46.0
million of borrowings under the Credit Facility using various instruments. These
instruments  lock in the maximum  underlying 30 day LIBOR rate at levels between
5.95% and 7.93%  through July 31, 2002.  The Credit  Facility  contains  certain
financial  covenants  related to interest  coverage,  leverage  ratios and other
limitations.  At June 30,  2000,  HQ Global  was in  compliance  with all of its
covenants.

Maturities of term loans subsequent to June 30, 2000 are as follows:

Twelve months ending June 30:
         2001              $15.4 million
         2002              $23.6 million
         2003              $23.5 million
         2004              $47.1 million
         2005              $70.9 million
         Thereafter        $39.0 million

In connection with the financing of the Merger transaction,  on June 1, 2000, HQ
Global  obtained a Senior  Subordinated  Credit  facility (the "Bridge Loan") of
$125.0  million  bearing  interest  at LIBOR plus 6.5% which  matures on May 31,
2007.

On August 11, 2000,  HQ Global  replaced  the Bridge Loan with a $125.0  million
Senior  Subordinated Note Agreement (the "Mezzanine  Loan").  The Mezzanine Loan
bears  interest at 13.5% per annum and matures on May 31,  2007.  The  Mezzanine
lenders received 503,545 Class A warrants and 227,163 Class B warrants.

On August 11,  2000,  HQ Global  issued  613,166  additional  shares of Series A
Preferred  in the amount of $25.0  million.  In  connection  with this sale,  HQ
Global issued 312,274 Class A warrants and 164,902 Class B warrants.

The terms of the Class A warrants and Class B warrants are identical except that
Class A  warrants  are  exercisable  at the option of the holder at any time and
Class B warrants  are  exercisable  on or after  March 1, 2002,  but only in the
event that a Qualified  Initial  Public  Offering  (as  defined in the  Purchase
Agreements) has not occurred prior to that date.

As of June 30,  2000,  HQ  Global  had  letters  of  credit  outstanding  in the
aggregate  amount of $26.9 million,  of which HQ Global pledged $5.5 million and
$21.4 million were supported by FrontLine.

The fair value of the  warrants to purchase  Common  Stock issued to the lenders
was recorded as debt issuance costs and is being amortized over the terms of the
related loan. Such  amortization is included as a component of interest  expense
in the accompanying statements of operations.

6. SHAREHOLDERS' EQUITY

In January 2000, the Board of Directors for the Company  approved the 2000 stock
option plan and reserved 2,500,000 shares of common stock for issuance.

During 2000,  as part of the  Company's  ongoing  investment  in  organizational
infrastructure  and the retention of high quality senior  management,  incentive
stock awards of 140,000 shares of common stock were granted on April 13, 2000 at
a price of $24.875.  These compensation  awards were approved by shareholders in
connection  with their  approval of the 2000 Stock Option Plan at the  Company's
annual   meeting.   These  awards  vest  evenly   through   December  31,  2000.
Additionally,  tax loans  relating  to these  awards  have been made and will be
forgiven over the same period.

During 1999, 550,000 shares of common stock and various stock option awards were
granted under the 1999 Stock Option Plan. These awards vest over various periods
ranging from six months to three years.  Certain of the stock awards include tax
loans which will be forgiven one year thereafter.

During the three  months and six months  ended June 30,  2000,  results  include
approximately $3.9 and $5.5 million (or


                                       17

<PAGE>


$.11 and $.17 per basic and diluted  share),  respectively,  associated with the
above  awards,  the  majority  of which is  non-cash  in  nature.  In  addition,
FrontLine has $8.5 million of deferred compensation,  net of amortization, as of
June 30, 2000.

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)

6. SHAREHOLDERS' EQUITY (CONTINUED)

During the three months ended March 31, 2000,  the Company  completed  preferred
stock  offerings of 26,000  shares of 8.875%  Cumulative  Convertible  Preferred
Stock, at a price of $1,000 per share with net proceeds of $24.6 million.  These
shares are convertible into the Company's common stock at a price of $70.48.

On March 7, 2000, an investment partnership invested $30 million to purchase 1.5
million warrants to acquire FrontLine's common stock at an exercise price of $70
per  share.  The  warrants  have a term of 3.25  years.  On June 29,  2000,  the
investment partnership invested an additional $3.0 million to obtain a reduction
in the warrant  exercise  price to $47.25 per share and to extend the expiration
of the warrant to March 2005. Simultaneously with this transaction,  the Company
issued  1,075,000  shares of its common stock for an additional  2.5%  ownership
interest  in HQ Global  in  connection  with an  agreement  with the  investment
partnership, which had originally owned VANTAS preferred stock.

On March 31, 2000,  the Company  sold  approximately  2.6 million  shares of its
common  stock at a price of $47.25 per share for an aggregate  consideration  of
approximately $122.6 million.  Proceeds from the sale were utilized to repay the
remaining  portion  of  the  credit  facility.  As a  result,  certain  deferred
financing costs of  approximately  $2.6 million  incurred in connection with the
establishment of the credit facility were expensed as an  extraordinary  loss in
the  accompanying  consolidated  statements  of  operations.  As a part  of this
transaction,  the Company  issued  128,750  warrants  with an exercise  price of
$47.25 per share for 3 years.

7. LONG TERM INCENTIVE PLAN

In March 2000, the Compensation  Committee  adopted a long-term  incentive plan.
Under the  long-term  incentive  plan,  participants  may purchase or be granted
interests in limited  partnerships  established by the Company to hold a portion
of the securities acquired by the Company.  The plan contemplates the allocation
to such  partnerships  of up to a 12.5% interest in each  investment made by the
Company.  FrontLine,  through a wholly-owned subsidiary, will act as the general
partner of each partnership and will retain an 87.5% or greater interest in each
partnership  depending  upon  the  vesting  and  type of  interest  participants
receive.  FrontLine generally must receive a minimum return on its holdings in a
particular partnership,  typically two times the cost of its investment,  before
participants receive distributions from such partnership. It is anticipated that
partnership interest will vest 25% each year, but the Compensation Committee has
the authority to accelerate vesting. A partnership will generally distribute the
securities  or cash it holds to its  partners  after five to ten years,  but may
distribute  securities  or cash earlier if the company has  completed an initial
public offering or been sold.

8. TRANSACTIONS WITH RELATED PARTIES

The Company has a credit  facility  with  Reckson  Operating  Partnership,  L.P.
("Reckson") in the amount of $100 million  ("FrontLine  Facility").  Reckson has
advanced  the  Company  approximately  $92.7  million  at June 30,  2000.  These
advances  bear  interest at 12% per annum.  Additionally,  FrontLine  has a $100
million  facility  with  Reckson  for  funding  the  Reckson  Strategic  Venture
Partners, LLC ("Reckson Strategic")  investments ("Reckson Strategic Facility").
As of June 30, 2000, Reckson has advanced FrontLine  approximately $38.5 million
under the  Reckson  Strategic  Facility  and has  invested  approximately  $29.4
million under the facility in joint ventures with Reckson  Strategic.  The total
outstanding at June 30, 2000, owed by FrontLine under both credit facilities was
approximately  $131.2 million.  Interest accrued on these facilities at June 30,
2000,  was  approximately  $12.7  million.  Both of the  FrontLine  and  Reckson
Strategic Facilities expire in June 2003.  Currently,  the Company has two short
term open letters of credit  totaling $3.2 million,  which have been utilized as
consideration  for future FrontLine  investment  acquisitions.  These letters of
credit decrease the availability under the FrontLine Facility.

The Company is entitled to a cumulative annual management fee of $2 million with
respect to Reckson  Strategic,  of which $1.5  million is  subordinate  to Paine
Webber receiving an annual minimum rate of return of 16% and a return of


                                       18

<PAGE>


its capital. The earned fee for the three and six months ended June 30, 2000 and
1999 was approximately $0.1 million and $0.3 million, respectively.


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


8. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

The  Company  reimburses  Reckson  with  respect to general  and  administrative
expenses (including payroll expenses) incurred by Reckson for the benefit of the
Company.   These  services  include  payroll,  human  resources  and  accounting
services.  During the three and six  months  ended June 30,  2000,  the  Company
reimbursed approximately $0.4 million and $0.8 million,  respectively,  for such
activities.

9. OTHER OWNERSHIP INTEREST

Reckson  Strategic  invests in operating  companies with experienced  management
teams in real estate and real estate  related  market  sectors  which are in the
early stages of their growth cycle or offer unique  circumstances for attractive
investments,  as well as platforms for future growth. Through RSVP Holdings, LLC
("Holdings"),  the  Company  is a  managing  member and 100% owner of the common
equity of Reckson  Strategic.  New World  Realty,  LLC,  an entity  owned by two
individuals  retained by Holdings,  (the "RSVP Managing  Directors"),  acts as a
managing member of Holdings,  and have a carried interest which provides for the
RSVP Managing  Directors to receive a share in the profits of Reckson  Strategic
after the Company,  Paine Webber Real Estate Securities,  Inc., ("Paine Webber")
and Stratum Realty Fund, L.P.  ("Stratum") have received certain minimum returns
and a return of capital.  Paine Webber and Stratum are non-managing  members and
preferred  equity  owners  who have  committed  $150  million  and $50  million,
respectively, in capital (the "Preferred Equity Facility") and shares in profits
and losses of Reckson Strategic with the Company,  subject to a maximum internal
rate of return of 16% of invested  capital.  For the three months ended June 30,
2000 and 1999,  FrontLine's  share of Holdings'  losses was  approximately  $1.1
million and $1.3 million,  respectively.  For the six months ended June 30, 2000
and 1999,  FrontLine's share of Holdings' losses was approximately  $1.4 million
and $2.0 million, respectively.

10. SEGMENT DISCLOSURE

Each of the segments has a FrontLine senior  professional  assigned for purposes
of  monitoring   performance   and  carrying  out  operating   activity.   These
professionals report directly to the Chief Executive Officer and Chief Financial
Officer,  who along with the Board of  Directors/Executive  Committees have been
identified as the Chief  Operating  Decision  Makers  ("CODM")  because of their
final authority over resource allocation decisions and performance assessment.

The CODM evaluate the operating performance of these segments based on sectors.

FrontLine's  governance and control rights are generally exercised through Board
of Directors seats and through representation on the executive committees of the
various segment entities.

The  following  table sets forth the Company's  segments and their  revenues and
expenses and other related disclosures as required by SFAS No. 131,  "Disclosure
about  Segments of an Enterprise and Related  Information"  ("SFAS 131") for the
three months ended June 30, 2000 and 1999 (in thousands).



                                       19

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


10. SEGMENT DISCLOSURE (CONTINUED)

<TABLE>
<CAPTION>
                                             JUNE 30, 2000
                                             -------------
                                  EXECUTIVE OFFICE
                                     SUITES AND
                                   VIRTUAL OFFICE                                OTHER
                                      SERVICES           E-BUSINESSES         OPERATIONS             TOTAL
                                  ------------------    ----------------    ----------------    ----------------
<S>                               <C>                  <C>                 <C>                 <C>
Total Assets                               $960,915             $70,519            $140,866          $1,172,300
                                  ------------------    ----------------    ----------------    ----------------
Total Operating Revenues                     98,698                  --                  83              98,781
                                  ------------------    ----------------    ----------------    ----------------
Total Operating Expenses                     79,211                  --                  --              79,211
                                  ------------------    ----------------    ----------------    ----------------
Other Income (Expenses),
Provision for Income Taxes, and
Minority Interest                           (35,031)             (2,315)            (13,937)            (51,283)
                                  ------------------    ----------------    ----------------    ----------------
Equity in Loss of unconsolidated
companies                                        --             (33,395)             (1,141)            (34,536)
                                  ------------------    ----------------    ----------------    ----------------
Distribution to Preferred
shareholder                                      --                  --                (577)               (577)
                                  ------------------    ----------------    ----------------    ----------------
Net Loss                                  $ (15,544)           $(35,710)           $(15,572)           $(66,826)
                                  ------------------    ----------------    ----------------    ----------------
</TABLE>

<TABLE>
<CAPTION>
                                              JUNE 30, 1999
                                              -------------
                                      EXECUTIVE
                                    OFFICE SUITES
                                     AND VIRTUAL                                 OTHER
                                   OFFICE SERVICES        E-BUSINESSES        OPERATIONS             TOTAL
                                   -----------------     ---------------    ----------------    ----------------
<S>                                <C>                  <C>                <C>                  <C>
Total Operating Revenues                    $52,589               $  --                 $83             $52,672
                                   -----------------     ---------------     ---------------    ----------------

Total Operating Expenses                     45,123                  --                  --              45,123
                                   -----------------     ---------------     ---------------    ----------------

Other Income (Expenses),
Provision for Income Taxes, and
Minority Interest                            (7,238)                 --              (8,754)            (15,992)
                                   -----------------     ---------------     ---------------    ----------------
Equity in Loss of unconsolidated
companies                                        --                 (48)             (1,345)             (1,393)
                                   -----------------     ---------------     ---------------    ----------------

Net Income (Loss)                              $228                $(48)           $(10,016)            $(9,836)
                                   -----------------     ---------------     ---------------    ----------------
</TABLE>


                                       20

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)


10. SEGMENT DISCLOSURE (CONTINUED)

The  following  table sets forth the Company's  segments and their  revenues and
expenses  and other  related  disclosures  as  required  by SFAS 131 for the six
months ended June 30, 2000 and 1999 (in thousands).

<TABLE>
<CAPTION>
                                            JUNE 30, 2000
                                            -------------
                                 EXECUTIVE OFFICE
                                    SUITES AND
                                  VIRTUAL OFFICE                               OTHER
                                     SERVICES           E-BUSINESSES         OPERATIONS             TOTAL
                                 ------------------    ----------------    ---------------     ----------------
<S>                             <C>                   <C>                 <C>                 <C>
Total Operating Revenues                  $161,188               $  --              $166              $161,354
                                 ------------------    ----------------    ---------------     ----------------
Total Operating Expenses                   136,157                  --                 --              136,157
                                 ------------------    ----------------    ---------------     ----------------
Other Income (Expenses),
Provision for Income Taxes, and
Minority Interest                          (43,986)            (3,899)           (27,964)              (75,849)
                                 ------------------    ----------------    ---------------     ----------------
Equity in Loss of unconsolidated
companies                                       --            (51,488)            (1,426)              (52,914)
                                 ------------------    ----------------    ---------------     ----------------
Extraordinary Loss from Early
Extinguishment of Debt                          --                 --             (2,648)               (2,648)
                                 ------------------    ----------------    ---------------     ----------------
Distribution to Preferred
shareholder                                     --                 --               (923)                 (923)
                                 ------------------    ----------------    ---------------     ----------------

Net Loss                                 $(18,955)           $(55,387)          $(32,795)            $(107,137)
                                 ------------------    ----------------    ---------------     ----------------
</TABLE>

<TABLE>
                                             JUNE 30, 1999
                                             -------------
                                      EXECUTIVE
                                    OFFICE SUITES
                                     AND VIRTUAL                                 OTHER
                                   OFFICE SERVICES        E-BUSINESSES        OPERATIONS             TOTAL
                                   -----------------     ---------------    ----------------    ----------------
<S>                               <C>                    <C>               <C>                 <C>
Total Operating Revenues                    $99,364               $  --             $166               $99,530
                                   -----------------     ---------------     ---------------    ----------------
Total Operating Expenses                     84,872                  --               --                84,872
                                   -----------------     ---------------     ---------------    ----------------
Other Income (Expenses),
Provision for Income Taxes,
and Minority Interest                       (14,003)                 --          (10,422)              (24,425)
                                   -----------------     ---------------     ---------------    ----------------
Equity in Loss of unconsolidated
companies                                        --                (70)           (1,954)               (2,024)
                                   -----------------     ---------------     ---------------    ----------------
</TABLE>


                                       21

<PAGE>

<TABLE>
<CAPTION>
                                             JUNE 30, 1999
                                             -------------
                                      EXECUTIVE
                                    OFFICE SUITES
                                     AND VIRTUAL                                 OTHER
                                   OFFICE SERVICES        E-BUSINESSES        OPERATIONS             TOTAL
                                   -----------------     ---------------    ----------------    ----------------
<S>                               <C>                    <C>               <C>                 <C>
Net Income (Loss)                              $489               $(70)         $(12,210)             $(11,791)
                                   -----------------     ---------------     ---------------    ----------------
</TABLE>









                                       22

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

The following  discussion  should be read in conjunction  with the  accompanying
Financial  Statements of FrontLine  Capital Group (the "Company" or "FrontLine")
and related notes thereto.

The  Company  considers  certain  statements  set  forth  to be  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, with respect to
the  Company's   expectations  for  future  periods.   Certain   forward-looking
statements, including, without limitation, statements relating to the ability to
identify  and acquire  interest in new Partner  Companies,  consummation  of the
merger with HQ Global  Workplaces,  Inc,  the  financing  of the  Company's  and
Partner Companies',  operations, the timing and success of such acquisitions and
the  ability to  integrate  and manage  effectively  its  various  acquisitions,
involve certain risks and uncertainties.  Although the Company believes that the
expectation reflected in such forward-looking statements are based on reasonable
assumptions,  the actual results may differ  materially  from those set forth in
the forward-looking statements and the Company and Partner Companies can give no
assurance that its  expectations  will be achieved.  Certain  factors that might
cause the results of the Company and Partner Companies to differ materially from
those indicated by such forward-looking statements include, among other factors,
general  economic  conditions,  a lack of attractive  business  opportunities or
suitable  acquisitions,  the Company's  dependence  upon  financing from Reckson
Operating  Partnership,  L.P.,  ("Reckson") conflicts of interest of management,
competition  for  targeted  acquisitions  and the ability to  otherwise  finance
business opportunities.  Consequently, such forward-looking statements should be
regarded  solely as reflections of the Company's and Partner  Companies  current
operating and  development  plans and  estimates.  These plans and estimates are
subject  to  revision  from  time  to  time as  additional  information  becomes
available,  and actual results may differ from those indicated in the referenced
statements.

OVERVIEW AND BACKGROUND

FrontLine is building a collaborative network of companies that use the Internet
and new  technologies  to empower  small to medium size  enterprises  ("SME's"),
entrepreneurs,  and the mobile workforce, the fastest growing segment of the new
economy.  FrontLine  provides its Partner  Companies with the capital,  customer
base,  management  resources,  and  relationships  they need for fast-growth and
long-term  success.  The Partner  Companies in turn provide small to medium size
business customers with the information,  tools and services they need to become
more competitive,  at a price they can afford. In this way,  FrontLine  achieves
its vision along two parallel tracks:  FrontLine empowers the entrepreneurs that
make up its network of Partner  Companies,  and empowers the entrepreneurs  that
make up its customer base.

The Company is to acquire  significant,  long-term  stakes in  targeted  Partner
Companies, which will be incorporated into a collaborative network of e-commerce
and  e-services  companies,  in effect to  accelerate  their growth and increase
their likelihood of success.  FrontLine has developed an extensive e-Cooperative
platform that allows its Partner  Companies to benefit from its  operational and
management resources and experience and the Company's extensive customer base as
well as gain  significant  synergies  from other  existing  and  future  Partner
Companies. The e-Cooperative consists of the:

o    enterprise  Development  Group  or  eDG - eDG  offers  strategic  planning,
     project management and functional  expertise in the areas of organizational
     design, recruiting, finance and technology strategy.
o    Advisory  Board - a group  of  recognized  business  and  academic  leaders
     provides  strategic  insight,  expertise,  relationships  and access to new
     opportunities  and  potential  alliances  for the  Company  and its Partner
     Companies.
o    Network of Partner Companies - facilitates learning and collaboration among
     all Partner  Companies and provides access to the customer base,  resources
     and  relationships  of the entire  network.  It also  facilitates  business
     partnerships   among  Partner   Companies,   including   cross-selling  and
     cross-marketing opportunities.
o    Virtual and Physical - Global workplace solutions provider which offers the
     Partner  Companies  the ability to access the virtual and  physical  global
     infrastructure  as well as a  distribution  network to a  customer  base of
     SMEs.

The Company's strategy is to continue to expand its network of Partner Companies
and  its  e-Cooperative  platform  by  pursuing  additional   acquisitions  that
complement and enhance the overall  network.  FrontLine seeks to add significant
value to its Partner  Companies with the goal of creating  industry leaders that
have the potential to become public companies,  act as industry consolidators or
merge  with  the  proper  strategic  partners.  FrontLine  targets  early  stage
companies that can benefit from FrontLine's  entire franchise and therefore have
the potential to create significant value

                                       23

<PAGE>


for FrontLine.

FrontLine  seeks to focus its  future  acquisitions  in the  Internet  sector by
targeting three types of e-commerce and e-services companies:

o    e-Commerce  and  infrastructure:  companies  that  deliver  or  enable  the
     delivery of goods and services over the Internet;
o    Virtual brick and mortar:  companies that combine a physical infrastructure
     with an  Internet-enabled  model to enhance the delivery of their services;
     and
o    Internet-based  outsourcing:  companies that utilize the Internet to enable
     the outsourcing of non-core business functions.

Although the Company  refers to the companies in which it has acquired an equity
and  cost  ownership  interest  as its  "Partner  Companies"  and  that it has a
"partnership"  with  these  companies,  it does  not act as an  agent  or  legal
representative  for any of  these  companies,  it does  not  have  the  power or
authority to legally bind any of its Partner  Companies and it does not have the
types of liabilities in relation to its Partner Companies that a general partner
of a partnership would have.

Because FrontLine acquires significant interests in e-commerce  companies,  many
of which generate net losses, FrontLine has experienced, and expects to continue
to experience,  significant volatility in the quarterly results. Management does
not know if the Company  will  report net income in any  period,  and expects to
report net losses for the foreseeable future.  While most Partner Companies have
consistently reported losses, the Company may experience  significant volatility
from period to period due to one-time  transactions and other events  incidental
to the ownership interests in and advances to Partner Companies. On a continuous
basis,  but no less  frequently  than at the  end of  each  quarterly  reporting
period,  management  evaluates the carrying value of the ownership  interests in
and advances to each of the Partner  Companies for possible  impairment based on
achievement of business plan objectives and  milestones,  the fair value of each
ownership  interest  and  advance in the  Partner  Company  relative to carrying
value, the financial  condition and prospects of the Partner Company,  and other
relevant  factors.  The business plan  objectives and milestones  that are taken
into consideration include, among others, those related to financial performance
such as  achievement  of  planned  financial  results or  completion  of capital
raising  activities,  and those that are more  operational in nature such as the
launching  of a web site or the hiring of key  employees.  The fair value of the
ownership  interests  in and advances to  privately  held  Partner  Companies is
generally  determined based on the value at which independent third parties have
invested or have committed to invest in Partner Companies.

The presentation and content of the Company's financial  statements is largely a
function of the  presentation  and content of the  financial  statements  of the
Partner  Companies.  As a result,  to the extent  Partner  Companies  change the
presentation or content of their financial statements, as may be required by the
Securities  and Exchange  Commission  or changes in accounting  literature,  the
presentation and content of the Company's financial statements may also change.

EFFECT OF VARIOUS ACCOUNTING METHODS ON RESULTS OF OPERATIONS

The various interests that FrontLine acquires in Partner Companies are accounted
for under one of three  methods:  consolidation,  equity method and cost method.
The applicable  accounting method is generally determined based on the Company's
voting interest in a Partner Company.

Consolidation.  Partner  Companies in which the Company  directly or  indirectly
owns more than 50% of the outstanding  voting  securities and controls the board
of directors  are  generally  accounted  for under the  consolidation  method of
accounting.  Under this method,  a Partner  Company's  results of operations are
reflected within the Company's Consolidated Statements of Operations. On June 1,
2000, VANTAS Incorporated  ("VANTAS"),  a previously consolidated entity, merged
with  HQ  Global  Workplaces,  Inc.  ("Old  HQ"),  in a  two  step  merger  (the
"Merger").  As a result of the Merger,   the  combined  company  became a wholly
owned subsidiary of a newly formed parent corporation,  HQ Global Holdings, Inc.
("HQ  Global").   (See  Note  3  to  the  Consolidated   Financial  Statements).
Additionally,   the  Company  consolidates  Confidant,   Inc.  with  FrontLine's
financial statements. Participation of other Partner Company shareholders in the
earnings or losses of a consolidated  Partner  Company is reflected in a caption
"Minority interest" in the


                                       24

<PAGE>


Consolidated   Statements  of   Operations.   Minority   interest   adjusts  the
consolidated net results of operations to reflect only FrontLine's  share of the
earnings or losses of the consolidated Partner Company.

The effect of a Partner Company's  results of operations on FrontLine's  results
of  operations is generally  the same under either the  consolidation  method of
accounting  and the equity  method of  accounting,  because  under each of these
methods only FrontLine's share of the earnings or losses of a Partner Company is
reflected  in the  results  of  operations  in the  Consolidated  Statements  of
Operations.

Equity Method.  Partner Companies whose results are not  consolidated,  but over
whom the Company exercises  significant  influence,  are generally accounted for
under the equity  method of  accounting.  Whether or not the  Company  exercises
significant influence with respect to a Partner Company depends on an evaluation
of several  factors  including;  among  others,  representation  on the  Partner
Company's  board of directors and ownership  level,  which is generally a 20% to
50% interest in the voting  securities of the Partner Company,  including voting
rights  associated  with the Company's  holdings in common,  preferred and other
convertible  instruments  in the  Partner  Company.  Under the equity  method of
accounting,  a Partner Company's accounts are not reflected within the Company's
Consolidated  Statements  of  Operations;  however,  FrontLine's  share  of  the
earnings or losses of the Partner Company is reflected in the caption "Equity in
loss of unconsolidated companies" in the Consolidated Statements of Operations.

Partner Companies accounted for under the equity method of accounting included:

<TABLE>
<CAPTION>
                          PARTNER          VOTING OWNERSHIP ON BASIC BASIS         VOTING OWNERSHIP ON DILUTED BASIS
                          COMPANY          -------------------------------         ---------------------------------
                           SINCE         JUNE 30, 2000       DECEMBER 31, 1999      JUNE 30, 2000    DECEMBER 31, 1999
                          -------        -------------       -----------------     ---------------   -----------------
<S>                      <C>             <C>                 <C>                   <C>               <C>
EmployeeMatters, Inc.      1999               53%                   53%                   45%                45%
OnSite Access, Inc.        1997               22%                   37%                   21%                22%
PIPE9 Corporation          1999               31%                   31%                   26%                26%
RealtyIQ.com               1999               68%                   68%                   54%                54%
UpShot.com                 2000               20%                   N/A                   17%                N/A
</TABLE>

FrontLine  has  representation  on the  board of  directors  of all of the above
Partner Companies,  and as of June 30, 2000,  generally owned voting convertible
preferred  stock in all of  them.  Most of  FrontLine's  equity  method  Partner
Companies  are in a very  early  stage of  development  and  have not  generated
significant revenues. In addition, equity method Partner Companies have incurred
substantial  losses since their  inception and are expected to continue to incur
substantial losses in 2000.

Cost Method.  Partner Companies not accounted for under either the consolidation
or the equity  method of  accounting  are accounted for under the cost method of
accounting.  Under this method, the Company's share of the earnings or losses of
these companies is not included in the Consolidated Statements of Operations.

Partner Companies accounted for under the cost method of accounting included:

<TABLE>
<CAPTION>
                            PARTNER         VOTING OWNERSHIP ON BASIC BASIS           VOTING OWNERSHIP ON DILUTED BASIS
                            COMPANY         -------------------------------         -----------------------------------
                             SINCE        JUNE 30, 2000       DECEMBER 31, 1999     JUNE 30, 2000    DECEMBER 31, 1999
                            -------       -------------       -----------------     -------------    ------------------
<S>                        <C>           <C>                  <C>                  <C>              <C>
AdOutlet. com                1999              10%                   12%                   9%                10%
DigitalWork.com              1999              <1%                   <1%                  <1%                <1%
Giftcertificates.com         1999              <1%                   <1%                  <1%                <1%
LiveCapital.com              2000              4%                    N/A                   4%                N/A
NeoCarta Ventures            1999              4%                     4%                   4%                4%
Opus 360 Corporation         1999              <1%                   <1%                  <1%                <1%
</TABLE>


                                       25

<PAGE>


The cost method Partner  Companies are in a very early stage of development  and
have not generated significant  revenues.  In addition,  FrontLine's cost method
Partner  Companies  incurred  substantial  losses since their  inception and are
expected to continue to incur substantial losses in 2000.














                                       26

<PAGE>


EFFECT OF CONSOLIDATION ON THE PRESENTATION OF FRONTLINE'S FINANCIAL STATEMENTS

The presentation of FrontLine's  financial  statements may differ from period to
period primarily due to whether or not the consolidation method of accounting or
the equity method of accounting is applied.  To understand the Company's results
of operations and financial  position without the effect of the consolidation of
HQ  Global,  Note 4 to the  consolidated  financial  statements  summarizes  the
Company's  Statements of Operations  and Balance  Sheets  treating the ownership
interest  in HQ Global as if it were  accounted  for under the equity  method of
accounting for all periods presented. FrontLine's share of HQ Global's losses is
included in "Equity in loss of unconsolidated companies."

RESULTS OF OPERATIONS

The reportable segments in FrontLine's financial statements are Executive Office
Suites and Virtual Office Services, e-Businesses and Other Operations. Executive
Office Suites and Virtual Office Services  includes the effect of  consolidating
the operations of HQ Global.  e-Businesses  includes the effect of  transactions
and other events  incidental to the ownership  interest in  FrontLine's  Partner
Companies,  excluding HQ Global.  Other  Operations  represents  the expenses of
providing  strategic  and  operational  support to the  Partner  Companies,  the
administrative  costs related to these  expenses and  FrontLine's  operations in
general.

EXECUTIVE OFFICE SUITES AND VIRTUAL OFFICE SERVICES

FrontLine's  operating  revenues  and  operating  expenses for the three and six
months ended June 30, 2000 and 1999 were  attributable  to HQ Global and VANTAS.
The following is a discussion  of HQ Global's and VANTAS'  results of operations
for the three and six months ended June 30, 2000 and 1999.

THREE MONTHS ENDED JUNE 30, 2000 AND 1999

Total  business  center  revenues  for the three months ended June 30, 2000 were
$98.7  million,  an  increase of $46.1  million or 87.8% from the  corresponding
period in 1999.  Included  in revenues  was $1.3 and $.2 million of  management,
franchise,  and joint venture fees for the three month periods ended on June 30,
2000 and 1999,  respectively.  The  increase  includes  having  one month of the
merged HQ Global entity.

Business  centers that were  acquired with  effective  dates after April 1, 1999
("Acquired  Centers")  had  revenues for the three months ended June 30, 2000 of
$36.2  million,  an increase of $32.1 million from the  corresponding  period in
1999.  This increase in revenues  resulted  primarily  from the  acquisition  of
business  centers during the 12 months ended June 30, 2000. The acquired centers
include all the Old HQ business centers.

Developing  Centers  ("Developing  Centers")  are those  centers that are in the
early stages of operation when expenses are incurred with minimal  corresponding
revenues. Once a Developing Center reaches occupancy levels above 70%, generally
with nine to twelve  months  of its  initial  start,  it is  expected  to have a
positive impact on the results of HQ Global.

Business centers, excluding Acquired and Developing Centers, that were operating
for the  entire  comparable  period  of the prior  year  ("Same  Centers"),  had
revenues for the three months ended June 30, 2000 of $55.1 million,  an increase
of $8.0 million,  or 17.0% from the corresponding  period in 1999. While average
office  occupancy  levels  have  elevated  to 91%,  an  increase  of 2% from the
corresponding  period in 1999,  the  increase in office  rental  revenue of $3.6
million,  or 13.2%,  was primarily due to more  favorable  office  pricing.  The
increase  in support  service  revenues of $4.4  million,  or 22.3% from 1999 is
partially attributable to an increase in broadband Internet access,  information
technology support services and administrative support services.

Developing Center revenues were $6.1 million for the three months ended June 30,
2000, an increase of $4.9 million from the corresponding period in 1999. For the
three  months  ended June 30,  2000 and 1999,  there  were 22 and 13  Developing
Centers that were open,  respectively.  This  increase is  primarily  due to the
greater number of Developing Centers open during the three months ended June 30,
2000.



                                       27

<PAGE>


Total  business  center  expenses  for the three months ended June 30, 2000 were
$69.1  million,  representing  an  increase  of $29.5  million or 74.8% from the
corresponding period in 1999.

Acquired  Center expenses for the three months ended June 30, 2000 and 1999 were
$24.8 million and $3.1 million  respectively,  representing an increase of $21.7
million from the corresponding  period in 1999. This increase resulted primarily
from the  acquisition  of business  centers  during the 12 months ended June 30,
2000. The acquired centers include all the Old HQ business centers.

Same  Center  expenses  for the three  months  ended  June 30,  2000 were  $38.4
million,  an increase of $3.8 million or 11.0% from the corresponding  period in
1999. This increase is primarily attributable to higher rent expense and support
service expenses associated with increased support service revenues.

Developing  Center  expenses  for the three months ended June 30, 2000 were $5.9
million, an increase of $4.0 million from the corresponding period in 1999. This
increase  is due to a total of 28  Developing  Centers  during the three  months
ended June 30, 2000 as compared to 13 Developing Centers during the three months
ended June 30, 1999.

For the three months ended June 30, 2000,  other  expenses  were $45.1  million,
representing  an  increase  of $33.2  million or 279.0%  from the  corresponding
period in 1999.  This increase is primarily  attributable  to greater  corporate
general and administrative expenses,  depreciation and amortization and interest
expense of $4.7  million,  $6.1  million and $4.5  million or 83.6%,  182.9% and
192.5%, respectively. Other expenses also include merger and integration charges
of $18.6 million, related primarily to the June 1, 2000 HQ Merger.

The increase in corporate general and  administrative  expenses was attributable
to increases in the corporate personnel infrastructure and its associated travel
and related expenses,  related office expansion, and professional and consulting
fees associated with HQ Global's growth.  The increase in corporate  general and
administration  expenses  were also  attributed  to the  corporate  general  and
administration expenses of Old HQ. The increase in depreciation and amortization
relates to fixed  assets  acquired  and  goodwill  associated  with HQ  Global's
acquisitions.  It is also  attributable  to an increase in capital  expenditures
associated  with leasehold  improvements  for Developing  Centers and technology
infrastructure  additions.  Interest expense is primarily related to HQ Global's
Credit  Facility.  This increase  resulted  from interest  expense on borrowings
related to HQ Global's acquisitions as well as increases in interest rates.

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Total  business  center  revenues  for the six months  ended June 30,  2000 were
$161.2  million,  an increase of $61.9  million or 62.3% from the  corresponding
period in 1999.  Included in revenues was $1.5 and $0.4  million of  management,
franchise,  and joint  venture fees for the six month  periods ended on June 30,
2000 and 1999, respectively.

Business  centers that were acquired with effective  dates after January 1, 1999
("Acquired  Centers")  had  revenues  for the six months  ended June 30, 2000 of
$49.4  million,  an increase of $42.2 million from the  corresponding  period in
1999.  This increase in revenues  resulted  primarily  from the  acquisition  of
business  centers during the 12 months ended June 30, 2000. The acquired centers
include all the Old HQ business centers.

Business centers, excluding Acquired and Developing Centers, that were operating
for the  entire  comparable  period  of the prior  year  ("Same  Centers"),  had
revenues for the six months ended June 30, 2000 of $101.1  million,  an increase
of $11.5 million, or 12.8% from the corresponding  period in 1999. While average
office  occupancy  levels  have  grown  to  90%,  an  increase  of 1%  from  the
corresponding  period in 1999,  the  increase in office  rental  revenue of $5.5
million,  or 10.6%,  was primarily due to more  favorable  office  pricing.  The
increase  in support  service  revenues of $6.0  million,  or 15.8% from 1999 is
partially attributable to an increase in broadband Internet access,  information
technology support services and administrative support services.

Developing  Center  revenues were $9.2 million for the six months ended June 30,
2000, an increase of $7.1 million from the corresponding period in 1999. For the
six months ended June 30, 2000 and 1999, there were 22 and 13 Developing


                                       28

<PAGE>


Centers that were open,  respectively.  This  increase is  primarily  due to the
greater  number of Developing  Centers open during the six months ended June 30,
2000.

Total  business  center  expenses  for the six months  ended June 30,  2000 were
$118.9  million,  representing  an increase  of $44.9  million or 60.8% from the
corresponding period in 1999.

Acquired  Center  expenses  for the six months ended June 30, 2000 and 1999 were
$35.5 million and $5.5 million  respectively,  representing an increase of $30.0
million from the corresponding  period in 1999. This increase resulted primarily
from the  acquisition  of business  centers  during the 12 months ended June 30,
2000. The acquired centers include all the Old HQ business centers.

Same Center  expenses for the six months ended June 30, 2000 were $73.0 million,
an increase of $7.6 million or 11.6% from the corresponding period in 1999. This
increase is primarily  attributable  to higher rent expense and support  service
expenses associated with increased support service revenues.

Developing  Center  expenses  for the six months  ended June 30, 2000 were $10.4
million, an increase of $7.3 million from the corresponding period in 1999. This
increase is due to a total of 28 Developing  Centers during the six months ended
June 30, 2000 as compared to 13 Developing  Centers  during the six months ended
June 30, 1999.

For the six months  ended June 30,  2000,  other  expenses  were $61.9  million,
representing  an  increase  of $39.1  million or 171.8%  from the  corresponding
period in 1999.  This increase is primarily  attributable  to greater  corporate
general and administrative expenses,  depreciation and amortization and interest
expense of $6.4  million,  $8.7  million and $6.0  million or 58.9%,  139.0% and
140.9%, respectively. Other expenses also include merger and integration charges
of $19.4 million related primarily to the June 1, 2000 HQ Merger.

The increase in corporate general and  administrative  expenses was attributable
to increases in the corporate personnel infrastructure and its associated travel
and related expenses,  related office expansion, and professional and consulting
fees associated with HQ Global's growth.  The increase in corporate  general and
administration  expenses  were also  attributed  to the  corporate  general  and
administration expenses of Old HQ. The increase in depreciation and amortization
relates to fixed  assets  acquired and goodwill  associated  with the  Company's
acquisitions.  It is also  attributable  to an increase in capital  expenditures
associated  with leasehold  improvements  for Developing  Centers and technology
infrastructure  additions.  Interest  expense  is  primarily  related  to the HQ
Global's  Credit  Facility.  This increase  resulted  from  interest  expense on
borrowings related to HQ Global's  acquisitions as well as increases in interest
rates.

e-BUSINESSES

A significant  portion of FrontLine's  net loss is derived from  corporations in
which it holds a significant minority ownership interest accounted for under the
equity method of accounting.  Equity loss  fluctuates with the number of Partner
Companies  accounted for under the equity method,  FrontLine's  voting ownership
percentage in these  companies,  the  amortization of goodwill  related to newly
acquired equity method Partner Companies, and the results of operations of these
companies.  As of June 30,  2000,  FrontLine  accounted  for five of its Partner
Companies  under this method as compared to one Partner Company during the three
and six months ended June 30, 1999. All five of these companies  incurred losses
for the three and six months ended June 30, 2000. Under this method, the results
of operations of these  entities are not  consolidated  within the  Consolidated
Statements of Operations;  however, FrontLine's share of these companies' losses
is reflected in the caption "Equity in loss of unconsolidated  companies" in the
Consolidated Statements of Operations. (See Note 3 of the Consolidated Financial
Statements).

In  addition,  the  consolidated  results of  Confidant,  have been  expensed as
development stage company due to its early phase of existence.  No revenues have
been generated since its inception.

OTHER OPERATIONS



                                       29

<PAGE>


FrontLine's  Other Operations  consist  primarily of general and  administrative
cost for  compensation,  office  costs,  and  outside  services  such as  legal,
accounting and travel related costs. As the number of FrontLine's employees grow
to support  its  operations  and those of its Partner  Company,  its general and
administrative costs will increase. As a result of the increase in the number of
employees from 11 to 37 between June 30, 1999 and June 30, 2000 and the increase
in the acquisition of interests in Partner Companies, general and administrative
costs for the three and six months ended June 30, 2000 decreased by $1.7 million
and increased by $1.7 million,  respectively,  as compared to the same period in
1999.   FrontLine   plans  to   continue   to  build  and  enhance  its  overall
infrastructure.  These costs are  expected to continue to be higher  compared to
historical  periods.  During the three and six months ended June 30,  2000,  the
Company  recorded  amortization of  compensation  awards of  approximately  $3.9
million and $5.5 million,  respectively,  in  connection  with  incentive  stock
awards  to  management  and  $  0.3  million  and  $1.0  million,  respectively,
associated with new hire costs.

FrontLine's  interest  expense for the three and six months  ended June 30, 2000
was  approximately  $3.4 million and $10.0  million,  respectively,  compared to
approximately  $1.0  million and $1.8 million for the three and six months ended
June 30, 1999. The increase is due to an increase in the amounts  borrowed under
the Company's  existing  credit  facilities  and the $60 million  Secured Credit
Facility.

Included in Other Operations is FrontLine's ownership interest in RSVP Holdings,
LLC. For the three and six months ended June 30, 2000, FrontLine's share of RSVP
Holdings,   LLC's  loss  was  approximately   $1.1  million  and  $1.4  million,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

FrontLine has funded operations and investing  activities  through a combination
of borrowings  under various  credit  facilities  and issuances of the Company's
equity securities.

FrontLine funded  approximately  $122.1 million in cash and issued $47.1 million
of the  Company's  common stock to acquire  interests in or make advances to new
and existing Partner  Companies during the six months ended June 30, 2000. These
companies  include:   AdOutlet.com,   EmployeeMatters,   Inc.,  LiveCapital.com,
NeoCarta Ventures, Pipe 9 Corporation, RealtyIQ.com, UpShot.com and HQ Global.

The Company has a credit  facility  with  Reckson in the amount of $100  million
("FrontLine  Facility").  Additionally,  Reckson Strategic Venture Partners, LLC
("Reckson Strategic") has a $100 million facility ("Reckson Strategic Facility")
with Reckson to fund Reckson Strategic  investments.  Note 8 to the consolidated
financial  statements  summarizes  the  outstanding  amounts  and  terms  of the
FrontLine and Reckson Strategic Facilities.  The Company had approximately $92.7
million  outstanding under the FrontLine  Facility at June 30, 2000.  Borrowings
were  primarily  used to fund  acquisitions  of  ownership  interests in Partner
Companies and general  operations.  Approximately  $38.5 million was outstanding
under the Reckson  Strategic  Facility at June 30, 2000.  These  borrowings were
utilized to fund Reckson Strategic  investments and general operations.  At June
30, 2000, $36.2 million was available on these Facilities.

FrontLine's secured credit facility for $60.0 million was fully drawn and repaid
during  the three  months  ended  March 31,  2000,  and is  therefore  no longer
available.

On June 1, 2000, HQ Global  completed a transaction  which  increased its $157.9
million credit facility (the amended and restated  "Credit  Facility") to $275.0
million.  The Credit Facility  provides for $219.4 million under four term loans
all of which are repayable in quarterly  installments through November 2005. The
Credit  Facility  also  provides  for  borrowings  up to  $55.6  million  in two
revolving loan  commitments.  Availabilities  under the revolving portion of the
Credit  Facility  are formula  based.  As of August 11,  2000,  there was $242.5
million in  outstanding  borrowings  under the term  loans and $23.1  million in
borrowings  outstanding under one revolver. At August 11, 2000, $7.5 million was
available for additional borrowings under the revolving loan commitments.

Borrowings under the Credit Facility bear interest ranging from LIBOR plus 3.25%
to 4.0% or PRIME plus 2.25% to 3.00% for a one, three or nine


                                       30

<PAGE>


month period at the election of HQ Global. HQ Global's weighted average interest
rate on  borrowings  under  the term  loans at June 30,  2000 was  approximately
11.48%.  HQ Global converted to a LIBOR option on July 5, 2000. HQ Global pays a
commitment  fee of 1/2 of 1.0% per annum on the  unused  portion  of the  Credit
Facility.  The Credit Facility contains certain  financial  covenants related to
interest coverage,  leverage ratios and other limitations.  At June 30, 2000, HQ
Global was in compliance with all of its covenants.

On June 1, 2000, HQ Global entered into a Senior  Subordinated  Credit  Facility
(the "Bridge Loan") of $125.0 million  provided by UBS Warburg,  LLC. The Bridge
Loan bears interest at LIBOR plus 6.5% and matures on May 31, 2007.

On August 11, 2000,  HQ Global  replaced  the Bridge Loan with a $125.0  million
Senior  Subordinated Note Agreement (the "Mezzanine  Loan").  The Mezzanine Loan
bears  interest  at  13.5% per annum and matures on May 31, 2007.  The Mezzanine
lenders  received  503,545  Class A warrants  and  227,163  Class B warrants.

On August 11,  2000,  HQ Global  issued  613,166  additional  shares of Series A
Cumulative  Convertible  Preferred  Stock in the  amount  of $25.0  million.  In
connection with this sale, HQ Global issued 312,274 Class A warrants and 164,902
Class B warrants.

The terms of the Class A warrants and Class B warrants are identical except that
Class A  warrants  are  exercisable  at the option of the holder at any time and
Class B warrants  are  exercisable  on or after  March 1, 2002,  but only in the
event that a Qualified  Initial  Public  Offering  (as  defined in the  Purchase
Agreements) has not occurred prior to that date.

As  of August 11, 2000,  HQ Global  had  letters  of credit  outstanding  in the
aggregate amount of $25.9 million,  against which HQ Global pledged $5.5 million
in cash and $20.4  million  were  supported  by a  backstop  letter of credit by
FrontLine.

The Company also funded  investing  activities for the six months ended June 30,
2000 with net proceeds of  approximately  $24.6  million from the  completion of
26,000 shares of privately placed Convertible Preferred Stock offerings.  On May
6, 2000, the Company paid a preferred  dividend to the preferred  shareholder of
approximately $0.6 million.

On March 7, 2000, an investment  partnership  invested $30.0 million to purchase
1.5 million warrants to acquire FrontLine's common stock at an exercise price of
$70 per share.  The warrants  have a term of 3.25 years.  On June 29, 2000,  the
investment partnership invested an additional $3.0 million to obtain a reduction
in the warrant  exercise  price to $47.25 per share and to extend the expiration
of the warrants to March 2005. Simultaneously with this transaction, the Company
issued  1,075,000  shares of its common stock for an additional  2.5%  ownership
interest  in HQ Global  in  connection  with an  agreement  with the  investment
partnership, which had originally owned VANTAS preferred stock.

On March 31, 2000,  the Company  sold  approximately  2.6 million  shares of its
common stock at a price of $47.25 per shares for an aggregate  consideration  of
approximately $122.6 million.  Proceeds from the sale were utilized to repay the
remaining  portion  of  the  Credit  Facility.  As a  result,  certain  deferred
financing costs of  approximately  $2.6 million were incurred in connection with
the Credit Facility were expensed as an  extraordinary  loss in the accompanying
consolidated  statements  of  operations.  As a part  of this  transaction,  the
Company issued 128,750 warrants with an exercise price of $47.25 per share for 3
years.


                                       31

<PAGE>


Subsequent to June 30, 2000,  the Company  funded an additional  $7.5 million to
existing Partner Companies.

Currently,  the  Company  has two  short-term  letters of credit  totaling  $3.2
million, which have been utilized as security deposits.

FrontLine's operations do not require intensive capital expenditures. There were
no significant capital expenditure commitments as of June 30, 2000.

FrontLine will continue to evaluate  acquisition  opportunities  and may acquire
additional ownership interests in new and existing Partner Companies in the next
12  months,  all of which  could  make it  necessary  for the  Company  to raise
additional funds. The Company may not be able to obtain additional bank or other
financing  beyond  this  period,  or may  only  be able  to do so on  terms  not
favorable or acceptable to the Company.  If additional  funds are raised through
the  issuance  of  equity  securities,   existing  shareholders  may  experience
significant dilution. Although management believes that it will continue to have
access to the public and private  markets,  the availability and amount of funds
from these markets is subject to numerous factors including some that are beyond
the Company's control, and therefore is not assured.

INFLATION

The Credit  Facilities  generally bear interest at variable  rates.  These rates
will be  influenced  by changes in the prime rate and is  sensitive to inflation
and other economic factors. A significant  increase in interest rates may have a
negative impact on the earnings of the Company due to the variable interest rate
under the Credit Facilities.



                                       32


<PAGE>


ITEM 3. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

The primary  market risk facing the Company is interest  rate risk on its Credit
Facilities.  The  Company  does not hedge  interest  rate risk  using  financial
instruments.  The Credit  Facilities  bear  interest at the greater of the prime
rate plus 2% or 12% (with  interest on balances  outstanding  more than one year
increasing  by 4% of the  previous  year's  rate).  The rate of  interest on the
Credit  Facilities  will be  influenced  by  changes  in the  prime  rate and is
sensitive to inflation and other  economic  factors.  A significant  increase in
interest rates may have a negative  impact on the earnings of the Company due to
the variable interest rate under the Credit Facilities.

The following  table sets forth the  Company's  Credit  Facilities  obligations,
principal cash flows by scheduled maturity,  weighted average interest rates and
estimated fair market value ("FMV") at June 30, 2000 (in thousands).

<TABLE>
<CAPTION>
                                                    For the year ended December 31,
                                                    -------------------------------
                       2000      2001      2002        2003        2004     Thereafter     Total         FMV
                       ----      ----      ----        ----        ----     ----------     -----         ---
<S>                  <C>       <C>       <C>         <C>         <C>       <C>           <C>         <C>
Variable rate         $  --     $  --     $  --     $131,243      $  --       $  --       $131,243     $131,243

Average
interest rate            --        --        --        12.14%        --          --          12.14%          --
</TABLE>


The primary  market  risk  facing HQ Global is interest  rate risk on the Credit
Facility.  HQ Global mitigates this risk by entering into hedging instruments on
a portion of its outstanding balances. In addition, HQ Global may elect to enter
into LIBOR  contracts  on  portions  of the Credit  Facility,  which locks in HQ
Global's  interest  rate on those  portions  for 30, 60 or 90 day  periods.  The
Credit  Facility  bears  interest  ranging  from  either  3.25%  to  4.00 % over
applicable  LIBOR, or alternatively  2.25% to 3.00% over PRIME,  generally at HQ
Global's  election.  As of August 11, 2000,  HQ Global had hedged  approximately
$93.0  million of its credit  facility  using various  instruments  with various
expiration  dates through July 31, 2002.  These  instruments lock in the maximum
underlying 30 day LIBOR rate at levels between 7.93% and 9.00%.

An increase in interest  rates will have a negative  impact on the net income of
HQ Global due to the variable interest  component of the Credit Facility.  Based
on current  interest rate levels,  a 10% increase in underlying  interest  rates
will have approximately a 4.8% increase in interest expense,  ignoring the short
term impact of remaining terms under current LIBOR hedge contracts.

Following  the HQ Merger,  HQ Global is  conducting  more of its  operations  in
foreign  currencies,  primarily the British Pound.  Due to the nature of foreign
currency markets, there is potential risk for foreign currency losses as well as
gains.  HQ  Global  has not,  and does not plan to,  enter  into any  derivative
financial  instruments for trading or speculative purposes. As of June 30, 2000,
HQ Global had no other material exposure to market risk.








                                       33


<PAGE>


PART II - OTHER INFORMATION


Item 1.  Legal Proceedings - None
Item 2.  Changes in Securities and Use of Proceeds
The following  securities were issued in transactions  pursuant to the exemption
from registration  under Section 4(2) of the Securities Act of 1933 and involved
only accredited investors.

On April 14, 2000, the Company  exchanged an aggregate of 26,000 shares of its 8
7/8% Series A-1 through A-6  Convertible  Cumulative  Preferred Stock for 26,000
shares of its 8 7/8% Series A Convertible  Cumulative  Preferred Stock. The sole
purpose of this  transaction  was to combine the six series of  Preferred  Stock
into a single series.

Dividends on the Series A Preferred  Stock are payable  quarterly in cash or, at
the Company's election,  in common stock,  provided certain conditions have been
satisfied.  The Series A  Preferred  Stock is  redeemable  on or after the third
anniversary  of the date of  issuance  and is  convertible  at any time,  at the
option  of the  holder,  on or  after  the one year  anniversary  of the date of
issuance.  The Series A Preferred  Stock is convertible at a conversion  rate of
14.1884  shares of  common  stock for each  share of Series A  Preferred  Stock,
subject to adjustment.

On March 7, 2000, an investment  partnership  invested $30.0 million to purchase
1.5 million  warrants to acquire the Company's common stock at an exercise price
of $70 per share.  The warrants have a term of 3.25 years.  The Company utilized
approximately  half of these proceeds to reduce its $60.0 million Secured Credit
Facility  with a  significant  financial  institution.  On June  29,  2000,  the
investment partnership invested an additional $3.0 million to obtain a reduction
in the warrant  exercise  price to $47.25 per share and to extend the expiration
of the warrant to March 2005. Simultaneously with this transaction,  the Company
issued  1,075,000  shares of its common stock for an additional  2.5%  ownership
interest  in HQ Global  in  connection  with an  agreement  with the  investment
partnership, which had originally owned VANTAS preferred stock.

On April 12, 2000,  Winstar  Communications,  Inc.  ("Winstar")  acquired 63,492
shares of the Company's  common stock in connection with a contract  pursuant to
which the Company and its affiliates  will have the right to purchase,  license,
lease or otherwise  acquire any products,  equipment  and/or  services which are
offered  by  Winstar  or its  affiliates  for three  years  from the date of the
contract.  The products,  equipment or services  available include (i) software,
(ii) advertising on a Winstar  affiliate portal or a Winstar  affiliate web site
on which  advertising is sold, (iii) content provided by a Winstar affiliate and
(iv) any  product,  equipment  or  service  sold or  offered  by  Winstar  or an
affiliate on a non-exclusive basis to unaffiliated parties. In addition, Winstar
agreed to terminate its lawsuit against OnSite Access,  Inc., a company in which
the Company has invested $46.0 million.

Item 3.  Defaults Upon Senior Securities - None
Item 4.  Submission of Matters to a Vote of Securities Holders - None
On June 22,  2000,  the Company  held its annual  meeting of  stockholders.  The
matters on which the  stockholders  voted,  in person or by proxy,  were (1) the
election of three  nominees as Class II Directors to serve until the 2003 annual
meeting of stockholders,  or until their respective  successors are duly elected
and qualified,  (2) to ratify the selection of the  independent  auditors of the
Company and (3) to ratify the  adoption of the  Company's  2000  Employee  Stock
Option Plan. The three nominees were elected, the auditors were ratified and the
2000 Employee Stock Option Plan was approved.  The results of the voting are set
forth below: Election of Directors Votes Cast For Votes Cast Against

<TABLE>
<CAPTION>
ELECTION OF DIRECTORS          VOTES CAST FOR          VOTES CAST AGAINST
---------------------          --------------          ------------------
<S>                           <C>                     <C>
Michael Maturo                   27,825,491                 51,308
Mitchell Rechler                 27,825,491                 51,308
Roger Rechler                    27,825,491                 51,308
</TABLE>

<TABLE>
<CAPTION>
                        RATIFICATION OF AUDITORS
--------------------------------------------------------------------------
     VOTES CAST FOR                                   VOTES CAST AGAINST
-------------------------                            ---------------------
<S>                                                 <C>
       27,843,805                                           12,653
</TABLE>


                                       34

<PAGE>

<TABLE>
<CAPTION>
               APPROVAL OF 2000 EMPLOYEE STOCK OPTION PLAN
--------------------------------------------------------------------------
     VOTES CAST FOR                                   VOTES CAST AGAINST
-------------------------                            ---------------------
<S>                                                 <C>
       14,143,909                                         2,646,212
</TABLE>


Item 5.  Other information

On June 22, 2000 the  resignations  of two  Directors,  Donald Rechler and Gregg
Rechler,  were  accepted  by the Board of  Directors  and  Douglas A. Sgarro and
Sidney  Braginsky  were  appointed as Directors Mr. Sgarro  currently  serves as
Senior  Vice  President  -  Administration   and  Chief  Legal  Officer  of  CVS
Corporation.  Sidney Braginsky  currently serves as President of Olympus America
Inc. Also on such date Scott Rechler was appointed Chairman of the Board.

Item 6.  Exhibits and Reports on Form 8-K

Form 8K dated May 12, 2000              Relating to the extension of the closing
                                        date of the merger with VANTAS
                                        Incorporated and HQ Global
                                        Workplaces, Inc.


Form 8K  dated June 16, 2000            Relating to the Company's completion
                                        of the merger of VANTAS Incorporated
                                        with and into HQ Global Workplaces,
                                        Inc.










                                       35


<PAGE>


SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                               FRONTLINE CAPITAL GROUP


                               By:  \s\ Scott H. Rechler
                                  ----------------------
                               Scott H. Rechler, President and Chief Executive
                               Officer
                               (Principal Executive Officer)


                               \s\ Michael Maturo
                               -------------------------
                               Michael Maturo, Executive Vice President and
                               Chief Financial Officer
                               (Principal Financial and Accounting Officer)

DATE:  August 14, 2000









                                       36