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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 March 31, 2002

                         Commission File Number: 0-30162

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



           Delaware                                     11-3383642
           --------                                     ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation of organization)

405 Lexington Avenue, New York, NY                        10174
----------------------------------                        -----
(Address of principal executive office)                 (Zip Code)


                                 (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 filings for the past 90 days, Yes X No __.

The registrant has only one class of common stock, issued at $.01 par value per
share with 37,344,039 shares outstanding as of May 15, 2002.

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

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<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                                QUARTERLY REPORT
                    FOR THE THREE MONTHS ENDED MARCH 31, 2002


                                TABLE OF CONTENTS

Index                                                                      Page
--------------------------------------------------------------------------------
Part I.  Financial Information
--------------------------------------------------------------------------------

Item 1.  Financial Statements

         Consolidated  Balance Sheets as of March 31, 2002
         (unaudited) and December 31, 2001............................      3

         Consolidated  Statements of Operations  for the three
         months ended March 31, 2002 and 2001 (unaudited).............      4

         Consolidated  Statements  of Cash Flows for the three
         months ended March 31, 2002 and 2001 (unaudited).............      5

         Notes to the Consolidated Financial Statements (unaudited)...      6

Item 2.  Management's  Discussion and Analysis of Financial
         Condition and Results of Operations..........................     34

Item 3.  Quantitative and Qualitative Disclosures about Market Risk...     43


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Part II.  Other Information
--------------------------------------------------------------------------------

Item 1.      Legal Proceedings........................................     45
Item 2.      Changes in Securities and Use of Proceeds................     46
Item 3.      Defaults Upon Senior Securities..........................     46
Item 4.      Submission of Matters to a Vote of Securities Holders....     47
Item 5.      Other Information........................................     47
Item 6.      Exhibits and Reports on Form 8-K.........................     47

--------------------------------------------------------------------------------
Signatures                                                                 48
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                                       2

<PAGE>


Part 1 - Financial Information
ITEM 1 - FINANCIAL STATEMENTS

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

                                                       March 31,   December 31,
                                                         2002          2001
                                                      ----------   ------------
ASSETS:                                               (Unaudited)
Current Assets:
   Cash and cash equivalents....................          $25,478      $18,139
   Restricted cash..............................            1,834          878
   Accounts receivable,  net of allowance
     for doubtful accounts of $3,144 at
     March 31, 2002 and $2,492 at
     December 31, 2001..........................            4,626        6,865
   Other current assets.........................            3,929        4,502
                                                         --------    ---------
     Total Current Assets.......................           35,867       30,384
Ownership  interests  in and  advances to                  13,175       13,396
unconsolidated companies........................
Intangible assets, net..........................           16,220       16,820
Property and equipment, net.....................          155,691      168,486
Deferred financing costs, net...................           32,035       40,274
Net assets from discontinued operations.........            6,051        5,500
Other assets, net...............................            5,335        5,908
                                                         --------    ---------
     Total Assets...............................         $264,374     $280,768
                                                         ========    =========

LIABILITIES AND SHAREHOLDERS' DEFICIENCY:
Liabilities subject to compromise:
   Accounts payable and accrued expenses........          $56,502      $39,087
   Accrued restructuring costs..................           46,269       49,674
   Unsecured debt...............................          125,000      125,000
   Other liabilities............................            2,664        3,111
                                                         --------    ---------
     Total Liabilities subject to compromise....          230,435      216,872
Liabilities not subject to compromise:
Current Liabilities:
   Accounts payable and accrued expenses........           28,399       21,089
   Accrued restructuring costs..................                -        1,893
   Accrued reorganization cost..................            1,204            -
   Credit facilities with related parties.......          182,957      176,909
   Secured debt.................................          218,973      216,506
   Notes payable................................           25,000       25,000
   Deferred rent payable........................           50,825       52,448
   Other liabilities............................           37,226       41,526
                                                         --------    ---------
          Total Current Liabilities not subject to
               compromise.......................          544,584      535,371
Other Noncurrent  liabilities not subject
    to compromise...............................            6,947        7,890
                                                         --------    ---------
          Total Liabilities.....................          781,966      760,133
                                                         --------    ---------
Redeemable  convertible  preferred  stock
    (aggregate liquidation preference
    $25,000 at March 31, 2002 and
    December 31, 2001)..........................           25,690       25,325
Shareholders' Deficiency:
   8.875% convertible cumulative preferred
   stock, $.01 par   value, 25,000,000
   shares authorized,  26,000 issued and
   outstanding                                                  -            -
  Common stock, $.01 par value, 100,000,000
    shares authorized, 37,344,039 shares
    issued and outstanding at March 31, 2002
    and December 31, 2001, respectively                       373          373
  Additional paid-in capital....................          400,094      400,793
  Accumulated deficit...........................         (943,749)    (905,856)
                                                         --------    ---------
          Total Shareholders' Deficiency........         (543,282)    (504,690)
                                                         --------    ---------
          Total  Liabilities and Shareholders'
               Deficiency.......................         $264,374     $280,768
                                                         ========    =========
          See accompanying notes to consolidated financial statements.



                                       3

<PAGE>


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

                                                      Three Months Ended
                                                          March 31,
                                                 ------------------------------
                                                      2002             2001
                                                      ----             ----
HQ Operating Revenues:
  Workstation revenue.........................    $     57,512      $    89,066
  Support services............................          30,946           48,285
                                                 -------------     -------------
    Total HQ Operating Revenues...............          88,458          137,351
                                                 -------------     -------------

HQ Operating Expenses:
  Rent........................................          49,155           54,945
  Support services............................          10,686           16,436
  Center general and administrative...........          18,883           28,612
  General and administrative..................          10,967           15,641
                                                 -------------     -------------
    Total HQ Operating Expenses...............          89,691          115,634
                                                 -------------     -------------

    HQ Operating (Loss) Income................         (1,233)           21,717

HQ Other Expenses:
  Reorganization costs........................         (9,852)                -
  Depreciation and amortization................       (10,699)          (17,909)
  Interest expense, net........................        (8,836)          (12,737)
                                                 -------------     -------------

    HQ Loss from Continuing Operations.........       (30,620)           (8,929)

Parent Expenses:
  General and administrative expenses..........          (515)           (1,862)
  Amortization of deferred charges.............             -            (1,333)
  Restructuring costs..........................          (255)           (2,645)
  Interest expense, net........................        (6,287)           (5,121)
                                                 -------------     -------------

    Loss from continuing operations before
     minority interest and equity in net
     loss and impairment of unconsolidated
     companies.................................       (37,677)          (19,890)

Minority interest..............................             -            (1,532)
Equity in net loss and impairment of
 unconsolidated companies......................          (288)           (9,958)
                                                 -------------     -------------
    Loss before discontinued operations........       (37,965)          (31,380)

Income from discontinued operations............            72             1,164
                                                 -------------     -------------

    Net loss...................................       (37,893)          (30,216)

Dividends on and accretion of preferred stock..          (699)           (2,992)
                                                 -------------     -------------

    Net loss applicable to common
     shareholders..............................   $   (38,592)      $   (33,208)
                                                 =============     =============

Basic and diluted net loss per weighted
 average common share..........................        $(1.03)            $(.91)
                                                 =============     =============

Basic and diluted weighted average common
 shares outstanding............................    37,344,039        36,660,417
                                                 =============     =============

          See accompanying notes to consolidated financial statements.



                                       4
<PAGE>


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

                                                         Three Months Ended
                                                              March 31,
                                                     --------------------------
                                                        2002             2001
                                                        ----             ----
Cash Flows from Operating Activities:
  Loss from continuing operations..................   $(37,965)       $(31,380)
  Adjustments to reconcile loss from
    continuing operations to cash
    provided by (used in) operating activities:
      Depreciation and amortization................     10,699          17,909
      Amortization of deferred financing costs.....      8,219           2,488
      Equity in net loss and impairment of
        unconsolidated companies...................        288           9,958
      Realized gain on sale of short-term
        investments................................          -            (466)
      Minority interest............................          -           1,532
      Stock and related compensation ..............         23           2,385
      Non-cash restructuring costs.................         66             927
    Changes in operating assets and liabilities:
     Accounts receivable, net......................      2,240           6,985
     Acquisition costs and other assets............        155           1,798
     Deferred rent payable.........................      1,517           3,731
     Accounts payable and accrued expenses.........     35,057         (19,900)
     Accrued restructuring costs...................    (13,527)              -
     Other liabilities.............................      1,820           3,948
                                                       -------         -------
       Net cash provided by (used in) operating
        activities from continuing operations......      8,592             (85)
       Net  cash  used in  discontinuing
        operations.................................     (1,001)         (2,359)
                                                       -------         -------
       Net cash  provided  by (used  in)
        operating activities.......................      7,591          (2,444)
                                                       -------         -------
Cash Flows from Investing Activities:
  Acquisitions of officing solutions centers.......          -            (123)
  Equipment........................................       (443)        (15,758)
  Restricted cash..................................       (956)          1,124
  Proceeds from sale of short-term investments.....      1,010          20,918
  Acquisition  of ownership  interests and
    advances to unconsolidated Companies...........        (67)           (236)
                                                       -------         -------
       Net cash provided by (used in)
         continuing investing activities...........       (456)          5,925
       Net cash provided by discontinued
         operations................................        522             314
                                                       -------         -------
       Net cash provided by investing activities...         66           6,239
                                                       -------         -------
Cash Flows from Financing Activities:
  Issuance of preferred stock and redeemable
   preferred stock, net of cots....................          -          10,000
  Deferred financing costs.........................          -            (301)
  Net change in credit facilities with
   related parties.................................          -          (1,434)
  Capital leases...................................       (418)           (371)
  Net repayments of secured credit facility
   and notes payable...............................        100         (28,065)
  Other, net ......................................          -             (10)
                                                       -------         -------
     Net cash used in financing activities                (318)        (20,181)
                                                       -------         -------

Cash and Cash Equivalents:
  Net increase (decrease)..........................      7,339         (16,386)
  Beginning of period..............................     18,139          19,665
                                                       -------         -------
  End of period....................................    $25,478          $3,279
                                                       =======         =======


          See accompanying notes to consolidated financial statements.


                                       5

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


1.  DESCRIPTION OF THE COMPANY

FrontLine Capital Group ("FrontLine" or the "Company") is a holding company,
with two distinct operating segments: one holds FrontLine's interest in HQ
Global Workplaces, Inc., a company in the officing solutions market (see Note 3
for further discussion), and its predecessor companies ("HQ" or the "HQ Global
Segment"), and the other consists of FrontLine (parent company) ("FrontLine
Parent") and its interests in a group of companies (the "Parent and Other
Interests Segment") that provide a range of services. In October 2000, FrontLine
announced that it would focus its resources and capital on the businesses within
its existing portfolio and cease pursuing new investment activities.

HQ Global Bankruptcy

On March 13, 2002, HQ Global Holdings, Inc., HQ and its U.S. subsidiaries filed
a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
the U.S. Bankruptcy Court for the District of Delaware.

In connection with such bankruptcy filing, HQ Global Holdings, Inc., HQ and its
U.S. subsidiaries entered into an agreement that provides for up to $30.0
million in debtor-in-possession financing, with borrowings permitted for up to
nine months in accordance with certain operating and liquidity covenants. Any
borrowings, of which there have been none, will incur interest at prime plus 3%.

Notes Payable, Credit Facilities and Preferred Stock Defaults

As of March 31, 2002, the Company has not paid certain principal and interest
due on the FrontLine Bank Credit Facility and both the FrontLine Bank Credit
Facility (see Note 5) and the Credit Facilities with Reckson Operating
Partnership, L.P. ("Reckson") (see Note 1) are in default. Additionally, the
Company did not pay the dividend that became payable on December 31, 2001 for
the Redeemable Preferred Stock, and is in default under that agreement (see Note
6).

The accompanying consolidated financial statements have been prepared on a going
concern basis of accounting and do not reflect any adjustments that might result
should the Company be unable to continue as a going concern. The Company's
inability to repay or refinance its indebtedness when due, and pay dividends on
its redeemable preferred stock, its recent losses from operations and the
related Chapter 11 proceeding of HQ raise concern about its ability to continue
as a going concern. The appropriateness of using the going concern basis is
dependent upon, among other things (i) confirmation of a plan of reorganization
of HQ under the Bankruptcy Code, (ii) the ability to achieve profitable
operations after such confirmation and (iii) the ability to generate sufficient
cash from operations and through asset sales to meet its obligations.

FrontLine is in default of its debt agreement and has insufficient cash reserves
to continue operations for the next twelve months. Although negotiations are
ongoing, it does not appear likely that a satisfactory restructuring of these
obligations will be achieved. Accordingly, the Company is currently considering
its future options, including seeking protection from its creditors under the
federal bankruptcy laws.



                                       6

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


Delisting by Nasdaq

In March 2002, the Company's stock was delisted by Nasdaq as a direct result of
the HQ bankruptcy filing. The Company's common stock currently trades on the OTC
Bulletin Board under the symbol FLCGQ.

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. The
financial position, results of operations and cash flows of the HQ Global
Segment are presented in Note 3. The financial position, results of operations
and cash flows of the Parent and Other Interests Segment are summarized in Note
4. 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 accounting principles generally accepted in the United States
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
(substantially consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.

The balance sheet at December 31, 2001 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
notes thereto included in the Company's annual report on Form 10-K (the "Form
10-K") for the year ended December 31, 2001.

Accounting for Ownership Interests

The interests that FrontLine owns 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
each investee.

Consolidation. Where the Company directly or indirectly owns more than 50% of
the outstanding voting securities of an entity or controls the board of
directors, the consolidation method of accounting is applied. Under this method,
an entity's results of operations are reflected within the Company's
Consolidated Statements of Operations. Participation of other (non-FrontLine)
shareholders in the earnings or losses of a consolidated entity is reflected in
the



                                       7

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


caption "Minority interest" in the Consolidated Statements of Operations.
Minority interest adjusts the consolidated net results of operations to reflect
only the Company's share of the earnings or losses of the consolidated entity.

Equity Method. Investees whose results are not consolidated, but over whom the
Company exercises significant influence, have been accounted for under the
equity method of accounting. Under the equity method of accounting, an
investee's accounts are not reflected within the Company's Consolidated
Statements of Operations; however, FrontLine's share of the earnings or losses
of the investee is reflected in the caption "Equity in net loss and impairment
of unconsolidated companies."

Cost Method. Investees not accounted for under either the consolidation or the
equity method of accounting, which are generally those in which the Company has
less than a 20% interest in the voting securities of the investee, 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.

Cash and Cash Equivalents

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

Marketable Equity Securities

Available-for-sale marketable equity securities are reported at fair market
value, with the resulting net unrealized gain or loss reported within
shareholders' equity.

Receivables

HQ licenses office space and provides support services to clients in various
industries, ranging in size from small entrepreneurial entities to local offices
of international corporations. HQ's facilities included in continuing operations
are primarily located in the United States, which limits its exposure to certain
economic risks based upon local economic conditions. HQ performs credit
evaluations of its clients and generally requires approximately two months'
charges as a service retainer. HQ records an allowance for doubtful accounts
which reflects management's estimate of the risk of uncollectible accounts
receivable.

Property and Equipment

Property and equipment consists primarily of property and equipment owned by HQ,
and is stated at cost less accumulated depreciation and amortization.
Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets which range from three 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 March 31, 2002 and December 31,
2001, the related accumulated depreciation and amortization was $84.7 million
and $77.6 million, respectively.



                                       8
<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)



Deferred Financing Costs

The Company amortizes deferred financing costs over the term of the related
debt. As of March 31, 2002 and December 31, 2001, accumulated amortization was
$16.2 million and $16.0 million, respectively. Amortization of deferred
financing costs is included as a component of interest expense in the
accompanying consolidated statement of operations.

Impairments of Ownership Interests and Advances to Unconsolidated Companies

The Company continually evaluates the carrying value of its ownership interests
in and advances to each of its investments in unconsolidated companies for
possible impairment based on achievement of business plan objectives and
milestones, the value of each ownership interest in the unconsolidated company
relative to carrying value, the financial condition and prospects of the company
and other relevant factors. The fair value of the Company's ownership interests
in and advances to privately held companies is generally determined based on the
value at which independent third parties have invested or have committed to
invest in the companies. The Company recorded a $25.7 million charge during the
year ended December 31, 2000 to recognize impairment charges to reduce the
carrying value of its investments in certain unconsolidated companies. In
recognition of continuing difficult capital market conditions and operating
performance of these ownership interests, the Company recorded an additional
$32.9 million during the year ended December 31, 2001. Of the $32.9 million
recorded, $20.0 million related to Reckson Strategic Venture Partners, LLC
("Reckson Strategic")(see Note 4 for further discussion). As of March 31, 2002,
the Company determined that no additional impairment was necessary. These
charges are included in "Equity in net loss and impairment of unconsolidated
companies" in the accompanying Consolidated Statements of Operations.

Impairments of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the estimated fair value of the asset or business center. In preparing these
estimates, HQ must make a number of assumptions concerning occupancy rates,
rates which will be charged to clients for workstations and services, and rates
of growth of rent expense and other operating expenses. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the estimated fair
value of the assets.

Impairment charges are recorded as a permanent reduction in the carrying amount
of the related asset. Based on the trend of operating losses as well as HQ's
inability to remain in compliance with its debt arrangements, HQ determined that
the carrying value of its intangible assets was impaired at September 30, 2001.
Therefore, in the third quarter of 2001, the Company recognized an impairment
charge of approximately $294.1 million, representing the amount by which the
carrying amount of the intangible assets exceeded their estimated fair value. As
a result of continuing operating losses, the Company further revised its
projected cash flows during



                                       9
<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


the fourth quarter of 2001, resulting in an additional impairment charge of
$241.4 million. As of March 31, 2002, the Company determined that no additional
impairment was necessary. Management believes that assumptions made in
estimating fair values were reasonable, but actual fair values may differ
significantly from these estimates.

New Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("FAS") No. 141, Business
Combinations, ("FAS 141"), and No. 142, Goodwill and Other Intangible Assets,
("FAS 142"), effective for fiscal years beginning after December 15, 2001. Under
the new rules, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized, but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.

As a result of impairment charges recorded in the third and fourth quarters of
2001, the Company does not have any recorded goodwill or indefinite lives of
intangible assets at March 31, 2002. Accordingly, adoption of FAS 142 did not
have an impact on the Company's financial condition or results of operations.
Intangible assets with a carrying value of approximately $16.8 million at
December 31, 2001 will continue to be amortized.

The FASB has also recently issued FAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("FAS 144"), which was adopted by the Company on
January 1, 2002. The FASB's new rules on asset impairment supersede FAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("FAS 121"). FAS 144 retains the requirements of FAS 121 to (a)
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable from its undiscounted cash flows and (b) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset, but removes goodwill from its scope. This aspect of FAS 144 will
primarily impact the accounting for intangible assets subject to amortization,
property and equipment, and certain other long-lived assets. The adoption of
this statement did not have a material effect on the results of operations or
the financial position of the Company.

Revenue Recognition

The Company's operating revenues for both periods presented were attributable to
HQ. Revenues from workstations and business services are recognized as the
related services are provided. Workstation revenues consist of office and
related furniture rental, parking and storage. Business services consist of (1)
technology services comprised of Internet, videoconferencing and
telecommunications services and (2) other business services which include
charges to clients that do not require offices on a full-time basis, conference
and training room usage, catering, copies, management and franchise fees.



                                       10
<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


Income Taxes

The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. This method also requires the recognition of
future tax benefits such as net operating loss carry forwards, to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date. The result a valuation allowance is recognized if it is more likely than
not that some portion of the deferred asset will not be recognized. At March 31,
2002 and December 31, 2001, all of FrontLine Parent's deferred tax assets have
been fully reserved due to the uncertainty as to whether these assets will
provide benefit in future years.

Comprehensive Loss

Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions, events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. During
the three months ended March 31, 2001, the difference between net loss of
$30,216,000 and total comprehensive loss of $33,297,000 was due to $2,715,000 of
unrealized losses arising from foreign currency translation and $366,000 of
unrealized losses on "available-for-sale" marketable securities.

Segment Reporting

The segment information required by SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," relating to the HQ Segment and the
Parent and Other Interests Segment is presented in Notes 3 and 4, respectively.

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 Treasurer, who
along with the Board of Directors have been identified as the Chief Operating
Decision Makers ("CODM") because of their final authority over resource
allocation decisions and performance assessment.

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

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires
the Company to disclose the estimated fair values of its financial instrument
assets and liabilities. The carrying



                                       11
<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


amounts approximate fair value for cash and cash equivalents, accounts
receivable and accounts payable because of the short maturity of those
instruments. Other than as disclosed in Notes 5 and 11, the estimated fair
values of the Company's long-term debt approximate the recorded balances.

Derivative Instruments and Hedging Activities

The Company adopted the provisions of SFAS No. 133 ("SFAS 133") "Accounting for
Derivatives and Hedging Activities," as amended, effective January 1, 2001. SFAS
133 requires the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. HQ enters into
contracts that establish a cap and a floor interest rate on notional amounts to
hedge the interest rate risk on its floating-rate debt. The Company's policy is
that it will not speculate in hedging activities. The adopting of FAS 133 as of
January 2001 was not material to the Company's results of operations. There were
no derivatives outstanding at March 31, 2002.

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.
The most significant assumptions and estimates relate to the lives and
recoverability of long-lived assets. Actual results could differ from those
estimates.

Reclassifications

Certain prior period amounts and segment disclosures have been reclassified to
conform to the current period presentation.

3.  INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES

Overview

HQ is a provider of flexible officing solutions. HQ provides a complete
outsourced office solution through furnished and equipped individual offices and
multi-office suites available on short notice with flexible contracts. HQ 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 also provides similar services for those



                                       12
<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


businesses and individuals that do not require offices on a full-time basis. As
of March 31, 2002, HQ owned, operated, or franchised 368 business centers, which
are included in continuing operations and are primarily located in the United
States. There were 29 business centers operating at March 31, 2002 that were
held for sale and included in discontinued operations or in the process of being
closed. HQ's wholly-owned subsidiary is also the franchisor of 51 domestic and
31 international business centers for unrelated franchisees. Excluding
franchised centers, HQ owned and operated 286 business centers.

2000 Transactions

In connection with the completion of its step acquisition of VANTAS which began
in 1999, 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 to other VANTAS
stockholders pursuant to the terms of stock purchase agreements thereby
increasing its ownership interest in VANTAS to approximately 84% on a basic
basis and 76% on a diluted basis.

On June 1, 2000, VANTAS merged with HQ Global Workplaces, Inc. ("Old HQ"), in a
two-step merger, and HQ Global also acquired two other entities involved in the
executive office suites business outside the United States (the "HQ Merger"). As
a result of the HQ Merger, the combined company, under the name HQ Global
Workplaces, Inc., became a wholly-owned subsidiary of a newly-formed parent
corporation, HQ Global Holdings, Inc. ("HQ Global"). The HQ Merger was financed
through a combination of debt and HQ Global preferred stock and warrants. As of
March 31, 2002, FrontLine's ownership interest was approximately 56% on a basic
basis. Although FrontLine's percentage ownership may vary depending on the
actual preferred stock conversion price, on a fully-diluted basis, assuming the
outstanding preferred stock converted at the HQ Merger conversion price, and
assuming that certain warrants to purchase HQ Global stock, FrontLine would own
approximately 38% of the common stock of HQ Global. To effectuate the HQ Merger,
FrontLine contributed approximately $17 million in cash and its ownership
interest in VANTAS.

The costs of the HQ Merger have been allocated to the respective assets acquired
and liabilities assumed, with the remainder recorded as goodwill, based on
preliminary estimates of fair values as follows (in thousands):

        Working capital.......................................   $   7,840
        Property and equipment................................     107,047
        Goodwill..............................................     407,441
        Favorable acquired business center
         operating leases.....................................      25,690
        Other assets..........................................      32,504
        Other liabilities.....................................     (45,080)
        Notes payable.........................................    (138,693)
                                                                ----------
             Total............................................   $396,749
                                                                ==========

                                       13


<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


The estimates of fair value were determined by HQ Global's management based on
information provided by the management of the acquired entities. The above
purchase price allocation has been revised from the original allocation as
estimated amounts have been finalized.

Ownership by FrontLine

To facilitate HQ Global obtaining amendments to certain debt covenants, on June
29, 2001, FrontLine invested an additional $15 million into HQ Global via the
acquisition of a new subordinated series of preferred stock and common stock
warrants.

As of March 31, 2002, FrontLine's ownership interest was approximately 57% on a
basic basis. Although FrontLine's percentage ownership may vary depending on the
actual preferred stock conversion price, on a fully-diluted basis, assuming the
outstanding preferred stock converted at the HQ Merger conversion price, and
including certain warrants to purchase HQ Global stock, FrontLine would own
approximately 38% of the common stock of HQ Global.

An HQ Global shareholder has a put option ("Put Option") to require the Company
to purchase all of its interest any time between January 8, 2002 and January 8,
2005, at the then determined fair value of the interest.

The Company has entered into a stockholders agreement (the "HQ Stockholders
Agreement") with certain of the stockholders of HQ Global which provides them
with rights to put up to approximately 3.1 million shares of HQ Global (the "HQ
Shares") to the Company during the two years subsequent to the HQ Merger if HQ
Global has not completed an initial public offering of its shares. On February
25, 2002, such stockholders irrevocably waived their Put Rights.

HQ Global Bankruptcy

On March 13, 2002, HQ Global and certain of its affiliates (collectively, the
"Debtors") filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Court"). The Debtors will continue to operate and manage
properties in the ordinary course of business during the Chapter 11 proceeding.
The Debtors have the exclusive right to propose a plan of reorganization during
the 120-day period following March 13, 2002, which period may be extended by the
Court.

The Debtors anticipate proposing a plan of reorganization in accordance with the
federal bankruptcy laws as administered by the Court. Confirmation of a plan of
reorganization could materially change the amounts currently recorded in the
financial statements. The financial statements do not give effect to any
adjustment to the carrying value of assets, or amounts and classifications of
liabilities that might be necessary as a consequence of this matter.

Discontinued Operations

In December 2001, HQ's Board of Directors approved a plan to dispose of HQ's
business in Europe. The planned disposition of the businesses in Europe
represents the disposal of a business


                                       14

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


segment under Accounting Principles Board ("APB") Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions ("APB 30"). As a result of this transaction, the consolidated
financial statements have been reclassified to present the European businesses
as a discontinued operation.

Financial Statements

The following statements present the portion of the Company's financial
position, results of operations and cash flows represented by HQ Global and
predecessor entities as of and for the periods indicated.



                                       15


<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                       HQ GLOBAL AND PREDECESSOR ENTITIES
                                 Balance Sheets
                                 (in Thousands)


                                                        March 31,   December 31,
                                                          2002          2001
                                                       ----------   ------------
ASSETS:
Current Assets:
     Cash and cash equivalents.........................   $23,144     $16,151
     Restricted cash...................................     1,834         878
     Accounts receivable, net of allowance
       for doubtful accounts of $3,144 at
       March 31, 2002 and $2,492 at December 31, 2001..     4,626       6,865
     Other current assets..............................     3,761       4,141
                                                         --------    --------
         Total Current Assets..........................    33,365      28,035
Intangible assets, net.................................    16,220      16,820
Property and equipment, net............................   155,691     168,486
Deferred financing costs, net..........................    31,913      40,127
Net assets from discontinued operations................     6,051       5,500
Other assets, net......................................     4,609       4,130
                                                         --------    --------
         Total Assets..................................  $247,849    $263,098
                                                         ========    ========

LIABILITIES AND NET BUSINESS UNIT DEFICIENCY:
Liabilities subject to compromise:
     Accounts payable and accrued expenses.............   $56,502     $39,087
     Accrued restructuring costs.......................    46,269      49,674
     Unsecured debt....................................   125,000     125,000
     Other liabilities.................................     2,664       3,111
                                                         --------    --------
         Total Liabilities subject to compromise.......   230,435     216,872
Liabilities not subject to compromise:
     Accounts payable and accrued expenses.............    23,878      17,053
     Accrued restructuring costs.......................        --       1,893
     Accrued reorganization costs......................     1,204          --
     Secured debt......................................   218,973     216,506
     Deferred rent payable.............................    50,825      52,448
     Other liabilities.................................    37,226      41,526
                                                         --------    --------
         Total Current Liabilities not subject to
             compromise................................   332,106     329,426
Other noncurrent liabilities not subject to compromise.     6,947       7,890
                                                         --------    --------
         Total Liabilities.............................   569,488     554,188
Net business unit deficiency...........................  (321,639)   (291,090)
                                                         --------    --------
         Total Liabilities and Net Business Unit
             Deficiency................................  $247,849    $263,098
                                                         ========    ========



                                       16


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                       HQ GLOBAL AND PREDECESSOR ENTITIES
                            STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                                             Three Months Ended
                                                                  March 31,
                                                             -------------------
                                                              2002       2001
                                                              ----       ----
HQ Operating Revenues:
   Workstation revenue.................................     $57,512     $89,066
   Support services....................................      30,946      48,285
                                                         ----------  ----------
     Total HQ Operating Revenues.......................      88,458     137,351
                                                         ----------  ----------

HQ Operating Expenses:
   Rent................................................      49,155      54,945
   Support services....................................      10,686      16,436
   Center general and administrative...................      18,883      28,612
    General and administrative.........................      10,967      15,641
                                                         ----------  ----------
     Total HQ Operating Expenses.......................      89,691     115,634
                                                         ----------  ----------

     HQ Operating (Loss) Income........................      (1,233)     21,717

HQ Other Expenses:
   Reorganization costs................................      (9,852)          -
   Depreciation and amortization.......................     (10,699)    (17,909)
   Interest expense, net...............................      (8,836)    (12,737)
                                                         ----------  ----------
     Loss from continuing operations before
       minority interest...............................     (30,620)     (8,929)
Minority interest......................................           -      (1,532)
                                                         ----------  ----------
Loss before discontinued operations....................     (30,620)    (10,461)
Income from discontinued operations....................          72       1,164
                                                         ----------  ----------

     Net loss attributable to HQ.......................    $(30,548)    $(9,297)
                                                         ==========  ==========

Basic and diluted net loss attributable to HQ per
   weighted average common share.......................      $(0.82)     $(0.25)
                                                         ==========  ==========
Basic and diluted weighted average common shares
   of FrontLine Outstanding............................  37,344,039  36,660,417
                                                         ==========  ==========



                                       17


<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                            HQ GLOBAL AND PREDECESSOR
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                                             Three Months Ended
                                                                  March 31,
                                                             ------------------
                                                              2002       2001
                                                              ----       ----
Cash Flows from Operating Activities:
   Loss before discontinued operations attributable
   to HQ................................................   $(30,620)  $(10,461)
Adjustments to reconcile loss before discontinued
   operations attributable to HQ to cash provided
   by operating activities:
       Depreciation and amortization....................     10,699     17,909
       Amortization of deferred financing costs.........      8,194      2,031
       Minority interest................................          -      1,532
       Stock and related compensation...................         23        512
       Changes in operating assets and liabilities:
         Accounts receivable, net.......................      2,240      6,985
         Acquisition costs and other assets.............        (81)       673
         Deferred rent payable..........................      1,517      3,731
         Accounts payable and accrued expenses..........     34,972    (14,189)
         Accrued restructuring costs....................    (13,527)         -
         Other liabilities..............................     (4,228)    (1,076)
                                                           --------    -------
           Net cash provided by operating activities
              from continuing Operations................      9,189      7,647
         Net cash used in discontinued operations.......     (1,001)    (2,359)
                                                           --------    -------
         Net cash provided by operating activities......      8,188      5,288
                                                           --------    -------

Cash Flows from Investing Activities:
   Equipment  .........................................        (443)   (15,758)
   Restricted cash.....................................        (956)     1,124
                                                           --------    -------
           Net cash used in continuing investing
             activities................................      (1,399)   (14,634)
                Net cash provided by discontinued
                  operations...........................         522        314
                                                           --------    -------
                Net cash used in investing activities..        (877)   (14,320)
                                                           --------    -------

Cash Flows from Financing Activities:
   Proceeds (payments) from notes payable..............         100     (3,065)
   Capital leases......................................        (418)      (371)
                                                           --------    -------
           Net cash used in financing activities.......        (318)    (3,436)
                                                           --------    -------

Cash and Cash Equivalents:
   Net increase (decrease).............................       6,993    (12,468)
   Beginning of period.................................      16,151     12,742
                                                           --------    -------
   End of period.......................................     $23,144       $274
                                                           ========    =======


                                       18


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

4.  OTHER OWNERSHIP INTERESTS

The Company's ownership interests in its investees are classified according to
the applicable accounting method utilized at March 31, 2002 and December 31,
2001. The carrying value of equity method investments represents the Company's
acquisition costs less any impairment charges and the Company's share of such
investees' losses. The carrying value of cost method investments represents the
Company's acquisition costs less any impairment charges in such investees. The
Company's ownership interests in and advances to investees as of March 31, 2002,
are as follows (in thousands):

                                    March 31, 2002        December 31, 2001
                                 --------------------- -----------------------
                                  Carrying     Cost      Carrying     Cost
                                   Value       Basis      Value       Basis
                                 ---------    -------   ----------  --------

Equity Method...............      $13,175    $158,671     $13,396   $158,671
Cost Method.................            -      18,075           -     18,075
                                  -------                 -------
                                  $13,175                 $13,396
                                  -------                 -------

The following details the Company's equity in net loss and impairment of
unconsolidated companies (in thousands):

                                                       Three Months Ended
                                                            March 31,
                                                  ----------------------------
                                                       2002          2001
                                                    ----------    ---------
Reckson Strategic Venture Partners, LLC.......         $(288)      $(1,007)
Aggregate impairment charges..................             -        (9,417)
Gain on sale of Intuit, Inc. stock ...........             -           466
                                                       -----       -------
   Equity in net loss and impairment of
     unconsolidated companies.................         $(288)      $(9,958)
                                                       =====       =======

EmployeeMatters

On December 20, 2000, the Company sold its interest in EmployeeMatters, Inc.
("EmployeeMatters") to Intuit, Inc. ("Intuit") for 556,027 shares of Intuit
common stock. The fair value of such stock on the closing date of the sale was
$21.3 million. As a result of the sale, the Company recorded a gain of $8.3
million, net of $0.7 million of expenses and other related charges, in the
fourth quarter of the year ended December 31, 2000. Included in the above Intuit
shares are 23,072 shares that were held in escrow in order to collateralize
certain indemnification obligations of the Company. On December 31, 2001, Intuit
shares were released from escrow.

Sale of Intuit

During the three months ended March 31, 2001, the Company sold all shares of
Intuit not held in escrow at a realized gain of $0.5 million.



                                       19


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

Reckson Strategic

Reckson Strategic Venture Partners, LLC ("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 (the "RSVP Managing Directors") retained by
Holdings, acts as a managing member of Holdings, and has a carried interest
which provides for the RSVP Managing Directors to receive a share in the profits
of Reckson Strategic after the Company, UBS Real Estate Securities, Inc. ("UBS
Real Estate"), formerly Paine Webber Real Estate Securities, Inc., and Stratum
Realty Fund, L.P. ("Stratum") have received certain minimum returns and a return
of capital. UBS Real Estate and Stratum are non-managing members and preferred
equity owners who have committed $150 million and $50 million, respectively, in
capital and share in profits and losses of Reckson Strategic with the Company,
subject to a maximum internal rate of return of 16% of invested capital. The
carrying values of the Company's investment in Reckson Strategic, which is
accounted for under the equity method, were $13.2 million and $13.4 million as
of March 31, 2002 and December 31, 2001, respectively.

Financial Statements

The following statements present the portion of the Company's financial
position, results of operations and cash flows represented by FrontLine Parent
and other interests as of and for the periods indicated.



                                       20


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                   FRONTLINE PARENT AND OTHER INTERESTS
                                 Balance Sheets
                      (in Thousands, Except Share Amounts)

                                                   March 31        December 31,
                                                     2002              2001
                                                   --------        ------------
ASSETS:
Current Assets:
     Cash and cash equivalents...............        $2,334              $1,988
     Other current assets....................           168                 361
                                                   --------            --------
         Total Current Assets................         2,502               2,349
Ownership interests in and advances to
  unconsolidated companies...................        13,175              13,396
Deferred financing costs, net................           122                 147
Other assets, net............................           726               1,778
                                                   --------            --------
         Total Assets........................       $16,525             $17,670
                                                   ========            ========

LIABILITIES AND SHAREHOLDERS' DEFICIENCY:
Current Liabilities:
     Accounts payable and accrued expenses...        $4,521              $4,036
     Credit facilities with related parties..       182,957             176,909
     Notes payable...........................        25,000              25,000
     Negative ownership interest in HQ Global
       and predecessor entities..............       321,639             291,090
                                                   --------            --------
         Total Liabilities...................       534,117             497,035
                                                   --------            --------
Redeemable convertible preferred stock.......        25,690              25,325
Shareholders' Deficiency:

     8.875% convertible cumulative preferred
       stock, $.01 par value, 25,000,000
       shares authorized, 26,000 issued and
       outstanding...........................             -                   -

     Common stock, $.01 par value,
       100,000,000 shares authorized,
       37,344,039 shares issued and
       outstanding at March 31, 2002 and
       December 31, 2001, respectively.......           373                 373
       Additional paid-in capital............       400,094             400,793

     Accumulated deficit.....................      (943,749)           (905,856)
                                                   --------            --------
Total Shareholders' Deficiency...............      (543,282)           (504,690)
                                                   --------            --------
Total Liabilities and Shareholders'
       Deficiency............................       $16,525             $17,670
                                                   ========            ========




                                       21


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                      FRONTLINE PARENT AND OTHER INTERESTS
                            STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)



                                                         Three Months Ended
                                                              March 31,
                                                     --------------------------
                                                       2002             2001
                                                     ---------        ---------

Parent Expenses:
   General and administrative expenses..........        $(515)        $(1,862)
   Amortization of deferred charges.............            -          (1,333)
   Restructuring costs..........................         (255)         (2,645)
   Interest expense, net........................       (6,287)         (5,121)
                                                   ----------      ----------

     Loss before equity in net loss and impairment
       of unconsolidated companies..............       (7,057)        (10,961)

Equity in net loss and impairment of unconsolidated
     companies..................................         (288)         (9,958)
                                                   ----------      ----------

     Net loss ..................................       (7,345)        (20,919)

Dividends on and accretion of preferred stock...         (699)         (2,992)
                                                   ----------      ----------

     Net loss applicable to common shareholders
       attributable to Parent and Other
       Interests................................      $(8,044)       $(23,911)
                                                   ==========      ==========

Basic and diluted net loss attributable to Parent
   and Other Interests per weighted average
   common share.................................       $(0.22)         $(0.65)
                                                   ==========      ==========

Basic and diluted weighted average common shares
   of FrontLine outstanding.....................   37,344,039      36,660,417
                                                   ==========      ==========



                                       22


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

                     FRONTLINE PARENT AND OTHER INTERESTS
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


                                                        Three Months Ended
                                                             March 31,
                                                   ----------------------------
                                                      2002              2001
                                                      ----              ----
Cash Flows from Operating Activities:
   Net loss......................................   $(7,345)         $(20,919)
   Adjustments to reconcile net loss
     to cash used in operating activities........
       Amortization of deferred financing
         costs...................................        25               457
       Equity in net loss of unconsolidated
         companies...............................       288             9,958
       Realized gain on sale of short-term
         investments.............................         -              (466)
       Stock and related compensation............         -             1,873
       Non-cash restructuring costs..............        66               927
       Changes in operating assets and liabilities:
         Acquisition costs and other assets......       236             1,125
         Accounts payable and accrued expenses...        85            (5,711)
         Other liabilities.......................     6,048             5,024
                                                    -------           -------
           Net cash used in operating activities.      (597)           (7,732)
                                                    -------           -------

Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers....         -              (123)
   Proceeds from sale of short-term investments..     1,010            20,918
   Acquisition of ownership interests and
     advances to unconsolidated companies........       (67)             (236)
                                                    -------           -------
           Net cash provided by investing
             activities..........................       943            20,559
                                                    -------           -------

Cash Flows from Financing Activities:
   Issuance of preferred and redeemable preferred
     stock, net of costs.........................         -            10,000
   Deferred financing costs......................         -              (301)
   Net change from credit facilities with related
     parties.....................................         -            (1,434)
   Net proceeds from notes payable...............         -           (25,000)
   Other                                                  -               (10)
                                                    -------           -------
           Net cash used in financing
             activities..........................         -           (16,745)
                                                    -------           -------

Cash and Cash Equivalents:
   Net increase (decrease).......................       346            (3,918)
   Beginning of period...........................     1,988             6,923
                                                    -------           -------
   End of period.................................    $2,334            $3,005
                                                    =======           =======


                                       23


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


5.  NOTES PAYABLE

HQ Debtor-in-Possession Facility

In connection with HQ's bankruptcy filing (See Note 1), HQ Global Holdings,
Inc., HQ and its U.S. subsidiaries entered into an agreement that provides for
up to $30.0 million in debtor-in-possession financing, with borrowings permitted
for up to nine months in accordance with certain operating and liquidity
covenants. Any borrowings, of which there have been none, will incur interest at
prime plus 3%.

HQ Credit Facility

HQ has a credit facility (the "HQ Credit Facility") with certain lending
institutions, which, as amended and restated as of June 29, 2001, provides for
borrowings of up to $219.4 million under four term loans (the "Term Loans") and
for borrowings or letters of credit of up to an additional $55.6 million under
two revolving loan commitments (the "Revolver Loans"). Availabilities under the
Revolver Loans are formula based. As of March 31, 2002, there was $188.7 million
in outstanding borrowings under the Term Loans and $30.3 million in borrowings
outstanding under the Revolver Loans. As of March 31, 2002, HQ had letters of
credit outstanding in the aggregate amount of $26.1 million for landlord
security deposits. Such letters of credit are collateralized by $0.8 million in
cash and $25.3 million of Revolver Loans.

The Term Loans are repayable in various quarterly installments through November
2005. Additional annual principal payments of 75% of excess cash flow as defined
are required. Pursuant to such requirement, HQ made an accelerated principal
payment of $15.1 million during the twelve-month period ended March 31, 2002,
based on cash flows for the year ended December 31, 2001. Any outstanding
borrowings under the two Revolver Loans are due on November 6, 2003 and May 31,
2005, respectively. Borrowings under the HQ Credit Facility bear interest
ranging from LIBOR (one-month LIBOR was approximately 1.88% at March 31, 2002)
plus 3.25% to 4.0% for one, three or nine-month periods at the election of HQ or
prime (4.75% at March 31, 2002) plus 2.25% to 3.00%. The weighted average
interest rate on borrowings under the Term Loans and the Revolver Loans at March
31, 2002, were approximately 5.9% and 6.0%, respectively. HQ pays a commitment
fee of 1/2 of 1.0% per annum on the unused portion of the HQ Credit Facility.

HQ's lending institutions have an assignment of leases and rents associated with
HQ's business centers and certain preferred security interests to collateralize
the borrowings under the HQ Credit Facility.

The stated maturities of borrowings outstanding under the HQ Credit Facility
subsequent to March 31, 2002 are as follows (in thousands):




                                       24


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


             Twelve Months Ended March 31,              Amount
             -----------------------------              ------
             2003 and arrears...........              $ 37,443
             2004.......................                39,146
             2005.......................                88,319
             2006.......................                54,065
                                                      --------
             Total......................              $218,973
                                                      ========

Mezzanine Loan

On May 31, 2000, HQ entered into a Senior Subordinated Credit Facility (the
"Bridge Loan") in the amount of $125.0 million. The Bridge Loan carried an
interest rate of LIBOR plus 6.5% and was to mature on May 31, 2007. On August
11, 2000, HQ replaced the Bridge Loan with a $125.0 million Note and Warrant
Purchase Agreement (the "Mezzanine Loan"). The Mezzanine Loan bears interest at
13.5% per annum and matures on May 31, 2007. The entire balance was outstanding
at March 31, 2002 and December 31, 2001.

In connection with the Mezzanine Loan, the Mezzanine Loan lenders received
503,545 Series A Warrants and 227,163 Series B Warrants to purchase common
stock. The fair value of the Series A 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 resulting in an effective interest rate of 15.6%.
No value has been assigned to the Series B Warrants.

Events of Default and Compliance with Covenants

The HQ Credit Facility and Mezzanine Loan contain certain covenants, including a
defined maximum ratio of consolidated indebtedness to consolidated earnings
before interest, income taxes, depreciation and amortization. In addition, there
are other covenants pertaining to financial ratios and limitations on capital
expenditures. Also, the HQ Credit Facility and Mezzanine Loan prohibit the
declaration or payment of dividends by HQ Global or any of its subsidiaries,
except for the payment of dividends in kind on its preferred stock.

In addition to not complying with certain financial covenants, in September
2001, HQ defaulted on its principle payments due under the HQ Credit Facility
and, in February 2002, commenced defaulting on interest payments. As a result of
entering into forbearance agreements, additional borrowings under the HQ Credit
Facility were permitted from September 30, 2001 to February 14, 2002. Due to
these defaults, outstanding borrowings are reflected as a current liability not
subject to compromise as of March 31, 2002 and December 31, 2001.

HQ also defaulted on the September 30, 2001 interest payment on the Mezzanine
Loan but did enter into a forbearance agreement that expired February 14, 2002.
As a result of this default and non-compliance with financial covenants, the
Mezzanine Loan has been classified as a current liability subject to compromise
as of March 31, 2002 and December 31, 2001.




                                       25


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

FrontLine Bank Credit Facility

On September 11, 2000, FrontLine entered into a $25.0 million line of credit
agreement (the "FrontLine Bank Credit Facility"). Borrowings under the FrontLine
Bank Credit Facility are secured by a 20.51% common ownership interest in shares
of HQ Global and bear interest, at the Prime rate plus 2%. Any outstanding
borrowings under the FrontLine Bank Credit Facility were originally due on March
11, 2001. In January 2001, FrontLine exercised its option to extend the maturity
date until June 11, 2001. In May 2001, the Company further extended the maturity
date to September 11, 2001. In September 2001, the Company further extended the
maturity date to October 25, 2001. At March 31, 2002, FrontLine has borrowed
$25.0 million under the amended FrontLine Bank Credit Facility. Such amount is
classified as current in the accompanying Consolidated Balance Sheet. The
weighted average interest rate of the outstanding borrowings at such date was
7.66%. The carrying value of FrontLine's borrowings under the FrontLine Bank
Credit Facility approximates its fair value as of March 31, 2002. Subsequent to
March 31, 2002, the Company has not repaid the principal or paid any interest
applicable to this period and is accordingly in default. The Company is
currently in negotiations to further extend the maturity or restructure the
terms of this facility. However, no assurances can be given that any further
extensions or restructuring of the terms of this credit facility will be agreed
upon.

The restructuring of the Company's indebtedness may result in significant
dilution to holders of the Company's common stock or the elimination of their
interest.

6.  REDEEMABLE PREFERRED STOCK

On December 13, 2000, FrontLine obtained a $25.0 million preferred equity
facility (the "Preferred Equity Facility") with a major financial institution.
At the inception of the Preferred Equity Facility, the Company drew $15.0
million, for net proceeds of $13.9 million; the remaining amount was drawn by
FrontLine during the three months ended March 31, 2001, for net proceeds of
$10.0 million.

The Preferred Equity Facility is comprised of a series of redeemable convertible
preferred securities (the "Series B Preferred Stock"). The holders have consent
rights for certain significant transactions, including the incurrence of
additional debt by the Company or HQ, the issuance of equity securities senior
to, or on a parity with, the Series B Preferred Stock or the issuance by HQ of
preferred stock. These securities also contain certain covenants relating to HQ.
In addition, the securities include a redemption premium of 27.5%. Since the
securities were not redeemed prior to December 13, 2001, the securities
(including the amount of the redemption premium) have become convertible at the
holder's option into FrontLine common stock at the initial rate of $13.3875 per
share, the preferred stock has become a voting security on an "as-converted"
basis, and quarterly dividends have become payable from the date of initial
issuance at the annual rate of 9.25%. Securities have a mandatory redemption
requirement at a 27.5% premium, which has been triggered as a result of uncured
events of default. Accordingly, the securities are classified as "Redeemable
convertible preferred stock" in the accompanying consolidated balance sheet at
March 31, 2002.



                                       26


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


The initial net proceeds of the securities are being accreted to the mandatory
redemption price of 127.5% of face value over the five-year period through the
mandatory redemption date.

At March 31, 2002, the Company did not pay the dividend that was payable at that
time and accordingly is in default. The Company is in arrears with regard to the
payment of dividends on its Series A and Series B Preferred Stock.

7. SHAREHOLDERS' EQUITY

During the three months ended March 31, 2000, the Company completed preferred
stock offerings of 26,000 shares of 8.875% Convertible Cumulative Preferred
Stock (the "Series A 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. The Company did not declare or pay the
quarterly dividend due on these shares on November 6, 2001, February 6, 2002 or
May 6, 2002. Accordingly, future dividends will accrue at a higher rate of
10.875%. If dividend distributions are in arrears for more than two quarterly
periods, then the holders of such shares will be entitled to elect two
additional members to the Company's Board of Directors.

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
$122.6 million. Proceeds from the sale were utilized to repay the remaining
portion of a then-existing credit facility. As a result, certain deferred
financing costs of $2.6 million incurred in connection with the establishment of
such 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 to purchase the Company's common stock with an
exercise price of $47.25 per share for three years.

The Company has entered into a stockholders agreement (the "HQ Stockholders
Agreement") with certain of the stockholders of HQ Global which provides them
with rights to put up to approximately 3.1 million shares of HQ Global (the "HQ
Shares") to the Company during the two years subsequent to the HQ Merger if HQ
Global has not completed an initial public offering of its shares. On February
25, 2002, such stockholders irrevocably waived their Put Rights.

8. LONG-TERM INCENTIVE PLAN

In March 2000, the Compensation Committee of the Board of Directors adopted a
long-term incentive plan (the "LTIP"). The terms of the LTIP are described in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
In April 2000, FrontLine paid advances aggregating $2.8 million on future
payments under the long-term incentive plan ---------------- to its four
executive officers. During the three months ended September 30, 2001, $1.8
million of these advances were forgiven as a result of the termination of three
of these executives. Including related income tax accruals, the resulting
expenses relating to the forgiveness of the advances to these three executives
was $2.8 million in the twelve months ended December 31, 2001, respectively.




                                       27


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


The Company is continuing to amortize the remaining $1.0 million and related tax
payments through April 2007, the end of the required service period, for the
remaining executive officer who is still employed with the Company. During the
three months ended March 31, 2002, $0.1 million of amortization related to the
LTIP was recorded.

9.  RESTRUCTURING

HQ

In the second quarter of 2001, HQ initiated a restructuring program to close
certain of its business centers and eliminate certain other business center and
corporate positions. This restructuring program resulted in a charge of $11.3
million in the third quarter of 2001 consisting of employee severance and HQ's
estimate of future lease payments it would be required to make following closure
of the centers. Subsequent to the initiation of the plan, HQ has filed
bankruptcy and has revised its estimates of severance and lease costs based on
the expected costs of buying out its lease obligations resulting in a reduction
of accrued restructuring costs of $3.2 million in the fourth quarter of 2001.

In the fourth quarter of 2001, HQ expanded its restructuring program to include
the closure of additional business centers resulting in an additional
restructuring charge of $49.4 million consisting primarily of HQ's estimate of
the future lease payments, it will be required to make following closure of
these centers. Restructuring costs also include $5.7 million of professional
costs associated with this restructuring and HQ's Chapter 11 proceeding (See
Note 1).

The following table summarizes the accrued charges related to restructuring (in
thousands):

                                              Lease     Professional
                                Severance     Costs         Costs       Total
                                ---------   ---------   ------------   -------

Balances at December 31, 2001    $2,695      $46,979        $1,893     $51,567
Cash expenditures                  (979)         (58)       (1,893)     (2,930)
Non-cash reduction                    -       (2,368)            -      (2,368)
                                 ------      -------       -------     -------
Balance at March 31,2002         $1,716      $44,553        $    -     $46,269
                                 ======      =======       =======     =======

The total restructuring program is expected to result in a net reduction of
approximately 382 employees. At March 31, 2002, the program had resulted in a
reduction of 363 employees. Severance costs are expected to be paid in 2002,
while the lease costs are expected to be paid in 2002 and future years. This
restructuring also resulted in an impairment of related fixed assets of $20.9
million and impairment of favorable leases of $4.8 million included in HQ's
fourth quarter impairment charge.


                                       28


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

FrontLine

On October 18, 2000, FrontLine announced a restructuring of its strategic plan.
In connection with its restructuring, FrontLine terminated approximately 90% of
its headquarters personnel, which has occurred during a transition period
through the first quarter of 2002. As a result of this restructuring, FrontLine
has recognized cash and non-cash restructuring charges of $0.3 million during
the three-month period ended March 31, 2002 respectively.

The restructuring costs recognized during 2002 consist principally of $0.3
million of professional fees and other expenses. Approximately $0.1 million of
these costs have not been paid as of March 31, 2002.


                                       29


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

10. REORGANIZATION COSTS

In the first quarter of 2002, HQ recorded $3.7 million of professional costs
associated with the Chapter 11 proceeding and a $6.2 million non-cash charge
associated with the write-off of deferred financing costs associated with the
Mezzanine Loan. Additionally various landlords drew down on $2.4 million of
letters of credit during the quarter, which reduced the estimated liability
related to the closure of business centers.

HQ

The following table summarizes the accrued charges related to reorganization (in
thousands):


                                               Write off
                                                   of
                                                Deferred
                                               Financing
                                Professional     Costs
                                   Costs        non-cash       Total
                                -----------   -----------   ----------

First quarter 2002 charge           3,689        6,163         9,852
Cash expenditures                  (2,485)           -        (2,485)
Non-cash reduction                      -       (6,163)       (6,163)
                                  -------       ------        ------
Balance at March 31,2002          $ 1,204          $ -        $1,204
                                  =======       ======        ======


11.      TRANSACTIONS WITH RELATED PARTIES

HQ

HQ believes that the terms and pricing of each of the following transactions
with related parties are similar to those negotiated at arms length. Certain
officers and members of the board of directors of HQ Global Holdings, Inc. are
also officers and/or on the board of directors of FrontLine and Reckson
Associates Realty Corp. ("Reckson Associates").

HQ is a tenant under several leases with Reckson Associates and affiliates. For
the quarter ended March 31, 2002, HQ made payments of $0.6 million for rent,
construction and other charges under such leases.

HQ is a tenant under several leases with Equity Office Properties ("EOP") and
affiliates of EOP, which are affiliated with EOP Operating Limited Partnership,
a purchaser of HQ's Series A Preferred Stock in conjunction with the HQ Merger.
For the quarter ended March 31, 2002, HQ made payments of $3.1 million for rent
and other charges under such leases.

HQ is a tenant under several leases with CarrAmerica and affiliates of
CarrAmerica, who received shares of HQ's Voting Common Stock and Nonvoting
Common Stock in conjunction



                                       30


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)



with the HQ Merger. For the quarter ended March 31, 2002, HQ made payments of
$0.6 million for rent and other charges under such leases.

FrontLine

The Company has a credit facility with Reckson Operating Partnership, L.P.
("Reckson") in the amount of $100 million (the "FrontLine Facility"). Reckson
has advanced the Company $93.4 million at March 31, 2002 under the FrontLine
Facility.

Additionally, Reckson Strategic has a $100 million commitment from Reckson to
fund its investment activities (the "Reckson Strategic Facility"). Draws on the
Reckson Strategic Facility occur either in the form of loans to FrontLine (the
"Reckson Strategic Facility" and, collectively with the FrontLine Facility, the
"Credit Facilities") under terms similar to the FrontLine Facility or whereby
Reckson makes direct investments with Reckson Strategic in joint ventures. As of
March 31, 2002, Reckson has advanced FrontLine $49.3 million under the Reckson
Strategic Facility. The aggregate principal amount outstanding and due Reckson
at March 31, 2001 under both credit facilities was $142.7 million. Interest
accrued on these facilities at March 31, 2002, was $40.2 million. Both of the
FrontLine and Reckson Strategic Facilities expire in June 2003. Currently, the
Company has an outstanding letter of credit in the amount of $0.2 million.

On March 28, 2001, the Company's Board of Directors approved amendments to the
Credit Facilities pursuant to which (i) interest is payable only at maturity and
(ii) Reckson may transfer all or any portion of its rights or obligations under
the Credit Facilities to its affiliates. In addition, the Reckson Strategic
Facility was amended to increase the amount available thereunder to up to $110
million. Reckson has advanced approximately $59.8 million under the Reckson
Strategic Facility to fund additional Reckson Strategic-controlled joint
ventures through March 31, 2002. There is no remaining availability under the
Credit Facilities. At March 31, 2002, as a result of the Company's failure to
pay the principal and interest due upon maturity on the FrontLine Bank Credit
Facility, an event of default has occurred upon the Credit Facilities with
Reckson. As a result of the default under the Credit Facilities, interest
borrowings currently bear interest at 14.62% per annum.

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 UBS Real
Estate receiving an annual minimum rate of return of 16% and a return of its
capital. The non-subordinated portion of the fee for each of the three months
ended March 31, 2002 and 2001 was $0.1 million.

12. CONTINGENCIES

Reference is made to the lawsuit captioned OmniOffices, Inc. et al. v. Joseph
Kaidanow et al. set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. In connection with such litigation, on September
12, 2001, without holding oral argument, the Court denied Plaintiffs' motion for
summary judgment, but granted the Defendants' cross-motion for summary judgment.
Plaintiffs and the directors of old HQ filed a Notice of Appeal in October 2001.
On February 15, 2002, the D.C. Circuit announced that oral argument was


                                       31


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

scheduled for January 16, 2003. In March 2002, the D.C. Circuit referred the
appeal to its Appellate Mediation Program. On April 24, 2002, HQ filed notice
that the action should be stayed according to the automatic stay provisions of
the Bankruptcy Code.

Reference is made to the lawsuit captioned Joseph Kaidanow and Robert Arcoro v.
CarrAmerica Realty Corporation, HQ Global Workplaces, Inc., Thomas A. Carr,
Philip L. Hawkins, C. Ronald Blankenship, Oliver T. Carr, and Gary Kusin set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. In connection with such litigation, on March 8, 2002, Plaintiffs filed
a motion for leave to amend their complaint to add, inter alia, a breach of
warrant agreements claim against HQ and other claims against FrontLine. On March
15, 2002, HQ filed a notice of bankruptcy stay, stemming from its March 13, 2002
voluntary petition for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the District of Delaware. HQ informed the Court that the
consolidated action should be stayed as to HQ pursuant to the automatic stay
provisions of the Bankruptcy Code. FrontLine has filed a motion to stay the
proceedings with respect to FrontLine.

On or about October 3, 2001, Burgess Services, LLC, Dominion Venture Group, LLC
and certain affiliated parties commenced an action in Oklahoma State Court
against Reckson Strategic Venture Partners, LLP ("RSVP"), Reckson Associates
Realty Corp. ("Reckson"), and RAP-Dominion LLC, a joint venture through which
RSVP and Reckson invested in a venture with certain of the plaintiffs. On April
10, 2002, the litigation was settled without liability on the part of the
Company or the defendant. In connection with the settlement, the joint venture
will be terminated. As a result of this settlement, the Company determined that
no further impairment was necessary on its carrying value in its investment in
Reckson Strategic.

In April 2000, the Company entered into an office lease which expires in
December 2010. In January 2001, the Company assigned the lease to HQ. The lease
assignment did not relieve the Company of any of its obligations under the terms
of this lease. At December 31, 2001, HQ was past due on $0.3 million of rent and
had a $2.8 million letter of credit outstanding with the landlord for the
office. Of the $57.6 million HQ restructuring charge recorded in 2001, a $4.8
million accrual applicable to this lease was recorded as an estimate for the
cost of terminating this lease. If the ultimate cost of terminating this lease
exceeds the outstanding letter of credit, then additional cash may need to be
paid by either HQ or the Company. Since HQ is currently in bankruptcy, the
landlord is likely to seek to recover any further damages from FrontLine. As of
December 31, 2001, the remaining lease commitment in excess of the existing
letter of credit was $24.2 million.

The Company also has potential liability under its indemnification of
CarrAmerica for liabilities of Carr America under its guarantees relating to
five HQ leases. In conjunction with the HQ Merger, FrontLine agreed to indemnify
CarrAmerica for its guarantees of certain HQ leases. At December 31, 2001, HQ
had $1.4 million in outstanding letters of credit associated with these 5
leases. Of the $57.6 million HQ restructuring charge recorded in 2001, a $2.3
million accrual applicable to this lease was recorded as an estimate for the
cost of terminating these leases. As of December 31, 2001, the remaining lease
commitments in excess of the existing letter of credit was $25.4 million.



                                       32


<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


In addition to the cases set forth above, the Company and its investee entities
are party to claims and administrative proceedings arising in the ordinary
course of business or which are otherwise subject to indemnification, some of
which are expected to be covered by liability insurance (subject to policy
deductibles and limitations of liability) and all of which, including the cases
discussed above, collectively are not expected to have a material adverse effect
on the Company's financial position or results of operations.


                                       33


<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 in this Quarterly Report Form
10-Q 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 involve certain risks and uncertainties.
Although the Company believes that the expectations 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 can give no assurance that such expectations will be
achieved. Certain factors that might cause the results of the Company to differ
materially from those indicated by such forward-looking statements include,
among other factors, an inability to extend and/or amend the terms of the
Company's outstanding indebtedness and HQ Global Holdings Inc. ("HQ" or the "HQ
Global Segment") indebtedness on terms that are favorable to the Company and its
common stockholders, results of any recapitalization of HQ and its bankruptcy,
negative changes in the officing solutions industry or the Internet-related
businesses in which the unconsolidated companies in which we invest operate, a
continued downturn in general economic conditions, increases in interest rates,
a lack of capital availability, ability to satisfy financial covenants,
competition, reduced demand or decreases in rental rates for executive office
suites and other real estate-related risks such as the timely completion of
projects under development, our inability to complete future strategic
transactions, costs incurred in connection with strategic transactions and our
dependence upon our key personnel and the key personnel of HQ and other risks
detailed in FrontLine's reports and other filings made with the Securities and
Exchange Commission. Consequently, such forward-looking statements should be
regarded solely as reflections of the Company's 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 a holding company, with two distinct operating segments: one holds
FrontLine's interest in HQ Global Workplaces, Inc., a company in the officing
solutions market, and its predecessor companies ("HQ" or the "HQ Global
Segment"), the other consists of FrontLine (parent company) ("FrontLine Parent")
and its interests in a group of companies (the "Parent and Other Interests
Segment") that provided a range of services. In October 2000, FrontLine
announced that it would focus its resources and capital on the businesses within
its existing portfolio and cease pursuing new investment activities.

In conjunction with its restructuring, FrontLine re-evaluated the carrying
values of its investments and recorded aggregate impairment charges of $57.7
million through March 31, 2002 in order to reduce the carrying value of these
investments to fair value.


                                       34


<PAGE>


Effect of Various Accounting Methods on Results of Operations

The interests that FrontLine owns in its investee entities have historically
been 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 each investee.

Consolidation. Where the Company directly or indirectly owns more than 50% of
the outstanding voting securities of an entity or controls the board of
directors, the consolidation method of accounting is applied. Under this method,
an entity's results of operations are reflected within the Company's
Consolidated Statements of Operations. The entities whose results are
consolidated by the Company are comprised of VANTAS Incorporated ("VANTAS") and
effective with the June 1, 2000 merger (the "HQ Merger") of VANTAS with HQ
Global Workplaces, Inc. ("Old HQ"), HQ Global. The entity representative of Old
HQ and its predecessors, such as VANTAS, is referred to herein as HQ. (See Note
3 to the accompanying consolidated financial statements for further discussion).
Participation of other shareholders in the earnings or losses of the
consolidated entities is reflected in the caption "Minority interest" in the
Consolidated Statements of Operations. Minority interest adjusts the
consolidated net results of operations to reflect only the Company's share of
the earnings or losses of the consolidated entities.

To understand the Company's results of operations and financial position without
the effect of the consolidation of HQ, Note 4 to the accompanying consolidated
financial statements presents the balance sheets, statements of operations and
cash flows of the Company without the consolidation of FrontLine's ownership
interest in HQ.

Equity Method. Investees whose results are not consolidated, but over whom the
Company exercises significant influence, have been accounted for under the
equity method of accounting.

Cost Method. Investees 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.
Impairment charges recognized on cost method investments are included in "Equity
in net loss and impairment of unconsolidated companies" in the accompanying
Consolidated Statements of Operations.

Results of Operations

The reportable segments in FrontLine's financial statements are the HQ Segment
and the Parent and Other Interests Segment. The following discussion should be
read in conjunction with the accompanying consolidated financial statements and
notes thereto.

HQ

All of FrontLine's operating revenues and operating expenses for the three
months ended March 31, 2002 and 2001 were attributable to HQ. The following is a
discussion of HQ's results of operations for such periods.


                                       35


<PAGE>


RESULTS OF CONTINUING OPERATIONS

Three Months Ended March 31, 2002 and 2001

Revenues. Total business center revenues for the three-month period ended March
31, 2002 were $88.5 million, representing a decrease of $48.9 million, or 35.6%,
from the three-month period ended March 31, 2001.

Business centers with three months of activity for both periods under comparison
("Same Centers") had revenues for the three-month period ended March 31, 2002
and 2001 of $86.2 million and $119.3 million, respectively, representing a
decrease in 2002 of $33.1 million, or 27.7%, compared with 2001. The decrease in
revenues in 2002 is attributable to a general decline in business performance.
Reflective of the challenging macro-economic environment experienced throughout
2001 and into 2002, business centers experienced reduced demand and downward
pricing pressure.

Business centers that were closed subsequent to January 1, 2001 during the
periods under comparison ("Closed Centers") had revenues for the three-month
period ended March 31, 2002 and 2001 of $1.2 million and $17.9 million,
respectively. Subsequent to January 1, 2001, the Company has ceased operations
in a number of business centers.

Business centers opened subsequent to January 1, 2001 ("Development Centers")
had revenues for the periods ended March 31, 2002 and 2001 of $1.1 million and
$0.2 million, respectively.

Expenses. Total business center expenses for the three-month period ended March
31, 2002 were $78.7 million, representing a decrease of $21.3 million, or 21.3%,
from the three-month period ended March 31, 2001.

Business centers with three months of activity for both periods under comparison
("Same Centers") had expenses for the three-month period ended March 31, 2002
and 2001 of $75.6 million and $84.0 million, respectively, representing a
decrease in 2002 of $8.4 million, or 10.0%, compared with 2001. The decrease is
attributable to reduced center general and administrative costs, as well as
lower technology and business service expenses associated with the decline in
related revenue, offset by certain lease increases.

Business centers that were closed subsequent to January 1, 2001 ("Closed
Centers") had expenses for the three-month period ended March 31, 2002 and 2001
of $2.0 million and $15.6 million, respectively. Subsequent to January 1, 2001,
HQ has ceased operations in a number of business locations.

Business centers opened subsequent to January 1, 2001 ("Development Centers")
had expenses for the three-month periods ended March 31, 2002 and 2001 of $1.1
million and $0.4 million, respectively.

Business Center Operating Income ("BCOI"). For the three-month period ended
March 31, 2002, BCOI was $9.7 million as compared with $37.4 million for
three-month period ended March 31, 2001. The BCOI as a percentage of total
revenues ("BCOI Margin") was 11.0% for the period ended March 31, 2002 as
compared to 27.2% for 2001. The decrease in BCOI Margin


                                       36


<PAGE>


can be attributed to a combination of reduced demand and downward pricing
pressure, reflective of the challenging macro-economic environment experienced
throughout 2001 and into 2002.

Same Center BCOI was $10.5 million and $35.3 million for the three-month periods
ended March 31, 2002 and 2001, respectively, representing a decrease in 2002 of
$24.8 million from 2001. The BCOI Margin from Same Centers for the three-month
period ended March 31, 2002 was 12.2% as compared with 29.6% in the
corresponding period in 2001.

Development Center BCOI was zero and negative $0.1 million for the three-month
periods ended March 31, 2002 and 2001, respectively.

Closed Center BCOI was negative $0.8 million and positive $2.2 million for the
three-month periods ended March 31, 2002 and 2001, respectively.

Corporate General and Administrative Expenses. For the three- month periods
ended March 31, 2002 and 2001, corporate general and administrative expenses
were $11.0 million and $15.7 million, respectively. Stated as a percentage of
total revenue, such expenses were 12.4% and 11.4%, respectively.

Reorganization Charges. For the three-month periods ended March 31, 2002 and
2001, reorganization charges were $9.8 million and zero, respectively. For the
period ended March 31, 2002, reorganization charges consisted of professional
fees of $3.7 million and a write-off of $6.1 million of deferred financing costs
associated with the HQ's Mezzanine Loan.

Depreciation and Amortization. For the three-month periods ended March 31, 2002
and 2001, depreciation and amortization expenses were $10.7 million and $17.9
million, respectively. The decrease in depreciation and amortization is
attributable to the reduced carrying value of intangible and fixed assets due to
impairment charges recorded in the second half of fiscal 2001.

Interest Expense. For the three-month periods ended March 31, 2002 and 2001,
net interest expense was $8.8 million and $12.7 million, respectively. The
decrease in interest expense is due to reduced borrowings and lower interest
rates.

Minority Interest. Minority interest was allocated a loss for the three-month
period ended March 31, 2001 of $1.5 million.

DISCONTINUED OPERATIONS

Income From Discontinued Operations. For the three-month period ended March 31,
2002, income from discontinued operations was $0.1 million, as compared to $1.2
million for the three-month period ended March 31, 2001.

PARENT AND OTHER INTERESTS

Three months ended March 31, 2002 and 2001

As a result of the restructuring discussed above (see Note 9 to the Company's
consolidated financial statements), FrontLine has changed from a company which
invested in early stage


                                       37


<PAGE>


companies which leveraged the Internet into one which is focused on highlighting
the value of HQ.

The restructuring costs recognized in the three-month period ended March 31,
2002 consist principally of $0.3 million of professional fees and other
expenses.

FrontLine's general and administrative expenses were $0.5 million in the
three-month period ended March 31, 2002 compared with $1.9 million for the
corresponding period in 2001 reflecting the planned reduction in workforce and
the resulting lower recurring general and administrative expenses in connection
with its restructuring.

A significant portion of FrontLine's net loss is derived from companies in which
it held minority ownership interests. The equity in net loss and impairment of
unconsolidated companies decreased $9.7 million to $0.3 million for the
three-month period ended March 31, 2002 as compared with the corresponding
period in 2001. The equity in net loss and impairment of unconsolidated
companies in the 2002 quarter consisted of $0.3 million of equity in net loss of
unconsolidated companies. The impairment charges in the 2001 quarter were
determined in recognition of specific unfavorable developments affecting these
companies as well as the continuing difficult market conditions experienced
during such period. The loss for the period ended March 31, 2001 was comprised
of $9.4 million of impairment charges reflecting the estimated decreases in the
fair values of certain of the Company's investments and $1.0 million of equity
in net loss, both partially offset by a $0.5 million gain on the sale of the
stock received as consideration for the December 2000 sale of EmployeeMatters,
Inc (see Note 4).

Dividends on, and accretion of, preferred stock of $0.7 million in the
three-month period ended March 31, 2002 represents dividends on FrontLine's
8.875% Series A Convertible Cumulative Preferred Stock (the "Series A Stock"),
which was issued in the first quarter of 2000 and accretion of FrontLine's
Series B Convertible Cumulative Preferred Stock which was issued in the fourth
quarter of 2000. Such amount in the three-month period ended March 31, 2001 of
$3.0 million represents dividends on the Series A Stock and accretion of the
Series B Stock.

LIQUIDITY AND CAPITAL RESOURCES

HQ

On March 13, 2002, HQ Global Holdings, Inc., HQ and its U.S. subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware (the
"Court"). HQ will continue to operate and manage properties in the ordinary
course of business during the Chapter 11 proceeding. HQ anticipates proposing a
plan of reorganization in accordance with the federal bankruptcy laws as
administered by the Court.

In connection with such bankruptcy filing, HQ Global Holdings, Inc., HQ and its
U.S. subsidiaries entered into an agreement that provides for up to $30.0
million in debtor-in-possession financing ("Debtor-in-Possession Facility"),
with borrowings permitted for up to nine months in accordance with certain
operating and liquidity covenants. Any borrowings, of which there have been
none, will incur interest at prime plus 3%.

There can be no assurance as to HQ's ability to execute its business plan and
meet its obligations with respect to its Debtor-in-Possession Facility. The
availability of additional capital and the

                                       38


<PAGE>

ultimate recapitalization of HQ to permit it to confirm a plan of reorganization
and emerge from bankruptcy protection is subject to numerous factors, including
some that are beyond HQ's control. In the event HQ is unable to access
additional capital or secure a confirmed plan of reorganization, no assurance
can be given that HQ will be able to meet its future cash requirements.

FrontLine

Historically, FrontLine has funded operations and investing activities through a
combination of borrowings under various credit facilities, issuances of the
Company's equity securities and sales of assets. Since the its restructuring,
FrontLine's cash requirements have been substantially reduced. As of March 31,
2002, there is no remaining availability under any FrontLine credit facility.

FrontLine is in default of its debt agreement and has insufficient cash reserves
to continue operations for the next twelve months. Although negotiations are
ongoing, it does not appear likely that a satisfactory restructuring of these
obligations will be achieved. Accordingly, the Company is currently considering
its future options, including seeking protection from its creditors under the
federal bankruptcy laws.

As a result of HQ filing bankruptcy, a substantial dilution or elimination of
the Company's interest in HQ could occur. As further described below, the
Company is in default in its credit facilities and is in arrears in the payments
of dividends on its preferred stock and in default on its obligations with
regard to its redeemable preferred stock. As a result of the foregoing, the
Company may be required to seek protection from its creditors under the federal
bankruptcy laws. Set forth below is a description of the Company's credit
facilities.

The Company has a credit facility with Reckson in the amount of $100 million
(the "FrontLine Facility"). Additionally, Reckson Strategic has a $100 million
facility (the "Reckson Strategic Facility") with Reckson to fund Reckson
Strategic investments. Note 10 to the consolidated financial statements
summarizes the terms of the FrontLine Facility and Reckson Strategic Facility
(collectively, the "Credit Facilities"). The Company had $93.4 million
outstanding under the FrontLine Facility at March 31, 2002, and due to
outstanding letters of credit and accrued interest, has no remaining
availability. The Company had $49.3 million outstanding under the Reckson
Strategic Facility at March 31, 2002. These borrowings were utilized to fund
Reckson Strategic investments and its general operations. As long as there are
outstanding amounts under the Credit Facilities, the Company is prohibited from
paying dividends on shares of its common stock or, subject to certain
exceptions, incurring additional debt. The Credit Facilities are subject to
certain other covenants and prohibit advances thereunder to the extent the
advances could, in Reckson's determination, endanger the status of Reckson
Associates as a REIT. Under the Credit Facilities, additional indebtedness may
be incurred by the Company's subsidiaries. The Credit Facilities also contain
covenants prohibiting the Company from entering into any merger, consolidation
or similar transaction and from selling all or any substantial part of its
assets, or allowing any subsidiary to do so, unless approved by the lender. The
Credit Facilities also provide for defaults thereunder in the event debt is
accelerated under another of FrontLine's financing agreements. On March 28,
2001, the Company's Board of Directors approved amendments to the Credit
Facilities pursuant to which (i) interest is payable

                                       39


<PAGE>


only at maturity and (ii) Reckson may transfer all or any portion of its rights
or obligations under the Credit Facilities to its affiliates. These changes were
requested by Reckson as a result of changes in REIT tax laws. In addition, the
Reckson Strategic Facility was amended to increase the amount available
thereunder to up to $110 million (from $100 million).

On September 11, 2000, FrontLine amended its $25.0 million credit agreement (the
"FrontLine Bank Credit Facility"). Borrowings under the FrontLine Bank Credit
Facility are secured by a 20.51% common ownership interest in HQ and bear
interest at the Prime rate plus 2%. Any outstanding borrowings under the
FrontLine Bank Credit Facility were due on October 25, 2001, as a result of
various extensions exercised by FrontLine in May 2001. At September 30, 2001,
FrontLine had fully borrowed the FrontLine Bank Credit Facility. The FrontLine
Bank Credit Facility provides for a default thereunder in the event debt is
accelerated under another of FrontLine's financing agreements or if there is a
default under certain HQ financing agreements. The FrontLine Bank Credit
Facility contains, among others, covenants relating to the financial ratios of
HQ and covenants prohibiting the Company from (i) transferring, conveying,
disposing of, pledging or granting a security interest in any of the collateral
previously pledged under the FrontLine Bank Credit Facility, (ii) terminating,
amending or modifying any organizational or other governing documents of the
Company or HQ without first obtaining the lender's prior written consent, (iii)
violating certain specified financial ratios, (iv) exceeding $25,000,000 of new
indebtedness, and (v) declaring or paying cash dividends on any class of the
Company's stock. Subsequent to March 31, 2002, the Company has not repaid the
principal or paid any interest applicable to this period and accordingly is at
the forbearance of the bank. There is no remaining availability under the Credit
Facilities. As a result of the Company's failure to pay the principal and
interest upon maturity on the FrontLine Bank Credit Facility, an event of
default has occurred under the credit facilities with Reckson.

During the three months ended March 31, 2000, the Company completed preferred
stock offerings of 26,000 shares of Series A 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. The Company
did not declare or pay the quarterly dividend due on these shares on November 6,
2001, February 6, 2002 or May 6, 2002. Accordingly, future dividends will accrue
at a higher rate of 10.875%. In addition, since dividend distributions are in
arrears for more than two quarterly periods, holders of the Company's preferred
stock are entitled to elect two additional members to the Company's Board of
Directors.

While the Company's $25 million of Series B Preferred Stock is outstanding, the
holders have consent rights for certain significant transactions, including the
incurrence of additional debt by the Company or HQ, the issuance of equity
securities senior to, or on a parity with, the Series B Preferred Stock or the
issuance by HQ of preferred stock. These securities also contain certain
covenants relating to HQ. In addition, the securities include a redemption
premium of 27.5%. Since securities were not redeemed prior to December 13, 2001,
the securities (including the amount of the redemption premium) have become
convertible at the holder's option into FrontLine common stock at the initial
rate of $13.3875 per share, the preferred stock has become a voting security on
an "as-converted" basis, and quarterly dividends have become payable from the
date of initial issuance at the annual rate of 9.25%. In addition, since the
Company did not pay the dividend on the Series B Preferred Stock in December
2001, the holders of such stock have the right to vote on an "as converted"
basis on any matters that holders of common stock


                                       40

<PAGE>


are permitted to vote upon and to elect two members to the Company's Board of
Directors. Securities have a mandatory redemption requirement at a 27.5%
premium, which has been triggered as a result of uncured events of default. In
addition, the consent of two-thirds of the holders of the Company's Series A
Preferred Stock is necessary in order to issue any equity securities ranking
senior to the Series A Preferred Stock. The Company is also prohibited from
paying dividends on its common stock unless full distributions have been paid on
both the Series A Preferred Stock and Series B Preferred Stock. The Company is
in arrears with regard to the payment of dividends on its Series A and Series B
Preferred Stock.

Currently, the Company has a short-term letter of credit in the amount of $0.4
million, which is being utilized as a security deposit.

The Company has entered into a stockholders agreement (the "HQ Stockholders
Agreement") with certain of the stockholders of HQ Global which provides them
with rights to put up to approximately 3.1 million shares of HQ Global (the "HQ
Shares") to the Company during the two years subsequent to the HQ Merger if HQ
Global has not completed an initial public offering of its shares. On February
25, 2002, such stockholders irrevocably waived their Put Rights.

FrontLine's operations do not require significant capital expenditures. There
were no significant capital expenditure commitments as of March 31, 2002.

There can be no assurance as to the Company's ability to execute its business
plan and to meet its obligations with respect to its credit facilities. If
additional funds are raised through the issuance of equity securities, existing
shareholders may experience significant dilution. The availability of additional
capital is subject to numerous factors including some that are beyond the
Company's control. In the event the company is unable to access additional
capital, no assurance can be given that it will be able to meet its future cash
requirements.

The Company has formed a committee of its Board of Directors, comprised solely
of the independent directors of the Board, in order to address conflicts that
may arise in connection with the Company's credit facilities with Reckson
Operating Partnership. The committee has retained legal counsel in connection
with its responsibilities.

In March 2002, the Company's stock was delisted by Nasdaq as a direct result of
the HQ bankruptcy filing. The Company's common stock currently trades on the OTC
Bulletin Board under the symbol FLCGQ.

INFLATION

HQ

Certain of HQ's leases include increases in annual rent based on changes in the
consumer price index or similar inflation indices. HQ's contracts with clients
generally range from six to twelve months in duration. Accordingly, HQ may have
the ability to pass on any inflation related increased costs at the time of
renewal of such contracts.


                                       41


<PAGE>


FrontLine

Management believes that inflation did not have a significant effect on its
results of operations during any of the periods presented.

                                       42


<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

HQ

The primary market risk facing HQ is interest rate risk on the HQ Credit
Facility. HQ mitigates this risk by entering into hedging instruments on a
portion of its outstanding balances. In addition, HQ may elect to enter into
LIBOR contracts on portions of the HQ Credit Facility, which locks in the
interest rate on those portions for 30, 60 or 90-day periods. The HQ 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's election.
As of March 31, 2002, HQ had hedged the interest rates on approximately $103.5
million of the HQ Credit Facility using various instruments with various
expiration dates through September 30, 2002. These instruments lock in the
maximum underlying three-month LIBOR at levels between 7.93% and 9.00%.

An increase in interest rates will have a negative impact on the net income of
HQ due to the variable interest component of the HQ Credit Facility. Based on
current interest rate levels, a 10% increase in underlying interest rates will
have a 4.4% increase in interest expense, ignoring the short-term impact of
remaining terms under current LIBOR hedge contracts.

Following the HQ Merger, HQ 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.
Currently, HQ has not hedged its foreign currency risk.

HQ has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of March 31, 2002, HQ had no
other material exposure to market risk.

FrontLine

Interest Rate Risk

FrontLine faces interest rate risk on its Credit Facilities and the FrontLine
Bank Credit Facility. The Company has not hedged 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 FrontLine Bank Credit
Facility bears interest at LIBOR plus 5% for one, two, three or six-month
interest periods, as elected by FrontLine. The rates of interest on the Credit
Facilities and the FrontLine Bank Credit Facility will be influenced by changes
in the prime rate and LIBOR. A significant increase in interest rates may have a
negative impact on the financial results of the Company due to the variable
interest rate (in excess of 12%) under the Credit Facilities.

The following table sets forth FrontLine's obligations with respect to the
Credit Facilities and the FrontLine Bank Credit Facility, principal cash flows
by scheduled maturity, weighted average interest rates and estimated fair market
value at March 31, 2002 (in thousands, except rates).


                                       43


<PAGE>

<TABLE>

                            For the Year Ending December 31,
                            --------------------------------
<CAPTION>
                      2002     2003    2004  2005   2006 Thereafter  Total    Fair Value
                    -------  -------   ----  ----   ----  ------     ------   ------
<S>                 <C>      <C>       <C>   <C>    <C>    <C>       <C>       <C>

Variable rate..     $25,000  $142,061   -     -      -      -        $167,061  $181,963
Average
interest rate..      8.47%   12.51%     -     -      -      -          11.91%        -

</TABLE>


Equity Market Risk

FrontLine faces equity market risk in its ownership interests in its
unconsolidated companies. During the fourth quarter of the year ended December
31, 2000 and the first quarter of 2001, FrontLine recognized impairment charges
to reflect decreased valuations for certain of its investments as a result of
unfavorable market conditions and other factors (see Note 4 to the accompanying
consolidated financial statements for further discussion). As a result of such
impairment charges, along with the recognition of FrontLine's equity in the net
losses of certain ownership interests, the carrying value of FrontLine's
ownership interests in and advances to unconsolidated companies, at March 31,
2002 was $13.2 million, approximately 5% of total assets, thereby mitigating
FrontLine's future equity market risk related to these interests.


                                       44


<PAGE>


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Reference is made to the lawsuit captioned OmniOffices, Inc. et al. v. Joseph
Kaidanow et al. set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001. In connection with such litigation, on September
12, 2001, without holding oral argument, the Court denied Plaintiffs' motion for
summary judgment, but granted the Defendants' cross-motion for summary judgment.
Plaintiffs and the directors of old HQ filed a Notice of Appeal in October 2001.
On February 15, 2002, the D.C. Circuit announced that oral argument was
scheduled for January 16, 2003. In March 2002, the D.C. Circuit referred the
appeal to its Appellate Mediation Program. On April 24, 2002, HQ filed notice
that the action should be stayed according to the automatic stay provisions of
the Bankruptcy Code.

Reference is made to the lawsuit captioned Joseph Kaidanow and Robert Arcoro v.
CarrAmerica Realty Corporation, HQ Global Workplaces, Inc., Thomas A. Carr,
Philip L. Hawkins, C. Ronald Blankenship, Oliver T. Carr, and Gary Kusin set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. In connection with such litigation, on March 8, 2002, Plaintiffs filed
a motion for leave to amend their complaint to add, inter alia, a breach of
warrant agreements claim against HQ and other claims against FrontLine. On March
15, 2002, HQ filed a notice of bankruptcy stay, stemming from its March 13, 2002
voluntary petition for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the District of Delaware. HQ informed the Court that the
consolidated action should be stayed as to HQ pursuant to the automatic stay
provisions of the Bankruptcy Code. FrontLine has filed a motion to stay the
proceedings with respect to FrontLine.

On or about October 3, 2001, Burgess Services, LLC, Dominion Venture Group, LLC
and certain affiliated parties commenced an action in Oklahoma State Court
against Reckson Strategic Venture Partners, LLP ("RSVP"), Reckson Associates
Realty Corp. ("Reckson"), and RAP-Dominion LLC, a joint venture through which
RSVP and Reckson invested in a venture with certain of the plaintiffs. On April
10, 2002, the litigation was settled without liability on the part of the
Company or the defendant. In connection with the settlement, the joint venture
will be terminated. As a result of this settlement, the Company determined that
no further impairment was necessary on its carrying value in its investment in
Reckson Strategic.

In April 2000, the Company entered into an office lease which expires in
December 2010. In January 2001, the Company assigned the lease to HQ. The lease
assignment did not relieve the Company of any of its obligations under the terms
of this lease. At December 31, 2001, HQ was past due on $0.3 million of rent and
had a $2.8 million letter of credit outstanding with the landlord for the
office. Of the $57.6 million HQ restructuring charge recorded in 2001, a $4.8
million accrual applicable to this lease was recorded as an estimate for the
cost of terminating this lease. If the ultimate cost of terminating this lease
exceeds the outstanding letter of credit, then additional cash may need to be
paid by either HQ or the Company. Since HQ is currently in bankruptcy, the
landlord is likely to seek to recover any further damages from FrontLine. As of
December 31, 2001, the remaining lease commitment in excess of the existing
letter of credit was $24.2 million.


                                       45


<PAGE>



The Company also has potential liability under its indemnification of
CarrAmerica for liabilities of Carr America under its guarantees relating to
five HQ leases. In conjunction with the HQ Merger, FrontLine agreed to indemnify
CarrAmerica for its guarantees of certain HQ leases. At December 31, 2001, HQ
had $1.4 million in outstanding letters of credit associated with these 5
leases. Of the $57.6 million HQ restructuring charge recorded in 2001, a $2.3
million accrual applicable to this lease was recorded as an estimate for the
cost of terminating these leases. As of December 31, 2001, the remaining lease
commitments in excess of the existing letter of credit was $25.4 million.

Item 2.  Changes in Securities and Use of Proceeds - None

Item 3.  Defaults Upon Senior Securities

(i) HQ. HQ has received notice from the lenders under its senior credit
agreement (the "Credit Agreement") that it is in default with respect to certain
of its covenant and payment obligations under such agreement. On September 30,
2001, HQ elected not to make the principal amortization payment of $4.1 million
due and payable under the Credit Agreement. On November 1, 2001, HQ entered into
a forbearance agreement, effective as of October 1, 2001, with the lenders party
to the Credit Agreement, wherein the lenders have agreed for a certain period of
time to forbear from the enforcement of their remedies under the Credit
Agreement with respect to HQ's default. For additional information regarding
this matter, see "Note 5 -Notes Payable" to the Company's financial statements
included elsewhere in this report, which note is incorporated by reference into
this item.

On September 30, 2001, HQ elected not to make the interest payment due and
payable with respect to its $125 million senior subordinated credit facility
(the "Mezzanine Loan") in the amount of $4.2 million. For additional information
regarding this matter, see "Note 5 - Notes Payable" to the Company's financial
statements included elsewhere in this report, which note is incorporated by
reference into this item.

(ii) FrontLine. The Company failed to repay the $25 million of principal and
$0.2 million of interest due under the Company's $25 million secured credit
facility, which matured on October 25, 2001. The Company is currently in
negotiations to further extend the maturity of this facility. For additional
information regarding this matter see "Note 5 - Notes Payable" to the Company's
financial statements included elsewhere in this report, which note is
incorporated by reference into this item. As a result of the Company's failure
to pay the principal and interest under the senior facility when due, an event
of default has occurred under the Company's credit facilities with Reckson
Operating Partnership, L.P. For additional information regarding this matter,
see "Note 11 - Transactions with Related Parties" to the Company's financial
statements included elsewhere in this report, which note is incorporated by
reference into this item.

On February 6, 2002, the Company elected not to make the dividend payment due on
the Company's Series A Convertible Cumulative Preferred Stock in the aggregate
amount of $0.6 million. As a result of the failure to make the dividend payment,
dividends on the Series A Preferred Stock will accrue quarterly at the rate of
10.875%. If dividends are in arrears for more than two quarterly periods, the
holders of the Series A Preferred Stock will be entitled to elect two additional
members to the Company's Board of Directors. Dividends on the Company's

                                       46


<PAGE>


Series A Preferred Stock are cumulative, and therefore, all accrued and unpaid
dividends on the Company's Series A Preferred Stock must be paid in full prior
to commencing the payment of cash dividends on the Company's common stock.

Item 4.  Submission of Matters to a Vote of Securities Holders--None

Item 5.  Other Information--None

Item 6.  Exhibits and Reports on Form 8-K

(b) During the three months ended March 31, 2002, the Registrant filed the
following reports:

On January 20, 2002, the Registrant filed a Current Report on Form 8-K to report
that it had entered into a Second Amendment to its Forebearance Agreement with
certain banks party to HQ's Senior Credit Agreement.

On February 22, 2002, the Registrant submitted a Current Report on Form 8-K
under Item 5 thereof in order to report that the Registrant has been informed by
the Nasdaq National Market that it was not in compliance with the Nasdaq's
continued listing requirements.

On March 20, 2002, the Registrant submitted its Current Report on Form 8-K to
report that the Registrant issued a press release announcing that HQ Global
Workplaces, Inc. filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of
Delaware and received a commitment for $30 million in debtor-in-possession
financing.


                                       47


<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)


                               By:   \s\ James D. Burnham
                                     ---------------------
                                     James D. Burnham, Chief Financial Officer
                                     and Treasurer (Chief Accounting Officer)

Date:  May 15, 2002


                                       48