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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 September 30, 2001

                         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 37,356,942 SHARES OUTSTANDING AS OF NOVEMBER 14, 2001.

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

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<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                                QUARTERLY REPORT
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001



                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

INDEX                                                                                          PAGE
<S>        <C>                                                                                  <C>
-----------------------------------------------------------------------------------------------------------
PART I.  FINANCIAL INFORMATION                                                                   3
-----------------------------------------------------------------------------------------------------------
Item 1.    Financial Statements


           Consolidated Balance Sheets as of September 30, 2001 (unaudited) and
           December 31, 2000...........................................................          3

           Consolidated Statements of Operations for the three and six months ended
           September 30, 2001 and 2000 (unaudited).....................................          4

           Consolidated Statements of Cash Flows for the nine months ended September
           30, 2001 and 2000 (unaudited)...............................................          5


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


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations..................................................................         27

Item 3.    Quantitative and Qualitative Disclosures about Market Risk..................         41


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PART II.  OTHER INFORMATION
-----------------------------------------------------------------------------------------------------------

Item 1.    Legal Proceedings...........................................................         43
Item 2.    Changes in Securities and Use of Proceeds...................................         43
Item 3.    Defaults Upon Senior Securities.............................................         43
Item 4.    Submission of Matters to a Vote of Securities Holders.......................         44
Item 5.    Other Information...........................................................         44
Item 6.    Exhibits and Reports on Form 8-K............................................         44


----------------------------------------------------------------------------------------------------------
SIGNATURES                                                                                      45
----------------------------------------------------------------------------------------------------------
</TABLE>

                                       2

<PAGE>

PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,     DECEMBER 31,
                                                                                         2001               2000
                                                                                      ---------------  ---------------
ASSETS:                                                                                (UNAUDITED)
Current Assets:
<S>                                                                                      <C>            <C>
     Cash and cash equivalents..................................................          $10,815          $23,105
     Restricted cash............................................................            1,835            6,625
     Accounts receivable, net of allowance for doubtful accounts of
       $1,944 at September 30, 2001 and $3,393 at December 31, 2000.............           18,844           38,791
     Other current assets.......................................................           13,773           35,092
                                                                                  ---------------  ---------------
         Total Current Assets...................................................           45,267          103,613
Ownership interests in and advances to unconsolidated companies.................           14,683           39,845
Intangible assets, net..........................................................          352,216          667,936
Property and equipment, net.....................................................          230,367          221,677
Deferred financing costs, net...................................................           42,311           48,875
Investments in joint ventures...................................................           30,554           30,531
Other assets, net...............................................................            8,624           19,883
                                                                                   ---------------  ---------------
         Total Assets...........................................................         $724,022       $1,132,360
                                                                                   ===============  ===============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses......................................          $64,494          $67,412
     Credit facilities with related parties.....................................          142,061               --
     Current portion of senior secured debt.....................................          207,723           32,999
     Notes payable..............................................................          150,000           25,000
     Deferred rent payable......................................................            4,208            2,852
     Other current liabilities..................................................           31,153            2,558
                                                                                   ---------------  ---------------
         Total Current Liabilities..............................................          599,639          130,821
Credit facilities with related parties..........................................               --          135,523
Senior secured debt.............................................................               --          179,926
Subordinated notes payable......................................................               --          125,000
Deferred rent payable...........................................................           51,409           38,562
Other liabilities...............................................................           62,330           82,305
                                                                                   ---------------  ---------------
         Total Liabilities......................................................          713,378          692,137
                                                                                   ---------------  ---------------
Minority interest...............................................................          191,416          305,577
Redeemable convertible preferred stock (aggregate liquidation preference
      $25,000 at September 30, 2001 and $15,000 at December 31, 2000)...........           24,957           13,940
Commitments and contingencies...................................................               --               --
Shareholders' (Deficiency) Equity:
     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,
       37,396,942 and 36,625,847 shares issued and outstanding at
       September 30, 2001 and December 31, 2000, respectively..................               374              366
     Additional paid-in capital.................................................          401,507          400,916
     Accumulated deficit........................................................         (606,874)        (281,030)
     Accumulated other comprehensive income.....................................             (736)             454
                                                                                   ---------------  ---------------
         Total Shareholders' (Deficiency) Equity................................         (205,729)         120,706
                                                                                   ---------------  ---------------
         Total Liabilities and Shareholders' (Deficiency) Equity................         $724,022       $1,132,360
                                                                                   ===============  ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

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

                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                SEPTEMBER  30,                     SEPTEMBER 30,
                                                       -------------------------------     ---------------------------
                                                           2001              2000             2001           2000
                                                           ----              ----             ----           ----
<S>                                                        <C>              <C>             <C>             <C>
HQ Operating Revenues:
   Workstation revenue.................                       $79,883          $98,807       $ 267,440        $195,668
   Support services....................                        39,667           61,467         140,565         125,893
                                                       --------------    -------------     -----------     ------------
     Total HQ Operating Revenues   .......                    119,550          160,274         408,005         321,561
                                                       --------------    -------------     -----------     ------------
HQ Operating Expenses:
   Rent................................                        61,042           57,580         180,122         120,692
   Support services....................                        14,591           18,290          48,267          37,490
   Center general and administrative.............              28,717           30,797          93,478          66,934
   General and administrative.........                         15,800           18,712          52,267          36,511
                                                       --------------    -------------     -----------     ------------

     Total HQ Operating Expenses                              120,150          125,379         374,134         261,627
                                                       --------------    -------------     -----------     ------------
     HQ Operating (Loss) Income........................          (600)          34,895          33,871          59,934
HQ Other Expenses:
   Impairment of Intangible Assets.....................      (294,073)              --        (294,073)             --
   Depreciation and amortization.......................       (20,469)         (18,488)        (59,904)        (34,513)
   Restructuring costs.................................            --               --         (11,325)             --
   Interest expense, net...............................       (12,177)         (13,633)        (37,504)        (23,821)
   Merger and integration costs........................            --           (1,707)             --         (21,148)
                                                       --------------    -------------     -----------     ------------
     HQ (Loss) Income..................................      (327,319)           1,067        (368,935)        (19,548)
Parent Expenses:
   General and administrative expenses.................          (684)          (4,598)         (3,291)        (15,568)
   Amortization of deferred charges....................            --           (5,817)         (2,274)        (11,347)
   Restructuring costs.................................        (3,903)              --         (11,111)             --
   Interest expense, net...............................        (5,739)          (4,014)        (16,544)        (14,023)
   Depreciation and amortization.......................            --             (544)             --            (943)
    Development stage company costs....................            --           (3,579)             --          (7,285)
                                                       --------------    -------------     -----------     ------------
     Loss before income taxes, minority
       interest and equity in net loss and
       impairment of unconsolidated companies..........      (337,645)         (17,485)       (402,155)        (68,714)
Provision for income taxes.............................          (244)          (2,054)         (2,627)         (2,571)
Minority interest......................................       105,364           (4,416)        114,343          (3,318)
Equity in net loss and impairment of
   unconsolidated companies............................       (24,031)         (31,106)        (35,405)        (83,853)
                                                       --------------    -------------     -----------     ------------
     Loss before extraordinary item from
       early extinguishment of debt....................      (256,556)         (55,061)       (325,844)       (158,456)
Extraordinary item from early
   extinguishments of debt.............................            --               --              --          (2,648)
                                                       --------------    -------------     -----------     ------------
     Net loss..........................................      (256,556)         (55,061)       (325,844)       (161,104)

Dividends on and accretion of preferred
   stock...............................................          (939)            (576)         (4,868)          (1,499)
                                                       --------------    -------------     -----------     ------------
     Net loss applicable to common
       Shareholders...................................      $(257,495)        $(55,637)      $(330,712)       $(162,603)
                                                       ==============    =============     ===========     ============
Basic and diluted net loss per weighted
   average common share................................        $(6.93)          $(1.52)         $(8.96)          $(4.74)
                                                       ==============    =============     ===========     ============
Basic and diluted weighted average
   common shares outstanding.................              37,180,073       36,574,462      36,895,038       34,295,488
                                                       ==============    =============     ===========     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>


                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                              SEPTEMBER 30,
                                                                                     -------------------------------
                                                                                         2001              2000
                                                                                         ----              ----
<S>                                                                                       <C>               <C>
Cash Flows from Operating Activities:
   Net loss.....................................................................       $ (325,844)        $(161,104)
   Adjustments to reconcile net loss to cash used in operating activities:
       Depreciation and amortization............................................           59,904            35,456
       Impairment of Intangible Assets .........................................          294,073                --
       Amortization of deferred financing costs.................................            5,274             3,788
       Extraordinary loss on early extinguishments of debt......................               --             2,648
       Equity in net loss and impairment of unconsolidated companies............           35,405            83,853
       Minority interest........................................................         (114,343)            3,318
       Stock and related compensation ..........................................            2,737            11,347
       Non-cash restructuring costs.............................................            2,134                --
       Cumulative translation adjustment........................................           (1,213)           (1,013)
       Changes in operating assets and liabilities:
         Accounts receivable, net...............................................           19,947            (9,553)
         Acquisition costs and other assets.....................................            8,161             2,790
         Deferred rent payable..................................................            5,715             6,105
         Accounts payable and accrued expenses..................................           (6,746)          (31,182)
         Other liabilities......................................................           11,911            12,980
                                                                                     -------------     -------------
           Net cash used in operating activities................................           (2,885)          (40,567)
                                                                                     -------------     -------------
Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers, net of cash proceeds.............               --          (326,809)
   Equipment  ..................................................................          (32,905)          (34,686)
   Restricted cash..............................................................            4,790            23,322
   Proceeds from sale of short-term investments.................................           20,918                --
   Acquisition of ownership interests and advances to unconsolidated companies.           (10,125)          (69,951)
                                                                                     -------------     -------------
           Net cash used in investing activities................................          (17,322)         (408,124)
                                                                                     -------------     -------------
Cash Flows from Financing Activities:
   Issuance of common stock and warrants, net of costs..........................               --           156,855
   Issuance of preferred stock and redeemable preferred stock, net of costs.....           10,000            24,570
   Deferred financing costs.....................................................               --           (26,893)
   Net change in credit facilities with related parties.........................            6,538            10,531
   Capital leases...............................................................           (1,017)           (2,300)
   Net repayments of secured credit facility and notes payable..................           (5,202)           62,425
   Net proceeds from minority interest..........................................           (2,828)          226,958
   Other, net ..................................................................              426             1,115
                                                                                      -------------    -------------
           Net cash provided by financing activities............................            7,917           453,261
                                                                                      -------------    -------------
Cash and Cash Equivalents:
   Net (decrease) increase......................................................          (12,290)            4,570
   Beginning of period..........................................................           23,105            32,740
                                                                                      -------------     ------------
   End of period................................................................          $10,815           $37,310
                                                                                      =============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 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 leader 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.


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 and
nine-month periods ended September 30, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001.

The balance sheet at December 31, 2000 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, 2000.

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 caption "Minority interest" in the Consolidated

                                       6

<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


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.

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 September 30, 2001 and December
31, 2000, the related accumulated depreciation and amortization was $74.8
million and $43.0 million, respectively.

INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill representing the excess of the
purchase price over the net assets acquired of VANTAS Incorporated ("VANTAS")
and HQ. In connection with the merger of HQ and VANTAS (see Note 3), the Company
reassessed the estimated life of goodwill resulting from the merger. As a
result, the amortization period for goodwill was reduced from 30 to 20 years. As
of September 30, 2001 and December 31, 2000, the related accumulated
amortization was $57.0 million and $35.4 million, respectively. During the three
months ended September 30, 2001, the Company recorded a $294.1 million
impairment as a result of its review of the carrying value of its intangible
assets (see Note 3 for further discussion).


                                       7
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

IMPAIRMENTS

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 in the
fourth quarter of 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 $9.4 million charge during the three months ended March
31, 2001 and a $22.5 million charge for the three months ended September 30,
2001, to recognize further impairment charges related to such investments. Of
the $22.5 million recorded at September 30, 2001, $20.0 million relates to
Reckson Strategic Venture Partners, LLC ("Reckson Strategic" - see Note 4 for
further discussion). These 2001 charges are included in "Equity in net loss and
impairment of unconsolidated companies" in the accompanying Consolidated
Statement of Operations.

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 projected future undiscounted cash flows expected to be generated by the
asset or business center. 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. Management
believes that, at September 30, 2001, an impairment of long-lived assets has
occurred during the three-month period then ended, however no reduction of the
related estimated useful lives is warranted (see Note 3 for further discussion).
The assessment of the recoverability of long-lived assets will continue to be
impacted if estimated future operating cash flows are not achieved. Assets to be
disposed of are reported at the lower of the carrying amount or estimated fair
value less costs to sell.

NEW PRONOUNCEMENTS

In July 2001, the FASB issued Statement No. 141, "Business Combinations", ("SFAS
141") and Statement No. 142 "Goodwill and other Intangible Assets", ("SFAS
142"). SFAS 141 requires the purchase method to be used for business
combinations initiated after June 30, 2001. As the Company has never engaged in
a pooling acquisition transaction, the Company does not anticipate that SFAS 141
will have a significant impact on its current or future operations or financial
results. SFAS 142 requires that goodwill no longer be amortized to earnings, but
instead reviewed for impairment, the statement is required to be adopted in
January 2002. The Company has not yet completed its evaluation of the potential
impact of SFAS 142, however, the Company has evaluated impairment on intangible
assets based on FASB Statement 121 "Accounting for Impairment of Long-Lived
Assets", see Note 3 for further detail.

FOREIGN CURRENCY TRANSLATION

HQ's financial statements have been prepared using the local currency as the
functional currency. Foreign currency exchange gains and losses resulting from
the translation of financial statements denominated in local currencies into
U.S. dollars are included as a component of shareholders' equity.

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.


                                       8
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

STOCK-BASED COMPENSATION

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

INCOME TAXES

The Company accounts for income taxes under the liability method which requires
recognition of deferred tax assets and liabilities based upon the expected
future tax consequences of events included in the Company's financial statements
and tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the years in
which the differences are expected to reverse. The Company recognized current
state and foreign income tax provisions for the three and nine-month periods
ended September 30, 2001 of $0.2 million and $2.6 million, respectively, and of
$2.1 million and $2.6 million for the three and nine-month periods ended
September 30, 2000, respectively.

Additionally, deferred tax assets are recognized for temporary differences that
will result in deductible amounts in future years. A valuation allowance is
recognized if it is more likely than not that some portion of the deferred asset
will not be realized. As of September 30, 2001, the Company's deferred tax
assets have been fully reserved because of the uncertainty of the timing and
amount of future taxable income.

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 September 30, 2001, the difference between net loss of
$256,556,000 and total comprehensive loss of $253,628,000 was due to $2,471,000
of unrealized gains arising from foreign currency translation and $457,000 of
unrealized gains on "available-for-sale" marketable securities. During the nine
months ended September 30, 2001, the difference between net loss of $325,844,000
and comprehensive loss of $326,015,000 was due to $540,000 of unrealized losses
arising from foreign currency translation and $369,000 of unrealized gains 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, who along with the
Board of Directors have been identified as the chief operating decision makers
because of their final authority over resource allocation decisions and
performance assessment.


                                       9
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

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 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 10, 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 adoption of SFAS 133
resulted in an additional interest expense of $1.4 million and $3.8 million
being recognized in the three and nine-month periods ended September 30, 2001.

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 leader in the officing solutions market. 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


                                       10

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

capabilities. HQ also provides similar services for those businesses and
individuals that do not require offices on a full-time basis. As of September
30, 2001, HQ owned, operated, or franchised 465 business centers in 19
countries. This included 11 business centers open for nine months or less. Also
included are 6 business centers managed by HQ for unrelated third parties and 9
international joint-venture business centers, through its European subsidiary
and 1 domestic joint-venture business center. HQ's wholly-owned subsidiary is
also the franchisor of 46 domestic and 30 international business centers for
unrelated franchisees. Due to the changing economic conditions, HQ has decided
to consolidate trade areas and reduce centers in certain markets (the "HQ
Restructuring"). The costs associated with closing 17 identified centers were
accrued at June 30, 2001, although the actual closures did not take place until
subsequent to September 30, 2001. Based on the trend of operating losses as well
as the Company's inability to remain in compliance with its debt arrangements,
the Company determined that the value of HQ's intangible assets was impaired.
Therefore, the Company in the third quarter of 2001 recognized an impairment
loss of approximately $294.1 million equal to the amount by which the carrying
amount of the intangible assets exceeds their estimated fair value.

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. 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
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
                                                                ===========

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.

The unaudited pro forma financial information set forth below is based upon the
historical statements of operations of FrontLine for the nine months ended
September 30, 2000, adjusted to give effect to the HQ Merger as of the beginning
of such period. The pro forma financial information is presented for
informational


                                       11
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


purposes only and may not be indicative of what actual results of operations
would have been had the HQ Merger occurred as presented, nor does it purport to
represent the results of operations for future periods (in thousands, except per
share amounts).

        Revenues.............................................     $449,890
        Net loss.............................................     (153,958)
        Net loss applicable to common shareholders...........     (155,457)
        Basic and diluted net loss per common share..........       $(4.21)

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 September 30, 2001, 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 assuming that certain warrants to purchase HQ Global stock become
exercisable (which would occur if a qualified initial offering of HQ is not
consummated by March 1, 2002), FrontLine would own approximately 38% of the
common stock of HQ Global.

FrontLine holds an option it purchased in January 1999 to acquire another HQ
Global shareholder's 3.1% basic interest for $4.1 million in cash at any time
between July 8, 2001 and January 7, 2002. In addition, the 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.

In connection with the acquisition of Old HQ, FrontLine granted a put right
("Put Right") to the primary selling shareholder of Old HQ, for the shares of HQ
Global that this shareholder owned immediately after the HQ Merger (21.0% and
13.3% of HQ Global on a basic and fully diluted basis, respectively). This Put
Right provides that up to 50% of this ownership interest may be put to FrontLine
in December 2001 and any remainder of this ownership interest may be put to
FrontLine in July 2002. The Put Right is payable by the Company in cash, an
interest free note due on July 31, 2002, or FrontLine common stock (valued at
the time of the closing of the Put Right) at the Company's option. The HQ shares
would be valued at their fair market value at the time of the exercise of the
Put Right based upon a valuation determined by independent investment banks. The
Put Right provides that the Company may satisfy its obligations thereunder
through the issuance of FrontLine common stock if the common stock continues to
be listed on the NASDAQ stock market in connection with certain other
transactions between such shareholder, or other national securities exchange.
The Company is in negotiations to have the Put Rights waived. However, no
assurances can be given that the Put Rights will be waived.


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.


                                       12
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

                       HQ GLOBAL AND PREDECESSOR ENTITIES
                                 BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                    SEPTEMBER 30,     DECEMBER 31,
                                                                                         2001             2000
                                                                                    --------------  ---------------
<S>                                                                                      <C>            <C>
ASSETS:
Current Assets:
     Cash and cash equivalents..................................................         $  6,138       $   16,182
     Restricted cash............................................................            1,835            6,625
     Accounts receivable, net of allowance for doubtful accounts of
       $1,944 at September 30, 2001 and $3,393 at December 31, 2000.............           18,844           38,791
     Other current assets.......................................................           12,400           13,164
                                                                                   --------------   --------------
         Total Current Assets...................................................           39,217           74,762
Intangible assets, net..........................................................          352,216          667,936
Property and equipment, net.....................................................          230,367          221,677
Deferred financing costs, net...................................................           42,138           48,246
Investments in joint ventures...................................................           30,554           30,531
Other assets, net...............................................................            7,792           10,347
                                                                                   --------------   --------------
         Total Assets...........................................................         $702,284       $1,053,499
                                                                                   ==============   ==============
LIABILITIES AND NET BUSINESS UNIT EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses......................................         $ 58,986       $   58,166
     Subordinated notes payable.................................................          125,000               --
     Current portion of senior secured debt.....................................          207,723           32,999
     Deferred rent payable......................................................            4,208            2,852
     Other current liabilities..................................................            1,889            2,558
                                                                                   --------------   --------------
         Total Current Liabilities..............................................          397,806           96,575
Senior secured debt.............................................................               --          179,926
Subordinated notes payable......................................................               --          125,000
Deferred rent payable...........................................................           51,409           38,562
Other liabilities...............................................................           62,330           68,406
                                                                                   --------------   --------------
         Total Liabilities......................................................          511,545          508,469
Minority interest...............................................................          191,416          305,577
Cumulative translation adjustment...............................................             (677)            (137)
Net business unit equity........................................................               --          239,590
                                                                                   --------------   --------------
         Total Liabilities and Net Business Unit Equity.........................         $702,284       $1,053,499
                                                                                   ==============   ==============
</TABLE>



                                       13

<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,                          SEPTEMBER 30,
                                                ------------------------------       ------------------------------
                                                     2001             2000                2001             2000
                                                     ----             ----                ----             ----
<S>                                                <C>             <C>                 <C>              <C>
 HQ Operating Revenues:
    Workstation revenue.......................       $79,883          $98,807            $267,440         $195,668
    Support services..........................        39,667           61,467             140,565          125,893
                                                -------------    -------------       -------------    -------------
     Total HQ Operating Revenues.............        119,550          160,274             408,005          321,561
                                                -------------    -------------       -------------    -------------
HQ Operating Expenses:
   Rent......................................         61,042           57,580             180,122          120,692
   Support services..........................         14,591           18,290              48,267           37,490
   Center general and administrative.........         28,717           30,797              93,478           66,934
   General and administrative................         15,800           18,712              52,267           36,511
                                                -------------    -------------       -------------    -------------
     Total HQ Operating Expenses.............        120,150          125,379             374,134          261,627
                                                -------------    -------------       -------------    -------------
     HQ Operating (Loss) Income..............           (600)          34,895              33,871           59,934
HQ Other Expenses:
   Impairment of intangible assets...........       (294,073)              --            (294,073)              --
   Depreciation and amortization.............        (20,469)         (18,488)            (59,904)         (34,513)
   Restructuring costs.......................             --               --             (11,325)              --
   Interest expense, net.....................        (12,177)         (13,633)            (37,504)         (23,821)
   Merger and integration costs..............             --           (1,707)                 --          (21,148)
                                                -------------    -------------       -------------    -------------
     Loss before income taxes and
       minority interest.....................       (327,319)           1,067            (368,935)         (19,548)
Provision for income taxes...................           (244)          (2,054)             (2,627)          (2,571)
Minority interest............................        105,364           (4,416)            114,343           (3,318)
                                                -------------    -------------       -------------    -------------
     Net loss attributable to HQ............       $(222,199)         $(5,403)          $(257,219)        $(25,437)
                                                =============    =============       =============    =============
Basic and diluted net loss attributable to
   HQ per weighted average common
   share.....................................         $(5.98)          $(0.15)             $(6.97)          $(0.74)
                                                =============    =============       =============    =============
Basic and diluted weighted average
   common shares of FrontLine
   outstanding...............................     37,180,073       36,574,462          36,895,038       34,295,488
                                                =============    =============       =============    =============
</TABLE>


                                       14

<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


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

<TABLE>
<CAPTION>
                                                                                        NINE MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                  --------------------------------
                                                                                      2001                 2000
                                                                                      ----                 ----
<S>                                                                                 <C>                 <C>
Cash Flows from Operating Activities:
   Net loss attributable to HQ..............................................        $(257,219)          $(25,437)
   Adjustments to reconcile net loss attributable to HQ to cash provided by
     (used in) operating activities:
       Depreciation and amortization..........................................         59,904             34,513
       Impairment of Intangible Assets........................................        294,073                 --
       Amortization of deferred financing costs...............................          4,517              2,238
       Minority interest......................................................       (114,343)             3,318
       Stock and related compensation.........................................            (77)                --
       Cumulative translation adjustment......................................         (1,213)            (1,013)
       Changes in operating assets and liabilities:
        Accounts receivable, net.............................................          19,947             (9,553)
         Acquisition costs and other assets...................................          3,448             (6,898)
         Deferred rent payable................................................          5,715              6,105
         Accounts payable and accrued expenses................................            820            (29,081)
         Other liabilities....................................................         (3,454)             7,217
                                                                                  -------------    --------------
           Net cash provided by (used in) operating activities................         12,118            (18,591)
                                                                                  -------------    --------------
Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers, net of cash proceeds...........             --           (260,047)
   Equipment  ................................................................        (32,905)           (31,771)
   Restricted cash............................................................          4,790             23,322
                                                                                  -------------    --------------
           Net cash used in investing activities..............................        (28,115)          (268,496)
                                                                                  -------------    --------------
Cash Flows from Financing Activities:
   Net proceeds from Parent...................................................         15,000             18,424
   Deferred financing costs...................................................             --            (25,736)
   Net proceeds from notes payable............................................         (5,202)            81,832
   Capital leases.............................................................         (1,017)            (2,300)
   Net proceeds from minority interest........................................         (2,828)           226,958
                                                                                  -------------    --------------
           Net cash provided by financing activities..........................          5,953            299,178
                                                                                  -------------    --------------
Cash and Cash Equivalents:
   Net (decrease) increase....................................................        (10,044)            12,091
   Beginning of period........................................................         16,182              3,807
                                                                                  -------------    --------------
   End of period..............................................................         $6,138            $15,898
                                                                                  =============    ==============
</TABLE>

                                       15
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


4.       OTHER OWNERSHIP INTERESTS

The Company's ownership interests in its investees are classified according to
the applicable accounting method utilized at September 30, 2001 and December 31,
2000. 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 accounted for under
the equity method or cost method of accounting are as follows (in thousands):

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30, 2001                 DECEMBER 31, 2000
                                                  --------------------------------   ------------------------------
                                                  CARRYING VALUE       COST BASIS    CARRYING VALUE     COST BASIS
                                                  --------------      ------------   --------------    ------------
<S>                                                    <C>              <C>               <C>              <C>
Equity Method...............................           $14,683          $158,671          $32,969          $156,104
Cost Method.................................                --            18,075            6,876            17,700
                                                  -------------                      -------------
                                                       $14,683                            $39,845
                                                  =============                      =============
</TABLE>

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                          SEPTEMBER 30,                       SEPTEMBER 30,
                                                  -------------------------------    -------------------------------
                                                      2001             2000              2001             2000
                                                      ----             ----              ----             ----
<S>                                                    <C>                <C>              <C>               <C>
Reckson Strategic Venture Partners, LLC.....            $(1,542)          $(1,095)         $(3,899)          $(2,353)
Other unconsolidated companies..............                 --           (30,011)              --           (81,500)
Aggregate impairment charges................            (22,489)               --          (31,972)               --
Gain on sale of Intuit, Inc. stock .........                 --                --              466                --
                                                  -------------    --------------    -------------    --------------
   Equity in net loss and impairment of
     unconsolidated companies...............           $(24,031)         $(31,106)        $(35,405)         $(83,853)
                                                  =============    ==============    =============    ==============
</TABLE>


EMPLOYEE MATTERS

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 held in escrow in order to collateralize certain
indemnification obligations of the Company. Assuming that there are no claims
under such indemnification, such shares will be released to the Company in
December 2001.

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.


                                       16
<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

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, net of any reserves of the Company's investment in Reckson
Strategic, which is accounted for under the equity method, were $14.7 million
and $29.0 million as of September 30, 2001 and December 31, 2000, respectively.

During the three months ended September 30, 2001, the Company recognized a $20.0
million valuation impairment based on its assessment of value, recoverability
and probability that this investment would not ultimately be realized at its
otherwise carrying value.

SALE OF INTUIT

During the three months ended March 31, 2001, the Company sold all 532,955
shares of Intuit not held in escrow at a realized gain of $0.5 million.


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.


                                       17

<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


                      FRONTLINE PARENT AND OTHER INTERESTS
                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    SEPTEMBER 30,      DECEMBER 31,
                                                                                         2001              2000
                                                                                   ---------------    ---------------
<S>                                                                                      <C>               <C>
ASSETS:
Current Assets:
     Cash and cash equivalents..................................................           $4,677           $6,923
     Other current assets.......................................................            1,373           21,928
                                                                                    ---------------  ---------------
          Total Current Assets...................................................           6,050           28,851
Ownership interests in and advances to unconsolidated companies.................           14,683           39,845
Ownership interests in HQ and predecessor entities..............................               --          239,590
Deferred financing costs, net...................................................              173              629
Other assets, net...............................................................              832            9,536
                                                                                   ---------------  ---------------
         Total Assets...........................................................          $21,738         $318,451
                                                                                   ===============  ===============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses......................................           $5,508           $9,246
     Credit facilities with related parties.....................................          142,061               --
     Notes payable..............................................................           25,000           25,000
     Other liabilities..........................................................           29,264               --
                                                                                   ---------------   ---------------
          Total Current Liabilities..............................................         201,833           34,246
Credit facilities with related parties..........................................               --          135,523
Other liabilities...............................................................               --           13,899
                                                                                    ---------------  ---------------
          Total Liabilities.....................................................          201,833          183,668
                                                                                    ---------------  ---------------
Redeemable convertible preferred stock..........................................           24,957           13,940
Shareholders' (Deficiency) Equity:
     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,
       37,396,942 and 36,625,847 shares issued and outstanding at
       September 30, 2001 and December 31, 2000, respectively..................               374               366
     Additional paid-in capital.................................................          401,507           400,916
     Accumulated deficit........................................................         (606,874)         (281,030)
     Unrealized gain (loss) on marketable equity securities.....................              (59)              591
                                                                                    ---------------  ---------------
          Total Shareholders' (Deficiency) Equity................................        (205,052)          120,843
                                                                                    ---------------  ---------------
          Total Liabilities and Shareholders' (Deficiency) Equity................         $21,738          $318,451
                                                                                    ===============  ===============
</TABLE>


                                       18


<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


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


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                NINE MONTHS ENDED
                                                               SEPTEMBER 30,                    SEPTEMBER 30,
                                                       ------------------------------    -----------------------------
                                                           2001             2000             2001            2000
                                                           ----             ----             ----            ----
<S>                                                     <C>              <C>               <C>             <C>
Parent Expenses:
   General and administrative expenses..............         $(684)         $(4,598)          $(3,291)       $(15,568)
   Amortization of deferred charges.................            --           (5,817)           (2,274)        (11,347)
   Restructuring costs..............................        (3,903)              --           (11,111)             --
   Interest expense, net............................        (5,739)          (4,014)          (16,544)        (14,023)
   Depreciation and amortization....................            --             (544)               --            (943)
   Development stage company costs..................            --           (3,579)               --          (7,285)
                                                       -------------    -------------    -------------    ------------
     Loss before equity in net loss and
       impairment of unconsolidated companies.......       (10,326)         (18,552)          (33,220)        (49,166)
Equity in net loss and impairment of
   unconsolidated companies.........................       (24,031)         (31,106)          (35,405)        (83,853)
                                                       -------------    -------------    -------------    ------------
     Loss before extraordinary item from early
       extinguishment of debt......................        (34,357)         (49,658)          (68,625)       (133,019)
Extraordinary item from early extinguishment
    of debt.........................................            --               --                --          (2,648)
                                                      -------------    -------------    -------------    ------------
     Net loss ......................................       (34,357)         (49,658)          (68,625)       (135,667)
Dividends on and accretion of preferred stock.......          (939)            (576)           (4,868)         (1,499)
                                                       -------------    -------------    -------------    ------------
     Net loss applicable to common shareholders
        attributable to  Parent and Other Interests       $(35,296)        $(50,234)         $(73,493)      $(137,166)
                                                       =============    =============    =============    ============
Basic and diluted net loss attributable to Parent
   and Other Interests per weighted average
   common share.....................................        $(0.95)          $(1.37)           $(1.99)         $(4.00)
                                                       =============    =============    =============    ============
Basic and diluted weighted average common
   shares of FrontLine outstanding..................    37,180,073       36,574,462        36,895,038      34,295,488
                                                       =============    =============    =============    ============
</TABLE>


                                       19
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


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

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                     -------------------------------
                                                                                         2001              2000
                                                                                         ----              ----
<S>                                                                                      <C>              <C>
Cash Flows from Operating Activities:
   Net loss.....................................................................         $(68,625)        $(135,667)
   Adjustments to reconcile net loss to cash used in operating activities:
       Depreciation and amortization............................................               --               943
       Amortization of deferred financing costs.................................              757             1,550
       Extraordinary loss on early extinguishment of debt.......................               --             2,648
       Equity in net loss of unconsolidated companies...........................           35,405            83,853
       Stock and related compensation...........................................            2,814            11,347
       Non-cash restructuring costs.............................................            2,134                --
       Changes in operating assets and liabilities:
         Acquisition costs and other assets.....................................            4,713             9,688
         Accounts payable and accrued expenses..................................           (7,566)           (2,101)
         Other liabilities......................................................           15,365             5,763
                                                                                     -------------     -------------
           Net cash used in operating activities................................          (15,003)          (21,976)
                                                                                     -------------     -------------
Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers...................................          (15,000)          (85,186)
   Equipment  ..................................................................               --            (2,915)
   Proceeds from sale of short-term investments.................................           20,918                --
   Acquisition of ownership interests and advances to unconsolidated companies..          (10,125)          (69,951)
                                                                                     -------------     -------------
           Net cash used in investing activities................................           (4,207)         (158,052)
                                                                                     -------------     -------------
Cash Flows from Financing Activities:
   Issuance of common stock and warrants, net of costs..........................               --           156,855
   Issuance of preferred and redeemable preferred stock, net of costs...........           10,000            24,570
   Deferred financing costs.....................................................               --            (1,157)
   Net proceeds from credit facilities with related parties.....................            6,538            10,531
   Net proceeds from notes payable..............................................               --           (19,407)
   Other, net...................................................................              426             1,115
                                                                                    -------------     -------------
           Net cash provided by financing activities............................           16,964           172,507
                                                                                     -------------     -------------
Cash and Cash Equivalents:
   Net decrease.................................................................           (2,246)           (7,521)
   Beginning of period..........................................................            6,923            28,933
                                                                                     -------------     -------------
   End of period................................................................           $4,677           $21,412
                                                                                     =============     =============
</TABLE>


                                       20
<PAGE>

                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

5.       NOTES PAYABLE

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 September 30, 2001, there were $188.7
million in outstanding borrowings under the Term Loans and $19.0 million in
borrowings outstanding under the Revolver Loans. As of September 30, 2001, HQ
had letters of credit outstanding in the aggregate amount of $29.3 million for
landlord security deposits. Such letters of credit are collateralized by $1.0
million in cash and $28.3 million of Revolver Loan commitments, leaving $8.3
million available under the Revolver Loans for additional borrowings. HQ did not
pay the principal amortization of $4.1 million due on September 30, 2001.

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 nine-month period ended September
30, 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
3.7% at September 30, 2001) plus 3.25% to 4.0% for one, three or nine-month
periods at the election of HQ or prime (6.50% at September 30, 2001) plus 2.25%
to 3.00%. The weighted average interest rate on borrowings under the Term Loans
at September 30, 2001 was approximately 7.1%. HQ pays a commitment fee of 1/2 of
1.0% per annum on the unused portion of the HQ Credit Facility.

As of September 30, 2001, the Company is a party to instruments which lock in
the maximum underlying three-month LIBOR at levels between 7.93% and 9.00% on
approximately $100.2 million of borrowings under the Credit Facility with
various expiration dates through September 30, 2002. At September 30, 2001, the
recognition of the fair value of these instruments in accordance with the
adoption of SFAS 133 resulted in additional interest expense of $3.8 million for
the nine-month period ended September 30, 2001.

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.

HQ has received notice from the lenders under the HQ Credit Facility that HQ is
in default under certain provisions of such facility. On November 1, 2001, HQ
entered into a Forbearance Agreement (the "Agreement"), effective as of October
1, 2001, with these lenders, wherein the lenders have agreed to forbear from the
enforcement of their remedies under the HQ Credit Facility with respect to HQ's
default of certain of its covenant and payment obligations. In accordance with
the Agreement, during the "forbearance period", HQ will continue to be able to
draw funds under the HQ Credit Facility (i) for its working capital needs in
accordance with a budget accepted by the lenders and (ii) to make interest
payments to the lenders under the HQ Credit Facility. On November 1, 2001, HQ
borrowed substantially all of the funds available under the HQ Credit Facility.
The forbearance period is scheduled to terminate on the earliest to occur of (i)
December 14, 2001, (ii) the termination of the forbearance period relating to
its mezzanine indebtedness (which is scheduled to terminate no later than
December 31, 2001) or (iii) the date upon which there occurs certain additional
enumerated defaults under the HQ Credit Facility or the date upon which HQ fails
to comply with the requirements of the Agreement.


                                       21
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

At the end of the forbearance period, if HQ has not paid in full all amounts due
and owing under the Agreement or under the HQ Credit Facility, and/or if HQ has
not cured all of its existing defaults, then the lenders may immediately
commence or continue with any and all rights and remedies available under the HQ
Credit Facility.

HQ is in active negotiations with its lenders and certain other investors with
respect to the restructuring of its long-term indebtedness with an objective of
reaching an agreement on terms that will provide HQ with sufficient liquidity to
operate its business through the current economic downturn. There can be no
assurance that such objective will be achieved. The restructuring of HQ's
indebtedness may result in substantial dilution to the Company as a holder of
common stock of HQ.

Scheduled maturities of borrowings outstanding under the HQ Credit Facility are
as follows (in thousands):

                     TWELVE MONTHS ENDING
                         SEPTEMBER 30,
                  ----------------------------
                           2002..............          $26,400
                           2003..............           23,301
                           2004..............           71,167
                           2005..............           68,853
                           2006..............           18,002
                                               ----------------
                               Total.........         $207,723
                                               ================

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 Senior Subordinated
Note and Warrant Purchase Agreement (the "Mezzanine Loan"). The Mezzanine Loan
bears interest at 13.5% per annum and matures on May 31, 2007.

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 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 will be assigned to the Series B
Warrants until such time as it becomes probable that the Series B Warrants will
become exercisable by the holders.

As of September 30, 2001, the fair value of HQ's notes payable exceeds the
carrying value by approximately $37.9 million, assuming a 7% discount rate.

HQ did not pay the $4.2 million quarterly interest payment due on September 30,
2001 on the Mezzanine Loan and the Mezzanine Loan lenders may assert that HQ
does not comply with certain financial covenants thereunder. Accordingly, the
interest rate during the period of default has increased to 15.5%. Pursuant to a
Subordination Agreement dated as of August 11, 2000 by and among HQ, the lenders
under the HQ Credit Facility and the Mezzanine Loan lenders, the Mezzanine Loan
lenders may not pursue any remedies for a period expiring 90 days after the date
of HQ's default under the Mezzanine Loan. After such 90 day period, subject to
the provisions of the Subordination Agreement, the Mezzanine Loan lenders may
commence with any and all rights and remedies available under the Note and
Warrant Purchase Agreement. Management is currently in negotiations with these
lenders with the objective of restructuring the terms in a manner that will
provide HQ with sufficient liquidity and time to return operations to
profitability and put the Company in a position from which it is capable of
satisfying its obligations. There can be no assurance that such objective will
be achieved. The restructuring of HQ's indebtedness may result in substantial
dilution to the Company as a holder of common stock of HQ.

FRONTLINE BANK CREDIT FACILITY

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 shares of HQ
Global and bear interest at LIBOR plus 5%.


                                       22
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

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 September 30,
2001, FrontLine has borrowed $25.0 million under the amended FrontLine Bank
Credit Facility. Subsequent to September 30, 2001, the Company has not repaid
the principal or paid any interest applicable to this period and accordingly is
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.

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. On June 29,
2001, HQ and its lenders amended the financial covenants under the HQ Credit
Facility and the Mezzanine Loan relative to HQ's second and third quarter
financial results. At September 30, 2001, HQ was not in compliance with these
covenants, as amended. As mentioned above, HQ has received notice from the
lenders under the HQ Credit Facility that HQ is in default under certain
covenant and other provisions of such facility. HQ is continuing to negotiate
with its lenders with an objective of amending the necessary financial covenants
to enable compliance based upon the expected operating results. There can be no
assurance that such objective will be achieved.

However, since covenants were amended as of September 30, 2001 and further
amendments will probably be necessary within the next twelve months in order to
remain in compliance, all debt including the credit facilities with related
parties (Note 10) have been classified as current as of September 30, 2001.


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"). At the Company's option,
the Preferred Equity Facility may be redeemed within the first twelve months
following its inception. Quarterly dividends accrue during this period at the
annual rate of 9.25%, but are not payable if the securities are redeemed within
such twelve-month period. While these securities are 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%. If the securities are not redeemed prior to December 13, 2001,
the securities (including the amount of the redemption premium) become
convertible at the holder's option into FrontLine common stock at the initial
rate of $13.3875 per share, the preferred stock becomes a voting security on an
"as-converted" basis, and quarterly dividends become payable from the date of
initial issuance at the annual rate of 9.25%.


                                       23
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)
The securities have a mandatory redemption requirement after five years at a
27.5% premium, although certain capital events or uncured events of default
would accelerate this period. Accordingly, the securities are classified as
"Redeemable preferred stock" in the accompanying consolidated balance sheets.

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.

The Company currently does not anticipate that it will be in a position to pay
the dividend that becomes payable on December 31, 2001 and it is therefore in
negotiations to amend or restructure the terms of the Preferred Equity Facility.


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

As a result of the Series B Preferred Stock sold in December 2000, the exercise
price for the March 7, 2000 warrants was automatically decreased to $45.01 per
share.

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 aggregate consideration of
approximately $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 approximately $2.6 million incurred in connection
with the establishment of such credit facility were recognized as an
extraordinary charge in the accompanying Consolidated Statement of Operations.
As a part of this transaction, the Company issued 128,750 warrants with an
exercise price of $47.25 per share for 3 years.


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, 2000.
In April 2000, FrontLine paid advances aggregating $2.8 million on future
payments under the long-term incentive plan to 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.



                                       24
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)

Including related income tax accruals, the resulting expenses relating to the
forgiveness of the advances to these three executives was $2.6 million and $2.8
million in the three and nine months ended September 30, 2001, respectively.

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
nine months ended September 30, 2001, $0.2 million of amortization related to
the LTIP was recorded.


9.       RESTRUCTURING

On October 18, 2000, FrontLine announced a restructuring of its strategic plan.
In connection with the restructuring, FrontLine terminated approximately 90% of
its headquarters personnel which has occurred during a transition period through
the third quarter of 2001. As a result of this restructuring, FrontLine has
recognized cash and non-cash restructuring charges of $3.9 million and $11.1
million during the three-month and the nine-month periods ended September 30,
2001, respectively.

The restructuring costs recognized during the nine-month period ended September
30, 2001 consist principally of (1) $4.9 million of professional fees and other
expenses, (2) $2.8 million of LTIP costs related to three executives who were
terminated in 2001, (3) $1.9 million of severance and related payments made to
employees who were terminated in 2001 and (4) $1.5 million of accelerated
amortization of stock compensation and related awards that resulted from the
termination of certain employees. Approximately $4.1 million of these costs have
not been paid as of September 30, 2001.


10.      TRANSACTIONS WITH RELATED PARTIES

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 September 30, 2001 under the FrontLine
Facility. These advances bear interest at 12% per annum with such rate
increasing by 4% of the prior year's rate on outstanding borrowings.

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
September 30, 2001, Reckson has loaned FrontLine $49.3 million under the Reckson
Strategic Facility. The aggregate principal amount outstanding and due Reckson
at September 30, 2001 under the Credit Facilities was $142.7 million. Interest
accrued on these facilities at September 30, 2001 was $28.6 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




                                       25
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (UNAUDITED)


million. Reckson has advanced approximately $59.8 million under the Reckson
Strategic Facility to fund Reckson Strategic-controlled joint ventures through
September 30, 2001. There is no remaining availability under the Credit
Facilities. At September 30, 2001, 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 under the Credit Facilities with
Reckson.

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 first three
quarters of 2001 and 2000 was $0.1 million.

The Company reimburses Reckson with respect to general and administrative
expenses (including payroll expenses) incurred by Reckson for the benefit of the
Company. These services include payroll, human resources, accounting and other
advisory services. During the three and nine months ended September 30, 2001,
the Company incurred $0.1 million for such activities. During the three and nine
months ended September 30, 2000, the Company incurred $0.2 million and $1.1
million, respectively, for such activities.


11.      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, 2000. In connection with such litigation, on September
12, 2001, the District Court granted the summary judgment motion brought by the
two stockholders and held that the 5,535,353 shares of non-voting common stock
issued by Old HQ to CarrAmerica Realty Corp. in exchange for such indebtedness
of Old HQ were null, void, and of no effect. The Company has been informed that
CarrAmerica Realty Corporation is appealing such decision.

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, 2000. In connection with such litigation, on August 9, 2001, the Chancery
Court granted the motion of the plaintiffs in the fiduciary action for leave to
amend its complaint to include the Company as an additional defendant. The
amended complaint dated October 15, 2001 alleges that the Company (i) aided and
abetted a breach of fiduciary duties of CarrAmerica and the directors of Old HQ
in the approval of the HQ Merger and (ii) tortuously interfered with the rights
of the plaintiffs under the Tag-Along Rights Agreement providing the plaintiffs
the right to participate pari passu in such merger transactions. The Company has
indemnification rights against CarrAmerica with respect to damages incurred in
such litigation pursuant to an agreement dated as of June 1, 2000.

In addition to the litigation described 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
litigation described above, collectively are not expected to have a material
adverse effect on the Company's financial position or results of operations.


                                       26
<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 on
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, including, without limitation,
statements relating to the achievement of our refocused business plan and our
future operating performance and the future operating performance of HQ Global
Holdings, Inc. ("HQ" or "HQ Global"), the financing of the Company's operations
and the operations of its investee entities and the ability to integrate and
manage effectively its various acquisitions, 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's indebtedness on terms that are
favorable to the Company and its common stockholders, negative changes in the
officing solutions industry or the Internet-related businesses in which the
unconsolidated companies in which we invest operate, changes in the market
valuation or growth rate of comparable companies in the officing suites industry
or the Internet-related industries 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 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 leader 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.

In conjunction with the Restructuring, FrontLine re-evaluated the carrying
values of its investments and recorded aggregate impairment charges through
September 30, 2001 of $57.7 million, in order to reduce the carrying value of
these investments to estimated fair value.

In June 2001, the Company and HQ terminated discussions regarding a potential
merger with a competitor, and the associated fees have been expensed. HQ also
recognized restructuring charges in


                                       27
<PAGE>

2001 related to the closure of non-performing centers and employee severance and
taxes applicable to a management restructuring and headcount reduction.

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.

All of FrontLine's operating revenues and operating expenses for the three and
nine-month periods ended September 30, 2001 and 2000 were attributable to HQ.
The following is a discussion of HQ's results of operations for such periods.


                                       28
<PAGE>


HQ

THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Revenues. Total business center revenues for the three months ended September
30, 2001 were $119.6 million, representing a decrease of $40.7 million, or
25.4%, from the three months ended September 30, 2000. The decrease in revenues
can be attributed to a combination of reduced demand and downward pricing
pressure, reflective of the challenging economic environment experienced
throughout 2001 and the most recent quarter, in particular. Occupancy rates have
fallen to 71.3% for the three months ended September 30, 2001 from an average of
89.9% for the corresponding period in 2000. Also, the amount of average revenue
achieved from each occupied workstation has decreased 4.5% for the three months
ended September 30, 2001 as compared to the same period in 2000.

Business centers with three months of activity for both periods under comparison
("Same Centers") had revenues for the three months ended September 30, 2001 and
2000 of $116.6 million and $156.2 million, respectively, representing a decrease
in 2001 of $39.6 million, or 25.4%, compared with 2000.

Business centers with less than three months of activity during one of the
periods under comparison ("Development Centers") had revenues for the three
months ended September 30, 2001 and 2000 of $2.7 million and $0.1 million,
respectively. HQ has opened 14 business centers since June 30, 2000, one of
which commenced operations during the three months ended September 30, 2000.

Business centers that were closed subsequent to June 30, 2000 during the period
under comparison ("Closed Centers") had revenues for the period ended September
30, 2001 and 2000 of $4.0 and $0.3 million, respectively. The Closed Centers
were largely focused in major markets and were replaced with Development Centers
where existing clients were serviced in new centers.

Expenses. Total business center expenses for the three months ended September
30, 2001 were $104.4 million, representing a decrease of $2.3 million, or 2.2%,
from the three months ended September 30, 2000.

Business centers with three months of activity for both periods under comparison
("Same Centers") had expenses for the three months ended September 30, 2001 and
2000 of $99.4 million and $103.3 million, respectively, representing a decrease
in 2001 of $3.9 million, or 3.8%, compared with 2000. 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. These decreases in expenses are offset by increased workstation
expense, primarily attributable to opening 13 business centers subsequent to
September 30, 2000.

Business centers with less than three months of activity during one of the
periods under comparison ("Development Centers") had expenses for the three
months ended September 30, 2001 and 2000 of $4.3 million and $0.3 million,
respectively, representing an increase in 2001 of $4.0 million. The increase is
attributable to the fact that there were 14 Development Centers operating during
the three months ended September 30, 2001, as compared to one Development Center
operating during the corresponding period in 2000.

Business centers that were closed subsequent to June 30, 2000 during the period
under comparison ("Closed Centers") had expenses for the three months ended
September 30, 2001 and 2000 of $0.5 million and $2.5 million, respectively. The
Closed Centers were largely focused in major markets and were replaced with
Development Centers where existing clients were serviced in new centers.


                                       29
<PAGE>

Business Center Operating Income ("BCOI"). For the three months ended September
30, 2001, BCOI was $15.2 million as compared with $53.6 million for the three
months ended September 30, 2000. The BCOI as a percentage of total revenues
("BCOI Margin") was 12.7% for the three months ended September 30, 2001 as
compared to 33.4% for 2000. The decrease in BCOI Margin is primarily
attributable to lower occupancy rates. For the three months ended September 30,
2001 and 2000, occupancy rates averaged 71.3% and 89.9%, respectively.

Same Center BCOI was $17.2 million and $52.9 million for the three months ended
September 30, 2001 and 2000, respectively, representing a decrease in 2001 of
$35.7 million or 67.5%, from 2000. The BCOI Margin from Same Centers for the
three months ended September 30, 2001 was 14.7% as compared with 33.8% in the
corresponding period in 2000. The decrease in BCOI Margin is primarily
attributable to lower occupancy rates.

Development Center BCOI was negative $1.6 million and negative $0.3 million for
the three months ended September 30, 2001 and 2000, respectively. The decrease
in negative BCOI is attributable to the number and maturity of Development
Centers operating in the three months ended September 30, 2001 compared to the
three months ended September 30, 2000.

Closed Center BCOI was negative $0.4 million and positive $1.0 million for the
three months ended September 30, 2001 and 2000, respectively.

Corporate General And Administrative Expenses. For the three months ended
September 30, 2001 and 2000, corporate general and administrative expenses were
$15.8 million and $18.7 million, respectively. Corporate general and
administrative expenses stated as a percentage of total revenue was 13.2% and
11.7%, respectively.

Merger And Integration Charges. For the three months ended September 30, 2001
and 2000, merger and integration charges were zero and $1.7 million,
respectively. For fiscal 2000, merger and integration charges related to the HQ
Merger completed June 1, 2000.

Impairment Of Intangible Assets. For the three months ended September 30, 2001
and 2000, impairment of intangible assets was $294.1 million and zero,
respectively. Based on the trend of operating losses as well as the Company's
inability to remain in compliance with its debt arrangements, the Company
determined that the value of HQ's intangible assets was impaired. The $294.1
million impairment charge is approximately equal to the amount by which the
carrying amount of the intangible assets exceeds their estimated fair value.

Depreciation And Amortization. For the three months ended September 30, 2001 and
2000, depreciation and amortization expenses were $20.5 million and $18.5
million, respectively. The increase in depreciation and amortization expense
primarily relates to an increase in capital expenditures associated with
technology infrastructure additions and leasehold improvements for Development
Centers and Same Centers.

Interest Expense. For the three months ended September 30, 2001 and 2000, net
interest expense was $12.2 million and $13.6 million, respectively. The decrease
in interest expense is attributable to a decline in interest rates, partially
offset by the adoption of new accounting standards relating to HQ's interest
rate cap and floor contracts in 2001.

Provision For Income Taxes. For the three months ended September 30, 2001 and
2000, the provision for income taxes, which is comprised entirely of state and
foreign taxes, consisted of $0.2 million and $2.1 million. The decrease is
primarily due to a decrease in foreign taxes.


                                       30
<PAGE>


Net Loss. Net loss for the three months ended September 30, 2001 and September
30, 2000 was $222.2 million and $5.4 million, respectively.

Minority  Interest.  Minority interest allocation was $105.4 million and $(4.4)
million in the three months ended September 30, 2001 and 2000, respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Revenues. Total business center revenues for the nine months ended September 30,
2001 were $408.0 million, representing an increase of $86.4 million, or 26.9%,
from the nine months ended September 30, 2000.

Business centers with nine months of activity for both periods under comparison
("Same Centers") had revenues for the nine months ended September 30, 2001 and
2000 of $171.6 million and $189.6 million, respectively, representing a decrease
in 2001 of $18.0 million, or 9.5%, compared with 2000. The decrease in revenues
in 2001 is primarily attributable to declining occupancy rates during 2001,
related to a decline in overall economic conditions.

Business centers that were acquired subsequent to January 1, 2000 ("Acquired
Centers") had revenues for the period ended September 30, 2001 and 2000 of
$195.9 million and $107.8 million, respectively. The increase in revenues
resulted from centers acquired in the HQ Merger on June 1, 2000.

Business centers with less than nine months of activity during one of the
periods under comparison ("Development Centers") had revenues for the nine
months ended September 30, 2001 and 2000 of $37.3 million and $11.9 million,
respectively, representing an increase in 2001 of $25.4 million. HQ has opened
31 business centers since January 1, 2000, 17 of which commenced operations
during the nine months ended September 30, 2000.

Business centers that were closed subsequent to January 1, 2000 ("Closed
Centers") had revenues for the period ended September 30, 2001 and 2000 of $3.2
million and $12.2 million, respectively. The Closed Centers were largely focused
in major markets and were replaced with Development Centers where existing
clients were serviced in new centers.

Expenses. Total business center expenses for the nine months ended September 30,
2001 were $321.9 million, representing an increase of $96.8 million, or 43.0%,
from the nine months ended September 30, 2000.

Business centers with three months of activity for both periods under comparison
("Same Centers") had expenses for the nine months ended September 30, 2001 and
2000 of $138.6 million and $136.5 million, respectively, representing an
increase in 2001 of $2.1 million, or 1.5%, compared with 2000.

Business centers that were acquired subsequent to January 1, 2000 ("Acquired
Centers") had expenses for the nine months ended September 30, 2001 and 2000 of
$146.3 million and $67.5 million, respectively. The increase in expenses
resulted from the HQ Merger on September 1, 2000.

Business centers with less than nine months of activity during one of the
periods under comparison ("Development Centers") had expenses for the periods
ended September 30, 2001 and 2000 of $33.3 million and $11.4 million,
respectively, representing an increase in 2001 of $21.9 million. The increase is
attributable to the number and maturity of Development Centers operating in the
nine months ended September 30, 2001 compared to the nine months ended September
30, 2000.


                                       31
<PAGE>

Business centers that were closed subsequent to January 1, 2000 ("Closed
Centers") had expenses for the nine months ended September 30, 2001 and 2000 of
$3.7 million and $9.6 million, respectively. The Closed Centers were largely
focused in major markets and were replaced with Development Centers where
existing clients were serviced in new centers.

Business Center Operating Income ("BCOI"). For the nine months ended September
30, 2001, BCOI was $86.1 million as compared with $96.4 million for 2000. The
BCOI as a percentage of total revenues ("BCOI Margin") was 21.1% for the nine
months ended September 30, 2001 as compared to 30.0% for 2000. The decrease in
BCOI Margin is primarily attributable to lower occupancy rates. For the nine
months ended September 30, 2001 and 2000, occupancy rates averaged 76% and 90%,
respectively.

Same Center BCOI was $33.0 million and $52.5 million for the nine months ended
September 30, 2001 and 2000, respectively, representing a decrease in 2001 of
$19.5 million or 37.1%, from 2000. The BCOI Margin from Same Centers for the
nine months ended September 30, 2001 was 19.2% as compared with 27.7% in the
corresponding period in 2000. The decrease in BCOI Margin is primarily
attributable to lower occupancy rates.

Acquired Center BCOI was $49.6 million for the nine months ended September 30,
2001, and $40.9 million for the corresponding period in 2000. The BCOI Margin
for Acquired Centers for the nine months ended September 30, 2001 was 25.3% as
compared with 37.9% in the corresponding period in 2000. The decrease in BCOI
Margin is primarily attributable to lower occupancy rates.

Development Center BCOI was $4.0 million and negative $2.6 million for the nine
months ended September 30, 2001 and 2000, respectively, representing an increase
in 2001 of $6.6 million from the corresponding period in 2000. The increase is
attributable to the number and maturity of Development Centers operating in the
nine months ended September 30, 2001 compared to the nine months ended September
30, 2000.

Closed Center BCOI was negative $0.5 million and $0.5 million for the nine
months ended September 30, 2001 and 2000, respectively.

Corporate General And Administrative Expenses. For the nine months ended
September 30, 2001 and 2000, corporate general and administrative expenses were
$52.3 million and $36.5 million, respectively. For the nine months ended
September 30, 2001, expenses include one-time charges of $2.2 million of
professional costs associated with termination of merger discussions with a
competitor and $0.5 million of costs associated with debt covenant amendments
obtained for the quarter ended September 30, 2001. Excluding these one-time
charges, corporate general and administrative expenses stated as a percentage of
total revenue for the nine months ended September 30, 2001 and 2000, were 12.2%
and 11.4%, respectively.

Merger And Integration Charges. For the nine months ended September 30, 2001 and
2000, merger and integration charges were zero and $21.1 million, respectively.
For fiscal 2000, merger and integration charges related to the HQ Merger
completed June 1, 2000.

Restructuring Charges. For the nine months ended September 30, 2001 and 2000,
restructuring charges were $11.3 million and zero, respectively. For fiscal
2001, restructuring charges related to closure of centers and employee severance
and taxes in association with headcount reduction.

Impairment Of Intangible Assets. For the nine months ended September 30, 2001
and 2000, impairment of intangible assets was $294.1 million and zero,
respectively. Based on the trend of operating losses as well the Company's
inability to remain in compliance with its debt arrangements, the Company
determined that the value of HQ's intangible assets was impaired. The $294.1
million impairment charge is approximately equal to the amount by which the
carrying amount of the intangible assets exceeds their estimated fair value.


                                       32
<PAGE>

Depreciation And Amortization. For the nine months ended September 30, 2001 and
2000, depreciation and amortization expenses were $59.9 million and $34.5
million, respectively. The increase in depreciation and amortization relates to
goodwill associated with mergers and acquisitions, fixed assets acquired, and an
increase in capital expenditures associated with technology infrastructure
additions and leasehold improvements for Development Centers and Same Centers.

Interest Expense. For the nine months ended September 30, 2001 and 2000, net
interest expense was $37.5 million and $23.8 million, respectively. The increase
in interest expense is related to an increase in average borrowings as a result
of the HQ Merger, and the adoption of new accounting standards relating to HQ's
interest rate cap and floor contracts in 2001.

Provision For Income Taxes. For the nine months ended September 30, 2001 and
2000, the provision for income taxes, which is comprised entirely of state and
foreign taxes, was $2.6 million in each period.

Net Loss. Net loss for the nine months ended September 30, 2001 and 2000 was
$257.2 million and $25.4 million, respectively.

Minority Interest. Minority interest allocation was $114.3 million and ($3.3)
million in the nine months ended September 30, 2001 and 2000, respectively.

PARENT AND OTHER INTERESTS

THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

As a result of the Restructuring discussed above, FrontLine has changed from a
company which invested in early stage companies which leveraged the Internet
into one which is focused on highlighting the value of HQ.

This change enabled FrontLine to significantly reduce its general and
administrative expenses from $4.6 million to $0.7 million, primarily as a result
of decreasing the number of employees. Since most of the previous amortization
of deferred charges related to these severed employees, this expense decreased
from $5.8 million to zero.

The restructuring costs recognized in the three-month period ended September 30,
2001 consist principally of $2.8 million of long-term incentive plan costs,
related to three executive officers who were terminated in 2001 and $1.1 million
of professional fees and other expenses.

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 $7.1 million to $24.0 million for the
three-month period ended September 30, 2001 as compared with the corresponding
period in 2000. For the three months ended September 30, 2001, the Company
recorded an additional $22.5 million in impairment charges. Of the $22.5 million
recorded at September 30, 2001, $20.0 million relates to Reckson Strategic
Venture Partners, LLC ("Reckson Strategic"). During the three months ended
September 30, 2001, the Company recognized a $20.0 million valuation impairment
based on its assessment of value, recoverability and probability that this
investment would not ultimately be realized at its otherwise carrying value. The
loss for the period ended September 30, 2000 was entirely comprised of equity in
the net losses of


                                       33
<PAGE>


unconsolidated companies. See Note 4 to the accompanying consolidated financial
statements for further discussion related to the caption "Equity in net loss and
impairment of unconsolidated companies."

Dividends on, and accretion of, preferred stock of $0.9 million in the
three-month period ended September 30, 2001 represents dividends on FrontLine's
8.875% Series A Convertible Cumulative Preferred Stock (the "Series A Preferred
Stock"), which was issued in the first quarter of 2000 and accretion of
FrontLine's Series B Convertible Cumulative Preferred Stock (the "Series B
Preferred Stock") which was issued in the fourth quarter of 2000. Such amount in
the three-month period ended September 30, 2001 of $0.3 million represents
dividends on the Series A Preferred Stock. The Company did not declare or pay
the dividend on the Series A Preferred Stock that was payable on November 6,
2001.

NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

FrontLine's general and administrative expenses decreased by $12.3 million to
$3.3 million in the nine-month period ended September 30, 2001 compared with the
corresponding period in 2000 reflecting the planned reduction in workforce and
the resulting lower recurring general and administrative expenses from the
restructured operations. Since most of the previous amortization of deferred
charges related to these severed employees, this expense decreased $9.0 million
to $2.3 million.

The restructuring costs recognized in the nine-month period ended September 30,
2001 consist principally of (1) $4.9 million of professional fees and other
expenses , (2) $2.8 million of LTIP costs related to three executive officers
who were terminated in 2001, (3) $1.9 million of severance and related payments
made to employees who were terminated in 2001 and (4) $1.5 million of
accelerated amortization of stock compensation and related awards that resulted
from the termination of certain employees.

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 $48.5 million to $35.4 million for the
nine-month period ended September 30, 2000 as compared with the corresponding
period in 2000. In the nine months ended September 30, 2001, the equity in net
loss and impairment of unconsolidated companies consisted of $32.0 million of
impairment charges reflecting estimated decreases in the fair values of certain
of the Company's investments and $3.9 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. Of the $32.0
million in impairment charges recorded at September 30, 2001, $20.0 million
relates to Reckson Strategic. During the three months ended September 30, 2001,
the Company recognized a $20.0 million valuation impairment based on its
assessment of value, recoverability and probability that this investment would
not ultimately be realized at its otherwise carrying value. The loss for the
period ended September 30, 2000 was comprised of equity in the net losses of
unconsolidated companies. See Note 4 to the accompanying consolidated financial
statements for further discussion related to the caption "Equity in net loss and
impairment of unconsolidated companies."

The extraordinary item of $2.6 million in the nine-month period ended September
30, 2000 resulted from the write-off of deferred financing costs relating to the
early extinguishment of a $60.0 million credit facility in March 2000.

Dividends on, and accretion of, preferred stock of $4.9 million in the
nine-month period ended September 30, 2001 represents dividends on FrontLine's
Series A Preferred Stock which was issued in the first quarter 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 nine-month period
ended September 30, 2001 of $0.9 million represents dividends on the Series A
Preferred Stock. As noted above, the Company did not pay the Series A Preferred



                                       34
<PAGE>

Stock quarterly dividend payable on November 6, 2001. 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.


LIQUIDITY AND CAPITAL RESOURCES

HQ

Historically, HQ has primarily relied upon cash flows generated from operations,
borrowings from its lenders and sales of its securities to satisfy its liquidity
and capital requirements. Principal liquidity needs have included the
acquisition and development of new business centers, debt service requirements
and other capital expenditures necessary to maintain existing business centers
as well as upgrade and build the corporate infrastructure to manage its
operations effectively.

On May 31, 2000, HQ completed a transaction which increased its credit facility
to $275.0 million (the amended and restated "Credit Facility"). The Credit
Facility provides for $219.4 million under four term loans, all of which are
repayable in various quarterly installments through November 2005. Additional
annual principal payments of 75% of excess cash flow, as defined, are required.
The Credit Facility also provides for borrowings of up to $55.6 million in two
revolving loan commitments. Availabilities under the revolving portion of the
Credit Facility are formula based. As of September 30, 2001, there was $188.7
million in outstanding borrowings under the term loans and $19.0 million in
outstanding borrowings under the revolver. As of September 30, 2001, HQ had
letters of credit outstanding in the aggregate amount of $29.3 million, against
which it pledged $1.0 million in cash and $28.3 million was supported by the two
revolving loan commitments, leaving $8.3 million available for additional
borrowings. HQ did not pay the principal amortization of $4.1 million due on
September 30, 2001.

Borrowings under the Credit Facility bear interest ranging from Prime plus 2.25%
to 3.00% or LIBOR plus 3.25% to 4.0% for a one, three or nine month period at
HQ's election. HQ's weighted average interest rate on borrowings under the term
loans at September 30, 2001 was approximately 7.1%. HQ pays a commitment fee of
1/2 of 1.0% per annum on the unused portion of the Credit Facility. As of
September 30, 2001, HQ had entered into instruments which lock in the maximum
underlying three month LIBOR at levels between 7.93% and 9.00% on approximately
$100.2 million of borrowings under the Credit Facility with various expiration
dates through September 30, 2002.

On May 31, 2000, HQ entered into a Senior Subordinated Credit Facility (the
"UBSW Loan") of $125.0 million provided by UBS Warburg LLC ("UBSW"). The UBSW
Loan carried an interest rate of LIBOR plus 6.5% and matured on May 31, 2007.
Pursuant to a commitment from UBSW, on August 11, 2000, HQ replaced the UBSW
Loan with a $125.0 million Note and Warrant Purchase Agreement (the "Mezzanine
Loan") with a group of lenders arranged by UBSW. The Mezzanine Loan bears
interest at 13.5% per annum and matures on May 31, 2007. HQ did not pay the $4.2
million quarterly interest payment due on the Mezzanine Loan on September 30,
2001, and the Mezzanine Loan lenders may assert that HQ does not comply with
certain financial covenants thereunder. Accordingly the interest rate during the
period of default has increased to 15.5%. Pursuant to a Subordination Agreement
dated as of August 11, 2000 by and among HQ, the lenders under the HQ Credit
Facility and the Mezzanine Loan lenders, the Mezzanine Loan lenders may not
pursue any remedies for a period expiring 90 days after the date of HQ's default
under the Mezzanine Loan. After such 90 day period, subject to the provisions of
the Subordination Agreement, the Mezzanine Loan lenders may commence with any
and all rights and remedies available under the Note and Warrant Purchase
Agreement. Management is currently in negotiations with these lenders with the
objective of restructuring the terms in a manner that will provide HQ with
sufficient liquidity and time to return operations to profitability and put the
Company in a position from which it is capable of satisfying its obligations.
There can be no assurance that such objective will be achieved. The
resturcturing of HQ's indebtedness may result in substantial dilution to the
Company as a holder of common stock of HQ.

The Mezzanine Loan lenders received 503,545 Series A Warrants and 227,163 Series
B Warrants. The fair value of the Series A Warrants to purchase Common Stock



                                       35
<PAGE>

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 will be assigned to the Series B Warrants until such time as it
becomes probable the Series B Warrants will become exercisable by the holders.

To finance a portion of the cash requirements of the HQ Merger, HQ issued
4,782,692 shares of Series A Preferred Stock, 1,445,358 Series A Warrants and
697,964 Series B Warrants for a total consideration of $195.0 million.

On August 11, 2000, HQ issued 613,166 additional shares of Series A Preferred
Stock, 312,274 Series A Warrants and 164,902 Series B Warrants for a total
consideration of $25.0 million.

On June 29, 2001, HQ issued 367,899 shares of Series B Preferred Stock, 149,798
Series A Warrants, and 73,532 Series B Warrants for a total consideration of
$15.0 million. Pursuant to anti-dilution provisions in connection with this
issuance, the Mezzanine Loan lenders and Preferred Stockholders received 149,798
Series A Warrants and 73,532 Series B Warrants.

The 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 or any of its subsidiaries, except for
the payment of dividends in kind on its preferred stock. At September 30, 2001,
HQ was not in compliance with these covenants, as amended.

HQ has received notice from the lenders under the HQ Credit Facility that HQ is
in default under certain provisions of such facility. On November 1, 2001, HQ
entered into a Forbearance Agreement (the "Agreement"), effective as of October
1, 2001, with these lenders, wherein the lenders have agreed to forbear from the
enforcement of their remedies under the HQ Credit Facility with respect to HQ's
default of certain of its covenant and payment obligations. In accordance with
the Agreement, during the "forbearance period", HQ will continue to be able to
draw funds under the HQ Credit Facility (i) for its working capital needs in
accordance with a budget accepted by the lenders and (ii) to make interest
payments to the lenders under the HQ Credit Facility. On November 1, 2001, HQ
borrowed substantially all of the funds available under the HQ Credit Facility.
The forbearance period is scheduled to terminate on the earliest to occur of (i)
December 14, 2001, (ii) the termination of the forbearance period relating to
its mezzanine indebtedness (which is scheduled to terminate no later than
December 31, 2001) or (iii) the date upon which there occurs certain additional
enumerated defaults under the HQ Credit Facility or the date upon which HQ fails
to comply with the requirements of the Agreement. At the end of the forbearance
period, if HQ has not paid in full all amounts due and owing under the Agreement
or under the HQ Credit Facility, and/or if HQ has not cured all of its existing
defaults, then the lenders may immediately commence or continue with any and all
rights and remedies available under the HQ Credit Facility.

HQ is in active negotiations with its lenders and certain other investors with
respect to the restructuring of its long-term indebtedness with an objective of
reaching an agreement on terms that will provide HQ with sufficient liquidity to
operate its business through the current economic downturn. There can be no
assurance that such objective will be achieved. In the event HQ is unable to
reach a satisfactory resolution in connection with the restructuring of its
indebtedness, HQ may be required to seek protection from its creditors under the
federal bankruptcy laws. The restructuring of HQ's indebtedness may result in
substantial dilution to the Company as a holder of common stock of HQ.

HQ had a working capital deficit of $358.6 million at September 30, 2001 as
compared to a working capital deficit of $9.4 million at December 31, 2000. Of
the decrease in working capital of $349.2 million, $312.3 million is
attributable to the classification of outstanding debt as current.

Cash provided by operating activities for the nine months ended September 30,
2001 was $12.1 million, representing an increase of $30.7 million compared to
the corresponding period in 2000. The increase is primarily attributable to the
merger and integration costs in fiscal 2000 and a decrease in accounts
receivable balances in fiscal 2001, offset by a decrease in tenants' security
deposits in fiscal 2001.


                                       36
<PAGE>

Cash used in investing activities for the nine months ended September 30, 2001
was $28.1 million, a decrease of $240.4 million from 2000. This decrease is
attributable to the closing of the HQ Merger in fiscal 2000.

Cash provided by financing activities for the nine months ended September 30,
2001 was $6.0 million, whereas cash provided by financing activities was $299.2
million for the corresponding period in 2000. During the nine months ended
September 30, 2001, HQ retired $24.2 million in term debt under the Credit
Facility, borrowed $19.0 million under the revolver, issued $15.0 million of new
equity, paid $1.0 million of capital lease obligations and repurchased and
retired $0.4 million of common stock.

In the fourth quarter of 2000 and during 2001, the United States economy and the
economies in foreign countries where HQ operates have declined. HQ's occupancy
rates have declined consistent with the decline in these economies. It is likely
that the economic decline will continue to have an adverse effect on the results
of HQ's operations and its cash flow. In light of the slowing economy and the
decline in occupancy, HQ is taking actions which it believes will increase
revenues, reduce expenses and improve liquidity. As a result of this, subsequent
to September 30, 2001, HQ closed 17 centers. However, there can be no assurance
that the economy will not slow at a rate greater than anticipated, or that these
actions will be successful.


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 Restructuring,
FrontLine's cash requirements have been substantially reduced. As of September
30, 2001, there is no remaining availability under any FrontLine credit
facility.

The Company has a credit facility with Reckson Operating Partnership, L.P.
("Reckson"), a subsidiary of Reckson Associates Realty Corp. (the entity from
which the Company was spun off in June 1998), in the amount of $100 million (the
"FrontLine Facility"). Additionally, Reckson Strategic Venture Partners, LLC
("Reckson Strategic"), an equity method investee of FrontLine, has a $110
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 September 30, 2001, 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 September 30, 2001. 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 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,


                                       37
<PAGE>

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 election of FrontLine, at LIBOR plus 5%. 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 September 30, 2001,
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. The Company is currently in discussions with its lenders regarding the
restructuring of its credit facilities. However, no assurances can be given that
any further extensions or restructuring of the terms of these credit facilities
will be agreed upon. In the event the Company is unable to reach a satisfactory
resolution in connection with the restructuring of its indebtedness, the Company
may be required to seek protection from its creditors under the federal
bankruptcy laws.

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. 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.

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%. If the securities are not redeemed prior to December 13, 2001,
the securities (including the amount of the redemption premium) become
convertible at the holder's option into FrontLine common stock at the initial
rate of $13.3875 per share, the preferred stock becomes a voting security on an
"as-converted" basis, and quarterly dividends become payable from the date of
initial issuance at the annual rate of 9.25%. If the Company does not pay the
dividend on the Series B Preferred Stock in December 2001, the holders of such
stock will have the right to vote on an "as converted" basis on any matters that
holders of common stock are permitted to vote upon and to elect two members to
the Company's Board of Directors. The securities have a mandatory redemption
requirement after five years at a 27.5% premium, although certain capital events
or uncured events of default would accelerate this period. 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 currently does not
anticipate that it will be in a position to pay the dividend that


                                       38
<PAGE>

becomes payable on December 13, 2001 and is therefore in negotiations to amend
or restructure the terms of the Preferred Equity Facility.

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. The Put
Rights provide that up to 50% of the HQ Shares may be put to the Company in
December 2001 (the "2001 Put Right") and any remaining HQ Shares may be put to
the Company in July 2002 (the "2002 Put Right" and together with the 2001 Put
Right, the "Put Rights"). The 2001 Put Right is payable by the Company in cash,
an interest free note due on July 31, 2002, or FrontLine common stock (valued by
independent investment banks at October 31, 2001), at the Company's option. The
2002 Put Right is payable by the Company in cash or FrontLine common stock. The
Put Rights provide that the Company may satisfy its obligations thereunder
through the issuance of FrontLine common stock only if the common stock
continues to be listed on the NASDAQ stock market in connection with certain
other transactions between such shareholder, or other national securities
exchange. It is currently anticipated that the Company will not have cash
available to satisfy the Put Rights. In addition, the Company's credit
agreements and the certificate of designation creating the Series B Preferred
Stock contain provisions requiring the consent of the lenders and the holders of
the preferred stock, respectively, in connection with the issuance of additional
indebtedness by the Company. The payment of the obligations under the Put Rights
through the issuance of FrontLine common stock would require approval of the
Company's stockholders in the event such issuance would exceed 20% of the
Company's outstanding shares. The Company is in negotiations to have the Put
Rights waived. However, no assurances can be given that the Put Rights will
be waived.

FrontLine's operations do not require significant capital expenditures. There
were no significant capital expenditure commitments as of September 30, 2001.

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.

EFFECTS OF INFLATION

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 nine to twelve months in duration. Accordingly, HQ does not
have the ability to pass on its increased costs at the time of renewal of such
contracts.

Interest on HQ's borrowings under the HQ Credit Facility is based on floating
interest rates. HQ periodically evaluates their exposure to short-term interest
rates and will, from time to time, enter into


                                       39
<PAGE>

interest rate protection agreements, that mitigate, but do not eliminate, the
effect of changes in interest rates on their floating-rate indebtedness under
the HQ Credit Facility. These rates of interest will be influenced by changes in
short-term rates and are sensitive to inflation and other factors. A significant
increase in interest rates may have a negative impact on their earnings due to
the variable interest rates under the HQ Credit Facility.

Effective January 1, 2001, HQ adopted Statement of Financial Accounting
Standards No. 133 as amended (FAS 133), Accounting for Derivatives and Hedging
Activities, as amended. HQ entered 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. HQ's policy is that they will not speculate in hedging
activities. The adoption of FAS 133 on January 1, 2001 resulted in an increase
in interest expense of $3.8 million for the nine months ended September 30,
2001.




                                       40
<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 has mitigated this risk by entering into instruments which lock in
the maximum underlying three-month LIBOR at levels between 7.93% and 9.00% on
approximately $100.2 million of borrowings under the HQ Credit Facility with
various expiration dates through September 30, 2002. For the nine-month period
ended September 30, 2001, recognition of the fair value of this instrument
resulted in an increase in interest expense of $3.8 million.

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 4.6% 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 September 30, 2001, 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, principal cash flows by scheduled maturity, weighted average
interest rates and estimated fair market value at September 30, 2001 (in
thousands, except rates).

<TABLE>
<CAPTION>

                               For the Year Ending December 31,
                  --------------------------------------------------------
                    2001        2002        2003         2004       2005       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..       9.29%        --         12.51%        --         --           --            12.03%           --
</TABLE>



                                       41
<PAGE>


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 September
30, 2001 was $14.7 million, approximately 2.0% of total assets, thereby
mitigating FrontLine's future equity market risk related to these interests.




                                       42
<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, 2000. In connection with such litigation, on September
12, 2001, the District Court granted the summary judgment motion brought by the
two stockholders and held that the 5,535,353 shares of non-voting common stock
issued by Old HQ to CarrAmerica Realty Corp. in exchange for such indebtedness
of Old HQ were null, void, and of no effect. The Company has been informed that
CarrAmerica Realty Corporation is appealing such decision.

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, 2000. In connection with such litigation, on August 9, 2001, the Chancery
Court granted the motion of the plaintiffs in the fiduciary action for leave to
amend its complaint to include the Company as an additional defendant. The
amended complaint dated October 15, 2001 alleges that the Company (i) aided and
abetted a breach of fiduciary duties of CarrAmerica and the directors of Old HQ
in the approval of the HQ Merger and (ii) tortuously interfered with the rights
of the plaintiffs under the Tag-Along Rights Agreement providing the plaintiffs
the right to participate pari passu in such merger transactions. The Company has
indemnification rights against CarrAmerica with respect to damages incurred in
such litigation pursuant to an agreement dated as of June 1, 2000.


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 (the "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 10 - 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 November 6, 2001, 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 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.

                                       43
<PAGE>

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


(a)     Exhibits--None

(b)     During the three months ended September 30, 2001, the Registrant filed
        the following report:

         On August 14, 2001, the Registrant filed a Current Report on Form 8-K
         under Item 9 thereof in order to submit supplemental data for the
         quarter ended June 30, 2001.


                                       44

<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 Rechler
                         ------------------------------
                         Scott H. Rechler, President and Chief Executive Officer
                         (Principal Executive Officer)



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

Date:  November 14 , 2001







                                       45