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                                  UNITED STATES
                        SECURITIES AND EXCHANGE COMISSION
                              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, 2000

                         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)

1350 AVENUE OF AMERICAS, NEW YORK, NY                                      10019
-------------------------------------                                      -----
(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 36,631,278 SHARES OUTSTANDING AS OF NOVEMBER 7, 2000.

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


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<PAGE>


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


                                TABLE OF CONTENTS

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

          Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
          December 31, 1999 ..................................................................................................   3

          Consolidated Statements of Operations for the three and nine months
          ended September 30, 2000 and 1999 (unaudited) ......................................................................   4

          Consolidated Statements of Cash Flows for the nine months ended
          September 30, 2000 and 1999 (unaudited) ............................................................................   5

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

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations ..............................................................................................  25

Item 3    Quantitative and Qualitative Disclosures about Market Risk .........................................................  34

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

Item 1    Legal Proceedings ..................................................................................................  35
Item 2    Changes in Securities and Use of Proceeds ..........................................................................  35
Item 3    Defaults Upon Senior Securities ....................................................................................  35
Item 4    Submission of Matters to a Vote of Securities Holders ..............................................................  35
Item 5    Other Information ..................................................................................................  35
Item 6    Exhibits and Reports on Form 8-K ...................................................................................  35

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SIGNATURES ...................................................................................................................  36
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       2

<PAGE>


PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                                    SEPTEMBER 30,       DECEMBER 31,
                                                                                                        2000               1999
                                                                                                    ------------        ------------
                                                                                                     (UNAUDITED)
<S>                                                                                                  <C>                <C>
ASSETS:
Current Assets:
     Cash and cash equivalents ...............................................................       $    37,310        $    32,740
     Restricted cash .........................................................................             6,689             21,572
     Accounts receivable, net of allowance for doubtful accounts of
        $3,916 at September 30, 2000 and $861 at December 31, 1999............................            25,661              8,426
     Other current assets ....................................................................            20,237             16,008
                                                                                                     -----------        -----------
         Total Current Assets ................................................................            89,897             78,746
Ownership interests in and advances to unconsolidated companies ..............................            83,931             97,833
Intangible assets, net .......................................................................           669,085            239,412
Property and equipment, net ..................................................................           210,272             80,425
Deferred financing costs, net ................................................................            51,420              5,426
Other assets, net ............................................................................            55,577             40,141
                                                                                                     -----------        -----------
         Total Assets ........................................................................       $ 1,160,182        $   541,983
                                                                                                     ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses ...................................................       $    52,969        $    45,852
     Current portion of senior secured debt ..................................................            16,575             12,500
     Notes payable ...........................................................................            25,000                 --
     Deferred rent payable ...................................................................             4,131              2,165
     Other current liabilities ...............................................................             2,453              1,139
                                                                                                     -----------        -----------
         Total Current Liabilities ...........................................................           101,128             61,656
Credit facilities with related parties .......................................................           132,379            121,848
Senior secured debt ..........................................................................           199,575             44,407
Subordinated notes payable ...................................................................           125,000            108,125
Deferred rent payable ........................................................................            33,462             22,794
Other liabilities ............................................................................            79,004             33,706
                                                                                                     -----------        -----------
         Total Liabilities ...................................................................           670,548            392,536
                                                                                                     -----------        -----------
Minority interest ............................................................................           300,508             35,338
Commitments and contingencies ................................................................                --                 --
Shareholders' Equity:
     8.875% Cumulative convertible preferred stock, $.01 par value, 25,000,000
       shares authorized, 26,000 and -0- issued and outstanding,
       at September 30, 2000 and December 31, 1999, respectively .............................                --                 --
     Common stock, $.01 par value, 100,000,000 shares authorized,
       36,574,462 and 30,672,794 shares issued and outstanding at
       September 30, 2000 and December 31, 1999, respectively ................................               366                307
     Additional paid-in capital ..............................................................           399,113            162,054
     Cumulative translation adjustment .......................................................              (574)                --
     Accumulated deficit .....................................................................          (209,779)           (48,252)
                                                                                                     -----------        -----------
         Total Shareholders' Equity ..........................................................           189,126            114,109
                                                                                                     -----------        -----------
         Total Liabilities and Shareholders' Equity ..........................................       $ 1,160,182        $   541,983
                                                                                                     ===========        ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       3

<PAGE>

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


<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                                       SEPTEMBER 30,                        SEPTEMBER 30,
                                                              -------------------------------       -------------------------------
                                                                  2000               1999               2000               1999
                                                              ------------       ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>                <C>
HQ Operating Revenues:
   Executive office suite income .......................      $     97,642       $     33,703       $    191,798       $     91,339
   Support services and other ..........................            62,624             24,378            129,655             66,070
                                                              ------------       ------------       ------------       ------------
       Total HQ Operating Revenues .....................           160,266             58,081            321,453            157,409
                                                              ------------       ------------       ------------       ------------

HQ Operating Expenses:
   Cost of Revenue .....................................           106,610             43,904            225,481            117,850
   General and administrative ..........................            18,811              6,602             36,097             17,493
                                                              ------------       ------------       ------------       ------------
       Total HQ Operating Expenses .....................           125,421             50,506            261,578            135,343
                                                              ------------       ------------       ------------       ------------

       HQ Operating Income .............................            34,845              7,575             59,875             22,066

HQ Other Expenses:
   Merger and integration costs ........................            (1,707)              (219)           (21,148)            (1,604)
   Depreciation and amortization .......................           (19,069)            (3,983)           (35,263)           (10,069)
   Interest expense, net ...............................           (11,827)            (2,888)           (22,054)            (7,133)
                                                              ------------       ------------       ------------       ------------

       HQ Income (Loss) ................................             2,242                485            (18,590)             3,260

Parent Income (Expenses):
   General and administrative expenses .................            (4,598)            (4,290)           (15,568)           (12,902)
   Depreciation and amortization .......................              (544)               (14)              (943)               (50)
   Amortization of deferred charges ....................            (5,817)                --            (11,347)                --
   Interest expense, net ...............................            (4,014)            (2,543)           (14,023)            (4,316)
   Development Stage Company Costs and
     Reserves ..........................................            (3,578)                --             (7,285)                --
                                                              ------------       ------------       ------------       ------------

       Loss before income taxes, minority interest
         and equity losses .............................           (16,309)            (6,362)           (67,756)           (14,008)

Provision for income taxes .............................            (1,983)              (864)            (2,453)            (2,195)
Minority interest ......................................            (4,416)               314             (3,318)              (643)
Equity in net loss of unconsolidated companies..........           (31,106)            (4,828)           (83,853)            (6,685)
                                                              ------------       ------------       ------------       ------------

       Loss before extraordinary item from
         early extinguishment of debt and
         distribution to Preferred Shareholder .........           (53,814)           (11,740)          (157,380)           (23,531)


Extraordinary item from early extinguishment
  of debt ..............................................                --                 --             (2,648)                --
                                                              ------------       ------------       ------------       ------------

       Net loss before distribution to
         Preferred Shareholder .........................           (53,814)           (11,740)          (160,028)           (23,531)


Distribution to Preferred Shareholder ..................              (576)                --             (1,499)                --
                                                              ------------       ------------       ------------       ------------

       Net loss applicable to common
         shareholders ..................................      $    (54,390)      $    (11,740)      $   (161,527)      $    (23,531)
                                                              ============       ============       ============       ============

Basic and diluted net loss per weighted
  average common share .................................      $      (1.49)      $      (0.47)      $      (4.71)      $      (0.95)
                                                              ============       ============       ============       ============

Basic and diluted weighted average common
   shares outstanding ..................................        36,574,462         25,163,301         34,295,488         24,855,657
                                                              ============       ============       ============       ============
</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,
                                                                                     -------------------------------
                                                                                         2000              1999
                                                                                         ----              ----
<S>                                                                                     <C>               <C>
Cash Flows from Operating Activities:
   Net loss before distribution to Preferred Shareholder........................        $(160,028)          $(23,531)
   Adjustments to reconcile net loss before distribution to Preferred
     Shareholder to cash provided by (used in) operating activities:
       Depreciation and amortization............................................           36,206             10,119
       Extraordinary loss on early extinguishment of debt.......................            2,648                 --
       Equity in net loss of unconsolidated companies...........................           83,853              6,685
       Minority interest........................................................            3,318                643
       Deferred income taxes....................................................             (603)                --
       Amortization of deferred charges.........................................           11,347              8,846
       Preferred distribution...................................................             (577)                --
       Cumulative translation adjustment........................................           (1,013)                --
       Changes in operating assets and liabilities:
         Accounts receivable, net...............................................           (9,553)            (2,015)
         Acquisition costs and other assets.....................................            2,790             (3,790)
         Deferred rent payable..................................................            6,105              4,108
         Accounts payable and accrued expenses..................................          (31,182)             5,423
         Other liabilities......................................................           16,122              2,738
         Affiliate receivables..................................................               --              7,427
                                                                                     ------------      -------------
           Net cash provided by (used in) operating activities..................         (40,567)             16,653
                                                                                     ------------      -------------

Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers...................................         (326,809)           (53,044)
   Equipment  ..................................................................          (34,686)           (26,804)
   Restricted cash..............................................................           23,322            (21,799)
   Acquisition of ownership interests and advances to Partner Companies.........          (65,208)           (17,084)
   Acquisition of other ownership interests.....................................           (4,743)           (25,541)
                                                                                     ------------      -------------
           Net cash used in investing activities................................         (408,124)          (144,272)
                                                                                     ------------      -------------

Cash Flows from Financing Activities:
   Issuance of common stock and warrants, net of costs..........................          156,855                (99)
   Issuance of preferred stock, net of costs....................................           24,570                 --
   Deferred financing costs.....................................................          (26,893)            (3,054)
   Net proceeds from credit facilities with related parties.....................           10,531             75,644
   Capital leases...............................................................           (2,300)            (1,971)
   Exercise of options..........................................................            1,115                 --
   Net proceeds from secured credit facility and notes payable..................           62,425             51,250
   Net proceeds from minority interest..........................................          226,958              5,878
                                                                                     ------------      -------------
           Net cash provided by financing activities............................          453,261            127,648
                                                                                     ------------      -------------

Cash and Cash Equivalents:
   Net increase ................................................................            4,570                 29
   Beginning of period..........................................................           32,740              2,026
                                                                                     ------------      -------------
   End of period................................................................        $  37,310             $2,055
                                                                                     ============      =============

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5

<PAGE>


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

1.       DESCRIPTION OF THE COMPANY

FrontLine  Capital Group  ("FrontLine"  or the  "Company") is a holding  company
which develops and manages companies servicing small and medium-size enterprises
("SMEs") and mobile workforces of larger  companies.  FrontLine has two distinct
operating segments:  one holds FrontLine's interest in HQ Global Holdings,  Inc.
("HQ  Global"),  the world's  largest  provider of officing  solutions  (the "HQ
Global  Segment"),   and  the  other  consists  of  FrontLine  (parent  company)
("FrontLine  Parent") and its interests in a group of companies  which  leverage
the  Internet to provide a wide range of services  to the SME  marketplace  (the
"Parent and Other Interests Segment").

In October  2000,  FrontLine  announced  that,  as a result of  changing  market
conditions, it was refining its strategic plan (the "Restructuring"- see Note 10
for further  discussion)  to, in part,  report the  operations of HQ Global as a
separate operating segment and was in the process of exploring  alternatives for
separating FrontLine into two companies.  Additionally,  in conjunction with the
Restructuring, FrontLine announced that it would focus its resources and capital
on  the  businesses  within  its  existing  portfolio  and  cease  pursuing  new
investment activities.

The Company refers to the companies in which it has acquired an equity  interest
as its "Partner  Companies" (except for Reckson Strategic Venture Partners,  LLC
("Reckson  Strategic")  - see Note 4).  However,  the Company does not act as an
agent or legal  representative  for any of them,  it does not have the  power or
authority  to  legally  bind  any of them  and it does  not  have  the  types of
liabilities  in relation to them that a general  partner of a partnership  would
have.


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  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial   statements.   In  the  opinion  of   management,   all   adjustments
(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, 2000 are not  necessarily  indicative of
the results that may be expected for the year ending December 31, 2000.

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


                                      6
<PAGE>


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

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

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

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

Cost Method.  Partner Companies not accounted for under the consolidation or the
equity method of accounting,  which are generally those in which the Company has
less than 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.  The Company recognizes income from dividends from its
Partner Companies.

The  Company  records  its  ownership  interest  in debt  securities  of Partner
Companies  accounted for under the cost method at cost as it has the ability and
intent  to hold  these  securities  until  maturity.  The  Company  records  its
ownership  interests in equity  securities  of Partner  Companies  accounted for
under the cost method at cost, unless these securities have readily determinable
fair values based on quoted market prices,  in which case these  interests would


                                       7
<PAGE>

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


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

be classified as  available-for-sale  securities or some other classification in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 115,
"Accounting for Certain  Investments in Debt and Equity Securities." In addition
to  the  Company's   investments  in  voting  and  non-voting  equity  and  debt
securities,  it also periodically makes advances to its Partner Companies in the
form of promissory  notes which are  accounted  for in accordance  with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan."

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

CASH AND CASH EQUIVALENTS

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

REVENUE RECOGNITION

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

PROPERTY AND EQUIPMENT

Property and  equipment is stated at cost.  Depreciation  is  calculated  on the
straight-line  method over the estimated  useful lives of the assets which range
from five to seven years.  Leasehold  improvements are amortized over the lesser
of the term of the related lease or the estimated useful lives of the assets. As
of  September  30,  2000  and  December  31,  1999,   the  related   accumulated
depreciation and amortization was $48.5 million and $14.0 million, respectively.

INTANGIBLE ASSETS

Intangible assets consist  primarily of goodwill  representing the excess of the
purchase  price over the net  assets of  acquired  companies  by  FrontLine.  In
connection with the merger of HQ Global and VANTAS Incorporated ("VANTAS"),  the
Company  reassessed the estimated life of goodwill resulting from the merger. As
a result, the amortization  period for goodwill was reduced from 30 to 20 years.


                                       8
<PAGE>

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

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

As of  September  30,  2000 and  December  31,  1999,  the  related  accumulated
amortization was $24.1 million and $9.0 million, respectively.

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

STOCK-BASED COMPENSATION

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock  Issued to  Employees"  and  related  interpretations  in
accounting  for its employee  stock options and grants  because the  alternative
fair  value  accounting  provided  for  under  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.  For the three  months  ended
September 30, 2000 and 1999,  the Company  recognized  current state and foreign
income tax provisions of $2.0 million and $0.9 million,  respectively,  and $2.5
million and $2.2 million for the nine months ended  September 30, 2000 and 1999,
respectively.

Additionally,  deferred tax assets are recognized for temporary differences that
will result in  deductible  amounts in future  years.  A valuation  allowance is
recognized if it is more likely than not that some portion of the deferred asset
will not be realized.  As of  September  30, 2000,  the  Company's  deferred tax
assets have been fully  reserved  because of the  uncertainty  of the timing and
amount of future taxable income.

SEGMENT REPORTING

The segment  information  for the three and nine months ended September 30, 2000
and  1999,  as  required  by SFAS No.  131,  "Disclosure  about  Segments  of an
Enterprise and Related  Information,"  relating to the HQ Segment and the Parent
and Other Interests Segment is presented in Notes 3 and 4, respectively.

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




                                       9
<PAGE>

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

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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.  For the loans payable to affiliates and others,
the estimated fair value approximates the recorded balance.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

RECLASSIFICATIONS

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


3.       INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES

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

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

On June 1, 2000, VANTAS merged with HQ Global Workplaces,  Inc. ("Old HQ"), in a
two-step merger (the "Merger").  As a result of the Merger, the combined company
became a  wholly-owned  subsidiary  of a  newly-formed  parent  corporation,  HQ
Global.  As  of  September  30,  2000,   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
Merger  conversion  price,  and assuming  that  certain  warrants to purchase HQ
Global stock become exercisable,


                                       10
<PAGE>

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

3.       INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES (CONTINUED)

FrontLine  would own  approximately  38% of the common  stock of HQ  Global.  To
effectuate the Merger,  FrontLine contributed  approximately $17 million in cash
and its ownership interest in VANTAS. Additionally, FrontLine holds an option it
purchased in January 1999, to acquire another HQ Global shareholder's 3.1% basic
basis  interest for $4.3 million at any time between July 8, 2001 and January 7,
2002.

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


         Working capital....................  $ (14,841)
         Favorable operating leases.........     22,900
         Property and equipment.............    107,047
         Goodwill...........................    396,404
         Other assets.......................     32,504
         Other liabilities..................    (13,200)
         Notes payable......................   (138,693)
                                              ---------
                                              $ 392,121
                                              =========

The  estimates  of fair value were  determined  by HQ Global's  management.  The
goodwill  recorded in the Merger is being  amortized over a 20-year period based
on management's assessment of the significant barriers to entry due to the rapid
consolidation  in the  executive  suites  business  and the lack of  exposure to
technological  obsolescence in the global officing solutions business. HQ Global
engages in lease  commitments  ranging from 10-15 years,  typically  with 5-year
renewal options.  The results of operations of operations of Old HQ are included
in the consolidated results of HQ Global for periods subsequent to June 1, 2000.

The Merger was financed  through a combination  of debt and HQ Global  preferred
stock and warrants. Subsequent to the Merger, HQ Global sold an additional $25.0
million of preferred stock and issued additional warrants.

HQ Global is the largest provider of flexible  officing  solutions in the world.
As of September 30, 2000, HQ Global owned,  operated, or franchised 469 business
centers in 17  countries.  Also  included are 6 business  centers  managed by HQ
Global for unrelated  third parties and 9 international  joint-venture  business
centers  with which HQ Global,  through  its  European  subsidiary,  HQ Holdings
Limited,  is a joint venture partner with Mercury Asset Management.  HQ Global's
wholly-owned  subsidiary,  HQ Network  Systems,  Inc.,  is the  franchiser of 46
domestic and 30  international  business centers for unrelated  franchisees.  HQ
Global  provides a complete  outsourced  office solution  through  furnished and
equipped  individual  offices and multi-office  suites available on short notice
with  flexible   contracts.   HQ  Global  also  provides  business  support  and
information services including:  telecommunications;  broadband Internet access;
mail room and  reception  services;  high-speed  copying,  faxing  and  printing
services;  secretarial,  desktop  publishing and IT support services and various
size conference facilities, with multi-media presentation and, in certain cases,
video  teleconferencing  capabilities.  HQ Global also provides similar services
for those  businesses and individuals that do not require offices on a full-time
basis.


                                       11
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

3.       INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES (CONTINUED)

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.

                       HQ GLOBAL AND PREDECESSOR ENTITIES
                                 BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                     SEPTEMBER 30,   DECEMBER 31,
                                                                                        2000            1999
                                                                                   ---------------  ---------------
<S>                                                                                     <C>               <C>
ASSETS:
Current Assets:
     Cash and cash equivalents..................................................          $15,898           $3,807
     Restricted cash............................................................            6,689           21,572
     Accounts receivable, net of allowance for doubtful accounts of
        $3,916 at September 30, 2000 and $861 at December 31, 1999..............           25,661            8,426
     Other current assets.......................................................           20,237           16,008
                                                                                   --------------   --------------
         Total Current Assets...................................................           68,485           49,813
Intangible assets, net..........................................................          669,085          239,412
Property and equipment, net.....................................................          207,940           80,064
Deferred financing costs, net...................................................           50,262            5,426
Other assets, net...............................................................           37,811           10,039
                                                                                   --------------   --------------
          Total Assets...........................................................      $1,033,583         $384,754
                                                                                   ==============   ==============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses......................................          $43,139          $38,010
     Current portion of senior secured debt.....................................           16,575           12,500
     Deferred rent payable......................................................            4,131            2,165
     Other current liabilities..................................................            2,453            1,139
                                                                                   --------------   --------------
         Total Current Liabilities..............................................           66,298           53,814
Senior secured debt.............................................................          199,575               --
Subordinated notes payable......................................................          125,000          108,125
Deferred rent payable...........................................................           33,462           22,794
Other liabilities...............................................................           65,584           28,176
                                                                                   --------------   --------------
         Total Liabilities......................................................          489,919          212,909
Minority interest...............................................................          300,508           35,338
Cumulative translation adjustment...............................................            (574)               --
Net business unit equity........................................................          243,730          136,507
                                                                                   --------------   --------------
         Total Liabilities and Net Business Unit Equity.........................       $1,033,583         $384,754
                                                                                   ==============   ==============

</TABLE>





                                       12
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

3.       INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES (CONTINUED)

                       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,
                                                  -------------------------------    -------------------------------
                                                       2000              1999            2000               1999
                                                       ----              ----            ----               ----

<S>                                                   <C>               <C>             <C>                <C>
HQ Operating Revenues:
   Executive office suite income............           $97,642           $33,703         $191,798            $91,339
   Support services and other...............            62,624            24,378          129,655             66,070
                                                 -------------    --------------    -------------      -------------
       Total HQ Operating Revenues..........           160,266            58,081          321,453            157,409
                                                 -------------    --------------    -------------      -------------

HQ Operating Expenses:
   Cost of Revenue..........................           106,610            43,904          225,481            117,850
    General and administrative..............            18,811             6,602           36,097             17,493
                                                 -------------    --------------    -------------      -------------
       Total HQ Operating Expenses..........           125,421            50,506          261,578            135,343
                                                 -------------    --------------    -------------      -------------

       HQ Operating Income..................            34,845             7,575           59,875             22,066

HQ Other Expenses:
   Merger and integration costs.............            (1,707)             (219)         (21,148)            (1,604)
   Depreciation and amortization............           (19,069)           (3,983)         (35,263)           (10,069)
   Interest expense, net....................           (11,827)           (2,888)         (22,054)            (7,133)
                                                 -------------    --------------    -------------      -------------

       Income (loss) before income taxes and
       minority interest....................             2,242               485          (18,590)             3,260

Provision for income taxes..................            (1,983)             (864)          (2,453)            (2,195)
Minority interest...........................            (4,416)              314           (3,318)              (643)
                                                 -------------    --------------    -------------      -------------

       Net income (loss) applicable to common
         shareholders attributable to HQ....           $(4,157)             $(65)        $(24,361)              $422
                                                 =============    ==============    =============      =============

Basic and diluted net income (loss)
   attributable to HQ per weighted                      $(0.11)           $(0.00)          $(0.71)             $0.02
   average common share......................    =============    ==============    =============      =============

Basic and diluted weighted average common
   shares of FrontLine outstanding..........        36,574,462        25,163,301       34,295,488         24,855,657
                                                 =============    ==============    =============      =============
</TABLE>



                                       13
<PAGE>

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

3.       INTEREST IN HQ GLOBAL AND PREDECESSOR ENTITIES (CONTINUED)

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

<TABLE>
<CAPTION>

                                                                                        NINE MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                  --------------------------
                                                                                       2000         1999
                                                                                       ----         ----
<S>                                                                               <C>          <C>
Cash Flows from Operating Activities:
   Net loss income (loss) applicable to common shareholders attributable to HQ .   $ (24,361)   $     422
   Adjustments to reconcile net income (loss) applicable to common
     shareholders attributable to HQ to cash provided by (used in) operating
     activities:
       Depreciation and amortization ...........................................      35,263       10,083
       Minority interest .......................................................       3,318          643
       Deferred income taxes ...................................................        (603)          --
       Cumulative translation adjustment .......................................      (1,013)          --
       Changes in operating assets and liabilities:
         Accounts receivable, net ..............................................      (9,553)      (2,015)
         Acquisition costs and other assets ....................................      (6,898)      (3,930)
         Deferred rent payable .................................................       6,105        4,108
         Accounts payable and accrued expenses .................................     (29,081)       2,299
         Other liabilities .....................................................       8,232        2,738
                                                                                   ---------    ---------
           Net cash provided by (used in) operating activities .................     (18,591)      14,348
                                                                                   ---------    ---------

Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers ..................................    (260,047)     (40,130)
   Equipment ...................................................................     (31,771)     (26,644)
   Restricted cash .............................................................      23,322      (21,799)
                                                                                   ---------    ---------
           Net cash used in investing activities ...............................    (268,496)     (88,573)
                                                                                   ---------    ---------

Cash Flows from Financing Activities:
   Net proceeds from Parent ....................................................      18,424       23,817
   Deferred financing costs ....................................................     (25,736)      (3,054)
   Net proceeds from notes payable .............................................      81,832       51,250
   Capital leases ..............................................................      (2,300)      (1,971)
   Net proceeds from minority interest .........................................     226,958        5,878
                                                                                   ---------    ---------
           Net cash provided by financing activities ...........................     299,178       75,920
                                                                                   ---------    ---------

Cash and Cash Equivalents:
   Net increase ................................................................      12,091        1,695
   Beginning of period .........................................................       3,807           --
                                                                                   ---------    ---------
   End of period ...............................................................   $  15,898    $   1,695
                                                                                   =========    =========
</TABLE>

                                       14
<PAGE>
                    FRONTLINE CAPITAL GROUP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

4.       OTHER OWNERSHIP INTERESTS

Other  ownership  interests  at  September  30, 2000 and  December 31, 1999 were
comprised of:

<TABLE>
<CAPTION>
                                                                 VOTING OWNERSHIP ON A        VOTING OWNERSHIP ON A
                                                                      BASIC BASIS                  DILUTED BASIS
                                                             -------------------------     -------------------------
                             FRONTLINE      APPLICABLE
                             INVESTEE       ACCOUNTING      SEPTEMBER 30,   DECEMBER 31,   SEPTEMBER 30,   DECEMBER 31,
                              SINCE            METHOD          2000           1999             2000           1999
                           -----------    -------------     ----------     ----------       -----------    -----------
<S>                           <C>          <C>                 <C>           <C>               <C>           <C>
AdOutlet.com.............     1999            Cost             10%            12%               9%            10%
Confidant Inc............     1998        Consolidation        93%            93%              80%            80%
DigitalWork.com..........     1999            Cost             <1%            <1%              <1%            <1%
EmployeeMatters, Inc.....     1999           Equity            53%            53%              45%            45%
Giftcertificates.com.....     1999            Cost             <1%            <1%              <1%            <1%
LiveCapital.com..........     2000            Cost              4%           N/A                4%           N/A
NeoCarta Ventures........     1999            Cost              4%             4%               4%             4%
OnSite Access, Inc.......     1997           Equity            22%            37%              17%            22%
Opus360 Corporation......     1999            Cost             <1%            <1%              <1%            <1%
PIPE9 Corporation........     1999           Equity            25%            31%              29%            26%
RealtyIQ.com.............     1999           Equity            66%            68%              54%            54%
Upshot.com...............     2000           Equity            20%           N/A               17%           N/A
Reckson Strategic........     1998           Equity            33%            33%              33%            33%

</TABLE>

The Company's ownership  interests in its investees are classified  according to
the applicable accounting method utilized at September 30, 2000 and December 31,
1999. The carrying  value  represents  the Company's  acquisition  cost less any
impairment charges,  plus or minus the Company's share of such investees' income
or loss.  The cost basis  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, 2000                 DECEMBER 31, 1999
                                                  -------------------------------    -------------------------------
                                                  CARRYING VALUE     COST BASIS      CARRYING VALUE      COST BASIS
                                                  --------------    --------------    -------------     -------------
<S>                                                    <C>              <C>               <C>              <C>
Equity Method...............................           $66,581          $166,922          $91,433          $107,245
Cost Method.................................            17,350            17,350            6,400             6,400
                                                      --------                           --------
                                                       $83,931                            $97,833
                                                      ========                           ========
</TABLE>
The  following  are the Company's  summarized  losses on ownership  interests in
unconsolidated companies (in thousands):

<TABLE>
<CAPTION>
                                                FOR THE THREE MONTHS ENDED         FOR THE NINE MONTHS ENDED
                                                      SEPTEMBER 30,                      SEPTEMBER 30,
                                              -------------------------------    -------------------------------
                                                   2000             1999              2000              1999
                                              -------------    --------------    -------------     -------------
<S>                                            <C>              <C>                 <C>              <C>
OnSite Access, Inc. and predecessor entity .   $(12,459)        $ (2,735)           $(33,248)        $ (2,805)
EmployeeMatters, Inc. ......................     (4,914)            (819)            (15,139)            (819)
PIPE9 Corporation ..........................     (4,165)              --              (9,714)              --
RealtyIQ.com ...............................     (7,395)              --             (21,245)              --
UpShot.com .................................     (1,078)              --              (2,153)              --
Reckson Strategic ..........................     (1,095)          (1,274)             (2,354)          (3,061)
                                               --------         --------            --------         --------
   Equity in net loss of unconsolidated
     companies .............................   $(31,106)        $ (4,828)           $(83,853)        $ (6,685)
                                               ========          =======            ========         ========
</TABLE>


                                       15
<PAGE>

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

4        OTHER OWNERSHIP INTERESTS (CONTINUED)

ONSITE ACCESS

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

<TABLE>
<CAPTION>

                                                                                       SEPTEMBER 30,     DECEMBER 31,
BALANCE SHEET DATA:                                                                       2000              1999
                                                                                          ----              ----

<S>                                                                                     <C>               <C>
Current assets..................................................................          $54,809           $25,535
                                                                                         --------           -------
     Total Assets...............................................................         $242,564           $74,774
                                                                                         ========           =======

Current liabilities.............................................................          $42,588           $13,702
                                                                                         --------           -------
     Total Liabilities..........................................................          136,897            15,615
                                                                                         --------           -------

     Total Redeemable Preferred Stock and Stockholders' Equity (Deficit)........          105,667            59,159
                                                                                         --------           -------
     Total Liabilities and Stockholders' Equity (Deficit).......................         $242,564           $74,774
                                                                                         ========           =======
</TABLE>

<TABLE>
<CAPTION>

                                                                                       FOR THE THREE       FOR THE NINE
                                                                                        MONTHS ENDED       MONTHS ENDED
                                                                                        SEPTEMBER 30,      SEPTEMBER 30,
STATEMENTS OF OPERATIONS DATA:                                                              2000              2000
                                                                                            ----              ----

<S>                                                                                     <C>               <C>

Revenues........................................................................          $2,962            $6,936
                                                                                        ========          ========

Net loss........................................................................        $(33,315)         $(85,374)
Other interests' share of net loss..............................................         (20,856)          (52,126)
                                                                                        --------          --------
FrontLine's share of net loss...................................................        $(12,459)         $(33,248)
                                                                                        ========          ========

</TABLE>


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

In September 2000, AT&T Corp.  ("AT&T") invested $50 million in OnSite through a
combination of preferred  stock and senior secured debt. In connection with this
investment,  OnSite and AT&T signed a  three-year  commercial  agreement,  under
which AT&T will provide OnSite with advanced communication services.

OTHER PARTNER COMPANIES

During  the  nine  months  ended  September  30,  2000,  the  Company   invested
approximately   $23.5  million  to  purchase  ownership  interests  in  two  new
e-business companies and funded $51.5 million to existing Partner Companies.

OTHER INTERESTS

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, 2000
                                   (UNAUDITED)

4.       OTHER OWNERSHIP INTERESTS (CONTINUED)

Through RSVP Holdings,  LLC  ("Holdings"),  the Company is a managing member and
100% owner of the common equity of Reckson Strategic.  New World Realty, LLC, an
entity  owned by two  individuals  retained  by  Holdings,  (the "RSVP  Managing
Directors"),  acts as a managing member of Holdings, and have a carried interest
which provides for the RSVP Managing Directors to receive a share in the profits
of Reckson  Strategic  after the Company,  Paine Webber Real Estate  Securities,
Inc.,  ("Paine Webber") and Stratum Realty Fund, L.P.  ("Stratum") have received
certain  minimum  returns and a return of capital.  Paine Webber and Stratum are
non-managing members and preferred equity owners who have committed $150 million
and $50  million,  respectively,  in capital and shares in profits and losses of
Reckson Strategic with the Company, subject to a maximum internal rate of return
of 16% of invested capital.


                                       17
<PAGE>

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

4.       OTHER OWNERSHIP INTERESTS (CONTINUED)

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.

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

<TABLE>
<CAPTION>

                                                                                     SEPTEMBER 30,      DECEMBER 31,
                                                                                        2000               1999
                                                                                   ---------------  ---------------

<S>                                                                                       <C>              <C>
ASSETS:
Current Assets:
     Cash and cash equivalents..................................................          $21,412          $28,933
                                                                                          -------         --------
         Total Current Assets...................................................           21,412           28,933
Ownership interests in and advances to unconsolidated companies.................           83,931           97,833
Ownership interests in HQ Global and predecessor entities.......................          243,730          136,507
Property and equipment, net.....................................................            2,333              361
Deferred financing costs, net...................................................            1,157               --
Other assets, net...............................................................           17,766           30,102
                                                                                         --------         --------
          Total Assets...........................................................        $370,329         $293,736
                                                                                         ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
     Accounts payable and accrued expenses......................................           $9,830           $7,842
     Notes payable..............................................................           25,000               --
                                                                                         --------         --------
         Total Current Liabilities..............................................           34,830            7,842
Credit facilities with related parties..........................................          132,379          121,848
Senior secured debt.............................................................               --           44,407
Other liabilities...............................................................           13,420            5,530
                                                                                         --------         --------
         Total Liabilities......................................................          180,629          179,627
                                                                                         --------         --------
Shareholders' Equity:
     8.875% Cumulative  convertible preferred stock, $.01 par value,  25,000,000
       shares authorized, 26,000 and -0- issued and outstanding,
       at September 30, 2000 and December 31, 1999, respectively...............                --               --
     Common stock, $.01 par value, 100,000,000 shares authorized,
       36,574,462 and 30,672,794 shares issued and outstanding at
       September 30, 2000 and December 31, 1999, respectively..................               366              307
     Additional paid-in capital.................................................          399,113          162,054
     Accumulated deficit........................................................         (209,779)         (48,252)
                                                                                         --------         --------
            Total Shareholders' Equity.............................................       189,700          114,109
                                                                                         --------         --------
         Total Liabilities and Shareholders' Equity.............................         $370,329         $293,736
                                                                                         ========         ========

</TABLE>


                                       18
<PAGE>

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

4.       OTHER OWNERSHIP INTERESTS (CONTINUED)

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

<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED             NINE MONTHS ENDED
                                                          SEPTEMBER 30,                   SEPTEMBER 30,
                                                  -----------------------------    --------------------------
                                                        2000           1999             2000            1999
                                                        ----           ----             ----            ----

<S>                                              <C>             <C>             <C>             <C>

Parent Income (Expenses):
   General and administrative expenses .......   $     (4,598)   $     (4,290)   $    (15,568)   $    (12,902)
   Depreciation and amortization .............           (544)            (14)           (943)            (50)
   Amortization of deferred charges ..........         (5,817)             --         (11,347)             --
   Interest expense, net .....................         (4,014)         (2,543)        (14,023)         (4,316)
    Development Stage Company Costs and
     Reserves ................................         (3,578)             --          (7,285)             --
                                                 ------------    ------------    ------------    ------------


       Loss before equity losses .............        (18,551)         (6,847)        (49,166)        (17,268)
                                                 ------------    ------------    ------------    ------------

Equity in net loss of unconsolidated
       companies..............................        (31,106)         (4,828)        (83,853)         (6,685)

       Loss before extraordinary item from
         early extinguishment of debt and
         distribution to Preferred Shareholder        (49,657)        (11,675)       (133,019)        (23,953)

Extraordinary item from early extinguishment
   of  debt ..................................             --              --          (2,648)             --
                                                 ------------    ------------    ------------    ------------

       Net loss before distribution to
         Preferred Shareholder ...............        (49,657)        (11,675)       (135,667)        (23,953)

Distribution to Preferred Shareholder ........           (576)             --          (1,499)             --
                                                 ------------    ------------    ------------    ------------

       Net loss applicable to common
         Shareholders attributable to Parent
         and Other Interests .................   $    (50,233)   $    (11,675)   $   (137,166)   $    (23,953)
                                                 ============    ============    ============    ============
Basic and diluted net loss attributable to
     Parent and Other Interests per weighted
     average common share ....................   $      (1.37)   $      (0.46)   $      (4.00)   $      (0.96)
                                                 ============    ============    ============    ============
Basic and diluted weighted average common
   shares of FrontLine outstanding ...........     36,574,462      25,163,301      34,295,488      24,855,657
                                                 ============    ============    ============    ============
</TABLE>


                                       19
<PAGE>

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


4.       OTHER OWNERSHIP INTERESTS (CONTINUED)

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

<TABLE>
<CAPTION>

                                                                                        NINE MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                -------------------------------
                                                                                      2000            1999
                                                                                      ----            ----
<S>                                                                               <C>                 <C>
Cash Flows from Operating Activities:
   Net loss before distribution to Preferred Shareholder .......................   $(135,667)      $ (23,953)
   Adjustments to reconcile net loss before distribution to Preferred
     Shareholder to cash provided by (used in) operating activities:
       Depreciation and amortization ...........................................         943              36
       Extraordinary loss on early extinguishment of debt ......................       2,648              --
       Equity in net loss of unconsolidated companies...........................      83,853           6,685
       Amortization of deferred charges.........................................      11,347           8,846
       Preferred distribution ..................................................        (577)             --
       Changes in operating assets and liabilities:
         Acquisition costs and other assets ....................................       9,688             140
         Accounts payable and accrued expenses .................................      (2,101)          3,124
         Affiliate receivables .................................................          --           7,427
         Other liabilities .....................................................       7,890              --
                                                                                   ---------       ---------
           Net cash provided by (used in) operating activities .................     (21,976)          2,305
                                                                                   ---------       ---------

Cash Flows from Investing Activities:
   Acquisitions of officing solutions centers ..................................     (85,186)        (36,731)
   Equipment ...................................................................      (2,915)           (160)
   Acquisition of ownership interests and advances to unconsolidated companies .     (65,208)        (17,084)
   Acquisition of other ownership interest .....................................      (4,743)        (25,541)
                                                                                   ---------       ---------
           Net cash used in investing activities ...............................    (158,052)        (79,516)
                                                                                   ---------       ---------

Cash Flows from Financing Activities:
   Issuance of common stock and warrants, net of costs .........................     156,855             (99)
   Issuance of preferred stock, net of costs ...................................      24,570              --
   Deferred financing costs ....................................................      (1,157)             --
   Exercise of options .........................................................       1,115              --
   Net proceeds from credit facilities with related parties ....................      10,531          75,644
   Net proceeds from notes payable .............................................     (19,407)             --
                                                                                   ---------       ---------
           Net cash provided by financing activities ...........................     172,507          75,545
                                                                                   ---------       ---------

Cash and Cash Equivalents:
   Net decrease ................................................................      (7,521)         (1,666)
   Beginning of period .........................................................      28,933           2,026
                                                                                   ---------       ---------
   End of period ...............................................................   $  21,412       $     360
                                                                                   =========       =========
   </TABLE>

                                       20
<PAGE>




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

5.       NOTES PAYABLE

On May 31, 2000, HQ Global  completed a transaction  which  increased its $157.9
million credit facility (the amended and restated  "Credit  Facility") to $275.0
million.  The Credit Facility provides for $219.4 million under four term loans,
all of which are repayable in various  quarterly  installments  through November
2005.  The Credit  Facility also provides for  borrowings up to $55.6 million in
two revolving loan  commitments.  Availabilities  under the revolving portion of
the Credit  Facility  are formula  based.  As of September  30, 2000,  there was
$216.2 million in outstanding  borrowings under the term loans and no borrowings
outstanding  under  either  revolver.  As of September  30, 2000,  HQ Global had
letters of credit outstanding in the aggregate amount of $28.5 million,  against
which HQ Global pledged $5.7 million in cash and $22.8 million were supported by
the  two  revolving  loan  commitments,  leaving  $32.8  million  available  for
additional borrowings.

Borrowings under the Credit Facility bear interest ranging from LIBOR plus 3.25%
to 4.0% or the prime  rate plus  2.25% to 3.00% for a one,  three or  nine-month
period at the election of HQ Global.  HQ Global's weighted average interest rate
on borrowings  under the term loans at September 30, 2000 was 11.04%.  HQ Global
pays a  commitment  fee of 1/2 of 1.0% per annum on the  unused  portion  of the
Credit  Facility.  As of September  30, 2000,  HQ Global had hedged the interest
rates on  approximately  $93.0  million of its  credit  facility  using  various
instruments  with  various   expiration  dates  through  July  31,  2002.  These
instruments lock in the maximum  underlying 30-day LIBOR at levels between 7.93%
and 9.00%. The Credit Facility contains certain  financial  covenants related to
interest coverage, leverage ratios and other limitations. At September 30, 2000,
HQ Global was in compliance with all of its covenants.

Maturities of borrowings  under the Credit Facility  subsequent to September 30,
2000 are as follows (in millions):

Twelve months ending September 30:

        2001..............    $16.6
        2002..............     24.1
        2003..............     25.2
        2004..............     56.4
        2005..............     74.4
        Thereafter........     19.5
                            -------
        Total.............   $216.2
                            =======

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

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


                                       21
<PAGE>


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

5.       NOTES PAYABLE (CONTINUED)

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

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

On September  11, 2000,  FrontLine  entered into a $25.0  million line of credit
agreement (the "FrontLine Bank Credit Facility"). Borrowings under the FrontLine
Bank Credit  Facility bear  interest,  at the election of  FrontLine,  at either
LIBOR for one, two, three or six-month  periods or the prime rate,  plus 5%. Any
outstanding  borrowings  under the FrontLine Bank Credit Facility will be due on
March 11, 2001,  although  FrontLine has the ability to extend the maturity date
to September  11, 2001.  At September  30, 2000,  FrontLine  had borrowed  $25.0
million under the FrontLine Bank Credit  Facility.  Such amount is classified as
current in the  accompanying  Consolidated  Balance Sheet.  The weighted average
interest rate of the outstanding borrowings at such date was 11.63%.


6.       SHAREHOLDERS' EQUITY

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

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

During 1999, 550,000 shares of common stock and various stock option awards were
granted under the 1999 Stock Option Plan. These awards vest over various periods
ranging from six months to three years.  Certain of the stock awards include tax
loans which will be forgiven one year thereafter. To the extent that any vesting
periods  changed  due to the effect of  employee  terminations,  the Company has
adjusted the amortization of the expense related to such awards accordingly.

During the three  months and nine  months  ended  September  30,  2000,  results
include  $5.8  million  and $11.3  million  (or  $0.16  and  $0.33  per  share),
respectively,  of amortization of deferred charges  principally  associated with
the above awards,  the majority of which is non-cash in nature.  As of September
30, 2000, there remains $6.8 million of unamortized deferred stock compensation.
The expense in the three months ended  September 30, 2000 reflected $2.8 million
relating to the departure of two employees during such period.


                                       22
<PAGE>



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

6.       SHAREHOLDERS' EQUITY (CONTINUED)

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

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

On March 31, 2000, the Company  sold  approximately  2.6  million  shares of its
common  stock at a price of $47.25 per share for an aggregate  consideration  of
approximately $122.6 million.  Proceeds from the sale were utilized to repay the
remaining  portion of 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 expensed as an extraordinary
loss in the  accompanying  Consolidated  Statements of Operations.  As a part of
this transaction,  the Company issued 128,750 warrants with an exercise price of
$47.25 per share for 3 years.

On September 20, 2000,  the Company issued 331,400 shares of its common stock at
a price of $15.0875 per share for gross proceeds of $5.0 million.


7.         LONG-TERM INCENTIVE PLAN

In March 2000, the  Compensation  Committee of the Board of Directors  adopted a
long-term incentive plan. Under the long-term  incentive plan,  participants may
purchase or be granted  interests  in limited  partnerships  established  by the
Company to hold a profit  participation  interest in the investments made by the
Company.  The plan  contemplates the allocation to such  partnerships of up to a
12.5%  profits  interest  in each  investment  made by the  Company.  FrontLine,
through a  wholly-owned  subsidiary,  will act as the  general  partner  of each
partnership  and will retain an 87.5% or greater  interest  in each  partnership
depending upon the vesting and type of interest participants receive.  FrontLine
generally  must  receive  a  minimum  return  on its  holdings  in a  particular
partnership, typically two times the cost of its investment, before participants
receive distributions from such partnership.  It is anticipated that partnership
interest  will  vest 25%  each  year,  but the  Compensation  Committee  has the
authority to accelerate  vesting.  A partnership  will generally  distribute the
securities  or cash it holds to its  partners  after five to ten years,  but may
distribute  securities  or cash earlier if the company has  completed an initial
public offering or been sold. The plan also  permits  the  award  of  equivalent
grants without the use of a limited partnership.




                                       23
<PAGE>

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

8.       TRANSACTIONS WITH RELATED PARTIES

The Company has a credit  facility  with  Reckson  Operating  Partnership,  L.P.
("Reckson") in the amount of $100 million  ("FrontLine  Facility").  Reckson has
advanced the Company  approximately  $92.5 million at September 30, 2000.  These
advances bear interest at 12% per annum.

Additionally, FrontLine has a $100 million facility with Reckson for funding the
Reckson Strategic investments  ("Reckson Strategic  Facility").  As of September
30,  2000,  Reckson  has  advanced  FrontLine  $39.9  million  under the Reckson
Strategic  Facility and has also directly invested $37.6 million of the facility
in joint ventures with Reckson Strategic. The total outstanding at September 30,
2000,  owed by  FrontLine  under both  credit  facilities  was  $132.4  million.
Interest  accrued on these  facilities at September 30, 2000, was $13.5 million.
Both of the  FrontLine  and Reckson  Strategic  Facilities  expire in June 2003.
Currently,  the Company has two short-term  open letters of credit totaling $3.2
million.  These letters of credit decrease the availability  under the FrontLine
Facility.

The Company is entitled to a cumulative annual management fee of $2 million with
respect to Reckson  Strategic,  of which $1.5  million is  subordinate  to Paine
Webber  receiving  an annual  minimum  rate of return of 16% and a return of its
capital.  The earned fees for the three and nine months ended September 30, 2000
and 1999 were $0.1 million and $0.4 million, respectively.

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, 2000,
the Company  reimbursed  $0.2 million and $1.1 million,  respectively,  for such
activities.

9.       CONTINGENCIES

Other than as previously  disclosed in HQ Global's public filings,  HQ Global is
not presently subject to any material  litigation nor, to HQ Global's knowledge,
is  any  litigation   threatened  against  HQ  Global,  other  than  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  collectively  are not  expected to have a material
adverse effect on the liquidity,  results of operations or business or financial
condition of HQ Global.

10.      RESTRUCTURING

On October 18, 2000, FrontLine announced a refinement of its strategic plan, the
steps under which are collectively  referred to herein as the Restructuring (see
further   discussion  in  Note  1).  In  connection   with  the   Restructuring,
approximately  75% of  FrontLine's  headquarters  personnel  will be  terminated
during a transition  period in the fourth  quarter of 2000 and the first quarter
of 2001. As a result of the Restructuring and  transition-related  transactions,
FrontLine  expects that it will recognize cash and non-cash future charges,  the
amount of which has yet to be determined.  These charges  represent the expenses
during  the  transition  period  that  FrontLine  will  incur in  excess  of the
stabilized operating cost level after the transition is completed.


                                       24
<PAGE>
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

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

The  Company  considers  certain  statements  set  forth  to be  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, with respect to
the  Company's   expectations  for  future  periods.   Certain   forward-looking
statements,   including,   without   limitation,   statements  relating  to  the
achievement of our refocused business plan and our future operating  performance
and the future operating performance of HQ Global Holdings,  Inc. ("HQ Global"),
the financing of the Company's and Partner Companies' operations 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 and Partner Companies can give no
assurance that such  expectations  will be achieved.  Certain factors that might
cause the results of the Company and Partner Companies to differ materially from
those indicated by such forward-looking statements include, among other factors,
negative changes in the executive  office suite industry,  changes in the market
valuation or growth rate of comparable  companies in the office suites industry,
a downturn in general economic  conditions,  increases in interest rates, a lack
of capital  availability,  competition,  reduced  demand or  decreases in rental
rates for executive  office suites and other real  estate-related  risks such as
timely  completion of projects under  development,  our dependence  upon our key
personnel,   FrontLine's   dependence  upon  financing  from  Reckson  Operating
Partnership,  L.P.,  ("Reckson"),  conflicts of interest of management,  and the
ability  to  finance  business   opportunities   and  other  risks  detailed  in
FrontLine's  and HQ Global'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 and Partner  Companies  current
operating and  development  plans and  estimates.  These plans and estimates are
subject  to  revision  from  time  to  time as  additional  information  becomes
available,  and actual results may differ from those indicated in the referenced
statements.

OVERVIEW AND BACKGROUND

FrontLine is a holding  company which develops and manages  companies  servicing
small and  medium-size  enterprises  ("SMEs")  and mobile  workforces  of larger
companies. FrontLine has two distinct operating segments: one (the "HQ Segment")
holds  FrontLine's  interest  in HQ Global,  the  world's  largest  provider  of
officing  solutions,  and the other (the "Parent and Other  Interests  Segment")
consists of FrontLine (parent company) and its interests in a group of companies
which  leverage  the  Internet  to provide a wide range of  services  to the SME
marketplace.

In October  2000,  FrontLine  announced  that,  as a result of changing  capital
market conditions,  it was refining its strategic plan (the "Restructuring"- see
Note  10 to the  accompanying  consolidated  financial  statements  for  further
discussion)  to, in part,  report  the  operations  of HQ  Global as a  separate
operating  segment  and  was  in  the  process  of  exploring  alternatives  for
separating FrontLine into two companies.  Additionally,  in conjunction with the
Restructuring, FrontLine announced that it would focus its resources and capital
on  the  businesses  within  its  existing  portfolio  and  cease  pursuing  new
investment activities.

The Company refers to the companies in which it has acquired an equity  interest
as its "Partner  Companies" (except for Reckson Strategic Venture Partners,  LLC
("Reckson  Strategic") - see Note 4 to the accompanying  consolidated  financial
statements).   However,   the  Company  does  not  act  as  an  agent  or  legal
representative  for any of them,  it does not have  the  power or  authority  to
legally  bind  any of them and it does not  have  the  types of  liabilities  in
relation to them that a general partner of a partnership would have.

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


                                       25
<PAGE>

EFFECT OF VARIOUS ACCOUNTING METHODS ON RESULTS OF OPERATIONS

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

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

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

Other  ownership  interests  accounted for under the equity method of accounting
were compromised of:

<TABLE>
<CAPTION>

                                                VOTING OWNERSHIP ON A BASIC BASIS  VOTING OWNERSHIP ON A DILUTED BASIS
                                                ---------------------------------  -----------------------------------
                                 FRONTLINE
                                  INVESTEE         SEPTEMBER 30,   DECEMBER 31,       SEPTEMBER 30,      DECEMBER 31,
                                   SINCE              2000             1999              2000               1999
                                 -------------     -------------    --------------    -------------     -------------
<S>                                 <C>               <C>               <C>              <C>                <C>
EmployeeMatters, Inc.......         1999              53%               53%              45%                 5%
OnSite Access, Inc.........         1997              22%               37%              17%                22%
PIPE9 Corporation..........         1999              25%               31%              29%                26%
RealtyIQ.com...............         1999              66%               68%              54%                54%
UpShot.com.................         2000              20%               N/A              17%                N/A
Reckson Strategic..........         1998              33%               33%              33%                33%
</TABLE>


                                       26
<PAGE>

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

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

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

<TABLE>
<CAPTION>

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

</TABLE>

The cost method Partner  Companies are in an early stage of development and have
not generated significant revenues.

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

The presentation of FrontLine's  financial  statements may differ from period to
period primarily due to whether or not the consolidation method of accounting or
the equity method of accounting is applied.  To understand the Company's results
of operations and financial  position without the effect of the consolidation of
HQ Global, Note 4 to the accompanying consolidated financial statements presents
the Balance  Sheets and  Statements  of  Operations  of the Company  without the
consolidation of FrontLine's ownership interest in HQ Global.

RESULTS OF OPERATIONS

The reportable segments in FrontLine's  financial  statements are the HQ Segment
and the Parent and Other Interests Segment.

HQ GLOBAL

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

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Total  business  center  revenues for the three months ended  September 30, 2000
were  $160.3  million,  an  increase  of  $102.2  million  or  175.9%  from  the
corresponding period in 1999. Included in revenues were $4.6 and $0.2 million of
management,  franchise, and joint venture fees for the three-month periods ended
on September 30, 2000 and 1999, respectively.


                                       27
<PAGE>

Business  centers that were  acquired  with  effective  dates after July 1, 1999
("Acquired  Centers") had revenues for the three months ended September 30, 2000
of $87.6 million, an increase of $87.6 million from the corresponding  period in
1999.  This  increase  in revenues  resulted  from the  acquisition  of business
centers  during the 12 months ended  September  30, 2000.  The Acquired  Centers
include all the Old HQ business centers.

Business  centers open less than nine months as of the  beginning of the periods
under  comparison  ("Developing  Centers") are  generally in maturation  process
during the period.  For the nine months ended September 30, 2000,  there were 29
Developing Centers as compared to 13 for the same period in 1999.

Business centers, excluding Acquired and Developing Centers, that were operating
for the  entire  comparable  period  of the prior  year  ("Same  Centers"),  had
revenues for the three  months ended  September  30, 2000 of $65.3  million,  an
increase of $8.3 million, or 14.5% from the corresponding  period in 1999. While
average office occupancy levels have elevated to 91%, an increase of 2% from the
corresponding  period in 1999,  the  increase  in  workstation  revenue  of $4.9
million,  or 14.8%,  was primarily due to more  favorable  office  pricing.  The
increase  in support  service  revenues of $3.4  million,  or 14.1% from 1999 is
partially attributable to an increase in broadband Internet access,  information
technology support services and administrative support services.

Developing  Center  revenues  were  $7.4  million  for the  three  months  ended
September 30, 2000, an increase of $6.3 million from the corresponding period in
1999. For the three months ended September 30, 2000 and 1999,  there were 21 and
9 Developing  Centers that were open,  respectively.  This increase is primarily
due to the greater  number of  Developing  Centers  open during the three months
ended September 30, 2000.

Total  business  center  expenses for the three months ended  September 30, 2000
were $106.6  million,  representing  an increase of $62.7 million or 142.8% from
the corresponding period in 1999.

Acquired  Center  expenses for the three months  ended  September  30, 2000 were
$54.8  million,  an increase of $54.8 million from the  corresponding  period in
1999. This increase resulted from the acquisition of business centers during the
12 months ended September 30, 2000. The Acquired  Centers include all the Old HQ
business centers.

Same Center  expenses for the three months ended  September  30, 2000 were $45.8
million,  an increase of $3.9 million or 9.4% from the  corresponding  period in
1999. This increase is primarily attributable to higher rent expense and support
service expenses associated with increased support service revenues.

Developing  Center  expenses for the three months ended  September 30, 2000 were
$5.9 million, an increase of $3.9 million from the corresponding period in 1999.
This increase is due to a total of 26 Developing Centers during the three months
ended  September 30, 2000 as compared to 9 Developing  Centers  during the three
months ended September 30, 1999.

For the three  months  ended  September  30,  2000,  other  expenses  were $51.4
million,   representing  an  increase  of  $37.6  million  or  273.2%  from  the
corresponding period in 1999. This increase is primarily attributable to greater
corporate general and administrative expenses,  merger and integration expenses,
depreciation  and  amortization  and  interest  expense of $12.2  million,  $1.5
million,  $15.0 million and $8.9 million or 185.0%,  678.8%,  368.7% and 309.5%,
respectively.

The increase in corporate general and  administrative  expenses was attributable
to increases in the corporate personnel infrastructure and its associated travel
and related expenses,  related office expansion, and professional and consulting
fees associated with HQ Global's growth.  The increase in corporate  general and
administration  expenses  were also  attributed  to the  corporate  general  and
administration  expenses  of Old HQ.  The  increase  in merger  and  integration
expenses  is  attributable  to the Merger.  The  increase  in  depreciation  and
amortization  relates to fixed assets  acquired and goodwill  associated with HQ


                                       28

<PAGE>

Global's  acquisitions.  It is  also  attributable  to an  increase  in  capital
expenditures  associated with leasehold  improvements for Developing Centers and
technology infrastructure additions. Interest expense is primarily related to HQ
Global's  credit  facility.  This increase  resulted  from  interest  expense on
borrowings related to HQ Global's  acquisitions as well as increases in interest
rates.

HQ Global's  effective  income tax rate for the three months ended September 30,
2000 was 88.5% as compared to 216.0% for the three  months ended  September  30,
1999. Tax expense is recognized  primarily due to international tax obligations,
state and local tax obligations, and non-deductible goodwill amortization.

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Total business center revenues for the nine months ended September 30, 2000 were
$321.5 million,  an increase of $164.0 million or 104.2% from the  corresponding
period in 1999.  Included in revenues were $6.2 and $0.6 million of  management,
franchise,  and joint venture fees for the nine-month periods ended on September
30, 2000 and 1999, respectively.

Business  centers that were acquired with effective  dates after January 1, 1999
("Acquired  Centers") had revenues for the nine months ended  September 30, 2000
of $149.6 million,  an increase of $131.8 million from the corresponding  period
in 1999.  This increase in revenues  resulted  primarily from the acquisition of
business  centers during the nine months ended  September 30, 2000. The Acquired
Centers include all the Old HQ business centers.

Business centers, excluding Acquired and Developing Centers, that were operating
for the  entire  comparable  period  of the prior  year  ("Same  Centers"),  had
revenues  for the nine months ended  September  30, 2000 of $154.6  million,  an
increase of $18.6 million, or 13.7% from the corresponding period in 1999. While
average  office  occupancy  levels have grown to 90%, an increase of 1% from the
corresponding  period in 1999,  the  increase  in  workstation  revenue  of $9.7
million,  or 12.5%,  was primarily due to more  favorable  office  pricing.  The
increase  in support  service  revenues of $8.8  million,  or 15.2% from 1999 is
partially attributable to an increase in broadband Internet access,  information
technology support services and administrative support services.

Developing  Center  revenues  were  $17.3  million  for the  nine  months  ended
September 30, 2000, an increase of $13.6 million from the  corresponding  period
in 1999.  For the nine months ended  September 30, 2000 and 1999,  there were 24
and 12  Developing  Centers  that were  open,  respectively.  This  increase  is
primarily due to the greater  number of Developing  Centers open during the nine
months ended September 30, 2000.

Total business center expenses for the nine months ended September 30, 2000 were
$225.5  million,  representing  an increase of $107.6  million or 91.3% from the
corresponding period in 1999.

Acquired  Center  expenses for the nine months ended September 30, 2000 and 1999
were $99.0 million and $13.4 million  respectively,  representing an increase of
$85.5 million from the  corresponding  period in 1999.  This  increase  resulted
primarily from the acquisition of business  centers during the nine months ended
September  30,  2000.  The  Acquired  Centers  include  all the Old HQ  business
centers.

Same Center  expenses for the nine months ended  September  30, 2000 were $109.6
million, an increase of $10.8 million or 10.9% from the corresponding  period in
1999. This increase is primarily attributable to higher rent expense and support
service expenses associated with increased support service revenues.

Developing  Center  expenses for the nine months ended  September  30, 2000 were
$16.9  million,  an increase of $11.3 million from the  corresponding  period in
1999.  This increase is due to a total of 29 Developing  Centers during the nine
months ended September 30, 2000 as compared to 13 Developing  Centers during the
nine months ended September 30, 1999.


                                       29
<PAGE>


For the nine  months  ended  September  30,  2000,  other  expenses  were $114.6
million,   representing  an  increase  of  $78.2  million  or  215.6%  from  the
corresponding period in 1999. This increase is primarily attributable to greater
corporate general and administrative expenses,  merger and integration expenses,
depreciation  and  amortization  and interest  expense of $18.6  million,  $19.5
million,  $25.2  million,  and $14.9  million  or 106.4%,  1,218.4%,  229.5% and
209.2%, respectively.

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

HQ Global's  effective  income tax rate for the nine months ended  September 30,
2000  reflects  tax  expense  and  also a book  pre-tax  loss.  Tax  expense  is
recognized  primarily due to international tax obligations,  state and local tax
obligations,  and non-deductible  goodwill amortization.  The effective tax rate
for the nine months ended September 30, 1999 was 73.0%.

PARENT AND OTHER INTERESTS

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Net parent expenses increased $11.7 million to $18.6 million in the three months
ended September 30, 2000 as compared to the same period in 1999, principally due
to $5.8 million of amortization of stock compensation awards in the 2000 period,
$3.6  million of losses  associated  with costs and reserves  attributable  to a
development  stage  company in the 2000  period and a $1.5  million  increase in
interest expense.  FrontLine's general and administrative  expenses,  which were
$4.6  million in the three  months  ended  September  30, 2000  compared to $4.3
million in the same period in 1999,  are expected to decrease as a result of the
Restructuring.  However, as a result of the Restructuring and transition-related
transactions,  the Company  expects  that it will  recognize  cash and  non-cash
future charges, the amount of which has yet to be determined.

A significant portion of FrontLine's net loss is derived from companies which it
holds a significant  minority  ownership interest accounted for under the equity
method  of  accounting.  The  equity  in net  loss of  unconsolidated  companies
increased $26.3 million to $31.1 million in the three months ended September 30,
2000 as compared to the same period in 1999.  Equity losses  fluctuate  with the
number of Partner Companies  accounted for under the equity method,  FrontLine's
voting  ownership  percentage in these  companies,  the amortization of goodwill
related to newly acquired  equity method Partner  Companies,  and the results of
operations of these companies. As of September 30, 2000, FrontLine accounted for
five of its  Partner  Companies  and  Reckson  Strategic  under  this  method as
compared to two Partner  Companies and Reckson Strategic during the three months
ended  September 30, 1999. All five of these  companies  incurred losses for the
three  months  ended  September  30,  2000.  Under this  method,  the results of
operations  of these  entities  are not  consolidated  within  the  Consolidated
Statements of Operations;  however, FrontLine's share of these companies' losses
is reflected in the caption "Equity in net loss of unconsolidated  companies" in
the  Consolidated  Statements  of  Operations.  (See Note 3 to the  accompanying
consolidated financial statements).

Distribution to preferred shareholders of $0.6 million in the three months ended
September  30,  2000  represents  dividends  on  FrontLine's  8.875%  Cumulative
Convertible Preferred Stock which was issued in the first quarter of 2000.



                                       30
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Net parent expenses  increased $31.9 million to $49.2 million in the nine months
ended September 30, 2000 as compared to the same period in 1999  principally due
to $11.3  million  of  amortization  of stock  compensation  awards  in the 2000
period,  a $9.7  million  increase  in  interest  expense  due to an increase in
average borrowings under FrontLine's  credit facilities,  $7.3 million of losses
associated  with a  development  stage  company  in the 2000  period  and a $2.7
million increase in general and administrative expenses. FrontLine's general and
administrative  expenses,  which were $15.6  million  in the nine  months  ended
September  30, 2000  compared to $12.9  million in the same period in 1999,  are
expected to decrease as a result of the Restructuring.

The equity in net loss of  unconsolidated  companies  increased $77.2 million to
$83.9  million in the nine months  ended  September  30, 2000 as compared to the
same  period  in 1999.  Equity  losses  fluctuate  with the  number  of  Partner
Companies  accounted for under the equity method,  FrontLine's  voting ownership
percentage in these  companies,  the  amortization of goodwill  related to newly
acquired equity method Partner Companies, and the results of operations of these
companies. As of September 30, 2000, FrontLine accounted for five of its Partner
Companies and Reckson  Strategic  under this method as compared to either one or
two Partner  Companies  and Reckson  Strategic  during the three and nine months
ended  September 30, 1999. All five of these  companies  incurred losses for the
nine months ended September 30, 2000.

The  extraordinary  item of $2.6 million in the nine months ended  September 30,
2000  resulted  from the  write-off  of  deferred  financing  costs  relating to
FrontLine's  then existing  credit facility due to its early  extinguishment  in
March 2000.

Distribution to preferred  shareholders of $1.5 million in the nine months ended
September  30,  2000  represents  dividends  on  FrontLine's  8.875%  Cumulative
Convertible  Preferred  Stock which was issued in the first  quarter of 2000.  A
portion of these dividends were paid in the form of common stock.

LIQUIDITY AND CAPITAL RESOURCES

HQ GLOBAL

On May 31, 2000, HQ Global  completed a transaction  which  increased its $157.9
million credit facility (the amended and restated  "Credit  Facility") to $275.0
million.  The Credit Facility provides for $219.4 million under four term loans,
all of which are repayable in quarterly  installments through November 2005. The
Credit  Facility  also  provides  for  borrowings  up to  $55.6  million  in two
revolving loan  commitments.  Availabilities  under the revolving portion of the
Credit  Facility are formula based.  As of September 30, 2000,  there was $216.2
million  in  outstanding  borrowings  under  the term  loans  and no  borrowings
outstanding  under  either  revolver.  As of September  30, 2000,  HQ Global had
letters of credit outstanding in the aggregate amount of $28.5 million,  against
which HQ Global pledged $5.7 million in cash and $22.8 million were supported by
the  two  revolving  loan  commitments,  leaving  $32.8  million  available  for
additional borrowings.

Borrowings under the Credit Facility bear interest ranging from LIBOR plus 3.25%
to 4.0% or prime plus 2.25% to 3.00% for a one,  three or  nine-month  period at
the  election  of HQ Global.  HQ  Global's  weighted  average  interest  rate on
borrowings under the term loans at September 30, 2000 was 11.04%. HQ Global pays
a  commitment  fee of 1/2 of 1.0% per annum on the unused  portion of the Credit
Facility.  As of September 30, 2000, HQ Global had hedged the interest  rates on
approximately  $93.0 million of the Credit  Facility  using various  instruments
with various  expiration dates through July 31, 2002. These  instruments lock in
the maximum  underlying  30-day  LIBOR at levels  between  7.93% and 9.00%.  The
Credit  Facility  contains  certain  financial  covenants  related  to  interest
coverage,  leverage  ratios and other  limitations.  At September  30, 2000,  HQ
Global was in compliance with all of its covenants.



                                       31
<PAGE>

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

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

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

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

HQ Global  anticipates  that cash flows from  operations  and amounts  available
under the revolving loan portion of its Credit Facility will continue to provide
adequate capital to fund its operating and  administrative  expenses and regular
debt  service  obligations  in addition  to the  necessary  capital  required to
sustain its current operations.  HQ Global's covenants under its Credit Facility
provide  for the  expenditure  in 2001 of up to $50.0  million  for  maintenance
capital and new center development.

FRONTLINE

FrontLine has funded operations and investing  activities  through a combination
of borrowings  under various  credit  facilities  and issuances of the Company's
equity  securities.  FrontLine funded  approximately  $173.6 million in cash and
issued $47.4  million of the Company's  common stock to acquire  interests in or
make advances to new and existing Partner Companies during the nine months ended
September  30,  2000.  In  addition  to  HQ  Global,  these  companies  include:
AdOutlet.com,  EmployeeMatters, Inc., LiveCapital.com,  NeoCarta Ventures, PIPE9
Corporation, RealtyIQ.com and UpShot.com.

The Company has a credit  facility  with  Reckson in the amount of $100  million
("FrontLine  Facility").  Additionally,  Reckson  Strategic  has a $100  million
facility ("Reckson  Strategic  Facility") with Reckson to fund Reckson Strategic
investments.  Note 8 to the  consolidated  financial  statements  summarizes the
outstanding amounts and terms of the FrontLine and Reckson Strategic  Facilities
(collectively,  the "Credit  Facilities").  The Company had approximately  $92.5
million  outstanding under the FrontLine  Facility at September 30, 2000 and due
to  outstanding  letters  of  credit  and  accrued  interest,  has no  remaining
availability.  Borrowings were primarily used to fund  acquisitions of ownership
interests  in Partner  Companies  and general  operations.  Approximately  $39.9
million was outstanding  under the Reckson  Strategic  Facility at September 30,
2000. These borrowings were utilized to fund Reckson  Strategic  investments and
general operations. At September 30, 2000, $22.5 million was available under the
Reckson Strategic Facility.

FrontLine's  secured credit  facility for $60 million was fully drawn and repaid
during  the three  months  ended  March 31,  2000,  and is  therefore  no longer
available. On September 11, 2000, FrontLine entered into a $25.0 million line of
credit  agreement (the "FrontLine Bank Credit  Facility").  Borrowings under the
FrontLine Bank Credit Facility bear interest,  at the election of FrontLine,  at
either LIBOR for one, two,  three or six-month  periods or the prime rate,  plus
5%. Any outstanding  borrowings under the FrontLine Bank Credit Facility will be
due on March 11, 2001, although FrontLine has the ability to extend the maturity
date to September 11, 2001. At September 30, 2000,  FrontLine had borrowed $25.0
million under the FrontLine Bank Credit Facility.

The Company also funded investing activities for the nine months ended September
30, 2000 with net proceeds of approximately $24.6 million from the completion of
26,000 shares of privately placed Convertible Preferred Stock offerings.  On May
6, 2000, the Company paid a preferred  dividend to the preferred  shareholder of
approximately $0.6 million.  The preferred dividend with respect to the August 6
distribution  was  satisfied  through  the  issuance  of  38,172  shares  of the
Company's common stock.


                                       32
<PAGE>


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

On March 31, 2000,  the Company  sold  approximately  2.6 million  shares of its
common stock at a price of $47.25 per shares for an aggregate  consideration  of
approximately $122.6 million.  Proceeds from the sale were utilized to repay the
remaining  portion  of  the  Credit  Facility.  As a  result,  certain  deferred
financing costs of  approximately  $2.6 million were incurred in connection with
the Credit Facility were expensed as an  extraordinary  loss in the accompanying
consolidated  statements  of  operations.  As a part  of this  transaction,  the
Company issued 128,750 warrants with an exercise price of $47.25 per share for 3
years.  On September 20, 2000,  the Company  issued 331,400 shares of its common
stock at a price of $15.0875 per share for gross proceeds of $5.0 million.

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

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

As a result  of the  Restructuring,  FrontLine's  cash  requirements  have  been
substantially  reduced.  The Company  believes  that it will be able to meet its
future  cash  requirements  through  cash on  hand,  additional  bank  or  other
financing.  If  additional  funds are  raised  through  the  issuance  of equity
securities,  existing shareholders may experience significant dilution. Although
management  believes  that it will  continue  to have  sufficient  access to the
public and private markets in order to execute its  restructured  business plan,
the  availability  and amount of funds from these markets is subject to numerous
factors including some that are beyond the Company's  control,  and therefore is
not assured.


                                       33
<PAGE>


ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

HQ GLOBAL

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

An increase in interest  rates will have a negative  impact on the net income of
HQ Global due to the variable interest  component of the Credit Facility.  Based
on current  interest rate levels,  a 10% increase in underlying  interest  rates
will have  approximately  a 6.3%  increase in  interest  expense,  ignoring  the
short-term impact of remaining terms under current LIBOR hedge contracts.

Following the Merger,  HQ Global is conducting more of its operations in foreign
currencies,  primarily the British Pound.  Due to the nature of foreign currency
markets, there is potential risk for foreign currency losses as well as gains.

HQ Global has not,  and does not plan to,  enter into any  derivative  financial
instruments  for trading or speculative  purposes.  As of September 30, 2000, HQ
Global had no other material exposure to market risk.

FRONTLINE

The primary  market risk facing  FrontLine  is interest  rate risk on its Credit
Facilities and the FrontLine Bank Facility.  The Company does not hedge interest
rate risk using financial  instruments.  The Credit  Facilities bear interest at
the  greater  of the  prime  rate  plus 2% or 12%  (with  interest  on  balances
outstanding  more than one year  increasing by 4% of the previous  year's rate).
The FrontLine Bank Credit Facility bears interest, at the election of FrontLine,
at either LIBOR for one, two, three or six-month periods or the prime rate, plus
5%. 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 and is
sensitive to inflation and other  economic  factors.  A significant  increase in
interest rates may have a negative  impact on the earnings of the Company due to
the variable interest rate under the Credit Facilities.

The following table sets forth  FrontLine's  obligations  with respect to Credit
Facilities  and the  FrontLine  Bank Credit  Facility,  principal  cash flows by
scheduled  maturity,  weighted  average interest rates and estimated fair market
value ("FMV") at September 30, 2000 (in thousands, except rates).

<TABLE>
<CAPTION>

                                  FOR THE YEAR ENDED DECEMBER 31,
                         --------------------------------------------------
                          2000        2001       2002       2003      2004       THEREAFTER     TOTAL         FMV
                          ------    ---------    ------     ------    ------     ---------     -------      -------

<S>                      <C>       <C>          <C>      <C>         <C>         <C>          <C>           <C>
Variable rate......      $  --     $25,000      $  --    $132,379    $  --       $  --        $157,379      $157,379
Average interest
   rate............         --       11.63%        --       12.14%      --          --           12.06%           --


</TABLE>


                                       34
<PAGE>


PART II.     OTHER INFORMATION

Item 1.   Legal Proceedings--None

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

Item 3.   Defaults Upon Senior Securities--None

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

          Form 8-K/A, dated August 15, 2000

                                    Relating   to  the   filing   of   financial
                                    statements  with  respect  to the  Company's
                                    execution of merger  agreements  with VANTAS
                                    Incorporated and HQ Global Workplaces, Inc.


                                       35
<PAGE>

SIGNATURES

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


                                            FRONTLINE CAPITAL GROUP



                                            By:    \s\ Scott H. Rechler
                                                   --------------------

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



                                                   \s\ Michael Maturo
                                                   ------------------

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

Date:  November 14, 2000





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