SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------

                                    FORM 10-Q

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

For the quarterly period ended March 31, 1998

Commission File Number:  1-8967

                      ATLANTIC GULF COMMUNITIES CORPORATION
             (Exact name of Registrant as specified in its charter)

Delaware                                    59-0720444
--------                                    ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

2601 South Bayshore Drive
Miami, Florida                              33133-5461
--------------                              ----------
(Address of principal executive offices)    (Zip Code)

         Registrant's telephone number:  (305) 859-4000
                                         --------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                                  [X]   Yes   [ ]  No

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate  by check mark  whether  the  Registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12, 13, or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                                  [X]   Yes   [ ]  No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

There are 11,529,603  shares of the Registrant's  Common Stock outstanding as of
May 12, 1998.
<PAGE>


                  SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY  PERIOD ENDED MARCH 31, 1998,  CERTAIN MATTERS  DISCUSSED
HEREIN CONTAIN FORWARD  LOOKING  STATEMENTS  BASED ON MANAGEMENT'S  EXPECTATIONS
REGARDING,  AND EVALUATIONS OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS
THAT  INVOLVE  RISKS AND  UNCERTAINTIES,  AND ARE SUBJECT TO FACTORS  THAT COULD
CAUSE ACTUAL  FUTURE  RESULTS TO DIFFER,  BOTH  ADVERSELY AND  MATERIALLY,  FROM
CURRENTLY  ANTICIPATED  RESULTS,  INCLUDING,  WITHOUT LIMITATION,  THE EFFECT OF
ECONOMIC AND MARKET CONDITIONS; THE CYCLICAL NATURE OF THE REAL ESTATE MARKET IN
FLORIDA AND OTHER  SOUTHEAST  U.S.  PRIMARY  MARKETS;  THE INDUSTRY AND INDUSTRY
SEGMENT CONDITIONS AND DIRECTIONS;  INTEREST RATES; THE AVAILABILITY AND COST OF
FINANCING  REAL  ESTATE  ACQUISITIONS  AND  DEVELOPMENTS;   THE  SALEABILITY  OF
PREDECESSOR  ASSETS;  CONSTRUCTION  COSTS;  WEATHER;  THE  AVAILABILITY  OF HIGH
QUALITY REAL ESTATE PARCELS IN PRIMARY FLORIDA AND OTHER SOUTHEAST U.S. MARKETS;
THE  AVAILABILITY  AND COST OF MATERIALS  AND LABOR;  CONSUMER  PREFERENCES  AND
TASTES;  GOVERNMENTAL REGULATION;  COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT
AND EQUITY  STRUCTURE  AND RELATED  FINANCING  CONTINGENCIES  AND  RESTRICTIONS;
MANAGEMENT  LIMITATIONS;  THE COMPANY'S  ABILITY TO CLOSE FINANCINGS OF NEW REAL
ESTATE AT PARTICULAR  TIMES  RELATIVE TO THE  COMPANY'S  CASH FLOW NEEDS AT SUCH
TIMES; THE COMPANY'S ABILITY TO REFINANCE  EXISTING  INDEBTEDNESS;  LEGISLATION;
RESOLUTION OF PENDING  LITIGATION  IN WHICH THE COMPANY IS A DEFENDANT;  AND THE
SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS.



<PAGE>


                                TABLE OF CONTENTS



                                                                           Page
                                                                            No.
                                                                           ----

PART I.  -  FINANCIAL INFORMATION

       Item 1.    Financial Statements

                  Consolidated Balance Sheets as of March 31, 1998 and
                  December 31, 1997                                            1

                  Consolidated  Statements of Operations for the Three
                  Months Ended March 31, 1998 and 1997                         2

                  Consolidated  Statements of Cash Flows for the Three
                  Months Ended March 31, 1998 and 1997                         3

                  Notes to Consolidated Financial Statements                   4

       Item 2.    Management's  Discussion  and  Analysis of Financial
                  Condition and Results of Operations                          7

PART II. -  OTHER INFORMATION

       Item 2.    Change in Securities                                        19

       Item 6.    Exhibits and Reports on Form 8-K                            19


SIGNATURES                                                                    20


<PAGE>

PART I.  - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                      March 31, 1998 and December 31, 1997
               (in thousands, except share amounts and par value)
<TABLE>
<CAPTION>
                                                                    March 31,   December 31,
                                                                      1998           1997
                                                                  -----------   ------------
         ASSETS                                                    (unaudited)
<S>                                                               <C>           <C>         
Cash and cash equivalents                                         $     4,270   $      9,188
Restricted cash and cash equivalents                                    1,379          1,713
Contracts receivable, net                                               5,695          6,336
Mortgages, notes and other receivables, net                            34,196         34,910
Land and residential inventory                                        129,138        130,506
Property, plant and equipment, net                                      1,891          1,754
Other assets, net                                                      18,401         18,664
                                                                  -----------   ------------
Total assets                                                      $   194,970   $    203,071
                                                                  ===========   ============
         LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Accounts payable and accrued liabilities                          $     8,217   $     13,615
Customers' and other deposits                                           1,142          1,181
Other liabilities                                                       8,296          8,865
Notes, mortgages and capital leases                                   132,705        132,408
                                                                  -----------   ------------
                                                                      150,360        156,069
                                                                  -----------   ------------
Redeemable Preferred Stock
         Series A, 20%,  $.01 par  value; 2,500,000 shares
         authorized; 2,500,000 and 2,326,475 shares issued,
         liquidation preference of $28,253 as of March 31, 1998
         and $25,254 as of December 31, 1997                           25,330         22,378

         Series B, 20%, $.01 par value; 2,000,000 shares
         authorized;  2,000,000 shares issued, liquidation
         preference of $22,372 as of March 31, 1998 and
         $21,307 as of December 31, 1997                               20,500         19,306
                                                                  -----------   ------------
                                                                       45,830         41,684
                                                                  -----------   ------------
Stockholders' (deficit) equity
         Common stock, $.10 par value; 70,000,000
           shares authorized; 11,615,876 and
           11,607,526 shares issued                                     1,162          1,161
         Contributed capital                                          126,340        128,930
         Accumulated deficit                                         (123,001)      (119,052)
         Accumulated other comprehensive loss                          (5,712)        (5,712)
         Treasury stock, 86,277 shares, at cost                            (9)            (9)
                                                                  -----------   ------------
Total stockholders' (deficit) equity                                   (1,220)         5,318
                                                                  -----------   ------------
Total liabilities and stockholders' (deficit) equity              $   194,970   $    203,071
                                                                  ===========   ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       1
<PAGE>


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations
                   Three Months Ended March 31, 1998 and 1997
                      (in thousands, except per share data)
                                   (unaudited)
                                                      Three Months Ended
                                                           March 31,
                                                     --------------------
Revenues:                                              1998        1997
                                                     --------    --------
 Real estate sales:
    Core Homesite                                    $  2,535    $  1,469
    Core Tract                                            261           -
    Core Residential                                        -       6,994
    Predecessor Homesite                                  896       1,081
    Predecessor Tract                                   5,280       6,664
    Other Operations                                        -          76
                                                     --------    --------
  Total real estate sales                               8,972      16,284
 Other operating revenue                                  751         593
 Interest income                                        1,367       1,372
 Other income                                             274           -
                                                     --------    --------
    Total revenues                                     11,364      18,249
                                                     --------    --------
Costs and expenses:
 Cost of real estate sales:
    Core Homesite                                       2,147       1,158
    Core Tract                                            228           -
    Core Residential                                        -       5,228
    Predecessor Homesite                                  860         830
    Predecessor Tract                                   5,254       6,155
    Other Operations                                        -          88
                                                     --------    --------
  Total cost of real estate sales                       8,489      13,459
 Selling expense                                        1,252       2,129
 Other operating expense                                  302         330
 Other real estate costs                                1,799       2,906
 General and administrative expense                     1,839       2,200
 Depreciation                                             170         184
 Cost of borrowing, net of amounts capitalized          1,382       4,035
 Other expense                                            405         175
                                                     --------    --------
    Total costs and expenses                           15,638      25,418
                                                     --------    --------
Operating loss                                         (4,274)     (7,169)
                                                     --------    --------
Other income (expense):
 Reorganization items                                     514         429
 Miscellaneous                                           (189)       (536)
                                                     --------    --------
Total other income (expense)                              325        (107)
                                                     --------    --------
Net loss                                               (3,949)     (7,276)
                                                     --------    --------
Less:
 Accrued preferred stock dividends                      2,329           -
 Accretion of preferred stock to redemption amount        318           -
                                                     --------    --------
                                                        2,647           -
                                                     --------    --------
Net loss applicable to common stock                  $ (6,596)   $ (7,276)
                                                     ========    ========
Basic and diluted earnings per common share:
 Net loss per common share                           $   (.57)   $   (.75)
                                                     ========    ========
Weighted average common shares outstanding             11,529       9,722
                                                     ========    ========

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                   Three Months Ended March 31, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                       March 31,
                                                                  --------------------
                                                                    1998        1997
                                                                  --------    --------
<S>                                                               <C>         <C>      
Cash flows from operating activities:
  Net loss                                                        $ (3,949)   $ (7,276)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                  1,032       1,072
      Other (income) expense                                           (75)         81
      Reorganization items                                              51        (175)
      Other net changes in assets and liabilities:
        Restricted cash                                                334          30
        Receivables                                                  1,164      (2,951)
        Land and residential inventory                               1,368       6,956
        Other assets                                                  (321)     (4,999)
        Accounts payable and accrued liabilities                    (5,361)     (7,404)
        Customer deposits                                              (39)        462
        Other liabilities                                             (354)       (215)
        Other, net                                                       -           -
                                                                  --------    --------
            Net cash used in operating activities                   (6,150)    (14,419)
                                                                  --------    --------

Cash flow from investing activities:
  Additions to property, plant and equipment, net                     (307)        (75)
  Proceeds from sale of property, plant and equipment, net               -           -
  Funds withdrawn from utility trust accounts                            -      12,109
                                                                  --------    --------
            Net cash (used in) provided by investing activities       (307)     12,034
                                                                  --------    --------

Cash flows from financing activities:
  Borrowings under credit agreements                                 6,080      52,857
  Repayments under credit agreements                                (6,276)    (53,461)
  Principal payments on other liabilities                                -      (1,603)
  Proceeds from issuance of preferred stock                          1,735           -
                                                                  --------    --------
            Net cash provided by (used in) financing activities      1,539      (2,207)
                                                                  --------    --------

Decrease in cash and cash equivalents                               (4,918)     (4,592)
Cash and cash equivalents at beginning of period                     9,188       7,050
                                                                  --------    --------
Cash and cash equivalents at end of period                        $  4,270    $  2,458
                                                                  ========    ========

Supplemental cash flow information:
  Interest payments, net of amounts capitalized                   $  5,302    $  2,483
                                                                  ========    ========
  Reorganization item payments                                    $     51    $  1,644
                                                                  ========    ========

See accompanying notes to consolidated financial statements.
</TABLE>

                                       3
<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                   (unaudited)

(1)      The March 31, 1998  financial  statements  are unaudited and subject to
         year-end  adjustments.  In management's  opinion, the interim financial
         statements  reflect all adjustments,  principally  consisting of normal
         recurring accruals,  necessary for a fair presentation of the financial
         position and results of operations. Results for interim periods are not
         necessarily  indicative  of results  for the full year.  For a complete
         description  of  the  Company's  accounting  policies,  see  "Notes  to
         Consolidated  Financial  Statements"  included in the Company's  Annual
         Report on Form 10-K for the year ended December 31, 1997, as amended by
         that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
         Securities  and  Exchange  Commission  (the "SEC")  ("1997 Form 10-K").
         Certain prior year amounts have been  reclassified  to conform with the
         1998 presentation.

(2)      The net  loss  per  common  share  is  computed  by  deducting  accrued
         preferred  stock  dividends and the accretion of preferred stock to the
         redemption  amount to determine  net loss  applicable  to common stock.
         This amount is then divided by the weighted average number of shares of
         common  stock  outstanding  during  the  periods.  The  effect  of  any
         outstanding  warrants  and options to purchase  common stock on the per
         share computation was anti-dilutive during the periods.

(3)      The Company  capitalizes  interest  primarily on land  inventory  being
         developed  for sale which is  subsequently  charged to income  when the
         related  asset  is  sold.   Capitalized  interest  was  $3,014,000  and
         $1,275,000  for the  three  months  ended  March  31,  1998  and  1997,
         respectively.

(4)      Revenue from the sale of  residential  units other than Regency  Island
         Dunes  ("Regency")  condominium  units is recognized  when the earnings
         process is complete. Revenue from the sale of Regency condominium units
         is recognized using the percentage-of-completion method. Earned revenue
         is based on the percentage of costs incurred to date to total estimated
         costs to be incurred.  This  percentage is then applied to the expected
         revenue associated with units that have been sold to date. Revenue from
         the sale of land is recognized when the cash received,  as a percentage
         of the sales  price,  is at least 20% for land sales  other than retail
         land sales and 10% for  retail  land  sales,  the  earnings  process is
         complete and the  collection of any remaining  receivable is reasonably
         assured.

(5)      The Company has made an estimate of Available  Cash,  as defined in the
         Company's  agreements,  at June 30, 1998, and has determined,  based on
         this estimate, that due to the establishment of reserves against future
         mandatory debt,  capital and operating  expenditures,  the Company will
         not have  Available  Cash,  at June  30,  1998,  to make  any  interest
         payments on the Cash Flow Notes for the  six-month  period  ending June
         30, 1998. In addition,  the Company did not have Available Cash to make
         any interest  payments for the  twelve-month  period ended December 31,
         1997. Interest on the Cash Flow Notes is noncumulative.  Therefore, the
         Company has not recorded interest expense associated with the Cash Flow
         Notes during the three  months ended March 31, 1998 and 1997.  See PART
         I. FINANCIAL INFORMATION,  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS  --  LIQUIDITY  AND
         CAPITAL  RESOURCES to the Form 10-Q for the fiscal  quarter ended March
         31, 1998 (the  "First  Quarter  1998 Form  10-Q") for more  information
         concerning the Cash Flow Notes.

                                       4
<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                   (unaudited)

(6)      Pursuant to the Company's 1996 Non-Employee  Directors' Stock Plan, the
         Company  issued  8,330  shares of Atlantic  Gulf's  common stock to the
         Non-Employee  Directors  at a price of $4.50  per  share  for the first
         quarter of 1998.

(7)      The  Company  and  AP-AGC,  LLC,  an  affiliate  of Apollo  Real Estate
         Advisors,  L.P.  ("Apollo"),  are  parties to that  certain  Investment
         Agreement, as amended (the "Investment Agreement," which closed in June
         1997 (the  "Closing"))  pursuant  to which  Apollo  agreed,  subject to
         certain  conditions,  to  acquire  2.5  million  shares  20%  Series  A
         Redeemable  Preferred  Stock (the "Series A Preferred  Stock") from the
         Company  at a  purchase  price of $9.88  per  share,  and  warrants  to
         purchase  up  to 5  million  shares  of  Common  Stock  (the  "Investor
         Warrants"),  at a purchase  price of $.06 per share,  for an  aggregate
         purchase  price  of  $25  million  (the  "Apollo  Transaction").  As of
         December 31, 1997,  Apollo had purchased  2,326,475  shares of Series A
         Preferred Stock and Investor  Warrants to acquire  4,652,950  shares of
         Common Stock, for an aggregate  purchase price of  approximately  $23.3
         million.

         On March 31, 1998,  Apollo  purchased the remaining  173,525  shares of
         Series A  Preferred  Stock and  Investor  Warrants  to acquire  347,050
         shares of Common Stock, for an aggregate  purchase price of $1,735,248.
         See PART II. OTHER  INFORMATION,  ITEM 2. CHANGES IN  SECURITIES in the
         First  Quarter  1998  Form  10-Q  and  the  1997  Form  10-K  for  more
         information concerning the Apollo Transaction.

(8)      Redeemable preferred stock consisted of the following at March 31, 1998
         and December 31, 1997 (in thousands of dollars):


<TABLE>
<CAPTION>
                                                          March 31,     December 31,
                                                             1998           1997
                                                         -----------    ------------
<S>                                                      <C>          <C>         
SERIES A
Gross proceeds                                           $    25,000    $     23,265
Accrued dividends                                              3,253           1,989
                                                         -----------    ------------
Liquidation Preference amount                                 28,253          25,254
Less issue costs                                              (3,100)         (2,885)
Less warrants purchased                                         (300)           (279)
Plus accretion of preferred stock to redemption amount           477             288
                                                         -----------    ------------
                                                              25,330          22,378
                                                         -----------    ------------

SERIES B
Gross proceeds                                                20,000          20,000
Accrued dividends                                              2,372           1,307
                                                         -----------    ------------
Liquidation Preference amount                                 22,372          21,307
Less issue costs                                              (1,900)         (1,900)
Less warrants purchased                                         (240)           (240)
Plus accretion of preferred stock to redemption amount           268             139
                                                         -----------    ------------
                                                              20,500          19,306
                                                         -----------    ------------
Total redeemable preferred stock                         $    45,830    $     41,684
                                                         ===========    ============
</TABLE>

                                       5
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 March 31, 1998
                                   (unaudited)



(9)      As of January 1, 1998, the Company  adopted  Statement  130,  REPORTING
         COMPREHENSIVE  INCOME.  Statement  130  establishes  new  rules for the
         reporting  and  display of  comprehensive  income  and its  components;
         however,  the adoption of this Statement had no impact on the Company's
         net loss or  shareholders'  equity.  Statement 130 requires  unrealized
         gains or losses on the Company's minimum pension liability adjustments,
         which prior to  adoption  were  reported  separately  in  shareholders'
         equity  to be  included  in  other  comprehensive  income.  Prior  year
         financial   statements  have  been   reclassified  to  conform  to  the
         requirements of Statement 130.

         During  the  first  quarter  of 1998  and  1997,  comprehensive  income
         consisted only of the net losses for those periods.



                                        6

<PAGE>
PART I.  -  FINANCIAL INFORMATION

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

UNLESS THE  CONTEXT  CLEARLY  INDICATES  OTHERWISE,  ALL  REFERENCES  TO (1) THE
"COMPANY"  INCLUDE  ATLANTIC  GULF  COMMUNITIES  CORPORATION  AND ITS DIRECT AND
INDIRECT  WHOLLY-OWNED  SUBSIDIARIES,  (2)  "ATLANTIC  GULF"  REFERS  SOLELY  TO
ATLANTIC  GULF  COMMUNITIES   CORPORATION  AND  (3)  "PREDECESSOR   COMPANY"  OR
"PREDECESSOR"  REFERS  TO  GENERAL  DEVELOPMENT  CORPORATION,   ATLANTIC  GULF'S
IMMEDIATE PREDECESSOR.

Current Business
----------------

            The Company is a Florida-based,  planned  community  development and
asset management company. The Company's principal business (its "Core Business")
consists of (1) the acquisition,  development and sale of residential  homesites
("Homesites")  to home  builders  and  commercial,  industrial  and retail  land
("Tracts") in primary  markets in Florida and other selected  primary markets in
the southeast (the "Southeast") United States (collectively, "Primary Markets"),
(2)  the  construction  and  sale of  selected  vertical  residential  products,
including  oceanfront  condominium  units and an urban  luxury  apartment  tower
("Vertical  Development")  and (3) environmental  services.  The Company is also
engaged in (a) the orderly disposition of scattered Predecessor Homesites (i.e.,
homesites  inherited  from the Company's  Predecessor)  and  Predecessor  Tracts
(i.e.,  commercial,  industrial,  institutional,  residential,  and agricultural
acreage   inherited  from  the  Company's   Predecessor)  in  secondary  markets
(collectively,  the  "Predecessor  Assets")  and  (b)  portfolio  management  of
mortgages  and  contract  receivables  related to the  Predecessor  Assets.  The
continuing  disposition of Predecessor  Assets is a run-off  business and is not
part of the Company's Core Business.

            The Company's Core Business is comprised of four primary  functions,
(1) business  development,  (2)  planning,  (3)  community  development  and (4)
residential  construction.  See PART I.,  ITEM 1.  BUSINESS  in the 1997  Annual
Report for a more detailed description of the Company's current business.

Business Plan
-------------

            Atlantic Gulf's business plan is to:


            o    Execute and grow its Core  Business,  principally  the sales of
                 new Homesites and Tracts, throughout its Primary Markets.

            o    Capitalize on special opportunities in Vertical Development.

            o    Complete the orderly  disposition of its remaining  Predecessor
                 Assets.

            To these ends (1) since 1992,  the  Company  has sold  approximately
70,000 acres of Predecessor  Tracts and over 10,000 Predecessor  Homesites,  and
substantially  reduced the  corporate  debt and  deferred  liabilities  which it
inherited  from its  Predecessor  and (2) in 1994,  the Company began  acquiring
interests in 17 new projects in eight new Primary Markets.

            The  Company,  consistent  with and in  furtherance  of its business
plan,  has  successfully   transitioned  itself  from  a  land  company  holding
principally  Predecessor  Assets to a leading  provider to builders of developed
Homesites in planned communities in Primary Markets.

                                       7
<PAGE>

             From 1994 through 1996, the Company acquired  interests in new Core
Business  assets both  directly  and, in some cases,  indirectly,  through joint
venture,   limited   partnership   or  similar   structures   and   arrangements
(collectively,   "JV   Projects").   The  Company  used  these   structures  and
arrangements  because its debt  amortization  schedules  imposed  severe capital
constraints  on new  business  growth.  In effect,  the Company did not have the
capital  resources during this period to acquire direct  ownership  interests in
all of its new projects.

             In 1997 and the first  quarter  of fiscal  year 1998,  the  Company
closed three major equity transactions, raising an aggregate of $55 million (the
"1997  Equity  Transactions").  See  PART I.,  ITEM 1.  BUSINESS  -  SIGNIFICANT
BUSINESS  DEVELOPMENTS  in the 1997 Form 10-K and PART II. OTHER  INFORMATION  -
ITEM 2. CHANGES IN  SECURITIES  to this  Quarterly  Report on Form 10-Q for more
information concerning the 1997 Equity Transactions.  The Company used the funds
from the 1997 Equity  Transactions  and other funds to acquire direct  ownership
interest in all of its new Core Business projects in 1997.

             The Company's strategy to grow the Homesite segment of its business
is being accomplished in two stages. In the first stage, the Company built sales
volume,  principally through JV Projects.  Now, in the second stage, the Company
is replacing  sold  inventory with new projects,  acquired  principally  through
direct ownership.

             As of March 31,  1998,  the Company  owned,  directly or through JV
Projects, interests in the following Core Business Homesite projects:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Units        Units
                 Type of                                   Year                                            Closed-       Under
    Project     Ownership            Location             Acquired          Scope of Project (4)           to-date     Contract
    -------     ---------            --------             --------          --------------------           -------     --------
--------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>                     <C>            <C>                                  <C>         <C>   
Sabal Trace         D (1)         Sarasota County, FL     (3)            107 single-family Homesites          28            -
--------------------------------------------------------------------------------------------------------------------------------
West Meadows        D             Tampa Bay, FL           1995           1,330 single-family Homesites       310          155
--------------------------------------------------------------------------------------------------------------------------------
Saxon Woods         D             Orlando, FL             1997           408 single-family Homesites           -          118
--------------------------------------------------------------------------------------------------------------------------------
Lakeside Estates    D             Orlando, FL             1994-1995      1,389 single-family Homesites       750          201
--------------------------------------------------------------------------------------------------------------------------------
West Bay Club       D             Naples, FL              1995-1997      520 single-family Homesites           -            - 

--------------------------------------------------------------------------------------------------------------------------------
The Trails of       D             Dallas, TX              1997           More than 1,600 single-family  
West Frisco                                                              Homesites                             -          415
--------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes        JV (2)        Broward County, FL      1994           1,512 single-family Homesites  
                                                                         and 263 multi-family units            -        1,051
--------------------------------------------------------------------------------------------------------------------------------
Country Lakes       JV            Broward County, FL      1995           1,116 single-family Homesites  
                                                                         and 1,930 multi-family units      1,115        1,927
--------------------------------------------------------------------------------------------------------------------------------
Falcon Trace        JV            Orlando, FL             1996           878 single-family Homesites          64          363
--------------------------------------------------------------------------------------------------------------------------------
Cary Glen           JV            Raleigh/Durham, NC      1996           822 single-family Homesites  and  
                                                                         310 multi-family units                -            -
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      "D" means direct ownership.
(2)      "JV" means joint venture.
(3)      Transferred from Predecessor Assets to Core Business Assets in 1994.
(4)      Varying from  project to project,  unsold  units are  developed,  under
         development or to be developed in the future.


                                        8
<PAGE>

             As of March 31,  1998,  the Company  owned,  directly or through JV
Projects, interests in the following Core Business Tracts:


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                          Acres     Acres
                  Type of                                Year                                            Closed-    Under
    Project      Ownership            Location          Acquired            Scope Of Project             to-date   Contract
    -------      ---------            --------          --------            ----------------             -------   --------
----------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>                     <C>         <C>                                   <C>       <C>  
Sabal Trace         D (1)         Sarasota County, FL     (3)         109 undeveloped residential acres     94         -
----------------------------------------------------------------------------------------------------------------------------
West Meadows        D             Tampa Bay, FL           1997        76 commercial/industrial acres        50         -
----------------------------------------------------------------------------------------------------------------------------
Sunset Lakes        JV (2)        Broward County, FL      1994        10 commercial/industrial acres         -        10
----------------------------------------------------------------------------------------------------------------------------
Country Lakes       JV            Broward County, FL      1995        140 commercial/industrial acres        -         -
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      "D" means direct ownership.
(2)      "JV" means joint venture.
(3)      Transferred from Predecessor Assets to Core Business Assets in 1994.

             As of March 31,  1998,  the Company  owned,  directly or through JV
Projects, interests in the following vertical residential products:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                          Units     Units
                  Type of                                Year                                            Closed-    Under
    Project      Ownership            Location          Acquired            Scope Of Project             to-date   Contract
    -------      ---------            --------          --------            ----------------             -------   --------
----------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>                     <C>         <C>                                   <C>        <C>  

Riverwalk Tower     D (1)         Fort Lauderdale, FL     1997        373 condominium units and a second
                                                                      mixed use tower                       -          -
----------------------------------------------------------------------------------------------------------------------------
West Bay Club       D             Naples, FL              1995-       578 high-rise residential units       -          -
                                                          1997
----------------------------------------------------------------------------------------------------------------------------
Jupiter Ocean       JV (2)        Jupiter, FL             1995        155 condominium units (3)             -          -
Grande
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)      "D" means direct ownership.
(2)      "JV" means joint venture.
(3)      The  Company  is  currently  negotiating  with  the Town of  Jupiter in
         connection with  outstanding  land approval issues which may ultimately
         result in a  reduction  in  density.  See PART I.,  ITEM 1.  BUSINESS -
         PRIMARY  LINES OF BUSINESS - RESIDENTIAL  SALES -  CONDOMINIUM  SALES -
         JUPITER OCEAN GRANDE in the 1997 Form 10-K.

             As of March  31,  1998,  the  Company  owned  approximately  16,000
Predecessor  Homesites and approximately 19,000 acres of Predecessor Tracts in 8
communities.

             See PART  I.,  ITEM 1.  BUSINESS  in the  1997  Form  10-K for more
information concerning the Company's business.


                                       9
<PAGE>


RESULTS OF OPERATIONS

          COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997

             The  Company's  results of  operations  for the three  months ended
March 31, 1998 and 1997 are summarized by line of business, as follows:

<TABLE>
<CAPTION>

                                         COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                  Three Months Ended March 31, 1998

                                                      (in thousands of dollars)
                                                             (unaudited)

                                               Core                  Predecessor
                                     ---------------------------- ----------------
                                      Homesite Tract  Residential Homesite   Tract     Other     Business   Administrative
                                       Sales   Sales     Sales      Sales    Sales   Operations Development    & Other       Total
                                     ----------------------------------------------------------------------------------------------
<S>                                  <C>      <C>      <C>         <C>     <C>        <C>       <C>            <C>        <C>    
Revenues:
   Real estate sales                 $  2,535 $  261   $      -    $  896  $  5,280   $         $              $          $   8,972
   Other operating revenues               168                                              583                                  751
   Interest income                         75                                            1,044                       248      1,367
   Other income                           274                                                                                   274
                                     ----------------------------------------------------------------------------------------------
Total revenues                          3,052    261          -       896     5,280      1,627        -              248     11,364
                                     ----------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of real estate sales            2,147    228          -       860     5,254                                           8,489
   Selling expense                        287     43                  179       743                                           1,252
   Other operating expense                                                                 302                                  302
   Other real estate costs:
      Property tax, net                                                                                              565        565
      Other real estate overhead          231                         100       206          2      220              475      1,234
   General and administrative expense                                                                              1,839      1,839
   Depreciation                             5                           6        19         21                       119        170
   Cost of borrowing, net                                                                  562                       820      1,382
   Other expense                          290               115                                                                 405
                                     ----------------------------------------------------------------------------------------------
Total costs and expenses                2,960    271        115     1,145     6,222        887      220            3,818     15,638
                                     ----------------------------------------------------------------------------------------------

Operating income (loss)                    92    (10)      (115)     (249)     (942)       740     (220)          (3,570)    (4,274)
                                     ----------------------------------------------------------------------------------------------

Other income (expense):
   Reorganization items                                                                    266                       248        514
   Miscellaneous                                                                                                    (189)      (189)
                                     ----------------------------------------------------------------------------------------------
Total other income (expense)                -      -          -         -         -        266        -               59        325
                                     ----------------------------------------------------------------------------------------------

Net income (loss)                          92    (10)      (115)     (249)     (942)     1,006     (220)          (3,511)    (3,949)
                                     ----------------------------------------------------------------------------------------------

Less:
  Accrued preferred stock dividends                                                                                2,329      2,329
  Accretion of preferred
    stock to redemption amount                                                                                       318        318
                                     ----------------------------------------------------------------------------------------------
                                            -     -           -         -         -          -        -            2,647      2,647
                                     ----------------------------------------------------------------------------------------------
Net income (loss) applicable to
  common stock                       $     92 $  (10)  $   (115)   $ (249) $   (942)  $  1,006  $  (220)       $  (6,158) $  (6,596)
                                     ==============================================================================================
</TABLE>

                                                                 10
<PAGE>

<TABLE>
<CAPTION>

                                         COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                  Three Months Ended March 31, 1997

                                                      (in thousands of dollars)
                                                             (unaudited)


                                                   Core              Predecessor
                                     ----------------------------- ----------------
                                      Homesite  Tract Residential Homesite   Tract    Other      Business   Administrative
                                       Sales    Sales    Sales      Sales    Sales  Operations  Development    & Other     Total
                                     ---------------------------------------------------------------------------------------------
<S>                                  <C>       <C>      <C>         <C>     <C>       <C>       <C>           <C>        <C>   

Revenues:
   Real estate sales                 $  1,469  $        $ 6,994    $ 1,081  $ 6,664   $   76    $             $          $  16,284
   Other operating revenues                10                                            583                                   593
   Interest income                        101                                          1,118                        153      1,372
   Other income                                                                                                                  -
                                     ---------------------------------------------------------------------------------------------
Total revenues                          1,580      -      6,994      1,081    6,664    1,777           -            153     18,249
                                     ---------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of real estate sales            1,158      -      5,228        830    6,155       88                                13,459
   Selling expense                        179               407        732      803                    8                     2,129
   Other operating expense                                                               330                                   330
   Other real estate costs:
      Property tax, net                                                                                             911        911
      Other real estate overhead          171                23        192      344      188         657            420      1,995
   General and administrative expense                                                                             2,200      2,200
   Depreciation                             2                 2          2       15       29                        134        184
   Cost of borrowing, net                                                                463                      3,572      4,035
   Other expense                           63               112                                                                175
                                     ---------------------------------------------------------------------------------------------
Total costs and expenses                1,573      -      5,772      1,756    7,317    1,098         665          7,237     25,418
                                     ---------------------------------------------------------------------------------------------

Operating income (loss)                     7      -      1,222       (675)    (653)     679        (665)        (7,084)    (7,169)
                                     ---------------------------------------------------------------------------------------------

Other income (expense):
   Reorganization items                                                                  267                        162        429
   Miscellaneous                                                                         (96)                      (440)      (536)
                                     ---------------------------------------------------------------------------------------------
Total other income (expense)                -      -          -          -        -      171           -           (278)      (107)
                                     ---------------------------------------------------------------------------------------------

Net income (loss)                    $      7      -    $ 1,222    $  (675) $  (653)  $  850    $   (665)     $  (7,362) $  (7,276)
                                     =============================================================================================
</TABLE>

             During the first quarter of 1998,  the Company  reported a net loss
applicable to common stock of $6.6 million  compared to a net loss applicable to
common  stock of $7.3  million  during  the  first  quarter  of  1997.  The loss
decreased  primarily  due to (1) a $2.3 million  reduction in selling  expenses,
other real estate costs and general and  administrative  expenses and (2) a $2.7
million  decrease in  borrowing  costs,  partially  offset by (3) a $1.8 million
decrease in gross profit from residential  sales and (4) a total of $2.6 million
of accrued  preferred  stock  dividends and accretion of preferred  stock in the
first  quarter of 1998.  As discussed  below,  the decrease in gross profit from
residential  sales  resulted from the completion and closing of all of the units
in the Company's Regency Island Dunes ("Regency Island") oceanfront  condominium
project as of December 31, 1997.

                                       11

<PAGE>

Core Business
-------------

         The results of operations of the Core Business are set forth below.

             CORE HOMESITE  SALES.  Net income from Homesite  sales in the first
quarter of 1998 was $92,000 compared to $7,000 in the first quarter of 1997.

             Revenues from Homesite  sales  increased  $1.1 million in the first
quarter of 1998  compared to the first  quarter of 1997  primarily due to a $1.4
million  increase  in  Homesite  sales  in West  Meadows.  The  following  table
summarizes  Homesite  sales  activity  for the three  months  ended March 31 (in
thousands of dollars):

<TABLE>
<CAPTION>
                                                  1998                                          1997
                                  --------------------------------------        --------------------------------------
                                   Number                     Average            Number                     Average 
                                   of lots       Revenue    sales price          of lots       Revenue    sales price
                                   -------       -------    -----------          -------       -------    -----------
<S>                                    <C>       <C>        <C>                        <C>     <C>        <C>        
West Meadows                           104       $ 1,686    $      16.2                9       $   240    $      26.7
Lakeside Estates                        40           849           21.2               49           985           20.1
Sabal Trace                              -             -              -                5           176           35.2
Sanctuary                                -             -              -                4            68           17.0
                                   -------       -------    -----------          -------       -------    -----------
                                       144       $ 2,535    $      17.6               67       $ 1,469    $      21.9
                                   =======       =======    ===========          =======       =======    ===========
</TABLE>

             The average  selling price in West Meadows  decreased due to a bulk
sale of 82 lots for $840,000 in the first quarter of 1998.

             Other  operating  revenues of $168,000 in the first quarter of 1998
and $10,000 in the first quarter of 1997 consisted of management  fees earned in
connection  with the Sunset Lakes JV Project.  The Company's  management  fee is
equal to 4% of  development  costs,  as defined  in the Sunset  Lakes JV Project
agreement.  The Company's  percentage  interest in the profits and losses of the
Sunset Lakes JV Project is 65%.  Other  expense  included  $174,000 in the first
quarter  of 1998 and  $63,000  in the first  quarter  of 1997  representing  the
Company's share of the net loss of the Sunset Lakes JV Project. Initial closings
of sales in Sunset Lakes are anticipated during the second quarter of 1998.

             Other income of $274,000 in the first quarter of 1998 represented a
net gain on an assignment of a real estate purchase  agreement for a residential
project located in the Orlando, Florida area.

             As of March 31, 1998, the Company had under contract  approximately
889 Homesites for $25.7 million with 13 homebuilders in Lakeside  Estates,  West
Meadows, The Trails of West Frisco and Saxon Woods. In addition, as of March 31,
1998, the Company's  joint venture  projects had 3,341  Homesites under contract
with 9  homebuilders,  totaling  approximately  $80.0  million  in future  gross
revenue of which the  Company is a joint  venturer.  As of March 31,  1997,  the
Company had under contract  approximately 450 Homesites for approximately  $12.2
million in Lakeside Estates, West Meadows and Sanctuary.

             The Homesite sales gross margin percentages were 15.3% in the first
quarter of 1998 compared to 21.2% in the first quarter of 1997. The gross margin
in the first quarter of 1997  approximates  the targeted gross margin of 20% for
this line of business. The lower gross margin percentage in 1998 is attributable
principally  to a reduction in the gross margin  percentage at Lakeside  Estates
from 21.3% in the first  quarter  of 1997 to 8.0% in the first  quarter of 1998.
This decrease is due to an increase in the estimated

                                       12
<PAGE>

cost to complete this project.  The Company  anticipates  that the impact of the
Lakeside Estates gross margin will decrease on a relative basis as more Homesite
projects come on line during 1998.

             Homesite selling expense increased $108,000 in the first quarter of
1998 primarily due to presales  advertising and marketing costs  associated with
the West Bay Club project.

             CORE  TRACT  SALES.  Tract  sales  in the  first  quarter  of  1998
consisted  of one sale of 15 acres for  $261,000 in Sabal  Trace.  There were no
Tract sales in the first quarter of 1997. As of March 31, 1998, the Company's JV
Projects  had pending  Tract sales  contracts of  approximately  $3.5 million in
future gross revenue.

             CORE  RESIDENTIAL  SALES.  Net operating  results from  residential
sales  decreased $1.3 million in the first quarter of 1998 compared to the first
quarter of 1997 due to the absence of revenues and profits  from Regency  Island
which closed sales of all units as of December 31, 1997.

         During  1993,  the Company  entered the luxury  oceanfront  condominium
market  through the  acquisition  of the  Regency  Island  project.  The Company
completed construction and sold out Regency Island in 1997. In 1995, the Company
acquired the Jupiter Ocean Grande condominium JV Project.  The Company has a 50%
interest in this JV Project  and  anticipates  commencing  presales on the first
building in Jupiter Ocean Grande in the 1998-1999  selling  season.  The Company
also anticipates  commencing presales of its West Bay Club high-rise residential
units in the 1998-1999  selling  season.  In 1998, the Company  intends to begin
construction of Riverwalk Tower, its first luxury apartment tower.

             Residential  sales are  summarized  as follows for the three months
ended March 31 (in thousands of dollars):

                                                           1998           1997
                                                         ---------     --------
           Condominium sales - Regency Island:
              First Building                             $       -     $  1,310
              Second Building                                    -        5,684
                                                         ---------     --------
           Total condominium sales                       $       -     $  6,994
                                                         =========     ========

             The revenues and profits  associated with Regency Island sales were
recorded using the percentage of completion method. The project consisted of two
72-unit buildings for a total of 144 units, all of which were sold and closed as
of December  31,  1997.  The  condominium  revenues of $1.3 million in the first
building  in the first  quarter  of 1997  represented  revenue  earned  upon the
closing of four  units.  As of March 31,  1997,  71 of the 72 units in the first
building were sold and closed. As of December 31, 1996, the Company recorded 79%
of the expected  revenues and profits on 56 units in the second building,  based
on a construction  completion  percentage of 79%. The revenues of  approximately
$5.7  million in the second  building in the first  quarter of 1997 were derived
from an increase in the  completion  percentage  from 79% to 96% as of March 31,
1997, and to an additional  eight units sold and closed during the first quarter
of 1997 for a total of 64 units  sold and closed in the  second  building  as of
March 31, 1997.

             The gross margin for  condominiums in the first quarter of 1997 was
25.3% which was within the targeted gross margin of approximately 20% to 25% for
this line of business.

             Residential selling expense and real estate overhead decreased from
a total of $430,000 in the first  quarter of 1997 to $0 in the first  quarter of
1998 due to the close out of Regency Island in 1997.

                                       13
<PAGE>

             Residential sales other expenses consisted of $115,000 in the first
quarter  of 1998 and  $112,000  in the first  quarter of 1997  representing  the
Company's share of the net loss of the Jupiter Ocean Grande JV Project. The loss
resulted from pre-sales advertising and other selling and overhead costs.

Predecessor Business
--------------------

         The results of  operations  of the  Predecessor  Business are set forth
below.

             PREDECESSOR  HOMESITE SALES. Net operating results from Predecessor
Homesite  sales  improved  $426,000 in the first quarter of 1998 compared to the
first quarter of 1997 primarily due to a $553,000 decrease in selling expenses.

             Revenues from Predecessor  Homesite sales decreased $185,000 in the
first quarter of 1998  compared to the first quarter of 1997  primarily due to a
decrease  in the number of  Predecessor  Homesites  sold.  The  following  table
summarizes  Predecessor Homesite sales activity for the three months ended March
31 (in thousands of dollars):
<TABLE>
<CAPTION>

                                           1998                                      1997
                           --------------------------------------     ----------------------------------
                                                         Average                                 Average
                             Number                       sales         Number                    sales
                            of lots       Revenue         price        of lots      Revenue       price
                            -------       -------         -----        -------      -------       -----

<S>                              <C>        <C>            <C>             <C>      <C>           <C> 
Scattered sales                  67         $ 347         $ 5.2            135      $   776       $ 5.7
Bulk sales                       82           549           6.7             42          305         7.3
                                ---         -----         -----            ---      -------       -----
                                149         $ 896         $ 6.0            177      $ 1,081       $ 6.1
                                ===         =====         =====            ===      =======       =====
</TABLE>


             Revenues  from  Predecessor   Homesite  scattered  sales  decreased
primarily  due a $269,000  decrease in sales in the Company's  Cumberland  Cove,
Tennessee,  project.  Sales in Cumberland  Cove  decreased  because this project
began  winding  down  during  1997 and the  Company  closed  its  on-site  sales
operation in September 1997. Bulk sales of Predecessor  Homesites  increased due
to an increase in volume. The Company anticipates it will continue to supplement
Predecessor  Homesite  sales  volume  through  bulk sales as part of its plan to
accelerate the disposition of Predecessor Assets.

             As of March 31, 1998, the Company had under contract  approximately
215  Predecessor  Homesites for $633,000.  As of March 31, 1997, the Company had
under contract 119 Predecessor Homesites for $432,000.

             The Predecessor  Homesite sales gross margin  percentages were 4.0%
in the first quarter of 1998 compared to 23.2% in the first quarter of 1997. The
lower  gross  margin  percentage  in 1998  is  attributable  principally  to the
decrease in sales in Cumberland  Cove which generated a gross margin of 36.8% in
the  first  quarter  of 1997.  Predecessor  Homesite  sales  margins  were  also
adversely  affected  in  1998  by the  increase  in bulk  sales  of  Predecessor
Homesites, which generally yield lower margins.

             Predecessor Homesite selling expense decreased $553,000 or 75.5% in
the first quarter of 1998 compared to the first quarter of 1997 and decreased as
percentage  of revenue  from 67.7% in the first  quarter of 1997 to 20.0% in the
first quarter of 1998  primarily due to $434,000  reduction in indirect  selling
costs at Cumberland  Cove due to the closing of the on-site  sales  operation in
September 1997.

                                       14
<PAGE>

             Predecessor  Homesite other real estate overhead decreased $92,000,
or 48%,  in the first  quarter  of 1998  compared  to the first  quarter of 1997
primarily  due to a reduction in  personnel  costs  associated  with selling and
maintaining Predecessor Assets.

             PREDECESSOR  TRACT SALES. The net loss from Predecessor Tract sales
increased by $289,000 in the first quarter of 1998 compared to the first quarter
of 1997  primarily  due to lower  Predecessor  Tract sales  revenues and a lower
gross margin, partially offset by a decrease in other real estate overhead.

             Revenues from Predecessor Tract sales decreased $1.4 million in the
first  quarter of 1998  compared to the first  quarter of 1997  primarily due to
three large sales (over $1.0  million) in the first  quarter of 1997 compared to
two comparable sales in the first quarter of 1998. Tract sales and corresponding
revenues  from  such  sales  often  vary  significantly  from  period  to period
depending  on the timing and size of  individual  sales.  As of March 31,  1998,
there  were  pending  Predecessor  Tract  sales  contracts  or letters of intent
totaling  approximately $14.4 million,  which, subject to certain contingencies,
are  anticipated to close in 1998. As of March 31, 1997,  there were  comparable
pending  Predecessor  Tract  sales  contracts  or  letters  of  intent  totaling
approximately $18.0 million.

             Predecessor Tract sales gross margins are summarized as follows for
the three months ended March 31:
<TABLE>
<CAPTION>

                                                              1998                                   1997
                                               -----------------------------------     ----------------------------------
                                                   Targeted          Actual                Targeted          Actual
                                                   Margins           Margins               Margins           Margins
                                                   -------           -------               -------           -------
<S>                                                   <C>               <C>                   <C>             <C>   
         Port LaBelle agricultural acreage            0%                0%                     0%             (2.7)%
         Other Predecessor Tract acreage              0%               .7%                  5-10%             14.3%
</TABLE>

             The   targeted   gross  margin  is  break  even  for  Port  LaBelle
agricultural  acreage because management  determined that  approximately  15,000
acres of the Port LaBelle  agricultural  property is not an integral part of the
Company's  long-term business  strategy.  In order to accelerate the disposal of
this  property,  the sales  value for this  property  was  adjusted in 1992 from
"retail" to  "wholesale",  which  reduced  the  targeted  gross  margin for this
property. During the first quarter of 1998, the Company sold 1,873 acres of Port
LaBelle agricultural property for approximately $1.8 million.

             The targeted gross margin for other  Predecessor  Tract acreage was
reduced to break even in 1998 due to the  Company's  business plan to accelerate
the  liquidation  of  Predecessor  Assets.  The actual  gross  margins for other
Predecessor  Tract acreage in 1998 and 1997 generally reflect the targeted gross
margins.

             Predecessor  Tract  sales  other  real  estate  overhead  decreased
$138,000,  a 40%  decrease,  in the first  quarter of 1998 compared to the first
quarter of 1997 primarily due to the  discontinuance  of the Company's  in-house
sales operation in January 1998.

Other Operations
----------------

         Net  income  from  other  operations  increased  $156,000  in the first
quarter  of 1998  compared  to the  first  quarter  of 1997  primarily  due to a
$186,000 decrease in other real estate overhead.

                                       15
<PAGE>

         Other operations other real estate overhead  decreased  $186,000 in the
first  quarter  of  1998  compared  to the  first  quarter  of  1997  due to the
elimination  of  community   operations  costs  associated  with  the  Company's
Predecessor  Assets  as a result  of the  Company  closing  its  offices  in its
Predecessor communities in December 1997.

         Other  operations  cost of  borrowing  increased  $99,000  in the first
quarter  of 1998  compared  to the  corresponding  prior  year  period due to an
increase in debt  associated  with the  financing of a portion of the  Company's
land mortgages  receivables.  The Company raised  approximately $19.8 million of
cash proceeds in 1997 from these financings.  The proceeds from these financings
were used to reduce corporate debt and to fund ongoing operations.

         Other income - reorganization items of $266,000 in the first quarter of
1998 and $267,000 in the first quarter of 1997  represents the  amortization  of
the Company's utility connections reserve.

Business Development
--------------------

         Total business development expenditures decreased $445,000 in the first
quarter of 1998  compared to the first  quarter of 1997  primarily  due to (1) a
$219,000 decrease in costs associated with the pursuit of business opportunities
in Primary  Markets and (2) a $126,000  decrease  in  overhead  costs due to the
discontinuance of certain projects in 1997.

Administrative & Other
----------------------

         The net loss from  administrative  and other activities  decreased $1.2
million  in the first  quarter  of 1998  compared  to the first  quarter of 1997
principally due to a $2.8 million decrease in borrowing costs,  partially offset
by $2.3 million of accrued  preferred  stock  dividends in the first  quarter of
1998.

         Interest income  increased in the first quarter of 1998 compared to the
first  quarter of 1997  primarily  due to an increase in  short-term  investment
interest income.

         Property tax, net of capitalized  property taxes decreased in the first
quarter  of 1998  compared  to the  first  quarter  of 1997  primarily  due to a
reduction of land  inventory not under  development  which  corresponds to sales
activity during the intervening period.

         General and  administrative  expenses  decreased  $361,000 in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to decreases
in personnel and legal expenses.

         Cost of borrowing, net of capitalized interest,  decreased $2.8 million
in the first quarter of 1998 compared to the first quarter of 1997 primarily due
to a $37.0  million  decrease in  corporate  debt and an  increase in  corporate
interest capitalized to land inventory.  During the three months ended March 31,
1998 and 1997,  the  Company  did not  accrue  interest  on its Cash Flow  Notes
because of the absence of Available Cash during the periods.

         Other income -  reorganization  items consisted of gains of $248,000 in
the first  quarter of 1998 and $162,000 in the first  quarter of 1997  resulting
from  the  resolution  of  certain   reorganization   items.   Other  expense  -
miscellaneous of $189,000 in the first quarter of 1998 and $440,000 consisted of
various reserve adjustments and settlements.

         During the three months ended March 31,  1998,  the Company  recorded a
$2.3 million accrual for preferred stock dividends  associated with its Series A
and Series B  Preferred  Stock  ("the  Preferred  Stock").  The  dividends  were
accumulated but unpaid as of March 31, 1998. The dividend rate is 20% of the

                                       16
<PAGE>

liquidation  preference value of the Preferred Stock. The liquidation preference
value of the  Preferred  Stock is $10 per  share,  plus  accumulated  and unpaid
dividends.  In  addition,  the  Company  accreted  $318,000  of the value of its
Preferred Stock to the redemption amount in the first quarter of 1998. The total
of approximately $2.6 million of accrued Preferred Stock dividends and Preferred
Stock accretion was charged to contributed capital in the accompanying March 31,
1998 consolidated balance sheet.

LIQUIDITY AND CAPITAL RESOURCES

         As of March 31, 1998, the Company's cash and cash  equivalents  totaled
approximately  $4.3  million.  The  Company  also had  restricted  cash and cash
equivalents of $1.4 million,  which  consisted  primarily of (1) escrows for the
sale and development of real estate  properties,  (2) funds held in trust to pay
certain  bankruptcy claims and (3) various other escrow accounts.  Cash and cash
equivalents  decreased by $4.9 million  during the first quarter of fiscal 1998,
consisting  of (a) $6.1 million used in operating  activities,  (b) $0.3 million
used in  investing  activities  and  (c)  $1.5  million  provided  by  financing
activities.

         Cash used in  operating  activities  during  the first  quarter of 1998
included  approximately (1) $2.3 million for interest payments, (2) $4.1 million
for property tax payments and (3) $3.8 million for  construction and development
expenditures.  Cash used in operating  activities was offset in part by net cash
generated through real estate sales and other operations.

         Cash  provided  by  financing   activities  included  proceeds  of  (1)
approximately  $1.7 million  from the  issuance of Series A Preferred  Stock and
related  warrants  and (2) net  borrowings  of $1.2  million  from  new  project
financings,  partially  offset by (3) net  principal  payments  of $1.4  million
associated  with the  financings  of  mortgage  receivables  and  Predecessor  -
Homesite Contract Receivables.

         The Company's  operating debt  facilities  (the  "Foothill  Debt") with
Foothill Capital Corporation  ("Foothill") consists of (1) a $20 million working
capital facility (the "Working Capital Facility"), (2) an $8.3 million remaining
commitment on its reducing  revolving loan (the "Reducing  Revolving  Loan") and
(3) a $13.3 million  balance on its term loan (the "Term  Loan").  Amounts under
the Reducing  Revolving  Loan are  available  only when (a) the Working  Capital
Facility is fully  utilized  and (b) the Company is in  compliance  with,  among
other  conditions,  a "borrowing  base" formula based on the value of certain of
the Company's  assets.  Amounts  outstanding  under the Working Capital Facility
bear  interest  at a rate  equal  to the  variable  interest  rate,  per  annum,
announced  by Northwest  Bank of  Minnesota,  N.A.,  as its "base rate" plus two
percentage  points.  The Reducing  Revolving  Loan bears  interest at a variable
"base rate" plus four  percentage  points.  The Term Loan bears  interest at the
rate of 15% per annum. As of March 31, 1998, the Company had outstanding (i) the
full $20 million under the Working Capital Facility, (ii) $7.6 million under the
Reducing Revolving Loan and (iii) $13.3 million under the Term Loan.

         The  Company's  material  debt  obligations  for 1998 include (1) up to
$21.7 million of principal  payments on the Reducing Revolving Loan and the Term
Loan which are due in full on June 30, 1998, (2) a $39.6 million  payment on its
Unsecured 13% Cash Flow Notes due on December 31, 1998,  which will fully retire
these  obligations (the "13% cash Flow Notes") and (3) the entire balance of the
Working Capital Facility which is due in full on December 1, 1998 (collectively,
the  Company's  "1998 Debt  Obligations").  The  Company's  1998  business  plan
contemplates   approximately   $94  million  of  expenditures  for  development,
construction and other capital improvements, a substantial portion of which will
be  funded  through  individual  project  development  loans  or  joint  venture
arrangements,  many of which are  already in place.  If the Company is unable to
obtain the capital  resources to fund these  obligations and  expenditures,  the
implementation  of the  Company's  business  plan  will be  adversely  affected,
slowing  the  Company's  anticipated  revenue  growth  and  increasing  the time
necessary to achieve profitability.


                                       17
<PAGE>

         The Company does not currently have sufficient  liquid funds to satisfy
all of its 1998 Debt Obligations. However, management believes that it will have
sufficient  cash  resources  to satisfy  its June 30, 1998  obligations  through
various  operating  sources.  In addition,  management  believes  that through a
combination  of  sources,  it will be able to  obtain  the  funds  necessary  to
continue to implement its business plan and at the same time, satisfy all of its
1998 Debt  Obligations  as they become due. The Company has begun  exploring the
possibility of refinancing  some or all of the remaining 1998 Debt  Obligations.
Management  is reasonably  confident  that it will be successful in this effort,
although  no  refinancing  commitment  is  currently  in place  and there are no
assurances that any such commitment will be received.

         The  Company's  ongoing  business  plan is to continue to monetize  its
Predecessor   Assets  and  to  reduce  corporate  debt.  The  Company  has  made
substantial progress in this regard. It sold $55.6 million of Predecessor Assets
in 1996, $41.2 million in 1997 and $6.2 million in the first quarter of 1998. As
of March 31, 1998,  the Company had $15.0  million of  Predecessor  Assets under
contract or letter of intent,  consisting of $11.6 million cash and $3.4 million
of mortgage  notes.  The  transactions  under  contract are subject to customary
conditions, in some cases including a financing condition.  Transactions subject
to a letter of intent are also subject to further negotiation and documentation.
While the Company expects to close these  transactions in 1998,  there can be no
assurance that any particular transaction will be consummated.

         The  Company  is  actively  monetizing  mortgage  and note  receivables
generated from the sale of Predecessor Assets. The Company raised  approximately
$19.8 million cash, and received  certain residual  interests,  in 1997 from the
sale  or  financing  of  mortgages  and  other  receivables  from  the  sale  of
Predecessor Assets.  These cash proceeds,  along with the net cash proceeds from
Predecessor  Asset sales,  were used to reduce  corporate  debt and fund ongoing
operations.

         On March 31, 1998,  AP-AGC LLC ("Apollo")  purchased  173,525 shares of
Series A Preferred  Stock and Investor  Warrants to purchase  347,050  shares of
Common Stock,  for an aggregate  purchase price of  $1,735,248,  pursuant to the
terms of that certain Amended and Restated  Investment  Agreement by and between
the  Company  and  Apollo  (the  "Investment  Agreement").  See  NOTE (7) to the
Company's  Consolidated  Financial Statements for the fiscal quarter ended March
31, 1998,  included herewith,  PART I., ITEM 1. BUSINESS - SIGNIFICANT  BUSINESS
DEVELOPMENTS  in the 1997  Form  10-K and ITEM  13.  CERTAIN  RELATIONSHIPS  AND
RELATED  TRANSACTIONS - STOCK  PURCHASES BY APOLLO  PURSUANT TO THE TERMS OF THE
INVESTMENT  AGREEMENT in the 1997 Form 10-K/A-1 for more information  concerning
Apollo's purchases of Series A Preferred Stock and Investor Warrants. Apollo has
now purchased all of the Series A Preferred Stock and Investor  Warrants covered
by the Investment Agreement.

         As required by the Company's  Agreements with Apollo, the proceeds from
the sale of the Series A Preferred  Stock have been, and will be, used primarily
to  acquire  and  develop  properties  through a wholly  owned  special  purpose
subsidiary  of the Company  ("SP  Subsidiary")  and through  subsidiaries  of SP
Subsidiary.  The Company's  repurchase and redemption  obligations in respect of
the Series A Preferred Stock (but not the Series B Preferred  Stock) are secured
by (1) a junior lien on  substantially  all of the assets of the Company and its
subsidiaries, except for SP Subsidiary's capital stock and its assets, and (2) a
senior lien on SP Subsidiary's capital stock and its assets.

         Pursuant  to  certain  debt  agreements,  the  Company  must  apply any
Available  Cash to (1) the payment of interest  due on the  Company's  Unsecured
Cash Flow Notes due  December  31,  1998 ("Cash Flow  Notes"),  (2)  payments of
outstanding  amounts under the Working Capital  Facility,  and (3) repayments of
principal on the Cash Flow Notes. Available Cash is defined, with respect to any
six-month  period ending June 30 or December 31, as the sum of all cash receipts
(exclusive of borrowed money and certain delineated cash items), less the sum of
payments for operating  expenses,  all debt payments  (including  repurchases of
indebtedness),  capital expenditures,  tax payments, payments to creditors under
the  Company's  POR and  creation  of  reserves  for  working  capital and other
expenses for the next two payment periods.

                                       18
<PAGE>

         If there is no Available Cash on a payment date, the interest otherwise
payable  on such  date on the  Cash  Flow  Notes is  reduced  to $0 and does not
accrue.  Due to the  establishment  of reserves  against future  mandatory debt,
capital and operating expenditures, Available Cash is anticipated to be $0 as of
June 30, 1998 and was $0 during the twelve  month  period  ending  December  31,
1997.  Accordingly,  the Company did not accrue interest during the three months
ended  March 31,  1998 and 1997 on its Cash Flow  Notes.  Also,  based  upon the
Company's  existing debt  obligations,  its  anticipated  net cash flows and its
business  plan,  management  does  not  anticipate  the  Company  will  have any
Available Cash during the remainder of 1998.


PART II.   -  OTHER INFORMATION

ITEM 2.       CHANGES IN SECURITIES

         On March 31, 1998,  AP-AGC LLC ("Apollo")  purchased  173,525 shares of
Series A Preferred  Stock and Investor  Warrants to purchase  347,050  shares of
Common Stock,  for an aggregate  purchase price of  $1,735,248,  pursuant to the
terms of that certain Amended and Restated  Investment  Agreement by and between
the  Company  and  Apollo  (the  "Investment  Agreement").  See  Note (7) to the
Company's  Consolidated  Financial Statements for the fiscal quarter ended March
31, 1998,  included herewith,  PART I., ITEM 1. BUSINESS - SIGNIFICANT  BUSINESS
DEVELOPMENTS  in the 1997  Form  10-K and ITEM  13.  CERTAIN  RELATIONSHIPS  AND
RELATED  TRANSACTIONS - STOCK  PURCHASES BY APOLLO  PURSUANT TO THE TERMS OF THE
INVESTMENT  AGREEMENT in the 1997 Form 10-K/A-1 for more information  concerning
Apollo's purchases of Series A Preferred Stock and Investor Warrants. Apollo has
now purchased all of the Series A Preferred Stock and Investor  Warrants covered
by the Investment Agreement.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required by Item 601 of Regulation S-K

         (27) Financial Data Schedule.

(b) Reports on Form 8-K

         None


                                       19
<PAGE>

                                   SIGNATURES


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


                      ATLANTIC GULF COMMUNITIES CORPORATION




Date: May 12, 1998                         /s/ Thomas W. Jeffrey
                                           ------------------------------
                                               Thomas W. Jeffrey
                                               Executive Vice President
                                               and Chief Financial Officer






Date: May 12, 1998                         /s/ Paula J. Cook
                                           ------------------------------
                                               Paula J. Cook
                                               Vice President and Controller
                                               (Principal Accounting Officer)


                                       20