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, 1997

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 9,721,720  shares of the Registrant's  Common Stock  outstanding as of
May 12, 1997.


<PAGE>


                                TABLE OF CONTENTS
                                -----------------


<TABLE>
<CAPTION>
                                                                                     Page
                                                                                      No.
                                                                                     ----
PART I.  -  FINANCIAL INFORMATION
<S> <C>       <C>                                                                     <C>
    Item 1.    Financial Statements

               Consolidated Balance Sheets as of March 31, 1997 and December 31,
               1996                                                                     1

               Consolidated  Statements of Operations for the Three Months Ended
               March 31, 1997 and 1996                                                  2

               Consolidated  Statements of Cash Flows for the Three Months Ended
               March 31, 1997 and 1996                                                  3

               Notes to Consolidated Financial Statements                               4


    Item 2.

               Management's  Discussion and Analysis of Financial  Condition and
               Results of Operations                                                    6

PART II. -  OTHER INFORMATION

    Item 1.    Legal Proceedings                                                       19

    Item 6.    Exhibits and Reports on Form 8-K                                        20


SIGNATURES                                                                             21
</TABLE>

<PAGE>


PART I. -   FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
            --------------------


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                      March 31, 1997 and December 31, 1996
                            (in thousands of dollars)
<TABLE>
<CAPTION>
                                                        MARCH 31,     DECEMBER 31,
                                                          1997           1996
                                                      -----------     ------------
         ASSETS                                       (UNAUDITED)
         ------
<S>                                                    <C>            <C>      
Cash and cash equivalents                              $   2,458      $   7,050
Restricted cash and cash equivalents                       6,004          6,034
Contracts receivable, net                                  8,773          9,649
Mortgages, notes and other receivables, net               48,209         63,800
Land and residential inventory                           146,485        153,417
Property, plant and equipment, net                         2,802          2,911
Other assets, net                                         25,153         20,532
                                                       ---------      ---------

Total assets                                           $ 239,884      $ 263,393
                                                       =========      =========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------


Accounts payable and accrued liabilities               $   9,322      $  16,914
Customers' and other deposits                              5,945          5,483
Other liabilities                                         13,267         15,393
Notes, mortgages and capital leases                      162,184        169,215
                                                       ---------      ---------
                                                         190,718        207,005
                                                       ---------      ---------
Stockholders' equity
         Common stock, $.10 par value; 15,665,000
               shares authorized; 9,807,997 and
               9,795,642 shares issued                       981            980
         Contributed capital                             122,176        122,123
         Accumulated deficit                             (67,982)       (60,706)
         Minimum pension liability adjustment             (6,000)        (6,000)
         Treasury stock, 86,277 shares, at cost               (9)            (9)
                                                       ---------      ---------
Total stockholders' equity                                49,166         56,388
                                                       ---------      ---------
Total liabilities and stockholders' equity             $ 239,884      $ 263,393
                                                       =========      =========
</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, 1997 and 1996
                      (in thousands, except per share data)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                            ------------------
<S>                                                        <C>         <C>
  Revenues:                                                   1997        1996
                                                           --------    --------
    Real estate sales:
      Homesite                                             $  2,550    $ 14,598
      Tract                                                   6,664       5,745
      Residential                                             7,070       2,870
                                                           --------    --------
         Total real estate sales                             16,284      23,213
    Other operating revenue                                     593       1,133
    Interest income                                           1,372       1,341
    Other income:
      Reorganization reserves                                   429       1,267
      Other income                                               --       4,820
                                                           --------    --------
         Total revenues                                      18,678      31,774
                                                           --------    --------
Costs and expenses:
    Cost of real estate sales:
      Homesite                                                1,988      10,919
      Tract                                                   6,155       4,703
      Residential                                             5,316       2,175
                                                           --------    --------
         Total cost of real estate sales                     13,459      17,797
    Selling expense                                           2,129       2,552
    Other operating expense                                     330         699
    Other real estate costs                                   2,906       4,257
    General and administrative expense                        2,200       3,130
    Depreciation                                                184         249
    Cost of borrowing, net of amounts capitalized             4,035       3,288
    Other expense                                               711         207
                                                           --------    --------
         Total costs and expenses                            25,954      32,179
                                                           --------    --------
Loss before extraordinary item                               (7,276)       (405)
Extraordinary gain on extinguishment of debt                     --       3,770
                                                           --------    --------

Net income (loss)                                          $ (7,276)   $  3,365
                                                           ========    ========
Loss before extraordinary item per common share            $   (.75)   $   (.04)
                                                           ========    ========
Net income (loss) per common share                         $   (.75)   $    .35
                                                           ========    ========
Weighted average common shares outstanding                    9,722       9,733
                                                           ========    ========
</TABLE>

         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, 1997 and 1996
                            (in thousands of dollars)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                                                             MARCH 31,
                                                                       --------------------
                                                                          1997         1996
                                                                       --------    --------
<S>                                                                    <C>         <C>     
Cash flows from operating activities:
  Net income (loss)                                                    $ (7,276)   $  3,365
  Adjustments to reconcile net income (loss) to net cash provided by
    (used in) operating activities:
      Depreciation and amortization                                       1,072       1,212
      Gain from utility condemnations or sales                               --      (4,846)
      Extraordinary gain from extinguishment of debt                         --      (3,770)
      Other (income) expense                                                 81        (231)
      Reorganization items                                                 (175)       (597)
      Other net changes in assets and liabilities:
        Restricted cash                                                      30       1,787
        Receivables                                                       4,010      13,483
        Land and residential inventory                                    6,956       8,029
        Other assets                                                     (4,999)     (4,242)
        Accounts payable and accrued liabilities                         (7,404)     (4,571)
        Customer deposits                                                   462      (1,320)
        Other liabilities                                                  (215)       (526)
        Other, net                                                           --         (11)
                                                                       --------    --------
          Net cash provided by (used in) operating activities            (7,458)      7,762
                                                                       --------    --------
Cash flows from investing activities:
    Additions to property, plant and equipment, net                         (75)        (48)
    Proceeds from utility system sale                                        --       1,244
    Funds withdrawn from utility trust accounts                          12,109          --
                                                                       --------    --------
          Net cash provided by investing activities                      12,034       1,196
                                                                       --------    --------
Cash flows from financing activities:
    Borrowings under credit agreements                                   45,896      15,935
    Repayments under credit agreements                                  (53,461)    (23,935)
    Principal payments on other liabilities                              (1,603)     (2,232)
                                                                       --------    --------
          Net cash used in financing activities                          (9,168)    (10,232)
                                                                       --------    --------

Decrease in cash and cash equivalents                                    (4,592)     (1,274)
Cash and cash equivalents at beginning of period                          7,050       3,560
                                                                       --------    --------
Cash and cash equivalents at end of period                             $  2,458    $  2,286
                                                                       ========    ========
                                                                                           
Supplemental cash flow information:                                                        
                                                                                           
Interest payments, net of amounts capitalized                          $  2,483    $  4,625
                                                                       ========    ========
                                                                                           
Reorganization item payments                                           $  1,644    $  2,428
                                                                       ========    ========
                                                       
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 March 31, 1997
                                   (unaudited)



(1)      The March 31, 1997  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, 1996. Certain prior
         year  amounts  have  been   reclassified   to  conform  with  the  1997
         presentation.

(2)      The net income (loss) per common share is based on 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 or not material 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  $1,275,000  and
         $1,892,000,  for the  three  months  ended  March  31,  1997 and  1996,
         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 loan agreements, at June 30, 1997, and has determined,  based
         on this  estimate,  that the Company will not have any  Available  Cash
         requiring it to make any portion of the  interest  payments on the Cash
         Flow  Notes for the  six-month  period  commencing  January 1, 1997 and
         ending  June  30,  1997.  In  addition,  the  Company  did not have any
         Available  Cash  requiring  it to make any  interest  payments  for the
         twelve month period ended December 31, 1996.  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, 1997 and 1996. See "Management's  Discussion and
         Analysis of Financial Condition and Results of Operations Liquidity and
         Capital Resources."

                                       4
<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                 March 31, 1997
                                   (unaudited)

(6)      In January 1997, pursuant to the Company's 1996 Non-Employee Directors'
         Stock Plan, the Company issued 12,355 shares of Atlantic  Gulf's common
         stock to the Non-Employee Directors at a price of $4.3125 per share for
         the first quarter of 1997.

(7)      The Company  and AP-AGC,  LLC  ("Apollo")  entered  into an Amended and
         Restated Investment  Agreement dated as of February 7, 1997, amended as
         of March 20, 1997,  and amended and  restated as of May 12,  1997.  The
         Company, certain of its subsidiaries, and Apollo entered into a Secured
         Note  Agreement  dated as of February 7, 1997, and amended and restated
         as of May 12, 1997. Apollo, a Delaware limited liability company, is an
         affiliate of Apollo Real Estate  Investment Fund II, L.P. ("Apollo Fund
         II"), a private real estate  investment  fund,  the general  partner of
         which is  Apollo  Real  Estate  Advisors  II,  L.P.,  a New  York-based
         investment fund.

                                       5

<PAGE>

PART I. - FINANCIAL INFORMATION
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS
          ---------------------


CURRENT BUSINESS
----------------

         Atlantic Gulf  Communities  Corporation is a Florida-based  real estate
development  and  asset  management  company.  The  Company's  primary  lines of
business are acquisition,  development and sale of new subdivision and scattered
developed homesites, sale of land tracts and residential construction and sales.
Additional  lines  of  business  which  contribute  to  the  Company's   overall
operations  include portfolio  management of mortgages and contracts  receivable
and environmental services.

         The Company acquires and develops real estate to: (i) enhance the value
of certain properties, (ii) maintain a continuing inventory of marketable tracts
and (iii) supply  finished  homesites to builders in Florida's  fastest  growing
markets. The Company's  acquisition and development  activities are comprised of
four primary functions:  business development,  planning,  community development
and residential construction.  See Item 1. BUSINESS in the Company's 1996 Annual
Report on Form 10-K for a more detailed  description  of the  Company's  current
business.


BUSINESS PLAN
-------------

         The Company's goal is to produce  superior  returns for stockholders by
liquidating   predecessor   assets,   paying  off  debt,  matching  overhead  to
development and  construction  activities,  and becoming the leading supplier of
finished  homesites to independent  homebuilders  in Florida's  fastest  growing
markets and in  selected  primary  markets in the  southeastern  United  States,
without  the  exposure  entailed in carrying a  substantial  inventory  of land.
Predecessor  assets are those real estate  assets  inherited by the Company from
its predecessor company and consist of tracts and scattered homesites located in
secondary markets throughout Florida and in one community in Tennessee.

         The Company's business plan is centered on its three principal lines of
business:  (i) sales of finished  homesites to  independent  homebuilders,  (ii)
sales of tract land to end users as well as to investors  and (iii)  residential
construction  and sales.  The intent of the plan is to  monetize  the  Company's
predecessor  assets as rapidly as market  conditions  permit while entering into
new markets with a higher risk-adjusted return potential. The business plan also
contemplates  modifying  the  Company's  capital  structure  by  reducing  debt,
improving  financial  flexibility,  and  reducing  overhead  by  focusing on the
Company's core assets and businesses.

         The Company is also  actively  marketing  predecessor  assets on a bulk
sale basis as well as on an  individual  tract/lot  basis  through the Company's
Atlantic  Gulf Land  Company.  The Company  currently  has  approximately  $26.4
million in pending contracts and letters of intent on predecessor assets.  There
are no assurances that the above-mentioned  negotiations,  pending contracts and
letters of intent will result in material  sales or in material  sales at prices
which, in the aggregate,  equal the Company's book value in the properties sold.
See Item 1.  BUSINESS  in the  Company's  1996  Annual  Report  on Form 10-K for
additional information on the Company's business plan.

                                       6
<PAGE>

         This Quarterly Report includes  "forward  looking"  statements that are
subject to risks and uncertainties.  Such forward-looking statements include (a)
expectations  and estimates as to the Company's  future  financial  performance,
including growth and opportunities  for growth in revenues,  net income and cash
flow; (b) estimated and targeted  annual unit sales,  sales prices,  and margins
and (c) those other  statements  preceded  by,  followed by or that  include the
words "believes,"  "expects,"  "intends,"  "anticipate,"  "potential" or similar
expressions. For these statements, the Company claims the protection of the safe
harbor  for  forward-looking  statements  contained  in the  Private  Securities
Litigation Reform Act of 1995. The following  important factors,  in addition to
those discussed  elsewhere in this Quarterly Report,  could affect the Company's
future  results and could cause those  results to differ  materially  from those
expressed  in the  forward-looking  statements:  (a) the  inability  to generate
growth in revenues and net income; (b) the inability to generate sufficient cash
flows  from  operations  to fund  capital  expenditures  and debt  service;  (c)
unanticipated capital expenditures,  including costs associated with real estate
development  projects;  (d)  unanticipated  costs,  difficulties  or  delays  in
completing  or realizing  the intended  benefits of  development  projects;  (e)
adverse changes in current  financial  markets and general economic  conditions,
including  interest rate  increases;  (f) adverse changes in current real estate
markets and the real estate industry; and (g) actions by competitors.

                                       7

<PAGE>



                              RESULTS OF OPERATIONS
                              ---------------------

          COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
          ------------------------------------------------------------

         The Company's  results of  operations  for the three months ended March
31, 1997 and 1996 are summarized by line of business, as follows:

               COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
               ---------------------------------------------------

                        Three Months Ended March 31, 1997
                            (in thousands of dollars)
                                   (unaudited)
<TABLE>
<CAPTION>
                                   HOMESITE    TRACT   RESIDENTIAL    OTHER      BUSINESS    ADMINISTRATIVE
                                     SALES     SALES      SALES    OPERATIONS   DEVELOPMENT      & OTHER         TOTAL
                                     -----     -----      -----    ----------   -----------  --------------      -----
<S>                                   <C>        <C>         <C>       <C>       <C>               <C>         <C>  
Revenues:
  Real estate sales                $2,550     $6,664     $7,070     $          $                $               $16,284
  Other operating revenues             10                              583                                          593
  Interest income                                                    1,118                          254           1,372
  Other income:
   Reorganization reserves                                             267                          162             429
   Other income                                                                                                       -
------------------------------------------------------------------------------------------------------------------------
Total revenues                      2,560      6,664      7,070      1,968                          416          18,678
------------------------------------------------------------------------------------------------------------------------

Costs and expenses:
  Cost of real estate sales         1,988      6,155      5,316                                                  13,459
  Selling expense                     911        803        407                     8                             2,129
  Other operating expense                                              330                                          330
  Other real estate costs:
    Property tax, net                                                                               911             911
    Other real estate overhead        363        344         23        188        657               420           1,995
  General and administrative expense                                                              2,200           2,200
  Depreciation                          4         15          2         29                          134             184
  Cost of borrowing, net                                                                          4,035           4,035
  Other expense                                                         96        175               440             711
------------------------------------------------------------------------------------------------------------------------
Total costs and expenses            3,266      7,317      5,748        643        840             8,140          25,954
------------------------------------------------------------------------------------------------------------------------
Net income (loss)                  $ (706)    $ (653)    $1,322     $1,325     $ (840)          $(7,724)        $(7,276)
========================================================================================================================
</TABLE>

                                       8

<PAGE>
               COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
               ---------------------------------------------------

                        Three Months Ended March 31, 1996
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<CAPTION>
                                     HOMESITE      TRACT       RESIDENTIAL     OTHER       BUSINESS    ADMINISTRATIVE
                                      SALES        SALES          SALES      OPERATIONS  DEVELOPMENT      & OTHER       TOTAL
                                      -----        -----          -----      ----------  -----------   --------------   -----
<S>                                    <C>          <C>            <C>         <C>            <C>          <C>          <C>   
 Revenues:
   Real estate sales                  $14,598      $5,745         $2,870     $          $                $             $23,213
   Other operating revenue                                                     1,133                                     1,133
   Interest income                                                               814                         527         1,341
   Other income:
    Reorganization reserves                                                                                1,267         1,267
    Other income                                                               4,820                                     4,820
------------------------------------------------------------------------------------------------------------------------------
 Total revenues                        14,598       5,745          2,870       6,767                       1,794        31,774
------------------------------------------------------------------------------------------------------------------------------

 Costs and expenses:
   Cost of real estate sales           10,919       4,703          2,175                                                17,797
   Selling expense                      1,385         643            524                                                 2,552
   Other operating expense                                                       699                                       699
   Other real estate costs:
     Property tax, net                                                            10                       1,429         1,439
     Other real estate overhead           550         495            422         251          584            516         2,818
   General and administrative                                                                              3,130         3,130
   Depreciation                             9          18             12         107                         103           249
   Cost of borrowing, net                                                                                  3,288         3,288
   Other expense                           12                                                 195                          207
------------------------------------------------------------------------------------------------------------------------------
 Total costs and expenses              12,875       5,859          3,133       1,067          779          8,466        32,179
------------------------------------------------------------------------------------------------------------------------------
 Income (loss) before
   extraordinary item                   1,723        (114)          (263)      5,700         (779)        (6,672)         (405)

 Extraordinary gain on
  extinguishment of debt                                                                                   3,770         3,770
------------------------------------------------------------------------------------------------------------------------------
 Net income (loss)                   $  1,723      $ (114)        $ (263)     $5,700    $    (779)       $(2,902)      $ 3,365
==============================================================================================================================
</TABLE>

         During the first  quarter of 1997,  the Company  incurred a net loss of
$7.3 million  compared to net income of $3.4 million during the first quarter of
1996 primarily due to a $5.7 million decrease in other income and a $3.8 million
extraordinary  gain in the first quarter of 1996 resulting from the cancellation
of debt. The decrease in other income was principally  attributable to a gain of
approximately  $4.1 million in the first quarter of 1996 from an $18.75  million
settlement of the Port St. Lucie condemnation litigation.

                                       9
<PAGE>

         HOMESITE SALES
         --------------

         The net operating  results from homesite  sales  decreased $2.4 million
during the first quarter of 1997 compared to the first quarter of 1996 primarily
due to a decrease in the number of homesites sold.

         Revenues  from  homesite  sales  decreased  $12.0  million in the first
quarter of 1997 from the first quarter of 1996. The decrease resulted from a 64%
decrease in the number of homesites sold and a 52% decrease in the average sales
price per homesite. The decrease in the average sales price was primarily due to
a change in the sales mix. The following table summarizes  homesite activity for
the three months ended March 31 (in thousands of dollars):

<TABLE>
<CAPTION>
                                                1997                                         1996
                               ----------------------------------------       ------------------------------------
                                NUMBER OF                     AVERAGE         NUMBER OF                  AVERAGE
                                  LOTS          REVENUE     SALES PRICE          LOTS      REVENUE     SALES PRICE
                               ----------       -------     -----------       ---------    -------     -----------
<S>                                 <C>         <C>             <C>              <C>       <C>            <C>  

Subdivision homesite sales          67          $1,469          $21.9            384       $12,082        $31.5
Scattered homesite sales           177           1,081            6.1            285         2,516          8.8
                                   ---          ------          -----            ---       -------        -----
                                   244          $2,550          $10.5            669       $14,598        $21.8
                                   ===          ======          =====            ===       =======        =====
</TABLE>

         The decrease in  subdivision  homesite  sales is  primarily  due to two
sales in the first quarter of 1996  consisting of 193 homesites for $8.1 million
in Windsor Palms, a project located in southwest Broward County,  Florida. There
were no sales in  Windsor  Palms in the  first  quarter  of 1997,  however,  the
Company  anticipates  it will sell the  remaining  102 lots in this  project for
approximately $5.0 million during the remainder of 1997. In addition, there were
approximately  $2.0  million of sales in the first  quarter of 1996 in Julington
Creek  Plantation,  a project in  Jacksonville,  Florida,  which was sold in its
entirety in June 1996.  The decrease in the average  sales price of  subdivision
homesite  sales is primarily  due to the homesite  sales in the first quarter of
1996 in Windsor Palms and Julington Creek Plantation which yielded average sales
prices of approximately $42,000 and $39,000, respectively.

         Scattered  homesite  sales  decreased  in the  first  quarter  of  1997
compared to the first quarter of 1996 due to decreases in volume and the average
sales price per homesite.  These decreases are principally due to a $1.2 million
decrease in sales and a 30% decrease in the average sales price in the Company's
Cumberland Cove community in Tennessee. The decrease in sales in Cumberland Cove
is primarily due to timing as sales in this project are  anticipated to increase
during the  remainder  of 1997.  The  decrease  in the  average  sales  price in
Cumberland  Cove  is  primarily  due to the  mix of  homesites  sold.  Scattered
homesite  sales  includes  bulk homesite  sales in secondary  markets in Florida
which increased slightly in the first quarter of 1997 compared to the same prior
year period.  The Company  anticipates it will continue to supplement  scattered
homesite  sales volume in secondary  markets  through  bulk  homesite  sales and
through the  marketing  activities  of the Atlantic Gulf Land Company as part of
its plan to  accelerate  the  disposition  of assets in  secondary  real  estate
markets in Florida.

         As of March 31, 1997, the Company had approximately 569 total homesites
for  approximately  $12.6 million under  contract and which are  anticipated  to
close in 1997. Of the 569 homesites under contract, 450 homesites totaling $12.2
million are in the Company's  subdivision homesite projects of Lakeside Estates,
West Meadows and  Sanctuary.  Substantially,  all of the  Company's  subdivision

                                       10
<PAGE>

homesites currently under development are under "contract" for sale. As of March
31, 1996, the Company had  approximately  1,827 total  homesites  under contract
totaling approximately $29.2 million.

         The homesite sales gross margin percentages were 22.0% in 1997 compared
to 25.2% in 1996,  which generally  reflect targeted gross margins of 20% to 30%
for this line of business.  Gross margin  represents the difference  between the
Company's real estate revenue and related cost of sales.

         Homesite  selling  expense  decreased  primarily  due to a decrease  in
revenues.  Homesite  selling expense as a percentage of revenues  increased from
9.5% in 1996 to 35.7% in 1997,  primarily  due to the  decreased  revenues  over
which to spread fixed selling costs.

         Homesite  sales  other  real  estate  overhead  decreased  in the first
quarter of 1997  compared to the first  quarter of 1996  primarily  due to lower
overhead  costs  associated  with  managing the Company's  subdivision  homesite
projects in Florida's primary real estate markets.

         TRACT SALES
         -----------

         The net  operating  results  from tract  sales  decreased  in the first
quarter of 1997  compared  to the first  quarter of 1996  despite an increase in
revenues, primarily due to lower tract sales gross margins in 1997.

         Revenues  from tract sales of $6.7 million in the first quarter of 1997
represented  an increase of  $919,000  or 16%  compared to the first  quarter of
1996.  Tract sales acreages often vary  significantly  in size and revenues from
such sales vary from  quarter  to  quarter  depending  on the timing and size of
individual   sales.  Due  to  the  Company's  plan  to  monetize  the  Company's
predecessor  assets  located in secondary  markets,  tract sales are expected to
continue to be a  significant  source of revenue for the Company in 1997.  As of
March 31, 1997, there were pending tract sales contracts totaling  approximately
$18.0 million which, subject to certain contingencies,  are anticipated to close
in 1997. As of March 31, 1996, there were pending tract sales contracts totaling
approximately $29.7 million.

         Tract  sales  gross  margins  are  summarized  as follows for the three
months ended March, 31:
<TABLE>
<CAPTION>
                                                     1997                         1996
                                           ------------------------    -------------------------
                                            TARGETED      ACTUAL         TARGETED      ACTUAL
                                             MARGINS      MARGINS         MARGINS      MARGINS
                                             -------      -------         -------      -------
<S>                                           <C>         <C>               <C>         <C>  

  Port LaBelle agricultural acreage              0%       (2.7)%             5%           -
  Other tract acreage                         5-10%       14.3%             20%         18.1%
</TABLE>

         The  targeted  gross  margin  is lower  for Port  LaBelle  agricultural
acreage as management has determined that approximately 20,000 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  from a "retail" to a  "wholesale"
basis,  which reduced the targeted  gross margin for this  property.  During the
first  quarter  of 1997  the  Company  sold  2,156  acres of this  property  for
approximately $2.5 million.

         The actual gross margin in 1997 for other tract acreage was higher than
the targeted gross margin  principally  due to the mix of properties sold during

                                       11
<PAGE>

the period.  The targeted  gross margins have been reduced  primarily due to the
Company's  plan to  accelerate  land  sales  in  secondary  real  estate  market
locations.

         Tract sales  selling  expenses  increased  and other real estate  costs
decreased  in the first  quarter of 1997  compared to the first  quarter of 1996
primarily due to advertising  and other  marketing  costs which were included in
other real estate costs in 1996 and are included in selling expenses in 1997.


         RESIDENTIAL SALES
         -----------------

         The net operating results from residential sales, which includes single
family homes and  condominiums,  improved  $1.6 million  during the three months
ended March 31, 1997 compared to the corresponding prior year period principally
due to an increase  in  condominium  revenues  and  profits  from the  Company's
Regency  Island  Dunes  condominium  project and a decrease in other real estate
overhead costs.

         Residential  sales are summarized as follows for the three months ended
March 31 (in thousand of dollars):
<TABLE>
<CAPTION>
                                                         1997           1996
                                                         ----           ----
<S>                                                     <C>             <C>
       Condominium sales - Regency Island Dunes:
          First Building                                 $1,310         $   910
          Second Building                                 5,684               -
                                                         ------          ------
       Total condominium sales                            6,994             910
       Single family home sales                              76           1,960
                                                         ------          ------
                                                         $7,070          $2,870
                                                         ======          ======
</TABLE>

         The  revenues  and  profits   associated   with  Regency  Island  Dunes
condominium  sales are recorded using the percentage of completion  method.  The
Regency Island Dunes condominium  project consists of two 72-unit buildings.  As
of December 31,  1995,  the Company  recorded  97% of the expected  revenues and
profits  on 61 units  that  were  under  contract  in the first  building  as of
December  31,  1995  based  on a  construction  completion  percentage  of  97%.
Condominium  revenues  of $910,000 in the first  quarter of 1996  represent  the
incremental  revenue  earned  upon the  completion  of 49 of the 61 units in the
first  quarter of 1996.  The  condominium  revenues of $1.3 million in the first
building in 1997 represent revenue earned upon the closing of an additional four
units in 1997.  As of March 31, 1997,  70 of the 72 units in the first  building
have been sold and closed.  As of December 31, 1996, the Company recorded 79% of
the expected  revenues  and profits on 56 units that were under  contract in the
second  building as of  December  31,  1996 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% as of  December  31 1996 to 96% as of March 31,
1997 and to an additional  eight units sold during the first quarter of 1997 for
a total of 64 units sold in the second building. Additional revenues and profits
will be recorded as the  construction  progresses  and more units are sold.  The
Company  anticipates that  construction of the second building will be completed
during the second  quarter of 1997 and that all 72 units in the second  building
will be sold and closed in 1997.

         Single family home sales revenues decreased during the first quarter of
1997 compared to the first quarter of 1996 due a decrease in closings from 22 in
1996 to one in 1997.  Closings decreased because the Company decided in mid-1995
to begin phasing out its single family home business in predecessor  communities
and  substantially  completed the  withdrawal  in 1996.  The Company may seek to
re-enter the single family home business in primary  markets where this business

                                       12
<PAGE>

would complement current or potential land development  activities.  As of March
31, 1997, the Company had two single family home residential units in inventory,
neither of which were under contract.  As of March 31, 1996, the Company had six
single family home residential units under contract totalling $498,000.

         Residential sales gross margins are summarized as follows for the three
months ended March 31:

                                                   1997           1996
                                                   ----           ----
            Condominiums                          25.3%          46.4%
            Single family homes                  (15.8)%         13.9%

         The gross  margin  for  condominiums  in the first  quarter of 1997 was
within the  targeted  gross margin of  approximately  20% to 25%for this line of
business.  The gross margin for  condominiums  in the first  quarter of 1996 was
higher than the targeted  gross margin  primarily due to  adjustments  resulting
from the  recording  of the actual  profits  associated  with 49 closings in the
first quarter of 1996 as compared to the estimated profits previously recorded.

         The single  family home gross  margin in the first  quarter of 1997 was
generated  from one unit which was priced to sell as the Company  has  withdrawn
from this line of business.

         Residential  selling expense as a percentage of revenues decreased from
18.3% in 1996 to 5.8% in 1997  primarily  due to closing  costs  incurred in the
first quarter of 1996 associated with the closing of 49 condominium  units,  the
revenues  for which,  had  previously  been  recorded  using the  percentage  of
completion  method. The residential  selling expenses  percentage also decreased
due to increased revenues over which to spread fixed selling costs.

         Other  real  estate  overhead  decreased  in the first  quarter of 1997
compared to the first quarter of 1996  primarily due to a $329,000  reduction in
overhead costs  associated  with the Regency Island Dunes  condominium  project,
most  notably due to a reduction  condominium  association  costs.  In addition,
single family overhead costs decreased due to the phasing-out of this operation.

         OTHER OPERATIONS
         ----------------

         Net income from other  operations  decreased  $4.4 million in the first
quarter  of 1997  compared  to the  first  quarter  of 1996  primarily  due to a
decrease in other income.

         Other operating revenues and expenses decreased in the first quarter of
1997 from the same prior year  period  primarily  due to the absence of revenues
and expenses from the Port LaBelle  utility system sold in February 1996 and the
Julington Creek utility system sold in June 1996.

         Interest  income  increased  in the  first  quarter  of 1997  from  the
corresponding  prior year period  primarily due to a higher  average  balance of
land  mortgages  receivable in 1997 and to  adjustments  in the first quarter of
1996 associated with the land mortgages receivable  portfolio,  partially offset
by a lower  average  balance of contracts  receivable  during the periods  under
review.

         Other income of $267,000 in the first  quarter of 1997  represents  the
amortization of the Company's utility connections  reserve.  Other income in the
first quarter of 1996 included a gain of approximately $4.1 million on an $18.75
million  settlement  in March  1996  with the City of Port St.  Lucie  regarding
litigation  pursuant to condemnation  proceedings  associated with the taking of
the Company's Port St. Lucie system.  Also included in other income in the first

                                       13
<PAGE>

quarter of 1996 was a gain of $695,000 on the sale of the Company's Port LaBelle
utility system which was sold in February 1996 for $4.5 million.


         BUSINESS DEVELOPMENT
         --------------------

         Total  business  development  expenditures  were  similar  in the first
quarter of 1997  compared  to the first  quarter of 1996.  Business  development
expenditures  consist primarily of costs associated with the pursuit of business
opportunities in primary market locations within Florida and other  southeastern
United States locations.

         Business  development  other  expenses  included  $112,000 in the first
quarter  of 1997 and  $195,000  in the first  quarter of 1996  representing  the
Company's 50% share of the net loss of the Ocean Grove joint  venture.  The loss
resulted from pre-sales advertising and other selling and overhead costs.

         ADMINISTRATIVE & OTHER
         ----------------------

         The net loss from  administrative  & other  activities  increased  $4.8
million in the first quarter of 1997 from the first quarter of 1996  principally
due to an  extraordinary  gain  of  $3.8  million  in 1996  resulting  from  the
cancellation of debt and to a $1.1 million reduction in other income.

         Interest  income  decreased  in the  first  quarter  of 1997  from  the
corresponding  prior  year  period  primarily  due to a  decrease  in short term
investment interest income.

         Other income of $162,000 in the first  quarter of 1997 and $1.3 million
in the first quarter of 1996 represented  gains resulting from the resolution of
certain  reorganization  items.  This process is expected to continue during the
remainder of the year with  adjustments to be recorded as the final  disposition
of various claims and other liabilities is concluded.

         Property tax, net of capitalized  property taxes decreased in the first
quarter  of 1997  compared  to the  first  quarter  of 1996  primarily  due to a
reduction of land  inventory  not under  development.  The decrease in inventory
under development corresponds to sales activity and to the completion of various
projects during the intervening period.

         General  and  administrative   expenses  decreased  approximately  $1.0
million  in the first  quarter  of 1997  compared  to the first  quarter of 1996
principally  due to financial  advisory and due diligence  costs incurred in the
first quarter of 1996 associated with the Company's recapitalization efforts.

         Cost of borrowing,  net increased in the first quarter of 1997 compared
to the same  period in 1996  primarily  due to a $617,000  decrease  in interest
capitalized  to land  inventory  corresponding  to the  decrease  in land  under
development.  During the three months ended March 31, 1997 and 1996, the Company
did not  accrue  interest  on its Cash Flow  Notes  because  of the  absence  of
Available Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES."

         Other  expense of $440,000 in the first  quarter of 1997  represented a
loss on the sale of $9.3 million of land mortgage  receivables to the First Bank
of Boston in March 1997 for an initial cash  distribution of $7.0 million plus a
residual  interest in the portfolio.  The proceeds were used to reduce corporate
debt and to fund ongoing operations.

                                       14
<PAGE>

         In  February  1996,  the  Company  recorded  an  extraordinary  gain of
approximately $3.8 million due to the cancellation of approximately $1.9 million
of  Unsecured  12% Notes and $1.9 million of  Unsecured  Cash Flow Notes.  These
notes,  held in the  disputed  claims  reserve  account,  were in  excess of the
requirements  necessary to satisfy the Company's  obligations in accordance with
the Company's plan of reorganization.


LIQUIDITY & CAPITAL RESOURCES
-----------------------------

         As of March 31, 1997, the Company's cash and cash  equivalents  totaled
approximately  $2.5  million.  The  Company  also had  restricted  cash and cash
equivalents of $6.0 million,  which consisted  primarily of escrows for the sale
and  development of real estate  properties,  funds held in trust to pay certain
bankruptcy  claims  and  various  other  escrow  accounts.  Of the $4.6  million
decrease in cash and cash  equivalents  during the first  quarter of 1997,  $7.5
million was used in operating  activities and $9.2 million was used in financing
activities, partially offset by $12.1 million provided by investing activities.

         Cash  used in  operating  activities  includes  approximately  (i) $3.8
million for interest  payments,  (ii) $5.4  million for  property tax  payments,
(iii) $6.6 million for construction  and development  expenditures and (iv) $1.8
million of fees associated with the Company's  refinancing and  recapitalization
efforts.  These  uses were  offset in part by net cash  generated  through  real
estate sales and other operations.

         Cash  provided by investing  activities  consisted of $12.1  million of
funds released on January 2, 1997 from various utility trust accounts which were
funded by the Company during the reorganization proceedings.  The terms of these
trusts require the Company to  periodically  assess the adequacy of the property
in these trusts.  Pursuant to a review of these trusts in December  1996, it was
determined  that  approximately  $12.1 million in cash and $6.2 million of notes
could be released from these trust accounts.

         Cash used in financing  activities  includes $37.5 million of principal
payments on January 3, 1997 to repay in full the  Company's  Unsecured 12% Notes
and $1.6  million  in  principal  payments  related  to the  Company's  deferred
property  tax  and  Section   365(j)  lien   obligations   arising  out  of  the
reorganization  proceedings.   These  payments  were  partially  offset  by  net
borrowings  of $18.1 million under the Reducing  Revolving  Loan with  Foothill,
which were used along with the $12.1  million of excess  funds from the  various
utility  trust  accounts to repay the  Unsecured  12% Notes.  In  addition,  the
Company had net borrowings of $6.2 million  associated with the financing of the
Company's mortgage receivables and net borrowings of $5.6 million on new project
financings.

         The Company has,  pursuant to a Revolving  Loan  Agreement  dated as of
September 30, 1996 with Foothill  Capital  Corporation  ("Foothill"),  (i) a $20
million working capital  facility  maturing  December 1, 1998 ("Working  Capital
Facility"),  and a $25 million  reducing  revolving  loan maturing June 30, 1998
("Reducing  Revolving  Loan "), with  principal  reductions  as set forth below.
Amounts  under  the  Reducing  Revolving  Loan are  available  only when (i) the
Working  Capital  Facility  is  fully  utilized,  and  (ii)  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 variable 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 variable
interest at the "base rate" plus four percentage  points.  As of March 31, 1997,
the  Working  Capital  Facility  was fully  drawn  and  there was $19.8  million
outstanding  on the  Reducing  Revolving  Loan.  The Company and  Foothill  have
amended the Revolving Loan Agreement,  effective as of March 31, 1997,  pursuant
to which,  among other things,  the Company can borrow thereunder until June 30,
1997 up to $10  million in excess of the amount  otherwise  available  under the
borrowing base formula,  subject in any event to the maximum availability of $25
million under the Reducing  Revolving Loan. Upon execution of the Revolving Loan
Agreement  amendment,  the  Company  paid  a $1  million  fee to  Foothill.  The
above-mentioned   amendment   also  provides  that  as  long  as  the  Company's
indebtedness under the Foothill loan

                                       15

<PAGE>

agreements  is in excess of the  aggregate  amount the Company  could  otherwise
borrow under the borrowing  base formula,  the interest  rates payable under the
Working  Capital  Loan,  Reducing  Revolving  Loan and the Term Loan (as defined
below) will be increased by two percentage points.

         The  Company's  remaining  material  obligations  for 1997  include (i)
principal  repayments  on the  Foothill  debt up to $43.3  million as more fully
described  below,  and (ii) the final  principal  and  interest  payments on the
Company's  Section 365(j) lien and deferred  property tax  liabilities  totaling
$1.5 million  which are due in the third  quarter of 1997.  The  Company's  1997
business  plan  also   contemplates  full  year  expenditures  for  development,
construction  and other  capital  improvements  estimated at  approximately  $50
million,  of which a substantial portion will require funding 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 expenditures,  the implementation of the Company's business plan will
be adversely  affected,  thus slowing the Company's  expected revenue growth and
increasing the expected time necessary for the Company to achieve profitability.

         On September 30, 1996,  the Company  closed on three credit  facilities
totalling $85.0 million with Foothill (the "Foothill Refinancing").  Pursuant to
the  Foothill  Refinancing,  Foothill  has  provided  the  Company  with  (I) an
extension  to December 1, 1998 of the $20 million  Working  Capital  Facility as
discussed  above;  (ii) a $40 million  Term Loan at an interest  rate of 15% per
annum,  maturing June 30, 1998; and (iii) a Reducing Revolving Loan of up to $25
million  maturing on June 30, 1998, as discussed  above.  At March 31, 1997, the
Company had outstanding the full $20 million under the Working Capital  Facility
and approximately $19.8 million under the Reducing Revolving Loan. The Term Loan
requires  principal  repayments of one-third on each of June 30, 1997,  December
31, 1997, and June 30, 1998. The  commitment  under the Reducing  Revolving Loan
will also be reduced by one-third  on each of June 30, 1997,  December 31, 1997,
and June 30, 1998,  and the Company will be required to repay on those dates any
amounts  outstanding  under  the  Reducing  Revolving  Loan in excess of the new
commitment amount.

         The Company does not currently have sufficient liquid capital resources
to satisfy the up to $43.3 million of Foothill debt of which approximately $21.7
million  is due on each of June  30,  1997,  and  December  31,  1997.  However,
management  believes that the Company,  through a combination of sources as more
fully described below, will be able to obtain  sufficient  liquidity and capital
resources  necessary to continue  implementing  its business plan and to satisfy
its debt obligations as they become due.

         The  Company's  ongoing  business  plan is to continue to monetize  its
non-core tract and scattered  homesite assets  ("Predecessor  assets") to reduce
corporate debt. The Company made substantial  progress in this regard as it sold
$55.6 million of tract and scattered homesite assets in 1996 and $7.7 million in
the first quarter of 1997. In addition,  the Company currently has pending under
contract  or  letter  of  intent  a  combination  of   Predecessor   asset  sale
transactions which would generate,  if consummated,  approximately $26.4 million
of cash and notes. The  transactions  under contract are subject to a variety of
customary   conditions,   in  some  cases   including  a  financing   condition.
Transactions  subject  to a  letter  of  intent  are  also  subject  to  further
negotiation  and  documentation  and there are no assurances that any particular
transaction under contract or letter of intent will be consummated.

         As part of the effort to monetize the  Predecessor  assets  pursuant to
its  business  plan,  the  Company  is  actively  monetizing  mortgage  and note
receivables  generated  from  the  sale  of  Predecessor  tracts  and  scattered
homesites.  The Company raised  approximately  $17.8 million of cash proceeds in
1996 and an additional  $14.6 million in the first quarter of 1997, and received
certain residual  interests,  from the sale or refinancing of mortgages or other
receivables  generated  from the sale of Predecessor  real estate assets.  These
cash  proceeds,  along with the net cash proceeds from  Predecessor  real estate
sales, were applied to

                                       16

<PAGE>

the  reduction of corporate  debt and to fund  ongoing  operations.  The Company
plans to continue to sell or finance mortgages and other  receivables  generated
from the future sale of Predecessor real estate assets going forward.

         As previously  disclosed by the Company in a current report on Form 8-K
dated February 13, 1997 and in an annual report on Form 10-K for the fiscal year
ended December 31, 1996, the Company  executed an Investment  Agreement and Note
Agreement  with  AP-AGC,  LLC,  a  Delaware  limited  liability  company  and an
affiliate of Apollo Real Estate  Advisors II, L.P., a New York-based  investment
fund  ("Apollo").  Subject  to the  terms of the  Investment  Agreement  and the
approval of certain  charter  amendments by the Company's  stockholders,  Apollo
would  invest  an  aggregate  of $25  million  in new  Series  A 20%  cumulative
redeemable  convertible  preferred stock of the Company (the "Series A Preferred
Stock").  The Investment Agreement also contemplates that the Company would seek
the  approval  of  its  stockholders  of  a  charter  amendment  authorizing  an
additional  $10 million of new Series B 20%  cumulative  redeemable  convertible
preferred  stock of the  Company  (the  "Series B  Preferred  Stock") to be made
available to the  Company's  stockholders  in a rights  offering  (the "Series B
Rights Offering"). The 20% cumulative dividend rate on the Series A and Series B
Preferred Stock would accumulate unless declared and paid by the Company.

         The Company  expects that the  Investment  Agreement will be amended to
provide,  among other things, that the amounts invested by Apollo (which will be
staged over a period of time, as appropriate investment projects are identified)
will be held by a new wholly owned  special  purpose  subsidiary of the Company,
and invested in new real estate development projects.  Apollo would have a first
lien  over the  assets  and  stock of such  subsidiary  securing  the  Company's
repurchase  and  redemption  obligations  in respect  of the Series A  Preferred
Stock.

         The Company anticipates  submitting the proposed charter amendments for
the  authorization  of the  Series A and  Series B  Preferred  Stock at the 1997
annual  meeting  of  stockholders.  If  the  stockholders  approve  the  charter
amendments,  the  initial  closing on the Series A Preferred  Stock  transaction
could occur in June 1997,  and the $10 million  Series B Rights  Offering  could
close in the third quarter of 1997.  Pursuant to the  Investment  Agreement,  as
Apollo  purchases  up to $25 million of Series A Preferred  Stock,  Apollo would
also receive, on a pro rata basis, warrants to acquire up to 5 million shares of
Company common stock.  In addition to stockholder  approval,  the closings under
the  Investment  Agreement  are  also  subject  to  the  satisfaction  of  other
conditions,  including the consent of Foothill. The Company anticipates that the
proceeds from the Series A Preferred  Stock  closings would be available for new
project  acquisition  and development  (through the special  purpose  subsidiary
described  above) while the net proceeds from the Series B Rights Offering would
be  available  to the Company  for general  corporate  purposes,  including  the
repayment of debt owed to Foothill.

         The  Company  expects  that  the  above  discussed  amendments  to  the
Investment  Agreement  will among other  things,  also  provide for  warrants to
purchase 2 million shares of the Company's common stock to be part of the Series
B Rights  Offering,  and a  possible  private  placement  by the  Company,  with
financial  purchasers  unaffiliated  with Apollo,  of newly issued common stock,
additional Series B Preferred Stock, and warrants to purchase  additional common
stock. The gross proceeds to the Company from the private  placement could be up
to $20 million.

         The closing under the Investment  Agreement with Apollo and the private
placement and Series B Rights  Offering are contingent  upon a number of factors
which are not within the control of the Company,  including shareholder approval
and receipt of the final  approval of Foothill.  There can be no assurance  that
all of these  conditions  will be  fulfilled  or, to the extent that they may be
waived, waived by Apollo,

                                       17

<PAGE>

Foothill or the private  placement  purchasers.  For more  detailed  information
relating to the  transactions  described  above,  please refer to the  Company's
proxy  statement  for  its  1997  annual  meeting,   which  will  be  mailed  to
shareholders in the near future.

         If the stockholders' approval is not obtained or the Series A Preferred
Stock  transaction is not otherwise  consummated,  the Company will pursue other
alternatives  to  address  its  liquidity  issues,  and  improve  its  financial
condition  and  liquidity,   including  the  possibility  of  soliciting   other
transactions similar to the transaction. If, however, the stockholders' approval
is not obtained or the Series A Preferred  Stock  transaction  is not  otherwise
consummated,  under certain  circumstances the Company will be required to pay a
$1 million fee to Apollo and the  Company's  $1 million  commitment  fee will be
forfeited;  and if an alternative  transaction is consummated  within  specified
time  periods,  the Company will be required to pay an additional $1 million fee
to Apollo.

         Available  Cash is defined  in the  Company's  POR with  respect to any
payment period (generally,  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 plan of reorganization and creation of
reserves  for  working  capital  and  other  expenses  for the next two  payment
periods.

         Pursuant to the Company's debt  agreements,  the Company must apply any
Available  Cash (I) to the payment of interest  due on the  Company's  unsecured
cash flow notes due December 31, 1998 ("Cash Flow  Notes");  (ii) to payments of
outstanding amounts under the Working Capital Facility;  and (iii) to repayments
of  principal  on the Cash  Flow  Notes.  Under  the  Company's  certificate  of
incorporation,  after all reorganization  debt has been repaid, the Company must
pay  mandatory  dividends  on its  common  stock  in an  amount  equal to 25% of
Available Cash. (If,  however,  the Series  Preferred Stock closing occurs,  the
charter provision  requiring  mandatory dividends equal to 25% of available cash
will be eliminated.)

         If there is no  Available  Cash on a  payment  date,  the then  current
interest on the Cash Flow Notes is not due or payable on that payment date or at
any time thereafter.  Due to the necessity to establish  reserves against future
mandatory debt, capital and operating expenditures, the Company did not have any
Available  Cash to enable it to make  payments  on the Cash Flow  Notes  through
March 31, 1997. Accordingly, the Company did not accrue any interest on the Cash
Flow Notes during the three months  ended March 31, 1997 and 1996.  Also,  based
upon the Company's existing debt obligations, its anticipated net cash flows and
its business plan,  management does not anticipate the Company having  Available
Cash in the foreseeable future.


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<PAGE>


PART II. - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
           -----------------

         FLORIDA HOME  FINDERS,  INC. In March,  1995,  the Company sold Florida
Home Finders,  Inc.  ("Florida Home Finders") to the FHF Trust,  owned by Ian R.
Law and Benjamin  Schiff,  for $3.5  million.  It has been alleged in litigation
filed against  Florida Home Finders that FHF Trust withdrew escrow deposits held
by Florida Home Finders for the benefit of tenant and owner clients and utilized
those funds to purchase a certificate of deposit. It is further alleged that the
certificate  of deposit was pledged as  security to County  National  Bank for a
personal loan to Messrs.  Law and Schiff,  and that a portion of the proceeds of
that loan were  utilized to pay the Company  approximately  $2.0  million of the
amount  due under the  purchase  money  note  given by FHF Trust in favor of the
Company at the time of the sale of Florida  Home  Finders.  The  Company  had no
knowledge of the source of the payment.

         Subsequent to the  foregoing  alleged  events,  the Florida Real Estate
Commission  discovered  that escrow  deposits  were  missing  from  Florida Home
Finder's  accounts  and  brought an action in St.  Lucie  County  circuit  court
seeking the  appointment  of a receiver for the property and business of Florida
Home  Finders.  STATE  OF  FLORIDA,  DEPARTMENT  OF  BUSINESS  AND  PROFESSIONAL
REGULATION  V. FLORIDA HOME FINDERS,  INC. ET AL.,  Case No.  95-1092-CA 17 (St.
Lucie Cty.  Cir.  Ct.) A receiver  was  appointed  for Florida  Home  Finders in
October  1995. In November  1995,  the Company  intervened  in the  receivership
proceeding. The receivers have sold the Florida Home Finders' assets (other than
litigation  claims  against  third  parties,  which  have been  retained  by the
receiver)  to ALL FLORIDA  PROPERTY  MANAGEMENT,  INC.,  a Florida  corporation;
however the sales  proceeds are being held by the  receiver  pending the court's
order directing disbursement.

         In November 1995, the receiver filed a lawsuit against several parties,
including  the  Company,  seeking a return and  recovery of the  missing  escrow
deposits.  SPIRE V. IAN R. LAW ET AL., Case No.  95-1300-CA  17 (St.  Lucie Cty.
Cir. Ct.). The Company filed a motion to dismiss the complaint,  contending that
the complaint failed to identify any knowledge, notice or wrongdoing on the part
of the  Company.  This  case was  voluntarily  dismissed  without  prejudice  on
February 6, 1997.

         The  Company  agreed  with the  receiver  on May 5, 1997 to a tentative
settlement  of all matters  pending final  documentation,  the  satisfaction  of
certain  conditions  and  court  approval.  The  terms  of  the  settlement,  if
finalized, will not have a material, adverse financial affect on the Company.

         REGENCY  ISLAND  DUNES.  In  connection  with the  construction  of the
Regency  Island Dunes  Condominium  Project in Jensen  Beach,  Florida,  various
disputes have arisen  between the Company's  subsidiary,  Regency  Island Dunes,
Inc. ("Regency"),  and the general contractor, Foley and Associates Construction
Company, Inc. ("Foley"),  regarding completion of the first phase of the project
containing 72 units.  As a result,  Foley filed suit in the Circuit Court of St.
Lucie County  under the caption of FOLEY AND  ASSOCIATES  CONSTRUCTION,  INC. V.
REGENCY ISLAND DUNES, INC. AND ATLANTIC GULF COMMUNITIES  CORPORATION,  Case No.
96-1569-CA-03  (St.  Lucie Cty. Cir. Ct.)  alleging  breach of the  construction
contract,  claims for lost profits and delay  damages as well as various  counts
claiming  fraudulent  transfers of funds from Regency to the Company.  This case
was filed by Foley in  addition  to Foley's  demand for  arbitration  before the
American  Arbitration  Association  as  required  pursuant  to the  terms of the
construction   contract   between  Regency  and  Foley.   Regency  has  asserted
counterclaims  for  Foley's  failure to  properly  staff the job and  refusal to
perform corrective work which was performed at Regency's expense,  all such sums
incurred by Regency would offset Foley's contract claim. The costs of corrective
work already  incurred  together  with  Regency's  claims for delay  damages and
penalties exceed Foley's claims for the unpaid contract balance. In addition, in
the case styled REGENCY  ISLAND DUNES INC. V. FOLEY AND ASSOCIATES  CONSTRUCTION
COMPANY,  INC., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.),  Regency filed

                                       19
<PAGE>

its action to discharge the  construction  lien filed by Foley on the basis that
the lien claim was inflated and was recorded  against units which had previously
been conveyed to third party purchasers as well as additional lands not included
within the construction  contract  between the parties.  The preceding two cases
have been  consolidated and partially stayed pending  resolution of the contract
disputes  in  arbitration.  In REGENCY  ISLAND  DUNES,  INC.  V.  NATIONAL  FIRE
INSURANCE  COMPANY OF HARTFORD AND FOLEY AND  ASSOCIATES  CONSTRUCTION  COMPANY,
INC.,  now  refiled  under Case No.  97-14075,  U.S.D.C.,  Southern  District of
Florida,  Regency  filed  suit to recover  damages  against  Foley's  surety for
corrective work performed by Regency as well as various other claims for damages
asserted by Regency in the arbitration described above. In addition,  based upon
a separate  construction contract between Regency and Foley for the construction
of the second phase of the Regency Island Dunes Condominium Project, Foley filed
a demand for arbitration in March 1997 asserting breach of contract  relating to
change orders, release of retainage and Foley's requests for extensions of time.
The dispute with Foley in  connection  with the second phase has  escalated  and
Foley  has  filed a  claim  of  lien, which  includes  retainage,  overhead  and
unauthorized  change orders.  The Company  continues  discussions  with Foley to
resolve these matters. In the event the settlement discussions are unsuccessful,
the Company and Regency will vigorously  defend the claims asserted by Foley and
aggressively pursue their claims against Foley and the surety.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------

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

         (10.1)         Utility Lot Trust  Agreement,  dated as of December  26,
                        1996, between Atlantic Gulf Communities  Corporation and
                        the  Division of Florida Land Sales,  Condominiums,  and
                        Mobile Homes, and Peninsula State Title, as Trustee.

         (10.2)         Restated,  Amended  and  Consolidated  Trust  Agreement,
                        dated as of December  26,  1996,  amended as of December
                        30, 1996,  between the State of Florida,  Department  of
                        Business  Regulation,  Division  of Florida  Land Sales,
                        Condominiums,    and   Mobile   Homes,   Atlantic   Gulf
                        Communities Corporation and First Union National Bank of
                        Florida, as Trustee.

         (10.3)         First   Amendment   to   the   Restated,   Amended   and
                        Consolidated  Trust  Agreement  dated as of December 26,
                        1996, amended as of December 30, 1996.

         (27)           Financial Data Schedule.

(b) Reports on Form 8-K

         The Company  filed a report on Form 8-K on February 13, 1997,  pursuant
to Item 5, Other Events,  reporting that the Company  entered into an Investment
Agreement dated as of February 7, 1997 with Apollo.

                                       20
<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, 1997                    /s/ THOMAS W. JEFFREY
                                       -------------------------------
                                           Thomas W. Jeffrey
                                           Executive Vice President
                                           and Chief Financial Officer






Date:  May 12, 1997                    /s/ CALLIS N. CARLETON
                                       -------------------------------
                                           Callis N. Carleton
                                           Vice President and Controller
                                           (Principal Accounting Officer)

                                       21