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 June 30, 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 11,535,812  shares of the Registrant's  Common Stock outstanding as of
August 11, 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 JUNE 30, 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


<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                      No.
                                                                                                      ---
<S>                                                                                                   <C>
PART I.  -   FINANCIAL INFORMATION

    Item 1.   Financial Statements

              Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997                    1

              Consolidated Statements of Operations for the Three and Six  Months Ended
                 June 30, 1998 and 1997                                                                2

              Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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 4.   Submission of Matters to a Vote of Security Holders                                     28

    Item 5.   Other Information                                                                       30

    Item 6.   Exhibits and Reports on Form 8-K                                                        31


SIGNATURES                                                                                            32
</TABLE>
<PAGE>


PART I.  -  FINANCIAL INFORMATION

Item 1.     Financial Statements
            --------------------

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                           Consolidated Balance Sheets
                       June 30, 1998 and December 31, 1997
               (in thousands, except share amounts and par value)

<TABLE>
<CAPTION>
                                                                                       June 30,         December 31,
                                                                                         1998               1997
                                                                                       ---------          --------
                                                                                      (Unaudited)
<S>                                                                                    <C>                <C>
         Assets
         ------
Cash and cash equivalents                                                              $   2,981          $  9,188
Restricted cash and cash equivalents                                                         900             1,713
Contracts receivable, net                                                                  5,084             6,336
Mortgages, notes and other receivables, net                                               34,163            34,910
Land and residential inventory                                                           126,743           130,506
Property, plant and equipment, net                                                         2,751             1,754
Other assets, net                                                                         16,765            18,664
                                                                                       ---------          --------
Total assets                                                                           $ 189,387          $203,071
                                                                                       =========          ========
         Liabilities and Stockholders' (Deficit) Equity
         ----------------------------------------------
Accounts payable and accrued liabilities                                               $  12,276          $ 13,615
Customers' and other deposits                                                              3,789             1,181
Other liabilities                                                                          7,740             8,865
Notes, mortgages and capital leases                                                      118,906           132,408
                                                                                       ---------          --------
Total liabilities                                                                        142,711           156,069
                                                                                       ---------          --------
Redeemable Preferred Stock
       Series A, 20%, $.01 par value,  2,500,000  shares  authorized;  2,500,000
       shares issued, having a liquidation preference of $29,666, as of June 30,
       1998;  2,326,500  shares  issued,  having  a  liquidation  preference  of
       $25,254, as of December 31, 1997                                                   26,949            22,378

       Series B, 20%, $.01 par value;  2,000,000  shares  authorized;  2,000,000
       shares issued, having a liquidation  preference of $23,491 as of June 30,
       1998 and a liquidation preference of $21,307 as of December 31, 1997               21,748            19,306
                                                                                       ---------          --------
                                                                                          48,697            41,684
                                                                                       ---------          --------
Stockholders' (deficit) equity

       Common stock, $.10 par value,  70,000,000 shares  authorized;  11,622,089
          and 11,607,526  shares issued as of June 30, 1998, and December
          31, 1997, respectively                                                           1,162             1,161
       Contributed capital                                                               123,473           128,930
       Accumulated deficit                                                              (120,935)         (119,052)
       Accumulated other comprehensive loss                                               (5,712)           (5,712)
       Treasury stock, 86,277 shares, at cost                                                 (9)               (9)
                                                                                       ---------          --------
Total stockholders' (deficit) equity                                                      (2,021)            5,318
                                                                                       ---------          --------
Total liabilities and stockholders' (deficit) equity                                   $ 189,387          $203,071
                                                                                       =========          ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        1
<PAGE>
                       ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                               Consolidated Statements of Operations
                         Three and Six Months Ended June 30, 1998 and 1997
                               (in thousands, except per share data)
                                            (unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended       Six Months Ended
                                                             June 30,                June 30,
                                                      --------------------    --------------------
                                                        1998         1997        1998        1997
                                                      --------    --------    --------    --------
<S>                                                   <C>         <C>         <C>         <C>
Revenues:
  Real estate sales:
      Core Homesite                                   $  2,612    $  6,999    $  5,147    $  8,468
      Core Tract                                        31,780         590      32,041         590
      Core Residential                                      --       2,201          --       9,195
      Predecessor Homesite                               1,035       2,533       1,931       3,614
      Predecessor Tract                                  8,476       5,452      13,756      12,116
      Other Operations                                      --          --          --          76
                                                      --------    --------    --------    --------
    Total real estate sales                             43,903      17,775      52,875      34,059
  Other operating revenues                                 664         852       1,415       1,445
  Interest income                                        1,152       1,745       2,519       3,117
  Other income                                           1,581          --       1,681          --
                                                      --------    --------    --------    --------
      Total revenues                                    47,300      20,372      58,490      38,621
                                                      --------    --------    --------    --------
Costs and expenses:
  Cost of real estate sales:
      Core Homesite                                      2,260       6,878       4,407       8,036
      Core Tract                                        25,203         484      25,431         484
      Core Residential                                      --       3,082          --       8,310
      Predecessor Homesite                                 898       2,390       1,758       3,220
      Predecessor Tract                                  8,145       5,054      13,399      11,209
      Other Operations                                      --          --          --          88
                                                      --------    --------    --------    --------
    Total cost of real estate sales                     36,506      17,888      44,995      31,347
  Selling expense                                        1,968       1,889       3,220       4,018
  Other operating expense                                  464         298         766         628
  Other real estate costs                                2,277       2,896       4,076       5,802
  General and administrative expense                     2,203       2,456       4,042       4,656
  Depreciation                                             168         169         338         353
  Cost of borrowing, net of amounts capitalized          1,649       4,699       3,031       8,734
  Other expense                                            240         287         471         462
                                                      --------    --------    --------    --------
      Total costs and expenses                          45,475      30,582      60,939      56,000
                                                      --------    --------    --------    --------
Operating income (loss)                                  1,825     (10,210)     (2,449)    (17,379)
                                                      --------    --------    --------    --------
Other income (expense):
  Reorganization items                                     268       1,365         782       1,794
  Miscellaneous                                            (27)        175        (216)       (361)
                                                      --------    --------    --------    --------
Total other income (expense)                               241       1,540         566       1,433
                                                      --------    --------    --------    --------
Net income (loss)                                        2,066      (8,670)     (1,883)    (15,946)
                                                      ========    ========    ========    ======== 

Less:
  Accrued preferred stock dividends                      2,531          62       4,860          62
  Accretion of preferred stock to redemption amount        336           8         654           8
                                                      --------    --------    --------    --------
                                                         2,867          70       5,514          70
                                                      --------    --------    --------    --------
Net loss applicable to common stock                   $   (801)   $ (8,740)   $ (7,397)   $(16,016)
                                                      ========    ========    ========    ========
Basic and diluted earnings per common share:
  Net loss per common share                           $   (.07)   $   (.89)   $   (.64)   $  (1.64)
                                                      ========    ========    ========    ========
Weighted average common shares outstanding              11,531       9,863      11,530       9,793
                                                      ========    ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                     Six Months Ended June 30, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                  June 30,
                                                                            --------------------
                                                                               1998       1997
                                                                            --------    --------
<S>                                                                         <C>         <C>
Cash flows from operating activities:
  Net loss                                                                  $ (1,883)   $(15,946)
  Adjustments to reconcile net loss to net cash provided by (used in)
    operating activities:
      Depreciation and amortization                                            2,083       2,998
      Other income                                                              (310)     (1,337)
      Reorganization items                                                        45         179
      Land acquisitions                                                      (22,125)     (5,572)
      Other net changes in assets and liabilities:
        Restricted cash                                                          813       2,063
        Receivables                                                            1,775       4,798
        Land and residential inventory                                        25,888      19,197
        Other assets                                                             946      (8,668)
        Accounts payable and accrued liabilities                              (1,302)     (5,252)
        Customer deposits                                                      2,608      (1,114)
        Other liabilities                                                       (636)       (483)
                                                                            --------    --------
           Net cash provided by (used in) operating activities                 7,902      (9,137)
                                                                            --------    --------
Cash flows from investing activities:
  Additions to property, plant and equipment, net                             (1,335)       (172)
  Funds withdrawn from utility trust accounts                                     --      12,109
                                                                            --------    --------
           Net cash (used in) provided by investing activities                (1,335)     11,937
                                                                            --------    --------
Cash flows from financing activities:
  Borrowings under credit agreements                                          20,636      66,699
  Repayments under credit agreements                                         (35,145)    (99,745)
  Principal payments on other liabilities                                         --      (1,218)
  Proceeds from issuance of common stock                                          --      10,000
  Proceeds from issuance of preferred stock                                    1,735      18,875
                                                                            --------    --------
           Net cash used in financing activities                             (12,774)     (5,389)
                                                                            --------    --------
Decrease in cash and cash equivalents                                         (6,207)     (2,589)
Cash and cash equivalents at beginning of period                               9,188       7,050
                                                                            --------    --------
Cash and cash equivalents at end of period                                  $  2,981    $  4,461
                                                                            ========    ========
Supplemental cash flow information:
  Interest payments, net of amounts capitalized                             $  1,340    $  4,889
                                                                            ========    ========
  Reorganization item payments                                              $     45    $    900
                                                                            ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1998
                                   (unaudited)

(1)      The June 30, 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  $2,382,000  and
         $5,396,000  for the three and  six-month  periods  ended June 30, 1998,
         respectively, and $1,447,000 and $2,722,000 for the three and six-month
         periods ended June 30, 1997, respectively.

(4)      Revenue from the sale of  residential  units other than Regency  Island
         ("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)      Due to the  establishment  of reserves  against future  mandatory debt,
         capital and operating expenditures,  the Company did not have Available
         Cash, as defined in the Company's agreements, 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 six months ended June 30, 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 June 30,  1998 (the  "Second  Quarter  1998 Form
         10-Q") for more information concerning the Cash Flow Notes.


(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

                                       4
<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1998
                                   (unaudited)

         share for the  first  quarter  of 1998 and  6,209  shares at a price of
         $3.625 per share for the second 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.

(8)      Redeemable  preferred stock consisted of the following at June 30, 1998
         and December 31, 1997 (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                      June 30,      December 31,
                                                                        1998            1997
                                                                      --------        --------
         <S>                                                          <C>             <C>
         Series A
         --------
         Gross proceeds                                               $ 25,000        $ 23,265
         Accrued dividends                                               4,666           1,989
                                                                      --------        --------
         Liquidation Preference amount                                  29,666          25,254
         Less issue costs                                               (3,100)         (2,885)
         Less warrants purchased                                          (300)           (279)
         Plus accretion of preferred stock to redemption amount            683             288
                                                                      --------        --------
                                                                        26,949          22,378
                                                                      --------        --------
         Series B
         --------
         Gross proceeds                                                 20,000          20,000
         Accrued dividends                                               3,491           1,307
                                                                      --------        --------
         Liquidation Preference amount                                  23,491          21,307
         Less issue costs                                               (1,900)         (1,900)
         Less warrants purchased                                          (240)           (240)
         Plus accretion of preferred stock to redemption amount            397             139
                                                                      --------        --------
                                                                        21,748          19,306
                                                                      --------        --------
         Total redeemable preferred stock                             $ 48,697        $ 41,684
                                                                      ========        ========
</TABLE>

                                       5
<PAGE>
             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 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 six  months  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"  REFER  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 or  oceanfront  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 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") and PART I.  FINANCIAL
INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF  OPERATIONS in the  Company's  Quarterly  Report on Form 10-Q, as
filed with the SEC (the "First  Quarter  1998 Form 10-Q"),  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 81,000
acres of Predecessor Tracts and 10,800 Predecessor Homesites,  and substantially
reduced the corporate debt and deferred

                                       7
<PAGE>
liabilities  which it inherited  from its  Predecessor  and (2) since 1994,  the
Company has acquired interests in 17 new projects in ten Primary Markets in four
states.

         The Company has  successfully  transitioned  itself from a land company
holding principally Predecessor Assets in 1994 to a leading provider to builders
of developed Homesites in planned communities in Primary Markets in 1998.

         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.  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  in the First Quarter 1998 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.

                                       8
<PAGE>
         As of June  30,  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 (3)           to-Date      Contract
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>           <C>                     <C>         <C>                                <C>          <C>
West Meadows               D (1)         Tampa Bay, FL           1995        1,316 single-family Homesites         353          252
------------------------------------------------------------------------------------------------------------------------------------
Saxon Woods                D             Orlando, FL             1997        408 single-family Homesites            15          103
------------------------------------------------------------------------------------------------------------------------------------
Lakeside Estates           D             Orlando, FL             1994-1995   1,379 single-family Homesites         778          168
------------------------------------------------------------------------------------------------------------------------------------
West Bay Club              D             Naples, FL              1995-1997   520 single-family Homesites             -            -
------------------------------------------------------------------------------------------------------------------------------------
The Trails of West Frisco  D             Dallas, TX              1997        1,643 single-family Homesites           -          415

------------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes               JV (2)        Broward County, FL      1994        1,512 single-family Homesites
                                                                             and 255 multi-family units            442          665
------------------------------------------------------------------------------------------------------------------------------------
Country Lakes              JV            Broward County, FL      1995        1,116 single-family Homesites
                                                                             and 1,930 multi-family units        1,115        1,931
------------------------------------------------------------------------------------------------------------------------------------
Falcon Trace               JV            Orlando, FL             1996        871 single-family Homesites           119          310
------------------------------------------------------------------------------------------------------------------------------------
Cary Glen                  JV            Raleigh/Durham, NC      1996        917 single-family Homesites 
                                                                             and 249 multi-family units              -            -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)   "D" means direct ownership.
(2)   "JV" means joint venture.
(3)   Varying from project to project, unsold units are developed, under
      development or to be developed in the future.

         As of June  30,  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>
West Meadows         D (1)         Tampa Bay, FL            1997        76 commercial/industrial acres        50            -
-----------------------------------------------------------------------------------------------------------------------------------
Riverwalk Tower      D             Fort Lauderdale, FL      1997        0.9 commerical acres                 0.9            -
-----------------------------------------------------------------------------------------------------------------------------------
Regency Island       D             Hutchinson Island, FL    1994        4 commercial acres                     -            -
-----------------------------------------------------------------------------------------------------------------------------------
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.

                                       9
<PAGE>
         As of June  30,  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 high-rise apartments             -             -
-----------------------------------------------------------------------------------------------------------------------------------
West Bay Club        D             Naples, FL               1995-1997   578 high-rise residential units      -             -
-----------------------------------------------------------------------------------------------------------------------------------
Jupiter Ocean Grande JV (2)        Jupiter, FL              1995        138 condominium units                -             -
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.

         As of June 30, 1998, the Company owned approximately 16,000 Predecessor
Homesites and approximately 11,000 acres of Predecessor Tracts in 8 communities.

         See  PART  I.,  ITEM 1.  BUSINESS  in the  1997  Form  10-K,  PART I. -
FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS in the First Quarter 1998 Form 10-Q and PART
I.  FINANCIAL  INFORMATION,  ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL  CONDITION AND RESULTS OF OPERATIONS to this Quarterly  Report on Form
10-Q for more information concerning the Company's business.

                                       10
<PAGE>
RESULTS OF OPERATIONS

            COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997

         The Company's  results of operations  for the six months ended June 30,
1998 and 1997 are summarized by line of business, as follows:

<TABLE>
<CAPTION>
                                        COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                   Six Months Ended June 30, 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                  $5,147   $32,041    $          $1,931  $ 13,756 $              $           $          $52,875
   Other operating revenues              296                                             1,119                                1,415
   Interest income                       150                                             1,762                        607     2,519
   Other income                        1,681                                                                                  1,681
                                   ------------------------------------------------------------------------------------------------
Total revenues                         7,274    32,041        -       1,931    13,756    2,881           -            607    58,490
                                   ------------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of real estate sales           4,407    25,431                1,758    13,399                                        44,995
   Selling expense                       675       800                  436     1,309                                         3,220
   Other operating expense                                                                 766                                  766
   Other real estate costs:
      Property tax, net                                                                                             1,395     1,395
      Other real estate overhead         503                            241       322       11         692            912     2,681
   General and administrative expense                                                                               4,042     4,042
   Depreciation                            9                             13        37       42                        237       338
   Cost of borrowing, net                                                                1,085                      1,946     3,031
   Other expense                         225                246                                                                 471
                                   ------------------------------------------------------------------------------------------------
Total costs and expenses               5,819    26,231      246       2,448    15,067    1,904         692          8,532    60,939
                                   ------------------------------------------------------------------------------------------------
Operating income (loss)                1,455     5,810     (246)       (517)   (1,311)     977        (692)        (7,925)   (2,449)
                                   ------------------------------------------------------------------------------------------------
Other income (expense):
   Reorganization items                                                                    534                        248       782
   Miscellaneous                                                                                                     (216)     (216)
                                   ------------------------------------------------------------------------------------------------
Total other income (expense)               -         -        -           -         -      534           -             32       566
                                   ------------------------------------------------------------------------------------------------
Net income (loss)                      1,455     5,810     (246)       (517)   (1,311)   1,511        (692)        (7,893)   (1,883)
                                   ------------------------------------------------------------------------------------------------
Less:
  Accrued preferred stock dividends                                                                                 4,860     4,860
  Accretion of preferred stock to
     redemption amount                                                                                                654       654
                                   ------------------------------------------------------------------------------------------------
                                           -         -        -           -         -        -           -          5,514     5,514
                                   ------------------------------------------------------------------------------------------------
Net income (loss) applicable to
     common stock                     $1,455   $ 5,810    $(246)     $ (517) $ (1,311)  $1,511       $(692)      $(13,407) $ (7,397)
                                   ================================================================================================
</TABLE>

                                                                 11
<PAGE>
<TABLE>
<CAPTION>

                                        COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                   Six Months Ended June 30, 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                 $8,468     $590   $9,195      $ 3,614  $12,116    $   76      $            $          $ 34,059
  Other operating revenues             401                                             1,044                                 1,445
  Interest income                      222                                             2,426                        469      3,117
                                 --------------------------------------------------------------------------------------------------
Total revenues                       9,091      590    9,195        3,614   12,116     3,546            -           469     38,621
                                 --------------------------------------------------------------------------------------------------
Costs and expenses:
  Cost of real estate sales          8,036      484    8,310        3,220   11,209        88                                31,347
  Selling expense                      430       16      239        1,686    1,615                     32                    4,018
  Other operating expense                                                                628                                   628
  Other real estate costs:
    Property tax, net                                                                                             1,731      1,731
    Other real estate overhead         490               138          160      699       348        1,347           889      4,071
  General and administrative expense                                                                              4,656      4,656
  Depreciation                           4                 2            3       31        62                        251        353
  Cost of borrowing, net                                                               1,105                      7,629      8,734
  Other expense                         57               405                                                                   462
                                ---------------------------------------------------------------------------------------------------
Total costs and expenses             9,017      500    9,094        5,069   13,554     2,231        1,379        15,156     56,000
                                ---------------------------------------------------------------------------------------------------
Operating income (loss)                 74       90      101       (1,455)  (1,438)    1,315       (1,379)      (14,687)   (17,379)
                                ---------------------------------------------------------------------------------------------------
Other income (expense):
  Reorganization items                                                                   532                      1,262      1,794
  Miscellaneous                                                                          (96)                      (265)      (361)
                                ---------------------------------------------------------------------------------------------------
Total other income (expense)             -        -        -            -        -       436            -           997      1,433
                                ---------------------------------------------------------------------------------------------------
Net income (loss)                       74       90      101       (1,455)  (1,438)    1,751       (1,379)      (13,690)   (15,946)
                                ---------------------------------------------------------------------------------------------------
Less:
  Accrued preferred stock dividends                                                                                  62         62
  Accretion of preferred stock
    to redemption amount                                                                                              8          8
                                ---------------------------------------------------------------------------------------------------
                                         -        -        -            -        -         -            -            70         70
                                ---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
  common stock                      $   74     $ 90   $  101      $(1,455) $(1,438)   $1,751      $(1,379)     $(13,760)  $(16,016)
                                ===================================================================================================
</TABLE>

         During the first six months of 1998, the Company reported a net loss of
$1.9  million  compared to a net loss of $16.0  million for the same period last
year. After certain non-cash charges  applicable to preferred stock, the Company
reported a net loss applicable to common stock of $7.4 million compared to a net
loss  applicable to common stock of $16.0 million during the first six months of
1997.  The loss  decreased by $8.6 million during the first six months of fiscal
1998 compared to the first six months of fiscal 1997  primarily due to (1) a 55%
increase in real estate  revenues in 1998 generating a $5.2 million gross margin
increase,  (2) a $2.3  million  increase  in other  income  in 1998,  (3) a $3.1
million reduction in selling

                                       12
<PAGE>

expenses,  other real estate  costs and general and  administrative  expenses in
1998 and (4) a $5.0  million  decrease  in  borrowing  costs in 1998,  partially
offset by a $5.4  million  increase in accrued  preferred  stock  dividends  and
accretion of preferred stock in 1998. As discussed  below,  the increase in real
estate revenues in 1998 was primarily due to $31.8 million of Tract sales in the
second quarter of 1998 consisting of a sale for $24.8 million of Dave's Creek, a
1,372 acre project near Atlanta,  Georgia ("Dave's  Creek"),  and a $7.0 million
sale of 0.9 acres of the 2.8-acre Riverwalk Tower.

CORE BUSINESS

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

                  CORE HOMESITE SALES.  Net income from Homesite  sales improved
$2.0 million in the first six months of 1998 compared to the first six months of
1997 primarily due to a $2.3 million increase in other income.

                  Revenues from  Homesite  sales  decreased  $3.3 million in the
first six months of 1998 compared to the first six months of 1997  primarily due
to a $4.5 million sale in June 1997 of the remaining 102 lots in Windsor  Palms,
partially  offset  by a $1.8  million  increase  in sales in West  Meadows.  The
following table summarizes Homesite sales activity for the six months ended June
30 (in thousands of dollars):

                               1998                           1997
                   -----------------------------  ------------------------------
                    Number             Average     Number              Average
                   of Lots  Revenue  Sales Price  of Lots   Revenue  Sales Price
                   -------  -------  -----------  -------   -------  -----------
West Meadows         147    $3,138      $21.3        41     $1,291     $31.5
Lakeside Estates      72     1,521       21.1       103      2,091      20.3
Saxon Woods           15       377       25.1         -          -         -
Windsor Palms          -         -          -       102      4,514      44.3
Sabal Trace            3       111       37.0         8        300      37.5
Sanctuary              -         -          -        16        272      17.0
                     ---    ------      -----       ---     ------     -----
                     237    $5,147      $21.7       270     $8,468     $31.4
                     ===    ======      =====       ====    ======     =====

                  The average sales price in West Meadows decreased in the first
six months of 1998  compared  to the first six months of 1997 due to a bulk sale
of 82 lots for $840,000 in the first quarter of 1998.

                  Other operating  revenues  included  $296,000 in the first six
months  of 1998  and  $79,000  in the  first  six  months  of 1997  representing
management  fees earned in  connection  with the Sunset Lakes JV Project.  Other
operating  revenues  in the first six  months of 1997 also  included  a $322,000
management  fee from the Country Lakes JV Project.  The Country Lakes JV Project
sold 740 Homesites for $9.5 million during the first six months of 1997.

                  Other  income of $1.7  million in the first six months of 1998
included  $523,000 of income from the Company's 65% interest in profits from the
Sunset Lakes JV Project,  net of $664,000 of  amortization  relative to interest
capitalized on the Company's equity  investment.  During the first six months of
1998,  the  Sunset  Lakes JV  Project  sold 187  Homesites  and a 29-acre  tract
designed for 255  multi-family  units for  approximately  $15.5  million.  Other
income in the first six months of 1998 also  included  net gains  totaling  $1.1
million on assignments of real estate  purchase  agreements for two  residential
projects located in the Orlando, Florida area.

                                       13
<PAGE>
                  As  of  June  30,  1998,   the  Company  had  under   contract
approximately  (1)  938  Homesites  for  approximately  $25.3  million  with  14
homebuilders in Lakeside  Estates,  West Meadows,  The Trails of West Frisco and
Saxon Woods and (2) 975 JV Project  Homesites  for  approximately  $45.4 million
with 8 homebuilders  in Sunset Lakes and Falcon Trace.  As of June 30, 1997, the
Company had under contract  approximately 344 Homesites for  approximately  $6.3
million in Lakeside Estates, West Meadows and Sanctuary.

                  The Homesite  sales gross margin  percentage  was 14.4% in the
first six  months  of 1998  compared  to 5.1% in the  first six  months of 1997.
Although the gross margin  percentage  increased in the first six months of 1998
compared to the first six months of 1997,  it is lower than the  targeted  gross
margin  of  approximately  20% for  this  line of  business  principally  due to
reductions in the gross margin percentages at Lakeside Estates and West Meadows.
These  reductions are due to increases in the estimated  costs to complete these
projects.  The  Company  anticipates  that the impact of these  reductions  will
decrease on a relative basis as more Homesite projects come on line during 1998.
The lower  than  targeted  gross  margin  in the  first  six  months of 1997 was
principally  attributable  to the sale of the final 102  Windsor  Palms lots for
$4.5 million, generating a negative 10% gross margin. This sale was necessitated
by the Company's need for liquidity to meet a June 30, 1997 debt payment.

                  Homesite selling expense  increased  $245,000 in the first six
months of 1998 (despite a decrease in revenues) compared to the first six months
of 1997 primarily due to presales  advertising  and marketing  costs  associated
with the West Bay Club project.

                  CORE TRACT SALES.  Net income from Tract sales  increased $5.7
million in the first six months of 1998 compared to the first six months of 1997
due to an increase in Tract sales revenues.

                  Tract sales revenues  increased $31.5 million in the first six
months of 1998  compared  to the first six months of 1997 due to two large Tract
sales in 1998. In April 1998, the Company sold and closed Dave's Creek for $24.8
million.  Additional  sales  proceeds  of $2.5  million are being held in escrow
pending  the  acquisition  by the  Company of an Army Corp of  Engineers  permit
which,  if received,  will  increase the total  revenues from this sale to $27.3
million. The 6.6% gross margin on this sale will increase to approximately 15.2%
upon the receipt of the additional  $2.5 million of proceeds.  In June 1998, the
Company  sold for $7.0 million a 0.9 acre  office/hotel  parcel which is part of
the 2.8-acre  Riverwalk  Tower  project.  This sale  generated a gross margin of
70.4%.  The balance of the  Riverwalk  Tower  project is being  developed by the
Company as a luxury high-rise apartment tower.

                  As of June 30,  1998,  the  Company's  JV Projects had pending
Tract sales contracts of approximately $3.5 million.

                  Tract sales selling  expense  increased  $784,000 in the first
six months of 1998  compared  to the first six  months of 1997 due to  increased
sales activities.

                  CORE  RESIDENTIAL  SALES.  Net  operating  results  from  Core
Residential sales decreased $347,000 in the first six months of 1998 compared to
the first six months 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

                                       14
<PAGE>
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.

                  The following table summarizes  Residential sales activity for
the six months ended June 30 (in thousands of dollars):

                                                    1998        1997
                                                   ------      ------
            Condominium sales - Regency Island:
               First Building                      $    -      $1,310
               Second Building                          -       7,885
                                                   ------      ------
            Total condominium sales                $    -      $9,195
                                                   ======      ======

                  The revenues and profits  associated  with Regency Island were
recorded using the percentage of completion method. The project consisted of two
72-unit  buildings,  all of which were sold and closed as of December  31, 1997.
The revenues of $1.3 million from the first  building in the first six months of
1997  represented  revenue earned from the closing of four units. As of June 30,
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  $7.9 million in the second
building  in the first six months of 1997  resulted  from (1) an increase in the
completion  percentage  from  79% to  100%  as of  June  30,  1997,  and  (2) 12
additional  units  sold  during  the first six  months of 1997 for a total of 68
units sold in the second  building as of June 30, 1997.  As of June 30, 1997, 24
of the 72 units in the second building had closed.

                  The gross margin for  Residential - condominiums  sales in the
first six  months  of 1997 was 9.6%.  The final  overall  gross  margin  for the
Regency Island project was 12.1%.

                  Residential selling expense and real estate overhead decreased
from a total of  $377,000 in the first six months of 1997 to $0 in the first six
months of 1998 due to the close out of Regency Island in 1997.

                  Residential other expenses of $246,000 in the first six months
of 1998 and $405,000 in the first six months of 1997  constitute  the  Company's
share of the net  loss  from 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  $938,000 in the first six months of 1998
compared  to the  first  six  months  of 1997  primarily  due to a $1.3  million
decrease in selling expenses.

                                       15
<PAGE>
                  Revenues  from  Predecessor   Homesite  sales  decreased  $1.7
million in the first six months of 1998 compared to the first six months of 1997
due to (1) a 34% decrease in the number of Predecessor  Homesites sold and (2) a
17% decrease in the average  sales price for  Predecessor  Homesites  sold.  The
following  table  summarizes  Predecessor  Homesite  sales  activity for the six
months ended June 30 (in thousands of dollars):

                                1998                             1997
                 --------------------------------  -----------------------------
                  Number              Average      Number              Average
                 of Lots   Revenue  Sales Price    of Lots  Revenue  Sales Price
                 -------   -------  -------------  -------  -------  -----------
Scattered sales    194     $  908      $4.7          366     $2,158     $ 5.9
Bulk sales         382      1,023       2.7          506      1,456       2.9
                   ---     ------      ----          ---     ------     -----
                   576     $1,931      $3.4          872     $3,614     $ 4.1
                   ===     ======      ====          ===     ======     =====

                  Revenues from Predecessor  Homesite  scattered sales decreased
in the  first  six  months of 1998  compared  to the  first  six  months of 1997
primarily due to a $657,000 decrease in sales in the Company's  Cumberland Cove,
Tennessee,  project  ("Cumberland  Cove").  Sales in  Cumberland  Cove  declined
because the project began winding down during 1997,  and the Company  closed its
on-site sales office in September  1997.  The decline in the average sales price
of Predecessor  Homesite  scattered sales is principally due to the reduction in
sales in Cumberland  Cove,  the Company's  highest priced  Predecessor  Homesite
product. Bulk sales of Predecessor Homesites declined due to a decrease in sales
volume.

                  As  of  June  30,  1998,   the  Company  had  under   contract
approximately  81 Predecessor  Homesites for $507,000.  As of June 30, 1997, the
Company  had  under  contract  2,768  Predecessor  Homesites  for $5.9  million.
Predecessor  Homesite  sales  often  vary  significantly  from  period to period
depending on the timing and size of bulk sales.

                  The  Predecessor  Homesite  sales gross margin  percentage was
9.0% in the first six months of 1998  compared  to 10.9% in the first six months
of 1997.

                  Predecessor Homesite selling expense decreased $1.3 million or
74.1% in the first six months of 1998  compared  to the first six months of 1997
due to (1) a $755,000 reduction in indirect selling costs at Cumberland Cove due
to the closing of the on-site  sales  operation  in  September  1997 and (2) the
decrease in  revenues.  Predecessor  Homesite  selling  expense  decreased  as a
percentage of revenue from 46.7% in the first six months of 1997 to 22.6% in the
first six months of 1998  primarily  due to the  reduction  in indirect  selling
costs at Cumberland Cove.

                  PREDECESSOR  TRACT SALES. The net loss from Predecessor  Tract
sales was similar  during the first six months of 1998 compared to the first six
months of 1997.

                  Revenues from  Predecessor  Tract sales increased $1.6 million
in the first six months of 1998 compared to the first six months of 1997.  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
June 30, 1998, there were pending  Predecessor  Tract sales contracts or letters
of intent  totaling  approximately  $8.0  million,  which,  subject  to  certain
contingencies, are anticipated to close in 1998. As of June 30, 1997, there were
pending  Predecessor  Tract  sales  contracts  or  letters  of  intent  totaling
approximately $15.5 million.

                                       16
<PAGE>
                  The following table summarizes  Predecessor  Tract sales gross
margins for the six months ended June 30:

                                             1998                   1997
                                    ---------------------   -------------------
                                    Targeted      Actual    Targeted    Actual
                                     Margins      Margins    Margins    Margins
                                    --------     -------    -------     -------
 Port LaBelle agricultural acreage     0%          2.2%          0%      (5.2)%
 Other Predecessor Tract acreage       0%          3.7%       5-10%      10.7%

                  The  targeted  gross  margin  is break  even for Port  LaBelle
agricultural acreage because management determined 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 six months of 1998,
the  Company  sold  10,250  acres  of Port  LaBelle  agricultural  property  for
approximately  $9.9 million.  As of June 30, 1998, the Company had approximately
4,700 acres of Port LaBelle agricultural property remaining in inventory.

                  The targeted gross margin for other  Predecessor Tract acreage
was reduced to break even in 1998 in accordance with 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 selling expense  decreased  $306,000 in the
first six months of 1998  compared to the first six months of 1997 and decreased
as a percentage  of revenues  from 13.3% in the first six months of 1997 to 9.5%
in the first six months of 1998  primarily  because of a  decrease  in  indirect
selling expenses  resulting from the  discontinuation  of the Company's in-house
sales operation in January 1998.

                  Predecessor  Tract sales other real estate overhead  decreased
$377,000, a 54% decrease,  in the first six months of 1998 compared to the first
six  months  of  1997  primarily  due to the  discontinuation  of the  Company's
in-house sales operation in January 1998.

OTHER OPERATIONS

         Net income  from other  operations  declined  $240,000 in the first six
months  of 1998  compared  to the first six  months of 1997  primarily  due to a
$664,000 decline in interest income,  partially offset by a $337,000 decrease in
other real estate overhead.

         Other  operations  interest income  declined  $664,000 in the first six
months of 1998  compared  to the first six  months of 1997 due to lower  average
balances  of  Predecessor  Homesite  Contracts  Receivable  and  land  mortgages
receivable in 1998.

         Other  operations other real estate overhead  declined  $337,000 in the
first six  months of 1998  compared  to the first six  months of 1997 due to the
Company closing its offices in its Predecessor communities in December 1997.

         Other income - reorganization items of $534,000 in the first six months
of 1998 and  $532,000  in the first six months of 1997  relate to the  Company's
utility connections reserve.

                                       17
<PAGE>
BUSINESS DEVELOPMENT

         Total business development expenditures decreased $687,000 in the first
six months of 1998  compared to the first six months of 1997  primarily due to a
decline in costs  associated with (1) the pursuit of business  opportunities  in
Primary Markets and (2) the discontinuation of certain projects in 1997.

ADMINISTRATIVE & OTHER

         The  net  loss  from  administrative  and  other  activities  decreased
$353,000  in the first six  months of 1998  compared  to the first six months of
1997 principally due to a $5.7 million  decrease in borrowing  costs,  partially
offset by a $5.4  million  increase in accrued  preferred  stock  dividends  and
accretion of preferred stock.

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

         Property tax, net of capitalized property taxes, decreased in the first
six months of 1998  compared to the first six months 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 declined $614,000 in the first six
months  of 1998  compared  to the  first six  months  of 1997  primarily  due to
declines in personnel and legal expenses.

         Cost of borrowing, net of capitalized interest,  decreased $5.0 million
in the  first  six  months of 1998  compared  to the  first  six  months of 1997
primarily due to a $37.0 million decrease in the average  outstanding balance of
corporate debt and a $1.4 million  decrease in debt issue costs.  During the six
months ended June 30, 1998 and 1997, the Company did not accrue  interest on its
Cash Flow Notes (see  LIQUIDITY  AND  CAPITAL  RESOURCES  below)  because of the
absence of Available Cash (see LIQUIDITY AND CAPITAL RESOURCES below) during the
periods.

         Other income -  reorganization  items consisted of gains of $248,000 in
the first six  months of 1998 and $1.3  million  in the first six months of 1997
resulting from the resolution of certain  reorganization  items.

         Other  expense -  miscellaneous  of $216,000 in the first six months of
1998 and $265,000 in the first six months of 1997  consisted of various  reserve
adjustments and settlements.

         During the six months ended June 30, 1998, the Company  recorded a $4.9
million accrual for preferred  stock dividends  associated with its Series A and
Series B Preferred Stock ("the Preferred Stock").  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 in the First Quarter 1998 Form 10-Q
for more information  concerning the 1997 Equity Transactions.  In addition, the
Company accreted  $654,000 of the value of its Preferred Stock to the redemption
amount in the first six months of 1998. The total of approximately  $5.5 million
of accrued  Preferred  Stock dividends and Preferred Stock accretion was charged
to contributed capital.

                                       18
<PAGE>
           COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997

         The  comparison of the three months ended June 30, 1998 and 1997 should
be read in conjunction with the comparison of the six months ended June 30, 1998
and 1997 for a more comprehensive  discussion of the results of operations.  The
Company's  results of  operations  for the three  months ended June 30, 1998 and
1997 are summarized by line of business, as follows:

<TABLE>
<CAPTION>
                                         COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                  Three Months Ended June 30, 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                 $2,612  $31,780    $           $1,035  $8,476     $              $           $          $43,903
  Other operating revenues             128                                               536                                    664
  Interest income                       75                                               718                         359      1,152
  Other income                       1,581                                                                                    1,581
                                 ---------------------------------------------------------------------------------------------------
Total revenues                       4,396   31,780        -        1,035   8,476      1,254             -           359     47,300
                                 ---------------------------------------------------------------------------------------------------
Costs and expenses:
  Cost of real estate sales          2,260   25,203                   898   8,145                                            36,506
  Selling expense                      388      757                   257     566                                             1,968
  Other operating expense                                                                464                                    464
  Other real estate costs:           
     Property tax, net                                                                                               830        830
     Other real estate overhead        272                            141     116          9           472           437      1,447
  General and administrative expense                                                                               2,203      2,203
  Depreciation                           4                              7      18         21                         118        168
  Cost of borrowing, net                                                                 523                       1,126      1,649
  Other expense                        109               131                                                                    240
                                 ---------------------------------------------------------------------------------------------------
Total costs and expenses             3,033   25,960      131        1,303   8,845      1,017           472         4,714     45,475
                                 ---------------------------------------------------------------------------------------------------
Operating income (loss)              1,363    5,820     (131)        (268)   (369)       237          (472)       (4,355)     1,825
                                 ---------------------------------------------------------------------------------------------------

Other income (expense):
  Reorganization items                                                                   268                                    268
  Miscellaneous                                                                                                      (27)       (27)
                                 ---------------------------------------------------------------------------------------------------
Total other income (expense)             -        -        -            -       -        268             -           (27)       241
                                 ---------------------------------------------------------------------------------------------------
Net income (loss)                    1,363    5,820     (131)        (268)   (369)       505          (472)       (4,382)     2,066
                                 ---------------------------------------------------------------------------------------------------
Less:                      
  Accrued preferred stock  dividends                                                                               2,531      2,531
  Accretion of preferred stock to
    redemption amount                                                                                                336        336
                                 ---------------------------------------------------------------------------------------------------
                                         -        -        -            -       -         -              -         2,867      2,867
                                 ---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
  common stock                      $1,363  $ 5,820    $(131)      $ (268) $ (369)    $  505         $(472)      $(7,249)   $  (801)
                                 ===================================================================================================
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>

                                         COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS

                                                  Three Months Ended June 30, 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                 $6,999    $590   $ 2,201       $2,533   $5,452    $              $            $         $17,775
  Other operating revenues             391                                               461                                    852
  Interest income                      121                                             1,308                          316     1,745
                                 ---------------------------------------------------------------------------------------------------
Total revenues                       7,511     590     2,201        2,533    5,452     1,769             -            316    20,372
                                 ---------------------------------------------------------------------------------------------------
Costs and expenses:
  Cost of real estate sales          6,878     484     3,082        2,390    5,054                                           17,888
  Selling expense                      251      16      (168)         954      812                      24                    1,889
  Other operating expense                                                                298                                    298
  Other real estate costs:           
     Property tax, net                                                                                                820       820
     Other real estate overhead        319               115          (32)     355       160           690            469     2,076
  General and administrative expense                                                                                2,456     2,456
  Depreciation                           2                              1       16        33                          117       169
  Cost of borrowing, net                                                                 642                        4,057     4,699
  Other expense                         (6)              293                                                                    287
                                 ---------------------------------------------------------------------------------------------------
Total costs and expenses             7,444     500     3,322        3,313    6,237     1,133           714          7,919    30,582
                                 ---------------------------------------------------------------------------------------------------
Operating income (loss)                 67      90    (1,121)        (780)    (785)      636          (714)        (7,603)  (10,210)
                                 ---------------------------------------------------------------------------------------------------
Other income (expense):
  Reorganization items                                                                   265                        1,100     1,365
  Miscellaneous                                                                                                       175       175
                                 ---------------------------------------------------------------------------------------------------
Total other income (expense)             -       -         -            -        -       265             -          1,275     1,540
                                 ---------------------------------------------------------------------------------------------------
Net income (loss)                       67      90    (1,121)        (780)    (785)      901          (714)        (6,328)   (8,670)
                                 ---------------------------------------------------------------------------------------------------
Less:
  Accrued preferred stock dividends                                                                                    62        62
  Accretion of preferred stock
    to redemption amount                                                                                                8         8
                                 ---------------------------------------------------------------------------------------------------
                                         -       -         -            -        -         -             -             70        70
                                 ---------------------------------------------------------------------------------------------------
Net income (loss) applicable to
  common stock                      $   67    $ 90   $(1,121)      $ (780)  $ (785)   $  901         $(714)       $(6,398)  $(8,740)
                                 ===================================================================================================
</TABLE>

         During the second quarter of 1998,  the Company  reported net income of
$2.1  million  compared  to a net loss of $8.7  million for the same period last
year. After certain non-cash charges  applicable to preferred stock, the Company
reported a net loss applicable to common stock of $0.8 million compared to a net
loss  applicable  to common stock of $8.7 million  during the second  quarter of
1997.  The loss  decreased  by $7.9  million  during the second  quarter of 1998
compared to the second  quarter of 1997  primarily due to (1) a 147% increase in
real estate  revenues  generating a $7.5 million gross margin  increase in 1998,
(2) a $2.2 million

                                       20
<PAGE>
increase  in  other  income  during  1998  and (3) a $2.4  million  decrease  in
borrowing costs in 1998,  partially offset by a $2.8 million increase in accrued
preferred stock dividends and accretion of preferred  stock. As discussed below,
the increase in real estate revenues in the second quarter of 1998 was primarily
due to $31.8 million of Tract sales in the second quarter of 1998, consisting of
the sale of  Dave's  Creek  for $24.8  million  sale of Dave's  Creek and a $7.0
million sale of 0.9 acres of the 2.8-acre Riverwalk Tower project.

CORE BUSINESS

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

                  CORE HOMESITE  SALES.  Net income from Homesite sales improved
$2.0  million in the second  quarter of 1998  compared to the second  quarter of
1997 primarily due to a $2.2 million increase in other income.

                  Revenues from  Homesite  sales  decreased  $4.4 million in the
second quarter of 1998 compared to the second quarter of 1997 primarily due to a
$4.5 million sale in June 1997 of the remaining 102 lots in Windsor  Palms.  The
following  table  summarizes  Homesite sales activity for the three months ended
June 30 (in thousands of dollars):

                                1998                             1997
                 --------------------------------  -----------------------------
                  Number               Average     Number              Average
                 of Lots   Revenue   Sales Price   of Lots  Revenue  Sales Price
                 -------   -------  -------------  -------  -------  -----------
West Meadows        43      $1,452     $33.8          32     $1,051     $32.8
Lakeside Estates    32         672      21.0          54      1,106      20.5
Saxon Woods         15         377      25.1           -          -         -
Windsor Palms        -           -         -         102      4,514      44.3
Sabal Trace          3         111      37.0           3        124      41.3
Sanctuary            -           -         -          12        204      17.0
                    --      ------     -----         ---     ------     -----
                    93      $2,612     $28.1         203     $6,999     $34.5
                    ==      ======     =====         ===     ======     =====

                  Other  operating  revenues  included  $128,000  in the  second
quarter  of  1998  and  $69,000  in the  second  quarter  of  1997  representing
management  fees earned in  connection  with the Sunset Lakes JV Project.  Other
operating  revenues  in the  second  quarter  of 1997 also  included  a $322,000
management  fee from the Country Lakes JV Project.  The Country Lakes JV Project
sold 740 Homesites for $9.5 million during the second quarter of 1997.

                  Other  income of $1.6  million in the  second  quarter of 1998
included  $697,000 of income  from the  Company's  65%  profits  interest in the
Sunset Lakes JV Project,  net of $664,000 of  amortization  relative to interest
capitalized  on the Company's  equity  investment.  During the second quarter of
1998 the Sunset Lakes JV Project sold 187 Homesites and a 29-acre tract designed
for 255 multi-family units for approximately $15.5 million.  Other income in the
second quarter of 1998 also included a $0.9 million net gain on an assignment of
a real  estate  purchase  agreement  for a  residential  project  located in the
Orlando, Florida area.

                  The Homesite  sales gross margin  percentage  was 13.5% in the
second quarter of 1998 compared to 1.7% in the second quarter of 1997.  Although
the gross margin percentage  increased in the second quarter of 1998 compared to
the  second  quarter  of 1997,  it is lower than the  targeted  gross  margin of
approximately  20% for this line of business  principally due to a reductions in
the gross  margin  percentages  at  Lakeside  Estates  and West  Meadows.  These
reductions  are due to  increases  in the  estimated  costs  to  complete  these
projects.  The  Company  anticipates  that the impact of these  reductions  will
decrease on a

                                       21
<PAGE>
relative  basis as more Homesite  projects  come on line during 1998.  The lower
than  targeted  gross  margin  in the  second  quarter  of 1997 was  principally
attributable  to the sale of the final 102 Windsor  Palms lots for $4.5 million,
generating  a  negative  10% gross  margin.  This sale was  necessitated  by the
Company's need for liquidity to meet a June 30, 1997 debt payment.

                  Homesite  selling  expense  increased  $137,000  in the second
quarter of 1998  (despite a decrease  in  revenues)  primarily  due to  presales
advertising and marketing costs associated with the West Bay Club project.

                  CORE TRACT SALES.  Net income from Tract sales  increased $5.7
million in the second quarter of 1998 compared to the second quarter of 1997 due
to an increase in Tract sales revenues.

                  Tract sales  revenues  increased  $31.2  million in the second
quarter of 1998  compared  to the second  quarter of 1997 due to two large Tract
sales in the second  quarter of 1998. In April 1998, the Company sold and closed
Dave's Creek for $24.8  million.  Additional  sales proceeds of $2.5 million are
being held in escrow  pending the  acquisition by the Company of an Army Corp of
Engineers permit which, if received,  will increase the total revenues from this
sale to $27.3  million.  The 6.6%  gross  margin on this sale will  increase  to
approximately 15.2% upon the receipt of the additional $2.5 million of proceeds.
In June 1998, the Company sold for $7.0 million a 0.9 acre  office/hotel  parcel
which is part of the 2.8-acre  Riverwalk  Tower  project.  This sale generated a
gross  margin of 70.4%.  The  balance of the  Riverwalk  Tower  project is being
developed by the Company as a luxury high-rise apartment tower.

                  Tract sales selling expense  increased  $741,000 in the second
quarter of 1998  compared to the second  quarter of 1997 due to the  increase in
revenues.

                  CORE RESIDENTIAL SALES. Net operating results from Residential
sales  improved  $990,000 in the second  quarter of 1998  compared to the second
quarter  of 1997  due to  adjustments  made  in the  second  quarter  of 1997 to
increase the estimated costs associated with Regency Island.

                  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,  all of which were sold and closed as of December 31,
1997. The revenues of $2.2 million in the second quarter of 1997 were associated
with the second  building and were  derived  from an increase in the  completion
percentage  during the quarter  from 96% as of March 31, 1997 to 100% as of June
30, 1997, and to an additional four units sold during the second quarter of 1997
for a total of 68 units  under  contract  in the second  building as of June 30,
1997.

                  The gross margin for  Residential - condominiums in the second
quarter of 1997 was negative due to  adjustments  made in the second  quarter of
1997 to increase the estimated costs associated with Regency Island.

                  Residential  selling  expenses and real estate  overhead costs
were $0 in the second  quarter of 1998 due to the close out of Regency Island in
1997.  Residential  selling expenses were negative in the second quarter of 1997
primarily due to an adjustment to reduce incentive expenses.

                  Residential  sales  other  expenses  of $131,000 in the second
quarter of 1998 and  $293,000  in the  second  quarter  of 1997  constitute  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.

                                       22
<PAGE>
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  $512,000  in the second  quarter of 1998
compared to the second quarter of 1997  primarily due to a $697,000  decrease in
selling expenses.

                  Revenues  from  Predecessor   Homesite  sales  decreased  $1.5
million in the second quarter of 1998 compared to the second quarter of 1997 due
to (1) a 39% decrease in the number of Predecessor  Homesites sold and (2) a 33%
decrease  in the  average  sales  price  for  Predecessor  Homesites  sold.  The
following  table  summarizes  Predecessor  Homesite sales activity for the three
months ended June 30 (in thousands of dollars):

                                1998                             1997
                 --------------------------------  -----------------------------
                  Number              Average      Number              Average
                 of Lots   Revenue  Sales Price    of Lots  Revenue  Sales Price
                 -------   -------  -----------    -------  -------  -----------
Scattered sales    127     $  561      $4.4          231     $1,382      $6.0
Bulk sales         300        474       1.6          464      1,151       2.5
                   ---     ------      ----          ---     ------      ----
                   427     $1,035      $2.4          695     $2,533      $3.6
                   ===     ======      ====          ===     ======      ====

                  Revenues from Predecessor  Homesite  scattered sales decreased
in the second  quarter of 1998 compared to the second  quarter of 1997 primarily
due to a $409,000  decrease in sales in the Company's  Cumberland  Cove project.
Sales in Cumberland Cove decreased because the project began winding down during
1997, and the Company closed its on-site sales  operation in September 1997. The
decline in the average sales price of Predecessor  Homesite  scattered  sales is
principally  due to the  reduction in sales in  Cumberland  Cove,  the Company's
highest priced Predecessor Homesite product. Bulk sales of Predecessor Homesites
declined primarily due to a decrease in sales volume.

                  The  Predecessor   Homesite  sales  gross  margin   percentage
increased from 5.6% in the second quarter of 1997 to 13.2% in the second quarter
of 1998 primarily due to a bulk sale for $259,000 which had a 26% gross margin.

                  Predecessor  Homesite  selling expense  decreased  $697,000 or
73.1% in the second  quarter of 1998 compared to the second  quarter of 1997 due
to (1) a $321,000  reduction in indirect selling costs at Cumberland Cove due to
the  closing  of the  on-site  sales  operation  in  September  1997 and (2) the
decrease  in  revenues.   Predecessor  Homesite  selling  expense  decreased  as
percentage  of revenue from 37.7% in the second  quarter of 1997 to 24.8% in the
second quarter of 1998 primarily due to the reduction in indirect  selling costs
at Cumberland Cove.

                  Predecessor  Homesite other real estate overhead  increased in
the second  quarter of 1998 compared to the second quarter of 1997 primarily due
to  adjustments  made in the  second  quarter of 1997 to costs  associated  with
selling and maintaining Predecessor Assets.

                  PREDECESSOR  TRACT SALES. The net loss from Predecessor  Tract
sales  decreased  $416,000 in the second  quarter of 1998 compared to the second
quarter of 1997  primarily due to a decrease in selling  expenses and other real
estate overhead.

                                       23
<PAGE>
                  Revenues from  Predecessor  Tract sales increased $3.0 million
in the second  quarter of 1998  compared  to the second  quarter of 1997.  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
June 30, 1998, there were pending  Predecessor  Tract sales contracts or letters
of intent  totaling  approximately  $8.0  million,  which,  subject  to  certain
contingencies, are anticipated to close in 1998. As of June 30, 1997, there were
pending  Predecessor  Tract  sales  contracts  or  letters  of  intent  totaling
approximately $15.5 million.

                  The following table summarizes  Predecessor  Tract sales gross
margins for the three months ended June 30:

<TABLE>
<CAPTION>
                                                    1998                        1997
                                          -----------------------      ----------------------
                                           Targeted      Actual         Targeted      Actual
                                            Margins      Margins         Margins      Margins
                                          ----------    ---------      -----------    -------
<S>                                            <C>        <C>            <C>           <C>
    Port LaBelle agricultural acreage          0%          2.6%             0%           -
    Other Predecessor Tract acreage            0%         30.4%          5-10%         7.3%
</TABLE>

                  During the  second  quarter of 1998,  the  Company  sold 8,364
acres of Port  LaBelle  agricultural  property  for  approximately  $8.1 million
generating  a gross  margin of 2.6% which is slightly  higher than the  targeted
gross margin.

                  The targeted gross margin for other  Predecessor Tract acreage
was reduced to break even in 1998 in accordance with the Company's business plan
to accelerate  the  liquidation of  Predecessor  Assets.  The 30.4% actual gross
margin for other  Predecessor  Tract acreage in 1998 was generated from $388,000
of sales and is not indicative of anticipated  gross margins in the future.  The
actual gross margin for other  Predecessor  Tract acreage in 1997 was within the
targeted gross margin.

                  Predecessor  Tract selling expense  decreased  $246,000 in the
second quarter of 1998 compared to the second quarter of 1997 and decreased as a
percentage of revenues  from 14.9% in the second  quarter of 1997 to 6.7% in the
second  quarter of 1998  primarily  to a decrease in indirect  selling  expenses
resulting from the  discontinuation of the Company's in-house sales operation in
January 1998.

                  Predecessor  Tract sales other real estate overhead  decreased
$239,000,  a 67% decrease,  in the second quarter of 1998 compared to the second
quarter of 1997 primarily due to the  discontinuation  of the Company's in-house
sales operation in January 1998.

OTHER OPERATIONS

         Net  income  from  other  operations  declined  $396,000  in the second
quarter of 1998  compared  to the  second  quarter  of 1997  primarily  due to a
$590,000 decline in interest income,  partially offset by a $151,000 decrease in
other real estate overhead.

         Other  operations  interest  income  declined  $590,000  in the  second
quarter  of 1998  compared  to the second  quarter of 1997 due to lower  average
balances  of  Predecessor  Homesite  Contracts  Receivable  and  land  mortgages
receivable in 1998.

                                       24
<PAGE>
         Other  operations other real estate overhead  declined  $151,000 in the
second quarter of 1998 compared to the second quarter of 1997 due to the Company
closing its offices in its Predecessor communities in December 1997.

         Other income -  reorganization  items of $268,000 in the second quarter
of 1998 and $265,000 in the second quarter of 1997 relate to the amortization of
the Company's utility connections reserve.

BUSINESS DEVELOPMENT

         Total  business  development  expenditures  decreased  $242,000  in the
second quarter of 1998 compared to the second quarter of 1997 primarily due to a
decrease  in costs  associated  with the pursuit of  business  opportunities  in
Primary Markets.

ADMINISTRATIVE & OTHER

         The net loss from  administrative  and other activities  increased $1.5
million in the second  quarter of 1998  compared  to the second  quarter of 1997
principally due to a $2.8 million increase in accrued  preferred stock dividends
and accretion of preferred  stock and a $1.1 million  decrease in other income -
reorganization  items,  partially offset by a $2.3 million decrease in borrowing
costs.

         General and  administrative  expenses  declined  $253,000 in the second
quarter of 1998  compared  to the  second  quarter  of 1997  primarily  due to a
decrease in personnel related expenses.

         Cost of borrowing, net of capitalized interest,  decreased $2.9 million
in the second  quarter of 1998 compared to the second  quarter of 1997 primarily
due to a $34.0 million decrease in the average  outstanding balance of corporate
debt and a $1.0 million  decrease in debt issue  costs.  During the three months
ended June 30, 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 of $1.1  million  in the  second
quarter of 1997  consisted of gains  resulting  from the  resolution  of certain
reorganization items.

         Other expense - miscellaneous  of $27,000 in the second quarter of 1998
and other  income -  miscellaneous  of  $175,000  in the second  quarter of 1997
consisted of various reserve adjustments and settlements.

         During the three  months ended June 30,  1998,  the Company  recorded a
$2.5 million accrual for preferred stock dividends associated with its Preferred
Stock. In addition,  the Company accreted $336,000 of the value of its Preferred
Stock to the redemption amount in the second quarter of 1998.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1998,  the Company's cash and cash  equivalents  totaled
approximately  $3.0  million.  The  Company  also had  restricted  cash and cash
equivalents of $0.9 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 $6.2 during the first six months of 1998. The decrease
consists of (a) $7.9 million provided by operating activities,  (b) $1.3 million
used in investing activities and (c) $12.8 million used in financing activities.

         Cash  provided by operating  activities  during the first six months of
1998  consisted  of net cash  generated  through  real  estate  sales  and other
operations offset in part by various  expenditures  including

                                       25
<PAGE>
approximately  (1) $4.4  million for  interest  payments,  (2) $4.3  million for
property  tax  payments,  (3) $14.1  million for  construction  and  development
expenditures and (4) $22.1 million for land acquisitions.

         Cash  used in  financing  activities  included  (1)  $13.3  million  of
principal  payments that fully repaid the Company's  term loan (the "Term Loan")
with  Foothill  Capital  Corporation  ("Foothill"),  (2)  $7.6  million  of  net
principal  payments that fully repaid the Company's reducing revolving loan (the
"Reducing  Revolving Loan") with Foothill and (3) net principal payments of $3.0
million  associated with the financings of mortgage  receivables and Predecessor
Homesite  Contract  Receivables.  These  payments were  partially  offset by (a)
borrowings  of $2.3  under the  Company's  working  capital  facility  ("Working
Capital  Facility")  with Foothill,  (b) net borrowings of $7.1 million from new
project  financings  and (c)  approximately  $1.7  million of proceeds  from the
issuance of Series A Preferred Stock and related warrants.

         On June 26, 1998,  the Company  repaid the entire  remaining  principal
balance of $3,686,648 under its Reducing  Revolving Facility with funds drawn on
its Working Capital Facility.

         On June 30, 1998,  the Company  repaid the entire  remaining  principal
balance of $13,333,333 under its Term Loan with (i) $2,333,333 of funds drawn on
its Working Capital Facility and (ii) $11,000,000 of funds borrowed from AGC-SP,
Inc., a wholly-owned  special purpose  subsidiary of the Company ("AP Sub") (the
"SP Sub Loan," which is described below).

         On July 1,  1998,  the  Company  paid with funds  drawn on its  Working
Capital Facility (1) $35,181 of interest accrued on its Reducing  Revolving Loan
through June 26, 1998 and (2)  $171,111.24 of interest  accrued on its Term Loan
through June 30, 1998.

         The Reducing  Revolving Loan  terminated on June 26, 1998, and the Term
Loan terminated on June 30, 1998.

         On June 30, 1998,  the Company and  Foothill  entered into that certain
Third Amendment to Second Amended and Restated Revolving Loan Agreement Atlantic
Gulf Communities Corporation (the "Third Amendment"), pursuant to which Foothill
agreed to (1)  increase  the Working  Capital  Facility  from $20 million to $25
million,  (2)  permit  the  Company  to enter into the SP Sub Loan (see PART II.
OTHER  INFORMATION,  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K to this  Quarterly
Report on Form 10-Q for more  information  concerning the SP Sub Loan),  and (3)
modify the Borrowing  Base for the Working  Capital  Facility to limit it to $25
million through August 1,1998  (declining to $23 million in August,  $20 million
through September,  $17 million through October,  $12.5 million through November
and $0 on December 1, 1998,  coinciding with the scheduled  maturity date of the
facility.  The modification  also provided for accelerated  mandatory  Borrowing
Base  reductions  aggregating  $5  million  upon  certain  events  on or  before
September 30, 1998). 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. As of June 30, 1998, the Company had $22.3 million outstanding under the
Working Capital Facility.

         The Company's material debt repayment  obligations for the remainder of
1998 consist of (1) 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 (2) the balance of its 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 $101
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 monies to fund these
obligations and expenditures,  the implementation of the

                                       26
<PAGE>
Company's  business  plan will be  adversely  affected,  slowing  the  Company's
anticipated  revenue  growth  and  increasing  the  time  necessary  to  achieve
profitability.

         The Company does not currently have sufficient  liquid funds to satisfy
all of its 1998 Debt Obligations.  However,  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 its  1998  Debt  Obligations.
Management  anticipates  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 $15.7  million  in the first six months of
1998. As of June 30, 1998,  the Company had $8.6 million of  Predecessor  Assets
under  contract or letter of intent,  consisting  of $4.6  million cash and $4.0
million of  mortgage  notes.  The  transactions  under  contract  are subject to
customary closing conditions including,  in certain cases, financing conditions.
Transactions  subject to a letter of intent are  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 of 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 included in its First Quarter 1998
Form 10-Q, 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 SP Sub and its  subsidiaries.  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 Sub's capital stock and its assets, and (2) a senior
lien on SP Sub's capital stock and its assets. As discussed above, in June 1998,
with  Apollo's  consent,  the Company  and SP Sub entered  into the SP Sub Loan,
pursuant to which the Company borrowed $11.5 million from SP Sub to pay down the
Term Loan and Reducing  Revolving  Loan.  See the  discussion of the SP Sub Loan
above.

         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

                                       27
<PAGE>
on its 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.

         If there is no Available Cash on a payment date, the interest otherwise
payable  on the Cash  Flow  Notes  on such  date is  reduced  to $0 and does not
accrue.  Due to the  establishment  of reserves  against future  mandatory debt,
capital and operating  expenditures,  Available  Cash was $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 six months  ended June 30, 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.

YEAR 2000 COMPLIANCE

         Until  recently,  many computer  programs were written using two digits
rather than four digits to define the applicable year in the twentieth  century.
Such  software may  recognize a date using "00" as the year 1900 rather than the
year 2000. Utilizing both internal and external resources, the Company is in the
process of defining,  assessing and  converting or replacing  various  programs,
hardware  and  instrumentation  systems to make them Year 2000  compatible.  The
Company's   Year  2000  project  is  comprised  of  two  components  -  business
applications and equipment.  The business applications component consists of the
Company's  business  computer  systems,  as  well  as the  computer  systems  of
third-party  suppliers or customers,  whose Year 2000 problems could potentially
impact  the  Company.   Equipment  exposures  consist  of  computers,   personal
computers,  system  servers,  telephone  equipment  and other  related  computer
equipment  whose Year 2000 problems  could also impact the Company.  The cost of
the Year 2000  initiatives  is not  expected  to be  material  to the  Company's
results of operation  or  financial  position and is expected to be completed by
December 31, 1998.

PART II. -  OTHER INFORMATION

Item 4.     Submission of Matters to a Vote of Security Holders
            ---------------------------------------------------

(1)      THE 1998 ANNUAL STOCKHOLDERS MEETING (THE "MEETING")

         The Meeting was held on Wednesday,  June 24, 1998.  The Company did not
complete  all of its  business at the Meeting and  adjourned  the meeting  until
Thursday,  July 2, 1998, at which time the Meeting  reconvened and all remaining
matters were completed.

         As of the  record  date for the  Meeting,  the  Company  had issued and
outstanding  11,516,622  shares of common  stock  which were  eligible  to vote.
7,772,211 shares of common stock,  representing  67.5% of the outstanding shares
of common stock entitled to vote at the Meeting (the "Shares"), were present, in
person or by proxy, at the Meeting.

         The Stockholders  approved all of the following ballot proposals at the
Meeting:

                                       28
<PAGE>

         PROPOSAL ONE - "To elect Mr.  James M.  DeFrancia as a Class 3 Director
of the Company to serve until the Annual Meeting of  Stockholders of the Company
in the year  2001 and  until  his  successor  is duly  elected  and  qualified."
7,634,359 votes,  representing  98.2% of the total Shares represented and voting
in person or by proxy at the Meeting, were cast in favor of Mr. DeFrancia.

         PROPOSAL TWO - "To amend the Company's Certificate of Incorporation (1)
to effect, as determined by the Board of Directors, in its discretion, either of
two  different  reverse  stock splits of the  Company's  issued and  outstanding
common stock as of the close of business on the effective date of the amendment,
pursuant to which either (a) each 100 shares then  outstanding will be converted
into one share, or (b) each 200 shares then  outstanding  will be converted into
one share and (2) to effect a forward  split of the common stock as of 6:00 a.m.
(Florida  time) on the day  following  the  effective  date of the reverse stock
split,  pursuant to which each share of common stock then outstanding as of such
date will be  converted  into the  number of  shares of common  stock  that such
shares  represented  immediately  prior to the  effective  of the reverse  stock
split, all as set forth in the proposed amendments to the Company's  Certificate
of  Incorporation  attached  as  Appendix A to the Proxy  Statement."  6,110,945
votes,  representing  53.0% of the total Shares issued and outstanding on and as
of the record date, were cast in favor of this proposal.

         PROPOSAL THREE - "To ratify and approve the performance objectives,  as
approved by the  Compensation/Stock  Option  Committee of the Board, for the 75%
non-discretionary  component of Mr.  Rutherford's  1998 Bonus." 5,960,443 votes,
representing  95.6% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL  FOUR - "To  ratify  and  approve  the  payment  of 50% of Mr.
Rutherford's  1998 Bonus,  to the extent  earned  (less  applicable  withholding
taxes),  in shares of Company common stock (in connection with, and on the terms
set  forth  in,  Mr.  Rutherford's   Employment  Agreement)."  5,959,188  votes,
representing  95.6% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL  FIVE - "To  ratify  and  approve  the  payment  of 50% of Mr.
Rutherford's  Warrant Reset  Incentive,  to the extent  earned (less  applicable
withholding  taxes),  in shares of Company common stock (in connection with, and
on the terms set forth in, Mr. Rutherford's  Employment  Agreement)."  5,957,703
votes,  representing  95.6% of the total Shares represented and voting in person
or by proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL SIX - "To ratify and approve the 1997 and 1998 Recourse  Loans
by the Company to Mr.  Rutherford,  the  proceeds of which are to be used solely
for the  purpose  of  purchasing  shares of common  stock of the  Company in the
NASDAQ National Market or in one or more private transactions with third parties
(in connection with, and on the terms set forth in, Mr. Rutherford's  Employment
Agreement)." 5,955,379 votes, representing 95.5% of the total Shares represented
and  voting  in person  or by proxy at the  Meeting,  were cast in favor of this
proposal.

         PROPOSAL SEVEN - "To ratify and approve the purchase by Mr.  Rutherford
from the Company of shares of common stock of the Company having a market value,
as of the purchase date, equal to $600,000, and the nonrecourse $600,000 Loan to
be made by the Company to Mr.  Rutherford,  the proceeds of which are to be used
solely to fund the purchase price of such shares (in connection with, and on the
terms set forth in, Mr. Rutherford's  Employment  Agreement)."  5,960,173 votes,
representing  96.0% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL  EIGHT - "To ratify and approve the payment (in the discretion
of the Board) of 50% of Mr.  Laguardia's 1998  Performance  Bonus, to the extent
earned  (less  applicable  withholding  taxes),  in shares  of Common  Stock (in
connection  with,  and on the terms set forth  in,  Mr.  Laguardia's  Employment

                                       29
<PAGE>
Agreement)." 6,015,276 votes, representing 96.4% of the total Shares represented
and  voting  in person  or by proxy at the  Meeting,  were cast in favor of this
proposal.

         PROPOSAL  NINE - "To ratify and approve Mr.  Jeffrey's  New Option Plan
Agreement,  which  entitles  Mr.  Jeffrey to  purchase  up to 200,000  shares of
Company  common  stock  on  the  terms  set  forth  therein."  5,980,931  votes,
representing  96.0% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL TEN - "To ratify and approve Mr. Laguardia's Option Agreement,
which entitles Mr.  Laguardia to purchase up to 450,000 shares of Company common
stock on the terms set forth therein."  5,974,796 votes,  representing  95.9% of
the total  Shares  represented  and voting in person or by proxy at the Meeting,
were cast in favor of this proposal.

         PROPOSAL  ELEVEN - "To  ratify  and  approve  Mr.  Rutherford's  Option
Agreement,  which entitles Mr.  Rutherford to purchase up to 3,000,000 shares of
Company  common  stock  on  the  terms  set  forth  therein."  3,839,947  votes,
representing  61.6% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

         PROPOSAL  TWELVE - "To ratify and approve an  amendment to the Atlantic
Gulf  Communities  Corporation  Stock  Option Plan (the  "Plan") to increase the
number of shares of Company  common stock with  respect to which  options may be
granted under the Plan by 500,000  shares (i.e.,  from 750,000 shares of Company
common stock to 1,250,000  shares of Company common  stock)."  7,487,277  votes,
representing  96.9% of the total Shares  represented  and voting in person or by
proxy at the Meeting, were cast in favor of this proposal.

Item 5.     Other Information
            -----------------

(1)      NASDAQ LISTING

         On May 19, 1998, the NASDAQ Stock Market, Inc. ("NASDAQ"), informed the
Company,  in writing,  that it was no longer in compliance with the net tangible
assets/market  capitalization/net  income continued  listing  requirement of the
NASDAQ  National  Market  system (the  "NNM"),  and,  unless the  Company  could
demonstrate  that  it  would  promptly  regain   compliance  with  such  listing
requirement,  the  Company's  common  stock would be  de-listed  from the NNM. A
hearing on this matter in front of NASDAQ is scheduled for August 20, 1998.  All
actions to de-list the Company's  common stock are stayed pending the outcome of
the hearing.  While the Company  cannot  predict the outcome of the hearing,  it
believes that it has strong arguments in support of its position that its common
stock should not be de-listed from the NNM.

(2)      WARRANT RESET

         As part  of the  1997  Equity  Transactions,  the  Company  issued  (1)
warrants  to Apollo to acquire up to  5,000,000  shares of Common  Stock and (2)
warrants  to the  purchasers  of the Series B  Preferred  Stock to acquire up to
4,000,000 shares of Common Stock  (collectively,  the "Warrants").  The Warrants
have an exercise price of $5.75 per share (the "Exercise  Price").  The Exercise
Price is subject to a potential downward  adjustment by March 31, 1999, pursuant
to a formula in the event the Company's  actual operating cash flow from certain
business lines is less than the targeted  cumulative  operating cash flow (i.e.,
$62.443  million)  from such business  lines on a cumulative  basis for 1997 and
1998 (the  "Warrant  Reset").  No Warrant Reset will be made if, on December 31,
1998,  and on an average  basis during the three  months  ending on December 31,
1998,  the average  closing  price for the Common  Stock is greater  than $9.75,
subject to certain adjustments.

         Management has reviewed the Warrant Reset calculation  through the date
hereof. At this time, based on the information currently available to it and the
projections  for the remainder of 1998, the likely range of any Warrant Reset is
a downward  adjustment of $0 to $1.00 in the exercise  price per Warrant  share.
This  range is subject to third and  fourth  quarter  events,  many of which are
outside the control of the Company. Accordingly,  there can be no assurance that
the actual Warrant Reset will not exceed $1.00 per share.

         The Company will review the Warrant Reset  calculation again at the end
of its third quarter and report any  adjustments  to such range in its Quarterly
Report on Form 10-Q for the period ended September 30, 1998.

                                       30
<PAGE>

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

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

         (1)      Third Amendment to Second Amended and Restated  Revolving Loan
                  Agreement Atlantic Gulf Communities  Corporation,  dated as of
                  June  30,  1998,  by  and  among  Atlantic  Gulf   Communities
                  Corporation (as Borrower),  the Financial  Institutions listed
                  on the  signature  pages  thereto (as  Lenders)  and  Foothill
                  Capital Corporation (as Agent and Collateral Agent).

         (2)      Interim Intercompany Loan and Intercreditor  Agreement,  dated
                  as of June 30, 1998, by and among  Atlantic  Gulf  Communities
                  Corporation (as Borrower), AGC-SP, Inc. ( as Lender), The Bank
                  of  New  York  (as  Collateral  Agent)  and  Foothill  Capital
                  Corporation (as Loan Agent and Note Agent).

         (3)      Letter Agreement dated July 8, 1998 modifying certain terms of
                  the Third  Amendment to Second Amended and Restated  Revolving
                  Loan Agreement Atlantic Gulf Communities Corporation, dated as
                  of June 30,  1998,  by and  among  Atlantic  Gulf  Communities
                  Corporation (as Borrower),  the Financial  Institutions listed
                  on the  signature  pages  thereto (as  Lenders)  and  Foothill
                  Capital Corporation (as Agent and Collateral Agent).

         (27)     Financial Data Schedule.

(b) Reports on Form 8-K

         None

                                       31
<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: August 14, 1998                         /s/ Thomas W. Jeffrey
                                              ----------------------------------
                                                  Thomas W. Jeffrey
                                                  Executive Vice President
                                                  and Chief Financial Officer






Date: August 14, 1998                         /s/ Paula J. Cook
                                              ----------------------------------
                                                  Paula J. Cook
                                                  Vice President and Controller
                                                  (Principal Accounting Officer)


                                       32