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


   
                                    FORM 10-Q/A

                                  AMENDMENT NO. 2
    

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

For the quarterly period ended June 30, 1997

Commission File Number:  1-8967

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

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


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


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

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


   
                                         [X]   Yes   [  ]  No
    

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

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

   
                                         [X]   Yes   [  ]  No
    

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

There are 11,509,077  shares of the Registrant's  Common Stock outstanding as of
August 12, 1997.


<PAGE>

                                TABLE OF CONTENTS
                                -----------------
                                                                        PAGE
                                                                         NO.
                                                                        ----
PART I.  -  FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Consolidated Balance Sheets as of June 30, 1997 and
                  December 31, 1996 ...................................   1

                  Consolidated Statements of Operations for the Three
                  and Six Months Ended June 30, 1997 and 1996 .........   2

                  Consolidated Statements of Cash Flows for the Six
                  Months Ended June 30, 1997 and 1996 .................   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 1.  Legal Proceedings ...................................  26


         Item 2.  Change in Securities ................................  27


         Item 4.  Submission of Matters to a Vote of Security Holders .  28


         Item 6.  Exhibits and Reports on Form 8-K ....................  29

<PAGE>

PART I.    -      FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS
                  --------------------


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                       June 30, 1997 and December 31, 1996
                            (in thousands of dollars)

                                                       June 30,     December 31,
                                                        1997           1996
                                                      ---------     -----------
         ASSETS                                      (unaudited)
         ------

Cash and cash equivalents                             $   4,461       $   7,050
Restricted cash and cash equivalents                      3,971           6,034
Contracts receivable, net                                 7,979           9,649
Mortgages, notes and other receivables, net              41,119          63,800
Land and residential inventory                          140,066         153,417
Property, plant and equipment, net                        2,730           2,911
Other assets, net                                        25,704          20,532
                                                      ---------       ---------

Total assets                                          $ 226,030       $ 263,393
                                                      =========       =========

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

Accounts payable and accrued liabilities              $  11,408       $  16,914
Customers' and other deposits                             4,369           5,483
Other liabilities                                        12,378          15,393
Notes, mortgages and capital leases                     130,241         169,215
                                                      ---------       ---------
                                                        158,396         207,005
                                                      ---------       ---------

Cumulative Redeemable Convertible Preferred Stock
         Series A preferred stock                         7,796            --
         Series B preferred stock                         9,055            --
                                                      ---------       ---------
                                                         16,851            --
                                                      ---------       ---------
Stockholders' equity
         Common stock, $.10 par value; 70,000,000
            and 15,665,000 shares authorized;
            11,595,354 and 9,795,642 shares issued        1,160             980
         Contributed capital                            132,284         122,123
         Accumulated deficit                            (76,652)        (60,706)
         Minimum pension liability adjustment            (6,000)         (6,000)
         Treasury stock, 86,277 shares, at cost              (9)             (9)
                                                      ---------       ---------

Total stockholders' equity                               50,783          56,388
                                                      ---------       ---------

Total liabilities and stockholders' equity            $ 226,030       $ 263,393
                                                      =========       =========

See accompanying notes to consolidated financial statements.

                                       1
<PAGE>
<TABLE>
<CAPTION>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations
                Three and Six Months Ended June 30, 1997 and 1996
                      (in thousands, except per share data)
                                   (unaudited)

                                                           THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                 JUNE 30,                    JUNE 30,
                                                         ---------------------         -------------------
Revenues:                                                  1997         1996             1997       1996
                                                         --------      -------         --------    -------
<S>                                                      <C>           <C>             <C>         <C>
    Real estate sales:
         Homesite                                        $  9,532      $ 9,627         $ 12,082    $24,225
         Tract                                              6,042       30,204           12,706     35,949
         Residential                                        2,201        6,451            9,271      9,321
                                                         --------      -------         --------    -------
      Total real estate sales                              17,775       46,282           34,059     69,495
    Other operating revenue                                   852        1,149            1,445      2,282
    Interest income                                         1,517        1,789            2,889      3,130
    Other income:
      Reorganization reserves                               1,365         --              1,794      1,267
      Other income                                            530        2,509              530      7,329
                                                         --------      -------         --------    -------
         Total revenues                                    22,039       51,729           40,717     83,503
                                                         --------      -------         --------    -------
Costs and expenses:
    Cost of real estate sales:
         Homesite                                           9,268        7,494           11,256     18,413
         Tract                                              5,538       24,906           11,693     29,609
         Residential                                        3,082        4,896            8,398      7,071
                                                         --------      -------         --------    -------
      Total cost of real estate sales                      17,888       37,296           31,347     55,093
    Selling expense                                         1,889        3,272            4,018      5,824
    Other operating expense                                   298          558              628      1,257
    Other real estate costs                                 2,896        4,435            5,802      8,692
    General and administrative expense                      2,456        2,256            4,656      5,386
    Depreciation                                              169          223              353        472
    Cost of borrowing, net of amounts capitalized           4,471        3,098            8,506      6,386
    Other expense                                             642           95            1,353        302
                                                         --------      -------         --------    -------
         Total costs and expenses                          30,709       51,233           56,663     83,412
                                                         --------      -------         --------    -------
Income (loss) before extraordinary item                    (8,670)         496          (15,946)        91
Extraordinary gain on extinguishment of debt                 --           --               --        3,770
                                                         --------      -------         --------    -------
Net income (loss)                                        $ (8,670)     $   496         $(15,946)   $ 3,861
                                                         ========      =======         ========    =======
Net income (loss) before extraordinary item
    per common share                                     $   (.88)     $   .05         $  (1.63)   $   .01
                                                         ========      =======         ========    =======
Net income (loss) per common share                       $   (.88)     $   .05         $  (1.63)   $   .40
                                                         ========      =======         ========    =======
Weighted average common shares outstanding                  9,863        9,699            9,793      9,716
                                                         ========      =======         ========    =======

See accompanying notes to consolidated financial statements.

                                                                 2
</TABLE>
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Six Months Ended June 30, 1997 and 1996
                            (in thousands of dollars)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                         SIX MONTHS ENDED
                                                                              JUNE 30,
                                                                       --------------------
                                                                          1997        1996
                                                                       --------    --------
<S>                                                                    <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                                    $(15,946)   $  3,861
  Adjustments to reconcile net income (loss) to net cash provided by
    (used in) operating activities:
      Depreciation and amortization                                       2,998       2,605
      Gain from utility condemnations or sales                               --      (5,684)
      Extraordinary gain from extinguishment of debt                         --      (3,770)
      Other income                                                       (1,337)     (1,881)
      Reorganization items                                                  179        (882)
      Land acquisitions                                                  (5,572)     (7,903)
      Other net changes in assets and liabilities:
         Restricted cash                                                  2,063       2,738
         Receivables                                                     11,697      10,002
         Land and residential  inventory                                 19,197      37,295
         Other assets                                                    (8,668)     (6,462)
         Accounts payable and accrued liabilities                        (5,252)     (4,867)
         Customer deposits                                               (1,114)     (1,638)
         Other liabilities                                                 (483)     (1,060)
         Other, net                                                          --        (261)
                                                                       --------    --------
            Net cash provided by (used in) operating activities          (2,238)     22,093
                                                                       --------    --------

Cash flows from investing activities:
   Additions to property, plant and equipment, net                         (172)       (167)
   Proceeds from sale of property, plant and equipment, net                  --         773
   Proceeds from utility condemnations or sales                              --      25,690
   Funds withdrawn from utility trust accounts                           12,109          --
                                                                       --------    --------
            Net cash provided by investing activities                    11,937      26,296
                                                                       --------    --------

Cash flows from financing activities:
   Borrowings under credit agreements                                    59,738      25,448
   Repayments under credit agreements                                   (99,683)    (66,081)
   Principal payments on other liabilities                               (1,218)     (2,380)
   Proceeds from issuance of common stock                                10,000          --
   Proceeds from issuance of preferred stock                             18,875          --
                                                                       --------    --------
            Net cash used in financing activities                       (12,288)    (43,013)
                                                                       --------    --------

Increase (decrease) in cash and cash equivalents                         (2,589)      5,376
Cash and cash equivalents at beginning of period                          7,050       3,560
                                                                       --------    --------
Cash and cash equivalents at end of period                             $  4,461    $  8,936
                                                                       ========    ========

Supplemental cash flow information:
    Interest payments, net of amounts capitalized                      $  4,889    $  3,827
                                                                       ========    ========
    Reorganization item payments                                       $    900    $  2,861
                                                                       ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (unaudited)

(1)      The June 30, 1997  financial  statements  are  unaudited and subject to
         year-end  adjustments.  In management's  opinion, the interim financial
         statements  reflect all adjustments,  principally  consisting of normal
         recurring accruals,  necessary for a fair presentation of the financial
         position and results of operations. Results for interim periods are not
         necessarily  indicative  of results  for the full year.  For a complete
         description  of  the  Company's  accounting  policies,  see  "Notes  to
         Consolidated  Financial  Statements"  included in the Company's  Annual
         Report on Form 10-K for the year ended  December 31, 1996 ("1996 Annual
         Report").  Certain prior year amounts have been reclassified to conform
         with the 1997 presentation.

(2)      The net income (loss) per common share is based on the weighted average
         number of shares of common stock  outstanding  during the periods.  The
         effect of any outstanding warrants and options to purchase common stock
         on the per share  computation was  anti-dilutive or not material during
         the periods.

(3)      The Company  capitalizes  interest  primarily on land  inventory  being
         developed  for sale which is  subsequently  charged to income  when the
         related  asset  is  sold.   Capitalized  interest  was  $1,447,000  and
         $2,722,000  for the three and  six-month  periods  ended June 30, 1997,
         respectively, and $1,369,000 and $3,261,000 for the three and six-month
         periods ended June 30, 1996, respectively.

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

(5)      Due to the necessity to establish  reserves  against  future  mandatory
         debt, and capital and operating expenditures,  the Company did not have
         Available  Cash, as defined in the Company's loan  agreements,  at June
         30, 1997,  to enable it to make any interest  payments on the Cash Flow
         Notes for the six-month  period  commencing  January 1, 1997 and ending
         June 30, 1997. In addition, the Company did not have any Available Cash
         enabling it to make any interest  payments for the year ended  December
         31, 1996. Interest on the Cash Flow Notes is noncumulative.  Therefore,
         the Company has not recorded interest expense  associated with the Cash
         Flow  Notes  during the six months  ended June 30,  1997 and 1996.  See
         "Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations - Liquidity and Capital Resources."

(6)      Pursuant to the Company's 1996 Non-Employee  Directors' Stock Plan, the
         Company  issued  12,355  shares of Atlantic  Gulf's common stock to the
         Non-Employee  Directors  at a price of $4.3125  per share for the first
         quarter of 1997 and 11,158 shares at a price of $5.50 per share for the
         second quarter of 1997.

                                       4
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (unaudited)

(7)      The  Company  and  AP-AGC,  LLC a Delaware  limited  liability  company
         ("Apollo"),  entered into an Amended and Restated Investment  Agreement
         dated as of February 7, 1997, amended as of March 20, 1997, and amended
         and  restated  as of May 15,  1997  (the  "Investment  Agreement").  In
         addition,  the Company,  certain of its subsidiaries and Apollo entered
         into a Secured  Agreement dated as of February 7, 1997, and amended and
         restated as of May 15, 1997 (the "Secured Agreement" and, together with
         the Investment Agreement, the "Agreements").  Apollo is an affiliate of
         Apollo  Real Estate  Investment  Fund II, L.P.  ("Apollo  Fund II"),  a
         private real estate  investment  fund, the general  partner of which is
         Apollo Real Estate Advisors II, L.P., a New York-based investment fund.
         Pursuant to the Agreements,  Apollo agreed to purchase from the Company
         up  to  2,500,000   shares  of  20%  Series  A  Cumulative   Redeemable
         Convertible  Preferred Stock (the "Series A Preferred  Stock") at a per
         share  price  of  $9.88,  and  5,000,000  warrants  to  purchase  up to
         5,000,000  shares of Common Stock (the "Investor  Warrants"),  at a per
         warrant  price of $.06,  for an aggregate  purchase  price of up to $25
         million  (the  "Apollo  Transaction").  See Part II. Item 2. CHANGES IN
         SECURITIES.

         On June 24, 1997, pursuant to the Agreements, Apollo purchased 553,475
         shares of Series A Preferred Stock and Investor Warrants to purchase an
         additional 1,106,950 shares of Common Stock, for an aggregate purchase
         price of $5,534,752.

         Also on June 24, 1997, the Company and certain purchasers (the "Private
         Purchasers")  consummated  a private  placement  pursuant  to which the
         Private Purchasers purchased for an aggregate price of $20 million; (a)
         1,776,199  shares of Common  Stock for $10 million,  and (b)  1,000,000
         shares of 20%  Series B  Cumulative  Redeemable  Convertible  Preferred
         Stock (the "Series B Preferred Stock"),  at a per share price of $9.88,
         and 2,000,000 Series B Warrants to purchase  2,000,000 shares of Common
         Stock at a per warrant price of $.06 for an aggregate purchase price of
         $10 million.  The Series B Preferred  Stock balance at June 30, 1997 is
         the total aggregate  purchase price of $10 million net of corresponding
         Series B  Warrants  purchased  -  $0.120  million  and net of  Series B
         issuance  costs - $0.825  million  for a net Series B  Preferred  Stock
         balance of $9.055 million.

         The Series A Preferred  Stock,  Investor  Warrants,  Series B Preferred
         Stock and Series B Warrants are convertible or exercisable  into Common
         Stock, at $5.75 per share, subject to certain adjustments.

         Of  the  total  proceeds  of  approximately   $25.5  million  from  the
         above-mentioned  transactions,  $13.3  million  were used to reduce the
         amount  outstanding  under the Term Loan and $7.9  million were used to
         reduce the amount outstanding under the Reducing Revolving Loan.

         On June 30, 1997, pursuant to the Agreements,  Apollo purchased, for an
         aggregate purchase price of $3,340,000, an additional 334,000 shares of
         Series  A  Preferred  Stock  and  Investor   Warrants  to  purchase  an
         additional   668,000   shares  of  Common   Stock.   The  Company  used
         approximately  $3.0 million of these proceeds plus an acquisition  loan
         of $2.6 million to acquire a 2.9-acre parcel in the


                                       5
<PAGE>

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                  June 30, 1997
                                   (unaudited)

         downtown business  district of Fort Lauderdale,  Florida upon which the
         Company plans to construct a high-rise luxury  apartment  complex to be
         called Las Olas Tower.

         The Series A  Preferred  Stock  balance  at June 30,  1997 is the total
         aggregate  purchase price of Series A Preferred  Stock issued to Apollo
         as of  that  date  -  $8.875  million,  net of  corresponding  Investor
         Warrants purchased - $.106 million and net of Series A issuance costs -
         $.973  million  for a net Series A  Preferred  Stock  balance of $7.796
         million.

         On July 31, 1997, pursuant to the Agreements,  Apollo purchased, for an
         aggregate purchase price of $8.5 million,  an additional 850,000 shares
         of Series A  Preferred  Stock and  Investor  Warrants  to  purchase  an
         additional  1,700,000  shares  of  Common  Stock.  On  July  31,  1997,
         approximately  $7.5  million  of these  proceeds  were used to  acquire
         approximately 600 acres in Frisco,  Texas which is near Dallas,  Texas.
         This property is anticipated to yield approximately 1,725 single family
         units.

         On August 7, 1997, pursuant to the Agreements, Apollo purchased, for an
         aggregate purchase price of $2,590,000, an additional 259,000 shares of
         Series  A  Preferred  Stock  and  Investor   Warrants  to  purchase  an
         additional  518,000  shares of Common  Stock.  On August 7,  1997,  the
         Company  utilized  approximately  $2.5 million of these proceeds plus a
         purchase  money mortgage of $8.0 million to acquire  approximately  515
         acres of  residential  property  in the Fort Myers,  Florida  area in a
         project  known as West Bay Club.  Subsequent to this  acquisition,  the
         Company owns a total of approximately 841 acres in West Bay Club and is
         planning  to  assemble  a total of 879 acres in this  project  which is
         anticipated  to yield  approximately  545 single  family  homes and 520
         high-rise condominium units.

   
         The holders of the Series A Preferred  Stock and the Series B Preferred
         Stock are entitled to receive, when, as and if declared by the Board of
         Directors, out of funds legally available therefore,  cash dividends on
         each  share of  preferred  stock at an annual  rate equal to 20% of the
         Liquidation  Preference in effect from time to time.  All dividends are
         cumulative,  whether or not declared, on a daily basis from the date on
         which the preferred stock is originally issued by the Company, and will
         be payable quarterly in arrears on March 31, June 30, September 30, and
         December 31 of each year  commencing  on September 30, 1997. As of June
         30,  1997,  the Series A Preferred  Stock  Liquidation  Preference  was
         $8.875 million and the  corresponding  undeclared but  accumulated  and
         unpaid dividends were $0.023 million. As of June 30, 1997, the Series B
         Preferred  Stock  Liquidation   Preference  was  $10  million  and  the
         corresponding  undeclared  but  accumulated  and unpaid  dividends were
         $0.038 million.  The total  undeclared but accumulated  dividends as of
         June 30,  1997 did not  materially  affect  the net  income  (loss) per
         common  share.  Following  an  Event  of  Default  (as  defined  in the
         respective  Statement  of  Designation  with  respect  to the  Series A
         Preferred Stock or the Series B Preferred Stock,  dividends  accumulate
         at an annual rate equal to 23% of the Liquidation Preference.


                                       6
    
<PAGE>


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


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

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

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

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

         The Company's goal is to produce  superior  returns for stockholders by
liquidating   predecessor   assets,   paying  off  debt,  matching  overhead  to
development and  construction  activities,  and becoming the leading supplier of
finished  homesites to independent  homebuilders  in Florida's  fastest  growing
markets and in  selected  primary  markets in the  southeastern  United  States,
including  North  Carolina and Texas.  Predecessor  assets are those real estate
assets  inherited  by the Company  from its  predecessor  company and consist of
tracts and scattered  homesites located in secondary markets  throughout Florida
and in one community in Tennessee.

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

         The Company is also  actively  marketing  predecessor  assets on a bulk
sale basis as well as on an  individual  tract/lot  basis  through the Company's
Atlantic  Gulf Land  Company.  The Company  currently  has  approximately  $23.4
million in pending contracts and letters of intent on predecessor assets.  There
are no assurances that the above-mentioned  negotiations,  pending contracts and
letters of intent will result in material  sales or in material  sales at prices
which, in the aggregate,  equal the Company's book value in the properties sold.
See Item 1. Business in the 1996 Annual Report for additional information on the
Company's business plan.


                                       7
<PAGE>

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


                                       8
<PAGE>

                              Results of Operations
                              ---------------------

            Comparison of the Six Months Ended June 30, 1997 and 1996
            ---------------------------------------------------------

         The Company's  results of operations  for the six months ended June 30,
1997 and 1996 are summarized by line of business, as follows:

<TABLE>
<CAPTION>

                                         Combining Results of Operations by Line of Business
                                         ---------------------------------------------------

                                                   Six Months Ended June 30, 1997

                                                      (in thousands of dollars)

                                                             (unaudited)

                                    HOMESITE     TRACT    RESIDENTIAL   OTHER       BUSINESS  ADMINISTRATIVE
                                     SALES       SALES       SALES    OPERATIONS  DEVELOPMENT    & OTHER       TOTAL
                                     -----       -----       -----    ----------  ----------- --------------   -----
<S>                                <C>             <C>       <C>        <C>         <C>         <C>           <C>  
Revenues:

  Real estate sales                $  12,082   $  12,706 $    9,271   $            $           $            $  34,059

  Other operating revenues               401                              1,044                                 1,445

  Interest income                                                         2,198                      691        2,889

  Other income:

   Reorganization reserves                                                  532                    1,262        1,794

   Other income                                                                                      530          530
                                  -----------------------------------------------------------------------------------
Total revenues                        12,483      12,706      9,271       3,774                    2,483       40,717
                                  -----------------------------------------------------------------------------------

Costs and expenses:

  Cost of real estate sales           11,256      11,693      8,398                                            31,347

  Selling expense                      2,116       1,631        239                      32                     4,018

  Other operating expense                                                   628                                   628

  Other real estate costs:

    Property tax, net                                                                              1,731        1,731

    Other real estate overhead           650         699        138         348       1,347          889        4,071

  General and administrative expense                                                               4,656        4,656

  Depreciation                             7          31          2          62                      251          353

  Cost of borrowing, net                                                                           8,506        8,506

  Other expense                                                              96         462          795        1,353
                                  -----------------------------------------------------------------------------------
Total costs and expenses              14,029      14,054      8,777       1,134       1,841       16,828       56,663
                                  -----------------------------------------------------------------------------------
Net income (loss)                  $  (1,546)  $  (1,348) $     494   $   2,640  $   (1,841)   $ (14,345)   $ (15,946)
                                  ===================================================================================

                                                                  9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                         Combining Results of Operations by Line of Business
                                         ---------------------------------------------------

                                                   Six Months Ended June 30, 1996

                                                      (in thousands of dollars)

                                                             (unaudited)

                                     HOMESITE     TRACT     RESIDENTIAL     OTHER     BUSINESS       ADMINISTRATIVE
                                      SALES       SALES        SALES     OPERATIONS  DEVELOPMENT        & OTHER      TOTAL
                                      -----       -----        -----     ----------  -----------        -------      -----
Revenues:
<S>                                 <C>         <C>           <C>       <C>          <C>            <C>           <C>

  Real estate sales                 $   24,225  $   35,949   $  9,321    $            $               $          $  69,495

  Other operating revenue                                                   2,282                                    2,282

  Interest income                                                           2,079                        1,051       3,130

  Other income:

   Reorganization reserves                                                                               1,267       1,267

   Other income                                                             5,675                        1,654       7,329
                                  ----------------------------------------------------------------------------------------
Total revenues                          24,225      35,949      9,321      10,036                        3,972      83,503
                                  ----------------------------------------------------------------------------------------

Costs and expenses:

  Cost of real estate sales             18,413      29,609      7,071                                               55,093

  Selling expense                        2,881       2,037        906                                                5,824

  Other operating expense                                                   1,257                                    1,257

  Other real estate costs:

    Property tax, net                                                          30                        2,902       2,932

    Other real estate overhead             935         864        533         623       1,587            1,218       5,760

  General and administrative                                                                             5,386       5,386

  Depreciation                              18          45         14         188                          207         472

  Cost of borrowing, net                                                                                 6,386       6,386

  Other expense                            (11)                                           313                          302
                                  ----------------------------------------------------------------------------------------
Total costs and expenses                22,236      32,555      8,524       2,098       1,900           16,099      83,412
                                  ----------------------------------------------------------------------------------------

Income (loss) before
   extraordinary item                    1,989       3,394        797       7,938      (1,900)         (12,127)         91

Extraordinary gain on
 extinguishment of debt                                                                                  3,770       3,770
                                  ----------------------------------------------------------------------------------------
Net income (loss)                   $    1,989  $    3,394   $    797    $  7,938     $(1,900)        $ (8,357)  $   3,861
                                  ========================================================================================
</TABLE>

         During the first six months of 1997, the Company incurred a net loss of
$15.9 million compared to net income of $3.9 million during the first six months
of  1996  primarily  due to an  $11.7  million  decrease  in the  gross  margins
generated from real estate sales, a $6.3 million  decrease in other income and a
$3.8 million  extraordinary gain in the first quarter of 1996 resulting from the
cancellation  of debt.  The lower gross margins  resulted from lower real estate
sales revenues and lower gross margin percentages. Gross margin represents

                                       10
<PAGE>

the  difference  between the Company's  real estate  revenue and related cost of
sales.  The decrease in other income was  principally  attributable to a gain of
approximately  $4.1 million in the first quarter of 1996 from an $18.75  million
settlement of the Port St. Lucie condemnation litigation.

         Homesite Sales
         --------------

         The net operating  results from homesite  sales  decreased $3.5 million
during  the first six  months of 1997  compared  to the first six months of 1996
primarily  due to lower gross  margins  generated  from  homesite  sales in 1997
resulting from lower homesite sales revenues and lower gross margin percentages.

         Revenues from homesite sales  decreased  $12.1 million in the first six
months of 1997 from the first six months of 1996.  The decrease  resulted from a
44%  decrease in the average  sales price per homesite and a 10% decrease in the
number of homesites  sold. The decrease in the average sales price was primarily
due to a change in the sales mix. The following table summarizes  homesite sales
activity for the six months ended June 30 (in thousands of dollars):


<TABLE>
<CAPTION>

                                                    1997                                                1996
                                    ------------------------------------               -------------------------------------
                                     Number                     Average                 Number                     Average
                                    of lots       Revenue    sales price               of lots       Revenue     sales price
                                    -------       -------    -----------               -------       -------     -----------
<S>                                    <C>         <C>          <C>                       <C>        <C>            <C>  

Subdivision homesite
sales                                  270        $ 8,468       $31.4                     542        $18,455        $34.0
Scattered homesite sales               872          3,614         4.1                     730          5,770          7.9
                                     -----        -------       -----                   -----        -------        -----
                                     1,142        $12,082       $10.6                   1,272        $24,225        $19.0
                                     =====        =======       =====                   =====        =======        =====
</TABLE>

         The decrease in subdivision  homesite sales revenue is primarily due to
approximately $7.6 million of sales in the first six months of 1996 in Julington
Creek Plantation, a project in Jacksonville,  Florida,  including a bulk sale of
the  remaining  126  homesites in this project for $5.6 million in June 1996. In
addition, there was a $3.6 million decrease in sales in Windsor Palms, a project
located in southwest Broward County, Florida. The Company sold the remaining 102
homesites  in  Windsor  Palms  for  approximately  $4.5  million  in June  1997.
Partially offsetting these decreases were sales of 41 homesites for $1.3 million
in the first six months of 1997 in West  Meadows,  a project in Tampa,  Florida.
Subdivision  revenues for the full year of 1997 are anticipated to be lower than
1996 due to the bulk sale of Julington Creek  Plantation in 1996 and the sale of
75% of the inventory in Windsor Palms in 1996,  which  represented the Company's
two largest  subdivision  projects at that time.  Current  subdivision  projects
under  development  along with  recently  acquired  projects  and projects to be
acquired,  utilizing in part,  proceeds  from the issuance of Series A Preferred
Stock to Apollo,  are  anticipated to generate  increased  subdivision  revenues
beginning  in 1998.  The  decrease  in the average  sales  price of  subdivision
homesite  sales  is  primarily  due to the  homesite  sales in  Julington  Creek
Plantation  in the first six months of 1996 which yielded an average sales price
of approximately $43,000.

         Revenues  from  scattered  homesite  sales  decreased  in the first six
months of 1997 compared to the first six months of 1996 due to a 48% decrease in
the average sales price per homesite,  partially  offset by a 19.5%  increase in
the number of  homesites  sold.  The  decrease  in the  average  sales  price is
principally  due to a 37% decrease in the average  sales price in the  Company's
Cumberland  Cove  community  in  Tennessee  and to an  increase in bulk sales of
scattered  homesites in secondary  markets in Florida  which yield a lower sales
price.  The decrease in the average sales price in Cumberland  Cove is primarily
due to the mix of  homesites  sold.  The  volume of  scattered  homesites  sales
increased  primarily due to the increase in the number of bulk  homesites  sold.
The Company anticipates it will continue to supplement  scattered homesite sales
volume  in  secondary  markets  through  bulk  homesite  sales and  through  the
marketing  activities  of the Atlantic  Gulf Land Company as part of its plan to
accelerate  the  disposition  of assets in  secondary  real  estate  markets  in
Florida.

                                       11
<PAGE>

         Other  income in the  first six  months  of 1997  included  a  $322,000
management   fee  received  from  Country  Lakes,   Ltd.,  a  Virginia   limited
partnership,  of which the Company is a limited  partner.  This  partnership was
formed to acquire, plan, develop and market approximately 1,750 acres located in
Dade and Broward counties Florida,  formerly known as  Viacom/Blockbuster  Park.
The Company provides the day-to-day management, development, marketing and sales
coordination for the partnership.  The $322,000  management fee represented 3.5%
of $9.2  million of  revenues  from a sale of 280 acres in this  project in June
1997.

         As of June 30, 1997, the Company had under contract approximately 2,768
scattered  homesite  lots for $5.9  million and  approximately  344  subdivision
homesites   for  $6.3  million   which  are   anticipated   to  close  in  1997.
Substantially,  all of  the  Company's  subdivision  homesites  currently  under
development are under  "contract" for sale. As of June 30, 1996, the Company had
approximately  1,030 total homesites under contract totaling  approximately $8.6
million.

         The homesite sales gross margin  percentages were 6.8% in 1997 compared
to 24.0% in 1996.  The gross margin  percentage  in the first six months of 1996
reflects  targeted  gross  margins of 20% to 30% for this line of business.  The
lower gross margin percentage in the first six months of 1997 is attributable to
a negative  10% gross  margin on the  Windsor  Palms sales and to an increase in
bulk  homesite  sales which are priced to sell and  therefore  yield lower gross
margins.  The negative gross margin in Windsor Palms was due to the  realization
of a lower than expected sales price for the remaining 102 lots sold in 1997 and
to higher than anticipated costs associated with the entire project. The Company
realized a gross margin of  approximately  6.5% on the Windsor  Palms project in
its  entirety.  The gross  margin in the first six  months of 1997 was 23.0% for
sales other than Windsor Palms and bulk homesite sales.

         Homesite  selling  expense  decreased  primarily  due to a decrease  in
direct  selling  expenses  resulting  from the  decrease  in  revenues  and to a
reduction in costs in Cumberland Cove.  Homesite selling expense as a percentage
of revenues increased from 11.9% in 1996 to 17.5% in 1997,  primarily due to the
decreased revenues over which to spread fixed selling costs.

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

         Tract Sales
         -----------

         The net operating  results from tract sales  decreased in the first six
months of 1997  compared to the first six months of 1996  primarily due to lower
gross  margins  generated  from tract sales in 1997  resulting  from lower tract
sales revenues and lower gross margin percentages.

         Revenues  from tract  sales  decreased  $23.2  million in the first six
months of 1997 compared to the first six months of 1996 primarily due to several
large  sales  in 1996  including  the  sale  of the  Company's  Julington  Creek
Plantation  project  which  included  $11.6  million of tract acreage and a $9.0
million bulk sale of Summerchase, a project consisting of 320 acres in southwest
Broward County. Tract sales acreages and corresponding  revenues from such sales
often vary  significantly  from  quarter to quarter  depending on the timing and
size of individual  sales.  Despite the decrease in tract sales in the first six
months of 1997,  tract sales are expected to be a significant  source of revenue
for the  Company in 1997 due to the  Company's  plan to monetize  the  Company's
predecessor assets located in secondary markets. As of June 30, 1997, there were
pending  tract sales  contracts  totaling  approximately  $15.5  million  which,
subject to certain  contingencies,  are  anticipated  to close in 1997.  Pending
sales  contracts  increased to  approximately  $19.1 million as of July 31, 1997
primarily due to the addition of an anticipated sale in 1997 for $5.1 million of
the remaining 1,200 acres

                                       12
<PAGE>


of a parcel known as River Trace in Port St. Lucie.  As of June 30, 1996,  there
were pending tract sales contracts totaling approximately $15 million.


         Tract sales gross margins are  summarized as follows for the six months
ended June, 30:

<TABLE>
<CAPTION>
                                                      1997                             1996
                                            -----------------------           ----------------------
                                            Targeted        Actual            Targeted       Actual
                                             Margins        Margins            Margins       Margins
                                             -------        -------            -------       -------
<S>                                             <C>          <C>                  <C>
Port LaBelle agricultural acreage               0%           (2.3)%               5%            -
Julington Creek bulk sale                       -              -                  -            6.3%
Other tract acreage                           5-10%          10.6%               20%          23.0%
</TABLE>

         The  targeted  gross  margin  is lower  for Port  LaBelle  agricultural
acreage as management has determined that approximately 18,000 acres of the Port
LaBelle agricultural property is not an integral part of the Company's long-term
business  strategy.  In order to accelerate the disposal of this  property,  the
sales value for this  property  was  adjusted  from a "retail" to a  "wholesale"
basis,  which reduced the targeted  gross margin for this  property.  During the
first  six  months  of 1997  the  Company  sold  2,156  acres  of  Port  LaBelle
agricultural property for approximately $2.5 million.

         The low gross margin in Julington  Creek in 1996 resulted from the bulk
sale of this  project  in June 1996 as part of the  Company's  business  plan to
monetize certain assets to generate cash to retire debt.

         The  actual  gross  margins  for other  tract  acreage in 1997 and 1996
generally  reflect the targeted gross  margins.  The targeted gross margins have
been reduced  primarily  due to the Company's  plan to accelerate  land sales in
secondary real estate market locations.

         Tract sales selling expenses  decreased in the first six months of 1997
compared to the first six months of 1996  primarily due to lower direct  selling
expenses resulting from a decrease in revenues. Tract sales selling expense as a
percentage  of revenues  increased  from 5.7% in the first six months of 1996 to
12.8% in the first six  months of 1997  primarily  due to lower  direct  selling
expenses  associated  with several large sales in 1996 including the Summerchase
and  Julington  Creek  sales and to lower  revenues in 1997 over which to spread
fixed selling costs.

         Residential Sales
         -----------------

         Net income from residential  sales,  which includes single family homes
and condominiums,  decreased  $303,000 during the six months ended June 30, 1997
compared to the corresponding prior year period principally due to a decrease in
the gross margin generated from the Company's  Regency Island Dunes  condominium
project, partially offset by decreases in selling and other real estate overhead
costs.


                                       13
<PAGE>

         Residential  sales are  summarized  as follows for the six months ended
June 30 (in thousand of dollars):

                                                  1997               1996
                                                  -----              -----
Condominium sales - Regency Island Dunes:
   First Building                                $1,310             $2,015
   Second Building                                7,885              4,526
                                                  -----              -----
Total condominium sales                           9,195              6,541
Single family home sales                             76              2,780
                                                  -----              -----
                                                 $9,271             $9,321
                                                 ======             ======

         The  revenues  and  profits   associated   with  Regency  Island  Dunes
condominium  sales are recorded using the percentage of completion  method.  The
Regency Island Dunes condominium  project consists of two 72-unit buildings.  As
of December 31,  1995,  the Company  recorded  97% of the expected  revenues and
profits  on 61 units  that  were  under  contract  in the first  building  as of
December  31, 1995 based on a  construction  completion  percentage  of 97%. The
condominium  revenues of $2.0 million in the first building during the first six
months of 1996 represent the  incremental  revenue earned upon the completion of
59 of the 61 units in the first six  months of 1996 and the sale and  closing of
an additional  five units in 1996. The  condominium  revenues of $1.3 million in
the first  building  in 1997  represent  revenue  earned  upon the closing of an
additional  four units in 1997.  As of June 30, 1997,  71 of the 72 units in the
first  building have been sold and closed.  The revenues of  approximately  $4.5
million in the second building in the first six months of 1996 were derived from
45 units  under  contract as of June 30,  1996 with  construction  on the second
building 30% complete.  As of December 31, 1996, the Company recorded 79% of the
expected revenues and profits on 56 units that were under contract in the second
building as of December 31, 1996 based on a construction  completion  percentage
of 79%. The revenues of approximately $7.9 million in the second building in the
first  six  months of 1997  were  derived  from an  increase  in the  completion
percentage  from 79% as of December  31, 1996 to 100% as of June 30, 1997 and to
an additional  twelve 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, 24 of the 72 units
in the second building have closed and the Company anticipates that all 72 units
in the second building will be sold and closed in 1997.

         Single family home sales revenues decreased during the first six months
of 1997 compared to the first six months of 1996 due a decrease in closings from
32 in 1996 to one in  1997.  Closings  decreased  as a result  of the  Company's
decision  in mid-1995 to begin  phasing out its single  family home  business in
predecessor  communities and substantially completed the withdrawal in 1996. The
Company may seek to re-enter the single family home business in primary  markets
where this  business  would  complement  current or potential  land  development
activities.  As of June  30,  1997,  the  Company  had two  single  family  home
residential units in inventory, neither of which were under contract. As of June
30,  1996,  the  Company  had two single  family  home  residential  units under
contract totalling $168,000.

         Residential  sales gross margins are  summarized as follows for the six
months ended June 30:

                                         1997              1996
                                         ----              ----

Condominiums                             9.6%             29.7%
Single family homes                    (15.8)%            11.1%

         The gross margin for  condominiums  in the first six months of 1997 was
low due to  project-to-date  adjustments  made  in the  second  quarter  of 1997
affecting  both  current and prior  period  profits  resulting  from higher than
anticipated construction costs associated with Regency Island Dunes. The overall
gross margin


                                       14
<PAGE>

for this project is  anticipated to be  approximately  16.5% which is lower than
the targeted gross margin of approximately  20% to 25% for this line of business
due to the higher than anticipated construction costs.

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

         Residential  selling expense decreased $667,000 or 74% and decreased as
a  percentage  of revenues  from 9.7% in the first six months of 1996 to 2.6% in
the first six months of 1997.  The decreases  were due to closing costs incurred
in the first six months of 1996  associated  with the closing of 64  condominium
units compared to 28 units closed in the first six months of 1997, an adjustment
to reduce incentive  expenses as a result of the decrease in profits  associated
with Regency  Island Dunes and to a decrease in fixed  selling costs as a result
of the phasing-out of the single family home operations.

         Other real estate overhead  decreased  $395,000 or 74% in the first six
months  of 1997  compared  to the first six  months of 1996  primarily  due to a
$313,000  reduction in overhead costs  associated  with the Regency Island Dunes
condominium project, most notably due to a reduction in condominium  association
costs.  In  addition,   single  family  overhead  costs  decreased  due  to  the
phasing-out of this operation.

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

         Net income from other  operations  decreased  $5.3 million in the first
six months of 1997  compared to the first six months of 1996  primarily due to a
$5.1 million decrease in other income.

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

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

         Other income of $532,000 in the first six months of 1997 represents the
amortization of the Company's utility connections  reserve.  Other income in the
first six months of 1996  included a gain of  approximately  $4.1  million on an
$18.75  million  settlement  in March  1996  with  the  City of Port  St.  Lucie
regarding  litigation pursuant to condemnation  proceedings  associated with the
taking of the Company's Port St. Lucie system. In addition,  other income in the
first six  months of 1996  consisted  of a gain of  $686,000  on the sale of the
Company's  Port LaBelle  utility system which was sold in February 1996 for $4.5
million  and a gain of  $865,000 on the sale of the  Company's  Julington  Creek
utility system sold in June 1996 for $6.0 million.

         Other operations other real estate overhead  decreased 44% in the first
six months of 1997  compared  to the first six months of 1996  primarily  due to
lower  community  operations  costs  associated  with the Company's  predecessor
assets located in secondary markets in Florida.

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

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


                                       15
<PAGE>

         Business  development other expenses included $405,000 in the first six
months of 1997 and  $313,000  in the first six months of 1996  representing  the
Company's 50% share of the net loss of the Ocean Grove joint  venture.  The loss
resulted from pre-sales advertising and other selling and overhead costs.

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

         The net loss from  administrative  & other  activities  increased  $6.0
million  in the  first six  months  of 1997  from the  first six  months of 1996
principally due to an extraordinary  gain of $3.8 million in 1996 resulting from
the cancellation of debt and to a $2.1 million increase in borrowing costs.

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

         Other income  included gains of $1.3 million in the first six months of
1997 and $1.3  million  in the  first  six  months  of 1996  resulting  from the
resolution of certain reorganization items. This process is expected to continue
during the  remainder of the year with  adjustments  to be recorded as the final
disposition of various claims and other  liabilities is concluded.  Other income
also  included   gains  of  $250,000  in  the  first  six  months  of  1997  and
approximately  $1.0 million in the first six months of 1996 due to reductions in
the  Company's  environmental  reserve  and gains of  $250,000  in the first six
months of 1997 and approximately $600,000 in the first six months of 1996 due to
reductions in the Company's land mortgages receivable valuation reserve.

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

         Other real  estate  overhead  decreased  27% in the first six months of
1997  compared to the same period in 1996  primarily  due to a decrease in legal
costs associated with supporting increased real estate sales activity.

         General and  administrative  expenses  decreased $730,000 or 14% in the
first six months of 1997  compared  to the first six months of 1996  principally
due to financial  advisory  and due  diligence  costs  incurred in the first six
months of 1996 associated with the Company's recapitalization efforts.

         Cost of borrowing,  net of capitalized  interest increased $2.1 million
in the first six months of 1997  compared to the same  period in 1996  primarily
due to a $1.3 million  increase in debt issue costs including a $1.0 million fee
paid  to  Foothill  in 1997  pursuant  to an  amendment  of the  Revolving  Loan
Agreement  on March 31,  1997.  Additionally,  there was a $539,000  decrease in
interest capitalized to land inventory corresponding to a decrease in land under
development. During the six months ended June 30, 1997 and 1996, the Company did
not accrue  interest on its Cash Flow Notes  because of the absence of Available
Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES."

         Other  expense in the first six months of 1997 included a $468,000 loss
on the sale of $9.3 million of land  mortgage  receivables  to the First Bank of
Boston in March 1997 for an initial  cash  distribution  of $7.0  million plus a
residual  interest in the portfolio.  The proceeds were used to reduce corporate
debt and to fund ongoing operations.

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



                                       16
    
<PAGE>

           Comparison of the Three Months Ended June 30, 1997 and 1996
           -----------------------------------------------------------

         The  comparison of the three months ended June 30, 1997 and 1996 should
be read in conjunction with the comparison of the six months ended June 30, 1997
and 1996 for a more  comprehensive  discussion of the result of operations.  The
Company's  results of  operations  for the three  months ended June 30, 1997 and
1996 are summarized by line of business, as follows:

<TABLE>
<CAPTION>

                                                   Combining Results of Operations by Line of Business
     
                                                            Three Months Ended June 30, 1997
     
                                                                (in thousands of dollars)
                                                                       (unaudited)

                                    HOMESITE    TRACT    RESIDENTIAL      OTHER       BUSINESS     ADMINISTRATIVE
                                     SALES      SALES      SALES        OPERATIONS   DEVELOPMENT       & OTHER      TOTAL
                                     -----      -----      -----        ----------   -----------       -------      -----
Revenues:
<S>                               <C>         <C>        <C>          <C>            <C>           <C>           <C>     

  Real estate sales                $   9,532  $  6,042   $  2,201      $             $               $            $ 17,775
                                                                                         
  Other operating revenue                391                                 461                                       852
                                                                                         
  Interest income                                                          1,080                           437       1,517
                                                                                         
  Other income:                                                                          
                                                                                         
   Reorganization reserves                                                   265                         1,100       1,365
                                                                                         
   Other income                                                                                            530         530
                                                                                         
                                 -----------------------------------------------------------------------------------------
Total revenues                         9,923     6,042      2,201          1,806                         2,067      22,039
                                 -----------------------------------------------------------------------------------------
                                                                                         
Costs and expenses:                                                                      
                                                                                         
  Cost of real estate sales            9,268     5,538      3,082                                                   17,888
                                                                                         
  Selling expense                      1,205       828       (168)                           24                      1,889
                                                                                         
  Other operating expense                                                    298                                       298
                                                                                         
  Other real estate costs:                                                               

    Property tax, net                                                                                      820         820
                                                                                         
    Other real estate overhead           287       355        115            160            690            469       2,076
                                                                                         
  General and administrative                                                                             2,456       2,456
                                                                                         
  Depreciation                             3        16                        33                           117         169
                                                                                         
  Cost of borrowing, net                                                                                 4,471       4,471
                                                                                         
  Other expense                                                                             287            355         642
                                 -----------------------------------------------------------------------------------------
Total costs and expenses              10,763     6,737      3,029            491          1,001          8,688      30,709
                                                                                         
                                 -----------------------------------------------------------------------------------------
Net income (loss)                  $    (840) $   (695)  $   (828)     $   1,315        $(1,001)    $   (6,621)  $  (8,670)
                                 =========================================================================================
</TABLE>


   
                                                            17
<PAGE>
<TABLE>
<CAPTION>
    

                                         Combining Results of Operations by Line of Business
                                         ---------------------------------------------------

                                                  Three Months Ended June 30, 1996

                                                      (in thousands of dollars)

                                                             (unaudited)

                                     HOMESITE      TRACT       RESIDENTIAL     OTHER     BUSINESS    ADMINISTRATIVE
                                       SALES       SALES          SALES     OPERATIONS  DEVELOPMENT      & OTHER        TOTAL
                                       -----       -----          -----     ----------  -----------      -------        -----
<S>                               <C>          <C>           <C>              <C>            <C>           <C>           <C>
Revenues:

  Real estate sales                  $   9,627 $    30,204   $       6,451  $          $             $             $   46,282

  Other operating revenue                                                        1,149                                  1,149

  Interest income                                                                1,265                       524        1,789

  Other income:

   Reorganization reserves                                                                                                  

   Other income                                                                    855                     1,654        2,509
                                    --------------------------------------------------------------------------------------------
Total revenues                           9,627      30,204           6,451       3,269                     2,178       51,729
                                    --------------------------------------------------------------------------------------------
Costs and expenses:

  Cost of real estate sales              7,494      24,906           4,896                                             37,296

  Selling expense                        1,496       1,394             382                                              3,272

  Other operating expense                                                          558                                    558

  Other real estate costs:

    Property tax, net                                                               20                     1,473        1,493

    Other real estate overhead             385         369             111         372       1,003           702        2,942

  General and administrative                                                                               2,256        2,256

  Depreciation                               9          27               2          81                       104          223

  Cost of borrowing, net                                                                                   3,098        3,098

  Other expense                           (23)                                                 118                         95
                                    --------------------------------------------------------------------------------------------
Total costs and expenses                 9,361      26,696           5,391       1,031       1,121         7,633       51,233
                                    --------------------------------------------------------------------------------------------
Net income (loss)                   $      266 $     3,508  $        1,060 $     2,238 $    (1,121)  $    (5,455)  $      496
                                    ============================================================================================
</TABLE>

         During the second quarter of 1997,  the Company  incurred a net loss of
$8.7  million  compared to net income of $496,000 in the second  quarter of 1996
primarily  due to a $9.1 million  decrease in the gross margins  generated  from
real estate sales. The lower gross margins resulted from lower real estate sales
revenues and lower gross margin percentages.

   
                                       18
    
<PAGE>

         Homesite Sales
         --------------

         The net operating results from homesite sales decreased $1.1 million in
the  second  quarter of 1997  compared  to the  second  quarter of 1996  despite
similar revenues,  primarily due to lower gross margin percentages in the second
quarter of 1997.

         Revenues from homesite sales were similar in the second quarter of 1997
compared to the second  quarter of 1996  despite a 49% increase in the number of
homesites  sold due to a 34% decrease in the average  sales price per  homesite.
The following table summarizes homesite activity for the three months ended June
30 (in thousands of dollars):

<TABLE>
<CAPTION>

                                                    1997                                                1996
                                    ------------------------------------               -------------------------------------
                                     Number                     Average                 Number                     Average
                                    of lots       Revenue    sales price               of lots       Revenue     sales price
                                    -------       -------    -----------               -------       -------     -----------
<S>                                    <C>         <C>          <C>                       <C>        <C>            <C>  

Subdivision homesite                  
sales                                 203          $6,999        $34.5                   158          $6,373        $40.3
Scattered homesite sales              695           2,533          3.6                   445           3,254          7.3
                                      ---           -----          ---                   ---           -----          ---
                                      898          $9,532        $10.6                   603          $9,627        $16.0
                                      ===          ======        =====                   ===          ======        =====
</TABLE>


         The increase in subdivision  homesite sales revenue is primarily due to
sales in the second  quarter of 1997 of $4.5  million in Windsor  Palms and $1.1
million in West Meadows and to a $553,000 increase in sales in Lakeside Estates,
partially offset by the bulk sale of the remaining 126 subdivision  homesites in
Julington  Creek  Plantation  for $5.6 million in June 1996. The decrease in the
average sales price of subdivision  homesite sales is primarily due to the sales
in Julington  Creek  Plantation  in the second  quarter of 1996 which yielded an
average selling price of approximately $44,600.

         Revenues from scattered  homesite sales decreased in the second quarter
of 1997  compared  to the second  quarter of 1996 due to a 51%  decrease  in the
average  selling  price,  partially  offset by a 56%  increase  in the number of
homesites  sold. The decrease in the average sales price is principally due to a
41.5%  decrease in the  average  sales price in the  Company's  Cumberland  Cove
community in Tennessee  and to an increase in bulk sales of scattered  homesites
in secondary  markets in Florida  which yield a lower sales  price.  The average
sales price in Cumberland  Cove  decreased from $20,700 in the second quarter of
1996 to  $12,100  in the  second  quarter  of 1997  primarily  due to the mix of
homesites  sold.  The volume of scattered  homesite  sales  increased due to the
increase in the number of bulk homesites sold.

         Other  income  in the  second  quarter  of  1997  included  a  $322,000
management   fee  received  from  Country  Lakes,   Ltd.,  a  Virginia   limited
partnership,  of which the Company is a limited  partner.  This  partnership was
formed to acquire, plan, develop and market approximately 1,750 acres located in
Dade and Broward counties Florida,  formerly known as  Viacom/Blockbuster  Park.
The Company provides the day-to-day management, development, marketing and sales
coordination for the partnership.  The $322,000  management fee represented 3.5%
of $9.2  million of  revenues  from a sale of 280 acres in this  project in June
1997.

         The  homesite  sales gross margin  percentages  were 2.8% in the second
quarter  of 1997  compared  to 22.2% in the second  quarter  of 1996.  The gross
margin  percentage in the second quarter of 1996 reflects targeted gross margins
of 20% to 30% for this line of business.  The lower gross margin  percentage  in
the second quarter of 1997 is attributable to a negative 10% gross margin on the
Windsor Palms sales and to an increase in bulk  homesite  sales which are priced
to sell and therefore yield lower gross margins. The negative

   
                                       19
    
<PAGE>

gross  margin  in  Windsor  Palms  was due to the  realization  of a lower  than
expected  sales price for the remaining  102 lots sold in the second  quarter of
1997 and to higher than  anticipated  costs  associated with the entire project.
The Company realized a gross margin of  approximately  6.5% on the Windsor Palms
project in its  entirety.  The gross  margin in the  second  quarter of 1997 was
22.3% for sales other than Windsor Palms and bulk homesite sales.

         Homesite  selling  expense  decreased  $291,000  or 19.5% in the second
quarter of 1997 and as a percentage of sales from 15.5% in the second quarter of
1996 to 12.6% in the second  quarter of 1997  primarily  due a decrease in fixed
selling costs, most particularly in the Cumberland Cove community in Tennessee.

         Tract Sales
         -----------

         The net operating  results from tract sales  decreased  $4.2 million in
the second  quarter of 1997 compared to the second quarter of 1996 primarily due
to lower gross margins  generated  from tract sales in 1997 resulting from lower
tract sales revenues and lower gross margin percentages.

         Revenues from tract sales decreased $24.2 million in the second quarter
of 1997  compared to the second  quarter of 1996  primarily due to several large
sales  during the second  quarter of 1996  including  the sale of the  Company's
Julington Creek Plantation project which included $11.6 million of tract acreage
and a $9.0 million bulk sale of Summerchase,  a project  consisting of 320 acres
in southwest  Broward County.  Tract sales acreages and  corresponding  revenues
from such sales often vary  significantly  from quarter to quarter  depending on
the timing and size of individual sales.

         Tract  sales  gross  margins  are  summarized  as follows for the three
months ended June 30:


                                        1997                       1996
                              -----------------------     ----------------------
                              Targeted         Actual     Targeted        Actual
                               Margins        Margins      Margins       Margins
                              --------        -------      -------       -------

Julington Creek bulk sale          -              -           -             6.3%
Other tract acreage             5-10%           8.3%         20%           24.5%

         The lower gross margin in Julington  Creek  resulted from the bulk sale
of this project in June 1996 as part of the Company's  business plan to monetize
certain assets to generate cash to retire debt.

         The actual gross  margins in the second  quarter of 1997 and the second
quarter of 1996 for other tract  acreage  generally  reflect the targeted  gross
margins.  The targeted  gross  margins have been  reduced  primarily  due to the
Company's  plan to  accelerate  land  sales  in  secondary  real  estate  market
locations.

         Tract sales  selling  expense  decreased in the second  quarter of 1997
compared to the second  quarter of 1996  primarily  due to lower direct  selling
expenses due to a decrease in revenues and to a decrease in fixed selling costs.
Tract sales selling  expense as a percentage of revenues  increased from 4.6% in
the second  quarter of 1996 to 13.7% in the second  quarter of 1997 due to lower
direct  selling  expenses  associated  with  several  large  sales in the second
quarter of 1996 including the Summerchase and Julington Creek sales and to lower
revenues over which to spread fixed selling costs in the second quarter of 1997.


   
                                       20
    
<PAGE>

         Residential Sales
         -----------------

         The net operating results from residential sales, which includes single
family homes and condominiums,  decreased $1.9 million during the second quarter
of  1997  compared  to  the  corresponding  prior  year  period.  This  decrease
corresponds  to a decrease  in the gross  margin  generated  from the  Company's
Regency  Island Dunes  condominium  project,  partially  offset by a decrease in
selling costs.

         Residential  sales are summarized as follows for the three months ended
June 30 (in thousand of dollars):

                                                   1997        1996
                                                 -------     -------
Condominium sales - Regency Island Dunes:
  First Building                                 $     -     $ 1,105
  Second Building                                  2,201       4,526
                                                 -------     -------
Total condominium sales                            2,201       5,631
Single family home sales                               -         820
                                                 -------     -------
                                                 $ 2,201     $ 6,451
                                                 =======     =======

         The  revenues  and  profits   associated   with  Regency  Island  Dunes
condominium  sales are recorded using the percentage of completion  method.  The
Regency Island Dunes condominium project consists of two 72-unit buildings.  The
condominium  revenues  of $2.2  million  in the  second  building  in the second
quarter of 1997 were derived from an increase in the second building  completion
percentage  during the quarter  from 96% as of March 31, 1997 to 100% as of June
30, 1997 and to four additional  units under contract during the quarter from 64
units as of March 31, 1997 to 68 units as of June 30, 1997. The revenues of $4.5
million in the second  building in the second  quarter of 1996 were derived from
45  units  under  contract  in the  second  building  as of June 30,  1996  with
construction  on the second building 30% complete.  The condominium  revenues of
$1.1  million  from the  first  building  in the  second  quarter  of 1996  were
generated  primarily  from the closing of three  units in the second  quarter of
1996 which were sold in 1996.

         Single  family home sales  revenues in the second  quarter of 1996 were
generated  from 10 closings with an average  selling of price of $82,000.  There
were no closings in the second quarter of 1997 due to the Company's  decision in
mid-1995 to withdraw from the single family home business.

         Residential sales gross margins are summarized as follows for the three
months ended June 30:

                                                    1997              1996
                                                    ----              ----

Condominiums                                       (40.0)%            27.0%
Single family homes                                    -               4.4%

         The gross  margin for  condominiums  in the second  quarter of 1997 was
negative due to  project-to-date  adjustments made in the second quarter of 1997
affecting  both  current and prior  period  profits  resulting  from higher than
anticipated construction costs associated with Regency Island Dunes. The overall
gross margin for this project is anticipated to be approximately  16.5% which is
lower than the targeted gross margin of  approximately  20% to 25% for this line
of business due to the higher than anticipated construction costs.

         The single family home gross margins in the second quarter of 1996 were
low due to the mix of product sold and to the winding down of this operation.


   
                                       21
    
<PAGE>

         Residential  selling  expense  decreased in the second  quarter of 1997
compared to the second quarter of 1996 and was negative in the second quarter of
1997 primarily due to an adjustment made in the second quarter of 1997 to reduce
incentive expenses,  some of which were accrued in prior periods, as a result of
the decrease in profits  associated with Regency Island Dunes. Also contributing
to the decrease in selling  expenses were lower direct  selling  expenses due to
lower  revenues in the second quarter of 1997 and to a decrease in fixed selling
costs as a result of the phasing-out of the single family home operations.

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

         Net income from other  operations  decreased  in the second  quarter of
1997  compared  to the second  quarter of 1996  primarily  due to an decrease in
other income.

         Other operating  revenues and expenses  decreased in the second quarter
of 1997 from the second quarter of 1996 primarily due to the absence of revenues
and expenses from the Julington Creek utility system sold in June 1996.

         Interest  income  decreased  in the  second  quarter  of 1997  from the
corresponding  prior year period  primarily  due to a lower  average  balance of
contracts receivable during the periods under review.

         Other income of $265,000 in the second  quarter of 1997  represents the
amortization of the Company's utility connections  reserve.  Other income in the
second quarter of 1996 consisted  primarily of a gain of $865,000 on the sale of
the  Company's  Julington  Creek  utilities  system  sold in June  1996 for $6.0
million.

         Other operations other real estate overhead decreased 57% in the second
quarter of 1997  compared to the second  quarter of 1996  primarily due to lower
community  operations  costs  associated with the Company's  predecessor  assets
located in secondary markets in Florida.

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

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

         Business  development  other expenses in the second quarter of 1997 and
in the second  quarter of 1996  consisted of the  Company's 50% share of the net
loss of the  Ocean  Grove  joint  venture.  The  loss  resulted  from  pre-sales
advertising and other selling and overhead costs.

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

         The net loss from  administrative  & other  activities  increased  $1.2
million  in the  second  quarter  of  1997  from  the  second  quarter  of  1996
principally due to a $1.4 million increase in borrowing costs.

         Other  income in the  second  quarter  of 1997  included  gains of $1.1
million  resulting from the  resolution of certain  reorganization  items.  This
process  is  expected  to  continue  during  the  remainder  of  the  year  with
adjustments to be recorded as the final  disposition of various claims and other
liabilities  is concluded.  Other income also included  gains of $250,000 in the
second quarter of 1997 and  approximately  $1.0 million in the second quarter of
1996 due to  reductions  in the  Company's  environmental  reserve  and gains of
$250,000 in the second quarter of 1997 and approximately  $600,000 in the second
quarter of 1996 due to reductions in the

   
                                       22
    
<PAGE>

Company's land mortgages receivable valuation reserve.

         Property tax, net  decreased in the second  quarter of 1997 compared to
the second  quarter of 1996  primarily due to a reduction of land  inventory not
under development.  This decrease in inventory  corresponds to sales activity in
the intervening period.

         Other real estate overhead  decreased 33% in the second quarter of 1997
compared to the same period in 1996  primarily  due to a decrease in legal costs
associated with supporting increased real estate sales activity.

         Cost of borrowing,  net of capitalized  interest increased $1.4 million
in the second  quarter of 1997 compared to the same period in 1996 primarily due
to the $1.0 million fee paid to Foothill in 1997 pursuant to an amendment of the
Revolving Loan  Agreement on March 31, 1997.  During the three months ended June
30, 1997 and 1996,  the  Company did not accrue  interest on its Cash Flow Notes
because of the absence of Available Cash during the periods.  See "LIQUIDITY AND
CAPITAL RESOURCES."

Liquidity & Capital Resources
-----------------------------

         As of June 30, 1997,  the Company's cash and cash  equivalents  totaled
approximately  $4.5  million.  The  Company  also had  restricted  cash and cash
equivalents of $4.0 million,  which consisted  primarily of escrows for the sale
and  development of real estate  properties,  funds held in trust to pay certain
bankruptcy  claims  and  various  other  escrow  accounts.  Of the $2.6  million
decrease in cash and cash equivalents  during the first six months of 1997, $2.2
million was used in operating activities and $12.3 million was used in financing
activities, partially offset by $11.9 million provided by investing activities.

         Cash  used in  operating  activities  includes  approximately  (i) $7.6
million for interest  payments,  (ii) $5.4  million for  property tax  payments,
(iii) $9.8 million for construction  and development  expenditures and (iv) $4.2
million of fees associated with the Company's  refinancing and  recapitalization
efforts.  These  uses were  offset in part by net cash  generated  through  real
estate sales and other operations.

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

         Cash used in financing  activities  includes $37.5 million of principal
payments on January 3, 1997 to repay in full the Company's  Unsecured 12% Notes,
a scheduled  principal  payment of $13.3 million on the Company's  Term Loan and
$1.2  million  in net  principal  payments  related  to the  Company's  deferred
property  tax  and  Section   365(j)  lien   obligations   arising  out  of  the
reorganization proceedings.  These payments were partially offset by proceeds of
$10.0 million from the issuance of Common Stock and approximately  $18.9 million
from the  issuance  of Series A and B  Preferred  Stock as more fully  described
below.  In addition,  the Company had net  borrowings  of $5.8 million under the
Reducing  Revolving  Loan,  $2.2 million  associated  with the  financing of the
Company's  mortgage  and  contract  receivables  and $2.8 million on new project
financings.

         The Company has,  pursuant to a Revolving  Loan  Agreement  dated as of
September 30, 1996 with Foothill  Capital  Corporation  ("Foothill"),  (i) a $20
million working capital  facility  maturing  December 1, 1998 ("Working  Capital
Facility"),  and a $25 million  reducing  revolving  loan maturing June 30, 1998
("Reducing  Revolving  Loan "), with  principal  reductions  as set forth below.
Amounts  under  the  Reducing  Revolving  Loan are  available  only when (i) the
Working  Capital  Facility  is  fully  utilized,  and  (ii)  the  Company  is in
compliance with, among other conditions, a "borrowing base" formula based on the
value of certain of the Company's

   
                                       23
    
<PAGE>

assets.  Amounts  outstanding  under the Working Capital  Facility bear variable
interest at a rate equal to the variable interest rate, per annum,  announced by
Northwest  Bank of  Minnesota,  N.A.,  as its "base  rate"  plus two  percentage
points.  The Reducing  Revolving Loan bears variable interest at the "base rate"
plus four percentage  points.  As of June 30, 1997, the Working Capital Facility
was fully drawn and there was $7.6 million outstanding on the Reducing Revolving
Loan.

         The  Company's  remaining  material  obligations  for 1997  include (i)
principal  repayments  on the  Foothill  debt up to $21.7  million as more fully
described  below,  and (ii) the final  principal  and  interest  payments on the
Company's  Section 365(j) lien and deferred  property tax  liabilities  totaling
approximately  $1.5  million  which are due in the third  quarter  of 1997.  The
Company's  1997  business  plan also  contemplates  full year  expenditures  for
development,   construction   and  other  capital   improvements   estimated  at
approximately $50 million,  of which a substantial  portion will require funding
through individual project development loans or joint venture arrangements, many
of which are  already in place.  If the  Company is unable to obtain the capital
resources  to fund  these  expenditures,  the  implementation  of the  Company's
business plan will be adversely  affected,  thus slowing the Company's  expected
revenue  growth and  increasing  the expected time  necessary for the Company to
achieve profitability.

         On September 30, 1996,  the Company  closed on three credit  facilities
totalling $85.0 million with Foothill (the "Foothill Refinancing").  Pursuant to
the  Foothill  Refinancing,  Foothill  has  provided  the  Company  with  (i) an
extension  to December 1, 1998 of the $20 million  Working  Capital  Facility as
discussed  above;  (ii) a $40 million  Term Loan at an interest  rate of 15% per
annum,  maturing June 30, 1998; and (iii) a Reducing Revolving Loan of up to $25
million  maturing on June 30, 1998, as discussed  above.  The Term Loan requires
principal  repayments  of  one-third  on each of December  31, 1997 and June 30,
1998. The commitment  under the Reducing  Revolving Loan will also be reduced by
one-third on each of December  31, 1997 and June 30, 1998,  and the Company will
be required to repay on those dates any amounts  outstanding  under the Reducing
Revolving  Loan in excess of the new  commitment  amount.  At June 30, 1997, the
Company had outstanding the full $20 million under the Working Capital Facility,
approximately  $26.7 million under the Term Loan and approximately  $7.6 million
of the $16.7 million currently available under the Reducing Revolving Loan.

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

         The  Company's  ongoing  business  plan is to continue to monetize  its
non-core tract and scattered  homesite assets  ("Predecessor  assets") to reduce
corporate debt. The Company made substantial  progress in this regard as it sold
$55.6  million of tract and scattered  homesite  assets in 1996 and $15.7 in the
first six months of 1997. In addition,  the Company  currently has pending under
contract  or  letter  of  intent  a  combination  of   Predecessor   asset  sale
transactions which would generate,  if consummated,  approximately $23.4 million
of cash and notes. The  transactions  under contract are subject to a variety of
customary   conditions,   in  some  cases   including  a  financing   condition.
Transactions  subject  to a  letter  of  intent  are  also  subject  to  further
negotiation  and  documentation  and there are no assurances that any particular
transaction under contract or letter of intent will be consummated.

         As part of the effort to monetize the  Predecessor  assets  pursuant to
its  business  plan,  the  Company  is  actively  monetizing  mortgage  and note
receivables  generated  from  the  sale  of  Predecessor  tracts  and  scattered
homesites.  The Company raised  approximately  $17.8 million of cash proceeds in
1996 and an  additional  $14.6  million  in the  first six  months of 1997,  and
received certain residual interests, from the sale

   
                                       24
    
<PAGE>

or  refinancing  of mortgages or other  receivables  generated  from the sale of
Predecessor  real estate assets.  These cash  proceeds,  along with the net cash
proceeds from  Predecessor  real estate sales,  were applied to the reduction of
corporate debt and to fund ongoing operations.  The Company plans to continue to
sell or finance mortgages and other  receivables  generated from the future sale
of Predecessor real estate assets going forward.

         As  disclosed  in  Note  7  in  the  Notes  to  Consolidated  Financial
Statements,  the  Company  closed  on a series of  preferred  and  common  stock
transactions with (i) Apollo to purchase up to $25 million of Series A Preferred
Stock and  warrants  to  purchase  5,000,000  shares of common  stock;  and (ii)
through a private  placement,  the issuance of 1,776,199  shares of Common Stock
for $10  million  and $10  million of Series B  Preferred  Stock  with  Series B
Warrants to purchase 2,000,000 shares of Common Stock.

         As of June 30, 1997, the entire $20 million purchase price for the full
private  placement  of Series B Preferred  Stock,  Series B Warrants  and Common
Stock was paid as well as $8.9  million of the  aggregate  $25 million  purchase
price  corresponding to 887,475 shares of Series A Preferred Stock with Investor
Warrants to purchase 1,774,950 shares of Common Stock.

         As of August 8, 1997, an additional $11.1 million was paid by Apollo to
purchase  1,109,000 shares of Series A Preferred Stock with warrants to purchase
2,218,000  shares of Common Stock for a total  outstanding of $20 million of the
aggregate  $25  million  purchase  price of the  Series A  Preferred  Stock  and
Investor Warrants. As required by the Agreements, these funds have been and will
be used  primarily  to acquire and develop  properties  in certain  wholly owned
subsidiaries  of the Company  where  Apollo has a first lien over the assets and
stock of such  subsidiaries  securing the Company's  repurchase  and  redemption
obligations in respect of the Series A Preferred Stock.

         The Company plans to issue up to an additional  $10 million of Series B
Preferred Stock along with Series B Warrants to purchase up to 2,000,000  shares
of Common Stock to be offered through a rights offering to existing stockholders
and to the  holders  of  warrants  issued by the  Company in  September  1996 to
purchase up to 1,500,000 shares of Common Stock. An S-3  registration  statement
has been  filed  and is  currently  pending  with the  Securities  and  Exchange
Commission. The Company expects to close the transaction October, 1997.

         Available  Cash is defined  in the  Company's  POR with  respect to any
payment period (generally,  any six-month period ending June 30 or December 31),
as the sum of all  cash  receipts  (exclusive  of  borrowed  money  and  certain
delineated cash items) less the sum of payments for operating expenses, all debt
payments  (including  repurchases of indebtedness),  capital  expenditures,  tax
payments, payments to creditors under the plan of reorganization and creation of
reserves  for  working  capital  and  other  expenses  for the next two  payment
periods.

         Pursuant to the Company's debt  agreements,  the Company must apply any
Available  Cash (i) to the payment of interest  due on the  Company's  unsecured
cash flow notes due December 31, 1998 ("Cash Flow  Notes");  (ii) to payments of
outstanding amounts under the Working Capital Facility;  and (iii) to repayments
of principal on the Cash Flow Notes.

   
         If there is no  Available  Cash on a  payment  date,  the then  current
interest on the Cash Flow Notes is not due or payable on that payment date or at
any time thereafter.  Due to the necessity to establish  reserves against future
mandatory debt, capital and operating expenditures, the Company did not have any
Available Cash to enable it to make payments on the Cash Flow Notes through June
30, 1997. Accordingly,  the Company did not accrue any interest on the Cash Flow
Notes during the six months ended June 30, 1997 and 1996.  Also,  based upon the
Company's  existing debt  obligations,  its  anticipated  net cash flows and its
business plan,  management does not anticipate the Company having, in respect of
the Cash Flow Notes, Available Cash on a payment date in the foreseeable future.


                                       25
    
<PAGE>

   
PART II.  -  OTHER INFORMATION
    

Item 1.  Legal Proceedings
         -----------------

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

   
         Subsequent to the  foregoing  alleged  events,  the Florida Real Estate
Commission  discovered  that escrow  deposits  were  missing  from  Florida Home
Finder's  accounts  and  brought an action in St.  Lucie  County  circuit  court
seeking the  appointment  of a receiver for the property and business of Florida
Home  Finders.  State  of  Florida,  Department  of  Business  and  Professional
Regulation  v. Florida Home Finders,  Inc. et al.,  Case No.  95-1092-CA 17 (St.
Lucie Cty.  Cir.  Ct.) A receiver  was  appointed  for Florida  Home  Finders in
October  1995. In November  1995,  the Company  intervened  in the  receivership
proceeding to (i) protect the Company's  interest in the $2.0 million paid under
the  purchase  money note given by FHF Trust in favor of the  Company,  and (ii)
assert claims against the  receivership  estate for money owed to the Company in
connection with the sale of Florida Home Finders to Messrs.  Law and Schiff. The
receivers  have sold the Florida Home  Finders'  assets  (other than  litigation
claims against third  parties,  which have been retained by the receiver) to All
Florida  Property  Management,  Inc., a Florida  corporation;  however the sales
proceeds  are being held by the  receiver  pending the court's  order  directing
disbursement.

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

         The  Company  agreed  with the  receiver  on May 5, 1997 to a tentative
settlement  of all matters  pending final  documentation,  the  satisfaction  of
certain  conditions and court approval.  The documentation of the settlement was
finalized and submitted to the court for approval on or about August 6, 1997. At
a hearing on August 26,  1997,  the court  indicated  that it would  approve the
terms of the  settlement  agreement,  although no such Order has been entered by
the court at this time.  If a final Order is entered by the court  approving the
settlement  agreement,  the terms of the  settlement  will not have a  material,
adverse financial affect on the Company.

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


                                       26
    
<PAGE>

   
styled Regency Island Dunes Inc. v. Foley and Associates  Construction  Company,
Inc., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.), Regency filed its action
to  discharge  the  construction  lien filed by Foley on the basis that the lien
claim was inflated  and was recorded  against  units which had  previously  been
conveyed to third party  purchasers  as well as  additional  lands not  included
within the construction  contract  between the parties.  The preceding two cases
have been  consolidated and partially stayed pending  resolution of the contract
disputes  in  arbitration.  In Regency  Island  Dunes,  Inc.  v.  National  Fire
Insurance  Company of Hartford and Foley and  Associates  Construction  Company,
Inc., refiled under Case No. 97-14075,  U.S.D.C.,  Southern District of Florida,
Regency filed suit to recover damages against Foley's surety for corrective work
performed  by Regency as well as various  other  claims for damages  asserted by
Regency in the  arbitration  described  above.  The Federal Court dismissed this
action  because the  arbitration  proceeding  will be  dispositive of the issues
against the surety. The arbitration proceeding commenced on July 1, 1997 and was
completed on July 28, 1997.  The  arbitration  panel  entered an award on August
26,1997,  in which  $2,839,546  was awarded Foley on its claims and $442,000 was
awarded Regency on its counterclaims.  The Company intends to vigorously contest
the arbitration panel's award.

         In  addition,  based  upon a  separate  construction  contract  between
Regency and Foley for the construction of the second phase of the Regency Island
Dunes  Condominium  Project,  Foley filed a demand for arbitration in March 1997
asserting breach of contract relating to change orders, release of retainage and
Foley's  requests for  extensions of time.  The dispute with Foley in connection
with the second phase has escalated  and Foley has filed a claim of lien,  which
includes  retainage,  overhead  and  unauthorized  change  orders.  The  Company
continues  discussions with Foley to resolve the phase two matters. In the event
the  settlement  discussions  are  unsuccessful,  the Company  and Regency  will
vigorously  defend the claims  asserted by Foley and  aggressively  pursue their
claims against Foley and the surety.
    


Item 2.           Changes in Securities
                  ---------------------

(a)  Effective  June 24, 1997, as approved by the  Company's  stockholders,  the
Company's  certificate of  incorporation  was amended to repeal the right of the
holders of its Common Stock to receive, semiannually,  mandatory dividends equal
to 25% of the Company's Available Cash (as defined in the Company's POR).

(b)  Effective  June 24, 1997, as approved by the  Company's  stockholders,  the
Company's  certificate of incorporation was amended to authorize the issuance of
Series A  Preferred  Stock and Series B  Preferred  Stock.  The  holders of each
series are  entitled  to  preferential  receipt of  dividends  and  preferential
distribution  from the assets of the Company upon  liquidation,  dissolution  or
winding  up as  compared  to holders  of Common  Stock.  Holders of the Series A
Preferred  Stock,  voting as a single class, are entitled to elect three members
of the Company's seven-member Board of Directors.

(c) On June 25, 1997, the Company sold and issued an aggregate of 553,475 shares
of Series A  Preferred  Stock,  together  with  Investor  Warrants  to  purchase
1,106,950 shares of Common Stock, divided evenly among Class A Warrants, Class B
Warrants and Class C Warrants,  to Apollo,  for an aggregate  purchase  price of
$5,534,752 in a private placement exempt from  registration  pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Apollo is
an accredited  investor as defined in Rule 501 promulgated  under the Securities
Act.  On June 30,  1997,  the  Company  sold and issued to Apollo an  additional
334,000  shares of Series A Preferred  Stock and  Investor  Warrants to purchase
668,000 shares of Common Stock, for an aggregate purchase price of $3,340,000.

         On June 25, 1997, the Company sold and issued an aggregate of 1,000,000
shares of its Series B Preferred Stock, together with 1,776,199 shares of Common
Stock and  Series B  Warrants  to  purchase  2,000,000  shares of Common  Stock,
divided  evenly among  Series B Class A Warrants,  Series B Class B Warrants and
Series B Class C Warrants,  to a group of institutional and other  sophisticated
investors,  for  an  aggregate  purchase  price  of  $20,000,000,  in a  private
placement  exempt from  registration  pursuant to Section 4(2) of the Securities
Act and Rule 506 promulgated thereunder.


   
                                       27
    
<PAGE>

         The Series A Preferred  Stock and the Series B Preferred Stock are each
convertible at $5.75 per share, at the option of the holder thereof, in whole or
in part,  into Common Stock,  subject to certain  adjustments as provided in the
applicable  Certificate  of  Designations.  The  Investor  Warrants and Series B
Warrants may be exercised  at the option of the holder  thereof,  in whole or in
part,  to  purchase  Common  Stock  at  $5.75  per  share,  subject  to  certain
adjustments,  at any  time  within  seven  years of  their  respective  dates of
issuance, subject to certain terms and conditions set forth in the warrants, and
in the case of the Series B Warrants, in the related Warrant Agreement.


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

The annual meeting of stockholders was held at the Hyatt Regency Miami, 400 S.E.
Second Avenue, Miami, Florida on June 23, 1997.

The stockholders voted on the following matters as set forth in the Company's
Proxy Statement dated May 21, 1997:

1.      APOLLO TRANSACTION. The  stockholders approved the proposal to (a) amend
the Company's  restated  certificate of  incorporation,  in the form attached as
Appendix A to the Proxy  Statement,  to,  among other  things (i)  increase  the
Common Stock from 15,665,000  shares to 70,000,000 shares and (ii) authorize the
Company's  issuance of 4,500,000  shares of preferred  stock with a  liquidation
preference  of $10 per  share,  of  which  (x)  2,500,000  shares  would  be 20%
cumulative  redeemable  convertible  preferred  stock,  designated  as  Series A
Preferred  Stock,  and (y) 2,000,000  shares would be 20% cumulative  redeemable
convertible preferred stock, designated as Series B Preferred Stock; (b) approve
certain investment transactions involving,  among other things, (i) the issuance
to Apollo of up to 2,500,000 shares of Series A Preferred Stock in the aggregate
amount of $25,000,000 and warrants to purchase 5,000,000 shares of Common Stock,
(ii)  the  granting  to  Apollo  of  representation  on the  Company's  board of
directors  (the  "Board"),  (iii) the issuance  and sale in a potential  private
placement  to certain  other  investors  of up to  1,000,000  shares of Series B
Preferred  Stock in the  aggregate  amount of  $10,000,000,  newly issued Common
Stock with a fair market value of up to $10,000,000, and warrants to purchase up
to  2,000,000  shares  of Common  Stock  and (iv)  subject  to  compliance  with
securities  registration  and  other  laws,  the  making  available  for sale to
stockholders in a rights  offering up to 1,000,000  shares of Series B Preferred
Stock in the  aggregate  amount of  $10,000,000  and  warrants to purchase up to
2,000,000 shares of Common Stock; and (c) amend the 1994 non-employee directors'
stock option plan to provide for the  extension of the exercise  period of those
options held by directors  who will resign upon  consummation  of certain of the
investment transactions.  The voting tabulation was as follows:  5,627,429 votes
in favor of the  proposal;  654,155  votes  against  the  proposal;  and  44,954
abstentions.

2.      ELECTION OF  DIRECTORS.  The  stockholders  voted to elect three class 2
directors,  James W.  Apthorp,  Jerome J.  Cohen and  Lawrence  B.  Seidman,  to
three-year terms expiring at the annual meeting of stockholders in 2000 or until
their successors are duly elected and qualified.  The voting tabulation for each
nominee was as follows:

James W. Apthorp --    6,036,163  votes in favor of  election;  1,121,729  votes
                       withheld.

Jerome  J. Cohen --    6,069,626  votes in favor of  election;  1,088,266  votes
                       withheld.

   
Lawrence B. Seidman -- 6,442,212 votes in favor of election;
                       715,680 votes withheld.
    

Upon  consummation  of the Apollo  Transaction  on June 24, 1997,  the Board was
reduced from ten to seven


   
                                       28
    
<PAGE>

members.  James W. Apthorp,  Allen A. Blase,  Jerome J. Cohen,  Raymond Ehrlich,
W.D.  Frederick,  Jr.,  Lawrence  B.  Seidman  and John W.  Temple  resigned  as
directors  of the  Company.  To fill the  vacancies,  the  Board  appointed  the
following  directors:  Charles K.  MacDonald  as a class 1  director  whose term
expires at the annual meeting in 1999;  James M. DeFrancia as a class 3 director
whose term expires at the annual meeting in 1998; and Ricardo  Koenigsberger and
Lee Neibart as directors elected by the holders of the Series A Preferred Stock.
J. Larry  Rutherford,  W. Edward Scheetz and Gerald N. Agranoff also resigned as
directors  of the Company so that they could be  reappointed  to the Board.  The
Board reappointed Gerald N. Agranoff as a class 1 director,  J. Larry Rutherford
as a Class 2 director and W. Edward Scheetz as a director elected by the holders
of the Company Series A Preferred Stock.

3.      REVERSE  STOCK  SPLIT AND  SUBSEQUENT  FORWARD  SPLIT  OF THE  COMPANY'S
COMMON  STOCK.  The  stockholders  approved the proposal to amend the  Company's
restated  certificate of incorporation (a) to effect, as determined by the Board
in  its  discretion,  either  of  two  different  reverse  stock  splits  of the
outstanding Common Stock as of 5:00 p.m. (Florida time) on the effective date of
the  amendment  (the  "Effective  Date"),  pursuant to which either (i) each 100
shares then outstanding will be converted into one share (the "1-for-100 Reverse
Split") , or (ii) each 200 shares then  outstanding  will be converted  into one
share (the  "1-for-200  Reverse  Split" and together with the 1-for-100  Reverse
Split,  the  "Reverse  Split" or "Reverse  Splits")  and (b) 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 Split,  pursuant to which each share of Common
Stock  then  outstanding  as of such date will be  converted  into the number of
shares of the Common Stock that each share represented  immediately prior to the
Effective  Date  ("Forward  Split").  The  voting  tabulation  was  as  follows:
6,886,682  votes in favor of the amendment;  98,084 votes against the amendment;
and 47,203  abstentions.  Consummation of the Reverse Split would be subject to,
among other things, the approval of Foothill and Apollo, and the availability of
sufficient funds.


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


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

   
            10     (a)   Form of Mortgage and Security Agreement, as of June 23,
                         1997, to the Bank of New York.

                   (b)   Form of Personal  Property  Security  Agreement,  as of
                         June 23, 1997, in favor of The Bank of New York.

                   (c)   Form of Stock Pledge Agreement, as of June 23, 1997, in
                         favor of The Bank of New York.

                   (d)   Form of Junior Mortgage and Security  Agreement,  as of
                         June 23, 1997, to Foothill Capital Corporation.

                   (e)   Form of Junior Personal Property Security Agreement, as
                         of June 23, 1997, in favor of Foothill Capital
                         Corporation.

                   (f)   Form of Junior Stock Pledge  Agreement,  as of June 23,
                         1997, in favor of Foothill Capital Corporation.

            27    Financial Data Schedule.
    


(b) Reports on Form 8-K

         The  Company  filed a report on Form 8-K on June 5, 1997,  pursuant  to
Item 5, Other  Events,  reporting  that the Company and Apollo  entered  into an
Amended and Restated Investment  Agreement dated as of February 7, 1997, amended
as of March 20, 1997, and amended and restated as of May 15, 1997.

   
                                       29
    
<PAGE>

                                   SIGNATURES


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


                      ATLANTIC GULF COMMUNITIES CORPORATION




   
Date: September 22, 1997                  /s/ J. LARRY RUTHERFORD
                                          ----------------------------------
                                              J. Larry Rutherford
                                              Chairman of the Board,
                                              President, and
                                              Chief Executive Officer






Date:  September 22, 1997                  /s/ CALLIS N. CARLETON
                                          ----------------------------------
                                               Callis N. Carleton
                                               Vice President and Controller
                                               (Principal Accounting Officer)

                                       30
    
<PAGE>

   
                                 EXHIBIT INDEX


         EXHIBIT   DESCRIPTION
         -------   -----------

            10     (a)   Form of Mortgage and Security Agreement, as of June 23,
                         1997, to the Bank of New York.

                   (b)   Form of Personal  Property  Security  Agreement,  as of
                         June 23, 1997, in favor of The Bank of New York.

                   (c)   Form of Stock Pledge Agreement, as of June 23, 1997, in
                         favor of The Bank of New York.

                   (d)   Form of Junior Mortgage and Security  Agreement,  as of
                         June 23, 1997, to Foothill Capital Corporation.

                   (e)   Form of Junior Personal Property Security Agreement, as
                         of June 23, 1997, in favor of Foothill Capital
                         Corporation.

                   (f)   Form of Junior Stock Pledge  Agreement,  as of June 23,
                         1997, in favor of Foothill Capital Corporation.

            27    Financial Data Schedule.