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

                                    FORM 10-Q

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

For the quarterly period ended September 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 11,521,249  shares of the Registrant's  Common Stock outstanding as of
November 12, 1997.


<PAGE>

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

                                                                           Page
                                                                            No.
                                                                           ----
PART I.  -  FINANCIAL INFORMATION

  Item 1.  Financial Statements

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

           Consolidated Statements of Operations for the Three
           and Nine Months Ended September 30, 1997 and 1996                   2

           Consolidated Statements of Cash Flows for the Nine 
           Months Ended September  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                                            8


PART II.  -  OTHER INFORMATION


  Item 1.  Legal Proceedings                                                  28


  Item 2.  Change in Securities                                               30


  Item 6.  Exhibits and Reports on Form 8-K                                   30


SIGNATURES                                                                    31


<PAGE>
PART I.    -      FINANCIAL INFORMATION

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

             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    September 30, 1997 and December 31, 1996
                            (in thousands of dollars)
<TABLE>
<CAPTION>

                                                               September 30, December 31,
                                                                  1997          1996
                                                                  ----          ----
         Assets                                                (unaudited)
         ------

<S>                                                             <C>          <C>      
Cash and cash equivalents                                       $   2,081    $   7,050
Restricted cash and cash equivalents                                1,985        6,034
Contracts receivable, net                                           6,772        9,649
Mortgages, notes and other receivables, net                        34,577       63,800
Land and residential inventory                                    161,945      153,417
Property, plant and equipment, net                                  2,074        2,911
Other assets, net                                                  19,338       20,532
                                                                ---------    ---------
Total assets                                                    $ 228,772    $ 263,393
                                                                =========    =========

         Liabilities and Stockholders' Equity
         ------------------------------------

Accounts payable and accrued liabilities                        $  12,449    $  16,914
Customers' and other deposits                                       2,008        5,483
Other liabilities                                                  10,541       15,393
Notes, mortgages and capital leases                               137,037      169,215
                                                                ---------    ---------
                                                                  162,035      207,005
                                                                ---------    ---------

Cumulative Redeemable Convertible Preferred Stock
     Series A, 20%, $.01 par value; 2.5 million shares 
        authorized; 1.996 million shares issued, 
        liquidation preference of $20.805 million                  18,500           --

     Series B, 20%, $.01 par value; 2.0 million shares 
        authorized; 1.0 million shares issued, 
        liquidation preference of $10.541 million                   9,659           --
                                                                ---------    ---------
                                                                   28,159           --
                                                                ---------    ---------
Stockholders' equity
     Common stock, $.10 par value; 70,000,000
        and 15,665,000 shares authorized;
        11,600,546 and 9,795,642 shares issued                      1,160          980
     Contributed capital                                          130,880      122,123
     Accumulated deficit                                          (87,453)     (60,706)
     Minimum pension liability adjustment                          (6,000)      (6,000)
     Treasury stock, 86,277 shares, at cost                            (9)          (9)
                                                                ---------    ---------

Total stockholders' equity                                         38,578       56,388
                                                                ---------    ---------
Total liabilities and stockholders' equity                      $ 228,772    $ 263,393
                                                                =========    =========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       1
<PAGE>
<TABLE>
<CAPTION>

                      ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

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

                                                  Three Months Ended         Nine Months Ended
                                                     September 30,             September 30,
                                                -----------------------   ----------------------
Revenues:                                           1997         1996         1997         1996
                                                    ----         ----         ----         ----
<S>                                             <C>          <C>          <C>          <C>      
    Real estate sales:
         Homesite                               $   4,977    $   4,155    $  17,059    $  28,380
         Tract                                      4,809        7,605       17,515       43,554
         Residential                                  826        4,704       10,097       14,025
                                                ---------    ---------    ---------    ---------
      Total real estate sales                      10,612       16,464       44,671       85,959
    Other operating revenue                           632        1,281        2,077        3,563
    Interest income                                 1,182        1,027        4,299        4,157
                                                ---------    ---------    ---------    ---------
         Total revenues                            12,426       18,772       51,047       93,679
                                                ---------    ---------    ---------    ---------
Costs and expenses:

    Cost of real estate sales:
         Homesite                                   4,308        3,053       15,564       21,466
         Tract                                      4,371        6,171       16,064       35,780
         Residential                                3,890        3,465       12,288       10,536
                                                ---------    ---------    ---------    ---------
      Total cost of real estate sales              12,569       12,689       43,916       67,782

    Inventory valuation reserve                       145           --          145           --
    Selling expense                                 1,930        3,029        5,948        8,853
    Other operating expense                           337          354          965        1,611
    Other real estate costs                         3,742        5,878        9,544       14,570
    General and administrative expense              2,078        2,906        6,734        8,292
    Depreciation                                      171          186          524          658
    Cost of borrowing, net of amounts capitalized   2,389        2,725       11,123        9,111
    Other expense                                     123          100          585          402
                                                ---------    ---------    ---------    ---------
      Total costs and expenses                     23,484       27,867       79,484      111,279
                                                ---------    ---------    ---------    --------- 
Operating loss                                    (11,058)      (9,095)     (28,437)     (17,600)
                                                ---------    ---------    ---------    ---------
Other income (expense):
    Reorganization items                              442          129        2,236        1,396
    Utility condemnation                               --           (2)          --        4,122
    Miscellaneous                                    (185)        (240)        (546)       2,965
                                                ---------    ---------    ---------    ---------
Total other income (expense)                          257         (113)       1,690        8,483
                                                ---------    ---------    ---------    ---------
Loss before extraordinary items                   (10,801)      (9,208)     (26,747)      (9,117)
Extraordinary gains on extinguishment of debt          --        7,255           --       11,025
                                                ---------    ---------    ---------    ---------
Net income (loss)                                 (10,801)      (1,953)     (26,747)       1,908
                                                ---------    ---------    ---------    ---------

Less:
 Accrued preferred stock dividends                  1,319           --        1,381           --
 Accretion of preferred stock to redemption
  amount                                              182           --          190           --
                                                ---------    ---------    ---------    ---------
                                                    1,501           --        1,571           --
                                                ---------    ---------    ---------    ---------
Net income (loss) applicable to common
  stock                                         $ (12,302)   $  (1,953)   $ (28,318)   $   1,908
                                                =========    =========    =========    =========
Loss before extraordinary items per
  common share                                  $    (.94)   $    (.95)   $   (2.58)   $    (.94)
                                                =========    =========    =========    =========
Net income (loss) per common share              $   (1.07)   $    (.20)   $   (2.73)   $     .20
                                                =========    =========    =========    =========
Weighted average common shares outstanding         11,512        9,692       10,372        9,708
                                                =========    =========    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                       ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows
                           Nine Months Ended September 30, 1997 and 1996
                                     (in thousands of dollars)
                                            (unaudited)
<TABLE>
<CAPTION>

                                                                                Nine Months Ended
                                                                                  September 30,
                                                                              ---------------------
                                                                                1997         1996
                                                                                ----         ----
<S>                                                                         <C>          <C>      
     Cash flows from operating activities:
       Net income (loss)                                                    $ (26,747)   $   1,908
       Adjustments to reconcile net income (loss) to net cash provided by
         (used in) operating activities:
           Depreciation and amortization                                        4,047        4,174
           Gains from utility condemnations or sales                               --       (5,504)
           Extraordinary gains on extinguishment of debt                           --      (11,025)
           Other income                                                        (1,568)      (1,841)
           Inventory valuation reserve                                            145           --
           Reorganization items                                                   562       (1,281)
           Land acquisitions                                                  (19,745)      (8,101)
           Other net changes in assets and liabilities:
              Restricted cash                                                   4,049        3,192
              Receivables                                                      19,446        6,636
              Land and residential  inventory                                  20,559       37,619
              Other assets                                                     (3,944)      (9,130)
              Accounts payable and accrued liabilities                         (4,124)      (6,259)
              Customer deposits                                                (3,475)      (1,646)
              Other liabilities                                                (1,108)      (1,897)
              Other, net                                                         (103)        (260)
                                                                            ---------    ---------
                 Net cash provided by (used in) operating activities          (12,006)       6,585
                                                                            ---------    ---------

     Cash flows from investing activities:
        Additions to property, plant and equipment, net                          (278)        (198)
        Proceeds from sale of property, plant and equipment, net                    1          773
        Proceeds from utility condemnations or sales                               --       28,699
        Funds withdrawn from utility trust accounts                            12,109           --
                                                                            ---------    ---------
                 Net cash provided by investing activities                     11,832       29,274
                                                                            ---------    ---------

     Cash flows from financing activities:
        Borrowings under credit agreements                                     78,670      113,637
        Repayments under credit agreements                                   (120,932)    (146,670)
        Principal payments on other liabilities                                (2,498)      (4,266)
        Proceeds from issuance of common stock                                 10,000           -- 
        Proceeds from issuance of preferred stock                              29,965           -- 
                                                                            ---------    ---------
                 Net cash used in financing activities                         (4,795)     (37,299)
                                                                            ---------    ---------

     Decrease in cash and cash equivalents                                     (4,969)      (1,440)
     Cash and cash equivalents at beginning of period                           7,050        3,560
                                                                            ---------    ---------
     Cash and cash equivalents at end of period                             $   2,081    $   2,120
                                                                            =========    =========

     Supplemental cash flow information:
         Interest payments, net of amounts capitalized                      $   6,634    $   8,513
                                                                            =========    =========
         Reorganization item payments                                       $   1,743    $   4,919
                                                                            =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>


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


(1)      The September 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 computed by deducting accrued
         preferred  stock  dividends and the accretion of preferred stock to the
         redemption  amount to determine net income (loss)  applicable to common
         stock.  This amount is then divided by the weighted  average  number of
         shares of common stock  outstanding  during the periods.  The effect of
         any  outstanding  warrants and options to purchase  common stock on the
         per share  computation  was  anti-dilutive  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  $2,067,000  and
         $4,789,000  for the three and  nine-month  periods ended  September 30,
         1997,  respectively,  and  $1,527,000  and $4,788,000 for the three and
         nine-month periods ended September 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)      The Company has made an estimate of Available  Cash,  as defined in the
         Company's debt  agreements,  at December 31, 1997, and has  determined,
         based on this estimate, that due to the necessity to establish reserves
         against future mandatory debt, and capital and operating  expenditures,
         the Company will not have  Available  Cash,  at December  31, 1997,  to
         require it to make any interest payments on the Cash Flow Notes for the
         six-month period ending December 31, 1997. In addition, the Company did
         not have any Available Cash requiring it to make any interest  payments
         for the  six-month  periods  ended June 30, 1997 and 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 nine months  ended  September  30, 1997 and 1996.  See
         "Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations - Liquidity and Capital Resources."

                                       4
<PAGE>


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

(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,  11,158  shares at a price of $5.50 per share plus 288
         shares at $6.625  per share for the second  quarter of 1997,  and 4,904
         shares at a price of $6.375 per share for the third quarter of 1997.

(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 September 30, 1997
         is the total  aggregate  purchase  price of $10  million  plus Series B
         accrued  dividends - $.541  million and the  accretion of the preferred
         stock to the redemption  amount - $.063 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 $9.659 million. The $20 million of proceeds from the private
         placement were applied primarily to the reduction of aggregate debt.

                                      5

<PAGE>

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

         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.

         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 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.

         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 740 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. In September 1997, the Company acquired
         an additional 35 acres in West Bay Club for approximately $1.2 million,
         of which $0.6 million was financed by a purchase  money  mortgage.  The
         total financed amount of $8.6 million is a non-cash  financing activity
         and therefore is not reflected in the  accompanying  statements of cash
         flows.  Subsequent to these  acquisitions,  the Company owns a total of
         approximately  876 acres in West Bay Club and is planning to assemble a
         total  of 879  acres in this  project  which  is  anticipated  to yield
         approximately  523 single  family homes and 578  high-rise  condominium
         units.

         The Series A Preferred Stock balance at September 30, 1997 is the total
         aggregate  purchase price of Series A Preferred  Stock issued to Apollo
         as of that date - $19.965  million  plus  Series A accrued  dividends -
         $.840  million  and  the  accretion  of  the  preferred  stock  to  the
         redemption  amount  -  $.127  million,  net of  corresponding  Investor
         Warrants purchased - $.240 million and net of Series A issuance costs -
         $2.192  million  for a net Series A  Preferred  Stock  balance of $18.5
         million.

                                       6
<PAGE>

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

         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  ($10 per share  plus  accumulated  and  unpaid
         dividends) 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, subject to declaration by the board of directors, quarterly in
         arrears on March 31,  June 30,  September  30, and  December 31 of each
         year  commencing on September  30, 1997. As of September 30, 1997,  the
         Series A Preferred Stock  Liquidation  Preference was $20.805  million,
         including  undeclared but  accumulated  and unpaid  dividends of $0.840
         million.  As of  September  30,  1997,  the  Series B  Preferred  Stock
         Liquidation  Preference was $10.541 million,  including  undeclared but
         accumulated and unpaid dividends of $0.541 million.

(8)      In  August  1997,  the  Company  acquired  approximately  127  acres in
         Orlando,  Florida for approximately $2.9 million, of which $1.3 million
         was  financed  by an  acquisition  loan  secured by a  mortgage  on the
         property.  This project,  known as Saxon Park, is  anticipated to yield
         408 single family homes.

                                       7
<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  $17.2
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.

                                       8
<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.

                                        9
<PAGE>
<TABLE>
<CAPTION>
                                                        Results of Operations

                                   Comparison of the Nine Months Ended September 30, 1997 and 1996
                                   ---------------------------------------------------------------

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

                                         Combining Results of Operations by Line of Business
                                         ---------------------------------------------------
                                                Nine Months Ended September 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              $  17,059      $ 17,515      $ 10,097      $               $                $              $ 44,671

 Other operating revenues             511                                      1,566                                          2,077

 Interest income                                                               3,367                             932          4,299
                            --------------------------------------------------------------------------------------------------------
Total revenues                     17,570        17,515        10,097          4,933              -              932         51,047
                            --------------------------------------------------------------------------------------------------------
Costs and expenses:

 Cost of real estate sales         15,564        16,064        12,288                                                        43,916

 Inventory valuation reserve          145                                                                                       145

 Selling expense                    3,092         2,316           532                             8                           5,948

 Other operating expense                                                         965                                            965

 Other real estate costs:

   Property tax, net                                                                                           2,803          2,803

   Other real estate overhead       1,234         1,118           440            533          2,000            1,416          6,741

 General and administrative expense                                                                            6,734          6,734

 Depreciation                          15            46             2             90                             371            524

 Cost of borrowing, net                                                        1,789                           9,334         11,123

 Other expense                        120                                                       465                             585
                            --------------------------------------------------------------------------------------------------------
Total costs and expenses           20,170        19,544        13,262          3,377          2,473           20,658         79,484
                            --------------------------------------------------------------------------------------------------------
Operating income (loss)            (2,600)       (2,029)       (3,165)         1,556         (2,473)         (19,726)       (28,437)
                            --------------------------------------------------------------------------------------------------------
Other income (expense):

  Reorganization items                                                           798                           1,438          2,236

  Utility condemnation                                                                                                            -

  Miscellaneous                                                                  (96)                           (450)          (546)
                            --------------------------------------------------------------------------------------------------------
Total other income (expense)            -             -             -            702              -              988          1,690
                            --------------------------------------------------------------------------------------------------------
Income (loss) before 
 extraordinary items               (2,600)       (2,029)       (3,165)         2,258         (2,473)         (18,738)       (26,747)

Extraordinary gains on 
 extinguishment of debt                                                                                                           -
                            --------------------------------------------------------------------------------------------------------
Net income (loss)                  (2,600)       (2,029)       (3,165)         2,258         (2,473)         (18,738)       (26,747)
                            --------------------------------------------------------------------------------------------------------
Less:
 Accrued preferred stock 
  dividends                             -             -             -              -              -            1,381          1,381 
 Accretion of preferred
  stock to redemption
  amount                                -             -             -              -              -              190            190 
                            --------------------------------------------------------------------------------------------------------
                                        -             -             -              -              -            1,571          1,571
                            --------------------------------------------------------------------------------------------------------
Net income (loss)               $  (2,600)     $ (2,029)     $ (3,165)     $   2,258       $ (2,473)        $(20,309)      $(28,318)
 applicable to common       ========================================================================================================
  stock
                                                                 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 Combining Results of Operations by Line of Business
                                 ---------------------------------------------------

                                        Nine Months Ended September 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           $28,380       $43,554       $14,025       $              $               $            $  85,959

   Other operating revenue                                                  3,563                                        3,563

   Interest income                                                          2,765                          1,392         4,157
                            ---------------------------------------------------------------------------------------------------
Total revenues                  28,380        43,554        14,025          6,328                          1,392        93,679
                            ---------------------------------------------------------------------------------------------------
Costs and expenses:

   Cost of real estate sales    21,466        35,780        10,536                                                      67,782

   Selling expense               4,379         3,382         1,092                                                       8,853

   Other operating expense                                                  1,611                                        1,611

   Other real estate costs:

    Property tax, net                                                                                      4,405         4,405

    Other real estate overhead   1,280         2,703           629            865           2,958          1,730        10,165

   General and
     administrative expense                                                                                8,292         8,292

   Depreciation                     13            69            18            228                            330           658

   Cost of borrowing, net                                                                                  9,111         9,111

   Other expense                    (6)                                                       408                          402
                            ---------------------------------------------------------------------------------------------------
Total costs and expenses        27,132        41,934        12,275          2,704           3,366         23,868       111,279
                            ---------------------------------------------------------------------------------------------------
Operating income (loss)          1,248         1,620         1,750          3,624          (3,366)       (22,476)      (17,600)
                            ---------------------------------------------------------------------------------------------------
Other income (expense):

   Reorganization items                                                                                    1,396         1,396

   Utility condemnation                                                     4,122                                        4,122

   Miscellaneous                                                            1,382                          1,583         2,965
                            ---------------------------------------------------------------------------------------------------
Total other income (expense)         -             -             -          5,504               -          2,979         8,483
                            ---------------------------------------------------------------------------------------------------

Income (loss) before
 extraordinary items             1,248         1,620         1,750          9,128          (3,366)       (19,497)       (9,117)

Extraordinary gains on
 extinguishment of debt                                                                                   11,025        11,025
                            ---------------------------------------------------------------------------------------------------
Net income (loss)              $ 1,248      $  1,620      $  1,750       $  9,128       $  (3,366)       $(8,472)    $   1,908
                            ===================================================================================================
</TABLE>

         During the first nine months of 1997,  the Company  recorded a net loss
applicable  to common  stock of $28.3  million  compared  to net  income of $1.9
million  during the first nine months of 1996,  primarily due to a 48% reduction
in real estate revenues and a relative increase in the cost of real estate sales
in the first nine months of 1997, a $6.8 million  decrease in other income,  and
$11.0 million of  extraordinary  gains in 1996. All these factors were partially
offset by a $9.5 million reduction in selling expenses,  other real estate costs
and general and administrative expenses. The lower real estate sales revenues in
the first nine months of 1997 were primarily  attributable to the Company's bulk
sale in 1996 of its Julington  Creek  Plantation and Summerchase  projects,  and
decreasing revenues

                                       11
<PAGE>

from predecessor asset sales as the Company  successfully  executes its business
plan to sell off the remaining  predecessor  tract assets and apply the proceeds
to debt reduction.  Although  predecessor asset sales have decreased,  they will
continue to be a  significant  source of revenue for the  remainder  of 1997 and
during 1998. Current subdivision projects under development, along with recently
acquired  projects  and  projects to be acquired,  are  anticipated  to increase
subdivision  revenues beginning in 1998. Increased relative cost of sales in the
first nine months of 1997 were  attributable  principally to the expected effect
of the  Company's  business  plan to liquidate  predecessor  tract and scattered
homesite   product  and  use  the   proceeds  for  debt   reduction,   a  single
loss-generating  sale of the final 102 lots in the Windsor Palms project in June
1997  motivated  by  liquidity  needs prior to the June 30, 1997  Foothill  debt
payment,  and an  unanticipated  $2.8  million  accrual  in  August  1997 for an
arbitration  award to the general  contractor  on the Company's  Regency  Island
Dunes  condominium  project.  The  decrease  in  other  income  was  principally
attributable  to a $4.1  million  gain in the  first  quarter  of 1996  from the
settlement of certain utility condemnation  litigation.  The extraordinary gains
during the first nine months of 1996 resulted from the extinguishment of debt.

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

         The net operating  results from homesite  sales  decreased $3.8 million
during the first nine months of 1997  compared to the first nine months of 1998,
principally due to the loss of the revenue and profitability  formerly generated
by Julington  Creek  Plantation,  which the Company sold in bulk in 1996, and to
the necessary  sale at a loss of the remaining 102 lots in Windsor Palms in June
1997 in order to raise cash for the  Foothill  debt  payment due June 30,  1997.
These factors were  partially  offset by reduced  selling  expenses in the first
nine months of 1997.

         Revenues from homesite sales  decreased $11.3 million in the first nine
months of 1997 from the first nine months of 1996. The decrease  resulted from a
43.5% decrease in the average sales price per homesite, partially offset by a 6%
increase in the number of  homesites  sold.  The average  sales price  decreased
primarily  due to a  change  in the  sales  mix,  most  notably  due to a  lower
percentage of subdivision  homesite sales than scattered  homesite sales in 1997
compared to 1996. The following table summarizes homesite sales activity for the
nine months ended September 30 (in thousands of dollars):

<TABLE>
<CAPTION>

                                          1997                                 1996
                            ---------------------------------    ----------------------------------
                            Number of               Average      Number of                Average 
                              lots       Revenue  sales price      lots       Revenue   sales price
                            ---------    -------  -----------    ---------    -------   -----------
<S>                            <C>       <C>           <C>           <C>      <C>          <C>  
Subdivision homesite sales      437      $11,438       $26.2         600      $19,643      $32.7
Scattered homesite sales      1,352        5,621         4.2       1,088        8,737        8.0
                              -----        -----       -----       -----      -------      -----
                              1,789      $17,059       $ 9.5       1,688      $28,380      $16.8
                              =====      =======       =====       =====      =======      =====
</TABLE>

         The decrease in subdivision  homesite sales revenue is primarily due to
approximately  $7.6 million of sales in 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.  Partially  offsetting these decreases were
sales of 76 homesites  for $2.3 million in the first nine 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  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 1996 which yielded an average sales price of
approximately $43,000.

         Revenues  from  scattered  homesite  sales  decreased in the first nine
months of 1997 compared to the first nine months of 1996 due to a 47.5% decrease
in the average sales price per homesite,  partially  offset by a 24% increase in
the number of  homesites  sold.  The  decrease  in the  average  sales  price is
principally  due to a 42% 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.  

                                       12
<PAGE>


The decrease in the average sales price in Cumberland  Cove was 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 as part of its plan to accelerate
the  disposition  of  predecessor  assets in  secondary  real estate  markets in
Florida.

         Homesite  sales  other  operating  revenues in the first nine months of
1997 included  management fees of $332,000 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 of mixed-use  property located in Dade and Broward counties  Florida.  The
Company  provides the day-to-day  management,  development,  marketing and sales
coordination  for the  partnership.  The $332,000 of management fees represented
3.5% of $9.5  million of revenues  from sales in this  project  during the first
nine months of 1997. Other operating  revenues also included  management fees of
$179,000  earned in connection  with Sunset Lakes  Associates,  a partnership in
which the Company is the managing partner.  This partnership was formed to plan,
finance,  develop and sell  approximately  1,950 acres of  residential  property
located in southwest Broward County. The $179,000 of management fees were earned
based on 4% of the development costs incurred on the Sunset Lakes project during
1997. Other expense of $120,000 in the first nine months of 1997 represented the
Company's  65% share of the net loss of the Sunset  Lakes  joint  venture  which
resulted  primarily  from the  management  fees earned by the  Company.  Initial
closings of sales in Sunset Lakes are  anticipated  during the first  quarter of
1998.

         As of September 30, 1997, the Company had under contract  approximately
1,518 scattered  homesite lots for $2.8 million and approximately 93 subdivision
homesites   for  $2.6  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 September 30, 1996, the Company
had approximately  2,279 total homesites under contract  totaling  approximately
$14.4 million.

         The homesite sales gross margin  percentages were 8.8% in 1997 compared
to 24.4% in 1996.  The gross margin  percentage in the first nine months of 1996
reflects  targeted  gross  margins of 20% to 30% for this line of business.  The
lower gross margin  percentage in the first nine months of 1997 is  attributable
principally  to the sale of the final 102  Windsor  Palms  lots in June 1997 for
$4.5 million, generating a negative 11% gross margin. This sale was necessitated
by the  Company's  need for  liquidity to meet its June 30, 1997  Foothill  debt
payment.  The  gross  margin  for the  first  nine  months of 1997 for all other
subdivision  homesite sales was 20.1%,  which reflects the targeted gross margin
of 20% to 30% for this  line of  business.  Homesite  sales  margins  were  also
adversely  affected  in the first nine months of 1997 by an increase in the bulk
sale of scattered  homesites.  Although bulk sales of scattered  homesites yield
lower margins than  individual  sales,  they are  consistent  with the Company's
business plan to accelerate the sale of predecessor assets and reduce debt.

         Homesite  selling  expense  decreased  $1.3  million  or  29%  in  1997
primarily due to an $832,000 decrease in direct selling expenses  resulting from
the  decrease in revenues  and to a $493,000  reduction  in costs in  Cumberland
Cove.  Homesite selling expense as a percentage of revenues increased from 15.4%
in 1996 to 18.1% in 1997,  primarily due to the decreased revenues over which to
spread fixed selling costs.

                                       13
<PAGE>

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

         The net operating  results from tract sales decreased in the first nine
months of 1997 compared to the first nine 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,  partially  offset by lower
selling expenses and other real estate overhead.

         Revenues  from tract sales  decreased  $26.0  million in the first nine
months of 1997  compared  to the first  nine  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 period to period depending on the timing and size
of  individual  sales.  Despite  the  decrease  in tract sales in the first nine
months of 1997,  tract sales are expected to be a significant  source of revenue
for the  Company  in 1997 due to the  Company's  ongoing  plan to  monetize  the
Company's  predecessor assets located in secondary markets.  As of September 30,
1997,  there were pending  tract sales  contracts or letters of intent  totaling
approximately  $14.4  million  which,  subject  to  certain  contingencies,  are
anticipated  to close in 1997. As of September 30, 1996,  there were  comparable
pending tract sales contracts or letters of intent totaling  approximately $29.6
million.

         Tract sales gross margins are summarized as follows for the nine months
ended September 30:


                                      1997                         1996
                           -------------------------    ------------------------
                             Targeted      Actual         Targeted      Actual
                              Margins      Margins         Margins      Margins
                              -------      -------         -------      -------
Port LaBelle agricultural
 acreage                         0%         (5.2)%            5%            -

Julington Creek bulk sale        -            -               -           6.3%

Other tract acreage            5-10%        10.5%            20%         22.0%

         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  nine  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 and 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 $1.1 million in the first nine
months of 1997 compared to the first nine 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 7.8% in the first
nine months of 1996 to 13.2% in the first nine 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.

                                       14
<PAGE>

         Tract sales other real estate  overhead  decreased $1.6 million,  a 59%
decrease,  in the first nine months of 1997 compared to the first nine months of
1996 primarily due to management and  advertising  costs in 1996 associated with
the efforts to accelerate the  disposition  of  predecessor  assets in secondary
real estate markets.

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

         The net operating results from residential sales, which includes single
family homes and  condominiums,  decreased  $4.9 million  during the nine months
ended  September  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  resulting from lower revenues and a
lower  gross  margin  percentage,  partially  offset by a  reduction  in selling
expenses.

         Residential  sales are  summarized as follows for the nine months ended
September 30 (in thousands of dollars):

                                                            1997           1996
                                                            ----           ----
Condominium sales - Regency Island Dunes:
   First Building                                        $ 1,620         $ 2,014
   Second Building                                         8,401           8,941
                                                         -------         -------
Total condominium sales                                   10,021          10,955
Single family home sales                                      76           3,070
                                                         -------         -------
                                                         $10,097         $14,025
                                                         =======         =======

         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 nine
months of 1996 represent the  incremental  revenue earned upon the completion of
59 of the 61 units in the first nine  months of 1996 and the sale and closing of
an additional  five units in 1996. The  condominium  revenues of $1.6 million in
the first  building  in 1997  represent  revenue  earned  upon the closing of an
additional  five units in 1997.  As of September  30, 1997,  all 72 units in the
first  building have been sold and closed.  The revenues of  approximately  $8.9
million in the second  building  in the first nine  months of 1996 were  derived
from 49 units under contract as of September 30, 1996, with  construction on the
second building 55% 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  $8.4 million in the second
building in the first nine months of 1997 were  derived  from an increase in the
completion  percentage to 100% as of September 30, 1997, and to an additional 13
units sold  during the first nine months of 1997 for a total of 69 units sold in
the second building.  As of September 30, 1997, 68 of the 72 units in the second
building have closed and the Company  anticipates  that the remaining four units
in the second building will be sold and closed in 1997.

         Single  family  home  sales  revenues  decreased  during the first nine
months of 1997  compared  to the first  nine  months of 1996 due a  decrease  in
closings from 35 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,   which  withdrawal  was  substantially
completed  in 1996.  The  Company may seek to  re-enter  the single  family home
business in primary  markets where this  business  would  complement  current or
future land  development  activities.  As of September 30, 1997, the Company had
two single family home  residential  units in  inventory,  neither of which were
under  contract.  As of September 30, 1996,  the Company had three single family
home residential units in inventory, none of which were under contract.

                                       15
<PAGE>

         Residential  sales gross margins are summarized as follows for the nine
months ended September 30:

                                                             1997           1996
                                                             ----           ----

Condominiums                                               (21.7)%         28.9%
Single family homes                                        (15.8)%         10.6%

         The gross margin for  condominiums in the first nine months of 1997 was
negative  primarily due to an unanticipated  $2.8 million accrual in August 1997
for an arbitration award granted to the Company's general  contractor related to
the  first  building  in  Regency  Island  Dunes.  See  Part II.  Item 2.  LEGAL
PROCEEDINGS.  The impact of this cost was  absorbed by the five units  closed in
the first  building in 1997  resulting in a large negative gross margin in 1997.
The overall  gross margin for this project is  anticipated  to be  approximately
12%.  Excluding  the $2.8 million  arbitration  award,  the gross margin on this
project would have been approximately 18% which is lower than the targeted gross
margin of approximately  20% to 25% for this line of business due to higher than
anticipated construction costs.

         The single  family  home gross  margin in the first nine 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 $560,000 or 51% and decreased as
a percentage  of revenues  from 7.8% in the first nine months of 1996 to 5.3% in
the first nine months of 1997.  The decreases  were due to an adjustment in 1997
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 $189,000 or 30% in the first nine
months of 1997  compared  to the first nine  months of 1996  primarily  due to a
reduction  in  single  family  overhead  costs  due to the  phasing-out  of this
operation.

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

         Net income from other  operations  decreased  $6.9 million in the first
nine months of 1997 compared to the first nine months of 1996 primarily due to a
$4.8 million  decrease in other income and a $1.8 million  increase in borrowing
costs associated with the financing of mortgage and contract receivables.

         Other  operating  revenues  and  expenses  decreased  in the first nine
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. In addition,  other
operating  revenues  in the first  nine  months  of 1996  included  $734,000  of
development impact fees.

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

         Other operations other real estate overhead  decreased 38% in the first
nine months of 1997  compared to the first nine months of 1996  primarily due to
lower  community  operations  costs  associated  with the Company's  predecessor
assets located in secondary markets in Florida.

                                       16
<PAGE>

         Cost of  borrowing  of $1.8  million in the first  nine  months of 1997
represented  interest expense on debt associated with the financing of a portion
of the Company's land mortgages and contract  receivables,  which were generated
from the sale of  predecessor  tracts and scattered  homesites,  pursuant to the
Company's  business  plan to monetize  predecessor  assets.  The Company  raised
approximately  $13.3  million of cash proceeds in the latter part of 1996 and an
additional  $14.6 million in the first nine months of 1997 from these financings
and plans to continue to finance mortgages and other receivables  generated from
the future sales of  predecessor  real estate  assets.  The proceeds  from these
financings  were  used  to  the  reduce  corporate  debt  and  to  fund  ongoing
operations.

         Other  income -  reorganization  items of  $798,000  in the first  nine
months of 1997 represents the amortization of the Company's utility  connections
reserve.  Other income - utility  condemnation  in the first nine months of 1996
consisted  of 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.  Other income  miscellaneous of $1.4 million in the first
nine 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 $696,000 on the sale of the Company's  Julington  Creek utility system
sold in June 1996 for $6.0 million.

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

         Total  business  development  expenditures  decreased in the first nine
months of 1997  compared  to the first nine  months of 1996  primarily  due to a
decrease  in  expenditures  related to the  Company's  Ya Dong joint  venture in
China.  Business development  expenditures  currently 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 consisted of $465,000 in the first
nine months of 1997 and  $408,000 in the first nine months of 1996  representing
the  Company's  share of the net loss of the Ocean Grove joint venture which was
100% in 1997 and 50% in 1996. The loss resulted from pre-sales  advertising  and
other selling and overhead costs.

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

         The net loss from  administrative  & other  activities  increased $11.8
million  in the first  nine  months of 1997 from the first  nine  months of 1996
principally due to extraordinary gains totalling $11.0 million in 1996 resulting
from the extinguishment of debt.

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

         Property tax, net of capitalized  property taxes decreased in the first
nine months of 1997 compared to the first nine months of 1996 primarily due to a
reduction of land  inventory not under  development  which  corresponds to sales
activity during the intervening period.

         Other real estate  overhead  decreased  18% in the first nine 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 $1.6 million or 19% in
the  first  nine  months  of


                                       17
<PAGE>

1997  compared to the first nine  months of 1996  principally  due to  financial
advisory  and due  diligence  costs  incurred  in the first nine  months of 1996
associated with the Company's recapitalization efforts.

         Cost of borrowing,  net of capitalized  interest  increased slightly in
the first nine months of 1997  compared  to the same  period in 1996,  despite a
decrease in corporate debt, primarily due to a $1.0 million fee paid to Foothill
in 1997  pursuant to an amendment of the Revolving  Loan  Agreement on March 31,
1997.  During the nine months ended September 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 income - reorganization  items consisted of gains of $1.4 million
in the first nine  months of 1997 and $1.4  million in the first nine  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 expense - miscellaneous of $450,000 in the first nine months of
1997  consisted  of  net  gains  and  losses  associated  with  various  reserve
adjustments and settlements, none of which were individually significant.  Other
income  miscellaneous  of $1.6 million in the first nine months of 1996 included
gains  of  approximately  $1.0  million  due  to  reductions  in  the  Company's
environmental  reserve and  $600,000 due to  reductions  in the  Company's  land
mortgages receivable valuation reserve.

         In  February  1996,  the  Company  recorded  an  extraordinary  gain of
approximately  $3.8  million due to the  extinguishment  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").

         In September  1996, the Company fully prepaid at a discount its Secured
Cash Flow  Notes for $40.0  million  in cash plus  warrants  to  purchase  up to
1,500,000 of the Company's  common stock at $6.50 per share.  As a result of the
extinguishment  of  the  Secured  Cash  Flow  Notes,  the  Company  recorded  an
extraordinary  gain of  approximately  $7.2 million  representing the difference
between  the book value of these  notes of $49.1  million,  consisting  of a par
value of $54.9 million less an  unamortized  discount of $5.8  million,  and the
consideration  given of $41.9  million,  consisting of cash of $40.0 million and
the estimated fair market value of the warrants of $1.9 million.

         During  the first  nine  months of 1997,  the  Company  recorded a $1.4
million  accrual  for  preferred  stock  dividends,  which were  undeclared  but
accumulated  and unpaid as of September 30, 1997,  associated  with its Series A
and  Series  B  Preferred  Stock  at an  annual  rate of 20% of the  liquidation
preference value which is $10 per share plus  accumulated and unpaid  dividends.
In addition,  the Company is accreting the value of its  preferred  stock to the
redemption  amount and accreted  $190,000  during the first nine months of 1997.
The total of approximately $1.6 million of accrued preferred stock dividends and
preferred stock accretion was charged to contributed capital in the accompanying
September 30, 1997 consolidated balance sheet.


                                       18
<PAGE>
<TABLE>
<CAPTION>
                           Comparison of the Three Months Ended September 30, 1997 and 1996
                           ----------------------------------------------------------------

         The  comparison  of the three months ended  September 30, 1997 and 1996
should be read in  conjunction  with the  comparison  of the nine  months  ended
September 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
September 30, 1997 and 1996 are summarized by line of business, as follows:

                               Combining Results of Operations by Line of Business
                               ---------------------------------------------------
                                        Three Months Ended September 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           $  4,977       $ 4,809      $    826      $              $              $                 $ 10,612

   Other operating revenues         110                                        522                                            632

   Interest income                                                             941                             241          1,182
                               --------------------------------------------------------------------------------------------------
Total revenues                    5,087         4,809           826          1,463               -             241         12,426
                               --------------------------------------------------------------------------------------------------
Costs and expenses:

   Cost of real estate sales      4,308         4,371         3,890                                                        12,569

   Inventory valuation reserve      145                                                                                       145

   Selling expense                  976           685           293                            (24)                         1,930

   Other operating expense                                                     337                                            337

   Other real estate costs:

    Property tax, net                                                                                        1,072          1,072

    Other real estate overhead      584           419           302            185             653             527          2,670

   General and administrative
    expense                                                                                                  2,078          2,078

   Depreciation                       8            15                           28                             120            171

   Cost of borrowing, net                                                      684                           1,705          2,389

   Other expense                     63                                                         60                            123
                               --------------------------------------------------------------------------------------------------
Total costs and expenses          6,084         5,490         4,485          1,234             689           5,502         23,484
                               --------------------------------------------------------------------------------------------------
Operating income (loss)            (997)         (681)       (3,659)           229            (689)         (5,261)       (11,058)
                               --------------------------------------------------------------------------------------------------
Other income (expense):
   Reorganization items                                                        266                             176            442
   Utility condemnation                                                                                                         -
   Miscellaneous                                                                                              (185)          (185)
                               --------------------------------------------------------------------------------------------------
Total other income (expense)          -             -             -            266               -              (9)           257
                               --------------------------------------------------------------------------------------------------
Income (loss) before
 extraordinary items               (997)         (681)       (3,659)           495            (689)         (5,270)       (10,801)

Extraordinary gains on
 extinguishment of debt                                                                                                         -
                               --------------------------------------------------------------------------------------------------
Net income (loss)                  (997)         (681)       (3,659)           495            (689)         (5,270)       (10,801)
                               --------------------------------------------------------------------------------------------------
Less:
 Accrued preferred stock 
  dividends                           -             -             -              -               -           1,319          1,319
 Accretion of preferred
  stock to redemption
  amount                              -             -             -              -               -             182            182
                               --------------------------------------------------------------------------------------------------
                                      -             -             -              -               -           1,501          1,501
                               --------------------------------------------------------------------------------------------------
Net income (loss)
 applicable to common
  stock                        $   (997)      $  (681)     $ (3,659)     $     495      $     (689)    $    (6,771)      $(12,302)
                               ==================================================================================================

                                                                   19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   Combining Results of Operations by Line of Business
                                   ---------------------------------------------------

                                            Three Months Ended September 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            $ 4,155       $ 7,605       $ 4,704        $              $                $              $16,464

   Other operating revenues                                                  1,281                                          1,281

   Interest income                                                             686                             341          1,027
                               --------------------------------------------------------------------------------------------------
Total revenues                    4,155         7,605         4,704          1,967               -             341         18,772
                               --------------------------------------------------------------------------------------------------
Costs and expenses:

 Cost of real estate sales        3,053         6,171         3,465                                                        12,689

 Selling expense                  1,498         1,345           186                                                         3,029

 Other operating expense                                                       354                                            354

 Other real estate costs:

    Property tax, net                                                          (30)                          1,503          1,473

    Other real estate overhead      345         1,839            96            242           1,371             512          4,405

 General and administrative 
   expense                                                                                                   2,906          2,906

 Depreciation                        (5)           24             4             40                             123            186

 Cost of borrowing, net                                                                                      2,725          2,725

 Other expense                        5                                                         95                            100
                               --------------------------------------------------------------------------------------------------
Total costs and expenses          4,896         9,379         3,751            606           1,466           7,769         27,867
                               --------------------------------------------------------------------------------------------------
Operating income (loss)            (741)       (1,774)          953          1,361          (1,466)         (7,428)        (9,095)
                               --------------------------------------------------------------------------------------------------
Other income (expense):

 Reorganization items                                                                                          129            129

 Utility condemnation                                                           (2)                                            (2)

 Miscellaneous                                                                (169)                            (71)          (240)
                               --------------------------------------------------------------------------------------------------
Total other income (expense)          -             -             -           (171)              -              58           (113)
                               --------------------------------------------------------------------------------------------------
Income (loss) before
 extraordinary items               (741)       (1,774)          953          1,190          (1,466)         (7,370)        (9,208)

Extraordinary gains on
 extinguishment of debt                                                                                      7,255          7,255
                               --------------------------------------------------------------------------------------------------
Net income (loss)               $  (741)      $(1,774)      $   953        $ 1,190        $ (1,466)        $  (115)       $(1,953)
                               ==================================================================================================
</TABLE>

         During  the third  quarter  of 1997,  the  Company  recorded a net loss
applicable  to  common  stock of $12.3  million  compared  to a net loss of $2.0
million in the third  quarter of 1996  primarily  due to a 35% reduction in real
estate  revenues and a relative  increase in cost of real estate  sales,  a $1.3
million  accrual  in 1997 for  preferred  stock  dividends,  and a $7.2  million
extraordinary   gain  in  the  third   quarter  of  1996   resulting   from  the
extinguishment  of debt.  These factors were partially  offset by a $4.1 million
reduction  in  selling  expenses,  other  real  estate  costs  and  general  and
administrative  expenses.  The lower real  estate  sales  revenues  in the third
quarter of 1997 were primarily attributable to the Company's decreasing revenues

                                       20
<PAGE>

from predecessor asset sales as the Company  successfully  executes its business
plan to sell of the remaining predecessor tract assets and apply the proceeds to
debt  reduction.  Increased  relative cost of sales in the third quarter of 1997
were attributable  principally to the expected effect of the Company's  business
plan to liquidate  predecessor tract and scattered  homesite product and use the
proceeds for debt reduction, and an unanticipated $2.8 million accrual in August
1997 for an arbitration award to the general contractor on the Company's Regency
Island Dunes condominium project.

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

         The net operating  results from homesite  sales  decreased in the third
quarter of 1997  compared  to the third  quarter of 1996  despite an increase in
revenues,  primarily  due to lower gross  margins  from the sale of  predecessor
assets in the third quarter of 1997,  partially offset by a reduction in selling
expenses.

         Revenues from homesite sales increased $822,000 in the third quarter of
1997  compared to the third  quarter of 1996 due to a 56% increase in the number
of homesites sold, partially offset by a 23% decrease in the average sales price
per homesite.  The following table  summarizes  homesite  activity for the three
months ended September 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         167   $2,970   $  17.8           58   $1,188   $  20.5
sales                        480    2,007       4.2          358    2,967       8.3
                             ---   ------   -------          ---   ------   -------
Scattered homesite sales     647   $4,977   $   7.7          416   $4,155   $  10.0
                             ===   ======   =======          ===   ======   =======
</TABLE>

         The increase in subdivision  homesite sales revenue is primarily due to
sales in the third  quarter  of 1997 of $1.0  million in West  Meadows  and to a
$610,000  increase  in sales for a total of $1.8  million  of sales in  Lakeside
Estates.  The decrease in the average sales price of subdivision  homesite sales
is primarily  due to a decrease in the average  sales price in Lakeside  Estates
from  $20,000 in the third  quarter  of 1996 to $14,000 in the third  quarter of
1997 primarily due to the mix of homesites sold.

         Revenues from scattered  homesite sales  decreased in the third quarter
of 1997  compared  to the third  quarter  of 1996 due to a 49%  decrease  in the
average  selling  price,  partially  offset by a 34%  increase  in the number of
homesites  sold. The decrease in the average sales price is principally due to a
49%  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 $20,400 in the third quarter of
1996  to  $10,300  in the  third  quarter  of 1997  primarily  due to the mix of
homesites sold as most of the premium  homesites in this project have been sold.
The volume of  scattered  homesite  sales  increased  due to the increase in the
number of bulk homesites sold.

         Homesite  sales other  operating  revenues in the third quarter of 1997
included  $100,000 of  management  fees earned in  connection  with Sunset Lakes
Associates,  a partnership  in which the Company is the managing  partner.  This
partnership was formed to plan,  finance,  develop and sell approximately  1,950
acres of residential  property located in southwest Broward County. The $100,000
of management fees were earned based on 4% of the development  costs incurred on
the Sunset Lakes  project  during the third  quarter of 1997.  Other  expense of
$63,000 in the third quarter of 1997  represented the Company's 65% share of the
net loss of the Sunset Lakes joint venture  which  resulted  primarily  from the
management  fees earned by the  Company.  Initial  closings in Sunset  Lakes are
anticipated during the first quarter of 1998.

         The  homesite  sales gross margin  percentages  were 13.4% in the third
quarter of 1997 compared to 26.5% in the third quarter of 1996. The gross margin
percentage in the third quarter of 1996 reflects


                                       21
<PAGE>


targeted gross margins of 20% to 30% for this line of business.  The lower gross
margin percentage in the third quarter of 1997 was primarily  attributable to an
increase in bulk  homesite  sales.  Although  bulk sales of scattered  homesites
yield  lower  margins  than  individual  sales,  they  are  consistent  with the
Company's  business plan to accelerate the sale of predecessor assets and reduce
debt.  The lower gross  margin  percentage  also  corresponds  to reduced  gross
margins recorded in West Meadows in the third quarter of 1997.  During the third
quarter of 1997,  the gross margin  percentage for West Meadows sales was 15.6%,
however, based on revised cost estimates,  future sales are anticipated to yield
a gross margin percentage of approximately 19%.

         Homesite  selling  expense  decreased  $522,000  or 34.8% in the  third
quarter of 1997 and as a percentage  of sales from 36.1% in the third quarter of
1996 to 19.6% in the third  quarter of 1997  primarily  due a decrease  in fixed
selling costs,  most  particularly in the Cumberland Cove community in Tennessee
and to additional  commissions paid in the third quarter of 1996 associated with
sales during the first six months of 1996.

         Homesite  sales  other  real  estate  overhead  increased  in the third
quarter of 1997 compared to the corresponding prior year period primarily due to
due diligence and other  overhead costs  associated  with the Company's West Bay
Club  project  which  were  included  in  business  development  in 1996 and are
included in homesite  sales in 1997 due to the  acquisition  of this  project in
1997.

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

         The net operating results from tract sales improved $1.1 million in the
third  quarter of 1997  compared to the third  quarter of 1996  primarily due to
reductions in selling expenses and other real estate overhead,  partially offset
by lower gross margins  generated  from tract sales in the third quarter of 1997
resulting from lower tract sales revenues and lower gross margin percentages.

         Revenues from tract sales  decreased  $2.8 million in the third quarter
of 1997  compared to the third  quarter of 1996  primarily  due to several large
sales during the third quarter of 1996.  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 September 30:

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

Other tract acreage             5-10%        9.1%             20%         18.9%


         The actual  gross  margins  in the third  quarter of 1997 and the third
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 49% in the third quarter of 1997
compared to the third  quarter of 1996  primarily  due to lower  direct  selling
expenses due to a decrease in revenues.

         Tract sales other real estate overhead decreased $1.4 million or 77% in
the third quarter of 1997 compared to the third quarter of 1996 primarily due to
management  and  advertising  costs  in 1996  associated  with  the  efforts  to
accelerate  the  disposition  of  predecessor  assets in  secondary  real estate
markets.

                                       22
<PAGE>

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

         The net operating results from residential sales, which includes single
family homes and  condominiums,  decreased $4.6 million during the third 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  resulting from lower revenues and a
lower gross margin percentage.

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

                                                     1997          1996
                                                     ----          ----

Condominium sales - Regency Island Dunes:
  First Building                                     $310         $   --
  Second Building                                     516          4,414
                                                     ----          -----
Total condominium sales                               826          4,414
Single family home sales                               --            290
                                                     ----         ------
                                                     $826         $4,704
                                                     ====         ======

         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 $310,000 from the first building in the third quarter of
1997 were  generated  from the  closing of the one  remaining  unit in the first
building. As of September 30, 1997, all 72 units in the first building have been
sold and closed.  The condominium  revenues of $516,000 from the second building
in the third quarter of 1997 were derived from the sale of one  additional  unit
plus  an  adjustment   resulting  from  lower  than  anticipated  buyer  credits
associated with closings in the second building. As of September 30, 1997, 68 of
the 72 units in the second building have closed and the Company anticipates that
the remaining four units in the second building will be sold and closed in 1997.
The  condominium  revenues of $4.4  million in the second  building in the third
quarter of 1996 were derived from an increase in the second building  completion
percentage  during  the  quarter  from  30% as of  June  30,  1996  to 55% as of
September  30,  1996 and to four  additional  units  under  contract  during the
quarter from 45 units as of June 30, 1996 to 49 units as of September 30, 1996.

         Single  family home sales  revenues  in the third  quarter of 1996 were
generated from three closings with an average selling of price of $96,700. There
were no closings in the third 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 September 30:


                                          1997            1996
                                          ----            ----

Condominiums                             (370.9)%         27.7%
Single family homes                         -              5.9%

         The gross  margin  for  condominiums  in the third  quarter of 1997 was
negative  primarily due to an unanticipated  $2.8 million accrual in August 1997
for an arbitration award granted to the Company's general  contractor related to
the  first  building  in  Regency  Island  Dunes.  See  Part II.  Item 2.  LEGAL
PROCEEDINGS. The impact of this cost was absorbed by the one unit that closed in
the first  building in the third quarter of 1997  resulting in a large  negative
gross margin in 1997. 

                                       23
<PAGE>

The overall  gross margin for this project is  anticipated  to be  approximately
12%.  Excluding  the $2.8 million  arbitration  award,  the gross margin on this
project would have been approximately 18% which is lower than the targeted gross
margin of approximately  20% to 25% for this line of business due to higher than
anticipated construction costs.

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

         Residential  sales other real estate  overhead  increased  in the third
quarter of 1997 compared to the corresponding prior year period primarily due to
legal expenses associated with the legal proceedings between the Company and its
general  contractor  regarding the construction of the first building in Regency
Island Dunes.

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

         Net income from other operations decreased in the third quarter of 1997
compared  to the third  quarter of 1996  primarily  due to a  decrease  in other
operating  revenues and to an increase in borrowing  costs  associated  with the
financing of mortgage and contract receivables.

         Other  operating  revenues  decreased in the third quarter of 1997 from
the third quarter of 1996 primarily due to $545,000 of  development  impact fees
received in the third quarter of 1996.

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

         Other operations other real estate overhead  decreased 24% in the third
quarter of 1997  compared to the third  quarter of 1996  primarily  due to lower
community  operations  costs  associated with the Company's  predecessor  assets
located in secondary markets in Florida.

         Cost of borrowing of $684,000 in the third  quarter of 1997  represents
interest  expense  on debt  associated  with the  financing  of a portion of the
Company's  land  mortgages and contract  receivables  generated from the sale of
predecessor tracts and scattered  homesites,  pursuant to the Company's business
plan to monetize  predecessor  assets.  The Company raised  approximately  $13.3
million of cash  proceeds  in the latter  part of 1996 and an  additional  $14.6
million in the first  nine  months of 1997 from  these  financings  and plans to
continue to finance  mortgages and other  receivables  generated from the future
sales of predecessor  real estate  assets.  The proceeds were used to the reduce
corporate debt and to fund ongoing operations.

         Other income - reorganization items of $266,000 in the third quarter of
1997 represents the amortization of the Company's utility  connections  reserve.
Other  expense  -  miscellaneous  of  $169,000  in the  third  quarter  of  1996
represented  additional  expenses  associated  with  the June  1996  sale of the
Company's  Julington  Creek utilities  system thereby  reducing the gain on this
sale to $696,000.


                                       24
<PAGE>


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

         Total business development  expenditures decreased in the third quarter
of 1997  compared to the third  quarter of 1996  primarily  due to a decrease in
expenditures  related to the Company's Ya Dong joint venture in China and to due
diligence and other overhead costs  associated  with the Company's West Bay Club
project which were included in business  development in 1996 and are included in
homesite sales in 1997 due to the acquisition of this project in 1997.  Business
development  expenditures  currently  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 third quarter of 1997 and in
the third quarter of 1996  consisted of the  Company's  share of the net loss of
the Ocean Grove joint venture  which was 100% in 1997 and 50% in 1996.  The loss
resulted from pre-sales advertising and other selling and overhead costs.

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

         The net loss from  administrative  & other  activities  increased  $6.7
million in the third quarter of 1997 from the third quarter of 1996  principally
due to an  extraordinary  gain  of  $7.2  million  in 1996  resulting  from  the
extinguishment  of debt and a $1.3 million  accrual in 1997 for preferred  stock
dividends, partially offset by a $1.0 million decrease in borrowing costs.

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

         General and  administrative  expenses  decreased $828,000 or 28% in the
third quarter of 1997 compared to the third quarter of 1996  principally  due to
financial advisory and due diligence costs incurred in the third quarter of 1996
associated with the Company's recapitalization efforts.

         Cost of borrowing,  net of capitalized  interest decreased $1.0 million
in the third quarter of 1997  compared to the same period in 1996  primarily due
to a reduction  in  corporate  debt and an increase in interest  capitalized  to
other  assets  associated  with  the  Company's  investments  in  various  joint
ventures. During the three months ended September 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."

         In September  1996, the Company fully prepaid at a discount its Secured
Cash Flow  Notes for $40.0  million  in cash plus  warrants  to  purchase  up to
1,500,000 of the Company's  common stock at $6.50 per share.  As a result of the
extinguishment  of  the  Secured  Cash  Flow  Notes,  the  Company  recorded  an
extraordinary  gain of  approximately  $7.2 million  representing the difference
between  the book value of these  notes of $49.1  million,  consisting  of a par
value of $54.9 million less an  unamortized  discount of $5.8  million,  and the
consideration  given of $41.9  million,  consisting of cash of $40.0 million and
the estimated fair market value of the warrants of $1.9 million.

         During the third quarter of 1997,  the Company  recorded a $1.3 million
accrual for preferred stock dividends, which were undeclared but accumulated and
unpaid as of  September  30,  1997,  associated  with its  Series A and Series B
Preferred  Stock at an annual rate of 20% of the  liquidation  preference  value
which is $10 per share plus accumulated and unpaid dividends.  In addition,  the
Company is accreting the value of its preferred  stock to the redemption  amount
and  accreted   $182,000  during  the  third  quarter  of  1997.  The  total  of
approximately  $1.5 million of accrued  preferred  stock dividends and preferred
stock accretion was charged to contributed capital in the accompanying September
30, 1997 consolidated balance sheet.

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

         As of  September  30, 1997,  the  Company's  cash and cash  equivalents
totaled  approximately  $2.1 million.  The Company also had restricted  cash and
cash equivalents of $2.0 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 $5.0 million
decrease  in cash and cash  equivalents  during the first  nine  months of 1997,
$12.0  million was used in  operating  activities and


                                       25
<PAGE>


$4.8 million was used in financing activities, partially offset by $11.8 million
provided by investing activities.

         Cash used in  operating  activities  includes  approximately  (i) $11.4
million for interest  payments,  (ii) $5.5  million for  property tax  payments,
(iii) $12.4 million for  construction and development  expenditures,  (iv) $19.7
million related to property acquisitions and (v) $4.7 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  primarily 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, $7.2
million of net principal  repayments on new project  financings and $2.5 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  $30.0  million from the issuance of
Series A and B Preferred Stock as more fully described  below. In addition,  the
Company had net  borrowings of $10.9 million under the Reducing  Revolving  Loan
and $4.8 million  associated  with the financing of the  Company's  mortgage and
contract receivables.

         The Company has,  pursuant to Loan Agreements 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"),  (ii) a
$25 million reducing revolving loan maturing June 30, 1998 ("Reducing  Revolving
Loan"), and (iii) a $40 million Term Loan at an interest  rate of 15% per annum
maturing  on June 30,  1998.  Amounts  under  the  Reducing  Revolving  Loan are
available only when (i) the Working Capital Facility is fully utilized, and (ii)
the Company is in compliance  with, among other  conditions,  a "borrowing base"
formula  based  on the  value  of  certain  of  the  Company's  assets.  Amounts
outstanding  under the Working Capital Facility bear variable interest at a rate
equal to the variable  interest rate, per annum,  announced by Northwest Bank of
Minnesota,  N.A., as its "base rate" plus two  percentage  points.  The Reducing
Revolving Loan bears variable  interest at the "base rate" plus four  percentage
points.  As of September 30, 1997, the Company had  outstanding (i) the full $20
million  under the  Working  Capital  Facility,  (ii)  $12.7  million  under the
Reducing Revolving Loan, and (iii) $26.7 million under the Term Loan.

         The Term Loan requires principal repayments of $13.3 million on each of
December 31, 1997 and June 30, 1998. The commitment under the Reducing Revolving
Loan will be reduced to $8.3  million on  December  31, 1997 and to zero on June
30,  1998,  and the Company will be required to repay on those dates any amounts
outstanding  under the Reducing  Revolving  Loan in excess of the new commitment
amount.

         The Company's remaining material obligations for 1997 include principal
repayments on the Foothill debt up to $21.7 million. The Company's 1997 business
plan also contemplates full year expenditures for development,  construction and
other capital  improvements  estimated at approximately $45 million,  of which a
substantial  portion will require funding through individual project development
loans


                                       26
<PAGE>


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.

         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") and to
reduce corporate debt. The Company has made substantial  progress in this regard
as it sold $55.6  million  of tract and  scattered  homesite  assets in 1996 and
$22.4  million  in the first  nine  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  $17.2 million of revenue including $11.8 million of cash and $5.4
million of  mortgage  notes.  The  transactions  under  contract  are subject to
customary   conditions,   in  some  cases   including  a  financing   condition.
Transactions  subject  to a  letter  of  intent  are  also  subject  to  further
negotiation  and  documentation  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,  the Company
is actively monetizing mortgage and note receivables  generated from the sale of
Predecessor  tracts and scattered  homesites.  The Company raised  approximately
$14.6 million cash, and received  certain  residual  interests in the first nine
months of 1997 from the sale or  financing  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 September  30,  1997,  1,996,475  Series A Preferred  shares with
Investor  Warrants  to  purchase  3,992,950  shares  of  Common  Stock  had been
purchased by Apollo for a total purchase price of  approximately  $20 million of
the $25 million total. With respect to the above referenced  private  placement,
$10 million of Common  Stock and $10  million of Series B  Preferred  Stock with
warrants to purchase 2,000,000 shares of common stock had been issued.

         The Company  expects to issue up to an additional $10 million of Series
B Preferred  Stock along with  warrants  to purchase up to  2,000,000  shares of
Common Stock through a pending rights offering to existing  stockholders  and to
the holders of certain  warrants issued by the Company in September 1996.  While
there can be no  assurance,  the  Company  expects to close the  transaction  in
November,  1997. The Company  intends to use the proceeds of the rights offering
for working capital purposes, including the payment of a portion of the Foothill
debt. The rights offering is being made only by means of a prospectus.

         As required by the Company's  Agreements with Apollo, the proceeds from
the sale of Series A  Preferred  Stock have been and will be used  primarily  to
acquire and develop properties through a wholly


                                       27
<PAGE>


owned special purpose  subsidiary of the Company ("SP  Subsidiary")  and through
subsidiaries  of the SP  Subsidiary.  The Company's  repurchase  and  redemption
obligations  in respect of the  Series A  Preferred  Stock (but not the Series B
Preferred  Stock) are secured by (i) a junior lien on  substantially  all of the
assets of the Company and its subsidiaries,  except for the outstanding  capital
stock  of the SP  Subsidiary  and its  assets,  and  (ii) a  senior  lien on the
outstanding capital stock of the SP Subsidiary and on its assets. (See Note 7 to
the Consolidated Financial Statements.)

         Pursuant to the certain debt  agreements of the Company,  it must apply
any Available  Cash (as defined below) (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.

         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.

         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 require it to make  payments  on the Cash Flow Notes  through
September 30, 1997. Accordingly,  the Company did not accrue any interest on the
Cash Flow Notes during the nine months ended September 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
Available Cash in the foreseeable future.


Part II.    -     OTHER INFORMATION

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

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

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


                                       28
<PAGE>


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 was  submitted  to the court for  approval on or about  August 6,
1997.  The  settlement  was approved by the court on September 29, 1997 and 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 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.,  now refiled  under Case No.  97-14075,  U.S.D.C.,
Southern  District of Florida,  Regency  filed suit to recover  damages  against
Foley's surety for corrective work performed by Regency as well as various other
claims for damages asserted by Regency in the arbitration  described above. This
case was  dismissed  by the court on June 5, 1997.  The  arbitration  proceeding
commenced  on July 1, 1997 and was  completed  on July 28,  1997.  On August 26,
1997, the arbitration  panel entered an award in the amount of  $2,839,546.00 in
favor of Foley,  and an award in the amount of  $442,000.00  in favor of Regency
with respect to Regency's counterclaim.  The arbitration awards are reflected in
the Company third quarter financial results. Regency intends to file a motion to
vacate and/or modify the  arbitration  award on or before  November 24, 1997. 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.   Regency  has  filed
counterclaims against Foley in the arbitration proceeding for breach of contract
and  failure to perform  corrective  work.


                                       29
<PAGE>


In addition, Regency has filed an independent action against Foley for recording
a fraudulent lien and a declaratory action seeking dismissal of Foley's claim in
the arbitration for lost profits. The Company and Regency will vigorously defend
the claims asserted by Foley and aggressively pursue their claims against Foley.
The Company  does not believe  Foley's  claims will be resolved in a manner that
will have a material adverse impact on the Company.


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

         During the  three-month  period ended  September 30, 1997,  the Company
sold and issued to Apollo an aggregate of 1,109,000 shares of Series A Preferred
Stock,  together with Investor  Warrants to purchase  2,218,000 shares of Common
Stock,  divided  evenly  among  Class A Warrants,  Class B Warrants  and Class C
Warrants, for an aggregate purchase price of $11,090,000, in a private placement
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Placement").  Apollo is an "accredited  investor" as defined in
Rule 501 promulgated under the Securities Act of 1933, as amended. The Placement
occurred (i) on July 31, 1997 in respect of 850,000 shares of Series A Preferred
Stock and Investor Warrants to purchase 1,700,000 shares of Common Stock, for an
aggregate  purchase price of $8,500,000 and (ii) on August 7, 1997 in respect of
259,000 shares of Series A Preferred Stock and Investor  Warrants to purchase an
additional  518,000 shares of Common Stock,  for an aggregate  purchase price of
$2,590,000.   The  Placement  occurred  pursuant  to  the  Company's  Investment
Agreement  with  Apollo,  as  discussed  above  in  Note 7 to  the  Consolidated
Financial  Statements,  and, as also discussed in Note 7, the Series A Preferred
Stock and Investor Warrants are convertible or exercisable into Common Stock, at
$5.75 per share, subject to certain adjustments.



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

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

         (27)     Financial Data Schedule.

(b) Reports on Form 8-K

         None


                                       30
<PAGE>


                                   SIGNATURES


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


                      ATLANTIC GULF COMMUNITIES CORPORATION




Date:  November 13, 1997               /s/ Thomas W. Jeffrey
                                       ---------------------
                                           Thomas W. Jeffrey
                                           Executive Vice President
                                           and Chief Financial Officer




Date:  November 13, 1997               /s/ Callis N. Carleton
                                       ----------------------
                                           Callis N. Carleton
                                           Vice President and Controller
                                          (Principal Accounting Officer)


                                       31