UNITED STATES
                       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, 1999

                         Commission file number: 1-8967

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

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


          2601 SOUTH BAYSHORE DRIVE                 33133-5461
               MIAMI, FLORIDA                       (Zip Code)
   (Address of principal executive offices)

                                 (305) 859-4000
              (Registrant's telephone number, including area code)

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

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

There were 12,393,399  shares of the Registrant's  common stock,  $.10 par value
per share (the "Common Stock"), outstanding as of November 5, 1999.

<PAGE>


                  SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1999,  CERTAIN MATTERS DISCUSSED
HEREIN,  INCLUDING PART II., ITEM 2.,  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS,"   CONTAIN  FORWARD  LOOKING
STATEMENTS  BASED ON  MANAGEMENT'S  EXPECTATIONS  REGARDING,  AND EVALUATIONS OF
CURRENT  INFORMATION  ABOUT,  THE  COMPANY'S  BUSINESS  THAT  INVOLVE  RISKS AND
UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS
TO DIFFER, BOTH ADVERSELY AND MATERIALLY,  FROM CURRENTLY  ANTICIPATED  RESULTS,
INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE
CYCLICAL NATURE OF THE REAL ESTATE MARKET IN PRIMARY  MARKETS IN FLORIDA,  OTHER
PRIMARY MARKETS IN THE SOUTHEASTERN UNITED STATES AND LUXURY/RESORT MARKETS; THE
INDUSTRY AND INDUSTRY  SEGMENT  CONDITIONS AND DIRECTIONS;  INTEREST RATES;  THE
AVAILABILITY AND COST OF FINANCING REAL ESTATE  ACQUISITIONS  AND  DEVELOPMENTS;
CONSTRUCTION COSTS;  WEATHER;  THE AVAILABILITY AND COST OF MATERIALS AND LABOR;
CONSUMER PREFERENCES AND TASTES; GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES;
THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE AND RELATED FINANCING  CONTINGENCIES
AND RESTRICTIONS;  THE COMPANY'S RECENT OPERATING LOSSES;  THE COMPANY'S ABILITY
TO CLOSE  FINANCINGS  OF NEW REAL  ESTATE AT  PARTICULAR  TIMES  RELATIVE TO THE
COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO SERVICE AND/OR
REFINANCE  EXISTING  INDEBTEDNESS;  LEGISLATION;  THE COMPANY'S  ABILITY TO SELL
PREDECESSOR ASSETS, CORE PROJECTS AND/OR LUXURY/RESORT  PROJECTS IN ORDER TO USE
THE  PROCEEDS  THEREFROM  TO  REDUCE  PROJECT  AND  INSTITUTIONAL  INDEBTEDNESS;
RESOLUTION  OF  PENDING  LITIGATION  IN WHICH THE  COMPANY IS A  DEFENDANT;  THE
RESULTS  OF THE  COMPANY'S  CURRENT  DEVELOPMENT  PROJECTS;  REDUCED  MANAGEMENT
PERSONNEL  AND  RESOURCES;  THE RESULTS OF THE COMPANY'S  STRATEGIC  ALTERNATIVE
INITIATIVE;  AND THE  COMPANY'S  ABILITY  TO  REALIZE  THE  FINANCIAL  AND OTHER
BENEFITS ANTICIPATED FROM ITS CORPORATE RESTRUCTURING PROGRAM.

<PAGE>
<TABLE>
<CAPTION>
                                         TABLE OF CONTENTS
                                         -----------------

PART I.   FINANCIAL INFORMATION

      Item 1.  Financial Statements
<S>                                                                                             <C>
               Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998........2

               Consolidated Statements of Operations for the Three and Nine
               Months Ended September 30, 1999 and 1998..........................................3

               Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
               1999 and 1998.....................................................................4

               Notes to Consolidated Financial Statements........................................5

      Item 2.  Management's Discussion and Analysis of Financial Condition and Results
               of Operations.....................................................................9

PART II.  OTHER INFORMATION

      Item 1.  Legal Proceedings................................................................29

      Item 2.  Changes in Securities............................................................30

      Item 3.  Defaults Upon Senior Securities..................................................30

      Item 4.  Submission of Matters to a Vote of Security Holders..............................31

      Item 5.  Other Information................................................................31

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

SIGNATURES......................................................................................32
</TABLE>

<PAGE>


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


PART I.           FINANCIAL INFORMATION




             [THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]

                                        1
<PAGE>


ITEM 1.           FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                                          Consolidated Balance Sheets
                                    September 30, 1999 and December 31, 1998
                               (in thousands, except share amounts and par value)


                                                                                   September 30,   December 31,
                                                                                       1999            1998
                                                                                       ----            ----
         Assets                                                                    (unaudited)
         ------
<S>                                                                                <C>             <C>
Cash and cash equivalents                                                          $      2,990    $      9,413
Restricted cash and cash equivalents                                                      1,264           1,041
Contract receivables, net                                                                 2,894           4,109
Mortgages, notes and other receivables, net                                              19,247          29,273
Land and residential inventory, net                                                     160,510         166,870
Property, plant and equipment, net                                                       11,834           3,950
Other assets, net                                                                        13,954          15,150
                                                                                   ------------    ------------
Total assets                                                                       $    212,693    $    229,806
                                                                                   ============    ============
         Liabilities and Stockholders' Deficit
         -------------------------------------
Accounts payable and accrued liabilities                                           $     19,590    $     17,533
Other liabilities                                                                        14,553           8,207
Notes and mortgages payable                                                             160,857         151,805
                                                                                   ------------    ------------
Total liabilities                                                                       195,000         177,545
                                                                                   ------------    ------------

Redeemable Preferred Stock
         Series A, 20%, $.01 par value,  2,500,000 shares authorized;
         2,500,000 shares  issued and  outstanding,  having a
         liquidation  preference  of $37,860 and $32,706, as of
         September 30, 1999 and December 31, 1998, respectively                          36,199          30,403

         Series B, 20%, $.01 par value;  2,000,000 shares authorized;
         2,000,000 shares  issued and  outstanding,  having a
         liquidation  preference  of $29,981 and $25,899 as of
         September 30, 1999 and December 31, 1998, respectively                          28,898          24,417
                                                                                   ------------    ------------
                                                                                         65,097          54,820
                                                                                   ------------    ------------
Commitments and Contingencies

Common stockholders' deficit
         Common stock, $.10 par value, 70,000,000 shares authorized;
           12,832,590 and 11,933,359 shares issued and outstanding as
           of September 30, 1999 and December 31, 1998, respectively                      1,283           1,193

         Contributed capital                                                            106,132         117,994

         Accumulated deficit                                                           (148,329)       (115,379)

         Accumulated other comprehensive loss                                            (6,351)         (6,351)

         Treasury stock, 439,191 and 158,536 shares, at cost                               (139)            (16)
                                                                                   ------------    ------------

Total common stockholders' deficit                                                      (47,404)         (2,559)
                                                                                   ------------    ------------
Total liabilities and stockholders' deficit                                        $    212,693    $    229,806
                                                                                   ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                                       2
<PAGE>


<TABLE>
<CAPTION>
                       ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                                Consolidated Statements of Operations
                       Three and Nine Months Ended September 30, 1999 and 1998
                                (in thousands, except per share data)
                                             (unaudited)


                                                         Three Months Ended      Nine Months Ended
                                                           September 30,           September 30,
                                                        --------------------    --------------------
Revenues:                                                 1999        1998        1999        1998
                                                          ----        ----        ----        ----
<S>                                                     <C>         <C>         <C>         <C>
    Real estate sales:
         Homesite                                       $  6,068    $  3,505    $ 23,703    $ 10,583
         Commercial                                        9,087       6,463      15,316      52,260
                                                        --------    --------    --------    --------
      Total real estate sales                             15,155       9,968      39,019      62,843
    Other operating revenue                                  789       2,750       4,129       5,846
    Interest income                                          591       1,201       1,636       3,720
                                                        --------    --------    --------    --------
         Total revenues                                   16,535      13,919      44,784      72,409
                                                        --------    --------    --------    --------
Costs and expenses:
    Cost of real estate sales:
         Homesite                                          5,524       2,946      20,771       9,112
         Commercial                                        8,103       3,410      12,627      42,239
                                                        --------    --------    --------    --------
      Total cost of real estate sales                     13,627       6,356      33,398      51,351
    Inventory valuation reserve                            7,890          --      11,314          --
    Selling expense                                        1,033       1,491       4,568       4,711
    Operating expense                                        985         399       2,825       1,165
    Real estate costs                                      1,693       2,871       5,860       6,947
    General and administrative expense                     2,740       2,557       9,765       6,937
    Cost of borrowing, net of amounts capitalized          1,298       1,215       4,049       4,246
    Other expense                                          5,999          96       6,406         567
                                                        --------    --------    --------    --------
         Total costs and expenses                         35,265      14,985      78,185      75,924
                                                        --------    --------    --------    --------
Operating loss                                           (18,730)     (1,066)    (33,401)     (3,515)
                                                        --------    --------    --------    --------
Other (expense) income :
    Reorganization items                                    (234)      4,401         451       5,183
    Miscellaneous                                              -           2           -        (214)
                                                        --------    --------    --------    --------
Total other (expense) income                                (234)      4,403         451       4,969
                                                        --------    --------    --------    --------

Net (loss) income                                        (18,964)      3,337     (32,950)      1,454
                                                        --------    --------    --------    --------
Less:
    Accrued preferred stock dividends                      3,230       2,658       9,237       7,518
    Accretion of preferred stock to redemption amount        350         338       1,041         992
    Modification of preferred stock security interest          -           -       2,380           -
                                                        --------    --------    --------    --------
                                                           3,580       2,996      12,658       8,510
                                                        --------    --------    --------    --------
Net (loss) income applicable to common stock            $(22,544)   $    341    $(45,608)   $ (7,056)
                                                        ========    ========    ========    ========

Basic and diluted net (loss) income per common share    $  (1.78)   $   0.03    $  (3.65)   $  (0.61)
                                                        ========    ========    ========    ========
Weighted average common shares outstanding                12,674      11,729      12,494      11,597
                                                        ========    ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                                  3
<PAGE>


<TABLE>
<CAPTION>
                     ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                             Consolidated Statements of Cash Flows
                         Nine Months Ended September 30, 1999 and 1998
                                   (in thousands of dollars)
                                          (unaudited)


                                                                            Nine Months Ended
                                                                              September 30,
                                                                         ----------------------
                                                                            1999        1998
                                                                            ----        ----
<S>                                                                      <C>          <C>
Cash flows from operating activities:
   Net (loss) income                                                     $ (32,950)   $   1,454
   Adjustments to reconcile net (loss) income to net cash used in
      operating activities:
         Depreciation and amortization                                       5,069        3,478
         Other expense (income)                                                 84         (577)
         Vaulation reserves                                                 11,314            -
         Reorganization items                                                    -           45
         Land acquisitions                                                       -      (22,125)
         Other net changes in assets and liabilities:
            Restricted cash                                                   (223)         589
            Receivables                                                     10,920        3,996
            Land and residential inventory                                 (11,016)           5
            Other assets                                                     1,196       (2,052)
            Accounts payable and accrued liabilities                         2,543        1,402
            Other liabilities                                               (1,243)      (1,027)
                                                                         ---------    ---------
                  Net cash used in operating activities                    (14,306)     (14,812)
                                                                         ---------    ---------

Cash flow from investing activities:
   Additions to property, plant and equipment, net                          (2,263)      (4,771)
                                                                         ---------    ---------
                  Net cash used in investing activities                     (2,263)      (4,771)
                                                                         ---------    ---------

Cash flows from financing activities:
   Borrowings under credit agreements                                      108,079       64,854
   Repayments under credit agreements                                      (97,933)     (50,572)
   Proceeds from issuance of preferred stock                                     -        1,735
                                                                         ---------    ---------
                  Net cash provided by financing activities                 10,146       16,017
                                                                         ---------    ---------

Decrease in cash and cash equivalents                                       (6,423)      (3,566)

Cash and cash equivalents at beginning of period                             9,413        9,188
                                                                         ---------    ---------
Cash and cash equivalents at end of period                               $   2,990    $   5,622
                                                                         =========    =========

Supplemental cash flow information:
   Interest payments, net of amounts capitalized                         $   4,049    $   3,951
                                                                         =========    =========
   Reorganization item payments                                          $       -    $      45
                                                                         =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                               4
<PAGE>


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               September 30, 1999
                                   (unaudited)


(1)      The  September  30,  1999  financial   statements  are  unaudited.   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, 1998, as amended by that certain  Amendment
         to Form  10-K on Form  10-K/A-1,  as  filed  with  the  Securities  and
         Exchange  Commission  (the "SEC") on April 30, 1999 ("1998 Form 10-K").
         Certain prior year amounts have been  reclassified  to conform with the
         1999 presentation.

(2)      Net income (loss) per share of common stock,  $.10 par value per share,
         of the Company ("Common  Stock"),  is computed by (a) deducting accrued
         preferred stock  dividends,  accretion of preferred stock to redemption
         amount and other  preferred  stock  charges  from net income  (loss) to
         determine  net income  (loss)  applicable  to Common Stock and (b) then
         dividing net income  (loss)  applicable to Common Stock by the weighted
         average  number  of  shares  of Common  Stock  outstanding  during  the
         periods. The effect of any outstanding warrants and options to purchase
         Common Stock on the per share computation was anti-dilutive  during the
         periods.

(3)      The Company  capitalizes  interest  primarily on land  inventory  being
         developed  for sale which is  subsequently  charged to income  when the
         related  asset  is  sold.   Capitalized  interest  was  $6,113,000  and
         $16,310,000  for the three and nine months  ended  September  30, 1999,
         respectively,  and  $3,199,000  and  $8,595,000  for the three and nine
         month periods ended September 30, 1998, respectively.

(4)      Revenue from the sale of land is  recognized  when all the criteria for
         sales pursuant to SFAS 66,  ACCOUNTING  FOR SALES OF REAL ESTATE,  have
         been met.

(5)      Pursuant to the Company's 1996 Non-Employee  Directors' Stock Plan, the
         Company issued to its  Non-Employee  Directors  30,000 shares of Common
         Stock at a price of $0.75  per share  for the  first  quarter  of 1999,
         13,212  shares  of  Common  Stock at a price of $1.70 per share for the
         second quarter of 1999, and 36,000 shares of Common Stock at a price of
         $0.63 per share for the third quarter of 1999.  On August 4, 1999,  the
         Company  amended  the  1996  Non-Employee   Directors'  Stock  Plan  to
         eliminate  the issuance of Common Stock to its  Non-Employee  Directors
         effective  as of October 1, 1999 and to provide  for the payment of (1)
         an annual  retainer  fee of  $25,000  payable  quarterly  in advance in
         $6,250.00  installments,  in cash, to each Non-Employee  Director other
         than Mr. Rutherford, Mr. Gropper and the "Apollo Directors", and (2) an
         annual  retainer  fee  of  $10,000  payable  quarterly  in  advance  in
         $2,500.00 installments, in cash, to Mr. Gropper (for so long as he is a
         Non-Employee  Director) and the Apollo  Directors.  For purposes of the
         Stock Plan, "Apollo Directors" are the Non-Employee Directors appointed
         by AP-AGC, LLC pursuant to that certain Amended and Restated Investment
         Agreement dated as of February 7, 1997, as amended.

                                        5
<PAGE>


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               September 30, 1999
                                   (unaudited)


(6)      The  Company  and  AP-AGC,  LLC,  an  affiliate  of Apollo  Real Estate
         Advisors,  L.P.  ("Apollo"),  are  parties to that  certain  Investment
         Agreement, as amended (the "Investment  Agreement"),  pursuant to which
         Apollo  purchased  during 1998 (a) 2.5 million shares of 20% Cumulative
         Redeemable  Convertible  Preferred  Stock,  Series  A  (the  "Series  A
         Preferred  Stock") for an  aggregate  purchase  price of $24.7  million
         ($9.88 per share) and (b)  warrants to purchase up to 5 million  shares
         of Common Stock (the "Investor  Warrants"),  for an aggregate  purchase
         price of $0.3 million  ($.06 per Investor  Warrant  share) (the "Apollo
         Transaction").

                                        6
<PAGE>


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               September 30, 1999
                                   (unaudited)


(7)      Redeemable preferred stock (which includes the Series A Preferred Stock
         and the 20% Cumulative Redeemable Convertible Preferred Stock, Series B
         (the  "Series  B  Preferred  Stock"))  consisted  of the  following  at
         September  30,  1999,  December  31,  1998 and  September  30, 1998 (in
         thousands of dollars):

<TABLE>
<CAPTION>
                                                           September 30, December 31, September 30,
                                                               1999         1998          1998
                                                               ----         ----          ----
<S>                                                          <C>          <C>           <C>
Series A Preferred Stock:
-------------------------
Gross proceeds                                               $ 25,000     $ 25,000      $ 25,000
Accrued dividends                                              12,860        7,706         6,149
                                                             --------     --------      --------
Liquidation Preference amount                                  37,860       32,706        31,149
Less issue costs                                               (3,104)      (3,104)       (3,100)
Less warrants purchased                                          (300)        (300)         (300)
Plus accretion of preferred stock to redemption amount          1,743        1,101           891
                                                             --------     --------      --------
Total Series A Preferred Stock                                 36,199       30,403        28,640
                                                             --------     --------      --------

Series B Preferred Stock:
-------------------------
Private Placement June 24, 1997:
    Gross proceeds                                             10,000       10,000        10,000
    Accrued dividends                                           5,574        3,453         2,812
                                                             --------     --------      --------
    Liquidation Preference amount                              15,574       13,453        12,812
    Less issue costs                                             (950)        (950)         (950)
    Less warrants purchased                                      (120)        (120)         (120)
    Plus accretion of preferred stock to redemption amount        567          369           303
                                                             --------     --------      --------
                                                               15,071       12,752        12,045
                                                             --------     --------      --------
Rights Offering November 19, 1997:
    Gross proceeds                                             10,000       10,000        10,000
    Accrued dividends                                           4,407        2,446         1,853
                                                             --------     --------      --------
    Liquidation Preference amount                              14,407       12,446        11,853
    Less issue costs                                             (950)        (950)         (950)
    Less warrants purchased                                      (120)        (120)         (120)
    Plus accretion of preferred stock to redemption amount        490          289           224
                                                             --------     --------      --------
                                                               13,827       11,665        11,007
                                                             --------     --------      --------
Total Series B Preferred Stock                                 28,898       24,417        23,052
                                                             --------     --------      --------

Total Redeemable Preferred Stock                             $ 65,097     $ 54,820      $ 51,692
                                                             ========     ========      ========
</TABLE>

(8)      During  the first  nine  months of 1999 and  1998,  comprehensive  loss
         consisted only of the net losses for those periods.

                                        7
<PAGE>


             ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               September 30, 1999
                                   (unaudited)


(9)      Segment Reporting

         Nine Months Ended September 30, 1999:
         -------------------------------------
<TABLE>
<CAPTION>
                                       Primary        Luxury/
                                        Market        Resort      Predecessor
                                      Operations    Operations       Assets        Other       Total
                                      ----------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>         <C>
Total Revenues                        $  28,251      $  4,862      $  5,906      $  5,765    $  44,784
                                      =========      ========      ========      ========    =========

Gross Profit                          $   3,639      $  1,088      $    894      $      -    $   5,621
                                      =========      ========      ========      ========

Inventory valuation reserve             (11,314)            -             -             -      (11,314)

Unallocated revenues (expenses), net                                                           (27,257)
                                                                                             ---------

Net Loss                                                                                     $ (32,950)
                                                                                             =========


         Nine Months Ended September 30, 1998:
         -------------------------------------


                                       Primary        Luxury/
                                        Market        Resort      Predecessor
                                      Operations    Operations       Assets        Other       Total
                                      ----------------------------------------------------------------
<S>                                   <C>            <C>           <C>           <C>         <C>
Total Revenues                        $  43,157      $      -      $ 19,686      $  9,566    $  72,409
                                      =========      ========      ========      ========    =========

Gross Profit                          $  10,412      $      -      $  1,080      $      -    $  11,492
                                      =========      ========      ========      ========
Unallocated revenues (expenses), net                                                           (10,038)
                                                                                             ---------

Net Income                                                                                   $   1,454
                                                                                             =========
</TABLE>

                                                  8
<PAGE>


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

         THE DISCUSSION OF THE COMPANY'S BUSINESS IN THE SECTIONS BELOW ENTITLED
"CURRENT  BUSINESS," "CORE BUSINESS" AND "PREDECESSOR  ASSETS" SHOULD BE READ IN
CONJUNCTION  WITH THE DISCUSSION OF THE COMPANY'S  CORPORATE  RESTRUCTURING  AND
STRATEGIC  ALTERNATIVES   INITIATIVE  IN  THE  SECTION  BELOW  ENTITLED  "RECENT
DEVELOPMENTS."

CURRENT BUSINESS

         The Company is a Florida-based, planned community development and asset
management company. The Company's CORE BUSINESS consists of:

         -        PRIMARY  MARKET  OPERATIONS,  consisting  of the  acquisition,
                  development  and  sale  of  real  estate  projects   ("PRIMARY
                  PROJECTS") containing  residential homesite components such as
                  single-family  lots,  multi-family  lots/units and residential
                  tract sales ("HOMESITES")  and/or  non-residential  components
                  such  as  commercial,  industrial,  office  and  institutional
                  ("COMMERCIAL  DEVELOPMENT")  in primary markets in Florida and
                  other  selected  primary  markets in the  southeastern  United
                  States ("PRIMARY MARKETS").

         -        LUXURY/RESORT  OPERATIONS,   consisting  of  the  acquisition,
                  development and sale of real estate  projects  ("LUXURY/RESORT
                  PROJECTS") in which the Company  engages in one or more of the
                  following activities:  Homesite  development,  construction of
                  VERTICAL  RESIDENTIAL  UNITS  (i.e.,  single  family  housing,
                  condominiums  and  timeshare  units),   and  construction  and
                  operation   of  equity   golf   clubs   and  other   amenities
                  ("AMENITIES").  The Company's existing  Luxury/Resort Projects
                  are  located  in  selected  markets in  Florida  and  Colorado
                  ("LUXURY/RESORT MARKETS").

                  The Company's (1) Primary  Markets and  Luxury/Resort  Markets
                  are referred to as its "CORE MARKETS" and (2) Primary Projects
                  and  Luxury/Resort  Projects  are  referred  to as  its  "CORE
                  PROJECTS."

         -        OTHER OPERATIONS, consisting principally of:

                  --       ENVIRONMENTAL  SERVICES,  consisting of the provision
                           of  environmental  services  to  third  parties  on a
                           contract basis; and

                  --       RECEIVABLES  PORTFOLIO   MANAGEMENT,   consisting  of
                           portfolio  management  of  MORTGAGE  RECEIVABLES  (as
                           defined below) and CONTRACT  RECEIVABLES  (as defined
                           below)  resulting  principally from the sale or other
                           disposition of PREDECESSOR ASSETS (as defined below).

         As of September 30, 1999,  the Company (1) owned all of the equity,  or
had equity ownership  interests in joint ventures which owned all of the equity,
in  11  Core   Projects,   consisting  of  eight  Primary   Projects  and  three
Luxury/Resort  Projects and (2) had three  additional  planned Primary  Projects
under  control,  excluding  the  Rayland  project,  which the  Company no longer
intends to acquire.  The 11 existing  Core  Projects and three  planned  Primary
Projects are referred to as the Company's "CORE DEVELOPMENT PORTFOLIO."

                                        9
<PAGE>


         The Board of Directors made the decision in the third quarter of fiscal
1999 (1) to  further  reduce  its  overhead  costs,  (2) to  further  reduce its
staffing and to eliminate additional senior management positions, (3) to replace
its President and Chief  Executive  Officer,  (4) to terminate its  headquarters
lease in Miami,  Florida, and to relocate its offices to Boca Raton, Florida, by
December 1, 1999,  (5) to begin selling Core  Projects in the fourth  quarter of
fiscal  1999,  (6) to use the net  proceeds  from such sales  (after  payment of
transaction costs) to repay Project indebtedness and, to the extent of remaining
net proceeds,  to repay the Revolving  Loan Facility and the Term Loan Facility,
in that order, (7) to focus its attention on the development, build-out and sale
of units at its two  Luxury/Resort  Projects,  West  Bay  Club and  Chenoa,  and
continue  to  facilitate  the  orderly  disposition  of  scattered   PREDECESSOR
HOMESITES (as defined below) and  PREDECESSOR  TRACTS (as defined below) located
in  secondary  markets  in Florida  and  Tennessee  (collectively,  "PREDECESSOR
ASSETS") and its  Receivable  Portfolio (as defined below) and (8) to write down
the carrying values of its Lakeside  Estates  Project,  its Saxon Woods Project,
its Trails of West Frisco Project and its West Meadows  Project by $3.4 million,
$1.3 million, $1.1 million and $2.1 million,  respectively.  As discussed below,
the continuing  disposition of Predecessor  Assets is a run-off business and not
part of the Company's Core Business. See "Recent Developments" below.

CORE BUSINESS

         GENERAL.  The  Company's  Core  Business  consists  of three  principal
business lines,  (1) development and sale of Primary  Projects,  (2) development
and  sale of  Luxury/Resort  Projects  and  (3)  Other  Operations,  principally
including Environmental Services and Receivables Portfolio Management.  See PART
I, ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS - RECENT DEVELOPMENTS.

         PRIMARY PROJECTS.  As of September 30, 1999, the Company was engaged in
the  acquisition,  development  and sale of Primary  Projects in Florida,  North
Carolina,  Georgia and Texas.  See PART I, ITEM 1.  BUSINESS - CORE  BUSINESS --
PRIMARY PROJECTS of the 1998 Amended Form 10-K for more  information  concerning
these Projects, including the scope and location of each Project.

                                       10
<PAGE>


                  REMAINING UNSOLD  LOTS/UNITS/ACRES IN THE PRIMARY PROJECTS, BY
PROJECT.   The  following  table  summarizes  the  number  of  remaining  unsold
lots/units/acres at the Company's Primary Projects,  by Project, as of September
30, 1999:

<TABLE>
<CAPTION>
                                           -----------------------------------------------------------------
                                             REMAINING UNSOLD LOTS/UNITS/ACRES AS OF SEPTEMBER 30, 1999(1)
                                           -----------------------------------------------------------------
                                               SINGLE FAMILY        MULTI-FAMILY           COMMERCIAL
                                           -----------------------------------------------------------------
                                              TOTAL    TOTAL       TOTAL     TOTAL      TOTAL      TOTAL
                                               LOTS   ENTITLED(2)  UNITS   ENTITLED(2)  ACRES    ENTITLED(2)
                                           -----------------------------------------------------------------
<S>                                            <C>      <C>         <C>         <C>       <C>         <C>
OWNED PROPERTIES
----------------
Lakeside Estates......................           462      462           -         -         -         -
Saxon Woods ..........................           355      355           -         -         -         -
West Meadows .........................           660      660           -         -         -         -
The Trails of West Frisco ............         1,298    1,298           -         -         -         -
                                           -----------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES.............         2,775    2,775           -         -         -         -
                                           -----------------------------------------------------------------

JOINT VENTURE PROPERTIES
------------------------
Sunset Lakes(3) ......................         1,146    1,146           -         -         -         -
Falcon Trace .........................           520      520           -         -         -         -
Cary Glen(4) .........................           852      852         257       257         -         -
Orlando Naval Training Center(5)......           911        -       2,129         -       131         -
                                           -----------------------------------------------------------------
SUBTOTAL JOINT VENTURE PROPERTIES.....         3,429    2,518       2,386       257       131         -
                                           -----------------------------------------------------------------

CONTROLLED PROPERTIES (6)
-------------------------
Anneewakee Falls(7)...................         1,226        -           -         -         -         -
Baxter Martinez(8)....................         1,182        -         217         -        27         -
Harbor Bay(9).........................         1,371        -         410         -        44         -
                                           -----------------------------------------------------------------
SUBTOTAL CONTROLLED PROPERTIES(10)....         3,779        -         627         -        71         -
                                           -----------------------------------------------------------------
TOTAL ALL PROPERTIES..................         9,983    5,293       3,013       257       202         -
                                           =================================================================
</TABLE>

(1)      Varying from  Project to Project,  unsold  units are  developed,  under
         development  or to be developed in the future.  The change in remaining
         unsold  lots/units/acres  from  December  31, 1998 is a result of sales
         activity and any modifications  made to the scope of the Project during
         the intervening period.
(2)      "Entitled" means having the necessary  discretionary  local, state, and
         federal government approvals and permits to proceed with development of
         the Project.
(3)      The Company's interest in this project is currently under contract. The
         closing of the sale,  which is subject to the  satisfaction  of certain
         conditions, is scheduled for November 15, 1999.
(4)      The Company has a limited  partnership  interest in this  project.  SEE
         PART II, ITEM 1. LEGAL PROCEEDINGS - CARY GLEN PROJECT.
(5)      The  Company is  currently  negotiating  the sale of its joint  venture
         interest to its joint venture  partners  pursuant to a purchase  option
         granted to the joint venture partners in the joint venture agreement.
(6)      The Company does not currently own these Projects, but has entered into
         contractual  relationships  (i.e.,  purchase  agreements with customary
         conditions  precedent,  option agreements,  joint venture arrangements,
         other  similar  arrangements,  etc.) to acquire  them.  There can be no
         assurance the Company will actually acquire these properties.
(7)      This  Project is located in  Georgia,  southwest  of Atlanta in Douglas
         County.  The Company controls this Project through a purchase  contract
         executed on February 19, 1999.
(8)      This  Project is located in Tampa,  Florida.  The Company  controls the
         Project through various purchase contracts.
(9)      The Company's interest in this project is currently under contract. The
         closing of the sale,  which is subject to the  satisfaction  of certain
         conditions, is scheduled for December 10, 1999.
(10)     The  Company  previously  had listed a contract  to acquire the Rayland
         Project  under  Controlled  Properties.  The Company has decided not to
         pursue this  acquisition  and has  requested  a refund of its  contract
         deposit.

                                       11
<PAGE>


         LUXURY/RESORT PROJECTS. The Company also is engaged in the acquisition,
development and sale of master planned  Luxury/Resort  Projects in Luxury/Resort
Markets in Florida and Colorado. See PART I, ITEM 1. BUSINESS - CORE BUSINESS --
LUXURY/RESORT  PROJECTS  of the 1998  Amended  Form  10-K  for more  information
concerning these Projects, including the scope and location of each Project.

                  REMAINING  UNSOLD   LOTS/UNITS/ACRES   IN  THE   LUXURY/RESORT
PROJECTS,  BY PROJECT.  The following  table  summarizes the number of remaining
unsold  lots/units/acres at the Company's Luxury/Resort Projects, by Project, as
of September 30, 1999:

<TABLE>
<CAPTION>
                                     ---------------------------------------------------------------------------------------------
                                                        REMAINING UNSOLD LOTS/UNITS/ACRES AT SEPTEMBER 30, 1999(1)
                                     ---------------------------------------------------------------------------------------------
                                                                     VERTICAL RESIDENTIAL UNITS
                                          HOMESITES       -----------------------------------------------------     COMMERCIAL
                                        SINGLE FAMILY     SINGLE FAMILY      MULTI-FAMILY     TIMESHARE CABINS      DEVELOPMENT
                                     ---------------------------------------------------------------------------------------------
                                       TOTAL    TOTAL     TOTAL    TOTAL    TOTAL    TOTAL     TOTAL     TOTAL    TOTAL    TOTAL
                                        LOTS   ENTITLED   UNITS   ENTITLED  UNITS   ENTITLED   UNITS   ENTITLED   ACRES   ENTITLED
                                     ---------------------------------------------------------------------------------------------
<S>                                      <C>      <C>       <C>       <C>    <C>       <C>       <C>         <C>    <C>       <C>
OWNED PROPERTIES
----------------
West Bay Club.......................     259      259       81        81     769       769        -          -      13        13
Chenoa (2)..........................     352        -        -         -      50         -       75          -       -         -
                                     ---------------------------------------------------------------------------------------------
SUBTOTAL OWNED PROPERTIES...........     611      259       81        81     819       769       75          -      13        13
                                     ---------------------------------------------------------------------------------------------

JOINT VENTURE PROPERTIES
------------------------
Jupiter Ocean Grande(3).............       -        -        -         -     154       154        -          -       -         -
                                     ---------------------------------------------------------------------------------------------
TOTAL ALL PROPERTIES................     611      259       81        81     973       923       75          -      13        13
                                     =============================================================================================
</TABLE>

(1)      Varying from  Project to Project,  unsold  units are  developed,  under
         development  or to be developed in the future.  The change in remaining
         unsold  lots/units/acres  from  December  31, 1998 is a result of sales
         activity and any modifications  made to the scope of the Project during
         the intervening period.
(2)      Formerly known as Aspen Springs Ranch.
(3)      The Company is negotiating to sell its interest in this Project.


         OTHER OPERATIONS.
         -----------------

                  ENVIRONMENTAL  SERVICES.  EQ Lab, a wholly owned subsidiary of
the Company, is a full service ecological consulting firm and laboratory. EQ Lab
recorded (1) approximately  $557,000 and $359,000 of total revenues in the third
quarter of 1999 and 1998,  respectively,  and (2)  approximately  $1,347,000 and
$1,227,000  of total  revenues  in the  first  nine  months  of 1999  and  1998,
respectively.  EQ Lab  recorded  (1)  approximately  $243,000  and  $258,000  of
revenues from unaffiliated  third parties in the third quarter of 1999 and 1998,
respectively,  and (2)  approximately  $702,000  and  $877,000 of revenues  from
unaffiliated  third  parties  in  the  first  nine  months  of  1999  and  1998,
respectively.

         The Company is currently negotiating to sell the stock of EQ Lab.

                  RECEIVABLES  PORTFOLIO  MANAGEMENT.  The  Company is  actively
engaged  in the  management  and  collection  of a  portfolio  of  (1)  contract
receivables  originated by the Predecessor  Company's homesite installment sales
program (the  "CONTRACT  RECEIVABLES")  and (2) mortgage  receivables  generated
primarily from the Company's

                                       12
<PAGE>


sales of Predecessor Tracts (the "MORTGAGE  RECEIVABLES,"  which,  together with
the  Contract  Receivables,  are  collectively  referred to as the  "RECEIVABLES
PORTFOLIO"). As of September 30, 1999, the portfolio of Contract Receivables had
a net book value of $2.9 million,  and the portfolio of Mortgage Receivables had
a net book value of $19.2  million.  As of December 31, 1998,  the  portfolio of
Contract  Receivables had a net book value of $4.1 million, and the portfolio of
Mortgage Receivables had a net book value of $29.3 million.

PREDECESSOR ASSETS

         The  following  table  summarizes  the Company's  Predecessor  Homesite
Inventory by secondary market area as of September 30, 1999:

                         PREDECESSOR HOMESITE INVENTORY
                         ------------------------------

                                       Other                            Total
                          Standard   Developed  Buildable   Other    Predecessor
Market Area              Buildable      Lots    Reserved  Restricted  Homesites
-------------------------------------------------------------------------------

North Port                  3,505          9         64        129      3,707
Port Charlotte                583         71      1,622        361      2,637
Port St. Lucie                193         27        306         60        586
Port Malabar                   86          2      1,759      1,542      3,389
Port Labelle                  742          -         31      1,051      1,824
Sabal Trace                     -          -          -          -          -
Silver Springs Shores       2,351         79        229        279      2,938
Cumberland Cove               180          -          -          8        188
Other                          38          -         31          6         75
                        -----------------------------------------------------
Total                       7,678        188      4,042      3,436     15,344
                        =====================================================

                                       13
<PAGE>


         The following  table  summarizes the Company's  Predecessor  Commercial
Development Inventory by secondary market area as of September 30, 1999:

                  PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY
                  --------------------------------------------

                                                               Total
           Market Area                                         Acres
           --------------------------------------------------------------

           North Port                                             491
           Port Charlotte                                       1,403
           Port St. Lucie                                         335
           Port Malabar                                           869
           Port Labelle                                           224
           Silver Springs Shores                                   36
           Cumberland Cove                                        685
           Other                                                   39
                                                            -------------
           Total                                                4,082
                                                            =============


         The decrease in inventory  from December 31, 1998 is primarily a result
of sales activity during the intervening period in accordance with the Company's
plan of  disposal  of  Predecessor  Assets.  See  PART I,  ITEM  1.  BUSINESS  -
PREDECESSOR ASSETS of the 1998 Amended Form 10-K for information  concerning the
Predecessor Homesite and Predecessor Commercial Development Inventory.

                                       14
<PAGE>


RESULTS OF OPERATIONS

         COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
         ---------------------------------------------------------------

         The  Company's   results  of  operations  for  its  Core  Business  and
Predecessor  Assets  for the nine  months  ended  September  30,  1999 and 1998,
respectively, are summarized below:

<TABLE>
<CAPTION>
                             Combining Results of Real Estate Operations
                             -------------------------------------------

                                Nine Months Ended September 30, 1999
                                           (in thousands)


                                                   Primary     Luxury/
                                                    Market     Resort     Predecessor
                                                 Operations  Operations      Assets         Total
                                                 --------------------------------------------------
<S>                                              <C>         <C>           <C>           <C>
Revenues:
   Real estate sales
      Homesite..............................     $   15,751  $    4,862    $    3,090    $   23,703
      Commercial............................         12,500           -         2,816        15,316
                                                 --------------------------------------------------
   Total real estate sales..................         28,251       4,862         5,906        39,019
                                                 --------------------------------------------------
Costs and expenses:
   Cost of real estate sales
      Homesite..............................         14,287       3,774         2,710        20,771
      Commercial............................         10,325           -         2,302        12,627
                                                 --------------------------------------------------
Total cost of real estate sales.............         24,612       3,774         5,012        33,398
                                                 --------------------------------------------------

Gross margin real estate sales .............     $    3,639  $    1,088    $      894    $    5,621
                                                 ==================================================

Results of Joint Venture Operations(1)......     $   (1,546) $   (4,869)   $        -    $   (6,415)
                                                 ==================================================
</TABLE>

(1)      Included  in  "other  expense"  in  the   Consolidated   Statements  of
         Operations.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                             Combining Results of Real Estate Operations
                             -------------------------------------------

                                Nine Months Ended September 30, 1998
                                           (in thousands)


                                                  Primary     Luxury/
                                                   Market      Resort     Predecessor
                                                 Operations  Operations      Assets        Total
                                                 ---------------------------------------------------
<S>                                              <C>        <C>            <C>           <C>
Revenues:
   Real estate sales
      Homesite..............................     $    7,857 $         -    $    2,726    $    10,583
      Commercial............................         35,300           -        16,960         52,260
                                                 ---------------------------------------------------
   Total real estate sales..................         43,157           -        19,686         62,843

Costs and expenses:
   Cost of real estate sales
      Homesite..............................          6,701           -         2,411          9,112
      Commercial............................         26,044           -        16,195         42,239
                                                 ---------------------------------------------------
Total cost of real estate sales.............         32,745           -        18,606         51,351
                                                 ---------------------------------------------------

Gross margin real estate sales .............     $   10,412 $         -    $    1,080    $    11,492
                                                 ===================================================

Results of Joint Venture Operations(1)......     $    1,778 $      (342)   $        -    $     1,436
                                                 ===================================================
</TABLE>

(1)      Included  in  "other  expense"  in  the   Consolidated   Statements  of
         Operations.


         OVERVIEW. The Company reported a net loss applicable to Common Stock of
$45.6  million in the first nine  months of 1999  compared to a net loss of $7.1
million  applicable  to Common  Stock in the  first  nine  months  of 1998.  The
increase  in the net  loss of  $38.5  million  was due  primarily  to (1) a $5.9
million  decrease  in gross  margin on real  estate  sales,  (2) a $1.7  million
decrease in other  operating  revenue,  (3) a $2.1 million  decrease in interest
income, (4) inventory  valuation  reserves of $11.3 million,  (5) a $1.7 million
increase  in  operating  expense,  (6) a $2.8  million  increase  in general and
administrative  expenses,  (7) a $5.8 million  increase in other expense,  (8) a
decrease of $4.5 million in other  income,  and (9) a $4.1  million  increase in
preferred  stock charges,  partially  offset by (10) a $1.1 million  decrease in
real estate costs.

         PRIMARY MARKET OPERATIONS.

                  HOMESITES. Revenues from Homesite sales increased $7.9 million
in the first nine  months of 1999  compared to the first nine months of 1998 due
primarily to sales at The Trails of West Frisco Project.  There were no sales at
The Trails of West Frisco Project in the first nine months of 1998. The Homesite
sales gross margin percentage was 9.3% in the first nine months of 1999 compared
to 14.7% in the first nine months of 1998. The lower Homesite sales gross margin
percentage in the first nine months of 1999

                                       16
<PAGE>


compared to the first nine months of 1998 was due  primarily to a decline in the
gross margin  associated with the Lakeside Estates Project due to an increase in
the  estimated  cost to complete  that  Project in 1998,  resulting in less than
break-even margins for the remainder of the Lakeside Estates Project.

         As of September 30, 1999, the Company had under contract  approximately
792  Homesites for $23.6 million with 14  homebuilders  in the Lakeside  Estates
Project,  the Saxon Woods  Project,  the West Meadows  Project and The Trails of
West Frisco  Project.  As of December 31, 1998,  the Company had under  contract
approximately  650  Homesites  for $19.8  million  with 11  homebuilders  in the
Lakeside Estates Project,  the Saxon Woods Project, the West Meadows Project and
The Trails of West Frisco  Project.  And, as of September 30, 1998,  the Company
had  under  contract  approximately  817  Homesites  for $28.3  million  with 13
homebuilders in the Lakeside Estates Project,  the Saxon Woods Project, the West
Meadows Project and The Trails of West Frisco Project.

         The Company is a party to a contract to sell its interest in the Harbor
Bay Project.  The closing of the sale,  which is subject to the  satisfaction of
certain conditions, is scheduled for December 10, 1999.

         Inventory  valuation reserve charges of $7.9 million were recognized in
the third quarter of 1999 and represent a reduction in the carrying value of the
Company's  inventory based upon a review of the fair values of various  homesite
projects.

                  COMMERCIAL  DEVELOPMENT.  Revenues from Commercial Development
were $12.5  million in the first nine months of 1999,  compared to $35.3 million
in the first nine months of 1998. In September  1999,  the Company closed on the
sale of the remaining property in the Riverwalk Towers Project for $8.0 million.
In January 1999, the Company closed on the sale of the West Meadows  Project for
$4.5 million.  In April 1998, the Company sold and closed Dave's Creek for $24.8
million.  In June  1998,  the  Company  sold a portion of the  Riverwalk  Towers
Project for $7.0 million.

                  JOINT  VENTURES.  Results of Joint Ventures  decreased by $3.3
million in the first nine  months of 1999  compared  to the first nine months of
1998. This was primarily  associated with an investment valuation reserve charge
of $1.7  million.  During 1998,  the Sunset Lakes Project  commenced  operations
resulting in initial sales to all the builders.  The  comparable  period in 1999
represents  results of operations  from more  normalized  sales  volumes.  As of
September  30, 1999,  December 31, 1998 and  September  30, 1998,  the Company's
Sunset Lakes and Falcon Trace JV Projects had 504, 787 and 885  Homesites  under
contract, respectively,  totaling approximately $24.7 million, $37.3 million and
$41.0  million,  respectively,  in future gross  revenue,  a portion of which is
allocable to the Company as a joint venturer.

         The Company's  interest in the Sunset Lakes Project is currently  under
contract.  The  closing  of the  sale  at a  profit,  which  is  subject  to the
satisfaction of certain conditions, is scheduled for November 15,1999.

         Investment valuation reserve charges of $1.7 million were recognized in
the third quarter of 1999 and represent a reduction in the carrying value of the
Company's  joint venture  investments  based upon a review of the fair values of
various joint venture projects.

                                       17
<PAGE>


         LUXURY/RESORT OPERATIONS.
         -------------------------

                  HOMESITES.  Homesite  sales began at the West Bay Club Project
during the first nine  months of 1999.  Because  the West Bay Club  Project  was
still under  development  as of September  30, 1998,  there were no sales at the
West Bay Club Project in the first nine months of 1998.

         As of September  30, 1999 and December 31, 1998,  the Company had under
contract  approximately  180 and 12 Homesites for $9.8 million and $2.4 million,
respectively,  with 7 homebuilders  in the West Bay Club Project.  There were no
pending sales contracts at the West Bay Club Project as of September 30, 1998.

                  JOINT  VENTURES.  Results of Joint  Ventures in the first nine
months of 1999 decreased $4.5 million  compared to the first nine months of 1998
due to increased  marketing  related expenses  associated with the Jupiter Ocean
Grande  Project  start-up and an  investment  valuation  reserve  charge of $4.4
million  recognized in the third quarter of 1999 representing a reduction in the
carrying  value of the  Company's  joint  venture  investments  in Jupiter Ocean
Grande based upon a review of the fair values of the joint venture project.

         PREDECESSOR ASSETS.
         -------------------

                  PREDECESSOR  HOMESITES.  Revenues  from  Predecessor  Homesite
sales increased  $364,000 in the first nine months of 1999 compared to the first
nine months of 1998 due primarily to the sale of 75 Predecessor Homesites in the
Sable Trace Project. There were only nominal sales in the Sable Trace Project in
the  first  nine  months  of 1998 due to  Project  start-up.  Other  Predecessor
Homesites sales declined in the first nine months of 1999 compared to the number
of Predecessor  Homesites sold in the first nine months of 1998  consistent with
continued  portfolio  run-off.  The  Predecessor  Homesite  sales  gross  margin
percentage  was 12.3% in the first nine months of 1999  compared to 11.6% in the
first nine months of 1998. This percentage is consistent with the Company's plan
of disposal of its Predecessor Assets.

         As of September 30, 1999, the Company had under contract  approximately
16 Predecessor  Homesites for $198,000. As of December 31, 1998, the Company had
under contract 2 commercial lots allocated to Predecessor Homesites for $99,000.
And, as of September 30, 1998, the Company had under contract  approximately  54
Predecessor Homesites for $226,000.

                  PREDECESSOR  TRACTS.  Revenues  from  Predecessor  Tract sales
decreased  $14.1  million in the first nine months of 1999 compared to the first
nine months of 1998 due  primarily  to fewer  sales from a  declining  inventory
balance.  As of September 30, 1999, there were pending  Predecessor  Tract sales
contracts  or letters  of intent  totaling  approximately  $1.8  million.  As of
December  31,  1998,  there were pending  Predecessor  Tract sales  contracts or
letters of intent  totaling  approximately  $980,000.  And, as of September  30,
1998, there were pending  Predecessor Tract sales contracts or letters of intent
totaling approximately $4.3 million.

         The 18.3%  Predecessor Tract sales gross margin percentage in the first
nine  months  of 1999 is due to  significantly  fewer  sales on more  profitable
terms.  The 4.5%  Predecessor  Tract sales gross margin  percentage in the first
nine months of 1998 is generally  more  consistent  with the  Company's  plan of
disposal for Predecessor Assets.

                                       18
<PAGE>

         OTHER RESULTS OF OPERATIONS.
         ----------------------------

                  INVENTORY  VALUATION  RESERVES.  Inventory  valuation  reserve
charges of $3.4 million were  recognized in the second  quarter of 1999 and $7.9
million in the third  quarter of 1999 and  represent a reduction in the carrying
value of the Company's inventory based upon a review of the fair values.

                  OTHER OPERATING REVENUE.  Other operating revenue decreased by
$1.7 million in the first nine months of 1999  compared to the first nine months
of 1998. The decrease was due to a $1.0 million settlement received in 1998.

                  INTEREST INCOME.  Interest income decreased by $2.1 million in
the first nine months of 1999  compared  to the first nine  months of 1998.  The
decrease was due to discounts offered to borrowers to induce prepayment of their
mortgages for liquidity  purposes,  as well as normal  Contract  Receivables and
Mortgage Receivables portfolio run-off.

                  OPERATING EXPENSE. Operating expense increased by $1.7 million
in the first nine months of 1999 compared to the first nine months of 1998.  The
increase was  primarily  due to losses  incurred  with  start-up  operations  in
connection with the Amenities at the West Bay Club Project in 1998.

                  REAL ESTATE COSTS. Real estate costs decreased by $1.1 million
in the first nine months of 1999 compared to the first nine months of 1998.  The
decrease was due to  marketing  and  advertising  expenses  associated  with the
opening of the West Bay Club Project.

         GENERAL AND ADMINISTRATIVE EXPENSE.  General and administrative expense
increased  $2.8  million in the first nine months of 1999  compared to the first
nine months of 1998 due  primarily to (1)  expenses of the Special  Committee of
the Board of Directors  associated  with the  Company's  strategic  alternatives
initiative,  including the retention of BT Alex.  Brown,  (2) certain  corporate
restructuring expenses,  including severance costs, lease restructuring expenses
and other similar costs and expenses, (3) employee bonuses,  including the stock
component of bonuses issued to certain  executives  effective March 15, 1999 and
(4)  forgiveness  of debt costs and other costs  associated  with the employment
termination  agreement for the  Company's  prior  President and Chief  Executive
Officer,  pursuant to which the Company  cancelled a nonrecourse loan previously
made to the President and Chief  Executive  Officer and the stock purchased with
the proceeds of the loan was returned to the Company.

                  OTHER EXPENSE.  Other expense increased by $5.9 million in the
first nine months of 1999  compared  to the first nine months of 1998  primarily
due to a valuation  allowance  recorded  on the  Company's  investment  in Joint
Ventures based upon a review of fair values.

                  OTHER  INCOME.  Other income  decreased by $4.5 million in the
first  nine  months of 1999  compared  to the  first  nine  months of 1998.  The
decrease was primarily  due to a $3.8 million  utility trust payout in September
1998.

                  PREFERRED STOCK CHARGES. During the first nine months of 1999,
the Company  recorded a $9.2 million  accrual for dividends  associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of September 30,
1999.  The  dividend  rate is 20% of the  liquidation  preference  value  of the
Preferred Stock. The liquidation  preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends.  The liquidation preference of
the  Preferred  Stock was $67.8  million,  $58.6 million and $55.8 million as of
September 30, 1999, December 31, 1998, and September 30, 1998, respectively. The
Company  accreted  $1.0  million  of the  value  of its  Preferred  Stock to the
redemption amount in the first nine months of 1999.

                                       19
<PAGE>

<TABLE>
<CAPTION>

         In  connection  with the closing of the new Senior Loan  Facilities  in
February  1999,  the Company  issued notes  totaling  $1.85  million and 500,000
shares of Common Stock at a price of $1.06 per share to AP-AGC,  LLC  ("APOLLO")
in exchange for Apollo's (a) consent to the Company entering into the new Senior
Loan Facilities and agreement to subordinate its collateral  interest in certain
of the  Company's  assets,  (b)  agreement to certain  amendments to the Secured
Agreement  and  Investment  Agreement  and (c)  agreement  to enter into the new
Intercreditor   Agreement  with  the  lenders  party  to  the  new  Senior  Loan
Facilities.  The  total  value  of the  consideration  paid to  Apollo  was $2.4
million. The total of approximately $12.7 million of preferred stock charges was
charged  to  contributed   capital  in  the  accompanying   September  30,  1999
consolidated balance sheet.


                                       20
<PAGE>

        COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
        ----------------------------------------------------------------

         The  Company's   results  of  operations  for  its  Core  Business  and
Predecessor  Assets for the three months ended  September  30, 1999 and 1998 are
summarized below:

                                Combining Results of Real Estate Operations
                                -------------------------------------------

                                   Three Months Ended September 30, 1999
                                               (in thousands)

                                                    Primary         Luxury/
                                                     Market          Resort         Predecessor
                                                   Operations      Operations         Assets          Total
                                                 ----------------------------------------------------------
<S>                                              <C>             <C>            <C>             <C>
Revenues:
   Real estate sales
      Homesite..............................     $       5,265   $         -    $         803   $     6,068
      Commercial............................             8,000             -            1,087         9,087
                                                 ----------------------------------------------------------
   Total real estate sales..................            13,265             -            1,890        15,155
                                                 ----------------------------------------------------------
Costs and expenses:
   Cost of real estate sales
      Homesite..............................             4,881           (90)             733         5,524
      Commercial............................             7,084             -            1,019         8,103
                                                 ----------------------------------------------------------
Total cost of real estate sales.............            11,965           (90)           1,752        13,627
                                                 ----------------------------------------------------------

Gross margin real estate sales .............     $       1,300   $        90    $         138   $     1,528
                                                 ==========================================================

Results of Joint Venture Operations(1)......     $      (1,512)  $    (4,496)   $           -   $    (6,008)
                                                 ==========================================================
</TABLE>

(1)      Included  in  "other  expense"  in  the   Consolidated   Statements  of
         Operations.

                                       21
<PAGE>


                           Combining Results of Real Estate Operations
                           -------------------------------------------

                              Three Months Ended September 30, 1998
                                         (in thousands)
<TABLE>
<CAPTION>
                                                  Primary      Luxury/
                                                   Market       Resort    Predecessor
                                                 Operations   Operations     Assets      Total
                                                 -----------------------------------------------
<S>                                              <C>          <C>           <C>         <C>
Revenues:
   Real estate sales
      Homesite..............................     $    2,821   $        -    $     684   $  3,505
      Commercial............................          3,520                     2,943      6,463
                                                 -----------------------------------------------
   Total real estate sales..................          6,341            -        3,627      9,968
                                                 -----------------------------------------------
Costs and expenses:
   Cost of real estate sales
      Homesite..............................          2,385            -          561      2,946
      Commercial............................            842            -        2,568      3,410
                                                 -----------------------------------------------
Total cost of real estate sales.............          3,227            -        3,129      6,356
                                                 -----------------------------------------------

Gross margin real estate sales .............     $    3,114   $        -    $     498   $  3,612
                                                 ===============================================

Results of Joint Venture Operations(1)......     $      591   $      (96)   $       -   $    495
                                                 ===============================================
</TABLE>

(1)      Included  in  "other  expense"  in  the   Consolidated   Statements  of
         Operations.


         OVERVIEW. The Company reported a net loss applicable to Common Stock of
$22.5  million in the third quarter of 1999 compared to a net income of $341,000
applicable to Common Stock in the third quarter of 1998. The increase in the net
loss of $22.9  million was due  primarily  to (1)  inventory  valuation  reserve
charges of $7.9 million, (2) an increase in other expense of $5.9 million, (3) a
$2.1 million  decrease in gross margin on real estate sales,  (4) a $2.0 million
decrease  in other  operating  revenue,  (5) a $4.2  million  decrease  in other
income,  (6) a $584,000  increase in preferred stock charges and, (7) a $610,000
decrease  in  interest  income,  offset by (8) a $1.2  million  decrease in real
estate costs.

         PRIMARY MARKET OPERATIONS.
         --------------------------

                  HOMESITES. Revenues from Homesite sales increased $2.4 million
in the third quarter of 1999 compared to the third quarter of 1998 due primarily
to sales at The Trails of West Frisco Project. There were no sales at The Trails
of West Frisco  Project in the third quarter of 1998.  The Homesite  sales gross
margin percentage was 7.3% in the third quarter of 1999 compared to 15.4% in the
third quarter of 1998. The lower  Homesite sales gross margin  percentage in the
third  quarter  of 1999 was due  primarily  to a  decline  in the  gross  margin
associated with the Lakeside Estates Project due to an increase in the estimated
cost to complete that Project.

                                       22
<PAGE>


                  COMMERCIAL  DEVELOPMENT.  In the third  quarter  of 1999,  the
Company  closed on the sale of the  remaining  property in the  Riverwalk Towers
Project for $8.0  million.  In the third quarter of 1998,  the Company  received
additional  sales  proceeds on the Dave's Creek property upon receipt of an Army
Corp of Engineers permit.

                  JOINT  VENTURES.  Results of Joint Ventures  decreased by $2.1
million in the third quarter of 1999 compared to the third quarter of 1998. This
decrease was primarily associated with an investment valuation reserve charge of
$1.7 million relating to various joint venture projects. During 1998, the Sunset
Lakes  Project  commenced  operations  resulting  in  initial  sales  to all the
builders.  The comparable  period in 1999  represents  results of operations for
more normalized sales volumes.

         LUXURY/RESORT OPERATIONS.
         -------------------------

                  HOMESITES.  Homesite  sales began at the West Bay Club Project
in 1999.  There were no sales at the West Bay Club Project in the third  quarter
of 1999 or 1998.

                  JOINT VENTURES. Results of Joint Ventures in the third quarter
of 1999 decreased by $4.4 million as compared to the third quarter of 1998. This
decrease  was the  result  of an  investment  valuation  reserve  charge of $4.4
million related to the Jupiter Ocean Grande Joint Venture Project.

         PREDECESSOR ASSETS.
         -------------------

                  PREDECESSOR  HOMESITES.  Predecessor  Homesites  sales  in the
third quarter of 1999 were comparable to sales in the third quarter of 1998. The
Predecessor Homesite sales gross margin percentage was 8.7% in the third quarter
of 1999 compared to 18.0% in the third quarter of 1998.

                  PREDECESSOR  TRACTS.  Revenues  from  Predecessor  Tract sales
decreased  $1.9  million  in the third  quarter  of 1999  compared  to the third
quarter of 1998 due primarily to fewer sales from a declining inventory balance.

         The 6.3% Predecessor  Tract sales gross margin  percentage in the third
quarter of 1999  compared to the 12.7%  Predecessor  Tract  sales  gross  margin
percentage in the third quarter of 1998 is generally  more  consistent  with the
Company's plan of disposal of Predecessor Assets.

         OTHER RESULTS OF OPERATIONS.
         ----------------------------

                  INVENTORY  VALUATION  RESERVES.  Inventory  valuation  reserve
charges  of $7.9  million  were  recognized  in the  third  quarter  of 1999 and
represent a reduction in the carrying  value of the  Company's  inventory  based
upon a review of their fair values.

                  OTHER OPERATING REVENUE.  Other operating revenue decreased by
$2.0 million in the third quarter of 1999 compared to the third quarter of 1998.
This  decrease  was due to a realized  gain on the  assignment  of a real estate
purchase  agreement  in the  third  quarter  of 1998 for a  residential  project
located in the Orlando, Florida area. There was no comparable sales in 1999.

                  INTEREST INCOME.  Interest income decreased by $610,000 in the
third quarter of 1999  compared to the third quarter of 1998.  This decrease was
due to discounts  offered to borrowers to induce  prepayment of the mortgage for
liquidity  purposes,  as  well  as  normal  Contract  Receivables  and  Mortgage
Receivables portfolio run-off.

                                       23
<PAGE>



                  SELLING EXPENSE.  Selling expense decreased by $457,000 in the
third quarter of 1999  compared to the third  quarter of 1998.  The decrease was
primarily due to reduced sales in the corresponding period.

                  OPERATING EXPENSE.  Operating expense increased by $586,000 in
the third quarter of 1999  compared to the third  quarter of 1998.  The increase
was primarily due to losses incurred with start-up operations in connection with
the Amenities at the West Bay Club Project.

                  REAL ESTATE COSTS. Real estate costs decreased by $1.2 million
in the third quarter of 1999 compared to the third quarter of 1998. The decrease
was due to marketing and advertising expenses associated with the opening of the
West Bay Club Project in 1998.

                  GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense  increased  $183,000 in the third  quarter of 1999 compared to the third
quarter of 1998 due  primarily  to  further  corporate  restructuring  expenses,
including severance costs, lease restructuring  expenses and other similar costs
and expenses partially offset by savings from the restructuring program.

                  OTHER EXPENSE.  Other expense increased by $5.9 million in the
first nine months of 1999  compared  to the first nine months of 1998  primarily
due to a valuation  allowance  recorded  on the  Company's  investment  in Joint
Ventures based upon a review of fair values.

                  OTHER  INCOME.  Other income  decreased by $4.6 million in the
first  nine  months of 1999  compared  to the  first  nine  months of 1998.  The
decrease was primarily  due to a $3.8 million  utility trust payout in September
1998.

                  PREFERRED STOCK CHARGES. During the third quarter of 1999, the
Company  recorded a $3.2  million  accrual  for  dividends  associated  with its
Preferred  Stock.  The dividends were accumulated but unpaid as of September 30,
1999.  The  dividend  rate is 20% of the  liquidation  preference  value  of the
Preferred Stock. The liquidation  preference value of the Preferred Stock is $10
per share, plus accumulated and unpaid dividends.  The liquidation preference of
the  Preferred  Stock was  $67.8  million,  $58.6  million  and  $55.8  million,
respectively,  as of September  30, 1999,  December 31, 1998 and  September  30,
1998. The Company  accreted  $350,000 of the value of its Preferred Stock to the
redemption amount in the third quarter of 1999.

LIQUIDITY AND CAPITAL RESOURCES

         GENERAL.  As of September  30, 1999,  the  Company's  (1) cash and cash
equivalents totaled  approximately $2.9 million and (2) restricted cash and cash
equivalents  totaled $1.2 million,  consisting  primarily of (a) escrows for the
sale or  development of real estate  properties,  (b) funds held in trust to pay
certain  bankruptcy  claims and (c) various other escrow  accounts.  Of the $6.5
million  decrease in cash and cash  equivalents  during the first nine months of
1999,  (i) $14.3 million was used in operating  activities and (ii) $2.3 million
was used in  investing  activities,  partially  offset  by (iii)  $10.1  million
provided by financing activities.

                                       24
<PAGE>


         Cash  used in  operating  activities  included  approximately  (1) $7.6
million for interest payments,  (2) $3.1 million for property tax payments,  (3)
$11.0 million for construction and development expenditures and (4) $5.2 million
of  fees  associated  with  the  Company's  refinancing  efforts.  Cash  used in
operating  activities  was offset in part by net cash generated from real estate
sales and other operations.

         Cash  used  in  investing  activities  consisted  of  $2.3  million  of
property, plant and equipment additions.

         Cash  provided  by  financing  activities  consisted  primarily  of net
borrowings of $10.1 million under various project  financings and the new Senior
Loan Facilities, which were funded on February 2, 1999.

         SENIOR LOAN FACILITIES. Dated as of December 31, 1998, and effective on
February 2, 1999,  Atlantic Gulf closed on its new $39.5 million  Revolving Loan
Facility and its new $26.5 million Term Loan Facility (collectively, the "SENIOR
LOAN  FACILITIES").  The Revolving  Loan Facility  commitment  decreased by $4.0
million on March 31, 1999 and an additional $1.0 million on May 31, 1999.

         Amounts outstanding (1) under the Revolving Loan Facility bear interest
at a fixed rate equal to 11% per annum and (2) under the Term Loan Facility bear
interest at a fixed rate equal to 15% per annum.  As of September 30, 1999,  the
Company had  outstanding (a) $27.0 million under its Revolving Loan Facility and
(b) $26.5 million under its Term Loan Facility.

         See "RECENT  DEVELOPMENT - SENIOR LOAN AMENDMENTS" below for discussion
of the covenant  defaults  under the Senior Loan  Facilities  that existed as of
September 30, 1999, and which will be waived and/or cured by the parties pending
payment of the waiver fees, as the case may be, in the Revolving  Loan Amendment
and the Term Loan Amendment.

         WEST  FRISCO  PROJECT  FINANCING.   On  March  31,  1999,  West  Frisco
Development   Corporation  ("WFDC"),  an  indirect  wholly-owned  subsidiary  of
Atlantic Gulf,  borrowed $7.0 million from Anglo American  Financial (the "ANGLO
AMERICAN  FACILITY").  The  Anglo  American  Facility  (1)  is a  full  recourse
obligation of WFDC,  secured by a deed of trust on the West Frisco Project,  (2)
matures on December 31, 1999,  (3) bears interest at the rate of 1.75% per month
and (4) requires  payments of interest only (monthly in arrears) until maturity.
Atlantic Gulf has guaranteed the Anglo American Facility. In addition,  there is
a senior revolving  development loan with approximately $3.4 million outstanding
as of  September  30, 1999 which  matures  December  1, 1999.  The Company is in
discussions with both lenders regarding  extensions of the maturity date of both
loans.

         CHENOA  PROJECT  FINANCING.  Chenoa,  formerly  known as Aspen  Springs
Ranch, is the Company's 5,906-acre  Luxury Resort Project located in the Roaring
Fork  Valley of  Colorado.  The  Company  was unable to obtain  approval  of its
pending  amendment  to the  existing  PUD for the project  (the "PUD  Approval")
within the time limits set forth in its development  loan agreement.  The senior
lender  notified  the  Company  that it was in  default  under  the terms of its
agreement and ceased funding. Neither the senior lender nor the mezzanine lender
have  pursued any  remedies to date.  The  Company  continues  to pursue the PUD
Approval,  and the Company is funding  Project  costs out of cash flow and other
Company funds.

                                       25
<PAGE>


         OTHER MATERIAL  OBLIGATIONS  COMING DUE IN 1999.  Atlantic Gulf's other
material   obligations   for  the   remainder  of  1999  consist   primarily  of
approximately $11 million of planned expenditures for development,  construction
and other capital  improvements,  a substantial  portion of which will be funded
through individual  project  development loans. The balance of such expenditures
for  operating  projects  are funded  from the parent  Company.  If  development
financing ceases or if the Company is unable to obtain capital resources to fund
ongoing  obligations and expenditures,  the  implementation of the business plan
will be  adversely  affected.  However,  management  believes  that the Company,
through a combination of sources,  will be able to obtain the funds necessary to
continue to implement its business plan and, at the same time,  satisfy its debt
obligations as they become due.

RECENT DEVELOPMENTS

         STRATEGIC  ALTERNATIVES  INITIATIVE.  On March 26,  1999,  the  Company
publicly  announced  that  (1) its  Board of  Directors  had  formed  a  Special
Committee to explore  strategic  alternatives to maximize  stockholder value and
(2) it had retained BT Alex. Brown, a leading investment banking firm, to assist
the Special Committee in reviewing strategic alternatives.

         The Company has explored, and is continuing to explore, with interested
third parties various strategic  alternative  transactions,  including,  but not
limited to, (1) a sale of all or substantially all of the Company's stock and/or
assets, and/or (2) a management agreement/arrangement.  The Company is no longer
exploring a merger, consolidation or other business combination, a joint venture
or  strategic  alliance,  and/or a  corporate  recapitalization,  as  previously
reported.  At this time the Company is focusing its efforts primarily on selling
Predecessor  Assets and Core Projects (other than Chenoa and West Bay Club) with
the  intent  of using  the net  proceeds  from  such  sales  (after  payment  of
transaction costs) to repay Project indebtedness and, to the extent of remaining
net proceeds,  to repay the Revolving  Loan Facility and the Term Loan Facility,
in that order.

         While the Company is actively and  diligently  pursuing  all  strategic
alternative  transaction  opportunities,  there can be no assurance  that such a
transaction will be consummated.

         CORPORATE  RESTRUCTURING PROGRAM. On July 2, 1999, the Company publicly
announced its corporate restructuring program.

         As of September 30, 1999,  the Company had eliminated 29 positions (not
including Mr. Rutherford's  position),  or approximately 17% of its December 31,
1998  workforce,  as part of a  restructuring  program  aimed at  returning  the
Company to  profitability  and  realigning its overhead costs with its operating
revenues.  Since  September  30,  1999,  the  Company has  eliminated  another 4
positions and expects to eliminate an additional 45 positions by year end.

         During 1999, the Company expects the net number of full-time  employees
to be reduced  from 166 to 98 or  approximately  41% of its  December  31,  1998
workforce.

                                       26
<PAGE>


         Since July 1, 1999,  the  Company  has  eliminated  certain  additional
senior  management  positions  and  consolidated  the  responsibilities  of  the
eliminated  positions with ongoing  positions.  The Company intends to eliminate
certain  additional senior management  positions on or before December 31, 1999.
Specifically,  the Company (1) eliminated the Vice President-Controller position
as of  September  30,  1999 and the Senior Vice  President-Business  Development
position  as of October 1,  1999,  (2)  intends  to  eliminate  the Senior  Vice
President-Finance  position, the Senior Vice President-General Counsel position,
the Senior Vice President-Development position, and the Vice President-Treasurer
position  on or before  December  1, 1999,  (3)  intends to  eliminate  the Vice
President-Human  Resources  position on or before December 31, 1999, and (4) has
or will  reassign  the duties  formerly  performed  by these  officers  to other
employees  of the  Company.  The  Company is  continuing  to review its  overall
staffing needs (both at the  management  level and below) with a view to further
reducing  its  headcount,  eliminating  redundancies,  consolidating  positions,
further  streamlining  management and realizing  further cost savings,  when and
where possible.

         On August 30, 1999, the Company entered into an employment  termination
agreement with Mr. J. Larry Rutherford (Mr. Rutherford's "EMPLOYMENT TERMINATION
AGREEMENT") pursuant to which Mr. Rutherford's employment as President and Chief
Executive Officer of the Company and its subsidiaries and affiliates terminated,
without  cause,  effective as of August 17, 1999.  And, on August 18, 1999,  the
Company entered into an employment agreement with Mr. Richard Ackerman, pursuant
to which Mr. Ackerman was appointed to the position of Chief  Executive  Officer
of the  Company,  effective  as of August 17, 1999 (Mr.  Ackerman's  "EMPLOYMENT
AGREEMENT").  Since then,  Mr.  Ackerman has been  appointed as an officer and a
director of all of the Company's subsidiaries.

         The Company is  reducing,  where  possible,  other  direct and indirect
overhead  costs.  For  example,  during the third  quarter  of 1999 the  Company
consolidated  all of its  headquarter  operations  on one floor at its corporate
headquarters  in Miami,  Florida.  Since  September  30,  1999,  the Company has
entered into a lease  termination  agreement with the landlord for the corporate
headquarters  space. The Company expects to vacate its Miami headquarters space,
and relocate its headquarters to Boca Raton, Florida by December 1, 1999.

         Through  September 30, 1999, the corporate  restructuring  program cost
approximately   $2.8  million  in  severance   and  other   one-time   corporate
restructuring  related costs.  The Company  recorded  approximately  $340,000 of
these costs in the first  quarter of 1999 and the remainder in the third quarter
of 1999. The Company expects to incur additional  corporate  restructuring costs
in the fourth  quarter of 1999 and  subsequent  periods,  which the Company will
record  in the  quarter  incurred,  when and as the  amount  of such  additional
corporate restructuring costs becomes known.

         While the Company anticipates that its corporate  restructuring program
will  significantly  reduce its operating costs,  there can be no assurance that
such program, by itself, will return the Company to profitability.

                                       27
<PAGE>


         BUSINESS  STRATEGY.  At the same  time  that it  continues  to  explore
strategic  alternatives and implement its corporate  restructuring  program, the
Company is pursuing a two-pronged  business strategy of (1) carrying on its Core
Business  (i.e.,  planning,  development,  marketing  and sales of Homesites and
Vertical  Residential Units in its existing Core Development  Portfolio) and (2)
actively  seeking  opportunities  to sell, in bulk, its Core Projects other than
its West Bay Club and  Chenoa  Projects,  both of which  are  still in the early
development  stage.  Predecessor Assets will continue to be sold in the ordinary
course of business.  The Company  believes  that sales of its Core Projects will
significantly  reduce  corporate  overhead.  The Company intends to use the cash
proceeds  from any such sales (after  payment of  transaction  costs and Project
indebtedness)  to fund operations and pay down its  non-Project  corporate level
indebtedness.

         Senior  management  and the  Board  of  Directors  (the  "BOARD")  will
continue  (1)  to  use  commercially   reasonable  efforts  to  close  the  sale
transactions  currently  under contract and (2) to evaluate any other offers the
Company receives for its Core Projects and Predecessor Assets based on a variety
of factors,  including,  but not limited to, the following:  the aggregate price
and other terms offered by the purchaser, the timing of the closing of the sale,
contingencies to closing,  the impact of the sale on the remaining operations of
the  Company,  the  impact of the sale on the value of the  Company's  remaining
assets to a prospective  purchaser of the entire  Company and such other factors
as senior  management  and the Board deem  relevant at the time of receipt of an
offer,  including the specific  course of action,  they  believe,  will maximize
stockholder value.

         As of November  10,  1999,  the Company had under  contract  the Sunset
Lakes Project and the Harbor Bay Project and has received offers to purchase the
Lakeside  Estates  Project,  West  Meadows  Project,  The Trails of West  Frisco
Project,  the Falcon Trace Project,  the Jupiter Ocean Grande  Project,  and the
Baxter Martinez Project.

         While the  Company  intends  to  diligently  pursue  all  Project  sale
opportunities, there can be no assurance that any such sales (including Projects
currently  under  contract) will be  consummated  or, if  consummated,  that the
Company  will realize the  anticipated  (1) amount of sales  proceeds  therefrom
and/or (2) overhead cost savings therefrom.

         SENIOR LOAN  AMENDMENTS.  As of September 30, 1999, the Company was not
in  compliance  with (1) the Minimum  Consolidated  Net Worth  covenant  and the
Deviation  from Business Plan covenant in the Revolving  Loan  Agreement and (2)
the Minimum  Consolidated Net Worth covenant and the Maximum  Permissible Amount
definition in the Term Loan  Agreement.  Effective as of June 30, 1999,  (a) the
Company, the Revolving Loan Facility Agent and the Collateral Agent entered into
that certain  First  Amendment  to Third  Amended and  Restated  Revolving  Loan
Agreement (the  "REVOLVING LOAN  AMENDMENT") and (b) the Company,  the Term Loan
Facility  Agent and the  Collateral  Agent entered into that certain  Waiver and
First Amendment to Term Loan Agreement (the "TERM LOAN AMENDMENT")(collectively,
the "SENIOR LOAN  AMENDMENTS").  In the Senior Loan Amendments,  the parties (i)
amended the Minimum  Consolidated  Net Worth and  Deviation  from  Business Plan
covenants in both the Revolving Loan Facility and the Term Loan  Facility,  (ii)
modified the Borrowing Base  definition in the Revolving Loan Facility and (iii)
modified the Gross Allowed Amount and Maximum  Permissible  Loan  definitions in
the Term  Loan  Facility.  As a  result,  upon  payment  by the  Company  of all
amendment  and waiver fees the Company will be in  compliance  with the terms of
its Senior Loan Facilities,  and the previous defaults existing thereunder since
June 30, 1999, will be cured and/or waived by the parties.

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<PAGE>


PART II.          OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         Except as provided below,  there were no new  developments  since March
31, 1999,  with respect to the legal  proceedings  referenced  in the  Company's
Annual  Report on Form 10-K for the year ended  December 31, 1998, as amended by
that  certain  Amendment  to Form  10-K on Form  10-K/A-1,  as  filed  with  the
Securities  and  Exchange  Commission  (the  "SEC") on April 30, 1999 (the "1998
Amended Form 10-K").

         REGENCY  ISLAND DUNES  PROJECT.  The Company and Regency  Island Dunes,
Inc.  ("Regency")  continue to work with the Regency  Island  Dunes  Condominium
Association ("Association") to resolve this matter. To date, no lawsuit has been
filed,  and the  Company and Regency  are  optimistic  that this  dispute can be
resolved without litigation.

         CARY GLEN PROJECT.  On or about August 25, 1999, Panther  Creek-Raleigh
Limited  Partnership  (the "Owner") filed suit against Atlantic Gulf and Panther
Creek Corp.,  a  wholly-owned  subsidiary  of Atlantic  Gulf (the  "Developer"),
claiming  that  Developer  and  Atlantic  Gulf are liable  for future  potential
project cost overruns in the amount of $5,400,000 and  consequential  damages to
the project resulting from Developer's alleged delays and  misrepresentations in
the  approximate  amount of $15 million.  Atlantic Gulf and Developer have filed
their answer, affirmative defenses and counterclaims against Owner, and Atlantic
Gulf will  continue  to  vigorously  defend the claims  asserted  against it and
Developer.

         SESSIONS   DEVELOPMENT   CORPORATION   V.  ATLANTIC  GULF   COMMUNITIES
CORPORATION;  LAS OLAS TOWER AT RIVER WALK,  INC.,  APOLLO REAL ESTATE ADVISORS,
L.P., SPRING VALLEY HOLDING COMPANY. On November 1, 1997,  Sessions  Development
Corporation  ("Sessions")  and Las Olas Tower at  Riverwalk,  Inc.  ("LOTR"),  a
second tier  subsidiary of Atlantic  Gulf,  entered into a Consulting  Agreement
(the "Consulting Agreement"),  whereby Sessions agreed (i) to be responsible for
the day-to-day oversight of the construction of buildings,  all sales, marketing
and leasing efforts in connection with the potential development of an apartment
building  on a portion  of the  property  owned by LOTR,  and all other  on-site
management  functions,  and (ii) to provide consultation as needed in connection
with  the   evaluation  and   furtherance   of  the  Company's   other  business
opportunities.  Pursuant to the  Consulting  Agreement,  Sessions'  compensation
included  (i)  a  retainer  fee  of  $13,500  per  month,   and  (ii)  a  profit
participation  in an  amount  equal to  12.5%  of  LOTR's  net  pre-tax  profits
generated  from the  development  of the apartment  project,  subject to certain
conditions as set forth in the Consulting  Agreement.  In September,  1999, LOTR
sold the apartment site, without developing the same.

         Furthermore,  at  the  request  of  the  Company,  Sessions  previously
performed certain consulting services with respect to the Company's  acquisition
of the Chenoa Project located in Glenwood  Springs,  Colorado.  The Company does
not have a separate  consulting  agreement  with Sessions  concerning the Chenoa
Project.

         On September  29, 1999,  Sessions  filed a complaint  against  Atlantic
Gulf,  LOTR,  Apollo Real Estate  Advisors,  L.P.  ("Apollo")  and Spring Valley
Holding Company,  a wholly-owned  subsidiary of Atlantic Gulf ("Spring Valley"),
in the Circuit Court of the 11th Judicial Circuit,  Miami-Dade County,  Florida,
claiming  (i) breach of the  Consulting  Agreement by LOTR for failure to pay an
amount  equal  to 9  months  of the  retainer  fee  and  $3  million  of  profit
participation,  (ii)  tortious  interference  with the  Consulting  Agreement by
Apollo, (iii) tortious  interference with an advantageous  business relationship
by Apollo,  (iv)  unjust  enrichment  by  Atlantic  Gulf and Spring  Valley with
respect to the Chenoa Project based upon Sessions'  allegation  that Sessions is
entitled  to  profit  participations,  commissions  and  other  compensation  in
connection therewith, and

                                       29
<PAGE>


(v)  fraudulent  conveyances  by Spring  Valley to  Atlantic  Gulf of income and
profits generated from the Chenoa Project.

         The Company  believes that the  foregoing  claims are without merit and
intends to vigorously defend the same.

         THE COY A. CLARK COMPANY V. ATLANTIC GULF COMMUNITIES  CORPORATION.  On
August 13, 1997,  Atlantic Gulf and The Coy A. Clark Company  ("Clark")  entered
into a Development Management Agreement (the "Development Management Agreement")
to provide certain development  consulting services in connection with a project
known as Waterford  Trails.  Atlantic Gulf never  acquired the Waterford  Trails
Project. Clark has provided Atlantic Gulf with invoices totalling  approximately
$150,000  claimed  to be due under the  Development  Management  Agreement,  and
Atlantic  Gulf does not believe that Clark is entitled to such  payments.  On or
about  August 31, 1999,  Clark filed a complaint  against  Atlantic  Gulf in the
Circuit Court of the Ninth Judicial Circuit,  Orange County,  Florida,  claiming
that Atlantic Gulf breached the Development  Management  Agreement by failing to
pay Clark the amounts due thereunder. Atlantic Gulf has retained outside counsel
and intends to vigorously defend the claim.

         In addition to the legal  proceedings  specifically  referenced  in the
1998  Amended  Form 10-K (as  updated  above)  and the other  legal  proceedings
described  herein,  the  Company  is,  from  time to  time,  involved  in  other
litigation matters primarily arising in the normal course of its business. It is
the opinion of management that the resolution of these other litigation  matters
will not have a material  adverse effect on the Company's  business or financial
position.


ITEM 2.           CHANGES IN SECURITIES

         In accordance with the terms of Mr. Rutherford's Employment Termination
Agreement, the Company canceled Mr. Rutherford's $600,000 nonrecourse promissory
note and,  in exchange  therefore,  Mr.  Rutherford  returned to the Company the
282,352 shares of Common Stock that he purchased with the proceeds of such note.
In addition, the Company agreed to cancel Mr. Rutherford's two $199,000 recourse
promissory notes on December 31, 2000, if Mr. Rutherford is not in breach of his
Employment  Termination  Agreement  as of that  date  and,  at the  time of such
cancellation, Mr. Rutherford has agreed to return to Atlantic Gulf the shares of
Common Stock that he purchased with the proceeds of such notes.


ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         See PART I, ITEM 2.  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL  RESOURCES -- SENIOR
LOAN FACILITIES and - RECENT  DEVELOPMENTS -- SENIOR LOAN AMENDMENTS above for a
discussion of the Revolving Loan Amendment and the Term Loan Amendment, pursuant
to which the parties  have cured and/or  waived,  effective as of June 30, 1999,
subject to payment by the Company of all  amendment and waiver fees the defaults
that were existing under the Senior Loan Facilities on September 30, 1999.

                                       30
<PAGE>


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


ITEM 5.           OTHER INFORMATION

         None.


ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits required by Item 601 of Regulation S-K (consecutive numbering,
         see the 1998 Amended Form 10-K)

         (3.3)             Amendment to the Bylaws,  dated as of  September  30,
                           1999.

         (10.25)           First  Amendment  to the Third  Amended and  Restated
                           Revolving  Loan   Agreement   effective  as  of  June
                           30,1999.

         (10.26)           Waiver  and First  Amendment  to Term Loan  Agreement
                           effective as of October 28, 1999.

         (10.27)           Employment  Termination  Agreement,  effective  as of
                           August 17, 1999,  by and between Mr.  Rutherford  and
                           the  Company  (incorporated  herein by  reference  to
                           Atlantic  Gulf's  Current Report on Form 8-K as filed
                           with the SEC on September 1, 1999)

         (10.28)           Employment  Agreement,  effective  as of  August  17,
                           1999,  by and  between Mr.  Ackerman  and the Company
                           (incorporated  herein by reference to Atlantic Gulf's
                           Current  Report on Form 8-K, as filed with the SEC on
                           September 1, 1999)

         (10.29)           Agreement,  effective  as of  July  1,  1999,  by and
                           between Joel K. Goldman and the Company.

         (10.30)           Agreement,  effective  as of  July  1,  1999,  by and
                           between Matthew Allen and the Company.

         (27)     Financial Data Schedule.

(b)      Current Reports on Form 8-K

         1.       Current Report on Form 8-K, filed with the SEC on September 1,
                  1999,  describing  the  principal  terms  of Mr.  Rutherford's
                  Employment Termination Agreement and Mr. Ackerman's Employment
                  Agreement,  both of which  became  effective  as of August 17,
                  1999.

                                       31
<PAGE>


                                   SIGNATURES


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


                                     ATLANTIC GULF COMMUNITIES CORPORATION

                                     /s/ Matt Allen
                                     ------------------------------------------
                                     Matt Allen
                                     Senior Vice President - Finance
                                     Dated: November 15, 1999

                                     /s/ John Fischer
                                     ------------------------------------------
                                      John Fischer
                                      Vice President and Treasurer
                                      Dated:  November 15, 1999

                                       32