Atlantic Gulf Communities Corporation (fka AGLFQ)

[jmhollen]

Here's the 10Q:



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, 2000


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
incorporation or organization) Identification No.)


4800 N. Federal Hwy, Suite 105 E
Boca Raton, Florida 33431
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)


[phone]
----------------------------------------------------
(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 12,382,241shares of the Registrant's common stock, $.10 par value per
share (the "Common Stock"), outstanding as of November 14, 2000.


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, 2000, 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 LUXURY/RESORT AND NON-LUXURY/RESORT
MARKETS IN FLORIDA AND COLORADO; 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, RELATED FINANCING CONTINGENCIES AND RESTRICTIONS AND THE
COMPANY'S ABILITY TO CURE EXISTING DEFAULTS UNDER CERTAIN OF ITS DEBT
AGREEMENTS; MANAGEMENT LIMITATIONS; THE COMPANY'S ABILITY TO CLOSE FINANCINGS OF
NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO THE COMPANY'S CASH FLOW NEEDS AT
SUCH TIMES; THE COMPANY'S ABILITY TO REFINANCE EXISTING INDEBTEDNESS;
LEGISLATION; RESOLUTION OF PENDING LITIGATION IN WHICH THE COMPANY IS A
DEFENDANT; THE SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT DEVELOPMENT
PROJECTS; AND THE SUCCESS OR LACK THEREOF OF THE COMPANY'S STRATEGIC ALTERNATIVE
INITIATIVE.

ii

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999.........................................2

Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999.............3

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999.............................4

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

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

Item 3. Management's Quantitative and Qualitative Disclosure
of Market Risk...............................................28


PART II. OTHER INFORMATION

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

Item 2. Changes in Securities..........................................29

Item 3. Defaults Upon Senior Securities................................29

Item 4. Submission of Matters to a Vote of Security Holders............29

Item 5. Other Information..............................................29

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

SIGNATURES...................................................................30


iii

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


ITEM 1. FINANCIAL STATEMENTS

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(in thousands, except share amounts and par value)

September 30, December 31,
2000 1999
Assets ----------- -----------
------ (Unaudited)
Cash and cash equivalents $ 1,856 $ 8,148

Restricted cash and cash equivalents 686 2,147

Contract receivables, net 897 2,048

Mortgages, notes and other receivables, net 6,367 7,926

Land and residential inventory, net of valuation reserves 125,657 121,116

Property and equipment, net 10,765 12,750

Other assets, net 2,318 8,817
----------- -----------

Total assets $ 148,546 $ 162,952
=========== ===========

Liabilities and Stockholders' Deficit
-------------------------------------

Accounts payable and accrued liabilities $ 24,355 $ 19,386

Other liabilities 15,171 9,778

Notes and mortgages payable 130,725 145,378
----------- -----------
170,251 174,542

Commitments and Contingencies

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 $46,021 and $39,754 as of September 30, 2000
and December 31, 1999, respectively 45,241 38,310

Series B, 20%, $.01 par value; 2,000,000 shares authorized;
2,000,000 shares issued and outstanding, having a liquidation
preference of $36,442 and $31,480 as of September 30, 2000
and December 31, 1999, respectively 35,904 30,531
----------- -----------

81,145 68,841

Common stockholders' deficit
Common stock, $.10 par value, 70,000,000 shares authorized;
12,821,432 shares issued and outstanding
as of September 30, 2000 and December 31, 1999 1,281 1,281

Contributed capital 90,101 102,402

Accumulated deficit (187,347) (177,229)

Accumulated other comprehensive loss (6,746) (6,746)

Treasury stock, 439,191 shares, at cost (139) (139)
----------- -----------

Total common stockholders' deficit (102,850) (80,431)
----------- -----------


Total liabilities and common stockholders' deficit $ 148,546 $ 162,952
=========== ===========

See accompanying notes to consolidated financial statements.

2

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999
(in thousands, except per share data)
(Unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
Revenues: -------- -------- -------- --------
Real estate sales:
Homesite $ 9,320 $ 6,068 $ 26,190 $ 23,703
Commercial 208 9,087 3,393 15,316
-------- -------- -------- --------
Total real estate sales 9,528 15,155 29,583 39,019
Other operating revenue 747 789 4,794 4,129
Interest income 242 591 1,164 1,636
-------- -------- -------- --------
Total revenues 10,517 16,535 35,541 44,784

Costs and expenses:

Cost of real estate sales:
Homesite 8,707 5,524 23,737 20,771
Commercial 187 8,103 2,819 12,627
-------- -------- -------- --------
Total cost of real estate sales 8,894 13,627 26,556 33,398

Inventory valuation reserves -- 7,890 900 11,314
Selling expense 1,820 1,033 5,162 4,568
Operating expense 499 985 1,894 2,825
Real estate costs 1,292 1,693 2,988 5,860
General and administrative expense 770 2,740 2,994 9,765
Cost of borrowing, net of amounts capitalized 1,651 1,298 4,961 4,049
Other expense 46 5,999 1,182 6,406
-------- -------- -------- --------
Total costs and expenses 14,972 35,265 46,637 78,185
-------- -------- -------- --------
Operating loss (4,455) (18,730) (11,096) (33,401)

Other income (expense):
Reorganization items 269 (234) 978 451
-------- -------- -------- --------
Total other income 269 (234) 978 451
-------- -------- -------- --------

Net (loss) income (4,186) (18,964) (10,118) (32,950)

Less:
Accrued preferred stock dividends 3,927 3,230 11,228 9,237
Accretion of preferred stock to redemption amount 361 350 1,076 1,041
Modification of preferred stock security interest -- -- -- 2,380
-------- -------- -------- --------
4,288 3,580 12,304 12,658
-------- -------- -------- --------
Net loss applicable to common stock $ (8,474) $(22,544) $(22,422) $(45,608)
======== ======== ======== ========


Basic and diluted net loss per common share $ (.68) $ (1.78) $ (1.81) $ (3.65)
======== ======== ======== ========
Weighted average common shares outstanding 12,382 12,674 12,382 12,494
======== ======== ======== ========

See accompanying notes to consolidated financial statements.

3

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(in thousands of dollars)
(Unaudited)

Nine Months Ended
September 30,
------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net loss $ (10,118) $ (32,950)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,240 5,069
Other expense (income) 1,182 84
Inventory valuation reserves 900 11,314


Loss on sale of property and equipment (3) --
Changes in operating assets and liabilities:
Restricted cash 1,461 (223)
Receivables 2,578 10,920
Land and residential inventory (565) (11,016)
Other assets 3,376 1,196

Accounts payable and accrued liabilities 7,074 2,543
Customer and other deposits 5,448 --
Other liabilities (3,732) (1,243)
---------- ----------
Net cash provided by (used in) operating activities 9,841 (14,306)
---------- ----------

Cash flow from investing activities:
Additions to property and equipment, net (816) (2,263)
---------- ----------
Net cash used in investing activities (816) (2,263)
---------- ----------

Cash flows from financing activities:
Borrowings under credit agreements 20,218 108,079
Repayments under credit agreements (35,535) (97,933)
---------- ----------
Net cash (used in) provided by financing activities (15,317) 10,146
---------- ----------

Decrease in cash and cash equivalents (6,292) (6,423)

Cash and cash equivalents at beginning of period 8,148 9,413
---------- ----------
Cash and cash equivalents at end of period $ 1,856 $ 2,990
========== ==========

Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 3,019 $ 4,049
========== ==========

See accompanying notes to consolidated financial statements.

4

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)

(1) The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly they do not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements, and are
subject to year-end adjustments. In management's opinion, the interim
financial statements reflect all adjustments, principally consisting of
normal recurring accruals, necessary for a fair presentation of the
financial position and results of operations. Results for interim
periods are not necessarily indicative of results for the full year.
For a complete description of the Company's accounting policies, see
"Notes to Consolidated Financial Statements" included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
("1999"), as filed with the Securities and Exchange Commission (the
"SEC") on April 14, 2000 ("1999 Form 10-K"). Certain prior year amounts
have been reclassified to conform with the fiscal year 2000 ("2000")
presentation.

(2) Net income (loss) per share of common stock of the Company ("Common
Stock") is computed by (a) deducting from net income (loss) all 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 cost of real
estate sales when the related asset is sold. Capitalized interest was
$4,768,000 and $15,108,000 for the three and nine months ended
September 30, 2000, respectively, and $6,113,000 and $16,310,000 for
the three and nine months ended September 30, 1999, 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

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)

(5) Redeemable preferred stock (which includes the 20% Cumulative
Redeemable Convertible Preferred Stock, Series A (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, 2000 and December 31, 1999 (in thousands
of dollars):

September 30, December 31
2000 1999
----------- -----------

Gross proceeds $ 25,000 $ 25,000

Accrued dividends 21,021 14,754
----------- -----------
Liquidation Preference amount 46,021 39,754

Less issue costs (3,104) (3,104)

Less warrants purchased (300) (300)

Plus accretion of preferred stock to
redemption amount 2,624 1,960
----------- -----------
Total Series A Preferred Stock 45,241 38,310


Series B Preferred Stock:
-------------------------
Private Placement June 24, 1997:

Gross proceeds 10,000 10,000

Accrued dividends 8,930 6,352
----------- -----------
Liquidation Preference amount 18,930 16,352

Less issue costs (950) (950)

Less warrants purchased (120) (120)

Plus accretion of preferred stock to
redemption amount 838 634
----------- -----------
18,698 15,916

Rights Offering November 19, 1997:

Gross proceeds 10,000 10,000

Accrued dividends 7,512 5,128
----------- -----------
Liquidation Preference amount 17,512 15,128

Less issue costs (950) (950)

Less warrants purchased (120) (120)

Plus accretion of preferred stock to
redemption amount 764 557
----------- -----------
17,206 14,615
----------- -----------
Total Series B Preferred Stock 35,904 30,531
----------- -----------
Total Redeemable Preferred Stock $ 81,145 $ 68,841
=========== ===========

6

ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)


(6) During the nine months ended September 30, 2000 and 1999, comprehensive
loss consisted only of the net losses for those periods.

(7) Segment Reporting

Nine Months Ended September 30, 2000:
------------------------------------

Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Other Total
---------- ---------- ----------- -------- ---------
Total revenues $ 13,694 $ 11,961 $ 3,928 $ 5,958 $ 35,541
========== ========== =========== ======== =========

Gross margin on real estate sales $ 2,636 $ 21 $ 370 $ -- $ 3,027

Inventory valuation reserve -- (900) -- -- (900)

Joint Venture valuation reserve -- (1,182) -- -- (1,182)
---------- ---------- ----------- -------- ---------
2,636 (2,061) 370 -- 945

Unallocated revenues (expenses), net (11,063)
---------
Net Loss $ (10,118)
=========

Nine Months Ended September 30, 1999:
------------------------------------

Luxury/ Non-Luxury/
Resort Resort Predecessor
Operations Operations Assets Other Total
---------- ---------- ----------- -------- ---------

Total revenues $ 4,862 $ 28,251 $ 5,906 $ 5,765 $ 44,784
========== ========== =========== ======== =========

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

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

Unallocated revenues (expenses), net (27,257)
---------
Net Loss $ (32,950)
=========

(8) The Company was unable to obtain approval of the existing PUD for its
Chenoa project within the time limits in the development loan
agreement. Accordingly the Company is currently in default under that
loan agreement. Management of the Company has subsequently obtained
approval of the PUD, and is in negotiations with its lenders to (a)
cure the default under the development loan agreement and (b)
restructure the remaining indebtedness under the development loan
agreement.

7

(9) The Company's Revolving Loan Facility matured on August 1, 2000, as of
that date, the remaining amount due under the Revolving Loan Facility
was $3.5 million. The Company failed to pay the remaining amount due
under the Revolving Loan Facility on its maturity date. Accordingly,
the Company is currently in default under the Revolving Loan Facility.
Management has subsequently paid an additional $1.5 million against the
Revolving Loan Facility and is in negotiations with its lenders to
obtain additional time to repay the remaining amount due under the
Revolving Loan Facility.

(10) The Company did not pay interest on the Term Loan Facility in the third
quarter of 2000. Accordingly, the Company is in default under its Term
Loan Facility. Management is in negotiations with its lenders to (a)
cure the defaults under the Term Loan Facility and (b) restructure the
remaining indebtedness under the Term Loan Facility.

(11) The project indebtedness on the Saxon Woods project matured on October
25, 2000. As of that date, the remaining amount due under the
indebtedness was $1.3 million. The Company failed to repay the
remaining amount due under such project indebtedness on its maturity
date. Accordingly, the Company is currently in default under the
project indebtedness. Management is in negotiations with its lenders to
obtain additional time to repay the remaining amount due under this
indebtedness.

(12) The Company has not made any (a) interest payments on its $850,000
Future Advance Note to Apollo or (b) any principal or interest payments
on its $1,000,000 Future Advance Note to Apollo (the "Apollo Notes").
Accordingly, the Company is currently in default under the Apollo
Notes. Management is in negotiations with Apollo to (a) cure the
defaults under the Apollo Notes and (b) restructure the remaining
indebtedness under the Apollo Notes.

8


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



CURRENT BUSINESS

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

- 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 has two existing Luxury/Resort
Projects, one located in Florida (the West Bay Club Project)
and another located in Colorado (the Chenoa Project)
("Luxury/Resort Markets").

- Other Operations, consisting principally of:

-- Non-Luxury/Resort Operations, formerly referred to as
Primary Market Operations, consisting of the
development and sale of existing real estate 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 ("Primary
Markets"). The Company has one existing
Non-Luxury/Resort Operation, located in the Orlando
area (the Saxon Woods Project).

-- 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).


The Company is also engaged in 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"). As discussed below, the continuing disposition of
Predecessor Assets is a run-off business and not part of the Company's Core
Business.


See ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for a
brief description of the Projects sold during the past 19 months.

9


CORE BUSINESS

GENERAL. The Company's Core Business consists of two principal
business lines:

- Development and sale of Luxury/Resort Projects; and

- Other Operations, principally including the sale of
Non-Luxury/Resort Projects and Receivables Portfolio
Management.

LUXURY/RESORT PROJECTS. The Company is engaged in the development and
sale of master planned Luxury/Resort Projects in Luxury/Resort Markets in
Florida and Colorado. A Luxury/Resort Market is typically not a Primary Market
in terms of the volume of new single family home construction permits, but
relative demand is usually strong and the average retail price of new
construction is usually much higher. Also, there is much less focus in a
Luxury/Resort Market on industrial or employment growth in the area or the
quality of schools, and more focus on natural and/or man-made amenities.

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, 2000:

Lots/Units/Acres at September 30, 2000 (1)
-------------------------------------------------------------------------------------------
Homesites Vertical Residential Units 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
-------------------------------------------------------------------------------------------
Owned Properties
----------------
West Bay Club................ 162 162 51 51 400 400 -- -- 5 5
Chenoa....................... 422 -- -- -- 80 -- 75 -- 5 --
-------------------------------------------------------------------------------------------
Owned Properties............. 554 162 51 51 480 400 75 -- 10 5
-------------------------------------------------------------------------------------------

(1) Varying by Project, unsold units are developed, under development or to
be developed in the future.

10

OTHER OPERATIONS.

NON-LUXURY/RESORT PROJECTS. The Company is engaged in the sale
of Non-Luxury/Resort Projects in Florida. The Company defines a
Non-Luxury/Resort Market as a geographic market in which more than 5,000 single
family home construction permits are issued annually.

REMAINING UNSOLD LOTS/UNITS IN THE NON-LUXURY/RESORT PROJECT.
The following table summarizes the number of remaining unsold lots/units at the
Company's Non-Luxury Resort Project as of September 30, 2000:


Lots/Units at September 30, 2000 (1)
------------------------------------
Single Family
Total Total
Owned Properties Lots Entitled
---------------- ------------------------------
Saxon Woods ..................... 348 348
------------------------------
Total Owned Properties........... 348 348
==============================

(1) Varying by Project, unsold units are developed, under development or to
be developed in the future.


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 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, 2000 and
December 31, 1999, the portfolio of Contract Receivables had a net book value of
$897,000 and $2.0 million, respectively. As of September 30, 2000 and December
31, 1999, the portfolio of Mortgage Receivables had a net book value of $3.1
million and $6.2 million, respectively.

11


PREDECESSOR ASSETS

The following table summarizes the Company's Predecessor Homesite
Inventory by secondary market area as of September 30, 2000:

PREDECESSOR HOMESITE INVENTORY
(IN HOMESITES)

Other Total
Standard Developed Buildable Other Predecessor
Market Area Buildable Lots (1) Reserved (2) Restricted (3) Homesites
---------------------------------------------------------------------------------
North Port 3,156 9 41 120 3,326
Port Charlotte 1,768 54 121 133 2,076
Port St. Lucie 349 35 61 83 528
Port Malabar 22 1 1,751 1,554 3,328
Port Labelle 740 -- 32 1,055 1,827
Silver Springs Shores 403 78 2,043 266 2,790
Cumberland Cove 1 -- -- 1 2
Other 22 -- -- 1 23
---------------------------------------------------------------------------------
Total 6,461 177 4,049 3,213 13,900
---------------------------------------------------------------------------------

(1) Includes commercial/industrial and other premium lots.

(2) Includes 3,795 lots held for Utility Reserves.

(3) Represents Predecessor Homesites which may not be buildable
due to lack of utility availability or engineering or title
issues, and may only be sold under certain conditions. The
Company's inventory of Predecessor Homesites that is not
buildable has declined and is expected to decline further as
currently non-buildable Predecessor Homesites become
buildable. These Predecessor Homesites become buildable as the
communities in which these lots are located grow and extend
utility services to these lots and the Company satisfies title
or engineering issues with respect to these lots. The
Company's plans are to continue to take the appropriate
actions to convert these lots to buildable Predecessor
Homesites consistent with market demand and to monetize these
assets and repay debt.

12

The following table summarizes the Company's Predecessor Commercial
Development Inventory by secondary market area as of September 30, 2000:

PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY

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

North Port 178
Port Charlotte 839
Port St. Lucie 189
Port Malabar 580
Port Labelle 215
Silver Springs Shores 26
Cumberland Cove 685
Other 39
---------
Total 2,751
=========

The decrease in inventory from December 31, 1999 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 1999 Form 10-K for information concerning the
Predecessor Homesite and Predecessor Commercial Development Inventory.

13


RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

The Company's results of operations for the nine months ended September
30, 2000 and 1999, respectively, are summarized below:

COMBINING RESULTS OF REAL ESTATE OPERATIONS
Nine Months Ended September 30, 2000
(in thousands)

Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
----------- ----------- ----------- -----------
Revenues:
Real estate sales
Homesite ....................... $ 11,641 $ 11,961 $ 2,588 $ 26,190
Commercial ..................... 2,053 -- 1,340 3,393
----------- ----------- ----------- -----------
Total real estate sales ........... 13,694 11,961 3,928 29,583

Costs and expenses:
Cost of real estate sales
Homesite ....................... 9,451 11,940 2,346 23,737

Commercial ..................... 1,607 -- 1,212 2,819
----------- ----------- ----------- -----------
Total cost of real estate sales ...... 11,058 11,940 3,558 26,556
----------- ----------- ----------- -----------

Gross margin real estate sales ....... $ 2,636 $ 21 $ 370 $ 3,027
=========== =========== =========== ===========

Results of Joint Venture Operations(1) $ -- $ ( 1,390) $ -- $ ( 1,390)
=========== =========== =========== ===========

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

14

COMBINING RESULTS OF REAL ESTATE OPERATIONS
Nine Months Ended September 30, 1999
(in thousands)

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

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

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

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


OVERVIEW. The Company reported a net loss applicable to Common Stock of
$22.4 million in the first nine months of 2000, compared to a net loss of $45.6
million applicable to Common Stock in the first nine months of 1999. The
decrease in net loss of $23.2 million was due primarily to (1) a $10.4 million
decrease in inventory valuation reserve expense (2) a $6.8 million decrease in
general and administrative expenses, (3) a $5.2 million decrease in operating
expense, (4) a $2.9 million decrease in real estate costs (5) a $1.2 increase in
other operating revenue and other income,(6) a $931,000 decrease in operating
expense partially offset by (7) a $2.6 million decrease in real estate sales
gross margins, (8) a $472,000 decrease in interest income and, (9) a $1.5
million increase in selling and interest expense.

LUXURY/RESORT OPERATIONS.

HOMESITES. Revenues from Homesite sales increased by $6.7
million to $11.6 million in the first nine months of 2000, compared to $4.9
million in the first nine months of 1999. The $6.7 million increase was due
primarily to the increase in marketing and public awareness for the West Bay
Club Project. Homesite sales began at the West Bay Club Project during the first
nine months of 1999. The Homesite sales gross margin percentage was 18.8% in the
first nine months of 2000 compared to 22.4% in the first nine months of 1999.
The 3.2% decrease in Homesite sales gross margin was due primarily to the
increase in unit production cost at the West Bay Club Project.

15

As of September 30, 2000, the Company had under contract 186 Homesites
for $11.0 million in the West Bay Club Project. As of December 31, 1999 and
September 30, 1999, the Company had under contract 156 and 180 Homesites for
$8.3 million and $9.8 million, respectively, in the West Bay Club Project.

COMMERCIAL DEVELOPMENT. Revenues from Commercial Development
were $2.1 million in the first nine months of 2000, compared to $0 in the first
nine months of 1999. The $2.1 million increase was primarily due to the sale to
Albertson's at the West Bay Project during the first nine months of 2000. The
Commercial Development sales gross margin percentage was 21.7% in the first nine
months of 2000.

JOINT VENTURES. Results of Joint Ventures in the first nine
months of 2000 were $0, compared to a net loss of $4.9 million for the first
nine months of 1999. The $4.9 million decrease in Joint Venture net loss was due
to the sale of the Jupiter Ocean Grande Project during 1999.

NON-LUXURY/RESORT OPERATIONS.

HOMESITES. Revenues from Homesite sales decreased by $3.9
million to $11.9 million in the first nine months of 2000, compared to $15.8
million in the first nine months of 1999. The $3.9 million decrease was due
primarily to a declining inventory balance in 2000 as compared to 1999. Total
inventory decreased significantly from the final sale of The Trails of West
Frisco Project in December 1999. The Homesite sales gross margin decreased by
9.1% to 0.2% in the first nine months of 2000, compared to 9.3% in the first
nine months of 1999. The 9.1% decrease in Homesite sales gross margin was due
primarily to a decline in the gross margins associated with the Lakeside Estates
and West Meadows Project. The higher than expected development costs resulted in
a break-even margins for Lakeside Estates and West Meadows Project final sell
out.

As of September 30, 2000, no homesites were under contract, in the only
remaining non-luxury/resort community, Saxon Woods Project. As of December 31,
1999, the Company had under contract 72 Homesites for $3.2 million in the
Lakeside Estates, the Saxon Woods and the West Meadows Projects. And, as of
September 30, 1999, the Company had under contract 792 Homesites for $23.6
million in the Lakeside Estates, the Saxon Woods, the West Meadows and The
Trails of West Frisco Projects.

See ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for further details
on the sale of the West Frisco, Lakeside Estates, and West Meadows projects.

COMMERCIAL DEVELOPMENT. Revenues from Commercial Development
were $0 in the first nine months of 2000, compared to $12.5 million in the first
nine months of 1999. The $12.5 million decrease in revenues from Commercial
Development was due to the lack of inventory for sale. In January 1999, the
Company sold the remaining 26 acres of Non-Luxury/Resort property, located at
the West Meadows Project, for $4.5 million. In September 1999. the Company sold
the remaining property at the Riverwalk Towers Project for $8.0 million.

16

JOINT VENTURES. Losses from Joint Ventures in the first nine
months of 2000 were $1.4 million, compared to a net loss of $1.5 million for the
first nine months of 1999. The $156,000 decrease in loss on JV Projects was
primarily due to an investment valuation reserve charge related to the Falcon
Trace JV Project. In March 2000, the Company sold the Falcon Trace JV Project
for approximately $6.4 million. No gain or loss was realized on the sale.

As of September 30, 2000, the Company's JV projects had no remaining
homesites under contract or available for sale. As of December 31, 1999 and
September 30, 1999, the Company's JV Projects had six and 504 Homesites under
contract for approximately $282,000 and $24.7 million, respectively, in future
gross revenue, a portion of which is allocable to the Company as a joint
venturer.

PREDECESSOR ASSETS.

PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales decreased by $502,000 to $2.6 million in the first nine months of 2000,
compared to $3.1 million in the first nine months of 1999. The $502,000 decrease
was due primarily to the elimination of sales staff responsible for the sale of
Predecessor Homesites. The Predecessor Homesite sales gross margin percentage
decreased by 2.9% to 9.4% in the first nine months of 2000, compared to 12.3% in
the first nine months of 1999. The 2.9% decrease in Predecessor Homesite sales
gross margin is due primarily to a decrease in the average sales price.

As of September 30, 2000, the Company had under contract approximately
5,570 Predecessor Homesites for $3.6 million. As of December 31, 1999 and
September 30, 1999, the Company had under contract 1,103 and 16 Predecessor
Homesites for $1.6 million and $198,000, respectively.

PREDECESSOR TRACTS. Revenues from Predecessor Tract sales
decreased by $1.5 million to $1.3 million in the first nine months of 2000,
compared to $2.8 in the first nine months of 1999. The $502,000 decrease was due
primarily to the elimination of sales staff responsible for the sale of
Predecessor Tracts. The Predecessor Tract sales gross margin percentage
decreased by 8.7% to 9.6% in the first nine months of 2000, compared to 18.3% in
the first nine months of 1999. The 8.7% decrease in Predecessor Tracts sales
gross margin was consistent with the Company's accelerated plan of disposal of
its Predecessor Assets.

As of September 30, 2000, there were pending Predecessor Tract
sales contracts or letters of intent totaling approximately $1.2 million. As of
December 31, 1999 and September 30, 1999, there were pending Predecessor Tract
sales contracts or letters of intent totaling approximately $1.3 million and
$1.8 million, respectively.

17

OTHER RESULTS OF OPERATIONS.

OTHER OPERATING REVENUE. Other operating revenue increased by
$655,000 to $4.7 million in the first nine months of 2000, compared to $4.1
million in the first nine months of 1999. The $655,000 increase was primarily
due to (1) $1.6 million received from the sale of land, previously recorded in
lieu of payment for a loan receivable, (2) a $1.9 million increase in commission
income received from the various property sales offices and (3) a $716,000
increase in resort revenue related to the West Bay Club Project, partially
offset by (4) a $1.9 million decrease in management fee revenue related to the
Country Lakes and Sunset Lakes Joint Venture Projects sold in 1999 and (5) a
$1.4 million decrease in environmental service revenue related to the sale of
Environmental Quality, Inc., a wholly-owned subsidiary of the Company ("EQ
Lab"), in 1999.

INVENTORY VALUATION RESERVE. Inventory Valuation Reserve
Expense decreased by $10.4 million to $900,000 in the first nine months of 2000,
compared to $11.3 million in the first nine months of 1999. The $10.4 million
decrease was primarily due to (1) an additional reserve of $900,000 recorded in
2000 for the West Meadows Project offset by (2) the reduction in the carrying
value of the Company's inventory in Crestwood, West Meadows, Trails of West
Frisco, Saxon Woods, Lakeside, and Cumberland Cove projects of $11.3 million
recorded in 1999.

SELLING EXPENSE. Selling Expense increased $592,000 to $5.2
million for the first nine months of 2000, compared to $4.6 million for the
first nine months of 1999. The increase was primarily due an increase in sales
volume at the West Bay Project.

OPERATING EXPENSE. Operating expense decreased by $931,000 to
$1.9 million in the first nine months of 2000, compared to $2.8 in the first
nine months of 1999. The $931,000 decrease was primarily due to (1) a $1.4
million decrease due to the sale of EQ Lab in 1999 partially offset by (2) a
$436,000 increase due to the growth in Amenities at the West Bay Club Project,
which is directly related to an increase in club memberships.

REAL ESTATE COSTS. Real estate costs decreased by $2.9 million
to $3.0 million in the first nine months of 2000, compared to $5.9 million in
the first nine months of 1999. The $2.9 million decrease was due primarily to
the combined savings of salaries, property taxes and other administrative
expenses, which resulted from the bulk sales of selected Predecessor Assets in
1999.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense decreased by $6.8 million to $3.0 in the first nine months of 2000,
compared to $9.8 million in the first nine months of 1999. The $6.8 million
decrease was due primarily to the combined savings in corporate salaries,
outside services, occupancy costs, utilities and other administrative expenses,
which resulted from the corporate restructuring plan adopted in late 1999.

COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of
borrowing, net of amounts capitalized, increased by $1.0 million to $5.0 million
in the first nine months of 2000, compared to $4.0 million in the first nine
months of 1999. The $1.0 million increase was due primarily to an increase in
corporate interest expensed rather than capitalized in 2000. Corporate debt
decreased from $66.0 million as of December 31, 1998 to $49.8 million as of
December 31, 1999 and to $37.8 million as of September 30, 2000.

18

OTHER EXPENSE. Other expense decreased by $5.2 million to $1.2
million in the first nine months of 2000, compared to $6.4 million in the first
nine months of 1999. The $5.2 million decrease was primarily due to a valuation
allowance recorded in 1999 for the Falcon Trace, Ocean Grande, and Panther Creek
JV Projects, based upon a review of fair values. Inventory reserve charges
represent a reduction in the carrying value of the Company's inventory based
upon a review of the fair values.

OTHER INCOME. Other income of $978,000 in the first nine
months of 2000, was comparable to $451,000 in the first nine months of 1999.

PREFERRED STOCK CHARGES. During the first nine months of 2000, the
Company recorded a $11.2 million accrual for dividends associated with its
Preferred Stock. The dividends were accumulated, but unpaid, as of September 30,
2000. 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. In addition, the Company
accreted $1.1 million of the value of its Preferred Stock to the redemption
amount in the first nine months of 2000. The total of $12.3 million of preferred
stock charges was charged to contributed capital in the accompanying September
30, 2000 consolidated balance sheet.

In connection with the closing of the 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

19

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

The Company's results of operations for the three months ended
September 30, 2000 and 1999, respectively, are summarized below:

COMBINING RESULTS OF REAL ESTATE OPERATIONS
Three Months Ended September 30, 2000
(in thousands)
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
----------- ----------- ----------- -----------
Revenues:
Real estate sales
Homesite......................... $ 2,542 $ 5,957 $ 821 $ 9,320
Commercial....................... -- -- 208 208
----------- ----------- ----------- -----------
Total real estate sales............. 2,542 5,957 1,029 9,528
Costs and expenses:
Cost of real estate sales
Homesite......................... 1,884 6,120 703 8,707
Commercial....................... -- -- 187 187
----------- ----------- ----------- -----------
Total cost of real estate sales........ 1,884 6,120 890 8,894
----------- ----------- ----------- -----------

Gross margin real estate sales ........ $ 658 $ (163) $ 139 $ 634
=========== =========== =========== ===========

Results of Joint Venture Operations(1). $ -- $ (252) $ -- $ (252)
=========== =========== =========== ===========

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

20

COMBINING RESULTS OF REAL ESTATE OPERATIONS
Three Months Ended September 30, 1999
(in thousands)
Non-
Luxury/ Luxury/
Resort Resort Predecessor
Operations Operations Assets Total
----------- ----------- ----------- -----------
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

Cost of real estate sales
Homesite......................... (90) 4,881 733 5,524
Commercial....................... -- 7,084 1,019 8,103
----------- ----------- ----------- -----------
Total cost of real estate sales........ (90) 11,965 1,752 13,627

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

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

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


OVERVIEW. The Company reported a net loss applicable to Common Stock of
$8.5 million in the third quarter of 2000, compared to a net loss of $22.5
million applicable to Common Stock in the third quarter of 1999. The decrease in
net loss of $14.0 million was due primarily to (1) a $7.9 million decrease in
charges to inventory valuation reserve, (2) a $6.0 million decrease in other
expenses, (3) a $2.0 million decrease in general and administrative expenses,
(4), $887,000 decrease in operating expense and real estate cost and, (5) a
$503,000 increase in other income, partially offset by (6) a $1.3 million
decrease in sales gross margin, interest income, and other operating revenue and
(7) a 1.8 million increase in selling expense, cost of borrowing, net of
capitalized amounts, and preferred stock interest accruals and accretions to
redemption amount.

LUXURY/RESORT OPERATIONS.

HOMESITES. Revenues from Homesite sales increased by $2.5
million to $2.5 million in the third quarter of 2000, compared to $0 in the
third quarter of 1999. Luxury/Resort Operations Homesite sales began at the West
Bay Club Project in 1999 There were no closings at the West Bay Club Project for
the third quarter of 1999. The Homesite sales gross margin percentage was 25.9%
in the third quarter of 2000.

21

COMMERCIAL DEVELOPMENT. There were no revenues from Commercial
Development in the third quarter of 2000, or in the third quarter of 1999.

JOINT VENTURES. Results of Joint Ventures in the third quarter
of 2000 were $0, compared to a net loss of $4.5 million for the third quarter of
1999. The $4.5 million decrease in Joint Venture net loss was due to the sale of
the Jupiter Ocean Grande Project during 1999.

NON-LUXURY/RESORT OPERATIONS.

HOMESITES. Revenues from Homesite sales increased by $692,000
to $6.0 million in the third quarter of 2000, compared to $5.3 million in the
third quarter of 1999. The $692,000 increase was due primarily to the $5.9
million, July 2000, sale of the remaining 545 lots in the West Meadows Project.
The Homesite sales gross margin decreased by 10.0% to -2.7% in the third quarter
of 2000, compared to 7.3% in the third quarter of 1999. The 10.0% decrease in
Homesite sales gross margin was consistent with the planned reduction of
inventory in both the Lakeside Estates Project and West Meadows Project.

COMMERCIAL DEVELOPMENT. The Company's Commercial
Non-Luxury/Resort property inventory was sold off in 1999. Revenues from
Commercial sales decreased $8.0 million to zero for the third quarter of 2000,
as compared to $8.0 million in the third quarter of 1999. In the third quarter
of 1999 the company sold the Riverwalk Tower property for $8.0 million.

JOINT VENTURES. Loss from Joint Ventures decreased $1.2
million to $252,000 in the third quarter of 2000, compared to $1.5 million in
the third quarter of 1999. The $1.5 million loss in the third quarter of 1999
was due primarily to an investment valuation reserve charge related to the
Falcon Trace JV project. In March 2000, the Company sold the Falcon Trace JV
Project for approximately $6.4 million. No gain or loss was realized on the
sale.

PREDECESSOR ASSETS.

PREDECESSOR HOMESITES. Revenues from Predecessor Homesite
sales of $821,000 in the third quarter of 2000 were comparable to $803,000
million in the third quarter of 1999. The Predecessor Homesite sales gross
margin percentage increased by approximately 5.7% to 14.4% in the third quarter
of 2000, compared to 8.7% in the third quarter of 1999. The 5.7% increase in
Predecessor Homesite sales gross margin is due to higher than expected sales
prices.

PREDECESSOR TRACTS. Revenues from Predecessor Tract sales were
$208,000 in the third quarter of 2000, compared to $1.1 million in the third
quarter of 1999. The Predecessor Tract sales gross margin percentage increased
by 3.8% to 10.1% in the third quarter of 2000, compared to 6.3% in the third
quarter of 1999. The 3.8% increase in Predecessor Tracts sales gross margin was
due to higher than expected sales prices.

22

OTHER RESULTS OF OPERATIONS.

OTHER OPERATING REVENUE. Other operating revenue of $747,000
in the third quarter of 2000, was comparable to $789,000 in the third quarter of
1999.

INVENTORY VALUATION RESERVE. Inventory Valuation Reserve
Expense decreased by $7.9 million to $0 in the third quarter of 2000, compared
to $7.9 million in the third quarter of 1999. The $7.9 million decrease was
primarily due to an additional reserve recorded in 1999 for the Predecessor
Assets, West Meadows, Saxon Woods, West Frisco, and Lakeside Estates Projects.

SELLING EXPENSE. Selling Expense increased $787,000 to $1.8
million for the third quarter of 2000 compared to $1.0 million for the third
quarter of 1999. The increase was primarily due to $765,000 of expenses related
to the West Meadows Project sale.

OPERATING EXPENSE. Operating expense decreased by $486,000 to
$499,000 in the third quarter of 2000, compared to $985,000 in the third quarter
of 1999. The $486,000 decrease was primarily a result of the sale of EQ Lab in
1999.

REAL ESTATE COSTS. Real estate costs decreased by $401,000 to
$1.2 million in the third quarter of 2000, compared to $1.7 million in the third
quarter of 1999. The $401,000 decrease was due primarily to the combined savings
of salaries, property taxes and other administrative expenses, which resulted
from the bulk sales of Predecessor Assets in 1999 and 2000.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense decreased by $2.0 million to $770,000 in the third quarter of 2000,
compared to $2.7 million in the third quarter of 1999. The $2.0 million decrease
was due primarily to the combined savings in corporate salaries, outside
services, occupancy costs, utilities and other administrative expenses, which
resulted from the corporate restructuring plan adopted in late 1999.

COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of
borrowing, net of amounts capitalized, increased by $353,000 to $1.7 million in
the third quarter of 2000, compared to $1.3 million in the third quarter of
1999. The $353,000 increase was due primarily to a $316,000 increase in
corporate cost of borrowing, and a $37,000 increase in non-capitalized project
debt. Corporate debt decreased from $66.0 million as of December 31, 1998 to
$49.8 million as of December 31, 1999 and to $37.9 million as of September 30,
2000.

OTHER EXPENSE. Other expense decreased by $6.0 million to zero
in the third quarter of 2000, compared to $6.0 million in the third quarter of
1999. The $6.0 million decrease was primarily due to valuation adjustments on JV
Projects that were sold in 1999 and 2000.

OTHER INCOME. Other income increased by $503,000 to $269,000
in the third quarter of 2000, compared to $234,000 loss in the third quarter of
1999. The $503,000 increase was primarily due to $269,000 of income from
mortgage valuation reserve adjustment in 2000 versus $266,000 of income from the
utility reserve amortization offset by a $503,000 mortgage valuation expense in
1999.

23

PREFERRED STOCK CHARGES. During the third quarter of 2000, the Company
recorded a $3.9 million accrual for dividends associated with its Preferred
Stock. The dividends were accumulated, but unpaid, as of September 30, 2000. 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. In addition, the Company accreted $361,000 of
the value of its Preferred Stock to the redemption amount in the third quarter
of 1999. The total of $4.3 million of preferred stock charges was charged to
contributed capital during the third quarter of 2000.


LIQUIDITY AND CAPITAL RESOURCES

The Company's financial strategy is to generate sufficient funds from
the sale of non-Luxury/Resort Projects and Predecessor assets and possibly all,
or a portion, of the Luxury/Resort Projects to retire any remaining corporate
debt and to redeem any outstanding Preferred Stock. If the Company's financial
strategy does not generate sufficient funds to retire all of its current debt,
redeem outstanding Preferred Stock and provide sufficient operating cash flow,
the Company will need to consider other alternatives, including but not limited
to, a capital or debt restructuring and/or a federal bankruptcy filing.

GENERAL. As of September 30, 2000, the Company's (1) cash and cash
equivalents totaled $1.9 million and (2) restricted cash and cash equivalents
totaled $686,000, 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 $6.3 decrease in
cash and cash equivalents during the first nine months of 2000, (i) $9.8 million
was provided by operating activities, offset by (ii) $816,000 used in investing
activities and (iii) $15.3 million used in financing activities.

Cash provided by operating activities included (1) $5.0 million from
mortgage and land contracts receivable payments, (2) $5.9 million from the sale
of the remaining lots in the West Meadows Project, (3) $17.6 million from the
sale of Predecessor Assets and other land (4) $3.9 million in other operating
revenues and (5) $727,000 in other income from utility escrow reserves,
partially offset by (6) $1.9 million in other operating expenses (7) $10.8
million for construction and development expenditures, (8) $3.0 million for
interest payments (9) $3.2 million for corporate overhead, including $770,000 in
pension expense (10) $1.7 million in other real-estate overhead expense (11)
$1.6 million for property tax payments (12) $375,000 for the Panther Creek Joint
Venture settlement (13) $107,000 in prepaid legal fees and insurance (14)
$309,000 in accrued payroll, accounting and other liabilities, and (15) $274,000
in severance payments.

Cash used in investing activities consisted of $816,000 of property,
plant and equipment additions primarily in the West Bay Project.

Cash used in financing activities consisted primarily of principal
reductions of $35.5 million partially offset by net borrowings of $20.2 million
under various Project credit facilities. Principal reductions of $35.5 million
included $12.0 million used to payoff the Revolving Loan Facility balance and
$23.5 million used to payoff various project loans, as projects units were sold.

24

OTHER MATERIAL OBLIGATIONS COMING DUE IN 2000. In addition to the $3.5
million due at the expiration of the Revolving Loan Facility on August 1, 2000
(see the discussion below), Atlantic Gulf's other material obligations coming
due in 2000 include Project-specific debt which comes due as units in or a
Project are/is sold. The Company's 2000 business plan contemplates $12 million
of expenditures for development, construction and other capital improvements, a
substantial portion of which will be funded through individual Project
development loans or joint venture arrangements, many of which are already in
place. If the Company is unable to obtain the capital resources to fund these
obligations and expenditures, the implementation of the Company's business plan
will be adversely affected, slowing the Company's anticipated revenue growth and
increasing the time necessary to achieve profitability. 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.

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 default 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.

LOAN DEFAULTS. Atlantic Gulf is currently in default under project
indebtedness for its Chenoa Project. The Company was unable to obtain approval
of the existing PUD for its Chenoa project within the time limits in the
development loan agreement. Accordingly the Company is currently in default
under that loan agreement. Senior management has subsequently obtained approval
of the PUD, and is in negotiations with its lenders to address these defaults.

The Company's Revolving Loan Facility matured on August 1, 2000. The
outstanding principal balance under the facility on that date was $3.5 million.
The Company negotiated an extension of the facility until August 18, 2000. Since
August 1, 2000, the Company has paid down an additional $1.5 million of
principal under the facility, leaving an outstanding principal balance due of
$2.0 million. The Company anticipates that it will close the sale of certain
assets before December 31, 2000, and will use a portion of the proceeds from
such sale to pay the remaining balance due under the Revolving Loan Facility. If
the Company is unable to close such sale before that date, it intends to seek
another extension of time from the lenders. There can be no assurance that the
Company will be unable to obtain such extension, If it cannot, the failure to
repay the remaining balance due thereunder will constitute an event of default
under the Revolving Loan Facility.

The Company did not pay interest on the Term Loan Facility in the third
quarter of 2000. Accordingly, the Company is in default under its Term Loan
Facility. Management is in negotiations with its lenders to (a) cure the
defaults under the Term Loan Facility and (b) restructure the remaining
indebtedness under the Term Loan Facility

The project indebtedness on the Saxon Woods project matured on October
25, 2000. As of that date, the remaining amount due under the indebtedness was
$1.3 million. The Company failed to repay the remaining amount due under such
project indebtedness on its maturity date. Accordingly, the Company is currently
in default under the project indebtedness. Management is in negotiations with
its lenders to obtain additional time to repay the remaining amount due under
this indebtedness

25

The Company has not made any (a) interest payments on its $850,000
Future Advance Note to Apollo or (b) any principal or interest payments on its
$1,000,000 Future Advance Note to Apollo (the "Apollo Notes"). Accordingly, the
Company is currently in default under the Apollo Notes. Management is in
negotiations with Apollo to (a) cure the defaults under the Apollo Notes and (b)
restructure the remaining indebtedness under the Apollo Notes


PROJECTS SOLD IN 1999 AND 2000

In the past 19 months the Company has sold the following Projects:

o In March 1999, the Company sold its joint venture interest in the
1,040 remaining units in its Country Lakes Project, a
Non-Luxury/Resort Project, for $500,000, recognizing a gain of
approximately $219,000. The Company received a prepayment of its
management fee in exchange for the continued management of the
Project until the joint venture engaged another manager in July
1999.

o In September 1999, the Company sold the remaining two acres of its
Riverwalk Tower Project, a wholly-owned Luxury/Resort Project, for
$8.0 million

o In November 1999, the Company sold the remaining 1,146 lots and
other assets in the Sunset Lakes Project, a jointly owned
Non-Luxury/Resort Project, for $46.3 million. The Company's share
of the sale proceeds was $30.1 million.

o In November 1999, the Company decided not to acquire Rayland, a
proposed Non-Luxury/Resort Project located near Jacksonville,
Florida. The Company expensed $1.5 million in design and
engineering cost previously incurred with respect to this Project.

o In December, 1999, the Company sold its JV interest in the 1,093
acre Orlando Naval Training Center, a Non-Luxury/Resort Project,
to its joint venture partner. The sales price of $1.0 million,
together with unreturned capital of $473,000 were conveyed in the
form of a non-interest bearing promissory note, which note is
contingent on the release of the joint venture from a lawsuit
seeking performance under a development agreement with the City of
Orlando, Florida.

o In December, 1999, the Company sold the remaining 1,298 lots in
the Trails of West Frisco Project, a wholly owned
Non-Luxury/Resort Project, for $14.6 million.

o In December 1999, the Company relinquished its 40.0% joint venture
interest in the Cary Glen Project, a Non-Luxury/Resort Project, as
part of a legal settlement with Panther Creek-Raleigh Limited
Partnership; Atlantic Gulf also paid $375,000 as part of the
settlement.

o In December 1999, the Company assigned its contract to purchase
the Harbor Bay Project, a controlled Non Luxury/Resort Project,
plus an adjacent parcel, for $4.8 million plus reimbursement of
its earnest money deposits and certain costs. The contract
assignment also included the assignment of the Company's rights to
purchase an adjacent 350 acres, a contract to purchase land for a
planned golf course and a two-year option to purchase golf course
lots.

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o In December 1999, the Company sold EQ Lab for $310,000.

o During 1999, the Company sold its joint venture interest in the
154 remaining units of its Jupiter Ocean Grande Project, a
Non-Luxury/Resort Project, for approximately $1.0 million,
resulting in a loss of approximately $3.8 million.

o During 1999, the Company completed the entitlements for Grand
Oaks, a proposed Non-Luxury/Resort Project, but was unable to
close on its purchase in May 1999, due to funding problems. The
seller was unwilling to extend the contract to allow for
alternative financing and retained the company's $1.4 million in
earnest money deposits and extension fees.

o During 1999, the Company commenced and pursued modifications to
certain land use approvals required to develop the Baxter/Martinez
Project, a controlled Non-Luxury/Resort Project for 1,400
residential units. In 1998, the Company entered into agreements
with two separate sellers to purchase approximately 232 acres (the
Baxter property) for $2.3 million and to purchase an additional
adjacent 181 acres (the Martinez property) for $1.6 million, with
closings scheduled for the first half of 2000. The Company began
negotiating to assign its rights to purchase both properties to a
third party for $1.0 million plus reimbursement of its earnest
money deposits and cost.

o In March 2000, the Company sold all the property and assets
(except for 28 lots) in the Falcon Trace JV Project, a jointly
owned Non-Luxury/Resort Project, for $6.4 million. The Company's
share of the sale proceeds was $2.8 million. No net book gain or
loss was recognized from the sale of the Project. The remaining 28
lots were sold during the second quarter 2000 for $946,000, the
Company's share of the sale proceeds.

o In April 2000, the Company sold the remaining 287 lots in its
Lakeside Estates Project, a wholly owned Non-Luxury/Resort
Project, for $2.7 million. The Company acquired the Project,
comprised of 1,379 lots and located near Orlando, Florida, in
1994. The Lakeside Estates Project sale resulted in a net book
loss of $3.1 million, which was charged against "Inventory
valuation reserve" in the statement of operations as of December
31, 1999.

o On July 31, 2000, the Company sold the remaining 545 lots in the
West Meadows Project, a wholly owned Non-Luxury/Resort Project,
for $5.9 million. The Company acquired the Project, comprised of
1,397 residential lots and approximately 23 acres of commercial
property located near Tampa, Florida, in 1994. The West Meadows
Project sale resulted in a net book loss of $4.3 million in the
third quarter of 2000, of which $3.4 million was charged against
"Inventory valuation reserve" in the statement of operations as of
December 31, 1999. An additional amount of $900,000 was charged
against the "Inventory valuation reserve" in the statement of
operations during the second quarter of 2000.

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.

27

ITEM 3. MANAGEMENT'S QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK


As of September 30, 2000, the Company's assets subject to market risk analysis
consist of $3.1 million in Mortgage Receivables and $897,000 in Contracts
Receivable.

Commercial and individual lot mortgages have been written at both fixed and
variable rates and, therefore, are partially subject to market index rate
fluctuations. All mortgages have been evaluated for credit risk and are
presented net of reserve provisions in the financial statements. The mortgages
are not publicly traded.

The interest rates for contract for land agreements issued on individual retail
lot sales are all fixed rate agreements and, therefore, are not subject to any
rate fluctuations. All contracts for land have been evaluated for credit risk
and are presented net of reserve provisions in the financial statements. The
contract for land agreements are not publicly traded.

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