10-Q 1 f10q0601.txt FORM 10Q 06/30/01 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 Commission File For Quarter Ended June 30, 2001 Number 0-9209 ------------- --------------- RIVERSIDE GROUP, INC. (Exact name of registrant as specified in its charter) Florida 59-1144172 ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7800 Belfort Parkway, Jacksonville, Florida 32256 ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code number 904-281-2200 ------------ Indicate by a 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- On August 10, 2001, there were 4,767,123 shares of the Registrant's common stock outstanding. RIVERSIDE GROUP, INC. INDEX Page PART I. FINANCIAL INFORMATION Number ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Operations Three and Six months ended June 30, 2001 2000 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2001 and 2000 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 3. Default on Senior Securities 20 Item 6. Exhibits and Reports on Form 8-K 20 Riverside Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (dollars in thousands)

Accompanying Notes to Condensed Consolidated Financial Statements. 3 Riverside Group, Inc. and Subsidiaries Condensed Consolidated Statement of Operations (unaudited) (in thousands except per share amounts)

4 Riverside Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements. 5 RIVERSIDE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Statement Presentation The condensed consolidated financial statements present the financial position, results of operations, and cash flows of Riverside Group, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company" or Riverside"). The condensed consolidated balance sheets as of June 30, 2001, the condensed consolidated statements of operations for the three and six months ended June 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the six months ended June 30, 2001 and 2000, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2001, and for all periods presented, have been made. The results for the six month period ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year or for any interim period. The Company accounts for its investment in Greenleaf Technologies Corporation ("Greenleaf") common stock as available for sale. These available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings, but reported within stockholders' equity in accumulated other comprehensive income (net of the effect of income taxes) until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, are recognized as a component of operating results. The fair value of these securities are based upon the last reported price on the exchange on which they are traded. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements, the related Auditor's report, and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. The Company adopted SFAS 133 and its amendments on January 1, 2001. Adoption of SFAS 133, as amended, did not have a material effect on the Company's financial position, results of operations or cash flow. 6 On July 20, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." These Statements make significant changes to the accounting for business combinations, goodwill, and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations with limited exceptions for combinations initiated prior to July 1, 2001. In addition, it further clarifies the criteria for recognition of intangible assets separately from goodwill. This statement is effective for business combinations completed after June 30, 2001. SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite lived intangible assets and initiates an annual review for impairment. Impairment would be examined more frequently if certain indicators are encountered. Intangible assets with a determinable useful life will continue to be amortized over that period. The amortization provisions apply to goodwill and intangible assets acquired after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Goodwill and intangible assets on the books at June 30, 2001, will be affected when the Company adopts the Statement effective January 1, 2002. The Company is evaluating the impact of the adoption of these standards and has not yet determined the effect of adoption on its financial position and results of operations. Comprehensive Income Total comprehensive loss for the six months ended June 30, 2001 was $1,308,000. Changes in the components of other comprehensive income for the first six months of 2001 are as follows:

Earnings Per Share Basic and diluted earnings per common share are calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Earnings per share are based on the weighted average number of shares of common stock outstanding during each period (4,767,123 and 4,759,132 shares during the three months ended June 2001 and 2000, respectively and 4,817,123 and 4,759,132 shares during the first six months of 2001 and 2000, respectively). During the six months ended June 30, 2001, the Company's outstanding options are included in the calculation of the earnings per share. During the three months ended June 30, 2001 and 2000, and the six months ended June 30, 2000, the Company had a net loss, the options had an anti-dilutive effect, and therefore, are excluded from the calculation of diluted earnings per share. 7 2. INVESTMENT IN WICKES, INC. ("Wickes") As of June 30, 2001, Riverside beneficially owned 2,862,243 shares of Wickes' common stock, which constituted 35% of Wickes' outstanding voting and non-voting common stock. Summary financial information of Wickes follows (in thousands):

3. INVESTMENT IN BUILDSCAPE, INC. ("Buildscape") As of June 30, 2001, the Company owned (before Buildscape's employee stock options) 40.11% of Buildscape on a fully converted basis. As of June 30, 2001, Buildscape owned 87.5% membership interest in Buildscape, LLC. Summary financial information of Buildscape follows (in thousands):

4. INVESTMENT IN GREENLEAF In accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" 10,200,000 and 5,665,508 shares of the Company's common stock in Greenleaf are classified as available for sale at June 30, 2001 and December 31, 2000, respectively. At June 30, 2001, the cost basis is $0 and the estimated fair market value is $867,000, resulting in gross unrealized gains of $867,000. At December 31, 2000, the cost basis is $0 and the estimated fair market value is $2,323,000, resulting in gross unrealized gains of $2,323,000. At December 31, 2000, sales of Greenleaf shares were restricted under the provisions of Securities and Exchange Commission ("SEC") Rule 144. The Company has received a legal opinion that the shares of Greenleaf may now be sold under SEC Rule 144(k). Accordingly, at June 30, 2001, the total number of Greenleaf shares owned by the Company have been classified as available for sale and marked to market. No taxes have been provided as the Company has available net operating loss carryforwards and strategies, which would result in no tax liability upon the sale of these securities. The remaining 4,834,492 Greenleaf shares at December 31, 2000, were restricted under the provisions of Rule 144 and were not considered to be marketable equity securities subject to valuation under the provisions of SFAS 115. Accordingly, these restricted shares were not reported at fair value at December 31, 2000, but rather were recorded at their cost basis of zero. At December 31, 2000, the calculated market value of the Company's shares (including the shares held in escrow) in Greenleaf was approximately $4.3 million based on Greenleaf's stock price of $.41 per share on the Over-the-Counter Pink Sheets. At June 30, 2001, the Company's investment in Greenleaf consisted of 8,810,000 common shares, 1,390,000 escrow shares and a five year option to acquire 2,000,000 additional newly issued shares of Greenleaf's common stock at an exercise price of $.25 per share. The Company has transferred the right to exercise 84,151 of these options to employees. 5. COMMITMENTS AND CONTINGENCIES The Company is not aware of any legal proceedings that will have a material adverse effect on the Company. For further information regarding conditions involving the Company's 11% Secured Notes, See Note 8. "Subsequent Events". In connection with the sale of Dependable Insurance Company, Inc. ("Dependable") in 1995, (a former property and casualty insurance company of the Company), the Company agreed to indemnify the purchaser for certain losses on various categories of liabilities. The terms of the indemnities provided by the Company vary with regards to time limits and maximum amounts. In 1995, in connection with the sale of Dependable, the Company established a reserve for $300,000 for future losses. Since the Company has not experienced losses on this business, the Company released $75,000 and $150,000 of the reserve in 1999 and 1998, respectively. The Company's reserve at June 30, 2001 is $75,000, which the Company believes is sufficient for any potential future losses. Although future loss development may occur over a number of years, the Company believes, based on all information presently available, that indemnities for any losses that may occur will not have a material adverse effect on the Company's financial position or results of operations. 9 In connection with the sale of its mortgage lending operation in 1997, the Company agreed to indemnify the purchaser against losses on the construction loan portfolio that was transferred. The Company currently has 62,500 shares of its Wickes' common stock pledged as collateral for this indemnification obligation. As the construction loan portfolio decreases, the shares held as collateral will be released. The Company believes that these indemnities will not have a material adverse effect on the Company's financial position or results of operation. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company has historically had net losses and as of June 30, 2001 and December 31, 2000, the Company's current liabilities exceeded its current assets. In addition, at June 30, 2001, the Company's total liabilities exceeded its total assets by $1,783,000. These factors among others may indicate that the Company may be unable to continue as a going concern for a sufficient period of time to realize the value of its assets. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As described in Note 6, the Company is in default with respect to the majority of its outstanding long-term debt agreements and the balance has been classified as a current liability. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or refinancing as may be required, and ultimately to attain successful operations. The Company is primarily a holding company, which derives its financial resources through asset sales. At June 30, 2001, such assets consist of 100 acres of land located within Smyrna, Georgia, 2,862,243 shares of Wickes common stock and 10,200,000 shares of Greenleaf common stock, all of which are pledged as collateral on the Company's debt agreements. The Company's debt agreements require the proceeds from the sale of these assets be used to pay principal and interest on the related indebtedness. Accordingly, unless the note holders release these assets, the sale of such assets will not generate resources to be used to pay other current obligations or to pay operating expenses until the debt has been repaid in full. At June 30, 2001, 25,420 shares of Wickes common stock are available to be sold to generate cash to reduce payables and pay current operating expenses. The Company is vigorously pursuing the sale of its Georgia property which management believes may be sufficient to payoff the mortgage debt and reduce the balance of the 11% Secured Notes. The Company is also negotiating with its note holders to restructure the various debt agreements to establish satisfactory repayment terms and to release a portion of the Greenleaf shares held as collateral under the notes, allowing sales proceeds to be used to pay operating costs. The Company believes that corporate assets have adequate value to cover liabilities and management is evaluating all options on liquidating assets and investments to meet the debt requirements. If the Company is unsuccessful in these efforts, it may file a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code and operate its businesses as debtors in possession under the supervision of the Bankruptcy Court. 10 6. LONG TERM AND MORTGAGE DEBT Consolidated long-term obligations debt is comprised of the following as of June 30, 2001 (in thousands): Collateralized notes $ 9,500 Wickes promissory note 469 Imagine loan 2,022 Mortgage debt 5,639 Other debt 43 ------------ Long-term debt 17,673 Less current maturities (17,539) ------------ Total long-term debt less current maturities $ 134 ============ Collateralized Notes ("the 11% Secured Notes") The Company failed to make the required payment on its 11% Secured Notes which was due December 31, 2000. The Company received notice from the agent for the noteholders declaring all amounts outstanding under the notes immediately due and payable. The Company was also advised that the agent would immediately commence foreclosure proceedings on the collateral securing the notes. The collateral includes certain real estate assets of Riverside and shares of Wickes and Greenleaf. In March 2001, Imagine purchased a majority of the Company's 11% Secured Notes from the holders of these 11% Secured Notes. As a result of this action, the agent for the noteholders cancelled the foreclosure sales mentioned above. Imagine, which owns 75% of the 11% Secured Notes, has agreed to forebear on the notes until September 15, 2001 to allow for negotiations with the Company to restructure the debt. There can be no assurance that the Company will be able to successfully negotiate a restructuring of its debt and the failure to do so would have a material adverse effect on the Company's financial position. In addition, if a successful restructuring of its debt obligations does not occur, the Company may need to seek reorganization under applicable federal bankruptcy laws. For further information on the 11% Secured Notes, see Note 8. "Subsequent Events". Wickes Promissory Note During 1998, 1999 and 2000, the Company was delinquent on the payment of principal and interest on its promissory note to Wickes. In September 1999, the Company paid this note current. In March 2000, the Company and Wickes renegotiated the terms of the note, deferring all principal payments due until April 1, 2001, including the delinquent principal payments for November 1999 and February 2000. The interest rate was increased to prime lending rate plus four percentage points. In July 2001, the Company paid Wickes the April 1, 2001 principal and interest payment. The Company is currently in default on the July 2001, principal and interest payment. Imagine Loan On August 31, 2000, the Company and Imagine extended the principal and interest payments that were due on August 31, 2000 until December 15, 2000. The $1.8 million loan balance was increased by $222,000 for unpaid interest and refinancing costs with this extension. The Company did not make any payment of principal and interest on December 15, 2000 and the loan is currently in default. The Company and Imagine are in discussions regarding the extension of the principal and interest payments that were due under the Imagine loan agreement on December 15, 2000. 11 Mortgage Debt The failure to pay the 11% Secured Notes when due also constitutes a default under Riverside's $5.6 million mortgage loan obligations to American Founders. The mortgage lender has notified the Company that it has the right, but not the obligation, to defer exercising all or any of its rights under default, pending the outcome of negotiations between the Company and the agent for the 11% Secured Noteholders. Other Debt On April 4, 2001, the Company executed a non-interest bearing promissory note with Holland & Knight LLP ("H&K"), the Company's former attorneys, for approximately $59,000. The terms of the note call for monthly principal payments of $5,000, commencing May 1, 2001, and continuing on a monthly basis until the note is paid in full. This note was for payment of previous legal fees incurred by the Company and owed to H&K. 7. INCOME TAXES The Company's effective tax rate was 2% for the three and six months ended June 30, 2001 and 0 % for the three and six months ended June 30, 2000. The Company has established a reserve for the full amount of deferred tax assets. In management's opinion, it is unlikely the deferred tax assets will be realized in the near future. 8. SUBSEQUENT EVENTS ("Unaudited") In August, 2001, Imagine, acquired the remaining 25% of the 11% Secured Notes, and now owns 100% of the Notes. Imagine has agreed to forebear from exercising its remedies under the notes until September 15, 2001 to allow for negotiations with the Company to restructure the debt. The Company is in negotiations to pay or restructure this debt. However, there can be no assurance that the Company will be able to successfully negotiate a restructuring of this debt and the failure to do so would have a material adverse effect on the Company's financial position. In July of 2001, the Company entered into an agreement with Ennovative Commerce Solutions, Inc. ("Ennovative"), based in California, whereby effective July 1, 2001, Ennovative will manage and operate the business of Cybermax, Inc. ("Cybermax"), a wholly owned subsidiary of the Company. Ennovative will receive a management fee of 60% of the profits and be responsible for funding 60% of the losses of Cybermax as defined by the agreement. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto contained elsewhere herein and in conjunction with the Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. FORWARD-LOOKING INFORMATION CAUTIONARY STATEMENT. The following discussion of the Company's future operations, liquidity needs and sufficiency constitutes Forward-Looking Information and is inherently subject to uncertainty as a result of a number of risk factors including, among other things: (i) the Company's ability to successfully restructure its 11% Secured Notes and other debt in a timely and reasonable matter, (ii) the success of and level of cash flow generated by Cybermax, (iii) the Company's ability to achieve the level of real estate sales required to meet scheduled real estate debt principal and interest payments and to avoid the requirement that the Company provide additional collateral for this debt, (iv) the Company's ability to borrow, which may depend upon, among other things, the trading price of Wickes common stock, the value and liquidity of the Company's Greenleaf securities, and the success of Cybermax and Buildscape, (v) the ability of the Company to raise funds through sales of Wickes common stock and Greenleaf securities and (vi) uncertainty concerning the possible existence of indemnification claims resulting from the Company's discontinued operations. Future real estate sales depend upon a number of factors, including interest rates, general economic conditions, and conditions in the commercial real estate markets in Atlanta, Georgia. In addition to the factors described above, the Company's ability to sell Wickes common stock or Greenleaf securities would depend upon, among other things, the trading prices for these securities and, in light of the relatively low trading volume for these securities, the possible difficulty the Company may have finding a buyer or buyers for these securities in a private transaction or otherwise. Lines of Business The following table sets forth certain financial data for the three and six months ended June 30, 2001 and 2000, respectively, for the following segments: Buildscape, Cybermax, Wickes and the Parent Group. The "Parent Group" includes real estate, parent company operations and all eliminating entries for inter-company transactions. The Company accounted for its investment in Wickes and Buildscape under the equity method for the three and six months ended June 30, of 2001 and 2000, respectively. 13

14 (1) Includes (losses) gains of $(4,000) and $36,000 on the sale of Wickes stock during the three months ended June 30, 2001 and 2000, respectively, and $(68,000) and $84,000 for the six months ended June 30, 2001 and 2000, respectively. (2) Includes an interest allocation from Riverside on its 11% Secured Notes of $403,000 and $374,000 for the three months ended June 30, 2001 and 2000, respectively, and $801,000 and $648,000 for the six months ended June 30, 2001 and 2000, respectively. (3) The Company's balance sheet and statements of operations reflect the Company's investment in Wickes and Buildscape under the equity method. Cybermax The following table sets forth information concerning the results of Cybermax for the three and six months ended June 30, 2001 and 2000, respectively: (in thousands)

Revenues for the second quarter of 2001 were $305,000 compared to $344,000 for the comparable period in 2000. Revenues for the second quarter of 2001 include $221,000 of e-Commerce solutions sales, $57,000 of e-Learning sales and $27,000 of network services. Revenues for the second quarter of 2000 include $250,000 of e-Commerce solution sales, $34,000 of equipment sales, $7,000 of multi-media solutions sales and $53,000 of network services. The direct costs for the second quarter of 2001 include $93,000 of e-Commerce solutions sales, $58,000 of e-Learning sales and $26,000 of network services. The direct costs for the second quarter of 2000 include $83,000 of e-Commerce solutions sales, $28,000 of equipment sales, $40,000 of network services and $13,000 of miscellaneous costs. Selling, general and administrative expenses ("SG&A") decreased for the second quarter of 2001 to $264,000 compared to $384,000 for the second quarter of 2000. The primary reason for this decrease was the reduction of the personnel in 2001. Revenues for the first six months of 2001 were $813,000 compared to $748,000 for the comparable period in 2000. Revenues for the first six months of 2001 include $458,000 of e-Commerce solutions sales, $224,000 of e-Learning sales, $73,000 of multi-media solution sales and $58,000 of network services. Revenues for the first six months of 2000 include $553,000 of e-Commerce solutions sales, $86,000 of equipment sales, and $7,000 of multi-media solutions sales and $102,000 of network services. 15 The direct costs for the first six months of 2001 include $199,000 of e-Commerce solutions sales, $120,000 of e-Learning sales, $15,000 of multi-media sales and $33,000 for network services. The direct costs for the first six months of 2000 include $137,000 of e-Commerce solutions sales, $57,000 of equipment sales, $78,000 of network services and $16,000 of miscellaneous costs. Selling, general and administrative expenses decreased for the first six months of 2001 to $581,000 compared to $792,000 for the first six months of 2000. The primary reason for this decrease was the reduction of personnel in 2001 and legal expense which was offset slightly by increases in contractual services, software services and marketing and advertising expense. Buildscape The Company's investment in Buildscape at June 30, 2001 and December 31, 2000 was a deficit of $947,000. Accordingly, the Company has not recorded its equity in Buildscape's losses since October 21, 1999. In addition, the Company recorded no gains during the three and six months ended June 30 of 2001 and 2000, relating to Buildscape's sale of unissued common stock and membership interest in Buildscape LLC. See Note 3 to the Consolidated Financial Statements for summary audited financial information for Buildscape for the three and six months ended June 30, 2001 and 2000, respectively. Wickes The Company's results of operations for the second quarter of 2001 include losses of $293,000 attributable to Wickes, compared to profits of $79,000 for the same period in 2000. The Company's results of operations include losses of $3,044,000 and $1,444,000 attributable to Wickes, for the six months ended June 30, 2001 and 2000, respectively. For additional information regarding Wickes' financial statements, see the Wickes Form 10Q for the second quarter of 2001 filed by Wickes on August 14, 2001 with the Securities and Exchange Commission. Parent Company and Other Subsidiaries The following discussion relates to the operations of the Parent Group, excluding the real estate operations. The Parent Group's non-interest operating expenses for the second quarter of 2001 decreased to $104,000 compared to $307,000 during the same period in 2000. The primary reason for the decrease is, during the second quarter of 2000, the Company's Board of Directors authorized the Company to transfer certain options held by the Company to acquire common stock of Greenleaf to certain employees of the Company. Accordingly, in the second quarter of 2000, the Company recorded income of approximately $105,000 included in net realized investment gains, which represents the value of the shares transferred and an offsetting compensation expense of approximately $105,000. For certain costs, including human resources, senior management, accounting and office related expenses, the Parent Company charges its subsidiaries for its share of its costs based on actual usage during a period. As a result, comparison between periods may not be meaningful. Revenues of the Parent Group (excluding sales and investment income) for the second quarter of 2001 and 2000 were $173,000 and $35,000, respectively. Interest expense (excluding interest allocation to Wickes for the Parent Company's 11% Secured Notes of $403,000 in 2001 and $374,000 in 2000) for the second quarter of 2001 and 2000, was $198,000 and $349,000, respectively. Interest expense consisted of $122,000 on the Company's mortgage debt, $65,000 on the Imagine loan and $12,000 on the Wickes promissory note, for the second quarter of 2001. Interest consisted of $278,000 on the Company's mortgage debt, $58,000 on the Imagine loan and $13,000 on the Wickes promissory note, for the second quarter of 2000. The Company expects the interest expense to continue decreasing in 2001, due to a lower principal balance on the Company's mortgage debt. 16 The Parent Group's non-interest operating expenses for the first six months of 2001 decreased to $269,000 compared to $397,000 during the same period in 2000. The primary reason for the decrease is the compensation expense recorded relative to options and Greenleaf common stock transfer to certain employees as explained above. For certain costs, including human resources, senior management, accounting and office related expenses, the Parent Company charges its subsidiaries for its share of its costs based on actual usage during a period. As a result, comparison between periods may not be meaningful. Revenues of the Parent Group (excluding sales and investment income) for the first six months of 2001 and 2000 were $211,000 and $35,000, respectively. Interest expense (excluding interest allocation to Wickes for the Parent Company's 11% Secured Notes of $801,000 in 2001 and $648,000 in 2000) for the first six months of 2001 and 2000, was $426,000 and $686,000, respectively. Interest expense consisted of $273,000 on the Company's mortgage debt, $130,000 on the Imagine loan and $24,000 on the Wickes promissory note, for the first six months of 2001. Interest consisted of $544,000 on the Company's mortgage debt, $116,000 on the Imagine loan and $26,000 on the Wickes promissory note, for the first six months of 2000. The Company expects the interest expense to continue decreasing in 2001, due to a lower principal balance on the Company's mortgage debt. Real Estate Held for Sale The Company's real estate held for sale at June 30, 2001 consists of $4,724,000 in Georgia properties, and $8,000 in other states. Investments in real estate held for sale are carried at the lower of cost or fair value. As a result, the Company's investment in real estate is carried at cost. Included in the real estate held for sale are approximately 100 acres of land located within Highlands Park in Smyrna, Georgia. During the second quarter of 2001, the Company sold 15 acres of its Highlands property for approximately $1,381,000. The Company recorded gains of approximately $429,000 on the sale. The entire sales proceeds were used to pay the Company's mortgage debt and a prepayment of interest. As of June 30, 2001, the Company's mortgage debt is approximately $5,639,000 and the Company has a prepayment of interest of approximately $29,000. During the second quarter of 2000, the Company sold 6.83 acres of its Florida property for $1,636,000, and recorded a loss of $3,400 on the sale. During the fourth quarter of 1999, the Company had established a reserve for $278,000 on this property. During the first six months of 2001, the Company sold 41 acres of its Highlands property for approximately $6,389,000. The Company recorded gains of approximately $3,916,000 on these sales. The entire sales proceeds were used to pay the Company's mortgage debt and a prepayment of interest. During the first six months of 2000, the Company sold 6.83 acres of its Florida property for $1,636,000, and recorded a loss of $3,400 on the sale. During the fourth quarter of 1999, the Company had established a reserve for $278,000 on this property. Greenleaf During the second quarter of 2001, the Company sold 50,000 shares of its Greenleaf common stock for approximately $13,300 resulting in gains of approximately $13,300. Compared to the second quarter of 2000, when the Company sold 321,000 shares of its Greenleaf common stock for approximately $449,000, resulting in gains of approximately $449,000. All of the proceeds from the sales in 2000 were used to pay principal and interest on the Company's 11% Secured Notes. The Company had no sales of its Greenleaf escrow shares during the second quarter of 2001 and 2000. 17 During the first six months of 2001, the Company sold 300,000 shares of its Greenleaf common stock for approximately $77,000 resulting in gains of approximately $77,000. Compared to the first six months of 2000, when the Company sold 543,000 shares of its Greenleaf common stock for approximately $977,000, resulting in gains of approximately $977,000. The agent for the 11% Noteholders allowed the proceeds of the sales to date in 2001 released to the Company to cover operating costs. The Company had no sales of its Greenleaf escrow shares during the first six months of 2001 and 2000. For additional information regarding Greenleaf financial statements, see the Greenleaf Form 10-SB filed by Greenleaf on January 19, 2001 with the Securities and Exchange Commission. Income Taxes The Company's effective tax rate was 2% and 0% for the three and six months ended June 30, 2001 and 2000, respectively. The Company's equity in losses of Wickes has reduced the Company's GAAP basis in its investment in Wickes creating deferred tax benefits, which will be realized upon sale or subsequent increase in GAAP basis of this investment. LIQUIDITY AND CAPITAL RESOURCES Riverside's general liquidity requirements consist primarily of funds for payment of debt and related interest and for operating expenses and overhead. The Company's operations consist primarily of asset sales (real estate, Greenleaf shares and Wickes shares) and Cybermax's operations. Proceeds from real estate sales are required to be applied to real estate debt reduction and are not available to Riverside for other purposes. Riverside's cash on hand will not be sufficient to support its operations and overhead through 2001. Therefore, the Company will need to obtain significant additional funds through asset sales or additional borrowings or other financing for such purposes and may need to reduce the level of its operations. As described in Note 6, the Company is in default with respect to the majority of its outstanding long-term debt. The Company's immediate plans are to reorganize its debts that are currently due and evaluate options on liquidating assets and investments to meet the debt requirements. There can be no assurance that the Company will be able to successfully negotiate a restructuring of its debt and the failure to do so would have a material adverse effect on the Company's financial position. In addition, if a successful restructuring of its debt obligations does not occur, the Company may need to seek reorganization under applicable federal bankruptcy laws. Cash Used in Operations During the second quarter of 2001, the Company used approximately $133,000 of cash for its operations, including $139,000 of cash used for the operations of Cybermax and $6,000 of cash provided by the operations of the Parent Company. During the first six months of 2001, the Company used approximately $533,000 of cash for its operations, including $152,000 of cash used for the operations of Cybermax and $381,000 of cash used for the operations of the Parent Company. Cash Provided by Investing Activities During the second quarter of 2001, sales of the Company's real estate investments generated approximately $1,268,000 of cash. These proceeds were used to reduce the real estate debt. During the second quarter of 2001, the Company sold 4,000 shares of its Wickes stock for approximately $18,000. The Company also sold 50,000 shares of its Greenleaf stock for approximately $13,000 during the second quarter of 2001. The proceeds from these sales were used to cover the operations of Cybermax and the Parent Company. 18 During the first six months of 2001, sales of the Company's real estate investments generated approximately $5,863,000 of cash. These proceeds were used to reduce the real estate debt. During the first six months of 2001, the Company sold 48,800 shares of its Wickes stock for approximately $215,000. The proceeds from these sales were used to cover the operations of Cybermax and the Parent Company. The Company also sold 300,000 shares of its Greenleaf stock for approximately $77,000 during the first six months of 2001. The proceeds from these sales were used to cover the operations of Cybermax and the Parent Company. Cash Used in Financing Activities During the second quarter of 2001, the Company reduced the principal balance of its mortgage debt by approximately $1,272,000. As of June 30, 2001, the Company mortgage debt is approximately $5,639,000, and the Company has made a $29,000 prepayment of its interest. During the first six months of 2001, the Company reduced the principal balance of its mortgage debt by approximately $5,722,000. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's risk-management activities includes "forward-looking" statements that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Company is subject to market risk from changes in market price of equities and real estate. In accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" 10,20 0,000 and 5,665,508 shares of the Company's common stock of Greenleaf are, and were, respectively, classified as available for sale at June 30, 2001, and the remaining 4,834,492 Greenleaf shares at December 31, 2000, were restricted under the provisions of Rule 144 promulgated under the Securities and Exchange Act of 1934 and were not considered to be marketable equity securities subject to valuation under the provisions of SFAS 115. Accordingly, these restricted shares were not reported at fair value at December 31, 2000, but rather are recorded at their cost basis of zero. The unrealized gain at June 30, 2001, of $867,000 has decreased to $717,500 at August 10, 2001 due to a decrease in the market price of the underlying equities. The market demand directly impacts the Company's ability to sell these securities which effects realized gains and cash flow. Historically, all proceeds from the sale of these securities have been applied to reduce debt. However, in August the agent for the 11% Noteholders allowed the Company to use the proceeds for operating costs. The increase in cash flow improves the Company's ability to repay its debt and support operations. While the Company cannot influence or control the fluctuations in market price of the equities, management observes the price and demand on these equities on a daily basis in an effort to take advantage of any upswings in the market which presents favorable conditions to sell shares. The Company is currently liquidating its real estate portfolio and is exposed to any adverse changes in the real estate market. The Company believes that based on current economic conditions and the values of real estate, proceeds from the sale of its real estate will allow it to pay off its mortgage debt and pay down its 11% Secured Notes. However deterioration in economic conditions and /or a decline in the value of real estate could have a significant negative impact. The table below reflects the impact that a decrease of 10% and 25% in market prices may have on the Company's realized gains on real estate sales and the cash available to pay down the 11% Secured Notes.

The Company believes that its interest rate risk is minimal as a hypothetical ten percent increase or decrease in interest rates is immaterial to the Company's cash flow and earnings. The Company has mortgage debt at a floating rate of interest calculated as the London InterBank Offered Rate ("LIBOR") plus 300 basis points, with a current outstanding balance of $5.6 million. 19 PART II OTHER INFORMATION Item 1. Legal Proceedings For information regarding the Company's legal proceedings, see Note 5 of Notes to Condensed Consolidated Financial Statements included elsewhere herein. Item 3. Defaults Upon Senior Securities For information regarding the Company's default on its 11% collateralized notes, see Note 6 of Notes to Condensed Consolidated Financial Statements included elsewhere herein. Item 6. Exhibits and Reports on Form 8-K 4.1 (a) Forbearance Agreement dated June, 2001 between the registrant and Imagine Investments, Inc. (b) Forbearance Agreement dated July, 2001 between the registrant and Imagine Investments, Inc. Reports on Form 8-K None 20 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. RIVERSIDE GROUP, INC. By /s/ J. Steven Wilson ------------------------------------ J. Steven Wilson Chairman of the Board, President and Chief Executive Officer By /s/ Catherine J. Gray ---------------------------------- Catherine J. Gray Senior Vice President and Chief Financial Officer Date: August 14, 2001 21 FORBEARANCE AGREEMENT June 15, 2001 TABLE OF CONTENTS -i- 1. Acknowledgment of Default..................................................1 2. Forbearance................................................................2 2.1 Reaffirmation of Existing Debt...................................2 2.2 Agreement to Forbear.......................... .................2 2.3 Interest Rate....................................................2 3. Ratification...............................................................2 4. Waiver of Trial by Jury....................................................2 5. Attorney's Fees............................................................3 6. Waiver of Automatic Stay...................................................3 7. Confidentiality............................................................3 8. Successors and Assigns.................................... ................3 9. Governing Law..............................................................3 10. Entire Agreement..........................................................3 FORBEARANCE AGREEMENT THIS FORBEARANCE AGREEMENT (this Agreement) is made and shall be effective as of the 15th day of June, 2001, by and between: (i) IMAGINE INVESTMENTS, INC., a Delaware corporation, with its principal office and place of business at 8150 North Central Expressway, Suite 1901, Dallas, Texas 75206 ("Imagine"), and (ii) RIVERSIDE GROUP, INC., a Florida corporation, with its principal office and place of business at 7800 Belfort Parkway, Suite 100, Jacksonville, Florida 32256 ("Borrower"). RECITALS: A. On or about April 1, 1999, Borrower borrowed the aggregate sum of Ten Million Dollars ($10,000,000.00) from several different entities (collectively, the "Original Note Holders" or individually, the "Original Note Holder"), pursuant to a Credit Agreement dated as of April 1, 1999 (the "Credit Agreement") and a promissory note made by Borrower in favor of each Original Note Holder (collectively, the "Original Notes" and individually, the "Original Note"). B. On or prior to the date of this Agreement, Imagine purchased or otherwise acquired from certain Original Note Holders all of their respective rights, titles and interests in certain Original Notes (collectively, the "Notes" ; individually, the "Note"), the Credit Agreement, all other loan documents and security documents related thereto (collectively, the "Loan Documents") and the collateral securing the Notes. The term "Note" and "Notes" shall also include other Original Notes which Imagine acquires, if any, between the date of the original Forbearance Agreement and July 15, 2001. C. As of the date of this Agreement, Borrower is in default under the Notes for failing to pay the Original Notes. D. Borrower has requested that Imagine forbear enforcement of its rights and remedies under the Loan Documents with respect to the Notes that Imagine owns, in exchange for the agreements and covenants of Borrower, as set forth herein. AGREEMENT: NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all of the parties hereto, the parties agree as follows: 1. ACKNOWLEDGEMENT OF DEFAULT. Borrower hereby acknowledges and agrees that it has failed to pay the Notes when due, and such failure by Borrower constitutes a default under the Notes and the other Loan Documents and that all of the Notes are due and payable in full. -3- 2. FORBEARANCE. 2.1 Reaffirmation of Existing Debt. Borrower acknowledges and confirms that: (a) the outstanding unpaid principal balance of each Note as of the date hereof is equal to the amount listed beside the Original Note Holder's name on Exhibit A attached hereto and incorporated herein by reference, (b) the Borrower's obligation to repay the outstanding principal amount of each Note is unconditional and not subject to any offsets, defenses or counterclaims, and (c) by entering into this Agreement, Imagine does not waive or release any term or condition of the Notes or the other Loan Documents or any of its rights or remedies under such Loan Documents or applicable law, except as set forth herein. 2.2 Agreement to Forbear. Imagine agrees that notwithstanding the existence of the default by the Borrower under the Notes as described in Section 1 above, it shall, until July 15, 2001, forbear from exercising its rights and remedies under the Notes, any of the other Loan Documents and applicable law and from demanding immediate repayment of the Notes. Except as set forth in this provision, nothing herein shall be deemed to constitute a waiver of any rights or remedies Imagine may have under the Notes or any of the other Loan Documents or under applicable law. Provided, however, this Agreement does not constitute any agreement to forbear with respect to any of the Original Notes other than those owned by Imagine as of the date of this Agreement and those acquired by Imagine between the date of the original Forbearance Agreement and July 15, 2001. 2.3 Interest Rate. Unless waived by Imagine, the notes will bear interest from January 1, 2001 at the default rate of interest as stated in the original Secured Promissory Notes dated April 1, 1999. 3. RATIFICATION. Borrower acknowledges and agrees that except as modified pursuant to this Agreement, the Notes and the other Loan Documents are valid and enforceable and remain in full force and effect. This Agreement in no way constitutes a novation or a release of any security interest or the collateral pledged to the Original Note Holders (or the agent for their benefit) pursuant to the Loan Documents. Borrower waives further notice of demand for payment under the Notes, and acknowledges that any notices to which it may have been entitled have been properly given. 4. WAIVER OF TRIAL BY JURY. In order to avoid delay and minimize expense, Borrower and Imagine each hereby knowingly, voluntarily and intentionally waive any right to trial by jury in respect to any claim, demand, action or cause of action arising out of, under or in connection with this Agreement or any document related to the Notes or any modification thereto, or the debt or course of conduct related thereto, whether now existing or hereafter arising and whether sounding in contract or tort or otherwise; and each party hereby agrees and consents that any such claim, demand, action or cause of action shall be decided by a court trial without a jury, and that a copy of this Agreement or of this provision of this Agreement may be filed with any court as evidence of the consent of the parties hereto to the waiver of their right to trial by jury. 5. ATTORNEY'S FEES. Whenever an attorney is used to collect or enforce this Agreement or to enforce, defend, declare, or adjudicate any of Imagine's right or interest hereunder, or with respect to any collateral or in relation to the Notes, whether by suit, negotiation, or otherwise, and regardless of the forum, such attorneys' fees shall be payable by Borrower to the fullest extent permitted by law. 6. WAIVER OF AUTOMATIC STAY. Borrower hereby waives the protection of the automatic stay in the event of a subsequent bankruptcy proceeding, and agree that if it files a bankruptcy proceeding subsequent to the date hereof, any plan of reorganization Borrower proposes will provide that Imagine be given at least the same terms as those contained in this Agreement. 7. CONFIDENTIALITY. Other than to Imagine, Borrower's professional advisors, affiliates or as required by law, Borrower agrees that at no time hereafter will it divulge, furnish or make accessible to anyone any of the matters contained in this Agreement. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9. GOVERNING LAW. This Agreement and all rights and obligations hereunder including matters of construction, validity and performance, shall be governed by the laws of the State of Florida. 10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties pertaining to the subject matter hereof, and supersedes all prior written and oral agreements pertaining hereto. IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first written above. IMAGINE INVESTMENTS, INC. By: Title: _______________________________ ("Imagine") RIVERSIDE GROUP, INC. By: Title: C.E.O. and President ("Borrower") EXHIBIT A Notes and Amount of Notes Holder Face Amount 2/15/01 2/15/01 2/15/01 Principal Interest Total Cecil Altmann ............................... $ 1,000,000.00 $ 950,000.00 $ 109,700.10 $ 1,059,700.10 Lovco, Inc. ................................. 100,000.00 95,000.00 10,970.00 105,970.00 Creek Farms, Corp ........................... 150,000.00 142,500.00 16,455.01 158,955.01 East Adams .................................. 250,000.00 237,500.00 27,425.02 264,925.02 Ken Kirchner ................................ 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Fred Schultz ................................ 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Southern Farm Bureau Casualty Insur. Co. ..................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 American Centennial Insurance Co. ........................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Fujita Investment Co. ....................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Midland Advisors(NA Insur) .................. 1,000,000.00 950,000.00 109,700.10 1,059,700.10

FORBEARANCE AGREEMENT July 15, 2001 TABLE OF CONTENTS -i- 1. Acknowledgment of Default..................................................1 2. Forbearance................................................................2 2.1 Reaffirmation of Existing Debt...................................2 2.2 Agreement to Forbear.............................................2 2.3 Interest Rate....................................................2 3. Ratification...............................................................2 4. Waiver of Trial by Jury....................................................2 5. Attorney's Fees............................................................3 6. Waiver of Automatic Stay...................................................3 7. Confidentiality............................................................3 8. Successors and Assigns.....................................................3 9. Governing Law..............................................................3 10. Entire Agreement..........................................................3 FORBEARANCE AGREEMENT This Forbearance Agreement (this Agreement) is made and shall be effective as of the 15th day of July, 2001, by and between: (i) Imagine Investments, Inc., a Delaware corporation, with its principal office and place of business at 8150 North Central Expressway, Suite 1901, Dallas, Texas 75206 ("Imagine"), and (ii) Riverside Group, Inc., a Florida corporation, with its principal office and place of business at 7800 Belfort Parkway, Suite 100, Jacksonville, Florida 32256 ("Borrower"). Recitals: A. On or about April 1, 1999, Borrower borrowed the aggregate sum of Ten Million Dollars ($10,000,000.00) from several different entities (collectively, the "Original Note Holders" or individually, the "Original Note Holder"), pursuant to a Credit Agreement dated as of April 1, 1999 (the "Credit Agreement") and a promissory note made by Borrower in favor of each Original Note Holder (collectively, the "Original Notes" and individually, the "Original Note"). B. On or prior to the date of this Agreement, Imagine purchased or otherwise acquired from certain Original Note Holders all of their respective rights, titles and interests in certain Original Notes (collectively, the "Notes" ; individually, the "Note"), the Credit Agreement, all other loan documents and security documents related thereto (collectively, the "Loan Documents") and the collateral securing the Notes. The term "Note" and "Notes" shall also include other Original Notes which Imagine acquires, if any, between the date of the original Forbearance Agreement and September 15, 2001. C. As of the date of this Agreement, Borrower is in default under the Notes for failing to pay the Original Notes. D. Borrower has requested that Imagine forbear enforcement of its rights and remedies under the Loan Documents with respect to the Notes that Imagine owns, in exchange for the agreements and covenants of Borrower, as set forth herein. Agreement: Now, Therefore, in consideration of the promises and mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all of the parties hereto, the parties agree as follows: 1. Acknowledgement of Default. Borrower hereby acknowledges and agrees that it has failed to pay the Notes when due, and such failure by Borrower constitutes a default under the Notes and the other Loan Documents and that all of the Notes are due and payable in full. -2- 2. Forbearance. 2.1 Reaffirmation of Existing Debt. Borrower acknowledges an confirms that: (a) the outstanding unpaid principal balance of each Note as of the date hereof equal to the amount listed beside the Original Note Holder's name on Exhibit A attached hereto and incorporated herein by reference, (b) the Borrower's obligation to repay the outstanding principal amount of each Note is unconditional and not subject to any offsets, defenses or counterclaims, and (c) by entering into this Agreement, Imagine does not waive or release any term or condition of the Notes or the other Loan Documents or any of its rights or remedies under such Loan Documents or applicable law, except as set forth herein. 2.2 Agreement to Forbear. Imagine agrees that notwithstanding the existence of the default by the Borrower under the Notes as described in Section 1 above, it shall, until September 15, 2001, forbear from exercising its rights and remedies under the Notes, any of the other Loan Documents and applicable law and from demanding immediate repayment of the Notes. Except as set forth in this provision, nothing herein shall be deemed to constitute a waiver of any rights or remedies Imagine may have under the Notes or any of the other Loan Documents or under applicable law. Provided, however, this Agreement does not constitute any agreement to forbear with respect to any of the Original Notes other than those owned by Imagine as of the date of this Agreement and those acquired by Imagine between the date of the original Forbearance Agreement and September 15, 2001. 2.3 Interest Rate. Unless waived by Imagine, the notes will bear interest from January 1, 2001 at the default rate of interest as stated in the original Secured Promissory Notes dated April 1, 1999. 3. Ratification. Borrower acknowledges and agrees that except as modified pursuant to this Agreement, the Notes and the other Loan Documents are valid and enforceable and remain in full force and effect. This Agreement in no way constitutes a novation or a release of any security interest or the collateral pledged to the Original Note Holders (or the agent for their benefit) pursuant to the Loan Documents. Borrower waives further notice of demand for payment under the Notes, and acknowledges that any notices to which it may have been entitled have been properly given. 4. Waiver of Trial by Jury. In order to avoid delay and minimize expense, Borrower and Imagine each hereby knowingly, voluntarily and intentionally waive any right to trial by jury in respect to any claim, demand, action or cause of action arising out of, under or in connection with this Agreement or any document related to the Notes or any modification thereto, or the debt or course of conduct related thereto, whether now existing or hereafter arising and whether sounding in contract or tort or otherwise; and each party hereby agrees and consents that any such claim, demand, action or cause of action shall be decided by a court trial without a jury, and that a copy of this Agreement or of this provision of this Agreement may be filed with any court as evidence of the consent of the parties hereto to the waiver of their right to trial by jury. 5. Attorney's Fees. Whenever an attorney is used to collect or enforce this Agreement or to enforce, defend, declare, or adjudicate any of Imagine's right or interest hereunder, or with respect to any collateral or in relation to the Notes, whether by suit, negotiation, or otherwise, and regardless of the forum, such attorneys' fees shall be payable by Borrower to the fullest extent permitted by law. of reorganization Borrower proposes will provide that Imagine be given at least the same terms as those contained in this Agreement. 7. Confidentiality. Other than to Imagine, Borrower's professional advisors, affiliates or as required by law, Borrower agrees that at no time hereafter will it divulge, furnish or make accessible to anyone any of the matters contained in this Agreement. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9. Governing Law. This Agreement and all rights and obligations hereunder including matters of construction, validity and performance, shall be governed by the laws of the State of Florida. 10. Entire Agreement. This Agreement contains the entire agreement of the parties pertaining to the subject matter hereof, and supersedes all prior written and oral agreements pertaining hereto. In Witness Whereof, the parties have entered into this Agreement as of the date first written above. Imagine Investments, Inc. By: Title: _______________________________ ("Imagine") Riverside Group, Inc. By: Title: C.E.O. and President ("Borrower") EXHIBIT A Notes and Amount of Notes Holder Face 2/15/01 2/15/01 2/15/01 Amount Principal Interest Total Cecil Altmann ............................... $ 1,000,000.00 $ 950,000.00 $ 109,700.10 $ 1,059,700.10 Lovco, Inc. ................................. 100,000.00 95,000.00 10,970.00 105,970.00 Creek Farms, Corp ........................... 150,000.00 142,500.00 16,455.01 158,955.01 East Adams .................................. 250,000.00 237,500.00 27,425.02 264,925.02 Ken Kirchner ................................ 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Fred Schultz ................................ 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Southern Farm Bureau Casualty Insur. Co. ..................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 American Centennial Insurance Co. ........................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Fujita Investment Co. ....................... 1,000,000.00 950,000.00 109,700.10 1,059,700.10 Midland Advisors(NA Insur) .................. 1,000,000.00 950,000.00 109,700.10 1,059,700.10

RIVERSIDE GROUP INC/FL 10-Q