UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-27314 AMC FINANCIAL, INC. ------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-2994671 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 11111 WILCREST GREEN, SUITE 250, HOUSTON, TEXAS 77042 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (713) 787-0100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 REQUIREMENT FOR THE PAST 90 DAYS. YES [X] NO [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: 7,782,615 SHARES, $.01 PAR VALUE, OF NEW COMMON STOCK, WERE OUTSTANDING AS OF NOVEMBER 15, 2000 1 AMC FINANCIAL, INC. (FORMERLY CITYSCAPE FINANCIAL CORP.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Statements of Financial Condition as of ...................... 3 September 30, 2000 (Liquidation Basis) (Unaudited) and December 31, 1999 Consolidated Statements of Operations for the three months ................ 4 ended September 30, 2000 (Unaudited) and the nine months ended September 30, 2000 (Unaudited) and the six months ended June 30, 1999 (Unaudited) Consolidated Statements of Cash Flows for the nine months ended ........... 5 September 30, 2000 (Unaudited) and for the three months ended September 30, 1999 (Unaudited) and for the six months ended June 30, 1999 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) .................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ........................... 13 FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES .......................... 18 ABOUT MARKET RISK PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ................................................. 19 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ......................... 22 ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................... 22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 22 ITEM 5. OTHER INFORMATION ................................................. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 22 2 PART I. - FINANCIAL STATEMENTS ITEM 1. FINANCIAL STATEMENTS AMC FINANCIAL, INC. AND SUBSIDIARIES (FORMERLY CITYSCAPE FINANCIAL CORP.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

REORGANIZED COMPANY --------------------------------------- ~~JUNE~~SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ------------------ (UNAUDITED) (Liquidation Basis) ASSETS (Note 4) Cash and cash equivalents ........................................~~...............~~ $ 3417,~~889~~222,~~363~~669 $ 30,850,395 ~~Marketable~~Cash ~~securities~~reserved for initial liquidation dividend (Note 3) .......... 29,573,937 -- Marketable securities ............................................~~.....~~ ~~105,000~~-- 763,644 Residual certificates (Note 7) ...................................~~........................~~ 12,~~541~~250,~~269~~000 12,538,461 Mortgage loans held for sale, ~~net~~(Note 8) ............................~~...................~~ 1312,~~241~~750,~~079~~000 14,338,442 Income taxes receivable ..........................................~~...............~~ 1,437,288 1,437,288 Investment in discontinued operations, net (Note 6) ..............~~........................~~ 121,~~054~~100,~~456~~000 12,239,110 Other assets .....................................................~~...............~~ ~~585~~1,~~360~~461,372 927,828 ------------------ ------------------ Total assets .........................................................~~...............~~ $ 7475,~~853~~795,~~815~~266 $ 73,095,168 ================== ================== LIABILITIES Accounts payable and other liabilities ...........................~~...............~~ $ 8,~~812~~982,~~568~~872 $ 9,651,469 ------------------ ------------------ Total liabilities ....................................................~~...............~~ 8,~~812~~982,~~568~~872 9,651,469 ------------------ ------------------ STOCKHOLDERS' EQUITY Common stock, $ .01 par value; 25,000,000 shares authorized; 7,782,615 and 7,743,622 issued and outstanding in 2000 and 1999, respectively .............................................~~.....................~~ 77,826 77,436 Additional paid-in capital .......................................~~...............~~ 62,~~272~~577,~~688~~061 61,202,720 Accumulated other comprehensive income ...........................~~...............~~ ~~98,489~~-- 559,108 Retained earnings ................................................~~...............~~ 34,~~592~~157,~~244~~507 1,604,435 ------------------ ------------------ Total stockholders' equity ...........................................~~...............~~ 66,~~041~~812,~~247~~394 63,443,699 ------------------ ------------------ Total liabilities and stockholders' equity ...........................~~...............~~ $ 7475,~~853~~795,~~815~~266 $ 73,095,168 ================== ==================

See accompanying notes to consolidated financial statements. 3 AMC FINANCIAL, INC. AND SUBSIDIARIES (FORMERLY CITYSCAPE FINANCIAL CORP.) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

REORGANIZED ~~PREDECESSOR~~REORGANIZED REORGANIZED PREDECESSOR COMPANY COMPANY COMPANY COMPANY ------------- ------------- ----------------- ----------------- THREE MONTHS ENDED ~~JUNE~~NINE ~~30,~~MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30, ------------- ----------------- ----------------- ----------------- 2000 1999 2000 1999 ------------- ------------- ----------------- ----------------- REVENUES Gain (~~Loss~~loss) ~~gain~~ on sale or valuation of loans (Note 4) ................................. $ --276,915 $ (~~958~~75,~~717~~366) $ --276,915 $ 4,609,295 Loss on valuation of residuals (Note 4) ..........~~...............~~ -- (20191,~~847,449~~717) -- (191,717) (20,847,449) Interest .........................................~~......~~ 1,~~100~~030,~~331~~203 1935,~~046,404~~834 23,~~247~~278,~~981~~184 3,328,487 Other ............................................~~......~~ 1,~~144~~558,~~971~~934 6743,~~243,867~~143 24,~~666~~225,~~074~~006 7,659,773 ------------- ------------- ----------------- ----------------- Total revenues (losses) ..............................~~......~~ 2,~~245~~674,~~302~~335 ~~(14~~1,~~515~~603,~~895)~~611 47,~~914~~588,~~055~~388 (5,249,894) ------------- ------------- ----------------- ----------------- EXPENSES Salaries and employee benefits ...................~~......~~ 41,~~302~~705 1355,~~427,944~~926 79,~~807~~512 2,856,989 Interest expense .................................~~......~~ -- ~~112,571~~-- -- 1,401,630 Selling expenses .................................~~......~~ -- ~~115,481~~-- -- 256,407 Other operating expenses .........................~~......~~ ~~903~~848,~~029~~536 3405,~~858,852~~274 12,~~663~~511,~~427~~963 6,253,145 Restructuring charge .............................~~......~~ -- ~~790,000~~-- -- 790,000 ------------- ------------- ----------------- ----------------- Total expenses .......................................~~......~~ ~~907~~850,~~331~~241 6761,~~304,848~~200 12,~~671~~521,~~234~~475 11,558,171 ------------- ------------- ----------------- ----------------- Earnings (loss) from continuing operations before reorganization items, income taxes and extraordinary item .............................. 1,~~337~~824,~~971~~094 ~~(20~~842,~~820,743)~~411 35,~~242~~066,~~821~~913 (16,808,065) Reorganization items .................................~~......~~ -- ~~989,999~~-- -- 1,644,058 ------------- ------------- ----------------- ----------------- Earnings (loss) from continuing operations before income taxes and extraordinary item .........................~~........................~~ 1,~~337~~824,~~971~~094 ~~(21~~842,~~810,742)~~411 35,~~242~~066,~~821~~913 (18,452,123) Income tax provision .................................~~......~~ ~~468~~638,~~290~~433 60295,000 1,~~134~~773,~~987~~420 67,673 ------------- ------------- ----------------- ----------------- Earnings (loss) from continuing operations before extraordinary item ...........~~.................~~ ~~869~~1,~~681~~185,661 ~~(21~~547,~~870,742)~~411 23,~~107~~293,~~834~~493 (18,519,796) Extraordinary item -gain from discharge of ~~pre-~~prepetition ~~petition~~ liabilities ............................~~.........~~ -- ~~416,094,747~~-- -- 416,094,747 ------------- ------------- ----------------- ----------------- Earnings from continuing operations ..............~~......~~ ~~869~~1,~~681~~185,661 ~~394~~547,~~224,005~~411 23,~~107~~293,~~834~~493 397,574,951 DISCONTINUED OPERATIONS: Loss from discontinued operations, net of income tax benefit of $64334,~~629~~060 and $398,689 respectively (Notes 4 and 6) ................................. (~~120~~620,~~025~~396) -- (~~120~~740,~~025~~421) -- ------------- ------------- ----------------- ----------------- NET EARNINGS .........................................~~......~~ $ ~~749~~565,~~656~~265 $ ~~394~~547,~~224,005~~411 $ 12,~~987~~553,~~809~~072 $ 397,574,951 ============= ============= ================= ================= NET EARNINGS ~~(LOSS)~~ PER COMMON SHARE: Basic and Diluted Earnings from continuing operations ...........~~......~~ $ .1115 *.07 $ .2743 * Loss from discontinued operations .............~~......~~ (.0108) *-- (.0110) * ------------- ------------- ----------------- ----------------- Net earnings ..................................~~......~~ $ .1007 *.07 $ .2633 * ============= ============= ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic and Diluted ................................~~......~~ 7,780,449 *7,706,657 7,~~766~~780,~~652~~449 * ============= ============= ================= =================

*Per share amounts are not meaningful due to reorganization. See Note 2. See accompanying notes to consolidated financial statements. 4 AMC FINANCIAL, INC. AND SUBSIDIARIES (FORMERLY CITYSCAPE FINANCIAL CORP.) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

REORGANIZED ~~COMPANY~~REORGANIZED PREDECESSOR COMPANY COMPANY COMPANY ------------- ------- ------ -------------- ~~SIX~~NINE MONTHS ~~ENDED~~THREE MONTHS SIX MONTHS ENDED ~~JUNE~~ENDED ENDED SEPTEMBER 30, ~~2000~~SEPTEMBER 30, JUNE 30, 2000 1999 1999 ------------- ------- ------ -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Earnings ......................................................~~.............~~ $ 12,~~987~~553,~~809~~072 $ 547,411 $ 397,574,951 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ....................................~~.............~~ -- 1,000 367,453 Income taxes payable .............................................~~.............~~ 1,~~070~~374,~~358~~731 84,907 210,093 Gain from discharge of pre-petition liabilities ..................~~.............~~ -- -- (416,094,747) Decrease ~~(Increase)~~ in residual certificates .................................. (2191,~~808)~~717 -- 21,218,991 ~~Proceeds~~Increase ~~from~~in ~~sale~~valuation of ~~mortgages~~mortgage loans held for sale ............ (276,915) -- -- Proceeds from sale of mortgages ................................... -- -- 104,576,347 Other, net .......................................................~~.............~~ ~~798~~964,~~955~~526 1,112,143 10,582,414 ~~Adjustments~~Loss tofrom discontinued ~~assets~~operations ~~and~~(Notes ~~liabilities~~4 ~~(Note~~and 6) ................~~....................................................~~ ~~184~~1,~~654~~139,110 -- -- ------------- ----- -------- ------------- Net cash provided by operating activities ............................~~.............~~ 45,~~038~~946,~~968~~241 1,745,461 118,435,502 ------------- ------- ------ -------------- CASH FLOWS FROM INVESTING ACTIVITIES: ~~Sale~~Cash ofreceived ~~equipment~~from distribution from investment in discontinued operations (Note 6) ............................. 10,000,000 -- -- Sale of equipment ................................................ -- -- 21,441 ------------- ------- ------ -------------- Net cash provided by investing activities ............................~~.............~~ 10,000,000 -- 21,441 ------------- ------- ------ -------------- CASH FLOWS FROM FINANCING ACTIVITIES: ~~Decrease~~Cash inreserved ~~warehouse~~for ~~financings~~initial liquidation dividend ................... (29,573,937) -- -- Decrease in warehouse financings ................................. -- -- (105,969,355) ------------- ------- ------ -------------- Net cash used in financing activities ................................~~.............~~ (29,573,937) -- (105,969,355) ------------- ------- ------ -------------- Net increase in cash and cash equivalents ............................~~.............~~ 4(13,~~038~~627,~~968~~726) 1,745,461 12,487,588 Cash and cash equivalents at beginning of period .....................~~.............~~ 30,850,395 30,893,014 18,405,426 ------------- ------- ------ -------------- Cash and cash equivalents at end of period ...........................~~.............~~ $ 3417,~~889~~222,~~363~~669 $ 32,638,475 $ 30,893,014 ============= ======= ====== ============== Supplemental disclosure of cash flow information: Interest paid during the period: Continuing operations ............................................~~.............~~ $ -- $ -- $ 1,693,980 ~~Discontinued operations ....................................................... --~~ Supplemental schedule of non-cash investing and financing activities: Unrealized gain on marketable securities, net of tax .............~~.............~~ $ -- $ 843,375 $ -- Cancellation of indebtedness .....................................~~.............~~ -- -- 476,510,976 Extinguishment of old stock ......................................~~.............~~ -- -- (175,778,644) Issuance of new common stock .....................................~~.............~~ -- -- 60,416,229

See accompanying notes to consolidated financial statements. 5 AMC FINANCIAL, INC. AND SUBSIDIARIES (FORMERLY CITYSCAPE FINANCIAL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. Organization AMC Financial, Inc., formerly Cityscape Financial Corp. (the "Company" or "AMC"), was a consumer finance company which, through its wholly owned subsidiary Cityscape Corp. ("CSC"), was in the business of selling and servicing mortgage loans secured primarily by one- to four-family residences. The Company was previously in the business of originating and purchasing mortgage loans until such business was indefinitely suspended in November 1998. The majority of the Company's loans were made to owners of single-family residences for such purposes as debt consolidation, financing of home improvements and educational expenditures. In October 1998, the Company and CSC filed voluntary petitions for bankruptcy in the United States Bankruptcy Court. The Bankruptcy Court confirmed the amended plan of reorganization in June 1999. In September 1999 the Company relocated operations from Elmsford, New York to Houston, Texas. The debtors' cases against the Company and CSC were closed and a final decree granted on May 4, 2000. 2. Reorganization The Company has been reorganized through a plan of reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code. Although the plan, as amended, became effective on July 1, 1999, the effective date of the plan for accounting purposes is considered to be June 30, 1999, and accordingly, the Company adopted fresh start reporting as of June 30, 1999 (see Notes 4 and 5). Adjustments were recorded as of June 30, 1999 to reflect the effects of the consummation of the plan of reorganization and the implementation of fresh start reporting. 3. Plan of Liquidation and Dissolution In January 2000 the Company engaged a financial advisor, Peter J. Solomon Company Limited, to advise the Company on strategic alternatives regarding the Company's future. Such alternatives included re-entering the mortgage loan origination and servicing business, sale of the Company, liquidation of assets and subsequent distribution of cash to the shareholders upon dissolution of the Company and maintenance of the current status of the Company. In April 2000 the financial advisor recommended to the Board of Directors that liquidation and subsequent dissolution of the Company was the strategy most likely to maximize stockholder value. On May 2, 2000 the Board of Directors authorized, subject to stockholder approval, the orderly liquidation of the Company's assets pursuant to the Plan of Liquidation and Dissolution (the "Plan"). On September 12, 2000 (the "Effective Date"), the stockholders approved the Plan. The Plan provides that the officers and directors of the Company will initiate the complete liquidation and subsequent dissolution of the Company. After the Effective Date, AMC will not engage in any business activities except for the purpose of preserving the value of its assets, prosecuting and defending suits by or against the Company, satisfying all outstanding liabilities, adjusting and winding up its business and affairs, selling and liquidating its properties and assets and making distributions to the stockholders in accordance with the Plan. Once the liquidation of AMC's property and assets is substantially completed, or at such earlier time as determined by the Board of Directors, the officers of the Company will promptly execute and file a certificate of dissolution with the 6 Secretary of the State of Delaware. At a special meeting on September 20, 2000, the Board of Directors of the Company declared that an initial liquidation dividend in the amount of $3.80 per share (approximately $29,573,937 in total) be paid on October 18, 2000 to stockholders of record on October 2, 2000. The Company is in the process of seeking bids for the sale of its mortgage loans held for sale and residual certificates. The Company's Board of Directors may make additional interim liquidation payments to stockholders solely at its discretion. 4. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. On May 2, 2000, the Board of Directors of the Company approved a plan to liquidate and dissolve the Company (the "Plan"). The Plan was approved by a majority of the stockholders of the Company on September 12, 2000. The key features of the Plan are (1) the conclusion of all business activities, other than those in execution of the Plan; (2) the sale or disposition of all of the Company's assets; (3) the satisfaction of all outstanding liabilities; (4) the payment of liquidating distributions to stockholders in complete redemption of the Common Stock; and (5) the authorization of the filing of Certificate of Dissolution. As a result of the adoption of the Plan, the Company adopted the liquidation basis of accounting effective September 30, 2000, whereby assets are valued at their estimated net realizable values and liabilities are valued at the estimated settlement amounts, rather than their going concern basis. The valuation of assets and liabilities requires many estimates and assumptions by management and there are substantial uncertainties in carrying out the provisions of the Plan. The amount and timing of future liquidating distributions will depend upon a variety of factors including, but not limited to, the actual proceeds from the sale of any of the Company's assets, the ultimate settlement amounts of the Company's liabilities and obligations, actual costs incurred in connection with carrying out the Plan, including management fees and administrative costs during the liquidation period, and the timing of the liquidation and dissolution. In the opinion of management, all adjustments consisting of normal recurring accruals (except for the change to liquidation basis of accounting as disclosed below), considered necessary for a fair presentation of the results for the interim period, have been included. The accompanying consolidated financial statements and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the consolidated financial statements and related notes of the Company for the year ended December 31, 1999. The change to the liquidation basis of accounting resulted in an increase in the carrying amount of assets that was reflected in the consolidated statements of operations for the three and nine months ended September 30, 2000 as follows: Writedown of residual interests (Note 7) ........... $(191,717) Increase in mortgage loans held for sale carrying amount (Note 8) ......................... 276,915 Writedown of investment in discontinued operations (Note 6) ................. (954,456) --------- $(869,258) ========= 7 The Company's emergence from Chapter 11 proceedings resulted in a new reporting entity with no retained earnings or accumulated deficit as of June 30, 1999. Retained earnings as of September 30, 2000 represent earnings from July 1, 1999 through September 30, 2000. A vertical black line has been drawn on certain of the accompanying consolidated financial statements and footnotes to distinguish between the pre-reorganization operating results (the "Predecessor Company") and the post-reorganization operating results (the "Reorganized Company"). Operating results for the three and nine months ended September 30, 2000 and the three months ended September 30, 1999 are for the Reorganized Company and results for the six months ended June 30, 1999 are for the Predecessor Company. The results for the Reorganized Company are not comparable to those of the Predecessor Company. Since the Company's emergence from Chapter 11 proceedings, the Company has not had significant operations as a restructured entity. The consolidated financial statements of the Company include the accounts of CSC and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 5. Fresh Start Reporting As of June 30, 1999, the Company adopted fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). Fresh start reporting assumes that a new reporting entity has been created and assets and liabilities should be reported at their fair values as of the effective date. The reorganization value was determined based upon the Predecessor Company's estimate of the fair value of the Company's assets as defined in the plan of reorganization, which did not assume any future origination and loan sale activity. Accordingly, the reorganization value approximated the fair value of the Company's assets before considering liabilities, which must be assumed and extinguished pursuant to the terms of the plan of reorganization, as amended, and represented the Company's estimates of the amount a buyer would pay for the assets after the restructuring. 6. Discontinued Operations The Company commenced operations in the United Kingdom in May 1995 with the formation of City Mortgage Corporation Limited ("CSC-UK"), an English corporation that originated, sold and serviced loans in England, Scotland and Wales. The Company initially held a 50% interest in CSC-UK and subsequently purchased the remaining 50% of CSC-UK. CSC-UK had no operations and no predecessor prior to May 1995. In March 1998 the Company adopted a plan to sell the assets of CSC-UK and completed the sale in April 1998. The net assets of CSC-UK have been reclassified on the Company's consolidated financial statements as investment in discontinued operations, net. As of September 30, 2000, the Company's net investment in discontinued operations totaled approximately $1.1 million, net representing cash on hand 8 in the discontinued operations of approximately $2.3 million and net liabilities (net of receivables) due of approximately $1.2 million. A $10,000,000 cash distribution was made by CSC-UK to CSC to partially repay an intercompany account balance during September 2000. The Company expects to maintain a balance of cash on hand in the discontinued operations to cover existing and potential liabilities and costs pending dissolution of CSC-UK and its subsidiaries. The Company recorded a loss of $620,396, net of tax benefit of $334,060 for the three months ended September 30, 2000, and a loss of $740,421, net of tax benefit of $398,689 was recorded for the nine months ended September 30, 2000. The loss resulted primarily from increases in liabilities for accrual of costs to be incurred in the liquidation of CSC-UK. A rollforward of the investment in discontinued operations follows: Balance at December 31, 1999 ................... $ 12,239,110 Cash paid to the Company ....................... (10,000,000) Loss from discontinued operations (Note 4) ...................................... (1,139,110) ------------ Balance at September 30, 2000 .................. $ 1,100,000 ============ 7. Residual Certificates The interests the Company received upon loan sales through its securitizations are in the form of residual certificates. The Company's residual certificates are comprised of interests in mortgage loans (loans generally made to homeowners with little or no equity in their property but who possess a favorable credit profile and debt-to-income ratio and who often used the proceeds from such loans to repay outstanding indebtedness as well as to make home improvements). Prior to the Effective Date, the Company classified these residual certificates as securities available-for-sale and, as such, they were recorded at their fair value. As of September 30, 2000, the residual certificates are held for sale and are recorded at their estimated liquidation value. Estimated liquidation value of these certificates is determined based on various economic factors, including loan types, sizes, interest rates, dates of origination, terms and geographic locations. The Company also uses other available information such as reports on interest rates, collateral value, economic forecasts and historical default and prepayment rates of the portfolio under review. The table below summarizes the estimated liquidation value of the Company's residual certificates at September 30, 2000 and estimated fair value at December 31, 1999: REORGANIZED COMPANY --------------------------------------- SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ------------------ Residual certificates .......... $ 12,250,000 $ 12,538,461 ================== ================== The key assumptions used to value the Company's residual certificates at September 30, 2000 and December 31, 1999 were as follows: REORGANIZED COMPANY --------------------------------------- SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ------------------ Residual certificates Discount Rate ............. 25.0% 20.0% Constant Prepayment Rate .. 15.0 - 16.0% 19.0% Loss Rate Range Per Annum . 5.3 - 7.3% 3.0 - 8.0% 9 For the quarter and nine months ended September 30, 2000, the residual certificates were written down by $288,239 with $96,522 recorded against the unrealized gain in other comprehensive income and the remainder of $191,717 (Note 4) recorded as an adjustment in the consolidated statements of operations. In December 1999, the Company recorded an unrealized gain of $62,739, net of tax of $33,783, on the residual certificates. The unrealized gain was considered a temporary gain and, as such, was recorded in accumulated other comprehensive income in stockholders' equity. 8. Mortgage Loans Held For Sale Mortgage loans held for sale at September 30, 2000 include various performing and non performing loans. The loans are being carried at their estimated liquidation values. The liquidation values were based primarily on initial value analysis provided by a third party mortgage broker. Management of the Company analyzed the portfolio and the estimated liquidation value obtained from the third party mortgage broker for reasonableness. A summary of the loans follows:

~~REORGANIZED~~SEPTEMBER PREDECESSOR REORGANIZED PREDECESSOR COMPANY COMPANY COMPANY COMPANY ------------- ------------- ------------- ------------- THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------ ------------------------------ JUNE 30, 2000 ~~JUNE~~SEPTEMBER 30, ~~1999~~2000 ~~JUNE~~PRINCIPAL ~~30,~~BALANCE ~~2000~~ESTIMATED ~~JUNE~~LIQUIDATION ~~30,~~VALUE ~~1999~~ ------------- -----~~--------~~ ------------- -------------- ~~Net~~Performing ~~earnings~~mortgage loans .........~~...........................................~~ $ ~~749~~16,~~656 $ 394~~545,~~224,005~~000 $ 111,~~987~~150,~~809~~000 ~~$ 397,574,951 Other comprehensive income: Unrealized gain (loss) on marketable securities, net of tax benefit of $24,500 and $180,210 respectively ... (45,500)~~ Non--performing ~~(334,677)~~mortgage --loans ~~Reclassification adjustment, net of tax of $67,815~~ .....~~................................~~ ~~-- -- (125~~12,~~942) -- ------------- ------------- ------------- ------------- Net gain (loss) recognized in other comprehensive income ............................. (45~~372,~~500)~~000 ~~-- (460~~1,~~619)~~600,000 -- ------------- ---~~----------~~ ------------- -------------- ~~Total comprehensive income, net of tax ..........................~~ $ ~~704~~28,~~156 $ 394~~917,~~224,005~~000 $ 112,~~527~~750,~~190~~000 ~~$ 397,574,951~~ ============= =====~~========~~ ============= ==============

9. Administrative Services Agreement The Company entered into an Administrative Services Agreement (the "Agreement") with AEGIS Mortgage Corporation ("AEGIS") to assume responsibility for accounting and administrative activities effective September 1, 1999. The Company pays administrative fees of $90,000 per month under the terms of the Agreement. The Agreement is effective until terminated by either party. AEGIS is required to give the Company a minimum of ninety (90) days written notice prior to termination and the Company is required to give AEGIS a minimum of thirty (30) days written notice prior to termination. 10. Marketable Securities Marketable securities, which represent the Company's investment in the common stock of Mortgage.com, were classified as available-for-sale securities. Available-for-sale securities were carried at fair value, with the unrealized gains and losses, net of applicable income taxes, reported as a separate component within stockholders' equity in accumulated other comprehensive income. During the first quarter of 2000, the Company exercised warrants for 70,000 shares of Mortgage.com for $50,000. Another 70,000 shares were sold in the first quarter of 2000 for $193,757; which resulted in a realized gain of $193,757. The remaining shares were sold in the third quarter of 2000; which resulted in a realized gain of $38,777 which was recorded in other income in the accompanying consolidated statements of operations. 10 11. Comprehensive Income Total comprehensive income follows:

REORGANIZED REORGANIZED REORGANIZED PREDECESSOR COMPANY COMPANY COMPANY COMPANY ------------- ------------- ------------- ------------- THREE MONTHS NINE MONTHS SIX MONTHS ENDED ~~JUNE~~ENDED ~~30,~~ENDED -------------------------------- ~~2000 1999~~ ------------- ------------- ~~REVENUES~~SEPTEMBER ~~Loss~~30, onSEPTEMBER ~~sale of loans .................................................................... $ -- $ (958~~30,~~717)~~ ~~Loss~~SEPTEMBER ~~on valuation of residuals ........................................................... -- (20~~30,~~847,449)~~ ~~Interest~~JUNE ~~................................................................................. 1~~30,~~100,331~~ ~~1,046,404~~2000 ~~Other~~1999 ~~....................................................................................~~2000 ~~1,144,971~~1999 ~~6,243,867~~ ------------- ------------- ~~Total revenues (losses) ...................................................................... 2,245,302 (14,515,895)~~ ------------- ------------- ~~EXPENSES~~Net ~~Salaries~~earnings ~~and employee benefits~~ .............................................~~..............~~ ~~4,302~~$ 1565,~~427,944~~265 ~~Interest~~$ ~~expense~~547,411 ~~.........................................................................~~$ ~~-- 112~~2,~~571~~553,072 ~~Selling~~$ ~~expenses~~397,574,951 ~~.........................................................................~~Other --comprehensive ~~115,481~~income: ~~Other~~Unrealized ~~operating~~gain ~~expenses~~(loss) ~~.................................................................~~on ~~903,029~~marketable 3securities,~~858,852~~ ~~Restructuring~~net ~~charge~~of ~~.....................................................................~~tax --benefit ~~790~~(liability) of $19,~~000~~250, ~~-------------~~($454,125), ~~-------------~~and ~~Total~~$199,460 ~~expenses~~respectively .....~~..........................................................................~~ ~~907~~(35,~~331~~750) 6843,~~304~~375 (370,~~848~~427) --~~-----------~~ ~~-------------~~Unrealized ~~Earnings (~~loss) ~~from~~on ~~continuing~~residual ~~operations before reorganization items~~interests, ~~income~~net ~~taxes~~of ~~and~~tax ~~extraordinary~~benefit ~~item~~of $33,783 .............................~~...............................~~ 1(62,~~337,971~~739) -- (2062,~~820,743~~739) ~~Reorganization~~-- ~~items~~Reclassification adjustment, net of tax of $67,815 .........................................~~................................~~ -- ~~989~~-- (125,~~999~~942) -- ------------- ------------- Earnings (loss) from continuing operations before income taxes and extraordinary item .... 1,337,971 (21,810,742) Income tax provision ......................................................................... 468,290 60,000 ------------- ------------- ~~Earnings~~Net gain (loss) ~~from~~recognized ~~continuing~~in ~~operations~~other ~~before extraordinary item~~ .............~~........~~ ~~869~~(98,~~681~~489) 843,375 (21559,~~870,742~~108) ~~Extraordinary item~~ -~~gain from discharge of pre~~-~~petition~~ ~~liabilities~~comprehensive ~~..........................~~income -- ~~416,094,747~~ ------------- ------------- Earnings from continuing operations ...................................................... 869,681 394,224,005 DISCONTINUED OPERATIONS: Loss from discontinued operations, net of income tax benefit of $64,629 ................. (120,025) -- ------------- ------------- ~~NET~~Total ~~EARNINGS~~comprehensive income, net of tax ...................~~..............................................................~~ $ ~~749~~466,~~656~~776 $ ~~394~~1,~~224~~390,~~005~~786 $ 1,993,964 $ 397,574,951 ============= ============= NET EARNINGS (LOSS) PER COMMON SHARE: Basic and Diluted Earnings from continuing operations ................................................... $ .11 * Loss from discontinued operations ..................................................... (.01) * ------------- Net earnings .......................................................................... $ .10 * ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic and Diluted ........................................................................ 7,780,449 * =============

12. Income Taxes Pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Company had available certain deductible temporary differences and net operating loss carryforwards for use in future tax reporting periods, which created deferred tax assets. Statement of Financial Accounting Standards No. 109 requires that deferred tax assets be reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. During the nine months ended September 30, 2000, the deferred tax asset valuation allowance was reduced by $1,374,731 with a corresponding increase in additional paid-in capital in accordance with SOP 90-7 to adjust the recorded net deferred tax asset to an amount considered more likely than not to be realized. Realization of the deferred tax asset is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards in 2014. Realization could also be affected by a significant ownership change of the Company over a period of three years as prescribed by income tax law. In view of the proposed liquidation it is more likely than not that all of the deferred tax assets will not be realized and accordingly the valuation allowance fully offsets the deferred tax asset. In accordance with SOP 90-7, income tax benefits recognized from pre-confirmation net operating loss carryforwards are used first to reduce the reorganization value in excess of amounts allocable to identifiable assets and thereafter to increase additional paid-in capital. 11 In accordance with the provisions of Internal Revenue Code Section 382, utilization of the Company's net operating loss carryforwards could be limited in years following a change in the Company's ownership. In general, a change in ownership occurs if a shareholder's (or the combined group of shareholders each owning less than 5%) ownership increases 50 percentage points over a three-year period. The net operating loss limitation is computed by applying a percentage (approximately 5%, as determined by the Internal Revenue Code) to the value of the Company on the date of the change. The Section 382 limitation limits the use of the net operating loss carryforward as computed on the date of change of ownership. Net operating losses incurred after the date of the change of ownership are not limited unless another change in ownership occurs. A change in ownership occurred in October 1997 primarily as a result of conversions of the Company's Series A Preferred Stock into the Company's common stock. Additionally, a change in ownership occurred upon the Company's emergence from bankruptcy. Accordingly, the Company's use of pre-ownership change net operating losses and certain other tax attributes (if any), to the extent remaining after the reduction thereof as a result of the cancellation of indebtedness of the Company, will be limited and generally will not exceed each year the product of the long-term tax-exempt rate and the value of the Company's stock increased to reflect the cancellation of indebtedness pursuant to the amended plan of bankruptcy. 13. Earnings Per Share Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding. Earnings per share were not calculated for the periods prior to fresh start accounting since such amounts would not be meaningful. The Company has no stock options or preferred stock convertible into common stock and therefore diluted earnings per share is equal to basic earnings per share. Basic and diluted earnings per share are calculated as follows:

REORGANIZED ~~PREDECESSOR~~ COMPANY ~~COMPANY~~ ------------- ------------- ~~SIX MONTHS ENDED JUNE 30,~~ ---------------------------------- ~~2000~~THREE ~~1999~~MONTHS ~~-------------~~ENDED ~~-------------~~THREE ~~REVENUES~~MONTHS ~~Gain~~ENDED onNINE ~~sale~~MONTHS ofENDED ~~loans~~SEPTEMBER ~~................................................................ $ -- $ 4~~30,~~609,295~~ ~~Loss~~2000 onSEPTEMBER ~~valuation of residuals ....................................................... -- (20~~30,~~847,449)~~ ~~Interest~~1999 ~~.............................................................................~~SEPTEMBER 230,~~247,981~~ ~~3,328,487~~2000 ~~Other ................................................................................ 2,666,074 7,659,773~~ ------------- -----~~--------~~ ~~Total revenues (losses) .................................................................. 4,914,055 (5,249,894)~~ ------------- -----~~--------~~ ~~EXPENSES Salaries and employee benefits ....................................................... 7,807 2,856,989 Interest expense .....................................................................~~ -- ~~1,401,630 Selling expenses .....................................................................~~ -- 256,407 Other operating expenses ............................................................. 1,663,427 6,253,145 Restructuring charge ................................................................. -- ~~790,000~~ ------------- ~~-------------~~Net ~~Total expenses ........................................................................... 1,671,234 11,558,171 ------------- -------------~~ Earnings ~~(loss) from continuing operations before reorganization items, income taxes and extraordinary item~~ ...............................~~.................~~ ~~3,242,821~~$ ~~(16~~565,~~808,065)~~265 ~~Reorganization~~$ ~~items ..................................................................... -- 1~~547,~~644,058~~411 ~~-------------~~$ ~~------------- Earnings (loss) from continuing operations before income taxes and extraordinary item ................................................................. 3~~2,~~242~~553,~~819~~072 ~~(18,452,123)~~Weighted ~~Income~~average ~~tax~~shares ~~provision~~ ....................~~.................................................~~ 17,~~134~~780,~~987~~449 677,~~673 ------------- ------------- Earnings (loss) from continuing operations before extraordinary item ................. 2~~706,~~107,834~~657 ~~(18~~7,~~519~~780,~~796)~~449 ~~Extraordinary~~Basic ~~item~~and ~~-gain~~diluted ~~from~~earnings ~~discharge~~per ofshare ~~pre-petition liabilities~~ .......~~...............~~ --$ ~~416,094,747 ------------- ------------- Earnings from continuing operations~~ .~~.................................................~~07 ~~2,107,834 397,574,951 DISCONTINUED OPERATIONS: Loss from discontinued operations, net of income tax benefit of~~ $~~64,629~~ .~~............~~07 ~~(120,025)~~$ ~~-- NET EARNINGS~~ .~~............................................................................~~33 ~~$ 1,987,809 $ 397,574,951~~ ============= ===== ======== NET EARNINGS (LOSS) PER COMMON SHARE: Basic and Diluted Earnings from continuing operations ............................................... $ .27 * Loss from discontinued operations ................................................. (.01) * ------------- Net earnings ...................................................................... $ .26 * ========== === WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic and Diluted .................................................................... 7,766,652 * ===============

14. Changes in Stockholders' Equity During the six months ended June 30, 2000, the Company issued an additional 38,993 shares of common stock. There were no cash proceeds related to the issuance of these shares. There may be approximately an additional 36,491 shares of stock issued upon final resolution of the disbursing agents account, in accordance with the Company's amended plan of reorganization. A rollforward of the additional paid-in capital for the three and nine months ended September 30, 2000 follows: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 ------------------ ------------------ Beginning Balance ................... $ 62,272,688 $ 61,202,720 Impact of income tax provision ... 304,373 1,374,731 Impact from shares issued ........ -- (390) ------------------ ------------------ Ending Balance ...................... $ 62,577,061 $ 62,577,061 ================== ================== 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999:

THE RESULTS OF OPERATIONS SHOWN ABOVE ARE FOR THE REORGANIZED COMPANIES. THE COMPANY ADOPTED FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7 EFFECTIVE JUNE 30, 1999. Revenues increased $1.1 million to $2.7 million for the three months ended September 30, 2000 from $1.6 million for the comparable period in 1999, primarily due to an increase on the valuation of loans of $0.3 million, recorded during the third quarter of 2000 and an increase in other income. The Company did not sell any loans and therefore recognized no gain or loss on the sale of loans during the three months ended September 30, 2000. The Company did increase the valuation of loans 13 by $0.3 million in the third quarter of 2000 as a result of adoption of liquidation accounting. For the comparable period in 1999, the Company recognized a loss on the sale of loans of $75,000. For the three months ended September 30, 2000, the Company recorded a decrease in the valuation of residuals of $0.2 million. During the comparable period in 1999 the Company had no decrease in the valuation of residuals. Interest income increased $.1 million, or 10%, to $1.0 million for the three months ended September 30, 2000 from $0.9 million for the comparable period in 1999. The Company recorded interest income from loans held for sale and investments in high-grade commercial paper. During the third quarter of 2000 the Company had a higher average balance of interest bearing assets, which produced increased interest income. Interest income should decline in the fourth quarter of 2000 as a result of the initial liquidation dividend payment in October 2000. Other income increased $0.9 million, or 109.8%, to $1.6 million for the three months ended September 30, 2000 from $0.7 million for the comparable period in 1999. The increase was primarily a result of other income of $929,000 as a result of recovery of a previously reserved receivable. Total expenses were $0.9 million for the three months ended September 30, 2000 and $0.8 million for the comparable period in 1999. This was due primarily to a reduction of the Company's workforce and the resulting increase of other operating expenses. Salaries and employee benefits decreased $.4 million, or 99.7%, to $0.0 for the three months ended September 30, 2000 from $0.4 million for the comparable period in 1999. This decrease was due to a reduction of staffing levels to one employee at September 30, 2000. The salary reimbursement expense is included in other operating expenses in 2000. Other operating expenses increased $0.4 million, or 109.4%, to $0.8 million for the three months ended September 30, 2000 from $0.4 million for the comparable period in 1999. This increase was due primarily to a salary reimbursement being included in other operating costs and an increase in professional expenses. The Company recorded a loss from discontinued operation of $620,396, net of income tax benefit of $334,060, primarily as a result of increasing the accrual for liquidation costs of the UK subsidiary. Net earnings increased to $0.6 million for the three months ended September 30, 2000 from $0.5 million for the comparable period in 1999. Excluding the loss from discontinued operations, there was an increase in net earnings for the third quarter of 2000 as compared to the same period in 1999 primarily as a result of the increase in valuation of loans of $0.3 million and increase in other income of $0.9 million for recovery of a previously reserved receivable. 14 NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

*Per share amounts are not meaningful due to reorganization. THE RESULTS OF OPERATIONS SHOWN ABOVE ARE FOR THE REORGANIZED AND PREDECESSOR COMPANY. THE COMPANY ADOPTED FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7 EFFECTIVE JUNE 30, 1999. THEREFORE, THE OPERATING RESULTS PRESENTED ABOVE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ARE NOT COMPARABLE TO THOSE FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999. 15 Revenues increased $12.8 million to $7.6 million for the nine months ended September 30, 2000 from negative $5.2 million for the six months ended June 30, 1999. This increase was due primarily to a $0.2 million loss recorded on the valuation of residuals for the nine months ended September 30, 2000 as compared to a loss of $20.8 million for the six months ended June 30, 1999. The net loss in revenues in 1999 was partially offset by a gain on the sale of loans of $4.6 million and the recognition of $6.1 million of revenues related to the transfer of its home equity servicing rights and related servicer advances during the first six months of 1999. There were no loans sold during the first nine months of 2000 and therefore no gain or loss was recorded as compared to a $4.6 million gain for the same period in 1999. The Company recorded a gain of $0.3 million from the increase in valuation of loans for the change to the liquidation basis of accounting. Since the Company's emergence from bankruptcy in June 1999, the Company has not actively engaged in the purchase and sale of loans. For the six months ended June 30, 1999, the Company recognized a gain of $7.0 million on the sale of loans which related to the Company's profit participation on loans previously sold into the Company's purchase facility, offset by the sale of $106.6 million of loans sold at a net loss of $2.4 million. For the nine months ended June 30, 2000, the Company had $0.2 million loss on the valuation of residuals as compared to losses of $20.8 million for the six months ended June 30, 1999. The Company utilized a 25% discount rate at September 30, 2000 and a 20% discount rate at December 31, 1999. The Company's loss on valuation residuals of $20.8 million for the six months ended June 30, 1999 was recorded during the second quarter of 1999. This loss was a result of increasing the loss rates on both home equity and Sav*-A-Loan(R) securitizations and increasing the constant prepayment rate on Sav*-A-Loan(R) securitizations. Interest income remained constant at $3.3 million for the nine months ended September 30, 2000 and for the six months ended June 30, 1999. This revenue was due primarily to lower average balances of mortgage loans held for sale during the first nine months of 2000 as compared to the six months ended June 30, 1999. Other income decreased $3.5 million to $4.2 million for the nine months ended September 30, 2000 from $7.7 million for the six months ended June 30, 1999. During the second quarter of 1999, the Company entered into agreements to transfer its servicing rights on all of its home equity securitizations and received net cash of $14.4 million resulting in a net gain of $6.1 million, representing amounts received in excess of the Company's carrying value of servicer advances. Servicer advances represent claims against the securitization trusts for reimbursement of advances made to such trusts by the Company as servicer. During the nine months ended September 30, 2000, the Company recorded servicing fees, income from cash received from residual certificates, and for recovery of a previously reserved receivable. Total expenses decreased $9.0 million, or 78.0%, to $2.5 million for the nine months ended September 30, 2000 from $11.6 million for the six months ended June 30, 1999. This decrease was due primarily to the reduction of its workforce from 42 at June 30, 1999 to one June 30, 2000. Salaries and employee benefits decreased $2.9 million, or 99.7%, to $0.0 million for the nine months ended September 30, 2000 from $2.9 million for the six months ended June 30, 1999. This decrease was due primarily to decreased staffing levels to one employee at September 30, 2000 as compared to 42 employees at June 30, 1999. This expense is recorded in other expense for the nine months ended September 30, 2000. 16 Interest expense decreased $1.4 million, or 100.0%, to $0.0 million for the nine months ended September 30, 2000 from $1.4 million for the six months ended June 30, 1999. In 1999 the Company incurred interest expense on warehouse facility lines which were paid off in April 1999. Selling and other expenses decreased $4.0 million, or 61.4%, to $2.5 million for the nine months ended September 30, 2000 from $6.5 million for the comparable period in 1999. This decrease was due primarily to decreased operating costs of $3.7 million, or 59.8%, to $2.5 million for the nine months ended September 30, 2000 from $6.3 million for the six months ended June 30, 1999 reflecting the Company's restructuring efforts and related reduction in workforce. There were no restructuring charges for the nine months ended September 30, 2000 as compared to $790,000 recorded during the six months ended June 30, 1999. Restructuring charges incurred in 1999 were a result of the Company's plan to move its operations from Elmsford, New York to Houston, Texas. Restructuring charges primarily represented severance obligations and future lease obligations. No reorganization items were incurred during the nine months ended September 30, 2000 as compared to $1.6 million for the six months ended June 30, 1999. Reorganization items for 1999 primarily included legal and other professional services. The Company recorded a loss from discontinued operations of $720,421, net of tax benefit of $398,689. The loss was primarily a result of an increase in the accrual for costs to liquidate the UK subsidiary. Net earnings decreased $395.0 million for the nine months ended September 30, 2000 to $2.6 million from $397.6 million for the comparable period in 1999. Included in the net earnings in 1999 is an extraordinary item reflecting the gain from the discharge of pre-petition liabilities, net of taxes, totaling $416.1 million. Excluding the extraordinary gain, the Company incurred a loss during the first six months of 1999 due primarily to a loss on valuation of residuals which was partially offset by gains recognized on loans sold into the Company's purchase facility as well as the gain recognized on the transfer of servicing rights. Liquidity and Capital Resources During the nine months ended September 30, 2000, the Reorganized Company generated $5.9 million in cash from operations. During the six months ended June 30, 1999, the Predecessor Company generated $118.4 million from operations which included $416.1 million gain on the discharge of pre-petition liabilities. The Company's principal cash requirements include the payment of operating costs to liquidate the Company, and post bankruptcy expenses. The Company uses its cash flow from interest income and other income to meet its working capital needs. Should the full funding of the over-collateralization accounts in connection with the Company's securitizations occur, the Company also may receive cash payments on its residual certificates related to its securitizations, although no assurance can be given as to when or whether this will occur. Based upon the current and anticipated levels of liquidation activity, the Company believes that cash flow from liquidation activity and available cash will be adequate to meet the Company's anticipated requirements for working capital through the liquidation process. The Board of Directors approved a Plan of Liquidation and Dissolution of the Company on May 2, 2000. The Plan was approved by the stockholders on September 12, 2000. At a special meeting of 17 the Board of Directors on September 20, 2000, the Board approved an initial liquidation dividend of $3.80 per share that was paid to the stockholders of record on October 2, 2000, on October 18, 2000. The Company is in the process of seeking bids for the sale of its mortgage loans and residual certificates. The Company's Board of Directors may make additional interim liquidation payments to stockholders solely at its discretion. (See Note 3 to the consolidated financial statements). ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company's market risk arises from interest rate risk inherent in its financial instruments. The Company is not currently subject to commodity price risk. The Company does not make use of off-balance sheet derivative instruments to control interest rate risk. The Company is dependent on interest earned from loans held for sale and investments in high-grade commercial paper for current cash flow purposes. A decrease in interest rates or the sale of loans could adversely affect cash flow; however the Company believes that cash on hand is sufficient to meet existing obligations. The interests that the Company received on loan sales through its securitizations are in the form of residual certificates which are classified as held-for-sale. The expected amount of the cash flow as well as the timing is dependent on the performance of the underlying collateral supporting each securitization. The actual cash flow of these instruments could vary substantially if the performance is different from the Company's assumptions. The Company generally develops its assumptions by analyzing past portfolio performance, current loan characteristics and current market conditions. The Company currently values residual certificates using a discount rate of 25.0%. The Company is exposed to foreign currency exchange risk related to the pending dissolution of CSC-UK and its subsidiaries. Specifically, the exchange risk relates to certain receivables and liabilities which will be satisfied in a foreign currency. The Company believes this exposure to be immaterial, and therefore, has not utilized any financial instrument to mitigate any potential exchange risk. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS CEASAR ACTION. On or about September 29, 1997, a putative class action lawsuit (the "Ceasar Action") was filed against the Company and two of its former officers and directors in the United States District Court for the Eastern District of New York (the "Eastern District") on behalf of all purchasers of the Company's common stock during the period from April 1, 1997 through August 15, 1997. Between approximately October 14, 1997 and December 3, 1997, nine additional class action complaints were filed against the same defendants, as well as certain additional former Company officers and directors. Four of these additional complaints were filed in the Eastern District and five were filed in the United States District Court for the Southern District of New York (the "Southern District"). On or about October 28, 1997, the plaintiff in the Ceasar Action filed an amended complaint naming three additional former officers and directors as defendants. The amended complaint in the Ceasar Action also extended the proposed class period from November 4, 1996 through October 22, 1997. The longest proposed class period of any of the complaints is from April 1, 1996 through October 22, 1997. On or about February 2, 1998, an additional lawsuit brought on behalf of two individual investors, rather than on behalf of a putative class of investors, was filed against the Company and certain of its former officers and directors in federal court in New Jersey (the "New Jersey Action"). In these actions, plaintiffs allege that the Company and its former senior officers engaged in securities fraud by affirmatively misrepresenting and failing to disclose material information regarding the lending practices of the Company's UK subsidiary, and the impact that these lending practices would have on the Company's financial results. Plaintiffs allege that certain public filings and press releases issued by the Company were false or misleading. In each of the putative class action complaints, plaintiffs have asserted violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as amended. Plaintiffs seek unspecified damages, including pre-judgment interest, attorneys' and accountants' fees and court costs. In December 1997, the Eastern District plaintiffs filed a motion for appointment of lead plaintiffs and approval of co-lead counsel. On September 23, 1998, the court granted this motion. On March 25, 1998, the Company and its former officers and directors who were defendants filed a motion with the federal Judicial Panel for Multidistrict Litigation ("JPML"), seeking consolidation of all current and future securities actions, including the New Jersey Action, for pre-trial purposes before Judge Sterling Johnson in the Eastern District. On June 12, 1998, the JPML granted this motion. As a result of the Company's Chapter 11 proceedings, the action against the Company was discharged when the Company's plan of reorganization became effective on July 1, 1999. The action is still pending against the individual defendants. WALSH ACTION. In January 1998, the Company commenced a breach of contract action in the Southern District against Walsh Securities, Inc. ("Walsh"). The action alleges that Walsh breached certain obligations that it owed to the Company under an agreement whereby Walsh sold mortgage loans to the Company. The Company claims damages totaling in excess of $11.9 million. In March 1998, Walsh filed a motion to dismiss, or, alternatively, for summary judgment. In May 1998, the Company served papers that opposed Walsh's motion and moved for summary judgment as to certain of the loans. In December 1998, Judge Stein of the Southern District denied Walsh's motion to dismiss, or, alternatively, for summary judgment with respect to all but 69 of the loans at issue in the litigation. With respect to those 69 loans, Judge Stein granted Walsh's motion and dismissed the loans from the litigation. At that time, Judge Stein also denied the Company's motion for summary judgment. On 20 February 1, 1999, Judge Stein denied the Company's motion for reconsideration of that part of his December 1998 order that granted Walsh's motion to dismiss with respect to 69 of the loans at issue. The parties completed all discovery by the early summer of 1999, and then filed cross-motions for summary judgment. The Company moved for Partial Summary Judgment on 32 loans that were part of a fraudulent pyramid scheme in New Jersey and that Walsh warranted under the parties' agreement as being "true and correct in all material respects." Walsh, in turn, moved for summary judgment on all of the loans remaining in the case, claiming that the Company had waived its right to sue on all loans. The parties completed the briefing on both motions on October 22, 1999. On June 8, 2000, Judge Stein issued an order granting the Company's motion for Partial Summary Judgment on the 32 New Jersey loans and also granting, in part, Walsh's summary judgment motion dismissing the Company's action on the remaining loans. An inquest on damages was held earlier this year, and on October 20, 2000, Judge Stein entered a final order awarding Cityscape damages in the amount of $4,732,568.93, denying Cityscape any recovery for attorney's fees, and disposing of all remaining legal and procedural issues in the case. Following entry of the judgment, Walsh will have a period of thirty days during which it can appeal the decision. If Walsh elects not to appeal, Cityscape will consider what efforts may be made to enforce the judgment. Although no assurance can be given as to the outcome of the unresolved lawsuits described above, the Company believes that the allegations in each of the actions are without merit. The Company intends to defend vigorously against these actions and seek their early dismissal. The lawsuits, however, against the Company, could have a material adverse effect on the Company's consolidated financial position and results of operations. The Company has established accruals, which it believes are adequate, to defend itself from these liabilities and satisfy the obligations. REGULATORY MATTERS. In April and June 1996, CSC-UK acquired J&J Securities Limited (the "J&J Acquisition") and Greyfriars Group Limited (formerly known as Heritable Finance Limited) (the "Greyfriars Acquisition"), respectively. In October 1996, the Company received a request from the staff of the Securities and Exchange Commission (the "Commission") for additional information concerning the Company's voluntary restatement of its financial statements for the quarter ended June 30, 1996. The Company initially valued the mortgage loans in the J&J Acquisition and the Greyfriars Acquisition at the respective fair value which were estimated to approximate par (or historical book value). Upon the subsequent sale of the mortgage portfolios, the Company recognized the fair value of the mortgage servicing receivables retained and recorded a corresponding gain for the fair value of such mortgage servicing receivables. Upon subsequent review, the Company determined that the fair value of such mortgage servicing rights should have been included as part of the fair value of the mortgage loans acquired as a result of such acquisitions. The effect of this accounting change resulted in a reduction in reported earnings of $26.5 million. Additionally, as a result of this accounting change, the goodwill initially recorded in connection with such acquisitions was reduced resulting in a reduction of goodwill amortization of approximately $496,000 from the previously reported figure for the second quarter. On November 19, 1996, the Company announced that it had determined that certain additional adjustments relating to the J&J Acquisition and the Greyfriars Acquisition should be made to the financial statements for the quarter ended June 30, 1996. These adjustments reflect a change in the accounting treatment with respect to restructuring charges and deferred taxes recorded as a result of such acquisitions. This caused an increase in the amount of goodwill recorded which resulted in an increase of amortization expense as previously reported in the second quarter of 1996 of $170,692. The staff of the Commission requested additional information from the Company in connection with the accounting related to the J&J Acquisition and the Greyfriars Acquisition. The Company supplied such requested information. In mid-October 1997, the Commission authorized its staff to conduct a formal investigation which, to date, has continued to focus on the issues surrounding the restatement of the financial statements for the 20 quarter ended June 30, 1996. The Company is continuing to cooperate fully in this matter; however, the Commission has not contacted the Company on this matter since July 1999. In the normal course of business, aside from the matters discussed above, the Company is subject to various legal proceedings and claims, the resolution of which, in management's opinion, will not have a material adverse effect on the consolidated financial position or the results of operations of the Company. As part of its adoption of liquidation accounting, the Company reviewed its liabilities and determined that adequate accruals exist to pay for the costs to defend itself from these known contingent liabilities and satisfy the obligations. 21 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Since July 1, 1999, the Company has issued an aggregate of 7,782,615 unregistered securities. Such unregistered securities were issued to creditors of the Company pursuant to the Company's First Amended Joint Plan of Reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code effective as of July 1, 1999 and were in settlement of claims against the Company. The unregistered securities were issued pursuant to Section 1145 of the United States Bankruptcy Code, which exempts such issuances from Section 5 of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS At an annual meeting of the shareholders of the Company on September 12, 2000, the shareholders (a) elected D. Richard Thompson, Mark A. Neporent, Raymond H. Wechsler and Todd R. Snyder as directors of the Company; (b) approved a plan of liquidation and dissolution of the Company previously adopted by the Board of Directors; and (c) approved and ratified the appointment of KPMG LLP as the Company's independent public accountants for the year ending December 31, 2000. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 3.1** Certificate of Incorporation of the Company (incorporated by reference to the Company's Form 10-Q for quarter ended June 30, 1999) 3.2** Bylaws of the Company (incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 1999) 10.1** Agreement with AEGIS Mortgage Corporation - Service Agreement, dated September 1, 1999 (incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1999) 27.1* Financial Data Schedule 99.1** Final Decree, dated May 4, 2000 (incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2000) -------------------------- * Indicates documents filed herewith. ** Indicates documents incorporated by reference from the prior filing indicated. 22 (b) Reports on Form 8-K A current report on Form 8-K filed by the Company on September 13, 2000, announcing that at an annual meeting of the shareholders of the Company on September 12, 2000, the shareholders (a) elected D. Richard Thompson, Mark A. Neporent, Raymond H. Wechsler and Todd R. Snyder as directors of the Company; (b) approved a plan of liquidation and dissolution of the Company (the "Plan") previously adopted by the Board of Directors; and (c) approved and ratified the appointment of KPMG LLP as the Company's independent public accountants for the year ending December 31, 2000. This report further announced that the Board of Directors would proceed with an orderly liquidation and dissolution of the Company pursuant to the Plan. No financial statements were filed. A current report on Form 8-K filed by the Company on September 20, 2000, announcing that at a special meeting on September 20, 2000, the Board of Directors of the Company declared that an initial liquidation dividend in the amount of $3.80 per share would be paid on or about October 18, 2000, to shareholders of record on October 2, 2000. This report further announced that the Board of Directors declared this dividend pursuant to the plan of liquidation and dissolution approved by the shareholders of the Company at the annual meeting of shareholders on September 12, 2000. No financial statements were filed. 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMC FINANCIAL, INC ------------------ (Registrant) Date: November 17, 2000 By:/S/ D. RICHARD THOMPSON D. Richard Thompson Title: Chief Executive Officer, President and Chief Financial Officer 24

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