<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

_X_  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934 for the fiscal year ended December 31, 1998

___  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         COMMISSION FILE NUMBER: 0-27314

                            CITYSCAPE FINANCIAL CORP.
             (Exact name of registrant as specified in its charter)

     Delaware                                            11-2994671
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

                 565 Taxter Road, Elmsford, New York 10523-2300
          (Address of principal executive offices, including zip code)

                                 (914) 592-6677
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01 per share.

Indicate by check 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 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 ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].

As of March 22, 1999, the aggregate market value of the registrant's Common
Stock held by nonaffiliates of the registrant was $295,224 based on the closing
sales price of the registrant's Common Stock as reported on the National
Quotation Bureau, Inc. OTC Bulletin Board on such date. For purposes of this
calculation, shares owned by officers, directors and 5% stockholders known to
the registrant have been deemed to be owned by affiliates. As of March 22, 1999,
the number of shares of the registrant's Common Stock outstanding was
64,878,969.

DOCUMENTS INCORPORATED BY REFERENCE

None.


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<PAGE>   2


                                     PART I

ITEM 1.  BUSINESS

GENERAL(1)

     Cityscape Financial Corp. (the "Company") is a consumer finance company
which, through its wholly-owned subsidiary, Cityscape Corp. ("CSC"), is in the
business of selling and servicing mortgage loans secured primarily by one- to
four-family residences. CSC is licensed or registered to do business in 44
states and the District of Columbia. Until the Company suspended indefinitely
such business in November 1998, the Company also had been in the business of
originating and purchasing such mortgage loans. The majority of the Company's
loans were made to owners of single family residences who use the loan proceeds
for such purposes as debt consolidation and financing of home improvements and
educational expenditures, among others. The Company is currently operating under
the protection of chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). No assurance can be given that the Company will emerge from
bankruptcy or that its loan origination or purchase activities will resume.

     The Company's principal executive office and mailing address is 565 Taxter
Road, Elmsford, New York 10523-2300 and its telephone number is (914) 592-6677.

CHAPTER 11 PROCEEDINGS

     The Company determined during 1998 that the best alternative for
recapitalizing the Company over the long-term and maximizing the recovery of
creditors and senior equity holders of the Company was through a prepackaged
plan of reorganization for the Company and CSC, pursuant to the Bankruptcy Code.
On October 6, 1998, the Company and CSC filed voluntary petitions (the
"Petitions") in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court").

     During the second and third quarters of 1998, the Company engaged in
negotiations, first, with holders of a majority of the Notes (as defined below)
and, second, with holders of a majority of the Convertible Debentures (as
defined below) on the terms of a plan of reorganization that both groups would
find acceptable. Those negotiations had resulted in acceptance by both groups by
the requisite majorities of the terms of a plan of reorganization (the "Original
Plan"). The Company had then solicited acceptances of the Original Plan from the
holders of its Notes, Convertible Debentures and Preferred Stock (as defined
below). The Original Plan received the requisite approval from all classes
except for the holders of the Company's Series B Preferred Stock (as defined
below). Although the Company and other parties with an economic stake in the
reorganization anticipated that the Original Plan would be confirmed at the
originally scheduled confirmation hearing, the Original Plan was not confirmed
due primarily to deteriorating market conditions and the Debtors' inability to
obtain necessary post-reorganization loan warehouse financing to allow them to
emerge from chapter 11. As a result, the Company has revised the Original Plan
(the "Amended Plan").

     On November 17, 1998, the Company decided to suspend indefinitely all of
its loan origination and purchase activities. The Company notified its brokers
that it had ceased funding mortgage loans, other than loans that were in its
origination pipeline for which it had issued commitments. The Company's


----------

(1)  All references herein to "$" are United States dollars; all references to
     "(pound)" are to British Pounds Sterling. Unless otherwise specified,
     translation of amounts from British Pounds Sterling to United States
     dollars has been made herein using exchange rates at the end of the period
     for which the relevant statements are prepared for balance sheet items and
     the weighted average exchange rates for the relevant period for statement
     of operations items, each based on the noon buying rate in New York City
     for cable transfers in foreign currencies as certified for customs purposes
     by the Federal Reserve Bank of New York.



                                       2
<PAGE>   3

decision was based upon its determination, following discussions with potential
lenders regarding post-reorganization loan warehouse financing, that adequate
sources of such financing were not available. With no adequate sources of such
financing, the Company determined that it was unable to continue to originate
and purchase mortgage loans. On or about December 18, 1998, the Company funded
the last of the mortgage loans for which it had issued commitments as of
November 17, 1998.

     The Amended Plan provides for substantive consolidation of the assets of
the Company and CSC and for distributions to creditors as summarized below.
Estimated recoveries are based upon (i) principal and accrued and unpaid
interest as of the chapter 11 petition date and (ii) an estimated, aggregate
amount of allowed general unsecured claims of $10.0 million.

     In summary, the Amended Plan, if confirmed by the Bankruptcy Court, would
provide that: (i) administrative claims, priority tax claims, bank claims, other
secured claims and priority claims will be paid in full; (ii) holders of Notes
would receive in exchange for all of their claims, in the aggregate 92.48% of
the new common stock of the reorganized company (or 97.91% if the holders of the
Convertible Debentures vote to reject the plan); (iii) holders of the
Convertible Debentures would receive in exchange for all their claims, in the
aggregate, 5.43% of the new common stock of the reorganized company (or 0% if
the holders of the Convertible Debentures vote to reject the plan); (iv) holders
of general unsecured claims would receive 2.09% of the new common stock of the
reorganized company; and (v) existing Common Stock (as defined below), Preferred
Stock and warrants of the Company would be extinguished and holders thereof
would receive no distributions under the Amended Plan.

    The Company presently intends to seek confirmation of and to consummate the
Amended Plan on or before May 31, 1999. There can be no assurance: (i) as to
when, if ever, the Company's loan origination and purchase activities will
resume; (ii) that the terms of the Company's plan of reorganization will not
change; (iii) that the Bankruptcy Court will confirm such plan within the
anticipated timeframe, if at all; or (iv) that such plan will consummated (even
if it is confirmed). This summary of the Amended Plan is qualified in its
entirety by reference to the Disclosure Statement dated March 26, 1999, filed as
Exhibit 99.2 hereto, and to the Amended Plan which is an exhibit thereto.

DOWNSIZING OF OPERATIONS

     US OPERATIONS

     During 1998, the Company significantly downsized its operations due to
negative operating results, liquidity constraints and, as discussed above, the
reorganization proceedings and indefinite suspension of its loan origination and
purchase activities.

     In the US., the Company closed its branch operations in Georgia, Illinois,
Virginia, California and New York and significantly reduced its number of
employees, including servicing and corporate employees. In connection with its
downsizing, the Company recorded a restructuring charge of $3.2 million in the
first quarter of 1998. Of this amount, $1.1 million represented severance
payments made to 142 former employees and $2.1 million represented costs
incurred in connection with lease obligations and write-off of assets no longer
in service. During the fourth quarter of 1998, the Company recorded
reorganization items of $31.9 million. Of this amount, $3.9 million represents
severance payments to 335 former employees, $5.3 million represents costs
incurred in connection with lease obligations and write-offs of assets no longer
in service, $10.7 million represents professional fees and other miscellaneous
items related to the reorganization and $12.0 million represents the write-off
of the deferred debt issuance costs related to the Notes and Convertible
Debentures.

     UK OPERATIONS

     In the UK, the Company had commenced operations in May 1995 with the
formation of City Mortgage Corporation Limited ("CSC-UK"), an English
corporation that originated, sold and serviced loans in


                                       3
<PAGE>   4

England, Scotland and Wales in which the Company initially held a 50% interest
and subsequently purchased the remaining 50%. CSC-UK had no operations and no
predecessor operations prior to May 1995.

     As a result of liquidity constraints, the Company adopted a plan in March
1998 to sell the assets of CSC-UK. In April 1998, pursuant to an Agreement for
the Sale and Purchase of the Business of CSC-UK and its Subsidiaries and the
Entire Issued Share Capital of City Mortgage Receivables 7 Plc, dated March 31,
1998 (the "UK Sale Agreement"), the Company completed the sale to Ocwen
Financial Corporation ("Ocwen") and Ocwen Asset Investment Corp. ("Ocwen Asset")
of substantially all of the assets, and certain liabilities, of CSC-UK (the "UK
Sale"). The sale did not include the assumption by Ocwen of all of CSC-UK's
liabilities, and therefore, no assurances can be given that claims will not be
made against the Company in the future arising out of its former UK operations.
Such claims could have a material adverse effect on the Company's financial
condition and results of operations. The UK Sale included the acquisition by
Ocwen of CSC-UK's whole loan portfolio and loan origination and servicing
businesses for a price of (pound)249.6 million, the acquisition by Ocwen Asset
of CSC-UK's securitized loan residuals for a price of (pound)33.7 million and
the assumption by Ocwen of (pound)7.2 million of CSC-UK's liabilities. The price
paid by Ocwen was subject to adjustment to account for the actual balances on
the closing date of the loan portfolio and the assumed liabilities. As a result
of the sale, the Company received proceeds, at the time of the closing, of $83.8
million, net of closing costs and other fees. During 1998, the Company received
an additional $4.5 million from Ocwen related to the loan portfolio adjustment.
On February 15, 1999, the Company entered into a settlement agreement (subject
to a condition precedent) with Ocwen whereby the Company will receive an
additional $3.3 million plus accrued interest in settlement of the assumed
liabilities at the date of sale.

CESSATION OF CERTAIN BUSINESSES OF COMPANY

     LOAN ORIGINATIONS AND PURCHASES

     On November 17, 1998, the Company decided to suspend indefinitely all of
its loan origination and purchase activities. Previously, the Company originated
loans through a network of independent mortgage brokers and purchased loans on a
wholesale basis from selected financial institutions and mortgage bankers. The
Company offered a wide range of loan products, including fixed and adjustable
rate residential mortgage loans for refinancing, educational, home improvement
and debt consolidation purposes and fixed and adjustable rate purchase money
mortgage loans ("Core Products"). The Company also offered loans to homeowners
with little or no equity in their property but who possessed a favorable credit
profile and debt-to-income ratio and who often use the proceeds from such loans
to repay outstanding indebtedness as well as make home improvements
("Sav*-A-Loans(R)"). Other loans that the Company had offered in the past
include jumbo loans, conventional home loans, Title I loans (loans partially
insured by the Federal Housing Administration (the "FHA"), an agency of the US
Department of Housing and Urban Development ("HUD"), pursuant to the Title I
credit and insurance program of the National Housing Act of 1934) and loans on
small multi-family and mixed-use properties ("Other Products").

     The following table highlights certain selected information relating to the
origination and purchase of loans by the Company during the periods shown.



                                       4
<PAGE>   5

                         LOAN ORIGINATIONS AND PURCHASES

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                            ------------------------------------
                                               1998         1997         1996
                                            ----------   ----------   ----------
                                                   (DOLLARS IN THOUSANDS)
<S>                                        <C>          <C>          <C>
Independent Mortgage Brokers:
   Core Products ........................   $  167,826   $  392,330   $  364,168
   Sav*-A-Loan(R)Products ...............      236,502      429,126       97,753
   Other Products .......................        4,336      164,367       86,321
                                            ------------------------------------
Total principal balance .................   $  408,664   $  985,823   $  548,242
   Number of loans ......................        8,031       17,850        9,173
   Average principal balance per loan ...   $     50.9   $     55.2   $     59.8

Correspondent Loan Acquisition
   Program:
   Core Products ........................   $   16,020   $  425,693   $  572,484
   Sav*-A-Loan(R)Products ...............       32,098      239,993       39,565
   Other Products .......................           --        3,523           --
   Bulk purchases (1) ...................           --           --      129,064
                                            ------------------------------------
   Total principal balance ..............   $   48,118   $  669,209   $  741,113
   Number of loans ......................          942       11,752       11,960
   Average principal balance per loan ...   $     51.1   $     56.9   $     62.0

Total Loan Originations and Purchases:
   Core Products ........................   $  183,846   $  818,023   $  936,652
   Sav*-A-Loan(R)Products ...............      268,600      669,119      137,318
   Other Products .......................        4,336      167,890       86,321
   Bulk purchases (1) ...................           --           --      129,064
                                            ------------------------------------
   Principal balance ....................   $  456,782   $1,655,032   $1,289,355
   Number of loans ......................        8,973       29,602       20,863
   Average principal balance per loan ...   $     50.9   $     55.9   $     61.8
</TABLE>

----------
(1)  Includes a one-time bulk purchase during 1996 of $129.1 million consisting
     of 2,259 loans with an average principal balance of $57,100.

     Independent Mortgage Brokers. During 1998, 1997 and 1996, $408.7 million
(89.5%), $985.8 million (59.6%) and $548.2 million (42.5%), respectively, of the
Company's loan originations and purchases were sourced through the independent
mortgage broker network. During 1998, 1997 and 1996, the single highest
producing independent mortgage broker accounted for 3.0%, 1.1% and 1.9%,
respectively, of the Company's production volume, and the ten highest producing
independent mortgage brokers accounted for 9.7%, 5.3% and 7.8%, respectively, of
the Company's loan production volume.

     Correspondent Loan Acquisition Program. The Company purchased loans on a
flow basis through its Correspondent Loan Acquisition Program which are in the
form of complete loan packages originated by loan correspondents. The
Correspondent Loan Acquisition Program accounted for $48.1 million (10.5%),
$669.2 million (40.4%) and $612.0 million (47.5%) of the Company's total loan
origination and purchase volume for 1998, 1997 and 1996, respectively. No single
financial institution or other mortgage banker in the Correspondent Loan
Acquisition Program accounted for more than 0.9%, 2.8% or 7.4% of the Company's
loan originations and purchases during 1998, 1997 or 1996, respectively.

     Geographic Distribution of Loans. Although the Company is licensed or
registered in 44 states and the District of Columbia, it has concentrated its
business in the eastern seaboard states and the midwest. For 1998,



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<PAGE>   6

Maryland contributed 10.1% of the Company's total loan production volume and for
1997 and 1996, New York contributed 14.9% and 17.7% of the Company's total loan
production volume.

<TABLE>
                  GEOGRAPHIC DISTRIBUTION OF LOAN ORIGINATIONS
                                  AND PURCHASES
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                         -------------------------------------
STATES:                                  1998            1997            1996
-------                                  -----           -----           -----
<S>                                     <C>             <C>              <C>
Maryland .......................         10.1%           10.3%            7.0%
Illinois .......................          9.7             7.1            10.0
Florida ........................          8.7             6.0             2.0
New York .......................          8.3            14.9            17.7
Virginia .......................          6.9             5.6             4.6
Georgia ........................          6.8             6.3             4.9
California .....................          5.1             4.1             2.5
Pennsylvania ...................          4.9             5.7             8.4
North Carolina .................          4.1             3.4             1.9
South Carolina .................          4.0             3.4             3.8
Ohio ...........................          3.9             3.7             1.3
Indiana ........................          3.7             2.6             1.7
New Jersey .....................          2.6             7.5            10.9
Michigan .......................          2.3             4.5             5.8
All others .....................         18.9            14.9            17.5
                                        -----           -----           -----
   Total .......................        100.0%          100.0%          100.0%
                                        =====           =====           =====
</TABLE>

     LOAN SALES THROUGH SECURITIZATIONS

     Prior to the fourth quarter of 1997, the Company sold substantially all of
its loan production volume through securitizations. During 1998, 1997 and 1996,
the Company sold $414.2 million, $1.6 billion and $1.3 billion of loans,
representing 90.7%, 98.9%, and 99.1% of total originations and purchases during
these periods, respectively. Of these loan sales, during 1997 and 1996, the
Company sold $1.1 billion and $993.6 million, respectively, in securitizations.

     In the fourth quarter of 1997, the Company's strategy shifted from
emphasizing the sale of its loan production volume through securitizations to
the use of whole loan sales. This strategy was due to liquidity constraints, the
Company's financial condition and its inability to access the capital markets.
Accordingly, the Company did not sell any of its loan production volume through
securitizations in 1998.

     In loan sales through securitizations, the Company sold its loans into a
trust for a cash purchase price and interests in such trust consisting of
interest-only regular interests and the residual interest which were represented
by the interest-only and residual certificates. The Company retained no interest
in the loans sold into such trust other than its interest as a holder of the
interest-only and residual certificates issued by such trust. The cash purchase
price was raised through an offering by the trust of pass-through certificates
representing regular interests in the trust. Following the securitization, the
purchasers of the pass-through certificates received the principal collected and
the investor pass-through interest rate on the principal balance, while the
Company recognized as current revenue the fair value of the interest-only and
residual certificates. An interest-only certificate represents an interest in a
trust with fixed terms that unconditionally entitles the holder to receive
interest payments that are either fixed or derived from a formula. A residual
certificate represents the interest in the trust which has no principal amount
and does not unconditionally entitle the holder to receive payments. A holder of
the residual certificate is entitled only to the remainder, if any, of the
interest cash flow from the mortgage loans sold to the trust after payment of
all other interests in such trust and as such bears the greatest degree of risk
regarding the performance of such mortgage loans. Securitizations take the form
of pass-through certificates which represent undivided beneficial ownership
interests in a portfolio consisting of the Company's loans that the

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<PAGE>   7

Company has sold to a trust. The servicer of the loan portfolio remits the
principal and part of the interest payments on such loans to the trust which in
turn passes them to investors in the pass-through certificates. A portion of the
Company's securitizations have also included the payment of pre-funded amounts.

     The Company recognized as current revenue the fair value of the
interest-only and residual certificates and, in future periods, may adjust the
value of such certificates to reflect the Company's estimate of the fair value
of such certificates at such time. Fair value is determined based on various
economic factors, including loan type, balance, interest rate, date of
origination, term and geographic location. The Company also uses other available
information such as reports on prepayment rates, collateral value, economic
forecasts and historical default and prepayment rates of the portfolio under
review, as well as actual valuations resulting from the sale of such
certificates. The Company estimates the expected cash flows that it will receive
over the life of a portfolio of loans. These expected cash flows constitute the
excess of the interest rate payable by the obligors of loans over the interest
rate paid on the related securities, less applicable fees and credit losses. The
Company discounts the expected cash flows at a discount rate which it believes
to be consistent with the required risk-adjusted rate of return to an
independent third party purchaser of the interest-only and residual
certificates. Realization of the value of these residual interests in cash is
subject to the prepayment and loss characteristics of the underlying loans and
to the timing and ultimate realization of the stream of cash flows associated
with such loans.

     In a securitization, the Company purchased credit enhancements to the
senior interest in the related trusts in the form of insurance policies provided
by insurance companies. The pooling and servicing agreements that govern the
distribution of cash flows from the loans included in the trusts require either
(i) the establishment of a reserve that may be funded with an initial cash
deposit by the Company or (ii) the over-collateralization of the trust intended
to result in receipts and collections on the loans that exceed the amounts
required to be distributed to holders of senior interests. To the extent that
borrowers default on the payment of principal or interest on the loans, losses
will be paid out of the reserve account or will reduce the
over-collateralization to the extent that funds are available and will result in
a reduction in the value of the interest-only and residual certificates held by
the Company.

     If payment defaults exceed the amount in the reserve account or the amount
of over-collateralization, as applicable, the insurance policy maintained by the
Company will pay any further losses experienced by holders of the senior
interests in the related trust. The delinquency rates on the pool of loans sold
in seven of the Company's securitizations have exceeded the permitted limits set
forth in the related pooling and servicing agreements. As a result of the
exceeded limits, the Company has been required to maintain in the related
reserve account all funds that would have otherwise been paid to the Company
with respect to the interest-only and residual certificates.

     In securitizations, the Company may be required either to repurchase or to
replace loans which do not conform to the representations and warranties made by
the Company in the pooling and servicing agreements entered into when the
portfolios of loans are sold through a securitization. During 1998, 1997 and
1996, the Company repurchased 132 loans for $3.9 million, 63 loans for $5.4
million, and 73 loans for $4.7 million, respectively, primarily due to first
month defaults that remain uncured for 90 days.

CURRENT BUSINESS OF COMPANY

     After the indefinite suspension of all loan origination and purchase
activities in November 1998, the Company has been in the business of selling and
servicing mortgage loans.

     WHOLE LOAN SALES

     Due to the Company's decision in the fourth quarter of 1997 to emphasize
whole loan sales to better manage cash flow, all loans sold during 1998 ($414.2
million) were through whole loan sales. During 1997 and 1996, the Company sold
$518.4 million (31.7%) and $283.9 million (22.2%) of its loan production volume
in whole loan sales. The Company anticipates that the disposition of
substantially all of


                                       7
<PAGE>   8

its $123.3 million at December 31, 1998 in remaining unsold loans will be
through whole loan sales. No assurance can be given, however, that the Company
will be successful in selling its loans through whole loan sales or otherwise.

     Loans are generally sold in portfolios. Upon the profitable sale of a loan
portfolio, the Company receives a "premium," representing a cash payment in
excess of the par value of the loans (par value representing the unpaid balance
of the loan amount given to the borrower) or in a few instances a "yield
differential" whereby the Company receives a portion of the interest paid by the
borrower for the life of the loan. Premiums on whole loan sales represented
0.7%, 4.5% and 1.6%, respectively, of the Company's total revenues (excluding
net unrealized losses) and 100.0% ($128,024), 9.7% ($8.1 million) and 2.2% ($1.7
million), respectively, of the Company's total gain on sale of loans in 1998,
1997 and 1996. Recently due to deteriorating market conditions, a majority of
the Company's loan portfolios have been sold for less than par value.

     The Company sells substantially all of its loan production volume to
various institutional purchasers with customary representations and warranties
covering loans sold. The Company, therefore, may be required to repurchase loans
pursuant to its representations and warranties and may have to return a portion
of the premium earned if a loan is prepaid during a limited period of time after
sale, usually six months and not greater than one year. The Company typically
repurchased a loan if a default occurs within the first month following the date
the loan was originated or if the loan documentation is alleged to contain
misrepresentations made by the borrower.

     LOAN SERVICING AND COLLECTIONS

     Loan servicing is the collection of payments due under a loan, the
monitoring of the loan, the remitting of payments to the holder of the loan,
furnishing reports to such holder and the enforcement of such holder's rights,
including attempting to recover delinquencies and instituting loan foreclosures.

     In order to maximize the premium earned on the sale of loans through whole
loan sales, beginning in the fourth quarter of 1997, the Company changed its
prior policy and now releases its servicing rights on substantially all of the
loan origination and purchase volume it sells through whole loan sales. The
Company retained the servicing rights to none of the $414.2 million in loans it
sold during 1998, 75.1% of the $1.6 billion in loans it sold during 1997, and
97.8% of the $1.3 billion in loans it sold during 1996. The Company expects that
as a result of its selling loans through whole loan sales with servicing
released as well as the indefinite suspension of all loan origination and
purchase activities, the size of its managed servicing portfolio will decrease
in the future. In addition, the Company is currently evaluating the potential
transfer of such servicing and, should such transfer occur, will adjust its
staffing accordingly.

     As of December 31, 1998, the Company was servicing 25,179 loans
representing an aggregate of $1.2 billion. Revenue generated from loan servicing
amounted to 4.4% (excluding $68.8 million of net unrealized losses), 0.9%
(excluding $148.0 million of net unrealized losses), and 2.6% of total revenues
for 1998, 1997 and 1996, respectively.

     In January 1998, the Company retained Ocwen Federal Bank FSB ("Ocwen FSB"),
established in the management and resolution of underperforming loans, as a
special loan servicer to sub-service the Company's 90-day-plus delinquent loans.
The Company has the right to deliver non-performing loans to Ocwen FSB on an
ongoing basis. In 1998, the Company transferred to Ocwen FSB 993 non-performing
loans with an aggregate unpaid principal balance of $66.4 million.

     Due to the Company exceeding the delinquency rates permitted under the
terms of the pooling and servicing agreements with respect to the Company's
1995-2, 1995-3, 1996-1, 1996-2, 1996-3 and 1996-4 home equity securitizations,
during the third quarter of 1998 the Company entered into subservicing
agreements with respect to such loans with Fairbanks Capital Corp. ("Fairbanks")
and Ocwen FSB. As of December 31, 1998, the outstanding amount of such loans was
$550.5 million or 45.7% of the Company's



                                       8
<PAGE>   9

total servicing portfolio and 93.3% of the Company's home equity servicing
portfolio. Under the terms of the subservicing agreements, Fairbanks and Ocwen
FSB as subservicers retain all rights, including the normal servicing fee and
any ancillary income, and obligations of the servicer as provided for under the
terms of the applicable securitizations and servicing agreements. The Company
expects to enter into a similar subservicing agreement for its 1995-1 home
equity securitization which, as of December 31, 1998, had approximately $14.4
million of loans outstanding.

     The following table provides data on delinquency experience, real estate
owned ("REO") properties and charge-offs for the Company's serviced portfolio
(excluding loan balances under contract servicing agreements).

<TABLE>
<CAPTION>
                                                                               AS OF DECEMBER 31,
                                              -------------------------------------------------------------------------------------
                                                        1998                          1997                          1996
                                              -------------------------     -------------------------     -------------------------
                                                                 % OF                         % OF                          % OF
                                              DOLLARS IN       SERVICED     DOLLARS IN      SERVICED      DOLLARS IN       SERVICED
                                               THOUSANDS      PORTFOLIO      THOUSANDS      PORTFOLIO      THOUSANDS      PORTFOLIO
                                              ----------     ----------     ----------     ----------     ----------     ----------
<S>                                           <C>                 <C>       <C>                 <C>       <C>                 <C>
Serviced portfolio .......................    $1,204,044(1)       100.0%    $2,231,519          100.0%    $1,470,344          100.0%
                                              ==========     ==========     ==========     ==========     ==========     ==========
Delinquencies:
   30-59 days delinquent .................    $   42,706            3.6%    $   65,063            2.9%    $   54,733            3.7%
   60-89 days delinquent .................        17,129            1.4         30,479            1.4         19,733            1.4
   90 days or more delinquent ............        37,683            3.1         27,808            1.3         24,800            1.7
                                              ----------     ----------     ----------     ----------     ----------     ----------
      Total delinquencies ................    $   97,518            8.1%    $  123,350            5.6%    $   99,266            6.8%
                                              ==========     ==========     ==========     ==========     ==========     ==========
Defaults:
   Bankruptcies ..........................    $   35,076            2.9%    $   25,131            1.1%    $    4,269            0.3%
   Foreclosures ..........................        81,152            6.7        100,901            4.5         27,689            1.9
                                              ----------     ----------     ----------     ----------     ----------     ----------
      Total defaults .....................    $  116,228            9.6%    $  126,032            5.6%    $   31,958            2.2%
                                              ==========     ==========     ==========     ==========     ==========     ==========
REO property .............................    $   21,830            1.8%    $    8,549            0.4%    $    1,328            0.1%
                                              ==========     ==========     ==========     ==========     ==========     ==========
Charge-offs ..............................    $   32,344            2.7%    $    4,734            0.2%    $       36           --
                                              ==========     ==========     ==========     ==========     ==========     ==========

</TABLE>

(1)  Includes the subservicing of the Company's 1995-2, 1995-3, 1996-1, 1996-2,
     1996-3 and 1996-4 home equity securitizations totaling $550.5 million.

     Foreclosure Regulation and practices regarding the liquidation of
properties (e.g., foreclosure) and the rights of the mortgagor in default vary
greatly from state to state. Loans originated or purchased by the Company are
secured by mortgages, deeds of trust, trust deeds, security deeds or deeds to
secure debt, depending upon the prevailing practice in the state in which the
property securing the loan is located. Depending on local law, foreclosure is
effected by judicial action and/or non-judicial sale, and is subject to various
notice and filing requirements. If foreclosure is effected by judicial action,
as in New York and Illinois for example, the foreclosure proceedings may take
several months.

     In general, the borrower, or any person having a junior encumbrance on the
real estate, may cure a monetary default by paying the entire amount in arrears
plus other designated costs and expenses incurred in enforcing the obligation
during a statutorily prescribed reinstatement period. Generally, state law
controls the amount of foreclosure expenses and costs, including attorneys'
fees, which may be recovered by a lender.

     After the reinstatement period has expired without the default having been
cured, in certain states the borrower or junior lienholder has the right of
redemption of the property by paying the loan in full to prevent the scheduled
foreclosure sale. For example, in Illinois the right of redemption exists for 90
days from the date of foreclosure judgment; New York law does not recognize a
right of redemption.

     There are a number of restrictions that may limit the Company's ability to
foreclose on a property. A lender may not foreclose on the property securing a
second mortgage loan unless it forecloses subject to each senior mortgage, in
which case the junior lender or purchaser at such a foreclosure sale will take
title to the property subject to the lien securing the amount due on the senior
mortgage. Moreover, if a borrower has filed for bankruptcy protection, a lender
may be stayed from exercising its foreclosure rights.



                                       9
<PAGE>   10

Also, certain states provide a homestead exemption which may restrict the
ability of a lender to foreclose on residential property. In such states, the
Company requires the borrower to waive his or her right of homestead. While such
waivers are generally enforceable in Illinois, waivers of homestead rights may
not be enforceable in other states. Due to these restrictions, as the Company
has experienced an increase in the number of loans serviced and in the
percentage of such loans that are delinquent, there has been a substantial
increase in the number of properties pending foreclosure.

     Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien due to several factors,
including the difficulty of determining the exact status of title to the
property, the possible deterioration of the property during the foreclosure
proceedings and a requirement that the purchaser pay for the property in cash or
by cashier's check. Thus, the foreclosing lender often purchases the property
from the trustee or referee for an amount equal to the principal amount
outstanding under the loan, accrued and unpaid interest and the expenses of
foreclosure. Depending upon market conditions, the ultimate proceeds of the sale
may not equal the lender's investment in the property. If, after determining
that purchasing a property securing a loan will minimize the loss associated
with the defaulted loan, the Company may bid at the foreclosure sale for such
property or accept a deed in lieu of foreclosure.

     Except when subcontracted, loan foreclosures are the responsibility of the
Company's loan servicing operations. Prior to a foreclosure, the Company
performs a foreclosure analysis with respect to the mortgaged property to
determine the value of the mortgaged property and the bid that the Company will
make at the foreclosure sale. This is based on (i) a current valuation of the
property obtained through a drive-by appraisal conducted by an independent
appraiser, (ii) an estimate of the sale price of the mortgaged property obtained
by sending two local realtors to inspect the property, (iii) an evaluation of
the amount owed, if any, to a senior mortgagee and for real estate taxes and
(iv) an analysis of marketing time, required repairs and other costs, such as
real estate broker fees, that will be incurred in connection with the
foreclosure sale. The Company has established a committee comprised of members
of senior management to perform the foreclosure analyses.

     The Company assigns all foreclosures to outside counsel located in the same
state as the mortgaged property. Bankruptcies filed by borrowers are also
assigned to appropriate local counsel who are required to provide monthly
reports on each loan file.

BUSINESS STRATEGY

     If the Amended Plan is confirmed by the Bankruptcy Court, it is expected
that the reorganized company will reenter the mortgage loan origination business
at some time in the future, based on prevailing industry conditions and the
general business climate. The Company presently intends to seek confirmation of
and to consummate the Amended Plan on or before May 31, 1999. There can be no
assurance: (i) as to when, if ever, the Company's loan origination and purchase
activities will resume; (ii) that the terms of the Company's plan of
reorganization will not change; (iii) that the Bankruptcy Court will confirm
such plan within the anticipated timeframe, if at all; or (iv) that such plan
will be consummated (even if it is confirmed).

COMPETITION

     Should the Company reenter the mortgage origination business at some time
in the future, as a consumer finance company, the Company would face intense
competition. The Company's bankruptcy petitions have caused the Company to be
competitively disadvantaged. Traditional competitors in the financial services
business include other mortgage banking companies, commercial banks, credit
unions, thrift institutions, credit card issuers and finance companies. Many of
these competitors in the consumer finance business are substantially larger and
have considerably greater financial, technical and marketing resources than the
Company will have if the Amended Plan is confirmed. Furthermore, certain large
national finance companies and conforming mortgage originators adapted their
conforming origination



                                       10
<PAGE>   11

programs and allocate resources to the origination of non-conforming loans. In
addition, certain of these larger mortgage companies and commercial banks also
offer products similar to those that had been offered by the Company, targeting
customers similar to those of the Company. Competition can take many forms
including convenience in obtaining a loan, customer service, marketing and
distribution channels, amount and term of the loan, and interest rates.

REGULATION

     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's lending activities
are subject to the Federal Truth-in-Lending Act and Regulation Z (including the
Home Ownership and Equity Protection Act of 1994), the Federal Equal Credit
Opportunity Act and Regulation B, as amended ("ECOA"), the Fair Credit Reporting
Act of 1970, as amended, the Federal Real Estate Settlement Procedures Act
("RESPA"), and Regulation X, the Home Mortgage Disclosure Act, the Federal Debt
Collection Practices Act and the National Housing Act of 1934, as well as other
federal and state statutes and regulations affecting the Company's activities.
The Company is also subject to the rules and regulations of, and examinations
by, HUD and state regulatory authorities with respect to originating,
processing, underwriting, selling, securitizing and servicing loans. These rules
and regulations, among other things, impose licensing obligations on the
Company, establish eligibility criteria for mortgage loans, prohibit
discrimination, provide for inspections and appraisals of properties, require
credit reports on loan applicants, regulate assessment, collection, foreclosure
and claims handling, investment and interest payments on escrow balances and
payment features, mandate certain disclosures and notices to borrowers and, in
some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure
to comply with these requirements can lead to loss of approved status,
termination or suspension of servicing contracts without compensation to the
servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.

     The Company believes that it is in compliance in all material respects with
applicable federal and state laws and regulations.

ENVIRONMENTAL MATTERS

     To date, the Company has not been required to perform any investigation or
cleanup activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.

     In the course of its business, the Company has acquired, and may acquire in
the future, properties securing loans which are in default. Although the Company
primarily lends to owners of residential properties, there is a risk that the
Company could be required to investigate and clean up hazardous or toxic
substances or chemical releases at such properties after acquisition by the
Company, and may be held liable to a governmental entity or to third parties for
property damage, personal injury and investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, the owner or
former owners of a contaminated site may be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from such property. On all loan applications where the
Company believed there may have existed, or an appraisal may have indicated, a
possible environmental problem, the Company had required a Phase I Environmental
Report.

EMPLOYEES

     As a result of the Company's reorganization efforts, the decision in the
fourth quarter of 1998 to suspend indefinitely all of its loan originations and
purchase activities and employee attrition, the Company's workforce has been
reduced from 837 employees at December 31, 1997 to 70 employees as of December
31, 1998, all of whom were full-time employees. Of the Company's employees



                                       11
<PAGE>   12

at December 31, 1998, 11.4% were in management, 48.6% were in administrative
support and 40.0% were in servicing. None of the Company's employees is covered
by a collective bargaining agreement. As of March 22, 1999, the Company's
workforce was reduced to 54 employees. The Company considers its relations with
its employees to be satisfactory.

     As a result of the difficult environment the Company has recently been
operating in, the Company is experiencing an increase in the rate of attrition
of its employees and an inability to attract, hire and retain qualified
replacement employees. Further attrition or inability to hire employees may
exacerbate the Company's difficult position which could have a material adverse
effect on the Company's results of operations and financial condition. No
assurance can be given that such attrition or inability to hire employees will
not occur.

ITEM 2. PROPERTIES

     The Company's executive and administrative offices are located at 565
Taxter Road in Elmsford, New York, where the Company leases approximately 7,800
square feet of office space at an annual aggregate rent of approximately
$137,000. The lease expires on December 31, 1999. The Company's servicing
operations are located at 8 Skyline Drive, Hawthorne, New York, where the
Company leases an additional 5,710 square feet of office space at an annual
aggregate rent of approximately $103,000. This lease expires on June 30, 1999.
The Company has rejected or intends to reject all other material property leases
as part of its filings under the Bankruptcy Code.

ITEM 3. LEGAL PROCEEDINGS

     In the normal course of business, aside from the matters discussed below,
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.

     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
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 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 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
officers and directors in federal court in New Jersey (the "New Jersey Action").

     In these actions, plaintiffs allege that the Company and its 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 a number of 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 (the "Exchange Act"). Plaintiffs seek unspecified damages,
including pre-judgment interest, attorneys' and accountants' fees and court
costs.



                                       12
<PAGE>   13

     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
defendant officers and directors 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.

     Simpson Action. In February 1998, a putative class action lawsuit (the
"Simpson Action") was filed against the Company in the U.S. District Court for
the Northern District of Mississippi (Greenville Division). The Simpson Action
is a class action brought under the anti-kickback provisions of Section 8 of
RESPA. The complaint alleges that, on November 19, 1997, plaintiff Laverne
Simpson, through the services of Few Mortgage Group ("Few"), a mortgage broker,
obtained refinancing for the mortgage on her residence in Greenville,
Mississippi. Few secured financing for plaintiff through the Company. In
connection with the financing, the Company is alleged to have paid a premium to
Few in the amount of $1,280.00. Plaintiff claims that the payment was a referral
fee and duplicative payment prohibited under Section 8 of RESPA. Plaintiff is
seeking compensatory damages for the amounts "by which the interest rates and
points charges were inflated." Plaintiff also claims to represent a class
consisting of all other persons similarly situated, that is, persons (i) who
secured mortgage financing from the Company through mortgage brokers from an
unspecified period to date (claims under Section 8 of RESPA are governed by a
one year statute of limitations) and (ii) whose mortgage brokers received a fee
from the Company. Plaintiff is seeking to recover compensatory damages, on
behalf of the putative class, which is alleged to be "numerous," for the amounts
that "the interest rates and points charges were inflated" in connection with
each class member's mortgage loan transaction. The Company answered the
complaint and plaintiff has not yet moved for class certification. To date,
there has not been a ruling on the merits of either plaintiff's individual claim
or the claims of the putative class.

     Other Matters. In April 1998, the Company was named as a defendant in an
Amended Complaint filed against 59 separate defendants in the Circuit Court for
Baltimore City entitled Peaks v. A Home of Your Own, Inc. et al. This action is
styled as a class action and alleges various causes of action (including
Conspiracy to Defraud, Fraud, Violation of Maryland Consumer Protection Act and
Unfair Trade Practices, Negligent Misrepresentation, and Negligence) against
multiple parties relating to 89 allegedly fraudulent mortgages made on
residential real estate in Baltimore, Maryland. The Company is alleged to have
purchased at least eight of the loans (and may have purchased 15 of the loans)
at issue in the Complaint. The Company has not yet been involved in any
discovery and has yet to file its response. In August 1998, the plaintiff filed
an amended complaint in which the class action allegations were dropped and
instead the complaint was joined by 80 individual plaintiffs. The Company
believes that eight of these plaintiffs may have claims that involve loans
acquired by the Company. The Company has continued to monitor the proceedings
and has participated informally in certain settlement discussion, but, as a
result of the Company's chapter 11 proceedings, has not been required to file a
response and has not been required to participate formally in any discovery.

     In September 1998, Elliott Associates, L.P. and Westgate International,
L.P. filed a lawsuit against the Company and certain of its officers and
directors in the the Southern District. In the complaint, plaintiffs describe
the lawsuit as "an action for securities fraud and breach of contract arising
out of the private placement, in September 1997, of the Series B Preferred Stock
of Cityscape." Plaintiffs allege violations of Section 10(b) of the Exchange Act
(Count I); Section 20(a) of the Exchange Act (Count II); and two breach of
contract claims against the Company (Counts III and IV). Plaintiffs allege to
have purchased a total of $20 million of such preferred stock. Plaintiffs seek
unspecified damages, including pre-judgement interest, attorneys' fees, other
expenses and court costs. The Company and its defendant officers and directors
have moved to dismiss this action.

     Although no assurance can be given as to the outcome of the lawsuits
described above, the Company believes that the allegations in each of the
actions are without merit and that its disclosures were proper, complete and
accurate. The Company intends to defend vigorously against these actions and
seek



                                       13
<PAGE>   14

their early dismissal. These lawsuits, however, if decided in favor of
plaintiffs, could have a material adverse effect on the Company.

     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 on
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 February 1, 1999, Judge Stein denied the Company's motion
for reconsideration of that part of his December 1998 order which granted
Walsh's motion to dismiss with respect to 69 of the loans at issue. The case has
currently entered a pre-trial discovery phase.

     In April 1998, the Company filed an action in the US District Court for the
District of Maryland against multiple parties entitled Cityscape Corp. vs.
Global Mortgage Company, et al. The Company is in the process of serving the
complaint on the defendants. To date, the Company has yet to receive any
responsive pleadings. The complaint seeks damages of $4.0 million stemming from
a series of 145 allegedly fraudulent residential mortgages which the Company
previously acquired. The Company has previously reserved for losses against such
loans.

     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 values 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 has requested additional
information from the Company in connection with the accounting related to the
J&J Acquisition and the Greyfriars Acquisition. The Company is supplying 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 quarter
ended June 30, 1996. The Company is continuing to cooperate fully in this
matter.

     As a result of the Company's negative operating results, the Company
received inquiries from the New York State Department of Banking regarding the
Company's qualifications to continue to hold a mortgage banking license. In
connection with such inquiries, the Company was fined $50,000 in 1998 and agreed
to provide the banking department with specified operating information on a
timely basis and to



                                       14
<PAGE>   15

certain restrictions on its business. Although the Company believes it complies
with its licensing requirements, no assurance can be given that additional
inquiries by the banking department or similar regulatory bodies will not have
an adverse effect on the licenses that the Company holds which in turn could
have a negative effect on the Company's results of operations and financial
condition.

     UK Sale Agreement. On September 4, 1998, CSC-UK commenced proceedings in
the High Court of Justice, London against Ocwen for the payment of certain sums
due under the UK Sale Agreement (the "Proceedings"). Although Ocwen initially
informed CSC-UK that it would defend the Proceedings, Ocwen then satisfied
CSC-UK's claim by paying CSC-UK (pound)1.7 million ($2.8 million) on November
24, 1998. Prior to CSC-UK initiating the Proceedings, Ocwen informed CSC-UK that
it would defend the (then proposed) Proceedings on the basis that any sums owed
by Ocwen to CSC-UK, should be set off or extinguished against a sum which Ocwen
claimed was due or, alternatively, was recoverable by it from CSC-UK on the
grounds of CSC-UK's breach of warranty or misrepresentation with respect to
matters concerning loans of Greyfriars (the "Alleged Loan Liabilities"). With
respect to the Alleged Loan Liabilities, Ocwen claimed that CSC-UK had
excessively charged borrowers, failed to notify borrowers of interest rate rises
and failed to advise borrowers of increased repayments. Ocwen claimed that these
liabilities totaled approximately (pound)13.0 million ($21.2 million).
Additionally, pursuant to the UK Sale Agreement, Ocwen held back a sum of
(pound)3.5 million ($5.7 million) with respect to the purchase price, pending
the determination of certain other figures under the UK Sale Agreement (the
"Holdback"), which sum was paid into a Holdback account at the time of the UK
Sale Agreement.

     On February 15, 1999, the Company, Ocwen and certain of their subsidiaries
entered into a settlement agreement, in full and final settlement of all causes
of action, claims, demands, liabilities, damages, costs, charges and expenses
that the Company, CSC-UK and Ocwen and their respective subsidiaries may have
against each other. Such claims include Ocwen's alleged claim against the
Company and/or CSC-UK with respect to the Alleged Loan Liabilities. Under the
settlement agreement, CSC-UK will be paid (pound)2.0 million ($3.3 million) plus
interest from the Holdback account, and Ocwen will be paid the remaining
(pound)1.5 million ($2.4 million) plus interest from the Holdback account. The
above settlement is contemplated in the Company's recorded investment in
discontinued operations at December 31, 1998.

     The approval of the Bankruptcy Court is a condition to the effectiveness of
the settlement agreement. The Company will apply for the Bankruptcy Court's
approval subject to Ocwen's agreement to the Company's request to substitute
itself for the Company or its subsidiaries where appropriate, as the party to
related legal proceedings with borrowers. It is contemplated that this issue
will be resolved shortly.

     Chapter 11 Proceedings. On October 6, 1998, the Company and CSC filed the
Petitions in the Bankruptcy Court. See "Chapter 11 Proceedings".

     In addition, the Company is party to various legal proceedings arising out
of the ordinary course of its business. Management believes that none of these
ordinary course actions, individually or in the aggregate, will have a material
adverse affect on the results of operations or financial condition of the
Company.

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

     None.



                                       15
<PAGE>   16


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Effective with the opening of business on May 6, 1998, the Company's Common
Stock began to trade on the National Quotation Bureau, Inc. OTC Bulletin Board
(the "Pink Sheets"). From January 29, 1998 through May 1, 1998, the Company's
Common Stock traded on the Nasdaq SmallCap Market under the symbol "CTYSC."
Previously, the Company's Common Stock traded on the Nasdaq National Market
under the symbol "CTYS." Currently, the Company's Common Stock is traded under
the symbol "CYYSQ."

     The following table sets forth the range of high and low bid prices per
share for the Common Stock for the periods indicated as reported by Nasdaq
through May 1, 1998 and the range of high and low bid prices per share for the
Common Stock for the periods indicated as reported in the Pink Sheets from May
6, 1998 (reflecting inter-dealer prices, without retail mark-up, mark-down or
commission which may not represent actual transactions).

<TABLE>
<CAPTION>
                                                          HIGH       LOW
                                                        -------    -------
<S>                                                     <C>        <C>
     Year ended December 31, 1997:
       First quarter ................................   $ 31.50    $ 17.50
       Second quarter ...............................     20.00      11.50
       Third quarter ................................     19.00       8.63
       Fourth quarter ...............................     10.44       0.25
     Year ended December 31, 1998:
       First quarter ................................      0.97       0.50
       Second quarter (through May 1, 1998) .........      0.72       0.41
       Second quarter (from May 6, 1998) ............      0.34       0.03
       Third quarter ................................      0.17       0.02
       Fourth quarter ...............................      0.02       0.01
</TABLE>

     As of March 22, 1999, there were 607 stockholders of record of the
Company's Common Stock.

     The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. In addition,
certain agreements to which the Company is a party restrict the Company's
ability to pay dividends on common equity. The payment of dividends to the
Company by its subsidiaries is and will continue to be restricted by or subject
to, among other limitations, applicable provisions of laws of national and state
governments, contractual provisions, the earnings of such subsidiaries and
various business considerations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".




                                       16
<PAGE>   17


ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial data set forth below as of December 31,
1998, 1997, 1996, 1995 and 1994 and for the years then ended have been derived
from the consolidated financial statements of the Company, of which the balance
sheet data at December 31, 1998 and 1997 and the operating results data for the
years ended December 31, 1998, 1997 and 1996 have been derived from audited
consolidated financial statements and notes thereto included in this Report. The
Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and the liquidation of liabilities and commitments in the normal course
of business. The Petitions (see Note 2 to the Consolidated Financial
Statements), related circumstances, significant losses form operations and a net
capital deficiency at December 31, 1998 raise substantial doubt about the
Company's ability to continue as a going concern. Because of the significance of
the uncertainty of the Company to continue as a going concern, the independent
auditors' report, included herein, does not express an opinion on the 1998 and
1997 financial statements. The following data should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                           ------------------------------------------------------------------------
                                                              1998            1997            1996           1995          1994(1)
                                                           ---------       ---------       ---------      ---------       ---------
                                                                           (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S>                                                        <C>             <C>             <C>            <C>             <C>
STATEMENT OF OPERATIONS DATA:
  Revenues:
    Gain on sale of loans ............................     $     128       $  83,365       $  76,820      $  26,305       $   5,691
     Net unrealized loss on valuation of
       residuals .....................................       (68,847)       (148,004)             --             --              --
    Mortgage origination income ......................         2,238           4,849           2,812          2,751           2,551
    Interest .........................................        14,363          73,520          24,535          6,110           1,900
    Other ............................................         1,454          20,302           3,681          1,306           1,032
                                                           ---------       ---------       ---------      ---------       ---------
         Total revenues ..............................       (50,664)         34,032         107,848         36,472          11,174
  Costs and expenses:
    Salaries and employee benefits ...................        28,744          41,089          26,288         10,861           4,280
    Other costs and expenses .........................       109,425         129,526          38,360         11,080           5,041
                                                           ---------       ---------       ---------      ---------       ---------
         Total costs and expenses ....................       138,169         170,615          64,648         21,941           9,321
  (Loss) earnings from continuing
    operations before extraordinary
    item, income taxes and
    reorganization items .............................      (188,833)       (136,583)         43,200         14,531           1,853
  Reorganization items ...............................        31,879              --              --             --              --
                                                           ---------       ---------       ---------      ---------       ---------
  (Loss) earnings from continuing
     operations before extraordinary item
     and income taxes ................................      (220,712)       (136,583)         43,200         14,531           1,853
  Income taxes (benefit) provision(2) ................            38         (18,077)         19,325          6,410           1,450
                                                           ---------       ---------       ---------      ---------       ---------
  (Loss) earnings from continuing
     operations before extraordinary item ............      (220,750)       (118,506)         23,875          8,121             403
  Discontinued operations:
  (Loss) earnings from discontinued
     operations, net of income tax
     (benefit) provision, net of
     extraordinary item, net of tax ..................            --        (245,906)         26,806          3,750              --
   Loss on disposal of discontinued
      operations .....................................            --         (49,940)             --             --              --
                                                           ---------       ---------       ---------      ---------       ---------
  (Loss) earnings before extraordinary
    item .............................................      (220,750)       (414,352)         50,681         11,871             403
  Extraordinary item (3) .............................            --              --              --           (296)             --
                                                           ---------       ---------       ---------      ---------       ---------
  Net (loss) earnings ................................      (220,750)       (414,352)         50,681         11,575             403
  Preferred stock dividends paid in
    common stock .....................................            --             905              --             --              --
  Preferred stock - increase in
    liquidation preference ...........................         6,278             917              --             --              --
  Preferred stock - default payments .................        14,049
  Preferred stock - beneficial discount ..............            --           2,725              --             --              --
                                                           ---------       ---------       ---------      ---------       ---------
  Net (loss) earnings applicable to
    common stock .....................................     $(241,077)      $(418,899)      $  50,681      $  11,575       $     403
                                                           =========       =========       =========      =========       =========
</TABLE>


                                       17
<PAGE>   18


<TABLE>
<CAPTION>
<S>                                                        <C>             <C>             <C>            <C>             <C>
  Earnings (loss)  per
    common share (4):
  Basic:
    Continuing operations before
      extraordinary item .............................     $   (4.11)      $   (3.70)      $    0.81      $    0.38       $    0.02
    Discontinued operations ..........................            --           (7.40)           0.91           0.18              --
    Disposal of discontinued operations ..............            --           (1.50)             --             --              --
    Extraordinary item ...............................            --              --              --          (0.02)             --
                                                           ---------       ---------       ---------      ---------       ---------
    Net (loss) earnings ..............................     $   (4.11)      $  (12.60)      $    1.72      $    0.54       $    0.02
                                                           =========       =========       =========      =========       =========

  Diluted (5):
    Continuing operations before
      extraordinary item .............................     $   (4.11)      $   (3.70)      $    0.78      $    0.34       $    0.02
    Discontinued operations ..........................            --           (7.40)           0.88           0.16              --
    Disposal of discontinued operations ..............            --           (1.50)             --             --              --
    Extraordinary item ...............................            --              --              --          (0.01)             --
                                                           ---------       ---------       ---------      ---------       ---------
    Net (loss) earnings ..............................     $   (4.11)      $  (12.60)      $    1.66      $    0.49       $    0.02
                                                           =========       =========       =========      =========       =========

  Weighted average number of
Common shares:
    Basic ............................................        58,662          33,244          29,405         21,244          20,042
                                                           =========       =========       =========      =========       =========
    Diluted ..........................................        58,662          33,244          30,538         23,839          20,561
                                                           =========       =========       =========      =========       =========


<CAPTION>
                                                                                       DECEMBER 31,
                                                           ------------------------------------------------------------------------
                                                              1998            1997            1996           1995          1994(1)
                                                           ---------       ---------       ---------      ---------       ---------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                        <C>             <C>             <C>            <C>             <C>
BALANCE SHEET DATA:
  Total assets .......................................     $ 209,338       $ 394,002       $ 663,841      $ 135,946       $  21,816
  Mortgage servicing receivables, net ................            --           4,969          40,068          3,436              --
  Trading securities(6) ..............................        33,661         126,476         103,200         15,571              --
  Mortgage loans held for sale, net ..................       123,346          93,290          88,127         73,852          16,681
  Investment in discontinued operations,
    net ..............................................        13,008          84,232         212,590         26,832              --
  Total debt(7) ......................................       105,969         507,099         335,479         72,942          16,100
  Liabilities subject to compromise ..................       477,424              --              --             --              --
  Total liabilities ..................................       606,913         570,827         525,009         78,849          18,030
  Total stockholders' equity (deficit) ...............      (397,575)       (176,825)        138,832         57,099           3,177


<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                           ------------------------------------------------------------------------
                                                              1998            1997            1996           1995          1994(1)
                                                           ---------       ---------       ---------      ---------       ---------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                        <C>             <C>             <C>            <C>             <C>
OPERATING STATISTICS:
Loan originations and purchases:
 Core Products .......................................     $ 183,846       $ 818,023       $1,065,716     $ 417,864       $ 154,410
   Sav*-A-Loan(R)Products ............................       268,600         669,119         137,318             --              --
   Other Products ....................................         4,336         167,890          86,321             --              --
                                                           ---------       ---------       ---------      ---------       ---------
      Total ..........................................     $ 456,782       $1,655,032      $1,289,355     $ 417,864       $ 154,410

Average principal balance per loan
   originated and purchased ..........................     $      51       $      56       $      62      $      70       $      77

Weighted average initial
   Loan-to-value ratio (8) ...........................          78.4%           73.6%           72.5%          66.4%           59.7%

Loan sales ...........................................     $ 414,167       $1,637,387      $1,270,897     $ 358,997       $ 138,041

Loans serviced (9) ...................................     $1,214,555      $2,590,479      $1,519,395     $ 386,720       $  56,340

Loans 30+ days past due as a
  percentage of serviced portfolio ...................          17.7%           11.2%            8.9%           3.9%            3.4%

Charge-offs ..........................................     $  32,344       $   4,734       $     167      $      52              --

</TABLE>
----------
(1)  Gives effect to the Company's purchase of the capital stock of CSC as if
     such purchase occurred on January 1, 1994. On April 27, 1994, the Company
     acquired all of the capital stock of CSC in an



                                       18
<PAGE>   19

     acquisition in which the shareholders of CSC acquired beneficial ownership
     of approximately 92% of the Company's Common Stock. The CSC Acquisition was
     accounted for as a reverse acquisition for financial reporting purposes
     with CSC being deemed to have acquired a 100% interest in the Company as of
     the date of the acquisition. From the date of its formation in 1988 through
     the date of the CSC Acquisition, the Company's activities were limited to
     (i) the sale of initial shares in connection with its organization, (ii) a
     registered public offering of securities and (iii) the pursuit of a
     combination, by merger or acquisition. The Company presently has no
     business operations other than those incidental to its ownership of all the
     capital stock of CSC.

(2)  Includes a one-time charge of $680,000 related to the change in tax status
     in 1994 from an "S" corporation to a "C" corporation.

(3)  Represents a loss, net of taxes, related to the early extinguishment of
     subordinated debentures in December 1995.

(4)  Earnings per share figures for the effected periods reflect the 100% stock
     dividends paid in September 1995 and July 1996.

(5)  For the years ended December 31, 1998 and 1997, the incremental shares from
     assumed conversions are not included in computing the diluted per share
     amounts because the effect would be antidilutive since an increase in the
     number of shares would reduce the amount of loss per share. Therefore,
     basic and diluted earnings per share figures are of equal amount.

(6)  Represents the interest-only and residual mortgage certificates that the
     Company received upon loan sales through securitizations.

(7)  Includes short-term borrowings due under warehouse facilities. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Liquidity and Capital Resources."

(8)  Excludes the Company's Sav*-A-Loan(R) Products and Other Products.

(9)  Includes contract servicing operations by the Company. See "Item 1--
     Current Business of Company-- Loan Servicing and Collections."


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying notes for the
years ended December 31, 1998, 1997 and 1996. 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 as a result of certain factors including, but not
limited to, the confirmation of the Amended Plan, the ability to access loan
warehouse or purchase facilities in amounts, if at all, necessary to fund the
Company's possible future loan production, the successful sale of loans in the
whole loan sales market, legal proceedings and other matters, adverse economic
conditions, competition and other risks detailed from time to time in the
Company's Securities and Exchange Commission reports. 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.

GENERAL

     The Company is a consumer finance company which, through its wholly-owned
subsidiary, CSC, is in the business of selling and servicing mortgage loans
secured primarily by one- to four-family residences. CSC is licensed or
registered to do business in 44 states and the District of Columbia. Until the
Company indefinitely suspended such business in November 1998, the Company also
had been in the business of originating and purchasing such mortgage loans. The
majority of the Company's loans were made to owners of single family residences
who use the loan proceeds for such purposes as debt consolidation and financing
of home improvements and educational expenditures, among others. The Company is
currently operating under the protection of the Bankruptcy Code. No assurance
can be given that the Company will emerge from bankruptcy or that its loan
origination or purchase activities will resume.



                                       19
<PAGE>   20

CHAPTER 11 PROCEEDINGS

     The Company determined during 1998 that the best alternative for
recapitalizing the Company over the long-term and maximizing the recovery of
creditors and senior equity holders of the Company was through a prepackaged
plan of reorganization for the Company and CSC, pursuant to the Bankruptcy Code.
On October 6, 1998, the Company and CSC filed the Petitions in the Bankruptcy
Court. See "Item 1 - Chapter 11 Proceedings."

     The Company and CSC are currently operating their business as
debtors-in-possession. In October 1998, the Bankruptcy Court entered final
orders approving debtor-in-possession financing arrangements (see " - Liquidity
and Capital Resources"). Under the Bankruptcy Code, the Company and CSC may
elect to assume or reject real estate leases and other prepetition executory
contracts, subject to Bankruptcy Court approval. Upon rejection, under Section
502 of the Bankruptcy Code, a lessor's claim for damages resulting from the
rejection of a real property lease is limited to the rent to be received under
such lease, without acceleration, for the greater of one year, or 15%, not to
exceed three years, of the remaining term of the lease following the earlier of
the date of the petitions or the date on which the property is returned to the
landlord. On December 23, 1998, the Bankruptcy Court granted an order approving
the rejection of certain executory contracts and real estate leases. The Company
and CSC are continuing to review their remaining leases and executory contracts
to determine which, if any additional leases and contracts, should be rejected.

     Liabilities subject to compromise as of December 31, 1998, pursuant to the
Plan are summarized as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
     12 3/4% Senior Notes ...............................      $300,000,000
     6% Convertible Subordinated Debentures .............       129,620,000
     Accrued interest related to Senior Notes
       And Convertible Debentures .......................        39,771,220
     Accounts payable ...................................         8,033,138
                                                               ------------
     Total ..............................................      $477,424,358
                                                               ============
</TABLE>

     Other potential consequences of reorganization under chapter 11 that have
not been recorded, including the effect of the determination as to the
disposition of executory contracts and leases as to which a final determination
by the Bankruptcy Court as to rejection, had not yet been made. Pursuant to an
order of the Bankruptcy Court signed in October 1998, prepetition amounts owed
to trade creditors may be paid in the ordinary course of business.

     On November 17, 1998, the Company decided to suspend indefinitely all of
its loan origination and purchase activities. The Company notified its brokers
that it had ceased funding mortgage loans, other than loans that were in its
origination pipeline for which it had issued commitments. The Company's decision
was based upon its determination, following discussions with potential lenders
regarding post-reorganization loan warehouse financing, that adequate sources of
such financing were not available. With no adequate sources of such financing,
the Company determined that it was unable to continue to originate and purchase
mortgage loans. On or about December 18, 1998, the Company funded the last of
the mortgage loans for which it had issued commitments as of November 17, 1998.

     The Amended Plan provides for substantive consolidation of the assets of
the Company and CSC and for distributions to creditors. Estimated recoveries are
based upon (i) principal and accrued and unpaid interest as of the chapter 11
petition date and (ii) an estimated, aggregate amount of allowed general
unsecured claims of $10.0 million.

     In summary, the Amended Plan, if confirmed by the Bankruptcy Court, would
provide that: (i) administrative claims, priority tax claims, bank claims, other
secured claims and priority claims will be



                                       20
<PAGE>   21

paid in full; (ii) holders of Notes would receive in exchange for all of their
claims, in the aggregate 92.48% of the new common stock of the reorganized
company (or 97.91% if the holders of the Convertible Debentures vote to reject
the plan); (iii) holders of the Convertible Debentures would receive in exchange
for all their claims, in the aggregate, 5.43% of the new common stock of the
reorganized company (or 0% if the holders of the Convertible Debentures vote to
reject the plan); (iv) holders of general unsecured claims would receive 2.09%
of the new common stock of the reorganized company; and (v) existing Common
Stock, Preferred Stock and warrants of the Company would be extinguished and
holders thereof would receive no distributions under the Amended Plan.The
Company presently intends to seek confirmation of and to consummate the Amended
Plan on or before May 31, 1999. There can be no assurance: (i) as to when, if
ever, the Company's loan origination and purchase activities will resume; (ii)
that the terms of the Company's plan of reorganization will not change; (iii)
that the Bankruptcy Court will confirm such plan within the anticipated
timeframe, if at all; or (iv) that such plan will consummated (even if it is
confirmed). This summary of the Amended Plan is qualified in its entirety by
reference to the Disclosure Statement dated March 26, 1999, filed as Exhibit
99.2 hereto, and to the Amended Plan which is an exhibit thereto.

DOWNSIZING OF OPERATIONS

     US OPERATIONS

     During 1998, the Company significantly downsized its operations due to
negative operating results, liquidity constraints and, as discussed above, the
reorganization proceedings and indefinite suspension of its loan origination and
purchase activities.

     In the US, the Company closed its branch operations in Georgia, Illinois,
Virginia, California and New York and significantly reduced its number of
employees, including servicing and corporate employees. In connection with its
downsizing, the Company recorded a restructuring charge of $3.2 million in the
first quarter of 1998. Of this amount, $1.1 million represented severance
payments made to 142 former employees and $2.1 million represented costs
incurred in connection with lease obligations and write-off of assets no longer
in service. During the fourth quarter of 1998, the Company recorded
reorganization items of $31.9 million. Of this amount, $3.9 million represents
severance payments to 335 former employees, $5.3 million represents costs
incurred in connection with lease obligations and write-offs of assets no longer
in service, $10.7 million represents professional fees and other miscellaneous
items related to the reorganization and $12.0 million represents the write-off
of the deferred debt issuance costs related to the Notes and Convertible
Debentures.

     UK OPERATIONS

     As a result of liquidity constraints, the Company adopted a plan in March
1998 to sell the assets of CSC-UK. In April 1998, pursuant to the UK Sale
Agreement, the Company completed the UK Sale. As a result of the sale, the
Company received proceeds, at the time of closing, of $83.8 million, net of
closing costs and other fees. See "Item 1 - Downsizing of Operations - UK
Operations."

     Accordingly, the operating results of CSC-UK and its subsidiaries have been
segregated from continuing operations and reported as a separate line item on
the Company's financial statements. In addition, net assets of CSC-UK have been
reclassified on the Company's financial statements as investment in discontinued
operations. The Company has restated its 1996 financial statements to present
operating results of CSC-UK as a discontinued operation.

     As of December 31, 1998, the Company's net investment in discontinued
operations totaled $13.0 million, representing cash on hand in the discontinued
operation of approximately $9.1 million and net receivables (net of liabilities)
due of approximately $3.9 million. The Company expects to maintain a balance of
cash on hand in the discontinued operations to cover existing and potential
liabilities and costs until dissolution of the existing legal entities of CSC-UK
and its subsidiaries.



                                       21
<PAGE>   22

OVERVIEW OF PREVIOUS AND CURRENT BUSINESS

     The Company primarily generates revenue from gain on sale of loans
recognized from premiums on loans sold through whole loan sales to institutional
purchasers, interest earned on loans held for sale, excess mortgage servicing
receivables and fees earned on loans serviced. Historically, the Company also
recognized gain on sale of loans sold through securitizations and origination
fees received as part of the loan application process. Recently, however, the
Company decided to suspend indefinitely all of its loan origination and purchase
activities. In addition, during 1998 the Company redirected its efforts to
actively pursue the sale of its loans through whole loan sales with servicing
released rather than through securitizations. By employing whole loan sales, the
Company is better able to manage its cash flow as compared to disposition of
loans through securitizations. Whole loan sales represented all of the Company's
loan sales during 1998, but with the Company's prior emphasis on the sale of
loans through securitizations, had represented 31.7% and 22.2%, respectively, of
all loan sales in 1997 and 1996.

     Gain on Sale of Loans. Gain on sale of loans included the present value of
the differential between the interest rate payable by an obligor on a loan over
the interest rate passed through to the purchaser acquiring an interest in such
loan, less applicable recurring fees, including the costs of credit enhancements
and trustee fees. For the years ended 1997 and 1996, gain on sale of loans also
included gain on securitization representing the fair value of the interest-only
and residual certificates that the Company received upon the sale of loans
through securitizations which are reflected as trading securities. During 1998,
1997 and 1996, gain on sale of loans constituted approximately 0.7% (excluding a
net unrealized loss on valuation of residuals of $68.8 million), 45.8%
(excluding a net unrealized loss on valuation of residuals of $148.0 million)
and 71.2%, respectively, of total revenues.

     Loan Originations and Purchases. The following table highlights certain
selected information relating to loans originated by the Company during the
periods shown. As discussed above, on November 17, 1998, the Company decided to
suspend indefinitely all of its loan origination and purchase activities.

<TABLE>
                         LOAN ORIGINATION AND PURCHASES

<CAPTION>
                                             FOR THE YEAR ENDED DECEMBER 31,
                                         --------------------------------------
                                            1998          1997          1996
                                         ----------    ----------    ----------
                                                 (DOLLARS IN THOUSANDS)

<S>                                      <C>           <C>           <C>
Total originations and purchases .....   $  456,782    $1,655,032    $1,289,355
Weighted average interest rate:
   Core Products .....................          9.7%         11.2%         11.8%
   Sav*-A-Loan(R)Products ............         13.0%         14.0%         14.4%
   Other Products ....................          9.0%          9.0%         10.5%
   Bulk purchases ....................           --            --          12.0%
Overall weighted average interest rate         11.6%         12.0%         12.0%
Weighted average initial loan-to-value
   ratio(1) ..........................         78.4%         73.6%         72.5%
Percentage of loans secured by first
   mortgages:
   Core Products .....................         87.9%         91.7%         94.0%
   Sav*-A-Loan(R)Product .............          0.2%          1.4%          0.8%
</TABLE>

----------
(1)  Excludes the Company's Sav*-A-Loan(R) products and Other Products. The
     loan-to-value ratio of a loan secured by a first mortgage is determined by
     dividing the amount of the loan by the appraised value of the mortgaged
     property at origination. The loan-to-value ratio of a loan secured by a
     second mortgage is determined by taking the sum of the loans secured by the
     first and second mortgages and dividing by the appraised value of the
     mortgaged property at origination.



                                       22
<PAGE>   23

     The Company decreased its loan originations and purchases in 1998 to $456.8
million from $1.7 billion in 1997. This decrease was due to fluctuating market
conditions, the Company's reorganization proceedings and the Company's decision
to suspend indefinitely all loan origination and purchase activities during the
fourth quarter of 1998. In addition, due to the factors mentioned above, the
weighted average interest rates on loans originated in 1998 decreased to 11.6%
from 12.0% in 1997 and the weighted average initial loan-to-value ratio
increased to 78.4% in 1998 from 73.6% in 1997. See "Item 1 - Cessation of
Certain Businesses of Company - Loan Originations and Purchases" for further
discussion of the loan products and channels of the 1998 loan originations and
purchases.

     Loan Sales. The Company sells virtually all of the loans it originated in
loan sales through whole loan sales. See "Item 1-- Current Business of Company--
Whole Loan Sales". During 1998, 1997 and 1996, the Company sold $414.2 million,
$1.6 billion and $1.3 billion of loans, respectively, of which $414.2 million,
$518.4 million and $283.9 million, respectively, were sold in whole loan sales.
Gains on the sale of loans through securitizations and into loan purchase
facilities were $75.3 million and $75.1 million, or 41.3% and 69.6% of the
Company's total revenues (excluding net unrealized losses) in 1997 and 1996,
respectively. See "Item 1 Cessation of Certain Businesses of Company - Loan
Sales Through Securitizations". Gains on whole loan sales represented 0.7%, 4.5%
and 1.6% of the Company's total revenues (excluding net unrealized losses) in
1998, 1997 and 1996, respectively.

     During 1998, 1997 and 1996, gains on loan sales totaled $128,024 (less than
0.1% weighted average gain), $83.4 million (5.1% weighted average gain) and
$76.8 million (6.0% weighted average gain), respectively. Recently, due to
deteriorating market conditions, a majority of the Company's loan portfolios
were sold for less than par value.

     Loan Servicing. In 1998, the Company sold the servicing rights to all of
the loans it sold. In 1997 and 1996, the Company retained the servicing rights
for approximately 75.1% and 97.8%, respectively, of the loans it sold. The
Company anticipates that it will continue to sell whole loans on a servicing
released basis. As of December 31, 1998, the Company was servicing 25,179 loans
with an aggregate principal balance of $1.2 billion. Revenue generated from loan
servicing amounted to 4.4% (excluding $68.8 million of net unrealized losses),
0.9% (excluding $148.0 million of net unrealized losses) and 2.6% of total
revenues for 1998, 1997 and 1996, respectively. Due to the Company's decision to
sell loans in the whole loan sale market with servicing released as well as the
indefinite suspension of all loan origination and purchase activities, the
Company anticipates that the size of the servicing portfolio will continue to
decrease in the future. In addition, the Company is currently evaluating the
potential transfer of such servicing and, should such transfer occur, will
adjust its staffing accordingly. See "Item 1 - Current Business of Company -
Loan Servicing and Collections" for further discussion of the Company's loan
servicing portfolio.

     In January 1998, the Company retained Ocwen FSB, established in the
management and resolution of underperforming loans, as a special loan servicer
to sub-service the Company's 90-day-plus delinquent loans. The Company has the
right to deliver non-performing loans to Ocwen on an ongoing basis. In 1998, the
Company transferred to Ocwen FSB 993 non-performing loans with an aggregate
unpaid principal balance of $66.4 million.

     Due to the Company exceeding the delinquency rates permitted under the
terms of the pooling and servicing agreements with respect to the Company's
1995-2, 1995-3, 1996-1, 1996-2, 1996-3 and 1996-4 home equity securitizations,
during the third quarter of 1998 the Company entered into subservicing
agreements with respect to such loans with Fairbanks and Ocwen FSB. As of
December 31, 1998, the outstanding amount of such loans was $550.5 million or
45.7% of the Company's total servicing portfolio and 93.3% of the Company's home
equity servicing portfolio. Under the terms of the subservicing agreements,
Fairbanks and Ocwen FSB as subservicers retain all rights, including the normal
servicing fee and any ancillary income, and obligations of the servicer as
provided for under the terms of the applicable securitizations and servicing
agreements. The Company expects to enter into a similar subservicing



                                       23
<PAGE>   24

agreement for its 1995-1 home equity securitization which, as of December 31,
1998, had approximately $14.4 million of loans outstanding.

BUSINESS STRATEGY

     If the Amended Plan is confirmed by the Bankruptcy Court, it is expected
that the reorganized Company will reenter the mortgage loan origination business
at some time in the future, based on prevailing industry conditions and the
general business climate. The Company presently intends to seek confirmation and
to consummate the Amended Plan on or before May 31, 1999. There can be no
assurance: (i) as to when, if ever, the Company's loan origination and purchase
activities will resume; (ii) that the terms of the Company's plan of
reorganization will not change; (iii) that the Bankruptcy Court will confirm
such plan within the anticipated timeframe, if at all; or (iv) that such plan
will be consummated (even if it is confirmed).

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     During 1998, the Company recorded negative revenues of $50.7 million
primarily as a result of the recording of a $68.8 million net unrealized loss on
the Company's trading securities which are in the form of interest-only and
residual mortgage certificates. This represents a $84.7 million decrease in
revenues from 1997 primarily also as a result of decreased gain on sale of
loans, interest income, and other income which included a $18.0 million gain on
sale of available-for-sale securities during 1997.

     For 1998, the Company recorded a gain on sale of loans totaling $128,024.
This gain was due primarily to the sale of $414.2 million of whole loans at an
average net premium received of 0.81% as compared to the average premium paid on
such loans of 0.78%. For 1997, gain on sale of loans also included gain on
securitization representing the fair value of the interest-only and residual
certificates that the Company received upon the sale of loans through
securitizations. During 1997, the Company recognized $83.4 million of gain on
sale of loans representing a weighted average gain of 5.1% on $1.6 billion of
loans sold. The Company expects that it will continue to sell the majority of
loans through whole loan sales and therefore expects to continue to recognize
lower net margins as compared to the margins recognized in 1997. Due to the
Company's decision to suspend indefinitely all origination and purchase
activities, the Company expects that the volume of loans sales in the future
will be reduced.

     During 1998, the Company recorded an unrealized loss on valuation of
residuals of $68.8 million, consisting of a $42.9 million unrealized loss on its
home equity residuals and $25.9 million on its Sav*-A-Loan(R) residuals. This
unrealized loss was primarily a result of (i) the Company increasing the
weighted average discount rate used to value its residuals to 20.0% at December
31, 1998 from 15.0% at December 31, 1997 for both its home equity and
Sav*-A-Loan(R) residuals and (ii) an increase in the loss assumptions from 1.7%
per annum at December 31, 1997 to 7.5% per annum at December 31, 1998 for its
home equity securitizations and an increase from 3.1% per annum at December 31,
1997 to 4.5% per annum at December 31, 1998 for its Sav*-A-Loan(R)
securitizations. As of December 31, 1998, the Company used a 30.0% per annum
weighted average prepayment speed on its home equity securitizations and 16.8%
per annum weighted average prepayment speed on its Sav*-A-Loan(R)
securitizations. The increase in the discount rate reflects the changes in
market conditions experienced in the mortgage-backed securities markets since
the second quarter of 1998. See the Notes to Consolidated Financial Statements
for further discussion of the Company's trading securities.

     Mortgage origination income decreased $2.6 million or 54.2% to $2.2 million
for the year ended December 31, 1998 from $4.8 million for the comparable period
in 1997. This decrease was due primarily to a lower volume of loan originations
for the year ended December 31, 1998 as compared to the same period in 1997.



                                       24
<PAGE>   25

     Interest income decreased $59.1 million or 80.4% to $14.4 million for the
year ended December 31, 1998 from $73.5 million for the comparable period in
1997. This decrease was due primarily to the cessation of the recognition of
accreted interest on the Company's residuals in the second quarter of 1998 as a
result of the devaluation of the residuals, as well as lower originations during
1998 and lower weighted average coupons on the loans originated in 1998.

     Other income decreased $18.8 million or 92.6% to $1.5 million in 1998 from
$20.3 million in 1997. This decrease was due primarily to the inclusion in 1997
of $18.0 million of gain on the sale of IMC Mortgage Company ("IMC") Common
Stock owned by the Company. Additionally, there was a decrease in servicing
income of $820,378 or 50.0% to $819,910 during 1998 from $1.6 million in 1997,
due primarily to the continued attrition of the loans that were sold with
servicing retained prior to the Company's adoption of Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights." The Company expects that servicing revenues will be lower in the future
as a result of the subservicing agreements entered into with Fairbanks.

     Total expenses decreased $32.4 million or 19.0% to $138.2 million in 1998
from $170.6 million in 1997. This decrease was due primarily to lower salaries
and interest expense offset by increased other operating expenses relating to
increased professional fees as well as $3.2 million of restructuring charges and
$2.0 million relating to the settlement of a lawsuit.

     Salaries and benefits decreased $12.4 million or 30.2% to $28.7 million in
1998 from $41.1 million in 1997. This decrease was due primarily to a reduction
of staffing levels to 70 employees as of December 31, 1998 as compared to 837
employees as of December 31, 1997. This decrease in employees was primarily a
result of the Company's reorganization efforts as well as employee attrition and
the Company's decision to suspend indefinitely all loan origination and purchase
activities.

     Interest expense decreased $24.3 million or 34.4% to $46.4 million in 1998
from $70.7 million in 1997. This decrease was due primarily to lower interest on
warehouse facility borrowings due to a lower average balance of loans in
inventory during 1998, the discontinuance in 1998 of the Company's interest rate
management strategy which resulted in higher interest expense and offsetting
interest income and in 1997 the recognition of $4.7 million in interest expense
related to the inducement of the Convertible Debentures.

     Selling and other expenses increased $5.3 million or 11.5% to $51.5 million
in 1998 from $46.2 million in 1997. This increase was due primarily to increased
other operating expenses of $5.0 million or 11.9% to $47.1 million in 1998 from
$42.1 million in 1997 resulting from increased professional fees as a result of
the Company's restructuring and streamlining efforts as well as a $2.0 million
charge due to the settlement of a lawsuit and increased foreclosure costs during
1998.

     Provision for loan losses of $8.3 million was recorded for the year ended
December 31, 1998 as compared to $12.6 million for the year ended December 31,
1997. This decrease was due primarily to significantly lower originations in
1998 ($456.8 million) as compared to 1997 ($1.6 billion) resulting in a lower
level of problem loans originated during 1998 and correspondingly in a lower
loan loss provision. This was offset by the fact that a provision for losses was
required against a higher portion of the loans held for sale resulting from the
deterioration of the market for such loans.

     During 1998, the Company recorded a restructuring charge of $3.2 million.
This charge was related to a restructuring plan that included streamlining and
downsizing the Company's operations. During February 1998, the Company closed
its branch operation in Virginia and significantly reduced its correspondent
originations and exited its conventional lending business. Of the $3.2 million,
$1.1 million represents severance payments made to 142 former employees and $2.1
million represents costs incurred with lease obligations and write-offs of
assets no longer in service.

     In addition to the restructuring charges of $3.2 million, reorganization
items of $31.9 million were recorded during 1998. As part of its reorganization
plan and the Company's decision to indefinitely



                                       25
<PAGE>   26

suspend its loan origination and purchase activities in November 1998, the
Company reduced its workforce by 335 employees and closed its branch operations
in California, Illinois, New York and Georgia, while maintaining corporate and
servicing offices in New York. Of this amount, $3.9 million represents severance
payments to 335 former employees, $5.3 million represents costs incurred in
connection with lease obligations and write-offs of assets no longer in service,
$10.7 million represents professional fees and other miscellaneous items related
to the reorganization and $12.0 million represents the write-off of the deferred
debt issuance costs related to the Notes and Convertible Debentures which are
classified as liabilities subject to compromise at December 31, 1998.

     For the year ended December 31, 1998, the Company recorded an income tax
provision of $38,267 as compared to an income tax benefit of $18.1 million for
the comparable period in 1997. In 1997 the Company recorded a tax benefit of
$18.1 million which represented the refunds claimed by the Company from the tax
loss carrybacks generated as a result of the net operating losses. As a result
of additional net operating losses recorded in 1998, the Company did not
generate federal tax liability during this period. The Company's tax provision
in 1998 reflects the state tax liabilities incurred. See the Notes to the
Consolidated Financial Statements for further discussion of the Company's tax
position.

     The Company recorded a net loss applicable to common stock of $241.1
million for the year ended December 31, 1998 as compared to net loss applicable
to common stock of $418.9 million in 1997. This loss was due primarily to
decreased loan originations which decreased gain on sale of loans without a
corresponding decrease in expenses. In addition the Company's strategy of
selling loans through whole loan sales instead of through securitizations
decreased gain on sale of loans, as well as the recognition of unrealized losses
on valuation of residuals of $68.8 million during 1998.

     YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Total revenues decreased $73.8 million or 68.5% to $34.0 million in 1997
from $107.8 million in 1996. This decrease was due primarily to a net unrealized
loss on valuation of residuals of $148.0 million during 1997, offset by
increased gain on sale of loans of $6.6 million, increased interest income of
$49.0 million resulting primarily from an increase in intercompany income from
CSC-UK, and a gain on sale of available-for-sale securities of $18.0 million.

     Gain on sale of loans increased $6.6 million or 8.6% to $83.4 million in
1997 from $76.8 million in 1996. The increase was due to increased volume of
loan sales at lower average gains ($1.6 billion of loan sales at a weighted
average gain of 5.1% in 1997 as compared to $1.3 billion of loan sales at a
weighted average gain of 6.0% in 1996). The lower average gain on sale of loans
recognized in 1997 was due primarily to lower margins from correspondent loans,
as well as a higher percentage of the Company's loan originations and purchases
being sold as whole loan sales to enhance the Company's liquidity position.
Whole loans sales result in lower margins than loans sold in securitizations,
but are immediately cash flow positive. The Company expects that it will sell
the majority of its loans through whole loan sales and therefore expects to
continue to recognize lower net margins in the future.

    During 1997, the Company recognized an unrealized loss on valuation of
residuals of $148.0 million. This unrealized loss consists of $89.8 million of
losses on its home equity residuals, $35.9 million on its Sav*-A-Loan(R)
residuals and $22.3 million on its mortgage servicing receivables. At December
31, 1997, the Company determined the fair value of its home equity
securitizations based upon the net realizable value as implied by the first
quarter 1998 sale of its home equity residuals and recorded net unrealized
losses of $89.8 million. The unrealized loss related to the Sav*-A-Loan(R)
residuals reflects the Company's change in the assumptions used to value such
residuals as follows: the discount rate was increased to 15% from 12%; constant
prepayment speed was increased to 16.8% from 14% after the twelfth month; and
the default rate was increased to a weighted average of 306 basis points per
annum from a weighted average default rate of 175 basis points per annum. The
Company valued its mortgage servicing receivables on a net realizable value
assuming a liquidation price based upon the value implied by the servicing
rights sold in conjunction with the January 1998 home equity residual sale.



                                       26
<PAGE>   27

     Mortgage origination income increased $2.0 million or 71.4% to $4.8 million
in 1997 from $2.8 million in 1996. This increase was due primarily to higher
originations during 1997 partially offset by lower fees earned on the Company's
broker originations. It is anticipated that the Company's origination fees as a
percentage of loans originated will continue to decrease in the future.

     Interest income increased $49.0 million or 200.0% to $73.5 million in 1997
from $24.5 million in 1996. This increase was due primarily to the increased
intercompany note interest charged on a higher average note balance with CSC-UK
from $149.3 million at December 31, 1996 to $309.3 million at December 31, 1997,
as well as interest earned on a higher average balance of mortgage loans held
for sale balance resulting from increased loan production volume in excess of
loans sold during the period.

     Other income increased $16.6 million or 448.6% to $20.3 million in 1997
from $3.7 million in 1996. This increase was due primarily to the inclusion of
$18.0 million of gain on the sale of IMC Common Stock owned by the Company. The
increase was offset by the decrease in servicing income of $1.2 million or 42.9%
to $1.6 million in 1997 from $2.8 million in 1996. The Company expects servicing
income to continue to decrease in the future primarily due to the continued
attrition of the loans that were sold with servicing retained prior to the
Company's adoption of SFAS No. 122, "Accounting for Mortgage Servicing Rights."

     Total expenses increased $106.0 million or 164.1% to $170.6 million in 1997
from $64.6 million in 1996. This increase was due primarily to increased
salaries, selling expenses and operating expenses related to increased loan
origination and purchase volume during 1997. Excluding the net unrealized loss
on valuation of residuals, total expenses as a percentage of total revenues
increased to 93.7% in 1997 from 59.9% in 1996. As a result of streamlining
efforts by the Company during the first quarter of 1998, the Company expects
total expenses to decrease in the future.

     Salaries and benefits increased $14.8 million or 56.3% to $41.1 million in
1997 from $26.3 million in 1996. This increase was due primarily to increased
staffing levels to 837 US employees at December 31, 1997 compared to 638
employees at December 31, 1996, with an average of 844 employees for the year of
1997. This increase in average employees resulted from the growth in loan
production volume and geographic expansion and increased loans serviced. As a
result of the Company's restructuring and streamlining efforts, the number of
employees has decreased to 577 at March 15, 1998.

     Interest expense increased $53.4 million or 308.7% to $70.7 million in 1997
from $17.3 million in 1996. This increase was due primarily to increased
interest expense related to $300.0 million of Notes issued in May 1997 as well
as the increased balance of loans held pending sale during 1997, resulting from
the increased loan production volume during 1997. Also included in interest
expense for the year ended December 31, 1997 is a one-time charge of $4.7
million related to the $14.0 million induced conversion of the Convertible
Debentures in April 1997.

     Selling and other expenses increased $25.7 million or 125.4% to $46.2
million in 1997 from $20.5 million in 1996. This increase was due primarily to
increased other operating expenses of $23.9 million or 131.3% to $42.1 million
in 1997 from $18.2 million in 1996 resulting from increased professional fees,
travel and entertainment and occupancy costs incurred to support the increased
loan production volume. Additionally, the increase was due to increased selling
costs of $1.8 million or 78.3% to $4.1 million in 1997 from $2.3 million in 1996
as a result of increased loan production volume in 1997 as compared to 1996.

     Provision for loan losses of $12.6 million was recorded for the year ended
December 31, 1997 as compared to $532,396 for the year ended December 31, 1996.
This increase was due primarily to an increased balance of mortgages held for
investment resulting from increased loan production volume during 1997.



                                       27
<PAGE>   28

     Income tax benefit (expense) changed from an expense of $19.3 million in
1996 to an income tax benefit of $18.1 million in 1997 due to pretax losses of
$136.6 million. The 1997 tax benefit was reduced due to a valuation reserve
established in 1997 due to the uncertainty of the Company's ability to continue
as a going concern.

     The Company recorded a loss from continuing operations of $118.5 million
for the year ended December 31, 1997 as compared to earnings from continuing
operations of $23.9 million for the year ended December 31, 1996. This loss was
primarily due to the Company recognizing a net unrealized loss on valuation of
residuals of $148.0 million during 1997 as well as increased total expenses
during 1997 and lower average gains.

     The Company recorded a loss from discontinued operations of $245.9 million
for the year ended December 31, 1997 as compared to earnings from discontinued
operations of $27.4 million for the year ended December 31, 1996. This loss from
discontinued operations was due primarily to a valuation adjustment related to
the Office of Fair Trading initiatives. See " - Downsizing - UK Operations."

     The Company adopted a plan in March 1998 to sell the assets of CSC-UK. As a
result, the Company recorded a $49.9 million loss on disposal of discontinued
operations.

     The Company recorded a net loss applicable to common stock of $418.9
million for the year ended December 31, 1997 as compared to net earnings
applicable to common stock of $50.7 million in 1996. This loss was due primarily
to the $148.0 million net unrealized loss on the valuation of residuals, the
loss on the disposal of discontinued operations of $49.9 million, as well as the
loss from discontinued operations of $240.9 million.

FINANCIAL CONDITION

     DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997

     Cash and cash equivalents increased $15.8 million to $18.4 million at
December 31, 1998 from $2.6 million at December 31, 1997. This increase was
primarily due to the cash proceeds from the sale of CSC-UK.

     The Company did not have any recorded mortgage servicing receivables at
December 31, 1998 as compared to $5.0 million at December 31, 1997. This
decrease was due primarily to mortgage servicing receivables sold in conjunction
with the sale of trading securities of $2.5 million, amortization of $1.8
million as well as a valuation adjustment of $0.7 million at December 31, 1998.
This valuation adjustment was due to the Company determining that as a result of
the chapter 11 proceedings and the likelihood that all servicing rights will be
transferred to a servicer acceptable to the respective trustee on each of the
securitizations, there was no value assigned to such servicing rights.

     Trading securities, which consist of interest-only and residual
certificates, decreased $92.8 million or 73.4% to $33.7 million at December 31,
1998 from $126.5 million at December 31, 1997. This decrease was partially due
to the Company's sale of residual certificates and related mortgage servicing
receivables relating to certain of the Company's home equity loan products for
net proceeds of $26.5 million ($24.0 million allocated to trading securities and
$2.5 million allocated to mortgage servicing receivables) during the first
quarter of 1998 to enhance the Company's liquidity position. Additionally, the
Company recorded a write-down of $68.8 million during 1998 primarily resulting
from an increase in the expected loss rate used to value such residuals
reflecting the Company's recent increase in losses on liquidation of
non-performing loans in its home equity portfolio and Sav*-A-Loan(R) portfolios,
as well as an increased weighted average discount rate reflecting the changes in
market conditions experienced in the overall mortgage-backed securities market.



                                       28
<PAGE>   29

     Mortgage loans held for sale, net increased $30.0 million or 32.2% to
$123.3 million at December 31, 1998 from $93.3 million at December 31, 1997.
This increase was due primarily to the volume of loans originated exceeding the
volume of loans sold during 1998, as well as the reclassification of $4.8
million of mortgages held for investment, net at December 31, 1998 to mortgages
held for sale, net.

     The Company did not have any mortgages held for investment, net at December
31, 1998 as compared to $6.5 million at December 31, 1997. This decrease was due
primarily to $4.8 million of loans transferred to mortgages held for sale, net
primarily due to the Company's decision to sell all mortgage loans.

     Investment in discontinued operations, net decreased $71.2 million or 84.6%
to $13.0 million at December 31, 1998 from $84.2 million at December 31, 1997.
This decrease primarily represented net cash proceeds from the sale of
discontinued operations during 1998. The balance at December 31, 1998 primarily
consisted of cash on hand of approximately $9.1 million and net receivables (net
of liabilities) due of approximately $3.9 million. The Company expects to
maintain a balance of cash on hand in the discontinued operations to cover
existing and potential liabilities and costs until the dissolution of the
existing legal entities of CSC-UK and its subsidiaries.

     Income taxes receivable decreased $16.8 million or 91.3% to $1.6 million at
December 31, 1998 from $18.4 million at December 31, 1997. This decrease was due
primarily to the receipt of a federal tax refund of $15.8 million and state tax
refunds of $1.0 million.

     Other assets decreased $17.7 million or 53.2% to $15.6 million at December
31, 1998 from $33.3 million at December 31, 1997. This decrease was due
primarily to the elimination of deferred debt issuance costs of $13.5 million at
December 31, 1997, as well as a write-off of $3.8 million of equipment and
leasehold improvements during 1998.

     Warehouse financing facilities outstanding increased $28.5 million or 36.8%
to $106.0 million at December 31, 1998 from $77.5 million at December 31, 1997.
This increase was due primarily to the volume of loans originated exceeding the
volume of loans sold during 1998.

     Accounts payable and other liabilities decreased $40.2 million or 63.1% to
$23.5 million at December 31, 1998 from $63.7 million at December 31, 1997. This
decrease was due primarily to $39.8 million of accrued interest payable on the
Notes and Convertible Debentures and $8.0 million of other accounts payable were
reclassified as liabilities subject to compromise as required by SOP 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".

     The Company recorded $477.4 million of liabilities subject to compromise at
December 31, 1998 as required by SOP 90-7. This consists of $300.0 million of
Notes, $129.6 million of Convertible Debentures, $39.8 million of accrued
interest payable on the Notes and Convertible Debentures and $8.0 million of
accounts payable. See "Chapter 11 Proceedings."

     The stockholders' deficit increased $220.8 million or 124.9% to a deficit
of $397.6 million at December 31, 1998 as compared to a stockholders' deficit of
$176.8 million at December 31, 1997. This increase in the deficit was the result
of a net loss of $220.8 million for the year ended December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's business requires substantial cash to support its operating
activities. The Company's principal cash requirements includes the payment of
interest expenses, operating expenses and income taxes and prior to the
indefinite suspension of its loan origination and purchase activities, the
funding of loan production. The Company uses its cash flow from the sale of
assets, whole loan sales, net interest income and borrowings under its loan
warehouse and purchase facilities to meet its working capital needs. There can
be no assurance that funds generated from operations will be sufficient to
satisfy such obligations. The Company's liquidity is dependent upon favorable
conditions in the whole loan sale



                                       29
<PAGE>   30

market and the Company's ability to sell certain assets. The Company's liquidity
in the future is dependent upon its ability to access funding sources. No
assurances can be given as to such access or the occurrence of such conditions.

     The Company has operated, and expects to continue to operate, on a negative
cash flow basis. During 1998, 1997 and 1996, the Company used net cash of $86.9
million, $124.7 million and $105.9 million from continuing operations,
respectively. Additionally, in the years ended 1998 and 1997, the Company was
provided $74.2 million and $30.2 million, respectively, from investing
activities. In 1996, the Company used $3.5 million in investing activities. In
April 1998, CSC-UK completed the UK Sale and received proceeds, at the time of
the closing of $83.8 million, net of closing costs and other fees.

     During 1997 and 1996, the Company's sale of loans through securitizations
resulted in a gain on sale of loans through securitizations recognized by the
Company. The recognition of this gain on sale has a negative impact on the cash
flow of the Company because significant costs are incurred upon closing of the
transactions giving rise to such gain and the Company is required to pay income
taxes on the gain on sale in the period recognized, although the Company does
not receive the cash representing the gain until later periods as the related
loans are repaid or otherwise collected. During 1998, 1997 and 1996, the Company
received from financing activities $28.5 million, $273.9 million and $255.5
million, respectively. In addition, during 1997 and 1996, the Company used net
cash in discontinued operations of $177.3 million and $149.3 million,
respectively.

     The Company is required to comply with various operating covenants as
defined in the Greenwich DIP Facility (as defined below) and CIT DIP Facility
(as defined below). The covenants include restrictions on, among other things,
the ability to (i) modify, stay, vacate or amend the bankruptcy court orders
approving such facilities, (ii) create, incur, assume or suffer to exist any
lien upon or with respect to any of the Company's properties, (iii) create,
incur, assume, or suffer to exist any debt, (iv) wind up, liquidate or dissolve
itself, reorganize, merger or consolidate with or into, or convey, sell, assign,
transfer, lease or otherwise dispose of all or substantially all of its assets,
(v) acquire all or substantially all of the assets or the business of any
Person, (vi) create, incur, assume, or suffer to exist any obligation as lessee
for the rental or hire of any real or personal property, (vii) sell, transfer,
or otherwise dispose of any real or personal property to any Person and
therefore directly or indirectly leaseback the same or similar property, (viii)
pay any dividends or other distributions, (ix) sell, lease, assign, transfer or
otherwise dispose of any of the Company's now owned or hereafter acquired
assets, (x) sell any mortgage loans on a recourse basis, (xi) make any loan or
advance to any Person, or purchase or otherwise acquire any capital stock,
assets, obligations, or other securities of, make any capital contribution to,
or otherwise invest in or acquire any interest in any Person, or participate as
a partner or joint venturer with any other Person, (xii) engage in derivatives
or hedging transactions, (xiii) assume, guarantee or become directly or
contingently responsible for the obligations of another Person, (xiv) enter into
transactions with any affiliate, (xv) use any part of the proceeds for the
purpose of purchasing or carrying margin stock, (xvi) purchase any subwarehouse
mortgage loan, (xvii) make bulk purchase of mortgage loans and (xviii) make any
payments of principal or interest on account of any indebtedness or trade
payable prior to the filing date with certain exceptions.

CREDIT FACILITIES

     Greenwich Warehouse Facility. Prior to the filing of the Petitions,
Greenwich Capital Financial Products, Inc., an affiliate of Greenwich Capital
Markets, Inc. (referred to herein, including any affiliates as "Greenwich")
provided a warehouse credit facility under which CSC borrowed funds on a
short-term basis to the support accumulation of loans by CSC prior to sale (the
"Greenwich Facility"). Subsequent to the filing of the Petitions and pursuant to
an order of the Bankruptcy Court dated October 27, 1998, the Company and CSC
obtained a $100 million post-petition warehouse facility from Greenwich (the
"Greenwich DIP Facility") which repaid in full amounts due under the Greenwich
Facility. The Greenwich DIP Facility is secured by substantially all of the
assets of CSC and the capital stock of CSC and is guaranteed by the Company. The
relative priority of the Greenwich DIP Facility and the CIT/Nomura DIP Facility
(as defined below) in the assets of CSC and the Company is determined under an
intercreditor



                                       30
<PAGE>   31

agreement between Greenwich and CIT and Nomura (each as defined below), The
Greenwich DIP Facility originally bore interest at an interest rate of LIBOR
plus 2.75% (7.8% on December 31, 1998). The Greenwich DIP Facility was scheduled
to terminate on February 28, 1999; however, the parties agreed by amendment to
the Greenwich DIP Facility (the "Greenwich DIP Facility Amendment") to extend
the termination of such facility until April 30, 1999. The Greenwich DIP
Facility Amendment was approved by an order of the Bankruptcy Court dated March
24, 1999. Under the Greenwich DIP Facility Amendment, the interest rate was
changed to the prime rate plus 2.50%. As of February 28, 1999, $18.9 million was
outstanding under the Greenwich DIP Facility.

     CIT Warehouse Facility. Prior to the filing of the Petitions, The CIT
Group/Equipment Financing, Inc. ("CIT") provided a warehouse credit facility
under which CSC borrowed funds on a short-term basis to support the accumulation
of loans by CSC prior to sale (the "CIT Facility"). Subsequent to the filing of
the Petitions and pursuant to an order of the Bankruptcy Court dated October 27,
1998, the Company and CSC obtained a $150 million post-petition warehouse
facility (the "CIT/Nomura DIP Facility") from CIT and Nomura Asset Capital
Corporation ("Nomura") which repaid in full amounts due under the CIT Facility.
The CIT/Nomura DIP Facility is secured by substantially all of the assets of CSC
and the capital stock of CSC and is guaranteed by the Company. The CIT/Nomura
DIP Facility originally bore interest at an interest rate of LIBOR plus 2.75% or
the prime rate (7.75% on December 31, 1998). The CIT/Nomura DIP Facility was
scheduled to terminate on February 28, 1999; however, the parties agreed by
amendment to the CIT/Nomura DIP Facility (the "CIT/Nomura DIP Facility
Amendment") to extend the termination of such facility until March 31, 1999,
subject to further extension on a weekly basis upon written notice to CIT and
Nomura. The CIT/Nomura DIP Facility Amendment was approved by an order of the
Bankruptcy Court dated March 24, 1999. Under the CIT/Nomura DIP Facility
Amendment, the interest rate was changed to the prime rate plus 2.00%. As of
February 28, 1999, $14.9 million was outstanding under the CIT/Nomura DIP
Facility.

    LOAN SALES

     Beginning in the fourth quarter of 1997, the Company disposes of all of its
loan production through whole loan sales where the Company receives a cash
premium at the time of a profitable sale. During 1998, 1997 and 1996, the
Company sold $414.2 million, $518.4 million and $283.9 million, respectively, in
whole loan sales, accounting for 100.0%, 31.7% and 22.2% of all loan sales in
the respective periods. As a result of the Company's financial condition, the
Company is currently unable to sell its loans through securitizations and
expects to sell its loans only through whole loan sales during 1999.

     Historically, the Company used overcollateralization accounts as a means of
providing credit enhancement for its securitizations. This mechanism slows the
flow of cash to the Company and causes some or all of the amounts otherwise
distributable to the Company as cash flow in excess of amounts payable as
current interest and principal on the securities issued in its securitizations
to be deposited in an overcollateralization account for application to cover
certain losses or to be released to the Company later if not so used. This
temporary or permanent redirection of such excess cash flows reduces the present
value of such cash flows, which are the principal component of the gain on the
sale of the securitized loans recognized by the Company in connection with each
securitization. See "--Overview of Previous and Current Business -- Loan Sales."

     Prior to adopting a whole loan sales strategy for liquidity purposes, the
Company derived a significant portion of its income by recognizing gains upon
the sale of loans through securitizations based on the fair value of the
interest-only and residual certificates that the Company receives upon the sale
of loans through securitizations and on sales into loan purchase facilities. In
loan sales through securitizations, the Company sells loans that it has
originated or purchased to a trust for a cash purchase price and interests in
such trust consisting of interest-only regular interest and the residual
interest which are represented by the interest-only and residual certificates.
The cash purchase price is raised through an offering by the trust of
pass-through certificates representing regular interests in the trust. Following
the securitization, the purchasers of the pass-through certificates receive the
principal collected and the investor pass-through



                                       31
<PAGE>   32

interest rate on the principal balance, while the Company recognizes as current
revenue the fair value of the interest-only and residual certificates.

     Since it adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights"
in October 1995, the Company recognized as an asset the capitalized value of
mortgage servicing rights (including normal servicing and other ancillary fees)
as a mortgage servicing receivable based on their fair values. The fair value of
these assets 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 applicable to the
types of loans the Company originated and purchased (giving consideration to
such risks as default and collection) such as reports on prepayment rates,
interest rates, collateral value, economic forecasts and historical default and
prepayment rates of the portfolio under review. The Company estimates the
expected cash flows that it will receive over the life of a portfolio of loans.
These expected cash flows constitute the excess of the interest rate payable by
the obligors of loans over the interest rate passed through to the purchaser,
less applicable recurring fees and credit losses. The Company discounts the
expected cash flows at a discount rate that it believes is consistent with the
required risk-adjusted rate of return to an independent third party purchaser of
the interest-only and residual certificates or mortgage servicing receivables.
As of December 31, 1998, the Company's balance sheet reflected the fair value of
interest-only and residual certificates of $33.7 million.

     During 1998, the Company determined that as a result of the chapter 11
proceedings and the likelihood that all servicing rights will be transferred to
a servicer acceptable to the trustee on the securitization, there is no value
assigned to such servicing rights. Accordingly, during the fourth quarter the
Company wrote down the value of the mortgage servicing receivables and the
corresponding allowance for losses to zero. Accordingly, the Company will
account for any future servicing revenues as income when collected and costs as
expenses when incurred.

     Realization of the value of interest-only and residual certificates and
mortgage servicing receivables in cash is subject to the prepayment and loss
characteristics of the underlying loans and to the timing and ultimate
realization of the stream of cash flows associated with such loans. If actual
experience differs from the assumptions used in the determination of the asset
value, future cash flows and earnings could be negatively affected and the
Company could be required to write down the value of its interest-only and
residual certificates. In addition, if prevailing interest rates rose, the
required discount rate might also rise, resulting in impairment of the value of
the interest-only and residual certificates. See "Item 1 - Cessation of Certain
Businesses of Company -- Loan Sales Through Securitizations."

     SALE OF RESIDUAL CERTIFICATES AND MORTGAGE SERVICING RECEIVABLES

     In order to enhance the Company's liquidity position, in January 1998, the
Company sold residual certificates and associated mortgage servicing receivables
relating to certain of the Company's home equity loan products for net proceeds
of $26.5 million (which equated to book value at December 31, 1997).

     CONVERTIBLE DEBENTURES

     In May 1996, the Company issued $143.8 million of 6% Convertible
Subordinated Debentures due 2006 (the "Convertible Debentures"), convertible at
any time prior to redemption or maturity, at the holder's option, into shares of
the Company's Common Stock at a conversion price of $26.25, subject to
adjustment. The Convertible Debentures may be redeemed, at the option of the
Company, in whole or in part, at any time after May 15, 1999 at predetermined
redemption prices together with accrued and unpaid interest to the date fixed
for redemption. The coupon at 6% per annum, is payable semi-annually on each May
1 and November 1 which commenced November 1, 1996. The terms of the Indenture
governing the Convertible Debentures do not limit the incurrence of additional
indebtedness by the Company, nor do they limit the Company's ability to make
payments such as dividends.



                                       32
<PAGE>   33

     Since May 1, 1998, the Company has deferred the interest payments on the
Convertible Debentures as part of its plan to reorganize the business. The
continued deferral of the interest payment on the Convertible Debentures
constitutes an "Event of Default" pursuant to the Indenture under which such
securities were issued. As of October 6, 1998, due to the filing of the
Petitions, the Company stopped accruing interest on the Convertible Debentures.
At December 31, 1998, there were $129.6 million of Convertible Debentures
outstanding and they are included in the classification liabilities subject to
compromise on the Statement of Financial Condition.

     SENIOR NOTES

     In May 1997, the Company issued $300.0 million aggregate principal amount
of 12 3/4% Senior Notes due September 1, 2004 in a private placement. Such Notes
are not redeemable prior to maturity except in limited circumstances. The coupon
at 12 3/4% per annum, is payable semi-annually on each June 1 and December 1
which commenced December 1, 1997. In September 1997, the Company completed the
exchange of such Notes for a like principal amount of 12 3/4% Series A Senior
Notes due 2004 (the "Notes") which have the same terms as the Notes in all
material respects, except for certain transfer restrictions and registration
rights.

     Since June 1, 1998, the Company has deferred the interest payments on the
Notes as part of its plan to reorganize the business. The continued deferral of
the interest payment on the Notes constitutes an "Event of Default" pursuant to
the Indenture under which such securities were issued. As of October 6, 1998,
due to the filing of the Petitions, the Company stopped accruing interest on the
Notes. At December 31, 1998, the Notes are included in the classification
liabilities subject to compromise on the Statement of Financial Condition.

     CONVERTIBLE PREFERRED STOCK

     In April 1997, the Company completed the private placement of 5,000 shares
of 6% Convertible Preferred Stock, Series A (the "Series A Preferred Stock"),
with an initial liquidation preference (the "Liquidation Preference") of $10,000
per share, and related five-year warrants (the "Series A Warrants") to purchase
500,000 shares of Common Stock with an exercise price of $20.625 per share.
Dividends on the Series A Preferred Stock are cumulative at the rate of 6% of
the Liquidation Preference per annum payable quarterly. Dividends are payable,
at the option of the Company, (i) in cash, (ii) in shares of Common Stock valued
at the closing price on the day immediately preceding the dividend payment date
or (iii) by increasing the Liquidation Preference in an amount equal to and in
lieu of the cash dividend payment.

     During 1998, the Company elected to add an amount equal to the dividend to
the Liquidation Preference of the Series A Preferred Stock in lieu of payment of
such dividend. In addition, amounts equal to 3% of the Liquidation Preference
for each 30-day period (prorated for shorter periods) was added to the
Liquidation Preference due to the delisting of the Company's Common Stock from
the Nasdaq National Market on January 29, 1998 (as discussed below). As of
October 6, 1998, due to the filing of the Petitions, the Company stopped
accruing and paying dividends on the Series A Preferred Stock. As of October 6,
1998, the Liquidation Preference varies up to $14,298 per share.

     The Series A Preferred Stock is redeemable at the option of the Company at
a redemption price equal to 120% of the Liquidation Preference under certain
circumstances. The Series A Preferred Stock is convertible into shares of Common
Stock, subject to redemption rights, at a conversion price equal to the lowest
daily sales price of the Common Stock during the four consecutive trading days
immediately preceding such conversion, discounted by up to 4% and subject to
certain adjustments.

     As of December 31, 1998, an aggregate of 4,374 shares of the Series A
Preferred Stock had been converted (626 shares remain outstanding) into an
aggregate of 12,681,270 shares of Common Stock. As of December 31, 1998, all
Series A Warrants were outstanding.



                                       33
<PAGE>   34

     In September 1997, the Company completed the private placement of 5,000
shares of 6% Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), with an initial Liquidation Preference of $10,000 per share, and
related five-year warrants (the "Series B Warrants") to purchase 500,000 shares
of Common Stock with an exercise price per share equal to the lesser of (i)
$14.71 or (ii) 130% of the average closing sales prices over the 20 trading day
period ending on the trading day immediately prior to the first anniversary of
the original issuance of the Series B Warrants. Dividends on the Series B
Preferred Stock are cumulative at the rate of 6% of the Liquidation Preference
per annum payable quarterly. Dividends are payable, at the option of the
Company, (i) in cash, (ii) in shares of Common Stock valued at the closing price
on the day immediately preceding the dividend payment date or (iii) by
increasing the Liquidation Preference in an amount equal to and in lieu of the
cash dividend payment.

     During 1998, the Company elected to add an amount equal to the dividend to
the Liquidation Preference of the Series B Preferred Stock in lieu of payment of
such dividend. In addition, amounts equal to 3% of the Liquidation Preference
for each 30-day period (prorated for shorter periods) was added to the
Liquidation Preference due to the delisting of the Company's Common Stock from
the Nasdaq National Market on January 29, 1998. As of October 6, 1998, due to
the filing of the Petitions, the Company stopped accruing and paying dividends
on the Series B Preferred Stock. As of October 6, 1998, the Liquidation
Preference is $14,335 per share.

     The Series B Preferred Stock is redeemable at the option of the Company at
a redemption price equal to 120% of the Liquidation Preference under certain
circumstances. In addition, the Series B Preferred Stock is redeemable at a
redemption price equal to 125% of the Liquidation Preference upon notice of, or
the announcement of the Company's intent to engage in a change of control event.
The Series B Preferred Stock is convertible into shares of Common Stock, subject
to certain redemption rights and restrictions, at a conversion price equal to
the lowest daily sales price of the Common Stock during the four consecutive
trading days immediately preceding such conversion, discounted up to 4% and
subject to certain adjustments.

     As of December 31, 1998, an aggregate of 449 shares of Series B Preferred
Stock had been converted (4,551 shares remain outstanding) into an aggregate of
21,470,375 shares of Common Stock. As of December 31, 1998, all Series B
Warrants were outstanding.

     As of December 31, 1998, if all of the outstanding shares of the Series A
Preferred Stock and those shares of the Series B Preferred Stock not subject to
conversion restrictions, were converted into Common Stock, the Company would not
have sufficient authorized shares of Common Stock to satisfy all of these
conversions.

     In addition, pursuant to the terms of the Company's Series A Preferred
Stock and the Company's Series B Preferred Stock (together the "Preferred
Stock"), the Company is required to continue the listing or trading of the
Common Stock on Nasdaq or certain other securities exchanges. As a result of the
delisting of the Common Stock from the Nasdaq National Market, (i) the
conversion restrictions that apply to the Series B Preferred Stock are lifted
(prior to the delisting, no more than 50% of the 5,000 shares of Series B
Preferred Stock initially issued could be converted) and (ii) the conversion
period is increased to 15 consecutive trading days and the conversion discount
is increased to 10% (prior to the delisting, the conversion price was equal to
the lowest daily sales price of the Common Stock during the four consecutive
trading days immediately preceding conversion, discounted by up to 5.5%). In
addition, as a result of the delisting of the Common Stock and during the
continuance of such delisting, (i) the dividend rate is increased to 15% and
(ii) the Company is obligated to make monthly cash payments to the holders of
the Preferred Stock equal to 3% of the $10,000 liquidation preference per share
of the Preferred Stock, as adjusted, provided that if the Company does not make
such payments in cash, such amounts will be added to the Liquidation Preference.
Based on the current market price of the Common Stock, the Company does not have
available a sufficient number of authorized but unissued shares of Common Stock
to permit the conversion of all of the shares of the Preferred Stock.



                                       34
<PAGE>   35

     The description above of the covenants contained in the Company's credit
facilities and other sources of funding does not purport to be complete and is
qualified in its entirety by reference to the actual agreements, which are filed
by the Company with the Commission and can be obtained from the Commission. The
continued availability of funds provided to the Company under these agreements
is subject to the Company's continued compliance with these covenants. In
addition, the Notes, the Convertible Debentures, the Series A Preferred Stock
and the Series B Preferred Stock permit the holders of such securities to
require the Company to purchase such securities upon a change of control (as
defined in the respective Indenture or Certificate of Designations, as the case
may be).

ACCOUNTING CONSIDERATIONS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company has not completed its
analysis of SFAS No. 133.

     In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. SFAS No. 134 is effective for the first fiscal quarter beginning
after December 15, 1998. The Company intends to continue to classify its
interests in mortgage backed securities as trading securities and therefore
believes that SFAS No. 134 will not have an impact on its financial reporting.

IMPACT OF YEAR 2000

     Issues surrounding the Year 2000 arise out of the fact that many existing
computer programs use only two digits to identify a year in the date field. With
the approach of the Year 2000, computer hardware and software that are not made
Year 2000 ready might interpret "00" as Year 1900 rather than Year 2000. The
Year 2000 problem is not just a technology issue; it also involves the Company's
customers, suppliers and third parties.

     As previously discussed, on October 6, 1998, the Company filed a bankruptcy
case under chapter 11 of the Bankruptcy Code. As a result of changes in
circumstances, including fluctuating market conditions and the Company's
inability to obtain the necessary financing, on November 17, 1998, the Company
suspended indefinitely all of its loan origination and purchase activities.
Therefore, the Company no longer needs software that relates to the origination
and purchase of mortgage loans. Should the Company resume origination and
purchase activity, the Company believes that it will be able to purchase,
install and implement a Year 2000 ready "off the shelf" origination system, 
although there can be no assurance that the Company will be able to obtain and 
implement such system.

     The Company's loan servicing computer operations are performed by
CPI/Alltel. CPI/Alltel provides the Company with quarterly updates regarding its
progress and schedule for Year 2000 readiness. CPI/Alltel has publicly announced
that it will be Year 2000 ready by year-end. If CPI/Alltel is not Year 2000
ready by the end of the second quarter of 1999, the Company believes it will be
able to transfer its servicing platform to a Year 2000 ready service provider,
although no assurance can be given of such transfer. The failure to achieve such
compliance or transfer of the servicing platform in a timely manner could have
an adverse effect on the servicing operations conducted by the Company.

     The Company uses Oracle General Ledger System for accounting purposes.
Oracle states that it is Year 2000 ready. The Company is in the process of
implementing a new accounting and financial reporting system which is stated to
be Year 2000 ready.



                                       35
<PAGE>   36

     The costs incurred to date by the Company regarding its Year 2000 readiness
have not been material; however, there can be no assurances that such costs in
the future will not be material. Even if the Company is Year 2000 ready,
failures by significant third parties to address their Year 2000 readiness may
disrupt the Company's operations and cause it to incur financial losses. These
third parties include financial counterparties, subservicers, telecommunications
companies, vendors, and utilities.

ITEM 7A. 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 foreign currency exchange risk or commodity price risk. The Company does not
make use of off-balance sheet derivative instruments to control interest rate
risk.

     The interests that the Company received upon loan sales through its
securitizations are in the form of interest-only and residual certificates which
are classified as trading securities. Trading securities do not have a stated
maturity or amortization period. 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 the trading securities using a weighted
average discount rate of 20%.




                                       36
<PAGE>   37



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----
Cityscape Financial Corp. Financial Statements:

   Report of Independent Auditors by KPMG LLP                                38

   Consolidated Statements of Financial Condition at
       December 31, 1998 and 1997                                            39

   Consolidated Statements of Operations for the years ended
       December 31, 1998, 1997 and 1996                                      40

   Consolidated Statements of Stockholders' Equity (Deficit)
       for the years ended December 31, 1998, 1997 and 1996                  41

   Consolidated Statements of Cash Flows for the years ended
       December 31, 1998, 1997 and 1996                                      42

   Notes to Consolidated Financial Statements                             43-71





























                                       37
<PAGE>   38


INDEPENDENT AUDITORS' REPORT

The Board of Directors
Cityscape Financial Corp.:

     We have audited the accompanying consolidated statements of financial
condition of Cityscape Financial Corp. and Subsidiary - Debtor-in-Possession as
of October 6, 1998 (the "Company") as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the results of
operations, changes in stockholders' equity and cash flows of the Company for
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.

     The accompanying 1998, 1997 and 1996 consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
Company has suffered significant net losses for the years ended December 31,
1998 and 1997, and has a net capital deficiency as of December 31, 1998 and
1997. At December 31, 1998 and 1997, these circumstances and the Petitions and
related circumstances discussed in Notes 2 and 4 raise substantial doubt about
the entity's ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 2. The 1998 and 1997 financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

     Because of the significance of the uncertainty discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on the
accompanying 1998 and 1997 financial statements.





New York, New York                                  KPMG LLP
March 31, 1999


                                       38
<PAGE>   39


<TABLE>
                           CITYSCAPE FINANCIAL CORP.
                  (DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<CAPTION>
                                                           DECEMBER 31,
                                                  -----------------------------
                                                       1998            1997
                                                  -------------   -------------
<S>                                               <C>             <C>
ASSETS
  Cash and cash equivalents                       $  18,405,426   $   2,594,163
  Cash held in escrow                                 3,768,695      24,207,517
  Mortgage servicing receivables, net                        --       4,969,162
  Trading securities                                 33,660,930     126,475,656
  Mortgage loans held for sale, net                 123,345,783      93,290,024
  Mortgages held for investment, net                         --       6,530,737
  Investment in discontinued operations, net         13,008,401      84,232,000
  Income taxes receivable                             1,550,107      18,376,574
  Other assets                                       15,598,619      33,325,976
                                                  -------------   -------------
Total assets                                      $ 209,337,961   $ 394,001,809
                                                  =============   =============

LIABILITIES
  Warehouse financing facilities                  $ 105,969,355   $  77,479,007
  Accounts payable and other liabilities             23,519,199      63,727,810
  Senior notes                                               --     300,000,000
  Convertible subordinated debentures                        --     129,620,000
  Liabilities subject to compromise                 477,424,358              --
                                                  -------------   -------------
Total liabilities                                   606,912,912     570,826,817
                                                  -------------   -------------
STOCKHOLDERS' DEFICIT
  Preferred stock, $.01 par value, 10,000,000
    shares authorized; 5,177 shares issued and
    outstanding; Liquidation Preference - Series
    A Preferred Stock, $7,460,511; Series B
    Preferred Stock, $65,239,541 at December 31,
    1998; 5,295 shares issued and outstanding;
    Liquidation Preference - Series A Preferred
    Stock, $6,820,000; Series B Preferred Stock,
    $47,046,745 at December 31, 1997                         52              53
  Common stock, $.01 par value; 100,000,000
    shares authorized; 64,948,969 and 47,648,738
    issued at December 31, 1998 and 1997,
    respectively                                        649,489         476,487
  Treasury stock, 70,000 shares at
     December 31, 1998 and 1997, at cost               (175,000)       (175,000)
  Additional paid-in capital                        175,304,103     175,477,104
  Accumulated deficit                              (573,353,595)   (352,603,652)
                                                  -------------   -------------
Total stockholders' deficit                        (397,574,951)   (176,825,008)
                                                  -------------   -------------

COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' deficit       $ 209,337,961   $ 394,001,809
                                                  =============   =============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       39
<PAGE>   40


<TABLE>
                                                 CITYSCAPE FINANCIAL CORP.
                                        (DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                                                ----------------------------------------------------
                                                                                     1998               1997                1996
                                                                                -------------       -------------       ------------
<S>                                                                             <C>                 <C>                 <C>
REVENUES
  Gain on sale of loans                                                         $     128,024       $  83,365,502       $ 76,820,290
  Net unrealized loss on valuation of residuals                                   (68,846,790)       (148,004,447)                --
  Interest                                                                         14,362,900          73,520,473         24,535,115
  Mortgage origination income                                                       2,238,078           4,848,613          2,811,534
  Other                                                                             1,454,148          20,301,883          3,680,938
                                                                                -------------       -------------       ------------
Total revenues                                                                    (50,663,640)         34,032,024        107,847,877
                                                                                -------------       -------------       ------------

EXPENSES
  Salaries and employee benefits                                                   28,744,183          41,088,956         26,287,642
  Interest expense                                                                 46,438,779          70,689,198         17,279,836
  Selling expenses                                                                  4,423,984           4,136,812          2,337,544
  Other operating expenses                                                         47,060,545          42,085,275         18,210,714
  Provision for loan losses                                                         8,267,267          12,614,269            532,396
  Restructuring charge                                                              3,233,760                  --                 --
                                                                                -------------       -------------       ------------
Total expenses                                                                    138,168,518         170,614,510         64,648,132
                                                                                -------------       -------------       ------------

  (Loss) earnings from continuing operations before
    income taxes and reorganization items                                        (188,832,158)       (136,582,486)        43,199,745
  Reorganization items                                                             31,879,518                  --                 --
                                                                                -------------       -------------       ------------
  (Loss) earnings from continuing operations before
    income taxes                                                                 (220,711,676)       (136,582,486)        43,199,745
  Income tax provision (benefit)                                                       38,267         (18,076,574)        19,324,460
                                                                                -------------       -------------       ------------
  (Loss) earnings from continuing operations                                     (220,749,943)       (118,505,912)        23,875,285
DISCONTINUED OPERATIONS:
  (Loss) earnings from discontinued operations, net of income tax (benefit)
    provision of ($37,188,000) and $15,102,974 in 1997 and 1996, and net of
    extraordinary item of $425,000 in 1997                                                 --        (245,906,000)        26,805,597
  Loss on disposal of discontinued operations                                              --         (49,939,996)                --
                                                                                -------------       -------------       ------------
NET (LOSS) EARNINGS                                                              (220,749,943)       (414,351,908)        50,680,882
Preferred stock dividends paid in common stock                                             --             904,531                 --
Preferred stock - increase in liquidation preference                                6,278,214             917,530                 --
Preferred stock - default payments                                                 14,048,722                  --                 --
Preferred stock - beneficial discount                                                      --           2,725,000                 --
                                                                                -------------       -------------       ------------
NET (LOSS) EARNINGS APPLICABLE TO COMMON STOCK                                  $(241,076,879)      $(418,898,969)      $ 50,680,882
                                                                                =============       =============       ============

EARNINGS (LOSS) PER COMMON SHARE:
  Basic
    (Loss) earnings from continuing operations                                  $       (4.11)      $       (3.70)      $       0.81
    (Loss) earnings from discontinued operations                                           --               (7.40)              0.91
    Loss on disposal of discontinued operations                                            --               (1.50)                --
                                                                                -------------       -------------       ------------
  Net (loss) earnings                                                           $       (4.11)      $      (12.60)      $       1.72
                                                                                =============       =============       ============

  DILUTED(1)
    (Loss) earnings from continuing operations                                  $       (4.11)      $       (3.70)      $       0.78
    (Loss) earnings from discontinued operations                                           --               (7.40)              0.88
    Loss on disposal of discontinued operations                                            --               (1.50)                --
                                                                                -------------       -------------       ------------
  Net (loss) earnings                                                           $       (4.11)      $      (12.60)      $       1.66
                                                                                =============       =============       ============

  WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
    Basic                                                                          58,661,544          33,244,212         29,404,557
                                                                                =============       =============       ============
    Diluted                                                                        58,661,544(1)       33,244,212(1)      30,537,991
                                                                                =============       =============       ============

</TABLE>

(1)  For the years ended December 31, 1998 and 1997, the incremental shares from
     assumed conversions are not included in computing the diluted per share
     amounts because their effect would be antidilutive since an increase in the
     number of shares would reduce the amount of loss per share. Therefore,
     basic and diluted EPS figures are the same amount.

          See accompanying notes to consolidated financial statements.


                                       40
<PAGE>   41
<TABLE>
                            CITYSCAPE FINANCIAL CORP.
                  (DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<CAPTION>
                                                           PREFERRED SHARES               COMMON SHARES
                                                     -----------------------------  -----------------------------    ADDITIONAL
                                                        NUMBER                          NUMBER                        PAID-IN
                                                      OF SHARES        AMOUNT         OF SHARES        AMOUNT         CAPITAL
                                                    -------------   -------------   -------------   -------------  -------------
<S>                                                 <C>             <C>             <C>             <C>            <C>
Balance at December 31, 1995                                   --   $          --      28,900,732   $     289,007  $  44,838,143
  Comprehensive income:
    Net earnings                                               --              --              --              --             --
    Other comprehensive income, net of taxes
      Unrealized gain on available-for-sale
        securities                                             --              --              --              --             --
      Foreign currency translation adjustment                  --              --              --              --             --
    Other comprehensive income                                 --              --              --              --             --
  Comprehensive income                                         --              --              --              --             --
  Issuance of common stock                                     --              --         101,039           1,010        672,246
  J & J Acquisition                                            --              --         548,000           5,480      9,789,164
  Greyfriars Acquisition                                       --              --          99,362             994      2,483,056
                                                    -------------   -------------   -------------   -------------  -------------
Balance at December 31, 1996                                   --              --      29,649,133         296,491     57,782,609
  Comprehensive loss:
    Net loss                                                   --              --              --              --             --
    Other comprehensive loss, net of taxes                     --              --              --              --             --
      Unrealized loss on available-for-sale
        securities                                             --              --              --              --             --
      Foreign currency translation adjustment                  --              --              --              --             --
    Other comprehensive loss                                   --              --              --              --             --
  Comprehensive loss:                                          --              --              --              --             --
  Issuance of common stock                                     --              --         204,288           2,043        829,864
  Induced conversion of convertible
    subordinated debentures                                    --              --         876,040           8,760     18,170,749
  Issuance of preferred stock                              10,000             100              --              --     97,958,497
  Conversion of preferred stock                            (4,705)            (47)     16,851,414         168,514       (168,467)
  Preferred stock dividends paid in  common stock              --              --          67,863             679        903,852
  Purchase of treasury stock                                   --              --              --              --             --
                                                    -------------   -------------   -------------   -------------  -------------
Balance at December 31, 1997                                5,295              53      47,578,738         476,487    175,477,104
  Comprehensive loss:
    Net loss                                                   --              --              --              --             --
  Comprehensive loss:                                          --              --              --              --             --
  Conversion of preferred stock                              (118)             (1)     17,300,231         173,002       (173,001)
                                                    =============   =============   =============   =============  =============
Balance at December 31, 1998                                5,177   $          52      64,878,969   $     649,489  $ 175,304,103
                                                    =============   =============   =============   =============  =============
<CAPTION>
                                                                      RETAINED
                                                                      EARNINGS
                                                     UNREALIZED     (ACCUMULATED   Comprehensive      TREASURY
                                                        GAIN           DEFICIT)     Income(Loss)        STOCK           TOTAL
                                                    -------------   -------------   -------------   -------------   -------------
<S>                                                 <C>             <C>            <C>             <C>             <C>
Balance at December 31, 1995                                        $  11,971,905                                  $  57,099,055 
  Comprehensive income
    Net earnings                                               --      50,680,882  $  50,680,882              --      50,680,882
    Other comprehensive income, net of taxes
      Unrealized gain on available-for-sale
        securities                                      8,328,950              --      8,328,950              --       8,328,950
      Foreign currency translation adjustment                  --       9,77l,356      9,771,356              --       9,771,356
                                                                                   ------------- 
    Other comprehensive income                                                        18,100,306
                                                                                   -------------
  Comprehensive income                                                             $  68,781,188
                                                                                   =============
  Issuance of common stock                                     --              --                             --         673,256
  J & J Acquisition                                            --              --                             --       9,794,644
  Greyfriars Acquisition                                       --              --                             --       2,484,050
                                                    -------------   -------------  -------------   -------------   -------------
Balance at December 31, 1996                            8,328,950      72,424,143                             --     138,832,193
  Comprehensive loss:
    Net loss                                                   --    (414,351,908) $(414,351,908)             --    (414,351,908)
    Other comprehensive loss, net of taxes
      Unrealized loss on available-for-sale
        securities                                     (8,328,950)             --     (8,328,950)             --      (8,328,950)
      Foreign currency translation adjustment                  --      (9,771,356)    (9,771,356)             --      (9,771,356)
                                                                                   ------------- 
    Other comprehensive loss                                                         (18,100,306)
                                                                                   ------------- 
  Comprehensive loss                                                               $(432,452,214) 
                                                                                   =============
  Issuance of common stock                                     --              --                             --         831,907
  Induced conversion of convertible                                                               
    subordinated debentures                                    --              --                             --      18,179,509
  Issuance of preferred stock                                  --              --                             --      97,958,597
  Conversion of preferred stock                                --              --                             --              --
  Preferred stock dividends paid in  common stock              --        (904,531)                            --              --
  Purchase of treasury stock                                   --              --                       (175,000)       (175,000)
                                                    -------------   -------------                  -------------   -------------
Balance at December 31, 1997                                   --    (352,603,652)                      (175,000)   (176,825,008)
  Comprehensive loss                                           --    (220,749,943) $(220,749,943)             --    (220,749,943)
    Net loss
                                                                                   -------------
  Comprehensive loss                                                               $(220,749,943) 
                                                                                   =============
  Conversion of preferred stock                                --              --                             --              --
                                                    =============   =============                  =============   =============
Balance at December 31, 1998                        $          --   $(573,353,595)                 $    (175,000)  $(397,574,951)
                                                    =============   =============                  =============   =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       41
<PAGE>   42


<TABLE>
                                                           CITYSCAPE FINANCIAL CORP.
                                                  (DEBTOR-IN-POSSESSION AS OF OCTOBER 6, 1998)
                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------------------------
                                                                                      1998              1997              1996
                                                                                ---------------   ---------------   ---------------
<S>                                                                             <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  (Loss) earnings from continuing operations                                    $  (220,749,943)  $  (118,505,912)  $    23,875,285
    Adjustments to reconcile net earnings from continuing
     operations to net cash used in continuing operations:
     Depreciation and amortization                                                    6,019,520         2,846,394         3,110,200
     Income taxes payable                                                            16,737,913       (27,527,673)        5,251,091
     Earnings from partnership interest                                                      --                --          (753,663)
     Unrealized gain on securities                                                           --                --          (429,688)
     Decrease (increase) in mortgage servicing receivables                            4,969,162        35,098,537       (34,500,974)
     Decrease (increase) in trading securities                                       92,814,726       (23,275,720)      (87,628,481)
     Provision for losses                                                             8,267,267        12,614,269         7,931,660
     Net purchases of securities under agreement to resell                                   --       154,176,608      (153,796,920)
     (Repayment of ) proceeds from securities sold but not yet purchased                     --      (152,862,526)      152,862,526
     Proceeds from sale of mortgages                                                414,167,300     1,637,387,344     1,270,897,455
     Mortgage origination funds disbursed                                          (460,300,178)   (1,655,191,573)   (1,289,354,776)
     Accrued interest payable on senior notes and convertible debentures             39,771,220         4,483,700                --
     Accrued reorganization charges                                                   8,521,475                --                --
     Other, net                                                                       2,881,472         6,085,062        (3,340,867)
                                                                                ---------------   ---------------   ---------------
Net cash used in continuing operating activities                                    (86,900,066)     (124,671,490)     (105,877,152)
                                                                                ---------------   ---------------   ---------------
Net cash used in discontinued operating activities                                           --      (177,259,754)     (149,317,683)
                                                                                ---------------   ---------------   ---------------
Net cash  used in operating activities                                              (86,900,066)     (301,931,244)     (255,194,835)
                                                                                ---------------   ---------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale of discontinued operations, net                                               71,223,599                --                --
  Proceeds from equipment sale & lease-back financing                                        --         1,776,283                --
  Purchases of equipment                                                                     --        (5,134,122)       (4,578,368)
  Proceeds from sale of mortgages held for investment                                 2,997,382        15,248,227                --
  Proceeds from sale of available-for-sale securities                                        --        18,288,999                --
  Net distributions from partnership                                                         --                --         1,099,488
                                                                                ---------------   ---------------   ---------------
Net cash provided by (used in) investing activities                                  74,220,981        30,179,387        (3,478,880)
                                                                                ---------------   ---------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in warehouse facility                                                     28,490,348         5,216,716            91,745
  (Decrease) increase in standby financing facility                                          --        (7,966,292)        7,194,931
  Proceeds from notes and loan payable                                                       --        49,000,000       144,520,719
  Repayment of notes and loans payable                                                       --      (161,405,843)      (33,000,000)
  Proceeds from issuance of preferred stock                                                  --        98,249,950                --
  Proceeds from issuance of convertible subordinated debentures                              --                --       136,060,800
  Net proceeds from issuance of common stock                                                 --           221,296           653,256
  Purchase of treasury stock                                                                 --          (175,000)               --
  Net proceeds from issuance of senior notes                                                 --       290,758,908                --
                                                                                ---------------   ---------------   ---------------
Net cash provided by financing activities                                            28,490,348       273,899,735       255,521,451
                                                                                ---------------   ---------------   ---------------

Net increase (decrease) in cash and cash equivalents                                 15,811,263         2,147,878        (3,152,264)
  Cash and cash equivalents at beginning of the year                                  2,594,163           446,285         3,598,549
                                                                                ---------------   ---------------   ---------------
  CASH AND CASH EQUIVALENTS AT END OF THE YEAR                                  $    18,405,426   $     2,594,163   $       446,285
                                                                                ===============   ===============   ===============

Supplemental disclosure of cash flow information:
  Income taxes paid during the year:
     Continuing operations                                                      $         1,303   $     5,904,507   $    14,699,560
     Discontinued operations                                                                 --           767,335         5,012,017
  Interest paid during the year:
     Continuing operations                                                      $     9,051,343   $    57,194,601   $    11,625,526
     Discontinued operations                                                                 --           867,394         1,231,438

</TABLE>

          See accompanying notes to consolidated financial statements.



                                       42
<PAGE>   43


1. ORGANIZATION

     Cityscape Financial Corp. (the "Company") is a consumer finance company
which, through its wholly-owned subsidiary Cityscape Corp. ("CSC"), in the
business of selling and servicing mortgage loans secured primarily by one- to
four-family residences. CSC is licensed or registered to do business in 44
states and the District of Columbia. Until the Company suspended indefinitely
such business in November 1998, the Company also had been in the business of
originating and purchasing mortgage loans. The majority of the Company's loans
were made to owners of single family residences who use the loan proceeds for
such purposes as debt consolidation and financing of home improvements and
educational expenditures, among others. The Company is currently operating under
the protection of chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code").

2. CHAPTER 11 PROCEEDINGS

     The Company determined during 1998 that the best alternative for
recapitalizing the Company over the long-term and maximizing the recovery of
creditors and senior equity holders of the Company was through a prepackaged
plan of reorganization for the Company and CSC, pursuant to the Bankruptcy Code.
On October 6, 1998, the Company and CSC filed voluntary petitions (the
"Petitions") in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court").

     During the second and third quarters of 1998, the Company engaged in
negotiations, first, with holders of a majority of the Notes (as defined below)
and, second, with holders of a majority of the Convertible Debentures (as
defined below) on the terms of a plan of reorganization that both groups would
find acceptable. Those negotiations had resulted in acceptance by both groups by
the requisite majorities of the terms of a plan of reorganization (the "Original
Plan"). The Company had then solicited acceptances of the Original Plan from the
holders of its Notes, Convertible Debentures and Preferred Stock (as defined
below). The Original Plan received the requisite approval from all classes
except for the holders of the Company's Series B Preferred Stock (as defined
below). Although the Debtors and other parties with an economic stake in the
reorganization anticipated that the Original Plan would be confirmed at the
originally scheduled confirmation hearing, the Original Plan was not confirmed
due primarily to deteriorating market conditions and the Debtors' inability to
obtain necessary post reorganization warehouse financing to allow them to emerge
from chapter 11. As a result, the Debtors have revised the Original Plan (the
"Amended Plan").

     On November 17, 1998, the Company decided to suspend indefinitely all of
its loan origination and purchase activities. The Company notified its brokers
that it had ceased funding mortgage loans, other than loans that were in its
origination pipeline for which it had issued commitments. The Company's decision
was due to its determination, following discussions with potential lenders
regarding post-reorganization loan warehouse financing, that adequate sources of
such financing were not available. With no adequate sources of such financing,
the Company determined that it was unable to continue to originate and purchase
mortgage loans. On or about December 18, 1998, the Company funded the last of
the mortgage loans for which it had issued commitments as of November 17, 1998.

     The Amended Plan provides for substantive consolidation of the assets of
the Company and CSC and for distributions to creditors as summarized below.
Estimated recoveries are based upon (i) principal and accrued and unpaid
interest as of the chapter 11 petition date and (ii) an estimated, aggregate
amount of allowed general unsecured claims of $10.0 million. In summary, the
Amended Plan, if confirmed by the Bankruptcy Court, would provide that: (i)
administrative claims, priority tax claims, bank claims, other secured claims
and priority claims will be paid in full; (ii) holders of Notes would receive in
exchange for all of their claims, in the aggregate 92.48% of the new common
stock of the reorganized company (or 97.91% if the holders of the Convertible
Debentures vote to reject the plan); (iii) holders of the Convertible Debentures
would receive in exchange for all their claims, in the aggregate, 5.43% of the
new common stock of the reorganized company (or 0% if the holders of the
Convertible Debentures vote to reject the plan); (iv) holders of general
unsecured claims would receive 2.09% of the new common stock of the



                                       43
<PAGE>   44

reorganized company; and (v) existing Common Stock (as defined below), Preferred
Stock and warrants of the Company would be extinguished and holders thereof
would receive no distributions under the Amended Plan. The Company presently
intends to seek confirmation of and to consummate the Amended Plan on or before
May 31, 1999. There can be no assurance: (i) as to when, if ever, the Company's 
loan origination and purchase activities will resume; (ii) that the terms of 
the Company's plan of reorganization will not change; (iii) that the Bankruptcy 
Court will confirm such plan within the anticipated timeframe, if at all; or 
(iv) that such plan will be consummated (even if it is confirmed). 

     The Company and CSC are currently operating their business as
debtors-in-possession. In October 1998, the Bankruptcy Court entered a final
order approving debtor-in-possession financing arrangements (see Note 10). Under
the Bankruptcy Code, the Company and CSC may elect to assume or reject real
estate leases and other prepetition executory contracts, subject to Bankruptcy
Court approval. Upon rejection, under Section 502 of the Bankruptcy Code, a
lessor's claim for damages resulting from the rejection of a real property lease
is limited to the rent to be received under such lease, without acceleration,
for the greater of one year, or 15%, not to exceed three years, of the remaining
term of the lease following the earlier of the date of the Petitions or the date
on which the property is returned to the landlord. On December 23, 1998, the
Bankruptcy Court granted an order approving the rejection of certain executory
contracts and real estate leases. The Company and CSC are continuing to review
their remaining leases and executory contracts to determine which, if any
additional leases and contracts, should be rejected.

     Liabilities subject to compromise as of December 31, 1998, pursuant to the
Plan are summarized as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
     12 3/4% Senior Notes                                      $300,000,000
     6% Convertible Subordinated Debentures                     129,620,000
     Accrued interest related to Senior Notes
       and Convertible Debentures                                39,771,220
     Accounts payable                                             8,033,138
                                                               ------------
     Total                                                     $477,424,358
                                                               ============
</TABLE>

     Other potential consequences of reorganization under chapter 11 that have
not been recorded, including the effect of the determination as to the
disposition of executory contracts and leases as to which a final determination
by the Bankruptcy Court as to rejection, had not yet been made. Pursuant to an
order of the Bankruptcy Court signed in October 1998, prepetition amounts owed
to trade creditors may be paid in the ordinary course of business.

     In connection with the Company's restructuring efforts, the Company
deferred and continues to defer the interest payments on its Notes and
Convertible Debentures since June 1, 1998 and May 1, 1998, respectively. The
continued deferral of the interest payments on the Notes and Convertible
Debentures constitutes an "Event of Default" pursuant to the respective
Indenture under which the securities were issued. The Company stopped accruing
interest on the Notes and Convertible Debentures on October 6, 1998, the date
the Company filed the Petitions in the Bankruptcy Court.

3. THE CSC-UK SALE; 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 in which the Company initially held a 50% interest and subsequently
purchased the remaining 50%. CSC-UK had no operations and no predecessor
operations prior to May 1995. In April 1998, the Company sold all of the assets,
and certain liabilities, of CSC-UK.

     As a result of liquidity constraints, the Company adopted a plan in March
1998, prior to the issuance of its 1997 financial statements, to sell the assets
of CSC-UK. In April 1998, pursuant to an Agreement for the Sale and Purchase of
the Business of CSC-UK and its Subsidiaries and the Entire Issued Share Capital
of City Mortgage Receivables 7 Plc, dated March 31, 1998 (the "UK Sale
Agreement"), the Company completed the sale to Ocwen Financial Corporation
("Ocwen") and Ocwen Asset Investment



                                       44
<PAGE>   45

Corp. ("Ocwen Asset") of substantially all of the assets, and certain
liabilities, of CSC-UK (the "UK Sale"). The sale did not include the assumption
by Ocwen of all of CSC-UK's liabilities, and therefore, no assurances can be
given that claims will not be made against the Company in the future arising out
of its former UK operations. Such claims could have a material adverse effect on
the Company's financial condition and results of operations. The UK Sale
included the acquisition by Ocwen of CSC-UK's whole loan portfolio and loan
origination and servicing businesses for a price of (pound)249.6 million, the
acquisition by Ocwen Asset of CSC-UK's securitized loan residuals for a price of
(pound)33.7 million and the assumption by Ocwen of (pound)7.2 million of
CSC-UK's liabilities. The price paid by Ocwen was subject to adjustment to
account for the actual balances on the closing date of the loan portfolio and
the assumed liabilities. As a result of the sale, the Company received proceeds,
at the time of the closing, of $83.8 million, net of closing costs and other
fees. During 1998, the Company received an additional $4.5 million from Ocwen
related to the loan portfolio adjustments. On February 15, 1999, the Company
entered into a settlement agreement (subject to a condition precedent) with
Ocwen whereby the Company will receive an additional $3.3 million plus accrued
interest in settlement of the assumed liabilities at the date of sale.

     Accordingly, the operating results of CSC-UK and its subsidiaries have been
segregated from continuing operations and reported as a separate line item on
the Company's financial statements. In addition, net assets of CSC-UK have been
reclassified on the Company's financial statements as investment in discontinued
operations. The Company has restated its 1996 financial statements to present
the operating results of CSC-UK as a discontinued operation.

     Summarized financial information for the discontinued operations is as
follows:


<TABLE>
<CAPTION>
                                                       1997           1996
                                                 -------------------------------
<S>                                              <C>               <C>
SUMMARIZED STATEMENTS OF OPERATIONS:
  Revenues
    Gain on sale of loans                        $   27,797,000    $ 79,432,000
    Servicing receivables                          (106,153,000)             --
    Interest income                                  18,811,000      12,333,000
    Other income                                     21,444,000       7,167,000
                                                 -------------------------------
                                                    (38,101,000)     98,932,000
  Expenses
    Interest expense                                 26,599,000       7,564,334
    Write-off and amoritization of goodwill          58,185,000       3,775,176
    Write-off and amoritzation of prepaid
         commitment fees                             35,245,000       1,800,000
    Other operating expenses                        125,389,000      43,883,919
                                                 -------------------------------
    (Loss) earnings before income taxes and
         extraordinary item                        (283,519,000)     41,908,571
    Gain on extinguishment of debt, net of taxes        425,000              --
                                                 -------------------------------
    (Loss) earnings before income taxes            (283,094,000)     41,908,571
    Income tax (benefit) provision                  (37,188,000)     15,102,974
                                                 -------------------------------
(Loss) earnings from discontinued operations     $ (245,906,000)   $ 26,805,597
                                                 ===============================
</TABLE>


     As of December 31, 1998, the Company's net investment in discontinued
operations totaled $13.0 million, representing cash on hand in the discontinued
operation of approximately $9.1 million and net receivables (net of liabilities)
due of approximately $3.9 million. The Company expects to maintain a balance of
cash on hand in the discontinued operation to cover existing and potential
liabilities and costs until the dissolution of the existing legal entities of
CSC-UK and its subsidiaries.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



                                       45
<PAGE>   46

Basis of Presentation

     The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and the liquidation of liabilities and commitments in the normal course
of business. The Petitions (see Note 2), related circumstances, significant
losses from operations and net capital deficiency at December 31, 1998 raise
substantial doubt about the Company's ability to continue as a going concern.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, the successful sale of
loans in the whole loan sales market, the ability to access warehouse lines of
credit and future profitable operations. While under the protection of chapter
11, the Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the accompanying
consolidated financial statements. The accompanying consolidated financial
statements reflect adjustments resulting from the adoption of 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")
with respect to financial reporting requirements during reorganization
proceedings and do not include any adjustments in the event the Amended Plan is
not confirmed. Should the Amended Plan (as defined in Note 2) be confirmed, the
Company will adopt fresh-start accounting in accordance with SOP 90-7. The
consolidated financial statements do not include any adjustments relating to the
Company's ability to continue as a going concern.

Principles of Consolidation

     The consolidated financial statements of the Company include the accounts
of CSC and its wholly-owned subsidiaries. The Company has reclassified its 1996
financial statements to present the operating results of CSC-UK as a
discontinued operation as discussed in Note 3. All significant intercompany
balances and transactions have been eliminated in consolidation.

Revenue Recognition

     On January 1, 1997, the Company prospectively adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities."

     Gains and losses on sale of mortgage loans are recognized when mortgage
loans are sold to investors. The Company primarily sells loans on a non-recourse
basis, at a price above the face value of the loan. Gain on the sale of loans is
recorded on the settlement date. Included in gain on sale of loans for years
prior to 1998 is the present value of the differential between the interest rate
payable by an obligor on a loan over the interest rate passed through to the
purchaser acquiring an interest in such loan, less applicable recurring fees
including the costs of credit enhancements and trustee fees.

     For the years prior to 1998, included in the gain on sale of loans is gain
on securitizations representing the fair value of the interest-only and residual
certificates received by the Company which are reflected as trading securities.
Gain on sales from securitization represents the difference between the proceeds
received from the trust plus the fair value of the interest-only and residual
certificates less the carrying value of the loans sold. Fair 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
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review. Beginning in the fourth quarter of 1997, the
Company began selling its loans on a whole loan sale basis with servicing
released.



                                       46
<PAGE>   47

     Interest income includes income from mortgage loans held for sale and
mortgage loans held for investment, in each case, calculated using the interest
method and recognized on an accrual basis. The Company defers the accrual of
interest when a loan becomes 90 days delinquent.

Valuation of Residuals

     In initially valuing its trading securities and mortgage servicing
receivables, the Company established an allowance for expected losses and
calculated that allowance on the basis of historical experience and management's
best estimate of future credit losses likely to be incurred. In the case where
the securitization of loans results in the retention by the Company of
interest-only and/or residual certificates, such allowance is embodied in the
fair value of such certificates. In the case where the sale of loans into a loan
purchase facility results in the retention of mortgage servicing rights, such
allowance was reported in the liability section of the statement of financial
condition. The amount of this provision is reviewed quarterly and adjustments
are made if actual experience or other factors indicate management's estimate of
losses should be revised. While the Company retains a substantial amount of risk
of default on the loan portfolios that it sells, such risk had been
substantially reduced through the sales of loans through securitization.

     Through the Company's loan sales through securitizations and loan purchase
facilities, the Company has provided investors with a variety of additional
forms of credit enhancements. In certain securitizations, the Company purchases
credit enhancements to the senior interest in the related securitization trusts
in the form of insurance policies provided by insurance companies. The pooling
and servicing agreements that govern the distribution of cash flows from the
loans included in the securitization trusts require either (i) the establishment
of a reserve that may be funded with an initial cash deposit by the Company or
(ii) the over-collateralization of the securitization trust intended to result
in receipts and collections on the loans that exceed the amounts required to be
distributed to holders of senior interests. To the extent that borrowers default
on the payment of principal or interest on the loans, losses will reduce the
over-collateralization to the extent that funds are available and will result in
a reduction in the value of the interest-only and residual certificates held by
the Company.

     Although the Company believes it has made reasonable estimates of the fair
value of the interest-only and residual certificates and mortgage servicing
receivables likely to be realized, the rate of prepayment and the amount of
defaults utilized by the Company are estimates and actual experience may vary,
and has varied from its estimates (See Note 6). The fair value of the
interest-only and residual certificates and mortgage servicing receivables
recorded by the Company upon the sale of loans through securitizations will have
been overstated if prepayments or losses are greater than anticipated. Higher
than anticipated rates of loan prepayments or losses would require the Company
to write down the fair value of the interest-only and residual certificates,
adversely impacting earnings. Similarly, if delinquencies, liquidations or
interest rates were to be greater than was initially assumed, the fair value of
the interest-only and residual certificates would be negatively impacted which
would have an adverse effect on income for the period in which such events
occurred. The Company reviews these factors and, if necessary, adjusts the
remaining asset to the fair value of the interest-only and residual
certificates, pursuant to SFAS No. 115. Should the estimated average loan life
assumed for this purpose be shorter than the actual life, the amount of cash
actually received over the lives of the loans would exceed the gain previously
recognized at the time the loans were sold through securitizations and would
result in additional income.

Cash and Cash Equivalents

     Cash and cash equivalents consist of cash on hand and money market funds.
Such funds are deemed to be cash equivalents for purposes of the statements of
cash flows.

Mortgage Servicing Rights

     The Company recognizes as separate assets the rights to service mortgage
loans for others, however those servicing rights are acquired. On a quarterly
basis the Company assesses capitalized mortgage servicing



                                       47
<PAGE>   48

rights for impairment based on the current fair value of those rights. Mortgage
servicing rights are amortized in proportion to and over the period of the
estimated net servicing income. See Note 5.

Mortgage Loans Held for Sale, Net

     Mortgage loans held for sale, net, are reported at the lower of cost or
market value, determined on an aggregate basis. Market value is determined by
current investor yield requirements and credit quality of the loans in
accordance with SFAS No. 65 "Accounting for Certain Mortgage Banking
Activities."

Mortgage Loans Held for Investment, Net

     As required by SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," the Company measures impairment based on observable market prices for the
similar loans or on the fair value of the collateral of the loan if the loan is
collateral dependent. An allowance for loan losses is maintained if the measure
of the impaired loan is less than its recorded value.

Real Estate Owned, Net

     Real estate owned consists of real estate acquired through foreclosure or
deed-in-lieu of foreclosure on defaulted loan receivables. These properties are
carried at the lower of fair value less estimated selling costs or the
acquisition cost of the properties.

Equipment and Leasehold Improvements, Net

     Equipment and leasehold improvements, net, are stated at original cost less
accumulated depreciation and amortization. Depreciation is computed principally
by using the straight-line method based on the estimated lives of the
depreciable assets.

     Expenditures for maintenance and repairs are charged directly to the
appropriate operating account at the time the expense is incurred. Expenditures
determined to represent additions and betterments are capitalized. Cost of
assets sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts in the year of sale or retirement. Any resulting
profit or loss is reflected in the statement of earnings.

Deferred Debt Issuance Costs

     The Company capitalizes costs incurred related to the issuance of long-term
debt. These costs are deferred and amortized on a straight-line basis over the
life of the related debt and recognized as a component of interest expense. With
the adoption of SOP 90-7, unamortized deferred debt issuance costs related to
liabilities subject to compromise were written-off and included in
reorganization items on the Statement of Operations. See Note 19.

Liabilities Subject to Compromise

     In accordance with SOP 90-7, the Company classifies all prepetition
liabilities that will be impaired by the plan as liabilities subject to
compromise.

Income Taxes

     The Company accounts for income taxes under the asset and liability method.
Under this method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement and tax reporting bases of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax laws. Deferred tax
liabilities and assets are adjusted for the effect of a change in tax laws or
rates.



                                       48
<PAGE>   49

Earnings Per Share

     Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings
per Share". Basic earnings per share ("EPS") is computed by dividing net
earnings applicable to Common Stock by the weighted average number of Common
Stock outstanding during the period. Diluted EPS is based on the net earnings
applicable to Common Stock adjusted to add back the effect of assumed
conversions (e.g., after-tax interest expense of convertible debt) divided by
the weighted average number of Common Stock outstanding during the period plus
the dilutive potential Common Stock that were outstanding during the period.

     For the years ended December 31, 1998 and 1997, the Company has a net loss
applicable to Common Stock. Including potential Common Stock in the denominator
of a diluted EPS calculation would be antidilutive since an increase in the
number of shares outstanding would reduce the amount of loss per share. Thus,
there is no difference between basic and diluted EPS for these periods.

Reclassifications

     Certain amounts in the statements have been reclassified to conform to the
1998 classifications.

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change relate to the
valuation of the interest-only and residual certificates included in trading
securities, the valuation of mortgage servicing receivables and mortgage loans
held for sale, net, restructuring charges and reorganization charges.

New Accounting Pronouncements

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company has not completed its analysis of SFAS No. 133.

     In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. SFAS No. 134 is effective for the first fiscal quarter beginning
after December 15, 1998. The Company intends to continue to classify its
interests in mortgage backed securities as trading securities and therefore
believes that SFAS No. 134 will not have an impact on its financial reporting.

5. MORTGAGE SERVICING RECEIVABLES

     The mortgage servicing receivables represent the unamortized net present
value of the mortgage servicing rights retained by the Company taking into
account several factors including industry practices. The amount is amortized
over the estimated lives of the underlying receivables sold.

     Effective October 1, 1995, the Company adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." This statement changed the methodology used to
measure impairments of mortgage servicing receivables. The new accounting
methodology, as amended by SFAS No. 125, measures the asset's impairment on a
disaggregate basis based on the predominant risk characteristic of the portfolio
and discounts



                                       49
<PAGE>   50

the asset's estimated future cash flow using a current market rate. The Company
has determined the predominant risk characteristics to be interest rate risk and
prepayment risk. On a quarterly basis, the Company reviews the mortgage
servicing receivables for impairment.

     At December 31, 1997, mortgage servicing receivables consist of the
following:

<TABLE>
<CAPTION>
                                                                    1997
                                                                 ----------
<S>                                                              <C>
     Mortgage servicing receivables                              $9,524,535
     Less:  valuation allowance                                   4,555,373
                                                                 ----------
     Mortgage servicing receivables, net                         $4,969,162
                                                                 ==========
</TABLE>

     The activity in the mortgage servicing receivables for the years ended
December 31, 1998 and 1997 is summarized as follows:


<TABLE>
<CAPTION>
                                                 1998             1997
                                             -----------------------------

<S>                                          <C>              <C>
     Balance, beginning of year              $  9,524,535     $ 50,130,313
     Additions from operations                         --       19,583,586
     Valuation adjustments                     (4,899,271)     (22,266,661)
     Securitizations                                   --      (34,571,269)
     Sales                                     (2,783,274)              --
     Amortization                              (1,841,990)      (3,351,434)
                                             -----------------------------
     Balance, end of year                    $         --     $  9,524,535
                                             =============================

</TABLE>


     As a result of the Company's liquidity concerns, the Company sold trading
securities during the first quarter of 1998 for net proceeds of $26.5 million.
Included in the sale of the trading securities were the mortgage servicing
rights. Accordingly, at December 31, 1997, the Company valued its mortgage
servicing receivable on a net realizable value assuming a liquidation of such
assets and recognized an impairment to the value of the mortgage servicing
receivables of $22.3 million. During 1997, $34.6 million of mortgage servicing
receivables were transferred to trading securities reflecting the Company's
securitization of its excess servicing rights on a pool of mortgage loans
resulting in the Company recording interest-only and residual certificates.

     During 1998, the Company determined that as a result of the chapter 11
proceedings and the likelihood that all servicing rights will be transferred to
a servicer acceptable to the respective trustee on each of the securitizations,
there is no value assigned to such servicing rights. Accordingly, during the
fourth quarter, the Company wrote down the value of the mortgage servicing
receivables and the corresponding allowance for losses to zero. Accordingly, the
Company will account for any future servicing revenues as income when collected
and costs as expenses when incurred.

6. TRADING SECURITIES

     The interests that the Company received upon loan sales through its
securitizations are in the form of interest-only and residual certificates which
are classified as trading securities. The Company's trading securities are
comprised of interests in home equity mortgage loans and "Sav*-A-Loan(R)"
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 use the proceeds from such loans to repay outstanding
indebtedness as well as make home improvements).

     During the years ended December 31, 1997 and 1996, the Company sold $1.1
billion and $993.6 million of its loan origination and purchase volume in
various securitizations. During the year ended



                                       50
<PAGE>   51

December 31, 1998, all of the Company's loan sales were through whole loan
sales. In loan sales through securitizations, the Company sells loans that it
has originated or purchased to a real estate trust for a cash purchase price and
interests in such trusts which are represented by the interest-only and residual
certificates. The cash purchase price is raised through an offering of
pass-through certificates by the trust.

     In accordance with SFAS No. 115, the Company classifies the interest-only
and residual certificates as "trading securities" and, as such, they are
recorded at their fair value. Fair 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 prepayment rates, interest rates,
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review. If the fair value of the interest-only and
residual certificates is different from the recorded value, the unrealized gain
or loss will be reflected on the Consolidated Statements of Operations.

     The table below summarizes the value of the Company's trading securities by
product type:

<TABLE>
<CAPTION>
                                               1998                1997
                                           --------------------------------
<S>                                        <C>                 <C>
     Home Equity                           $  6,490,461        $ 75,216,390
     Sav*-A-Loan (R)                         27,170,469          51,259,266
                                           --------------------------------
       Total                               $ 33,660,930        $126,475,656
                                           ================================
</TABLE>

     The key assumptions used to value the Company's trading securities at
December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                              1998        1997        1996
                                            --------------------------------
<S>                                           <C>         <C>         <C>
     HOME EQUITY
       Discount Rate                          20.0%       15.0%       10.0%
       Constant Prepayment Rate               30.0%       31.8%       24.0%
       Loss Rate per Annum                     7.5%        1.7%        0.5%
     SAV*-A-LOAN(R)
       Discount Rate                          20.0%       15.0%        N/A
       Constant Prepayment Rate               16.8%       16.8%        N/A
       Loss Rate per Annum                     4.5%        3.1%        N/A
</TABLE>


     At December 31, 1997, the Company determined the fair value of its home
equity securitizations based upon the net realizable value as implied by the
first quarter 1998 sale of three of its home equity residuals. Accordingly, the
Company recorded net unrealized losses of $89.8 million during 1997 related to
its home equity securitizations.

     The unrealized loss of $35.9 million recorded during 1997 related to the
Sav*-A-Loan(R) residuals reflects the Company's change in the assumptions used
to value such residuals as follows: discount rate increased to 15% from 12%,
constant prepayment speed increased to 16.8% from 14% after the twelfth month,
and the annual default rate increased from a weighted average loss rate of 1.75%
per annum to a weighted average loss rate of 3.06% per annum.

     During 1998, the Company recorded an unrealized loss on valuation of
residuals of $68.8 million consisting of a $18.9 million unrealized loss on its
home equity residuals and $25.9 million on its Sav*-A-Loan(R) residuals. This
unrealized loss was primarily a result of the Company increasing the discount
rate to 20% at December 31, 1998 from 15% at December 31, 1997 and increasing
the loss assumptions to 7.5% per annum at December 31, 1998 on its home equity
securitizations from 1.7% atDecember 31, 1998, as well as increasing the loss
assumptions on its Sav*-A-Loan residuals to 4.5% per annum at December 31, 1998
from 3.1% at December 31, 1998. The increased discount rate reflects the erosion
and turmoil in



                                       51
<PAGE>   52

the subprime mortgage market experienced during 1998 and corresponding lack of
liquidity in the marketplace. The Company's loss experience through increased
liquidation efforts indicates higher loss levels than previously anticipated
requiring the corresponding increase in loss assumptions. The Company reduced
the constant prepayment rate on its home equity securitizations to 30% per annum
from 31.8% per annum reflecting the slower speeds experienced over the last half
of 1998.

7. MORTGAGE LOANS HELD FOR SALE, NET

     The following table summarizes the carrying values of the Company's
mortgage loans held for sale at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                               1998                1997
                                           --------------------------------
<S>                                        <C>                 <C>
     Home Equity                           $ 27,762,311        $ 40,992,381
     Sav*-A-Loan (R)                         95,583,472          52,297,643
                                           --------------------------------
                                           $123,345,783        $ 93,290,024
                                           ================================
</TABLE>

     Substantially all of the mortgages are pledged as collateral for the
Company's warehouse financing facilities. Mortgage loans held for sale, net are
reported at the lower of cost or market value, determined on an aggregate basis.
There was no allowance for market losses on mortgage loans held for sale at
December 31, 1997.

     Included in mortgages held for sale at December 31, 1998 is $4.8 million of
loans formerly classified as mortgages held for investment (representing $13.6
million in principal value net of $8.8 million of reserves). The Company
reclassified these loans due to its decision to sell all of its mortgage loans
as part of its reorganization. During 1998, the Company recorded a $7.1 million
valuation allowance against its mortgages held for sale that were not formerly
classified as mortgages held for investment.

8. MORTGAGE LOANS HELD FOR INVESTMENT, NET

     The following table summarizes the carrying values of the Company's
mortgage loans held for investment, net, at December 31, 1997:

<TABLE>
<CAPTION>
                                                                  1997
                                                              ------------
<S>                                                           <C>
     Mortgage loans held for investment                       $ 11,906,032
     Allowance for loan losses                                  (5,375,295)
                                                              ------------
     Mortgage loans held for investment, net                  $  6,530,737
                                                              ============
</TABLE>


     During 1997, the allowance for loan losses was increased by provisions
through the Consolidated Statements of Operations of $12.6 million and decreased
by charge-offs of $7.3 million. During 1998, $4.8 million of mortgages held for
investment, net were reclassified as mortgages held for sale due to the
Company's decision to sell all mortgages held. See Note 7 .

9. OTHER ASSETS

     Other assets at December 31, 1998 and 1997 consist of the following:



                                       52
<PAGE>   53

<TABLE>
<CAPTION>
                                                      1998         1997
                                                   ------------------------
<S>                                                <C>          <C>
     Prepaid expenses                              $ 1,234,741  $   548,952
     Deferred debt issuance costs                           --   13,509,074
     Accrued interest receivable                       802,104    1,175,234
     Accounts receivable                             3,425,931    6,297,270
     Premiums due on sales                             994,335    2,072,457
     Servicing advances, net of allowance            8,405,999    2,600,776
     Equipment and leasehold improvements, net          38,686    6,058,206
     Real estate owned, net                             26,160      328,064
     Other                                             670,663      735,943
                                                   ------------------------
     Total                                         $15,598,619  $33,325,976
                                                   ========================
</TABLE>

     Deferred debt issuance costs represent the deferred expenses for the
Convertible Debentures (see Note 12), issued in May 1996, and the Senior Notes
(see Note 11) which were issued in May 1997. At December 31, 1998, deferred debt
issuance costs of $12.0 million were written off and included as reorganization
items on the Statement of Operations for the year ended December 31, 1998 as
required by SOP 90-7.

     Equipment and leasehold improvements of $3.8 million were also written-off
at December 31, 1998 primarily due to the Company's deteriorating business and
ultimate decision to suspend its origination and purchase activities which
resulted in the rejection of several capital leases, the closing of four offices
and a significant reduction in staffing levels (see Note 19).

10. FINANCING FACILITIES AND LOAN PURCHASE AGREEMENTS

     Greenwich Warehouse Facility. In January 1997, CSC entered into a secured
warehouse credit facility with Greenwich Capital Financial Products, Inc., an
affiliate of Greenwich Capital Markets, Inc. (referred to herein, including any
affiliates as "Greenwich") to provide a $400.0 million warehouse facility under
which CSC borrowed funds on a short-term basis to support the accumulation of
loans prior to sale (as amended, the "Greenwich Facility"). Advances under the
Greenwich Facility bore interest at a rate of LIBOR plus 150 basis points. The
Greenwich Facility was guaranteed by the Company and was secured by the mortgage
loans and related assets financed under the Greenwich Facility and by a pledge
(on a pari passu basis with the CIT Facility) of the capital stock of certain
subsidiaries of CSC holding certain residual securities, as well as by a reserve
fund (containing approximately $8.8 million as of December 31, 1998) to cover
certain losses of Greenwich under a related whole loan sale agreement. This
facility was scheduled to expire on December 31, 1997, at which time CSC and
Greenwich entered into an extension agreement through October 8, 1998 (as
amended, the "Extension Agreement"). The Extension Agreement provided for a
maximum credit line of $150.0 million, subject to adjustment by Greenwich, at an
interest rate of LIBOR plus 200 basis points and a fee of 0.25% of the aggregate
principal balance of loans to be paid to Greenwich in connection with any sale
or securitization or any other transfer to any third party of loans funded under
this agreement.

     Subsequent to the filing of the Petitions and pursuant to an order of the
Bankruptcy Court dated October 27, 1998, the Company and CSC obtained a $100
million post-petition warehouse facility from Greenwich (the "Greenwich DIP
Facility") which repaid in full amounts due under the Greenwich Facility. The
Greenwich DIP Facility is secured by substantially all of the assets of CSC and
the capital stock of CSC and is guaranteed by the Company. The relative priority
of the Greenwich DIP Facility and the CIT/Nomura DIP Facility (as defined below)
in the assets of CSC and the Company is determined under an intercreditor
agreement between Greenwich and CIT and Nomura (each as defined below), The
Greenwich DIP Facility originally bore interest at an interest rate of LIBOR
plus 2.75% (7.8% on December 31, 1998).



                                       53
<PAGE>   54

The Greenwich DIP Facility was scheduled to terminate on February 28, 1999;
however, the parties agreed by amendment to the Greenwich DIP Facility (the
"Greenwich DIP Facility Amendment") to extend the termination of such facility
until April 30, 1999. The Greenwich DIP Facility Amendment was approved by an
order of the Bankruptcy Court dated March 24, 1999. Under the Greenwich DIP
Facility Amendment, the interest rate was changed to the prime rate plus 2.50%.
As of December 31, 1998, $73.4 million was outstanding under the Greenwich DIP
Facility.

     CIT Warehouse Facility. On February 3, 1998, CSC entered into a revolving
credit facility with the CIT Group/Equipment Financing, Inc. ("CIT") to finance
CSC's origination and purchase of mortgage loans, the repayment of certain
indebtedness and, subject to certain limitations, other general corporate
purposes (as amended, the "CIT Facility"). The CIT Facility was guaranteed by
the Company, and bore interest at the prime rate plus 50 basis points. Pursuant
to the CIT Facility, CSC had available a secured revolving credit line in an
amount equal to the lesser of (i) $30.0 million or (ii) a commitment calculated
as a percentage (generally 80% or 85%) of the mortgage loans securing the CIT
Facility. The CIT Facility was also subject to sub-limits on the amount of
certain varieties of mortgage loan products that may be used to secure advances
thereunder. In addition, the CIT Facility was secured by the mortgage loans and
related assets financed under the CIT Facility or self-funded by CSC, by a
pledge of 65% of the capital stock of CSC-UK, by a pledge (on a pari passu basis
with the Greenwich Facility) of the capital stock of certain subsidiaries of CSC
holding certain residual securities and by certain other assets.

     Subsequent to the filing of the Petitions and pursuant to an order of the
Bankruptcy Court dated October 27, 1998, the Company and CSC obtained a $150
million post-petition warehouse facility (the "CIT/Nomura DIP Facility") from
CIT and Nomura Asset Capital Corporation ("Nomura") which repaid in full amounts
due under the CIT Facility. The CIT/Nomura DIP Facility is secured by
substantially all of the assets of CSC and the capital stock of CSC and is
guaranteed by the Company. The CIT/Nomura DIP Facility originally bore interest
at an interest rate of LIBOR plus 2.75% or the prime rate (7.75% on December 31,
1998). The CIT/Nomura DIP Facility was scheduled to terminate on February 28,
1999; however, the parties agreed by amendment to the CIT/Nomura DIP Facility
(the "CIT/Nomura DIP Facility Amendment") to extend the termination of such
facility until March 31, 1999, subject to further extension on a weekly basis
upon written notice to CIT and Nomura. The CIT/Nomura DIP Facility Amendment was
approved by an order of the Bankruptcy Court dated March 24, 1999. Under the
CIT/Normura DIP Facility Amendment, the interest rate was changed to the prime
rate plus 2.00%. As of December 31, 1998, $32.6 million was outstanding under
the CIT/Nomura DIP Facility.

     The carrying amount of the financing facilities is considered to be a
reasonable estimate of fair value.

11. SENIOR NOTES

     In May 1997, the Company issued $300.0 million aggregate principal amount
of 12 3/4% Senior Notes due September 1, 2004 in a private placement. Such Notes
are not redeemable prior to maturity except in limited circumstances. The coupon
at 12 3/4% per annum, is payable semi-annually on each June 1 and December 1
which commenced December 1, 1997. In September 1997, the Company completed the
exchange of such Notes for a like principal amount of 12 3/4% Series A Senior
Notes due 2004 (the "Notes") which have the same terms as the Notes in all
material respects, except for certain transfer restrictions and registration
rights.

     In connection with its restructuring efforts, the Company determined to
defer the June 1, 1998 interest payment on the Notes. The continued deferral of
the interest payment on the Notes constitutes an "Event of Default" pursuant to
the Indenture under which such securities were issued. As of October 6, 1998,
due to the filing of the Petitions (see Note 2), the Company stopped accruing
interest on the Notes.

     At December 31, 1998, the Notes are included in the classification
liabilities subject to compromise on the Statement of Financial Condition.



                                       54
<PAGE>   55

12. CONVERTIBLE SUBORDINATED DEBENTURES

     In May 1996, the Company issued $143.8 million of 6% Convertible
Subordinated Debentures due 2006 (the "Convertible Debentures"), convertible at
any time prior to redemption or maturity, at the holder's option, into shares of
the Company's Common Stock at a conversion price of $26.25, subject to
adjustment. The Convertible Debentures may be redeemed, at the option of the
Company, in whole or in part, at any time after May 15, 1999 at predetermined
redemption prices together with accrued and unpaid interest to the date fixed
for redemption. The coupon at 6% per annum, is payable semi-annually on each May
1 and November 1 which commenced November 1, 1996. The terms of the indenture
governing the Convertible Debentures do not limit the incurrence of additional
indebtedness by the Company, nor do they limit the Company's ability to make
payments such as dividends.

     In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its Convertible Debentures resulting in the
issuance upon conversion of 533,332 shares of the Common Stock (at a conversion
price of $26.25 per share) pursuant to the terms of the Convertible Debentures.
To induce conversion, the Company issued an additional 342,708 shares of Common
Stock and paid the holders of the induced Convertible Debentures $420,000 in
cash. In the second quarter of 1997, these transactions resulted in the
reduction of Convertible Debentures by $14.0 million, a charge to interest
expense of $4.7 million related to the fair market value of the 342,708
inducement shares ($4.3 million) and the cash payment and an increase in
stockholders' equity of $18.2 million due to the issuance of the conversion
shares and the inducement shares. The net effect of these transactions was an
increase of $13.6 million to stockholders' equity in the second quarter of 1997.
During 1997, an aggregate of $14.1 million of Convertible Debentures had been
converted into Common Stock, including the induced conversion described above.
During 1998, there were no conversions of Convertible Debentures into Common
Stock.

     The Company deferred the May 1, 1998 interest payment as part of its plan
to reorganize the business. The continued deferral of the interest payment on
the Convertible Debentures constitutes an "Event of Default" pursuant to the
Indenture under which such securities were issued. As of October 6, 1998, due to
the filing of the Petitions (see Note 2), the Company stopped accruing interest
on the Convertible Debentures. As of December 31, 1998, there were $129.6
million of Convertible Debentures outstanding.

     At December 31, 1998, the Convertible Debentures are included in the
classification liabilities subject to compromise on the Statement of Financial
Condition.

13. CONVERTIBLE PREFERRED STOCK

Series A Preferred Stock

     In April 1997, the Company completed the private placement of 5,000 shares
of its 6% Convertible Preferred Stock, Series A (the "Series A Preferred
Stock"), with an initial liquidation preference (the "Liquidation Preference")
of $10,000 per share, and related five-year warrants (the "Series A Warrants")
to purchase 500,000 shares of Common Stock with an exercise price of $20.625 per
share.

     Dividends on the Series A Preferred Stock are cumulative at the rate of 6%
of the Liquidation Preference per annum payable quarterly. Dividends are
payable, at the option of the Company, (i) in cash, (ii) in shares of Common
Stock valued at the closing price on the day immediately preceding the dividend
payment date or (iii) by increasing the Liquidation Preference in an amount
equal to and in lieu of the cash dividend payment.

     During 1997, preferred stock dividends of $904,531 were paid to the holders
of the Series A Preferred Stock in the form of 67,863 shares of the Common
Stock. For the December 31, 1997 dividend, the Company elected to add an amount
equal to the dividend to the Liquidation Preference of the Series A



                                       55
<PAGE>   56

Preferred Stock in lieu of payments of such dividend. During 1997, there was
also recognition of the effect of a beneficial conversion feature related to the
Series A Preferred Stock of $1.1 million.

     During 1998, the Company elected to add an amount equal to the dividend to
the Liquidation Preference of the Series A Preferred Stock in lieu of payment of
such dividend. In addition, amounts equal to 3% of the Liquidation Preference
for each 30-day period (prorated for shorter periods) was added to the
Liquidation Preference due to the delisting of the Company's Common Stock from
the Nasdaq National Market on January 29, 1998 (as discussed below). As of
October 6, 1998, due to the filing of the Petitions (see Note 2), the Company
stopped paying and accruing dividends on the Series A Preferred Stock. As of
October 6, 1998, the Liquidation Preference varies up to $14,198 per share.

     The Series A Preferred Stock is redeemable at the option of the Company at
a redemption price equal to 120% of the Liquidation Preference under certain
circumstances. The Series A Preferred Stock is convertible into shares of Common
Stock, subject to redemption rights, at a conversion price equal to the lowest
daily sales price of the Common Stock during the four consecutive trading days
immediately preceding such conversion, discounted by up to 4% and subject to
certain adjustments.

     As of December 31, 1997 and 1998, an aggregate of 4,328 and 4,374 shares of
the Series A Preferred Stock had been converted (672 and 626 shares remain
outstanding) into an aggregate of 10,570,119 and 12,681,270 shares of Common
Stock, respectively. As of December 31, 1997 and 1998, all Series A Warrants
were outstanding.

Series B Preferred Stock

     In September 1997, the Company completed the private placement of 5,000
shares of 6% Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), with an initial Liquidation Preference of $10,000 per share, and
related five-year warrants (the "Series B Warrants") to purchase 500,000 shares
of Common Stock with an exercise price per share equal to the lesser of (i)
$14.71 or (ii) 130% of the average closing sales prices over the 20 trading day
period ending on the trading day immediately prior to the first anniversary of
the original issuance of the Series B Warrants. Dividends on the Series B
Preferred Stock are cumulative at the rate of 6% of the Liquidation Preference
per annum payable quarterly. Dividends are payable, at the option of the
Company, (i) in cash, (ii) in shares of Common Stock valued at the closing price
on the day immediately preceding the dividend payment date or (iii) by
increasing the Liquidation Preference in an amount equal to and in lieu of the
cash dividend payment.

     The first dividend payment date was December 31, 1997. For this dividend,
the Company elected to add an amount equal to the dividend to the Liquidation
Preference of the Series B Preferred Stock in lieu of payment of such dividend.
During 1997, there was also recognition of the effect of a beneficial conversion
feature related to the Series B Preferred Stock of $1.6 million.

     During 1998, the Company elected to add an amount equal to the dividend to
the Liquidation Preference of the Series B Preferred Stock in lieu of payment of
such dividend. In addition, amounts equal to 3% of the Liquidation Preference
for each 30-day period (prorated for shorter periods) was added to the
Liquidation Preference due to the delisting of the Company's Common Stock from
the Nasdaq National Market on January 29, 1998. As of October 6, 1998, due to
the filing of the Petitions (see Note 2), the Company stopped paying and
accruing dividends on the Series B Preferred Stock. As of October 6, 1998, the
Liquidation Preference is $14,335 per share.

     The Series B Preferred Stock is redeemable at the option of the Company at
a redemption price equal to 120% of the Liquidation Preference under certain
circumstances. In addition, the Series B Preferred Stock is redeemable at a
redemption price equal to 115% of the Liquidation Preference upon notice of, or
the announcement of the Company's intent to engage in a change of control event,
or, if such notice or announcement occurs on or after March 14, 1998, the
redemption price will equal 125% of the Liquidation



                                       56
<PAGE>   57

Preference. The Series B Preferred Stock is convertible into shares of Common
Stock, subject to certain redemption rights and restrictions, at a conversion
price equal to the lowest daily sales price of the Common Stock during the four
consecutive trading days immediately preceding such conversion, discounted up to
4% and subject to certain adjustments.

     As of December 31, 1997 and 1998, an aggregate of 377 and 449 shares of
Series B Preferred Stock had been converted (4,623 and 4,551 shares remain
outstanding) into an aggregate of 6,281,295 and 21,470,375 shares of Common
Stock, respectively. As of December 31, 1997 and 1998, all Series B Warrants
were outstanding.

     As of December 31, 1997 and 1998, if all of the outstanding shares of the
Series A Preferred Stock and those shares of the Series B Preferred Stock not
subject to conversion restrictions, were converted into Common Stock, the
Company would not have sufficient authorized shares of Common Stock to satisfy
all of these conversions.

     In addition, pursuant to the terms of the Company's Series A Preferred
Stock and the Company's Series B Preferred Stock (together the "Preferred
Stock"), the Company is required to continue the listing or trading of the
Common Stock on Nasdaq or certain other securities exchanges. As a result of the
delisting of the Common Stock from the Nasdaq National Market, (i) the
conversion restrictions that apply to the Series B Preferred Stock are lifted
(prior to the delisting, no more than 50% of the 5,000 shares of Series B
Preferred Stock initially issued could be converted) and (ii) the conversion
period is increased to 15 consecutive trading days and the conversion discount
is increased to 10% (prior to the delisting, the conversion price was equal to
the lowest daily sales price of the Common Stock during the four consecutive
trading days immediately preceding conversion, discounted by up to 5.5%). In
addition, as a result of the delisting of the Common Stock and during the
continuance of such delisting, (i) the dividend rate is increased to 15% and
(ii) the Company is obligated to make monthly cash payments to the holders of
the Preferred Stock equal to 3% of the $10,000 liquidation preference per share
of the Preferred Stock, as adjusted, provided that if the Company does not make
such payments in cash, such amounts will be added to the Liquidation Preference.
Based on the current market price of the Common Stock, the Company does not have
available a sufficient number of authorized but unissued shares of Common Stock
to permit the conversion of all of the shares of the Preferred Stock.

14.  STOCKHOLDERS' EQUITY (DEFICIT)

     During April and June 1996, the Company issued 274,000 (548,000 after
giving effect to the 1996 Dividend as discussed below) and 49,681 (99,362 after
giving effect to the 1996 Dividend as discussed below) shares of Common Stock,
respectively, in exchange for all of the capital stock of J&J Securities Limited
and Greyfriars Group Limited resulting in an increase of $12.3 million to
Stockholders' equity.

     On July 1, 1996, the Company effected a 2 for 1 Common Stock split in the
form of a 100% stock dividend, increasing the shares of Common Stock outstanding
by 14,806,709 (the "1996 Dividend").

     During 1996, the Company issued 101,039 shares of Common Stock resulting in
an increase to Stockholders' equity of $673,256.

     During 1997, the Company issued 204,288 shares of Common Stock resulting in
an increase to Stockholders' equity of $831,907.

     In April 1997, the Company induced the conversion of $14.0 million
aggregate principal amount of its Convertible Debentures resulting in the
issuance of 876,040 shares of Common Stock (see Note 13). The net result of this
transaction was an increase of $18.2 million to Stockholders' equity.

     In April and September 1997, the Company issued 5,000 shares, respectively,
(10,000 shares in total) of Preferred Stock (see Note 13). The net result of
these transactions was an increase of $98.0 million to



                                       57
<PAGE>   58

Stockholders' equity. During 1997, 4,705 shares of Preferred Stock were
converted into 16,851,414 shares of Common Stock. In addition, 67,863 shares of
Common Stock were issued as preferred stock dividends.

     During 1997, the Company purchased 70,000 shares of Common Stock which
resulted in a decrease in Stockholders' equity of $175,000.

     During 1998, 118 shares of Preferred Stock were converted into 17,300,231
shares of Common Stock. There was no change to Stockholders' equity due to these
transactions.

15. EMPLOYEE BENEFIT PLANS

     The Company has a defined contribution plan (401(k)) for all eligible
employees. Contributions to the plan are in the form of employee salary
deferrals which may be subject to an employer matching contribution up to a
specified limit at the discretion of the Company. In addition, the Company may
make a discretionary annual profit sharing contribution on behalf of its
employees. The Company's contribution to the plan amounted to $155,011 and
$87,126 for the years ended December 31, 1997 and 1996, respectively. The
Company made no contribution to the plan for the year ended December 31, 1998.

     If the Amended Plan is confirmed by the Bankruptcy Court as contemplated,
the following employee stock plans will be inoperative going forward. However,
set forth below are the terms and payouts of such plans as of December 31, 1998.

The Stock Purchase Plan

     Effective December 1994, the Board of Directors adopted, and the
stockholders of the Company approved, the Company's 1995 Employee Stock Purchase
Plan (the "Stock Purchase Plan"). The Stock Purchase Plan permits eligible
employees of the Company to purchase Common Stock through payroll deductions of
up to ten percent of their base salary, up to a maximum of $25,000 in fair
market value of the stock (determined at the time such option is granted) for
all purchase periods ending within any calendar year. The price of Common Stock
purchased under the Stock Purchase Plan will be 85% of the lower of the fair
market value of a share of Common Stock on the commencement date or the
termination date of the relevant offering period as determined by the bid price
listed on the National Quotation Bureau, Inc. OTC Bulletin Board or the Nasdaq
National Market System, as applicable. The Stock Purchase Plan was suspended
indefinitely after the plan period ended December 31, 1997.

     For the plan periods ending June 30, 1996 and December 31, 1996, employees
purchased 13,034 and 8,921 shares at a price of $8.82 and $22.31 per share,
respectively. For the plan periods ending June 30, 1997 and December 31, 1997,
employees purchased 11,754 and 17,345 shares at a price of $16.95 and $0.43 per
share, respectively. In accordance with APB No. 25, "Accounting for Stock Issued
to Employees", the Stock Purchase Plan is deemed to be non-compensatory and
results in no expense.

The Directors Plan

     Directors who are not employees of the Company receive stock options
pursuant to the Company's 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for automatic grants of an option
to purchase 40,000 shares of Common Stock to the Company's eligible non-employee
directors upon their election to the Board of Directors of the Company. Each
eligible non-employee director is granted an additional option, subject to
certain restrictions, to purchase 15,000 shares of Common Stock on each
anniversary of his or her election so long as he or she remains an eligible
non-employee director of the Company. Initial options granted under the
Directors Plan generally vest 50% upon the first anniversary of the grant date
and 50% upon the second anniversary of the grant date. Additional options
generally vest upon the first anniversary of the grant date. The exercise price
of any options granted under the Directors Plan is the fair market value of the
Common Stock on the date of grant. No more than 400,000 shares of Common Stock
may be issued upon exercise of options granted under the Directors Plan,



                                       58
<PAGE>   59

subject to adjustment to reflect stock splits, stock dividends and similar
capital stock transactions. Options may be granted under the Directors Plan
until June 1, 2005.

Stock Option Plans

     Effective June 1, 1995, the Board of Directors adopted, and the
stockholders of the Company approved, the 1995 Stock Option Plan (the "1995
Stock Option Plan"). No more than 3,600,000 shares of Common Stock may be issued
upon exercise of options granted under the 1995 Stock Option Plan, and no
eligible person may receive options to purchase more than 600,000 shares of
Common Stock during any calendar year, subject to adjustment to reflect stock
splits, stock dividends and similar capital stock transactions. The exercise
price of the options granted under the 1995 Stock Option Plan cannot be less
than the fair market value of the Common Stock on the date of grant. Options may
be granted under the 1995 Stock Option Plan until June 1, 2005.

     Effective April 17, 1997, the Board of Directors adopted, and the
stockholders of the Company approved, the 1997 Stock Option Plan (the "1997
Stock Option Plan"). No more than 1,500,000 shares of Common Stock may be issued
upon exercise of options granted under the 1997 Stock Option Plan, and no
eligible person may receive options to purchase more than 500,000 shares of
Common Stock during any calendar year, subject to adjustment to reflect stock
splits, stock dividends and similar capital stock transactions. The exercise
price or the options granted under the 1997 Stock Option Plan cannot be less
than the fair market value of the Common Stock on the date of grant. Options may
be granted under the 1997 Stock Option Plan until April 17, 2007.

16. OTHER INCOME

     Other income includes the following for the years ended December 31, 1998,
1997 and 1996:

<TABLE>
<CAPTION>
                                          1998         1997         1996
                                      -------------------------------------
<S>                                   <C>          <C>          <C>
     Servicing income                 $   819,910  $ 1,640,288  $ 2,791,348
     Gain on sale of
       available-for-sale securities           --   17,957,258           --
     Other income                         634,238      704,337      889,590
                                      -------------------------------------
                                      $ 1,454,148  $20,301,883  $ 3,680,938
                                      =====================================
</TABLE>

     Gain on sale of available-for-sale securities represent the pre-tax gain on
the sale of 1,090,910 shares (after giving effect to a February 1997 100% stock
dividend) of IMC Mortgage Company, including its predecessor Industry Mortgage
Company, L.P., ("IMC") during 1997. Prior to IMC's conversion to corporate form,
the Company recorded its investment under the equity method of accounting and as
such recognized earnings from partnership interest of $753,663 in 1996.

17. OTHER OPERATING EXPENSES

     Other operating expenses include the following for the years ended December
31, 1998, 1997 and 1996:



                                       59
<PAGE>   60

<TABLE>
<CAPTION>

                                          1998         1997         1996
                                      -------------------------------------
<S>                                   <C>          <C>          <C>
     Professional fees                $13,259,811  $12,272,453  $ 5,754,908
     Travel and entertainment           1,464,732    2,656,336    2,069,164
     Telephone                          1,316,613    2,055,482    1,335,232
     Foreclosure costs                  6,511,805    3,266,222      161,490
     Occupancy                          2,707,517    2,476,794    1,186,797
     Office  and computer supplies      1,390,062    2,560,059    1,186,447
     Temporary help                     1,478,732    1,267,265      437,150
     Equipment leasing                  1,993,722    1,386,113      416,397
     Depreciation                       3,495,258    1,361,670      553,941
     Settlement expense                 2,040,000           --           --
     Subservicer fees                   1,196,617           --           --
     Other                             10,205,676   12,782,881    5,109,188
                                      -------------------------------------
     Total                            $47,060,545  $42,085,275  $18,210,714
                                      =====================================
</TABLE>

18. RESTRUCTURING CHARGE

     In February 1998, the Company announced that it begun implementing a
restructuring plan that includes streamlining and downsizing its operations. The
Company closed its branch operations in Virginia and significantly reduced its
correspondent originations for the foreseeable future and exited its
conventional lending business. Accordingly, in the first quarter of 1998, the
Company recorded a restructuring charge of $3.2 million. Of this amount, $1.1
million represented severance payments made to 142 former employees and $2.1
million represented costs incurred in connection with lease obligations and
write-off of assets no longer in service.

19. REORGANIZATION ITEMS

     Reorganization items for the year ended December 31, 1998 are detailed
below:

<TABLE>
<CAPTION>
<S>                                                             <C>
     Professional fees                                          $ 7,716,294
     Severance                                                    3,896,393
     Lease rejections/leasehold improvements                      5,338,000
     Deferred debt issuance costs                                12,012,011
     Other reorganization items                                   2,916,820
                                                                -----------
                                                                $31,879,518
                                                                ===========
</TABLE>

     On October 22, 1998, the Company reduced its workforce by 243 employees,
from 454 employees to 211 employees. In connection with this reduction, the
Company closed its branch operations in California and Illinois, while
maintaining its offices in New York and Georgia. On November 17, 1998, the
Company decided to suspend indefinitely all of its loan origination and purchase
activities. The Company notified its brokers that it had ceased funding mortgage
loans, other than loans that were in its origination pipeline for which it had
issued commitments. The Company's decision was due to its determination,
following discussions with potential lenders regarding post-reorganization loan
warehouse financing, that adequate sources of such financing were not available.
With no adequate sources of such financing, the Company determined that it was
unable to continue loan origination and purchase activities and closed branch
operations in New York and Georgia and reduced its workforce by 92 additional
employees, including corporate and servicing employees. Accordingly, the Company
recorded a reorganization charge of $31.9 million during the fourth quarter of
1998.



                                       60
<PAGE>   61

20. INCOME TAXES

     The provision (benefit) for income taxes from continuing operations for the
years ended December 31, 1998, 1997 and 1996 are comprised of the following:

<TABLE>
<CAPTION>
                                     1998           1997           1996
                                 ------------------------------------------
<S>                              <C>            <C>            <C>
     Current
       Federal                   $         --   $(14,558,408)  $ 13,436,306
       State                           38,267        300,000      3,638,803
                                 ------------------------------------------
                                       38,267    (14,258,408)    17,075,109
                                 ------------------------------------------
     Deferred
       Federal                             --     (3,818,166)     1,999,996
       State                               --             --        249,355
                                 ------------------------------------------
                                           --     (3,818,166)     2,249,351
                                 ------------------------------------------
     Provision (benefit)
       for income taxes
       from continuing
       operations                $     38,267   $(18,076,574)  $ 19,324,460
                                 ==========================================
</TABLE>


The reconciliation of income tax computed at the US federal statutory tax rate
to the effective income tax rate for the years ended December 31, 1998, 1997 and
1996 is as follows:

<TABLE>
<CAPTION>
                                                  1998      1997      1996
                                                 -------------------------
<S>                                              <C>       <C>        <C>
     Federal income tax at statutory rate        (35.0%)   (35.0%)    35.0%
     State and local taxes, net of
       federal tax benefit                          --        --       5.5%
     Unrecognized deferred tax asset              35.0%     19.3%       --
     Other, net                                     --       2.5%      4.2%
                                                 -------------------------
                                                    --     (13.2%)    44.7%
                                                 =========================
</TABLE>


     Deferred income taxes included in the Consolidated Statements of Financial
Condition reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax reporting purposes primarily resulting from the use of
the cash basis for tax reporting purposes.

     Deferred taxes as of December 31, 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                        1998            1997            1996
                                   ---------------------------------------------

<S>                                <C>             <C>             <C>
Gross deferred tax assets          $ 161,146,951   $  69,914,468   $  10,293,342
Less:  valuation allowance          (101,058,388)    (26,376,554)             --
                                   ---------------------------------------------
Net deferred assets                   60,088,563      43,537,914      10,293,342
                                   ---------------------------------------------
Deferred tax liabilities              60,088,563      43,537,914      14,111,508
                                   ---------------------------------------------
Net deferred tax liabilities       $          --   $          --   $   3,818,166
                                   =============================================
</TABLE>

     The major components of the gross deferred tax assets and the gross
deferred tax liabilities are the net operating loss and the book versus tax
differences relating to the gain on sale of loans.



                                       61
<PAGE>   62

     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 the 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
the change in 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 of 1997 primarily as a result of
conversions of the Company's Series A Preferred Stock into the Company's Common
Stock. Additionally, it is expected that a change in ownership will occur 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.

21. (LOSS) EARNINGS PER SHARE

     The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the years ended December 31, 1998, 1997 and 1996 is
as follows:



                                       62
<PAGE>   63


<TABLE>
<CAPTION>
                                                    INCOME          SHARES     PER SHARE
1998                                              (NUMERATOR)   (DENOMINATOR)    AMOUNT
---------------------------------------------   --------------- -------------  ---------
<S>                                             <C>              <C>           <C>
Earnings (loss) from continuing operations      $ (220,749,943)
Less:  Preferred stock dividends                    20,326,936
                                                ---------------
BASIC EPS
Earnings (loss) applicable to Common Stock        (241,076,879)   58,661,544    $ (4.11)
                                                                                ========
EFFECT OF DILUTIVE SECURITIES
Stock options                                                -             -
Warrants                                                     -             -
Convertible preferred stock                                  -             -
Convertible Debentures                                       -             -
                                                ---------------  ------------
DILUTED EPS
Earnings (loss) applicable to Common Stock +
  assumed conversions                           $ (241,076,879)   58,661,544    $ (4.11)
                                                ===============  ============   ========

1997
---------------------------------------------
Earnings (loss) from continuing operations      $ (118,505,912)
Less:  Preferred stock dividends                     4,547,061
                                                ---------------
BASIC EPS
Earnings (loss) applicable to Common Stock        (123,052,973)   33,244,212    $ (3.70)
                                                                                ========
EFFECT OF DILUTIVE SECURITIES
Stock options                                                -             -
Warrants                                                     -             -
Convertible preferred stock                                  -             -
Convertible Debentures                                       -             -
                                                ---------------  ------------
DILUTED EPS
Earnings (loss) applicable to Common Stock +
  assumed conversions                           $ (123,052,973)   33,244,212    $ (3.70)
                                                ===============  ============   ========

1996
---------------------------------------------
Earnings (loss) from continuing operations         $23,875,285
BASIC EPS
Earnings (loss) applicable to Common Stock          23,875,285    29,404,557      $0.81
                                                                                ========
EFFECT OF DILUTIVE SECURITIES
Stock options                                                -     1,133,434
Convertible Debentures                                       -             -
                                                ---------------  ------------
DILUTED EPS
Earnings (loss) applicable to Common Stock +
  assumed conversions                              $23,875,285    30,537,991      $0.78
                                                ===============  ============   ========

</TABLE>

     For the years ended December 31, 1998 and 1997, the incremental shares from
assumed conversions are not included in computing the diluted per share amounts
because their effect would be antidilutive since an increase in the number of
shares would reduce the amount of loss per share. Securities outstanding at
December 31, 1998 that could potentially dilute basic EPS in the future are as
follows: Convertible Debentures; stock options; Series A Preferred Stock; Series
B Preferred Stock; Series A Warrants; and Series B Warrants. However, if the
Amended Plan is confirmed by the Bankruptcy Court as contemplated, the Series A
Preferred Stock, the Series B Preferred Stock, Series A Warrants and Series B
Warrants would receive no distributions. For the year ended December 31, 1996,
the effect of the Convertible Debentures is antidilutive and is not included in
the computation of diluted EPS.



                                       63
<PAGE>   64

22. COMMITMENTS AND CONTINGENCIES

Leases

     Since the filing of the Petitions in the Bankruptcy Court, the Company has
undertaken a comprehensive review and evaluation of their various unexpired,
nonresidential real property leases and various executory contracts. Based on
this review and due to substantial downsizing of the Company's business, the
Company has rejected four leases of non-residential real property and six leases
relating to equipment, maintenance and information systems software. A charge of
$5.3 million relating to the rejection of these leases and other leases it
intends on rejecting is included in reorganization items on the Statement of
Operations for the year ended December 31, 1998.

     Rent expense for office space amounted to $2.5 million, $2.3 million and
$1.1 million for the years ended December 31, 1998, 1997 and 1996, respectively.

Litigation

     In the normal course of business, aside from the matters discussed below,
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.

     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
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 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 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
officers and directors in federal court in New Jersey (the "New Jersey Action").

     In these actions, plaintiffs allege that the Company and its 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 a number of 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 (the "Exchange Act"). Plaintiffs seek unspecified damages,
including pre-judgment interest, attorneys' and accountants' fees and court
costs.

     On December 5, 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
defendant officers and directors 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.



                                       64
<PAGE>   65

     Covino Action. In November 1997, Resource Mortgage Banking, Ltd., Covino
and Company, Inc. and LuxMac LLC filed against the Company, CSC and two of the
Company's officers and directors in state court in Connecticut an application
for a prejudgment remedy. The object of the application for the prejudgment
remedy was to obtain a court order granting these plaintiffs prejudgment
attachment against assets of the Company and CSC in Connecticut pending
resolution of plaintiffs' underlying claims. Plaintiffs proposed to file an 18
count complaint against the defendants seeking $60 million in purported damages,
injunctive relief, treble damages and punitive damages in an unspecified sum. In
February 1998, Judge William B. Lewis orally granted defendants' motion to
dismiss on the ground of forum non conveniens and entered a judgment of
dismissal, and shortly thereafter, set in a memorandum of decision his reasons
for granting the motion to dismiss. Plaintiffs did not file an appeal of the
order of dismissal.

     In February 1998, Resource Mortgage Banking, Ltd., Covino and Company, Inc.
and LuxMac LLC filed an action against the Company, CSC and two of the Company's
officers and directors in state court in New York seeking $60 million in
purported damages, injunctive relief, treble damages and punitive damages in an
unspecified sum.

     In March 1998, plaintiffs sought a preliminary injunction to prevent the
Company and CSC from selling certain assets known as strip, residuals, excess
servicing and/or servicing rights and their substantial equivalent having as
constituent any mortgage loan exceeding $350,000 generated by the Company or CSC
between September 2, 1994, and April 1, 1997, and any mortgage loan exceeding
$500,000 generated by the Company or CSC from April 1, 1997 to the present. The
New York Court signed a temporary restraining order that required the Company
and CSC to refrain from the specified sales.

     Settlement discussions commenced after plaintiffs' motion for preliminary
injunction was fully submitted. Settlement negotiations were concluded and the
litigation was settled shortly after the New York Court issued a decision in
plaintiffs' favor. The Company paid and expensed $2.04 million to plaintiffs,
and the Company, CSC and the defendant officers and directors gave releases in
favor of the plaintiffs. Plaintiffs agreed to discontinue their claims with
prejudice, withdraw as moot their motion for injunctive relief, consent to
vacatur of injunctive relief in the litigation and gave releases in favor of the
Company, CSC and the defendant officers and directors.

     Simpson Action. In February 1998, a putative class action lawsuit (the
"Simpson Action") was filed against the Company in the U.S. District Court for
the Northern District of Mississippi (Greenville Division). The Simpson Action
is a class action brought under the anti-kickback provisions of Section 8 of the
Real Estate Settlement Procedures Act ("RESPA"). The complaint alleges that, on
November 19, 1997, plaintiff Laverne Simpson, through the services of Few
Mortgage Group ("Few"), a mortgage broker, obtained refinancing for the mortgage
on her residence in Greenville, Mississippi. Few secured financing for plaintiff
through the Company. In connection with the financing, the Company is alleged to
have paid a premium to Few in the amount of $1,280.00. Plaintiff claims that the
payment was a referral fee and duplicative payment prohibited under Section 8 of
RESPA. Plaintiff is seeking compensatory damages for the amounts "by which the
interest rates and points charges were inflated." Plaintiff also claims to
represent a class consisting of all other persons similarly situated, that is,
persons (i) who secured mortgage financing from the Company through mortgage
brokers from an unspecified period to date (claims under Section 8 of RESPA are
governed by a one year statute of limitations) and (ii) whose mortgage brokers
received a fee from the Company. Plaintiff is seeking to recover compensatory
damages, on behalf of the putative class, which is alleged to be "numerous," for
the amounts that "the interest rates and points charges were inflated" in
connection with each class member's mortgage loan transaction. The Company
answered the complaint and plaintiff has not yet moved for class certification.
To date, there has not been a ruling on the merits of either plaintiff's
individual claim or the claims of the putative class.

     Other Matters. In April 1998, the Company was named as a defendant in an
Amended Complaint filed against 59 separate defendants in the Circuit Court for
Baltimore City entitled Peaks v. A Home of Your Own, Inc. et al. This action is
styled as a class action and alleges various causes of action (including
Conspiracy to Defraud, Fraud, Violation of Maryland Consumer Protection Act and
Unfair Trade Practices,



                                       65
<PAGE>   66

Negligent Misrepresentation, and Negligence) against multiple parties relating
to 89 allegedly fraudulent mortgages made on residential real estate in
Baltimore, Maryland. The Company is alleged to have purchased at least eight of
the loans (and may have purchased 15 of the loans) at issue in the Complaint.
The Company has not yet been involved in any discovery and has yet to file its
response. In August 1998, the plaintiff filed an amended complaint in which the
class action allegations were dropped and instead the complaint was joined by 80
individual plaintiffs. The Company believes that eight of these plaintiffs may
have claims that involve loans acquired by the Company. The Company has
continued to monitor the proceedings and has participated informally in certain
settlement discussion, but, as a result of the Company's chapter 11 proceedings,
has not been required to file a response and has not been required to
participate formally in any discovery.


     In September 1998, Elliott Associates, L.P. and Westgate International,
L.P. filed a lawsuit against the Company and certain of its officers and
directors in the United States District Court for the Southern District of New
York. In the complaint, plaintiffs describe the lawsuit as "an action for
securities fraud and breach of contract arising out of the private placement, in
September 1997, of the Series B Preferred Stock of Cityscape." Plaintiffs allege
violations of Section 10(b) of the Exchange Act (Count I); Section 20(a) of the
Exchange Act (Count II); and two breach of contract claims against the Company
(Counts III and IV). Plaintiffs allege to have purchased a total of $20 million
of such preferred stock. Plaintiffs seek unspecified damages, including
pre-judgement interest, attorneys' fees, other expenses and court costs. The
Company and its defendant officers and directors have moved to dismiss this
action.

     Although no assurance can be given as to the outcome of the lawsuits
described above, the Company believes that the allegations in each of the
actions are without merit and that its disclosures were proper, complete and
accurate. The Company intends to defend vigorously against these actions and
seek their early dismissal. These lawsuits, however, if decided in favor of
plaintiffs, could have a material adverse effect on the Company.

     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 judgement. In May 1998, the Company
served papers that opposed Walsh's motion and moved for partial summary
judgement on 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 February 1, 1999, Judge Stein denied
the Company's motion for reconsideration of that part of his December 1998 order
which granted Walsh's motion to dismiss with respect to 69 of the loans at
issue. The case has currently entered a pre-trial discovery phase.

     In April 1998, the Company filed an action in the US District Court for the
District of Maryland against multiple parties entitled Cityscape Corp. vs.
Global Mortgage Company, et al. The Company is in the process of serving the
complaint on the defendants. To date, the Company has yet to receive any
responsive pleadings. The complaint seeks damages of $4.0 million stemming from
a series of 145 allegedly fraudulent residential mortgages which the Company
previously acquired. The Company has previously reserved for losses against such
loans.

     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



                                       66
<PAGE>   67

Company initially valued the mortgage loans in the J&J Acquisition and the
Greyfriars Acquisition at the respective fair values 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 has requested additional information from the Company in connection
with the accounting related to the J&J Acquisition and the Greyfriars
Acquisition. The Company is supplying 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 quarter ended June 30, 1996. The Company is
continuing to cooperate fully in this matter.

     As a result of the Company's negative operating results, the Company
received inquiries from the New York State Department of Banking regarding the
Company's qualifications to continue to hold a mortgage banking license. In
connection with such inquiries, the Company was fined $50,000 in 1998 and agreed
to provide the banking department with specified operating information on a
timely basis and to certain restrictions on its business. Although the Company
believes it complies with its licensing requirements, no assurance can be given
that additional inquiries by the banking department or similar regulatory bodies
will not have an adverse effect on the licenses that the Company holds which in
turn could have a negative effect on the Company's results of operations and
financial condition.

     UK Sale Agreement. On September 4, 1998, CSC-UK commenced proceedings in
the High Court of Justice, London against Ocwen for the payment of certain sums
due under the UK Sale Agreement (the "Proceedings"). Although Ocwen initially
informed CSC-UK that it would defend the Proceedings, Ocwen then satisfied
CSC-UK's claim by paying CSC-UK (pound)1.7 million ($2.8 million) on November
24, 1998. Prior to CSC-UK initiating the Proceedings, Ocwen informed CSC-UK that
it would defend the (then proposed) Proceedings on the basis that any sums owed
by Ocwen to CSC-UK, should be set off or extinguished against a sum which Ocwen
claimed was due or, alternatively, was recoverable by it from CSC-UK on the
grounds of CSC-UK's breach of warranty or misrepresentation with respect to
matters concerning loans of Greyfriars (the "Alleged Loan Liabilities"). With
respect to the Alleged Loan Liabilities, Ocwen claimed that CSC-UK had
excessively charged borrowers, failed to notify borrowers of interest rate rises
and failed to advise borrowers of increased repayments. Ocwen claimed that these
liabilities totaled approximately (pound)13.0 million ($21.2 million).
Additionally, pursuant to the UK Sale Agreement, Ocwen held back a sum of
(pound)3.5 million ($5.7 million) with respect to the purchase price, pending
the determination of certain other figures under the UK Sale Agreement (the
"Holdback"), which sum was paid into a Holdback account at the time of the UK
Sale Agreement.

     On February 15, 1999, the Company, Ocwen and certain of their subsidiaries
entered into a settlement agreement in full and final settlement of all causes
of action, claims, demands, liabilities, damages, costs, charges and expenses
that the Company, CSC-UK and Ocwen and their respective subsidiaries may have
against each other. Such claims include Ocwen's alleged claim against the
Company and/or CSC-UK with respect to the Alleged Loan Liabilities. Under the
settlement agreement, CSC-UK will be paid (pound)2.0 million ($3.3 million) plus
interest from the Holdback account, and Ocwen will be paid the remaining
(pound)1.5 million ($2.4 million) plus interest from the Holdback account. The
above



                                       67
<PAGE>   68

settlement is contemplated in the Company's recorded investment in discontinued
operations at December 31, 1998.

     The approval of the Bankruptcy Court is a condition to the effectiveness of
the settlement agreement. The Company will apply for the Bankruptcy Court's
approval subject to Ocwen's agreement to the Company's request to substitute
itself for the Company or its subsidiaries where appropriate, as the party to
related legal proceedings with borrowers. It is contemplated that this issue
will be resolved shortly.

     Chapter 11 Proceedings. On October 6, 1998, the Company and CSC filed the
Petitions in the Bankruptcy Court. See Note 2.

    Employee Agreements

     The Company has employment agreements with 3 officers and employees of the
Company. The Company guarantees annual compensation ranging from $210,000 to
$300,000 per year. The employment agreements extend through December 31, 1999.

23. CONCENTRATIONS

     For the years ended December 31, 1998, 1997 and 1996, revenues from loan
sales and loan servicing constituted the primary source of the Company's
revenues. For the years ended December 31, 1998 and 1997, there were no
institutional purchasers who accounted for more than 10% of the total revenues.
For the year ended December 31, 1996, there was one institutional purchaser who
acted as a conduit to securitize the Company's loan originations that accounted
for 10% or more (36.7%) of the total revenues.

24. FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition, for which it
is practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based upon estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts do not represent the
underlying value of the Company.

     The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

     Cash and cash equivalents: The carrying amount of cash on hand and money
market funds is considered to be a reasonable estimate of fair market value.

     Mortgage servicing receivables: The fair value was determined by using
estimated discounted future cash flows taking into consideration the current
interest rate environment, current prepayment rates and default experience. The
carrying amount is considered to be a reasonable estimate of fair market value.

     Trading securities: The fair value on the Company's Sav*-A-Loan(R) trading
securities was determined by using estimated discounted future cash flows taking
into consideration the current interest rate environment, current prepayment
rates and default experience. Such securities are carried at fair value. The
fair value on the Company's home equity trading securities was based upon net
realizable value.



                                       68
<PAGE>   69

     Mortgage loans held for sale, net: The fair values were estimated by using
current institutional purchaser yield requirements. The fair value of the
mortgage loans held for sale, net totaled $123.3 million and $95.2 million at
December 31, 1998 and 1997, respectively.

     Mortgage loans held for investment, net: The fair value was estimated using
a combination of the current interest rate at which similar loans with
comparable maturities would be made to borrowers with similar credit ratings,
and adjustments for the additional credit risks associated with loans of this
type. Since the loans had a weighted average coupon rate of 12.2% at December
31, 1997, and since additional credit risk adjustments had been provided through
reserves for loan losses, the carrying value was a reasonable estimate of fair
value.

Warehouse financing facilities: This facility has an original maturity of less
than 120 days and, therefore, the carrying value is a reasonable estimate of
fair value.

25. SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

     The following is a summary of the significant noncash investing and
financing activities during the years ended 1998, 1997 and 1996:

<TABLE>
<CAPTION>
<S>                                                                  <C>
1998:
Reclassification of mortgages held for
  investment to mortgages held for sale                              $ 3,533,355

1997:
Reclassification of mortgages held for
  sale to mortgages held for investment                              $14,641,389
Conversion of Convertible Debentures
  into Common Stock                                                   14,110,000
Preferred Dividends paid in the form
  of Common Stock                                                        904,531

1996:
Available-for-sale securities received                               $14,618,194
Reclassification of mortgages held for
  sale to mortgages held for investment                                4,182,414
Conversion of Convertible Debentures
  into Common Stock                                                       20,000
</TABLE>


26. SELECTED QUARTERLY DATA (UNAUDITED)

     The following represents selected quarterly financial data for the Company:




                                       69
<PAGE>   70

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                         -----------------------------------------------------------------------
                                                            MARCH 31,           JUNE 30,        SEPTEMBER 30,      DECEMBER 31,
                                                         --------------      -------------      -------------      -------------
<S>                                                      <C>                 <C>                <C>                <C>
1998
----------------------------------------------------
Revenues                                                 $   (7,190,799)     $  (4,559,167)     $    (317,488)     $ (38,596,186)
Net loss                                                    (51,182,399)       (35,888,488)       (46,559,664)       (87,119,392)
Preferred stock dividends                                     4,587,130          6,896,165          8,229,387            614,254
Net loss applicable to common stock                      $  (55,769,529)     $ (42,784,653)     $ (54,789,051)     $ (87,733,646)
Loss per common share:                                   $        (1.17)(5)  $       (0.75)(5)  $       (0.84)(5)  $       (1.35)(5)

1997
----------------------------------------------------
Revenues                                                 $   45,549,383      $  54,737,559      $ (25,384,830)     $ (40,870,088)
Earnings (loss) from continuing operations                    7,486,095          7,474,266        (47,371,328)       (86,094,945)
Earnings (loss) from discontinued operations
  net of taxes                                                9,308,696         (3,462,789)       (22,271,374)      (229,480,533)
Loss on disposal of discontinued operations                          --                 --                 --        (49,939,996)
Net earnings (loss)                                          16,794,791          4,011,477        (69,642,702)      (365,515,474)
Preferred stock dividends                                            --          1,066,874          1,035,315          2,444,872
Net earnings (loss) applicable to common stock           $   16,794,791      $   2,944,603      $ (70,678,017)     $(367,960,346)
Earnings (loss) per common share(1)(2):
  Basic
    Continuing operations                                $         0.25      $        0.21      $       (1.50)     $       (2.21)
    Discontinued operations                                        0.32              (0.11)             (0.69)             (5.72)
    Disposal of discontinued operations                              --                 --                 --              (1.25)
                                                         --------------      -------------      -------------      -------------
        Net (loss) earnings                              $         0.57      $        0.10      $       (2.19)     $       (9.18)
                                                         ==============      =============      =============      =============
  Diluted
    Continuing operations                                $         0.24(3)   $        0.20(4)   $       (1.50)     $       (2.21)
    Discontinued operations                                        0.30              (0.11)             (0.69)             (5.72)
    Disposal of discontinued operations                              --                 --                 --              (1.25)
                                                         --------------      -------------      -------------      -------------
                                                         $         0.54      $        0.09      $       (2.19)(5)  $       (9.18)(5)
                                                         ==============      =============      =============      =============

1996
----------------------------------------------------
Revenues                                                 $   15,832,612      $  20,887,927      $  32,873,161      $  38,254,177
Earnings from continuing operations                           3,433,928          7,111,505          8,193,845          5,136,007
Earnings from discontinued operations, net of taxes           5,839,216          4,014,491          6,220,992         10,730,898
Net earnings                                             $    9,273,144      $  11,125,996      $  14,414,837      $  15,866,905
Earnings per common share(1)(2):
  Basic
    Continuing operations                                $         0.12      $        0.24      $        0.28      $        0.18
    Discontinued operations                                        0.20               0.14               0.21               0.36
                                                         --------------      -------------      -------------      -------------
        Net earnings                                     $         0.32      $        0.38      $        0.49      $        0.54
                                                         ==============      =============      =============      =============
  Diluted
    Continuing operations                                $         0.11      $        0.24(3)   $        0.26      $        0.16(3)
    Discontinued operations                                        0.20               0.13               0.17               0.35
                                                         --------------      -------------      -------------      -------------
        Net earnings                                     $         0.31      $        0.37      $        0.43      $        0.51
                                                         ==============      =============      =============      =============
</TABLE>

(1)  In the fourth quarter of 1997, the Company adopted SFAS No. 128. Prior
     period amounts have been restated to comply with the requirements of SFAS
     No. 128.

(2)  The total of the four quarters' earnings (loss) per share may not equal the
     annual earnings (loss) per share.



                                       70
<PAGE>   71

(3)  For these quarters, the Convertible Debentures are antidilutive and are not
     included in the computation of diluted EPS. Earnings from continuing
     operations is used as the "control number" in determining whether these
     potential common shares are dilutive or antidilutive.

(4)  For this quarter, Convertible Debentures and convertible preferred stock
     are antidilutive and are not included in the computation of diluted EPS.
     Earnings from continuing operations is used as the "control number" in
     determining whether these potential common shares are dilutive or
     antidilutive.

(5)  For these quarters, the incremental shares from assumed conversions are not
     included in computing the diluted per share amounts because their effect
     would be antidilutive since an increase in the number of shares would
     reduce the amount of loss per share. Therefore, basic and diluted EPS
     figures are the same amount


27. COMPREHENSIVE INCOME

     During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.

     The table below details the comprehensive (loss) income for the years ended
December 31, 1998, 1997 and 1996:


<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------
                                                   1998                1997             1996
                                                 ------------       -------------     -------------
<S>                                              <C>               <C>               <C>
Net (loss) earnings                              $(220,749,943)    $(414,351,908)    $  50,680,882
Other comprehensive income,
  net of income taxes:
    Foreign currency
       translation adjustments                              --        (9,771,356)        9,771,356
    Unrealized (loss) gain on
       available-for-sale securities                        --        (8,328,950)        8,328,950
                                                 -------------     -------------     -------------
Comprehensive (loss)  income, net of tax         $(220,749,943)    $(432,452,214)    $  68,781,188
                                                 =============     =============     =============
</TABLE>



                                       71









<PAGE>   72



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the name, age and position with the Company
of each person who is an executive officer or director of the Company or its
subsidiaries.

<TABLE>
<CAPTION>
NAME                   AGE             POSITIONS WITH THE COMPANY
----                   ---             --------------------------
<S>                     <C>  <C>
Steven M. Miller        43   Chief Executive Officer, President and Director;
                             Senior Vice
                             President and Director of CSC
Robert C. Patent        48   Vice Chairman of the Board, Executive
                             Vice President, Treasurer and Director;
                             Executive Vice President, Treasurer,
                             Assistant Secretary and Director of CSC
Robert Grosser          41   Chairman of the Board and Director; Director of CSC
Jonah L. Goldstein      63   General Counsel and Director; General
                             Counsel and Director of CSC
Arthur P. Gould         81   Director
Hollis W. Rademacher    63   Director
Peter S. Kucma          49   President and Director of CSC
Cheryl P. Carl          46   Vice President and Secretary;
                             Executive Vice President, Treasurer, Secretary
                             and Director of CSC
Tim S. Ledwick          41   Vice President and Chief Financial Officer;
                             Senior Vice President, Chief Financial Officer
                             of CSC
</TABLE>

     Director and officer positions of CSC are currently for a term of one year.
Effective with the Company's 1996 annual meeting of stockholders held on June
12, 1996, the Board of Directors of the Company has been divided into three
classes as nearly equal in size as is practicable and directors of the Company
serve staggered terms of three years. Executive officers of the Company and CSC
are appointed by their respective Boards of Directors. The name and business
experience during the past five years of each director and executive officer of
the Company are described below:

     Steven M. Miller has been Chief Executive Officer and President since
November 1997. Mr. Miller has also served as Senior Vice President and Director
of CSC since March 1997. Previously, Mr. Miller was Senior Vice President and
Co-Head of the Asset Backed Group of Greenwich Capital Markets, Inc. Mr. Miller
became a Senior Vice President at Greenwich Capital Markets, Inc. in 1992 and in
May 1995 he was given the additional role of Co-Head of the Asset Backed Group.
Prior to that time, Mr. Miller was a Vice President at Greenwich Markets, Inc.

     Robert C. Patent has been Executive Vice President and a Director of the
Company since April 1994, Treasurer since June 1995 and the Vice Chairman of its
Board since September 1995. Mr. Patent also has served as Executive Vice
President and as Director of CSC since October 1990 and as Treasurer since
January 1994 and Assistant Secretary since January 1995.

     Robert Grosser has been a Director of the Company since April 1994 and its
Chairman of the Board since September 1995. Mr. Grosser has also served as a
Director of CSC since its inception. Until resigning from such positions in
November 1997, Mr. Grosser had also served as Chief Executive Officer and
President of the Company and CSC. Mr. Grosser currently serves on the board of
the National Home Equity Mortgage Association.



                                       72
<PAGE>   73

     Jonah L. Goldstein has been General Counsel of the Company since September
1995 and a Director since June 1995. Mr. Goldstein served as a consultant to CSC
from December 1993 through June 1995 and has served as a Director since January
1995 and as General Counsel since January 1996. Effective July 1, 1995, Mr.
Goldstein entered into an employment agreement with the Company. From its
formation in 1980 until its acquisition by CSC in 1994, Mr. Goldstein was
President and Chairman of Astrum Funding Corp. ("Astrum"), a mortgage banker.
Mr. Goldstein currently serves as Chairman and Director of Advance Abstract
Corp., a company that sells title insurance. He is also sole shareholder of
Jonah L. Goldstein, P.C.

     Arthur P. Gould has been a Director of the Company since June 1995. Since
1973, Mr. Gould has served as President of Arthur P. Gould & Co., an investment
firm (formerly a division of Inter-Regional Financial Group Inc.). Previously,
Mr. Gould was President of Golden Shield Corporation, a subsidiary of General
Telephone & Electronics Corporation and then President, Corporate Development
Division of Laidlaw & Co. Incorporated and Vice President and Director of
Laidlaw & Co. Incorporated.

     Hollis W. Rademacher has been a Director of the Company since June 1995.
Currently, Mr. Rademacher is actively involved in a variety of financial
consulting and corporate director capacities. Mr. Rademacher serves as a
director of several closely held organizations in the financial service,
distribution and real estate industries. He also serves as Director of Schawk,
Inc., a public company engaged in producing molded plastic products and
pre-press services and products for printed packaging applications and College
Television Network and Wintrust Financial Corp. From 1988 to 1993, Mr.
Rademacher served as Chief Financial Officer of Continental Bank Corp.

     Peter S. Kucma has been President and a Director of CSC since November
1997. Previously, he served as Senior Vice President and Chief Operating Officer
of CSC since May 1997. Prior to joining the Company, Mr. Kucma was employed by
GE Capital Mortgage Services, Inc., serving as Vice President (General Manager)
- GE Capital Home Equity Services from 1996 through April 1997, Vice President
Operations Management/Business Development from 1994 to 1996, Vice President -
Asset and Risk Management from 1991 to 1994 and Vice President of Finance and
Chief Financial Officer from 1990 to 1991. From 1985 to 1990, Mr. Kucma served
as Vice President of Finance and Chief Financial Officer of Travelers Mortgage
Services, Inc.

     Cheryl P. Carl has been Secretary of the Company since June 1994 and Vice
President since June 1996. Ms. Carl also has served as Vice President of CSC
since January 1994, Secretary of CSC since June 1994 and as Assistant Treasurer
and as Director of CSC since January 1995. Ms. Carl was promoted to Senior Vice
President/Operations of CSC in June 1996. Ms. Carl was promoted to Executive
Vice President and Treasurer of CSC in May 1998. From its formation in 1980
until its acquisition by CSC in 1994, Ms. Carl was Executive Vice President and
Director of Astrum, a mortgage banker specializing in non-conventional loans.
Ms. Carl also is a Director and Secretary of Advance Abstract Corp., a company
that sells title insurance.

     Tim S. Ledwick has been Chief Financial Officer of the Company since March
1995 and Vice President since June 1996. Mr. Ledwick also has served as Vice
President, Chief Financial Officer of CSC since September 1994. Mr. Ledwick was
promoted to Senior Vice President of CSC in March 1997. From 1992 until 1994,
Mr. Ledwick was Vice President/Controller-Subsidiaries and from 1989 until 1992
was Controller-Subsidiaries for River Bank America.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than 10% of the Company's Common Stock to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Commission. Executive officers, directors and 10% stockholders are required by
the Commission to furnish the Company with copies of all Forms 3, 4 and 5 that
they file.



                                       73
<PAGE>   74

     Based solely on its review of copies of such forms and such written
representations regarding compliance with such filing requirements as were
received from its executive officers, directors and greater than 10%
stockholders, the Company believes that all such Section 16(a) filing
requirements were complied with respect to the Company's 1998 fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION

BOARD OF DIRECTORS

     The Company maintains a compensation committee, an audit committee, a stock
option plan committee and a stock purchase plan committee of the Board of
Directors. Messrs. Gould and Rademacher serve on the compensation committee,
Messrs. Gould, Rademacher and Patent serve on the audit committee and Messrs.
Gould and Rademacher serve on the stock option plan committee and the stock
purchase plan committee.

NON-EMPLOYEE DIRECTOR COMPENSATION

     Directors who are not employees of the Company receive stock options
pursuant to the Company's 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for automatic grants of an option
to purchase 40,000 shares of Common Stock to the Company's eligible non-employee
directors upon their election to the Board of Directors of the Company. Each
eligible non-employee director is granted an additional option, subject to
certain restrictions, to purchase 15,000 shares of Common Stock on each
anniversary of his or her election so long as he or she remains an eligible
non-employee director of the Company. The exercise price of any options granted
under the Directors Plan is the fair market value of the Common Stock on the
date of grant. No more than 400,000 shares of Common Stock may be issued upon
exercise of options granted under the Directors Plan, subject to adjustment to
reflect stock splits, stock dividends and similar capital stock transactions.
Options may be granted under the Directors Plan until June 1, 2005. In 1998, no
options were granted under the Directors Plan. If the Amended Plan is confirmed
by the Bankruptcy Court, the Non-Employee Directors Plan will be inoperative.

     In addition, non-employee directors of the Company receive an annual
retainer of $30,000 (the "Annual Retainer"), if chairman of a committee of the
Board of Directors, up to an additional $6,000, and are reimbursed for
reasonable expenses incurred in connection with attendance at Board of
Directors' meetings or committee meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During fiscal 1998, the Compensation Committee was comprised of Messrs.
Gould and Rademacher, neither of whom is an executive officer of the Company.
None of the executive officers of the Company served on the board of directors
or on the compensation committee of any other entity, any of whose officers
served on the Compensation Committee of the Company.

EXECUTIVE OFFICERS' COMPENSATION

     The following table sets forth certain information concerning the annual
and long-term compensation earned by the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers on December
31, 1998 whose annual salary and bonus during the fiscal years presented
exceeded $100,000 (the "Named Executive Officers").



                                       74
<PAGE>   75

<TABLE>
                                                      SUMMARY COMPENSATION TABLE
                                                          ANNUAL COMPENSATION


<CAPTION>
                                                                                                          LONG TERM
                                                                                                        COMPENSATION
                                                                                                           AWARDS
                                                                   ANNUAL COMPENSATION                  ------------
                                                          ---------------------------------------        SECURITIES
      NAME AND                               FISCAL                                  OTHER ANNUAL        UNDERLYING       ALL OTHER
 PRINCIPAL POSITION                           YEAR         SALARY         BONUS      COMPENSATION       OPTIONS/SARS    COMPENSATION
 ------------------                         --------      --------       --------    ------------       ------------    ------------
<S>                                            <C>        <C>            <C>            <C>             <C>             <C>
Steven M. Miller                               1998       $250,000       $600,000       $     --                --       $     --
   President and                               1997        201,923             --             --           500,000         80,000(2)
   Chief Executive                             1996             --             --             --                --             --
   Officer; Senior
   Vice President
   of CSC (1)

Robert C. Patent                               1998       $244,277       $200,000       $     --                --       $     --
   Executive Vice                              1997        232,274             --             --            20,000             --
   President and                               1996        226,174        884,665             --                --         70,990(3)
   Treasurer;
   Executive Vice
   President and
   Treasurer of CSC

Jonah L. Goldstein                             1998       $236,773       $200,000       $     --                --       $     --
   General Counsel;                            1997        215,720             --             --            12,000             --
   General Counsel                             1996        180,235        378,287             --                --          3,000(4)
   of CSC


Peter Kucma                                    1998       $280,045       $275,000       $     --                --       $     --
   President of CSC(1)                         1997        160,577         25,000         42,563(5)        400,000             --
                                               1996             --             --             --                --             --

Cheryl P. Carl                                 1998       $324,755       $200,000       $     --                --       $     --
   Vice President                              1997        215,720             --             --            12,000             --
   and Secretary;                              1996        180,235        378,287             --                --          3,000(4)
   Executive Vice
   President,
   Treasurer and
   Secretary of CSC
------------------
</TABLE>

(1)  Mr. Miller has been the President and Chief Executive Officer of the
     Company since November 1997. Mr. Kucma has been President of CSC since
     November 1997.

(2)  Represents consulting fees paid to Mr. Miller prior to his joining the
     Company.

(3)  Represents premium payments of $67,990 made by the Company pursuant to a
     split-dollar life insurance policy that provided a benefit of $2,100 and
     $3,000 paid as qualified matching contributions under the Company's
     employee benefit plan.

(4)  Reflects amounts paid as qualified matching contributions under the
     Company's employee benefit plan.

(5)  Of this amount, $18,976 represents relocation benefits.

EMPLOYMENT AGREEMENTS

     The Company has employment agreements with three of the executive officers
of the Company. Each agreement requires the executive officer to devote his or
her full time and best efforts to the Company during the term of the agreement.

     The employment agreement with Ms. Carl is for a term commencing May 31,
1998 and ending December 31, 1999. The agreement provides for an annual salary
of $275,000. Because of Ms. Carl's commitment to remain employed with the
Company during the Company's reorganization, the agreement also provided for the
payment of a stay bonus of $200,000, all of which was paid to Ms. Carl byJanuary
5, 1999. The agreement also provides for a bonus for 1998 of up to $75,000,
conditioned upon the attainment of certain performance objectives.



                                       75
<PAGE>   76

     The employment agreement with Mr. Kucma is for a term commencing May 31,
1998 and ending December 31, 1999. The agreement provides for an annual salary
of $300,000. Because of Mr. Kucma's commitment to remain employed with the
Company during the Company's reorganization, the agreement also provided for the
payment of a stay bonus of $250,000, all of which was paid to Mr. Kucma
byJanuary 5, 1999. The agreement also provides for a bonus for 1998 of up to
$450,000, of which entitlement to $200,000 will be determined by the Board of
Directors in its discretion and entitlement to up to $250,000 is conditioned
upon the attainment of certain performance objectives.

     The employment agreement with Mr. Ledwick is for a term commencing May 31,
1998 and ending December 31, 1999. The agreement provides for an annual salary
of $210,000. Because of Mr. Ledwick's commitment to remain employed with the
Company during the Company's reorganization, the agreement also provided for the
payment of a stay bonus of $100,000, all of which was paid to Mr. Ledwick
byJanuary 5, 1999. The agreement also provides for a bonus for 1998 of up to
$40,000, conditioned upon the attainment of certain performance objectives.

EMPLOYEE STOCK PLANS

     If the Amended Plan is confirmed by the Bankruptcy Court, the following
employee stock plans will be inoperative. However, set forth below are the terms
and payouts of such plans as of December 31, 1998.

     Effective June 1995, the Board of Directors adopted, and the stockholders
of the Company approved, the Company's 1995 Stock Option Plan. No more than
3,600,000 shares of Common Stock may be issued upon exercise of options granted
under the 1995 Stock Option Plan, and no eligible person may receive options to
purchase more than 600,000 shares of Common Stock during any calendar year,
subject to adjustment to reflect stock splits, stock dividends, and similar
capital stock transactions. The 1995 Stock Option Plan is administered by a
committee of non-employee directors or the entire Board of Directors as a group
which has the authority to determine the terms and conditions of options granted
under the 1995 Stock Option Plan and to make all other determinations deemed
necessary or advisable for administering the 1995 Stock Option Plan, provided
that the exercise price of the options granted under the 1995 Stock Option Plan
cannot be less than the fair market value of the Common Stock on the date of
grant. As of December 31, 1998, there were 2,090,524 options outstanding under
the 1995 Stock Option Plan.

     Effective December 1994, the Board of Directors adopted, and the
stockholders of the Company approved, the Company's Stock Purchase Plan. The
Stock Purchase Plan, and the right of participants to make purchases of the
Common Stock thereunder, is intended to qualify under the provisions of Section
421 and 423 of the Code (as defined below) and for persons subject to Section 16
of the Exchange Act, under the provisions of Rule 16b-3 of the Exchange Act. The
Stock Purchase Plan is generally administered by a committee appointed by the
Board of Directors of the Company which has the authority to make all
determinations, interpretations and rules deemed necessary or advisable for
administering the Stock Purchase Plan. The Stock Purchase Plan permits eligible
employees of the Company to purchase Common Stock through payroll deductions of
up to ten percent of their salary, up to a maximum of $25,000 in fair market
value of the stock (determined at the time such option is granted) for all
purchase periods ending within any calendar year. The price of Common Stock
purchased under the Stock Purchase Plan will be 85% of the lower of the fair
market value of a share of Common Stock on the commencement date or the
termination date of the relevant offering period. No more than 1,600,000 shares
of Common Stock may be issued upon exercise of options granted under the Stock
Purchase Plan and no more than 400,000 shares plus unissued shares from prior
offerings may be issued in each calendar year under the Stock Purchase Plan. To
date, 118,330 shares of Common Stock have been issued pursuant to the Stock
Purchase Plan.

     Effective June 1997, the Board of Directors adopted, and the stockholders
of the Company approved, the Company's 1997 Stock Option Plan. No more than
1,500,000 shares of Common Stock may



                                       76
<PAGE>   77

be issued upon exercise of options granted under the 1997 Stock Option Plan, and
no eligible person may receive options to purchase more than 500,000 shares of
Common Stock during any calendar year, subject to adjustment to reflect stock
splits, stock dividends, and similar capital stock transactions. The 1997 Stock
Option Plan is administered by a committee of non-employee directors or the
entire Board of Directors as a group which has the authority to determine the
terms and conditions of options granted under the 1997 Stock Option Plan and to
make all other determinations deemed necessary or advisable for administering
the 1997 Stock Option Plan, provided that the exercise price of the options
granted under the 1997 Stock Option Plan cannot be less than the fair market
value of the Common Stock on the date of grant. As of December 31, 1998, there
were no options outstanding under the 1997 Stock Option Plan.

OPTION GRANTS IN 1998

     During 1998, there were no grants of options.

AGGREGATED OPTION EXERCISES IN 1998 AND 1998 YEAR-END OPTION VALUES (1)

     The following table sets forth for the Chief Executive Officer and the
other Named Executive Officers, information with respect to unexercised options
and year-end option values, in each case with respect to options to purchase
shares of the Company's Common Stock:


<TABLE>
<CAPTION>
                                                                                                          VALUE OF UNEXERCISED
                                                               NUMBER OF UNEXERCISED OPTIONS               IN-THE-MONEY OPTIONS
                              SHARES                           HELD AS OF DECEMBER 31, 1998              AT DECEMBER 31, 1998 (2)
                           ACQUIRED ON         VALUE          ------------------------------        -------------------------------
NAME                         EXERCISE        REALIZED          EXERCISABLE     NONEXERCISABLE       EXERCISABLE      NONEXERCISABLE
----                         --------        --------          -----------     --------------       -----------      --------------

<S>                          <C>             <C>                  <C>              <C>             <C>              <C>
Steven M. Miller               --            $   --               162,500          337,500         $      --        $     --

Robert C. Patent               --                --                20,000            --                   --              --

Jonah L. Goldstein             --                --               162,000            --                   --              --

Peter S. Kucma                 --                --               100,000          300,000                --              --

Cheryl P. Carl                 --                --               162,000            --                   --              --
</TABLE>
---------

(1)  If the Plan is confirmed by the Bankruptcy Court as contemplated, the
     Company's stock option plans will be inoperative.

(2)  No options were in-the-money as of December 31, 1998.

     401(K) PLAN

     The Company sponsors a 401(k) plan, a savings and investment plan intended
to be qualified under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code"). Participating employees may make pre-tax contributions,
subject to limitations under the Code, of a percentage of their total
compensation. The Company, in its sole discretion, may make matching
contributions for the benefit of all participants with at least one year of
service who make pre-tax contributions. The Company made no contributions to the
plan of the year ended December 31, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth information as to shares of Common Stock of
the Company owned as of March 22, 1999, by (i) each person who, to the extent
known to the Company, beneficially owned more than 5% of such outstanding Common
Stock; (ii) each director; and (iii) each Named Executive Officer of the
Company; and (iv) all directors and executive officers as a group.




                                       77
<PAGE>   78

<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<CAPTION>
                                                             SHARES
                                                        BENEFICIALLY OWNED
                                                    -------------------------
     NAME OF BENEFICIAL OWNER(1)                      NUMBER         PERCENT
     ---------------------------                    ----------     ----------
<S>                                                <C>                 <C>
Steven M. Miller (2) .............................     275,000             *%

Robert C. Patent (3) .............................   3,927,192            6.1

Robert Grosser (4) ...............................   3,762,284            5.8

Jonah L. Goldstein (5) ...........................     543,352              *

Arthur P. Gould ..................................          --             --

Hollis W. Rademacher (6) .........................      67,600              *

Peter S. Kucma (7) ...............................     200,000              *

Cheryl P. Carl (5) ...............................     518,200              *

All directors and executive
  officers as a group (9 persons) (8) ............   9,418,034           14.3

Elliott Associates, L.P. (9) .....................   6,687,012            9.9

Westgate International, L.P. (10) ................   6,687,012            9.9

East Barclay Capital Associates, Inc. (11) .......   4,568,908            7.0

United Equities Commodities Company (12) .........   5,687,783            8.8
</TABLE>
------------------

*    Less than one percent.

(1)  Unless otherwise indicated and subject to community property laws where
     applicable, each of the stockholders named in this table has sole voting
     and investment power with respect to the shares shown as beneficially owned
     by it. A person is deemed to be the beneficial owner of securities that can
     be acquired by such person within 60 days from the date of this Report upon
     the exercise of options and warrants. Each beneficial owner's percentage
     ownership is determined by assuming that options that are held by such
     person (but not those held by any other person) and that are exercisable
     within 60 days from the date of this Report have been exercised. The table,
     therefore, does not give effect to the conversions of the outstanding
     shares of the Company's Preferred Stock (other than as indicated) and the
     issuance of Common Stock upon such conversions.

(2)  Represents options to purchase 275,000 shares granted pursuant to the 1995
     Stock Option Plan.

(3)  Includes 400 shares owned by Mr. Patent's spouse, with respect to all of
     which Mr. Patent disclaims beneficial ownership, 40,800 shares owned by Mr.
     Patent's two children and options to purchase 20,000 shares granted
     pursuant to the 1995 Stock Option Plan. Mr. Patent's business address is
     565 Taxter Road, Elmsford, New York 10523-2300.

(4)  Includes 640 shares owned by Mr. Grosser's spouse, with respect to all of
     which Mr. Grosser disclaims beneficial ownership and 3,200 shares owned by
     Mr. Grosser's daughters. Mr. Grosser's business address is 565 Taxter Road,
     Elmsford, New York 10523-2300.

(5)  Includes options to purchase 162,000 shares granted pursuant to the 1995
     Stock Option Plan.

(6)  Includes options to purchase 61,000 shares granted pursuant to the
     Directors Plan.

(7)  Represents options to purchase 200,000 shares granted pursuant to the 1995
     Stock Option Plan.

(8)  See Notes (1) - (7)



                                       78
<PAGE>   79

(9)  Limited to 9.9% of the outstanding shares of Common Stock. The address of
     Elliott Associates, L.P. is 712 Fifth Avenue, 36th Floor, New York, New
     York 10019. Elliott Associates, L.P., filed a Schedule 13G dated March 6,
     1998, jointly with Westgate International, L.P. and Martley International,
     Inc. which indicated that Elliott Associates, L.P. had sole voting and
     dispositive power as to certain shares of Common Stock. The data presented
     is based on information as of March 22, 1999, to the extent known by the
     Company.

(10) Limited to 9.9% of the outstanding shares of Common Stock. The address of
     Westgate International, L.P. is c/o Midland Bank Trust Corporation (Cayman)
     Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, B.W.I.
     Westgate International, L.P. filed a Schedule 13G dated March 6, 1998,
     jointly with Elliott Associates, L.P. and Martley International, Inc. which
     indicated that Westgate International L.P. had shared voting and
     dispositive power with Martley International, Inc. as to certain shares of
     Common Stock. The data presented is based on information as of March 22,
     1999, to the extent known by the Company.

(11) The address of East Barclay Associates, Inc. is 68 Frame Road, Briarcliff
     Manor, New York 10510. The data presented is based on information as of
     March 22, 1999, to the extent known by the Company.

(12) The address of United Equities Commodities Company is 160 Broadway, New
     York, New York 10038. The data presented is based on information as of
     March 22, 1999, to the extent known by the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During 1998, Samboy Financial Corp., a Minnesota corporation ("Samboy")
sold $64,000 of loans to the Company. Mr. Jonah Goldstein owns 20% of the
outstanding capital stock of Samboy.

     The severance and consulting agreement with Mr. Grosser is for a term
commencing June 1, 1998 and ending June 1, 1999. The agreement obligates the
Company to pay $74,787.54 in settlement of its obligations under Mr. Grosser's
former employment agreement in exchange for Mr. Grosser's early resignation of
his employment with the Company. The agreement also provides for a monthly
payment by the Company of $20,000 in exchange for Mr. Grosser's reasonable
part-time consultation to the Company for a minimum of ten hours per week. The
consulting agreement with Mr. Grosser was terminated in January 1999.

     Mr. Eric Goldstein, the son of Mr. Jonah Goldstein was employed as a Senior
Vice President of CSC. Mr. Eric Goldstein's employment with CSC was terminated
in September 1998. In connection with his employment agreement with the Company,
Mr. Eric Goldstein received $685,000 in severance. In addition, he is entitled
to receive, for a period of twelve months, a monthly car allowance of $847 plus
the Company's regular health and insurance benefits.

     Mr. Paul Goldstein, the son of Mr. Jonah Goldstein, was employed as an
Assistant Vice President of CSC. During 1998, Mr. Paul Goldstein received
$142,810, including $115,915 in commissions. Mr. Paul Goldstein is no longer
employed by the Company.

     The Company believes that the terms of the respective affiliated
transactions described in this section are at least as favorable to the Company
as those that could be obtained from an unaffiliated source.



                                       79
<PAGE>   80



                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

        (a)   Documents filed as part of this report:

              1.  Financial Statements included in Item 8:

                  a)  Cityscape Financial Corp. Financial Statements:

                  Report of Independent Auditors by KPMG LLP

                  Consolidated Statements of Financial Condition at
                  December 31, 1998 and  1997

                  Consolidated Statements of Operations for the years ended
                  December 31, 1998, 1997 and 1996

                  Consolidated Statements of Stockholders' Equity
                  (Deficit) for the years ended December 31, 1998,
                  1997 and 1996

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1998, 1997 and 1996

                  Notes to Consolidated Financial Statements

              2.  Financial Statement Schedules:  None

              3.  Exhibits:

     EXHIBIT
     NUMBER        DESCRIPTION OF EXHIBIT
     ------        ----------------------
       3.1         Certificate of Incorporation of the Company, as amended,
                   incorporated by reference to Exhibit 3.1 to the Company's
                   Registration Statement on Form S-4 filed with the Commission
                   on June 26, 1997

       3.2         Bylaws of the Company, as amended, incorporated by reference
                   to Exhibit 3.2 to the Company's Registration Statement on
                   Form S-1 as declared effective by the Commission on December
                   20, 1995

       3.3         Certificate of Designation of 6% Convertible Preferred Stock,
                   Series A, incorporated by reference to Exhibit 4.1 to the
                   Company's Form 8-K filed with the Commission on April 11,
                   1997.

       3.4         Certificate of Designation of 6% Convertible Preferred Stock,
                   Series B, incorporated by reference to Exhibit 4.1 to the
                   Company's Form 8-K filed with the Commission on September 17,
                   1997.

       4.1         Indenture, dated as of May 7, 1996, between the Company and
                   The Chase Manhattan Bank, N.A., incorporated by reference to
                   Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
                   filed with the Commission on May 15, 1996



                                       80
<PAGE>   81

       4.2         Indenture, dated as of May 14, 1997, among the Company, CSC
                   and The Chase Manhattan Bank, incorporated by reference to
                   Exhibit 4.1 to the Company's Registration Statement on Form
                   S-4 filed with the Commission on June 26, 1997

      10.1         The Company's 1995 Stock Option Plan, incorporated by
                   reference to Exhibit 10.20 to the Company's Registration
                   Statement on Form S-1 as declared effective by the Commission
                   on December 20, 1995

      10.2         The Company's 1995 Non-Employee Directors Stock Option Plan,
                   incorporated by reference to Exhibit 10.21 to the Company's
                   Registration Statement on Form S-1 as declared effective by
                   the Commission on December 20, 1995

      10.3         Post-Petition Loan and Security Agreement, dated as of
                   October 12, 1998, between CSC and Greenwich Capital Financial
                   Products, Inc., incorporated by reference to Exhibit 10.1 to
                   the Company's Form 10-Q filed with the Commission on November
                   17, 1998.

      10.4         Revolving Credit and Security Agreement dated as of October
                   12, 1998, between the Company and The CIT Group/Equipment
                   Financing, Inc., incorporated by reference to Exhibit 10.2 to
                   the Company's Form 10-Q filed with the Commission on November
                   17, 1998.

      10.5         Employment Agreement, dated July 2, 1998, between CSC and
                   Cheryl P. Carl, incorporated by reference to Exhibit 10.4 to
                   the Company's Form 10-Q filed with the Commission on August
                   12, 1998.

      10.6         Employment Agreement, dated July 2, 1998, between CSC and
                   Peter Kucma, incorporated by reference to Exhibit 10.5 to the
                   Company's Form 10-Q filed with the Commission on August 12,
                   1998.

      10.7         Employment Agreement, dated July 2, 1998, between CSC and Tim
                   S. Ledwick, incorporated by reference to Exhibit 10.8 to the
                   Company's Form 10-Q filed with the Commission on August 12,
                   1998.

      10.8*        Sub-Tenant Estoppel Certificate, dated as of January 20,
                   1999, between CSC and Taxter Park Associates.

      10.9*        Surrender of Lease and Temporary Rental Agreement, dated as
                   of February 18, 1999, between CSC and Mack-Cali Mid-West
                   Realty Associates LLC.

     10.10*        Extension Agreement, dated as of February 28, 1999, between
                   CSC and Greenwich Capital Financial Products, Inc.

     10.11*        First Amendment to Revolving Credit and Security Agreement,
                   dated as of February 28, 1999, between CSC and the CIT
                   Group/Equipment Financing, Inc.

      11.1*        Computation of Earnings Per Share

      21.1*        Subsidiaries of the Company

      23.1*        Consent of KPMG LLP

      27.1*        Financial Data Schedule for the year ended December 31, 1998

      99.1         Solicitation and Disclosure Statement dated August 28, 1998,
                   incorporated by reference to Exhibit 99.1 to the Company's
                   Form 8-K filed with the Commission on September 4, 1998.

                                       81
<PAGE>   82

      99.2*        Debtor's First Amended Joint Disclosure Statement dated March
                   26, 1999 including: Exhibit A: the Company's and CSC's First
                   Amended Joint Plan of Reorganization dated as of March 26,
                   1999; Exhibit B: Examiners Report; Exhibit C: Balance Sheet
                   and Projected Financial Information and Exhibit D:
                   Liquidation Analysis

        *          Filed herewith.

(a)      Reports on Form 8-K:

      1.           Form 8-K dated October 6, 1998 reporting that the Company
                   filed a joint prepackaged plan of reorganization pursuant to
                   chapter 11 of the United States Bankruptcy Code in the United
                   States Bankruptcy Court for the Southern District of New
                   York.

      2.           Form 8-K dated October 22, 1998 reporting that as part of its
                   restructuring plan that includes streamlining and downsizing
                   its operations, the Company reduced its work force by 243
                   employees, representing 53.5% of its work force, from 454
                   employees to 211 employees.

      3.           Form 8-K dated November 17, 1998 reporting that the Company
                   decided to suspend indefinitely all of its loan origination
                   and purchase activities.




                                       82
<PAGE>   83



                                   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, thereto duly authorized.

                                  CITYSCAPE FINANCIAL CORP.


                                  By: /s/Tim S. Ledwick
                                      ------------------------------------------
                                      Tim S. Ledwick
                                      Vice President and Chief Financial Officer

Date:  March 31, 1999


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.

             Signature                  Title
             ---------                  -----

        /s/Steven M. Miller             Chief Executive Officer, President and
 -------------------------------        Director (Principal Executive Officer)
         Steven M. Miller


        /s/Robert C. Patent             Vice Chairman of the Board and Director
 -------------------------------
         Robert C. Patent

         /s/Robert Grosser              Chairman of the Board and Director
 -------------------------------
          Robert Grosser

       /s/Jonah L. Goldstein            Director
 -------------------------------
        Jonah L. Goldstein

        /s/Arthur P. Gould              Director
 -------------------------------
          Arthur P. Gould

      /s/Hollis W. Rademacher           Director
 -------------------------------
       Hollis W. Rademacher

         /s/Tim S. Ledwick              Vice President, Chief Financial Officer
 -------------------------------        (Principal financial officer and
          Tim S. Ledwick                principal accounting officer)


Date:  March 31, 1999



                                       83
<PAGE>   84


                                  EXHIBIT INDEX

     EXHIBIT
     NUMBER        DESCRIPTION OF EXHIBIT
     ------        ----------------------
       3.1         Certificate of Incorporation of the Company, as amended,
                   incorporated by reference to Exhibit 3.1 to the Company's
                   Registration Statement on Form S-4 filed with the Commission
                   on June 26, 1997

       3.2         Bylaws of the Company, as amended, incorporated by reference
                   to Exhibit 3.2 to the Company's Registration Statement on
                   Form S-1 as declared effective by the Commission on December
                   20, 1995

       3.3         Certificate of Designation of 6% Convertible Preferred Stock,
                   Series A, incorporated by reference to Exhibit 4.1 to the
                   Company's Form 8-K filed with the Commission on April 11,
                   1997.

       3.4         Certificate of Designation of 6% Convertible Preferred Stock,
                   Series B, incorporated by reference to Exhibit 4.1 to the
                   Company's Form 8-K filed with the Commission on September 17,
                   1997.

       4.1         Indenture, dated as of May 7, 1996, between the Company and
                   The Chase Manhattan Bank, N.A., incorporated by reference to
                   Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
                   filed with the Commission on May 15, 1996

       4.2         Indenture, dated as of May 14, 1997, among the Company, CSC
                   and The Chase Manhattan Bank, incorporated by reference to
                   Exhibit 4.1 to the Company's Registration Statement on Form
                   S-4 filed with the Commission on June 26, 1997

      10.1         The Company's 1995 Stock Option Plan, incorporated by
                   reference to Exhibit 10.20 to the Company's Registration
                   Statement on Form S-1 as declared effective by the Commission
                   on December 20, 1995

      10.2         The Company's 1995 Non-Employee Directors Stock Option Plan,
                   incorporated by reference to Exhibit 10.21 to the Company's
                   Registration Statement on Form S-1 as declared effective by
                   the Commission on December 20, 1995

      10.3         Post-Petition Loan and Security Agreement, dated as of
                   October 12, 1998, between CSC and Greenwich Capital Financial
                   Products, Inc., incorporated by reference to Exhibit 10.1 to
                   the Company's Form 10-Q filed with the Commission on November
                   17, 1998.

      10.4         Revolving Credit and Security Agreement dated as of October
                   12, 1998, between the Company and The CIT Group/Equipment
                   Financing, Inc., incorporated by reference to Exhibit 10.2 to
                   the Company's Form 10-Q filed with the Commission on November
                   17, 1998.

      10.5         Employment Agreement, dated July 2, 1998, between CSC and
                   Cheryl P. Carl, incorporated by reference to Exhibit 10.4 to
                   the Company's Form 10-Q filed with the Commission on August
                   12, 1998.

      10.6         Employment Agreement, dated July 2, 1998, between CSC and
                   Peter Kucma, incorporated by reference to Exhibit 10.5 to the
                   Company's Form 10-Q filed with the Commission on August 12,
                   1998.



                                       84
<PAGE>   85

      10.7         Employment Agreement, dated July 2, 1998, between CSC and Tim
                   S. Ledwick, incorporated by reference to Exhibit 10.8 to the
                   Company's Form 10-Q filed with the Commission on August 12,
                   1998.

      10.8*        Sub-Tenant Estoppel Certificate, dated as of January 20,
                   1999, between CSC and Taxter Park Associates.

      10.9*        Surrender of Lease and Temporary Rental Agreement, dated as
                   of February 18, 1999, between CSC and Mack-Cali Mid-West
                   Realty Associates LLC.

     10.10*        Extension Agreement, dated as of February 28, 1999, between
                   CSC and Greenwich Capital Financial Products, Inc.

     10.11*        First Amendment to Revolving Credit and Security Agreement,
                   dated as of February 28, 1999, between CSC and the CIT
                   Group/Equipment Financing, Inc.

      11.1*        Computation of Earnings Per Share

      21.1*        Subsidiaries of the Company

      23.1*        Consent of KPMG LLP

      27.1*        Financial Data Schedule for the year ended December 31, 1998

      99.1         Solicitation and Disclosure Statement dated August 28, 1998,
                   incorporated by reference to Exhibit 99.1 to the Company's
                   Form 8-K filed with the Commission on September 4, 1998.

      99.2*        Solicitation and Disclosure Statement dated March 25,
                   1999Debtor's First Amended Joint Disclosure Statement dated
                   March 26, 1999 including: Exhibit A: the Company's and CSC's
                   First Amended Joint Plan of Reorganization dated as of March
                   26, 1999; Exhibit B: Examiners Report; Exhibit C: Balance
                   Sheet and Projected Financial Information and Exhibit D:
                   Liquidation Analysis

        *          Filed herewith.






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